An alternative title to this post could have been, ‘The Interest Rate on Public Debt is at the Discretion of Government’. This remains true even though, in the neoliberal era, governments usually require themselves to follow various unnecessary rules on how their spending is to be conducted. These rules are voluntary and can be removed at a later time. But even while these rules are in place, they do not prevent government from dictating the terms on which it spends.
An earlier post discussed some of the dynamics of output and demand implicit in the income-expenditure model. Attention was confined to a simplified economy that was stationary other than when adjusting to one-off exogenous changes in demand. The present post considers a continually growing economy in which autonomous demand changes over time. The discussion is kept simple by treating all demand other than private consumption as exogenous. The model can be extended to include additional endogenous demand components – such as investment or job-guarantee spending – but this is left for another time.
Whenever the topic of economic growth is broached, there is a common and understandable reaction along the lines that growth is ecologically unsustainable or socially harmful. Since one of the preoccupations of this blog is demand-led growth, it is perhaps worth pausing to reflect on the appropriateness of the topic. This can be broken down into two parts. Why consider growth as such? And why emphasize the possibility that growth is demand led?
Theoretical studies of output and growth often focus on the behavior of equilibrium output. The usefulness of this approach depends on there being a tendency for actual output to converge on equilibrium output. With such a tendency present, studying the behavior of equilibrium output will tell us something about the behavior of actual output. It is therefore of interest to spell out the process by which an economy in disequilibrium is thought to tend toward equilibrium.
I have been thinking about a simple depiction of a demand-led economy. Mostly it draws on standard Keynesian macro, Kalecki’s work on cycles and growth, and supermultiplier models developed within the surplus approach. The main focus is on the evolution of a demand-led economy through time. The present post simply sketches the basic framework and provides some context. Perhaps in the future certain aspects can be fleshed out.
A key purpose of demand-led growth theory is to extend the ‘principle of effective demand’ to contexts in which productive capacity is best considered variable rather than fixed. The central idea is that, over any time frame, it is demand that determines output, and demand-led variations in income that adjust planned leakages to planned injections. Once it is acknowledged that capacity is variable, it becomes clear that the adjustment of output to demand, and planned leakages to planned injections, can be achieved not only by utilizing existing capacity more fully, but by expanding capacity through investment.
Modern Monetary Theory (MMT) continues to make inroads into the mainstream discourse with the appearance of an article by Youssef El-Gingihy in The Independent Online. The article features MMT in connection with the new book by Bill Mitchell and Thomas Fazi, Reclaiming the State. At its recent rate of dissemination, MMT may transition from heterodox to mainstream ahead of expectations.
Welcome to the very first (and possibly last) “Don’t Understand, Don’t Even Want To F___ing Understand Modern Money” post, otherwise known as a DUDE WTF UMM… post. This is for those of us who have no desire to consider economics at even an elementary level but who are tired of others exploiting our indifference and blasé attitude for their own dubious ends. Just because we don’t know diddly-squat about economics and are proud of it, this should not disadvantage us in life. What we need are some easy ways to spot when we are being led astray, without too many boring details.
When Marx’s theory of value is interpreted in a simultaneist way, it is relatively easy to calculate the ‘monetary expression of labor time’ (or MELT). It is simply new value added, measured in monetary terms, divided by productive employment. If it were not for the ‘productive’/’unproductive’ distinction, the simultaneist MELT could readily be calculated from the National Accounts as the ratio of Net Domestic Product at current prices to Total Employment. Retaining the productive/unproductive dichotomy complicates matters somewhat, because it is then necessary to exclude unproductive activity from the calculations, but no other hurdles appear to be present.
One suggestion in the comments to the ongoing “short & simple” series is to cover the balance of payments. This will be covered at some point in the introductory series, but I am still considering how best to present it in brief, simple form. With that in mind, it seemed worth attempting a regular post on the topic. The post is still intended to be elementary in nature, but is perhaps at about the introductory university level. The post is also too long to qualify as “short”, even allowing for the fact that some recent parts of the series have already stretched the definition of “short” beyond what I would have preferred.