The Paradox of Saving Keynes (updated September 9, 2010)
A popular view says that if the people stop spending money and begins to hold them, as they say, 'under the mattress "[1], this will bring the economy into recession and, in particular, will cause a wave of unemployment
. The reasoning is this:
(1) If people suddenly start spending less than before, that is to take more money than before "under the mattress", then the business (businesses, shops, etc.) will reduce overall its revenue, so they must reduce their output or shut up shop. Any of those things they choose to do, unemployment will increase. In fact, if they close shop, unemployment will increase by definition. If, however, reduce their outputs, even in this case, unemployment will increase, for the following reason. In theory, to reduce their outputs, there are (at least) two ways: by reducing wages or lay off staff. But in practice you can not reduce wages, because wages are rigid downwards in the short term (for example, because the unions to persuade workers not to accept reductions in wages, or because the State imposes a minimum wage, or because employment contracts are long term and can not be amended before they expire), and, in fact, the business will react laying off some staff. These people made redundant, being without work, will spend even less, which in turn produce a further reduction of revenue of the business, which will produce a further wave of redundancies, and so on, in a self-feeding spiral.
summary, and skipping the intermediate steps, the argument states that
(2) If people spend less, and wages are rigid downwards, unemployment is rising.
Note: This topic has been popularized by Keynes, who called him "Paradox of Saving." Keynes he drew the conclusion that if people spend less, the government must spend more to prevent a crisis characterized by high unemployment. (Viene da chiedere perché non concludesse che il governo debba eliminare le rigidità dei salari, ma questo è un altro discorso.) Sulla scia di Keynes, oggi la maggior parte della gente crede che, se il denaro “circola”, ciò “mette in moto” l’economia, e che, se invece la gente non spende, l’economia “si arresta” o “ristagna”.
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Nota : a volte l’argomento (2) viene espresso nella forma
(3) Se la domanda aggregata diminuisce, e i salari sono rigidi verso il basso, questo produrrà un aumento della disoccupazione.
Questa formulazione è equivalente alla (2), perché dire “la domanda aggregata diminuisce” è come dire “la gente complessivamente spende meno”. Io per semplicità eviterò il termine “domanda aggregata” e continuerò a dire “la gente spende meno”.
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Ricapitolando, l’argomento (2) dice che, se la gente spende meno, la disoccupazione aumenterà. Ma questo argomento è vero o è falso?
Sebbene l’argomento sia accettato da molti economisti eminenti tra cui Hayek (che chiama il fenomeno “depressione secondaria”), ho sempre avuto la sensazione che l’argomento fosse sbagliato. Cercherò quindi di spiegare where I think the error in the Keynesian reasoning (set out in paragraph 1).
First we explore the various meanings of the Keynesian theory (2). There are only two things I can do with my money: either spend them or cherish them
(ie, they "keep under the mattress", as they say). Thus, the Keynesian theory (2) can be rewritten equivalently as follows:
(4) ARGUMENT: If people keep more money than before "under the mattress", and wages are rigid downwards, unemployment is rising.
Now, say that people want to keep
more money than before is like saying that it is more riluttante di prima a
separarsi dai soldi. Cioè, per separarsi dalla stessa quantità di soldi, la gente ora chiederà in cambio
più di quello che chiedeva prima. O (equivalentemente) per ottenere la
stessa quantità di soldi, ora la gente offrirà in cambio più di quello che offriva prima. Tutto questo equivale a dire che, per la gente,
i soldi hanno maggior valore di prima. Quindi la tesi keynesiana (4) si riscrive in modo equivalente così:
(5) TESI: se per la gente i soldi hanno maggior valore di prima, e i salari sono rigidi verso il basso, questo produrrà un aumento della disoccupazione.
E’ importante capire cosa significa che “i soldi hanno maggior valore di prima”, sia dal punto di vista dei venditori che degli acquirenti. Dal punto di vista dell’acquirente, significa che sono più riluttanti a separarsi dai soldi, cioè:
- (6) se per me i soldi hanno maggior valore di prima, allora, per convincermi a pagarti quello che ti pagavo prima, ora dovrai darmi più beni e servizi di prima.
- (7) O equivalentemente: se per me i soldi hanno maggior valore di prima, allora, per avere la stessa quantità di beni e servizi che avevo prima, ora sono disposto a pagare meno di prima.
Dal punto di vista del venditore, significa che i venditori sono più desiderosi to obtain money, ie:
- (8) if for me money has more value than before, then I will be willing to offer more goods and services in exchange for the first same amount that I received before,
- (9) or equivalently: if the money for me to have more value than before, then I am willing to offer same amount of goods and services that I offered in exchange for first less money than before.
The fact that money has more value can be expressed equivalently by saying that increased "demand for currency." Here's why. We define first the concept of "demand money "
(10) Definition: My" money demand "is what I am willing to offer in exchange for a given amount of money.
In particular, if I'm more than willing to offer
first to get the
same amount of money as before, we say that my demand for money is increased
. On the other hand, if I am willing than before to the one offering the money, it means that the money for me to have more value. So, say "money has greater value" is like saying "my money demand has increased." So by (9) can be rewritten as follows:
(11) If my demand for money increases, then I am willing to offer same amount of goods and services that I offered in exchange for first less money than before.
