Does Say's Law perwvail?

[Paul Davidson <pdavidson@xxxxxxx>]

At 08:47 PM 5/10/2002 -0400, you wrote:


> > But my proposal does not require the "handout" to poor nations of
> > additional "created" SDRs -- modest or not -- Instead the IMCUs will
always
> > be available to deficit nations (who are at less than full employment) if
> > they are willing to work (and employ otherwise idle domestic resources) to
> > earn them!
>
>Glad you addressed this question I've held for a while.  So, with this in
>place,
>why would nations not rush to become debtor nations, and import as much
>as possible and export as little as possible???


Simple if you had read my 8 proviso IMCU plan.

I HAVE, SEVERAL TIMES!


Good. but apparently from the further responses you make you have not
comprehended the cause of a lack of effective demand in an entreprneurial
system --despite your understanding of the principle when you discuss
chartalist money. A lack of effective demand occurs when people who earn
income do not spend it all on the products of industry but instead
"oversave" i.e.,  save income in the form of NEW AND SECOND_HAND LIQUID
ASSETS or hold "money" so that the total volume of savings exceeds the
borrowing of debtors equal to NEW issues of equities, and debt instruments
of all kinds.  When  a country is a running a surplus on current account it
is a potential "oversaver" in the international arena leading to the
possibility of a lack of effective demand for goods and services
globally.  Thus the way to avoid this lack of global effective demand is
(1) have the savers spend more of their internationallearned income on the
products of  other nations either via buying(importing) more consumer goods
or importing more investment goods or spending more on foreign direct
investment.

Now keeping that in mind let me respond to the other comments you have made:

  For example, under proviso#6 the IMCUs would be made available to the
deficit nation(s)  -- when a surplus nation has accumulated "excess"
credits at the clearing house,  proviso #6 has a trigger mechanism that
requies the nation(s) with excess credits to dispose of these excesses by 1
of 3 possible ways:

  (1) e.g., by spending these credits on the exports of the deficit nation
--thereby increasing exports of the "poor" nation and permitting it to
"work" to earn enough IMCUs to  balance its international payments.
(AT 'MARKET' PRICES ON GOODS AND SERVICES
PROBABLY OVER PRICED, OTHERWISE THEY WOULD
HAVE BEEN PURCHASED ALREADY.  OR MAYBE THEY
DON'T WANT FOREIGN OWNERS OF REAL ESTATE, ETC.
BUT MORE ON THIS TO THE LARGER POINT LATER)

Really --  what you are saying is either that Says Law prevails-- because
the goods from nation A are "overpriced" implying their is an infinite
demand for the same product from other nations who are pricing them lower,
or their are not products or services that nation A has an production
advantage  (comparative or absolute) or both Say's Law and the lack of any
production advantage in all potential goods and services prevail..  But
even Antartica has, apparently, a blossoming tourist industry (to use a
mixed metaphor).





(2)If the surplus nation does not want the exports of the other nation(s),
it can spend its excessive credits surplus  on foreign direct investment in
the deficit nation(s) -- increasing the stock of capital there , or
(PROBABLY NOT A GOOD PLACE TO INVEST, OTHERWISE
THERE ALREADY WOULD BE LOTS OF FDI.  AND MAYBE THE DEBTOR NATION DOESN'T
WANT ANYONE ELSE
INVESTING THERE.  WOULD YOU LET AN AMERICAN
BROKERAGE FIRM OPEN IN YOUR COUNTRY?  I WOULDN'T!

True the profitability of firms in that economy may be low -- at least
partly because of a lack of global effective demand. Creating global full
employment must increase the profitability of al firms globally  and
(without employer of last resort necessarily) permits the labor force to be
employed to produce things that the global public demand.  Also if the
clearing house authority has the authority to confiscate (tax at 100%)
excessive built up IMCU credits, then the holder of these credit will find
even the low profitablity (that you claim exists-- and I am accepting
merely to respond to such an argument) is preferable to the 100%
confiscatory tax.  Even giving the credits away as a gift is preferable--
because everybody loves Santa Claus!

