>
> Peter replied to Beth:
>
> >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.
Whoops, I read this too quickly last time I responded.
Govt. borrowing, which means supporting a risk free
interest rate above 0, doesn't reduce demand unless it
somehow increases the desire to net save of the
non govt. sector. The real question then is whether
higher interest rates cool demand. Bill has thought
that in Australia the answer may be yes, due to
current structural considerations. In the case of
the US and Japan I think the evidence is clear that
lower rates don't result in higher demand and higher
rates don't lower demand.
The only way rates can make a difference is if
the propensities to consume are higher for borrowers
than savers, as for every dollar borrowed there is
a dollar saved, and there are even more dollars saved
due to outstanding govt. secs, so the 'break even'
propensities are that much in favor of savers. In
other words, higher rates net add govt spending and
interest income, and vice versa.
Warren
Of
> >course, taxes on high incomes or elsewhere can
> probably do the same thing
> >more efficiently, but that may be harder to sell
> politicly!
>
> Bill comments:
>
> why drain the liquidity with a government annuity
> that helps speculators et
> al underpin their
> unproductive behaviour and which supports higher
> interest rates which may
> (possibly) damage
> real investment behaviour.
>
> better to use taxation.
>
> Progressives have to agree on theoretical models and
> policies before
> worrying too much about
> what is politically acceptable.
>
> best wishes
> bill
>
>
>
> ------
>
> William F. Mitchell
> Professor of Economics
> Director, Centre of Full Employment and Equity
> University of Newcastle
> New South Wales, Australia
> E-mail: ecwfm@alinga.newcastle.edu.au
> Phone: +61-2 4921 5065
> Fax: +61-2 4921 6919
> Mobile: 0419 422 410
>
>
http://econ-www.newcastle.edu.au/economics/bill/billeco.html
> http://www.billmitchell.org
>
>
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Received on Tue Feb 4 03:22:26 2003
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