Of Trickle Down - and Demand Side.

[Widdekind]

When people say "demand-side economics", they refer to business cycles... We can have periods of "insufficient aggregate demand". Demand driven business cycles

"market saturation" ("everybody finally has one, now nobody wants another", Q --> 0) ?

normally Say's law applies. That is, aggregate demand doesn't matter... Prices adjust to make us rich enough to buy the stuff we produce. So in that case any business cycle must occur due to shocks to the supply side; productivity, taxes, regulation, etc.

i.e. normally

MV = PQ
Q = constant
P +/- <---> MV +/-​

? and "business cycle" means "Q varies", because of "shocks", e.g. "productivity falls/rises" ("everybody got drunk on holiday"/"coca leaves legalized"); or because of "regulations" ("product prohibited/legalized"); or because of "taxes" ("suppliers doubled prices") or "subsidies"

MV = PQ
MV = constant ("supply shock", not "monetary shock" ?)
Q -/+ <---> P +/-​

what is the relation, between the equations of exchange (MV=PQ) & income/expenditure (GDP=C+I+G+X-M) ? naively, "PQ" represents the Prices & Quantities of all Consumable goods & services, available from all (foreign & domestic) producers, in the domestic market, i.e. "PQ ~= C+G" ? and (ignoring "demand for money"), Investments are loans that become credit Money, i.e. "MV --> (MV+I)", since the units of "I" are "dollars [of Investment] per time" ? if so, then "GDP ~= MV+I+(NX)" ?

the equations of exchange, income/expenditure; and interest-rate from Supply-and-Demand of credit; intuitively inter-relate, "as if there were some 'master equation' combining them all"

 

[Widdekind]

China is still a Communist country meaning that their individual industries do not have to turn a profit as long as the Government as a whole makes money

China is a "national family", amongst which "brother industry" can borrow from "sister industry", as long as the "whole family" is making money ? naively, that seems potentially competitively effective.

 

[Widdekind]

Fiscal stimulus doesn't "pump money" into the economy. Its goal is to take money from those who aren't spending it and have the government spend it instead (which isn't necessarily what happens).

That is false ... There is no intent to take by force or coercion, capital from individuals or business for the purpose of a stimulus.

... If nominal spending falls due to an increase in the demand for money, through nominal rigidities, this can create a fall in output ... in the short run rather than an immediate adjustment of ... prices. This is the "demand side recession" or "insufficient aggregate demand" ... The "basis" for Keynesian stimulus is that these frictions will not be an issue if we can return nominal spending to its previous level [via] fiscal expansion ... Deficit spending requires taxation, either now or in the future. If the tax takes money that would otherwise have been spent out of the economy, then there really is no nominal spending stimulus. There's "crowding out" of private spending. The only way deficit spending can work is if you are taking away money that is being horded, not spent, and spend that.

Government = Force

Government Taxes are taken by Force (or Threat thereof)

Government Spending (fiscal stimulus, Public spending, GDP=C+I+G+NX) occurs at the expense of private spending, i.e. Money is re-allocated, taken from private spenders (C --> c), given to 'Public' Spenders (g --> G), i.e. C + g --> c + G; unless the Money taken wasn't being spent, i.e. had been being hoarded, i.e. C + g --> C + G; in naive "prison economy" analogy, "the Guards turn out everybody's cells, take everybody's cigarette stashes, and buy extra chores from the inmates with them"; cp. Stalin's liquidation, of accumulated Czarist treasures, to fund 5-Year Plans, to rapidly modernize Russia (against Germany), in the 1930s AD; cp. Peter the great's liquidation, of some accumulated Church treasures, to modernize Russia, in the 1700s AD ("everybody's been squirreling away Russian Money for centuries")

Contrariwise, if the money supply fails to grow at the rate that real value is added, then the monetary policy has the potential to stifle economic growth as money becomes tight, causing interest rates to rise.

Yes ... if shocks to monetary velocity aren't offset, then monetary policy can become too tight. If people want to hold their assets as currency (rather than say, demand deposits), but the supply of currency doesn't increase to meet that demand, money becomes tight and economic growth gets stifled...

what does monetary policy directly effect? Nominal spending. PY, it either increases the price level or real output temporarily.

