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ttend to many things at the same time by means of a single act of thought is confused in mind people who do not allow their thought to be distracted by various objects at the same time but always concentrate it in attending to the simplest and easiest particulars are clear headed posted by the arthurian at 7 18 am 0 comments tuesday august 11 2015 the inflation adjustment of debt a partial re post from 4 august in response to nathan tankus let me take the federal debt numbers as noah does and look at them a little more carefully than he does i want to look at the year to year change in the federal debt i want to look at each year s increase that s like looking at the deficits just as noah wanted i want to remove the inflation from each year s deficit and then add up all the deficits to see the inflation adjusted debt this is a necessary step as noah s explosion occurs just as the great inflation is coming to an end how can we know whether the explosion noah sees was the result of policy or an accident of inflationary numbers we have to look graph 5 noah s numbers blue and my numbers red the blue line on graph 5 shows a sudden increase beginning in the early 1980s just as noah smith showed the red line shows the increase beginning around 1974 after a decline that ends around 1966 does it matter it might it wouldn t be right to say the u s federal deficit began to trend upward beginning around 1980 real numbers provide the better measure of growth if you are looking at the growth of deficits explosive or otherwise you want to use the red line not the blue line most people will tell you that the red line should be identical to the blue line because a ratio of reals comes out the same as a ratio of nominals it depends how you do the math here s how i did the math 1 take the annual change in gross federal debt fred s fygfd as a measure of federal deficits 2 convert these deficit numbers to real deficits divide each year s deficit by that same year s gdp deflator and multiply the result by the deflator value for 1947 3 calculate the real federal debt start with the fygfd value for 1947 and add to it the real deficit numbers for 1948 2013 as calculated in step 2 4 calculate real gdp for base year 1947 by following the same method i used to calculate real deficits 5 plot real debt as a percent of real gdp and nominal debt as a percent of nominal gdp the trick is to figure each year s inflation for that year s deficit you can download the excel file fredgraph 1ywx from google drive my source data is from this fred graph posted by the arthurian at 4 51 am 5 comments monday august 10 2015 full circle okay i went back to wolfgang streeck s post the one we looked at yesterday how will capitalism end i was looking at his graphs figures 5 and 6 total tax revenue as a percent of gdp and top marginal income tax rates went to fred and came up with this which i thought was interesting graph 1 from fred the tithe then i googled tax rate historical graph to find something relevant to my fred graph found this one graph 2 from ritholtz via the hipcrime vocab the google image visit page button brought me to the hipcrime vocab interesting site funny thing is hipcrime s three most recent posts bring us right back to wolfgang streeck s topic posted by the arthurian at 4 00 am 0 comments sunday august 9 2015 how will capitalism end via reddit from the new left review how will capitalism end by wolfgang streeck a long article you can download the pdf but it is 30 pages a number that exceeds my brain capacity so far i read almost the whole first paragraph there is a widespread sense today that capitalism is in critical condition more so than at any time since the end of the second world war looking back the crash of 2008 was only the latest in a long sequence of political and economic disorders that began with the end of postwar prosperity in the mid 1970s successive crises have proved to be ever more severe spreading more widely and rapidly through an increasingly interconnected global economy global inflation in the 1970s was followed by rising public debt in the 1980s and fiscal consolidation in the 1990s was accompanied by a steep increase in private sector indebtedness for four decades now disequilibrium has more or less been the normal condition of the advanced industrial world at both the national and the global levels footnotes removed and looked at the first graph like you perhaps i was drawn to the article by its title and then that first paragraph was most satisfying capitalism is in critical condition the crash of 2008 was the latest in a long sequence of disorders that began in the mid 1970s successive crises have proved to be ever more severe i like the quote because it identifies monetary problems inflation in the 1970s public debt in the 1980s and private debt in the 1990s excellent focus then i react hey i m one paragraph into a 30 page paper i know but i think wolfgang streeck is gonna go off in some weird direction and i m probably going to have to disagree with him so i have to write this before i read any more the end of capitalism where does he get that oh i know where he gets it i read about this time magazine 31 december 1965 maybe leuchtenburg maybe and toynbee lots of toynbee i read about this william e leuchtenburg in franklin d roosevelt and the new deal from chapter 2 the longer the depression persisted the more people began to conjecture whether they were not witnessing the death of an era one wonders if this paralysis of the power to produce and consume will drive us all to a life on the level of the middle ages speculated a welfare worker a writer asked will future scholars date from 1929 the decline and fall of western civilization as we now hear on every hand many believed that the long era of economic growth in the western world had come to an end sheesh let a time of troubles arise and suddenly everyone thinks it s the end of life as we know it you know what i have to say to that stop making predictions just stop yes things went sour in the 1970s or the 1960s i d say and got worse since then and now things are extremely bad the quote is valuable because it points out that the problem started long ago and has been getting worse a lot of people don t seem to realize it streeck s word critical implies the end is near we don t know that it s a prediction still things have been getting worse for so long now that we don t need to predict the future it is enough to consider the last fifty years the end is near where does this idea come from that endings are at hand when things go bad for a long time when things get bad enough our natural optimism succumbs to a more practical view keynes had it right when he said in practice we have tacitly agreed as a rule to fall back on what is in truth a convention the essence of this convention though it does not of course work out quite so simply lies in assuming that the existing state of affairs will continue indefinitely except in so far as we have specific reasons to expect a change after things have been going bad for a while we start accepting the downhill trend as the new normal all we can see at the end of the trend is the end of life as we know it i m thinking that s where the idea comes from how does it work arnold j toynbee described the progress of civilizations as a repeating pattern he called it challenge and response now civilizations i believe come to birth and proceed to grow by successfully responding to