Saturday, June 12, 2010

I call this round of Obama vs Atrios for Obama

Atrios wrote

Demand


... the administration is pushing for Congress to support various tax breaks for new startups and small businesses so they can continue to try to sell products that people don't have any money to buy.


I think that the decline in employment by firm size shows that liquidity constraints on small firms matter. This policy will allow those small firms which could sell more to expand. There are more than 0 of them. The economy is complicated. There isn't a representative consumer and a representative firm. Even if most firms are demand limited, some are liquidity limited.

Also note that, if those firms expand output, they will hire people who will spend. Also note that the loan will be spent on some kind of investment which is part of aggregate demand.

There is a difference between the fact that the reason this year is different from 2007 is aggregate demand is lower and the false claim that therefore only aggregate consumption matters.

Finally, the main limit on policy is congress. Congress may feel differently about small business loans than about transfers to states or COBRA. The power of "small businesses" in political rhetoric can be used to get an additional stimulus which may not be the best stimulus but is better than no additional stimulus.

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