At 06:30 PM 12/14/00 -0500, you wrote:
>Hi Jim D.:
>
>>Yoshie quotes Jan Kregel saying>Clearly, in present conditions it is not
>>the lack of a credible inflation policy [as he dubs Krugman's cure], but
>>a credible interest rate policy that is creating difficulty. As Keynes
>>notes in relation to Fisher's recommendations of inflating out of the
>>Great Depression: "The stimulating effect of the expectation of higher
>>prices is due, not to its raising the rate of interest (that would be a
>>paradoxical way of stimulating output --in so far as the rate of interest
>>rises, the stimulating effect is to that extent offset), [*1] but to its
>>raising the marginal efficiency of a given stock of capital" (JMK:VII, p.
>>143) that is, raising the expectation of returns on new investment
>>relative to the rate of interest, and this requires a credible policy
>>that interest rates will not rise along with the rate of inflation, which
>>is to say that the Fisher relation and the quantity theory should not
>>hold. [*2]
>>
>>[*1] I think Keynes is off-base here. As I see it, Fisher was
>>recommending a cut in nominal interest rates in the short run, which
>>encourages inflationary expectations, which lowers the
>>much-more-important expected real rate. In a situation of unused capacity
>>and extreme unemployment, there is little reason to expect the nominal
>>rate to rise in step with inflationary expectations (as Keynesian
>>economics points out), so there is no reason why we shouldn't see real
>>rates falling.
Yoshie writes:
>You are right with regard to the Great Depression in the 30s, but today's
>Japan does not have "extreme unemployment," which has been one of the
>reasons why we haven't seen working-class revolts yet. Hardships have
>mainly hit new women college graduates, salarymen nearing the retirement
>age, small shop & factory owners & workers, etc., I think.
of course, unemployment doesn't have to be overt (it can involve hiring
people not to work) while it doesn't always stimulate revolt (since it
might be sublimated into alcoholism, etc.) I've also heard that Japanese
unemployment stats are not strictly comparable to US stats, so that
Japanese unemployment looks relatively good.
In any event, do you know about the unemployment and/or destruction of
_fixed capital_, which is a crucial part of the Depression situation. It's
unused fixed capital which discourages private accumulation.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
