tag:blogger.com,1999:blog-378298074607497085.post501840933071666207..comments2010-07-05T18:55:51.515-07:00Andy Harlesshttp://www.blogger.com/profile/17582263872850949568noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-378298074607497085.post-87035671276880049232010-07-05T18:55:51.428-07:002010-07-05T18:55:51.428-07:00there is no accountability with any of this stuff and Obama. we voted for him and he isn&#39;t helping us. I kinda wish we were getting a <a href="http://2009stimuluscheck.net/2009/11/2010-stimulus-check/" rel="nofollow">2010 stimulus check</a> but it looks like there won&#39;t be a santa coming this year.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-53404078257624995032010-01-08T21:14:33.306-08:002010-01-08T21:14:33.306-08:00everyone forgets about it because everyone thinks that it goes nowhere, like it or not we still pay for these taxes without assuring we claim it back.<br /><br /><a href="http://www.itaxrebate.com" rel="nofollow">Stimulus Package News</a>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-76154882032669164312010-01-08T19:59:11.633-08:002010-01-08T19:59:11.633-08:00everyone forgets about it because everyone thinks that it goes nowhere, like it or not we still pay for these taxes without assuring we claim it back.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-35103948052724838142009-01-19T22:34:00.000-08:002009-01-19T22:34:00.000-08:00If inventories have to be in there, then the whole thing only works in an industrial economy. Imagine a country where all the manufactured goods are imported. Do inventories still have to be in there? <BR/><BR/>I think the logic needs to be able to work for such an economy (especially since it's not such a distant approximation to the US today), but you can't have inventories of lectures, inventories of backrubs, inventories of concerts, inventories of advice. (Technically, you could have inventories of software, inventories of DVD's, etc., but those are only at the trivial retail level: if stores are running out of Windows XP, that's not necessarily a signal that you need to develop Vista.)<BR/><BR/>So how do professors, massage therapists, musicians, consultants, software developers, etc., know when they want to expand production? I guess when they start making more sales, but there is no disinvestment involved.Andy Harlesshttp://www.blogger.com/profile/17582263872850949568noreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-14121927014373930732009-01-19T20:31:00.000-08:002009-01-19T20:31:00.000-08:00I think inventories *have* to be in there. Without signals provided by changing prices, how do firms know they want to expand production unless they find themselves doing unexpected inventory disinvestment?<BR/><BR/>At least, that's the way I always understood it...bradhttp://www.blogger.com/profile/04548019979157668776noreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-69396237410643301392009-01-19T01:24:00.000-08:002009-01-19T01:24:00.000-08:00Andy: let me try again. Suppose, just for the sake of argument, that both the demand and the supply of money were perfectly interest-inelastic. So you get a vertical LM curve, so fiscal policy wouldn't work, so Fama would be right. The excess demand for loans would create a rise in the rate of interest, but wouldn't create an excess supply of money, and so wouldn't create an increased demand for goods. You need to talk about the rate of interest and excess supply of money to explain to Fama why he's wrong.Nick Rowehttp://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-77116215073742130862009-01-17T09:51:00.000-08:002009-01-17T09:51:00.000-08:00Re UPDATE2,<BR/><BR/>I think the company records the entire purchase as a reduction in inventory. Purchase proceeds are used to pay off funding reflecting the cost of goods sold, while leaving cash profits in the bank as the offset to retained earnings.<BR/><BR/>Neither is cash in the bank an ‘investment’ nor is retained earnings ‘savings’ in national accounts terms. Both investment and savings have declined at the point of sale, by the amount of the sale.<BR/><BR/>The subsequent rebuilding of inventory and income is separate from the previous conversion of investment to consumption. The multiplier effect starts from the level of inventory investment remaining after the sale and is then determined by the new activity that follows.JKHnoreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-90720507576109986182009-01-17T07:49:00.000-08:002009-01-17T07:49:00.000-08:00I think the problem is that everyone is forgetting what happens to the rate of interest and the excess supply of money. <BR/><BR/>Very short version: the excess demand for loans causes the rate of interest to rise, which creates an excess supply of money, which people lend to the government.