Even Alex Au[, a vocal government critic, suggests waiting for the details of help package for the poor to come out before criticising the government for raising GST]?
Me: amazing huh
http://www.bigozine2.com/fooled/fooled.html
Someone: A good summary of the Sammyboy forums.
Me: no
summary of the straits times
Someone: Perhaps there's not much difference.
Me: no
they're opposite sides of the spectrum
haha
the thing is we've been conned so many times
so we don't trust them
rational expectations
Someone: I guess Alex Au and some of us are not rational then.
Me: nope
people are irrational
they find that ricardian equivalence doesn't always hold
people don't save the whole amount of the deficit/tax cut
they save about... half of it
From Problem Set Barro:
"Suppose instead that individuals use the following expectations adjustment mechanism:
πet = π*, if πt-r = π* for all r = 1, 2, 3, ...
πD = πD, if πt-r /= π* for all r = 1, 2, 3, ...
This reflects that individuals are highly suspicious of the government, so if government deviates from the announced rule for even one period, individuals expect the government to cheat henceforth."
Explanation: Inflation is bad for an economy, so governments can promise to keep inflation low (the ideal rule).
The problem is that governments can and so will be tempted to shock the economy with unexpected inflation to reduce unemployment (if inflation is higher than wage increases, employers will increase hiring), but in subsequent periods people will expect this, and adjust their inflationary/wage expectations. There comes a point where the benefits of lower unemployment due to unexpected inflation are outweighed by the damage caused by high inflation.
In the long run, inflation will be higher than it would've been under the ideal rule.
