Re: saving and finance and an answer to Basil Moore

[Harry Veeder <eo200@xxxxxx>]

> From: Gary Santos <evs@xxxxxxxxxxxx>
> Date: Thu, 24 Apr 2003 11:17:33 +0800
> To: Harry Veeder <eo200@xxxxxxxxxxxxxxxxxxx>, pkt@xxxxxxxxxxxxxxxx
> Subject: Re: saving and finance  and an answer to Basil Moore
>
> 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.

Yes it is common sense, but I believe 'Time preference decisions' or
'budgeting' is how one thinks when wearing the hat of a manager, it is not
how one thinks when wearing the hat of an investor.

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

The point is pay periods ought to be treated as uncertain, because a truly
*general* theory cannot have exceptions to the principle of fundamental
uncertainty. I hope with others to develop a theory in which fundamental
uncertainty has an even greater presence then it does in Keynes' GT.


Harry Veeder

>
> ----- 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
>
>
>
>