John has said monetary policy is appropriate for managing demand problems. That's tough to square with Jean Baptiste Say, but OK. I eagerly await his video promoting monetary stimulus (I am being sincere here - that would be a very good thing).
But something occurs to me: NGDP is awfully aggregated so sometimes we don't think about the implications of monetary policy. John does realize that a big part of the demand-side stimulus from increasing NGDP is going to come from increasing nominal consumption, doesn't he?
I'm curious how he squares that with his repeated assertions that consumption destroys value (I disagree - I tend to get value after I buy things for consumption).
Tuesday, December 11, 2012
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I noticed in the description to the Follies video he describes increasing the money supply as a "classical approach".
ReplyDelete"NGDP is awfully aggregated so sometimes we don't think about the implications of monetary policy. John does realize that a big part of the demand-side stimulus from increasing NGDP is going to come from increasing nominal consumption, doesn't he?"
ReplyDeleteI asked him a similar question. His response was unsatisfactory.
I've tried to summarize what I believe to be the logic of Papolanomics and will post it here. Maybe I'll get a YouTube account later and see if John will respond as he's been responding to comments there.
ReplyDeleteJohn's first argument: Say's Law is wrong. Keynesians advocate fiscal policy in addition to monetary policy. Therefore Say's Law is right.
John's second argument: Consumption demand is the act of consumption because consumption is consumption and production is production. Therefore consumption demand cannot increase production because because consumption is not production.
John's third argument: Keynesians claim increasing investment can increase savings and increasing savings can lower investment therefore increase savings to increase investment.
John's fourth argument: Consumption is consumption. Production is production. You cannot consume what has not yet been produced. The government can increase consumption spending. Some Keynesians believe this will spur investment and raise incomes and employment. After the current recession consumption has risen along with investment while unemployment has fallen. However unemployment is still high and consumption and investment have not returned to their pre-recession levels. Therefore Keyensians are wrong and Say's Law is right.