Sunday, December 9, 2012

A little more on John Papola

First, I want to thank all the great commenters that have been making these points. I've been trying to study for a macro exam which means allowing myself a flurry of morning posting and then letting it be mostly. Obviously I've been in the comments, but it's nice to have commenters really keep it going. This is a really important issue. If things like this convince people that demand is not a problem or that Say won the argument with Malthus, that has bad consequences for the science and for real people today. That's why it's worth arguing with people with a platform like John Papola.

I wanted to respond to one last comment of John's. He writes: "I was very VERY explicit about what was a fallacy: that consumer spending can grow the economy. That's not calling all "demand-side stories" a fallacy by any stretch. It's calling underconsumptionism a fallacy... and it is... and there is a tragic amount of underconsumptionist-sounding rhetoric at all times being asserted by Keynesian economists and pundits."

So the "macro fallacy" songs were by Keynes and Malthus. Say and Hayek were both responding to the fallacies (Say's line was "hark I hear a fallacy...", the fallacy being Malthus's book which the narrator described as "defunct"). As I noted before, Keynes didn't even mention consumption in the video. He talked about "expenditure", "spending" and buying "toys". Malthus referenced both "consumption" and "spending".

And what was the "fallacy" that Say identified? He sang that the fallacy was "demand can grow the economy".

So John is blatantly misrepresenting his own video when he says that "That's not calling all "demand-side stories" a fallacy by any stretch". Of course it is John. You put a non-consumption specific demand side story in both Keynes and Malthus's mouth (along with a consumption-specific story in Malthus's mouth), which you highlighted as fallacies - and then you had Say correcting the fallacy by specifically rejecting demand-side stories.

John continues later in his comment: "And correct me if I'm wrong but isn't the Keynesian framework first and foremost about restoring a full-employment equilibrium and NOT long-run growth?"

Keynesians say that at full employment the "classical system" (what we'd talk about as neoclassical or some neoclassically-grounded growth theory) holds. If Keynesians are not concerned about long-run growth that's news to me. There are less disagreements in the area of long-run growth, if that's what you mean (some Post-Keynesians talk about demand-led long run growth but not all of them). John thinks this is relevant because: "I was EXPLICIT that I was talking about GROWTH. Growth is driven by increased productivity and efficiency that leads to more valuable output per person."

This doesn't seem right at all. There were references all over the video to the recession (it's the first and last thing the family talks about). They started the video talking about the recession. Keynes sang about recovery. Malthus sang about general gluts. Say is responding to general glut prospects. There are non-descript references to growth, but no references to long-run growth at all.

If you look at the video itself, he's clearly telling people demand-side stories are fallacious, which is a very bad thing. This isn't new. This is in all the videos. They show these videos in classrooms. I think I mentioned it before, but the 300 person freshman macro lecture I TAed last year showed The Boom and the Bust. There was some discussion afterwards and it was decidedly pro-Hayek's side. We hadn't covered Hayek's actual macro in the class - they were largely going off of the video (which is probably true of a lot of viewers). It's not good at all that in the middle of a major recession kids are getting taught that Say beat Malthus, that Hayek beat Keynes, and that the problem is not an aggregate demand problem. There is a lot to get out of Say and Hayek and a lot to criticize in Malthus and Keynes. But dismissing aggregate demand explanations of the crisis is counter-productive.


  1. What I mean above is that there aren't disagreements between Keynesians and non-Keynesians when it comes to long-run growth. There is plenty to talk about, of course. That's one of the areas I'm interested in, personally.

  2. Daniel, I'll email you the script so that your next post doesn't so plainly misrepresent the video. I know you're not trying to spin it, yet I don't understand how you're arriving at these conclusions.

    The ONLY policy that this video criticizes is using increased consumption as a means to recover and grow. If you believe that making this criticism is an attack on "all demand-side stories", you're actually making a stronger case against Keynesianism than I have.

