Apparently there’s a “giant logical hole” in my ideas…:-)

Or so says the author of an article at the “Asymptosis” dated 3rd May. I normally respond to that sort of thing in the comments after the relevant article of course. But comments are closed. I’m fairly sure they were closed shortly after the article was published. So I’ll respond here.

As to who runs the Asymptosis blog and/or who authored the above article, well he or she seems to be very coy about their identity. That, together with the fact of closing comments shortly after criticising someone makes “Asymptosis” look like a bit of a small minded individual.

Anyway…. Asymptosis takes issue with this passage of mine:

“If the private sector’s stock of saving is what it wants at current rates of interest, then additional public spending will push savings above the latter desired level, which will result in the private sector trying to spend the surplus away (hot potato effect).”

Asymptosis disputes that idea and on the grounds that in receipt of extra cash, households will purchase other assets which will drive up the price of those assets. Net result: households’ “cash:other assets” ratio returns to its preferred level. Thus, so Asymptosis claims, there is no long term additional spending effect.

There is however a flaw in Asymposis’s argument: the latter eventual outcome will raise households’ TOTAL asset to income ratio above it’s preferred level.  Indeed, that point is implicit in the above initial quote. Ergo household spending will rise in an attempt to revert to the preferred level.

QED.

I look forward to a response from Asymptosis. Comments after this article will not be closed for a very long time....:-)