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View Diary: Trigger Mechanisms To Avoid the Fiscal Cliff? You're Kidding, Right? (8 comments)

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  •  So to sum up your diary, (0+ / 0-)

    Deficit spending does not have any affect on the economy other than the potential demand-pull inflation that could occur as the economy reaches full employment and manufacturing capacity.

    Progressives that want to keep deficit spending down are bad progressives and economic neophytes that do understand that our government can spend what ever it likes for as long as it likes and just create more currency supply to compensate.  Again I assume this is true from your perspective, up to the point where the demand-pull inflation issue begins to kick in.

    The demand-pull inflation pressure can of course just be alleviated by increasing the labor market supply through immigration in conjunction with increasing manufacturing capacity.  So that there is never really a point at which demand-pull inflation actually has to be allowed to become an issue.

    One question about this economic philosophy is, is there ever a point that the deficit spending over supplies the currency market which would cause a cost-push inflationary period that would not be able to be subdued?

    Another question I have is about the supply of raw materials.  As raw materials become more scarce, does that not create a cost-push inflationary cycle that would not be able to be controlled?  And if that were the case would not the continued deficit spending which creates a downward pressure on the currency value create an even further erosion of the ability to control inflation?

    "If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy" James Madison 4th US President

    by padeius on Sun Nov 18, 2012 at 07:40:01 PM PST

    •  Yes (1+ / 0-)
      Recommended by:
      psyched

      It can continue as long as there are no resource constraints.  

      Real resource constraints means living within those constraints. This happens at the very least when there is full human employment - in other words, anybody who wants to work can work at a living wage (or whatever passes for a living wage under the real resource constraints) It also means a redistribution of wealth and income by taxation and government spending. -- This of course if we as a society feel that a human being has an unalienable right to life, liberty and the pursuit of happiness -- we have enshrined this in the Declaration of Independence (though not in the Constitution)

    •  No, that's not what I said (1+ / 0-)
      Recommended by:
      psyched

      and I'll thank you to quote me, rather than to mis-characterize what I said.

      Deficit spending does not have any affect on the economy other than the potential demand-pull inflation that could occur as the economy reaches full employment and manufacturing capacity.
      No, deficit spending makes up for demand leakage due to savings and the trade deficit. In doing so, it closes the output gap between potential and actual GDP. Right now, that output gap is more than $3 Trillion annually. In closing the output gap, we will also get full employment, and if we implement the right jobs program, the MT Job Guarantee, we will also get price stability barring cost-push inflation. So, deficit spending has enormous and very positive effects, apart fro its potential effect on demand-pull inflation. Convenient how you forgot to mention that other stuff.
      Progressives that want to keep deficit spending down are bad progressives and economic neophytes that do understand that our government can spend what ever it likes for as long as it likes and just create more currency supply to compensate.  Again I assume this is true from your perspective, up to the point where the demand-pull inflation issue begins to kick in.
      Again, a mis-characterization. My view is that progressives who want fiscal policy to revolve around a long-term deficit reduction plan are not being economically progressive because they are being fiscally irresponsible and are working against full employment and are damaging the economy. Further, the issue is not about the desirability of adding to the currency supply. One can do that in various ways. But, what it is about is deficit spending in such a way that people are put to work and full employment is created. The fact that such spending adds to reserves in private accounts and so to the money supply is not the important point. The important point is full employment and greater income equality over time because full employment at a living wage will drive up wages across the board.

      I am concerned about the possibility of demand-pull inflation, because I want both full employment and price stability. That's why I want to evaluate fiscal polices based on their results rather than based on some economic theory that was refuted by Keynes back in the 1930s (i.e. the false Quantity Theory of Money; a zombie theory that neoliberal economists keep bringing back even though there is never any evidence corroborating it, and plenty of evidence running counter to it).

      The demand-pull inflation pressure can of course just be alleviated by increasing the labor market supply through immigration in conjunction with increasing manufacturing capacity.  So that there is never really a point at which demand-pull inflation actually has to be allowed to become an issue.
      I'm not advocating either of those two things though they may happen when the economy gets prosperous. What I suggest is that when we get demand-pull inflation, we moderate that with higher taxes on the rich, and with automatic stabilizers that have the effect of reducing deficit spending as the economy approaches full output. These stabilizers would include cutting back on State revenue sharing programs; re-imposing payroll taxes, and the naturally shrinking with growing prosperity Federal Job Guarantee program
      One question about this economic philosophy is, is there ever a point that the deficit spending over supplies the currency market which would cause a cost-push inflationary period that would not be able to be subdued?
      That;s not cost-push inflation. It's demand-pull. To much currency supply spread broadly through the population would raise demand too much. Cost-push inflation originates not with the government, but with suppliers that control markets and restrict supply in order to raise prices as the oil cartel did in the 1970s.
      Another question I have is about the supply of raw materials.  As raw materials become more scarce, does that not create a cost-push inflationary cycle that would not be able to be controlled?  And if that were the case would not the continued deficit spending which creates a downward pressure on the currency value create an even further erosion of the ability to control inflation?
      Yes, you have this right. If there are resource constraints, then we don't want to deficit spend in the face of that, unless we ration supplies and introduce price controls. That happened here in WW II and should happen again in areas of serious resource constraints. However, we don't have that kind of problem here right now; so we need neither rationing nor price controls. Nor do we have to worry much about demand-pull inflation if we don't deficit spend past the point of full employment.
      •  Hold on, I was not trying to mis-characterize (0+ / 0-)

        what your diary was saying.  I was trying to boil down points I thought were salient to our current deficit spending situation and wanted your feedback on whether I was understanding you correctly.  I agree with your point of view.  That being said, I would appreciate further clarification, this is not me trying to call you out.

        On point one, your further explanation, from what I comprehend is that our current deficit spending is in fact not enough.  We should actually be spending about 3 trillion per year more than we are already, based on our current output gap.

        So on point 2, you are basically saying that the pundits that are talking about fiscal responsibility are actually being irresponsible in calling for less deficit spending at this point in our economic recovery and should be calling for a stimulative spending program on the order of 3 trillion per year in order to close the output gap and by doing so get our economy headed back toward real full employment.  Full employment would of course reduce deficit spending mainly because when you attain full employment tax receipts increase thus reducing the deficit.  Also when levels of full employment are reached taxes can be raised across the board in order to balance the budget if there is any hint of demand-pull inflation.

        On point 3, I was actually advocating for a loosened immigration policy in order to allow for a broader employee base to counter demand-pull inflation.  You are not advocating that but I wished to clarify that increased immigration with added manufacturing capacity would in fact remove the danger of demand-pull inflation.

        On question one, as the money supply increases, there is downward pressure on the value of the currency as it is traded abroad, what I am reading from you is that even though the currency may be slightly lower in value cost-push inflation does not occur with currency devaluation even though the cost of imported raw materials or finished products may have a higher cost?  Again this is just for clarification, due to the global nature of the our economy, I would think that as we increase the money supply by 2 or 3% a year in addition to the normal supply increases that are a function of banking and capital formation there could be some cost-push inflationary pressure on things like oil and rare earth minerals.

        On question 2, good I am glad I at least got one thing right, LOL.

        "If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy" James Madison 4th US President

        by padeius on Mon Nov 19, 2012 at 08:52:50 PM PST

        [ Parent ]

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