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Tuesday, January 27, 2009

Right Idea, Incomplete Reason

I like this post by DeLong. I think there is something to his point, though I think there's a much simpler reason why people against government spending may be incorrect, and it lies not in their assumptions about the velocity of money per se, but in their assumptions regarding the relationship between income and spending and the tendency to hoard in times of crisis.

The whole point of the Keynesian revolution was to point out that in a dynamic (time and reality based) model with inventories etc., income and output in a given period do not always have to equal spending. And that, even when they do become equalized, spending (or total demand)can have a positive effect on output precisely because complete crowding out at best takes a long time to occur and, more realistically, never happens.

This is particularly true now since a significant portion of money in the private sector is NOT being spent or loaned - it is being HELD. I don't know how many times I need to say this. Money being HELD is NOT being used for consumption or investment, by ANYONE - it represents idle capacity. So, it only makes sense that we allow our federal government who is WILLING to spend our money to borrow our money that we are not using, and spend it on projects that will benefit us both in the near term and in the future.

10 comments:

Tadit Anderson said...

Hello from about 300 miles east. I came upon your site by a Goolge Alert of a mention of Hyman Minsky. We did a one day session under the theme "Reimgining Economics" on Jan 17 which was modestly well attended. The project of increasing public literacy regarding oikos-nomia has been slow at best. The whole circulation of money thing, as a legal institution to facilitate exchange concept seems to be constantly subverted by the dismal practitioners in the service of Mammon inc. I've had involvement with AMI in the past, Zarlenga even stopped here at one point for presentation on his way to Indianapolis to an ACRES conference. I wish that he was less of an anti economist, self taught monetary historian (of the "great"... variety) and could see where their/his proposal would fit well within an Keyesian/institutionalist a'la Minsky agenda, but then he has refused to see the value of using community currency as a mode and means to educate by simulation and culture building. Keep rolling that stone. T.

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