Unfortunately there was a period in the economics profession, from late 1980s to early 2000s, where many noted academics tried to re-write the history by arguing that it was monetary and not fiscal policy that allowed the US economy to recover from the Great Depression. They made this argument based on the fact that the US money supply increased significantly from 1933 to 1936. However, none of these academics bothered to look at what was on the asset side of banks’ balance sheets.Real-World Economics Review Blog
— Richard C. Koo
True Keynesianism – Richard Koo edition
Merijn Knibbe
In the usual world, the task of ensuring that the saved funds are borrowed and spent falls on the financial sector which takes in the saved funds and lent them to those who can make the best use of the funds. Richard Koo
ReplyDeleteThat's the "loanable funds theory" and it has been discredited.
And the mechanism which equates savings and investments is the interest rate. If there are too many borrowers, interest rates are raised which prompts some potential borrowers to drop out, Richard Koo
No. The banks can accommodate any number of "creditworthy" borrowers since they create money (credit) as they lend it.
Right, Koo is not MMT. He doesn't fully get endogenous money, but at least he is looking at the accounting and sectoral balances.
ReplyDeleteUnrelated:
ReplyDeleteBeautiful takedown of Friedman by Felix.
The Systemic Plight of Labor
http://blogs.reuters.com/felix-salmon/2013/05/01/the-systemic-plight-of-labor/
Congratulations to Richard Koo for tumbling to the fact that QE in a balance sheet recession is near useless. I bet a fair proportion of winos worked that out when QE was first implemented.
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