Friday, July 31, 2015


I got this notice along with my Blogger stats this morning:

The European Union requires me to do something? I have responsibilities here?


I am not a citizen or resident of the european union or any of its member states. They have no right to tell me any fucking thing. If they want to tell you that you cannot come to this blog, well, if you live there you might have to listen to them. You should do something about that. Leave the union. It's easy.


I clicked the "learn more" link and got this from the Blogger Help:

The European Union requires me to do something??? (Sorry, I got carried away.)

To be honest, I don't have any information about cookies used on my blog. I know I like Double Stuf Oreos. I know I like writing about the economy. Oh, and I know I do NOT like political reorganizations based on empty economic promises, such as the european union.

I didn't see any cookie warnings on my blog. So I took the URL

and changed the .com to .fr:

and then to

Oops, I cut off the address bar on that one. Well, you get the idea.

Tell you what, I don't like so much the thought that my information might be shared by Google. But that's not really where the problem lies. Companies like Google are allowed and encouraged to become as big as they can get, by governments like mine and yours. That's the real problem, isn't it.
"... it is not the source but the limitation of power which prevents it from being arbitrary."
- Friedrich A. Hayek, The Road to Serfdom

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

Fuck the European Union
Support Sovereignty of Nations

Where was I? Oh yeah, minding my own business.

I went back to the Blogger Help and read this part:

I can do that. I went looking first for anything I might mess up by making changes. I clicked DESIGN on the Blogger bar, then EDIT HTML -- then closed without changing or saving anything.

I went to the Blogger Dashboard, clicked SETTINGS for the blog, then clicked OTHER. Under BLOG TOOLS I clicked EXPORT BLOG and downloaded a backup to my hard drive. Takes a few moments. I folded a blanket and brushed my teeth. When I came back it was done.

I closed the download window, went back to the blog, clicked DESIGN again and EDIT HTML.

The lines are all numbered. Line number 31 had a little black triangle after the line number, and the next line number shown was 655. A bunch of lines were hidden. So I clicked the black triangle. The triangle disappeared, and the missing lines showed up.

I searched for the HEAD tag -- just a LESS THAN symbol followed immediately by the word HEAD. Found it right away, 1 of 1 match. On line 13. (I need to know that.)

Then I searched for cookieOptions to see if I had to change something or just add something. Didn't even find cookie. So I have to add something from scratch.

Okay. The Blogger help says I have to add a SCRIPT tag in the HEAD tag. By "in the HEAD tag" they mean after the line with "<HEAD" in it and before the line with "</HEAD" in it. For my blog that's line 792.

I didn't find that line when I used the Firefox search line at the bottom of my browser. I had to use the Blogger search field that opens in the upper-right of the Edit Window when I press CTRL F. I will just add my SCRIPT tag just after line 13 and before what's on line 14 now. That should work okay.

Okay. I thought about it for a moment and realized I don't know what to put in the SCRIPT tag I have to add. No problem. I Googled it :)

Stuffaboutcode has something on it already. I copied their example to a textfile, put Google's original message back in there, and added a little something of my own.

Then I saved and closed the thing. And it works:


Borrowing and debt are related, obviously, but they are not the same.

At Reddit, catapultation described the economic process that drives inequality. He showed a graph of the Federal Funds Rate coming down since 1981 and said:

Lower interest rates means increased debt. Increased debt means increased money in the system. That newly introduced money all trickles up, therefore you get the wealthy with huge income increases. It's not rocket science. It also shows why the idea of "increasing demand" is laughable. All you're going to do is increase the 1%'s income by even more. That new money will still just trickle up to them.

I rather liked that explanation. But somebody challenged him on it, making a good (but unrelated) point about interest rates. Catapultation reiterated:

What's misleading about it? Lower interest rates result in more borrowing, yes?

Unfortunately, he made his point two different ways:

Lower interest rates means increased debt.

Lower interest rates result in more borrowing

Those two statements are not equivalent. I agree, yeah, falling interest rates since 1981 were intended to boost the economy, and most of the new money got scooted off into savings (financial wealth). Plus all that debt is also financial wealth and a source of financial income, draining even more cash away from the "nonfinancial" (productive) sector.

Falling interest rates are one reason we did a lot of borrowing. But we have a lot of debt because there are policy incentives to borrow, and policy incentives to be in debt, and there are no policy incentives to pay off debt as fast as we accumulate it.

I said as much. Catapultation quoted me back

because there are policy incentives to borrow, and policy incentives to be in debt

and replied: low interest rates?

Policy incentives to borrow, like low interest rates; and policy incentives to be in debt, like the home mortgage interest deduction and the business interest deduction.

Moreover, the whole of standard policy -- encouraging spending to stimulate growth, but at the same time restricting the quantity of money to fight inflation -- works like a pump, pumping up the use of credit.

Thursday, July 30, 2015

Structure and focus

Bryan Garner's LawProse Lesson #214:

Lawyers’ biggest failing as writers.

What’s the most pervasive flaw among legal writers? It’s the tendency to begin writing before fully understanding the message to be conveyed. Lawyers often don’t think through what they want to say until they’re already writing—and they therefore meander, backtrack, and even restart. Unless they spend a great deal of time rewriting and cutting, they end up submitting something verbose, rambling, repetitious, incohesive, and unpersuasive.

The mature writer first figures out the major propositions and then writes in support of them. The resulting product has both an overt structure and a strong focus.

This method of writing isn’t inborn; it’s learned. With some patience and humility, anyone can learn to do it.

Sometimes I use writing to explore ideas. That counts as "writing before fully understanding the message to be conveyed." Probably unfocused and unpersuasive. But sometimes that's okay.

Actually, for writing about the economy, I count is as a plus if ideas are presented for evaluation rather than crammed down your throat as the hard truth.

It's different for lawyers, I think. Oh, and there are some arguments I make, where I am as focused and convincing as possible. When I'm sure of something and when it's important.

But even the things we're sure of -- especially the things we're sure of -- occasionally need to be reconsidered, thought through again, seen in the light of a changed economy. A changing economy.

Wednesday, July 29, 2015

The red line

"Why did rich-world deficits start exploding around 1980?" - Noah Smith

Start with the last graph from last time:

Graph #1: Federal Deficits (blue) with Inflation Removed (red) Base Year=1958
Annual change in Federal debt as a measure of deficits, divided by the GDP deflator to remove inflation, then multiplied by 17 (instead of 100) to show dollars from 1958 (instead of from 2009). That's the red line. The blue line is annual change in Federal debt, not adjusted for anything.

