Think of a world with one big bank, you and I both have deposit accounts, and both accounts show zero balance. I want to buy something from you and you want to sell it to me, maybe it is a consumption good or maybe it is an investment good, no matter. The important thing is that the bank helps us to achieve this transaction by extending a loan to me and a deposit to you, so expanding its balance sheet on both sides, an expansion of credit that is also an expansion of money. So far, I think everyone can agree.
One problem comes when we try to connect this to income accounting. In my simple example, your sale is your income and your acceptance of the bank deposit as settlement amounts to saving in the form of money. The income did not exist prior to the sale, so neither did the saving; both were created by the act of sale. Now, whether that saving is invested or not depends entirely on the nature of the good I bought from you. If it is fish, then your saving financed my consumption. It it is a fishing rod, then your saving financed my investment.
Another problem is that there is something in this story from which the trained economist mind rebels; it seems to violate some basic conservation principle, no free lunch. Where is that seemed violation? The expansion of credit is no problem, I think, because my increased debt is the counterpart of your increased wealth; there is no increase in aggregate wealth. But there is an increase in money, because the bank's deposit liabilities (unlike my own liabilities) are money. This is the "thin air" problem.
Prof. Offer's suggestion about liquidity comes in here, I think. Let us avoid "thin air" talk, and agree that the payment was made not by a transfer of money but rather by a transfer of the obligation to make the payment, from me to the bank. The bank says to you, "I will pay you, or your assign, whenever you want", and you accept that promise as payment, because you want to do the sale, and the bank's promise is better than mine. Your acceptance makes the bank's promise money, but now the bank has a problem, how to deliver on the promise.
But in the one big bank world, this liquidity problem is hard to see. You can use your deposit to make payments to other people with accounts at the bank. And if you want to "withdraw" your deposit, the one big bank can give you a transferable bank note which is its own liability. So where is the liquidity problem? Here we need to build out our one big bank abstraction in a bit more detail. In the actual world we live in there is not one big bank but rather a sophisticated set of short term interbank money markets that allow a collection of smaller banks to get pretty close to the one big bank ideal. And there is also cash reserves issued by the government, not any private bank, which is the ultimate money in which banks settle their own accounts with each other. The liquidity problem is the requirement to settle, at the end of the day, in cash that you yourself cannot create from thin air. (You and I face a version of that same liquidity problem, but we can settle in bank money, which is why the bank can help us.)
Thus there is no free lunch in creating money, because creating money involves taking on liquidity risk. The more creation, the more risk. And that risk shows up every day at the clearing. Do you have a deficit at the clearing? You must pay cash, or borrow cash from someone who has a surplus at the clearing, and they can always say no. That's where the Fed comes in as lender of last resort, which role it plays because the scarce settlement instrument cash is the Fed's own liability, so not scarce for the Fed. (The Fed is to banks, as the bank is to you and me; I call that the hierarchy of money and credit.)
This is a rather long chain of reasoning but I submit that it is the implicit ur-theory underlying the debates of the ancients. And I submit further that our present understanding of those ancient debates might be better served by trying to enter their frame of thinking, rather than trying to fit them into modern economic conceptual apparatus, whether intertemporal general equilibrium or IS-LM or whatever. At any rate, that's what I'm always trying to do myself.
From: "Avner Offer" <
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To: [log in to unmask]Sent: Saturday, November 23, 2013 9:28:01 AM
Subject: Re: [SHOE] The Keynesian multiplier
James Ahiakpor writes:
'it is impossible for banks' assets to exceed their deposit liabilities'
But that is no obstacle to the creation of new money. Every time a bank creates an asset (a loan), it also creates a liability in the form of a deposit. The desposit is created by the loan, not by savers. The risk for the bank is not being able to meet its liabilities, whicih is a matter of liquidity. It is not constrained necessarily by the existence or scale of external deposits.
