Krugman’s response on cash hoarding

Krugman, in a response, accuses me of not understanding Keynes’s critique of Say’s Law:

Cowen can’t see why corporate hoarding is a problem. Like Riedl and Cochrane, he concedes that there might be some problem if corporations literally piled up stacks of green paper; but he argues that it’s completely different if they put the money in a bank, which will lend it out, or use it to buy securities, which can be used to finance someone else’s spending.

Let’s look at what I actually wrote:

Maybe you are less impressed if say Apple buys T-Bills, but still the funds are recirculated quickly to other investors.  This may not end in a dazzling burst of growth, but there is no unique problem associated with the first round of where the funds come from.  If there is a problem, it is because no one sees especially attractive investment opportunities in great quantity.  (To the extent there is a real desire to invest, the Coase theorem will get the money there.)  That’s a problem at varying levels of corporate profits and some call it The Great Stagnation.

The same response holds if Apple puts the money into banks which earn IOR at the Fed and the money “simply sits there.”  The corporations are not withholding this money from the loanable funds market but rather, to the extent there is a problem, the loanable funds market does not know how to invest it at a sufficiently high ROR.

My arguments is that it can be a problem, and that recycling is not automatic, but in that case other factors must be in play and we should reinterpret the matter in terms of those other factors.  Krugman may or may not agree but he doesn’t get to that point.  Rather his critique is that I think recycling into AD is automatic.  That is a “read fail,” and quite simply he would prefer to counter the argument (Keynes vs. Say) which fits into his prior template rather than deal with what was written.

Dorman thinks there are few good investment opportunities because consumer spending is weak.  In a somewhat condescending fashion, he suggests that somehow I cannot, when thinking about macroeconomics, keep investment and retail spending in my mind at the same time.  He doesn’t mention that my original post considered retail spending explicitly — and with a picture — and argued that although there was a big hit to spending, the pattern of the hit and subsequent recovery for retail doesn’t appear to match the pattern of our investment problems.  Again, he may disagree on the point, but he can’t even bring himself to mention that I cover it, instead preferring to claim I ignore it.


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