ARNOLD KLING
August 14, 2011
The Top Political Contributors
August 11, 2011
Gender and the New Commanding Heights
August 11, 2011
Jamie Galbraith Makes an Assumption
August 11, 2011
Macroeconometrics: The Science of Hubris
August 10, 2011
Real and Nominal Bond Yields
BRYAN CAPLAN
August 14, 2011
The Effect of Thumb Sucking on Income
August 12, 2011
The Voice of Cold, Hard Truth to All Would-Be Educators
August 12, 2011
Ability, Morality, and Prosperity: A Paper and a Report
August 11, 2011
The Theory of Time and Frittering
August 10, 2011
Male Variance and the Remnants of the Gender Gap
DAVID HENDERSON
August 9, 2011
Hayek in "Unbroken", Part Two
August 8, 2011
Hayek in "Unbroken"
August 5, 2011
James Bovard on the Peace Corps
August 4, 2011
Summers Way Off on FDR and 1941
August 3, 2011
The "Amazon" Tax
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Hi Arnold,
Indeed. To think that macro-policy instruments, are a tool to fix and induce micro-animal spirits, is in itself arrogant.
I guess some folks have to say something.
Best,
Youri
http://globalviewtoday.blogspot.com/
The answer is it does not need to know, all it needs to do is buy time. Buying time is not cheap, but not buying it can be even more expensive.
Sumner does believe that the base money determines nominal expenditure in the economy.
It is because base money serves as the medium of account. The dollar is defined in terms of base money denominated as a dollar. That is what provides the nominal anchor.
It is just that he doesn't assume that the demand for base money is constant. That means looking at the current level or growth rate of base money tells us nother certain about whether its current quantity is consistent with some particular growth path of nominal expenditure.
Still, given the demand for base money, (which may be different than it was last week or last year,) if base money is greater than that demanded amount, nominal expenditure will rise. Further, if the quantity of base money is at the level that would be demanded with nominal income at target, (understanding that this isn't something that is constant,) then nominal income will rise to target.
Now, just because nominal income is on target doesn't mean that there are no problems with needed reallocations of resources or with real financial intermediation. Sumner insists, however, that nominal income below target causes further problems. And, in fact, most certainly will exacerbate problems with financial intermediation.
Government doesn't, by fiat, know best what sectors are the "best" however it is crystal clear to me that "private" investors are , potentially, equally clueless. Government CAN, however, nudge and support valuable endeavors. It all depends on who is running the govt. Private investors were pushing the housing market for 12-15 years. Everyone was a contractor. All the Wall St firms(private by the way) were packaging mortgage and credit card debt as a "product". Our whole credit bubble based growth of the last 8 years was cheered on by our president and his minions. The private sector spoke loud and clear and it was horribly wrong. It made false assumptions and chased illusory growth in favor of real growth.
This false dichotomy of "private" vs government has got to end. Private is not necessarily "right". Government is not necessarily evil or wrong. Until we admit that all human decisions can be flawed, whether they are part of a corporation, entrepeneur or government entity we will never realize our potential.
Dr. Reisman has a devastating critique of the IS/LM model in his book "Capitalism", which is available for download in pdf form free. His main critism is with the assumption that the marginal efficiency of capital necessarily declines with greater investment. This assumption is the foundation of the IS curve from which the aggregate demand curve is derived. In short, the IS/LM model is worthless, not just flawed.