Friday, May 2, 2014

OMG: Martin Wolf backs “secular stagnation”.

It’s pathetic. When one of the imbeciles in high places produces a catchy new phrase, e.g. “secular stagnation”, everyone starts parroting the phrase. (It was Laurence Summers who coined the phrase at the end of last year.)
Secular stagnation is the idea that investment spending is low and looks like staying low, ergo aggregate demand will stay low, ergo we’re stymied: i.e. there’s no way we can raise demand. Unfortunately Martin Wolf seems to have fallen for this crackpot idea in a recent article.  As he put’s it towards the end of his article “The immediate question, however is: how do we generate the demand that is needed to mop up potential global supply?”
Well the answer to Summer’s and Wolf’s problem is easy. It was spelled out by Keynes. But perhaps Summers and Wolf haven’t heard of Keynes.
Keynes suggested that given inadequate demand, government should borrow and spend extra money (and/or cut taxes). Alternatively government and central bank could, as Keynes pointed out, simply print new money and spend it (and/or cut taxes).
That’s right: when people want to buy stuff, what they use is . . . . wait for it . . . . M-O-N-E-Y. So give people more money and what do you think they'll do? Scratch your head for five minutes if you like, but it's desperately simple: give people more money and they'll tend to spend it, or some of it. (Revelation of the century that, don't you think?)
So if there’s a lack of demand, what do we do, boys and girls? Yep: what we can do is have government spend more, and or create new money and hand it out so people can spend more.
3 year old children will be able to understand that, thought how many of the World’s leading economists understand it is debatable.
Or put another way, Mosler’s law solves Summer’s and Wolf’s little problem. (See sentence in yellow at the top of Warren Mosler’s site.)

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