Wednesday, March 27, 2013

betty betty betty

sheree too young.... too vibrant .contemplation .makes for melancholia

spring time for bathing

the days of wine and the tiger dance !!!!!!the flesh still willing
the spirit  now focused
the future dim as dusk

mealy fur face declares war on bob mundell's golden oldie

 "I have complained before about IS-LM being the first macromodel most students encounter, when no major current central bank fixes the money supply. The textbook version of Mundell Fleming (TMF) [1] is the first, and often the last, short run open economy model students are taught, and it shares the same deficiency. However the problem with
TMF is even greater. It is inconsistent with Uncovered Interest Parity (UIP),
and if we use modern macro as our yardstick, this makes it simply wrong.

Lets take a topical issue: the impact of a temporary increase in government spending. We
should be immediately worried that TMF makes no distinction between temporary
and permanent increases. It says both have no impact on output. So every student
learns that fiscal policy is ineffective under flexible exchange rates. For a temporary increase in spending this is incorrect.

The logic of the TMF proposition is usually demonstrated by shifting various curves, but it
is in fact trivial. In TMF money demand must equal a fixed money supply. If
money demand depends on prices, output and interest rates, and the first is
fixed in the short run and the last is tied to world rates, then output cannot
change either. This complete crowding is achieved through an appreciation in the
real exchange rate.

But why should domestic interest rates equal world interest rates? UIP tells us they need not. A temporary increase in government spending will raise output, which given a
fixed money supply will raise interest rates. This will lead to an appreciation,
but the temporary nature of the shock means that the long run exchange rate is
unchanged. So the current appreciation implies an expected depreciation, which
offsets the additional return offered by higher interest rates. The result is a
short run equilibrium where output and domestic interest rates are higher. There
is partial crowding out through an appreciation but not full crowding

Now you might say what is so great about UIP. But at least UIP is based on something: a simple arbitrage theory. As far as I can see the TMF assumption that domestic and world
interest rates are equal has no equivalent foundation.

We only get some crowding out in the experiment above because the money supply is fixed. If interest rates are fixed instead then we get none. With fixed interest rates,
UIP implies the current exchange rate is unchanged when government spending
increases, so there is no crowding out. We get exactly the same result as with
fixed exchange rates - the complete opposite of what TMF

Now you might plead in mitigation for TMF that at least it gets the impact of a permanent increase in government spending right. I think this is a very weak defence. A permanent
increase in government spending, assuming it increases aggregate demand, is
crowded out because in a small open economy the real exchange rate equates the
demand and supply of domestic output
in the long run, which is a more basic
result than anything in TMF. [2]

Another weak defence of teaching incorrect theories is that they are simpler than better
theories. However it we combine this basic idea about the determination of the
medium/long run real exchange rate with UIP, we have a complete theory of the
small open economy which is no more complicated than TMF. So why does TMF

Perhaps one reason is an addiction to two dimensional, and preferably static, diagrams. Yet
the system I’m describing can be represented by just two equations and two
periods. The first equation is the familiar aggregate demand curve. It is
static, so we have

y = f ( g, r, e )

where g is a shift variable like government spending, r is the real interest rate and e is
the log of the real exchange rate. Use stars to denote second period
(medium/long run) values:

y* = f( g*, r*, e* )

Now here I can say that r* is equal to the world real interest rate rw (because of UIP and a constant real exchange rate), and y* is determined by some classical supply side, so this
equation determines the second period real exchange rate - the basic result I mentioned above.
The only other equation I need is UIP:

e = e* + rw - r

where e is defined so that an increase is a depreciation. Policy determines the
short term domestic real interest rate, and therefore the short term real
exchange rate.

The aggregate demand curve is already familiar to students, and the adaptation to an open
economy is intuitive. UIP is easy to teach: any interest rate differential is
offset by expected capital gains or losses. So it seems to me something like
this should become our standard introductory short run open economy macromodel.
And TMF should disappear."