M --> m
(MV = PQ) --> (mv = pq)
et vice versa

 

[Widdekind]

the Big Chinese Government right now is giving subsidies to certain industries to make them artificially more competitive ... China makes the price of product A $5 when it really costs $6 (because of subsidies) ... if the Chinese product costs $5, and ours $6, which product do you think is more likely to get purchased (holding quality as a constant)?

What's your solution ?

subsidies tax US citizens; tariffs tax foreign businesses

 

[Widdekind]

Keynes answer to the business cycles was simple, in an economic downturn government gets involved and pumps money into the economy. Sure we go into debt, but when the crisis is over and the nation is buzzing along we pay back the borrowed money. Simple enough but what is not simple is getting politicians to pay back the money...

Fiscal stimulus doesn't "pump money" into the economy. Its goal is to take money from those who aren't spending it and have the government spend it instead (which isn't necessarily what happens). Monetary expansion however literally does pump new money into the economy...

GDP = C+G + I + NX
MV = PQ ~= C+G​

if Fiscal Stimulus is financed by Government Debt (deficit spending); then

M --> M+D
g --> G=g+D
(MV = Pq = C+g) --> ([M+D]V = PQ = C+G)
(gdp = C+g + I + NX) --> (GDP = C+G + I + NX)​

i'm struggling with the symbols -- how is "Debt" distinguished from "Money expansion", e.g. is not Money expansion debt to the Federal Reserve ?

but if Fiscal Stimulus is financed by "raiding hoards"; then

M --> M+H
g --> G=g+H
...​

i'm still struggling with the symbols -- but "raiding hoards" resembles "pawning the national family jewels"; to "lure hoards from hiding" requires offering high Interest-rates ? so, if Governments were truly seriously seeking "hidden hoards"; then they would sell Bonds, at ever-higher Interest-rates, until they had raised the required sum ? (non-money incentives, e.g. "national recognition as 'national team-player of the year'", could compensate lower Interest-rate "donations")

if i understand; then "deficit spending" puts the US into debt to the Fed, whilst "hoard raiding" puts the US into debt to private US citizens ?

 

[DSGE]

When people say "demand-side economics", they refer to business cycles... We can have periods of "insufficient aggregate demand". Demand driven business cycles

"market saturation" ("everybody finally has one, now nobody wants another", Q --> 0) ?

Do you think that applies in aggregate? We all just don't want to consume so much anymore?

normally Say's law applies. That is, aggregate demand doesn't matter... Prices adjust to make us rich enough to buy the stuff we produce. So in that case any business cycle must occur due to shocks to the supply side; productivity, taxes, regulation, etc.

i.e. normally

MV = PQ
Q = constant
P +/- <---> MV +/-​

? and "business cycle" means "Q varies", because of "shocks", e.g. "productivity falls/rises" ("everybody got drunk on holiday"/"coca leaves legalized"); or because of "regulations" ("product prohibited/legalized"); or because of "taxes" ("suppliers doubled prices") or "subsidies"

MV = PQ
MV = constant ("supply shock", not "monetary shock" ?)
Q -/+ <---> P +/-​

Pretty much.

what is the relation, between the equations of exchange (MV=PQ) & income/expenditure (GDP=C+I+G+X-M) ? naively, "PQ" represents the Prices & Quantities of all Consumable goods & services, available from all (foreign & domestic) producers, in the domestic market, i.e. "PQ ~= C+G" ? and (ignoring "demand for money"), Investments are loans that become credit Money, i.e. "MV --> (MV+I)", since the units of "I" are "dollars [of Investment] per time" ? if so, then "GDP ~= MV+I+(NX)" ?

I use Y instead of Q, which makes it a bit clearer. MV = PY. Money supply, Velocity, Price Level, Real Output. Y (or Q in yours) is real final output. PY is therefore nominal GDP. So if C/I/G/X/M are in nominal terms, MV = nominal GDP = C + I + G + X - M.

Not sure what the MV --> MV+I stuff is...

 

[DSGE]

M --> m
(MV = PQ) --> (mv = pq)
et vice versa

I'm not sure what your notation means.

 

[DSGE]

Keynes answer to the business cycles was simple, in an economic downturn government gets involved and pumps money into the economy. Sure we go into debt, but when the crisis is over and the nation is buzzing along we pay back the borrowed money. Simple enough but what is not simple is getting politicians to pay back the money...

