Thursday, June 30, 2011

Yes, if you don't call it "interest." ...Really??


In a series of comments on a Mosler post, one finds this from Tom Hickey (June 24th, 2011 at 2:28 pm):

The likely scenario is that consumers would try to maintain lifestyle to the degree they could be supporting it with increasing debt... That cannot go on forever, and so either the middle class would fall behind and the economy would contract, or there would be an enormous implosion of debt-deflation and depression. Given the appetite of the financial sector for rent and the moral hazard that exists, I would be betting on the later...

There is no path to prosperity here other than through exports, i.e., US workers working to supply the rest of the world with real resources of the US, while they also work for the financial sector indirectly by paying rent. Insidious game.
Emphasis added.

Then there is a comment by Tom -- a different Tom, I think (Tom, June 24th, 2011 at 4:01 pm) -- who quotes the following, in order to have it evaluated:

Our dollars are still backed, but now by debt and thus by the Treasuries and not by physical gold. When we print money the govt must also issue an equal amount of treasuries to back those dollars or it will create inflation (just like if we issued dollars in excess of our gold). The rules of economics haven’t changed. Just the backing item of the currency.

The problem with having debt as a backing is that it is required to issue more debt each year in order to cover the interest on the debts. Also since we’re the reserve currency of the world it is required that we have more dollars going out of the US than in. This leads to trade deficits and thus more debts. We can’t effectively go bankrupt because we issue our own currency, but the value of that currency will continuously decline as long as we spend more than we take in (which is required by being the reserve currency of the world).

We will never really go bankrupt as a nation, but the longer we continue with this sort of debt backed money the more likely we are to have serious economic issues.

Following an analysis of that quote by Art -- a different Art, I'm sure -- Jim Baird writes:

One more thing about the original comment: it seems to be afflicted with the old “exponential interest” canard that neglects the circular nature of interest payments and sees an inevitable crash since “there isn’t enough money to pay back both the principal and interest”. I’m always surprised at how many people believe this…

In response to Jim Baird, there is a comment by Clonal Antibody (who must be the same as Clonal here):

It does not matter that the interests are recirculated... When you borrow $1, you ... have to pay back the dollar plus ... interest. Where will the ... interest come from?

That drew forth this, from Warren Mosler:

the bank shareholders spend their interest income

Clonal Antibody responds:

Yes you are quite correct. But the point I was trying to make was that the amount of interest that can be serviced this way is limited by the nominal growth rate of the economy, and the proviso that all the interest be spent, and none saved...

Mosler:

... any unspent income has that same effect as unspent interest income.

Later comments move to other topics.

I just want to point out that it seems to me that for many of the people commenting at Mosler's, "rent" is one of the world's biggest problems, but "interest" is no problem at all. Yet "rent" and "interest" are the same thing, given the way they use the word "rent".


Michael Hudson defines "rent":

The 19th century elaborated the concept of economic rent as that element of price which found no counterpart in actual cost of production. and hence was “unearned.”

Unearned income. Undeserved income. It is not a far stretch, from saying the income to capital (money) is undeserved, to saying the income to capital (equipment) is undeserved. And that is as Marxist a thought as I have ever seen.


Hudson and Hickey both see rent as a problematic cost. Mosler sees interest as income. The distinction is false, for every cost is someone's income, and every income is someone's cost.

Actually, that may be Mosler's point.

Still, the issue is not the cost of interest in comparison to the income from interest. The issue is interest in comparison to wages and to profits; the issue is the balance among factor costs.

From The Wealth of Nations:

The interest of money is always a derivative revenue, which, if it is not paid from the profit which is made by the use of the money, must be paid from some other source of revenue...

Fewer by half

From FRED:

"The number of banks in each size class by date includes all banks with
total assets (call report item rcfd2170) greater than zero."

Wednesday, June 29, 2011

Breakout

Following up on yesterday's post...

At FRED, I select Banking and then Loans. There is a list of eight data sets. The first three are not totals, but breakouts for commercial and industrial loans, real estate loans, and consumer loans -- all for 1947 to 2011.



For the heck of it, a close-up of 1980-2000:


Not really much of a slowing visible in the 1986-1990 period. But business and consumer loans were both flat (or even decreasing) for a few years after 1990.

Tuesday, June 28, 2011

The evidence in the evidence


I look a lot at 'Total Credit Market Debt Owed" (TCMDO):

Graph #1

Also, at the year-to-year change in that debt:

Graph #2

In it I see a variety of trends. I took graph #2 and eyeballed-in the trends I see, to make Graph #3:

Graph #3

Reading from left to right on the graph, I see a period of relative stability (green trend line)... a period of relative instability (yellow trend lines)... a surprising, out-of-place decline (red trend line)... another period of relative stability (green again)... and another surprising decline (red again).

The colors indicate similarity of the trend shape, not the significance of the trends. For example, there is a big difference between the red 1989-1992 surprise and the red 2008-2009 surprise. The first occurred during relatively good years in the economy. Relatively good. The second occurred during the recent crisis and recession.

The recent surprising decline caught everyone by surprise. The first one passed unnoticed.

But I'm just eyeballing trends here. Maybe I am misreading things. It would be easy to see the last leg of that yellow relative-instability trend as part of the first surprising downtrend.

Graph #4
Which is it? Hard to say. A little of both, maybe?


When I first started looking into reasons for the decline in debt growth, I looked toward tax policy as an obvious factor. I found a little tax advice from the Los Angeles Times of 27 December 1990, including this:

Personal interest deductions have also fallen to 10% on federal tax returns. That means that the interest you pay on credit card debt and car and boat loans, among other things, is only 10% deductible for 1990 taxes. The deductions will be phased out completely next year.

So okay, I thought, phasing out the interest deduction made debt less attractive. And if you look at the growth-of-debt graph, there seems to be a repeating up-and-down pattern (shown in yellow on the second graph) which changes between 1989 and 1990.

But then I came upon additional tax-policy facts. Wikipedia (of all places!) on the Tax Reform Act of 1986:

Moreover, interest on consumer loans such as credit card debt were no longer deductible.

