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Disjointed econ thoughts

From reading Krugman and Victoria Chick on Keynes.

* In a liquidity trap, aka right now, investment = savings at a negative interest rate, say -5%. Savings increases with interest rate, investment declines. Since interest can't go below 0, there is a glut of savings and not enough investment -- or employment.
* China's buying of our bonds, far from helping us, contributes to the glut of savings.
* Our problem is too much debt, so why should be borrow more? Because debts aren't equal: who holds them matters. Must matter, for "too much debt" to have any social meaning; after all, one person's debt is another person's asset, so globally it's a wash. But debt at 10% owed by an income-constrained worker is not the same as debt at 3% owed by a government with deep pockets and the security of total-economy diversification. In Keynesian stimulus, the government borrows and hires business or workers, enabling them to pay off their debts, in effect transfering debt from private to public hands -- the US as a whole doesn't end up owing more, but does end up paying less in interest and enjoying more activity.
** Consumer debt is currently 108% of income. Federal debt has soared, yet 10-year interest rates continue to fall; lenders are almost desperate to find someone to lend to.
* Capitalism can be defined as the means of production being in fewer hands than those involved in actual production. The socialist but anti-Stalinist objection of "it's not communism, but state capitalism" makes sense this way: the means of production are in the even fewer hands of Party commissars. A socialism where the central planners are actually democratically responsible is somewhat different, with the workers having control of production in an indirect and aggregate manner; a socialism of employee owned businesses, where workers control the firms they themselves work in, is different yet again. And compatible with markets, and with capitalism in a very loose sense, but not with distinctive capitalism where control is concentrated outside of the workers' hands.


Damien Sullivan

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