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ast of long run real growth is not the same as potential growth the lowering of forecasts does not demonstrate that weak aggregate demand has an impact on potential growth it only demonstrates that forecasters are willing to contradict their own theories in order to push their predictions down where the actual numbers turn out to be posted by the arthurian at 4 00 am 1 comments friday december 27 2013 i don t so much like the wealth income disparity is the cause of our troubles argument i don t so much like the wealth income disparity is the cause of our troubles argument bring it up and somebody is bound to accuse you of stirring up class warfare you re not of course or i don t know maybe you are i do know that i can make the disparity argument without a trace of class concern so you can too i m sure but it doesn t matter if our motives are pure it only matters if our motives have been impugned bring up the disparity argument and your motives are sure to be impugned so i don t like the argument i avoid the argument for me though it doesn t matter so much how other people respond what matters is how the argument holds up in my own mind here again though i avoid the argument for i am not certain i can separate the economics of the disparity argument from the social aspects of that argument and economics my economics has no social aspects at the businomics blog bill conerly asks should economists talk about redistribution an economist has as much right to express statements about value as anyone else does however the economist is not doing so from a position of professional expertise rebecca blank being an expert on poverty does not mean that she is an expert on the morality of using force to solve social problems in fact i doubt that we should grant anyone expert status on such philosophical positions i like that a lot but this next quote i can disagree with economic policy cannot derive strictly from economics economics is a set of if then statements if this occurs then that happens it s a collection of statements about the way the world works or at least a world of people there is nothing within the body of economic thought that by itself dictates what policy is best i don t know if it s within the body of economic thought but clearly the policy that s best is the one that sustains life as we know it or life as we knew it before things started going bad let too few people accumulate too much wealth and they come to have a new vision of the world a vision in which nation states are no longer necessary posted by the arthurian at 4 00 am 0 comments labels cycle of civilization thursday december 26 2013 a simple subtraction subtract consumer debt from gdp graph 1 gdp less consumer debt i know it s a flow minus a stock a flow minus a stock but i m not drawing any conclusions here except it s a surprising picture same graph but log of values graph 2 natural log of gdp less consumer debt how straight those trends are posted by the arthurian at 4 00 am 0 comments wednesday december 25 2013 speaking of models via bill c at twenty cent paradigms the reserve bank of new zealand has a neat animation of bill phillips famous hydraulic computer which illustrates the stocks and flows of national income with tubes tanks and gurgling noises go there scroll down and click turn it on give it a moment an image of the moniac will appear click turn it on you can hover over parts of the machine and descriptions will pop up find options buttons in the upper right corner merry christmas posted by the arthurian at 4 00 am 5 comments tuesday december 24 2013 dirk ehnts and the holodeck dirk ehnts in models as abstractions of the real world are useful a student explaining why abstract models are useful makes a very nice analogy if you want to go from one campus of the berlin school of economics to the other by car or public transport then you need not a description of the world as it is but a description of the world in an abstract form that allows you to get there a map you need a map ehnts gets to the point the same goes for macroeconomics it is not necessary to understand and know how every entity behaves you can use abstractions and you will be fine income gdp equals consumption investment government spending and net exports and maybe this is all you need to figure out how to go from weak economy to strong economy maybe that s all you need ehnts says i can t believe he says it we had that formula didn t we before the crisis and the great recession i m sure we had it then but it didn t prevent the crisis and it didn t prevent the great recession apparently it wasn t all we needed in star trek next generation when they had a problem they couldn t figure out they d take it to the holodeck and run a simulation as a fan i was supposed to believe the computer could figure out things the people couldn t i never bought that the computer only does what you tell it if you write an economic model for the holodeck based on y c i g nx then the holodeck economy will be based on consumption and investment and government spending and net exports but if the real economy is based on a different formula your model won t model the real economy you might as well use a road map without intersections no no that map might still get you where you want to be maybe if economists focused less on the models and more on the economy they would figure out how the economy really works maybe then they wouldn t leave private debt and credit use out of their calculations posted by the arthurian at 4 00 am 1 comments monday december 23 2013 following up on saturday i showed consumer debt on a log scale it showed pretty much a straight line increase then i said the log scale graph provided no context for consumer debt and that in context the graph would show much less of a straight line increase so i showed a graph of consumer debt relative to gdp consumer debt in context and sure enough the graph showed much less of a straight line increase something s been bothering me for two days now i remember stuart staniford saying it s hard to read changes in small growth rates on a log graph and i m concerned that my first graph hides changes because it s a log graph i m concerned that my second graph shows much more deviation from the straight line increase because it s not a log graph so i went back to fred and looked at consumer debt on a log scale again and this time i put consumer debt relative to gdp on the same graph and i made sure to show the log values of the second line this time graph 1 consumer debt on a log scale blue and log of the consumer debt to gdp ratio red consumer debt on a log scale shows a straight line increase consumer debt in the context of gdp does not show a straight line increase and this is true even when log values are shown so yes consumer debt relative to gdp fails to show the straight line increase because of the context variable because of gdp it s the context that distorts the picture at fred when you have the ratio of two series you cannot show the values on a log scale to get the same effect you have to take the log of the values i m not sure why that is really but i did look into it the two methods are equivalent posted by the arthurian at 4 00 am 1 comments sunday december 22 2013 impressions consumer debt relative to total credit market debt graph 1 consumer debt relative to total credit market debt gross federal debt relative to total credit market debt graph 2 gross federal debt relative