Re: Does debt matter

[Harry Veeder <aa361@xxxxxxxxxxxxxxx>]

On Thu, 30 Oct 1997, Basil Moore wrote:

>         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.

I think this was basically correct for 30 years following WWII but since the
end of the '70's a changing culture of employment has made supply constraints
relevant again.


>
>         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
>

Harry Veeder