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Friday, June 22, 2012

Who are the real job creators? (Guest Post)


This is a guest post by Jonathan Krajack. Jon told me he learned a lot about economics and MMT by reading this blog and he wanted to make a contribution. I was very happy to post this up. -Mike Norman
 
Who Are the Real Job Creators
by Jonathan Krajack

We often hear in the news and from our elected representatives that we need to lower taxes on the job creators, and in so doing, jobs will be created and the unemployment rate will fall. While this is true, it is widely misunderstood. The myth is that wealthy people are the job creators. This is misleading at best, and outright class warfare against the not-wealthy at worst.

In a market economy, where people exchange money for goods and services, it is consumers that are the “real” job creators.

Consumption is the force that drives a market economy. If people were to stop spending money, the economy would come to a screeching halt. Imagine for a moment that everyone decided to stop spending money for… a week? a month? etc. What would happen to jobs?

At first, we would see businesses begin to lay off workers in order to cut costs and stay afloat. As the spending freeze continued, many businesses would 'go out of business.' The longer the spending freeze persisted, the closer we would get to a Great Depression, or worse. After all, how are businesses going to pay workers if the businesses are not receiving income from sales?

The scenario I just described is an extreme version of what we’re actually seeing today. It’s not that no one is spending. The problem is that everyone is not spending enough. It raises an important question: how is this related to businesses deciding whether or not to hire more employees?
Well, why do businesses hire employees?

Businesses hire employees for two main reasons: 1) more are needed to successfully meet current sales, and/or 2) more are needed to meet an expected future increase in sales.
Do you see the connection? Business is all about sales. So, how do we increase sales (broadly throughout the economy)?

It’s simple: consumers need more money to spend!

There are various ways to change the amount of money in the hands of consumers, but the two primary mechanisms are federal taxes and federal government spending. Lowering federal taxes and increasing federal government spending translates to more money circulating throughout the economy. Likewise, increasing federal taxes and lowering federal government spending translates to less money circulating throughout the economy.

Therefore, the U.S. government ought to be LOWERING taxes and/or INCREASING government spending.

Lowering taxes is fairly simple: who is getting the tax cut and how much are they getting? Government spending is a little more complicated. The U.S. government could just cut everyone a check. This would be exactly like a tax cut. But the U.S. government can also make purchases with it's spending, be that on healthcare, infrastructure, missiles, etc. All else equal, each option has the same “net effect” on money in circulation.

But for the purpose of increasing consumption broadly throughout the economy, the important question is: who gets the money? And it is here that we come full circle…

Most people are not wealthy. Wealthy people do not need more money. By definition, they already have a lot of it. Giving them more money will do very little to increase consumption broadly throughout the economy. Therefore, lowering taxes on the wealthy will do very little to stimulate the economy and decrease unemployment.

In order to stimulate the economy and decrease unemployment, we need to get more money in the hands of the “real” job creators: the not-wealthy. It is the masses of not-wealthy people that drive the economy. They are the soil in which new and existing businesses blossom.

(Well done, Jon!)

63 comments:

  1. Thanks Mike! I welcome all comments and criticisms from readers.

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  2. Criticisms?... what? ;) Great job Jon! ... rsp

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  3. Excellent!

    I think Jon's covered all the bases nicely. Flows well, easy to read!

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  4. This article provides some insight that some seem to miss about MMT and that is that tax cuts for the wealthy are ineffective. I suspect that if the Bush tax cuts were redistributed to the middle class and working poor they may be enough to bring us out of this depression. After all the money would be spent instead of put into bonds.
    By the way, let thank all of the contributors to this site. You do a great job.

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  5. You also need to create the right conditions to facilitate and encourage private investment.

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  6. Increases in aggregate demand need to be met by increases in aggregate supply, otherwise you just end up with inflation. For aggregate supply to keep up with a constant high level of demand you need a high level of investment, generating innovation and maintaining competition. Demand on its own does not necessarily create its own sufficient supply. Other conditions have to be right. Or eventually you just get inflation.

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  7. The population also has to be confident that the government will keep a lid on inflation and not allow it to get out of hand.

    Otherwise 'seller's inflation', price setting, spiralling wage demands etc will all start to creep in. Perfect competition doesn't exist, so these 'psychological' factors and expectations are important.

    So if you're going to switch to a system in which fiscal policy regulates the economy and monetary policy is more or less irrelevant, people will need to be confident that the government won't run the printing presses to excess. Such confidence is hard won, and that trust must not be violated.

