## Sunday, September 29, 2013

### landlords score in recovery

" Since mid-2009, nominal personal income has increased 17%. "

"Rental income has soared 85%"

" dividends are up 44%."

"Rental  income and dividends compromise less than 10% of all income"

" have accounted for 25% of the increase in all earnings so far in the recovery"

". Following close behind is proprietors’ income, up about 42%."

"Wages and salaries, about half of all household earnings, have grown about 14%"

.
.
..

## Friday, September 27, 2013

### does yellen still think like this ?..... read these yellen mental shit slides from '96

"Clearly, we have an economy operating at a level where we need to be nervous about rising inflation, even abstracting from supply side shocks."

" We can't dismiss the possibility that compensation growth will drift upward, raising core inflation and in turn inflationary expectations."

"This is a major risk. Obviously, we need to be vigilant in scrutinizing the data for signs of rising wages and salaries. "

"I would endorse the opportunistic strategy... "

"I see an opportunistic strategy as one that would not consciously use monetary policy to push the economy below potential in order to achieve a reduction in inflation,"

" unless inflation initially were significantly far from its optimal value...."

" I would see an opportunistic strategy as one that would
look for gains on the inflation front during periods when
negative shocks unavoidably create slack in the economy."

## Thursday, September 26, 2013

### gravity equation a formula as dumb as quantity equation

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

# Bubbles, Regulation, and Secular Stagnation

"Looking at current macroeconomic policy, the obvious question is, stupid or evil? And the obvious answer is, why do we have to choose?
But it is, I think worthwhile – or at any rate soothing – to think about the longer-term future for monetary and fiscal policy. I recently talked about some of these issues with Adair Turner, and I thought I might write up my version of the story so far (just to be clear, Adair bears no responsibility for any errors or confusion in what follows). In brief, there is a case for believing that the problem of maintaining adequate aggregate demand is going to be very persistent – that we may face something like the “secular stagnation” many economists feared after World War II.

