stone wrote:
Moda, thanks for the link. Is it even a MMT biased document though? Would Loan Wolf or Tortoise actually dispute the excerpt below? I guess Tortoise would argue that firms will view falling profits today as a sign of a reversal to come in due course.
I do often point out that the economy has inherently counterbalancing forces, but I would certainly not argue that every firm should view falling profits as a sign of a reversal to come in due course. For many firms, the trend of falling profits
never reverses because the firm's entire industry is simply getting swept into the dustbin of history. Look at what happened to the horse-drawn carriage business after mass-produced automobiles were invented. The long-term implications of falling profits are not necessarily the same for every firm.
Regarding the excerpt in your post, I share the authors' disagreement with the notion that "saving must increase [business] investment." I'd clarify by saying that saving doesn't
cause business investment; it merely
allows it. In a world of finite resources, building a new factory requires resources that someone (or some group) must set aside rather than consume in the present. First someone saves some resources, then business investment is
able to occur using those resources. Whether it actually
will occur, and how quickly, is a different question.
Here's an excerpt from the paper that illustrates a core problem I have with it:
Neither the pro?ts perspective nor the pro?ts equation is a magic tool that ?awlessly predicts the future. A forecaster still must judge how much businesses will invest, how much consumers will save, how large federal tax revenues will be, how well domestic ?rms will fare in export markets, and so forth. Moreover, the government data on both pro?ts and the pro?t sources are not perfect, resulting in an error term in the national accounts and introducing some imprecision into the analysis.
Some imprecision?
What the authors should really be explaining in the excerpt above is that we don't just have a
single equation here with several independent variables. Since the variables are most certainly not independent of each other, what we really have is a
system of many different equations in several different variables that depend on each other via complex, nonlinear relationships.
The authors go on:
Nevertheless, the pro?ts perspective enables forecasters to see how any given scenario will affect corporate pro?ts.
Of what predictive use is a macroeconomic equation if it comes stamped with a giant disclaimer that getting it to spit out realistic results requires one to plug in exactly the right combination of highly interdependent--and very likely immeasurable--macroeconomic variables? Isn't that almost the same as having... well, no equation at all?
Economics is a social science, like psychology and sociology, so attempts to quantify it with any kind of precision are futile. The reason so many macroeconomists are employed is because the government pays their salaries (either directly [gov't agencies] or indirectly [gov't grants to academia]). The government uses them pretty much solely to lend academic and popular credibility to the idea that constant government intervention in the economy is necessary.
They think they are on a gold standard and are revenue constrained. Maybe Greenspan will talk some sense in to them, he gets that we can always print money at least. The government has to aggressively deficit spend to fill the gap of saving (and de-leveraging for many entities).