So, 1986. That would mean the Graph #4 trend markup is more appropriate than my Graph #3 markup. Huh. But what of the LA Times remarks? Perhaps the tax deduction for interest expense was eliminated gradually, reaching 10% in 1990 and zero in 1991? Possible, but Wikipedia gives no hint of it. Nor does my memory.


Having looked even longer now at the debt growth trends, I notice that the first yellow downtrend corresponds to the 1974 recession. And the second yellow downtrend corresponds to the double-dip recession of the early 1980s.

On the other hand, no recession induced the third yellow downtrend. No recession occurs until 1990-91, near the end of that long downtrend. So perhaps it was tax policy, plain and simple, that caused debt growth to slow.

I like that. The notion fits with what I know to be true: Policy works.

Monday, June 27, 2011

Bearwatch: Gedankenexperiment


Consider an economy with 3 classes of people...


50 x 0K = 0K
49 x 5K = 245K
1 x 700K= 700K
  TOTAL = 945K INCREASE IN WEALTH (THE FIRST YEAR)
700/945 = 74%
CHECK

Couldn't interrupt a video this way


Given the choice, I much prefer reading to watching video. Oh, not for entertainment, no. But when it is something I have to think about, like the economy, I want to read it. Otherwise I just get bludgeoned by ideas that there is no time to evaluate.

I think that's how things go wrong.

But even in print, people try to present ideas faster than they can be evaluated. That's my first impression of this forked-tongue piece from Cato@Liberty:


Don’t Blame Obama for Bush’s 2009 Deficit


Posted by Daniel J. Mitchell

Some critics are lambasting President Obama for record deficits. This is not a productive line of attack, largely because it puts the focus on the wrong variable. America’s fiscal problem is excessive government spending, and deficits are merely a symptom of that underlying disease...

Time to interrupt.

Third sentence in, Daniel J. Mitchell is using a conclusion as if it were an observation. The problem is excessive government spending. Sounds like a conclusion to me.

And how would you know that "America’s fiscal problem is excessive government spending" if not for the deficits? But perhaps this is Mr. Mitchell's point. So then, let us suppose that deficits are evidence of excessive government spending.

Oh, well there you go. This is how we arrive at Mitchell's conclusion. By supposing it.

... In addition to being theoretically misguided, critics sometimes blame Obama for things that are not his fault. Listening to a talk radio program yesterday, the host asserted that Obama tripled the budget deficit in his first year. This assertion is understandable, since the deficit jumped from about $450 billion in 2008 to $1.4 trillion in 2009. As this chart illustrates, with the Bush years in green, it appears as if Obama’s policies have led to an explosion of debt.


But there is one rather important detail that makes a big difference. The chart is based on the assumption that the current administration should be blamed for the 2009 fiscal year. While this makes sense to a casual observer, it is largely untrue. The 2009 fiscal year began October 1, 2008, nearly four months before Obama took office. The budget for the entire fiscal year was largely set in place while Bush was in the White House...

As for myself, I much prefer to leave out the politics altogether and deal directly with the economics of the economic problem.

Sunday, June 26, 2011

Ball of twine


Made in China... for a U.S. company... with a Canadian parent.

This is not "free trade".

Why is Krugman saying this?


That said, widespread credit constraints presumably reduce the number of players who can take advantage of lower rates.

? ? ?

We can't boost the economy with more debt. Liquidity preference has changed.

Twenty-Cent trends


Second look at some numbers from Twenty-Cent Paradigms.

Fairness is in the eye of the beholder, but the US economy actually grew faster when top marginal tax rates were higher. Here is the annual average growth in real GDP and the average annual top marginal tax rates for the US, by decade:

1951-60 - 3.42 - 91.2%
1961-70 - 4.11 - 78.4%
1971-80 - 3.14 - 70.0%
1981-90 - 3.21 - 44.5%
1991-2000 - 3.22 - 37.9%
2001-2006 - 2.51 - 36.2%

So I put those numbers into a graph, and let Excel add trend lines for them:


Everything trends downhill, at least since the '60s. But then, so do my spirits. Come to think of it, maybe the economy's long decline is all my fault. Maybe if I cheer up, the economy will get better.

Oh, wait. I thought I was making a joke. But that's not a joke. It's the actual view of all those economists who say the problem is expectations.

Saturday, June 25, 2011

Must read


One brief comment at Macro and Other Market Musings

PCE and CPI (long term)


From Beckworth, via Retirement Blues, this graph showing similarity for five years or so.

From FRED, a longer view, showing what looks to me like lots of similarity:


Don't screw it up


The Penguin Classics abridgement of Adam Smith's The Wealth of Nations includes an introduction by Andrew Skinner.

In Skinner's introduction there is a quote from Smith about systems:

Systems in many respects resemble machines. A machine is a little system, created to perform, as well as to connect together, in reality, those different movements and efforts which the artist has occasion for. A system is an imaginary machine, invented to connect together in the fancy those different movements and effects which are already in reality performed.

So Adam Smith says the economy is a system. It is comparable to a complex machine. In our day you could compare it to a computer.

Years back, a friend of mine would try to fix his computer when it went haywire by going in and changing a bunch of settings. Far as I could see, he was only making things worse. One has to be methodical, one has to remember the lessons the system teaches. You don't go messing with it, because you're liable to screw it up.

Friday, June 24, 2011

Not my style (follow-up)


The other day I made the most of a Michael Hudson post, pointing out that he and I agree on a lot of debt-related stuff, and that at least some of my agreement is based on my own independent analysis of long-term trends in our economy.

But then I stopped short, and said forget about reading Hudson's post. Here's why. After eight strong paragraphs, Hudson does the Kelton thing, changing horses to make the point he wanted to make all along, hoping the reader will have been drawn in by what came before, depending on the reader's sympathy for the objective that stands behind the second-horse irrelevancies:

If there was a silver lining to all this, it has been to demonstrate that if the Treasury and Federal Reserve can create $13 trillion of public obligations – money – electronically on computer keyboards, there really is no Social Security problem at all, no Medicare shortfall, no inability of the American government to rebuild the nation’s infrastructure. The bailout of Wall Street showed how central banks can create money, as Modern Money Theory (MMT) explains.

The argument is only effective because people want to accept the second-horse part. But the second horse turns the first eight paragraphs of meat into fluff. It's just filler, there to draw you in, complete with the diet-of-donuts out-of-the-blue completely-irrelevant imagery of "the buildup of plaque deposits in human veins and arteries".