So, let’s start with the basic role of monetary policy in stabilizing the economy. Many, probably most macroeconomists – or at any rate those who think at all about policy – think of that role something like this:
Figure 1: Normal monetary policy
Here IS shows how overall real spending and hence the level of real GDP depends on the real interest rate. We think of the central bank as being able to set the real interest rate; its goal is to set that rate at a level that keeps the economy near potential output, which in turn is consistent with low and stable inflation. This is equivalent conceptually to setting the rate at the Wicksellian natural interest rate.
Not that long ago, macroeconomists were congratulating central bankers (and central bankers were, of course, congratulating themselves) over doing a pretty good job of getting this right. Inflation, occasional commodity shocks aside, was indeed low and stable, and from 1985 to 2007 the real economy was fairly stable too.
Figure 2: Inflation was good …
Then came catastrophe – and as so often happens, when the house collapses you find the skeletons that were lurking in the closet all along. The stability of prices and output masked an underlying unsustainable growth in leverage:
Figure 3: … but trouble was brewing. Household liabilities as percent of GDP.
It was a Minsky moment waiting to happen, and happen it did.
When the Minsky moment came, there was a rush to deleverage; this drove down overall demand for any given interest rate, and made the Wicksellian natural rate substantially negative, pushing us into a liquidity trap:
Figure 4: The liquidity trap.
This meant that monetary policy could no longer do the job of stabilizing the economy: Central banks found themselves up against the zero lower bound. Fiscal policy could and should have helped, and automatic stabilizers did help mitigate the slump. But fiscal discourse went completely off the rails, and overall we had unprecedented austerity when we should have had stimulus.
So we’ve had an economic disaster – and our inability to avoid this disaster makes a mockery of all the self-congratulation of the years that preceded it.
But how should pre-2008 policy have been different? And what should policy look like looking forward?
There are many economic commentators who take rising leverage, asset bubbles and all that as prima facie evidence that monetary policy was too loose; some argue that the Fed kept rates too low for too long after the 2001 recession, some argue that interest rates were too low over the whole period from 1985 to 2007.
The trouble with this line of argument is that if monetary policy is assigned the task of discouraging people from excessive borrowing, it can’t pursue full employment and price stability, which are also worthy goals (as well as being the Fed’s legally binding mandate). Specifically, since the US economy shows no signs of having been overheated on average from 1985 to 2007, the argument that the Fed should nonetheless have set higher rates is an argument that the Fed should have kept the real economy persistently depressed, and unemployment persistently high – and also run the risk of deflation – in order to keep borrowers and lenders from making bad decisions. That’s quite a demand.
Many of us would therefore argue that the right answer isn’t tighter money but tighter regulation: higher capital ratios for banks, limits on risky lending, but also perhaps limits for borrowers too, such as maximum loan-to-value ratios on housing and restrictions on second mortgages. This would guard against bubbles and excessive leverage, while leaving monetary policy free to pursue conventional goals.
Or would it?
Our current episode of deleveraging will eventually end, which will shift the IS curve back to the right. But if we have effective financial regulation, as we should, it won’t shift all the way back to where it was before the crisis. Or to put it in plainer English, during the good old days demand was supported by an ever-growing burden of private debt, which we neither can nor should expect to resume; as a result, demand is going to be lower even once the crisis fades.
And here’s the worrisome thing: what if it turns out that we need ever-growing debt to stay out of a liquidity trap? What if the economy looks like Figure 4 even after deleveraging is over? Then what?
This is not a new fear: worries about secular stagnation, about a persistent shortfall of demand even at low interest rates, were very widespread just after World War II. At the time, those fears proved unfounded. But they weren’t irrational, and second time could be the charm.
Bear in mind that interest rates were actually pretty low even during the era of rising leverage, and got worryingly close to zero after the 2001 recession and even, you might say, after the 90-91 recession (there was talk of a liquidity trap even then). It’s not hard to believe that liquidity traps could become common, if not the norm, in an economy in which prudential action, public and private, has brought the era of rising leverage to an end.
And in that case, then what?
We might try to figure out why we seem to need leverage and bubbles to have full employment, and try to fix it. More thoughts on that on another day. But what if that isn’t an option?
One answer could be a higher inflation target, so that the real interest rate can go more negative. I’m for it! But you do have to wonder how effective that low real interest rate can be if we’re simultaneously limiting leverage.
Another answer could be sustained, deficit-financed fiscal stimulus. But, you say, this would lead to exploding public debt! Actually, no – not if the real interest rate is persistently below the economy’s growth rate, which it will certainly be if it’s persistently negative. In that case the government can run a primary deficit even while keeping the debt-GDP ratio constant – and the higher the level of debt, the higher the allowable deficit.
OK, I’m shooting from the hip here. The main point is simply that the weirdness of our current situation may well go on much longer than anyone currently imagines"

## Monday, September 23, 2013

### NAWRU : fraud science

yup

Spain's job markets have  a figmentary  structural problem

equal to at least 10% of the job force
thanx to gonzo NAWRU estimates a go go

## Tuesday, September 17, 2013

### five charts to snailville

1. The sluggish recovery
The recovery has been incredibly slow compared to other economic downturns. As the Center on Budget and Policy Priorities explains with this chart, the employment is only a little bit better than keeping up with population growth. The recovery has also been largely made up of low-wage jobs, and part-time or temporary work.