    Here's the first voice over:

    "Stop right there! Is your family’s holiday spirit and checkbook suffering from the fallacy that consumer spending grows the economy? "

    Consumer spending. Growth. Not government spending. Not investment spending. Not aggregate demand. I don't see how that isn't absolutely EXPLICIT. It is. I'm clearly criticizing consumption as a path to growth.

    The keynesian model is technically about aggregate demand. I know that. I think that over-aggregation leads Keynesianism to be blind to the mechanics of change that actually matter in economics. I think the focus on spending beyond monetary stability concerns is wrong-headed. Apple spends less on R&D than Microsoft, yet has grown more and produced more valuable output from that smaller but smaller amount of activity. But that is a digression. It's not in this video.

    The Malthus lyrics are clear, which admit. The Keynes lyrics are equally precise:

    Income equals expenditure they are one-and-the-same.
    When the economy contracts your savings are to blame.
    So goods collect upon the shelves with workers unemployed
    if you want a recovery… buy toys
    moun-tains-of toys..
    if you want a sound re…cov…er..y buy toys.

    What, exactly, do you think "buy toys" means, Daniel? Toys are the quintessential consumer good. How do you come away from this, and even quote it, yet don't get that it's about consumption? How could you write " As I noted before, Keynes didn't even mention consumption in the video." Yes he did. Right there. You even quoted it. "Buy toys". Go out there and consume. I don't think anyone is confused about that from the video, except you it seems. Sorry if I didn't use the word "consume"... and toys played into the christmas theme. It's not a whitepaper, Daniel. But it's still clear to everyone and accurate. Keynes himself advocated unproductive consumption, as we all know. His moderns do the same.

    1. If Keynes is just talking about consumption here then you've clearly misrepresented Keynes.

      But he wasn't just talking about consumption. The narrator introduces him as talking about "spending" (straight to the top of the pop charts!), and Keynes refers to "expenditures". So that's two references to demand in general and only one vague reference to consumption by talking about "toys".

      Different people are going to take this in different ways. Many people will take it as Keynes offering a consumptionist argument. Many will take it as him supporting a broader demand-side story which you are telling them is a fallacy. Either is problematic. "Expenditures" "spending". I'm not making this up. It's in your script.

    2. If Keynes is just talking about consumption here then you've clearly misrepresented Keynes.

      The argument is not that Keynes "only talked about consumption." It is his theory that increases in consumer spending increases employment and can grow economies.

    3. MF nailed it. It's totally weird for you to claim that this video is my attempt to represent ALL of Keynesianism in 4 bars of lyric, Daniel. I find it completely disingenuous. You know that I've produced 2 other videos that dig deeper and 45 minutes worth of content beyond those.

      Keynesians assert consumptionist solutions to depression. That is indisputable fact. The public gets an earful of it 24/7. If you want to keep denying reality because academic literature get contradicted by keynesian economists whenever they write or speak for the public, take it up with Krugman, Stiglitz, Robert Reich, the Obama administration and those who keep pushing consumption as path to recovery.

      This video is completely fair to reality AND to Keynes writing. It's not a complete account of Keynes. That's why, you know, there's lots more content already produced and readily accessible on our YouTube channel. But you know that.

      Also, are you arguing that Keynes put "spending" straight to the top of charts with the General Theory? Seriously? How is that false at all? In each case where I wanted to make sure we were focusing on consumer spending, the script does. It's completely intellectually honest and WEEKS went into the lyrics. I stand by them all.

      You appear to be trying judge this piece on the basis of academic precision down to the particular word. That is ludicrous and unreasonable.

      People will take away that Keynesians push consumer spending as a path to prosperity, which is true. Plain and simple. Keynes offered consumptionist solutions to investment-drive problems. That's the theory. The guy said we could build pyramids to restore prosperity.

    4. re: "Also, are you arguing that Keynes put "spending" straight to the top of charts with the General Theory? Seriously? How is that false at all?"

      It's not false. The problem is you call that a fallacy!

