Monday, May 30, 2016


At Reddit a title grabs my attention: This is what a Harvard economics professor thinks should be top of the G7 agenda.

The Harvard professor is Martin Feldstein. He wrote the article. Everything he says is either irrelevant or wrong.

No, I cannot so easily dismiss the article. On the topic "the unsustainable increase in the major developed countries’ national debt", Feldstein writes:
Raising marginal tax rates is both politically unpopular and economically damaging. In the US, there is scope to raise revenue without increasing tax rates, by limiting so-called tax expenditures – the forms of spending that are built into the tax rules rather than appropriated annually by Congress.

For example, an American who buys an electric car receives a $7,000 tax reduction. Larger tax expenditures in the US include the deduction for mortgage interest and the exclusion from taxable income of employer-paid health-insurance premiums.

Although eliminating any of these major tax expenditures might be politically impossible, limiting the amount by which a taxpayer could reduce his or her tax liability by using these provisions could raise substantial revenue. So I do my best to persuade my Republican friends in Congress that reducing the revenue loss from tax expenditures is really a way to cut government spending even though the deficit reduction appears on the revenue side of the budget.

Wait a minute. Who is this guy? Wikerpedia says

Martin Stuart "Marty" Feldstein (born November 25, 1939) is an American economist. He is currently the George F. Baker Professor of Economics at Harvard University, and the president emeritus of the National Bureau of Economic Research (NBER). He served as President and Chief Executive Officer of the NBER from 1978 through 2008. From 1982 to 1984, Feldstein served as chairman of the Council of Economic Advisers and as chief economic advisor to President Ronald Reagan (where his deficit hawk views clashed with Reagan administration large military expenditure policies).

Deficit hawk and Reagan advisor. So when he says "my Republican friends" it is not sarcasm. But he wants to raise taxes and call it a spending cut. I love the irony.

Everything Feldstein says is either irrelevant, wrong, or humorous by irony.


According to the Wikipedia page, Martin Feldstein was so focused on the deficit in the Reagan years that he even opposed Reagan's spending on the military. That is serious tunnel vision. So, Feldstein can't see the big picture.

Now he wants to increase taxes to reduce the deficit. He wants it so bad he's willing to pretend a tax increase is a spending cut. That's really the only option left, given the corner that Feldstein's Republican friends have painted themselves into.


Most people have a opinion on the Federal debt. Many, like "Tunnel-Vision" Feldstein, say it's a huge problem -- it's the problem. Some say it's no problem at all. Then there are wafflers like Krugman, who says yeah it's a problem but we should fix it later.

Me, I have a different thought. I think private debt is the problem. I think private debt has us so bogged down and messed up that we can't see straight.

I say we cannot know whether the Federal debt is a problem. There is no way to evaluate it, because private debt has things in such a sorry state.

Everybody has an opinion except me. I say I don't know. So the people who say the Federal debt is a problem think I disagree with them, and the people who say it's not a problem think I disagree with them. But I have no opinion on the matter. I have reserved judgement. People tell me I'm wrong because I don't agree with them. I don't even know if I agree with them or not. I see the situation as murky. We have to clean up the private-debt mess first. Then we will see if public debt is a problem.


Let's go paragraph by paragraph. I'll summarize Feldstein. Check my work if you want.

Paragraph 1: The G7 should address the explosion of government borrowing.

2: "The problem is bad and getting worse almost everywhere."

3. It's even worse in Japan than the US.

4. It's also bad in the eurozone.

5. Feldstein suggests that the money the government borrows never goes back into the economy: the money is no longer "available to finance productivity-enhancing business investment", he says. Bullshit. If Daddy Warbucks wants to put his money into savings rather than business investment, that's what he is going to do. But if he lends his bucks to the Federal government, the government is sure to spend it back into the economy -- if it hasn't already.

6. A list of additional problems attributed to the Federal debt.

And most problematic of all:

7. "Reducing deficits is obviously a task for those responsible for tax revenue and public spending: governments and legislatures."

Stop it right there. "Obviously"?? Deficits are "obviously" the result of spending in excess of revenue? Oh! I know where that comes from: If A is less than B, then A minus B is less than zero... If revenue is less than spending, there is a deficit. People seem to think this rule proves that the problem is a spending problem -- or a revenue problem.

It proves nothing. Here are the rules:

1. If A is less than B, then A minus B is less than zero.

2. If A equals B, then A minus B equals zero.

3. If A is greater than B, then A minus B is greater than zero.

These three rules tell us something about arithmetic. They tell us nothing about the economy.

Why is A less than B? Because the Democrats increased spending, say some. Because the Republicans cut taxes, say others. Did anybody stop and look at anything other than taxes and spending?

A few. Edward Harrison is one:

I was on RT’s Capital Account last night talking to Lauren Lyster about the euro zone debt crisis. At the end of the show, we came up against the deficit problem and the question about how it should be solved. I get frustrated by this topic because the whole framing of the problem presented in the media is wrong because it gets cause and effect totally backwards. The question the media asks is "how can government cut the government deficit?" The real question is "why are deficits high to begin with and what should we do about it?"

The media gets cause and effect totally backwards Harrison says. Many people do. The question is not how to reduce the deficit -- not how to make A less than B. That's not the question. The question is: Why is A greater than B? Why is spending greater than revenue? That is the question.

If we don't know why it's happening, we'll never figure out how to stop it.


The short wrong answer is "the other guys spent too much". That's plausible. Or, the short wrong answer is "the other guys taxed too little" -- which is really not plausible.

