"Most people are in arrested development and cannot use logic." Jacob.
"Competition and capitalism are hated to-day because of their tendency to destroy poverty and privilege." William Hutt
"America is unique in that our economy is totally dependent on global charity." Peter Schiff

Monday, August 20, 2012

Aggregate demand, from all angles.

1. I've written quite a few times about the almost universal idea in the main stream that the way to end this recession is by spending more money, so that the idle resources [=the unemployed] will finally be hired.

I've rebutted this argument right here: http://smilingdavesblog.blogspot.com/2011/05/rebuttal-to-our-man-blinder.html. The gist of my argument was that the Austrians are right, that there is unemployment because of a combination of two things.

a. People got fired because they were working the wrong jobs in the first place.

b. They do not find new jobs because of govt regulations making them too expensive to be worth hiring again.

2. But one day Dave read Chapter 3 of Keynes' book. He found there a different narrative that he did not address in that article. Unemployment and idle resources happen because there is not enough aggregate demand. Meaning, bottom line, that many many people decided to hoard their money under a mattress.

Dave was shocked. He did not know a single person who did this. On the contrary, everyone he knew had spent every last dime they had, plus was up to their ears in debt. No hoarding was taking place whatsoever. He checked to see if his circle was typical of the USA in general, and sure enough, it was.

Result, a new article laying out his research: http://smilingdavesblog.blogspot.com/2011/08/classic-keynes-and-why-credit-card.html

3. An internet personality, "Lord Keynes", wrote that the problem was not that people are hiding cash under the mattress, but rather are doing something that the real Lord Keynes considered benign, buying stocks with their money instead of spending it on consumer goods. Both myself and the real Lord Keynes did not have the brilliant insight that the internet "Lord Keynes" had.

Well! Smiling Dave could not take this lying down. Out came the keyboard, and the result is the now classic article: http://smilingdavesblog.blogspot.com/2011/06/reddit-buries-ae-continued.html  Don't forget to look at the comments.

4. Dave's never ending quest for knowledge led him to ever more bizarre versions of Keynesian economics. The problem is not money unspent, or used to buy stocks and bonds, but something much more sinister. Nouriel Roubini claimed that the problem is exploitation of the workers. They make stuff, get paid starvation wages, and then there is no one to buy what they made. Mass production only works if the masses can afford to buy what is mass produced. Rip off the masses, and they cannot afford to buy all that mass produced stuff.

Amused, Dave wrote a three part rebuttal to Roubini's thesis. Links:

5. Always one to get to the bottom of things, Smiling Dave delved and delved until he actually found it! Dave, and Dave alone, knows why there is a lack of aggregate demand. And he spells it out right here, in a two part article:

6. Never one to leave us in the lurch, Dave then explains what we have to do get aggregate demand up and running again.

First, he dismisses the usual heavy handed, harmful, hackneyed solutions:

Then, and you may send all contributions to his secret email address in gratitude, Dave tells us what the great economists down through the ages [=Hazlitt] have told us is the key to ending this recession:

Note that an article previously linked to also talks about what another great economist, J.B. Say, had to say about ending our recession. Very eloquent piece:


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