    That's why I find talk of "maybe inflation isn't such a bad thing" a bit concerning. Ok, maybe you don't need a 2% target as we supposedly have now (uk), but letting inflation off the hook for a bit so as to get some extra growth is likely to be a self-defeating policy in the long term.

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  8. y -

    So we need to define some terms:

    1. Inflation. Is it really inflation or are we dealing with, for instance, a price adjustment, asset bubble, external shock? You wouldn't want to make across the board adjustments just because the price of plywood jumped.

    2. High level of demand. By this, I assume you mean a level of demand that is out of the ordinary, as opposed to a stable level of demand. With the economy stabilized, I certain you would see a higher level of aggregate demand than we have now. Presumably, that would settle somewhat to become the new norm, but would fluctuate as the market (buyers and sellers) change. We would likely see spikes in demand for certain commodities and connected products. I think that's for the market to work out, for the most part.

    True demand-pull generalized inflation? It's my understanding that we haven't really seen much of that.

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  9. "You also need to create the right conditions to facilitate and encourage private investment."

    Tax structure and institutional reform that encourages productive gains and discourages rent-seeking and money-hoarding, and maintains a level playing field and refereed fair rules.

    Public investment in education, health care, basic research and infrastructure.

    Achieving full employment and price stability using MMT-based macro for fiscally based economic policy and ending monetarism.

    Acknowledging that neoliberalism and liberal democracy are incompatible.

    Winding down the military-industrial complex and converting it to civilian production.

    Adopting a systems approach to analysis and policy making.

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  10. y -

    WRT what Tom said about education, peruse this link I picked up from Neil Wilson:

    http://www.youtube.com/watch?v=zDZFcDGpL4U

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  11. "That's why I find talk of "maybe inflation isn't such a bad thing" a bit concerning. Ok, maybe you don't need a 2% target as we supposedly have now (uk), but letting inflation off the hook for a bit so as to get some extra growth is likely to be a self-defeating policy in the long term."

    A target rate of 2% inflation under current conditions is too low, and low rates are not spurring borrowing for investment or consumption. A target rate of 4, 5 or even 10% would make no difference, since there is no transmission mechanism through monetary policy. The Fed would have to engage in fiscal, and Ben is not ready to take that step, even if it were legal without being directed to do so by the Sec of Tsy, iaw the law.

    Maybe people will finally wake up and realize that monetary policy based on expectations is a crock.

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  12. Tom, I'm wondering to what extent flexibility wrt regulation and the labour market might have a role to play though, playing devils advocate for a minute.

    Having been looking at Argentina it would appear that rigid union-dominated labour market is contributing to the apparently unstoppable wage-price spiral and lack of investment.

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  13. WRT what Tom said about education, peruse this link I picked up from Neil Wilson:
    http://www.youtube.com/watch?v=zDZFcDGpL4U


    Sir Ken is right on. Unleash genius instead of suppressing it. Grammar school is bad enough. HS is stultifying.

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  14. "Having been looking at Argentina it would appear that rigid union-dominated labour market is contributing to the apparently unstoppable wage-price spiral and lack of investment."

    Having a look at the US, dampening of labor bargaining power and stagnant wages for decades have resulted in an unsustainable rise in private debt that finally crashed the economy, tanking both investment and employment, with the resulting defaults and bankruptcies, and public bailouts that transfer private debt to public.

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  15. Tom -

    "Grammar school is bad enough. HS is stultifying."

    I certainly found it to be so. Just think of what we could have if we turned that one around.

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  16. Hi Tom,

    I'm often trying to think about MMT ideas in the context of countries other than the US. I really want to know how it would work elsewhere (i.e. in countries that aren't the world's economic and military superpower with the world reserve currency). I'm particularly interested in the UK, but also in developing countries.

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  17. y: from the operational perspective MMT is how the existing system works for everyone in it. Different countries have to adjust their policies to conditions, but everyone is functioning in the same operationally reality and within the same math and accounting contraints.

    It is claimed that the US has the extraordinary privilege of being the reserve currency issuer, but with this come the responsibility to provide the amount of reseve currency needed and this involves economic consequences domestically. So, it's not like the free ride that some claim it to be.

    Obviously, countries with fragile economies and weak currency will have different economic constraints than countries with robust economies and strong currencies.

    The point is that under the current monetary regime all countries have more potential policy space than under a convertible fixed rate system. This is doesn't imply that any country has unlimited policy space.