Tuesday, March 26, 2013

"I assume the extreme degree of mobility that prevails when a country cannot maintain an interest rate different from the general level prevailing abroad. This assumption will overstate the case, but it has the merit of posing a stereotype toward which international financial relations seem to be heading"....maybe not anymore bobby

"The assumption of perfect capital mobility can be taken to mean that all securities in the system are perfect substitutes. Because different currencies are involved, this implies that existing exchange rates are expected to persist indefinitely (even when the exchange rate is not pegged) and that spot and forward exchange rates are identical. All the complications associated with speculation, the forward market, and exchange-rate margins are thereby assumed not to exist. "
  "To focus attention on policies affecting the level of employment, we assume unemployed resources, constant returns to scale, and fixed money wage rates; this means that the supply of domestic output is elastic and its price level constant. We assume further that saving and taxes rise with income, that the balance of trade depends only on income and the exchange rate, that investment depends on the rate of interest, and that the demand for money depends only on income and the rate of interest. Our last assumption is that the country under consideration is too small to influence foreign incomes or the world level of interest rates."   "Monetary policy will be assumed to take the form of open market purchases of securities, and fiscal policy the form of an increase in government spending (on home goods) financed by an increase in the public debt. Floating exchange rates result when the monetary authorities do not intervene in the exchange market, and fixed exchange rates when they intervene to buy and sell international reserves at a fixed price. "

to keep it in historical context:

reading this  gives one  the G force glaring faced  manic  thrill
                                    of  a roaring  blast off

                                  on a mission to the moon  !!!


MAYBE  even in this bouregeois era
 we have a lot less world historical  innovation in US per century
 then we think

maybe too many social revolutions waste the mundane years
 that produce the enduring  happiness of existence

face it
where ever  we're going
lots of us won't get there anyway

Monday, March 25, 2013

how did we get from smith's natural price to ...Apple?

uncle arbitrageur

"if the internally generated arbitrage profits are large enough to compensate for the information disadvantage faced by the market maker."
along these lines
consider uncle sam
given  his limitless dollar mine
 as market maker
does MM playing MM gain max still hold ?
does uncle need or benefit from a budget constraint ?
"if the internally generated arbitrage profits are large enough to compensate for the information disadvantage faced by the market maker."

rajiv sethi

"Suppose that there were only two Oscar categories (Best Picture and Best Director) and consider the following seven events:
  1. Lincoln to win Best Picture
  2. Lincoln not to win Best Picture
  3. Lincoln to win Best Director
  4. Lincoln not to win Best Director
  5. Lincoln to win 0 Oscars
  6. Lincoln to win 1 Oscar
  7. Lincoln to win 2 Oscars
Let pi denote the price of contract i, where i = 1,...,7, where each contract pays out one dollar if the event in question occurs. Clearly we must have

p1 + p2 = p3 + p4 = 1,

otherwise there would be an arbitrage opportunity. Similarly, we must have

p5 + p6 + p7 = 1.

Price adjustments in response to orders are such that these equalities are continuously maintained. Somewhat less obviously, we must also have

p1 + p3 = p6 + 2p7.

If this condition were violated, then one could construct a portfolio that guaranteed a positive profit no matter what the eventual outcome may be. To see this, suppose that prices were such that

p1 + p3 > p6 + 2p7.

In this case, the following portfolio would yield a risk-free profit: buy one unit each of contracts 2, 4, and 6, and two units of contract 7. This would cost

(1 - p1) + (1 - p3) + p6 + 2p7 < 2.

The payoff from this portfolio would be exactly 2, no matter how things turn out. If Lincoln wins no Oscars then contracts 2 and 4 each pay out one unit, if it wins one Oscar then contract 6 pays out a unit, in addition to either contract 2 or contract 4, and if it wins two Oscars then each of the two units of contract 7 pays out. "

Sunday, March 24, 2013

the substance of a deflation barrier

well-anchored  product  price and  wage  expectations


 dramatic moments of  product price deflation "unanchored " wage rates right ?

market earth's nick name...the PLOG BLOG

                                PROTRACTED LARGE OUTPUT GAPS

meta static stablity or dynamic channel

existence uniqueness  efficiency

these preoccupations of market ideologians occured in reverse order

efficiency is an obvious criterion

uniqueness sugests best of all possible

existence well you do have to prove it exists

the progress toward these proofs
came at ever greater sacrifice

arrow debreu got existence by removing convexity and price setting
 and adding an infinite horizon of markets
plus no innovation or actual production or consumption...

leaping however from existence to uniqueness
that really got no where

and parallel work on efficiency

simply compounded the limitations from the other two projects

this is unsatisfactory
i'll get back to this

what is the marginal popular welfare gain from additional state spending on research

frank fisher on speed of adjustment ..."too slow "

frank notes the frequency of positive schump shocks

now add aggregate demand 's  chaotic  burps
and various internally generate  panics manias and perceptual catastrophes...etc etc

