Wednesday, March 14, 2012

Scott Sumner makes and important point I make on here a lot

Spending is not the same thing as consumption.

And even more importantly - because business cycles are closely related to intertemporal decision making, any viewpoint (austerity or expansionary) that harps on consumption to the exclusion of other sorts of spending is very likely to miss the point.

One of the most important things to distinguish Keynes from all of the people that could reasonably called "proto-Keynesian" was that he said this very clearly and articulated a macroeconomic theory where (1.) investment spending was determined by expectations of future demand, (2.) multiple output equilibria were possible, some of which do not fully employ the factors of production, (3.) and #1 and #2 together could lead to a decline in all spending (including consumption, of course) as a result of weak investment spending.

1 comment:

  1. On the subject of suboptimal multiple equilibria, I wonder how much Keynes affected the future of game theory with regards to things like an inferior Nash equilibrium.


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