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The “A” Factor: The Rise of Growth as the Principal Goal of Policy

The “A” Factor: The Rise of Growth as the Principal Goal of Policy. The Development of Macro-economics in an Era of Wars/Cheap Energy and Disrespect for Earth. Alternate title. Getting to a Bad Place for Good Reasons. The Economist March 2002. John Maynard Keynes ( 1883-1946).

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The “A” Factor: The Rise of Growth as the Principal Goal of Policy

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  1. The “A” Factor: The Rise of Growth as the Principal Goal of Policy The Development of Macro-economics in an Era of Wars/Cheap Energy and Disrespect for Earth

  2. Alternate title Getting to a Bad Place for Good Reasons

  3. The Economist March 2002

  4. John Maynard Keynes(1883-1946) http://www.wam.umd.edu/~mglondon/London/Keynes/keynes.htm

  5. The war and the threat of depression and another war. .

  6. Vimy Ridge: Never Again?

  7. The Versailles Treaty http://history.acusd.edu/gen/text/versaillestreaty/vercontents.html

  8. Versailles’ conditions on Germany • Excessive reparations (almost 4 times the actual damage inflicted). • Marine merchant fleet. • Territory with coal mines was taken away. • Tariff concessions to luxury goods from other countries.

  9. The Depression

  10. A Nervous Wreck from Literary Digest , 7/5/1919

  11. The General theory • Critiques of Prevailing Economics. • Aggregate demand. • Liquidity trap. • Breaking out of the liquidity trap: government intervention.

  12. The General Theory Critiques of Existing Economic Theory

  13. Jean-Baptiste Say (1776-1832) 1. “Supply creates its own demand.” http://www.bized.ac.uk/virtual/economy/library/economists/say.htm

  14. No idle money 2. Income is either spent on commodities and services or is put into savings. This portion is loaned to someone else who invests it.

  15. Between workers and employers 3. All unemployment is voluntary.

  16. Problems • Equilibrium can be reached at any level of employment. Supply may not create enough demand to soak up all the labor. • Not all income is invested. • Not all unemployment is voluntary.

  17. The General Theory: Elements

  18. Aggregate demand • We have to pay attention to the total amount of demand.

  19. The aggregate demand function measures the volume of sales which corresponds to each level of income and output. Income

  20. Liquidity Trap People hold money for reasons that are related to uncertainty about the future.

  21. Liquidity Trap Liquid Less liquid http://www.bankofcanada.ca/en/auct.htm http://www.clipartconnection.com/search/download?oid=1227821&fmt=GIF

  22. Breaking out of the liquidity trap Policy tools: Fiscal-taxing/spending and Monetary Policy-Money supply

  23. Government intervention • Public works (e.g., housing, schools, hospitals, roads, parks) .

  24. The multiplier effect on investment Investment 1,000 National Income 2,000

  25. Government Intervention Income

  26. “Even if the community puts the unemployed to work at useless jobs, the income from this labour will be expended on food, clothing, shelter, medical care, and recreation.”

  27. $$$ Peter G. Brown $821.45 Eight Hundred and Twenty One 45/100 Taxes Peter G. Brown $947.20 Nine Hundred and Forty Seven 20/100 https://www.deluxeforms.com/next_page_action.cfm

  28. Monetary Policy • The increase in the money supply to correspond to and stimulate growth. • The extreme liberalization of the authority to create financial instruments/1980s and 1990s. An era of very cheap credit—2008-12.

  29. Business Cycle

  30. The Goals of Macro Policy • Growth • Low inflation, but NOT deflation • “Full” employment

  31. Reasons for Growth • Population Increase • Productivity • Poverty • More consumption means more happiness • Social and political stability • But……………

  32. The Triple Crisis • The employment/population crisis: Policy tool/macro policy. • The money crisis: there is more money than there is Earth. Policy tool/deception: if you have more money you must be richer. • The collapse of the Earth’s life support systems. Policy tool/deny what we already know-disable the ability to learn more.

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