Tuesday, November 20, 2012

Blah blah debt blah blah demand blah blah

So it's interesting to read this article in Forbes:
http://www.forbes.com/sites/pascalemmanuelgobry/2012/10/19/no-the-united-states-will-not-go-into-a-debt-crisis-not-now-not-ever/

which
 is completely correct. There is no debt crisis in the US and never will
 be unless politicians create one out of thin air.

But so depressing to read the comments. I suppose many people like to
think they think seriously about economics and politics, and just can't
accept that the premises they are working under are entirely incorrect.
And that includes economists! Famously Krugman was schooled by Steve
Keen on the money multiplier (its nonexistence can be proved empirically
 but poor Krugman just can't accept it because it's central to orthodox
post-Keynesianism) but he still pounds away at the same
gold-standard-based model.

This stuff is actually quite simple, and awesomely intuitive when you
"get" it. If you stop thinking of money as a commodity (which it is not
outside forex trades), and think of it instead as points that we use to
score transactions of real resources, it becomes swiftly apparent that
there is no crisis because the government cannot run out of points. Once
 you grasp that spending is income, you see that it follows that if the
government runs a surplus, the private sector must run a deficit (quick
explanation: if the government spends $100 into the economy, but taxes
back $110 so that it runs a $10 surplus, that $10 must come from
somewhere: consequently, to pay the taxes, you must destroy financial
assets); so if the private sector wishes to save -- and we believe it is
 virtuous for it to do so -- the government not only should, but must,
run a deficit (otherwise, there is nothing for us to save); furthermore,
 of course it is true that if you run a current account deficit, this is
 equivalent to the private sector saving (money is withdrawn from the
economy), so your deficit must also cover the current account deficit.

Furthermore, intuitively Keynes was correct when he said that demand
creates its own supply (which events have shown is the case), whereas it
 simply isn't true that supply creates demand, as the right claims (in
effect, the notion that if you give the rich ever more money, they will
invest it and create jobs, is equivalent to saying that we should
apportion more of our financial resources to the supply side -- it
doesn't work; you can make as many cars as you wish, but if no one wants
 to buy them, they're going to sit rusting in your showrooms). But the
notion runs deeper than that. Think. If you have money, what do you do
with it? You spend it, right? And if you had more money, you'd spend
that too. Think more though. You're aware, I'm sure, that when people
become richer, they buy "higher value" goods. Some of which, curiously,
are not higher value in any intrinsic sense, but are branded as "luxury"
 or "prestige" goods. Tastes change even. It's not that we are all
striving to buy luxury goods; it's that we start to think we want them
when we have the money that they cost. Even at a low level this happens.
 Don't lie; if you have the money, you buy JD, but when you don't, you
buy the cheap bourbon. So that's a quality difference, but are you sure
you can tell the difference between one shirt and another, one pair of
jeans and another, one car and another?

Which is to say, if you cash people up, other people will formulate ways
 to remove that money from them, one way or another. It's almost
immaterial what the goods being produced are. If there's money, people
will invent things to sell to you for it.

So we're saying that the bold entrepreneur does not create jobs. You can
 have a brilliant idea but if there's no money, you are left with trying
 to cannibalise others in the niche you want to enter (or similar
niches), so each job you create will snuff out another job, as you
entice people to buy your product and not another. What creates jobs is
increased demand: people wanting something. With enough demand,
your product can soak up some of the money swilling around, without
impinging on others' market, and jobs can genuinely be created, rather
than merely being shifted around.

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