Avner Offer
======================================================
From Avner Offer, Chichele Professor Emeritus of Economic History, University of Oxford
All Souls College, High St., Oxford OX1 4AL, tel. 44 1865 281404
email:
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To:
[log in to unmask]Subject: Re: [SHOE] The Keynesian multiplier
On 11/22/2013 3:02 AM, Lilia Costabile wrote:
It is interesting: professor Ahiakpor takes us back to Cannan's notion of "cloakroom banks", whereby banks are mere intermediaries between depositors and borrowers. New lending originates in a reduction in depositors' preferred cash-to-deposit ratio.
But what if:
(i) given the public's preferred cash-to-deposits ratio, the foreign reserves of the central bank rise as a consequence of an external surplus? Or if the central bank reduces the reserve requirement ratio?
My delight to respond to Lilia Costabile's questions. If the central bank chooses merely to hoard the increased reserves, nothing else happens. Only when the central bank purchases some (financial) assets in the domestic economy does base money increase, leading to an increase in the rate of credit creation by banks (or other financial institutions. However, a central bank need not even wait to acquire any external funds in order to cause an increase in the flow of credit in the economy (short run). It simply may print the money and purchase securities or lower its lending rate to attract more borrowing from banks. That's why earlier I explained that only a central bank may create credit (loans) from thin air.
If the central bank reduces the required reserve ratio, it merely permits banks to hold a lesser amount of the public's deposits and thereby lend more than previously (assuming no change in banks' own economic or excess reserve ratio).
(ii) if all banks move "forward in step"? if a single commercial bank initiates the expansion of credit it may "run out" of cash. But if the whole banking system does so "in step", every loan is by definition a new deposit. Loans create deposits, not the other way around. The only limit to the expansion of loans, in an open economy, is the foreign reserves of the Central Bank.
This is incorrect. It doesn't matter if all banks want to move "forward in step." Think about it this way. Several banks, without any cash deposits with them grant $1,000 loans to their customers. The typical bank balance sheet will have zero Reserves of cash and a claim (bank loan) of $1,000 under the assets column of the banks' T-Account. The bank also will have $1,000 in the Liabilities column of the T-Account. Now the loan was incurred to purchase something: credit is a facility to make a purchase without income, as I explained earlier. So the borrower writes a check -- an order to pay $1,000 -- in payment to someone else in the economy. Let that person present the check for payment of cash. There is no way any of these lenders would be able to meet their liabilities; their Reserves have zero cash with which to redeem the claim.
If Lilia had followed my demonstration of the deposit expansion process (carefully), she wouldn't still be in this state of believing that banks can create credit out of thin air, following J.M. Keynes (1930). I'm glad she's made a reference to Edwin Cannan. I think Cannan understood the process better than Keynes because Cannan studied Adam Smith, having edited the Wealth of Nations. Smith's chapter on "Money" discusses banking firms and the process of their savings intermdediation before the chapter on "Of Stock Lent at Interest." In between those chapters, Smith also discusses "capital" -- funds deriving from savings -- the concept with which Keynes had perhaps his most difficulty in understanding the classical theory of interest. The concept of "capital" also was a problem for J.A. Schumpeter. In fact, Schumpeter declared that we should abolish use of that concept since it was rather confusing to him: "What a mass of confused, futile, and downright silly controversies it could have saved us, if economists had had the sense to stick to those monetary and accounting meanings of the term instead of trying to 'deepen' them!" (1954: 323). F.A. Hayek (1941: 9) also says the same thing about "capital:, "The ... ambiguity of the term capital has been the source of unending confusion and the suggestion has often been made that the term should be banned entirely from scientific usage."
Thus, Schumpeter, who praised Keynes's money supply and demand theory of interest over the classical "capital" supply and demand theory is not a reliable source to clarify the process of banks' financial intermediatioin as Avner Offer earlier suggested. Even Irving Fisher got side-tracked over the classical theory of interest, suggesting that "The student should ... try to forget all former notions concerning the so-called supply and demand of capital as the cause of interest" (1930, 32)! He thought the Austrian time-preference theory was more meaningful.