Saturday, March 23, 2013


effort incentivizing wage rate

E* = exploitation max

average product versus marginal product

 the dance of the margin around the average

Spooner on a people's producer credit system

needs serious up date and smashing his bugaboo about "the state"

only uncle could afford to lend under conditions that facilitate  Sponners aim
the  maximization  of self employment

re industrialization is not about jobs


the indy fed : "a covenant with death and an agreement with hell."

warren spooner tucker and what me worry

"A motivating element in the liberal philosophy is, of course, the individual’s desire for liberty from the coercive power of others. But a second element in the liberal soul and spirit is critically important. It is the absence of desire to exert power over others"

jimmy buchanan

responding to mealy's touch stone

the type of keynesian mealy macro is himself
fore dooms his essay in self persuasion
see according to mealy
in the end
in the long run
when overlapping cohorts
beome over lapping "generations"
we must maintain
" a sensible average " golden rule debt burden
yes dotty
doc macro-lewis-simple-simon
really does believe in debt burden reckonings
and yet
he provides not just the tangible belt of debt burden
but the ghostly suspenders of culturally weighty
u see it can only get worse
once u start off with this spoon headed common place :
" its wrong to try and find a motive for everything in terms of interests groups."
it leads to spook ville as in
" Ideas have a power of their own."
which is true enough but after all
where did they come from ?
okay so notions in a culture once massively digested
tend to be sticky
but ...
here's the rub
every notion has a companion counter notion
cultures use notions to rationalize actions
and you gotta be able to play sany real event both ways to play a winners game
application here ?
why did thewhite house and the big media
both jump at the chance
to change the subject from recovery to debt rectification
its not man nature done that
human nature as i said
plays it both ways or CAN play it both ways
an occasional free lunch is possible
no free lunch is ever possible
you pay for it in the end
now reality resolves this debate
but only instance by instance
and usually by proving both sides were wrong
at least as they stated their case

mainly mealy applies the counterfeit calvinist touch stone.....

to the equally bogus

"in the long run debts must be managed



as in


"The Power of Austerity over Politicians "

a hollywood jesus ?
" In an earlier post, I reported some speculation by Coen Teulings on why politicians seem to ignore the majority of economists when it comes to austerity. (On the minority of economists that do support austerity, see here.) Mark Thoma responded that it was because austerity gave politicians the chance to pursue ideological goals, and of course he is right for some.
 I had made the same point
on my ‘final verdict’ on the UK Chancellor George Osborne, and the motivations
of the many on the right in the US and Europe are even more transparent. Yet
that original post began with a discussion of the Netherlands, where there
appeared to be a political consensus in favour of austerity. Even where the
strong austerity proposed by the right is opposed by the left, in both the UK
and US for example, the opposition could be fairly described as tepid. Paul
Krugman and others have often lamented the amount that Obama seems prepared to
give in trying to compromise with Republicans, and the left in the UK hardly
presents a
united front on the issue. Borrowing continues to be something to avoid
in public.

So I think there is more to this than just an excuse for some to whittle down the
size of the state. Or to put it another way, we need to explain the weakness of
the opposition to austerity from those who do not have this ideological goal.
This is not to underestimate the influence that those with an ulterior motive
and lots of money can have. I used to think that the idea that the Great
Depression was a liquidity trap that expansionary fiscal policy rescued us from
was received wisdom both among economists and politicians. But I should have
known better from my own experience. Duncan Weldon
us of how the disaster that was Margaret Thatcher’s adoption of monetarism in
the early 1980s has been turned into a myth of her triumph over those foolish

Politicians can be misled, or can allow themselves to be misled. It is natural for academic
economists to focus on the dissention within their own ranks, either in the form
of influential papers that were enthusiastically received by politicians eager
to believe in expansionary austerity, or economists who appeared to leave their
academic selves
them when discussing this issue. And I guess if all economists could form a
united front, with everyone singing the same tune, that might begin to alter
political attitudes. But this is a pipe dream, and even the smallest deviation
from unanimity allows a media that

to portray the profession as ‘divided’.

