SEMAINE D'ÉTUDE SUR LE ROLE DE L'ANALYSE ECONOMETRIQUE ETC. 515
for complications in this respect is the fact that the whole time
path of the variables will be changed as a result of a change
in the characteristic parameters of the model.
There are at least two reasons why we do not want to follow
ap this analysis of inducement any further in the present con-
text. One reason is that the theoretical foundation of the idea
of induced investment is in itself rather dubious. Thus, as 1
have tried to show elsewhere (!), it is not easy to justify a
systematic tendency to induced investment by any « classical »
principle of producers’ behavior in maximizing profits. But
‘he second and more important reason is that the possibility
of large-scale induced investment is in fact irrelevant to the
main argument to which this paper is devoted. This last sta-
:ement may need a little further explanation.
The main line of argument of the « new » and « radical »
principles of fiscal policy for full employment has, as far as
[ have understood it, been a) that the government should not
be afraid to accept very large budget deficits if necessary,
b) that in certain periods very large budget deficits will actually
be required, and c) that if such a « radical » policy is adhered
to, the government has done its main job as an economic policv
maker.
Now, if this is a correct interpretation of the line of think-
ing, it would seem to me to be rather strange to argue that
induced investment is so important that only modest variations
in the budget deficit would be required. Such an assumption
is also contradicted by facts. Experience has shown that pri-
vate investment may be subject to large variations which can-
not easily be explained by any initial change in effective de-
mand for consumer goods.
The idea that a « radical » fiscal policy for full employment
would not in fact need to operate with very large budget de-
(!) Cf. my book on A Study in the Theory of Investment. University ol
Chicago Press. 1960
Haavelmo - pag.
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