tag:blogger.com,1999:blog-913439.post3498909864143683266..comments2024-02-26T11:30:05.072-08:00Comments on winterspeak.com: Macroeconomists do not understand debtwinterspeakhttp://www.blogger.com/profile/13611241702356475764noreply@blogger.comBlogger97125tag:blogger.com,1999:blog-913439.post-44497702391831596492011-01-18T00:14:48.818-08:002011-01-18T00:14:48.818-08:00"Their business model was to raise the price ..."Their business model was to raise the price of vehicles as much as possible by providing low terms and treating vehicles as houses, collecting the maximum monthly they could extract."<br />!<br /><br />And that's exactly the renteering by the Health "Insurance" too.<br />Raise the prices of healthcare delivery as much as possible, then maximize on the monthly premium, and then maximize the "out of pocket" if you actually show up at the doctor's,...so you pay your premiums but access care only when you simply cannot avoid. No wonder total healthcare spending (insurance premium + Oops) in the US is Twice of most developed nations.Ohm (Ώ)https://www.blogger.com/profile/14090654932133115900noreply@blogger.comtag:blogger.com,1999:blog-913439.post-80095573800328724302011-01-17T15:55:50.928-08:002011-01-17T15:55:50.928-08:00"Finance is a public utility, in particular o..."Finance is a public utility, in particular owing to its special relationship with government." (especially with credit creation as a substitute for maintaining low fiscal deficit yet expanding money supply)<br /><br />**Recognition/acceptance of this is long overdue**<br /><br />That part of Finance that is essential to productive investment needs to be culled out from the rest, and there should be Public institutions alongside private in that line of business (like USPS existing alongside Fedex & UPS. In fact, USPS is way less important to have than Public Basefinance institutions).<br /><br />"Gains not related to its primary functions, like prop trading and financial innovation that is not socially or economically contributory, are counted as economic rent." ..... and end up getting Gov protection to save the essential Finance.<br /><br /><br />"a sales (consumption) tax is OK, but a financial transactions (rent) tax is not." Tragic.Ohm (Ώ)https://www.blogger.com/profile/14090654932133115900noreply@blogger.comtag:blogger.com,1999:blog-913439.post-29796159440743516342011-01-17T12:19:22.767-08:002011-01-17T12:19:22.767-08:00RE: "According to Chairman Greenspan, it was ...RE: "According to Chairman Greenspan, it was the "global savings glut" that led to the large CAD, arguing that if those Asian savers had increased consumption in their own countries instead, especially China, then the US would not have had it growing current account surplus.."<br /><br />It's not correct to think that the Chinese individuals in general have been saving their money under the mattress. Two things here:<br /><br />1. Most don't even make the kind of money to save significantly. If you talk to a Real Chinese (even with an IT Engineer with a spouse working), you'll be surprised to know that even with double incomes they are putting off having a child because raising a kid is unaffordable in the cost of living they have vis-a-vis their paltry incomes. Industrial workers are in so much worse condition that recently they were committing suicides to escape life.<br /><br />2. Those few that do have good incomes haven't exactly stuffed mattresses either. At the exchange rate that Yuan has, the American goods were not value for money, but they bought apartments, at silly prices at that. It will be a mistake to think that they can be now cajoled into buying American products by "saving less". They cannot do that because a huge portion of their future incomes has been already committed to making suffocating mortgage payments.<br /><br />The real cause of the Economic implosion and stalemate is the same phenomenon on both sides of the Pacific: Too much skew in incomes - people at the higher end of the Corporate hierarchies sucking most of the Corporate Revenue, then seeking Govt doles, bailouts and tax breaks in the name of maintaining employment, while actually protecting their rent extraction/ superman price of 'leadership'! <br /><br />The secondary bottleneck is the dollar-yuan exchange rate that further expensives American goods to the Chinese - the USD converts to twice as many Yuans as PPP conversion would yield.