Pages

Friday, June 11, 2010

The Demand for More Demand

Unfortunately, Washington, D.C. and many state legislatures seem determined to undermine any economic forward momentum for small business owners. And even though small business owners continue to plead their case for policies that will help foster economic growth, many lawmakers are unwilling to listen. Small business owners keep saying that poor sales (“It’s the consumer, stupid!”) is their most pressing problem and the reasons they aren’t interested in expanding are due to current economic conditions and the political climate. Unfortunately, Congress is fixated on credit and special favors for unionized firms, and that wont sustain or support faster growth.

As Avent says, “the problem is a lack of demand, not some imagined looming American debt crisis.”

Even Yglesias would agree not all demand is lacking, right now we are seeing a high demand for money and its close substitute, U.S. debt instruments.

His response (and that of DeLong, Avent, and Krugman) is for the federal government to engage in deficit spending to increase demand.

I'm extremely skeptical that spending by the federal government will give small business owners the confidence to invest in expansion, including hiring. This skepticism is not a fringe view and is held by many mainstream economists, much to the consternation of the Keynesian crowd.

Posted via web from rhymeswithclown's posterous

4 comments:

J. Strupp said...

"I'm extremely skeptical that spending by the federal government will give small business owners the confidence to invest in expansion, including hiring."

Keynesian skepticism has little to do with it. As you say, it's "the demand for more demand", which I've been beating to death for the better part of 2 years. If small business owners have CUSTOMERS, they will spend even if they say they won't.


Let's use an example. The owner of a small mechanical contractor may hate Keynesian policy, hate the budget deficit, hate the direction of the country, but I'll bet you money right now that he'd be willing to open up his wallet if he had his workers hammering out 50 hour weeks and a full backlog of projects. It's about demand, demand, demand. Strong demand decreases uncertianity not the other way around.

And that's why Keynesians shouldn't worry that much about small business expectations right now. Increase AD and the rest will fall into place. Expectations, GDP growth, better corporate earnings, improved employment numbers, increased tax revenues, etc. It all starts with customers coming through the door though.

Dad29 said...

Ah, yes, Struppster--but demand from CONSUMERS is what is important.

And as you probably noted, consumer demand is not present (see May retail purchases.)

The Feds' game of Keynesian porkulus will not inspire consumer demand because consumers can read the newspaper: $13Trillion and counting will have to be repaid, through more taxes.

(Not to mention the excessively generous Fed/State/Local wage, salary, and bennies granted to more and more tax-takers.)

Meanwhile, "Mr. Leader" of the Free World has 3 house-parties/week and has spent around $10MM while preaching 'sacrifice.'

Leadership, as TehWon is finding out, is not so easy. He's incapable.

Nominate someone else in '12; they'll be working with a Congress that can add, for a change.

By the way, did it ever occur to you that Keynes didn't worry about Govt debt b/c he was childless?

D said...

I think we are forgetting here that production, not consumption, is the key indicator of a strong economy and the anchor of prosperity.
We can spend all the money in the world that we don't have, but it does nothing to reset production according to choice.
Pure consumption spending will do nothing to realign the capital structure.
I also have trouble with the term 'aggregate' demand. Demand is for each and every individual subjective.

J. Strupp said...

"Ah, yes, Struppster--but demand from CONSUMERS is what is important."

For the millionth time Dadster, government spending WILL boost consumer demand. Your greenbacks spend the same as Uncle Sam's. Increased government spending WILL boost demand (given a zero bound environment with high unemployment). It MUST. One more time......it doesn't matter if you start spending money or Uncle Sam drops it out of helicopters right now. Pumping dollars into the economy increases capacity utilization which boosts corporate earnings and demand for workers which boosts employment which leads to higher wages which leads to higher AD by the consumer (all financed by borrowing at below 3.5% for 10 years or near 5% for 30 years). This is why Keynesians speak of AD and not government vs. private spending.

"The Feds' game of Keynesian porkulus will not inspire consumer demand because consumers can read the newspaper: $13Trillion and counting will have to be repaid, through more taxes."

Again, "inspires" got nothing to do with it Dadster.