Re: Euro Rates Slashed

["John O'Donnell" <jackodonnell@xxxxxxxx>]

S R Larsson wrote:
<<SNIP>>
> Can anyone who's a POST-KEYNESIAN on this list explain to me how interest
> rate cuts can help cutting unemployment, when at the same time budgetary
> austerity is being institutionalized via the EMU system? I say statistics
> show there is at least a 9:1 advantage in using fiscal policy to boost
> investment -> increase employment, over cutting interest rates. Therefore,
> when interest rates AND government spending are being cut simultaneously,
> the net result is most likely MORE unemployment, not less.

I'm not accepted as a "Post Keynesian" by anyone other than me taking
the literal sense that he died and I'm still here. But, in any case,
nothing has changed the reality of the fact that statistics do not
distinguish among cause, effect and circumstance so any statistical
indication of advantage of fiscal policy over monetary policy could well
be showing that one or the other or both have nothing whatever to do
with the rate of unemployment. It could just be that there is an
alternative to both practices that underlies the correlations.

I suggest that alternative is the unavoidable redistribution effects of
changes in either the money supply or fiscal balance that affects both
supply and demand.

The difficulty with present perceptions about these policies is that
they ignore the significance of the form of taxes and the form of
spending that affects the redistribution effect of these policy choices.
As presently perceived, this outcome is left to chance which means
sometimes the result is an increase in the propensity to consume and
sometimes it is an increase the propensity to save. The problem is that
sometimes they appear to work as intended [i.e. -- Result in enough
growth to prevent runaway inflation] and other times they don't. [i.e.
-- They result in stagflation.] What is needed is policy direction that
ensures the favorable distribution results.

Change the form of taxes to those that resolve to fixed costs of
production while eliminating those that resolve to variable costs of
production and producers have incentive to lower prices to attain the
best return. Such an outcome also causes greater demand that inevitably
requires greater employment.

While I can not verify the certainty of the equation, John Legge has
stated that this relationship is generally recognized as valid by
economists:

	P = c(v)*{e/(1-e)};

Where P = the most profitable price, e = elasticity of demand, and c(v)
= the variable cost of production.

Accepting this to be true, it also shows that a lowering of the variable
costs of production will cause a lowering of the optimum price. While
there are few certainties in economics there does seem to be agreement
that such price reductions will in turn cause, with very few exceptions,
an increase in demand.

A second way to increase demand is to directly increase the propensity
to consume by providing a periodic payment to all citizen's [I call the
distribution a "Citizen"s Dividend"] the amount of which is determined
by its effect on the growth rate of the economy.

--
			-- jbod

		Tax Privilege, Not People
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