Fiscal stimulus doesn't "pump money" into the economy. Its goal is to take money from those who aren't spending it and have the government spend it instead (which isn't necessarily what happens). Monetary expansion however literally does pump new money into the economy...

GDP = C+G + I + NX
MV = PQ ~= C+G​

if Fiscal Stimulus is financed by Government Debt (deficit spending); then

M --> M+D
g --> G=g+D
(MV = Pq = C+g) --> ([M+D]V = PQ = C+G)
(gdp = C+g + I + NX) --> (GDP = C+G + I + NX)​

i'm struggling with the symbols -- how is "Debt" distinguished from "Money expansion", e.g. is not Money expansion debt to the Federal Reserve ?

The Fed is buying bonds in the secondary market, so the total quantity of debt isn't increased by open market operations. There's no extra tax burden from the Fed injecting money. There is, however, now more base money in the economy.

but if Fiscal Stimulus is financed by "raiding hoards"; then

M --> M+H
g --> G=g+H
...​

i'm still struggling with the symbols -- but "raiding hoards" resembles "pawning the national family jewels"; to "lure hoards from hiding" requires offering high Interest-rates ? so, if Governments were truly seriously seeking "hidden hoards"; then they would sell Bonds, at ever-higher Interest-rates, until they had raised the required sum ? (non-money incentives, e.g. "national recognition as 'national team-player of the year'", could compensate lower Interest-rate "donations")

if i understand; then "deficit spending" puts the US into debt to the Fed, whilst "hoard raiding" puts the US into debt to private US citizens ?

... I'm not quite following you. "Deficit spending" means the govt has to raise money. It can do that either by taxing now, or selling bonds (which is just taxing later). If you are going to expand the deficit in order to raise nominal spending, you want to try and tax money that is being hoarded. Otherwise you're just crowding out private spending. If it was going to be spent anyway, the government taking it and spending it does nothing. If you're going to deficit spend, which necessarily involves raising the tax burden on US citizens, then you want to do it by taxing "hoards".

FYI, I'm not a Keynesian. I don't agree that this is a good policy prescription, it's just my understanding of it.

 

[Widdekind]

Keynes rose to prominence during the depression, particularly in Europe, due to his thesis that the business cycle could be mitigated during slumps, by the introduction of capital derived from deficit spending by the government into the economy, particularly in the form of public works which would directly employ people, providing them a paycheck and increasing aggregate demand. Keynes postulated that as aggregate demand rose, production would rise to meet said demand and the engine of the economy would start to turn, pushing the economy out of recession...

as the government worker is paid to fill pot holes or dig and fill ditches, the wages they are paid would be spent in the market buying goods and services. As they bought a loaf of bread from the baker, the baker would use that money to buy flour and yeast from the miller, who would buy gasoline and mechanical parts to keep his mills operating, and on down the line.

Keynes may have been inspired, by Stalin's 5 Year Plans, funded by liquidation, of centuries, of accumulated Czarist treasures ("raiding hoards" not "deficit spending"); and which rapidly modernized Russia

the cause of some recessions is "insufficient aggregate demand". That's why "demand stimulus" would work. If a recession were due to supply shocks, demand stimulus would do nothing but cause inflation, with no effects on real output... "Demand side" just means that business cycles can be caused by aggregate demand [but] doesn't mean you should keep doing demand stimulus when not in a recession

economics analyzes two-party transactions, between willing-and-able Suppliers & Demanders; reductions of either party's willingness-or-ability, to Supply or Demand, reduce economic trans-activity

what is (legitimately) debatable ? ("we're talking money, man, money")

 

[editec]

Examples?

Well just one, Ceteris Paribus

Is a phrase which confuses the science? A shorter way of saying "all other things being equal", is something that makes economics confusing?

Not sure if it confuses many ecomists but it obviously confuses a lot of us.

All things in macro-economics are NEVER equal.

Which is precisely why there are no hard and fast rules to a healthy macro-economy.

Macro-Economics is NOT physics, folks.

If you want certainty in your life, macroeconomics is NOT the field for you.

