A question about Keynesian Economics ?
Telekon wrote:
Why are the statements in conflict? You snipped part of the second statement. The way you quoted the statement gives it a different meaning. The second statement says that recessions do not begin on the demand side - it's not the case that aggregate demand declines, followed by a recession. That defies common sense and is ahistorical. When and where have people just stopped buying stuff, followed by a recession?
Well if you can't express yourself correctly, then you have only yourself to blame when your audience misconstrues your meaning.
As for the, "when and where," you need look no farther than the current recession. Credit evaporated, consumers stopped spending, and the economy contracted. This recession was caused almost entirely by retrenchment of consumer spending. And if Congress allows for massive cuts to public expenditure in the short term, then the next recession will be caused by retrenchment of public spending.
Let's be clear--credit didn't cause this recession--credit delayed this recession.
Quote:
Provide an alternative analysis of how demand originates. How do consumers gain the ability to demand goods and services? If it's not from productive activity, then what is it from?
What if $1,000,000 magically appeared in the closet of every household in America? People would suddenly have greater demand for goods, right? Wouldn't this revive the economy? If you say this would lead to massive inflation, you've indirectly conceded my point.
What if $1,000,000 magically appeared in the closet of every household in America? People would suddenly have greater demand for goods, right? Wouldn't this revive the economy? If you say this would lead to massive inflation, you've indirectly conceded my point.
You are focussed on monetary policy--but monetary policy levers are a response to recession. During the 2000's, your exporters needed a slack dollar to maintain price competitiveness. Interest rates were kept low, and the money supply was expanded in order to keep inflation under control. (This was the watching brief of every central bank in the OECD, so your monetary policy was little different than that of the rest of world).
So why is your recession so much worse than the recession in Canada? The casues lie in fiscal policy, and consumer confidence (and more the latter than the former). Your political process sees no farther ahead than two years. "Get through the next election cycle," is the only calculus. So if every American owns their own home, and has access to credit, then you can campaign that, "you've never had it so good."
But any economist with any perception had been seeing the writing on the wall for years--the growth that was underway in the United States wasn't real growth, and consumer spending could not be sustained in real terms. The recipe for a failure in aggregate demand was there for everybody to see--but the free marketers were content to let the financial system run virtually unregulated, and when the bubble burst they were perfectly willing to cast the blame wherever they could. Whereas, in fact, they chose the politically expedient course of ignoring the impending crisis.
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--James
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