### 2. The industries that were hardest hit

The recession didn’t come equally to all parts of the economy. Not only did African-Americans and men both experience a bigger drop in employment than the general population, but some industries — most notably the construction industry — were particularly hard-hit:

### 3. The government recession

While most parts of the economy are now firmly on the upswing, the same can’t be said for one group of workers: Public sector employees. Continuous budget cuts in the midst of the recession, combined with the particularly devastating across-the-board cuts precipitated by sequestration, government workers (who include teachers, firefighters, park rangers, state and local level workers, and those in Washington, DC) have been floundering. Previous recoveries have benefited from growth in the public sector, but not this time:

### 4. Anti-recovery budget cuts

It might seem counter-intuitive to cut government budgets during a recession, but that’s been a key platform of the Republican party. This chart from the Wall Street Journal demonstrates what the employment situation would look like without budget cuts:

### 5. Not out of the woods

Dodd-Frank, financial regulation law created in the wake of the recession, is meant to prevent a similarly devastating bank-driven recession from happening again. But as this chart demonstrates, Wall Street had a heavy hand in the creation of the law, participating in far more meetings than any other group.

As President Obama said on Sunday, “we’re not near where we need to be” on recovering from the Great Recession. Reasons to worry pile up. Despite rhetoric agains the “too big to fail” mentality, banks remain much too large to collapse. In fact, the largest US banks are even bigger than they were five years ago, when the recession began.

## Saturday, September 14, 2013

### the shock paradigm as barrier to deeper insight into endogenous forces

inherent instability must be there in the model or the model is reactionary

any  market system of production
dominated by  mutually independent credit financed capitalist agents
is inherently fluxational

persistent  activist state macronautics
is  necessary
--- if not sufficient --
to reduce
the size and extent of   lost production opportunities
thru these inherent fluxations in the  rates of  out put and factor mobilization

### why we sniff at shlock macro hyrdaulics or Krug on rugged old cross type Wynn Godley

"It’s not at all clear how much good the whole apparatus of maximizing behavior in New Keynesian models really does"

" to the extent that such models do seem more or less to work,
it’s only by making some ad hoc behavioral assumptions
that are grafted on to the rest of the structure"

that said
PK still goes "shoo fly"
when Godleynomics buzzes by

"mere hydraulics "

no maximizing agents

but PK  chooses to knock two of the  H-K model's  alleged
long run "predictions"

post WWI secular over savings

and
a nearly static Phillips curve

al this
about a decidedly short run  model
and aimed at a gent renowned for the accuracy of his " this cycle we're in now " forecasting

again its not hydraulics  here
its all  history driven

determined by n independent actors
however for that reason
not  made to fit  any particular actors orders
nor destined to prove providential by any set of explicit social aspirations or "values"

mutual consistency and the justice intrinsic to a higher harmony
has to be imposed by the modeler
-- non bottom up agent up  derived--
estimated relationships
can work quite as well as these consistent  agent inter temporal maximize models
using a limited time horizon like the present cycle
after all stabilization mobilization is all about NOW
yes dynamic adjustments over a series of cycles generates a wild flock of caveats
but none definitively prohibit  state  macro activism
and only the most wonderlandish render such activism substantively inefficacious

## Wednesday, September 11, 2013

### stig greenwald on rationing credit

Several points should be made about the nature of aggregate (and individual

firm) investment behavior implicit in equations (4) and (5). First, high profitability

in any given period, by generating increases in firm equity levels (for

non-credit-constrained firms) and increased cash flow (for credit-constrained

firms), will lead to increased future investment. Thus, the model suggests the

kind of significant relationship between current operating cash flow and investment

found by Hubbard, Fazzari, and Petersen (1988), among others.

Also, if high profitability in any period is related to increases in demand in

that period, the model will exhibit the kind of accelerator behavior that has

been so successful in explaining actual investment behavior.18 The model can

be usefully thought of, therefore, as providing a microeconomic rationale for

both the cash flow and accelerator aspects of investment behavior that appear

to play such a significant role in practice.19 Second, firms wishing to borrow

pay firm-specific rates of interest, not some average rate on all assets. With

imperfectly informed lenders, changes in general market rates do not necessarily

lead to changes in the rates charged to borrowing firms.20 Some part of

the shift in loan supply is absorbed by increased credit rationing since charging

higher interest rates has an adverse effect on the quality and riskiness of

the borrower pool (see below). Thus, the rate, rt (and the associated expected

return to lenders ft), which enters the investment model above may vary significantly