I also agree with Henry Farrell and Mark Blyth (the former reviewing the latter’s
new book ‘Austerity: The History of a Dangerous Idea’
that its wrong to try and find a motive for everything in terms of interests
groups. Ideas have a power of their own. But for ideas to have power they need
to resonate. Let me try this out as to why austerity resonates with politicians
even when there is no hidden agenda.

I start with human nature, and the constant debate within ourselves between
current consumption and future wellbeing through saving. What for economics is
just an intertemporal optimisation problem is for most people often a battle of
wills between our schizophrenic selves. In this battle, spending now is often
the temptation of the devil, and saving is the virtue. Now for politicians this
becomes a battle over whether to succumb to
tax cuts or spending increases without spelling out the implications in terms of
paying for any additional borrowing is what
do more often than not.

Most of the time they can get away with it, but I suspect they either feel guilty
about the implicit deception, or fear they will be found out.
when the market starts to punish fiscal profligacy, it is as if a parent has
discovered the child’s guilty secret. (The market is seen by many as a
The politician wants to repent (or at least be seen to repent), and atone for
past sins. After eating too many pastries, we go on a crash diet. After deficit
bias, we have austerity.

More cynically, when the market focuses on debt sustainability, it is much harder to
pretend that tax or spending decisions financed by borrowing do not involve
intertemporal trade-offs. Deficit bias becomes much more difficult, so political
fortunes will be maximised by taking the path of apparent virtue. The
electorate, many of whom are recovering from over indulging themselves, will
empathise with political 'self restraint' and reward apparent

So here are we Keynesians, telling politicians that they don’t need to go on that
diet just yet - they can put it off until times are good. Indeed, now is just
the time to eat more pastries - it will make you feel better, they are very
cheap at the moment, and you might even lose weight in the long run! It sounds
too good to be true, and just the kind of tale the devil might spin. Give in,
and the all seeing parent/god that is the market will find you out again. So the
politician ignores these siren voices, and buckles down to austerity

human capital tax => free higher education

the beauty of this is obvious

the public  investment in higher education is re cooped by a tax on earning power

no financial barrier to entry but a life time tax on the value added
whether used or not

Friday, March 22, 2013

“in a perfectly competitivemarket it really doesn’t matter who hires whom; so let labor hire capital"

doctor gintis aka herby the hut

to be fair

this is from a book review prior to the credit crisis of 08

"Most embarrassingly,attempts to formalize theWalrasian t√Ętonnement process
 have led precisely to complex nonlinear dynamics in which prices are, unlike in observable economies,generically chaotic."

"Throughout much of the world, the pitched ideological and political battles between
Right and Left over economic policy are a thing of the past. On the Left, there is no
serious movement for the abolition of private property or even the nationalization
of basic industries. Unionionism is increasingly confined to the government sector,
and socialist policy is espoused only in a couple of oil-rich countries. Liberal
Keynesianism is dead in an era where conservatives are prone to run deficits and
liberals to piously admonish such policy as reckless and short-sighted. On the
Right, the notion that the state should be limited to protecting private property is
maintained, against all evidence, only by a radical fringe"

here's david brooks on liberal macronomics

"liberals have always believed in Keynesian countercyclical deficit spending."

" But that was borrowing to brake against a downturn when certain conditions prevail:

" when the economy is shrinking"

not stagnating dave  ?

keynes point was recovery in particular prompt fast  recovery
is hardly asured

"when debt levels are low"

debt load can veto public works as a recovery tool?

where'd that come from ?
some contrived quote of keynes from the late 30's ?

 "when there are plenty of shovel-ready projects waiting to be enacted;"

so if there aren't plenty ...but there always are
and where did shovel ready get into the mix ?
if we are in a snail growth stag
we'll need stimulation for years more
as forecasts project

"when there is a large and growing gap between the economy’s current output
 and what it is capable of producing."
not just large ..growing
so once the gap stops growing....
what if its not closing fast enough ?

to that
we get the line   hung out as long ago as the summer of 09

"the economy is about to take off..."

could  get all that skiffling
             really be a product of ignorance ?

slimey dork
must have been teased as a teen
with his  begging bear pair of eyes
the roast of lamb head and mamma's boy mouth and all

reminds me of boston's own
                                  mayor menino


"Today, House progressives are calling for a huge increase in government taxing
 and spending "

notice he can't resist widening the target
now its taxing as well as borrowing

"when none of those conditions apply."
none not one
see he wrote that sentence first
 then carved his above list out of dried horse shit
reverse engineering

