RE: investment and unemployment

[Adam.Stokes@xxxxxxxxxxx]

Matt.
This seems to me to be right up the alley of Bill Mitchell or Allen Oakley
(if their still at Newcastle), and If you ask them nicely I'm sure they will
enlighten/confuse you some more.

In regards to your last query:
>the implication in your peice seems to be that the increase in the rate of
interest somehow stopped (or slowed) the increase in productive skills (or
investment!), thereby ending the deflationary trend.

Without having visited this for a while (...a longgg while), I suspect that
there are a number of things happening:
1. Because productivity is pro-cyclical, any dampening of the business cycle
through the use of interst rates will raise unit costs.
2. Monopoly power is unlikely to be affected in the short-medium term (and
probably not in the long term as new businesses/competition are unlikely to
evolve. The impact on union power may be different though).
3. Skills/capital will atrophy in an absolute and a relative sense, which
will cause capacity bottlenecks in the upturn (capital accumulation will be
affected through the marginal efficiency of capital).

One question I would ask though is what incentives are provided for firms to
pursue R&D in such an environment and what impact this has on investment and
labour demand?

Cheers
AS

-----Original Message-----
From: matthew.johnson@xxxxxxxxxxxxxxxxxxxxxxxxxxxx
[mailto:matthew.johnson@xxxxxxxxxxxxxxxxxxxxxxxxxxxx]
Sent: Monday, 3 April 2000 9:36
To: POST-KEYNESIAN THOUGHT
Subject: investment and unemployment


Geoffrey Gardiner: two questions.

it seems as though you are implying that investment is fundamentally
inconsistent (in its motivations at least) with employment.  as you point
out this may not be the case in the short run.

snip:
>So there may have been a temporary increase in employment
>from 110 to 410, followed by a reduction to ten.  The final effect was
>highly deflationary.

i do not really have a problem with this, as it had always seemed a bit
suspect to me as an undergraduate.  but now that i have become
institutionalised, i would appreciate some insight into how i might
reconcile this with my typical orthodox education.  (which has never
questioned the idea that employment follows investment like noght follows
day)

so as the cataltst for unemployment, this investment leads to unemployment,
hence wage deflation?.	considering that it is by no means clear that
investment will respond to an increase in the rate of interest, then how
does the rise in the rate of interest work to inter alia, reverse the
deflation.

the implication in your peice seems to be that the increase in the rate of
interest somehow stopped (or slowed) the increase in productive skills (or
investment!), thereby ending the deflationary trend.

snip:
>Deflation has been the norm in peacetime throughout most economic >history
for the obvious reason that men and women are always improving >their
production skills. A three hundred year graph of inflation shows >that the
saecular trend of deflation of prices accelerated after 1801, >and only
turned to inflation when the use of high interest rates to >control
inflation was introduced. In Britain the graph changes >direction sharply
after November 1951 when the first rise in Bank Rate >for 20 years took
place. Interest rate policy subsequently ensured the >relentless rise in
inflation.

kind reguards.

matthew johnson.