Monday, June 27, 2016

In lieu of patriotism, a disclaimer

Walmart online:

Important Made in USA Origin Disclaimer: For certain items sold by Walmart on, the displayed country of origin information may not be accurate or consistent with manufacturer information.


Sunday, June 26, 2016

¿EZ Catastrophe? and ¿¿Generational Melodrama??

Ja notice how every tiny little bit of televised reaction to the successful "Brexit" vote was horror and the prediction of catastrophe? I wonder which side scripted that news. Reading Scott Sumner was a refreshing change.

Some see it affecting Britain's economy by disrupting trade, whereas it actually hurts the eurozone more ...

British stocks are down around 4% as I write. But French and German stocks are down 7% to 8%. The markets in southern Europe are down 10% to 15%. Brexit's most powerful effect is to make the eurozone crisis worse, by increasing doubts as to whether the eurozone will stay together.

I don't want to overstate things; the level of equity prices in the US is still quite high---and thus the markets currently do not seem to be forecasting a recession.

BTW, there are some very good arguments in favor of Brexit ...

I couldn't have said it better myself. Except the part about equity prices. I don't know anything about equity prices.

Of course, I don't beam over to Sumner's all-too-predictable conclusion: "The single most useful reform at this moment would be a global shift toward level targeting."

You had to see that one coming. And then there's this:
Three in four young voters wanted to remain. They will have to live with the consequences. There is a sense in which the older UK voters stabbed their children in the back (Yes, that's a bit melodramatic, but there's a grain of truth.) When the older voters die off, will Britain rejoin the EU, or will the young get more nationalistic as they age?

... and Robert's response:

As far as young voters, do you feel that younger voters are better or less informed on the underlying issues as older voters? Are younger voters more cynical and less influenced by propaganda than older voters?

You know those models economists use all the time? Simple two-generational models, where, I don't know, the one generation is working and the other is retired, and there is some interaction between the two that the model uses to prove some ridiculous claim? Those models? Well, let's apply a two-generational model to Brexit preference.

As the older voters die off and the young age, the latter's view will become more firm and less liable to change. But there will be a new young generation that has grown up knowing Great Britain as a sovereign state. The generational disagreement will die out with today's young voters, in their old age.


Today, older voters remember Great Britain as a sovereign state. Younger voters think of Great Britain as like New Jersey: nothing sovereign about it. All the TV coverage yesterday relied on the argument that "Remain" is "good for the country" or "good for the nation". Yeah, but for which nation? For Great Britain, which already exists more in memory than in fact? Or the nation of Europe?

"Leave" is good for Great Britain. "Remain" is good for Europe.

Younger voters prefer to remain because they have no real memory of their nation as a nation. Older voters prefer to leave because they have that memory of the nation known as Great Britain.

The result of the vote was political, not economic. It was the right choice, because the creation of the European Union was also political. The creation of the EU was a political solution to economic problems. It was sold to the voters as a solution to economic problems. It would make the economy better, the voters were told.

And the Brexit:Leave decision is the voters' way of saying the European Union is an economic plan that didn't work.

Saturday, June 25, 2016

David and Goliath

Oh, for crying out loud. Nothing is going to happen any time soon.

Here -- I put this up once before:
Article 50 of the Consolidated Treaty on European Union:

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it.

A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.

5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

Here are three points made by Article 50:

--> The EU shall set out the arrangements for a member state's withdrawal

--> The withdrawal agreement shall be negotiated by the Council, after obtaining the consent of the European Parliament. In other words, if the Parliament does not consent, there can be no withdrawal agreement and evidently no withdrawal.

--> "The Treaties shall cease to apply to the State in question" -- that is, the withdrawing state is no longer a member of the EU -- as soon as the withdrawal agreement takes effect, or, "failing that", two years after the state notifies the union of its intent to withdraw, unless the European Council decides to extend this period.

Nothing's going to happen any time soon. Maybe never. It evidently depends on the European Parliament. Athens didn't let member states quit the Delian League. Lincoln didn't let member states quit the United States. And I question the European Parliament's willingness to allow Great Britain to leave the EU. It would be a sign of weakness, after all, and it puts the Euro at risk.

Congratulations to the people of a great nation for doing a great thing.

All the best.

Friday, June 24, 2016

In a credit-addicted society, you need a hell of a lot of inflation to get debt going down

Came across an old (2011) Krugman post the other day. Here's the opening:
Richard Koo has another paper on balance sheet recession out (pdf), with good charts for a number of countries. I still have some differences with him over monetary policy — I still don’t understand why he doesn’t see debt-eroding inflation as something helpful in dealing with debt overhang — but his view of the sources of our Lesser Depression is completely right.

I heard of Richard Koo and the balance sheet recession. But I never read Koo and I know nothing about the B.S. recession. That's okay, maybe I'll read the paper Krugman linked if I'm still interested later.