The whole of the first eight is as irrelevant to Michael Hudson's "silver lining" purpose as is the one line about plaque.


People dispute whether economics is science. I don't care. We have to treat it like science, regardless. We have to make our best arguments, and we have to have relevant conclusions. Otherwise, the whole thing is a joke.

Not my style


If you look at my recent series (three posts) beginning with The world in red and blue, you'll see several graphs but few conclusions.

Hope that doesn't bother you. I'd rather understate things than overstate them. The economy is what it is. I can't change that by BS-ing you.


In a recent post Stephanie Kelton discusses Obama's Implausible Dream. I will skip the donut part and get to the meat:

As far as Washington is concerned, there are only two ways to bring down the deficit: cut spending or increase taxes. Both reduce private sector incomes. This means that the president is looking for a way to reduce private sector incomes without hampering sales or job creation.

"Obama's dream" is to "[find] a way to reduce private sector incomes without hampering sales or job creation."

"Can it be done?" Kelton asks. After careful analysis, her answer is No.

The careful analysis is done in words, accompanied by little formulas that leave me wondering, mostly, Why are some of the zeroes smaller, and bold??


So much for the algebra. Here is Kelton's summary of her analysis:

The bottom line is this: As long as unemployment remains high, the deficit will remain high. So instead of continuing to put the deficit first, it’s time get to work on a plan to increase employment.

But that's not what her analysis showed. The analysis does not consider whether it is possible to reduce the deficit while unemployment remains high. The analysis considers whether it is possible "to reduce private sector incomes without hampering sales or job creation."

Look: I do not disagree with Kelton's analysis. And I agree with her goal, which evidently is to reduce unemployment. But after doing the careful analysis, she changes horses just in time for her conclusion. To me, either the conclusion is irrelevant, or the analysis is. They're not both part of the same argument.

I think I've seen Kelton do this before, actually.

Thursday, June 23, 2011

Focusing on Krugman


In Woodford on Monetary and Fiscal Policy Paul Krugman reviews the thoughts of Mike Woodford on "policy options when you’re up against the zero lower bound".

Then PK describes what he himself

was thinking in, say, January 2009. With the severe financial crisis still relatively recent, and many people still expecting a V-shaped recovery, it didn’t seem possible to persuade the Fed to commit to a permanent rise in the monetary base or a rise in the medium-run inflation target, nor did it seem possible to convince markets that there had been a long-run change in policy. The chances for persuading Congress to agree to a large temporary fiscal stimulus seemed much better.

But as it turned out, that didn’t happen either...

I do think it's funny that PK spends so much time worrying about the chances for persuading Congress and the possibility of persuading the Fed what they should do. Perhaps Krugman would be more persuasive if rather than worrying what others think, he would focus on writing persuasive arguments about what must be done.

Just to be clear, the options Paul Krugman sees are
1. increase the monetary base and/or increase inflation; and
2. increase government spending with "a large temporary fiscal stimulus".

Now if I tell ya I'm gonna disagree with Krugman, you're prob'ly gonna think I'm austerian. I'm not. But I have to evaluate Krugman's options in relation to the problem as Krugman defines it.

As Krugman defines it


In Default Is In Our Stars (25 September 2010), Krugman wrote:

I think it’s fair to say that a majority of economists believe that excessive private debt played a key role in getting us into this economic mess, and is playing a key role in preventing us from getting out.

Eh, slightly out of focus, there. He doesn't say what he thinks. He says what he thinks "a majority of economists" think. Is he trying to strengthen his position by embedding himself in the majority? Can't say. Does he include himself among them? Doesn't say.

Well then, here's another. Krugman of 18 November introduces his new 32-page PDF, Debt, Deleveraging, and the Liquidity Trap, and offers an informal summary of the paper as well. In the summary, Krugman writes:

Sharply rising debt, it’s widely argued, set the stage for the crisis, and the overhang of debt continues to act as a drag on recovery.

Heh. Same thing again. Doesn't say what he thinks. Says what is "widely argued".

Let me try one more time. In the recent Mr. Keynes and the moderns, Krugman writes

I constantly encounter the argument that our crisis was brought on by too much debt – which is largely my view as well...

"Largely". Well, I guess that's as good a commitment as we're gonna get from Paul Krugman. So I guess I'll go ahead and say what I think Krugman thinks, as he seems unwilling or unable to do so. I'll take a chance and say Krugman includes himself among those arguing widely that debt is the problem. Krugman includes himself in that "majority" of economists who see excessive debt as the problem. Krugman includes himself among those who think the crisis was brought on by "too much debt".

Too much debt


So, assuming that Krugman sees excessive debt as the problem, let us evaluate his solutions.

His first option is to have the Federal Reserve increase the quantity of base money. Does this solve the problem? It could. It could reduce the debt-per-dollar ratio, which is exactly what needs to be done. But the method is indirect at best. Directly, it affects only prices, not debt.

Moreover, in practice, a large fall in debt-relative-to-base-money has induced only a small decline in debt-relative-to-M1-money, which is the crucial ratio.

His second option calls for a massive increase in government spending and -- presumably, though this also is out of focus -- a massive increase in the federal debt. But the problem, according to Krugman (sez I) is that there is too much debt already.

Indeed, yes, Krugman's words are "excessive private debt". The federal debt is not private. But option two increases debt. It does not reduce debt. And if the problem is excessive debt, the solution is to reduce debt.

Neither of Krugman's options reduces debt. Specifically, neither of Krugman's options reduce private-sector debt. Furthermore, if either of Krugman's options does work, the outcome will be renewed economic growth, doubtless accompanied by more private-sector debt growth. Yet excessive private-sector debt was the problem to begin with.
But as long as excessive private-sector debt remains an unresolved problem, there is no chance that Krugman's options can succeed.
Perhaps if Paul Krugman could focus on the problem -- if he could actually bring himself to say that he thinks excessive private debt played a key role in getting us into this economic mess, and a key role in preventing us from getting out -- perhaps then he would have a better handle on a solution.

A better handle on a solution


I would print money and use it to pay off debt. Destroy that money by destroying debt.

