The relationship between Money and Economic Growth

andrew

KomradeBishop wrote: »

I gave loads of examples...long-term effects on employment rates (structural unemployment), emigration, debt, among more...you seem to have just skipped past almost everything stated in my posts - that's not 'skepticism', a skeptic deals with the arguments/examples.


The long run neutrality of money simply states that changes in the money supply do not affect real economic variables in the long run - and I've provided plenty of counterexamples, where real economic variables are affected.

The definition of long run neutrality doesn't limit the scope of 'real' variables that it covers - emigrated labour is a valid example of a changed real value - which also has a negative impact on real GDP, as the potential output from these workers is permanently lost.

Again, you are mistaking studies which claim to identify evidence of a trend, with that being evidence of support for long-run money neutrality - money neutrality is only one possible explanation for such data - it can still be false, and appears to be debunked by fairly easily found counterexamples.


How do you explain e.g. debt and 30 year mortgages - and how changes in the money supply definitely affect the real value of that debt? That's one of the more hard to deny counterexamples of long run money neutrality.

If you think that changes in the money supply affecting the real value of debt means that long run money neutrality isn't or can't be a thing, then you're misunderstanding what is meant by the long run neutrality of money; read this. You'll note that long run neutrality is a pretty general feature of the data - evidence of non neutrality in one country doesn't speak to the truth or otherwise of the proposition that in general money is neutral in the long run.

Regarding the emigration example - have you any empirical evidence of the link, in the long run, between the money supply and emigration in general?

Anyway, this whole thread started because I said that in the long run, Economic growth is determined by productivity growth and not the level or growth of the money supply. I don't think you've disputed that? Or do you actually think that monetary policy can be used to generate economic growth forever, independent of productivity?

KomradeBishop

Long run neutrality is defined by nominal variables not affecting real variables, is it not?
https://en.wikipedia.org/wiki/Neutrality_of_money
http://www.investopedia.com/terms/n/neutrality_of_money.asp

I kept looking for a while through the Google results, and pretty much all of them make the nominal vs real point.

Science is based on falsifiability, not verificationism - when you find conflicting evidence, the theory is disproved. The data shows a trend, sure, but it's not explained by long-term money neutrality - because available contradictory evidence, shows the theory is unsound.


Is the emigration example not self-evident? Unless you dispute, that changes in the money supply can cause economic conditions to deteriorate, in a way that results in emigration, then it should be self-evident (or evident in e.g. emigrants stated reasons for leaving, due to economic crisis).
If the emigrants don't return to the country, then that causes a real long-term change in many real variables of the economy.


As to the last paragraph: I don't think economic growth forever is itself possible, so wouldn't think that money supply growth could achieve that - and I agree that once an economy is at its maximum capacity, money supply growth mainly just affects the price level - but I wouldn't really make any solid claims one way or the other, about what determines economic growth in the long run.

Geuze

I would broadly accept the idea that in the LR the quantity of money is neutral and does not affect the real economy.

Migration to and from Ireland is due to differences in real wages / job opportunities, which are not affected by the money stock in the LR.

Now, in the SR, things are different...............

KomradeBishop

Ya but the thing is, the Long Run is just a culmination of many Short Runs - if people lose their job due to Short Run conditions and emigrate, that causes a LR effect on real variables.

Even if you consider the definition of 'long run', as meaning there has to be a persistent rate-of-change in the money supply (instead of the ups and downs you get in the short run) - which by the way, I think is an invalid/shaky definition - then it still doesn't help peoples argument because if you have persistent removal (instead of addition) of money from the economy, that's going to crater the economy and directly lead to long-term emigration and long-term changes to real variables in the economy, directly due to money supply changes.


The most important debunking point of all though, to focus on, when considering LR neutrality:
There's also Debt - e.g. 30 years mortgages - changes in the money supply, causing inflation over 30 years, cause a definite long-run change in the real value of debts - which affect other real variables throughout the economy.

I don't understand how people can hold onto long-run money neutrality, and its claim of no change in real economic values, when faced with Debt and the very clear change in the real value of debt, due to money supply changes.

It's very interesting though, as I think this Debt issue should convincingly show posters/economic-students, how neutrality is a very severe/direct flaw in economic teaching - though I understand how people will be invested in defending it, given that the idea of being taught that something is true, when it is actually false, is understandably quite worrying/uncomfortable (and may sow the seeds of further worry/doubt...).

regi3457

so are ordinary peoples non-academic opinions now allowed on this thread.... maybe I should rejoin