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tural rate of unemployment the unemployment rate that arises from all sources other than fluctuations in demand associated with business cycles a simple definition unemployment arising from all sources other than business cycles and that brings us to today s agenda the fluctuations that are associated with business cycles in his kondratieff rejection piece murray rothbard wrote the market is a seamless web all facets of the market are interconnected through the price system and the profit and loss motive booms and busts spread throughout the system that is precisely why they are important it is absurd to think that one part of the economy can peg along on a nine year cycle another on a three year cycle and still another on a 25 year cycle with each of these cycles barreling along on a hermetically sealed track not influencing and modifying each other in fact there can only be one real cycle going on in the economy at anyone time rothbard is right it is absurd to imagine completely separate cycles existing with absolutely no influence on each other on the other hand it is not absurd to imagine that more than one cycle might arise from economic forces generated by concurrent economic activity of billions of people spread over the face of a planet nor is it absurd to imagine such cycles themselves in continuous interaction it is however absurd to invent the notion of the non interaction of cycles pretend that others invented the notion and then reject the work of others by saying that the non interaction of cycles is absurd in business cycles pdf 385 pages apparently on page 209 schumpeter attempts to present an extremely simplified or clean version of the interaction of business cycles he limits his presentation to three cycles only for the sake of simplicity he eliminates not only other cycles but also external disturbances and also seasonals and growth and he makes his three cycles as regular and unvarying as possible by using three sine curves the amplitudes of which are proportional to their duration schumpeter warns that this is a great simplification of course we do not as a matter of principle postulate either internal regularity or sine form we may look upon the charts as an illustration of all the boldest assumptions which it is possible and to some extent permissible to make in order to simplify description and to construct an ideal schema with which to compare observations in particular all cycles have four phases of equal length amplitudes of plus and minus excursions are equal and constant periods are also constant and each of the two higher cycles consists of an integral and constant number of units of the next lower movement and then schumpeter provides chart 1 showing the interaction of cycles take three extremely regular wave patterns and add them together and you get a surprisingly complex shape schumpeter for the stranger to statistical technique the fact alone that extreme regularity of but three components may result in so very irregular looking a composite should be instructive schumpeter argues that the cycles do interact i didn t find the reference but schumpeter also argues that if time and chance should bring the lows of various cycles together the combined low would be deeper than any of the individual lows alone you can see this behavior on his chart schumpeter said this concurrence could explain the severity of the great depression i don t necessarily buy that explanation of the great depression but i certainly buy that such a thing could happen so i have to reject rothbard s assertion that there can only be one cycle posted by the arthurian at 4 00 am 7 comments tuesday december 20 2011 evolution krugman david warsh finally says what someone needed to say friedrich hayek is not an important figure in the history of macroeconomics thus ensued my first visit to economicprincipals com david warsh proprietor it looks a bit like a newspaper column perhaps it induces me to read anyway i do warsh trashes thrashes and tongue lashes hayek for 60 of 64 column inches then something surprising happens in the last four of those inches warsh has something nice to say about hayek that said it is pleasing to think that hayek himself may yet turn out to have been a very great economist after all far more significant than myrdal or robinson when seen against the background of a broader canvas the proposition that markets are fundamentally evolutionary mechanisms runs through hayek s work caldwell of duke university notes that starting with the constitution of liberty the twin ideas of evolution and spontaneous order become prominent especially the idea of cultural evolution with its emphasis on rules norms and decentralization these are today lively concepts in laboratories and universities around the world it could have been that hayek was running a different race and the fact that he didn t do well in the walrasian race was that he wasn t running in it he was running in the complexity race says david colander of middlebury college hayek may yet enter history as a prophet of evolutionary economics a discipline dreamt of since the days of thorstein veblen and alfred marshall in the late nineteenth century but not yet forged whose great days lie ahead