 

[DSGE]

Well just one, Ceteris Paribus

Is a phrase which confuses the science? A shorter way of saying "all other things being equal", is something that makes economics confusing?

Not sure if it confuses many ecomists but it obviously confuses a lot of us.

All things in macro-economics are NEVER equal.

Oh really? Wow. And you've been able to notice that but macroeconomists haven't. You must be the smartest human being on planet earth.

I suppose you took Physics 1 and thought "Ignoring air resistance?! Projectiles ALWAYS encounter air resistance. Physics is BULLSHIT!".

Maybe actually go beyond the introductory/intermediate courses before you start criticising a field?

 

[Widdekind]

When people say "demand-side economics", they refer to business cycles... We can have periods of "insufficient aggregate demand". Demand driven business cycles

"market saturation" ("everybody finally has one, now nobody wants another", Q --> 0) ?

Do you think that applies in aggregate?

your use of the words "shocks" & "recessions" makes "insufficient aggregate demand" sound "rare"; statistically, "every once in a while" many individual markets could possibly "all saturate around the same time"; which would represent reduced aggregate demand ?

... use Y instead of Q ... MV = PY. Money supply, Velocity, Price Level, Real Output. Y (or Q in yours) is real final output. PY is therefore nominal GDP. So if C/I/G/X/M are in nominal terms, MV = nominal GDP = C + I + G + X - M

PQ = ... = C+G + I + NX​

naively, "PQ" embodies the "Dollars per time" accounted value, of all products trans-acted, on the domestic market, i.e. "PQ" includes foreign imports ("bought & sold here") & excludes domestic exports ("bought & sold else-where") ? "presence" of foreign imports; and "absence" of domestic exports; influence domestic Prices ?? perhaps "PQ = C+G +I" ???

and, if "PQ" represents the sum, of all individual domestic market trans-actions (PQ = p1q1 + p2q2 + ...); then what sort of "pq" is "I" (Investments are "what" bought & sold) ?

and, if Investments are loans; then "I" impacts "M" (Money supply) ? and Investments affect Interest-rates, i.e. "somehow everything connects" ??

The Fed is buying bonds in the secondary market, so the total quantity of debt isn't increased by open market operations. There's no extra tax burden from the Fed injecting money. There is, however, now more base money in the economy.

the Fed prints money, to buy "old outstanding Bonds" ?

"Deficit spending" means the govt has to raise money. It can do that either by taxing now, or selling bonds (which is just taxing later).

if Government takes more Taxes; then Government "revenues" have increased; so increased Government "expenditures" generate no "deficit" (D = R-E) ?

you want to try and tax money that is being hoarded. Otherwise you're just crowding out private spending. If it was going to be spent anyway, the government taking it and spending it does nothing... you want to do it by taxing "hoards"

"accelerating" zero-velocity Money ("from rest") ?

 

[DSGE]

the cause of some recessions is "insufficient aggregate demand". That's why "demand stimulus" would work. If a recession were due to supply shocks, demand stimulus would do nothing but cause inflation, with no effects on real output... "Demand side" just means that business cycles can be caused by aggregate demand [but] doesn't mean you should keep doing demand stimulus when not in a recession

economics analyzes two-party transactions, between willing-and-able Suppliers & Demanders; reductions of either party's willingness-or-ability, to Supply or Demand, reduce economic trans-activity

what is (legitimately) debatable ? ("we're talking money, man, money")

Well in academia what's legitimately debatable is whether or not "insufficient aggregate demand" can actually happen. It's very nature is that it's a non-market clearing model (wages and prices don't fully adjust quickly), which some economists don't like.

In terms of disagreement from people on the internet, I don't understand what legitimate argument they have. I think what happens is that they just plain don't like the idea of government intervention and see deficit spending as taxation as theft; and they somehow think that any increase in the quantity of money is dangerous. The former I don't care about but have some sympathies for, the latter is completely ridiculous.

 

[Widdekind]

investors must have some confidence that they will enjoy a return on capital employed. With an ROCE of 10% on a project, a 45% tax rate may well make the return unattractive. Even 15% harms many capital projects. Punishing investment in capital is insane...

if

PQ = MV = GDP = C+G + I +NX​

then is that "I" the "investment in capital" whose taxation you denounce ?

