Lars Syll
Krugman — finally — seems to get the link between debt and demand right
Quoting Steve Keen
Don’t get me wrong: I’m glad that Krugman may finally be starting to support the case that I (and some other endogenous money theorists like Michael Hudson and Dirk Bezemer) have been making for many years: that rising debt directly adds to aggregate demand. If he is, then welcome aboard. Though there’s doubt as to whether John Maynard Keynes ever uttered the words attributed to him that “when the facts change, I change my mind – what do you do sir?”, I’m happy to accept this shift in that spirit.
But I don’t want to see this change in analysis sneak under the radar either: it deserves acknowledgement as a major shift in the thinking of a major figure in contemporary economics.
6 comments:
"rising debt directly adds to aggregate demand."
Good point... people typically will first go out and borrow a bunch of USDs and then figure out what to do with the funds at some point later once they make up their minds...
Typically, banks set up canards like "auto loans" and "home loans", then borrowers go in and pretend that they are either going to buy a car or a house and get the loans and then go use the funds for other things like holiday cruises and booze and cigarettes and lavish dinners....
But let's not forget that purchasing power can also be created as shares in Equity and that even SOME fiat can be essentially debt-free*.
But it's good if Krugman is abandoning the "loanable funds theory", at long last.
As for Keen, he should snap to "Money need NOT be debt" since that's also proven - without a doubt wrt common stock as private money.
*If the monetary sovereign never borrows, never runs a budget surplus, and sometimes run budget deficits then debt-free fiat to the sum of those deficits will accumulate in the economy.
"rising debt directly adds to aggregate demand…"
True, except everyone seems to leave out the part that rising debt is constrained by public spending…ie debt can't safely rise at a rate faster than the growth of public spending.
If one looks at growth in advances against growth in public spending (on a log scale) it is apparent that the graphs run parallel over recorded history…the rates of growth are equal over trend.
Whenever the threshold is significantly breached we get a crisis (in other words the trend breaches, not the ticks).
Not only that, but only a moron would think that growth in advances WOULDN'T result in increased aggregate demand.
We need economists to tell us this?
Well Paul so here we are again with some strange wording coming out of the academe... as if "debt can add to demand" .... rsp,
Matt,
Yeah, sure private debt can add to demand...now...then take it away down the road...net zero.
Which is what these folks always leave out...
And I agree with your point...they are getting cause and effect completely wrong...
...sending a false message to the bulk of the people reading their ill-conceived "analysis I"...that credit could possibly drive a system like the one we have.
The only way it could is if it never had to be repaid...wait, we already have that kind of "debt"...the public kind.
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