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-32057574794544019232011-01-16T20:27:09.759-08:002011-01-16T20:27:09.759-08:00RE: "Say's Law as a moral obligation: sup...RE: "Say's Law as a moral obligation: supply has a duty to create its own demand. In other words, if you're lucky enough to have income, you have an obligation to use that income in such a way as to produce income for others."<br /><br />I'd formulate it as fait-accompli:<br />'Supply has little option in it's own interest other than to create its own demand. In other words, if you're lucky enough to have income, you'd better use that income in such a way as to produce income for others, lest you shalt not be able to sustain it. Even in a World of no income tax.'Ohm (Ώ)https://www.blogger.com/profile/14090654932133115900noreply@blogger.comtag:blogger.com,1999:blog-913439.post-23251279859218836442011-01-13T08:33:22.980-08:002011-01-13T08:33:22.980-08:00Neil: "There is. Run a business in the real w...Neil: "There is. Run a business in the real world doing real investment with your own cash and employing real people."<br /><br />Or, one could, like Wynne Godley, work at the cb, or, like Michael Hudson and Warren Mosler, work in the financial sector, or like Keynes and Minsky, be intimately familiar with the financial sector.<br /><br />The criticism of MMT'ers is that most mainstream economists are not knowledgeable in finance, and this results in false assumptions and deficient models. Thus, the problem that contemporary economics faces lies in integrating finance.<br /><br />Moreover, as I suggested at the outset of this comment thread, according to Minskians, the disconnect between actual (real) and financial (monetary) shows up as economic rent.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-913439.post-1255256002932970622011-01-13T01:43:41.107-08:002011-01-13T01:43:41.107-08:00Vim
Ive been to Mankiws site and read his missive...Vim<br /><br />Ive been to Mankiws site and read his missives throughout the internet. I dont need to read his textbook I know what kind of man he is from the other sources I referenced. I have no use for him. Vulgar describes HIM well as far as I've seen.Greghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-913439.post-15860336904606539152011-01-12T23:41:40.231-08:002011-01-12T23:41:40.231-08:00"“Governments can fund their nominal debts in..."“Governments can fund their nominal debts in real terms by issuing currency”<br /><br />Can a government fund its nominal debts in real terms by issuing bonds?Neil Wilsonhttps://www.blogger.com/profile/18178155357632397049noreply@blogger.comtag:blogger.com,1999:blog-913439.post-9669166988902254062011-01-12T23:31:12.835-08:002011-01-12T23:31:12.835-08:00"Either develop serious brilliance, or study...."Either develop serious brilliance, or study. There is no third option."<br /><br />There is. Run a business in the real world doing real investment with your own cash and employing real people.<br /><br />Then you learn how economics really works in the school of hard knocks. <br /><br />People have been developing weather models for hundreds of years - and the predictions are still wrong. <br /><br />You don't learn about the real world in books.Neil Wilsonhttps://www.blogger.com/profile/18178155357632397049noreply@blogger.comtag:blogger.com,1999:blog-913439.post-55896367859333338782011-01-12T20:35:20.747-08:002011-01-12T20:35:20.747-08:00I wrote it.I wrote it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-46190614231303668202011-01-12T20:23:08.758-08:002011-01-12T20:23:08.758-08:00Vim: “The private accumulation of fiat currency is...Vim: “The private accumulation of fiat currency is savings” (BMitchell)<br /><br />In giving an example, Bill says: <br /><br />"Let us start at a most basic level. In this blog – Deficit spending 101 – Part 1 I discuss the two-person economy. It doesn’t get much simpler than that. You might nominate yourself to be the government and your partner to be the non-government private sector to make it personal.<br />The government issues the currency in this two-person economy and the non-government offers labour (productive resources) in return for payments. Some product is created. We open a spreadsheet that records all transactions.<br /><br />The government announces a tax of 100 dollars. The non-government person asks: “Where will I get the 100 dollars from to pay this tax?” The government says: “I will spend $100 on private sector activity which will provide the currency necessary to pay the taxes”. The relevant spreadsheet entries are made recording these transactions.