What evidence is there of too much spending? The evidence is that taxes are too high. According to the plausible answer, then, the problem cannot be that taxes are too low.

If the answer is not that taxes are too low, then the answer must be that spending is too high. Because it's the only other answer.

That's the plausible view: short, plausible, circular, and wrong. The plausible view evidently satisfies a lot of people. It doesn't satisfy me.

The trouble is, we are given only two possibilities: the two that fit the "A is less than B" rule. We are asked to choose between two possibilities, as if no other possibilities exist. Edward Harrison thinks other possibilities exist. So do I.

Remember: the "A is less than B" rule tells us something about arithmetic, but nothing about the economy. As Ed Harrison said:

The real question is "why are deficits high to begin with and what should we do about it?"

"A is less than B" doesn't answer the question.

Sunday, May 29, 2016

Another thread in the fabric of civilization

Three points in time, from A Brief History of Interest by Stephen Zarlenga:

*Charlemagne’s laws flatly forbade usury in 806 AD.
*The Magna Carta placed limits on usury in 1215 AD.
*Most States of the United States enforced usury limits until 1981.

Saturday, May 28, 2016

It gets worse

Tejvan Pettinger:

How much does the EU cost the UK?

The ONS has produced a useful page... Working out an average for 2010-2014, this gives an annual net contribution of £7.1 billion according to European Commission figures.

How significant is EU spending?

The £7.1bn net contribution works out at 0.9% of public sector spending or £110 per person per year. It is 0.4% of GDP.

Other factors to consider in estimating cost of EU Membership

If the UK leaves the EU, how much would it have to pay for access to the Single Market? For example, Norway and Switzerland pay to have access to the Single Market.
What about "free markets"? All the rage, right?

Except, if you're not in the EU it's FU you gotta pay for access to markets.

Friday, May 27, 2016

Screw it, I'm going back to GNP

From an excruciatingly long article in The Atlantic from 1995:
Specifically, in 1991 the GNP was turned into the GDP—a quiet change that had very large implications.

Under the old measure, the gross national product, the earnings of a multinational firm were attributed to the country where the firm was owned—and where the profits would eventually return. Under the gross domestic product, however, the profits are attributed to the country where the factory or mine is located, even though they won't stay there. This accounting shift has turned many struggling nations into statistical boomtowns, while aiding the push for a global economy.

"... while aiding the push for a global economy."

Screw it, I'm going back to GNP. Or whatever, some more socially considerate measure, maybe.

Thursday, May 26, 2016

Two moments in the broad sweep

First impressions are sometimes troublesome. A short history of GDP at Reddit caught my eye. I followed the link to Measuring an Economy: Where did GDP Come from? at Thirty is Infinity.

When I got to the site, there, at the top of the page, below the blog name Thirty is Infinity is the line A stat blog for the rest of us. My first impression was that they are dumbing things down really far "for the rest of us" -- from infinity, down to thirty. I like simplifying things, you know, but infinite is infinite.

When I read the article I was torn. They start in the 17th century with William Petty and Charles Davenant and the first attempts at income measurement. Next they move to the 1930s and Dr. Simon Kuznetsk. I've heard of Petty and Kuznets, but not of Davenant or Kuznetsk. That "k" on the end of Kuznets there only strengthens my first impression.

And something else bothers me about the article. Back when I first took an interest in economics, they talked about GNP. Not GDP. That was in the 1970s. In 1991 the government switched from the old GNP to the GDP. But in the Short History of GDP article they say

To see the earliest working of GDP, we need to go back to 17th century England

and, later

After Charles Davenent’s work on gross domestic product, this measurement would not be worked on or even be relevant for over 200 years.

I understand they're trying to simplify the story. But if you simplify too much, you're no longer telling the truth. Charles Davenant didn't work on GDP. He didn't even work on GNP. He tried to estimate the national income or some such thing. There probably wasn't even a name for it back then.

So I was a little hesitant to rely on the article. But I went to their "about" page. They have something on the site-name "Thirty is Infinity".

When working with normally distributed data but in small samples, you use what’s called the student t distribution. When your sample is over thirty, you can just use the normal distribution, which implies an infinite number of samples. So, thirty is infinity.

Suddenly, I like them. They're poking statistics people in the eye. So I guess I don't have to hold it against them, the simplification that says people were working on "GDP" in the 17th century. I can let it go, this time.

Good, because there is something I need from the article.

I need this:

Petty’s work was further developed by Charles Davenent, a Tory member of parliament and mercantilist economist. Continuing the trend of economic thought development from times of war, Davenent developed new methods for the sake of national income accounting. In the end, the government was able to use statistics (incredibly rudimentary statistics) to calculate output of the nation for the purpose of taxation calculation and budget planning in war efforts.

National income accounting was developed to facilitate taxation. Hm, that's probably why statistics are called "statistics". In early times, the meaning was restricted to information about states.

But anyway, in the 17th century the state was starting to think about taxing income. The idea developed further in the 18th century thanks to Adam Smith. Smith said the wealth of a nation was measured by what its people produced -- or by the income generated thereby:

... the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry ...

Smith's view provided an economic theory which supports taxation of income. Stop, stop, stop, I'm not arguing in favor of taxes. I'm describing two points in the cycle of civilization. Two moments in history.

I'm still describing the first of the two, in fact. So, how was Smith's view different from what came before? Good question! Before Smith was mercantilism. From FYO's Gallery, Adam Smith and Self Interest:

Mercantilists believed ... that the wealth of a nation was in the gold and silver (bullion) it possessed, and that trade surpluses were a primary means to accumulating bullion. Smith argued that the wealth of a nation was the real goods it produced, not the money it possessed.

