Some Good, Ol' Fashioned Matty Gibberish...

Ah yes, the affectation of knowledge one doesn't possess, courtesy of the Little One:

Policymakers can observe, however, that if economic actors’ level of uncertainty about the future increases that would manifest itself as an increased demand for money.

Think about that statement for a moment. Then note that other than the fact that it's completely wrong, Matty's on to something. What Matty's on to is this:

As uncertainty about the future increases, the actual (and rational) response by both businesses and consumers will result in a decrease in the demand for money. Why? Well, once again, think about it:

• If you're part of a household facing increased uncertainty about future employment, or even future earnings levels, what do you do to hedge against that uncertainty?
• If you're a business owner or manager, and your business is facing increased uncertainty about revenues, costs or profitability, what do you do to hedge against that uncertainty?

In both cases, the rational actor reins in spending, conserves cash and attempts to maintain their standard of living/profitability by finding new efficiencies. Heightened uncertainty leads to a reduction in aggregate demand. That leads to a reduction in the demand for money.

Duh.

What the rational actor does not do is go out and demand more money (via acquiring more debt) in the face of that reduced aggregate demand. Households do not buy new homes, cars and whatnot when said households cannot convince themselves they are going to have jobs six months from now. And businesses will not take on debt to finance expansion in the face of falling sales, increasing costs and lower profits if they cannot see a light at the end of the tunnel.

Of course, getting Economics 101 right doesn't actually matter to Little One. All he's interested in is stoking some anti-business sentiment for the morons over at Think Progress:

So if for whatever reason businessmen or politicians or media figures or anyone else feels more comfortable expressing the situation as one caused by “uncertainty” that’s fine. But the name of the game is still fiscal and monetary expansion. But instead the proposed cure typically seems to be “shift public policy in a more rightwing direction.” That wouldn’t do anything about uncertainty or a shortfall in aggregate demand. It’s just a faux-sophisticated way of saying “I’m a rich businessman who wants politicians to cater to my interests more.”

That's exactly the sort of sophomoric gibberish I'd expect to find over at Pandagon.

The real issue here is that Matty's hung his hat on Obama/Krugman idea that all you need to do is have the gubbermint spend boatloads and everybody will go back to partying like it's 1999. It obviously hasn't worked. And, Matty being Matty, the best he can come up with to explain away the failure is that's really all the fault of those "bad old Republicans and nasty old businessmen".

So there we have it. The boy is nearly eight years into his "career" and where is he now?

Shoulder to shoulder with Amanda Marcotte.

An aside: Yes, for you the name of the game is  "Fiscal and Monetary Expansion", Matty. It's the economist's equivalent of "Chutes and Ladders", and that's all you could possibly handle.

Comments

[Randy Rager]

I wouldn't entrust the entire Think Progress crew with a single lemonade stand, much less a real business.

[Jim Ryan]

Gotta go with Matt on this. There's no way that cutting taxes, eliminating business regulations, and getting the deficit under control would decrease uncertainty.

[Eric Blair]

Well, it certainly would increase the certainty of something....

[Simon]

By 'demand for money' he means 'consumption' right ? This kid's seriously confused and confusing.

He is basically illustrating the counter argument to his own argument - the more the US government borrows to spend, the more nervous the middle class become - thereby reducing their own spending - net effect on the economy nil, but leaving the youth with a big debt to look forward to.

Matty may have seen those nervous middle class people around the streets - called 'the Tea Party'. Unlike most protest groups these people have jobs - they are valuable to society.

Also I wish he'd tell me what 'faux sophisticated' means.

[Simon]

I've now bothered to read a bit of the article - as you say it is pure gibberish.

Normally if demand for one kind of good or service falls, demand for other goods or services has to rise.

Wha ?

And pretentious to boot -

Increased demand for money is a funny beast.

I'm beginning to understand your unhealthy fascination with this stupid turd.

[James]

Re: Economic truth the book of "Mathew".
I have been a laborer, foreman, estimator, project manager, and negociation observer through the 70s, 80s, the oughts andup to today. I wish I had known this from the start. What a burden for these people have in lighting our way.

[BlogDog]

Reins in, not "reigns in."

[Dennis the Peasant]

Noted.

[richard mcenroe]

BlogDog We have to rein the government. Obama reigns in his own mind, over a throng of adoring voices...

[Robert Bell]

The way I understand Matt's terminology he is saying exactly what you are saying.

"In both cases, the rational actor reins in spending, conserves cash ..."

I.e. the rational agent wishes to conserve cash, rather than exchange it to consume things would appear to be, hence ceteris paribus, an increase in the demand for money.

Similarly, in an uncertain environment, a risk averse investor will move away from risky assets like stocks into safer assets like bonds, or ultimately cash.