<br /><br />The column – budget balance in period 1 records a zero. The government runs a balanced budget (for example, spends 100 dollars and taxes 100 dollars). The private sector receives 100 and pays it back in taxes so has a zero balance at the end of the period. <b>The private accumulation of fiat currency (savings)</b> is thus zero in that period and the private budget is also balanced – they spend all they get and do not save...."<br /><br />[emphasis added]<br />http://bilbo.economicoutlook.net/blog/?p=12022#more-12022<br /><br />Vim, “Governments can fund their nominal debts in real terms by issuing currency,” doesn't turn up in a search. Reference?Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-913439.post-23758773478630014672011-01-12T18:51:03.388-08:002011-01-12T18:51:03.388-08:00Greg,
Opinion held of work never read is speculat...Greg,<br /><br />Opinion held of work never read is speculation. What you wrote there is just gossip, it’s vulgar—you don’t know the man or his work, and you should have more self-respect.<br /><br />People have been developing this field for hundreds of years (accumulated desired real saving, debatably realised ;-P). Are you going to pick it all up by osmosis? You won't get the models by hanging around blog comments, mate, and it doesn't matter whose name is on the banner at the top of the page. It could be Paul Samuelson and you'd be no better off (actually, you might if it really was Paul Samuelson). You don’t learn to ride a bike by hearing other people describe the experience; you buy a bike and get on it. Either develop serious brilliance, or study. There is no third option.<br /><br />If you like, think about the about the following:<br /><br />“The private accumulation of fiat currency is savings” (BMitchell)<br /><br />Do you agree? Why?<br /><br />“Governments can fund their nominal debts in real terms by issuing currency”<br /><br />Do you agree? Why?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-90049199320608901212011-01-12T17:56:37.194-08:002011-01-12T17:56:37.194-08:00The emphasis on "real" v. "financia...The emphasis on "real" v. "financial" is Austrian, I believe, based in Mises. Austrians claim that MMT doesn't get this distinction, so it is misguided.<br /><br />I suspect that MMT'ers {and other PK'ers) would say that Minsky appreciated this distinction, and did so in a more sophisticated way than Mises. (Which may be why Mish and Steve Keen get along about debt.)<br /><br />I would say that it is two theories clashing. But what do I know?Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-913439.post-12427957327710898592011-01-12T17:34:10.342-08:002011-01-12T17:34:10.342-08:00Vim
I did not intend to imply you were looking fo...Vim<br /><br />I did not intend to imply you were looking for attention, simply to point out that you feel your analysis is purer, more real if you will than Mr Mitchells. You seem to think we can...... no..... MUST ignore money in our analyses. I'm extremely skeptical of that view. I'm not saying I cant be convinced but you've presented nothing persuasive. <br /><br />I've been to Andolfattos blog many times and gotten into discussions with him on more than one occasion and I can assure you I will NOT be buying a copy of anything by Mankiw. He's a complete shill. <br /><br />My advice.... dont quote Mankiw!Greghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-913439.post-57801027186234038752011-01-12T17:02:52.940-08:002011-01-12T17:02:52.940-08:00I realise that I’m doing a bad Columbo impression ...I realise that I’m doing a bad Columbo impression here, but I want to clarify “just one other thing”:<br /><br /><i>Vimothy, my impression of your problem with MMT can best be expressed by an analogy. I know a guy who is a great guitarist. An outstanding guitarist. Technically he is way better than REMs guitarist but he resents that REM is so popular because they arent great musicians (technically). He can play circles around the REM guy but no one buys his music. People want to hear REMs music no matter how poor the quality of their musicians.