Re: saving and finance and an answer to Basil Moore

["Gary Santos" <evs@xxxxxxxxxxxx>]

Harry,

I can't help it. Pardon me for joining this thread but, as a non-economist,
I have to say that Paul's sense of reality is more in line with the real
world. Economists call it a "time preference decision". Us mortals call it
budgeting. And, this is not just for wage earners but for the wise rich, I
dare say. It's  common sense, don't you think? And, the pay periods are
benchmarked by convention -- the 15th, the 30th or interest swept into a
checking account at the end of the money market placement period.

But, you must have a point when you say what you do below. What is it? Maybe
there was a digression.

Gary


----- Original Message -----
From: "Harry Veeder" <eo200@xxxxxx>
To: "paul davidson" <pdavidson@xxxxxxx>; "post keynesian thought"
<pkt@xxxxxxxxxxxxxxxx>
Sent: Wednesday, April 23, 2003 11:35 PM
Subject: Re: saving and finance and an answer to Basil Moore




>
>
>> Paul davidson wrote:
>>>>>
>>>>> No !. The decision of how much of one's income to consume is the first
>>>>> decision. As long as the average propensity to consume is less than
>>>>> unity--  this first decision will leave the household with a RESIDUAL
>>>>> sum of funds  that is equal to nonconsumption.  THIS FIRST DECISION IS
>>>>> WHAT CLASSICAL  ECONOMISTS CALL THE TIME PREFERENCE DECISION because
it
>>>>> involves the  household in deciding what proportion of income to spend
>>>>> (to consume) on  the products of industry THIS PERIOD i.e., what
>>>>> proportion of income the  household has a TIME PREFERENCE of consuming
>>>>> in the current period.
>
> Harry's response:
>
>
>> Classical mush.
>> How long is the period in 'this period'???
>
>
> The period is the pay period!  If you get paid once a week, then the
> decision is how much to spend  (time preference) out of your pay this week
> (or bi-weekly or this month is the period..etc  depending how often you
get
> paid) vis-a-vis how much not to spend out of incme this pay period.  If
you
> decide to have any "not to spend" income during this pay period, the
second
> (liquidity preference) decision is what time machine (liquid asset) will
> you buy this period  to carry your non-spent income into the next (future)
> pay period(s).
>
> AS my book  FINANCIAL MARKETS  MONEY AND THE REAL WORLD indicates this
> liquidity decision as to what time machine (or machines) to buy depends on
> (a) transactions costs of buying the time machine today and liquidating it
> sometime in the future, the money stream of income expected to be received
> while possessing this time machine minus the carrying costs of  holding
the
> asset, and the capital gain or loss expected when the time machine will be
> liquidated (resold) .
>
> [If you decide to spend more than your income this pay period, (this is,
> your first time preference decision to spend more than you earn this
> period) then your second decision (liquidity preference) is what time
> machine(s) [liquid asset(s)] should you liquidate in order to finance your
> purchases in excess of income this period.
>
> If you decide to borrow to finance your purchases in excess of  this pay
> period's income, then, depending on the amortization schedule you have
> decided to contractually commit yourself to, you have contractually
> committed yourself to a time preference decision in future periods to
> "not-to spend" in specific sums in specific future time periods
(determined
> by the amortization schedule in your debt contract)-- with an option to
use
> a future  liquidity preference decision to liquidate  a time machine
> (liquid asset) at some future time period [ assuming you possess time
> machines] in lieu of "not spending" out of income in those future time
> (pay) periods.
>
> I can not conceive of why you find that so hard to understand Harry since
> that's what most of us-- including youI suspect  --do every pay period

The problem with this analysis is that it assumes spending decisions are
rooted in certain knowledge of the pay period. It seems to me the
_macroeconomist_ cannot say if people are certain or even wish to be certain
of their pay periods.


>> The 'first decision' is labour's decision. The decision to spend
>> time working or not working for credit for all periods.
>
>
> Dear Harry the above is "classical mush" to use your phrase -- because it
> assumes full employment-- since anyone who decides to "not working for
> credit for all periods" is voluntarily unemployed -- in other words not in
> the labor force.(Moreover it implicitly assmues that if I want to work I
> can determine how much I get paid per unit of time).
>

I am not suggesting labour can always satisfy their income and employment
decisions.  A decision here means an aspiration. There is a spectrum of
aspirations for all periods, but that does not necessarily mean all
aspirations can be satisfied for all periods (even if wages are flexible.)

harry