Because this discussion has relevant macroeconomic implications, it may be useful to concentrate not just on the microeconomics of one single bank considered as an individual firm, but on the banking system as a whole.
One sometimes gets the macro wrong when not paying careful attention to the micro aspect of issues. The simple fact is that one cannot supply or sell (on the spot market) that which has not been created or is not in existence. Can't grant a loan on non-existent savings. The "laws of physics" deny that possibility!
By the way, as to the "writers on finance" referred to by Professor Offer, we may add Knut Wicksell and Dennis Robertson.
I am aware of Robertson's (1957) puzzling treatment of banks as financial intermediaries. I write elsewhere (Classical Macroeconomics, p. 53) that "Robertson's description of banks as intermediaries between savers and borrowers (investors) [on pages 41-42] does not appear to be consistent. He frequently treats banks as institutions capable of extending credit (loans) without relying on the deposits of savers, just Wicksell (1898), Fisher (1912), Pigou (1927, 123-4), and Keynes (1930, 1: 25-30)." But unless banks draw from their own"capital" -- owners' contributions to fund the enterprise -- it is impossible for banks' assets to exceed their deposit liabilities. I appreciate Patrick Spread's contribution to clarify the point, addressing Avner Offer's insistence to the contrary.
Regards
Lilia Costabile
James Ahiakpor
Il giorno Nov 21, 2013, alle ore 10:43 PM, James C.W. Ahiakpor <
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Unfortunately, the idea that banks lend more than each depositor's savings with them appears well entrenched in some people's minds. They are convinced of that by the formula describing the total of deposits in a banking system, D = dDo, where d = 1/(cu + rd + re), the deposit multiplier, Do is the initial cash deposit that starts a deposit expansion process, and D is the sum total of deposits. The problem is that not sufficient care is taken by some writers to clarify the process. A good reference to the process's clarity is Adam Smith's (_Wealth of Nations_) chapter, "Of Stock Lent at Interest." There Smith explains that in the process of lending, "money is, as it were, but the deed of assignment, which conveys from one hand to another those capitals [savings] which the owners do not care to employ themselves. Those capitals may be greater in almost any proportion, than the amount of the money [cash] which serves as the instrument of their convey!
ance; th
e same pieces of money successively serving for many different loans, as well as for many different purchases" (Chicago: 1976, 374). In the modern deposit creation formula, Do is the equivalent of Smith's money that carries the first saver's deposit to the bank.
Indeed, if any bank could lend more than deposited with it, it could just as well create deposits out of thin air and never bother about deposits. The fact of the matter is that banks always lend a fraction of their deposits, albeit a substantial fraction. That is indicated in the formula, BCo = (1 - rd)(1 - re)Do, where BCo is bank credit, rd = required reserve to deposit ratio, and re = bank's economic or excess reserve to deposit ratio, and Do = the initial deposit (cash) that starts the process. When the first loan (BCo) created on the basis of Do comes back as a new deposit (savings), it will be D1 = (1 - cu)BCo = (1 - cu)(1 - rd)(1 - re)Do, where cu = the income recipient's currency to deposit ratio or currency drain. Thus, the next loan created will be a smaller magnitude than the first, being BC1 = (1 - rd)(1 - re)D1, and so on.
The suggestion of 100 per cent reserve to deposit ratio by the likes of Irving Fisher, Henry Simon, and Milton Friedman was motivated by the concern that banks always have cash reserves to pay each depositor's claims. (Murray Rothbard's endorsement of that policy stems from his belief that fractional-reserve banking constitutes a fraud on the part of banks.) It was not made with the understanding that banks lend more than each depositor's savings. That would be erroneous. In a fractional reserve system, which also means that banks lend less than 100 per cent of each depositor's savings, banks never can meet all of their liabilities when depositors demand redemption in cash at the same time. Indeed, some textbooks teach the deposit expansion process without paying careful attention to the fact that it is the subsequent savings of those who earn incomes from loan expenditures that make new loans possible. The careful authors don't do that. I make sure, when I teach the !
deposit
expansion process, that my students understand this.
