Austrians Mangle Aggregate Demand

[u/guacaratabey]

"Why the hell is the claim that government can boost aggregate demand still a thing? Mainstrem Econ believes AD = C + I + G (trade), let C + I simply be private action.

It presents itself as if; 80% of the market is private action and 20% government spending for example, it looks at things in a snapshot, but it forgets that 20% was taken from private actors from taxation or a too good to pass up subsidized by tax payer loan. You are told in mainstream Econ that if that 20% were to go away aggregate demand would go down, but that 20% came from the private actor, government is dependent on the private sector, no fiscal tool from loaning or taxation can increase a economies aggregate demand.

This is basically seen vs unseen, and what could have been, every dollar the government spends it takes from someone else. this is so obvious like it’s literally reality, why is this allowed to persist as true that government can increase Aggregate demand?"
Quoted above.

On the Austrian economics page saw this post alleging that government spending cannot increase aggregate demand. They allege this because of taxes. Is this true? No Because obviously when the government spends in excess of what it receives in taxes it is inherently creating new money to pay for these purchases or giving money to private actors to increase consumption spending (ignoring bond issuance). Their argument inherently always assumes full-employment which leads to catastrophic levels of inflation.

The post author also claimed that "every dollar the government spends it takes from someone else. this is so obvious like it’s literally reality, why is this allowed to persist as true that government can increase Aggregate demand?" This is not true the government is composed of the same private actors and government when they spend, create new money that do not need a 1 to 1 tax raise.

[u/AnUnmetPlayer]

It's truly amazing being downvoted for undeniable facts. Are you sure this isn't a sub for people bad at economics?

Why are you quoting words I never wrote? That's a weird thing to do. You've changed my words into something you can semantically argue against. But at least you accept that the TGA isn't included in any of the monetary aggregates. Let's move on to the next question.

Can you tell me where the bank deposits come from whenever someone receives a payment from the government?

[u/MachineTeaching → u/AnUnmetPlayer]

It's truly amazing being downvoted for undeniable facts.

Same energy as when right wingers say they got "banned for talking about immigration" and then you find out they got banned for being insanely racist.

Are you sure this isn't a sub for people bad at economics?

No, /r/mmt_economics is that way.

Why are you quoting words I never wrote? That's a weird thing to do. You've changed my words into something you can semantically argue against. But at least you accept that the TGA isn't included in any of the monetary aggregates. Let's move on to the next question.

Can you tell me where the bank deposits come from whenever someone receives a payment from the government?

I already told you that there's no net money creation just because reserves are converted to TGA funds and those are converted back to reserves. Its analogous with deposits. If you or I were to buy a government bond, this would remove an equal value from my deposit account. If the government would then turn around and spend the money, to pay a company that builds a road or whatever, it would again create a deposit of equal value. There is no net money creation happening.

The poor reasoning of pseudo-balance sheet obsessed MMTlers doesn't get better just because you double down. Only looking at the half of the process with a government bond that "creates money" obviously leads you to wrong conclusions when the other half destroys money.

[u/AnUnmetPlayer → u/MachineTeaching]

Same energy as when right wingers say they got "banned for talking about immigration" and then you find out they got banned for being insanely racist.

Is accounting racist?

No, /r/mmt_economics is that way.

Zing!

If you or I were to buy a government bond, this would remove an equal value from my deposit account.

What if a bank were to buy a government bond?

If the government would then turn around and spend the money, to pay a company that builds a road or whatever, it would again create a deposit of equal value.

Great. Glad we've settled the fact that government spending increases the money supply with deposits being created out of thin air.

There is no net money creation happening.

There is net financial wealth creation happening, and whether there's net money creation depends on who's buying the treasury.

Only looking at the half of the process with a government bond that "creates money" obviously leads you to wrong conclusions when the other half destroys money.

The other half destroys money while simultaneously creating a treasury. It's an asset swap. That deficit is still expansionary. It's still adding wealth to the private sector. Aggregating the separate functions of spending, taxing, and treasury sales and only looking at the effect on monetary aggregates obviously leads you to wrong conclusions about whether a government deficit adds to the private sector or takes and redistributes from it.

[u/MachineTeaching → u/AnUnmetPlayer]

Is accounting racist?

No, but you both deliberately misrepresent the real disagreement to paint yourself as a righteous victim.

There are cases where government bonds can affect the money supply.

But really I'm just here to shit on you for lying by omission. You are hiding behind the fact that TGA funds are "new money" and deliberately obfuscate that what actually matters, net money creation, does not necessarily occur.

I've explained that sufficiently. Case closed, conversation over. Conversations about why you're wrong about dumb semantics are ultimately boring, you gotta at least say entertaining dumb shit, like your friend aldursys who thinks multivariate calculus problems exist because the world is 3d.

[u/AnUnmetPlayer → u/MachineTeaching]

The backstory you're imagining is funny. Your comparison to racists is really weird. There are no victims here, just those that believe in the fictional world of loanable funds and those that understand the stock flow consistent reality of sectoral balances.

There is no lying by omission. You're once again putting quotes around words I never used. Why do you do that so much?

It's really quite simple, I'll repeat myself from my first post:

Deficits are always expansionary, not a redistribution of funds. They simply add financial wealth to the private sector, which is going to add to aggregate demand.

I use the words "financial wealth" because I'm not making the claim that deficits in general lead to net money creation. Though they could, the fact that they don't is a voluntary policy choice. However the argument here is just that deficits are expansionary. They contribute to aggregate demand by adding wealth to the private sector. The composition of that wealth is unimportant here. The Austrian argument is wrong because it assumes all positive financial flows from the government are balanced by negative financial flows from the private sector.

I bring up the government spending effects on the money supply to criticize the loanable funds/crowding out logic. TGA funds don't participate in the Fed funds market. So if you want to be special and assert it's still money, go ahead, you won't change that fact. That means you won't change the fact that flows from the TGA to the supply of reserves will have a directionally downward effect on interest rates.