Re: fiscal deficit

["Per Gunnar Berglund" <pgberglund@xxxxxxxxxxx>]

PKT-ers,

I'm sorry to hear that Bill Mitchell takes this personally, while in fact I
was trying my best to be impersonal. This is not a matter of my opinion, but
of the logical consistency and tenability of the ideas and schemes proposed.

I believe Paul Davidson has a keen understanding of this outlook. He keeps
emphasising that the Classical theory is logically right on its own
assumptions - it is the assumptions (or 'axioms') that do not accord with
'the world in which we live', as Keynes would put it.

My problem with Mitchell's ideas is that they do not seem to 'add up' even
on their own assumptions. I am sure that the problems can be fixed, but
hardly by resorting to the kind of vacuous rhetoric that Mitchell invariably
lets himself into when facing tough questions.

There are several issues involved in this, and I still maintain that
satisfactory answers have not been forthcoming. Let me mention just a
handful:

(1) The notion that the value of the currency is determined by the prices
government pays strikes me as circular or tautological.

(2) The effects of 'printing money' by unsterilised deficit spending have
not been credibly analysed in a step-by-step transmission mechanism fashion.

(3) The role of bank money as distinct from reserve deposits remains to be
clarified.

(4) There is no clear analysis of the differences and similarities between
having the government inject cash by spending instead of lending.

(5) There is no proper analysis of the stock-flow problem of an open-ended
spending (e.g. a buffer-stock employment) scheme: it takes time for a flow
deficit to 'replenish' stocks.

Now those are some of the issues that remain unclear to my mind. But again,
what I think about it may not be all that important since I'm not in a
position to change the regime anyway. What I suspect, however, is that if
Mitchell and his acolytes were to advance their schemes to people who are in
a position to bring about a change, they would face very similar doubts and
concerns.

I can't advocate the implementation of a scheme that is full of holes. So
pending appropriate answers to my concerns, I would stick to the status quo
than support adventurous schemes the effects of which may potentially be
disastrous.

(On a practical level, I am actually not altogether dissatisfied with recent
monetary policy here in the United States. The problems I see are on the
fiscal side where more should be done by way of stimulus. But that's an
aside.)


_____________________________________________
Per Gunnar Berglund
CEPA    80 Fifth Avenue, 5th floor    New York, NY 10011
Tel: (212)229-5923    Fax: (212)229-5903


----- Original Message -----
From: "Bill Mitchell" <ecwfm@xxxxxxxxxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Thursday, November 15, 2001 9:13 PM
Subject: Re: fiscal deficit


> Dear PKT
>
> Per becomes personal again and ceases to be productive.  He knows
> well that there is a lot of published literature now on our views about
these
> issues.
>
> I have finished with this thread.
>
> >Fine, those are your opinions. It would be nice if you also had some
> >arguments to support them. I have been all ears for years but I still
hear
> >nothing. So to tell you the truth, my patience is wearing thin and I'm
> >beginning to think the worst of thoughts - that perhaps these people have
no
> >arguments?
> >
> >Be that as it may - for what I think may not be very important. After
all,
> >it is central banks and governments that will need to make the change in
> >practice. So instead of blowing more hot air on me, why don't you write
up
> >your proposal and bring it to the Fed or the ECB? I'm sure they will give
> >your ideas a fair hearing and review.
>
>
> best wishes
> bill
>
> ------
>
> William F. Mitchell
> Professor of Economics and Head of Department
> Director, Centre of Full Employment and Equity
> University of Newcastle
> New South Wales, Australia
> E-mail: ecwfm@xxxxxxxxxxxxxxxxxxxxxxx
> Phone: +61-2 4921 5065
> Fax:   +61-2 4921 6919
> Mobile: 0419 422 410
>
> WWW Home Page:
http://econ-www.newcastle.edu.au/economics/bill/billeco.html
>
>