No one is talking about opening a brokerage firm in another country for the
brokerage firm will merely be dealing in reselling liquid assets -- by FDI
we would want to have investments to produce goods and services that
cionsumers and entrepreneurs wanbt for futher productiion -- we do not wnat
to encourage "oversaving" in liquid assets.





(3) if the surplus nation does not want to use its excess credits in either
of the first two ways, it can provide them via a Marshall plan foreign aid
program  to the poor deficit nations.

RIGHT.  ALL OF THE ABOVE WOULD ENCOURAGE NATIONS TO BECOME DEBTOR NATIONS..


I am surprised that you think poor people or nations prefer handouts to the
dignity of working for income-- and remember a poor  nation can only become
a debtor if there are loan pushers out there.  Most people and nations I
believe prefer to work their way into riches or at least  a living income
rather than surviving on handouts. Only if the market system does not
provide an opportunity to work -- because of a lack of effective demand --
does a handout become a better solution than starving.  And, perhpas here
is where we have a basic difference-- I prefer to see people employed by
the market to produce things that the people demand  rather than employing
unemployed resources in make work jobs. (as na employer of last resort
might do).


  If the surplus nation does not do any of these three things to make its
excess credit IMCUs available, the the pro bono publico officials of the
international clearing house institution will confiscate these excess
credits and make them available to deficit nations based on some formula --
similar perhaps to a negative income tax -- which even Milton Friedman
advocates domestically .

EVEN MORE REASON TO BE A DEBTOR NATION!


I wonder Warren whether you are serious-- that it is better to be so poor
that even when you work FULL TIME, you can not earn enough income that you
are eligible to for an negative income tax.   How many CEOs do you know who
would reduce their compensation (for the same work) in orderr to be
eligible for a negative income tax?

Nations cannot "import all they want"  They must either pay for imports via
earned export income, or by borrowing-- usually from the creditor exporting
nation.

RIGHT.  AND IF I WERE A MEMBER NATION, I WOULD
ATTEMPT TO PUT INCENTIVES IN PLACE TO IMPORT AS MUCH AS POSSIBLE AND BECOME
A DEBTOR NATION.


How would you create incentives to import?  Would you close down your own
factories and agriculture so that people had to import since there was
nothing they could buy domestically -- and where would the people get the
income to buy these additional imports?


YOUR PLAN SEEMS TO ASSUME THAT CREDITOR
NATIONS WHO 'NET SAVE' ARE 'THE PROBLEM.'
I DO NOT AGREE, AS FOLLOWS BELOW.


Here is, in your own words, an indication that you do not believe in
Keynes's principle of effective demand --and therefore implicitly you
believe in Say's Law.  As Cool Hand Luke would say at this point "We have a
lack of communication".


Since both the creditor and the debtor are responsible for the imbalance in
the international  current account payments, then both have a
responsibility for solving the problem -- but the creditor nation has the
wherewithal to solve the problem  --and so it has the major responsibility
for resolving the problem.

RIGHT.  AGAIN, BEST TO BE A DEBTOR NATION.


Why?   Because the creditor nation has a major responsibility to solve the
problem?  Would you rather be the country that does not have the resources
to resolve the problem -- and therefore must suffer??   And . finally, if
the problem is solv ed since global effective demand will increasde, the
CREDITOR nation  will be better off  economically --- so what's wrong with
being the creditor-- personally I would prefer to be the creditor --
wouldn't you?



  To turn  your question around Warren, why does a nation want to export
more than it imports ?

EXACTLY MY POINT!  ONLY IF EXPORTERS ARE 'IN CONTROL' AND THEREBY MANAGE TO
BENEFIT AT THE EXPENSE OF THE MACRO ECONOMY.  NET EXPORTERS
ARE THE WORLD'S 'SLAVES.'  THEY ARE NOT THE
'PROBLEM' IN TODAY'S WORLD.  THEY ARE 'SUPPORTING'
THE STANDARD OF LIVING OF THE REST OF THE WORLD'S DEBTOR NATIONS,
PARTICULARLY THE US.  IF WE
EVER STOPPED NET IMPORTING ALL THIS STUFF OUR
'STANDARD OF LIVING' WOULD BE THAT MUCH LOWER.


