tag:blogger.com,1999:blog-1740670447258719504.post3539340086428513835..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: As misleading as comparing penetration by a rapist to penetration by photons but (mercifully) less offensiveEvanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger56125tag:blogger.com,1999:blog-1740670447258719504.post-56322815010910367012013-06-28T06:46:43.257-04:002013-06-28T06:46:43.257-04:00Who are you talking about Old Odd jobs? I never sa...Who are you talking about Old Odd jobs? I never said any of that.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-21446811445049491002013-06-27T12:33:31.448-04:002013-06-27T12:33:31.448-04:00I think you are giving his argument way too much c...I think you are giving his argument way too much credit. When discussing spending/income in the context of the Multiplier Effect you look at how much was spent/earned over specific period of time. So, in effect the discussion is a conversation about rates. It is always preferable to discuss rates using calculus. However, this discussion can be expressed algebraically provided that you recognize that you are dealing with degrees of change and provide a coefficient that demonstrates how changing one variable will change the rate of other variables. The only thing Landsburg shows is that Landsburg makes .0000001Y. There is nothing to indicate that the initial relationship will hold if his income increases by $X.Anonymoushttps://www.blogger.com/profile/02681526348633581059noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-28256069004360673072013-06-27T07:11:42.542-04:002013-06-27T07:11:42.542-04:00My mistake then.My mistake then.Blue Aurorahttps://www.blogger.com/profile/02044362251868221897noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-41894021761420532852013-06-27T05:54:22.792-04:002013-06-27T05:54:22.792-04:00Thanks!
"all of it's income" should...Thanks!<br /><br />"all of it's income" should be all of its income. Please delete this comment after typo corrected.Patrickhttps://www.blogger.com/profile/18070514070731597767noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-48073536551754255252013-06-27T05:54:20.473-04:002013-06-27T05:54:20.473-04:00Thanks!
"all of it's income" should...Thanks!<br /><br />"all of it's income" should be all of its income. Please delete this comment after typo corrected.Patrickhttps://www.blogger.com/profile/18070514070731597767noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-16887462872427870302013-06-27T03:11:11.837-04:002013-06-27T03:11:11.837-04:00Steve Landsburg was who I was referencing.
I can&...Steve Landsburg was who I was referencing.<br /><br />I can't say for certain if JohnW has one or not.RJhttps://www.blogger.com/profile/03161366475907659967noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-24595732017051230152013-06-27T01:40:53.066-04:002013-06-27T01:40:53.066-04:00RJ: Just where did JohnW say that he has a doctora...RJ: Just where did JohnW say that he has a doctorate in mathematics?Blue Aurorahttps://www.blogger.com/profile/02044362251868221897noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-4610243738227730822013-06-27T01:34:06.741-04:002013-06-27T01:34:06.741-04:00While this might be a "whole lot of nothing&q...While this might be a "whole lot of nothing", to paraphrase Malcolm's words, I still have a question on modeling mathematically (even if it might be very simple maths) Keynesian theory.<br /><br />Why does J.M. Keynes, particularly in Chapters 8 to 10 of <i>The General Theory</i>, use the formulation of MPC < 1?<br /><br />If you read his book properly, one of the big things he's really talking about is actually the stabilization of investment.<br /><br />Correct me if I'm wrong, but he also seems to leave it to the reader to attach his "Marginal Propensity" concept to other parts of the macro-economy (i.e., Marginal Propensity to Invest, Marginal Propensity to Import, et cetera).<br /><br />If Keynes wanted to make sure even the most careless of readers wouldn't take away the wrong message of mindless consumption spending at all costs, why didn't he explicitly spell out the other marginal propensities?<br /><br />Why didn't he put the following thing in his book, which might have been more helpful?<br /><br />MPC + MPI = 1Blue Aurorahttps://www.blogger.com/profile/02044362251868221897noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-80494364999120064972013-06-26T23:42:06.171-04:002013-06-26T23:42:06.171-04:00Another way to make everyone rich.
