Lakshmi Rhone wrote:
> Krugman writes today: "That’s almost surely false: the evidence strongly
> says that the real reason businesses are sitting on cash is lack of consumer
> demand." But Krugman has not broken free of the pump priming thesis. He
> seems to think that public investment could set things right pretty quickly.
>
> Public spending will not necessarily stimulate private investment as the
> result of the stimulus it gives to private consumption. The system has not
> fallen into an unstable equilibrium which merely needs an injection of new
> spending to push it back on track. It’s exactly because unemployment has
> become stable that repeated shoves and not just a single shove are required,
> coupled with new forms of planning, to move the economic machine back up to
> full employment.
Repeated stimulus is needed. I would guess that PK would agree, except
perhaps about "new forms of planning."
> Krugman is certain that we can do something this big without offending the
> confidence fairies. I think we should certainly try because unemployment is
> intolerable and interest rates are low, but I think we should push for this
> while preparing for the possibility that the fairies will exact a mean
> revenge.
remember that if the expansionary fiscal policy gets GDP rising, that
raises the sales revenues, cash flow, and profit flow of capitalist
firms, along with lowering the degree of idle capacity ("unemployed
capital goods"). All of that raises the actual profit rate, which can
potentially have a much greater effect than the fears of an unknown
future (Obama turning the US into a Soviet commune, etc.) This
stimulates private fixed investment, adding onto any multiplier
effects. To the extent that private fixed investment rises, fiscal
stimulus becomes unneeded.
"pump-priming" is about fiscal deficits stimulating both consumer
spending and private fixed investment, the rises of which reinforce
each other. It's not just about the multiplier effect.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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