Because the US shows that wage flexibility by itself isn't particularly effective? US wages are just about as sticky as Europe's, despite a far lower (and dropping) section of the market under collective bargaining.
So why tinker with that ball of wax and hope for the best when you can just set a moderate inflation target and achieve the same end result?
Everyone knows what moderate inflation does. It's well studied and understood. People who work or put their money to work have little to fear from it (as rates of return reflect and include expected inflation). Naturally, you don't want high inflation or runaway inflation, but it's clearly possible to hit and maintain something like a 4% inflation target.
Because the US shows that wage flexibility by itself isn't particularly effective?
In that case [1], Keynesian economics is wrong and we must discard it's conclusions.
Absent Keynesian economics, we have no reason to believe austerity will cause "criminal levels of capital waste" (to borrow gizmo's language). So therefore, there are no drawbacks and we should pursue austerity. Right?
[1] I don't actually believe this, I'm going along with it for the sake of argument. My actual view: the US did not cut the wages of government workers during the recession, nor did it reduce real wages (on the employer side) by cutting benefits (e.g., SS contributions, subsidies for health insurance, etc). In fact, during the current recession, the US increased wage stickiness by raising the minimum wage.
1. I don't think noting that flexibility doesn't overcome the stickiness of wages is enough to sink all of Keynesian economics.
2. There is no economic theory that has ever stood entirely on its original principles and made good predictions of how the economy works. Modifying and refining cases in response to real data is how all science progresses -- if I may be so bold as to suggest that economics could stand to borrow more habits from real science than the philosophy and morality that seems to have driven it for the last few decades.
To your actual view: I'm not sure how much a small bump in the minimum wage increases wage stickiness over the economy. Very few workers actually earn the minimum wage, and the difference between the minimum wage and average wage is still quite large.
I don't think noting that flexibility doesn't overcome the stickiness of wages is enough to sink all of Keynesian economics.
Huh? Wages lie along a continuum of flexible to sticky (typically expressed as a time, i.e. "how long before wages adjust"). You claimed US wages lived on the flexible end of the continuum, yet the US still has recessions. Keynesian economics claims this cannot occur.
If you want to borrow a habit from real science, borrow the habit of rejecting theories when they disagree with reality. If you believe US wages are flexible, and the US still has recessions, then the US provides a direct counterexample to Keynesian economics.
As to my actual views, I believe our recently ended recession is primarily structural. If it were Keynesian, the increases in government worker pay would have more of an effect than minimum wage hikes. I'm just pointing out that the US has not pursued any flexible wage policies that I'm aware of, and has actively reduced wage flexibility.
Keynesian economics is significantly larger than what it has to say about wage flexibility. Truly, what it has to say about wage flexibility has not been useful in making predictions about our recessions, so I am more than willing to throw out that part of it. This is clearly an area where more study needs to be done and better theories need to be created and tested.
But, in the meantime, Keynesian economics have made very useful predictions elsewhere and with a notably better record than competing theories. So all I'm saying is: let's not throw out the baby with the bathwater. Keynesianism didn't have much useful to say about economics at a zero lower bound, but further study and modification has resulted in theories with remarkably good records in making useful predictions in our current situation (even if no-one seems to listen to those predictions).
What you seem to be suggesting, is akin to saying we can/should throw out the standard model entirely in favor of universal application of quantum theory, simply because the standard model breaks down at quantum scale. Whereas I'm advocating that we can use quantum theory where it makes sense and the standard model where it makes sense, until a grand unified theory arrives and is tested.
> "I believe our recently ended recession is primarily structural"
My gut feeling is also that this is true, though I can't say I've seen convincing evidence to support it. And I get rather nervous when my gut feelings aren't supported by evidence, particularly when that evidence should be obvious and overwhelming.
And I completely agree that the US has not pursued flexible wage policies and raising the minimum is a move away from flexibility. I was just noting that the move was a minor one, and as such, we really shouldn't expect that it would have had much impact.
> US wages are just about as sticky as Europe's, despite a far lower (and dropping) section of the market under collective bargaining.
Are they?
A lot of people who lost jobs and found new ones are making less than they were before. The "salary" for those jobs may not have changed, but worker income sure did.
So why tinker with that ball of wax and hope for the best when you can just set a moderate inflation target and achieve the same end result?
Everyone knows what moderate inflation does. It's well studied and understood. People who work or put their money to work have little to fear from it (as rates of return reflect and include expected inflation). Naturally, you don't want high inflation or runaway inflation, but it's clearly possible to hit and maintain something like a 4% inflation target.