It is not clear to me whether the mercantilist focus was on gold and silver within the borders of the nation, or in the King's treasury specifically. EconLib indicates the latter:

During the mercantilist era it was often suggested, if not actually believed, that the principal benefit of foreign trade was the importation of gold and silver... Adam Smith refuted the idea that the wealth of a nation is measured by the size of the treasury in his famous treatise The Wealth of Nations ...

If that is correct, then before Smith, economics pretty much came down to restocking the King's coffers. If not, economics pretty much came down to restocking everybody's coffers -- or the coffers within the nation's borders, at least.

Either way, the mercantilists were focused on accumulating wealth, wealth in the form of gold and silver. Wealth as opposed to income. Adam Smith, by contrast, focused on income -- on income and the production that generates income.

A huge conceptual difference between the two. In the world of the dark ages, there was little spending. Agreements kept some people bound to the soil and others bound to their lords. But there was little spending. In a time of little spending, there was wealth but not income. There was much wealth, and little income.

In such a time, there would be little benefit in the taxation of income and much in the taxation of wealth. But in the time of William Petty and Charles Davenant and Adam Smith, the economy was waking up. Money was changing hands more often, and there were more hands willing and able to participate in monetary exchange. Income was growing. In such a time the revenue from the taxation of income would also grow. Thus the involvement of Petty and Davenant, and thus the thinking of Adam Smith.

This is the first of two points: By the 17th century income had grown to the point that taxing income produced enough revenue to make it worthwhile. Before the 17th century, it was more productive to get revenue by taxing wealth.

In our time it would again be productive to tax wealth. But this story is not about our time on the cycle of civilization. It is about Smith and Davenant and William Petty, and about a time before them.

Oh, by the way, by the 17th century income had grown to the point that taxing income produced enough revenue to make it worthwhile. How do you suppose that circumstance came about? Here's my guess: In the 13th century, Edward Longshanks -- remember him from the movie Braveheart? -- Longshanks started using money to pay the help.
[edit 12 Feb 2018: Looks like it was King Henry II, a hundred years before Longshanks, who started using money to pay the help. Or maybe Henry I, a tickle in my brain says. But it was some time during that period, that's the point.]

By the 13th century, then, the use of money had grown to the point that people were willing to accept it as payment, but not to the point that enough money was changing hands that taxing income was worth the trouble.

Let us now go a little further back in time to reach our second point. Let us go back to 1086, some years after the Norman Conquest. William the Conqueror, also known as William the Bastard, had the Domesday book assembled.

In Domesday: A Search for the Roots of England, Michael Wood quoted from the Anglo-Saxon Chronicle on the idea for the Domesday book and on William's motivation for assembling it:

Then he sent his men all over England, into every shire, and had them find out how many hundred hides there were in the shire, or what land or cattle the king himself had in the country, or what dues he ought to have each year from the shire.

William wanted to know what dues he ought to have each year -- what revenue he could expect to receive. The bastard!

The point, the second point actually, is that in the 11th century the King's business was to determine the wealth of the nation in order to predict his revenue from a tax on that wealth.

It would be six centuries before anybody thought about taxing income.

Wednesday, May 25, 2016

Less aimless: a closer look

In the previous post I showed household debt as a portion of total private non-financial debt. About half, but it varies, and it varied higher on the approach to crisis. Back in the normal range now, high, but high in the normal range and trending down.

I highlighted two peaks that look similar. They show similar rates of increase on the approach to peak. They show similar rates of decrease on the decline from peak -- and faster decline than increase for both.

In addition, they both peak near 0.54 on the vertical scale. And they both occur during times of superior economic performance. I'm not saying anything about cause or effect or significance; it's far too soon for that. I'm just pointing out similarities.

Graph #1: Household Debt relative to Total Private Non-Financial Debt
highlighting similarity between the 1960s and the 1990s
Looking at it a little more, the peak in 1980 shows the same pattern of rapid increase followed by more rapid decline. This peak is obviously lower than the other two, and people don't often describe the 1976-1982 period, say, as a time of superior economic performance. Still, the pattern is similar.

So I thought I'd take a look at all three peaks. I started out by bring the FRED data -- the "total credit to private non-financial sector" series is copyright BIS (but FRED is down again so I can't get their preferred copyright claim) -- bringing it into Excel and using Kurt Annen's Hodrick-Prescott code to smooth out the jiggies:

Graph #2: Ratio of Household Debt to Total Private Non-Financial
Debt (blue) and the Hodrick-Prescott Trend (red)
NOTE: This is Quarterly Data. The X-Axis Seems to Imply Monthly.
Next I changed the blue FRED data to gray so it doesn't stand out. I changed the red Hodrick-Prescott line to blue, to make it our starting point. And in red I added three subsets of the H-P data, one for each of the three peaks discussed above.

Those peaks occur at 1964Q2, 1979Q4, and 1996Q3. Each red subset shows the peak, 16 quarters before the peak, and 10 quarters after.

Graph #3: Household-to-TPNF Debt, and Three Similar Subsets
Then I pulled out the subsets to take a closer look. The blue and green lines on the next graph are the peaks in the 1960s (blue) and the 1990s (green). The two are remarkably close.

The red line is the 1979Q4 peak. It shows the same general shape as the blue and green. But the red is significantly lower, just as the October 1979 peak is lower on Graph #3.

