I would have thought that a indirect job multiplier for most activities would be greater than one and not 4.2 m direct and 2.1 (which is 0.5, nice round number) as stated below.
Anthony P. D'Costa Chair and Professor in Contemporary Indian Studies Australia India Institute and School of Social & Political Sciences University of Melbourne 147-149 Barry Street, Carlton VIC 3053 Ph: +61 3 9035 6161 Visit the Australia India Institute Website http://www.aii.unimelb.edu.au/ Forthcoming conference http://www.aii.unimelb.edu.au/events/return-land-question-dispossession-livelihoods-and-contestation-india’s-capitalist-transition Recent books: http://ukcatalogue.oup.com/product/9780198082286.do#.UI5Wzmc2dI0 http://www.oup.com/localecatalogue/cls_academic/?i=9780199646210 http://www.anthempress.com/pdf/9780857285041.pdf Sent from my iPad > On Dec 23, 2013, at 21:53, Eugene Coyle <[email protected]> wrote: > > Larry Summers and Dean Baker agree, but seem to miss the implications. > > > Baker writes in his useful "Beat the Press Weekly Roundup" for December 23, > 2013: > >> Unfortunately, Summers still only has part of the story. He notes the >> possibility that investment demand may have shifted downward because of >> slower population growth. He also notes that upward redistribution of income >> may have reduced consumption, since the rich tend to save a larger share of >> their income than the poor and middle class. It is great to see these points >> being made by a distinguished economist, however Summers continues to miss >> the most obvious drain on demand: the trade deficit. > > [full item from Baker is pasted below.] > > It is puzzling to hear that consumption might be reduced by the upward > redistribution of income. Granted the rich might save a larger share of > their income than the poor and middle class. But what the rich get is spent > anyway, all of it and more. Or do Summers and Baker believe it is kept in > greenbacks under the mattresses? It gets spent -- call it "investment" and > then, to keep the investment working and profitable, -- somebody -- has to > buy the output, i.e. "consume it." How does that happen if the rich aren't > buying it? Well, cheap mortgages to induce the middle class to buy houses > was one possibility, and cash-out mortgages enabled buying boats and cars, so > many people can spend more than 100% of their income. (Including the rich.) > Mainly the profits of the rich and the value of their assests go up and they > can spend out of the higher income and wealth. > It seems to miss the flows when one speaks of consumption being reduced > because the rich are getting more of the gross. > > Gene > > > >> Larry Summers Hasn't Heard About the Trade Deficit >> >> Many of us are happy to see that Larry Summers, who served as President >> Clinton's Treasury Secretary and head of President Obama's National Economic >> Council, had a column talking about secular stagnation in the Washington >> Post. As they say here in Washington, if you repeat something that is true >> long enough, Larry Summers will eventually write about it in the Washington >> Post. >> >> Unfortunately, Summers still only has part of the story. He notes the >> possibility that investment demand may have shifted downward because of >> slower population growth. He also notes that upward redistribution of income >> may have reduced consumption, since the rich tend to save a larger share of >> their income than the poor and middle class. It is great to see these points >> being made by a distinguished economist, however Summers continues to miss >> the most obvious drain on demand: the trade deficit. >> >> The trade deficit is running at a $500 billion annual pace, more than 3.0 >> percent of GDP. This is demand that is going to other countries, not the >> United States. If we snapped our fingers and made the trade deficit zero >> tomorrow it would translate into roughly 4.2 million jobs directly and >> another 2.1 million indirectly through multiplier effects for a total of 6.3 >> million jobs. In other words, this is a big deal. >> >> By comparison, the shift in income from everyone else to the one percent was >> equal to roughly 10 percentage points of personal income. If we assume that >> the rich spend 75 percent of this increment and everyone else would have >> spent roughly 95 percent, then the difference is 2 percentage points of >> personal income or around 1.6 percentage points of GDP. That is a bit more >> than half as much as the contribution of the trade deficit. >> >> Summers should know about the trade deficit since he is one of the people >> most responsible for the deficits we face today. It was his engineering of >> the IMF bailout of countries from the East Asian financial crisis (with Alan >> Greenspan and Robert Rubin as accomplices, and Stanley Fisher at the IMF >> playing a supporting role) that led to the sharp over-valuation of the >> dollar that gave us large trade deficits. >> >> In standard textbook economics, capital is supposed to flow from rich >> countries like the United States to poor countries in the developing world >> which can better use the capital. This implies that rich countries would >> have trade surpluses, not deficits. This actually was more or less happening >> in the years prior to the crisis in 1997. Developing countries were on net >> borrowers. >> >> However the terms of the bailout were viewed as so onerous that countries >> throughout the developing world decided that they had to accumulate as many >> reserves as possible in order to avoid ever being in the same situation with >> the IMF. This meant deliberately keeping the value of their currencies down >> against the dollar and running large trade surpluses. This corresponds to >> the large trade deficit run by the United States. >> >> In short, Larry Summers certainly should know about the trade deficit, he >> helped give it to us. If we want to reverse secular stagnation a very good >> place to look would be a smaller trade deficit brought about by a lower >> valued dollar. (We can also cope with a chronic shortfall in aggregate >> demand by shortening work hours, as Germany has done. Summers apparently >> opposes this route because he has decided that this is not the American Way.) > > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l
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