James Ahiakpor
Avner Offer wrote:
Dear James,
Your write in exasperation ‘What am I supposed to do with [it]?’ , as if you possess revealed truth. Your exasperation suggests that economics textbooks du jour are holy writ, and assumes that you read them correctly (see Alan Isaac’s response).
Putting Keynes to one side, if economists and bankers had a correct understanding of money and banking, we would not have had such a financial crisis.
For the many historical ‘writers in finance’ I allude to see i.a. Schumpeter, History of Economic Analysis (1954), IV.8.7, pp. 1111-1116 (‘Bank Credit and the ‘Creation’ of Deposits’). Among such notable writers were also Irving Fisher, Henry Simons and Milton Friedman, all of whom proposed at one time or another a 100% reserve system of banking, to prevent bankers from creating ‘checkbook money’. (Hixson, A Matter of Interest, 247-248).
The argument is not that all loans are made out of thin air, but that some fraction of them are, constrained by the risk that bankers feel able to take. They lend bank-made-money, take collateral, and earn interest. Ultimately, banks need to be able to satisfy liabilities in legal tender.
The bank does lend out its deposits and gets a mark-up. The risk is that all depositors will ask for their money at once. But they don’t. So the bank lends more than it has on deposit, some of it comes back as new deposits, it lends a little more than that and so on. How much new money to create is a matter of discretion, constrained (micro) by the quality of the borrower and (macro) by economic performance overall.
Banks need the cushion of deposits to create new money, hence deposit and loan rates move together. There are (and have been) various classes of deposits that pay no interest, or indeed incur a charge.
Commercial banks need to borrow from other banks when demands for payment (e.g. that check from the car dealer) come in and they have no legal tender to pay it with, or not enough to take on more risk. Likewise with borrowing from the central bank. In the extreme case, caused by a run on the bank, they pay more interest to the central bank because other banks won’t lend to them. In fact commercial banks have learned by now that they won’t even have to pay that penalty.
It isn’t any institution that can create a loan out of nothing, only institutions licensed to do so. That’s one reason why bankers are rich, and why (when improperly regulated), banks come to grief.
‘His bank manager’ – what a quaint notion. In this town there are no longer local ‘bank managers’ with discretion over lending. Nor is it clear that traditional small-town bank managers fully understood that they were creating new money when they lent. Economists seem to have trouble with this idea as well.
Your final paragraph is technically correct, but the scope for hoarding (of banknotes or precious metal) is quite limited.
Avner Offer
======================================================
From Avner Offer, Chichele Professor Emeritus of Economic History, University of Oxford
All Souls College, High St., Oxford OX1 4AL, tel. 44 1865 281404
email:
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personal website:
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From: Societies for the History of Economics [
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Sent: 20 November 2013 23:31
To:
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Subject: Re: [SHOE] The Keynesian multiplier
On 11/19/2013 1:09 PM, Avner Offer wrote:
"Lenders don't generate their sources of funds from thin air."
Are you arguing that every dollar lent has to be deposited first by a saver, i.e. withdrawn from consumption? As writers on finance have known for a very long time, it is almost the opposite: a substantial proportion of bank deposits are created by loans credited to borrowers.
Avner Offer
======================================================
>From Avner Offer, Chichele Professor Emeritus of Economic History, University of Oxford
All Souls College, High St., Oxford OX1 4AL, tel. 44 1865 281404
email:
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personal website:
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Avner Offer is here repeating Keynes's (1930) fallacious claim that I
noted earlier. What am I supposed to do with? I also don't know who
these "writers on finance" are who would claim that "a substantial
portion of bank deposits are created by loans credited to borrowers."
Now if a bank credits a borrower's account with, say, $10,000 and the
borrower writes a check for $10,000 to pay for a car. The car seller
deposits the check in the company's bank account and the bank sends the
check for collection to the originator (bank) of the loan. If the
originator of the loan didn't have $10,000 to meet the claim, what
happens to that bank?