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  18. Well, in Agentina, perhaps they need to stop cooking the books first?

    http://www.economist.com/node/21548229

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  19. This article has many errors.

    "Most people are not wealthy. Wealthy people do not need more money. By definition, they already have a lot of it. Giving them more money will do very little to increase consumption broadly throughout the economy. Therefore, lowering taxes on the wealthy will do very little to stimulate the economy and decrease unemployment."

    The only way to increase consumption is to increase the production of consumer goods.

    The only way to increase the production of goods is through saving and investment. Spending money on consumption implicitly depends on consumer goods having already been produced in the past, through saving and investment in the past.

    "In order to stimulate the economy and decrease unemployment, we need to get more money in the hands of the “real” job creators: the not-wealthy. It is the masses of not-wealthy people that drive the economy. They are the soil in which new and existing businesses blossom."

    The argument that the non-wealthy "drive" the economy is partially correct. Yes, the consumers drive the economy in the sense of directing investors and businessmen what to produce with their capitals. But this does not mean that in the aggregate, more consumer spending will increase production. In the aggregate, consumer spending and investment spending are actually in competition with each other. All else equal, more consumer spending means less investment spending. If there is more consumer spending and less investment spending, then that will lead to investors devoting more scarce real resources to consumer industries, and fewer resources to capital goods industries. This has the long run effect of reducing productivity, since productivity vitally depends on the existence of real capital, such as machines, factories, and materials.

    The economy won't become more productive if you just give consumers a bunch of newly created money. That will have the long run effect of reducing productivity, since real wealth will be taken out and consumed out of the economy, but it will only be replaces with paper dollars.

    The way to boost long term productivity is to add to the supply of real capital, so that more consumer goods can be produced out of that additional capital.

    The only way to increase the supply of real capital is to save and invest in real capital.

    Consumption should be carried out only as a means to increase the supply of real capital. It cannot be considered a SOURCE of increased productivity.

    Too much consumer spending can actually lead to a depletion of capital, as real capital is consumed in the production of consumer goods, but not enough real capital is replaced because too much money is going to consumption rather than saving and investing.

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  20. Oh gawd, somebody open the windows. Pete just ripped off a phat one!

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  21. Unforgiven:

    Yes, I know it hurts to hear that inflation financed consumption isn't the source of economic growth.

    Do you have anything intelligent to say, or is saying "phat one" the extent of your ability?

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  22. Peter, can I ask you a question in response to this: "I know it hurts to hear that inflation financed consumption isn't the source of economic growth"

    Wasn't the past 100 years or so of enormous economic growth done through "inflation financed consumption" ? Not that the world if perfect, it certainly is not, but are you not impressed with worldwide economic growth over the last 100 years? And wasn't this time period based on "inflation financed consumption" ?

    Also, can you direct me to a time period in US history, or some other part of the world, that is an example of what we should aspire to? (i.e. not inflation financed consumption)?

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  23. @ peter

    Care to define "inflation financed consumption"

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  24. Wikipedia says that it's been estimated that 1.5T of "Black Money" has been stashed abroad. So at a cursory glance it looks like a fair bit of demand leakage. Black Money seems to include all money made on the black market, not just the take that corrupt officials get. Looks to be estimated at 40-50% of GDP.

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  25. ARRGH! Posted to the wrong article!!!

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  26. Here is some better logic:

    1. Sales drive business
    2. Consumption drives sales.
    (GET READY FOR IT)
    3. PRODUCTION DRIVES THE ABILITY TO CONSUME
    4. Therefore, to promote all things good and holy, you must promote production!

    This is known as Say's law. It's about where the ability to consume comes from. When you produce something, you afford yourself a product that has trade value. Once you've created something you can trade it with another and consume what they made.

    Say's Law: Supply creates demand. By this he means, when you have supply, you can then have demand for everything else but your own product.

    Isn't that fascinating? So giving people the ability to consume WITHOUT it coming from production is the great perversion of economic order!

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  27. Inflation financed consumption - he's just referring to non-production financed consumption AKA subsidy. AKA the strong basically paying for your ability to consume via the erosion of their own productive base.

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  28. Production is demand-driven. Producers hate unplanned inventory, you know. How do you propose to do this without increasing effective demand when producers are reluctant to invest just to accumulate inventory when they already have too much and can't get rid of it because although the notional demand may be there, effective demand is not.

    BTW, Keynes trashed Say's Law. Not applicable in a monetary economy.