Evolution


In November of last year I came upon a comment at truthout that led back to this post by Chip Shirley:

11/17/10
Conservatives have no answer to this question!

They can't explain in their economic policy how America did most of the great things we have ever done (and paid for them) between 1940-1980 and the whole time our federal income tax on the most wealthy citizens was DOUBLE TO TRIPLE what it is today while our deficit and debt were nill compared to today. Conservatives have no answer to that question!

In comments on mine of 21 November I evaluated Chip's theme:

... in those postwar years when the economy was doing really well, taxes on the wealthy were very high by our standards. This shows that such taxes do not ruin a healthy economy.

On the other hand, I don't think it shows that high taxes on the wealthy will restore health to our economy...

As an afterthought I would add: In order to think that high taxes on the wealthy will restore health to our economy, you have to think that the federal debt and deficit are the cause of our economic troubles.

I do not agree that the federal debt and deficit are the cause of our economic troubles, and everything I do on this blog is dedicated to that proposition.

High taxes do not ruin a healthy economy. But this does not mean that re-instituting high taxes on the wealthy will restore economic health.


At Twenty-Cent Paradigms, Bill C writes:

Fairness is in the eye of the beholder, but the US economy actually grew faster when top marginal tax rates were higher. Here is the annual average growth in real GDP and the average annual top marginal tax rates for the US, by decade:

1951-60 - 3.42 - 91.2%
1961-70 - 4.11 - 78.4%
1971-80 - 3.14 - 70.0%
1981-90 - 3.21 - 44.5%
1991-2000 - 3.22 - 37.9%
2001-2006 - 2.51 - 36.2%

Accompanying the article is a nifty interactive graphic with the top 30 all-time richest Americans. Bill Gates is the one in the pink polo shirt...

It is a nifty graphic, and it shouldn't be missed.

But I liked Bill C's table showing real GDP growth by decade. And I thought the third column, the tax rate column, was an interesting addition to the table. But then, I'm slow to draw conclusions from such things.

As I suggested in a comment on Bill's post, I think it unwise to present the information that way. It looks like some sort of causal relation, as if high taxes cause improved economic growth, and I think that is completely ridiculous.

People will think there is a cause-and-effect relation between high taxes and a healthy economy.


It is one thing to say the economy grew faster when tax rates were higher. It is another thing entirely to say the economy grew faster because tax rates were higher. At Econospeak, in a comment on the post John Taylor on Pawlenty’s 5% Growth for a Decade Claim, Exl Blogger writes:

The problem is that you can't get high rates of growth without high marginal tax rates. Look at history. That's a simple fact. Sure, 5% growth would be nice, but it would take a much higher tax rate than would be politically acceptible.

"You can't get high rates of growth without high marginal tax rates."

So now the concept has evolved into raising tax rates to make the economy grow. The cause-and-effect relation is in full bloom. But it is wrong, just so wrong. And again, it is based on the flawed premise that balancing the federal budget will fix the economy.


Having said that, I will completely contradict myself and tell you how high taxes could be good for economic growth. But first, you have to give me control of your taxes. I will control the horizontal. I will control the vertical. I can roll the image, make it flutter. I can change the focus...

Suppose I gave you the choice, that you can keep the tax system you have now, or instead I will tax you only on the money you save and not on any money that you spend. So that if you don't save any money at all, your taxes are zero. And if you only save a dollar, your tax cannot be more than a dollar.

I don't know which tax you would choose. But I think a lot of people would go for option B: Only tax me on what I save.

Well, that's what the corporate tax is like.
Why? To stimulate growth. To get them to spend, and spend more.
Now, if I make the tax rate really really low, you (and corporations, too) might choose to save a few dollars even though you have to pay a few cents tax on that saving.

But if I make the tax rate really really high, pretty sure you will spend every last dollar, just to avoid the taxes.

So if wealthy people have their money tied up in corporations, and if you want them to spend it, then you should raise the tax rate really really high.

Evidence, you say? You want evidence? Not saying I buy the causal relation myself, but I'll give you evidence.

Bruce Bartlett is a hair on the tail that wagged the dog and gave us supply-side economics. Bartlett writes:

Unfortunately, there’s no evidence that the 2003 tax cut did anything to stimulate corporate investment. Indeed, according to the Federal Reserve, nonfinancial corporations have increased their holdings of liquid assets to $1.8 trillion from $1.2 trillion since 2003. Thus it’s implausible that a further reduction in the corporate rate, as Pawlenty and other Republicans favor, would do much to raise investment.

Since 2003, when taxes were cut on the money they don't spend, nonfinancial corporate savings increased by 50 percent. How much did your savings increase?

For what it's worth.

Wednesday, June 22, 2011

Long and thoughtful


Recommended reading: America's debt, the role of the State and the fight for survival by Sackerson at Broad Oak Blog.

From Michael Hudson at Gang8


The full post is here.

I want to quote the first paragraph... and highlight just the parts that I worked out for myself, independently, and agree with absolutely:

Financial crashes were well understood for a hundred years after they became a normal financial phenomenon in the mid-19th century. Much like the buildup of plaque deposits in human veins and arteries, an accumulation of debt gained momentum exponentially until the economy crashed, wiping out bad debts – along with savings on the other side of the balance sheet. Physical property remained intact, although much was transferred from debtors to creditors. But clearing away the debt overhead from the economy’s circulatory system freed it to resume its upswing. That was the positive role of crashes: They minimized the cost of debt service, bringing prices and income back in line with actual “real” costs of production. Debt claims were replaced by equity ownership. Housing prices were lower – and more affordable, being brought back in line with their actual rental value. Goods and services no longer had to incorporate the debt charges that the financial upswing had built into the system.
Not too shabby. All of the meat is highlighted. None of the human veins and histories.


Other important bits of the Hudson post:

The United States emerged from World War II relatively debt free. Downturns occurred, crashes wiped out debts and savings, but each recovery since 1945 has taken place with a higher debt overhead.

Debt accumulation is the problem. "Higher debt overhead" is Hudson's phrase. "Debt accumulation" is my phrase for the same thing. You can see it in my D.P.D. graphs.