Perhaps, Avner is not very familiar with money and banking or the
process of financial intermediation; a good introductory macroeconomics
text teaches the principle, too. To help Avner think clearly about the
necessity of banks having deposits (savings) prior to lending, s/he
should answer the questions: If banks can create credit without prior
savings, why would they pay interest to savers for their deposits? Why
is it that deposit rates and loan rates move up and down together, the
spread being fairly constant? Why would some banks borrow from other
banks (the Federal Funds market in the U.S.) if they could just create
credit on their own to lend? Why would banks borrow from a central bank
(at interest, typically higher than they would pay other banks) if they
could create their own loans without prior savings? Finally, if any
institution (other than a central bank) could create a loan without
prior savings, why would anyone want to be a borrower?
I suggested to Rob Leeson that he take a look at a good book on money
and banking to understand the sources of bank funds as well as the uses
of such funds (loans and investments). I also suggested a visit with
his bank manager. The same suggestions are suitable for Avner Offer as
well.
One's disposable (after-tax) income may be used to purchase consumption
goods, acquire financial assets (savings), and held in cash (hoarding).
Thus, there could be increased saving without a reduction in consumption
spending when people reduce their cash hoarding. Similarly, there could
be a decrease in the flow of savings without an increase in consumption
spending when people turn more of their income into demanding more cash
to hold.
James Ahiakpor
________________________________________
From: Societies for the History of Economics [
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Sent: 19 November 2013 20:12
To:
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Subject: Re: [SHOE] The Keynesian multiplier
On 11/19/2013 1:28 AM, Robert Leeson wrote:
As I made clear in November 2011, it is evidence that the assumption has been falsified that James is requested to provide.
RL
Sorry I did not answer Rob's the question as he intended. I thought the fact that savings are spent by borrowers was much too obvious for him to have been asking for such proof or "evidence". So here is the proof of Keynes's error. Any time anyone takes a loan -- car loan, home mortgage, consumer loan, or uses a credit card to make a purchase -- they prove Keynes's understanding of saving to be wrong. Such proof is going on everyday, except that the unrepentant Keynesians don't recognize it.
Lenders don't generate their sources of funds from thin air. They issue IOUs that are "purchased" by savers, except central banks that create credit out of nothing. That is why one reads from Adam Smith that saving is the acquisition of interest- or dividend-earning assets. Alfred Marshall, who tried unsuccessfully to teach economics to Keynes, also makes the point when he explains that "in 'western' countries even peasants, if well to do, incline to invest the greater part of their savings in Government, or other familiar stock exchange securities, or to commit them to the charge of a bank" (1923, 46; my emphasis); cited on page 15 of the 1998 volume to which Rob Leeson contributed a chapter. Marshall is here elaborating J.S. Mill's (Works, 2: 70) explanation of the meaning of saving, partly cited on page 14 of the same 1998 volume.
We (at least, I do) explain this principle when teaching the bank deposit multiplier process: someone takes their savings (in cash) to deposit in a bank and the bank lends a fraction of that, BC = (1 - r)D, and so on. (Even when one deposits a check, the check is an order to pay money (cash), ultimately.) Texts in money and banking provide country-wide data on banks' sources of funds (savings) and uses of funds (loans and investments). Rob can look up the data from any good money and banking text; I use these days R.Glenn Hubbard and Anthony O'Brien's, Money, Banking, and the Financial System. Otherwise, Rob can go to his bank's manager. In humility, he should ask the manager from where the bank gets its funds to lend. If, instead, he takes Keynes's (1930, 25) arrogant position that explanations of "Practical bankers, like Dr. Walter Leaf" that banks depend upon their depositors' savings to lend to be not "the commonsense which it pretends to be," he would come away w!
ithout l
earning anything.