" Today, progressives are calling on government to be the growth engine in all circumstances"

in all circumstances

see there's when you could apply keynesian stuff
and then there's only
 all the rest of the time

it's  all comparative dynamics as jimmy tobin said in exasperation
with those that tried to pin a "stag equilibirum " rap on keynes
just because he hadn't fully freed himself
from that great con of "neo classical scafolding "
the equilibirum condition

economics as a branch of rational psychology

" If it is remarkable when a nation has become indifferent to its constitutional

theory, to its national sentiments, its ethical customs and virtues, it is

certainly no less remarkable when a nation loses its metaphysics,

when the spirit which contemplates its own pure essence is no

longer a present reality in the life of the nation."

Because of the fixed reality of
natural objects the study of nature compels us to fix the categories
which can no longer be ignored in her, although with complete
inconsistency towards other categories which are also allowed to
remain valid; and such study does not permit the further step of
abstracting from the opposition and indulging in generalities as so
easily happens in the intellectual sphere.


CBO estimates strength of present auto stab system...5 sizes too small

 "In fiscal year 2012, CBO estimates, automatic stabilizers added $386 billion to the federal budget deficit, an amount equal to 2.3 percent of potential GDP ... That outcome marked the fourth consecutive year that automatic stabilizers added to the deficit by an amount equal to or exceeding 2.0 percent of potential GDP, an impact that had previously been equaled or exceeded only twice in the past 50 years, in fiscal years 1982 and 1983 ..."

Thursday, March 21, 2013

wealth effect blues


the gravity model of the quantity theory of money and prices ...poison to the mind

F_{ij} = G \frac{M_i M_j}{D_{ij}}

the long slide ....note well thefed's out put inflation ratchet


out put recovers


no one expects the ...Wenhua da geming

and so comes hawtrey

The Hawtrey v Keynes debate leading into the great depression
Ends where it ought to start

Hawtrey and Keynes moving apart rapidly
over methods or remedy

That a second tier sort like H gets pushed
forward today
as a mind for our time
Suggests just how deeply " the monetary first " caucus
Has come to occupy
 the front bench of  the macro activist party

What a misfortune for the job class

back to that vintage  debate

The long post great war pre great depression stag economy of Britain

Unemployeds at levels much like here and now

H blames the interest rate
K does not question that
But sez "can't be helped "
not If the gold pledge is to be defended

Of course the gold pledge ended up going up the spout
with the on set of great depression conditions

but reviving this debate seems to imply
we as they...keyes and hawtrey
 share a  notion of price level dynamics in the abstract
In a uniform currency closed system

But then emerges
a vaguely conflicting view of the interactions of various national price levels
all Sharing a gold pledge

H suggests you let gold flow out
In expectation of reactive acceleration of ROW credit expansion
And consequently
  a faster ROW price level rise

But then there's the tendency among central bankers ever vigilant to preserve price stability
to counter gold  in flows with a sterilization eh ?

H in the up shot
Simply asserts the best possible ROW reaction for britain
  an outflow of British gold might ...might produce:

a large  ROW credit expansion

and something quite like this  would be the necessary reaction

When it's only a possible reaction......

An examination of the historic record suggests
The likely hood in a time like the late twenties
When hawtrey is pushing  this line
The outcome might well be
" sterilization "
  by ROW central bank gold in takers

with this drain of gold into invisible coffers
Culminating in a payments  crisis in Britain

as we know and Fortunately

 the events of 29 and 30 obviated all this
And we got the final death rattle of the full force global gold standard
As a fiscal first and always guy
Hawtrey looks to yours truly
like a compassionate conservative dud

nicely Willing to venture the reputation of " London"
On a low rate of interest
That undoubtedly would induce an out rush of gold
Because he  mr Haetrey
  is "quite certain"
a ROW reaction that was unlikely
Under the circumstances and given the ROW CBs mind sets
will come to pass never the less
and resurrect  industrious Albion

yipes what faith
And All just to stimulate domestic private investment
doubling down on  that sticky channel
                     to   increase employment ?