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  29. Just to add on to what Tom said…

    In a market/monetary economy, people invest in production based on current or expected demand. In the world of business, people produce things to be able to sell them. Insufficient aggregate consumer demand (i.e. people spending money) discourages investment into production.

    It's pretty easy to understand if you think about it. For example, let's say your a dentist. You're thinking about opening up a practice in a small town and you've got two choices:

    Town A, pop 25,000, with 3 dentists
    or
    Town B, pop 25,000, with 0 dentists

    All else equal, where are you going to open your practice? Town B, right?

    Producers and would be producers of goods and services consider demand. Demand is the signal. (both current demand and expected demand)

    Think of it another way:

    Am I as a cosumer of dental checkups going to start getting more checkups because a new dentist opened a practice? (supply has increased) Of course not!

    "Supply is demand-driven" - Tom

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  30. Here'as story about supply is demand-driven.

    I had young friend who became an entrepreneur at an early age. He followed simple principles. If something doesn't move and is taking up space, close it out. If something moves, replace it with two. He did very well.

    Go figure the lesson for the supplier. This is how business works.

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  31. How about Say in his own words (per Wikipedia):

    “It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. NOR IS HE LESS ANXIOUS TO DISPOSE OF THE MONEY HE MAY GET FOR IT; FOR THE VALUE OF MONEY IS ALSO PERISHABLE. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products. (J. B. Say, 1803: pp.138–9)” (my caps)

    Really!? People don’t desire to save money??

    As Tom said: “Not applicable in a monetary economy.” …which (I think) was part of Keynes’s criticism of Say’s Law.

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  32. Human want for consumption is limitless. Producers, not consumers, are the (job) creators.

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  33. "Producers, not consumers, are the (job) creators"

    The producers are the workers.

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  34. "3. PRODUCTION DRIVES THE ABILITY TO CONSUME"

    How? Define "ability" to consume.

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  35. JK:

    Wasn't the past 100 years or so of enormous economic growth done through "inflation financed consumption" ?

    Absolutely not. Consumption was the REWARD the last 100 years for PRODUCING FIRST.

    Consumption activity shrinks the total supply of real resources that would otherwise be available to physically grow the economy. This is not in itself a bad thing, since we need and desire to consume in order to live and be happy, but consumption cannot be considered the engine for economic growth.

    For if everyone just consumed, then eventually there would be no capital left, and without capital, economic growth, and the absolute state of the economy, would collapse back the stone age.

    Not that the world if perfect, it certainly is not, but are you not impressed with worldwide economic growth over the last 100 years?

    I am impressed at how real capital was able to grow enough to enlarge the production of consumer goods, despite incredible state intervention that hampers it.

    And wasn't this time period based on "inflation financed consumption" ?

    In part, but that part made the economy smaller than it otherwise would have been. It was the saving and investment, the devoting of real resources to capital, that is responsible for the entire growth.

    Also, can you direct me to a time period in US history, or some other part of the world, that is an example of what we should aspire to? (i.e. not inflation financed consumption)?

    Every country with a central bank has some degree of inflation financed consumption, but the areas to emulate are those with maximum protection of property rights, and high saving and investment spending relative to consumption spending. These places have the highest REAL consumption.

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  36. Tom Hickey:

    Production is demand-driven. Producers hate unplanned inventory, you know. How do you propose to do this without increasing effective demand when producers are reluctant to invest just to accumulate inventory when they already have too much and can't get rid of it because although the notional demand may be there, effective demand is not.

    BTW, Keynes trashed Say's Law. Not applicable in a monetary economy.

    That is all wrong.

    1. Production is demand driven yes, but only at the individual producer-consumer level. Producers compete for consumers.

    However, it is the fallacy of composition to then claim that in the aggregate, production is also demand driven. In the aggregate, competition is offsetting. In the aggregate, demand is production driven, since consumers completely depend on producers to supply them with consumer goods at all. In the aggregate, without production, there can be no consumption.

    2. Your claim that Keynes "trashed" Say's Law is partially correct. Yes, he did "trash" it, but only in the sense of completely misinterpreting it and throwing vomit on it. He didn't even attack Say's Law as it actually is meant to be understood. He attacked a straw man's version of it, that suggests a belief in the absurdity that any production of any commodity whatsoever, is supposed to have a profitable demand for it. No, that's not what Say's Law says. Say's Law has the important caveat that the relative production of commodities with respect to each other, are in balance in accordance with relative marginal utility of consumers.