Clearly, the inclusion of cash hoarding in the definition of saving is the "trap door" for Keynes and Keynesians in their understanding of the classical explanation that savings are spent by borrowers. The demand for money (cash) is for an asset to hold, but the demand for credit (loan) is for a facility to spend without using one's income. Loans are funded by savings. What's so hard to understand about that? BTW, I meant to cite Joan Robinsion (1960, 27) yesterday: "If private saving is going on, there is a leakage of notes [cash] out of circulation into hoards." And this is the foundation for the mythology of Keynes's "paradox of thrift"!
James Ahiakpor
----- Original Message -----
From: "
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Sent: Tuesday, 19 November, 2013 5:47:10 AM
Subject: Re: [SHOE] Where are the ex-Austrians?
On 11/18/2013 1:27 AM, Robert Leeson wrote:
"Keynes's multiplier argument is founded upon three fundamental assumptions that turn out to be false: (1) that savings are not spent but are a withdrawal from the expenditure stream ..."
Since James also made this assertion in November 2011, perhaps he can now provide some evidence to support it.
RL
It's incredible to me that someone writing on the History of Economic
Thought list wants "evidence" that Keynes considered saving not to be
spending by income earners but a withdrawal from the expenditure
stream! Incredible also because every introductory macroeconomics
students learns that meaning of saving. Anyhow, Robert can look up
Keynes's meaning of saving in the _Treatise_ (1930), volume 1, p. 172,
the _General Theory_ (1936), pp. 74 and 210; Keynes's _Economic Journal_
articles (December 1937) and (June 1938). (Joan Robinson, _EJ_, 1938
repeats Keynes's definition of saving to mean a withdrawal from the
expenditure stream.) Robert can also check these pieces of evidence, in
contrast with the classical explanation that savings are spent by
borrowers, that is, saving is not cash hoarding (Smith, Ricardo, and
J.S. Mill) in chapter 2 of _Keynes and the Classics Reconsidered_
(Kluwer, 1998), a volume to which he contributed a chapter (7).
James Ahiakpor
----- Original Message -----
From: "James C.W. Ahiakpor" <
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Sent: Monday, 18 November, 2013 5:27:45 AM
Subject: Re: [SHOE] Where are the ex-Austrians?
Steve Kates wrote:
I think there should be a Godwin's Law for Economics. Whoever brings
empirical results into a theoretical discussion automatically loses.
It should not be thought that I stepped back very far when I agreed
that the failure of the stimulus is not obvious. It's obvious that
it's not obvious, since this will remain an open and never ending
debate for as long as economists exist.
But so far as the economic policy side is concerned, there is no
waiting around for academic economists to decide which way is up. With
the sequestration in the US and other similar actions across the world
by those who are trying to manage their economies, this is a debate,
that for the time being anyway, is resolved. No country in the world,
with the possible exception of the US, would try to stimulate their
economies through additional levels of public spending. The recessions
are not over. Economic conditions are worse than in 2008. But
increases in public spending are off the table everywhere. If we can't
even agree on that, then what can anyone ever say that can be a
foundation for further discussion.
I think for any law to be useful, there has to be a mechanism for its
enforcement. That is why I despair at Steve's suggestion. Who will
enforce Godwin's Law for Economics? I also think data or empirical
results can be useful in a "theoretical" discussion. After all, aren't
theories supposed to be evaluated with evidence to ascertain their
reliability? I believe a more useful approach to dealing with
"empirical results" used to affirm a certain belief system is rather to
examine the nature of the data used to estimate the results as well as
the methodology employed in constructing the functional form or
estimating equation. On that basis, it is easy (for me, at least) to
dismiss the meaningfulness of estimated government expenditure
multipliers as a basis for belief in Keynesianism, particularly fiscal
stimulus.
Keynes's multiplier argument is founded upon three fundamental
assumptions that turn out to be false: (1) that savings are not spent
but are a withdrawal from the expenditure stream, (2) that government
(and business) expenditures don't depend upon income or savings (even
for a closed economy), and (3) that consumption spending takes a
unidirectional form, like running a relay race -- A's consumption
becomes B's income, then B's consumption becomes C's income, and so on.