Regarding "the post-2008 crash" Hudson writes:

Most unique is the crash’s aftermath. This time around the bad debts have not been wiped off the books. There have indeed been the usual bankruptcies – but the bad lenders and speculators are being saved from loss by the government intervening to issue Treasury bonds to pay them off out of future tax revenues or new money creation. The Obama Administration’s Wall Street managers have kept the debt overhead in place...

I think it had to be done. We have just so much debt. You couldn't let the bankruptcies happen. They would have been like a chain reaction, where each one sets off three more. Blink twice, and the whole financial edifice is in ruins.

To be sure, I don't care about the financial edifice. But its collapse would have brought down everything else with it. And that had to be prevented. So, to save the stuff I wanted them to save, they had to save the stuff they did save.

This is the stuff dark ages are made of.

They have kept the debt overhead in place. That is the reason the economy cannot recover. It is the reason I keep offering these oddball notions, like print money and use it to pay off debt. I don't know which methods are practical and which are not. But there can be no doubt that debt reduction is the one thing that must be done.


Nah. Don't read Hudson's post. Soon after the last excerpts above, Hudson gets all agenda-driven, and boring.

//

Related post: Whaddya mean, "It's not economics": "A policy of prevention of small forest fires led to less frequent, more severe large fires."

Tuesday, June 21, 2011

Point of Information


Double-checking FRED's "reserves" list for this morning's post, I noticed that there are two items listed as "Board of Governors Total Reserves" -- one of then adjusted for changes in reserve requirements, the other not adjusted.

What's the difference?


Oh, my...


FRED lists several number series for reserves. I wanted to look at total debt relative to total reserves for yesterday's 4 o'clock post. I ended up using required reserves, which I think was more relevant for that post. But I also looked at the "Board of Governors Total Reserves, Not Adjusted for Changes in Reserve Requirements." I looked at total credit market debt owed, relative to that:


The thing increases relentlessly for more than half a century. Then it drops almost overnight, and it ends up in 2010 right back where it was 50 years before.

One has to wonder if policy is based on anything more than trying to make the current numbers match some numbers from long ago.


Come to think of it, I have exactly that objective for the debt-per-dollar graph.

See also: FYGFD: Repetition

Monday, June 20, 2011

Clinton (thumbs down)


I hesitate to put "thumbs down" in the title. Tell you why after the quote.

From page 4 of It’s Still the Economy, Stupid by Bill Clinton, under the heading 12. CUT CORPORATE TAXES:

I’d be perfectly fine with lowering the corporate tax rates, simplifying the tax code, and saving some money on accountants, but broadening the tax base so that all of them pay a reasonable amount of tax on their profits... Lower the rates to be competitive, but reduce the loopholes that cause unfair disparities. We all need to contribute something to help meet our shared challenges and responsibilities, including solving the debt problem.

"...including solving the debt problem."

First of all, the heading is deceiving. Clinton wants to increase corporate taxes, not cut them. Now, I don't have a problem with that. But I do have a problem with hiding one's intent under a false heading.

Second, let's assume that raising corporate taxes will solve the problems that have arisen since we went over to the supply side. That doesn't mean it will solve the problems that arose in the 1970s, that drove us to the supply side.

Thumbs down.

Clinton (clarity)


From page 4 of It’s Still the Economy, Stupid by Bill Clinton:

The real thing that has killed us in the last 10 years is that too much of our dealmaking creativity has been devoted to expanding the financial sector in ways that don’t create new businesses and more jobs and to persuading people to take on excessive debt loads to make up for the fact that their incomes are stagnant.

The Ratio of Debt to Money

13 June 2011.

Next-Blog brings me to Jake's EconomPic, where the second post -- Federal Debt per Employee -- links to "Steve Keen's epic piece that changed my understanding of the economic collapse," Jake says. I'm reviewing the epic piece.

"This month’s Debtwatch," Keen writes,

is dedicated to analysing how these Cavaliers actually “make” money and debt—something they think they understand, but in reality, they don’t.

I don't know how he gets from that to 'the myth of the money multiplier', but he does. Let me quote a chunk of it, just because it is so irritating:

The conventional model: the “Money Multiplier”

Every macroeconomics textbook has an explanation of how credit money is created by the system of fractional banking that goes something like this:

Banks are required to retain a certain percentage of any deposit as a reserve, known as the “reserve requirement”; for simplicity, let’s say this fraction is 10%.
When customer Sue deposits say 100 newly printed government $10 notes at her bank, it is then obliged to hang on to ten of them—or $100—but it is allowed to lend out the rest.

The bank then lends $900 to its customer Fred, who then deposits it in his bank—which is now required to hang on to 9 of the bills—or $90—and can lend out the rest. It then lends $810 to its customer Kim.

Kim then deposits this $810 in her bank. It keeps $81 of the deposit, and lends the remaining $729 to its customer Kevin.

And on this iterative process goes.

Over time, a total of $10,000 in money is created—consisting of the original $1,000 injection of government money plus $9,000 in credit money—as well as $9,000 in total debts...

Keen follows that explanation with a spreadsheet where the sequence of lendings runs for 20 weeks (one new loan per week), generating a total of more than $8900 from an original deposit of $1000.

He then shows that the final total would come to $10000. But he neglects to say that it would take eternity for that to happen. Here's the picture after the first 20 relendings of that original thousand-dollar deposit:

Graph #1

It came out orange.

The first vertical bar is the original $1000 deposit. Each subsequent vertical bar is 90% of the previous bar, because 10% of the previous deposit is kept in reserve and 90% is lent to another customer and becomes a new deposit, of which 10% is kept in reserve and 90% is loaned out...

This reminds me of a bad joke my chemistry teacher told, many years ago. I don't understand why there is hunger in the world, he said. Give 'em a pound of butter and tell 'em to eat half of what's left every day. They'll always have butter.

My teacher wasn't making a joke, really. He was explaining the concept of always approaching a number yet never getting there. If you have something and you take 10% of it away, or 50% of it, you always have something left no matter how many times you take a bit away.

Graph #2

After 100 weeks the amount available for lending is three cents. After 116 weeks the amount available is so small that at two decimal places, it rounds off to zero. After 250 weeks, however, if we run the numbers out that far, the amount available for additional lending is still greater than zero. These are the fractions of fractions of pennies that gave Richard Prior the big paycheck in that old Superman movie.

