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

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

On Tue, 25 Sep 2001 18:23:46 -0400, Sean Reilly
<seanjreilly@xxxxxxxxxxx> wrote:

>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.  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.


What is not coherent is the implicit premise in the above argument
that government finance CAN affect private saving, but that the
increase in income due to the increase in government spending
CANNOT have any effect.

Unless, of course, in addition to this savings vacuum there is a
value added vaccum in operation that prevents the government
expenditure from having any impact on national income.

_Ceteri non parai_.


--
Dr. Bruce R. McFarling, PhD
Bus. Office 1.72 -- (02) 4348-4078
School of Business
Faculty of the Central Coast
Newcastle University, Ourimbah