The Law of Supply and Demand

Other things equal, demand is higher, the lower the real interest rate.
Do you really want to quarrel with that?
But right now, thanks to the aftermath of the financial crisis, even a zero nominal rate, which is a slightly negative real rate, isn’t low enough to produce full employment.
if you can’t raise employment by cutting interest rates, deficit spending — which doesn’t crowd out private spending when the interest rate doesn’t change — becomes a way to put unemployed resources to work
Paul Krugman New York Times August 23, 2010

In normal times, when the zero lower bound isn’t binding, this basic framework suggests that conventional monetary policy can play the key role in stabilization. So in normal times I’m all in favor of having the Fed take on the job of managing the business cycle, and basing fiscal policy on long-term concerns.
But now we’re up against the zero lower bound; and that changes everything.

The case for fiscal expansion also comes out of this fairly straightforwardly: if you can’t raise employment by cutting interest rates, deficit spending — which doesn’t crowd out private spending when the interest rate doesn’t change — becomes a way to put unemployed resources to work.

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Leading the PIIGS to an (as yet) Unrecognized Slaughter
Everyone cannot export their way out of this crisis.
Someone has to actually run a current account deficit.
Rob Parenteau at John Mauldin 9/3 2010

Tillgång och efterfrågan
Demand and Supply
Två tankar i huvudet samtidigt
Two thoughts in your head at the same time

With structural policies you hope to increase long-term pontential output.
Genom sk strukturreformer som sänkta ersättnngsnivåer i socialförsäkringarna, hoppas man att öka den långsiktigt möjliga ökningstakten av BNP.

Med konjunkturpolitik försöker man anpassa kurvorna så att det inte blir överhettning och ej heller blir för stor arbetslöshet.

See also: NAIRU - Se även NAIRU

The Economist explains BUSINESS CYCLE

Economics - Ekonomer

Supply and demand at Wikipedia, the free encyclopedia

The Role of House Prices in Formulating Monetary Policy
Fed Governor Frederic S. Mishkin, 17/1 2007

Alan Greenspan the 2001 Bush tax cuts
"They should follow the law and let them lapse," Greenspan said.
The government needs the revenue
July 16, 2010

Greenspan said reducing the deficit is "going to be far more difficult than anybody imagines" after "a decade of major increases in federal spending and major tax cuts."

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The discussion of fiscal stimulus this past year and a half has filled me with despair over the state of the economics profession.
Paul Krugman July 18, 2010

If you believe stimulus is a bad idea, fine; but surely the least one could have expected is that opponents would listen, even a bit, to what proponents were saying. In particular, the case for stimulus has always been highly conditional.

Fiscal stimulus is what you do only if two conditions are satisfied: high unemployment, so that the proximate risk is deflation, not inflation; and monetary policy constrained by the zero lower bound.

That doesn’t sound like a hard point to grasp.

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Krugman versus Ferguson: Round Two
Not since Ken Rogoff’s famous attack on Joe Stiglitz has the dismal science of economics provoked such pompous, self-important, personalised squabbling.
The reality is that nobody knows what cutting the deficit into a weak economic recovery is going to do to output and jobs
Jeremy Warner, The Daily Telegraph, 20 July 2010

My new maxim, never to stand in the middle of a fight between Paul Krugman and Niall Ferguson
It says a lot about the talents of John Maynard Keynes – and just as much about the shortcomings of modern macroeconomics – that when the financial crisis struck, policymakers instinctively reached not for their fancy models, but for the Keynesian idea of fiscal stimulus
Tim Harford, FT July 20 2010
Highly recommended

The great austerity debate

Jon Kyl of Arizona, the second-ranking Republican in the Senate, was asked the obvious question:
if deficits are so worrisome, what about the budgetary cost of extending the Bush tax cuts for the wealthy, which the Obama administration wants to let expire but Republicans want to make permanent? What should replace $650 billion or more in lost revenue over the next decade?
His answer was breathtaking:
Paul Krugman, New York Times July 15, 2010

“You do need to offset the cost of increased spending. And that’s what Republicans object to. But you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.”

So $30 billion in aid to the unemployed is unaffordable, but 20 times that much in tax cuts for the rich doesn’t count.