</i> <br /><br />Greg,<br /><br />You are, of course, entitled to form your own opinion of my motives. I’m sure that they are sincerely held and I can respect that. But I haven’t written any of this because I’m looking for attention. I wrote it because I find it interesting, because I enjoy debating these subjects, and because I thought the conversation that developed had some value. I certainly didn’t write it to draw attention to my blog, which I never update, and which is mostly worthless, self-important garbage of no consequence. Please do not read it—I’m not looking for an audience. I wanted to have a conversation, and I did; it was fun, and I am sated. I only link to my blog because I can’t sign in to the comments section any other way (AFAIK—I am a reluctant Luddite, but a Luddite nevertheless). <br /><br />If you want my advice (and clearly you do not, but here it is anyway) you should buy a copy of a macro text like Mankiw or Blanchard, and get something more modern like Williamson or Andolfatto (the latter is free online, and excellent), and study them in your spare time (not “read”—though you will need to do that as well—but actually study; there is no substitute for study if understanding economic models is your goal). Don’t be intimidated by any of this stuff. It is all easy to understand—it just takes a bit of intellectual effort. Then you will be able to say for yourself whether Bill’s depiction of mainstream theory is correct, and whether governments really can fund their nominal debts in real terms by issuing currency or [insert hand waving here] “operations” (which is patently incoherent in either case), and my putative motives will be irrelevant.<br /><br />Cheers,<br /><br />vimAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-3749354074899463642011-01-12T14:48:19.713-08:002011-01-12T14:48:19.713-08:00Neil
Excellent comment, especially this;
"M...Neil<br /><br />Excellent comment, especially this;<br /><br />"MMT is not the universal theory of everything, but it does correctly describe the fundamental operational nature of a fiat system"<br /><br />Which of course IS the system we are operating under. No matter how much the Austrians and neo liberals hate it, fiat money is here to stay. In fact our gold standard was fiat. Any decision by an authority to peg a currency or not to exchange it for a commodity or not and at what rate is a decision BY FIAT! There is no natural money. There is no money which has been chosen by people as the numeraire of trade. This has always happened in modern societies as a result of a political decision.<br /><br />In a large way, my reaction to real analyses is so what? What does it mean? How does that analysis change my economic situation and the decisions I make? I make most of my decisions based on price, not real price but price. What portion of my income will I need to attain such and such? How many hours will I have to work to get some thingamajig that I covet? I suspect that most people make the same calculations.<br /><br />Vimothy, my impression of your problem with MMT can best be expressed by an analogy. I know a guy who is a great guitarist. An outstanding guitarist. Technically he is way better than REMs guitarist but he resents that REM is so popular because they arent great musicians (technically). He can play circles around the REM guy but no one buys his music. People want to hear REMs music no matter how poor the quality of their musicians. <br /><br /> MMT answers many questions no matter how "un pure" their economic analysis is and what they may miss (in your view). MMT deals with money, the nature of it, how its created and what our options with it are. You have some classic "pure" view of economics which, unfortunately leaves way too much un answered. Thats my $.02 worth.Greghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-913439.post-71938627941035967062011-01-12T07:49:10.459-08:002011-01-12T07:49:10.459-08:00Vimothy,
Joined the discussion late but I feel li...Vimothy,<br /><br />Joined the discussion late but I feel like adding my two cents.<br /><br />The one thing is you shouldn't proxy Chartalism to Post Keynesian Economics. There is a lot of work in the latter and since you mention that you from the academia, you will have access to literature to find out. Some consider Chartalism to be a part of PKE but Chartalists may not want to be identified with the gang. <br /><br />However not that Post Keynesians have themselves described the monetary system in fair bit of detail including intricacies in central banking operations. They have been doing that in the last 30-40 years. Also, stock-flow consistency, sectoral balances are original to Post Keynesianism. <br /><br />To me the Chartalists' usage of sectoral balances looks like a tailored version. Is. They heard one part of the story from PKEists but not the remaining! Also the description of the government's operations in the monetary operations looks like "sneaking in" a few things such as "we do not borrow" and the insistence of providing overdraft facilities to the government. <br /><br />I will drop you a comment in your blog on the insistence of overdrafts .. its a bit dirty (and scandalous) to post it here!