First of all, once you strip away all the protections for workers at all levels of government to deal with this one event you will never be able to put them back again.
History clearly shows that government worker's unions have no political power and never get what they want. Similarly, the RIAA/MPAA - politicians are to busy worrying about innovation and consumers to protect the starving record company execs.
...instead of just going into the pockets of the capital-owners who slash their work-force pay and hire nobody.
According to Keynesian theory, the only reason those capital-owners don't hire workers is because real wages are too high. If wages were lower, the capital-owners would hire workers to increase their own profits.
If you don't believe in Keynesian economics, that's fine. I also believe it to be useful only in limited circumstances. In that case, gizmo is wrong, and austerity will not be bad for the economy.
But my question is why Keynesians aren't pushing for wage flexibility.
And so on... so you end up radically changing on what will be a permanent basis a modern economy the functioned reasonably well for quite a while to fix a temporary problem.
According to Keynesians, what you call the "permanent basis [of] a modern economy" is the cause of every single recession.
According to them, absent wage stickiness, large nominal shocks to the economy would be rapidly corrected for, resulting in only real wage adjustments. This is exactly the same effect they attempt to engineer with monetary and fiscal stimulus.
According to Keynesian theory, the only reason those capital-owners don't hire workers is because real wages are too high. If wages were lower, the capital-owners would hire workers to increase their own profits.
That's not true - Keynesian theory says capital owners don't hire when demand for goods is insufficient.
I think I believe in Keynesian economics but I am no expert on the topic. I'm pretty sure that Keynesian theory does not say that the only reason is workers aren't hired in real wages, obviously there needs to be demand for whatever the workers are going to do. That is why I say that you need to be able to break contracts too - then whole economy would need to be able to realign in a very short period of time to match the effects the spending can have in the same period of time. Speed matters because a wage decrease over 20 years is not useful to solving the problem without a "lost decade".
What I called a "modern economy [that] functioned reasonably well for quite a while" is of course the cause of every recession -- I did not call it perfect. If you are going to rip it up to remove wage stickiness you better be pretty confident of all of the unintended consequences that are going to come along with that are going to be better than what we had going into this thing.
I think if one wants to argue that wage stickiness is a good lever to use in this situation then there needs to be an actual, practical path to achieving that that they present that can be acted upon. I offered the only way that I think is a path there but I do not think it is either good or practical. The other way is ordinary deflation over time, but I think that is just too slow (and painful). Do you have another way that would work and quickly that I am not seeing? I am genuinely interested.
Monetary and fiscal stimulus is quite well understood, it has been used many times.
Your first comment about unions is obviously meant to be sarcastic but in the current political environment the fact is that unions (public and private) do not have the power they once had. If worker protections were miraculously repealed there would be a lobbying battle to get them back but no assurance that the unions could win. But if you accept my premise that this is the path and believe the unions are too powerful then wage stickiness is a moot point - as a non-starter why bother discussing it, Keynesian or not?
...obviously there needs to be demand for whatever the workers are going to do.
There is demand. I'm willing to pay someone $10/hour to clean my house. My startup would love to employ fashionable girls for mechanical turk work at wages far below the US minimum wage (we employ several of them in India). So how come unemployment exists at all?
Keynesian economics postulates wage stickiness as an explanation for this unemployment.
That is why I say that you need to be able to break contracts too - then whole economy would need to be able to realign in a very short period of time to match the effects the spending can have in the same period of time.
This is not Keynesian economics. This is a structural theory of recessions - things have changed, and the economy needs time to re-adjust. I.e., a former construction worker in CA needs time and training to find a new job, the business owner needs to renegotiate contracts or go bankrupt, etc.
Note that in structural theories, monetary or fiscal stimulus has no clear effect, and government spending/austerity measures should focus on getting fundamentals right (i.e., eliminate wasteful spending) and speeding up adjustment (promoting job mobility).
Do you have another way that would work and quickly that I am not seeing?
The easiest would be cutting the pay of government workers, cuts to payroll taxes (particularly the employer side), and reducing unemployment benefits and welfare.
Another method would deal with unions. If any union refuses an immediate cut in total comp, the employer gains the right to fire union workers and permanently replace them with non-union workers.
But if you accept my premise that this is the path and believe the unions are too powerful then wage stickiness is a moot point - as a non-starter why bother discussing it, Keynesian or not?
Intellectual curiosity, mostly. So far, I've only seen a single Keynesian (Karl Smith) actively promote wage flexibility, in spite of the fact that it's a logical conclusion of the theory.
It's also relevant to this discussion - Greece has absolutely no ability to prevent austerity (they run at a budget deficit, even ignoring interest/debt service), but they do have the ability to promote wage flexibility within their own borders.
From your specific suggestions I think what you are advocating is employing the Keynesian economic model in a way compatible with a libertarian belief in markets. Nobody in the mainstream believes that, that is why you are not seeing it and it is not a practical route. Krugman does discuss that the only way in the current situation to get wages down is deflation, which he does not regard as quick enough (or a humane way to solve the problem).
I suspect the Keynesian model would probably perform pretty well if the suggestions you make were undertaken.
The demand that suddenly disappears when such a large section of the population has their wages cut drastically plus the fear that it could be cut again at any time with no notice would seem to me to do a lot to offset the demand created by being able to employ a Spanish employee at $1/hour. I'm not a big believer in libertarian ideas so I think that it would probably be a disaster for society as a whole, but that is a debate for another place and time.
History clearly shows that government worker's unions have no political power and never get what they want. Similarly, the RIAA/MPAA - politicians are to busy worrying about innovation and consumers to protect the starving record company execs.
...instead of just going into the pockets of the capital-owners who slash their work-force pay and hire nobody.
According to Keynesian theory, the only reason those capital-owners don't hire workers is because real wages are too high. If wages were lower, the capital-owners would hire workers to increase their own profits.
If you don't believe in Keynesian economics, that's fine. I also believe it to be useful only in limited circumstances. In that case, gizmo is wrong, and austerity will not be bad for the economy.
But my question is why Keynesians aren't pushing for wage flexibility.
And so on... so you end up radically changing on what will be a permanent basis a modern economy the functioned reasonably well for quite a while to fix a temporary problem.
According to Keynesians, what you call the "permanent basis [of] a modern economy" is the cause of every single recession.
According to them, absent wage stickiness, large nominal shocks to the economy would be rapidly corrected for, resulting in only real wage adjustments. This is exactly the same effect they attempt to engineer with monetary and fiscal stimulus.