A note on Greg Ehrig's run-through of the basic econometric model:
A government CAN directly affect I (aggregate investment) in at least two
ways:
THE COMMAND METHOD: The government can tax C (consumption), either
directly through sales taxes or indirectly through property and income
taxes, and use the proceeds to finance research and development, college
scholarships, and the like.
THE LIBERAL METHOD: The government can effectively lower the rate of
interest that must be paid on credit bound for investment (as opposed to
consumtion) through its framing of banking and accounting regulations.
The government doesn't determine what investments are made, but makes
investment as a whole more attractive than consumption.
The first mechanism is, of course, obvious, and as a result
well-recognized. The second method is harder to see in operation, and a
government itself may be only dimly aware of what it is doing.
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Also -- I would challenge Greg Ehrig to give a single example of
"extensive" growth that is not also "intensive", or an example of growth
that is not also development. (This is not a PERSONAL challenge -- the
distinction goes back at least as far as Schumpeter's _Theory of Economic
Development_, and almost certainly much farther, but it is a distinction
that I think is in error)
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Salvatore Babones
Johns Hopkins University
Baltimore, U.S.A.
sbabones@jhu.edu