successive challenges they break down and go to pieces if and when a challenge confronts them which they fail to meet in the somervell abridgement of a study of history toynbee described what happens when the response is not successful when the outcome of each successive encounter is not victory but defeat the unanswered challenge can never be disposed of and is bound to present itself again and again until it either receives some tardy and imperfect answer or else brings about the destruction of the society which has shown itself inveterately incapable of responding to it effectively this is exactly our situation today and for the past 50 years many people have been convinced by the long duration of the decline that the end is near indeed it could be but all we need to prevent it is the right response to the challenge the economy was good before the mid 1960s on the last day of 1965 time magazine put john maynard keynes on the cover and included these words in the opening paragraph of their cover story in washington the men who formulate the nation s economic policies have used keynesian principles not only to avoid the violent cycles of prewar days but to produce a phenomenal economic growth and to achieve remarkably stable prices in 1965 they skillfully applied keynes s ideas together with a number of their own invention to lift the nation through the fifth and best consecutive year of the most sizable prolonged and widely distributed prosperity in history they ended that article with these words if the nation has economic problems they are the problems of high employment high growth and high hopes as the u s enters what shapes up as the sixth straight year of expansion its economic strategists confess rather cheerily that they have just about reached the outer limits of economic knowledge they have proved that they can prod goad and inspire a rich and free nation to climb to nearly full employment and unprecedented prosperity the job of maintaining expansion without inflation will require not only their present skills but new ones as well perhaps the u s needs another more modern keynes to grapple with the growing pains a specialist in keeping economies at a healthy high but even if he comes along he will have to build on what he learned from john maynard keynes i always wanted to be that guy it was a golden age but they did mention the job of maintaining expansion without inflation that one turned out to be a killer the kennedy half dollar issued in 1964 contains 5 38 worth of silver at recent prices but at those same prices the kennedy half issued in 1965 contains only 2 20 in silver because after 1964 the silver content dropped in 1964 the silver content in those coins was 90 for 1965 it was reduced to 40 they knew already in 1964 before they had minted any coins for 1965 they knew that inflation was forcing debasement of the coinage that s a significant point in the history of the u s economy they knew it a good two years before that december 31 1965 issue of time came out at least two years time was aware too they wrote of maintaining expansion without inflation 1965 that was the start of the great inflation according to alan meltzer and as adam smith wrote in paper money that was the high point the dragons of inflation and unemployment began to snort in their caves and stagflation an awkward beast a hybrid of inflation and stagnation roamed without serious natural enemies cynics said there were two sure signs that the keynesian era was waning one was that time magazine put keynes on its cover what i get from toynbee when the outcome of each successive encounter is not victory but defeat the unanswered challenge can never be disposed of and is bound to present itself again and again until it brings about the destruction of the society which has shown itself incapable of responding effectively the roots of our economic problem go many years back and many people now fear the end is near but i am reminded of thomas edison inventing the light bulb forbes for example in developing a commercially viable light bulb edison actually went through over ten thousand prototypes before getting it right later edison became famous for saying i have not failed 10 000 times i have not failed once i have succeeded in proving that those 10 000 ways will not work when i have eliminated the ways that will not work i will find the way that will work edison and sherlock holmes how often have i said to you that when you have eliminated the impossible whatever remains however improbable must be the truth none of the things we ve tried have solved the economic problem we need to admit that our solutions have not worked and find something else to try eliminate the ways that have not worked and consider what remains our task is to improve our understanding of the economic problem until solutions become obvious and do it before time runs out keynes did not despair of capitalism as so many other economists did time posted by the arthurian at 4 00 am 0 comments saturday august 8 2015 trying to describe what the problem is a vague recollection of something paul krugman said led me to a cepr post from january of 2014 paul krugman is a very smart person who does a fine job of defending himself but he has enough detractors who repeat the same nonsense enough times that some reasonable people may actually be deceived for this reason i will briefly intervene to point out that the people claiming krugman called on greenspan to create a housing bubble in 2002 like bret stephens in the wall street journal today are just making stuff up the basis for this absurd claim was a 2002 column on the weak recovery following the 2001 recession the column notes the weakness of the economy at the time we were still losing jobs 8 months after the official end of the recession and attributes it to the fact that the 2001 recession was not a standard post war recession it was brought about by the collapse of the stock bubble krugman then wrote to fight this recession the fed needs more than a snapback it needs soaring household spending to offset moribund business investment and to do that as paul mcculley of pimco put it alan greenspan needs to create a housing bubble to replace the nasdaq bubble it should have been pretty evident that this was sarcastic i wouldn t say krugman was being sarcastic i think he was trying to describe what the problem is we don t get growth these days unless we get a bubble it s a pretty straightforward observation on his part it wasn t even his observation actually it was mcculley s the reason this comes up is that i said something similar a while back and just came upon it now in reduction 3 i quoted me the problem is not that we have inflation the problem is not that economic growth is weak the problem is that we need an inflationary increase in the money in order to get decent growth since we have chosen to keep inflation at a low level we are limited to a low level of economic growth this problem cannot be solved by thinking of inflation and growth as two separate problems i still use the word inflation as though i was still in the 1970s forget about that if you take what i said and change the word inflation to bubble you get pretty much exactly what paul krugman said the problem is not that we have bubbles the problem is not that economic growth is weak the problem is that we need a bubble in order to get decent growth a bubble of course is inflation asset inflation t...
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