Quite stunning to read John Henry's assertion: "And how does government 
'fund' its spending? Print money. Just ask Bernanke." He also threatens 
to produce references affirming the claim.  Now, I don't doubt that he 
may find some such printed claims.  But then not everything written is 
truthful.  There are indeed such things as"fake news"!  I also don't 
like asking people questions when I already should have known the answers.

The US Fed is prohibited from purchasing Treasury securities directly 
from the Treasury.  Rather, the Treasury sells its securities to 
dealers.  The dealers fund the purchases from the public's savings, such 
as issuing corporate paper to banks.  It is through its purchases and 
sales of such securities on the open market that the Fed affects 
interest rates of different terms: short, medium, and long.  Since the 
Financial crisis of 2008 the Fed also has been purchasing other debt 
instruments besides those of the Treasury.

Government deficit, by definition, is its expenditures over and above 
its revenues.  What happens to all of the taxes government collects 
monthly from our incomes and businesses, and some of us send checks to 
the US Treasury quarterly to prevent owing taxes and interest penalties 
when April tax time comes along?  John must also have been paying his 
taxes?  How come he believes what he has written?

Regarding the comments so far on the multiplier: Fred finds that the 
multiplier disappears completely because he hasn't specified the 
variables correctly.  Isaac also needs to amend some of his 
specifications.  T must be tY; all taxes are paid out of income, be they 
excise, proportional, or lump-sum.  C also must be "b(1 - t)Y"; we 
consume out of disposable income.  Saving (S) must be disposable income 
in excess of consumption (C) and the proportion of income used to 
acquire cash (H).  Some of the savings fund business investments (I) and 
some, government bonds (deficits). Thus, carefully done, the multiplier 
doesn't disappear.  It would be infinite.  Its effect however would be 
zero when there is nothing left to multiply it with.  There is a further 
problem with Y = C + I + G.  The formulation leaves out the public's 
excess demand for cash (H).

James Ahiakpor

Henry, John wrote:
>
>
> If I may chime in. I know this doesn't respond to Steve's initial 
> post, but there have been several misconceptions surrounding Keynes in 
> the ensuing posts, misconceptions that are aspects of the 
> anti-Keynesian literature about which Steve enquirers.
>
>
> In Fred Foldvary's post, he begins by stating: "T is taxes that pay 
> for G, government spending." All that follows in later posts take this 
> position. It is incorrect. Government spending precedes any taxation, 
> and there is no assurance--nor even expectation--that taxes collected 
> will equal spending. Indeed, government spending is normally in a 
> deficit position. And rightly so. When we do see "surpluses," it's a 
> sign that the economy is heading into a recession.Spending increases 
> the income available to the larger economy; taxes reduce it. If the 
> government sector runs a surplus, the private sector /must/ be in 
> deficit. That's the nature of a circular flow economy. As Wynn Godley 
> expressed it (and I paraphrase): everything comes from somewhere, 
> everything goes somewhere." And how does government "fund" its 
> spending? Print money. Just ask Bernanke. (Heck, you could even ask 
> Greenspan. I'm not sure about Yellen and Powell, particularly the 
> latter. As he's a Trump appointment, he may think this is all "fake 
> news.")
>
>
> See, among a host of other papers: 
> https://www.jstor.org/stable/4227588?seq=1#page_scan_tab_contents
>
>
> If folks want more references, I've got 'em.
>
>
> John
>
>
> John F. Henry
> Levy Economics Institute of Bard College
> Annandale-on-Hudson
> NY 12504
> Email: [log in to unmask] <mailto:[log in to unmask]>
> ------------------------------------------------------------------------
> *From:* Societies for the History of Economics <[log in to unmask]> on 
> behalf of Alan G. Isaac <[log in to unmask]>
> *Sent:* Saturday, September 1, 2018 9:59:44 AM
> *To:* [log in to unmask]
> *Subject:* Re: [SHOE] critics of keynesian economics
> Given logical proof that the accountants have misled us and as a
> simple logical matter the government budget must always
> be in balance (see below), let's start at the other end!
> Simply assume that G=T.
> So since Y=C+I+G, we must conclude that
> Y-T = C + I
> Introduce (and why not?!) the behavioral assumption C = b(Y-T) and we
> can conclude that
> (1-b)(Y-T) = I
> Now for the coup de grace.
> Introduce (and why not?!) the behavioral assumption I = (1-b)(Y-T) and 
> we have
> (1-b)(Y-T) = (1-b)(Y-T)
> or
> 0=0.
> Even among the most stubborn and misguided Keynesians,
> who will dare deny *this*?!  (Of course because they admit to being
> Keynesians, we suspect they might try, but the force (of the argument)
> is with us!)
>
> Evidently, from simple economic foundations we have deduced
> irrefutable eternal truths!  And should one of our Keynesian colleagues
> try to object, we can now just say, "look at the algebra my friend".
>
> Alan Isaac
>
>
>
> On 8/31/2018 1:04 PM, Fred Foldvary wrote:
> > Steve Kates <[log in to unmask]> seeks a rebuttal to the 
> Keynesian multiplier.
> >
> >
> >
> > The Keynesian multiplier is 1/(1-b).
> >
> > As I see it, the derivation is:
> >
> > T is taxes that pay for G, government spending.
> > b is the portion of income Y that is spent for consumption C.
> > I is economic investment.
> >
> > Y = C + I + G[
> > C = b(Y-T)
> > Y = bY -bT + I + G
> > Y-bY = I + G - bT
> > Y(1-b) = I + G -bT
> > Y=(I+G-bT)/(1-b)
> >
> > That assumes constant I.
> > If investment I is a function of savings, then
> > I = (1-b)(Y-T)
> > Substitute into the third equation:
> > Y = bY -bT + (1-b)(Y-T) + G
> > Which concludes with
> > G=T
> >
> > The multiplier disappears, and there is no determination of Y from 
> 1/(1-b)
> >
> > Fred Foldvary
> >


-- 
James C.W. Ahiakpor, Ph.D.
Professor Emeritus
Department of Economics
California State University, East Bay
Hayward, CA 94542
510-885-3137
510-885-7175 (Fax; Not Private)