I’m going to jump in with a quick example. Suppose we have a business that sells some goods (has $50 in capital), and people in the economy who buy the goods (who own collectively $100 total).

Supply-side suggests that if you give a tax break to the business (now has $75 in capital), this will stimulate the economy because they will have additional money to spend on new resources, assets, ect and will grow and hire and everyone’s happy.

Demand-side suggest that if you give every person some money (so now they’ll own $125 collectively), the consumers will have more disposable income to spend on buying the goods that the company sells, and the company grows and again everyone wins.

all of the above (if-and-when-ever possible) ?

supply side theory assumes that the business will actually use the added money they saved from the tax cuts to invest effectively in the business, allowing it to grow (and the economy to grow), instead of (a) saving the extra money and doing nothing with it, or (b) using the money to give bigger bonuses.

"(Corporate) Savings" (so-called) are loans (to banks, who re-lend them), so re-entering the market, as credit; "bonuses" become "(private) savings", or "(luxury) consumings", also re-entering the market; the Money does not "vanish", but re-enters the market "somewhere" ?

 

[DSGE]

Do you think that applies in aggregate?

your use of the words "shocks" & "recessions" makes "insufficient aggregate demand" sound "rare"; statistically, "every once in a while" many individual markets could possibly "all saturate around the same time"; which would represent reduced aggregate demand ?

Not in aggregate. For a given demand to hold money, if one market becomes saturated then spending now not occurring in that market must occur somewhere else. Market saturation may affect demand in individual markets, but it can't affect aggregate demand. The only things which affect aggregate demand are the quantity of money and the desire to hold money. If, all of a sudden, everybody decided they wanted to hold more liquid money rather than spend it, then aggregate demand can fall. If a bunch of markets get saturated, but people have not decided that they now desire to hold more money than they used to, then spending just gets channeled into other markets. So unless you can think of a mechanism through which market saturation affects the desire to hold money, then no.

PQ = ... = C+G + I + NX​

naively, "PQ" embodies the "Dollars per time" accounted value, of all products trans-acted, on the domestic market, i.e. "PQ" includes foreign imports ("bought & sold here") & excludes domestic exports ("bought & sold else-where") ? "presence" of foreign imports; and "absence" of domestic exports; influence domestic Prices ?? perhaps "PQ = C+G +I" ???

It doesn't exclude domestic exports. Remember it's transactions on domestically produced goods. The X gets included because it's produced domestically. Imports aren't to be included because they were produced internationally. But we can't just say C+I+G+X, since total C/I/G include consumption/investment on both domestic and foreign goods. So we want to strip away all the foreign stuff that total C/I/G is measuring, so we add a - M on the end.

and, if "PQ" represents the sum, of all individual domestic market trans-actions (PQ = p1q1 + p2q2 + ...); then what sort of "pq" is "I" (Investments are "what" bought & sold) ?

Capital goods.

and, if Investments are loans; then "I" impacts "M" (Money supply) ? and Investments affect Interest-rates, i.e. "somehow everything connects" ??

Depends on what money supply you choose. If you choose M as the monetary base, then that's completely controlled by the central bank. Though yes, changes in C/I/G can affect velocity.

So we've got the money market affecting the interest rate and output (in the short run). We've got the goods market affecting output and monetary velocity. So we've got two markets both giving feedback to each other. This is where "general equilibrium" comes in. So to begin with you often look at markets in "partial equilibrium", which means you'll look at say "the labour market" or "the market for oranges". But "general equilibrium" is where you look at many markets at the same time, all feeding back into each other, all jointly determining some variables like the interest rate and output.

The simplest general equilibrium model is IS-LM. Just from reading your posts it sounds like you're probably studying econ formally. If you haven't come across IS-LM yet you will soon.

the Fed prints money, to buy "old outstanding Bonds" ?

They don't have to be old, but yes, they have to be outstanding.

"Deficit spending" means the govt has to raise money. It can do that either by taxing now, or selling bonds (which is just taxing later).

if Government takes more Taxes; then Government "revenues" have increased; so increased Government "expenditures" generate no "deficit" (D = R-E) ?

