Re: Fed vs White House

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From mongiovg <mongiovg@xxxxxxxxxxx> =====
>I would be interested in hearing what Paul D. or Mat F. think about this.  I
>assume that Laubach's results are grounded in orthodox macroeconomic thinking
>about liquidity.

The trouble is, Gary, that the mainsteeam does not have a theory of liquidity.
 Behind this orthodox macroeconomic thinking -- as illustrated  by Laubach's
mindless econometric estimation -- is a belief in the Quatity theory of money.
Mainstreeam analysis implies that government deficits cause the quantity of
money to increase more rapidly and when quantity of money rises too rapidly
that causes inflation -- and( this drivel goes on) this inflation forces the
money rate of interest to rise relative to a "real rate of interest" [The real
rate of interest is determined by the Marginal Productivity of Capital and is,
therefore, a constant -- or rising at a constant rate as productivity rises --
a shift in the production frontier].

>As a Sraffian,

As a Sraffian Gary this mainstream nonsense should make you puke!


>I'm partial to the Kaldorian ideas that money
>is endogenous and that the monetary authorities can set interest rates
>independently of the market for saving & investment.

Unfortunately Gary I do not see the connection between Sraffa -- who did not
have money in his system -- Commodities produce commodities-- and Kaldor--
except that they were both at Cambridge, UK.


I think Paul remarked a
>few weeks back, that during the Second World War the US was able to sustain
>huge deficits without high interest rates by adopting an easy-money policy.

That's correct seee my response to Chris Niggle on this same topic.

>That's intriguing. But are there no real-sector contraints on the monetary
>authority's ability to keep interest rates as low as they wish to?

Not if you recognize that the rate of interest is strictly a monetary
phenomenon that has affects on the real sector. (see Keynes's chapter 17, of
the GT and p. 142 of the GT for the fallacy of a difference between the money
rate of interest and the real rate of interest due to expectations of
inflation-- I wrote an article on this some years ago but no one seems to read
it -- or care.)

In the mainstream classical theory, on the other hand, the rate of interest is
a real phenomenon that has no monetary affects.

Paul

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-4221; office fax# (865)974-1686 or (865)974-4601
home phone and fax # (865)692-0802
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html