less than widely observed market rates (such as Treasury-bill rates),

which would be available for use in any empirically estimated investment

equation. Second, the impact of interest rates tends to be small relative to the

impact of changes in a firm's financial position,21 and real interest-rate series

have, until the very recent past, been observably quite stable. Thus, the variability

in the financial positions of firms and the perceived riskiness of the

environment they face over the business cycle can be responsible for a far

greater share of the variation in investment over time than market interest

rates. For both reasons, the model provides an explanation for the relatively

small and elusive role that interest rates play in empirical investment equations

and suggests that interest rates themselves do not play a primary role in

macroeconomic stabilization.22

Finally, as will be noted extensively in later sections of this paper, investment,

although defined for explanatory purposes as investment in physical

capital of the usual sort, need not and should not be interpreted so narrowly.

Part of investment takes the form of working capital and the hiring and training

of workers, and a rise in the cost of investment (because, e.g., of a deterioration

in a firm's equity position) will be reflected as a reduction in working

capital, in

### what happens when you don't explicitly model the cyclical features of credit rationing "qualifications"

Godley lieutenant "Dr. Lavoie "

" one of our new  models allows for companies to default on loans, eroding banks’ profits and causing them to raise interest rates"

of course rates don't go up
with a FED  they go down
but qualification standards zoom up

## Tuesday, September 10, 2013

### barry barry eichenloop does a funny

"Many economists are accustomed to thinking about Federal Reserve policy in terms of the institution’s dual mandate, which refers to price stability and high employment, and in which the exchange rate and other international variables matter only insofar as they influence inflation and the output gap"

" which is to say, not very much."

"   This conventional view is heavily shaped by the distinctive circumstances of the last three decades when
the influence of international considerations on Fed policy
has been limited."

limited ?

### thomatose up date

pk v the market monetarism ????
or just
"sloppy sly " wording by PK
pk :
" lot of what we think we know about recession and recovery comes from the experience of the 70s and 80s. "
cool so far

"but"
" the recessions of that era were
very different from the recessions since."

not so
sez market monetarism.... right ?
all recessions are ultimately
monetary policy induced
intentional or unintentional
because
the causes
of all recessions
are monetary in essence
and monetary flows are ultimately the outcome of monetary policy

there are
facts agreed on :
"Each of the slumps — 1969-70, 1973-75, and the double-dip slump from 1979 to 1982 — were caused, basically,
by high interest rates imposed by the Fed to control inflation."
note the fudgicle word "basically"
but its followed by a sharply targeted
proposition
the real driver both down and then back up
was the cost /selling price / affordability
(and profit)
from new construction of housing
I suspect the MMs would stipulate the truth
" In each case housing tanked, then bounced back when interest rates were allowed to fall again."
now the truth drawn from later fun recession facts
begin to diverge
though of course
this observation is held in common
pk "Since the mid 1980s
we’ve had the “Great Moderation,” with inflation quiescent."
but now
it cometh
now
the truth vs truthness drawn from hard facts diverge
pk "Post-moderation recessions haven’t been deliberately engineered by the Fed"
drop the word deliberately and we got a scrap underway
or so it seems
and
now throw this into the ring

pk:
"( P-M recessions)... just happen
when credit bubbles
or other things get out of hand."
ie the recessions are not caused by monetary policy

anne said in reply to paine ...
PK:
"( Postmodern recessions)... just happen
when credit bubbles
or other things get out of hand."
ie the recessions are not caused by monetary policy
[ Worth developing with clarity. As for the recession of 2001, that was precisely caused by interest rate increases brought about by the Federal Reserve in 2000 and possibly James Galbraith has suggested with the intent to limit the chances of Al Gore becoming President. ]
paine said in reply to anne...
I think PK sees FED pre emption changing from output inflation acceleration to bubble busting
the word caused by for PK seems restricted to FED actions to pre empt wage push output price spirals

paine said...
my perennial nominee for neo liberal
den mother of the month
loves
the legacy of the late David S. Landes
I find that very easy to believe

### Dallas FED calc of opportunity output loss from snail pace of present recovery: " $6 trillion to$14 trillion"

"A confluence of factors produced the December 2007–June 2009 Great Recession—bad bank loans, improper credit ratings, lax regulatory policies and misguided government incentives that encouraged reckless borrowing and lending."

note well this is the horror story about the lot bubble burst
not the toxic paper implosion
"The worst downturn in the United States since the 1930s was distinctive."