      You and MF are misunderstanding me. I'm not saying anyone is being misrepresented (although I anticipate many will come out of it thinking Keynes was a consumptionist, that's not really in your lyrics). I made a point in my very first post of saying your portrayal of Keynes was fine.

      The problem is what you are calling a fallacy.

    5. re: "You appear to be trying judge this piece on the basis of academic precision down to the particular word. That is ludicrous and unreasonable. "

      Oh give me a break John. When do I do that? I've repeatedly said there's latitude for artistic license and format constraints. Give me a break. You're dodging the issue.

    6. The video calls one thing a fallacy: that consumer spending can grow the economy. That's it.

  3. Here's the final voice over:

    "So relax, enjoy the holidays, and say “Bah Humbug” to any pundit or politician pushing consumer spending as a path to prosperity with EconStories “Deck the Halls with Macro Follies” holiday album!!”.

    It's purely and narrowly a criticism of consumer spending as a path to prosperity. The path to prosperity. Real growth. The Hayek lyrics make this connection EXPLICIT:

    "Delaying consumption of goods today a better tomorrow we pave.

    If growing prosperity is our goal the best thing we can do is save"

    growing prosperity.

    Then the kids say:

    "if we save more today, we can have an even better holiday tomorrow".

    The entire video has one primary message: the engine of growth is savings and investment, NOT consumption. That's it. Any policies which encourage consumption and discourage savings and investment are anti-growth, short-run or otherwise.

    Normal people don't make distinctions between "the short run" and "the long run". I don't find that language particularly helpful anyway. Since I don't believe or see any convincing evidence to support the idea that consumption spending (or unproductive government spending) can fix the short run monetary problems, there is no discord between the short run and long run for me. The "demand side" is all about nominal shocks and monetary policy.

    Again, the ONLY way that you can claim I'm attacking all "demand-side stories" is if the only demand side story is consumer spending. But it isn't. Monetary policy changes are a demand-side story. As I've learned from reading Scott Sumner and George Selgin, the Fed essentially has control of AD / NGDP through monetary policy (and yes, even in a liquidity trap). I even tried to allude to this by saying "the only person with the power to create presents out of thin air is Santa himself" and making my Dad, Ben Bernanke, Santa. What do you think that means? Given it's opaque. But here's the early draft:

    "Rejoice in fiscal fortitude and leave satiated an excess demand for money to the only guy with the magical power create it out of thin air…"

    That confused the people I showed the video, including savvy and engaged non-economists. So I made it much simpler and more of a subtle inside joke while keeping the language in the Christmas metaphor. Better to have it fly over people's head then leave them totally confused.

    1. re: "It's purely and narrowly a criticism of consumer spending as a path to prosperity. The path to prosperity."

      That one sentence is narrowly about consumption. But you have Say talking about all demand side discussion as a fallacy. I know you have lines in there that are consumption specific. That doesn't change the fact that you also have lines in their about demand in general.

    2. re: "Again, the ONLY way that you can claim I'm attacking all "demand-side stories" is if the only demand side story is consumer spending."

      If you don't think "expenditure", "spending", and "demand" is a non-consumption-specific demand side story I don't know what to say. What did you intend "expenditure", "spending", and "demand" to refer to? How do you expect people to interpret that?

    3. You're not being an honest critic, Daniel.

      Is it false that Keynes assert Income = expenditure and that if the economy collapses, savings are to blame?

      It's cause then effect. Savings cause the crash. Buying toys (clearly consumption) can get us out. That's the Keynes lines. All of that is completely fair and accurate. The entire piece is framed around consumption and the Keynes lyrics are accurately, if whimsically, noting that Keynes also saw consumption as a path to recovery and growth. All true. Nothing false.

      Please point me to the blog post where you've parsed any one of Robert Reich's underconsumptionist videos with the same ridiculous approach that you're taking to this. I am the guy who, with Russ, wrote and produced Fear the Boom and Bust, which any viewer of Macro Follies can view to get even more Keynes.