Y=C+I+G
Assume...Another way to make everyone rich.<br />Y=C+I+G <br />Assume: I is exogenous <br />Government revenue =tY where t is the tax rate then:<br />G=tY +Gd where Gd is deficit spending that is assumed exogenous.<br />Also assume C=Co +CmYd – a pretty common Keynesian consumption function where: Cm=marginal propensity to consume, Co is subsistence consumption and Yd = disposable income = Y-tY = Y(1-t)<br />Then: <br />Y=Co +CmY(1-t) +Gd +tY +I <br />do the math and: <br />Y= (Gd+Co+I)/((1-Cm)(1-t)) <br />Where the Keynesian multiplier is 1/((1-Cm)(1-t)) <br />So all you need do is make the tax rate t =99.9999999% and voila – infinite Y! <br />Note: this works even if the government runs a balanced budget (Gd=0)and Cm changes in response to a change in tax policy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-87241083838578700162013-06-26T22:28:27.689-04:002013-06-26T22:28:27.689-04:00Yep!Yep!PeterPhttps://www.blogger.com/profile/02032621777697914182noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-60237750370388556102013-06-26T22:05:43.093-04:002013-06-26T22:05:43.093-04:00Quibble accepted.
Presumably it's OK to say &...Quibble accepted.<br /><br />Presumably it's OK to say "expenditure today is a function of income yesterday", and that's the intertemporal link in the chain.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-48252060706765371412013-06-26T21:17:54.695-04:002013-06-26T21:17:54.695-04:00One quibble:
"The economy's income today...One quibble:<br /><br />"The economy's income today is the economy's expenditure yesterday."<br /><br />This is incorrect. Correct would be to say: "The economy's income today is the economy's expenditure today." It is just double entry bookkeeping. Each transaction is recorded twice as income (seller) and expenditure (buyer). In each transaction income = expenditure, you just sum them up, there is no today-tomorrow. Economy's income today most certainly is not the economy's expenditure yesterday, both income and expenditure vary from day to day.PeterPhttps://www.blogger.com/profile/02032621777697914182noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-20085804098759609252013-06-26T20:06:15.975-04:002013-06-26T20:06:15.975-04:00It is a little understandable that math people get...It is a little understandable that math people get monomaniacal about the equations, but economists shouldn't make that mistake. I think the person who made the point about time series, and the author making the point about equilibrium got closest to discarding this truly silly discussion.<br /><br />The mathematical model tries to approximate what is happening at a point in time. At this time a high multiplier implies, non-mathematically:<br /><br />- A person with impending bills and extra time to do more work. He gets some money, most of it quickly goes out, and he still has some free time, and has more bills.<br /><br />- If that money goes to another person in the same sad shape, much of it moves along again.<br /><br />- If that money goes to someone in fine shape, the money stalls for a time, maybe a long time.<br /><br />The more people in rough shape (bills and not enough work), the higher the chance the money keeps moving, and quickly at that. Of course this isn't an infinite cycle, hopefully in a pleasant, livable society, more and more people get to be in the third group.<br /><br />Some idiot playing gotcha with the equations trying to describe the economy assuming that everything is static (or already in equilibrium) isn't worth a minute of time, unless that minute helps someone else understand how idiotic it is.<br /><br />This isn't complicated, it isn't even math.mere mortalnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-89573292231213403962013-06-26T16:27:46.679-04:002013-06-26T16:27:46.679-04:00Landsburg is a contrarian troll. I have never read...Landsburg is a contrarian troll. I have never read anything by him that wasn't easily debunked. If this is now appearing on his blog, Slate must have gotten tired of him. mathguyhttps://www.blogger.com/profile/02591559181439884572noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-49667959658625949142013-06-26T14:25:18.608-04:002013-06-26T14:25:18.608-04:00JohnW,