Graph#4: The Subsets Highlighted on Graph #3
Blue=1964 peak, Red=1979 peak, Green=1996 peak
Again, this is Quarterly Data
On the X axis, Q is the peak quarter for each line. Q-16 is 16 quarters before peak. Q+10 is 10 quarters after peak.

I'll say it again: The blue and green lines, 30 years apart chronologically, are remarkably, remarkably close as a portion of total private non-financial debt. I'm not saying anything about cause or effect. But maybe there is something to be said for significance.

Monday, May 23, 2016

Aimlessly looking at economic data

Spend enough time aimlessly looking at economic data and eventually you'll find something interesting. I had total private non-financial debt on the screen, and suddenly wondered how it compares to consumer debt. Consumer debt is a subset of total private non-financial so it is worth a look.

Graph #1: Household Debt relative to Total Private Non-Financial Debt
First thing I notice: two big humps -- one in the 1990s and one in the 2000s.

Second thing: It is jiggy early, till around 1990, and smooth after that.

Third, it's about fifty-fifty. From 1950 to 2000, the curve is pretty well centered on the 0.50 line, and pretty well contained between 0.46 and 0.54. In other words, household debt runs between 45% and 55%  of private non-financial debt until just after the year 2000. Then household debt goes high, something I've heard other people say.

If the household portion of private non-financial debt is roughly half the total, that means the rest of private non-financial debt is also roughly half the total. Or again, was roughly half the total, until the year 2000. Something I didn't know.

Fourth, the peak in the mid-1960s and the peak in the mid-1990s both top out at about 54% (0.54 on the graph). That's quite a coincidence. In addition, the upslope in the 1960s is comparable to the upslope in the 1990s. The two downslopes are similar also:

Graph #2: Similarity in the 1960s and 1990s
What makes this interesting is that the 1960s and the 1990s are our two best decades of economic performance.

At the high point of the 1960s,

Apparently FRED is down.

Saturday, May 21, 2016

Self-correcting? What do you mean by that?

Syll quotes Krugman

... we do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility

In response Syll offers "what Keynes himself wrote", here shortened:
On the one side were those who believed that the existing economic system is in the long run self-adjusting ...

Those on the other side of the gulf, however, rejected the idea that the existing economic system is, in any significant sense, self-adjusting.

The strength of the self-adjusting school ... has vast prestige and a more far-reaching influence than is obvious. For it lies behind the education and the habitual modes of thought, not only of economists but of bankers and business men and civil servants and politicians of all parties …

Thus, if the heretics on the other side of the gulf are to demolish the forces of nineteenth-century orthodoxy … they must attack them in their citadel … Now I range myself with the heretics.

Myself, I like to say that if we want to fix the economy we have to give it what it wants. People don't seem to like that for some reason. Personifying the economy maybe? Pffft.

The economy is a system. Push on it here, and it moves over there. Economics is the attempt to explain why that happens. I prefer to say: economics is the attempt to understand why it happens.

I say things like: Jobs? You think 'jobs' is the problem?? Okay. But it's our problem. A problem for people. It's not a problem for the economy. If you want jobs from the economy, you have to give the economy what it wants.

I say things like: The economy does not care about inflation or unemployment. Those are not problems for the economy. They are problems for people. For the economy, they are simply ways to correct imbalances.

I say things like: We should use policy to keep the ratio of private debt to public debt at a low level, a level where the economy constantly wants to grow vigorously.

So yes, I think the economy is self-correcting. But not in the way most people think. I think the economy self-corrects to rectify imbalances that the economy doesn't like. For example, if you put too much money in the economy, the economy doesn't like it. Prices go up until there isn't too much money any more, and then prices stop going up.

Some people say the economy is self-correcting. They mean unemployment will go down all by itself without government intervention.

Some people say the economy is not self-correcting. They mean unemployment won't go down by itself, and government intervention is needed.

Both sides use the phrase "self-correcting" to refer to things we want from the economy. To me, any discussion about whether the economy is self-correcting can only refer to problems that the economy recognizes as problems, and whether the economy can rectify those kinds of problems.

The answer is: The economy will attempt to rectify those problems. But it may be hindered by policies imposed by people who design policies to fix things that people see as problems, rather than fixing things that are problems for the economy.

Friday, May 20, 2016

An economist praying to the Natural Rate of Unemployment (?)

Happened to take a look at the so-called Natural Rate of Unemployment at FRED:

Graph #1
It's all steppy! I don't remember that. Found an old version at Wikia:

Thursday, May 19, 2016

In the '60s, they thought four percent.

One of those times when I blurted a number from memory instead of checking it first. The 4% number in the title of this post, stated in yesterday's remarks: Four percent unemployment is 'Full Employment'. Now I'm checking it.

I thought I got it from an old Statistical Abstract, from the '70s.

Took a while to find it. I knew I looked at it before. Found a file on the old computer, a file from 2009.

But no. That was Potential GDP growth. Four percent annual growth. That would look like the red line here:

We're generally a little shy of that.

Grubbed around some more then, and ended up looking in my old Econ textbook (McConnell, Economics, sixth edition, 1975). Found the quote (page 194) that maybe put the 4% number in my head:
There is disagreement here. Some economists look back to the unemployment figures of the prosperous period from 1966 to 1969 and argue that unavoidable unemployment is only about 3.5 percent. Others contend that certain groups, such as those composed of women and young workers who traditionally have quite high unemployment rates, are becoming more important in the labor force. Therefore, the unavoidable minimum of unemployment should be revised upward to 4.5 or even 5 percent. We will settle for the 4 percent figure, recognizing that it is open to question.

