Jurriaan Bendien wrote: > ... aggregate demand is itself increasingly a > problematic notion. > > (1) Increasingly, the bland [!!] concept of aggregate demand is itself > questionable, because of a very strong stratification of income levels among > the adult population, and as a corollary, a strong > stratification/segmentation of consumer markets and labour markets. For a > quarter or a third of the population, the crisis doesn't really exist.
It exists for them because some businesses _have_ failed (think WaMu or General Motors) and many of the capitalist class have gone bankrupt. But the members of the ruling class dismiss those as "losers," creating a social distance from them. So they act _as if_ the crisis (or whatever one wants to call it) doesn't exist. To a large extent, they're fooling themselves. > The > differentiation effect becomes stronger and stronger in the measure that the > national economy is integrated in the world economy. The USA actually has a > worse gini coefficient than Egypt has, because the US wealthy are > astronomically richer. The impact of the crisis is not the capitalism > collapses, but merely that there is "no lifeboat" for about one-sixth of the > workers and a similar fraction of businesses [???]. But the calamity for a > fraction of individuals does not necessarily mean a calamity for the > whole working population. I don't get this. The poor and the rich are clearly more and more separate in terms of social distance, but that doesn't mean that there's no economic connection. The poor provide demand for the products of the companies that the rich own and/or run. (Because the poor are getting poorer, for example, even Wal-Mart has suffered as people have switched over to dollar stores.) The rich and their companies hire the poor (though not as much as they did a few years ago), so there's a circular flow of sorts, representing economic dependence of one class on the other. Besides the government's role, there are two things that make "aggregate demand" complicated: a) a lot of the wealth of the rich is the result of an extension of the financial bubble (in a reduced form), so that it's the extension of credit that allows a lot of the continued prosperity of the rich. But that's part of the normal story of aggregate demand and is likely temporary. b) more importantly, much of the "aggregate demand" story is now international, with US prosperity (when it occurs) helping to promote other countries' prosperity and vice-versa. > (2) Market sales of final goods and services are not the only, or even the > most crucial factor for economic recovery. In addition, the comparative > returns of alternative placements of capital is a factor. Keynesians + > Marxists often write as though expenditure on GDP denotes the "whole > economy" but it doesn't, and not only because there is also intermediate > expenditure; Keynesians & Marxists (including Marx) don't ignore intermediate expenditure. Rather, they refrain from counting it twice (or more). To count intermediate expenditure as part of GDP would lead to bogus estimates of market activity, akin to the defunct USSR's "gross material product." The Soviets eventually stopped using that measure and replaced it with the net material product, which netted out the double-counting. > most economists simply neglect that external to the circuit of > current output there exists another very large circuit of transactions, > namely a trade in already existing assets (physical assets and > financial assets) which is increasingly international in scope. Attempts to > stimulate final demand may only alter the (speculative) trade in already > existing assets, but nothing much more. If physical means of production are > only perhaps one-eighth of the total capital assets held, real wages are > structurally stagnant, and the financial economy dominates the real > economy, the Keynesian economy is a thing of the past. It has been recognized for generations that increases in aggregate demand also increase the demand for already-existing assets (and it has been known for decades that this can have "wealth effects" which feed back to affect the "real" economy). But that doesn't change the nature of actual production, expenditures, and incomes in a capitalist economy. Finance is important, yes, as many have pointed out. But if the financial sector grows too far out of proportion to the sphere of production of actual goods and services, that makes a financial crisis (such as that of 2008) more and more likely. > (3) A large chunk of what is called "stimulus" nowadays isn't a direct > stimulus of final sales in the real economy at all. It is simply a financial > guarantee, or a temporary piece of financial insurance offered by the state > to banks and businesses. It merely aims to make the process of debt > rescheduling and deleveraging less painful, sudden and damaging to the > economy as a whole. Insofar as the stimulus in large part protects the > position of rentiers, it cannot even be legitimately described as > "Keynesian". Keynes argued for the "euthanasia of the rentier", not handouts > to the rentier. Keynes wasn't talking about the state getting rid of rentiers. He instead thought that the trend of the capitalist economy and efforts to avoid mass unemployment would drive interest rates to zero, having the anti-rentier effect. Financial guarantees aren't free. They're usually cheap, where crisis periods are the obvious exception. > Substantively the argument is that in the 1930s, the state > initially failed to provide the necessary backing for the financial system, > which aggravated the crisis. But that is not a specifically "Keynesian" > argument. The Keynesian argument is a state-led crisis-recovery strategy > based on deficit-spending. It's a good idea for social scientists to avoid sterile arguments about "what Keynes (really) meant" and what "(true) Keynesian economics" consists of and doesn't consist of. It's fruitless to get involved in discussions that can only settled by reaching some dead person via a séance. I'd rather argue about how many demons can dance on the head of a pin. > ... The presumption of "managing demand" is, that the state knows better how > to > allocate capital than businesses do themselves, and that if there is a > slump, the response by businesses must be complemented by state > intervention. Wow, a libertarian/GOPster argument! I didn't expect that from anyone on pen-l except David Shemano. The key point is that businesses know how to allocate capital _only_ in terms of their own private self-interest. They lack any kind of macroeconomic vision. Businesses do NOT do investment because it will cause multiplier and accelerator effects that lead to increased employment and output and the move toward full employment. Instead they do what serves the "bottom line." This is what Keynesian economics (however it is defined) is all about: state managers can (and sometimes do) have a macro view and can transcend the parochialism of individual businesses. Thus, the government sometimes starts the multiplier/accelerator ball rolling. The least controversial forms of government spending -- and those which are most often engaged in -- are spending on "public goods," i.e., goods that the private sector _won't_ allocate capital to (unless helped by the government) because businesses can't capture the external benefits as profits. Despite its appearance in a Philip K. Dick science fiction story, "national defense" cannot be privatized but will always be done by the state (even if this is done in the form of hiring mercenaries). It is a "public good." On the other hand, monetary policy isn't about "allocating capital" between sectors as much as changing interest rates in order to speed up or slow down _all_ investment projects, no matter what sector they're in. One reason why businesscritters like monetary policy over fiscal policy is because it doesn't get mixed up very much with what sectors capital is allocated to. (The exception is allocation between the housing sector and other sectors,) gotta go. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