I don't know why you're not seeing...JohnW,<br /><br />I don't know why you're not seeing this because it's been explained to you several times, but SL's equation is just an accounting identity that doesn't even have a multiplier! You derive the Keynesian multiplier by creating a behavioral equation about consumption and then plug it into the identity to explain how it holds.<br /><br />Behavioral vs. accounting identity. That's the mistake here and it's rather brow-raising that a professor with a Mathematics Ph.D misses this. RJhttps://www.blogger.com/profile/03161366475907659967noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-48621340184994480462013-06-26T13:48:37.466-04:002013-06-26T13:48:37.466-04:00As I've said before, if his only point is that...As I've said before, if his only point is that a one-to-one mapping exhibits explosive growth when you introduce an exogenous shift, then he doesn't have much of a point.<br /><br />I think you are missing the deeper problems.<br /><br />If you think he is following the same logic as the Keynesian model, I think you are missing the deeper problem. He is dropping several of the key elements that ensure a sensible result. You don't get to pick out parts of a theory show that in isolation it's possible to put garbage in and get garbage out, and then say there are problems with the theory.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-81676482398751998842013-06-26T13:44:46.390-04:002013-06-26T13:44:46.390-04:00So, aside from semantics about mathematical identi...So, aside from semantics about mathematical identities, you agree with Landsburg's point -- garbage-in-garbage-out. Good thing you did not confuse the issue at all.<br />JohnWnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-91134548944691882872013-06-26T13:32:27.859-04:002013-06-26T13:32:27.859-04:00"Because every Econ 101 textbook I know of te..."Because every Econ 101 textbook I know of teaches aggregate supply before they teach aggregate demand."<br /><br />Maybe things have changed since I've read ECON 101 textbooks. I recall that McConnell and Brue teach the Keynesian Cross before getting to aggregate supply. Case & Fair too. Have they changed?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-82740617207292538982013-06-26T13:31:39.368-04:002013-06-26T13:31:39.368-04:001. Strictly speaking, Y = L + E is not an accounti...1. Strictly speaking, Y = L + E is not an accounting identity, it's a definition. Y = C+I+G is an accounting identity because it takes both sides of the ledger (income and expenditure) into account. That's just semantics when it speaks to what we are calling it, but the exclusion of the expenditure side leads to other problems later (i.e. - not recognizing the point I'm about to make in #2).<br /><br />2. No, they are both good models. The latter just doesn't bear any particular resemblance to the current economy and also doesn't jive with everything else we know from economic theory. So it's garbage-in-garbage-out but there's nothing at all wrong with the logic.<br /><br />3. See my response to 2.<br /><br />I am not confusing the issue at all.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-90955544012425683612013-06-26T13:27:22.452-04:002013-06-26T13:27:22.452-04:00No, no, no to you, too.
I don't see what any ...No, no, no to you, too.<br /><br />I don't see what any of that has to do with Landsburg's point.<br /><br />1) Take an accounting identity. Landsburg's examples were Y = C + I + G and Y = L + E. Those are both identities.<br /><br />2) Now make an assumption. Landsburg's examples were C = 0.8Y and E=0.999999Y. Those are both assumptions or models. They are both poor models at times when policy changes. <br /><br />3) Combine (2) with (1) to derive a multiplier. But the multiplier is not credible since (2) is a poor model.<br /><br />Rather than trying to confuse the issue by going off on a tangent, you should try to follow the logic there. If you think the logic has a problem, then why not specifically state where you think that the logic is wrong?<br /><br /><br />JohnWnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-3318536818710333652013-06-26T12:58:00.226-04:002013-06-26T12:58:00.226-04:00No, no, no.