      Give me a break. I can't capture ALL of Keynes in two verses. The context of the video, it's setup and conclusion all make the criticism's focus absolutely clear. If you're going to say that I'm guilt of the sin of omission for not including all of Keynesianism in this video after having produced two others, so be it. It's an unreasonable expectation given the reality of consumptionist Keynesian rhetoric in the real world.

    4. Don't call me dishonest.

      When did I ever criticize your limited treatment of Keynes here? I praised you for not putting underconsumptionism into Keynes's mouth (until you elaborated on this toy thing, of course - but that's minor and I haven't criticized that).

      What I've criticized you for is telling people demand-side explanations are a fallacy. You tell me you are only talking about consumptionism but I've quoted several instances where that is simply not true - you talk about both consumptionism and demand-side arguments in general. And you call that a fallacy, which is what I have a problem with.

      I'm not aware of these Robert Reich videos. Email it to me and I'll write a post on it tomorrow morning. Search "consumptionism" on my blog. You'll find plenty.

    5. And that is false, Daniel. I haven't criticized demand-side explanations in the video. I don't know where you're getting that from. Maybe "not being an honest critic" was too harsh. You're putting words in my mouth. The video is CRYSTAL clear.

      The only use of the word "demand" is in Say's lyrics, which are totally in keeping with being faithful to the classical treatment of Say's law in response to Malthus.

      This video has a very strongly positioned voice over that makes a clear argument and it doesn't condemn monetary policy, tax cuts or other policies which could be deemed "demand side". It criticizes spending. Normal people don't have a clue what is meant by "demand side", Daniel. Only economists do. Even in the Say piece, the use of "demand" is best understood as "consumer demand" since it's Say responding to Malthus.

      I am a critic of fiscal stimulus. I think it's nonsense and see no evidence that it's ever worked. The "demand side" is solely about monetary policy, isn't the Fed (for better or more likely worse) essentially controls nominal GDP.

  4. Yes, in the sense of the "supply side" I've enumerated above, real growth is all about the "supply side". It's about Say's law and classical econ with productivity and value-added production at the center of the story. But even the framing of "supply side" and "demand side" is wrong in my view, UNLESS you're distinguishing the "supply side" as "real" and the "demand side" as nominal. Why? Say's law!

    Demand, when it's not generated purely through the printing press, is constituted by supply first. We're all suppliers/producers, trading with each other. We produce so that we can consume. Production is the means to our consumption ends. That is the secondary message of the video. We produce with the goal of consuming in mind, lest we wouldn't bother. Nobody wishes to work for work's sake (unless it is a passion project and thus arguable a consumption activity in it's own right, like painting or writing, etc).

    There is no such thing as a distinct "aggregate supply" separate from "aggregate demand" except as a model to understand the role of monetary policy. In real terms they are one-and-the-same. Every trade at a price which composes total economic activity is both an act of supply and demand at the same time by both trading parties. There aren't real AS and AD curves that interact. It's an imperfect model that somewhat abuses the insights drawn from the Marshallian graph. But it can be useful when putting money in the middle and introducing the loose joint of money and monetary policy is what allows the "demand side" to become understandable as separate from exchange between producers. Perhaps I'm redefining these models in my own terms. If so, so be it. This is how I understand macro phenomena.

    As Lars Christensen once wrote, another influence of mine, macro and monetary policy is about allowing Say's law to work, by ensuring that supply creates demand for something other than hoards of cash. And yes, even that is only necessary because of "sticky" wages. If there were less nominal rigidity in the labor market, in large part through government policies that push up minimum and reserve wages, even hoarding would be less of a problem. Guess who else has helped me understand this stuff? Brad Delong. He wrote the "missing macro playbook" where he explained that Say's law works great unless people increase cash holding to a serious deflationary degree, pointing to John Stuart Mill for support. He even noted that the key was to increase the supply of "safe assets" to meet demand as the answer. He simply went off the rails by claiming that those safe assets should be treasury bills instead of dollar bills. I don't know why, but I assume it's about the liquidity trap. He was, after all, among those claiming that the Fed was out of bullets in 2008 and 2009. Man was he wrong on that count, but I'll leave Sumner to that critique. Anyway...

