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description= 15 posts published by Lars Syll during October 2012;
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ut this situation cannot continue as firms may be losing money a exactly they will cut back on their output incomes will fall consumption may fall further and savings will also fall cutting back on the initial increase that we started with q when will this process stop a when firms stop accumulating inventories i e when ds 0 then and only then will s dk q but how can this be we have assumed that dk stayed the same and we started with an increase in s a you have not been paying attention each time firms reduce their output to match lower demand incomes and savings fall eventually the initial rise in savings is reversed because overall income has fallen q got it but textbooks make a big thing about aggregate savings equalling investment if it is just an accounting identity why is it important a what the textbooks really mean is that we eventually end up with a position in which s dk and that is important for the reasons we have just discussed it is called the paradox of thrift a desire by consumers to increase savings ends up just reducing output and savings do not increase at all of course they are still saving more of their income s y has gone up but because y has fallen not because s has increased q but i thought with all this just in time production stuff firms did not hold many inventories any more a well we could short circuit the story by forgetting about inventories and having firms accurately forecast what demand will be and therefore what their output should be in practice what we call involuntary inventory accumulation can still be important when looking at quarterly movements in national output q but is it realistic to assume investment i mean dk stays the same if savings are initially higher if there are more savings around it becomes cheaper to borrow which will encourage investment right a it might but it might not in particular if output is falling firms may be reluctant to add to their capital stock q but won t interest rates keep falling until they do after all the asset market has to clear a savers have an alternative which is to just keep their savings as money q but they will put the money in a bank and the bank will lend it a maybe but the bank may just decide to hold on to the cash q it seems to be really important what people do with their additional savings a perhaps but i think the key point is that most of the time the person doing the saving is different from and has different motives to the person doing any investing a highly complex financial system links the two and in that system there will be lots of opportunities for the additional savings to be parked as money q money seems very important here it is why the extra saving does not have to find its way into more investment a i think that s right q if people hold the extra savings as money will that not increase money demand what happens if the central bank keeps the money supply fixed a people hold money not just as a way of saving but also to buy and sell things and if less is being consumed there is less need for money on this account it is difficult to predict what will happen to the total demand for money which is why central banks nowadays focus on determining short term interest rates rather than the money supply q that s not what it says in my textbook it says the central bank fixes the money supply a yes i know i m afraid it s a bit out of date don t ask me why q so if the central bank determines the interest rate why don t they ensure the interest rate is low enough to encourage firms to buy more capital goods a that is what they would like to do there are two problems first it may take some time for the monetary authorities to work out what is happening and what the right interest rate is i could talk about real and nominal rates here but let s leave that for another day second nominal interest rates cannot go below zero and maybe we would need negative interest rates to persuade firms to raise investment enough q my textbook also says that the classical model assumes interest rates adjust so s i by which i assume they mean s dk does that mean the classical model is wrong a only if you think it applies at all times and that there is no other reason why output cannot fall however if we assume that the monetary authorities eventually are able to chose the right interest rate then the classical model is fine when thinking about economies over a long enough time horizon q this all seems like common sense i feel a bit stupid not to have understood this before a don t worry you are not alone simon wren lewis savings equals investment share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky neoclassical economics visionless and trying to escape responsibility 29 oct 2012 at 09 24 posted in economics 1 comment roger backhouse and bradley bateman has a nice piece in new york times on the lack of perspectives and alternatives shown by mainstream economists when dealing with the systemic crises of modern economies economists do much better when they tackle small well defined problems as john maynard keynes put it economists should become more like dentists modest people who look at a small part of the body but remove a lot of pain however there are also downsides to approaching economics as a dentist would above all the loss of any vision about what the economic system should look like even keynes himself was driven by a powerful vision of capitalism he believed it was the only system that could create prosperity but it was also inherently unstable and so in need of constant reform this vision caught the imagination of a generation that had experienced the great depression and world war ii and helped drive policy for nearly half a century in the 20th century the main challenge to keynes s vision came from economists like friedrich hayek and milton friedman who envisioned an ideal economy involving isolated individuals bargaining with one another in free markets government they contended usually messes things up overtaking a keynesianism that many found inadequate to the task of tackling the stagflation of the 1970s this vision fueled neoliberal and free market conservative agendas of governments around the world that vision has in turn been undermined by the current crisis it took extensive government action to prevent another great depression while the enormous rewards received by bankers at the heart of the meltdown have led many to ask whether unfettered capitalism produced an equitable distribution of wealth we clearly need a new alternative vision of capitalism but thanks to decades of academic training in the dentistry approach to economics today s keynes or friedman is nowhere to be found and philip mirowski has an equally interesting article on opendemocracy net explaining why neoclassical economists don t seem to have suffered one whit for the subsequent sequence of events a slow motion train wreck that one might reasonably have expected would have rubbished the credibility of lesser mortals two articles well worth reading share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky vinst den skattefinansierade välfärdssektorns dödgrävare 29 oct 2012 at 09 07 posted in politics society comments off on vinst den skattefinansierade välfärdssektorns dödgrävare den socialdemokratiska