Get rid of the blue line:

Graph #2: Inflation-Adjusted Federal Deficits (Base Year 1958)
Okay. The red line here looks similar to the blue line on Graph #1. The three high peaks are lower, of course. Well, all the numbers are lower. All the numbers after 1958 anyway. The three high peaks on the red line, the peaks come at about 75 on the vertical axis, and about 90, and a little under 100.

Those peaks have the same values on Graph #1 of course, but they're easier to see on Graph #2. It's also easier to see what Noah called an "explosion" of deficits on this red line -- if you're looking for it.

Me, I'm not looking for it. I cannot imagine Maynard Keynes or Adam Smith seriously discussing an "explosion" of deficits. I learned what economics is, from them. I learned what economics is not, from Milton Friedman.

It is pretty obvious that the big jump on the graph occurs at the 1982 recession. And it looks to me like the second biggest jump occurs at the 1974-75 recession. Third, probably the 1991 recession. So I have to think that the big jumps in the deficit are recession-related, not 1980s-related.

Does it matter? Well, yeah. If the big jumps are recession-related it means they are Keynesian policy. If they are 1980s-related it means they are Supply-Side policy.

I think we can see supply-side policy on the graph, in the tapering off of deficit peaks. The strong upward trend established by the deficit increases of the 1970 recession, the 1974-75 recession, and the 1982 recession, the uptrend has broken by the time of the 1991 recession. That last peak is lower than the trend suggests it should be.

And after the 1991 recession, the deficits actually fall. Clearly, this is supply-side policy at work. Supply-side, or Reaganomics, or whatever you want to call it. Furthermore, the effects of this policy are delayed -- as we should expect. Policy is not instantaneous: Policy establishes trends.

Tuesday, July 28, 2015

"Inflation pushes new borrowing up"

That's what I said yesterday: Inflation pushes new borrowing up.

Because things cost more than before. So if we don't change our habits, if we just keep doing the same portion of our spending on credit, then the dollar amount of that portion will rise with inflation. No mystery there.

If "we" happen to be the Federal government, our borrowing is similarly affected by inflation: If we just keep doing the same portion of our spending on credit, then the dollar amount of that portion will rise with inflation.

Federal government or no, there may be other reasons for our new borrowing to rise or fall. Reasons other than inflation. For example, we may choose not to keep doing the same portion of our spending on credit. I'm trying to separate out the inflation from these other reasons.


I want to start with FRED's FYGFD, Gross Federal Debt. Graph #1 shows the annual change in Gross Federal Debt, billions of dollars. I'm using it as a measure of the annual deficit of the Federal government:

Graph #1: Year-to-Year Change in the Federal Debt, a Measure of Deficits.
You can look at this graph a couple different ways. You can say the numbers really start going up fast right around 1980. And that's true. But if we chop off everything since 1980 and look at the years before that ...

Graph #2: Wow, the numbers really start going up fast around 1975!
... we might want to say "Wow, the numbers really start going up fast around 1975!"

But then, if we chop off everything after 1970 and look at what's left, we could say "Wow! the numbers really start going up fast around 1966!"

Graph #3: Wow! the numbers really start going up fast around 1966!

And if you look again at that graph, you might happen to notice that the numbers were trending upward right from the start.

All these important facts get squished down to nothing when the graph includes the more recent numbers that are, indeed, much larger nominal values.

Now let's go back again to the graph that goes all the way to year 2000. Graph #1. Let's keep that blue line as is, and put the same debt data on there again -- this time in red. But this time we'll take that red line, annual change in the Federal debt, and take the inflation out of it.

I divided the annual deficits by the GDP Deflator. It's the same exact calculation you would do to convert nominal GDP to inflation-adjusted GDP. Except of course the data we start with is deficits, not GDP. Here is the result:

Graph #4: Annual Deficits (blue) from Graph #1, and the Same Deficits with Inflation Stripped Away (red)
With inflation stripped away, the deficits are higher. Doesn't that strike you as odd? It always bothers me. Inflation makes prices higher, so when When you take inflation out of the numbers, the numbers should be lower.

The reason the numbers are higher is that we're looking at years before the "base year". The base year is 2009. (It's not even on the graph.)

Here's the thing: In the years after 2009, the dollar was worth less because of inflation, so the red line is lower than the blue. But in the years before 2009, the dollar was worth more than a dollar in 2009. So the red line is higher. Simple, right?

I hate it.

The years after the base year are okay. The numbers with inflation in them are higher than numbers without. That makes sense. But in the years before the base year, numbers with inflation in them are lower.

Look: I can explain it and convince myself that it is right. That's not the problem.The problem is, every time there is a graph that compares real values and nominal values, I need the explanation to go with it. Explanations make people's eyes glaze over, and they lose interest. I lose interest.

The confusion arises from the base year. The base year is too recent, too close to the present day. The base year needs to be back at the start of the data. Then we would be looking at the years since the base year, and we would see inflation pushing the numbers up. And there would be none of this confusion about inflation making prices lower in the years before the base year.

At the start, prices were X. Since that time, prices went up. Now, that's simple. You don't have to have an explanation to make it make sense. So I want to push the base year back to an early date. That's just the opposite of what economists do, of course.

Suppose I take Graph #4, the real-and-nominal comparison graph, and change the base year from 2009 to 1958. Why 1958? Because when I first started looking at economic data in the 1970s, the base year was 1958. So I'll keep it there.

I'll just keep it there. When you take the inflation out of a data series, you divide that series by the deflator series. And then you multiply by 100 to bring all the numbers up and make the base year right. That's because the base year is always given the value 100. (You can see it on Graph #4, the text in the left-hand border, we are dividing by Index 2009=100. They set up the deflator so that 2009 has the value 100.

Other years have other values. In particular, the year 1958 has the value 17:

Graph #5: Values of the GDP Deflator

It happens to be a nice round number, but that doesn't matter.

So what I'm gonna do is, instead of multiplying by 100 to bring the adjusted numbers to the 2009 level, I'm going to multiply by 17 to bring those numbers up to the 1958 level. We're still looking at the most recent deflator values, but I'm changing the base year from 2009 to 1958:

Graph #6: Federal Deficits (blue) with Inflation Removed (red) Base Year=1958

Compare the top blue borders of Graph #6 and Graph #4. They are the same except for the first number on the second line. On Graph #6 I am multiplying by 17, to bring the red line values up to the level of 1958 dollars. On Graph #4 I am multiplying by 100 to bring the red line values up to the level of 2009 dollars.

On Graph #4, multiplying by 100 makes the red line higher than the blue line. That's what happens when you're looking at years before the base year.

On Graph #6, it is as if you are standing in 1958 and looking at two different futures. The red line shows Federal deficits with no inflation. The blue line shows Federal deficits with the inflation that we actually ended up with.