    1. I don't understand what Say's Law has to do with long-run growth.

      I don't think sentences like "Demand, when it's not generated purely through the printing press, is constituted by supply first." I don't understand this habit you have of talking about one coming first or second. It's a simultaneous thing. You keep talking about Steve Jobs - he did what he did because he anticipated demand for his product.

      I think it's more accurate to say that in the short run output levels are usually constrained by demand and in the long run output levels are usually constrained by supply.

      Brad DeLong is great on Say's Law. You should ask him what he thinks about fallacies in the Malthus/Say discussion. You're basically saying "Say's Law works great except insofar as there are all these problems that Malthus pointed out with it which today Lars and Brad highlight as well".

    2. Right here you are tapping into what I view as the root issue.

      Say's law has everything to do with long-run growth because it demonstrates why increased productivity (supply) opens up new markets and grows the economy. The economy grows by finding ways to increase the supply of salable goods.

      I see the deep problem beginning with this notion that there are "demanders/consumers" and "suppliers/producers" as distinct groups. There isn't. There is production and exchange. The two "sides" are not really "supply" and "demand", but one supply for another. Exchange occurs when two people bring value to the table which the other values higher. Both are bringing production, in a real sense, to the table. As Mill said "commodities exchange for commodities" (I'm pretty sure that's the exact quote).

      There is no demand without first supplying value to the market. For most people, they supply their labor and that supply enables them to demand other goods and services. But their supply comes first. There is no income for a good while it is in the process of being produced. It is only AFTER it is produced that it can be sold.

      Imagine you and I on a desert island. We both have endless wants and needs. Food, water, shelter, entertainment, healthcare, etc. We have nothing. Now, imagine that you get to work fishing while I do nothing but sunbath. You know for a FACT that I am going to be hunger. You can surely anticipate my potential demand for fish. But if I don't first produce something for you, no exchange is going to take place. Supply enables "demand". You fish and I loaf around… not dice. No demand. No trade. Even though it's totally clear that I have a biological need to eat and you could reasonable predict that need.

      So "Demand" is not something distinct from supply in real terms. The only way to separate demand from supply is to think purely in monetary terms. When money is in the mix, it can be supplied and demanded as well, but since there is no market for money except as a medium of exchange for other goods, the impacts of changes in the demand for money ripple out to the economy as whole. But let's leave that to the side for a moment and dig into what my exposition of Say's law helps us understand.

    3. 1. Consumption does not grow the economy.

      Consumption is the end, but not the means. Production on each side is the means. We don't need to worry about consumption AS MACROECONOMISTS. Yes, individual businesses are obsessed with serving customers. But that's not macroeconomics. And those businesses won't sell anyone anything if they haven't earned the money to buy it, through supplying value to others.

      Consumption uses stuff up without making us better at producing more tomorrow. It's "unproductive". Consumption is the ends, not the means. If people decide to consume less, that's not a macroeconomic problem in and of itself. It's nothing to worry about, nor is consumption something to b actively encouraged. It NEVER needs encouragement form a macroeconomic perspective. Never.

      That's the fallacy I'm attacking in the video. That we can get richer by taking our money and consuming stuff. Cash for clunkers made America POORER, as just one especially horrible example. An understanding of Say's law makes that clear.

      2. Unemployment benefits may be humanitarian, but they are NOT stimulus.

      Imagine we're a tribe of 10 people. All of us contribute through our hunting, fishing, sowing, building, etc, so that the community may trade and consume the fruits of each one's production. Each must produce more than they need or produce that which they don't wish to keep if they are to be contributing to the tribal economy. One of our tribespeople becomes blinded in an accident. The tribe is now poorer for the lack of that person's contributions. It's poorer still as a whole for the fact that he is now consuming the productions of the others while not producing anything of greater value (the whole mutual benefit of trade). I'm not saying that the community shouldn't supper their blind friend. We should. But it's not stimulus. We aren't richer for his consumption of our work. We're poorer, materially. Richer in spirit perhaps. But that's it.

