$pending > $aving = Unemployment

2 thoughts on “$pending > $aving = Unemployment”

  1. Thanks for your post. You are arguing that the theory of loanable funds is the right one. If the state invests in new infrastructure which is needed, then that could crowd in private investment, increasing both demand and supply and productivity in the economy. If interest rates are very low as at the moment, this need not lead to crowding out if private investment is weak. I think the Keynesian argument is that in a deep recession or stagnation, economic forces tend to be too weak to restore prosperity in the short term, and even if they work in the long term, mass unemployment can threaten political stability and lead to social conflict before that happens. So the case is as much political as economic.

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    1. Hi Nick, thanks for your comment. I understand your argument in that if we do nothing for the short-term weak private investments then it can lead to mass unemployment, threaten political stability, and lead to social conflict before we see any long-run benefits. However, private investment if it is weak or not, represents the current decisions of market participants toward preferring future consumption over present consumption. And to stimulate weak private investments with low interest rates could interfere in this process and could distort these individual valuations. As, in an unhampered economy unemployment is always voluntary in that job seekers and employers adjust and coordinate their expected wage rates.

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