What a sap

i think of our quant ease cheer leaders

more Quant ease anyone ?
I hasten belatedly to add:
The tacit closed system model
shared by K and H in the late 20's
Was profoundly wrong

And it's precisely keynes-kalecki's
macro theory revolution
That got at this over arching
and  catastrophicaly aweful  irreality
so firmly lodge  in the mnds of the best and brightest policy makers

Even Keynes was operating without a good model in the late 20's

he sallied forth armed with "Only " a keen sense
The shared model of both HE and  Hawtrey (and the central banksters)
Was  wildly  "cocked" we Boston Irish say

Here's Keynes appealing to realities of the gold standard
to counter Hawtrey

while he himself was still not really solidly sold
 on his public works gig

"After all there's the debt build up u know "

and perhaps  " some  crowding out "!

why has democracy failed the job class majority ?

bourgeois hegemony
hardly pre supposes
the unimpeachable de facto sovereignty
of the plutonians

of course not
bourgeois merit class types rail against
the Babbits the Potters and the mr Howells

trust fund liberals are legion !

but if instead of building and re building
their own direct action organizations
---think unions and neighborhood associations---
the broad job class mediocrity
(in particular the better paid
wage class elements of the job class )
allow merit class sacerdotes

---think liberal politicians and academicals--
to tend to the job class's
main order of business

the business of
contending with ..." business"
certain consequences
entrain right along with the merits "expertise"
one obvious consequence seems to be :
unless the system has really F ed you
ie you are rendered or kept wretchedly poor
your merit class sacerdotes haven't
the socially manufactured "heart "
needed to rage at your declining condition
------ think de industrialization -----
so comes a time ...
when the well intended merit sacerdotes
that have been diligently doing their best
to do good (by their own lights)
get caught unawares
as the misery line
seems about to reach up
over the lower verges of the middle 40%
of amerika

come a fall 08
and suddenly
playing poverty pimp
let alone
cultural liberation hero
or charismatic identity politician
ain't no longer cutting the nut

blame it all on the transversality condition

perfectly rational non sight

as uncle
we borrow from ourselves and from those "others " out there in ROW

letus forget the others
    as they would forget us

but then what of US ?

overlapping cohorts of US  are legion

some of US  will hold uncle debt  and receive payments

 some  of US will hold uncle debt  receive payments  and pay taxes

the rest of US will simply pay taxes

and in the end ?

the yet unborn of US
will participate too
in the tax and transfer scheme

our future US  taxed
to service our collective debt pile
for the benefit of some others of  future  US
and yes  for some of the others out there in ROW
debt incurred today ?

sounds dumb eh ?

bond homeyism tilt emergers

banking homey tilt oecd

tilt in emergers equity

"homey tilt" in equity holding ...still flatening

the equity share of global equity by nation state

my private banker

kinsey big shoes want more bonds less loans ..securitization is better

global banks get out of the  slow  portfolio game
fee for service gigs
in particular

do more

originate originate originate

The McKinsey Global Institute bell weather of yankee corporate globality

Wednesday, March 20, 2013

pk""the euro has become an economic trap"

the corral paradigm is grasped

kalecki 's bull's eye on neo libs

"Even those who advocate stimulating private investment to counteract the slump
 frequently do not rely on it exclusively, but envisage that it should be associated with public investment."

"  It looks at present as if business leaders and their experts (at least some of them)
would tend to accept as a pis aller public investment financed by borrowing
as a means of alleviating slumps."

"  They seem, however, still to be consistently opposed to creating employment
by subsidizing consumption and to maintaining full employment."


kalecki on monetary channeled stimulus

"In current discussions of these problems there emerges time and again the conception of counteracting the slump by stimulating private investment."

"  This may be done by lowering the rate of interest, by the reduction of income tax, or by subsidizing private investment directly in this or another form."

"  That such a scheme should be attractive to business is not surprising"

". The entrepreneur remains the medium through which the intervention is conducted."

"  If he does not feel confidence in the political situation, he will not be bribed into investment"

". And the intervention does not involve the government either in 'playing with' (public) investment or 'wasting money' on subsidizing consumption"


"It may be shown, however, that the stimulation of private investment does not provide an adequate method for preventing mass unemployment. "

"There are two alternatives to be considered here"

". (i) The rate of interest or income tax (or both) is reduced sharply in the slump and increased in the boom."

"  In this case, both the period and the amplitude of the business cycle will be reduced, but employment not only in the slump but even in the boom may be far from full, i.e. the average unemployment may be considerable, although its fluctuations will be less marked"

". (ii) The rate of interest or income tax is reduced in a slump but not increased in the subsequent boom. "

"In this case the boom will last longer, but it must end in a new slump"

" one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy."