      3. Increasing our production per person grows the economy, and that needs savings.

      Increasing productivity is the source of growth because the more we produce, the more we can consume. How do we do this? Through taking the time to invent better mousetraps and apply capital and ingenuity to problems. That process doesn't generate income immediately. It takes investment. Either the individual or company forgoes consumption in order to fund that investment (stores up fish so that they have time to construct a net) or they leverage the savings of other people, through debt or equity sales. Say's law, tells us that productivity is central to growth and savings is central to increasing productivity.

    4. 4. Recessions are usually production failures first.

      The failure of producers to add value in their production is the main cause of recession. This is way firms fail and profits collapse BEFORE the increases in demand for money start to occur, and are a reactive secondary issue. The aggregate level of production is not what matters. It's that we're producing goods that will trade at cost-covering prices, revealing that we've added value in the production process. If we can't sell at a profit, that means we've destroyed value. Recessions occur when there is a cluster of production errors. Classicals suspected that the monetary system was likely to cause such coordinated failures and the Austrians systematized that insight, noting the centrality of interest rates is coordinating the structure of production.

      So Say's law and the centrality of value-adding production as the enabler of all real demand and growth is embedded in classical theories of the cycle.

      The monetary hoarding issue, which Keynes focused in on as a primary cause, is for classicals an important but secondary concern. Say himself wasn't good on this issue but JS Mill was as was Hayek. We should address monetary disequilbirium by increasing the supply of the good actually demanded- money - and not tricking ourselves through excessive aggregation into believing that any "spending" will do, including and especially consumption.

      Is it possible in theory to have a recession causes solely by a money-demand shock or money supply collapse? I guess. Am I aware of any at all? No. If you are, please tell me, because every recession in the US I'm aware of was triggered by real events, especially inflationary bubbles bursting as profits tank.

    5. John, we have a monetary economy, which you seem to acknowledge can cause problems which invalidate Say's Law. Yet you keep talking about barter economies and Say's Law? Which one is it?

      You're right that the current recession is the result of the collapse of the housing bubble, but you seem to be implying that because it is we shouldn't even do monetary policy.

      Why is that if people want to lend the government money in a recession at negative rates we shouldn't borrow that money and spend it?

      How do you think people saving more at the zero lower bound increases investment? Deflation?

      You're implying the government caused the housing bubble by keeping interest rates too low, yet you want more investment? So the Fed should have raised rates?

      You want to return to the Keynesian post-war era that Keynesians champion but blame Keynesians for Reagan, Clinton and Bush? Rubinomics was about balancing the budget (sound money) to lower interest rates to promote long term growth. The capital gains tax cut was a supply side cut. The stock bubble was an investment boom. You'd think you'd be happy.

  5. For the general public, the focus on the importance of consumer spending by an army of keynesian economists, pundits and politicians is a highly destructive cultural drag. It's a bad thing for growth that US savings rate fell from its 1950s and 60s highs of 12% all the way down to 0% and even now isn't back up to that thrifty time. I fault demand-siders in part for that change.

    So the general is my audience. Yes, I'm a skeptic of social benefits derived from modern macro and to the extent that fallacious ideas like consumption growing the economy emerge from it, I'm going to continue taking those on for the benefit of our general understanding of what creates the wealth of nations and what uses that wealth up.

    The technocratic precision of macroeconomics appears to me to exist mostly within the very large margin of error. It's a fatal conceit. It's the pretense of knowledge. And when that work undermines deeper truths, it becomes downright destructive. I don't know what, if any, good has come from the field of macroeconomics for society. On balance, it appears to have made our understanding of the world worse compared with the classical era of Smith and Ricardo. When I hear Tim Geithner talking about how the Chinese need to increase their consumption so that there is a more "balanced" growth, whatever that means, my conclusion is "he doesn't understand where growth comes from at all". The focus on the short run and short circuited basic Smithian insights.