Anyway, Krugman has "differences" (plural) with Koo, but identifies only one:

I still don’t understand why he doesn’t see debt-eroding inflation as something helpful in dealing with debt overhang

It's been five years. Hopefully there has been an answer by now. I'll tell you my answer first, then maybe go look for other answers.


Q: Why doesn't Richard Koo see erosion of debt by inflation as a way to reduce debt?

A: Oh, that's easy! In a credit-addicted society, you need a hell of a lot of inflation to get debt going down. And actually, inflation doesn't make debt go down. It only makes NGDP go up faster than debt ... unless the rate of debt growth goes up.

Here's the thing. Inflation -- as long as incomes keep up with it -- makes existing debt easier to bear. But inflation makes new additions to debt bigger. So it's not all neat and tidy.


I threw together a spreadsheet so you can experiment with debt growth and inflation rates. Here's a screen cap:

The red line is debt. The blue line is GDP, actual ("nominal") GDP. The yellow cells contain numbers you can change to change the graph. The NGDP level and the Debt level both start at 100, for convenience and to make comparison of changes easier. The rates of growth of debt and inflation-adjusted ("real") GDP and the rate in inflation, the rates shown are averages for the 1950-2015 period. (The FRED data is included in the file, and period averages are shown to the right of the graph.)

If I leave the starting levels unchanged and leave the growth rate of RGDP at 3.3% and Debt at 8.0%, then in order to get the blue line a bit above the red line -- in order to make the Debt-to-GDP ratio fall -- I have to increase the rate of inflation from 3.2% (shown) to 5%, as the following graph shows:

Graph #2: The Effect of 5% Inflation
Huh, that's less inflation than I thought. Still, at 5% inflation, prices double in less than 15 years. Quadruple in 30 years. If you ain't big on globalism, if you want a strong nation, you need the nation's money to hold its value. It's very simple really.


For the record, the patterns shown on Graph #1 are a pretty good match to the patterns of actual data shown of this FRED graph:

Graph #3: Actual (not calculated by me) Data for GDP (blue) and TCMDO Debt (red)
A pretty good match. The blue line on Graph #3 lags behind a little. That's because debt hinders growth, but that's off-topic today.

And for the record, the whole "inflation erodes debt" argument depends on the assumption that disposable incomes keep up with prices, an unreliable assumption.

And by the way, it isn't that inflation erodes debt. It is that inflation erodes the value of the dollar, which pushes up new spending but not old debt. I used to like Krugman's term "erosion". I'm starting to think it is as deceptive a term as "real" (as in "real GDP").

And anyway, inflation is not a solution. Inflation is a problem. The fact that inflation can sometimes help to keep debt down (relative to GDP) does not mean inflation isn't a problem.

Thursday, June 23, 2016

"The EU ... is a politically undemocratic and economically dysfunctional club whose rules and procedures have caused serious economic decline in Europe, and are feeding the racist and separatist forces that are driving Europe apart."

-- Steve Keen

Wednesday, June 22, 2016

Water valves and personal savings

I looked at water shut-off valves a week ago and here they are while I'm trying to do econ.

Google will be pestering me with that shit for six months. Anyway, you can see that personal saving differs from the saving of a business or organization. Seeing as much was the point of this exercise.

I wonder if FRED has anything on business saving.

Tons. Here are three:

The "net private saving" of domestic business and the "undistributed corporate profits" portion of it run close together. The "gross" private saving of domestic business is about three times as big.

But wait... Gross saving? Net saving? Saving is saving, no? Either you save a dollar, or you spend it, right?

Here is something:

Not exactly what I was looking for, but useful. And then, in other results on that page I see the words "Here's gross private saving minus gross private investment — the ... deficit reduction will only intensify the problem of excessive savings relative ..." from Paul Krugman from 2011:
Let me just focus on the United States. Here’s gross private saving minus gross private investment — the private-sector financial surplus:

This huge move into surplus reflects the end of the housing bubble, a sharp rise in household saving, and a slump in business investment due to lack of customers.

Okay. So I'm thinking that

Gross Saving minus Gross Investment equals Net Saving

Gross Investment returns 3650 series at FRED. But no series name that begins with the words "Gross investment".

Tuesday, June 21, 2016

"The exploration of space will go ahead whether we join in it or not"

Couple notes from Chapter 9: Nixon's Decision in SP-4221 The Space Shuttle Decision:
If Nixon had wished to emulate Kennedy by supporting a new push in space, he could have endorsed the September 1969 report of the Space Task Group, with its recommended focus on a piloted mission to Mars. Nixon did no such thing. He did not even respond to this report in a timely fashion...

John Kennedy, while in the White House, had repeatedly spoken of space flight with the ring of a clarion call, and it is appropriate to note the contrast. Here is JFK, speaking at Rice University in September 1962:

The exploration of space will go ahead whether we join in it or not, and it is one of the great adventures of all time, and no nation which expects to be the leader of other nations can expect to stay behind in this race for space.