 " In the new slump it will be necessary to reduce the rate of interest or income tax again and so on."

"  Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy."

"  The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously"

". The reaction of the entrepreneurs to the measures described is uncertain"

". If the downswing is sharp, they may take a very pessimistic view of the future, and the reduction of the rate of interest or income tax may then for a long time have little or no effect upon investment
and thus upon the level of output and employment."

from thomatic-blog: too concise to let float away

i think the model and it's specifications by Taylor et al
Deserves more savagery then PK seems willing to unleash here

"The us too" act over
 forward expectations deserves a separate barrage
---see upcoming posts ---

But K schlock type's ought to  note also:
the spending impact of transfer payments nullified

The fed anointed and empowered like jehovah himself

Defense spending implicitly turbo charged

Taxing at the upper margins stifling growth


Ya I could taunt the NK club
 for harboring a model
That can be so easily turned against itself like this

sticky prices ...ultimately sticky wages
are  all that keeps
 the new classicals  counter revolution
   at bay

gee gang ...
What a tawdry heap macro is these days

When the sticky wage and the lower policy rate bound
Carry the weight of culpability
For a completely irrational system

a system
That can't  Bring back even its tainted notion of   full mobilization of it's existing production capacity

its been
Fully 4 years
since  a generation of unsoundly founded economic development
blew it's own head off

Zero bounds and
Sticky wages indeed
on the level of morbid glee
Pk on Taylor and tax cuts is interesting ?

though PK  acts like the rich are consumers too
just like the poor
even if
maybe  of yatchs champagne silk hats and mansions
rather then ripple 
                  pork and beans

and yet
sez PK 

"there is some evidence thatt the rich persistently consume less of their income than the poor."
 cutting the impending payments
"on and for " the poor
To reduce taxes on the rich
Will lead to less  "aggregate spending "
because the rich "over save "

our  Taylor sees the rich quite differently
he seees them  as investors
yes investors and  in productivity enhancing
state of the art
production facilities

whereas  the poor

hell they  are just "too much with us"
And besides they need nothing getting  a job
can't provide anyway

leave em to job search tomorrow
and in the goodness of  time  they'll  find a position
 and thrust themselves that much closer
To Calvinist heaven
 aka human bee hivery


Why we watch these two sword playing
Escapes me some times

... side bar:
The notion we capture something significant in hicks is/ lm
Doesn't entail buying the paradigm whole
in fact its dangerously blinkering to think in hicks terms

The notion of two big "curves"
crossing each other in interest rate  /income space
still obtainsa hard to dislodge  footing
in a mind once its seen for what it purports to be

so poor old  hicks is right here at the conception
Of all this reification

Which boils down to one big fallacy :

If only we could charge a negative rate for borrowing ...

We could sail right back up to NAIRU line employment

its januart of '09
Imagine the fed amnnounces  a negative policy rate of 8%

That assumption built into the mode;
the assuption that rapid reovery is just a policy rate change away
is likethe market monetarists assumption
 unlimited purchasing of paper assets
by the fed

they both Amount to recommending system annihilation
in the face of a big blow out like hit us in the fall of '08


 go to minus 8% !

Sure we'll restore it if we do that
Any knuckle head knows
Capitalism as we have it today
can not survive
Such upside down high jinx


Compare that  possible to
  an injection of   two trillion in funds
 thru the transfer system
To working and retired citizens
compare that to  the hicks is / lm
 8% negative rate on borrowings

8 to 10 Trillion in purchases of private paper ?

cui bono from hgh ball FED forecasting

" In January 2011, Fed officials predicted that GDP would grow around 3.7 percent that year. It clocked in at 2 percent. In January 2012, they anticipated growth of about 2.5 percent. We ended up with 1.6 percent.The Fed has often, both during the financial crisis and its aftermath, held their fire on monetary easing because they were overly optimistic about the economyThe FED  has  predicted that the U.S. economy would be back to a 4 percent rate of growth in 2012 … then 2013 … then 2014."

"A  more rigorous analysis of Fed official’s forecasts was published in 2007 by researchers at the Fed itself and covered 20 years of historical predictions.
 fall estimates
 off by about 0.6 percentage points
 even in a year that was mostly over."

" Forecasts for three years into the future missed the mark by about 1.5 percentage points."

uncle leads the big boys in the yellow flag pack