Ditto

Back at the beginning of '09, Paul Krugman was iterating about a Dark Age in economic thought. He happened to quote, among other things, this from John Cochrane:

Second, investment is “spending” every bit as much as consumption. Fiscal stimulus advocates want money spent on consumption, not saved. They evaluate past stimulus programs by whether people who got stimulus money spent it on consumption goods rather save it. But the economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift.

I think a word or two got lost in translation. But that is one precious paragraph. PK let it slip away. Here are my notes:

1. Investment is “spending” every bit as much as consumption.

Yes, yes, yes. When somebody buys industrial equipment or puts up a factory building, that's investment. More precisely, it is investment spending. When I stick a dollar in my savings account, that's not investment. It's investment when Dean Kamen takes a loan and spends the money to build another nifty invention. It's investment when money gets spent like that.

2. Fiscal stimulus advocates want money spent on consumption, not saved. They evaluate past stimulus programs by whether people who got stimulus money spent it on consumption goods rather save it.

This is a whole other can of worms. I don't like too much to talk about what other people want. So I won't talk about what Cochrane says other people want. But Big-C distinguishes clearly between spending and saving. That's important.

3. The economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift.

Excellent: The economy does not care what we want. We care. Actually, I'm surprised Cochrane says that to the economy, consumption spending (buying a car) is no different than investment spending (buying a forklift). But then I guess the economy doesn't care if it grows, or not.

Inadequate growth is not a problem for the economy. For the economy, it is a solution to Problem X. If we think inadequate growth is a problem, our task is to identify Problem X.

Ditto inflation. Ditto unemployment. Ditto ditto ditto.