Conference on Saving and Investment

["RICHARD P.F. HOLT" <holtri@xxxxxxxxxxxxx>]

>From Lynn Turgeon:

	On April 21-22, the Economic Policy Institute, a "liberal think-
tank," hosted a conference on Saving and Investment at the Mayflower
Hotel in Washington. The Conference was planned and organized by Bob
Pollin of the University of California, Riverside, and the papers will be
published in a forthcoming book. There were five separate sessions with
papers written from a Post-Keynesian or structuralist viewpoint. Each
paper was discussed by both orthodox or heterodox economists. Paper
givers were: Pollin, Ilene Grabel (University of Denver), Robert Blecker
(American University), Dean Baker (EPI), and David Gordon (New School).
Orthodox or Mainstream discussants were: Benjamin Friedman (Harvard),
James Tobin (Yale), Tamin Bayoumi (IMF), Alan Auerback (U.Penn),
and Stanley Fischer (MIT). Heterodox discussants were: James Crotty
(U>Mass), James Galbraith (U.Texas), Stephen Marglin (Harvard), Gerald
Epstein (U.Mass.), and Steven Fazzari (Washington U.). The luncheon
speaker was Alan Blinder, newly appointed to the Fed and introduced
by Jeff Faux, President of EPI. Because of Blinder's recent appointment
as Deputy Chair of the Fed, several reporters hovered in the background.
	The Post-Keynesians attempted to convince the mainstream
economists that Keynes was on the right track when he concluded in March
1932 that, because of the paradox of thrift, it made more sense to
conclude that investment was the dog that wagged the savings tail,
rather than the reverse, as assumed by neo-classical economists before
Keynes. The recent influence of supply-side economics,in particular,
has convinced most mainstream economists that it is savings that
determines investment, rather than the other way around. It is
assumed that government deficit spending "crowds out" saving and
thus reduces investment -- and lower investment affects productivity
adversely. The Keynesian view is that public investment stimulates
growth out of which more saving "crowds in" to the system.  As far
as I can remember, the Baumol and Blinder introductory text was the
first to popularize the "crowding in" hypothesis.
	Thus, it was entirely appropriate that Blinder was the
luncheon speaker.  Since Blinder has been working under Laura Tyson,
he spent most of his talk explaining why the 7 percent growth rate
for the fourth quarter of 1993 was out of line in reflecting the
underlying strength of the economy. The CEA predicts only a 3
percent growth rate for the first quarter of 1994. There are three
important reasons why the fourth quarter 1993 results are inflated:
(1) replacement of farm equipment due to the "flood factor" worth
8.5 billion dollars; (2) unusually high auto sales worth $16; and
(3) an unusual stimulus from abroad coming to $9 billion. Thus,about
$35 billion is out of line, without which the growth would have been
4.1 percent in the fourth quarter of 1993. Fixed investment growth
was especially high. Blinder refused to take any questions on
monetary policy in view of the fact that he is still subject to
confirmation by the Senate. He emphasized the fact that the decline
in the stock market (due to Greenspan's raising the short-term
interest rates) was only by 8.6 percent compared with an expected
27% drop. In the question period, he claimed that there would be
no further stimulus from the flood factor and in fact the "earth-
quake factor" wouldn't kick in until the second quarter of 1994.
	Early in 1992, Blinder in BUSINESS WEEK refused to go
along with other Keynesians calling for fiscal stimulus, arguing
that the Fed would stimulate the economy. Later he confessed that
he was wrong, admitting that the economy was sicker than he had
thought. (BUSINESS WEEK, August 24, 1992) Still Blinder and Janet
Yellen, who did her dissertation under Tobin at Yale, should
make it more difficult for Alan Greenspan to continue his drive
for "zero inflation."  Lynn Turgeon ECOELT@xxxxxxxxxxxxxxxx