Arguably Godley had a version of Thirlwall's Law in his model too. As noted by Zezza: "the ideas underlying the ‘New Cambridge Hypothesis,’ which assumed... that the private sector would adjust rather quickly to a shock, to restore its desired income/assets ratio." In this sense, in the long run in a steady state Godley assumed that the net acquisition of financial assets would be zero. This would be a stock version of the flow equilibrium between investment and savings, the private balance.Naked Keynesianism
Thirlwall à la Godley
Matias Vernengo | Associate Professor of Economics, Bucknell University
4 comments:
"in the long run in a steady state Godley assumed that the net acquisition of financial assets would be zero"
That only seems plausible if by the long run steady state you mean the end of time.
"that the private sector would adjust rather quickly to a shock, to restore its desired income/assets ratio"
Well I dont know about 'private sector desires' but there are important regulated agents in the system that are REQUIRED via regulation (its not a voluntary 'desire') to adjust capital/assets ratios when these external events happen that effect the observed price of financed items...
Matt, you're talking about banks, or the financial sector. They can't do shit unless 'the private sector' 'desires' things, and the 'desired income/asset ratio' is one of the elements which determines private sector behaviour. Government regulations regarding capital/asset ratios in the banking/financial sector are a way in which the government tries to restrain or control behaviour.
Long run in a steady state is equilibrium thinking. That's not how chaotic systems function. They move around almost randomly to circulate multiple equilibria points.
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