Depends. If they're taxing now to pay for expenditures, then it doesn't add to the deficit. But if they're borrowing to fund it then they can run a deficit now and pay for it with tax revenue in the future.

you want to try and tax money that is being hoarded. Otherwise you're just crowding out private spending. If it was going to be spent anyway, the government taking it and spending it does nothing... you want to do it by taxing "hoards"

"accelerating" zero-velocity Money ("from rest") ?

Exactly.

 

[Widdekind]

supply is everything.

long run growth is all supply-side. "Demand-side" refers to a theory of the business cycle, not growth.

"supply-side" means "lowering Taxes & reducing Regulations" ? i.e. "helping White-Collar management & businesses keep more Money, to Invest" ? long-term growth (of business) derives (exclusively) from Investment (in business) ?

In the long run, Say's law applies. Wages and prices adjust so that we're rich enough to buy whatever we produce [because we produced only enough to buy what we wanted?]. Aggregate supply is vertical, and changes in demand only result in changes in the price level.

Demand is only relevant when there are frictions preventing Say's law from holding, such as sticky nominal wages. This can create short run deviations from trend (or 'business cycles') due to "insufficient aggregate demand". Demand is irrelevant to long run economic growth, but it plays a crucial role in business cycles.

Say's Law observes, that "producers" only supply goods & services, because they demand to "consume" other goods & services ("i mow lawns, because i want DVDs"):

Say's Law of economics...states:

"A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value..." ​

Say's Law does not state that production creates a demand for the product itself, but rather a demand for "other products to the full extent of its own value"... the supply of one good constitutes demand for one or more other goods

De facto, Money is a "medium of barter"; aggregate Supply embodies aggregate Demand; fluctuating Money supply will fluctuate Prices, not Quantities. (unless hyper-inflation necessitates 'wheel-barrows worth of money' to make transactions ??)

Labor is a Commodity, sold & bought (wages); if wages are "sticky" (because both hourly rate, and hours required, remain the same? what if work-hours were voluntary?), whilst other Commodities vary in value; then the real-value of Labor "gets out of whack" with the rest of the economy ?

you can’t recognize the power of supply without recognizing the power of demand. In business, the customer is #1. If they’re not happy then they’re not buying, and you’re going out of business. If a population has more money to spend, the economy will grow. If a population has less money to spend, it will contract.

you're talking "natural private" Demand (of individuals); Keynesians talk "artificial Public" Demand (of Government), as a "stimulating substitute", for the former (i.e. "nobody is spending; so take their money (Taxes); and spend it for them"). private businesses, catering to natural Demand, "woo" customers' Money; Public Government, catering to Keynesians, "mug" taxpayers' Money

extra capital means more capital projects are done. Capital projects mean jobs...

extra capital will mean that more projects will be done (and more jobs). But I don’t think a business is going to embark on a project if they don’t think it will sell.

more (retained) Money means "marginally Profitable" projects can be pursued ?

 

[Widdekind]

For a given demand to hold money, if one market becomes saturated, then spending now not occurring in that market must occur somewhere else... If a bunch of markets get saturated, but people have not decided that they now desire to hold more money than they used to, then spending just gets channeled into other markets.

MV = PQ
MV = constant
Q +/- <--> P -/+
PQ = constant​

?

It doesn't exclude domestic exports. Remember it's transactions on domestically produced goods.

naively, "PQ" accounts domestically purchased goods ? presence of imports, on domestic markets, represent various "pq" (in "PQ") that "eat up" domestic Money supply (and absence of exports, to foreign markets, represent various "pq" [not in "PQ"] that don't "tie up" domestic Money supply) ? domestic Money supply must "lubricate" domestic purchases of imports (and need not "lubricate" foreign purchases of exports) ?

Capital goods.

C/I/G =

• "cars, Trucks, tanks"
• "pistols, Lathes, cannons"
• "shovels, Excavators, roads & rails"

? what about "stocks & bonds (& derivatives)" ?

Depends on what money supply you choose. If you choose M as the monetary base, then that's completely controlled by the central bank. Though yes, changes in C/I/G can affect velocity.

So we've got the money market affecting the interest rate and output (in the short run). [Supply & Demand of loans] We've got the goods market affecting output and monetary velocity [MV = PQ]. So we've got two markets both giving feedback to each other...jointly determining some variables like the interest rate and output.

loans & credit (and any "money multiplier" effect) factor into "M" ?

