RE: Re:Much ado about nothing?

dear beth, peter, john and bill
1. i agree with beth that many do not recognize the inflation potential of running trade surpluses.
 as minsky always argued, the markup at the aggregate level depends on govt deficit + investment +
trade surplus + capitalist consumption - worker saving. of course all you kaleckians know where
that comes from. a rising govt deficit or a rising trade surplus have equal inflation potential.
2. as keynes argued, any increase of demand, or any dynamism in an economy, is likely to lead
to some prices and some wages rising even with excess capacity. but as he also argued
no one has any legitimate interest in being able to buy at a lower price simply because some
people are unemployed. however, beyond full employment, raising AggD will only cause inflation.
this is "true inflation" according to keynes; any price rise when below full employment is not inflation,
according to keynes. that seems to me to be the only possible progressive position. if we have
price increases below full emp, then those price rises must be fought (if they are going to be fought)
through some policy other than reductions of AggD. i would add to what keynes said that no one
has any legitmate interest in fighting against a full emp policy (such as the JG or ELR) on the basis
that it might cause price rises (not true inflation, as that is impossible with a JG or ELR).
3. finally, and more importantly for our current conversation,
 i think peter and john have not quite got bill's point. govt debt
issue (borrowing, as it is wrongly termed) is part of monetary policy; part of interest rate mangmt.
it does not reduce (normally--see below) private sector demand at all.
it simply substitutes interest-paying treasuries
for non-interest paying HPM. if anything, it will tend to raise AggD (not lower it as peter suggests)--due
to the interest payments that all things equal will raise govt deficits. normally if you want to lower AggD
you will need to increase taxes or lower govt spending. the one exception i would make is if the govt
goes out and convinces the population to reduce consumption in order to buy govt bonds (as in a wartime
campaign), this can increase the propensity to save (patriotic saving, to leave resources for the war
effort) and will thus lower AggD.
 
4. on the technical point about hard carriage returns, i am opposed to requiring those who
post to insert them. it means, for example, that one cannot cut and paste from Word or another
processing program. maybe the archives can be set up differently? i have put hard returns in this
post, but this is time consuming and will cause some fairly arbitrary formatting that is not necessary
for anyone using netscape or explorer.
randy

        -----Original Message-----
        From: Peter Kriesler [mailto:P.Kriesler@unsw.edu.au]
        Sent: Sun 2/2/2003 11:07 PM
        To: she_forum@adam.itk.ntnu.no; she_forum-bounces@itk.ntnu.no
        Cc:
        Subject: [HE] Re:Much ado about nothing?
        
        

        In response to both Beth and Bill, I think that there is a role for
        government borrowing, that is when there is some concern over the
         level of aggregate demand being too high. In other words, when the economy
        is near full employment, or when demand inflation of the balance of trade
        deficit
        are concerns, then governments may borrow to reduce demand pressures. Of
        course, taxes on high incomes or elsewhere can probably do the same thing
        more efficiently, but that may be harder to sell politicly!
        
        
        
        Peter Kriesler
        School of Economics
        UNSW
        Sydney 2052
        http://economics.web.unsw.edu.au/people/pkriesler/
        
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Received on Mon Feb 3 08:50:28 2003