As the new-loan amounts approach zero, the total amount of money created by this fractional-reserve lending process approaches (but never reaches) a maximum.

Suppose you draw a square on a piece of paper. Then you draw a line down the middle of it, and shade in one half. Then you draw a line down the middle of the unshaded portion, and shade in one half. Then you draw a line down the middle of the unshaded portion, and shade in one half...

Eventually, the square will be almost all shaded-in. But you could keep going forever, shading-in half of what's left undone, and never get done. However, the total amount of the shaded-in area would before long be almost equal to the total area of the square you started with.

What this means is the approximate total shaded-in area is known or can be determined. By exactly the same logic, the approximate total amount of money created by the fractional-reserve process is also a known amount. That total depends on the amount that must be kept in reserve. And there is a simple way to figure it out.

The textbooks always use a ten-percent reserve requirement. Ten percent can be written as a decimal, as 0.10, okay? Take one dollar, or just the number one, and divide it by 0.10 and it tells you the total amount of money that can be created by the fractional-reserve process, from one dollar deposited.

If the reserve requirement is 10%, $10 can be created. If the reserve requirement is 20%, $5 can be created. If the reserve requirement is 50%, $2 can be created.

If the reserve requirement is zero, there is no limit to how much money can be created from one dollar deposited. (But expect to get an error if you try to work that out with a calculator!)

The Billy Blog here has an explanation similar to Keen's:

The formula for the determination of the money supply is: M = m x MB. So if a $1 is newly deposited in a bank, the money supply will rise (be multiplied) by $10 (if the RRR = 0.10). The way this multiplier is alleged to work is explained as follows (assuming the bank is required to hold 10 per cent of all deposits as reserves):

• A person deposits say $100 in a bank.
• To make money, the bank then loans the remaining $90 to a customer.
• They spend the money and the recipient of the funds deposits it with their bank.
• That bank then lends 0.9 times $90 = $81 (keeping 0.10 in reserve as required).
• And so on until the loans become so small that they dissolve to zero …

Like Keen, Bill Mitchell shows a spreadsheet which runs through the first 20 steps of the process. Mitchell observes:

In this particular case, I have shown only 20 sequences. In fact, this example would resolve at around 94 iterations as you can see on the graphs where the succesive loans, then fractional deposits get smaller and smaller and eventually become zero.


Keen says the money multiplier is "completely inadequate as an explanation."

Wordy Bill says the money multiplier is "not even a slightly accurate depiction of the way banks operate in a modern monetary economy characterised by a fiat currency and a flexible exchange rate."

I say: So why then do these guys spend so much time going step by step by step by step through the process? Look, it's simple. Clear your calculator, hit the number 1, hit the 'divided-by' key, type in the reserve requirement, and hit the 'equal' key. That's it. That's how much money can be created from a dollar.

The question as to whether the money-multiplier process actually works (or not) has nothing to do with determining how much money can be created by fractional reserve lending. I think the "how much" question is raised as a smoke-screen. Something to distract and confuse the reader, so that when Keen and Mitchell tell you it doesn't work, you're glad to hear it, and glad to toss the concept aside.


Keen presents two "hypotheses" about money, that arise from the money multiplier model. One is that government money is created first, and credit money is created from it, but after the government money is created. Keen references a study showing that the opposite is true.

The other is that each new loan in the fractional-reserve process creates new money and new debt in equal amounts, so that at the end there should be exactly the same amount of money and debt... Except when we add in the money we started with, we end up with more money than debt:

The amount of money in the economy should exceed the amount of debt, with the difference representing the government’s initial creation of money.

"Therefore, Keen says, "the ratio of Debt to Money should be less than one..."

This is the first time I have seen anybody other than me talk about the ratio of debt to money, which I call "debt per dollar". So I'm kinda thrilled by this. More than 'kinda', because it's Keen.

But I've been looking at it for 30 years, and it never occurred to me that if the money-multiplier idea is correct, there should be more money than debt. Maybe Keen's right. I don't know. But let me show you why I've been looking at the thing for 30 years.

Back when I first looked at it, using numbers from the Historical Statistics, the history of the ratio of debt to money looked like this:

Graph #3

Starting with five and one-half dollars of debt for every circulating dollar of money, debt rose to over $7. A Depression ensued, but debt kept rising, reaching eight and one-half dollars for every circulating dollar of money. Then, from 1933 to 1947, debt fell, reaching a low of less than $4. Then it started rising again. By 1970 it was higher than it had been at any time during the Great Depression.

I didn't have to know why this happened to know that it was significant. I've been watching Debt-per-Dollar ever since. I figured policymakers would stop the increase of debt before it gave us another Great Depression. I was wrong.

Graph #4

But my graph only goes up to 2007, which is before the crisis. So it doesn't show what happened since. But FRED shows it:

Graph #5
The peak is far higher this time than it was in the 1930s.

The bigger they are, the harder they fall.


Oh. But to tie up a loose end, both Steve Keen and Bill Mitchell deny that the money multiplier is an accurate picture of what happens in the economy.

Could be they're right. When I look into it a little, it seems like they're right: Loans create deposits. If the bank doesn't have enough reserves to lend what it wants to lend, it lends anyway, and gets the reserves later.

But what happens if the bank *does* have enough reserves to lend what it wants to lend? Then the money multiplier works normally, right? The bank's not going to borrow reserves if it has the reserves it needs. Do Keen and Mitchell deny that? So I think their rejection of the money multiplier is a bit stronger than it should be.

Or again: If the banks always borrow the reserves they need in order to lend, then the ratio of debt to reserves should be more or less constant, it seems to me. Taking a guess what measure of reserves is relevant, I'll look at total credit market debt relative to "Required Reserves, not adjusted for changes in reserve requirements."
How required reserves can possibly be *not* adjusted for changes in requirements, I cannot fathom. But hey, I didn't make it up.

Graph #6

Not constant at all. Not even close. So maybe I picked the wrong data. But while we're looking at this graph, look at the 1980s when the ratio is about 200 dollars of debt for every dollar of required reserves. That figures to be an effective reserve requirement of one-half of one percent. And at the peak there, when there was $1200 of debt per dollar of required reserves... that's less than one-tenth of one percent in reserve.

