An excerpt: "But who cares if the dollar value of “Gross Domestic Product” goes down? If prices fall even more, then Americans’ standard of living goes up. For example, if the Tea Party activists actually held Republicans’ feet to the fire and Uncle Sam didn’t raise the debt ceiling, then the government would have to slash $750 billion or so from this year’s spending to avoid default on the existing debt".
"That would mean that there was a sudden loss of $750 billion in income to various people in the economy. A large part of it would probably be made up by income generated in the private sector, as the government’s deficit disappeared and people expected lower future tax burdens. But even if it didn’t, so what? The quantity of skilled workers, raw materials, and machine tools wouldn’t decrease just because Uncle Sam started living within his means. After prices adjusted downward, Americans would find they could buy more with their lower incomes".
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«Oldest ‹Older 201 – 201 of 201marris "I also haven't found any MMT literature to address expectation-fueled price increases."
MMT doesn't believe in the expectations fairy.
"What do foregone opportunity, effective, and efficient mean here except employment? Are you talking about the quantity of goods and services produced?"
The greatest cost arises from unemployment. I have already cited Bill Mitchell's work on this. There is also the lost income and profit resulting from an output gap, including waste of productive resources while lying idle. There is also a gap in investment in new plant and equipment. For example, a long recession in one country puts that country behind others in competitiveness.
"For example, all the cash that exists in the system exists in the cash balances of individuals, right? To the extent that prices fall, that cash becomes more valuable (can purchase more stuff)."
Recoveries are led by increasing private lending. Cash balances are generally held by the well-off that buy stuff toward the bottom and break the fall. For example, about half of home sales now are cash sales to investors for rentals and flippers.
"I'm not sure that "increased consumption" per se is the best way to interpret the signal. In reality, it was unprofitable to run the field at the pre-JG market price. As prices increase on the market, more factors are drawn to production."
Simply put, producers are not going to bring idle resources on line until there is effective demand for their products. This is what is wrong with the idea that as consumption falls, and interest rates go down, investment gores up. Investment is not as sensitive to interest rates (cost of capital) as to being able to sell the product. Sure, some firms with deep pockets may take advantage of low capital cost, but that is not happening now. Large firms are buying back equity instead, and corporate saving is mounting with rising corporate profit, rather than corporate investment.
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