Re: Does debt matter

[myturn@xxxxxxxx (John Gelles)]

	Basil Moore writes today:

	"The Post Keynesian position is that modern capitalist
	 economies are demand-constrained rather than supply-
	 constrained.  Inflation is cost driven, and output is
	 demand driven.  The AS curve [aggregate supply on
	 the x axis, price on the y axis]  is horizontal, and the
	AD [aggregate demand] curve is vertical."


	If  Gelles has the picture right, as demand increases,
	there will be sufficient supply to meet it.  But as
	supply increases, there will not be the necessary
	demand to buy it at a level price -- the price must
	descend vertically to allow such supply to be bought.

	Basil continues:

	"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 [price]  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 asserts these PKT views to counter the idea that
	high debt automatically creates inflation.  If  such debt
	increases demand, demand will increase supply.
	Price will reflect cost rather than excessive profit --
	mainly.  And cost, including labor, will not jump
	necessarily -- slack must first be removed from the
	labor market, and wage controls must not have been
	imposed.

	I certainly like Basil's lucid comments -- if  I have not
	completely misunderstood them.

	When we reflect that PKT's confidence (in demand
	as the driver for supply) is not shared by neoliberal
	authorities, we must remember the years of inflation
	that did occur.

	Although these years were good to many of us,
	if we had indexed debt and savings, to avoid loss
	of purchasing power by creditors and savers, we
	might not be facing the power of these authorities
	now in office.

	So the real questions to me are three:

	1.  Could intervention, to increase supply through
	technology and automation, (more than the market
	alone does along this line), work in PKT's behalf ?

	2.  Could indexed debt and savings work? Could
	raising debt, also raise demand, supply and standards
	of living of debtors and the poor, -- without taking
	purchasing power from creditors and savers?

	3.  Assuming some reduction in the supply of
	excess luxury for creditors and savers was the
	result of tooling up to supply middle class output
	for the poor, would not compulsory saving (in
	lieu of taxes) offer the rich (creditors and savers)
	the chance to own even more excess luxury in
	future years and generations, and so win them
	over to support of PKT solutions?

	These three ideas -- (1) automation, (2) inflation
	protection of debt and  savings (and, impliedly
	wages and entitlements), and (3) saving in
	place of taxes to curb truly harmful demand,
	may be candidates for a definition of PKT as
	"functional finance and technology".


               John Gelles        email to:    myturn@xxxxxxxx
               http://www.myturn.org   ;   http://www.rain.org/~jjgelles/
                                                Mantra:
               Economic Rights, Wealth and Individual & National
               Security -- financed by Credit -- Inflation Protected
               by Automation and Saving --  NOT by high interest,
               high unemployment and high taxes.