"Easy credit standards and abundant financing fueled a boom-period expansion
that was followed by an epic bust with enormous negative economic spillover."

the  great bails are not part of the response here because the hi fi credit channel implosion
is not the cause of the crisis

stop laffing you bastids !!!!!!

-----------------------------------------------------------------
What Society Gave Up
or
how  " to measure the cost of lost output"

measure the real recovery path
against
" a baseline trend that might have existed absent the crisis. "

". Output per person as of mid-2013 stood 12 percent below the average of U.S. economic recoveries over the past half-century,"

" bottom-line estimate of the cost of the crisis, assuming output eventually returns to its precrisis trend path"

" an output loss of $6 trillion to$14 trillion. "

" $50,000 to$120,000 for every U.S. household"

"the equivalent of 40 to 90 percent of one year’s economic output."

"the wide  range of estimates is due in part to  uncertainty"

" output may never return to trend—the path of future output may be
permanently lower than before."

" If that’s the case, the crisis cost will exceed the $14 trillion high-end estimate of output loss. ..".\ ### Dallas FED on poor recovery dynamics:"Output per person as of mid-2013 stood 12 percent below the average of U.S. economic recoveries over the past half-century" ## Monday, September 9, 2013 ### future of socialism : M and E plus babies ### samuelsons demon and the optimal locational path/pattern of global prodfuction from here to perpetuity lots of output comes from inside bordered regions that have price level wage level advantages but no technical advantages... not even relative ### recent mis- adventures in the withering away of the capitalist corporation or the virtualization of the firm ...l ...social progres ? out sourcing ad hoc project teams equity only compensation synthetic markets the firm changes its existing complex paradigm the self perpetuating self aggrandizing GM Sloanist marketing firm the river rouge fordist production firm the self financing firm ie the rainbow features of the existing ..pre existing corporate paradigm ### top shelf burger bit econ con modelers or we're addictied to the syntheic a priori and the value of assumption rich analytic conclusions all this instead of a stylized historical starting point ### manufacturing jobs ## Sunday, September 8, 2013 ### signifigant innovation slow down ..and ..the back bite of techno change techno bite back is so basic to innovation it produces the Malthusian reaction over and over again ie this is the bite back that kills the pilgrims of innovation paine said in reply to paine ... the notion tech innovation has a constant velocity is however a bad practical joke of course we mayt face more or less intervals after all its not a steam locomotive chuffing down a set of rails laid out by angels between 16th century London and 24th century Mumbai ### flow cytometry ## Thursday, September 5, 2013 ### of coase ..not ### another way to see the recovery ### fun graph view the path of the hi fi stress index ben ..mission accomplished ### PK's fantasy reovery deficit increment ...1 trillion dollars..." But how bad is that?" "Start with the CBO estimates of potential GDP subtracted from actual GDP to estimate the output gap." " Start the clock at the beginning of 2009, and the output gap — measured quarterly, but at an annual rate — looks like this:" ecce The NAIRU output gap !!!!!! " If you add it up, the cumulative output gap since start-2009 comes to$2.29 trillion"

" $2.29 trillion worth of goods and services we could and should have produced" " but didn’t." "How much government spending would have been required to close that gap?" " at the zero lower bound the multiplier is greater than one" " take a multiplier of 1.3" "$1.76 trillion in spending over the past 4 1/2 years to close the output gap."

