Re: Does debt matter

[Basil Moore <bmoore@xxxxxxxxxxxx>]

        The Post Keynesian position is that modern capitalist econopmies are
demand-constrained rather than supply-constrained. Inflation is cost driven,
and output is demand driven. The AS curve is horizontal, and the AD curve is
vertical.

        So restrictive monetary policy (high real interest rates) has the
primary effect of reducing AD and so output and employment. It has only a
secondary, weak and indirect effect of reducing the inflation rate by
reducing the rate of growth of unit labour costs, through the Phillips Curve
argument that higher employment reduces labour's bargaining power (Marx's
reserve army of unemployed).

Basil Moore



t 08:26 PM 10/29/97 -0500, you wrote:
>
>Harry:
>>> ...  A "high" national debt/GDP ratio pushes national
>>> (aggregate) demand ahead of national (aggregate) supply. Inflation is
>>> a natural consequence of demand exceeding supply. Inflation says,
>>> "restrain your demands!".
>
>Hyman:
>>Is it not obvious that in view of our high rate of unemployment that
>>the reverse is true, that Supply has far exceeded Demand, for at least
>>the last century?
>
>I don't think it is obvious because I don't think it is accurate to say
>there is a high rate of UNemployment. I think it is more socially
>accurate to say there is a high level of UNDER employment with an associated
>problem of OVER employment.
>
>This of course requires new theories of under and over employment to
>supplement the traditional theories of voluntary and involunatry
>unemployment.
>
>Any takers? (I think Per G. is working on a theory of under employment.)
>
>>If we indeed had a short Supply, and an unfulfilled
>>Demand, would that not reduce Unemployment, the reverse of current
>>conditions?
>
>No, I don't think it would necessarily resolve the employment problem. In
>fact I don't think governments can solve it. People should reorganize
>the nature of paid work on their own.   The most important assistance
>governments can provide is to protect and stregthen the education, health
>and welfare systems.
>
>> Is not "inflation" a now deliberately controlled condition
>>of Price Fixing and arbitrary adjustment by the Federal Reserve?
>
>No, I don't think so.
>
>Harry Veeder
>
>


Basil Moore, Department of Economics
Wesleyan University
685-2363