to total credit market debt financial debt relative to total credit market debt graph 3 financial debt relative to total credit market debt posted by the arthurian at 4 00 am 0 comments saturday december 21 2013 between the surges yesterday i said it s obvious from the up trend on the graph that debt was a developing problem already in the 1950s graph 1 consumer debt on a log scale what i meant was if debt became a problem because debt got so big then the problem arose not after debt got big but when the increase first started it s obvious i think see that flat spot in the recent years in the upper right corner of graph 1 that s when the growth of debt finally slowed that s when people decided they had enough it caused quite a disturbance in the economy that slowing of debt growth here s how it looks to me the debt growth slowdown created big problems because debt plays such a big role in the economy i don t know the numbers but suppose 80 of our spending involves debt now imagine that the debt growth slowdown happened much earlier instead in the 1960s maybe when perhaps only 20 of our spending involved debt the effect of the debt growth slowdown would have been much less it s obvious i think graph 1 shows consumer debt the log of consumer debt it shows no ratio it provides no context for the debt in context there would be more variation in the uptrend it wouldn t just go up and up in context it looks like this graph 2 consumer debt in context relative to the size of the economy it s not just up and up on graph 2 it s up and down and wiggle around that s true but you know graph 1 shows a pretty consistent up trend and graph 1 doesn t show anything but consumer debt it shows consumer debt and you can see a consistent up trend in that debt graph 2 doesn t show the same uptrend but graph 2 doesn t only show consumer debt it also shows the size of the economy as given by gdp and you know if consumer debt shows a consistent uptrend and consumer debt in context does not then maybe the disturbance of the trend comes from the context data not from the consumer debt data the changes in gdp throw off the ratio and make it look like consumer debt doesn t have a consistent up trend but it s gdp that s throwing it off it s the context that distorts the picture it s obvious i think scott sumner looked at a graph like my 2 here a while back here s what he said about the graph what do you see i suppose it s in the eye of the beholder but i see three big debt surges 1952 64 1984 91 and 2000 08 okay but remember he s looking at a disturbance imposed on the up trend by a context variable if you look at the same data total consumer debt relative to gdp and also at the change in consumer debt relative to gdp a more complete picture emerges graph 3 consumer debt relative to the size of the economy blue and change in consumer debt relative to the size of the economy red scott sumner identified three debt surges on the graph i ve emphasized in heavier red the two intermissions between those surges the first i show from 1965 to 1983 and the second from 1992 to 1999 both intermissions match up with relatively flat spots in the blue line the flat spots between sumner s surges during the second intermission the red line is relatively low the change in debt is relatively low relative to the size of the economy this intermission then seems to support sumner s view that there was no debt surge in the 1992 1999 period the first intermission is more problematic yes there is a low spot in the red line just before the 1970 recession the blue line is actually going down at that time but after the 1970 recession there is a peak at least as big as any earlier peak in that red line and after the 1974 recession is an even bigger peak this peak rivals the one at the start of sumner s second surge it rivals the mid 1980s peak but the blue line shows only a very mild increase during the post 1974 peak not a strong increase like the one in the mid 1980s why this discrepancy the behavior of the context data is the key to this puzzle that flat spot in the blue line from 1965 to 1983 that flat spot corresponds to the time called the great inflation the time that prices were rising rapidly incomes were rising too and yes new additions to consumer debt were growing also as prices climbed but the old existing debt did not grow with inflation your mortgage payment was the same month after month and year after year meanwhile your paycheck increased along with prices because of the inflation each year s inflating prices helped to enlarge the new increases of consumer debt but each year s inflating paychecks made existing consumer debt smaller in context it is the rapid inflationary increase in the context data the gdp data that distorts the picture of debt growth during the great inflation despite the large increases to consumer debt through the 1970s the increases to paychecks and incomes and gdp made consumer debt growth look like it slowed significantly consumer debt growth slowed almost not at all during the great inflation if you strip away the effects of inflation consumer debt in context relative to the size of the economy shows a strong up trend comparable to graph 1 above graph 4 consumer debt in context like graph 2 blue and consumer debt in context with inflation stripped away red okay there is a bit of a slowdown in debt growth during the great inflation but only a bit and really not like it looks on the second graph it is not a slowdown that merits exclusion from surge status we had rapid debt growth camouflaged by inflation it s obvious i think posted by the arthurian at 4 00 am 3 comments friday december 20 2013 oh daniel at crooked timber daniel says there is a lot of rewriting of the recent past in the secular stagnation view of why we re in the mess we re in basically the thesis is that since about the mid 1990s it has been the case that it has only been possible to achieve anything like full employment in america during periods when the private sector has been chronically over consuming and increasing its debt levels daniel doesn t buy it they got a structural increase in personal sector debt because they wanted one and set policy in order to create one there s no good calling it a bubble or a puzzle now that the shit s hit the fan amen brother i liked the article i don t like that the thesis only goes back to the mid 1990s but that s not daniel s version of course daniel takes us back to when china starts to industrialise and nafta is passed i don t know about china but nafta came into force in 1994 according to wikipedia so mid 1990s daniel does refer to the entire period in question as the greenspan years which gets us back to 1987 nothing before that that i noticed for more or less the entire period in question call them the greenspan years the growth of consumer spending financed by increased consumer debt was the main instrument of policy sure in comments robert waldmann replies a wish is not a plan greenspan clinton and bush might have wished for consumers to borrow and spend but they had no way of forcing people to okay but policy doesn t force people to do things policy induces people to do things and anyway consumer debt was increasing anyway see how the dramatic increase begins right there in the mid 1990s no no i mean right there in 1987 no no debt was going up from the start to be clear i do like daniel s summary of events since the late 1980s those were all contributing fa...
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