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Does Nikki Haley not know what we're doing for businesses right now? Sounds like she's also against PPP.
If your answer in recessions is "you should have saved more!" you fundamentally misunderstand the nature of recessions. Tbf, this error is also committed by folks on the left https://twitter.com/NikkiHaley/status/1253325061265620994
If your answer in recessions is "you should have saved more!" you fundamentally misunderstand the nature of recessions. Tbf, this error is also committed by folks on the left https://twitter.com/NikkiHaley/status/1253325061265620994
Total income = total expenditure.
If you want to earn more than you spend, you need someone else in the economy to correspondingly spend more than it earns.
Every dollar of surplus must find its source from a dollar of deficit (and vice versa)
If you want to earn more than you spend, you need someone else in the economy to correspondingly spend more than it earns.
Every dollar of surplus must find its source from a dollar of deficit (and vice versa)
The problem for households and businesses is that as private sector actors, they need to have extra cashflow (income after expenditures) if they have any hope of building something. They don't have stable sources of borrowing in order to run indefinite deficits.
The Federal Government is unique because it does have a stable source for borrowing indefinitely: the Federal Reserve.
While the Fed doesn't say this explicitly, its method for toggling with interest rates flows through the purchase/sale of US Treasury debt.
While the Fed doesn't say this explicitly, its method for toggling with interest rates flows through the purchase/sale of US Treasury debt.
Keynes' core insight (imo) is the paradox of thrift.
We can't all save more. This is ALWAYS true. We couldn't have prepared for this shock by "all of us saving more".
Someone has to run deficits. The Federal Govt is usually in the best position
We can't all save more. This is ALWAYS true. We couldn't have prepared for this shock by "all of us saving more".
Someone has to run deficits. The Federal Govt is usually in the best position
Think businesses and state govts should have had massive rainy day funds for this event?
Fine. But then you need to run even bigger Federal govt deficits to make that even remotely realistic.
Fine. But then you need to run even bigger Federal govt deficits to make that even remotely realistic.
Deficit ends up getting associated with deficiency. But Federal deficits are really supplying surplus income to the economy.
In periods of high risk-aversion and a shortage of income, businesses and households rationally want to save more. There are two ways to resolve this...
In periods of high risk-aversion and a shortage of income, businesses and households rationally want to save more. There are two ways to resolve this...
1. Households and businesses can't control their income but can more directly control their expenditure. They'll feel compelled back on consumption, employment, investment.
But this only destroys even more income in the economy (and tax revenue ultimately)
But this only destroys even more income in the economy (and tax revenue ultimately)
2. Or we can have an economy in which the government runs deficits that supply state/local govts, households, and businesses with the surplus income for these moments of crisis. Their desire to save can be satisfied without having to cut consumption, employment, investment.
Option #2 is clearly superior. Option #1 leads to income cannibalization.
Building rainy-day funds might have some usefulness, but they require running big Federal govt deficits even in the good times.
Fighting this recession requires big deficits NOW
Building rainy-day funds might have some usefulness, but they require running big Federal govt deficits even in the good times.
Fighting this recession requires big deficits NOW
I'll end with this:
It is an indictment of the economics discipline that mainstream macroeconomic theories fail to capture Keynes' most important insights.
Even worse that intro econ students do not come away with a coherent framework for understanding paradox of thrift
It is an indictment of the economics discipline that mainstream macroeconomic theories fail to capture Keynes' most important insights.
Even worse that intro econ students do not come away with a coherent framework for understanding paradox of thrift