Depends. If they're taxing now to pay for expenditures, then it doesn't add to the deficit. But if they're borrowing to fund it then they can run a deficit now and pay for it with tax revenue in the future.

Bonds have due-dates; are "deferred Taxes" ?

 

[DSGE]

supply is everything.

long run growth is all supply-side. "Demand-side" refers to a theory of the business cycle, not growth.

"supply-side" means "lowering Taxes & reducing Regulations" ? i.e. "helping White-Collar management & businesses keep more Money, to Invest" ? long-term growth (of business) derives (exclusively) from Investment (in business) ?

I didn't mean "about supply-side economics". It kinda sucks they used that phrase for their name, it only causes confusion. I meant long run growth is only able do be done through expanding aggregate supply. Increasing demand doesn't do anything unless we increase our capacity for supply. Which policies do that well is another question.

Say's Law observes, that "producers" only supply goods & services, because they demand to "consume" other goods & services ("i mow lawns, because i want DVDs"):

Yeah my explanation may have been lacking. We only supply so that we can demand things of equal value, but in a monetary economy sometimes demand can be deficient (or there's an excess supply) because we decide we want to hold more money. In the long run this is resolved because the price level falls, raising the value of money. The price level falling, increasing our real money balances, makes us rich enough to both hold our desired real money balances and use the remaining money to purchase the excess supply, in effect raising aggregate demand.

De facto, Money is a "medium of barter"; aggregate Supply embodies aggregate Demand; fluctuating Money supply will fluctuate Prices, not Quantities. (unless hyper-inflation necessitates 'wheel-barrows worth of money' to make transactions ??)

Yes, in the long run (in the short run there can be monetary non-neutrality), and unless there's hyperinflation destroying the medium of exchange property of money.

Labor is a Commodity, sold & bought (wages); if wages are "sticky" (because both hourly rate, and hours required, remain the same? what if work-hours were voluntary?), whilst other Commodities vary in value; then the real-value of Labor "gets out of whack" with the rest of the economy ?

Not quite sure what you're saying.

 

[DSGE]

For a given demand to hold money, if one market becomes saturated, then spending now not occurring in that market must occur somewhere else... If a bunch of markets get saturated, but people have not decided that they now desire to hold more money than they used to, then spending just gets channeled into other markets.

MV = PQ
MV = constant
Q +/- <--> P -/+
PQ = constant​

?

Yes. Aggregate demand is PQ. Total nominal spending. From the equation of exchange, PQ = aggregate demand = MV. So for aggregate demand to change, we need either M or V to change. M is set by the central bank. So does saturation in some markets affect V? In other words, does it change how much liquid money we wish to hold?

It doesn't exclude domestic exports. Remember it's transactions on domestically produced goods.

naively, "PQ" accounts domestically purchased goods ? presence of imports, on domestic markets, represent various "pq" (in "PQ") that "eat up" domestic Money supply (and absence of exports, to foreign markets, represent various "pq" [not in "PQ"] that don't "tie up" domestic Money supply) ? domestic Money supply must "lubricate" domestic purchases of imports (and need not "lubricate" foreign purchases of exports) ?

Ah, but remember that you've got to trade money on the ForEx market first. Somebody from China can't pay a US exporter with yuan. US exporters need US dollars. So they'll trade yuan for dollars in the ForEx market and use dollars to buy the export. Exports "eat up" domestic currency. Other way around for imports. You've got to trade dollars for yuan to buy imports. So it doesn't actually "eat up" dollars.

C/I/G =

• "cars, Trucks, tanks"
• "pistols, Lathes, cannons"
• "shovels, Excavators, roads & rails"

? what about "stocks & bonds (& derivatives)" ?

Depends. If you buy them in the primary market (that is, if you buy them when they're initially floated), then you're giving that money to a company who will use it for purchasing capital goods (they'll invest). If you're buying in the secondary market (that is, buying an existing stock or bond), that's just you saving and the person selling it to you dissaving.

Econ likes to define words differently than everybody else. "Investment" is the purchase of capital goods by a firm. An individual purchasing stocks and bonds is just "saving".

loans & credit (and any "money multiplier" effect) factor into "M" ?

