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The Seasonal Cycle: Implications for Keynesian Economics

Robert Waldmann writes:

Pro DeLong Contra Say ~ Angry Bear: [WE]e know for sure that demand shocks cause increased production.... I can make the argument with one word: Christmas.

Exposition after the jump.

Every year there is a shift in consumer demand. Demand is high during the dread Christmas shopping season. In particular demand for big ticket consumer durables is very high in each and every 4th quarter.... [T]his is a predictable demand shift analogous to the stimulus. So what happens to production? Hmmm... somehow macroeconomists have managed to forget. Macro economists generally use deseasonalized data. Seasonal patterns are not explained in most models and so they are removed by a-theoretic methods. Thus the models aren't taken seriously.... Worse, much worse, data are deseasonalized by government statistical agencies, so academic economists can avoid knowing what exactly was done....

So what the hell is going on? Flailing helplessly, I guess that there is typically excess supply of labor and goods and that prices are not marginal cost times a markup but rather average cost times a markup and that production is at a flat point of the average cost curve (this last should be true if there is monopolistic competition). Imperfect competition in product markets is absolutely not enough to explain the pattern. Imperfect competition and small costs of changing prices certainly isn't (they change prices just not in the direction that they should)....

[H]igh consumer demand during the Christmas season doesn't seem to crowd anything out. I'd say that unless and until someone either shows it does crowd soemthing out or explains why the stimulus is different people should stop arguing that government spending crowds out private spending one for one.

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