Duncan’s Economic Blog

Post-Keynesian Observations

Posted in Uncategorized by duncanseconomicblog on June 25, 2009

New addition to the blog roll.

Post-Keynesian Observations.

Really worth a read. Sample (and remember it’s American so we can forgive the use of ‘middel class’:

So what was the problem? Think about this: if, as a macroeconomic unit, we had the resources, technology, and productive capacity to produce all those houses, cars, TV’s, meals at nice restaurants, etc., then why did people have to go into so much debt??? Why weren’t our incomes sufficient to buy those absolutely-affordable goods and services without debt or at least with minimal debt? Therein lies the problem. We didn’t spend too much, we earned too little. Not only is there a systemic issue with respect to market economies being unable to generate a reasonable number of jobs for all those willing to work (see the discussion below), but income distributions have been becoming more and more uneven. Those who form the backbone of consumer demand, the middle class, have been losing relative income shares to the rich. This is all great fun for the rich in the short run, but it leads to what we have right now in the long run: falling sales, default, unemployment, recession, etc.

Hence, the focus of policy right now must not be on cutting back spending. Why should we? We can afford all that stuff, and buying it is what creates jobs and incomes for others. Rather, policy should create income and offer incentives for spending money. The private sector cannot do this alone because as we stand right now, all individual incentives are to restrict spending.

5 Responses

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  1. […] Hat Tip: Duncan’s Economic Blog. […]

  2. Alex Ross said, on June 26, 2009 at 11:53 am

    hey Duncan, what do you make of this german-centric diatribe against the obama administration?

    http://www.spiegel.de/international/world/0,1518,632494,00.html

    I find myself disagreeing with it in general but without the ability to formulate why in plain english.

    • duncanseconomicblog said, on June 26, 2009 at 3:04 pm

      Hi Alex,

      I’ll have a look.

  3. John said, on June 26, 2009 at 8:05 pm

    “if, as a macroeconomic unit, we had the resources, technology, and productive capacity to produce all those houses, cars, TV’s, meals at nice restaurants, etc.”

    What’s the macro-economic unit here? Isn’t the answer “because houses were selling for much more than the cost of land + building, and “because the cars came from Japan and the TVs came from China”?

  4. rommeldak said, on June 27, 2009 at 4:43 am

    Sorry, John, that’s my blog you are citing and my wife agrees with you that I wasn’t clear! I need to go back and tidy that up. But, to answer your question, what I’m getting at is this. While an individual economic entity can purchase items with future income (which you do by borrowing), the entire world economy cannot do so. It cannot, for example, build houses with bricks that won’t be made until next year, it can’t manufacture a car using steel that has yet to be produced, and so on. I raised this point because I had seen so many folks complain that we had all “spent beyond our means.” But that’s not the problem, because the physical manufacture of those goods and services must have clearly been without our means or we couldn’t have made them (as explained above). Thus, the real question is, why couldn’t we, as individual economic entities, afford them? Why was it necessary to go so far into debt when it’s obvious we could “afford” them otherwise? The answer is that the market economy as currently designed tends to leave us with inadequate employment opportunties (for the reasons outlined in my blog in earlier posts). Thus, it is better to think of our problem as having been one of earning too little rather than spending too much. I am not saying that this is the only issue, but it is definitely one of the core ones.


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