Depends on which "M" you choose. If you choose broader measures of money (M1, M2) then yes. Normally we'd use the monetary base, which is just currency in circulation plus bank reserves. The cool thing about MB is that it's entirely determined by the central bank.

Depends. If they're taxing now to pay for expenditures, then it doesn't add to the deficit. But if they're borrowing to fund it then they can run a deficit now and pay for it with tax revenue in the future.

Bonds have due-dates; are "deferred Taxes" ?

Yes.

 

[Widdekind]

Somebody from China can't pay a US exporter with yuan. US exporters need US dollars. So they'll trade yuan for dollars in the ForEx market and use dollars to buy the export. Exports "eat up" domestic currency. Other way around for imports. You've got to trade dollars for yuan to buy imports.

US exports are marketed in foreign "free-trade zones"; foreign FTZs are "economic extensions" of domestic markets ? et vice versa ?

what about buying Chinese DVDs on Ebay ? US consumers pay via PayPal; Chinese sellers collect in Yuan (after PayPal exchanges Dollars for Yuan [and "skims fees"]) ? i.e. "PayPal handles the ForEx for Ebay'ers (behind the scenes)" ?

meanwhile, the demand-for-US-Dollars, on the 4XM, implies demand-for-US-Exports; nominal US "trade deficits" account only Consumer (C) & Capital (K) goods & services. Ergo, "un-recognized" demand-for-US-Exports must embody foreign purchases of "other things" un-accounted as "foreign trade":

• businesses ?
• land ?
• patents ?
• stocks/derivatives ?
• debt ?

if i understand, "all things considered", the US cannot run a "true trade deficit", since US Dollars are de facto "tokens" valid only on US markets; alleged "trade deficits" imply un-recognized Exports ?

C = Consumer g&s
K = Kapital g&s
G = Gov't g&s
X = Exports
I = Imports

MV = PQ = GDP = C+K+G + (X-I)

(X-I) = 0
X = I
"(X-I) < 0" ---> "un-recognized X"​

If you buy them in the primary market (that is, if you buy them when they're initially floated), then you're giving that money to a company who will use it for purchasing capital goods (they'll invest). If you're buying in the secondary market (that is, buying an existing stock or bond), that's just you saving and the person selling it to you dissaving.

Econ likes to define words differently than everybody else. "Investment" is the purchase of capital goods by a firm. An individual purchasing stocks and bonds is just "saving".

if Chinese loan USD back into the US; loans = credit; credits ---> Money supply (funding purchases of C/K/G)...

if i understand, economically, domestic purchases (C/K/G), made with foreign-loaned USD, are de facto "Exports", i.e. "if you bought the widget, with China's USD; then you bought the widget, for China; China bought the widget; the widget is a de facto Export (which the Chinese have yet to retrieve)". or, if the US Government borrows USD from China, to pay for Social Programs in the US; then the recipients of those Entitlements re-spend the borrowed-back USD; then whatever "widgets" they buy, are de facto Exports ?

so there are warehouses-worth of DVDs, XBoxes, entertainment centers, cars, toothpaste, dental floss, etc. that the Chinese de facto own, without having yet "come to collect" ?

Aggregate demand is PQ. Total nominal spending. From the equation of exchange, PQ = aggregate demand = MV. So for aggregate demand to change, we need either M or V to change. M is set by the central bank. So does saturation in some markets affect V [i.e.] change how much liquid money we wish to hold?

variations in V suggest un-accounted Black-Market spending ?

what if China opted to hold USD, i.e. "China begins accepting USD for its products" ? if i understand, if all USD are returned to US markets, then:

MV = PQ = GDP = C+K+G + (X-I)
(X-I) = 0
"nominal (X-I)" + "un-recognized X" = 0
"some C+K+G" = "un-recognized X" ("everything bought on borrowed-back USD [considerable as collateral]")​

but if some USD are not returned to US markets, then:

MV = PQ = GDP = C+K+G + (X-I)
(X-I) < 0
"un-recognized X" = 0
"some C+K+G" = "un-recognized X" = 0 ("credit dries up, purchases plummet")
C+K+G ---> c+k+g
PQ ---> pq
MV ---> mv​

i.e. if China opted to "bury dollars"; then flow of USD, to China, for their products, would "drain down" the US Money supply, "drawing down" US GDP ?