    So if there is an example of a producer with unsold inventory, this is not a violation of Say's Law. Say's Law should have led you to grasp the fact that if there a producer has unsold inventory, then this is an example of partial relative over-production, which has a corresponding, unobservable, but cognitively understood, partial relative under-production of other goods. If a producer has unsold inventory, then what happened is that in the aggregate, there was too much of one thing produced, but not enough of other things produced. Instead of those scarce resources being devoted to the production of the oversupplied inventory, they should have been devoted to the production of other things which are in under-supply.

    Say's Law was just a refutation of a common myth believed at the time, and for some reason it is still believed today by many, that it is possible for the economy as a whole, the aggregate economy, to "overproduce" wealth. This myth arose because of a depraved philosophical view of mankind, that viewed man as allegedly limited in his desire to consume additional wealth than what is available.

    If you ask people whether or not they have a desire for more real wealth, then most will say they would like a bigger mansion, a bigger boat, higher quality cars, better clothes, and so on.

    There is no limit to people's desire for additional wealth, and that is why it is literally impossible for the economy to overproduce in general. Producers in the aggregate can only ever produce too much of certain things and not enough of other things. They can never produce in such quantities in general that consumers are satisfied and do not desire any more wealth in general. Producers can only ever err on the side of producing too many yachts when people want more of other things that require the using up of existing scarce resources.

    ------

    Can I ask you a serious question? Do you understand how economies grow? Or is your economics knowledge consist solely in MMT accounting tautologies that don't say what you think they say in terms of economic science?

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  37. Paul:

    The producers are the workers.

    OK, Marx.

    In the division of labor, the producers are EVERYONE who produces anything of value for the benefit of others that earns the productive individual an income. That income can be a wage, and it can be a profit.

    Workers produce for the benefit of their employer, and their employers produce for the sake of the employer's customers.

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  38. JK:

    How about Say in his own words (per Wikipedia):

    “It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. NOR IS HE LESS ANXIOUS TO DISPOSE OF THE MONEY HE MAY GET FOR IT; FOR THE VALUE OF MONEY IS ALSO PERISHABLE. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products. (J. B. Say, 1803: pp.138–9)” (my caps)

    Really!? People don’t desire to save money??

    They only desire to hold money for the purposes of making future expenditures. If the expenditure component of money (the medium of exchange component of money) ceased to exist, then people would not longer seek to hold money at all.

    As Tom said: “Not applicable in a monetary economy.” …which (I think) was part of Keynes’s criticism of Say’s Law.

    A monetary economy does not change the essence of Say's Law. It only seems to confuse people like Tom who don't understand money.

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  39. "…and it can be a profit."

    The trouble is, profit is a demand leakage off of the effort of the worker.

    That leakage must be accounted for.

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  40. Paul:

    The trouble is, profit is a demand leakage off of the effort of the worker.

    That is a Marxist myth. Reality is the exact opposite.

    Profit is actually the original form of income BEFORE capitalists arrived on the scene and turned a portion of what would have been all profit, into wage income.

    Here's why:

    In the "early and rude state of society", when self-sustaining producers produced basic, hand made commodities for sale, they did not incur any MONEY costs in producing those goods. They simply produced them directly from the land, and then sold them.

    The income earned on goods sales is product sales revenues, not wages. If I produce an ax hand made, and I sell it, I am not selling my labor services to the buyer, but rather I am selling my goods to them. They are paying money to acquire an ax, not my labor.

    Hence, if I sell the ax for 100 clamshells, then the 100 clamshells is my product sales revenues, and because I didn't incur any clamshell costs, the entire 100 clamshells is all profit.

    The original worker-producers were profit earners, not wage earners.

    -----

    Now enter the capitalists. Capitalists are those who pay wages. If a capitalist hires a worker to help him produce axes, and he pays a wage of 50 clamshells per ax to the worker, then the sales revenues the capitalist receives now has to be compared to the 50 clamshell costs, and so the rate of profit will be REDUCED from 100%, down to 50%.

    If the worker can help produce more axes than he could do on his own before, because he no longer has to spend scarce time and resources researching the ax market, and acquiring factors of production, he can just devote his time to offering his labor, then the capitalist and the worker can make mutual gains.

    This is why worker-producers at the farms, during the onset of the industrial revolution, voluntarily went to go work in the factories at a wage. They could earn more per week in the factory working for a capitalist, then they could alone as a farmer.