There are two areas on Graph #6 that I want you to look at. The area between the black line (the zero level) and the red line represents increases in Federal deficits for reasons other than inflation. Policy decisions and such.

The area between the blue line and the red line represents increases in Federal deficits that were due entirely to inflation.

So now I can draw a conclusion or two: Yes, inflation pushes new borrowing up. Between the mid-1960s and the early 1980s, inflation pushed the blue line up noticeably. Before the mid-1960s, the red and blue lines are indistinguishable.

Oddly however, the big increase occurs after the early 1980s.

The rate of inflation fell a lot in the early 1980s. But the dollar was worth much less after we had the inflation, than it was before. What was a $100 deficit in 1965 grew to $300 twenty years later, solely because of inflation. That's based on the GDP Deflator (which records less inflation than the CPI, for example).

Oh, sure, even with inflation stripped out of them, the deficits increased. The red line shows it. At the time of the 1982 recession the red line makes a big jump -- or, it would look like a big jump if the blue line wasn't there for comparison.

But if you take a big jump in Federal deficits, and multiply it times three to show the effect of inflation, well now you are seeing what looks like an "explosion" of deficits.


Yesterday I said:

Inflation pushes new borrowing up, but does nothing to existing debt, so it creates the illusion that deficits are exploding.

Maybe you can see it, on that last graph.

Monday, July 27, 2015

The effects of inflation

Following up on Saturday's efforts, here is Noah's opening:
The U.S. federal deficit, which had been decreasing since the end of WW2, began to trend upward beginning around 1980:

It irks me that an economist (Noah Smith) would look at a graph of debt relative to GDP, and call it "deficits". It is exasperating to see him ignore the effect of inflation and watch him misinterpret the graph because of it. And it is difficult to get people to see what I want to show them.

My Saturday post is just a little bit complicated. Just a little, tiny bit more complicated than Noah's. He talks deficits and shows us debt: He shows the accumulation of those deficits that are his topic. Then he takes that accumulation, divides it by GDP, and starts making claims about deficits.

I complicate Noah's efforts by pointing out that he fails to consider the effects of inflation:

1. Inflation pushes GDP higher, but does nothing to existing debt, so it reduces the ratio of debt-to-GDP.
2. Inflation pushes new borrowing up, but does nothing to existing debt, so it creates the illusion that deficits are exploding.

Noah ignores both these effects, and so misinterprets his graph.

Saturday, July 25, 2015

Is 1+1 the cause of 2? Of course not.

Is it a serious comment? A joke? Some weird spam? Sometimes I just can't tell.

A few months back, Noah Smith gave us Why did rich-world deficits start exploding around 1980? I gave it right back to him with They didn't:

... deficits were trending up since the 1950s. Deficits were trending up quickly since 1970. If deficits were growing quickly since 1970, why does Noah's debt graph not show increase until ten years later?

Because inflation skews the numbers, that's why.

In his post Noah offers "a theory" to explain the "explosion" of deficits that "started" around 1980. Noah has "the VCG mechanism" and "the AGV mechanism" and "a big caveat" and more. It's a big, complex explanation of something that never actually happened.

"It's really striking," Noah says, "that deficits started trending upward all over the rich world around the same time." For crying out loud, Noah: The Great Inflation was coming to an end all over the rich world at that time:

Graph #1: All Over the Rich World, Inflation Came Down in the Early 1980s
Source: Index Mundi
NOTE: Noah says deficits started trending upward in the early 1980s. But he is looking at debt relative to GDP, and he ignores the GDP component. In fact, a good part of his uptrend is due to the slower GDP growth resulting from the decline of inflation -- a decline that was seen "all over the rich world". Thus is Noah's "striking" fact explained.

High inflation erodes debt. Low inflation doesn't.

The end of the Great Inflation reduced the growth of nominal GDP. So at that time, the debt-to-GDP ratio stopped being pushed down by inflation. The ratio went up since the early 1980s because inflation was less since the early 1980s. Not because deficits suddenly exploded. The explosion of deficits (if you have to call it that) came in the 1960s and '70s, during the Great Inflation. See for yourself:

Graph #2: U.S. Deficits Increased till the 1960s, Increased Faster till the 1980s, then Declined.
There is no "explosion" of deficits beginning in the 1980s.

The explosion of deficits ended in the 1980s.

There was a recent comment on Noah's post, just the other day, from Suresh Nanjagurd. "You are making this way too difficult," Suresh told Noah. "Deficits are caused when spending > income. Pretty simple, but then I'm just a humble chemist and not an economist."

Deficits are caused when spending > income.

He is joking, I hope.


The FRED graph:
The Excel file with data from the FRED graph, my Graph #2, and some VBA code.

Friday, July 24, 2015


Mark Cuban:

I paid for school with a chain letter and I would wake up in the morning, go to my mailbox and there would be checks there. And that's how I paid for my junior year.

Is a chain letter "productive" if it pays for college?

Thursday, July 23, 2015

"Whatever I do, this is what comes out."

Source: SatinKnots

It's morose, my wife says. Wallander, the BBC television series with Kenneth Branagh as detective Kurt Wallander. (Via Netflix.)

I love the intensity of it. And maybe I'm happy to see someone more morose than I...

Near the end of the first episode, Kurt Wallander visits his father Povel, an artist. The father described his work to the son. I thought it was just wonderful, what he said, like a metaphor for something, for my writing on this blog. I went back and watched it again, and wrote down what Povel said. Then I found the quote online, too.

When you were a boy you used to ask me about my work, the painting. "Why are they always the same, Dad? Why don't you do something different?"

I could never explain. You see, each morning when I start, I think I'll do something else: this morning I'll paint a seascape, this morning I'll do a still life, maybe an abstract, just a splash of paint, see where it takes me.

And then I start. And every time I paint the same thing -- the landscape. Whatever I do, this is what comes out.

Tuesday, July 21, 2015

"Sir William Petty is known as the founder of modern statistical economics"

From Ivo Mosley's Bank Robbery: Economists and the Banking System (from Medieval times to Adam Smith) at PositiveMoney:

Petty recognised that banking increased the money supply and he recommended it for that reason ...

Petty’s recommendation of banks included no assessment of how the new money, its creation and allocation, might advantage some and disadvantage others. His preoccupation was: will the new money be put to productive use? (if so, good); or will it be frittered away in idle consumption? (if so, bad). This way of thinking has come to dominate economic thinking.

The notion of "good" debt versus "bad" debt has come to dominate economic thinking, Mosley says, and that's not a good thing.

I agree. Mostly, it is the excessiveness of debt that makes debt bad.

