An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Sunday, December 2, 2012
Art Shipman on J. M. Keynes on effective demand
Keynes quote from the General Theory for future reference.
"Thus, to justify any given amount of employment there must be an amount of current investment sufficient to absorb the excess of total output over what the community chooses to consume when employment is at the given level. For unless there is this amount of investment, the receipts of the entrepreneurs will be less than is required to induce them to offer the given amount of employment."
And private investment NEVER is so sufficient.
Right here is the case for public investment via the JG as this shows mathematically that full employment (btw WHICH IS LEGALLY MANDATED BY LAW) is IMPOSSIBLE without it...
Right, owners' share that is neither invested or consumed is saved and as wealth increases MPC decreases. Unless govt makes up the difference, then the economy will not operate at resources potential, decreasing efficiency and increasing UE. It's also seen from this how the fiscal deficit goes chiefly to owners' saving.
"Right here is the case for public investment via the JG as this shows mathematically that full employment (btw WHICH IS LEGALLY MANDATED BY LAW) is IMPOSSIBLE without it..."
...as I have been hammering away on for some time now.
This concept pretty much nullifies neo-liberal or neo-classical economics from the outset. There's nothing there. The years since Keynes General Theory have been a scam of massive proportions.
If we follow this concept in any direction one will come to the conclusion that net government spending is a necessary condition for the economy to function, and funds profits, saving and leakages.
"Into the fifth year of the Great Recession our nation’s scarcity of jobs continues to condemn tens of millions of us to suffer a hard life of involuntary unemployment, underemployment, and insufficient wages. One would hope that any future political agreements made to mend the fiscal health of the nation would not worsen this scarcity, but lead directly to solving it. A crucial way to accomplish this would be for our leaders to reassert their faith and confidence in the primary efficacy of economics’ countercyclical principle in fashioning these agreements. After all, thousands of years of evidence prove the overwhelming effectiveness of the countercyclical moral, that jobs, fiscal health, and prosperity are best grown and sustained by spending in times of scarcity, and saving in times of plenty."
"A more mature capitalistic system might start and end with an appreciation of the whole person, as in perhaps treating everyone primarily as a capitalist by instituting a living wage, actual full employment economy. This would allow, on the one hand, for the creative destruction of horse and buggy businesses and jobs. Yet on the other, sustained entrepreneurship could be nurtured on a permanent, level playing field for workers, consumers, and employers alike, with everyone made better off by guaranteeing as full a market as possible at any given time."
"In fact, the imposition of austerity during a slump is arrogance of Biblical proportions, the true, exploitative beginning of all “class warfare,” and, hence, revolution, warfare, and national disaster as we saw from WWII through the end of WWII. Just witness the racism, xenophobia, and organized groveling to the “jobs makers” now alive in our nation, and in Europe, fed continuously by Pharaoh wannabes and their “little nobilities,” fueling policies recklessly demolishing peoples’ livelihoods on an Orwellian altar of “‘The Government Debt Bomb,’” to use one economist’s fear-mongering, pitiless phrase."
"Instead, let us reassert our collective faith in Joseph’s countercyclical moral and its virtuous heritage, and continue to reapply it now with jobs’ stimuli and increased taxes on the wealthy, and then sit back, and watch our children be saved, and rise, hopefully in full sometime before Keynes’ goal of 2028."
Not in MMT paradigm, but right now I'll accept ANY argument in favor of stopping austerity and instituting stimulus policies. We can discuss monetary paradigms later.
You're right that you need that "recycling" through tax&spend to keep things afloat.
When arguing with people in person I sometimes try to offer my opponent a 'way out' that is close to my own view but still acceptable to them, rather than trying to push them all the way to my position.
You have to bite the bullet and try to see things from their point of view. At least then you're speaking a similar language.
It might be worth trying to devise an "MMT plan" that could appeal to those that might otherwise be turned off by MMT.
I think that it might be interesting to try and come up with a truly "right wing MMT".
Lead with fiscal drag resulting from taxes (they like this) and saving (they don't like this). Then do sectoral balances and fiscal deficit as non-govt saving offset. Also show that all sectors in surplus simultaneously is impossible.
"When arguing with people in person I sometimes try to offer my opponent a 'way out' that is close to my own view but still acceptable to them, rather than trying to push them all the way to my position. "
Perhaps to your point, I think you have to find a way to keep them in the "fight".... but some look like they are simply "hard-wired" for "flight" via their receptor proteins or genetic code... I'm trying to determine if they all are that way.... or if some remain at some level "reachable"...
