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"On the two occasions I was offered a full time job, no vacancy was advertised." The point is that at full employment there would *always* be more work offered than there are people to fill them. So there would be adverts because businesses would be competing for labour at all levels. At a ratio level of 12:1 you need a better excuse than 'vacancies aren't advertised'. "And we know that the overall number of jobs in an economy is DOMINATED by the supply-side." No we don't. You believe it. If it was dominated by the supply side the quit rate would be counter-cyclical. The evidence shows quits rise in a boom and drop off in a bust. As Bill Mitchell puts it today "The [supply side] view is entirely false and is illogical in theory and has no empirical support in practice."
"Governments can still go bust if they issue enough Inflation Protected bonds." Don't do that then. Better still don't issue any bonds at all. I do get fed up with these "Cars with square wheels are really stupid and don't work, therefore cars are a bad idea" comments.
Toggle Commented Sep 28, 2012 on Reactionary postmodernism at Stumbling and Mumbling
"And just borrow if it wants to and there are people who will lend." There will always be people to 'lend', since it is those savers that are causing the problem in the first place. At that point the only choice for the entity left with the spare central bank liabilities is to leave it on deposit with the central bank or buy government securities. They ain't going to spend it as the decision to save has already been made. Which leads to the obvious solution. The Treasury should *always* borrow from the central bank. The central bank is as capable as any entity in setting an appropriate interest rate and amount of loan facility for the Treasury. Then private sector entities are left with the interest rate offered by the central bank on deposits or reserve accounts. That makes central bank the conduit by which injections happen, and gives it another 'QE' route - it can just increase the size of the loan facility made available to Treasury.
Toggle Commented Jul 27, 2012 on Beyond models at Stumbling and Mumbling
"The more people drop out of the labour force, the fewer workers there are to produce the output to be redistributed." Correct, and that requires the state then to start to organise the labour force to produce again. So the more successful a 'Universal Pension' is, the more the state has to provide and enforce 'socially necessary' work to make sure there is enough real output to go around. Which is why it is probably better to structure the idea as a Job Guarantee - where the monetary authority purchases the spare labour in the economy and make it available to the Executive. The Exceutive can then throw that labour away (if the economy is sufficiently productive to absorb that loss), and/or it can organise for that labour to do things via various mechanisms.
Toggle Commented Jul 25, 2012 on The state & growth at Stumbling and Mumbling
"Current austerity is non-existent, at least according to those who actually want to cut public spending." It does exist. The elements of government spending that are discretionary, eg government investment spending, have been cut markedly. But that didn't cause a private sector spending spree. Saving continued at the same high level as before. So tax take started to fall due to reduced activity and benefit payments went up (I suspect via tax credits and increased State pension payments). When you hear John Redwood talking about government spending going up, he is implying that was a discretionary decision. It wasn't. The discretionary bit went down and the auto-stabiliser bit went up by more. So overall government spending went up.
"Savings will go to other assets if there's no deficit, until nominal rates of return on every asset reaches zero " Only if the central bank, and where it exists National Savings, drop their interest rate to zero. Otherwise the floor is the remuneration rate on those central bank accounts. The ECB is currently the 'mattress' in the Eurozone for example, via the German Bundesbank. The natural interest rate is zero, and there has to be active intervention to keep the policy rate above that.
"remember that a willingness to lend affects the govt deficit via GDP" It's not willingness to lend that's the driver in a country with its own currency. What else are they going to do with the money at that point? Spend it? (in which case it goes to the government for free in taxation via the additional transactions). Or they swap it with somebody else who is going to spend it. (Same result - increase in taxation). Or it ends up in the default saving place - an account at the central bank. All Treasury is doing is offering a savings bond (Gilts) for the money that would otherwise be left in the current account (Reserve account at the Bank of England). That is a matter of policy and is not required. There is no earthly reason why the BoE itself couldn't set an appropriate interest rate for government borrowing. The underlying cognitive mistake is to believe that the government is pulling money away from the private sector. Yet the austerity measures implemented over the last few years have proven beyond a shadow of a doubt that cannot be the case. The causality is the non-government sector wanting to save and pushing money at the government and the central bank. The theory that low interest rates would stem that flow has failed - the savings market does not clear automatically at a given level of output; it requires an active pump to recycle spare money (or a depression causing mass bankruptcies - which eliminates the excess savings 'naturally'). To repeat: the non-government sector is *saving*. That excess saving is not cleared via interest rate movements. That leads to a paradox of thrift situation which must be resolved via active fiscal intervention to prevent a depression and mass bankruptcies. The pre-existing auto-stabilisers are just about stopping the economy declining at the moment, but aren't strong enough to restart the private sector engine. Without a change of policy stagnation is the best we can hope for.
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Jul 23, 2012