Monday, July 20, 2015

Suggested by the post that was suggested by Ian Tarr

At the FRED Blog, Wage stickiness. I was interested because I found the link just at the same time I was writing my recent Sticky Notes post. (Ordinarily, "sticky" doesn't do much for me.)

In the FRED Blog post (which was "suggested by Ian Tarr" -- hence the title above) we find this:

The graph above shows two time series from the Bureau of Labor Statistics: unemployment (red line) and private industry wages and salaries (green line) from the employment cost index. Note that even when unemployment rapidly doubled, the green wages line continued to rise (albeit at a reduced rate). In other words, as the economy contracted and employers sought to cut costs, they almost exclusively opted to lay off workers rather than negotiate for lower wages.

As the economy contracted, they say, employers opted to lay off workers rather than negotiate for lower wages.

Well, maybe. But tweak that green line to show the employment cost index per worker and it tells a more interesting story:

Graph #2: Unemployment (red) and Employment Cost per Worker (green)
Cost-per-worker increases rapidly before and during the increase of unemployment. As soon as the "cost per worker" increase slows down, unemployment begins to fall. In other words, the dollars that employers plan to spend on employment buy more employment when the price of employment is rising slowly, than when that price is rising quickly.

Note that increasing unemployment (red) precedes the onset of recession. Also, accelerating per-worker employment costs precede increasing unemployment. I wonder if this relation holds for a longer time period...

Graph #3:Unemployment and Cost-per-Worker, Longer Term
On second thought, acceleration of per-worker employment costs and increasing unemployment seem to begin concurrently.

Data for the green line only go back as far as 2001, so it is hard to get a good feel for what that data says. But the green line increases more rapidly while unemployment is rising, and more slowly when unemployment is falling. When employment costs increase most slowly, unemployment falls most rapidly.

Not really unexpected, but it is nice to see the expected on a graph.


The FRED post anticipates a possible objection to their analysis:
Of course, it’s possible that inflation is cutting real wages even if nominal wages aren’t changing. However, when we adjust the wages data for inflation in the graph below (blue line), the pattern remains similar. Although real wages posted a slight decline several years after the recession hit, it pales in comparison to six years of elevated unemployment.

Okay. But what happens when we adjust employment cost per worker for inflation? The pattern becomes similar to that of unemployment:

Graph #5: Inflation-Adjusted Employment-Cost-Index per Capita (green) and Unemployment


So what is the meaning of all this?

Sunday, July 19, 2015

Employment Hours in Finance

Employment hours in finance as a percent of total:

Graph #1: Employment in Financial Activities as Percent of Total
Click for Graph Source Page
From new data at FRED.

Saturday, July 18, 2015

Sticky notes

Scott Sumner:

The entire AS/AD model makes no sense without some form of wage or price stickiness. We generally assume wages and prices are sticky in terms of the medium of account.

Roger Farmer:

Leijonhufvud pointed out that the assumption that The General Theory is about sticky prices is central to this orthodox interpretation of Keynesian economics, but it is not a central argument of the text of The General Theory.

Friday, July 17, 2015

Hoodwinked by Indexing

Tweaked a little, this is a re-post from 14 September 2014.

Back in February 2014 I came across this graph at The Current Moment:

Graph #1
Also this one, which they called "Doug Henwood's Graph":

Graph #2
Both graphs show productivity. The one graph compares productivity to compensation; the other compares it to wages. Wages and compensation both lag productivity. But compensation lags less than wages, because compensation (as the source site explains) is wages plus benefits.

I find it useful when people provide background information like that. But that's not what caught my eye. It's the difference in separation points that caught my eye: On Graph #1 the "wages" line breaks away from the productivity line suddenly, just around 1974. On Graph #2 the "compensation" line breaks away from the productivity line gradually, but much earlier -- possibly as early as 1960.

This difference fascinates me. For if the failure to keep up with productivity is a problem, these graphs show it is a problem that became obvious around 1974, but began much earlier.

If it is a problem we want to solve, then we must be clear on the causes. Clearly, those causes were operative before the 1970s. If we only look in the 1970s for the causes, we will likely find false causes.

I did notice that the first graph is indexed "relative to 1970" while the second is "rebased to 1960". In other words, by design, the lines on Graph #1 meet at 1970 and the lines on Graph #2 meet at 1960. The indexing (or the choice of a "base year") influences the location of the break-away point on the graphs and changes the impression we get from the graphs. I think we are hoodwinked by the indexing.

On Graph #1 in particular, between 1955 and 1975, it's pretty clear that the orange line is going up faster than the red line. If you could take the whole red line and just move it down a little bit, you might make the two lines meet at just one point. That point might be 1956. If you looked at that version of the graph, you would see real wages falling behind productivity since 1956.

I don't know which is more disturbing -- the 1956 start, or the false impression created by indexing.

The second graph, Henwood's graph, seems to show compensation falling behind productivity since about 1960. But since it doesn't show earlier data, it leaves the door open. 1956 could still be the more accurate date.

I followed the Current Moment link back to Doug Henwood's and liked what I found there. I emailed Henwood:
Hi. I recently came upon an old page (2001) at Left Business Observer

I'd like to use your "productivity and compensation" graph on my blog. The page says I should get permission first, so I'm asking.

All the similar graphs that I've seen focus on the separation beginning mid-1970s. Your graph shows the separation beginning much earlier. It was eye-opening for me.

"Heavens," Henwood replied. "I have much more recent versions of that - let me find one for you tomorrow." He did, too:

Graph #3
"Here's the latest," he wrote. "Haven't updated it since November, but it's through the third quarter of last year. 'Compensation' includes fringe benefits - since much of that is health insurance, much of the real value is eaten up by medical inflation. Direct pay is pay without fringe benefits. All are inflation-adjusted and indexed so the base year = 100."

The three lines on this graph combine the three different series shown on the first two graphs above. In addition, on Graph #3 the series are indexed to 1964. And -- don't you know it! -- the break-away point this time looks to be 1964 at the latest.

A little over a week ago -- it seems much longer -- I was reading a discussion at Reddit. The topic was "What might actually be holding back workers’ wages".

Somebody blamed Reaganomics. One guy, I'll call him Joe, rejected that idea: "Your idiotic blaming of Reaganomics would be dependent on Reaganomics traveling back in time a decade and starting the trend in the mid 70's," Joe said.

I love it. That's one of my themes: You can't just blame the guy you don't like, especially if the things you're blaming him for happened before his turn at bat. Reminds me of a Mike Kimel quote that Jazzbumpa has in his sidebar:

#15 Time moves in a single direction.

No doubt.

Anyway, Joe provided a link to a "productivity and real wages" graph -- the same graph from The Current Moment that I have as Graph #1 above. Small world.

