Thursday, 19 December 2013

More nonsense from Jeffrey Sachs.

As soon as I see the words Jeffrey and Sachs (director of the Earth Institute at Columbia University) I expect to read rubbish.
In today’s Financial Times he claims that stimulus packages have failed, but that new technology will bring economic growth.
Well the idea that new technology brings growth is not exactly the revelation of the century. Mentally retarded ten year olds have worked that out.
But that leaves the question as to whether new technology raises numbers employed, and that’s more complicated. Employment may rise or it may not depending on a number of factors listed below.
Certainly the bog standard Luddite argument that machinery puts people out of work and raises unemployment is unlikely to transpire (though that’s a possibility).
A cut in the real cost of making stuff equals a rise in the real value of money: in particular a rise in the real value of what MMTers call “private sector net financial assets”. That’s the national debt plus monetary base. And that rise ought to encourage extra spending.
On the other hand the latter rise also means a rise in the real value of debts. I.e. debtors become worse off and creditors are better off. And debtors’ spending is more sensitive to changes in their net worth and income than that of creditors. So that effect tends to REDUCE aggregate spending when technological improvements come on stream.
Hopefully by now you’ll have tumbled to the fact that the aggregate employment effects of technological improvements are far from clear. Thus Jeffrey Sachs’s implicit assumption that those improvements will raise aggregate employment is nonsense.

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