I know that the standard response is that it applies mostly as a perturbation analysis, not good for large scale application. A most useful cop out, IMO. The problem is that many other more clearly understood economic distortions can also "work" as small scale perturbations. The most obvious is creating money out of fresh air. This can occur either by an individual counter fitting money or the government printing it, or simple inflation of an asset followed by mining the equity as in the quite extensive MEW mining we have see for the last few years. For that matter, pyramid schemes are perfectly fine as well, provided they never hit the boundary conditions.
Someone else will spend it or invest it, its not like its kept under a mattress.
Yes! In the Wikipedia article Sun linked, and the external link against the theory, both failed to note this point. They proceed through these relatively simple saving/spending equations but never ask what happens to the "saved" money. They act as though that part pops off to a blackhole.
Oops, should have read your last paragraph first. Looks like we see it mostly the same. I'd further state psychology is underappreciated wrt to economic stimuli.
BTW, MEW mining which ran at something like 300B/yr is about the best test of this theory I can think of. If 10x were true, than we should have seen 3T added to the GDP. I suppose the answer could always be: Well, 3T of contraction was avoided, prove it otherwise! :) |