A law that said elementary logic
(A ⇒ B) ⇔ (B ⇒ ⌉ ⌉ A)
or, in words,
(A implies B) is equivalent to (not-B implies not -A)
So (11) can be rewritten as follows:
(12) if I do not are willing to offer the same amount of goods and services that first offered him in exchange for less money than before, then the My money demand not increased.
This can be expressed succinctly as follows:
(13) if my job not increased, then my money demand has not increased.
For now we put aside this result and go back to (5). Now that we have defined the demand for money (paragraph 10), the Keynesian theory (5) can be rewritten in equivalent form as follows:
(14) ARGUMENT: it increases the demand for money of the people, and wages are rigid downwards , unemployment is rising.
Later we will see that the thesis (14) is false. Before doing so, we analyze the consequences of an increase in money demand.
Suppose
has increased the demand for money. Then, as we have said, employers will be more reluctant to separate from money. That is, for the purchase
same amount of work before, will be willing to pay
less than before. Or, equivalently, if the salary remains the same as before, employers will want to buy
less hours than before. So
, or employers maintaining the same salary but work less hours of purchase, or keep the same hours but reduce the wages to employees, or a combination of two things. This can be expressed graphically
The graph should read as follows: employers now are more reluctant to part with money. That is, for every
given wage, they want to buy
less hours than before. Then the curve of the "job application" goes down, going from D to D ', as shown in the figure. That is, the demand for labor decreases.
It 'important to understand that, so far, we
do not know what will happen to employment: we do not know if employers reduce wages when you buy the same number of hours before, or keep the same salary but buy less hours of work before (that is, to fire someone).
In the second case, unemployment will increase in the first case no. To determine which of two outcomes will occur, we must know how to change the labor supply
by employees, and where this curve intersects the demand for labor.
then speak of the job. What do we know? By assumption we know that for employees has increased the demand for money. That is, for the same amount of money as before, be willing to offer more work than before. Or, equivalently, to work the same amount as before, will be willing to accept less money than before. Graphically:
The chart reads: for any given wage, workers are willing to offer more work than before. So the labor supply curve shifts upward. That is, the supply of labor increases.
What will happen to employment depends on the intersection of two curves (labor demand and labor supply). By superimposing the two curves, we see that the wage decreases but the working hours remain unchanged:
As the supply has increased and demand decreased, the working hours do not change, ie there is no increase in unemployment. The only thing that changes is the wages, which decreased from S to S '.
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Quello che non dobbiamo dimenticare è che, a fronte della diminuzione della domanda di lavoro, c’è stato un
aumento dell’offerta di lavoro. Le due curve non sono indipendenti, bensì sono indissolubilmente collegate tra loro: se si spostano, si devono spostare entrambi di pari passo in direzioni opposte,
perché i loro spostamenti derivano dalla stessa causa, cioè da un aumento generalizzato della domanda di moneta (cioè del valore dei soldi per la gente). In parole povere:
se il valore dei soldi aumenta, è vero che io sarò più riluttante a cedere soldi in cambio di lavoro, ma tu sarai più willing to give up work in exchange for money. Then the curves move together in opposite directions, and the total amount of hours does not decrease, ie,
employment does not decrease.
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And now we come to the Keynesian theory (14), which states that this analysis is correct only in the absence of wage rigidities
. But if we add the assumption that wages are rigid downwards (eg due to trade unions, the state minimum wage, long-term contracts, or other factors), according to Keynes followed by a rise in unemployment.
So let us prove that Keynesian theory (14) is false. We proceed by contradiction. The outline of the proof is, we assume that wages are rigid downwards, and we see that the Keynesian argument produces a contradiction.
Demonstration . Suppose that decrease the demand for money. Let's also assume that wages are rigid downwards. This means that the option of decreasing wages is not available. This means that employees
not offer the same amount of work first for a salary less than before (because I can not offer what is available). This is like saying that the job was not increased. This (see paragraph 13) implies that the demand for money was not increased. E questo contraddice l'ipotesi iniziale (che la domanda di moneta sia aumentata). Quindi abbiamo ridotto all'assurdo il ragionamento keynesiano.
Quindi, anche in presenza di salari rigidi, il ragionamento è sbagliato.
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Riassumendo: abbiamo ottenuto che, se aumenta la domanda di moneta, non è
vero che la disoccupazione aumenterà. Infatti, se aumenta, significa che l'offerta di lavoro non è aumentata, e quindi che la domanda di moneta non è aumentata. Il che contraddice l’ipotesi.
Esprimiamo tutto questo senza usare il concetto di domanda di moneta, e tornando al vecchio concetto (equivalente) di “smettere di spendere soldi”. We have shown that if people spend less, it is not true that unemployment will increase. In fact, if unemployment rises, labor supply has not increased, then the demand for money was not increased.
But this implies that people are not spending less, which contradicts the hypothesis.
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So if people spend less during a recession, this can not be a
because of the recession, but can not exceed a result
.
___ [1] In English "hoarding", which translates to "stock up on money," or "pile money ", as does Uncle Scrooge.