Hopefully, I'm looking at the wrong data.

Sunday, June 19, 2011

The world in red and blue (3)


My Graph #3 from yesterday:
Graph #1: Domestic Financial & Gross Federal Debt, Billions
Red is Federal. Blue is Financial.

Looks like the red and blue lines run really close together for a really long time. Well... they could be pretty far apart and still look close, because the recent numbers are so very, very big. So I want to compare the red and blue lines with a ratio.

Graph #2: Federal Debt per dollar of Financial Debt

Graph #3: Financial Debt per dollar of Federal Debt

Oh. Just so you don't get the wrong impression, the red line on Graph #4 below is the same as the blue line on Graph #3 above:


After World War II, there was a lot more government debt. But not any more.

Saturday, June 18, 2011

The world in red and blue (2)


My graph from yesterday:

Graph #1: Domestic Financial & Gross Federal Debt, relative to GDP
Red is Federal. Blue is Financial.

I am fascinated by the parallel of the red and blue lines between 1980 and 1995 or so. I want to look at the difference between the red and blue lines. If I take the graph above, take the red line and subtract the blue line from it, it looks like the graph below:

Graph #2: Gross Federal less Domestic Financial Debt, relative to GDP
Well look at that! The golden-age curve is now a golden-age straight-line decline from 1950 all the way to the 1974 recession.

Then there is a possible sniff of decline from 1974 to 1980, but the line is really very flat from the mid-1970s to the mid-1990s. That is the time of parallel and near-parallel red and blue lines on Graph #1.

Then beginning in the mid-1990s with the balancing of the federal budget, our trend line drops to zero and drops rapidly to near 50 percentage points below zero -- meaning that the gross federal debt fell to about half the level of domestic financial debt. Or, to put it more in the context of what actually happened, domestic financial debt grew far, far faster than the gross federal debt:

Graph #3: Domestic Financial & Gross Federal Debt, Billions
Red is Federal. Blue is Financial.

Until the crisis, of course. The crisis changed everything.

But now I'm fascinated by the apparent long-running closeness of the red and blue lines.

Friday, June 17, 2011

The world in red and blue


This is the last graph from my "Homework" post of the 11th:
Domestic financial debt compared to the gross federal debt:

Graph #3

The blue line on Graph #3 is financial debt as a percent of GDP...
The red line is the Gross Federal Debt as a percent of GDP.

The vertical gray stripes are recessions. The graph shows a recession at 1970 and then one at 1974 (among others).

Economists say there was a "golden age" for our economy that lasted from 1947 to 1973. That golden age appears on this graph in the red line, starting at the left, sweeping downward rapidly, then less rapidly, then less again until the 1974 recession when the line goes flat. And that is when the golden age ended.

There were some troubles in the economy around 1970 -- there was stagflation, and we went off gold in 1971. And since the mid-1960s inflation was becoming a problem. These troubles occur during the slow decline of the red line.

Then with the 1974 recession the red line goes flat. It is the end of the golden age, the end of Keynesian economics, and the beginning of a time of "disarray".

With Ronald Reagan in 1980, everything changes. The red line rises, and runs parallel to the blue line for 15 years. And then in the 1990s we balance the federal budget. The red line turns downward, crossing the blue.

After 2000 or 2001 the budget goes into deficit again, and the red line rises -- not much for a few years, but then more quickly at the end. And at the end we see the red line shooting up and the blue line shooting down. That shooting is the crisis.

At right, after the red and blue lines stop, the white is the undiscovered country.

Thursday, June 16, 2011

I can't comment there, so I'll post here


At Philipji.com, the top post today is James K. Galbraith has not read Keynes. Philip is new to me -- thanks, Jazz -- and I'm just reading quick to get some impressions. But I had to stop when I read this:

Keynes did not ascribe any importance to banks. In his model, money consists entirely of currency, exactly as in the Ricardo that Galbraith excoriates.

Soon as I read that, something Maynard said popped into my head:

As a rule, I shall, as in my Treatise on Money, assume that money is co-extensive with bank deposits.

So Keynes *does* ascribe importance to banks, I think. Money does *not* consist "entirely of currency" for Keynes, but of bank deposits.

For the context of the Keynes quote I provide, see my May Day post.

Singin' a different tune?


Bruce Bartlett, former economic adviser in the White House, the Treasury Department and Congress, apparently the same guy who wrote "Starve the Beast", writes in the New York Times:

May 31, 2011, 6:00 am

Are Taxes in the U.S. High or Low?

By BRUCE BARTLETT

Historically, the term “tax rate” has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.

By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950...

...

Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25 percent from 35 percent. No evidence was offered for the Republican argument that cutting taxes for the well-to-do and big corporations would reduce unemployment; it was simply asserted as self-evident.

...

If taxes are low historically and in comparison with our global competitors, how are Republicans able to maintain that taxes are excessively high? They do so by ignoring the effective tax rate and concentrating solely on the statutory tax rate, which is often manipulated to make it appear that rates are much higher than they really are.

...

The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.

The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.

The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

Highlighting added

Well, ya never know. Maybe he's running for President.

Wednesday, June 15, 2011

No fate but what we make

LET ME PREFACE THIS BY SAYING THAT THE WAY I DO ECONOMICS IS TO JUST KEEP THINKING ABOUT THINGS UNTIL THEY MAKE SENSE TO ME.. IT HELPS THAT I AM PERFECTLY HAPPY TO POSTPONE REACHING CONCLUSIONS.. I FIGURE THE CONCLUSIONS ARE THERE, WAITING FOR ME.. MY OBJECTIVE IS TO UNDERSTAND LITTLE THINGS ALONG THE WAY.

THE REASON I BRING THIS UP IS THAT THIS POST DISCUSSES ''EQUILIBRIUM'' IN ECONOMICS.. I ALWAYS JUST FIGURED ''EQUILIBRIUM'' MEANT SOMETHING LIKE ''EVERYTHING BALANCES OUT'' AND I PAID IT NO MIND.. THEN ONE DAY I CAME ACROSS ZEN BABU'S MACRO CUBE.. THE POST PRESENTS A CUBE UPON WHICH ARE ARRANGED A BROAD COLLECTION OF ECONOMIC THEORIES, IN A REMARKABLE EFFORT TO ORGANIZE THEM.