Now there are many things one could call the Bush economy, an economy that, even before recession struck, was characterized by sluggish job growth and stagnant family incomes; “vibrant” isn’t one of them.

But the real news here is the confirmation that Republicans remain committed to deep voodoo, the claim that cutting taxes actually increases revenues.

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If ever there have been federal tax cuts tailored to produce supply-side economic behavior, they were implemented during President George W. Bush’s administration starting in 2001.
The data suggest that any extraordinary investment that has occurred in the wake of the George W. Bush tax cuts has been in residential real estate and consumer durable goods.
Paul L. Kasriel, May 25, 2007

The idea of supply-side economics was born when a guy called Arthur Laffer sketched a curve on a cocktail napkin in 1974, and the debate over its merits has been raging ever since.
The Law of Supply and Demand
Emily Messner, Washington Post, December 18 2005

Why would the ruling party cut taxes for the wealthy instead of, say, providing childcare for the poor, or making sure the District of Columbia has enough money for every student to get his own textbooks?

The answer lies in trickle down economics.

Fans of the theory don't like to use that term because it astutely describes the phenomenon - the economic benefit flows downstream until it's just a trickle.

My skepticism should not be construed as a blanket condemnation of the Reagan tax cuts. Surely we can agree that a top tax bracket of 70 percent is outlandish and it was a good move to get that figure down significantly.

In his Friday column, a triumphant E.J. Dionne heralded the end of this era, declaring supply side economics solidly debunked. Dionne believes Republicans are finally starting to see that "the help-the-wealthy, damn-the-deficits approach doesn't hold together, either as policy or politics."

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Supply-side economics

The Republican Party is fracturing before our eyes.
Moderate Republicans know these cuts in programs for the poor are unsustainable. Very conservative Republicans want to cut spending far more than the rest of the party (or its voters) will allow.
E. J. Dionne Jr. December 16, 2005

The Republican leaders may or may not pass their cut-from-the-poor, give-to-the-rich budget. It takes a degree of political incompetence usually associated with Democrats for the side that wants to preserve the true spirit of Christmas to invite so many coal-in-the-stocking metaphors at this time of year.

But there is something more important about this failure. It marks the dead end of a worn, haggard argument that conservatives have been peddling for 30 years, ever since that energetic guru of supply-side economics, Jude Wanniski, published his first articles on the subject and his exciting 1978 manifesto, "The Way the World Works."

Supply-siders asserted that cutting taxes on the wealthy -- and especially on savings and investment -- would help everyone, including the poor, by promoting economic growth.

Tax cuts would produce so much growth that they would pay for themselves.

For many of us, this whole argument was always a highfalutin rationalization for giving the rich what they wanted, and often even more. Bill Clinton's economic policies should have definitively destroyed supply-side claims: Clinton raised taxes on the wealthy and cut the deficit, and an exceptional period of economic growth followed.

But it took until this moment in 2005 for Republicans themselves to realize (even if many won't acknowledge it yet) that the help-the-wealthy, damn-the-deficits approach doesn't hold together, either as policy or politics. They are learning that the public doesn't buy the idea that cutting taxes on dividends and capital gains should take priority over providing health coverage and child care for struggling Americans.

The tax cuts, it turns out, don't pay for themselves.

As a result, the Republican Party is fracturing before our eyes.

Republican leaders tilt this way and that, juggling this tax cut with that spending cut. In the process, they alienate just about everybody. The old faith is dying.

What's clear is that if Republicans and conservatives keep trying to sell their long-playing supply-side records in the age of the iPod, they'll confine their audience to antiquarians and ideological hobbyists. It's the way the world works.

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Let's look at what Bernanke really said.
"Sustained deflation can be highly destructive to a modern economy and should be strongly resisted. Fortunately, for the foreseeable future, the chances of a serious deflation in the United States appear remote indeed, in large part because of our economy's underlying strengths but also because of the determination of the Federal Reserve and other U.S. policymakers to act..."
John Mauldin, 28/10 2005
Very Important Article

Ur faktaruta
Konjunkturfall kan vara av tre slag, som ibland inträffar samtidigt och förstärker varandra: normal lågkonjunktur, externa chocker som krig eller terrorangrepp och politiska misstag som det svenska kronförsvaret i början av 1990-talet.
Metro 29/8 2005

Keynes är ett passerat kapitel och så bör det förbli.
SvD-ledare 29/7 2005
Svenskt Näringsliv avstyrker det föreslagna finanspolitiska rådet. Det finns inget behov för ett sådant eftersom vi anser att aktiv stabiliseringspolitik inte skall bedrivas.

