As much as is necessary, to hit the NGDP target." -- Nick Rowe
|Total Assets of the Federal Reserve, almost Five Times what they were before the Crisis. So far.|
|Start with the debt problem, three views of it,
and the most important thing. Here's a longer look at the debt problem.
Here's a short one on economic policy, some surprising trends, and a few unusual policy recommendations.
How'd we get into this mess? Read Policy Venn and Policies of the Venn Overlap.
Still with me? Read A Matter of Life and Death. And for an overview, download my 12-page PDF
|Total Assets of the Federal Reserve, almost Five Times what they were before the Crisis. So far.|
A a year or so back I highlighted David Beckworth’s great post on Helicopter Drops... I’ve been pinging ever since to see a response to that post from Market Monetarist opinion-leader Scott Sumner... I won’t rehash it all here but rather point you to Nick Rowe’s wonderfully successful effort to bring it all to conclusion, synthesizing Market Monetarist and New Keynesian thinking into support for a policy proposal that I think Post-Keynesians and MMTers would also jump on with gusto...
Fiscal policy geared toward large government spending programs is likely to be rife with corruption, inefficient government planning, future distortionary taxes, and a ratcheting up of government intervention in the economy. So I will pass on this type of fiscal policy. Fiscal policy, however, that largely avoids these problems and directly addresses the real issue behind the aggregated demand shortfall--an excess demand for safe, money-like assets--I will endorse. And that form of fiscal policy is a helicopter drop, a government program that gives money directly to households.
How much money should the central bank print and buy things with? As much as is necessary, to hit the NGDP target. And if it runs out of other things to buy, like government bonds, or commercial bonds, or......, then it should buy newly-produced things, if necessary. And if that means it is buying too much, and getting too big, then raise the NGDP target and the implied inflation rate and the implied tax on holding currency.
... If the central bank runs out of things to buy and needs to buy new bridges to hit its NGDP target, and if the government doesn't want the central bank owning bridges, the government should buy those bridges financed by issuing bonds, and let the central bank buy those bonds.
No. If you have to say the central bank should buy "newly-produced things, if necessary" then I have to say you misunderstand the problem.
A good joke or a mystery novel has a long windup to the final punchline. Don’t write papers like that — put the punchline right up front and then slowly explain the joke.
a peculiar doctrine came to be accepted, the so-called “neoclassical synthesis.” It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief. The idea was always suspect…
High school graduates who work for companies with over 1,000 employees earn 15 percent more than similarly educated workers who are employed by smaller firms. Workers with at least a little college education see a bigger pay boost and earn 25 percent more when employed by big companies.
The researchers find that not only do big companies pay higher wages, but big stores pay higher wages. High school graduates working at retail establishments with over 500 workers earn 26 percent more than similarly educated workers at smaller shops. Those with at least some college education, again, earn an even larger premium — 36 percent more at big stores than small ones.
...thanks be to God, I did not find myself in a condition which obliged me to make a merchandise of science for the improvement of my fortune.From Descartes: Selections edited by Ralph M. Eaton. The Modern Student's Library, Philosophy Series. Charles Scribner's Sons, New York, 1927. Page 8.
Smith was not the first nor the only 18th-century, political economist. He wrote just before what we call the ‘Industrial Revolution’. His focus was on history, not the future (he did not make predictions for the future; he tried to understand the past as a guide to the present).
One of the first of the considerations that occurred to me was that there is very often less perfection in works composed of several portions, and carried out by the hands of various masters, than in those on which one individual alone has worked.
They can follow the most complicated plans, and build any model they are asked to build. But they struggle to come with an idea of their own; to decide what they want to build. Nothing in their training has encouraged them to fill their minds with ideas, nor taught them to distinguish the awesome from the not-so-awesome.
In her testimony to Congress this week, Ms. Yellen said that “significant slack remains in the labor markets” and noted that wages are rising very slowly, all of which points to an economy which has not yet fully recovered from the Great Recession and still needs the sustenance of low interest rates.
Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.