" is that an extra $1.76 trillion in debt? " "No " "the economy would have been stronger, leading both to higher revenue and to lower spending on means-tested programs. " " each dollar of extra GDP would have saved 1/3 of a dollar in the form of higher revenue and lower spending" " 2.29/3 =$0.76 trillion."

" the net extra debt we would have run up with my fantasy stimulus
turns out to be a round \$1 trillion"

". OMG: ONE TRILLION DOLLARS!"

" about 6 percent of GDP"

"we would have had federal debt at 76 percent of GDP"

"can  anyone seriously claim that this difference would have caused a fiscal crisis?"

" in return  millions of American families would have been spared
the hardship and humiliation of mass unemployment, lost houses and savings, and more."

" We can further argue that future revenue would be higher "

" improved, not worsened, our fundamental fiscal position."

## Wednesday, September 4, 2013

### fun facts : real profits per employee nearly triple since 'oo little bush coup

Real After-Tax Corporate Profits Per Employee, 1980-2000

1980 ( 7,198) *
1981 ( 6,330) Reagan
1982 ( 5,239)
1983 ( 5,569)
1984 ( 5,539)
1985 ( 4,910)
1986 ( 3,881) (Low)
1987 ( 4,669)
1988 ( 5,340)
1989 ( 4,899) Bush
1990 ( 4,885)
1991 ( 5,342)
1992 ( 5,591)
1993 ( 5,671) Clinton
1994 ( 6,520)
1995 ( 7,043)
1996 ( 7,255)
1997 ( 7,485)
1998 ( 6,234)
1999 ( 6,294)
2000 ( 5,664)

since  December '00 coup

2001 ( 5,584) Bush
2002 ( 6,845)
2003 ( 8,170)
2004 ( 10,273)
2005 ( 12,763)
2006 ( 13,464)
2007 ( 12,239)
2008 ( 9,803)

2009 ( 11,596) Obama
2010 ( 14,052)
2011 ( 13,456)
2012 ( 15,369)

* 1982 - 1984 dollars

Labor Share of Nonfarm Business Income, 1980-2000

1980 ( 108.94) *
1981 ( 107.39) Reagan
1982 ( 109.45) (High)
1983 ( 106.16)
1984 ( 105.35)
1985 ( 105.25)
1986 ( 106.54)
1987 ( 107.89)
1988 ( 108.30)
1989 ( 106.59) Bush
1990 ( 107.44)
1991 ( 107.44)
1992 ( 107.42)
1993 ( 106.13) Clinton
1994 ( 104.50)
1995 ( 104.02)
1996 ( 104.02)
1997 ( 104.12)
1998 ( 106.26)
1999 ( 106.15)
2000 ( 108.25)

since December '00 coup

2001 ( 108.19) Bush
2002 ( 105.27)
2003 ( 103.98)
2004 ( 103.23)
2005 ( 101.42)
2006 ( 101.56)
2007 ( 102.20)
2008 ( 102.62)
2009 ( 100.00) Obama
2010 ( 97.88)
2011 ( 98.16)
2012 ( 97.48) (Low)

### PK takes us on a " level target fantasia tour "

" the central bank has very little direct traction when safe short-term rates are at the zero lower bound; maybe it can achieve something by buying lots of unconventional assets (“quantitative easing”), but its main hope of achieving anything is through “expectations management” — convincing both financial markets and players in the real economy that it will hold off much longer on tightening once the economy improves than they currently expect, which will lead to higher expected inflation and demand, and hence higher spending now."

any sort of nominal  level target gets you that eh ?

### more adventures beyond the RDB (the real debt barrier) chaper 51"what if only UNCLE paid a money tax "

regard the CB and its limitless money mine the LMM

now consider the  State guaranteed and enforced  zero riskless  real rate regime  the RRRR

put them together  LMM-RRRR
and the STATE pays the money tax

product price inflation becomes' a big

SO  WHAT !!!!!

if there's also a  universally mandated
value added or mark up warrant exchange