Wednesday, May 18, 2016

Steppiness aside ...

Happened to take a look at the so-called Natural Rate of Unemployment at FRED:

Graph #1
It's all steppy! I don't remember that. Found an old version from 2011:

Graph #2
Heh, from even before FRED put their logo on their graphs. Tentative but not steppy.

I wanted to compare the two versions of the graph at ALFRED. Clicked the link from the FRED page to bring up NROU at ALFRED. It always comes up as a bar graph at ALFRED -- maybe so we know we're not in Kansas anymore. (Or wherever FRED is.)

I switched the setting to make it a line graph and ...

Graph #3
apparently the steppiness is new. This graph shows the two most recent vintages. The steppiness is the main difference. Otherwise the two lines are mostly the same, except the newer line is lower since 2007.

Let me say that again. The older line, the blue one, is from ten months ago. The newer line, the red, shows changes going back to 2007.

Well, I still want to compare the new one to the one from August 2011:

Graph #4
Yeah, back in 2011 they thought the natural rate would be high forever.

Since the subject has come round to questioning the NROU numbers, did you notice that on all these graphs a vigorous uptrend begins before 1960? I think the uptrend misrepresents the economic conditions of the time. Golden age, remember?

The Natural Rate of Unemployment is the lowest level of unemployment at which inflation remains stable. When they estimate the Natural Rate of Unemployment they take inflation into account. The NROU depends on unemployment and inflation.

If you add the unemployment rate and the inflation rate together to get the "misery index" and then compare the misery index to NROU ...

Graph #5
the Misery Index spikes briefly in 1958, then runs low and stable for near ten years. I think the NROU, which runs perfectly flat thru most of the 1950s, should have continued that same path into the latter half of the 1960s. Or lower. In the '60s, they thought four percent.

And then, in the latter 1990s, the Misery Index starts climbing and continues upward for a dozen years. Yet the NROU runs flat, then falls until it is forced upward by crisis and recession.

It seems to me that a lot of wishful thinking is involved in the calculation of the Natural Rate of Unemployment.

Tuesday, May 17, 2016

Seeing things

As I noted before, I'm trying to develop the VBA code to "lag" data on a graph in Excel. But after working for a week and a half on it, I got so bogged down that I decided to set the whole thing aside and start fresh. Maybe what I've learned so far will lead me down a better path this time.

Part of the trouble I'm having is that I have to see what I want to do before I actually do it. To help me see what I want, I decided to write about it. So here we are.

At the moment I have this graph:

which is based on this made-up data:

There's another column on the sheet, for "Lagged" data. When I put numbers there I get a blue line on the graph. Right now that column is blank, so there is no blue line. I want to take the gray line numbers, "lag" them, and put them in the blank column. The graph will then have a blue line showing the lagged data.

But it's easier said than done.

I also have a table of Lag Dates:

This is where I describe the lagging I want to do. For example, the high point of the red line on the graph is at 2007. The high point of the gray line is 2006. I want to lag the 2006 data one year to make the blue line peak in 2007 with the red. Likewise, I lag the low gray point from 2010 to 2011 for the blue line.

I did a couple other things to make it interesting. The table doesn't say anything about lagging after 2011, even though the data goes out to 2015. (And yes, the lag-able data stop at 2015 even though the graph continues on to 2016.)

And in the first row of the table, the lag-able data begins in 2002, but I lag it back to 2001. I can picture that. But what would happen if I did it, and there was already data for 2001? The original 2001 data would get pushed off the graph. That's how I see it, anyway. And like I said, I have to see it before I can make it happen.

According to my table of lag dates, I want to take the value for 2002 and move it back to 2001. And I want to take the value from 2006 and move it forward to 2007. So data from the five-year period 2002-2006 has to stretch out to cover the seven-year period 2001-2007. I have to figure seven equally-spaced values that give me a line that looks like the line I get from from the five "given" values I started with. It's a little messy, but I did have that working.

According to that table also, five values for 2006-2010 move as a group to the five years 2007-2011. There's no stretching this time. I can just copy the values from the "given" column to the "lagged" column.

Now we're at the end of the Lag Dates table. But we are still in the midst of the data. How do I handle the remaining data? Maybe I should shift all the remaining values, lagging them one year as 2010 is lagged to 2011.

Or maybe I should assume that the last given value does not move, because the lag table does not tell me to move it. Then I will have to squeeze the 2010-2015 data into the years 2011-2015. That means I have to calculate values again. Yeah, this is the way to go, even though it is more work.

I can't justify lagging data when a lag is not specified in the Lag Dates table. If I want to move the 2010-2015 data to 2011-2016, all I have to do is add a couple dates to the table. So I can do it that way if I want. But if I don't specify any lag, the code shouldn't create any lag. The code shouldn't take the initiative.

At least, that's how I see it.

The interesting thing doesn't happen until after I get the lag code working. At that point I'll start using actual econ data and I may end up with a dozen or more lines in my Lag Dates table.

The interesting thing will be to make a graph of the lag times, to see how the lag changes over time. I expect to find that some lags are related to the level of private debt. I expect to find that a changing lag describes the changing metabolism of the economy. I expect to find all kinds of fascinating things.

Time to go write code.

Monday, May 16, 2016

"... all that stands between a future for mankind and the end of civilization."

Required reading: Open Borders for Capitalism by Mathijs Koenraadt.

via Reddit.

From Latifundia at
A latifundium is a large piece of contiguous land that belongs to a single individual or family.

