Re: [lwside1] Re: Here yah go, Congress is against short selling !

[stephen block <stephenb@xxxxxxxx>]

>
> Deficit spending has to be financed somehow and that is via issuance of
> bonds to the general public.  This creates a vacuum in which private savings
> are ciphoned out of the money market from where businesses typically borrow.

This presupposes a finite sum of money in the money market (the quantity
theory again) which is not the case. Deficit spending in fact increases the
size of the pool and also the size of the economy eventually paying for
itself, as it always has. On the other hand, surpluses lead to diminished
investment because the pool dries up (in very simple terms). Macro economics
are counter-intuitive (in relation to micro). Just as it, may be obvious
that the sun revolves around the earth, it is equally obvious that deficit
spending crowds out private investment (and also wrong). Why is it that
business does so well during times of deficit spending, and that a boom
follows deficit spending and yet busts follow the government running
surpluses. Counter-cyclical policy-making is counter-intuitive, but also far
more prescient than, say, Bush's call to dramatically slash the budget to
ensure that the budget remain "balanced". Could you imagine what would
happen if the government started slashing programs? You might think that
that would free up money for private investment, but what exactly will they
invest in if unemployment goes up to 8% and people stop spending? It is not
just investors who make the economy go 'round. You need consumers also. And
consumers are generally among the working public, not among the investor
class who tend to more to be "savers".

Now that we're mired in a recessionary soup, consumers are being pleaded
with to get back in. But will they begin to spend just because it is their
patriotic duty to do so, if they have no money, or will they spend if the
future seems bright and secure? And what will make that happen, the
government running a surplus by slashing governmental programs or the
government stimulating the economy and getting money flowing and getting
people back to work?

(Sorry, no time to respond to the rest right now.

Stephen Block


> Since there is less savings to be borrowed by firms, the price of money
> (i.e. the interest rate) goes up, which makes it more expensive for firms to
> finance capital expenditures.  When the cost of capital increases, the
> Marginal Productivity of Labor falls and it follows that the Unemployment
> rate rises (the crowding out effect), because Labor remained constant.  So,
> the notion that we can have a Zero UE rate (an ideal of the Post-Keynesians)
> and deficit spending is not coherent.
>
> The natural solution to this dilemma would have to be that the Government
> would make loans to these idle persons to go into business for themselves.
> My problem with that is that if the persons were not efficient enough at
> whatever it is they do by trade to remain employed as a legitimate factor of
> production, then these loaned dollars are being wasted on inefficient
> factors of production.  It is evident that this does not behoove the nation
> in our plight of expanding the Production Frontier.
>
> If the government starts to spend itself into deficit, then we will shoot
> ourselves in the foot, because it will hinder our ability to acquire more
> resources.  The necessary outcome of deficit spending is that taxes will
> rise, consumption will necessarily fall because of the tax increase,
> aggregate efficiency will suffer, and the economy will suffer, which is
> ironic since one would assume that the Government would only be trying to
> behoove the economy.
>
> Sean
>
> ----- Original Message -----
> From: "stephen block" <stephenb@xxxxxxxx>
> To: <pkt@xxxxxxxxxxxxxxxx>
> Sent: Tuesday, September 25, 2001 4:06 PM
> Subject: Re: [lwside1] Re: Here yah go, Congress is against short selling !
>
>
>>
>> Well Henry, it says "House Democrat", singular. But we can hope. In the
> same
>> vein, when the market climbed 360+ points yesterday, without following
>> precipitously today, I had this sense that the rules of the game had been
>> (temporarily?) reset and that perhaps there is the opportunity to
>> reintroduce discussion not heard in a decade or more. As I mentioned last
>> time, the phrases "deficit spending" and "stimulus package", remarkably,
>> have cropped up recently in tv discourse. And I have a sense that it is
>> quite different than what happened in 1987 when all the usual suspects
> fled
>> to the hills and were unavailable for comment for weeks after the Oct
> market
>> dive; but then returned, nearly unruffled by the episode . This time it
>> seems as if they are compelled to recognize at the least the medium term
>> implications of the psychological transformation which has befallen the US
>> and the fact that war profiteering will not be tops on people's lists of
>> patriotic duties.
>>
>> But best, it may allow PKians to regain some steam in a period where the
>> fundamentalists of many different kinds (except the militarist variety)
> are
>> on the defensive and even on the ropes. In many cases it is they, and
>> journalists, who are raising questions Keynesians traditionally have (re:
>> various types of stimulus and their relative successes). There is no
> reason
>> why the discussion cannot be prolonged. Unfortunately Democrats are still
>> too timid and are obviously trying to hide behind patriotic messages.
> That's
>> fine in the moment, but this analysis obviously needs to be expanded to
>> discussions which lie beyond war efforts.
>>
>> Stephen Block
>>
>>>
>>>
>>> Short sellers targeted
>>> House Democrat asks SEC to put a temporary halt on short selling
>>>
>>> Market fundamentalism appears to be the collateral damage of the 911
> attacks.
>>>
>>> Henry C.K. Liu
>>>
>>>
>>> Dennis Shumaker wrote:
>>>
>>>> Dennis Shumaker wrote:
>>>>
>>>>> Are you short?
>>>>> Did you know that you are a terrorist?
>>>>> They're coming to get yah!
>>>>>
>>>>> Dennis
>>>>
>>>> Here's the article:
>>>> http://cnnfn.cnn.com/2001/09/24/news/wires/shortsell_re/
>>>>
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>>>
>>>
>>
>>
>