I complimented Joe on the graph. But then I went off-topic, so much that Joe had to disagree with me. I pointed out that the graph is indexed "relative to 1970". I said: If the graph was indexed relative to 1956 we would see the slowing of wages begin in the mid-1950s, then see the gap widen more quickly since the mid-1970s.

Joe replied: "That is not how the graph would change changing the index year at all. Here is one indexed to 1947. There is still a trend starting at 1970 where wages and output are decoupled."

He showed this graph:

Graph #4:
Note that the blue line is above the red in the mid-1950s,
but has fallen below the red by the early 1970s!

Yes, the red and blue lines are comparable to those in the graphs above. Yes, the base year is 1947 this time. And yes, the red and blue run much closer before 1974 than after. However, the trend of hourly output increases faster than wages since the mid-1950s on Joe's graph. The failure of wages to keep up with productivity begins in the mid-1950s.

This graph has a third line -- the purple line -- that shows a ratio of the red and blue. Nice! I was going to show the ratio.

The purple line shows how productivity ("hourly output") is changing relative to wages. If you look at the purple line you can see the trend changes from downward to upward around 1956 or 1957. That means productivity started gaining on wages around 1956 or 1957. I think Joe was hoodwinked by the indexing on Graph #1.

Wages started falling behind productivity around 1956 or 1957. So if you want to blame Reaganomics... or if you want to blame Jimmy Carter or Gerald Ford or Richard Nixon or Lyndon Johnson -- or John F. Kennedy for that matter -- to do it you will have to make time go in the wrong direction. You'll be breaking Rule #15.

The failure of wages and compensation to keep up with productivity is a problem that began in the 1950s.

Yesterday, at The State of Working America I found this graph from the Economic Policy Institute:

It is similar to the graphs above. Since the 1950s, the dark blue "productivity" line goes up faster than the light blue "compensation" line. But the indexing has the two lines tangled together early, so you don't notice compensation falling behind until the mid-1970s.

This graph is important because it comes with this data. (Excel XLSX, 37KB) So of course I took the file, uploaded it to Zoho, and customized it for on-line use.

The on-line spreadsheet let you "take the whole red line and just move it down a little bit". All you do is pick the year that you want to see the lines meet, and enter that four-digit year into the yellow cell on the spreadsheet. The graph changes so that the lines meet at the year you specify.

I'm deleting the on-line Zoho spreadsheet from this post because it makes the screen jump. Instead of showing you the blog page from the top, it jumps straight to the spreadsheet. They fix that bug every time I tell 'em about it, but the bug keeps coming back. I give up.

The spreadsheet is available in the original (Sept 2014) post. Here's what it looks like:

Thursday, July 16, 2015

The Origins of Specie

Dunno why these things fascinate me. Maybe it's because I've spent so many years working. At work, any little inane detail is interesting if it's a distraction from the work.

Hey, I do my best to strengthen what I call "discipline". That means I try to focus on the work despite all the inane distractions. But it doesn't always happen. I often find myself (and I suppose you often find me) focused on the inane.

(Well, that makes at least one of us laugh.)

Anyway, I used the phrase "chew the fat" the other day. Then (a few days later) I thought I ought to look it up, to make sure I used it right.

Wikipedia gives me this:

Chew the fat

Although some sources attribute the phrase "chew the fat" to sailors, who during a period of resting and conversing, or while working together, would chew on salt-hardened fat, there are no reliable historical recordings of this practice. It has even been suggested that the phrase is derived from a practice by North American Indians or Inuit of chewing animal hides during their spare time, and even of British farmers chewing on smoked pork, but again, there remains to be no evidence supporting these claims, and would require accepting a great deal of uncertainty in connecting the phrase from nautical origins to its modern metaphorical use.

There are also claims that the phrase is synonymous with the action of chewing fat, or simply an allusion to the movement of the mouth during chewing. Noting that fried fat is appealing in taste, it was regarded as a treat that someone could chew on for as long as possible to gain the most out of it.
According to the Oxford English Dictionary, "Chew the fat" first appeared in 1885 in a book by J Brunlees Patterson called Life in the Ranks of the British Army in India. He implied it was a kind of general grumbling and bending of the ears of junior officers to stave off boredom, a typical part of army life. Patterson also uses "chew the rag" in the same sentence he used "chew the fat", but it is not the oldest occurrence. Prior to the adoption of metallic cartridges, most ammunition was composed of powder and a ball wrapped in paper or cloth soaked in animal fat, which was bitten open during musket drill. Soldiers were known to chew on these ends to pass the time and reduce nerves, and in some cases to stave off cravings for chewing tobacco. Though long-since replaced by 1885, the idea of biting or chewing on fat-soaked rag ends may well have entered military parlance in this fashion prior to Patterson's recording.

Yup, I used it right.

It's odd, though: We're talking about a phrase that is common today (and apparently of fairly recent origin) but nobody really knows where it came from. That's the main thing I got from the excerpt.

What I think? Probably all of those origins noted by Wikipedia, all of them contributed to making the phrase "chew the fat" part of the language. All of them. But none are relevant to what the phrase means today.

Now here's the thing. Here's why I quoted Wikipedia and told you what I thought of the quote: People sometimes talk about "what money is". And in order to define what money is, they go back to the "origin" of money. David Graeber maybe. Many people. And they draw conclusions from these stories.

But the origin of money is from a time way, way before "chew the fat". And we don't even know the origin of "chew the fat". So how can we possibly know about the origin of money in such fine detail and with such fine confidence? I don't think we can.

And even if we did know all the details about the origin of money, none would be relevant to "what money is" today.

Wednesday, July 15, 2015

"The bigger the existing accumulation of debt, the larger must be any new credit use before it provides a boost to the economy."

Interest costs relative to GDP for the Federal government and the whole U.S. economy:

Graph #1: Federal (blue) and Everybody's (red) Interest Cost as a Percent of GDP

I extended the trend of the red line back so you can see what low looks like.

The vertical line of black dots show the year 1992. That's the year Ross Perot wrote:
Today we have a $4-trillion debt. By 2000 we could well have an $8-trillion debt. Today all the income taxes collected from the states west of the Mississippi go to pay the interest on that debt. By 2000 we will have to add to that all the income tax revenues from Ohio, Pennsylvania, Virginia, North Carolina, New York, and six other states just to pay the interest on the $8 trillion.

If you live in one of those states, take a look at the IRS payroll deduction that reduces your next week's take-home pay. Your money is going just to pay interest on this debt, which in 1993 will amount to $214 billion. During the first 152 years of our nation's existence, we spent less than $214 billion to operate the entire government of the United States! ...

