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

["Harry Veeder" <eo200@xxxxxxxxxxxxxxxxxxx>]

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>From: "Sean Reilly" <seanjreilly@xxxxxxxxxxx>
>To: "stephen block" <stephenb@xxxxxxxx>
>Subject: Re: [lwside1] Re: Here yah go, Congress is against short selling !
>Date: Tue, Sep 25, 2001, 11:23 PM
>

>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.

You have made a good point.
However, if the government provided rebates (I do not mean tax cuts) in
parallel with deficit spending, this would keep private saving topped up.
This recommendation is not a consequence of Keynesian theory, but it does
counter act the market distortions which appear when the economy is
"stimulated" through deficit spending.


Harry Veeder

>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