Re: Keynesian State of the Union

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Bill Mitchell <ecwfm@xxxxxxxxxxxxxxxxxxxxxxx>
=====
>Bill said:
>
>> >>
>> >> We have to break this notion that government spending needs to be
>> >> financed.
>> >
>
>Paul D. replied:
>
>>Financed yes-- the question is of funding if deficits are incurred for it is
>>the funding process that provides financial assets for the private sector to
>>hold in stead of money directly.
>
>I think this misleads. The usual macro analysis of this issue is within the
>Govt Budget Constraint
>framework which suggests there is an ex ante financial constraint on
>government spending. This
>false analogy with the household (the user of the currency) then sets up a
>range of spurious arguments
>about the viability of net government spending.

Bill, you obviously o not understand my meaning of the financing as different
from funding -- I ask you to see the difference of definitions in my book
FINANCIAL MARKETS, MONEY AND THE REAL WORLD.

>
>Government spending does not need to be financed.

oF COURSE IT MUST5 BE FINANCED.  BY FINANCE WE MEAN THAT THE SPENDER MUST HAVE
"FINANCE", I.E.,  MONEY OR ACCESS TO MONEY SO THAT THE SPENDRE CAN DISCHARGE
ITS LEGAL CONTRACTUAL OBLIGATION TO PAY FOR WHATEVER IT BUYS. To not have
finance means to take possession of something  the seller possesses without
paying for it.

>
>Using this terminology is unnecessary and misleading and brings the
>discussion back into the
>parameters set by the orthodoxy. Those parameters are not helpful.
Absolutely wrong -- by drawing a definitional difference between finance and
funding, permits one to distinguish between the function of a banking system
to finance working capital loans so that the payrolls and other costs of
assembling expensivedurable goods can be met -- before the final buyer must
obtain the funds to purchase the final product.


>
>If the government wishes to provide financial assets to the private sector
>it has that choice but that
>is an act of monetary policy (rate support) not fiscal policy (spending).

That is strange condsidering Warren Mosler's argumen t that if the government
runs a deficit [FISCAL POLICY} it is to provide financial assets to savers who
want to increase their holdings of financial assets.



>There is no real imperative
>on the government to worry about the portfolio options available to the
>private sector. The private
>sector still have choices including disposal of the money stocks as
>spending flows, for example.

Yes but if the private sector wants to increase its liquidity -- then telling
it spend its liquidity (dispose of money to increase spending flows) isw not
the answer.


Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
phone # (561)369-1951; fax #(561)369-1951;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html