And let me repeat: that $214 billion we'll pay next year is interest only. Interest doesn't buy a thing...
From United We Stand by Ross Perot

Perot was talking about the Federal debt, the blue line in this picture. The low line.

The interest on private debt doesn't buy anything, either. The red line.

Tuesday, July 14, 2015

Shame on me

Shame on me. The other day I wrote:

When the reliance on credit is relatively low (as in the U.S. after World War Two, or in the BRICS today) credit costs are also low. So it doesn't take much "extra" credit to offset those costs. But when the reliance on credit is relatively high (as in the U.S. since the 1970s) credit costs are also high. So then it takes a lot of credit use just to offset accumulated credit costs.

I said that, but there's not a graph to be seen in that post from the 12th. I want to fix that.

When I said credit use was low early and high lately in the U.S., I had in mind my debt-per-dollar graph:

Graph #1: Dollars of Total (Public and Private) Debt, for Each Dollar of Spending-Money

But you could as easily see the same thing in a long-term picture of debt relative to GDP:

Graph #2:Dollars of Total (Public and Private) Debt, for Each Dollar of GDP

That's not the shameful part. The shameful part is that I said stuff about the BRICS and I don't really know. I have an inkling, but I don't know.

This is the inkling: The BRICS are the BRICS because they are successful "developing" nations. Maybe the word "developing" no longer even applies to them, I don't know. But they've been doing well, or we wouldn't call them the BRICS and we certainly wouldn't be paying attention to them as we are.

And if they've been doing well, I expect they've been accumulating a lot of debt. Because that's the way we get growth. It's the thing economists know about, using credit to get growth. For some reason they always think about that part -- the "use credit for growth" part -- and they never think about the consequences of sticking to that policy. Economists never think about the "what happens when debt accumulates to an excessive level" part. That's how the economy gets into trouble.

But the BRICS, they're not in trouble yet. So that tells me they don't really have a lot of debt, not yet. I know their debt must have been increasing, because they've been doing well -- and I figure they use the same "use credit for growth" rule as everybody else, to do well. So their debt must be high, relative to what it was say 20 years ago. But it evidently hasn't reached its limit yet, for they are still doing well. So their debt cannot be as high as ours. Theirs is maybe like ours was in the 1990s, the Clinton years, the Goldilocks years. This is my inkling.

Oh, by the way, Graph #2 is from an old post titled Debt-To-GDP Chart "Wrong," US Debt Levels Fine at Business Insider.

"Debt levels are fine". That's what I'm talking about. Debt levels are *not* fine. Is it any wonder we cannot solve the economic problem? We refuse even to look at the problem! Not "we". "They". They refuse to look at the problem. Me? I'm there. Try looking into that place where you dare not look, you'll find me there staring back at you.

By "the reliance on credit" I mean how much credit we have in use. This is something that can be measured. The amount of credit we have in use is what we call "debt". No no, not the Federal debt: That's only how much credit the Federal government has in use. It ignores the rest of our debt.

It is at about this point that many people say, "Oh, well it's the Federal debt that is the problem. Our debt isn't a problem." And that's so cute. No single raindrop believes it is to blame for the flood. I know. It wouldn't matter, if they were doing what I'm doing here -- if they were stopping to check and see whether they are right or not. But they don't have to stop and check. They already have the answer they want. And that's all that matters, apparently.

Wow, I'm getting off-topic.

So, the BRICS. How much debt do they have?

From Swarajya:

Graph #3: Government Debt of the BRICS

But that's just government debt. Doesn't count private debt, which is a cost to the private sector and thus a hindrance to growth.

What's that? Did you say Private debt also creates income to the private sector -- is that what you said? Well, yeah, it's true. Trouble is, it's financial income. And financial income tends to stay in the financial sector. It's not spent back into the productive sector, so it undermines growth. That's why excessive debt is a problem.

Yeah, I know: Debt is not just a liability. It is also an asset. It is still a problem, even so. I didn't forget. I didn't forget debt is an asset. But just for the sake of comparison, the U.S. Federal debt is up around 100% of GDP. The numbers on Graph #3 range from 13% to 67% for the BRICS, on average probably less than 50% -- half the U.S. number. The BRICS number has room to go up.


At FT, David Mann points out that China's debt-to-GDP number grew in five years from 155% of GDP to "a relatively high 251 per cent of GDP", then stabilized in mid-2014. So:
1. This is not government debt; Graph #3 shows China's government debt is 22.4% of GDP. So I'm saying David Mann's numbers are for "total" debt, comparable to the U.S. number (350%) shown on Graph #2.
2. China's total debt increased dramatically for a five-year period. Since economists and policymakers rely on the "use credit for growth" model, the dramatic increase in debt means there must also have been a period of dramatic growth. You know there was.
3. If the debt limit is somewhere around 350%, and China is down around 250%, China's total debt could grow for another five years at the same rapid rate as the last five years. That's just a comparison of numbers, not a prediction. Still, China's total debt ratio is low, compared to ours. And they are a young and strong economy, and we are not. But they don't need to keep growing at that rate; their economy is already bigger than ours.


So maybe China is today where the U.S. was at the end of the 1990s: optimistic, and with lots of room yet for the expansion of debt. Compared to where China was in  Nixon's day, China today has a lot of debt. But compared to where the U.S. was at peak debt, China isn't even close.


One more item: Russia. At 21st Century Wire, Moody’s Downgrades Russia’s Debt to ‘JUNK’ Status Just as BRICS Bank is Ratified:
Yesterday we reported on the huge news of Russia’s government ratifying the BRICS Development Bank and suggested that the West would seek to respond in some way. That response emerged just hours later.

Moody’s, the same ratings agency that failed to see the 07/08 crisis coming by rating toxic assets as AAA, has put Russia’s debt into the ‘Junk‘ zone. The agency cites an ‘expected’ continuing depression in Russia, suggesting a ‘decline in confidence’ in the country means growth will not be possible.

Moody’s attempt to paint Russian debt as ‘Junk’ is yet another obvious propaganda stunt aimed at continuing the current demonization campaign against the country. Anybody who would trust the ratings of an agency that framed toxic assets as ‘AAA’ rated should have both their character, and intentions, questioned.

This is not the first incident where Moody’s has weaponized, geopolitically speaking, its dubious rating system to advance US foreign policy interests. 21WIRE reported back in June 2013, when Hong Kong authorities would not honor U.S. requests to arrest and hand over the fugitive Edward Snowden, only to discover that Moody’s had downgraded 9 major Hong Kong banks the following day.


Tell ya what: With Russian government debt at a low 13.41% of GDP, it is easy to buy the 21WIRE story.

Monday, July 13, 2015

It's a mindset

1. NDB is the New Development Bank, set up by five BRICS nations: Brazil, Russia, India, China, and South Africa.
2. KAMATH is President of the New Development Bank.