From the beginning, latifundia were commercial enterprises dedicated primarily to growing produce and livestock for profit, both for distant and nearby urban markets.

Ancestors of slave plantations, the ancient Roman latifundia have been described as the model for imperialism, colonialism, and modern slavery.

In Nero's time (37–68 CE), Pliny tells us, half the land of the North African province was divided up among six patricians and organized in huge latifundia farmed by slaves and native peasants.

In the final years of the Roman Empire, these slave workers were replaced by coloni, small tenant farmers who became permanently attached to the estates (glebae adscripti ) and evolved eventually into feudal serfs. Latifundia persisted in Italy, Gaul, Spain, southern Britain, along the Rhine, and in the eastern Byzantine Empire for centuries after the fall of Rome
You get the idea.

Saturday, May 14, 2016

'Soros retorted with a different strategy: “Go for the jugular.”'

From The Trade of the Century: When George Soros Broke the British Pound at Priceonomics:
In 1992, George Soros brought the Bank of England to its knees. In the process, he pocketed over a billion dollars. Making a billion dollars is by all accounts pretty cool. But demolishing the monetary system of Great Britain in a single day with an elegantly constructed bet against its currency? That’s the stuff of legends.

A small tax on currency exchange would be a practical measure.

It's a very good article, by the way.

Thursday, May 12, 2016

the long and variable project

looking at two time series on a graph ...
and i think they would look quite similar if i took the one series and lagged it

so I set up a table of dates:
lag the 2001 value to 2002
lag the 2003 value to 2004
lag the 2007 value to 2009
lag the 2011 value to 2013
lag the 2016 value to 2016

(that last one has no lag)

i am trying to have the computer figure everything out from this
to give me a graph showing the one series lagged per the table of dates.

doesn't sound conceptually difficult

but it seems to be.

i think i depend on the x-axis, the date-values, more than i realize.
i think the problem is like "the denominator problem" where you look at
for example the federal debt relative to gdp
and you see that it goes up
and you conclude that the federal debt went up
and nobody thinks about the changes in gdp.

i think it is like that.
i keep getting confused between lag-from dates and lag-to dates...
i just naturally think in terms of the y-axis values and changing those values
when really i don't want to change those values, just fit them to different dates
sometimes to impossible dates.

imp dates, i call them now. that about sums it up.

Wednesday, May 11, 2016

Where's Art?

I don't like it if I don't have a post every day. So I must have a reason, right? Well yeah: There's the lawn to mow...

Apart from that, I've been working on a little project that I thought would go quick, so that if I missed a day or two the tradeoff would be that I got the project done and then everything would be back to normal. But it's taking longer than I thought. So here's a progress report.

This morning there was an error in my Excel VBA code:

I clicked the DEBUG button to bring up the code with the error highlighted:

The roDate function takes the value ro (which is a row-number in my spreadsheet) and gives me back the date it finds in the date column on that row of the sheet.

But I don't think the error is in the roDate function. Because it was working until now. I think the error must be in the calling function, the part of the code that uses roDate to get the date from the spreadsheet.

See that yellow arrow in the margin, by the highlighted line? I dragged that arrow down a row to highlight the End Function line and clicked F8 to execute that one line of code. That brought me back to the calling code:

The highlighted line here is the next line after the line that calls the roDate function. VBA is still trying to work its way through the code, and mindlessly moves on to the next line. So I have to read the line that comes before the highlighted line:

currentDate = roDate(D, ro)

because that it is the one that uses my roDate function, the one we were looking at in the images above.

One line up from the currentDate line there is the For ro = dateRo line, and above that is the Dim firstData line. These are the lines I have to check.

Just like with the economy. If the thing crashed in 2008, you don't look for the cause in 2008. You look in the years before 2008.

So I hovered my mouse over the names of variables in those few lines of code. When you hover the mouse like that, a little tag pops up that tells you the value of the variable. When I hovered over the variable named firstData a tag popped up that said "firstData = 0.5".

But the value is supposed to be the date of the first unlagged value (as you can tell by reading the whole Dim firstData line).

The value is supposed to be a date. 0.5 is not a date. The DateOfFirstUnlaggedValue function doesn't give back a date. There's the problem.

So I went and looked at the DateOfFirstUnlaggedValue function.

As the highlighted line shows, the DateOfFirstUnlaggedValue function gets the value 0.5 from dt, the variable named dt. Aha! And one line up from there, the variable dt gets the value from the spreadsheet, the active sheet, from the cell at row number ro and column number D.UnlaggedCol.

That's gotta be where the problem is. I'm looking in the wrong column. I'm looking in the column of unlagged values instead of in the column of dates.

For reference, here's the part of the spreadsheet with the dates and values:

First column is dates. The other three columns are used to make three lines on a graph. The "lagged" and "unlagged" columns have the same values now. After I make the lagging work right, values on the "lagged" column will appear in later years or, in some cases, they will be different values altogether.

My code is looking in the UnlaggedCol (column 5) when it should be looking in the DateCol (column 1). As you can see, the row of data for 2001 has the value 0.50 in the UnlaggedCol. That's where that number came from.

So all I had to do to fix the problem -- after tracking it down, which is where the work is -- was to change D.UnlaggedCol to D.DateCol and that was it. Here it is, after the fix:

After making that change, the DateOfFirstUnlaggedValue function actually returns a date:

I put the mouse on the firstData variable, and the tag that popped up says 2001. What more could I ask?