Malcolm's second and third equati...No, no, no.<br /><br />Malcolm's second and third equation are behavioral laws. Landsburg established the consumption function for E. Malcolm adds that if Landsburg is spending his dollar clearly his personal MPC is 1 so his contribution to the total MPC is 0.00000001, so the economy's MPC is 1.<br /><br />That is NOT an accounting identity. That is a behavioral law added to an identity that together produce a trivial result.<br /><br />Your coefficient on G+I is not an MPC by definition (I and G are not C). If you want to assume an MPI relation with Y, fine, but that's something different. You got them by repeating the accounting identity (if C is 0.8 of the total then the rest has to be I and G).<br /><br />This is exactly why it's important to keep MPC and income share separate. This is why I spent so much time on that point while Malcolm just condensed it.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-85426128226982012042013-06-26T12:47:18.368-04:002013-06-26T12:47:18.368-04:00We are going in circles.
malcolm's second and...We are going in circles.<br /><br />malcolm's second and third equations repeated his first equation. That is what an identity is!<br /><br />Take an identity. Plug in a simplistic model (i.e., a model that does not hold when government policy chnages). Derive a multiplier. <br /><br />Landsburg's point is that the simplistic model invalidates the derived multiplier. <br /><br />As far as I can tell, all you are saying is that the C=0.8Y model makes more sense than the E=0.999999Y model.<br /><br />But unless you are claiming that C=0.8Y is a very good model that holds even when government policy changes, then it is a poor choice to derive a multiplier. Which is Landsburg's point. Accounting identity + poor model = untrustworthy multiplier derivation.<br />JohnWnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-36778570322570398722013-06-26T12:41:34.186-04:002013-06-26T12:41:34.186-04:00To see why MPC=0.99999999 leading to an enormous m...To see why MPC=0.99999999 leading to an enormous multiplier is not logically a problem, consider what it implies. It implies that exogenous investment is essentially zero. The only way that could happen is if one way or another we were post-scarcity - if optimization was not constrained by the productive capacity of the economy. In that circumstance it's reasonable to think that we would have huge multipliers because we could keep producing and producing and producing with no supply constraints or scarcity inducing exogenous investment.<br /><br />All the components of the model - low exogenous investment and high multipliers - hang together just fine logically and in the context of economic theory in a given set of circumstances. The reason why it seems so odd is that those circumstances don't apply to the world we live in.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-60880495032523327802013-06-26T12:37:25.739-04:002013-06-26T12:37:25.739-04:00Your second and third equation essentially repeate...Your second and third equation essentially repeated your first equation. Of course you're just going to get your first equation out of it... that's elementary.<br /><br />A model requires discriminating behavioral assumptions to do any more than that.<br /><br />If we assume MPC = 0.99999999 it will work, it will get a huge multiplier, and that's fine... except that there's no good reason to expect an MPC like that based on what we know about supply, diminishing returns, depreciation, population growth, etc. etc. See my section labeled "A very minor additional problem posed by Landsburg" for this point.<br /><br />Now, on top of all this Landsburg (and Rothbard) are extremely confusing in discussing income vs. expenditure and MPC vs. income share. My contention is that this confusion on the very basic building blocks of the model is what leads them to miss the point that I'm making.<br /><br />An MPC of 0.99999999 with an enormous multiplier isn't illogical in the sense that we normally think of logic. The problem there is garbage-in-garbage-out which is why I called it a "very minor" problem that is basically solved by noting what's garbage according to economic theory and what's not. That's why I prefer to focus on the other problems.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-84884644483350355252013-06-26T12:30:43.930-04:002013-06-26T12:30:43.930-04:00It was directed at malcolm, who seems to be saying...It was directed at malcolm, who seems to be saying that an accounting identity is worthless because it is an identity.<br /><br />Landsburg's logic is perfectly clear. He is saying that if you combine an accounting identity with a bad assumed model (E=0.999999Y or C=0.8Y regardless of government policy), then you cannot trust the derived results.<br /><br />I don't follow your logic. I guess you are trying to say that C=0.8Y is not as bad an assumption as E=0.999999Y. If so, you miss Landburg's point. Unless you are saying that C=0.8Y is a very good model even when government policy changes. If so, then you have a fundamental disagreement with Landsburg.<br /><br />JohnWnoreply@blogger.com