    ------

    Profit is not a "leakage." Profit is the original form of income. If anything, WAGES are a "leakage" from what would have been all profit. Of course I don't view either wages or profit as any "leakage", I view them as income earned on the basis of being productive, subject to private property rights.

    -----

    Sorry to demolish your naive communist worldview. Are communists the type of people MMT attracts or something? What does that say about MMT?

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  41. JJ Butler "Human want for consumption is limitless. Producers, not consumers, are the (job) creators."

    Then busts due to natural causes are impossible, as the mainstream theory predicts — ERRONEOUSLY.

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  42. "That is a Marxist myth. Reality is the exact opposite.…

    …What does that say about MMT?"

    Wow, that was a mouthful, largely incoherent.

    I made a statement based on arithmetic. Is arithmetic communist?

    Simple question to a self-proclaimed expert on all things money…

    …how do you account for the demand leakage caused by accumulated profits, since by definition that money never gets spent (otherwise accumulation of financial wealth wouldn't occur).

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  43. Pete: "A monetary economy does not change the essence of Say's Law. It only seems to confuse people like Tom who don't understand money."

    Yeah, I forgot. Money is gold.

    Say was clueless about how a modern monetary economic works and what that implies for monetary economics.

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  44. Paul:

    "That is a Marxist myth. Reality is the exact opposite.…What does that say about MMT?"

    Wow, that was a mouthful, largely incoherent.

    Incomprehensible to you, maybe. But not incoherent. They all have clear, easy to understand meaning.

    I made a statement based on arithmetic. Is arithmetic communist?

    You didn't say anything about arithmetic. Just because MMTers like to think their worldview is only one of arithmetic, it doesn't mean you can say anything you want, including Marxist claptrap, and then present as "arithmetic."

    You made a statement based on something other than arithmetic. You made a statement concerning the nature of economic phenomena, which is based on action, not arithmetic.

    …how do you account for the demand leakage caused by accumulated profits, since by definition that money never gets spent (otherwise accumulation of financial wealth wouldn't occur).

    Good god. I just...I don't even...

    Profits are an accounting abstraction concerning historical events. They are the difference between what business firms spent, and what the business firm's customers spent.

    If profits go up, it just means that the difference between what businesses spend, and what the customers of business spend, went up. It doesn't mean cash hoarding you silly monkey. Profits cannot even exist unless customers spend money to create profits in the first place!

    If profits are earned, then there must have been spending by business firms in the past, and there must have been spending by the customers of business firms.

    One cannot "accumulate" an accounting abstraction. Business firms earn business sales revenues. The only thing that higher profits signal is a higher difference between what is spent by business firms and what is spent on business firms, over a period of time.

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  45. Tom Hickey:

    Pete: "A monetary economy does not change the essence of Say's Law. It only seems to confuse people like Tom who don't understand money."

    Yeah, I forgot. Money is gold.

    I didn't argue money is gold, but thanks for the diversion. Anything is better than actually addressing anything I said.

    Say was clueless about how a modern monetary economic works and what that implies for monetary economics.

    Haha, Say's Law is true. Say the man could have been a pederast anti-semite like Keynes, and it wouldn't have made a difference to the validity of Say's Law.

    Say wasn't clueless about how monetary economies work.

    You however are clueless about Say's Law.

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  46. Say's Law holds in every conceivable market, monetary, barter, or MMT fantasy land.

    All it argues is that people do not have a limit to how much wealth in general they want. Whatever wealth exists, people want more.

    It why economies grow in the first place.

    The unread, unresearched, an uneducated attack on Say for allegedly not understanding monetary economics, is just a pathetic ad hominem meant solely as a diversion away from the actual substance of Say's Law.

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  47. Pete, do you know the difference between financial and non-financial wealth? Did Say know this? Keynes thinks not, based on his law.

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  48. "One cannot "accumulate" an accounting abstraction"

    So, by your definition a dollar in cash is an accounting abstraction?

    You also seem to be implying that net dollars are not finite.

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  49. Tom Hickey:

    Pete, do you know the difference between financial and non-financial wealth? Did Say know this? Keynes thinks not, based on his law.

    Keynes did not understand Say's Law. Are you really willing to base your judgment on Say's Law, by reading what someone who didn't even understand it said?

    Do you know the difference between partial relative overproduction, and general overproduction?

    Hint: It has nothing to do with money existing or not.

    Paul:

    "One cannot "accumulate" an accounting abstraction"

    So, by your definition a dollar in cash is an accounting abstraction?