Thinking about it, you know, I named the variable firstData. But I didn't want the data. I wanted the year. Maybe I had the error because I confused myself by calling it the first data. So I went in and changed the name of that variable.

So, where's Art? Now you know.

Sunday, May 8, 2016

Jorda, Schularick and Taylor: "In the age of credit, monetary aggregates come a distant second"

From the PDF recently mentioned by James Hamilton:
In the age of credit, monetary aggregates come a distant second when it comes to the association with macroeconomic variables. Real changes in M2 were more closely associated with cyclical fluctuations in real variables than credit before WW2. This is no longer true in the postwar era. As Table 10 demonstrates, today changes in real credit are generally much tighter aligned with real fluctuations than those of money.

From page 29 of the Macrofinancial History PDF, here is Table 10:

Real money growth in the U.S. shows 0.47 correlation with the growth rate of output before the Second World War, but only 0.24 -- half the correlation --  after the war.

Real credit growth in the U.S. shows 0.30 correlation with output growth before the Second World War, but shows 0.67 -- more than twice the correlation -- after the war.

This is a big deal.

The stuff we use for money has changed. That's why we're in the mess

Saturday, May 7, 2016


We'll see how that goes.

Friday, May 6, 2016

"Sterling soars"

A small tax on currency exchange would be a practical measure.

Thursday, May 5, 2016

Canary, in the hole

"Even more pointedly," Steve Keen writes,

unbeknownst to Hansen, a recovery had started just before he proposed the secular stagnation hypothesis

I love the irony. But why the recovery? For reasons that his supply-side theory did not contemplate, Keen says: A turnaround in the growth of credit.

I agree absolutely with Steve Keen on this. Absolutely. If credit was growing, the new money had to go somewhere. It went into the economy, and it created growth.

Hansen, quoted by Keen, said

Fundamental to an understanding of this problem are the changes in the "external" forces, if I may so describe them, which underlie economic progress—changes in the character of technological innovations, in the availability of new territory, and in the growth of population.

But those forces are inhibited if the money that lubricates them is insufficient. And the way we make money "sufficient", in this credit-based economy of ours, is by using credit. Think of credit growth as the canary in the coal mine. When credit dies, the economy dies.

Me, I have confidence in the entrepreneurial spirit; if credit is readily available, and if we've not got too much debt already, then I don't need to look at technology or territory or population. I can just look at the indicator -- credit growth. It tells me all I need to know.

Wednesday, May 4, 2016

I'll see your 'no recession' and raise you seven good years

One paragraph from Wells Fargo, February 2016:
Focusing on the next six months, our predictive model says there is a 12% probability of a recession occurring. For perspective, what the model is showing looks no worse than what was predicted from 1983 to 1988, or in the late 1990s. This justifies why we view the recent market corrections as being driven more by fear than reality. In 1984, there was a fear that inflation would rear its ugly head again, but it didn’t. The fear was real, but reality didn’t live up to the fears. We’re probably going through something similar now.


The source of the 12 percent chance? "Policy errors—like the Federal Reserve being too eager to hike interest rates".

Me, I don't have a predictor for recession. What I do have is an eye on credit use.

Note: The following graphs all show total credit to the private non-financial sector, from the Bank for International Settlements. Copyright, 2016, Bank for International Settlements (BIS).

Total credit to the private non-financial sector is going up again:
Graph #1
That's a sign of growth. Good growth for some years, because debt is below what we can bear.

Private credit use still has room to grow:
Graph #2
Still has room to grow, even if debt stays below the 10% growth rate.

Relative to Base, private credit use is starting to climb:
Graph #3
Couple thoughts on this one:

The ratio is low largely because of all the quantitative easing that took place. It's not like we paid off so much debt. Private sector deleveraging (as Steve Keen says) has been trivial.

However, the ratio is as low now as it was in 1955. This means our financial system is ready for another period of growth and inflation comparable to what we had between 1955 and 2007. Put that in your pipe and smoke it. Our financial system is ready for another period of growth and inflation comparable to what we had between 1955 and 2007.

We are much better now than we were in the 1950s at multiplying base money into credit money. So it need not take anywhere near 52 years to reach the next peak. If we expand base into credit rapidly, be prepared for some double-digit inflation. But hey, that would just reduce the burden of existing debt. Which was probably the point all along, come to think of it.

Remember, though, that turning base money into credit money generates more debt. We really do need policy to accelerate the repayment of private sector debt, in order to keep private debt from accumulating. It would fight inflation, too, that policy.

Relative to Federal debt, private debt is starting to climb:
Graph #4
That's a very good sign.

Right now, we're at about the same place on the curve that we were in 1995, when our economy was starting to give us good years. We'll get those again, the good years. But we have to prevent debt from going up as fast as it did in the late 1990s.

If only we had some kind of policy to accelerate the repayment of debt.

Last graph today. Just for you, because you think debt-to-income is important:
Graph #5
Right now, we're right on trend with the mid-1990s, where we were before debt got us into trouble. Right on trend. And the trend line goes up, so debt can go up and that will be okay. For a few years, anyhow.

If we get those accelerated repayment incentives in place, we can keep getting good growth while private debt goes down.

// Related post: An Arthurian Future

Tuesday, May 3, 2016

"Curve shifting??"