The problem in dealing with fiscal conservatives is generally that their position is moral rather than economic. So it is not possible to sway them with economic arguments.
It's also healthy to keep in mind that traditional conservatives believe as "scientific" that some people are better than other and deserve to be served by their inferiors. No matter that this is an obviously self-serving belief that is only held until they are the other end of the deal.
Social Darwinism has no scientific merit. It's clearly true that there is Bell curve wrt many traits but that is no justification for either privilege or oppression.
Keynes was wrong to assume that the necessary stimulus has to come in the form of what he calls "investment". It makes no difference "job creation-wise" whether stimulus spending is directed at consumption items or investment items. If it's aimed at consumption items and entrepreneurs think that warrants extra investment, they carry out that investment without any instructions from politicians, bureaucrats, do-gooders, busy bodies, or economists.
If we think of the economy as one big business, a business needs infrastructure, plant and equipment, and trained workers to be able to do it's job and produce goods and services.
A business also needs customers with the ability to spend and buy those goods and services, and individual businesses will compete for the funds in a way that ends up providing the goods and services needed.
Businesses that provide what people want/need will succeed at the expense of those that don't.
The biggest problem with businesses today is that some don't like competition, and if they can afford to they make it go away.
Keynes was just stating the obvious, that in a closed economy consisting only of the domestic private sector, C + S = C + I, so that if the sector tries to net save in aggregate, then the economy will contract and UE rise.
Given the three sector model, net exports plus the fiscal deficit must offset domestic private saving desire in aggregate to maintain the economy at FE.
From Art's clip:
ReplyDelete"Thus, to justify any given amount of employment there must be an amount of current investment sufficient to absorb the excess of total output over what the community chooses to consume when employment is at the given level. For unless there is this amount of investment, the receipts of the entrepreneurs will be less than is required to induce them to offer the given amount of employment."
And private investment NEVER is so sufficient.
Right here is the case for public investment via the JG as this shows mathematically that full employment (btw WHICH IS LEGALLY MANDATED BY LAW) is IMPOSSIBLE without it...
Right, owners' share that is neither invested or consumed is saved and as wealth increases MPC decreases. Unless govt makes up the difference, then the economy will not operate at resources potential, decreasing efficiency and increasing UE. It's also seen from this how the fiscal deficit goes chiefly to owners' saving.
ReplyDelete"Right here is the case for public investment via the JG as this shows mathematically that full employment (btw WHICH IS LEGALLY MANDATED BY LAW) is IMPOSSIBLE without it..."
ReplyDelete...as I have been hammering away on for some time now.
This concept pretty much nullifies neo-liberal or neo-classical economics from the outset. There's nothing there. The years since Keynes General Theory have been a scam of massive proportions.
If we follow this concept in any direction one will come to the conclusion that net government spending is a necessary condition for the economy to function, and funds profits, saving and leakages.
Consumer credit (debt) spending is irrelevant.
Matt, I like it that you are not hedging.
Tom -- Found these at Counterpunch:
ReplyDeletehttp://www.counterpunch.org/2012/11/30/austerity-the-battle-cry-of-1/
and, also on Keynes effective demand:
http://www.counterpunch.org/2012/11/30/the-fate-of-keynesian-faith-in-josephs-countercyclical-moral/
Excerpts:
"Into the fifth year of the Great Recession our nation’s scarcity of jobs continues to condemn tens of millions of us to suffer a hard life of involuntary unemployment, underemployment, and insufficient wages. One would hope that any future political agreements made to mend the fiscal health of the nation would not worsen this scarcity, but lead directly to solving it. A crucial way to accomplish this would be for our leaders to reassert their faith and confidence in the primary efficacy of economics’ countercyclical principle in fashioning these agreements. After all, thousands of years of evidence prove the overwhelming effectiveness of the countercyclical moral, that jobs, fiscal health, and prosperity are best grown and sustained by spending in times of scarcity, and saving in times of plenty."
"A more mature capitalistic system might start and end with an appreciation of the whole person, as in perhaps treating everyone primarily as a capitalist by instituting a living wage, actual full employment economy. This would allow, on the one hand, for the creative destruction of horse and buggy businesses and jobs. Yet on the other, sustained entrepreneurship could be nurtured on a permanent, level playing field for workers, consumers, and employers alike, with everyone made better off by guaranteeing as full a market as possible at any given time."