    A dollar in cash is not profit. Profit is the difference between two monetary demands, demand for input and demand for output.

    Dollars as cash are a function of the money supply.

    Accumulating profits is a misnomer. Firms are seeking to accumulate cash, which carries either a higher or lower profit to it. After the earn cash, they spend it to earn more profits in the future. A firm that doesn't spend cash, can't earn profits.

    You also seem to be implying that net dollars are not finite.

    You seem to be unable to address economic arguments without shoehorning in MMT talking points that are not related to the arguments being made.

    I am not implying at all that dollars are not finite. Of course they are. All economic goods are finite. It's why dollars have goods prices, and why goods have dollar prices.

    I have no idea what you mean by "net dollars". Is that a particular quantity of dollars that are added to another particular sum of dollars?

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  50. Net dollars is the total of all dollars and dollar-denominated financial assets (state money) that exist in the non-government without an equal off-setting liability.

    aka NFA's or net financial assets.

    The sum of all net financial assets on the non-government balance sheet is exactly equal to the National Debt™.

    The sum of all NFA's on all balance sheets within the non-government is exactly equal to the National Debt™

    One can't be familiar with MMT and not know this.

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  51. Pete: "It has nothing to do with money existing or not."

    Oh now production takes place without investment and investment in a monetary economy is not financial. Gee, I didn't know that.

    Gimme a break.

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  52. "A dollar in cash is not profit…"

    A dollar in profit is a dollar in cash - or the equivalent.

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  53. @Pete

    Does your understanding of economics account for banking, and more specifically, the credit creation process?

    What do you make of the current recession? The MMT community, among others, calls it a Balance Sheet Recession. My understanding of it is that the private sector (businesses and households), in the aggregate, has too much debt relative to their income and the value of their assets. Consequently, income that would otherwise be spent on consumption becomes "demand leakage" as more of it is diverted to deleveraging.

    If either the currency issuer or the external sector (current account) doesn't make up for this demand leakage, then we'll see rising unemployment. After all, at the micro level a business is all about sales. Without sales, they are on their way 'out of business.'

    Does your economic worldview account for the role of bank's credit creation?

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  54. paul:

    Net dollars is the total of all dollars and dollar-denominated financial assets (state money) that exist in the non-government without an equal off-setting liability.

    You're calling "dollar-denominated assets....dollars? You're butchering the English language. Dollars are not dollar-denominated assets. That's why we call them dollar-denominated, rather than dollars per se.

    If you're adding dollars to dollar-denominated assets, and you call dollar-denominated assets "state money", then that must mean "dollars" are distinguishable from "state money." What's the difference between "dollars" and "state money"?

    The sum of all net financial assets on the non-government balance sheet is exactly equal to the National Debt.™

    You define the state's outstanding debt as "net financial assets", and yet before you defined net financial assets as "state money". Debt isn't money. Debt is a future claim to money.

    The sum of all NFA's on all balance sheets within the non-government is exactly equal to the National Debt™

    If you define the state's debt as "net financial assets", then of course the sum of all net financial assets, as defined as state debt, will equal the total state debt outstanding.

    What's with those silly trademarks anyway?

    One can't be familiar with MMT and not know this.

    There is nothing I said or implied that would in any way suggest or lead one to believe that I didn't know the accounting tautologies you're referring to.

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  55. Tom Hickey:

    "It has nothing to do with money existing or not."

    Oh now production takes place without investment and investment in a monetary economy is not financial. Gee, I didn't know that.

    Straw man.

    I didn't say production takes place without investment. I said, for the second time, that partial relative overproduction and partial relative underproduction, is a concept that is independent from money. Investment can occur with and without money.

    Gimme a break.

    Gimme a sign you can read.

    paul:

    "A dollar in cash is not profit…"

    A dollar in profit is a dollar in cash - or the equivalent.

    No. A dollar in profit is an accounting calculation. If one lost a dollar in profit, it doesn't mean one has one fewer dollars. I can lose $100 in profit but still have $1 million in cash, if my past money costs were $1,000,100 and my current revenues were $1 million.

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  56. JK

    Does your understanding of economics account for banking, and more specifically, the credit creation process?

    Of course.

    What do you make of the current recession? The MMT community, among others, calls it a Balance Sheet Recession.

    I recommend the MMT community look into and learn the concept of economic calculation, so that you guys can understand that it isn't a "balance sheet recession." It's one of investors and consumers being misled for years in their ability to economically calculate due to the actions of a non-market institution of money production (central bank), the very institution that MMTers take for granted and do not question or analyze in detail as it pertains to economic calculation.

