Re: Savings fallacy redux (was Re: Method)

[John Vertegaal <vertegaa@xxxxxxxxx>]

Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx> replied to my question:

>>What does it mean in the real world? where as a rule of doing
>>business the retail sector has to assume all disbursements made,
>>both higher up in the economy and on their own level, and depends
>>on a return for survival.
>>The real-world economy, while producing real wealth, is thus
>>always out on a limb.  It's both in disequilibrium and in debt
>>(regardless of outstanding loans!); and equilibration and the
>>resolvability of debt are only a potential ongoing possibility in
>>a dynamic sense.  Is this the world of the GT?

>Yes, that is the world of the GT.  Growth in GDP occurs as a
>result of the creation of new financial assets, which ARE assets
>because they are obligations.

Thanks for putting your stamp of approval on my real-word economy
model; but since it's dynamic and in interminable disequilibrium,
I'm far from convinced that it matches the GT's.  More about this
later.


>>Is there any purpose or determinable value for
>>"financial wealth", other than eventually being able
>>to turn it into "real wealth"?

>This is not a question that can be addressed by reference
>to evidence UNLESS you avoid conflating the two.

There are a few too many negatives in this answer for my overworked
brain to comprehend immediately.  So if I cancel a couple of them
out, and knowing that you don't conflate the two, you would be able
to address it.  Since this is senseless, I will assume you mean the
opposite and that you agree that there is no room within a coherent
real-world model for "bogus" financial wealth.

Now it's fine for a model to start out with the assumption that
financial wealth over time can be turned into real wealth.  But
doesn't it risk losing its grip on reality when in order to stay
coherent, it has to fall back on the assumption that the value of
financial assets is determined exogenously; while at the same time
obviously endogenous redirections in the income circuit also have
the power to alter those valuations?

Isn't both the vast proliferation and extensive swings in valuation
of financial "assets" with respect to "real wealth" in just the
last decade or two, proof enough that something isn't quite right
with the model?  The currently existing financial wealth couldn't
possibly be turned into _uninflated_ real wealth, because the
latter is already fully spoken for by a tiny fraction of the
former.  Shares in the stock market, mutual funds, hedge bet
derivatives, you name it, virtually all morph into their economic
alter ego as unresolvable debt.

Perhaps a different model is needed that recognizes "play money"
(savings?): to first be the cause of a patently unjust income
distribution; the reason why, in spite of economic predictions of
yesteryear, the easy life of leisure-a-plenty seems further away than
ever and replaced by an almost universally experienced feeling of
too much stress; to be at the root of ubiquitous cutdowns in social
services in the so-called developed world and indescribable misery
elsewhere; and to top it all off, why it eventually will lead to an
inevitable total economic collapse.


>>>The GT points out the connection between finance for
>>>EXPENDITURE, the use of income to finance EXPENDITURE, and the
>>>use of income to accumulate FINANCIAL wealth, that is, the
>>>SAVING that takes place in the period.

>>Yes but, as far as I understand it's a comparative static
>>depiction of a dynamic reality.  Assuming for a moment that it's
>>possible to turn the GT dynamic, would there still be a positive
>>meaning left for the term "SAVING"?

>That's am appropriate description for the neoKeynesian-
>neoclassical synthesis modle loosely based on Keynes model.
>Its not an appropriate description of the General Theory model
>itself.  First, the General theory model is a period model, but
>then many of the aggregates that it refers to only exist over
>periods, do not exist as instantaneous values, and become known
>to participants in the system *as* period aggregates, so that a
>standard dynamic model borrowed from physics would not necessarily
>be a better model for those particular economic variables.

But doesn't this also mean that the model is an equilibrium model,
its aggregates resolved (determined) at the end of each period
under consideration and then moving en-masse from one period to the
next?  I fully agree that, if it could be done at all, turning a
model of such period aggregates dynamic is hardly an improvement.
  But the dynamics of the real-world economy doesn't involve
aggregates; nor does the economy, ostensibly determined each
step of the way, move through time en-masse; nor *is* it ever
in equilibrium.

As resources enter the economy a corresponding debt is created;
and this debt, embodied in output, is passed on until it reaches
the retail level, where bit by bit it can be resolved; thereby,
through final demand, determining the "true" value of the supplied
economic asset over time.
  This is very different from a resolution of income, disbursed to
economic agents during a particular period, through expenditures of
either kind.  Or: Y1=C1+I1 and its various consequent derivations
such as you showed.

Yet I'm quite happy that our conclusions are similar enough, so
as not to rule out further discussion on points where I detect
potential inconsistencies in PKT; and otherwise put my faith in
Occam's razor.

John V