<br /><br />Of course its true that governments do not face issues in financing deficits but the no overdraft and debt ceilings are psychological barriers to prevent governments from using fiscal policy. To some extent it is sad, but to some extent, the proposition of the usage of fiscal policy to solve all the problems is implausible. <br /><br />Here are two critiques:<br /><br /><a href="louisphilipperochon.ca/Articles/JPKEState.pdf" rel="nofollow">State Money And The Real World - Or Chartalism And Its Discontents</a> by Louis-Philippe Rochon and Matias Vernengo <br /><br />&<br /><br /><a href="http://louisphilipperochon.ca/Articles/Rochon%20Gnos%20Chartalism%20IJPE.pdf" rel="nofollow">Money Creation And The State - A Critical Assessment Of Chartalism</a> by Claude Gnos and ouis-Philippe Rochon<br /><br />The essential Chartalist mistake is that about convertibility. It is true that "the State" doesn't promise to convert currencies but banks do that in the modern era. <br /><br />Here is how - page 49-50 here. <a href="http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb08.pdf" rel="nofollow">Payment Systems</a> by Bank of England. <br /><br />The reason I brought that up, (you see my arguing assertively at Bill's blog) is that it shows that money is credit is the superior view. I think the Chartalists implicitly assume non-resident nonconvertibility. It is true that the Chinese won't dump the US Treasuries, but other nations do not have the exorbitant privilege. So what does it mean if the net asset position of UK is minus £200B (illustrative) - it means that UK owes £200B to the rest of the world!<br /><br />Which of course is related to your question on NFA... yep it is true - knowing the NFA by itself is as meaningless as knowing the weight of the Milky Way. The correct questions are how do stocks and flows feed into one another and monetary and real variables change etc. These questions have been looked into in PKE. <br /><br />If you have checked my other comments at the other blogs, you may yawn at my references to the external sector here :-). But my reason for commenting stays. Don't proxy it to PKE. The PKEists are themselves very intellectual but do not go for the overkill!Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-913439.post-86259378492200781462011-01-12T07:38:58.415-08:002011-01-12T07:38:58.415-08:00Nobody would produce any apples if there isn't...Nobody would produce any apples if there isn't demand for them. Why bother planting the tree? There is no indication that they are required.<br /><br />The one thing I have seen in MMT that I haven't seen anywhere else is a focus on sales and demand as the driver.<br /><br />In business sales and potential sales are the primary focus. Investment comes when you can see the sales; when you can see the profit. You have to signal that loud and clear first and foremost to get anything.<br /><br />If you hold up a pot of cash and tell the entrepreneurs of the country that they can keep it if they manage to increase output by that amount while keeping prices stable then investment will be forthcoming.<br /><br />No there isn't a model in MMT to describe how that happens - hence my "does an economy quantity expand or price expand" unanswered question. There is no answer in there about how to get the right amount of the right type of widget/haircut/apple.<br /><br />For me the primary insight from MMT from a sovereign government policy perspective is that you don't need to pre-fund. You can post-fund if required to control nominal/real imbalances.<br /><br />You can run an initiative, target the nominal injection where you believe it has the best chance of achieving the necessary increase in real output (according to complementary real output theories as required) and then monitor it.<br /><br />If you get the real expansion, then that's a result. If not then you need to adjust taxation/interest rates to compensate nominally.<br /><br />MMT is not the universal theory of everything, but it does correctly describe the fundamental operational nature of a fiat system.<br /><br />In other words there is a valid alternative viewpoint of the existing system that shows that some of the restrictions in place are not intrinsic to the nature of the system. They are instead artefacts of the particular viewpoint adopted.