Robert Vienneau — On The Ideological Function Of Certain Ideas Of Friedman And Barro

The figure above illustrates some basic elements of Keynes' theory. This specification of a discrete-time, dynamic system includes an accounting identity for a closed economy, namely, that national income in any time period is the sum of consumption spending, investment, and government spending. And it includes a behavioral relation, namely, a dynamic formulation of a consumption function. In this system, consumption is the sum of autonomous consumption and a term proportional to national income in the previous period. One should assume that the parameter b lies between zero and one.

A policy consequence follows: government can lift the economy out of a depression by spending more. Government spending increases national income immediately. Through the consumption function, it has a positive feedback on next period's income, as well.

Suppose you are hostile to this policy conclusion and, like the current Republican party in the USA, dislike your fellow countrymen. How might you suggest a theoretical revision to the system structure to mitigate the influence of current government spending? One possibility is to suggest more terms enter the consumption function. With the proper manipulation, current government spending will have a smaller impact, since current income will have a smaller impact on consumption.

Thoughts on Economics
On The Ideological Function Of Certain Ideas Of Friedman And Barro
Robert Vienneau