Okay, once again, third in a row from the BRICS Bank post in the Hindustan Times, the one I won't link to:
Asked whether the NDB would consider lending to non-member countries, Kamath said: "We will primarily lend to member countries. In due course, we will look at opening membership, in the next few months."

Specifically asked whether NDB could consider helping Greece which is in financial crisis, Kamath said: "I have no mandate to help any non-member... Beyond BRICS, I have no mandate."
I think that's exactly right. It would be very nice if the New Development Bank were to step in and help Greece out, no strings. But it's kind of a wet dream.

Kamath was asked to comment on a view that the BRICS bank has been set up to undermine the Dollar as it will lend in local currencies.

"I will put it like this. In developing countries, particularly BRICS, there are pools of capital which can be tapped and lent. Local currency financing is what we will look at in addition to hard currency finance. We will look at all pools of capital in addition to hard currency," he said.

He went on to add that local currency credit will protect the BRICS countries from currency fluctuations and volatility and "it is critical that we do it".

Again, exactly right. The New Development Bank is going to do things that develop the economies of the member states nations states. That's what the bank was set up to do, and that is its mandate.

It's not complicated. It would be very nice if the bank did some other things that need to be done. And the bank would probably be willing to do such things, if those things were mandated. But since those things are only "very nice" they're not going to get done.

Now as for undermining the Dollar: Notice that Kamath responded to that by talking about things that are part of his mandate.

You may think -- and I may think -- that the mandated things are, yes, going to undermine the U.S. dollar. And you may think, as I do, that this is a very serious problem for the United States. However, Kamath is correct.

Kamath is focused on the mandate he was given. He is going to do things to help member countries, even if those things undermine the U.S. dollar. He is not doing those things because they undermine the U.S. dollar.

He is doing things to help develop the BRICS. If those things happen to undermine the U.S. dollar, that's a shame -- but so it goes.

The lesson here is extremely simple and should be obvious: If the United States is concerned about the U.S. dollar, it is up to the United States to figure out what's wrong with U.S. economic policy, and to replace existing policy with something better. It is up to the U.S. to make the U.S. economy so strong and so appealing that other nations will choose *not* to do things that reflect badly on the United States, *even though* those things might be in their own self-interest.

It's a mindset.

Sunday, July 12, 2015

"Credit is what we are looking at"

From the same BRICS bank to lend in local currency by April article that I didn't link yesterday:
[New Development Bank (NDB) President KV Kamath] said the NDB, with a capital of $100 billion, will look at various instruments of credit to the member countries -- Brazil, Russia, India, China and South Africa - which require huge resources for development.

"Basically, credit is what we are looking at. Various instruments of credit that we are looking at," said Kamath ...

Credit is also what I look at on this blog -- but you knew that!

I don't like to make predictions because I'm always wrong. But I can't see any outcome other than success for the BRICS bank. Yeah they want to expand credit, and yeah excessive reliance on credit is a problem. But here's the thing: We are the ones with excessive credit, not BRICS. That's why we can't get good growth. The BRICS and them, they don't have excessive debt. Not yet. That's what President Kamath and NDB see as the problem they can fix. They want to fix that problem, because what's excessive debt to a debtor is an abundance of assets to a creditor, and a source of income for banks.


We get growth by expanding the use of credit. That's not the only way to get growth, but it's the only method we use. (I think we want a good alternative, like greater reliance on government-issue coupled with reduced incentives to rely on bank-issue. But that's not the topic today.)

We get growth by expanding the use of credit. But credit has costs -- costs that expand along with the reliance on credit. When the reliance on credit is relatively low (as in the U.S. after World War Two, or in the BRICS today) credit costs are also low. So it doesn't take much "extra" credit to offset those costs. But when the reliance on credit is relatively high (as in the U.S. since the 1970s) credit costs are also high. So then it takes a lot of credit use, just to offset accumulated credit costs. This means that the next new use of credit will have to be large before it begins to have a positive effect on growth.

The bigger the existing accumulation of debt, the larger must be any new credit use before it provides a boost to the economy. This is the reason we get downtrends in the marginal productivity of debt.

In the United States, the existing accumulation of public and private debt was so large, at the time of the crisis, that the massive, emergency-level deficits of 2009-2012 produced hardly any boost to growth. Sure, those deficits prevented a big decline. But they didn't give us growth.

And either way you look at it -- decline prevention, or the failure to grow -- what you see confirms the analysis that an excessive accumulation of debt hinders growth.

Saturday, July 11, 2015

Interesting times

From the Hindustan Times...

I'll provide the URL for purposes of documentation. But the site opened a pop-up window on my machine and I don't like that, so I'm not formatting it as a link and I'm not saying you should go there.

From the article:

BRICS bank to lend in local currency by April: KV Kamath

The New Development Bank (NDB), set up by five BRICS nations including India, will lend in local currency by April 2016 and member countries will be the focus of credit facility, its chief KV Kamath said on Friday.

Kamath said a decision to open membership for other countries will be taken in the next few months by the bank's board of governors.

What was the old board game called? Risk. That's it, yeah.

Source: Wikipedia

Looks like BRICS bankers are doing the same as the EU has been doing, the same as we all like to do, and the same as Ben Franklin and Alexander Hamilton and them did back in the day: playing a game of global domination. Only these bankers don't call it global domination. They call it opening membership.

Reminds me of the EU in the 1990s. Everything you read and everything you heard about it in the media back then was the promise of a better economy. Again, here, with the BRICS bank: All they need do is open membership, and it will be like flies to honey.

And when the promise of a better economy fails to pan out for some, well, that's just their own fault. Just like poor people in America. And we all hop on these bandwagons and toast the toast and cheer the cheer. We're social animals, not smart ones.

It's a curse, you know -- "May you live in interesting times."

Friday, July 10, 2015

"data that will assist in understanding how a vehicle's systems performed"

From the Owner's Manual for my new car. Page 20:

Event Data Recorders

This vehicle is equipped with an event data recorder (EDR). The main purpose of an EDR is to record, in certain crash or near crash-like situations ... data that will assist in understanding how a vehicle's systems performed. The EDR is designed to record data related to vehicle dynamics and safety systems for a short period of time, typically 30 seconds or less. The EDR in this vehicle is designed to record such data as:

  •  How various systems in your vehicle were operating;
  •  Whether or not the driver and passenger safety belts were buckled/fastened;
  •  How far (if at all) the driver was depressing the accelerator and/or brake pedal; and
  •  How fast the vehicle was traveling.

