Economists often point out that, when spending and output growth in the private sector is moving really fast either up or down, the government can offset this. This fiscal offset can act as a stabilizing force in that it prevents the economy from overheating when private sector growth is running hot, It can also prevent a depression when private sector spending and output is collapsing. But sometimes, governments choose to mimic the private sector and amplify the trend in the economy. This is called pro-cyclicality – and in worst case scenarios, it can be quite destabilizing....Credit Writedowns
What is pro-cyclical fiscal policy?
Edward Harrison
12 comments:
The market is not cyclical and the government is not a "stabilizing force". Government spending and the creation of fiat funny money are THE de-stabilizing forces creating the phony basis for violent interference in the market which allows massive theft of resources by the financial and other elites.
Yes Bob.
"What Fisher said was that depressions are due to a collapse in asset values..."
This adds as much value as Minsky.... ie zero...
What Fisher actually said was that asset values collapse when debts on them become unpayable and they must be sold. When this occurs in volume, the market collapses.
THE DEBT-DEFLATION THEORY OF GREAT DEPRESSIONS
BY IRVING FISHER
He was the first to state this, so he is given credit for it.
IN Booms and Depressions, I have developed, theoretically and sta- tistically, what may be called a debt-deflation theory of great depres- sions. In the preface, I stated that the results "seem largely new,"
I spoke thus cautiously because of my unfamiliarity with the vast literature on the subject. Since the book was published its special con- clusions have been widely accepted and, so far as I know, no one has yet found them anticipated by previous writers, though several, in- cluding myself, have zealously sought to find such anticipations. Two of the best-read authorities in this field assure me that those conclu- sions are, in the words of one of them, "both new and important."
Partly to specify what some of these special conclusions are which are believed to be new and partly to fit them into the conclusions of other students in this field, I am offering this paper as embodying, in brief, my present "creed" on the whole subject of so-called "cycle theory." My "creed" consists of 49 "articles" some of which are old and some new. I say "creed" because, for brevity, it is purposely ex- pressed dogmatically and without proof. But it is not a creed in the sense that my faith in it does not rest on evidence and that I am not ready to modify it on presentation of new evidence. On the contrary, it is quite tentative. It may serve as a challenge to others and as raw material to help them work out a better product.
Fisher page 348:
"Easy money is the great cause of overborrowing. When an investor thinks he can make over 100 per cent per annum by borrowing at 6 per cent, he will be tempted to borrow, and to invest or speculate with borrowed money. This was a prime cause leading to the over-indebtedness of 1929."
Whom does that sound like?
Yes, I know you think that Fisher and Minksy are irrelevant because they don't write deterministic functions.
They don’t communicate deterministically at all... not just a lack of equations...
This is “confidence fairy” type stuff...
Well, then I guess you think that MMT is garbage, too.
We've shown here many times how equations don't represent real people.
It's funny how libertarians always say how their economic theories don't support the ruling elite, when unfettered capitalism is exactly what the elite want. How libertarians can't see this beats me. The elite spend many millions promoting libertarian ideas because they know they can make hundreds of millions out is it.
If ' funny money' does end up in the pockets of the elite, the answer is simple, have higher taxes on them to get the money back.
The claim that the elite has ever wanted or sought laissez faire is without any historical or evidentiary basis. I’ve owned “The Triumph of Conservatism” by Gabriel Kolko since 1973. Buy it . Read it.
https://tinyurl.com/qjnj7e5
https://tinyurl.com/y9vozan4
Oh, yes indeed.
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