Monday, May 2, 2016

The trendline shows the shifting of the Phillips curve

My eyes popped right out my head when I saw George Lesica's graph of the Phillips curve. Here, take another look:

Copyright by George Lesica - Licensed CC BY-SA
Size reduced to fit my blog -- Click for larger image
The Phillips curve is no longer a meaningless cluster of dots. Lesica's graph shows "trade-off" curves in red and yellow and cyan and green and blue, all of them showing that inflation tends to be higher when unemployment is lower, and lower when unemployment is higher. That's what you're supposed to see in all those dots. Now, at last, I see it.

In the old PDF from 1958, where Bill Phillips introduced his curve to the world, he opened his remarks with these simple thoughts on supply and demand:
When the demand for a commodity or service is high relatively to the supply of it we expect the price to rise... Conversely when the demand is low relatively to the supply we expect the price to fall...

The supply and demand for labor works the same way, he said.

On the Phillips Curve graph, low unemployment is toward the left and high unemployment is toward the right. Low inflation is toward the bottom and high inflation is toward the top.

On the graph, "High inflation and low unemployment" is toward the upper-left. "Low inflation and high unemployment" is toward the lower-right. On the graph, a change from the the one state to the other produces a cluster of dots that is high on the left and low on the right. George Lesica's graph shows several of these clusters.

Time and time again I've seen people show a scatterplot with the dots all the same color. They put a straight-line trend on it, and point out that the trendline goes from low-on-the-left to high-on-the-right. That's not a Phillips curve, they say.

"As for inflation-unemployment “tradeoffs,” we should all be clear about what the data look like in practice..."
Source: Hussmann Funds

"If anything, [the trend line] suggests that higher unemployment and higher inflation in that very noisy data set go hand in hand."
Source: Illusion of Prosperity

"While playing with the data, a statistically significant relationship between inflation and employment growth emerges. 95 confidence interval on the slope returns (0.04, 0.22)."
Source: Synthenomics

"In English: there is no firm relationship here and the extremely weak relationship we do find runs in the opposite direction to what the Phillips Curve would predict."
Source: Fixing the Economists

"Indeed, if we do a reverse regression with the variable on the horizontal axis in the chart serving as the dependent variable, we can fit a long-run Phillips curve to the data, and that's the regression line in the chart."
Source: Stephen Williamson

"The Phillips curve is one of those 'regularities' that is more likely to exist in an economist mind than in reality."
Source: Naked Keynesianism

The trend line goes up-to-the-right, these people say, not down-to-the-right like the Phillips curve would. There is no Phillips curve, they say.

But the straight, upsloping trend line that these graphs show is not the Phillips curve. The trendline shows the shifting of the Phillips curve, not the shape of it.

Milton Friedman didn't say there's no Phillips curve. Friedman knew about supply and demand. He knew there is a tradeoff between inflation and unemployment.

What Friedman said was that the curve could shift to a different location, and we could end up with high inflation and high unemployment. High and high instead of high and low, he said.

He was right about that. When it happens, the scatterplot dots get more scattered on the graph. But if you have all the dots the same color, it doesn't look like different curves in different locations. It looks like there is no Phillips curve. But you can't really tell, because all the dots are the same color.

I wanted to duplicate George Lesica's graph. Duplicate it, because I never did manage to make a graph that shows the Phillips curve. Duplicate it, to learn how to make such a graph, and to make sure nobody's pulling my leg.

But there were things I didn't know. Was Lesica's data quarterly or monthly? I counted his blue dots and came up with way more than I should for quarterly data, so I went with monthly. Ended up with more than 800 rows of data in the spreadsheet. Would you guess there's 800 dots in the scatter above? I wouldn't.

And then, I didn't know how to handle the inflation rate, calculated (Lesica says) for the "subsequent 12 month period". It sounds simple. But when you have to work it out in a spreadsheet, there are many ways to do it. I was trying to duplicate one particular way without knowing which one. Here's what I did: From the first row of data I took the January 1948 unemployment rate, and paired it up with a calculation for inflation: the Jan 1949 CPI over the Jan 1948 CPI, minus 1, formatted as a percent. (The CPI numbers come as index values, so I had to calculate the inflation rate myself anyway.) Then I copied the calculation down the 800 rows.

Then I took my VBA code and modified it to generate the data subsets and make all the dots round and color them to match what George Lesica had done. Working out the colors was the hardest part. Here's how my graph came out:

Graph #2
I'm happy.

"Series1"  in the legend is Excel's original plot of the whole dataset. (I just left it there. Those dots are all hidden by the subset dots in various colors.)

My data (from FRED) runs from 1948 to March 2016. My scatterplot stops at March 2015 so that I can calculate the subsequent twelve months' inflation. George Lesica's graph stops in 2012. I have extra years. I made them brown, my dots after 2012. Coulda made them yellow, they fit right in with the yellow curve.

You'll want to compare the two graphs. "Note, for instance," George Lesica says, "the dark blue cluster in the upper right, they appear to form a curve that is convex to the origin, just as the theory says they should." I got the same dark blue cluster, forming the same curve.

If you go dot by dot, the two graphs still match up. Take the highest group, looks like five of those dark blue dots. The pattern of those five dots is almost identical on the two graphs. Below that group, a single dot (on both graphs) and to the right of it another group -- again with very similar arrangement on the two graphs. The slight variations could be due to data revisions or to different data sources (Did Lesica use the Consumer Price Index, or something else? I'm not sure) or to my choice of the calculation for the inflation rate.

But the slight variations don't concern me. I got curves, Phillips trade-off curves, identifiable by color. These curves correspond to those on the graph from George Lesica. Now I'm confident in his work and happy with mine, and I've finally managed to plot a Phillips curve that actually looks like a Phillips curve.

All in all, a good day.

// The Excel file.