<br /><br />So rather than requiring "Tax and Spend", you can legitimately use "Spend with description of expected real output expansion and description of Tax that will happen if that doesn't occur". Not as snappy I grant you.Neil Wilsonhttps://www.blogger.com/profile/18178155357632397049noreply@blogger.comtag:blogger.com,1999:blog-913439.post-84638029530900883472011-01-12T07:33:55.951-08:002011-01-12T07:33:55.951-08:00JKH: When I said "Similarly, a Government can...JKH: When I said "Similarly, a Government can credit a deposit account, and lo and behold you have an increase in nominal assets, but no change in real assets" I was trying to be scrupulously precise. The credit happened in exchange for <i>nothing</i> -- there was no trade of any sort -- just a transfer. This is clearly an increase in nominal assets only.<br /><br />vimothy: Good lord--I think you and I may be in agreement. Economists often use "real" to mean "inflation adjusted nominal", and I understand why they do that, but it is not what I mean as "real" in this discussion.<br /><br />And there are two ways that Bill's accounting tautology has meaningful impact on the real world:<br />1. In a paradox of thrift condition, the economy is losing real output because it has insufficient nominal net financial assets. Here, creating nominal income will generate real income as idle resources start producing again. This is not a tautological result.<br /><br />2. It also shows that Government debt and deficit funds private sector net financial assets. If Obama's Commission to reduce the deficit were renamed the Commission to reduce private sector savings, people might have a different reaction to it. If the Commission is successful, I expect it to have very real impacts as well.<br /><br />Both of these flow directly from MMT, but you can't really get either from orthodox Macro today (although Keynes gets you some of 1).<br /><br />I dunno vimothy--my training was in standard orthodox econ. I think all the classical micro stuff is fine, but MMT makes mincemeat (to use JKH's expression) of macro.winterspeakhttps://www.blogger.com/profile/13611241702356475764noreply@blogger.comtag:blogger.com,1999:blog-913439.post-61049163830568598712011-01-12T07:10:00.343-08:002011-01-12T07:10:00.343-08:00thanks alsothanks alsoJKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-28096325284694172582011-01-12T07:09:07.249-08:002011-01-12T07:09:07.249-08:00"In the real world, only the Flying Spaghetti..."In the real world, only the Flying Spaghetti Monster knows the true real value of anything."<br /><br />That's an interesting theory as a robust counter to MMT.<br /><br />:)<br /><br />I'm with you on real output, but the fact is that economics refers to real and nominal values all the time. If real were only ever used in the context of real or physical output, I'd have no problem with it.JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-46266864688863498372011-01-12T07:06:33.728-08:002011-01-12T07:06:33.728-08:00Anyway, this has been a very interesting debate, b...Anyway, this has been a very interesting debate, but I'm afraid I really must step away from it and go and do some frickin revision!<br /><br />Thanks to both RSJ and JKH for their contributions, and especially to our host, winterspeak. This has certainly helped me to arrange my own thinking, of nothing else.<br /><br />Regards,<br /><br />vAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-72082781874004333112011-01-12T06:58:44.282-08:002011-01-12T06:58:44.282-08:00Or it's aggregate real income for a monetary e...<i>Or it's aggregate real income for a monetary economy.</i><br /><br />It’s this. Individual real income in the ten apple economy depends on the distribution of real output. But that’s something else. I only trying to establish the correct definition of “real income”. Given this definition, aggregate real income is simply the sum of all individual real income flows.<br /><br /><i>But real income in a monetary economy can't be distributed without nominal measurements - wages, interest, dividends, etc.<br /><br />And nominal measurements are themselves differentiable into equivalent real measurements, based on some inflation index.</i><br /><br />All true.<br /><br /><i> The problem is, how far into a discussion of economic policy can you go without reference to income distribution?</i><br /><br />Not very far—hopefully!<br /><br /><i>So the idea of real income gets conflated between aggregate real, as in barter, or distributed real, as in monetary.</i><br /><br />I’m not sure I follow you here. Aggregate real income in a barter economy has the same meaning as aggregate real income in a monetary economy. The same is true of distributed. How you get there, though, is very different.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-33724833458834619992011-01-12T06:48:35.493-08:002011-01-12T06:48:35.493-08:00JKH,