These data can help provide a better understanding of the circumstances in which crashes and injuries occur. NOTE: EDR data are recorded by your vehicle only if a non-trivial crash situation occurs; no data are recorded by the EDR under normal driving conditions and no personal data (e.g., name, gender, age, and crash location) are recorded. However, other parties, such as law enforcement, could combine the EDR data with the type of personally identifying data routinely acquired during a crash investigation.

To read data recorded by an EDR, special equipment is required, and access to the vehicle or the EDR is needed. In addition to the vehicle manufacturer, other parties, such as law enforcement, that have the special equipment, can read the information if they have access to the vehicle or the EDR.

The data belongs to the vehicle owner and may not be accessed by anyone else except as legally required or with the permission of the vehicle owner.
-- (c) 2012 Honda Motor Co. Ltd. All Rights Reserved.

Tuesday, July 7, 2015

Two kinds

Went out and bought a new car yesterday. I couldn't sleep at all last night.

The wife slept like a baby.

Sunday, July 5, 2015

Maybe it's me

Roger Farmer is one of those people I find interesting until they exceed my capacity to understand. So I was interested in the title of his Behavioural Economics is Rational After All -- interested enough to read the whole thing, though I don't think I understood any of it. Sometimes you just keep looking for that one sentence that will make sense.

When I got to the end, Farmer said maybe we need "a radical change in the way we define equilibrium". I was interested again. Farmer followed up by saying

As I have done here.

Well, that's an invitation if ever there was one!

Farmer's link brought me to Amazon's "look inside" his book Expectations, Employment and Prices. I got to page five:
Copyrighted Material

In his 1966 book, Axel Leijonhufvud made the distinction between Keynesian economics and the economics of Keynes. The neoclassical synthesis is the interpretation of The General theory that was introduced by Samuelson (1955) in the third edition of his undergraduate textbook. According to this view, the economy is Keynesian in the short run, when prices have not yet adjusted. It is classical in the long run, after price adjustments have run their course. Leijonhufvud pointed out that the assumption that The General Theory is about sticky prices is central to this orthodox interpretation of Keynesian economics, but it is not a central argument of the text of The General Theory.

In one of those books I thumbed through once, long ago, and cannot identify -- though I can still picture the relevant text on the lower third of the right-hand page, beneath a graph in whatever book it was -- it was pointed out that Keynes did not propose to run deficits forever; but rather, to run deficits as a way to escape the Great Depression and then return to the standard practice of budget-balancing.

So, yeah, the distinction between Keynesian economics and the economics of Keynes, yeah. But that's not why I'm quoting Roger Farmer's paragraph.


It's interesting, the little history there, that it was Samuelson who came up with the synthesis. I hope I'm not phrasing that too strongly. Farmer makes it sound like Samuelson invented the neoclassical synthesis. Huh.

But that's not why I'm quoting Roger Farmer's paragraph.


It's this last bit:

Leijonhufvud pointed out that the assumption that The General Theory is about sticky prices is central to this orthodox interpretation of Keynesian economics, but it is not a central argument of the text of The General Theory.

Okay. I can accept that sticky prices are "not a central argument of the text". I didn't get "sticky prices" from reading Keynes. I didn't get a lot of things, granted, but for sure I didn't get sticky prices from The General Theory.

What I did get was the Chapter One thing:
I HAVE called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix general. The object of such a title is to contrast the character of my arguments and conclusions with those of the classical theory of the subject ... I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium.

If we ask what particular data Keynes was thinking of when he referred to "the possible positions of equilibrium", I think it is pretty clear he was thinking about the level of employment. There are many possible equilibrium levels of employment, but only one full employment level.

The full employment level is the upper limit; clearly, then, it is a "limiting point" as Keynes indicated.

Keynes also pointed out that the classical theory is "applicable to a special case only and not to the general case". The General Theory, by contrast, applies in all of these cases: It applies at all of these possible positions of equilibrium, including the special case of full-employment equilibrium. The General Theory, in other words, is "general".

Contrast that with Farmer's Leijonhufvud's Samuelson, who seems to say the general theory does not apply in the long run, when the classical theory applies.

I'm pretty sure it's a misinterpretation of the term general and a misinterpretation of Keynes to say the general theory does not apply at full employment.

I don't know the source of this misinterpretation. Maybe it's Farmer. Maybe it's Leijonhufvud. Maybe it's me. But if it is Samuelson, then it reflects badly on the neoclassical synthesis. For it would mean that the neoclassical synthesis is based on a misinterpretation of Keynes.

Saturday, July 4, 2015

Ergo, Dick

NGDP targeting? My question is always, so how do we make sure we get more RGDP and less inflation? Old (2011) Beckworth answers the question:

The best rule would force the Fed to try to stabilize total current-dollar spending or nominal GDP around some targeted growth path. For example, it could target a 5 percent yearly growth rate in nominal GDP. That target would, on historical patterns, result on average in 3 percent real economic growth and 2 percent inflation each year.

... on historical patterns ...

There ya go. That's how it has worked in the past, so that's how we can expect it to work in the future.

Oh, there is a word for that...

Friday, July 3, 2015

Chewing the fat

Lunchtime. Chewing the fat. My buddy is complaining about the way management treats people. "They don't give you credit for anything," he says. I know what he means. We like to think we're valuable. The boss likes to think we could be easily replaced. It's like that everywhere, I think. They don't give you credit for anything.

I know what he means. But my mind captures the phrase and turns it. If they start giving us recognition -- "credit" -- then pretty soon we'll be expecting more money -- another kind of credit.

My mind skips along the surface of that word and I suddenly realize I don't have any trouble equating the words "money" and "credit". I do some work for you, you give me some money... I do some work for you, you "credit my account". Something like that.


That book Walden II that I read back in college... fiction about commune life. They didn't use "money" but they got "credits" for working. That's ridiculous. If you got paid for doing work, the stuff they paid you was money. If you can earn it, and if you can spend it, it is money. "Medium of exchange," remember?


I say things like this:

Essentially our economy did not change, except that money was suppressed and credit-use was encouraged and we found ourselves using less money and more credit.

I distinguish money from credit.

That drives some people crazy, people who say money and credit are the same. Their ability to understand what I'm saying seems to shut down completely at that point.

That's because we have different focus. Foci. Those other people, they want me to know that money came from somewhere. It was issued by the government, I think they're saying, and it is a government obligation, and every time I spend a dollar something happens at the central bank.

I don't know why they dwell on that crap.

When I use the word "credit" I do it to distinguish money I have to pay interest on, from money I don't have to pay interest on.

If I earn a dollar, receive it as a gift or transfer payment, or pick it up off the sidewalk, that's a dollar I don't have to pay interest on. If I borrow a dollar, I have to pay interest on it. My focus is the cost difference.