Re: Starving the beast
Source Jim Devine
Date 10/12/14/08:12

Louis Proyect wrote:
>Aggregate demand? I am not sure what this bit of jargon means.<

It's nothing but the total demand for newly-produced goods and
services in the U.S. economy during a period of time such as a quarter
(assuming we're talking about U.S. aggregate demand). It's highly
connected with the availability of jobs in the U.S. economy as a
whole. If it rises fast enough (above 2 or 3 percent for a period of
about a year), the official unemployment rate and most other measures
of unemployment fall. If it rises too slowly (below 2 or 3 percent for
a period of about a year), the official unemployment rate rises along
with other measures of joblessness. The latter case also happens in
the case where aggregate demand actually falls (an official,
NBER-declared, recession).

> But I do know this. Fortune 500 companies are sitting on oceans of
> cash but they are not hiring. What makes anybody think that if the
> men and women who own these companies get an extra ten million
> dollars they will invest it in job-creating ventures? More likely
> they will build another vacation home or Lamborghinis.

If enough of the stimulus is spent on goods and services in the US
economy (as with building another vacation home) rather than abroad
(as with buying a Lamborghini) then it _might_ break the log-jam
that's keeping corporations from spending their oceans of cash on new
tangible investment projects and other job-creating ventures. The
log-jam is due to the fact that

(1) consumers face very low incomes (either because of wage cuts and
freezes or unemployment or cut-backs in hours) and are over-indebted
and have lost a lot of assets (think 401k, house prices) and are
trying to pay off debts and save instead of buying a lot of new goods;

(2) firms see no significant growth of the demand for their products
at this time and so don't want to hire new people or invest in new
tangible means of production.

The two sides of this log-jam reinforce each other. But buying a
vacation home in the US would help the construction industry, which
might hire more construction workers, who would then be able to spend
more, stimulating other sectors. If the stimulus were large enough
(even if it involves gifts of free and legal cocaine to the ultra-rich
or starting a new shooting war, say against Australia for producing J.
Assange) it could break the log-jam and spur this kind of virtuous
circle so that the US economy moves down toward (say) 5 percent
official unemployment rates.

In addition, it should be mentioned that the massive cash reserves of
US corporations (including banks) is a key factor that's making
Bernanke's monetary policy so weak. That's why government deficits
(expansionary fiscal policy) are needed to get the economy moving

IMHO, the GOPbama (GOP/Obama) stimulus isn't large enough to cause
this upward spiral (capitalist politics!). It _might_ be large enough
to prevent a "second dip," i.e., another fall of US production of
goods and services and another fall in the availability of jobs.

BTW, if the rich spend on Lamborghinis, that would help the Italian
economy and the workers there (to the extent that those cars are
produced in Italy). Though economists talk about this as a "leakage"
from the US economy and thus not helping the availability of jobs
here, it's important to remember that it's not only the US economy
that's stagnant: it's also the world economy. In that situation,
stimulus to Italy (or wherever Lamborghinis are made) can redound to
help the US economy, by spurring foreign purchases of US goods.

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