70 thoughts on “Monday message board”

  1. Ernestine, I still can’t work out what your point is with the formula for simple interest.

    So far, you’ve gone to great lengths to avoid explaining what you meant. I’m starting to think that your observation is about as deep and useful as the following:

    “Terje observes: “Interest rates� are a price.�

    True.

    But Terje is mistaken because “price” is singular and “rates” is plural.

  2. SJ, you don’t have to work it out. Its not compulsory. And, you are free to think whatever you want.

  4. SJ, you are insincere. I re-read the thread. You understood very well what I wrote. Your own comment is:

    [Terje says:

    …an “Interest Rate� is a dimensionless quantity.

    You didn’t do the dimensional analysis correctly. The units are dollars per dollar per unit time. Dollars per dollar cancels out, but the time dimension remains. The dimension is T-1. ]

    PS: You corrected the notation for the dimension. Not shown here.

  6. Implicit in my reply to the Canberra Times’ correspondent above (but excluded to fit within the length limit) is the belief that monetary and fiscal policies in Australia are pulling strongly in opposite directions. Monetary policy (low interest rates, large increases in money supply) are inflationary, but fiscal policy (high taxes, large budget surpluses) are deflationary. If this week’s small increase in the interest rate stimulates somewhat larger tax cuts than would otherwise have occurred in the budget, maybe we see the two policies beginning to inch towards more moderate positions. And I wonder whether that is part of the Reserve Bank’s thinking.

    On an unrelated subject, The Independent has published another article indicating doubt about the role of supply and demand in the current increase in commodity prices.

  8. Ernestine Gross Says:

    SJ, you are insincere.

    Um, no.

    I re-read the thread. You understood very well what I wrote.

    Of course I understand the equation. What I’m asking you to explain is its relevance. That is, why does it follow that because

    r = (1$[t=1]/x$[t=0]) – 1

    Terje is wrong? Which particular bit of what Terje said was this intended to refute?

    I’m not just arguing for the sake of arguing, I’m genuinely mystified as to what you meant.

  10. SJ,
    I think he was making a trivial point about the difference between interest and the interest rate. If he had a real point he would have made it by now – he has had 2 and a half days.

  12. SJ,
    I think he is just unwilling to explain himself. Heaven forbid that we may think him unable to do so.
    Do you think he is also insufferable to his students or is it just we who do not treat him with appropriate respect?

  13. Gordon,

    I assert that tax cuts are deflationary. You say that high taxes are deflationary?

    Do you care to explore this apparent disagreement.

    Regards,
    Terje.

  14. Andrew Reynolds Says:

    Do you think he is also insufferable to his students…

    I can’t see how she couldn’t be. But then again, she’ll probably respond that I’m wrong because:

    1 + 1 = 2,

    and who could argue with that? 😉

  17. Terje the guessing that when you said deflationary you meant disinflationary.

    The reason you don’t understand why tax cuts are inflationary is that you don’t seem to (want to?) understand that “Say’s Law” is a long run concept, in the short run demand is what drives an economy. Leaving aside for the more radical proposals in the General Theory this is what is at the heart of Keynes’ argument .

    Tax cuts put money in peoples pockets a portion of which they will use for consumption. This will increase demand and put upward pressure on prices.

    I can’t believe you’re still peddling that Reagan tax cuts were responsible for the early eighties US disinflation rubbish.

  19. sdfc wrote “Tax cuts put money in peoples pockets a portion of which they will use for consumption. This will increase demand and put upward pressure on prices”.

    I use it for consumption or governments use it for consumption, what’s the difference ?

  20. The logic that I subscribe to runs like this.

    1. Tax cuts are a reduction in the tariff on domestic trade.
    2. A reduction in tariffs increases trade and subsequently specialisation.
    3. Specialisation increases output.
    4. Both 2 & 3 lead to an increased demand for currency and its near substitutes (eg credit etc).
    5. Increased demand for currency is disinflationary.

    It is easy to say that in the short run “Says law” does not apply, and that it all comes down to demand. However the way in which that demand is manifest is generally through money. So if the money supply is held constant (ie if we look only at the fiscal effect) and output rises then we would still expect a disinflationary effect. It is only if we make adustments on the monetary side of the equation that the outcomes might reasonably be expected to be different.

    A more simplifed assertion is:-

    a) Economic growth is deflationary.

    ie when more goods chase the same amount of money the value of money will rise.

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