<BR/><BR/>Slightly longer version here: http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/01/loanable-funds-and-liquidity-preference-delong-vs-fama.htmlNick Rowehttp://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-61635695745776721402009-01-17T06:09:00.000-08:002009-01-17T06:09:00.000-08:00I think I agree with just about everything you’ve said. Allow me to play it back this way:<BR/><BR/>I liked Montagu Norman’s “weekend model” as excerpted by Delong (http://delong.typepad.com/sdj/2009/01/eugene-fama-rederives-the-treasury-view-a-guestpost-from-montagu-norman.html#comments). It’s a reasonably close differential approximation to the instantaneous calculus logic that is required to understand all this, I think.<BR/><BR/>In a way you’ve implied that type of model here; e.g., when you say, “Perhaps, with today’s technology, you could spend it within a few seconds, but the instant after you receive the funds, your savings necessarily increase.”<BR/><BR/>This sort of thinking is very important stuff. It really should be a sort of prototype analysis.<BR/><BR/>In a very simple model, the first order change from a government stimulus would be an increase in GDP by the amount of the stimulus and an increase in saving by the same amount. New income generated by the stimulus must be saved because prior expenditure and investment is already accounted for in prior income. Then the investment multiplier kicks as people start to spend their new income, expanding GDP and incomes as second and higher order effects.<BR/><BR/>In linking the real economy interpretation to the financial one, I think it’s important to recognize Ricardian equivalence as balance sheet “transaction” but not an income statement one. If one “believes” in it, it means that today’s government borrowing must be offset by a “write-down” of household net worth by the amount of the Ricardian equivalence. The corresponding new income created is then added back at the same time. But the ultimate resolution of the postulated (now reserved) Ricardian equivalence will depend on the ultimate resolution of the Keynesian multiplier effects over future income and future income periods. Cumulative income effects over future periods will eventually converge or not converge to (i.e. fall short of or exceed) the balance sheet allowance.<BR/><BR/>Ricardian equivalence is a tax asset for the government and a tax liability for the private sector.<BR/><BR/>So whether or not you believe in Ricardian equivalence is irrelevant in terms of describing the dynamics of current and future income. It is only relevant to how you describe household wealth. In other words, the creation of new income as you describe it is independent from the creation of new wealth, which depends on the Ricardian equivalence debate. And the Ricardian equivalence debate is best framed by accounting for its probability in the form of a reserve against it in the accounting of household wealth (and in the accounting of government “wealth”, if we could ever get to that point).<BR/><BR/>You say, “My logic would work even in a world without inventories, where firms could instantaneously change production in response to demand.”<BR/><BR/>That seems logical and correct and right to me. I think the basic Keynesian model is best described in simple terms that way. The inventory adjustment is a real world first derivative adjustment to that model.<BR/><BR/>In connection with the inventory wrinkle, I wrote on Delong’s post:<BR/><BR/>“Inventories are the partial derivative of investment on the output side. New demand from any source is capable of converting a surplus inventory/investment state to a deficient inventory/investment state, given other demand and its effect on remaining inventory. An increase in aggregate employment, production, output, incomes, consumption, investment, and saving is then required to return inventory/investment to a balanced state as a proportion of the resulting total economy. The identity of saving and investment holds at any instant of the process, and does not prevent the absolute size of saving and investment from fluctuating as a function of its proportion of the total economy at the same instant.”JKHnoreply@blogger.comtag:blogger.com,1999:blog-378298074607497085.post-75238151006515737882009-01-17T02:56:00.000-08:002009-01-17T02:56:00.000-08:00I think if you want to count the government's ability to raise future tax revenues as an asset, you also need to count a liability on those who the taxes will be raised from. On this basis, there isn't really a net increase in wealth. However that's a minor quibble.<BR/><BR/>I think you are inadvertently giving too much credence to Professor Fama's original argument by glossing over the logical flaw in it.<BR/><BR/>His new summary, which you quote, is a better argument, and is the basis of the Keynesian proposal: bring idle resources into use.<BR/><BR/>I believe Brad DeLong has it right: the debate has arisen because Fama's original article was flawed. It was based on the classical model in which all markets immediately clear, but posited that "there are idle resources" which cannot happen in that model.<BR/><BR/>The debate should be about whether and how those resources can be brought into use. All the points about debt and savings are, to a first approximation, a wash (acknowledging that there can be second order effects on incentives).Leigh Caldwellhttp://www.blogger.com/profile/16150868700502562500noreply@blogger.com