"In fact, the imposition of austerity during a slump is arrogance of Biblical proportions, the true, exploitative beginning of all “class warfare,” and, hence, revolution, warfare, and national disaster as we saw from WWII through the end of WWII. Just witness the racism, xenophobia, and organized groveling to the “jobs makers” now alive in our nation, and in Europe, fed continuously by Pharaoh wannabes and their “little nobilities,” fueling policies recklessly demolishing peoples’ livelihoods on an Orwellian altar of “‘The Government Debt Bomb,’” to use one economist’s fear-mongering, pitiless phrase."
"Instead, let us reassert our collective faith in Joseph’s countercyclical moral and its virtuous heritage, and continue to reapply it now with jobs’ stimuli and increased taxes on the wealthy, and then sit back, and watch our children be saved, and rise, hopefully in full sometime before Keynes’ goal of 2028."
Not in MMT paradigm, but right now I'll accept ANY argument in favor of stopping austerity and instituting stimulus policies. We can discuss monetary paradigms later.
I think that it might be interesting to try and come up with a truly "right wing MMT".
ReplyDeletei.e. in place of any spending, just put "tax cuts".
Let's say the budget deficit is $1 trillion, and you want to keep it there until the economy picks up.
- Cut all government spending until the government is only spending $1 trillion, and reduce taxes to 0!
(Or something a bit less extreme perhaps)
If you show that the basic logic can apply to different political views, then at least you're on the same page..
y, we're spending in excess of $5T a year currently.
ReplyDeleteThat's government-forced dis-saving. We need that much spending out of the chute for the economy to function at current levels.
The question is how much of that comes from households earning less than say $400k per year?
Correction:
ReplyDelete$4T of that is government-forced dis-saving.
This comment has been removed by the author.
ReplyDeleteYou're right that you need that
ReplyDelete"recycling" through tax&spend to keep things afloat.
When arguing with people in person I sometimes try to offer my opponent a 'way out' that is close to my own view but still acceptable to them, rather than trying to push them all the way to my position.
You have to bite the bullet and try to see things from their point of view. At least then you're speaking a similar language.
It might be worth trying to devise an "MMT plan" that could appeal to those that might otherwise be turned off by MMT.
I think that it might be interesting to try and come up with a truly "right wing MMT".
ReplyDeleteLead with fiscal drag resulting from taxes (they like this) and saving (they don't like this). Then do sectoral balances and fiscal deficit as non-govt saving offset. Also show that all sectors in surplus simultaneously is impossible.
y,
ReplyDelete"When arguing with people in person I sometimes try to offer my opponent a 'way out' that is close to my own view but still acceptable to them, rather than trying to push them all the way to my position. "
Perhaps to your point, I think you have to find a way to keep them in the "fight".... but some look like they are simply "hard-wired" for "flight" via their receptor proteins or genetic code... I'm trying to determine if they all are that way.... or if some remain at some level "reachable"...
rsp,
The problem in dealing with fiscal conservatives is generally that their position is moral rather than economic. So it is not possible to sway them with economic arguments.
ReplyDeleteIt's also healthy to keep in mind that traditional conservatives believe as "scientific" that some people are better than other and deserve to be served by their inferiors. No matter that this is an obviously self-serving belief that is only held until they are the other end of the deal.
Tom,
ReplyDeleteSo are these "conservatives" wrong to believe in social Darwinism?
rsp,
Social Darwinism has no scientific merit. It's clearly true that there is Bell curve wrt many traits but that is no justification for either privilege or oppression.
ReplyDeleteKeynes was wrong to assume that the necessary stimulus has to come in the form of what he calls "investment". It makes no difference "job creation-wise" whether stimulus spending is directed at consumption items or investment items. If it's aimed at consumption items and entrepreneurs think that warrants extra investment, they carry out that investment without any instructions from politicians, bureaucrats, do-gooders, busy bodies, or economists.
ReplyDeleteRalph, might as well invest in new infrastructure and R&D whilst you're at it though.
ReplyDeleteRalph and y are both right.
ReplyDeleteIf we think of the economy as one big business, a business needs infrastructure, plant and equipment, and trained workers to be able to do it's job and produce goods and services.
A business also needs customers with the ability to spend and buy those goods and services, and individual businesses will compete for the funds in a way that ends up providing the goods and services needed.
Businesses that provide what people want/need will succeed at the expense of those that don't.
The biggest problem with businesses today is that some don't like competition, and if they can afford to they make it go away.
Crony capitalism.
Keynes was just stating the obvious, that in a closed economy consisting only of the domestic private sector, C + S = C + I, so that if the sector tries to net save in aggregate, then the economy will contract and UE rise.
ReplyDeleteGiven the three sector model, net exports plus the fiscal deficit must offset domestic private saving desire in aggregate to maintain the economy at FE.