Now if one corrects assumption (1) to realize that savings fund business
investments as well as government budget deficits, and (2) that
government spending has to be financed by taxes (paid out of income) and
there cannot be any measured consumption expenditures without any
current production and sales--so-called "autonomous consumption" for the
economy as a whole, then the expenditure multiplier has to be equal to
infinity. But there is also nothing left to multiplier it by. That's
why the government expenditure multiplier EFFECT is zero.
No amount of fooling around with functional forms negates the above
conclusion. There is thus no point, as far as I'm concerned, arguing
with someone who insists on basing their belief in Keynesianism on
estimated multipliers. I published the "mythology of the Keynesian
multiplier" in the _American Journal of Economics and Sociology_ in 2001
and I repeat the point in footnote 20, p. 87, of my modern Ricardian
equivalence article in the _Journal of the History of Economic Thought_
(March 2013). How else can I hope to persuade a non-repentant Keynesian
(who also claims to be a historian of economic thought) of the folly of
such belief? If one introduces central bank new money creation into the
argument, then we would have an explosive multiplier effect on real
income (output and employment) nowhere observed on earth! As Murray
Rothbard once observed, regarding the silliness of the Keynesian
multiplier argument, all government needs to do to create prosperity for
ever is just to find just 1 dollar to spend.
Indeed, I think such "studies" as publicized by Alesina without getting
to the heart of the Keynesian mythology don't serve a very useful
purpose. They are rather a distraction. Aggregate data are generated
by a multitude of factors (or impulses, the favorite language of the
econometric estimators). Without carefully identifying them and
isolating their respective impacts on observed data, no estimation tells
a useful story about the economy. This is what we learn from
econometrics. And this is also why someone once wrote about the two
things he wouldn't like to see in their preparation: sausages and
econometric estimation, the latter because many unsavory things can be
done to generate the end result!
James Ahiakpor
On 17 November 2013 00:53, Alan G Isaac <
[log in to unmask]<mailto:[log in to unmask]><mailto:[log in to unmask]><mailto:[log in to unmask]>
<mailto:[log in to unmask]><mailto:[log in to unmask]><mailto:[log in to unmask]><mailto:[log in to unmask]>> wrote:
On 11/16/2013 8:36 AM, Alan G Isaac quoted:
"The range of the spending multiplier estimated using
these various approaches is from .4 to 1.5, with some
estimates even lower than .4 and some estimates larger
than 1.5. However, most fall in the .4 to 1.5 range."
If I may offer just one more quote from some people who care about
the evidence.
Jordà, Òscar and Alan M. Taylor, 2013,
"The Time for Austerity: Estimating the Average Treatment Effect
of Fiscal Policy"
http://www.nber.org/papers/w19414
"<http://www.nber.org/papers/w19414><http://www.nber.org/papers/w19414><http://www.nber.org/papers/w19414>[W]e have a measure of the multiplier that
explicitly accounts for failures of identification
due to observable controls. Our estimates ...
suggest even larger impacts than the IMF study when
the state of the economy worsens. ... It appears
that Keynes was right after all."
As Steve now allows, it is *not* obvious that the fiscal responses
to the Great Recession invalidate Keynesian claims about the
role of aggregate demand. Not in the least.
Cheers,
Alan Isaac
--
James C.W. Ahiakpor, Ph.D.
Professor
California State University, East Bay
Hayward, CA 94542
(510) 885-3137
(510) 885-7175 (Fax: Not Private)
--
James C.W. Ahiakpor, Ph.D.
Professor
California State University, East Bay
Hayward, CA 94542
(510) 885-3137
(510) 885-7175 (Fax: Not Private)
--
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542
(510) 885-3137 Work
(510) 885-7175 Fax (Not Private)
--
James C.W. Ahiakpor, Ph.D.
Professor
California State University, East Bay
Hayward, CA 94542
(510) 885-3137
(510) 885-7175 (Fax: Not Private)