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Pragmatic Capitalism

Capital for Living a More Practical Life

Unemployment is caused by a lack of private investment

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Hi Cullen, in an old post of yours, you stated that “Unemployment is caused by a lack of private investment” and that “…Capitalists will rarely spend enough into the economy to provide for full employment because the profit motive is too strong. One could actually argue that the idea of “full employment” is at odds with the natural profit seeking goal of capitalism…” http://www.pragcap.com/modern-monetary-theory-mmt-critique/

I agree with your views on that account.

However, I don’t understand your line of thought for the rest of the article on why you reject the notion that larger deficits would reduce unemployment

Rent, utility, gas and food bills, which are universally private services and also subject to rampant leveraged speculated induced price swings, constitute a huge percentage of the average person’s income. Surely a larger government deficit that allows consumers to save more will allow more spending in the economy = more money for business to invest and create jobs?

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Posted by Incognito 7
Posted on 02/14/2017 7:48 AM
101 views
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Hi Incognito,

I don’t reject the idea that a deficit increases employment when the economy is operating below capacity. Am I reading your question wrong or can you be more specific?

Thanks!

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Cullen Roche Posted by Cullen Roche
Answered on 02/15/2017 8:59 PM
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    How do you determine whether the economy is operating below capacity or not?

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    Posted by Incognito 7
    Answered on 02/17/2017 8:21 AM
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      Well, the general way to do this is to look at the cyclically adjusted deficit and the output gap. Not exact measures, but it gives you a pretty good idea of what’s going on.

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      Cullen Roche Posted by Cullen Roche
      Answered on 02/20/2017 12:45 PM
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        Interesting. thanks for replying.

        By output gap do you mean GDP?

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        Posted by Incognito 7
        Answered on 02/20/2017 2:01 PM
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          The output gap is GDP relative to potential GDP. Basically, it’s what you’re actually producing relative to what you should be producing. Generally speaking, a high rate of unemployment means there is excess capacity in the economy that could otherwise be working productively. So, for instance, in the case of the USA we have millions of people who are doing nothing who could potentially be working in productive jobs. If they were all employed we’d produce that much more, but because they’re not working we’re producing less than we could be.

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          Cullen Roche Posted by Cullen Roche
          Answered on 02/20/2017 2:37 PM
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