    As a side note, I don't dispute and haven't that Keynes explanation for the cause of a downturn is a collapse of investment spending. This too is a straw man critique that has been made here and elsewhere of my work. Remember, the lyrics from Fear the Boom and Bust (2010) went as follows:

    "Business is driven by the animal spirits
    The bull and the bear, and there’s reason to fear its
    Effects on capital investment, income and growth
    That’s why the state should fill the gap with stimulus both…"

    Got it. Got it from the beginning. Investment is the volatile driver of the business cycle. Austrians see the same thing and blame it on interest rate elasticity of investment spending (that nexus of savings and investment which Keynes denied existed) rather than an appeal to causeless mass psychological changes as businessmen just lose their nerve.

    What Keynes and Keynesians did and DO say is that we can consume our way out, that consumption spending can fill the "gap" for investment spending. It is said ALL the time. Bob Murphy has my short list of exemplars if you're interested in support for this claim (it was a comment in a former post here):

    THAT is what I continue criticizing besides the general idea that using up consumer goods can grow the economy, recession or not.

    1. re: "For the general public, the focus on the importance of consumer spending by an army of keynesian economists, pundits and politicians is a highly destructive cultural drag."

      There are problems with a consumptionist perspective, which is why I take the time to lay out the case against it on my blog fairly often. But if I had to choose between a public with consumptionist proclivities and a public with anti-demand-side proclivities, I would choose the former. The latter is much worse.

      I agree the general public is your audience. That's precisely why I have these concerns.

    2. "It's a bad thing for growth that US savings rate fell from its 1950s and 60s highs of 12% all the way down to 0% and even now isn't back up to that thrifty time. I fault demand-siders in part for that change."

      That statement is deeply, deeply ignorant, as can easily be seen here:

      Did Keynes Hate Saving?

      Yes, the savings rate for the 1946–1973 period was between about 8–10%: and that was in the era of classic Keynesianism!

      There is some evidence that it was actually rising at the end too, as I note in the post above.

      When full employment and Keynesianism were abandoned and financial markets were subject to neoliberal legislative bills loosing them considerably, the savings rate crashed, particularly in the 1990s when Keynesian demand management had been well and truly abandoned for neoliberal bubblenomics.

      So, if we want to blame anything for the collapse of the US personal saving rate after about 1985, it is neoclassical/neoliberal economics, not Keynesian economics.

    3. John@December 9, 2012 10:53 AM said:

      "What Keynes and Keynesians did and DO say is that ... consumption spending can fill the "gap" for investment spending. "

      Do you believe capitalists increase production of products when demand for those goods surges?

      If you think "no", you're basically saying to us that capitalism does not work.

      If you admit "yes", it is obvious consumption demand has A ROLE in driving an economy, though not the only one obviously.

    4. I already replied to this. As John Stuart Mill noted, the demand for commodities is not the demand for labor. We've seen that quite clearly in this recession, where consumer spending recovered and was met by increased productivity and output even as unemployment flatlined (especially when looking a labor force participation).

      Firms will do whatever they can to meet demand, including increasing prices, employing more efficient capital equipment, and yes, hiring more people. But, as a small business owner, I can tell you first hand that hiring people is a big commitment and not something I'm likely to do in response to short-term increases in demand. The decision to hire is NOT some hydraulic reaction function of aggregate demand. It's a complex decision impacted by many factors including the availability of people with the needed skills for the task. There's a human capital complementarity issue. People aren't homogenous.

      If I recall, the whole idea of stimulus is to restore full employment is it not? The last time I checked, we can have inflation (excessive aggregate demand) AND high unemployment. So demand can cause prices to rise and/or production to increase and/or new workers to be hired. But none of it is hydraulic or guaranteed or reasonably modeled by ex ante computers.

    5. "We've seen that quite clearly in this recession, where consumer spending recovered and was met by increased productivity and output even as unemployment flatlined (especially when looking a labor force participation)."

      So consumer spending increased and the economy grew? What point do you think you're making here?


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