JWV has some questions:

"Chris,

When you base your life on credit
And your loving days are done
All the cheques you signed with love and kisses
Later come back signed 'insufficient funds'
Y'all get to that.

Sašo thinks the economy is going to tank and he's interviewed on Wall Street. It's politics that makes me agree with him, and the fact that he can do the maths that I never could. So, what am I saying? I dunno. My birthday is the 25th of June, traditionally held as the birthday of the antichrist.

All my friends are Satanists (You should read 'Satan loves Me' by Robert Irwin...)

As for artists preferring a review or online attention: THE REVIEW!"

In order:

1. It's a macroeconomics model for a first-year course, not reality. You teach students physics by dropping weights with springs attached to them and watching balls roll down slopes, not by beginning with quantum mechanics, and you teach students basic economics by starting with closed economies and adding complications later. You don't need a physics Ph.D from Harvard/M.I.T. to solve the equations or grasp the concepts; my C+ in Algebra 11 is doing just fine.

2. You can simulate a population up to its neck in debt by changing the marginal propensity to consume; it's not a fixed value. Say the population spends .01 of every extra dollar and saves .99 because it's flat broke and wants to pay off its 19% Mastercard (In this model, paying down debt is exactly the same as saving, because the money spent paying off debt is not available for new consumption). So the MPC is (1/1 - .99) or 1.01, and $5 billion in government spending will generate $5.05 billion of aggregate demand and essentially be useless.

3. "When you refund money back to people who are in debt you only put them in more debt because things cost more, and money is worth less, no?" You're confusing short-run and medium- to long-term outcomes. In the short run, a monetary injection in a closed economy or an open economy with a fixed exchange rate will increase aggregate demand, even if it's only by a miniscule amount, as in #2, above. Keynes proved this in 1936, and no contemporary economist I know of, right or left wing, doubts it. In the medium to long run, a loose monetary policy will increase wages and prices and lower the exchange rate in an open economy with a flexible exchange rate. That's why a loose monetary policy is a terrible idea in the real world, except as a short-term stimulus to jump-start an economy out of recession.

4. North America isn't going to have a recession; we're in one, and it's going to be bad. If you want a culprit, you could look to a capitalist culture that treats its citizens like children and encourages consumption as the solution to every psychic wound. Caramel sundaes with sprinkles for everyone!

5. I'd go with the review, too. Comments are nice, but one always hopes for understanding.

- posted by cjb @ 10:21 AM