Germany’s incoming “grand coalition” of Christian Democrats and Social Democrats is about to commit the biggest economic policy error since unification – the attempt to pursue budget consolidation at the expense of all other economic policy goals. In doing so, it risks turning a five-year-long stagnation into a full-scale depression.
It would be more accurate, perhaps, to compare her /Ms Merkel/ to Heinrich Brüning, a Christian conservative who was German chancellor from 1930 to 1932.
Wolfgang Munchau, Financial Times, 7/11 2005
Wolfgang Munchau is an associate editor of the Financial Times

Arbetslinjen, kallas det. Resonemanget känns igen från snart sagt alla moderata utspel på senare tid. Många ska arbeta mycket och länge, lyder det moderata beskedet. Det är förstås ett angeläget budskap i ett land där allt fler arbetar allt mindre.
Men att göra den samlade volymen av arbetsutbud till den stora politiska visionen blir blodfattigt och torftigt.
SvD-ledare 29/8 2005

Kommentar av Rolf Englund
Ja, i synnerhet om man bara ökar utbudet och inte samtidigt ökar efterfrågan.

Stimulera inte fram fler jobb, varnar prof Jonung
Danne Nordling blog 21/8

Konjunkturinstitutets chef Ingemar Hansson:
Vad som behöver göras för att höja sysselsättningen är alldeles klart, menar han. Det behövs en bättre integration av utrikes födda, färre sjukskrivna och färre förtidspensionärer
DN 29/8 2005

Generaldirektör för Konjunkturinstitutet sedan 1999. I finansdepartementet 1988-99, bland annat som skatteutredare och chef för ekonomiska avdelningen. Professor i nationalekonomi vid Lunds universitet.
Född 1951, Fritidsintressen: skön- och facklitteratur, golf samt familj och vänner.

Kommentar av Rolf Englund:
Hur kan färre sjukskrivna och färre förtidspensionärer leda till ökad sysselsättning? Det leder till ökad arbetslöshet, om inte efterfrågan och produktion ökar.
Ingemar Hansson var med Göran Persson när de "huttrade i kylan åt hamburgare på en nedsliten, dåligt uppvärmd McDonalds-restaurang" inför Göran Perssons möte med de "flinande 25-åriga finansvalparna", varefter Göran Persson, från Vingåker, blev så rädd för de flinande 25-åriga finansvalparna att han åkte hem och skar ner den svenska välfärden, mitt i brinnande lågkonjunktur.
Läs Görans Perssons berättelse här

Från Danne Nordling blog:
En som tar lätt på arbetslösheten är Konjunkturinstitutets chef Ingemar Hansson, som i dagens DN (29/8) säger att det bara är 50 000 personer som är arbetslösa av konjunkturskäl. Han varnar för finanspolitiska åtgärder som försvagar budgetsaldot
Klicka här

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- En ofta framförd föreställning i Europa är att det skapats fler jobb i USA därför att amerikansk arbetsmarknad är mer avreglerad. McKinsey:s studier visade att det visserligen är korrekt att amerikansk arbetsmarknad överlag varit mindre reglerad än europeiska. Men vad säger att bara för att det finns utbud av arbetskraft så skapas efterfrågan?
Ur skriften "Reformer i Europa"
av Göran Normann och Peter Stein på uppdrag av Svenskt Näringslivs Kris- och framtidskommission, Augusti 2006

The contrast between the macro­economic management of the US and that of the eurozone during the past five years could not be greater
Where does this difference come from?
The practical men in Frankfurt have become the slaves of a theory telling us that the sources of economic cycles are shocks in technology (productivity shocks) and changes in preferences.
Paul de Grauwe, Financial Times 17/8 2005

Carl B Hamilton, riksdagsman fp, angriper Assar Lindbecks förslag till mer expansiv finanspolitik med argumentet att den redan är mycket expansiv.
Danne Nordling blog