The US is, of course a rich debtor nation not a poor debtor one-- and of
course we are both the biggest economy in the world and the biggest debtor
in the world.. The difference is almost all of our debt is denominated in
dollars and hence, since the dollar is a chartalist money, we could pay off
all our debts by printing dollars if we wished-- no one else has that
luxury --  and we have it because we are the de facto central bank of the
glob al economy.
I do not think that when the US was running  balance of trade surpluses
right after the second world war, that we were the slaves of the rest of
the world--In fact, it was the only time after a major war, when the US did
not see a significant recession and a large growth in the unemployment
level.  We were better off ofr the Marshall Plan and so was the poorer
nations of the world -- both our allies and the defeated nations!



  The excessive creditor nation not getting real
goods and services for its excess of exports over imports.  All it gets is
a paper (liquidity) asset in return!

YES!- IF A NATION WANTS
TO BE A CREDITOR NATION, LET THEM.  IT'S
THEIR LOSS.  I'D EVEN ENCOURAGE THEM,
AND SEND TRADE NEGOTIATORS OVER TO TRY TO
GET THEM TO STOP WHICH WOULD MAKE THEM
THINK THEY ARE WINNING AND THEREFORE KEEP DOING IT- REVERSE PSHYCHOLOGY, ETC..


Again you appear not to understand the problem of effective demand -- It
isd not only their loss it is the whole world's loss as their excessive
desire to build up rfeserves has the potential to reduce effective demand
globally. Luckily, unlike almost any other nation in the world, the US does
not have to worry about a balance of payments constraint -- and so our
defict helps offset the excceesive creditors of the world. Buti f the Euro
should suddenly become an important reserve currency-- or even replace the
dollar-- then this would depress the glob al system as the US would have
difficulty financing the import surpluses it has gitten use to.

.

CREDITOR NATIONS ARE NOT THE PROBLEM- THEY
ARE GIVERS, NOT TAKERS.


Nol they have a  Silas Marner complex that causes other people to be
unemployed and thus poorer than they would be if they could find gainful
employment.

SO DOESN'T AN IMCU TYPE PLAN NEED TO PREVENT
(RATHER THAN ENCOURAGE) NATIONS FROM DESIRING/ATTEMPTING TO BECOME DEBTOR
NATIONS, RATHER THAN ENCOURAGING THEM TO BE
DEBTORS?


Until you indicate whether you believe in the principle of effective demand
or not -- we cannot communicate on this issue.  As I have already indicated
you are really espousing an implicit form of  Say's Law -- and if you
believe the economy works under such a law-- we are obviously using
different and incompatible models to reach different and incompatible
conclujsions.


DOES ANYONE ELSE ON THIS LIST SHARE THIS CONCERN?

LASTLY, WITH CURRENT FLOATING EXCHANGE RATES,
ANY NATION CAN PURSUE FULL EMPLOYMENT POLICY INDEPENDENTLY.  INCREASED
CAPACITY UTILIZATION,
PARTICULARLY OF LABOR (AND LIKELY MORE PARTICULARLY IF DIRECTED
SUFFICIENTLY TOWARDS HUMAN CAPITAL) WILL DIRECTLY BENEFIT A NATION.
SO WHY IS THERE A NEED FOR FIXED EXCHANGE RATE,
IMCU TYPE OF SYSTEM?  ONLY BECAUSE FLOATING
EXCHANGE RATES ARE BEING BLAMED FOR TODAY'S
PROBLEMS WHEN IN FACT THEY ARE NOT THE PROBLEM?


Again this denies the liquidity preference theory of financial markets --
and assumes that markets are efficient-- but if the future is uncertain and
not statistically predictable-- then financial markets cannot be efficient.

Paul