Re: fiscal deficit

[larson@xxxxxx]

Quoting Per Gunnar Berglund <pgberglund@xxxxxxxxxxx>:

> (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.

Open-ended spending combined with price stabilization has been the target of a
decades-old debate on the Waugh theorem in QJE and Econometrica. The key
argument is that a stabilized price on average returns less utility to
consumers and less profits to producers than controlled price fluctuations,
under standard assumptions of supply and demand elasticities. In pursuit of
compensation producers put excess supply on the market and erode the stabilized
price. Translated into an ELR-BSE system this puts even more stress on the open
end of spending to prevent a downward pressure on the stabilized money wage.
Although I hate to agree with another Swede I do have to side with Per on this
issue.

/srl

--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde
Telephone: (+45) 4674 2910