Re: Re: RE: saving and aggregate demand

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

I wrote:
> > query: where did economists get the habit of ignoring the way in which
> > "paying down the government debt" reduces aggregate demand, along with the
> > phenomenon of fiscal drag?

Brad writes:

> Since the Federal Reserve made it clear that *it* was managing aggregate
> demand, and that it could move faster and had more powerful policy tools
> than the congress-plus-president.
>
> In normal times, the Federal Reserve can undo whatever fiscal policy
> action the congress-plus-president takes--and the Federal Reserve does.
>
> There is, however, the possibility of un-normal times to worry about...

also, we have to pay attention to the fact that the Fed is an agency that
is not held democratically responsible to the electorate and seems to have
been "captured" by the sectors its supposed to be riding herd on (as the
leading financial regulator), the banks and the financial markets. Thus,
when there's a conflict of interest between what's good for the people and
what's good for the moneyed interests, the Fed leans toward the latter.

Of course, the fact that it _looks as if_ the Fed has been steering the
economy toward low unemployment and low inflation during the last 8 years
or so is mostly a matter of luck: if the Fed had followed its vision of the
Phillips Curve, we'd still have 6 percent unemployment in the US. It also
doesn't control the relevant -- i.e. long-term -- supplies of credit and
interest rates.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine