Money Hoarding Versus Saving, And Economic Growth

One of the ongoing arguments in political economy that has followed on from Keynes is the debate over the "Paradox of Thrift." This paradox could be loosely summarised as: an attempt to increasing savings by households will lower incomes, and will actually reduce their financial resources. Free market supporters tend to reject this logic, instead arguing that increased savings increases investment, boosting growth (as discussed here). Professor Nick Rowe argues in a recent paper (paper link; comments link) that the problem is not "thrift," rather the desire to "hoard" monetary assets. This debate is not just of theoretical interest; we need to understand the effects of increasing savings in order to gauge what the effect of increasing pension contributions would have on the economy (for example).

The U.S. Business Cycle Viewed Through Multiple Models

The economy in the United States is not particularly buoyant, but it is doing better than I would have expected given the collapse in oil and gas drilling activity. Despite all of the wrangling over economic theory, it offers little insight into the state of the economy right now, never mind forecasting what will happen in six months. I believe that this is the result of the fact that we have to think of the economy using a number of models, and those models can disagree.

Uncertainty Versus Randomness – A Control Theorist’s View

Within economics, there is a somewhat obscure debate regarding the distinction between randomness and uncertainty. This debate was started by Keynes, and is still referred to by Post-Keynesian economists. I believe that this debate is important for the strategy of model building, but I think of it in terms of my experience in the theory of control systems. The distinction between randomness and uncertainty has an operational difference in the frameworks for mathematical models. Once one looks at a concrete example, the distinction is a lot easier to understand.

Nuclear Weapons & Monetary Policy

The news from Ukraine and Crimea remains worrisome, yet there has been limited reaction from markets. Although this could ultimately prove to have been too complacent, there is very good historical precedent for this behaviour. Post-1945 international relations have not been entirely peaceful, yet the scope for conflict is limited by the reality of nuclear weapons. Historical analogies drawn from earlier eras do not apply, at least for relations amongst the countries that are protected by a nuclear umbrella.

Money As A Weapon Against Uncertainty

One of the insights associated with Keynes is the view that money acts as a weapon against uncertainty. If we knew in advance what all future scenarios are, and their associated probabilities, we would not need to hold money. However, the future is uncertain, and so we hold money as a way of reducing the risks associated with that uncertainty. In this article, I discuss how money and cash should be thought about in personal finances, in light of these insights.

On Kyle Bass And Keynes

 Kyle Bass has provided the latest entry in the JGB Collapse wall of predictions. In an interview in a book by Steven Drobny (in a free chapter available here), he argues that JGB yields are going to 20% and the yen/dollar rate is going beyond 200. In this article, I make a few comments on this scenario, and find that this is a good example of Keynes' distinction between uncertainty and randomness...