That deposit has a nominal value and a real ...JKH,<br /><br /><i>That deposit has a nominal value and a real value.</i><br /><br />Yes, but its real value is not its nominal value, adjusted for inflation, that’s only a measure of its real value. And it’s effectively a (hopefully informed) guess, because we cannot observe its real value directly to measure it. It’s like in OLS. You don’t observe population parameters, but you can produce estimators that will measure them, with differing characteristics (e.g. BLUE). <br /><br />The actual real value of the deposit qua deposit is its actual real contribution to the economy’s production technology and because it is objective knowable only within the confines of a logically consistent economic model. In the real world, only the Flying Spaghetti Monster knows the true real value of anything.<br /><br /><i>"Real" is a mess.</i><br /><br />Jesus, you two are a real pair!<br /><br />Because you are both so smart, you assume that this is more complicated than it in fact is.<br /><br />The valuation of “real” is a messs, because “real value” is unknowable, because what’s real is objective and valuation is subjective. “Real value” is conceptual. Real output on the other hand is the real stuff that is produced, consumed and invested in the economy. It is not conceptual; it is concrete. It is what actually happened. “Real output was ten apples.” That’s an objective statement about the physical universe. “The value of real output was $10.” That’s a subjective judgement that may or may not be consistent on its own terms.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-5021969623362812822011-01-12T06:21:07.800-08:002011-01-12T06:21:07.800-08:00vimothy,
That's fine.
That's real income...vimothy,<br /><br />That's fine.<br /><br />That's real income for a barter economy.<br /><br />Or it's aggregate real income for a monetary economy.<br /><br />But real income in a monetary economy can't be distributed without nominal measurements - wages, interest, dividends, etc.<br /><br />And nominal measurements are themselves differentiable into equivalent real measurements, based on some inflation index.<br /><br />The problem is, how far into a discussion of economic policy can you go without reference to income distribution?<br /><br />So the idea of real income gets conflated between aggregate real, as in barter, or distributed real, as in monetary.JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-84090848625724216032011-01-12T06:09:39.509-08:002011-01-12T06:09:39.509-08:00RSJ, JKH,
I think I can explain it now. When I wr...RSJ, JKH,<br /><br />I think I can explain it now. When I write (for example) “real income”, I don’t just mean what is the value of the money you received in return for supply of factor services, adjusted for inflation. I mean the real goods and service flows that were produced and consumed or invested in that period. Because the real world is not like the world of economic models, where everything is homogenous and perfectly divisible, real output does not come with a number already assigned that we can use to make direct comparison across output flows and so determine relative implications for our real consumption and investment desires (or if it does, only the Flying Spaghetti Monster knows it). We need a measure. So we take market value for aggregate output, and now everything has the same units, and we adjust for inflation to control for changes in the price level across time. That gives us a measure of real income—it might be a good measure and it might be a bad measure (debateable, certainly)—but it is only ever a measure. Real income is the real output that has actually been produced and consumed or invested.<br /><br />Consider a very simply economy. Every period it produces and consumes ten apples. Each apple is a dollar each. What is its real aggregate income? It isn’t $10. It is ten apples—the real output it really produced. What is its aggregate real consumption? It isn't $10 either. It is also ten apples. $10 is a <i>measure</i> of its real income. What if you factor in changes in the price level over time? It doesn’t matter; if all it ever produces is ten apples, its real income will only ever be ten apples. If all it ever consumes is ten apples, its real consumption will only ever be ten apples.Anonymousnoreply@blogger.com