    My understanding of it is that the private sector (businesses and households), in the aggregate, has too much debt relative to their income and the value of their assets.

    How much debt is too much? Who am I to say how much is too much? There is no magical ratio that I know of where below it is OK, and above it is not OK.

    Where's the understanding of economic calculation?

    Consequently, income that would otherwise be spent on consumption becomes "demand leakage" as more of it is diverted to deleveraging.

    Why would deleveraging suddenly be a problem? People incur and pay back debt all the time.

    If people spend their money on consumption rather than deleveraging, then why doesn't that represent a problem? Why don't you say this is a "deleveraging leakage" that reduces the nominal incomes of lenders?

    If people divert their spending away from consumption and towards deleveraging, then why is that a problem, but diverting spending away from deleveraging and towards consumption, is not a problem? Lenders would be making less money, the same way consumer goods sellers would be making less money.

    Every choice to spend carries with it a choice NOT to spend everywhere else. Who cares what people spend their money on?

    If either the currency issuer or the external sector (current account) doesn't make up for this demand leakage, then we'll see rising unemployment.

    If either the currency issuer or the private sector (BTW, I like how you call myself and my fellow market participants "the external sector", as if we are outsiders of some sort) doesn't make up for the "deleveraging leakage", on account of people diverting their spending away from deleveraging and towards consumption, then unemployment will rise on the side of lenders earning and spending less money.

    After all, at the micro level a business is all about sales. Without sales, they are on their way 'out of business.'

    After all, at the micro level a lender is all about being paid back. Without being paid back, they, and those they spend their money on, are on their way "out of business."

    Does your economic worldview account for the role of bank's credit creation?

    Yes.

    Does your worldview account for individual economic calculation?

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  57. Pete: "Investment can occur with and without money."

    Not in the accounting sense of "investment" def= "firm expenditure."

    You are at the wrong blog. Try mises.org where they talk about coconuts instead of money.

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  58. Pete's view is about coconuts not money. Forget it, we've been through this before and it goes down the rabbit hole.

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  59. Tom Hickey

    Pete: "Investment can occur with and without money."

    Not in the accounting sense of "investment" def= "firm expenditure."

    Of course in the accounting sense. A producer in a non-monetary order can make investment expenditures in goats, to acquire iron to produce axes.

    You are wrong.

    You are at the wrong blog. Try mises.org where they talk about coconuts instead of money.

    ???

    You're clueless. The concept of partial relative overproduction and partial relative underproduction can exist in an economy with and without money, and you have nothing to say against this so you divert it to "go to mises.org"?

    Pete's view is about coconuts not money. Forget it, we've been through this before and it goes down the rabbit hole.

    False. My argument applies to BOTH a monetary economy AND a barter economy.

    You can try to derail this into another straw man, but it won't be what I am talking about.

    The introduction of money represents neither the onset nor the destruction of the possibility of partial relative overproduction and partial relative underproduction. With money, it just makes it harder for people like you who don't understand money, to grasp it. You are deluded into believing partial relative overproduction and partial relative underproduction are problems of lack of money printing.

    I don't even visit mises.org, what the heck are you talking about?

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  60. Pete: "Of course in the accounting sense. A producer in a non-monetary order can make investment expenditures in goats, to acquire iron to produce axes."

    As I said, you guys are all "coconuts."

    We've been there and done that many times. Excuse me if I am brusk, but I am getting bored with it.

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  61. Tom Hickey:

    Pete: "Of course in the accounting sense. A producer in a non-monetary order can make investment expenditures in goats, to acquire iron to produce axes."

    As I said, you guys are all "coconuts."

    Haha, I was just responding to your claim that investment expenditures in an accounting sense requires money. No, it doesn't. Now you're saying "it's all about coconuts?" You're trolling.

    It seems that with you guys, it's all about toilet paper, and not economics.

    I am not saying it's all about coconuts. Again, I am saying that partial relative overproduction and partial relative underproduction are phenomena that exists in economies with and without money.

    That Say's Law is just a refutation of the myth that there can be a general overproduction of goods.

    We've been there and done that many times. Excuse me if I am brusk, but I am getting bored with it.

    You're attacking a straw man.

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  62. This blog is nonsense on stilts.

    Straw men, diversions, not addressing the arguments being made, no display of being able to think logically.

    Is that it? Are you the best this blog has to offer? That is some low quality rhetoric going on here.

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