Several historical examples show that financial crises generate large increases in private and public debt that take many years and sometimes drastic measures to resolve.
|Graph #1: Federal Debt (vertical scale) versus Federal Deficit (horizontal scale) 2001-2013|
|Graph #2: Federal Debt (vertical scale) versus Federal Deficit (horizontal scale) 1970-2013|
|Graph #3: Federal Debt (horizontal) versus Non-Federal Debt (vertical) 1949-2013|
|Graph #4: Federal (horizontal) v NonFederal (vertical) Debt, Similar Scaling|
What's that you said? They wouldn't do that? You mean, they would never say we always want debt to grow a little faster than the quantity of money? Is that what you think?
|Graph #1: Dollars of Debt per Dollar of Base Money|
I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.
|"I am unable to reply to any email from constituents outside of the district"|
I am unable to reply to any email from constituents outside of the district.
|"I am only able to accept messages from residents of the 5th District."|
|Graph #1: Debt (blue) and Money (green) compared to GDP (red)|
|Graph #2: Base Money (green), the same as on Graph #1|
If search models aren’t the right way to think about unemployment, what is the right way? The simple answer is that unemployment is primarily a problem of macroeconomics not of labor markets. If aggregate demand is far below the productive capacity of the economy, workers will be unemployed and capital will be idle.
As soon as you begin to think about employment in terms of an input of labor to a production process, you've taken a wrong turn. We should not try to give supply-based explanations of unemployment, i.e. to show how the allocation of some stock of productive resources by some decision makers could generate unemployment. Unemployment is strictly a phenomenon of aggregate demand...
Unemployment rises when planned money expenditure falls for a given expected money income. Unemployment falls when planned money expenditure rises for a given expected money income. Conditions of production have no (direct) effect one way or the other.
So when we see people unemployed, we should never ask, why does the production of society’s desired outputs no longer require their labor input? That is a nonsense question that will lead nowhere but confusion. Instead we should ask, why has there been a fall in planned expenditure?
It's quite possible that, for some (many) businesses, law-breaking has a positive expected value: the expected benefits of fraud or phone-hacking exceed the expected costs. A profit-maximizing company should therefore undertake them. One way for it to do so is for managers to turn a blind eye so they can maintain plausible deniability, and ensure that if the wrongdoing is exposed that there's no smoking gun to connect them to the crime.
Unlike the steadily growing economic environment prior to 1980; the post 1980 economy has experienced by a steady decline. Therefore, a statement that the economy has had an average growth of X% since 1980 is grossly misleading. The trend of the growth is far more important, and telling, than the average growth rate over time.
... when you say "average" it suggests up-and-down variation, but it also implies stability in the value. If intermediate consumption is trending upward as a share of gross output, it is deceptive to speak of its average value.
From 1950-1980 nominal GDP grew at an annualized rate of 7.55%. This was accomplished with a total credit market debt to GDP ratio of less 150%. The CRITICAL factor to note is that economic growth was trending higher during this span going from roughly 5% to a peak of nearly 15%. There was a couple of reasons for this...
The economy currently requires $2.75 of debt to create $1 of real (inflation adjusted) economic growth.
That would be an amazing headline chart, except for the fact that it is a nominal GDP growth graph that peaks at the height of the 70s inflationary period, thus rendering it completely deceptive.
I love graphs and I approached the linked article with great anticipation. But WOW was I disappointed!
The "The Decline of Economic Prosperity" graph displays the effects of the Great Inflation, and considers it great growth. The article doesn't even mention inflation in relation to that graph. The article depends on the reader's ignorance to make its argument.
It's depressing, really. The charts really are extremely well done, they even have nice, nonstandard coloring. Someone clearly went to a lot of effort, but they're all complete nonsense.
|Graph #4: Rates of Growth of inflating (blue) GDP and inflation-adjusted (red) GDP|
|HS70 V 1-12||1||1959-1966||Historical Statistics (Bicentennial Ed.)|
|SA74 Table 775||1||1967-1968||Statistical Abstract (1974)|
|SA76 Table 823||1||1969-1971||Statistical Abstract (1976)|
|SA78 Table 915||1||1972-1974||Statistical Abstract (1978)|
|SA85 Table 868||1||1975-1979||Statistical Abstract (1985)|
|SA89 Table 846||1||1980-1984||Statistical Abstract (1989)|
|SA92 Table 827||1||1985-1987||Statistical Abstract (1992)|
|SA2000 Table 855||1||1988-1994||Statistical Abstract (2000)|
|SA0405 Table 716||1||1995-1999||Statistical Abstract (2004-05)|
|SA09 Table 722||1||2000-2003||Statistical Abstract (2009)|
|12s0744||1||2004-2008||Statistical Abstract (2012)|
|Graph #1: Gross Domestic Spending as a Percent of Gross Domestic Product|
|Graph #2:Total Business Deductions Peak in 1982 as a Share of Gross Income|
|Graph #3: Business Profits hit bottom in 1982, Trending Upward Thereafter|
That should come as no surprise.
In the US economy, total intermediate consumption represents about 45% of Gross Output.That's about right, for the blue line, since 1997 or so. More like 42% before that. And it looks like a trend of increase (for the blue line) and decrease (for the red).