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Bernie Sanders' economic adviser has a message for Australia we might just need
Steven Hail | Lecturer in Economics, University of Adelaide
Wednesday, February 5, 2020
Bernie Sanders' economic adviser has a message for Australia we might just need — Steven Hail
The Conversation
Bernie Sanders' economic adviser has a message for Australia we might just need
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Good article. One point it might have addressed in the section at the end entitled “Governments choose to borrow, but needn’t” is the question as to whether governments OUGHT TO borrow. The standard MMT answer to that is “no”, in that most MMTers I think support the permanent zero rate of interest on government liabilities.
The basic reason for that ZIRP policy is quite simple, I think. It’s that demand, i.e. the private sector’s spending must be related to how much base money it has. Thus the amount of such money issued clearly does not want to be so little that the private sector SAVES in order to try and acquire its desired stock of money. That would result in Keynsian “paradox of thrift” unemployment.
At the same time, govt and central bank should not issue so much money that they then have to borrow some of it back at interest so as to constrain demand: that means taxing the less well-off so as to fund interest paid to those who hoard money.
Ergo the optimum is to issued whatever amount of money results in full employment plus zero interest on govt and central bank liabilities. That ideal would never be easy to achieve with precision, but it should certainly be the AIM.
"the private sector’s spending must be related to how much base money it has. Thus the amount of such money issued clearly does not want to be so little that the private sector SAVES in order to try and acquire its desired stock of money."
any stock of your "money" Ralph would have to be saved... iow for the non-govt to have any "money" at all it would be saved...
You are not looking at first derivative of any balances of "money"... youre looking at balances not the change in balances dt...
I doubt she advised Bernie to propose Bill Gates go get a margin loan against his MSFT shares to get the munnie for housing and clean water...
Matt, I know I'm "looking at balances not the change in balances". My point is simply that the total stock of money the average household has will influence how much it spends, which is not to say I'm denying that a change in the stock also has an effect.
E.g. if the state pension rises in a country that has a state pension, one effect is than pensioners see their incomes rise, i.e. their stock of money rises. That will result in their spending more. But also, after a few months or years of the rise, pensioners who HAVE NOT spent all of their additional income will see that their STOCK of money is larger. That larger stock will also tend to induce them to spend more.
" if the state pension rises in a country that has a state pension, one effect is than pensioners see their incomes rise, i.e. their stock of money rises."
If their stock of money rises then they have already saved... that is why you have to look at the first derivative of their balance to understand if they have an ability to spend more...
In Newtonian physics, the first derivative of position is velocity... if the object is stationary the first derivative is 0... velocity is zero means it is not moving... You cannot determine if an object is moving by examining its position...
So substitute in Finance the balance for position... the first derivative of the balance is Income or perhaps Revenues... if the first derivative is seen to be increasing THEN the account holder has an increased ability to spend...
This is why Monetarism doesnt work... ie the people are not trained correctly...
its like you are saying "if the position has changed, then that means it will change again..." or something like that in Newtonian terms...
If somebody is seen to have higher balances of munnie, then that is because the first derivative of their balance is non-zero and positive...
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