THE THREE AXES OF ZEN BABU'S CUBE ARE MONETARY POLICY, FISCAL POLICY, AND EQUILIBRIUM ANALYSIS.. NOW FOR YEARS I HAVE CONSIDERED THAT MONETARY AND FISCAL ARE THE TWO TOOLS OF ECONOMIC POLICY.. SUDDENLY, THE NOTION OF EQUILIBRIUM BECAME ELEVATED IN IMPORTANCE IN MY MIND.. YET IT REMAINED ESSENTIALLY UNDEFINED.

SO I HAVE HAD EQUILIBRIUM IN THE BACK OF MY MIND FOR THE PAST YEAR AND A HALF OR SO, AND NOW (WITH THIS POST AND THE PREVIOUS TWO) THE TERM IS STARTING TO MAKE SENSE TO ME.. AND THAT'S WHY I HAVE TO WRITE THIS PREFACE.

WHAT I THINK ''EQUILIBRIUM'' IS MAY NOT BE WHAT ANYBODY ELSE THINKS IT IS, INCLUDING (OR ESPECIALLY) ECONOMISTS.. BUT I HAVE TO SAY IT, SO THAT I KNOW WHAT I'M STARTING TO THINK.

I'M THINKING, EQUILIBRIUM IS SMOOTH SAILING, STEADY-AS-SHE-GOES.. IN EQUILIBRIUM, IF THE ECONOMY'S NOT GROWING, IT'S STATIC.. IF GROWING, THERE ARE NO IMBALANCES -- NO INFLATION, NO DECLINING CAPACITY UTILIZATION, AND NO PERPETUALLY ACCUMULATING DEBT, FOR EXAMPLE.

''EQUILIBRIUM'' IS THE TREND ECONOMISTS USE TO PREDICT THE FUTURE.. THEY USE IT, IGNORING INFLATION, DECLINING CAPACITY UTILIZATION, AND PERPETUALLY ACCUMULATING DEBT.


After I finished writing yesterday's post, I came upon this from the conclusion of a Steve Keen post:

I doubt that Kuznets would have been surprised by the failure of equilibrium-oriented attempts to build dynamic multisectoral models of economic growth, since he argued long ago that dynamics had to be different to statics, and in particular that the fetish with equilibrium had to be abandoned:

According to the economists of the past and to most of their modern followers, static economics is a direct stepping stone to the dynamic system, and may be converted into the latter by the introduction of the general element of change… According to other economists, the body of economic theory must be cardinally rebuilt, if dynamic problems are to be discussed efficiently…

the static scheme in its entirety, in the essence of its approach, is neither a basis, nor a stepping stone towards a proper discussion of dynamic problems. Kuznets, S. (1930, pp. 422-428, 435-436; emphasis added)

Yet the static approach—masquerading as dynamics via word games such as using the moniker “Dynamic Stochastic General Equilibrium” to describe bastardized Ramsay-Solow equilibrium growth models—still dominate economics, even after the continuing disaster of the crisis of 2007...


A static economy may be seen in any simple picture of the economy that imagines producers and consumers, and sets the thing in motion but eliminates growth for the sake of simplicity, as in this flow diagram from Wikipedia (via Worthwhile Canadian).

If you take that picture and toss it into the air, you have "the static approach—masquerading as dynamics," as Keen put it. As the picture goes up into the air, the uptrend of it is growth.

Not a good economic model, you're saying? That's not the half of it. After a moment the picture stops rising, and starts falling to the ground.


These graphs, which yesterday I admitted were interesting, are from Mark Thoma:


On the left is what Thoma calls the "natural rate" model, and on the right, the "plucking" model. The blue line on both graphs represents "the ceiling/trend", Thoma says in his post. The red lines represent two versions of how we think actual growth fits the ceiling slash trend.

Why and how actual growth can rise above the ceiling, I cannot say. But I observe that the same relation exists between actual and potential output.

Thoma's graphs are repeated below, as an overlay using the ikedim hover.


Default Graph = "Plucking" ... Hover Graph = "Natural Rate"

By moving the mouse on and off this graph, you can see that the blue line or ceiling trend is essentially identical in the two graphs. The blue line is a reference line or benchmark against which actual growth may be compared. As Thoma writes:

Notice that the size of the downturn from the ceiling from a→b (due to the "pluck") is predictive of the size of the upturn from b→c that follows taking account of the slope of the trend... In a natural rate model, there is no reason to expect such a correlation.

(Isn't it interesting?)

The thing is, Thoma and others want to use the blue line (and whichever red line they like better) to make predictions about future economic growth. Again, the title of Thoma's post is "Will the Economy Return To the Old Normal?" And his opening statement is "There's been some pushback against the statement I made ... that the economy would *eventually* return to the trend rate of growth it has displayed since at least 1870." And Thoma says, "I don't pretend to have as good a forecasting staff sitting in my Harvard office as the CEA has."

It's all about predicting the future; that's what makes it interesting.

Doesn't matter. Thoma's blue line there, if it is more that simply conceptual, is a record of past performance. It shows the past. It does not show the future.

But economists like to think of that blue line as an equilibrium trend that exists apart from policy and politics. Like Thoma, economists want to put it into graphs and use it to talk about the future. As though the future and the past are equally certain.

If you throw the static picture up, it goes up. Then it falls. There is no straight-line trend. But Thoma's blue line never falls.


When I imagine making a model of the economy, I see myself using a spreadsheet. I label my columns for my important categories of aggregate numbers. And I plug some reasonable numbers into the first row or two of data.

Then for the remaining rows, the numbers have to be calculated from the numbers on the previous row or couple of rows, and from other numbers on the same row. That's it. Where we are now depends on where we were yesterday, and on what we're doing now. There is no trend. There is no perpetual "equilibrium" extending into the future.

I think my concept of a model of a dynamic economy is more like Keen's than Thoma's. In mine, there is no trend. The new conditions simply emerge. And yes, looking back on it, as long as we're not hit by an asteroid, and unless policy destroys it, the emerging series of outcomes could look like a trend. But that does not mean that tomorrow will be bigger and better than yesterday. It only means we must choose wisely, today.