partistyrelsen har lagt förslag om nationella kvalitetslagar för ordning och reda i välfärden syftet är att förbättra kvaliteten och avsevärt begränsa vinsterna detta är ett viktigt beslut socialdemokraterna går nu till val med löfte om vinstbegränsning men beslutet rymmer också problem mest problematiskt är att partistyrelsen inte föreslår någon formell reglering sverige ska förbli det enda land i europa som saknar regler för vinstuttag i välfärden inte ens skolan ska fredas från vinstintressen den skarpa ideologiska skiljelinjen mellan borgerlig och socialdemokratisk politik har alltid handlat om synen på marknaden socialdemokraterna ser att marknadens räckvidd behöver begränsas i syfte att värna gemensamma intressen som familjebildning hälsa social sammanhållning och miljö borgerligheten har i olika grad förespråkat marknadens frihet ett problem med förslaget om nationella kvalitetslagar är det saknar en konsekvent idé om vad marknaden kan och inte kan göra det sägs å ena sidan att marknaden inte klarar att lösa välfärdens kvalitetsproblem å andra sidan bejakas i förslaget både vinstuttag och marknad det saknas tydlighet i såväl analys som värderingar vissa åtgärder som öppna böcker syftar uppenbarligen till att förbättra marknadens funktion med mer information kan brukare lättare välja rätt och verksamheten kan kontrolleras men andra åtgärder som möjligheten att sätta stopp för nyetableringar syftar tvärtom till att försämra marknadens funktion en marknad utan fritt tillträde kan ju aldrig bli en effektiv konkurrensmarknad vinstens disciplinerande funktion går om intet när nya konkurrenter inte får komma intill istället får politiker makt att dela ut exklusiva rättigheter till lokal näringsverksamhet vore det inte rimligt att företag som ges exklusivt tillträde till en stängd marknad också har ett tak för vinsten staten bör behandla alla medborgare med samma omsorg och respekt det är en princip som jag ställer mig bakom men jag menar att vi idag bör ställa oss frågan om det överhuvudtaget är möjligt att följa denna princip på en välfärdsmarknad där marknadslogiken i långa stycken har ersatt de normer som bärs av demokratin vad händer med medborgarskapet när staten som har uppdraget att behandla alla medborgare lika delegerar skolor och sjukhus till vinstdrivande företag som har ett intresse av att skilja ut lönsamma medborgare från olönsamma och vad händer med socialdemokratins allra viktigaste mål jämlikheten när marknadskonkurrens och valfrihet driver fram bristande likvärdighet och segregation jag vill hävda att det aktuella förslaget om vinstbegränsning i välfärden nationella kvalitetslagar för ordning och reda i välfärden tyvärr i allt väsentligt bärs av marknadsliberala idéer de bärande värden som lyfts i förslaget om nationella kvalitetslagar är effektiv användning av skattemedel och att alla ska ha rätt att välja dessa värden kan framstå som självklart positiva men de står inte desto mindre i tydlig konflikt med de värden som socialdemokratin historiskt har hävdat vi har hävdat idén att välfärdspolitik är en produktiv investering inte en kostnad att minimera vi har hävdat att idén att jämlikhet alla människors lika värde är ett överordnat mål för samhällsbygget vi har hävdat att frihet och valfrihet har en gräns friheten måste vara hållbar den måste vila på en bädd av solidaritet lena sommestad ordförande för s kvinnor man kan inte annat än hålla med denna eminenta ekonomihistoriker i den analys hon gör frågan är nu om landets socialdemokratiska gräsrötter kan leva med partiledningens kompromissförslag risken är tyvärr stor att socialdemokraterna om man håller fast vid förslaget förlorade nästa val redan i fredags share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky saving doesn t finance investment 28 oct 2012 at 17 18 posted in economics 3 comments an act of individual saving means so to speak a decision not to have dinner to day but it does not necessitate a decision to have dinner or to buy a pair of boots a week hence or a year hence or to consume any specified thing at any specified date thus it depresses the business of preparing to day s dinner without stimulating the business of making ready for some future act of consumption it is not a substitution of future consumption demand for present consumption demand it is a net diminution of such demand if saving consisted not merely in abstaining from present consumption but in placing simultaneously a specific order for future consumption the effect might indeed be different for in that case the expectation of some future yield from investment would be improved and the resources released from preparing for present consumption could be turned over to preparing for the future consumption in any case however an individual decision to save does not in actual fact involve the placing of any specific forward order for consumption but merely the cancellation of a present order thus since the expectation of consumption is the only raison d être of employment there should be nothing paradoxical in the conclusion that a diminished propensity to consume has ceteris paribus a depressing effect on employment the trouble arises therefore because the act of saving implies not a substitution for present consumption of some specific additional consumption which requires for its preparation just as much immediate economic activity as would have been required by present consumption equal in value to the sum saved but a desire for wealth as such that is for a potentiality of consuming an unspecified article at an unspecified time the absurd though almost universal idea that an act of individual saving is just as good for effective demand as an act of individual consumption has been fostered by the fallacy much more specious than the conclusion derived from it that an increased desire to hold wealth being much the same thing as an increased desire to hold investments must by increasing the demand for investments provide a stimulus to their production so that current investment is promoted by individual saving to the same extent as present consumption is diminished j m keynes general theory share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky smart chicago professor steven levitt not so smart after all 28 oct 2012 at 16 16 posted in economics statistics econometrics 3 comments in an interview not so long ago steven levitt mr freakonomics answered the question how he could tell the difference between a smart person and a not so smart person well one good indicator of a person who s not so smart is if they vote in a presidential election because they think their vote might actually decide which candidate wins there has never been and there never will be a vote cast in a presidential election that could possibly be decisive statistics professor andrew gelman aptly retorted i have no problem if levitt wants to argue that it doesn t matter who wins the election i disagree with him given the evidence that the positions of the democratic and republicans in the u s are farther apart on economic issues than are left and right groupings in many other countries but levitt can make that argument if he wants to and i have no problem if levitt wants to say that for a one in a million or one in ten million chance he doesn t think it s worth it to vote but i don t think levitt is making sense when he writes that there never will be a vote cast in a ...
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