Similarly, here is Nixon in his statement of March 1970, which amounted to a most uncertain trumpet:

Having completed that long stride into the future which has been our objective for the past decade, we now must define new goals which make sense for the Seventies.... We must also realize that space expenditures must take their proper place within a rigorous system of national priorities.

Nixon's statement specifically supported his budget for FY 1971, which continued a policy of cuts in appropriations that dated to 1966. In 1970, NASA was still in retreat, and this statement underscored this march to the rear.

We started cutting NASA budgets in 1966. We hadn't even got to the moon yet, in 1966.

That was fifty years ago.

We've been trying to bring the budget into balance for fifty years. Our efforts have not worked. Everybody says our leaders are not trying hard enough. I say we're going about it the wrong way.

I didn't have the sense to take notes, but I read in the preface to Arthur C. Clarke's 3001: The Final Odyssey that when Clarke wrote 2001: A Space Odyssey (published 1968) he thought, given the progress we'd made in space, that 2001 was a reasonable date for the events of that novel.

What with our continuing Federal budget strategy, we are more distant from 2001 today than we were in 1966. Maybe it is time to try a different approach to the problem of the Federal budget.

Monday, June 20, 2016

I hope you like the ending

Yesterday's "interest paid" graphs are shown in billions of dollars. An earlier post shows the same cost as a percent of GDP. That's why yesterday's lines show increase, but in the older post the cost of interest runs pretty flat at about 5% of GDP.

The older graph, comparing the cost of oil and the cost of interest, goes back only to 1980 because that's where the oil numbers start. Me, I go back to 1949 and I like my graphs to go back at least that far. The household interest data at FRED goes back farther than I do:

Graph #1: Household Interest Paid as a Percent of GDP
Relative to GDP, the interest number is pretty flat since 1980, except for the big whoops! at the end. But it is not so flat from the 1940s to the 1980s. If this graph starts in 1980 it creates the wrong impression.

What caught my eye is that the line goes up rapidly till 1965, then has a sudden intermission, then picks up steam after the 1974 recession. (Isn't that more interesting than Flat, the line runs flat?)

I know what it is, that sudden intermission. It's a reaction of the graph to the Great Inflation. It is not that interest rates fell and remained low for ten years after 1965:

Graph #2: Interest Rates on the Rise
And it's not that household debt flat-lined after 1965. Debt (the red line) shows persistent increase:

Graph #3: Household Debt in Billions (red) and as a Percent of GDP (blue)
The blue line does show intermission beginning in 1965, similar to that shown on Graph #1. Note that these both show the data as a percent of GDP.

It is not that household debt and household interest cost suddenly slow after 1965. It is GDP that brings the intermission to the data. The reason, of course, is that inflation changes the dollar amount of GDP (and new credit use) but doesn't change the dollar amount of previously existing debt.

Anyway: What caught my eye on Graph #1 is that 'household interest paid' goes up rapidly relative to GDP, until 1965, then has an intermission because of the Great Inflation. I started wondering where the Interest-to-GDP line would have gone if not for the inflation. So I brought the data into Excel and put a trend line on it:

Graph #4: Household Interest Paid as % of GDP and 1947-1965 Trend
I took the data from FRED and showed it in blue. I took the same data, for 1947 to 1965 only, and showed it in red. Then I had Excel create a trend line based on the red line.

I was pleased with the result. The data from 1995 to the crash pretty well fits the same trend as the data before 1965. In the 30 years between, we see the blue line run low (because of the inflation) and then high (because of the

Sunday, June 19, 2016

The more pervasive cost

I looked at this quickly the other day, but it needed more time.

Index mundi provides "United States Crude Oil Consumption by Year" as graph and data from 1980 thru 2013. The numbers are "Thousand Barrels per Day". I'll take their numbers and multiply by 365 to get Thousand Barrels per Year.

FRED provides crude oil prices for WTI crude (since 1986), Brent (since 1987), and APSP (since 1980). The three run close except during 2011-2013. I'll use APSP as it starts in 1980. The APSP crude oil price numbers are Copyright © 2016, International Monetary Fund. The units are Dollars per Barrel.

Using these two sources I can calculate the total cost per year of crude oil consumed in the United States.

Graph #1

FRED turns up a couple dozen series under the heading "Monetary Interest Paid". If I understand this, it is monetary interest as opposed to imputed interest -- monetary interest being interest actually paid.

One of the series FRED offers is Monetary interest paid: Households. Looks like this:

Graph #2
The cost of interest is an actual cost, just like the cost of crude oil. Here are the two together on one graph:

Graph #3
Hard to believe, isn't it? Oil gets all the attention. And again, the red line is only household interest. Doesn't count interest on the Federal debt. Doesn't count the interest paid by businesses, that they deduct from their taxable. Only household interest.

If you want a better idea of the extent of finance in the U.S. economy I can take Graph #3, swap out household interest, and swap in total interest paid:

Graph #4
And that doesn't include "imputed" interest.

Here's my spreadsheet.