markets are evolutionary i ll have to put that on my list of things to look into that s a list that just keeps getting longer i can t say what hayek meant by evolutionary markets not what warsh and the others mean by evolutionary economics i can only say what i see the economy changes it changes in response to policy and it changes in response to internal imbalances and such exogenous and endogenous change if we lived as long as struldbrugs we could see the big picture but we don t so we can see business cycles but we can t see the ones that are a human lifetime long or more because we never get to see them repeat and not seeing is not believing and this process of change looking at it from afar it looks like cycles but looking at it the way we get to look at it it only looks like evolution that s about it posted by the arthurian at 4 00 am 2 comments labels cycle of civilization monday december 19 2011 money and social possibilities an interesting post i disagree with at heteconomist com posted by the arthurian at 10 00 am 6 comments before the so found this nicely organized site with a bit of british flavor in the writing the virtual worlds section of biz ed i have not figured out yet how to get from the home page to the page google got me to so i will skip over the niceties and get to the point from the explanation of interest rate page the interest rate can be considered as the price of money it can be but it shouldn t be the interest rate is the price of credit the price of using opm other people s money somebody said opm back in the early 90s in one of the newsgroups at 2400 baud whatever long ago and those three letters stuck in my head useful that s from milton friedman by the way the interest rate is the price of credit here s the rest of that first paragraph if you want to borrow money the interest rate is the percentage over and above the original loan that has to be paid back this makes the interest rate a vital tool of economic management a large amount of economic activity both consumption and investment is done on borrowed money and so if the interest rate is changed it will either encourage or discourage borrowing and therefore tend to increase or decrease economic growth know what gets me these words a large amount of economic activity is done on borrowed money oh i don t deny it not at all i object to taking that phrase and burying it before a comma and before the word so i object to taking that fact and treating it as a given treating it as the type of fact that always has been and always shall be world without end amen that s what i object to sloppy it is even when the reliance on credit was low you could easily say a large amount of economic activity is done on borrowed money sure and it would be true too however the reliance on credit varies sometimes the large amount is about equal to gdp sometimes it is three times gdp or more sometimes the large amount is five times the amount of money we don t have to pay back sometimes the large amount is 35 times that money the reliance on credit varies and economic performance varies as a result bury the virtual worlds phrase before the so or insist that money and credit are the same thing and you will never be able to understand the effect of varying the reliance on credit the effect on the economy as a whole the effect on economic performance the solution to the problem we cannot solve will be found in the place we do not look posted by the arthurian at 4 00 am 0 comments sunday december 18 2011 long trends in monetary phenomena on what basis then do the kondratieffites presume to bracket 1940 with 1896 and 1849 and 1789 as the terrible years of kondratieff troughs really on one and only one ground each of these years was a trough point for the index of wholesale prices all the other alleged confirmations of the kondratieff troughs were simply of prices or else of monetary phenomena reflected in prices rothbard three long data series are shown on graph 1 robert shiller s interest rate in black my debt per dollar in red and a 5 year moving average of the real interest rate in blue the blue is the one that makes the graph look crazy with all its ups and downs despite being averaged the black line shows the three peaks that i identify as three longwave peaks the red dpd starts later and shows only two peaks the red is composed of two separate lines actually because i have two mis matched sources for debt numbers historical statistics 1916 1970 and fred 1959 2010 you can see the same mis match in krugman also the red one is scaled down by half to bring it near the black and blue for comparison graph 1 the blue real interest line trends downward from the first black peak 1873 to the first black trough 1900 black and blue then move upward together if we ignore the exogenous v around the time of the first world war then black peaks 1921 and starts to fall while blue continues to rise blue finally peaks with red 1931 1933 then together these fall i second thought this late peak below everything reaches a bottom together around 1946 then all begin to move upward similar to the exogenous v of the first world war is an exogenous blue u from 1939 to 1951 bottoming in 46 and quite evidently related to the second world war i think i see a third exogenous anomaly from the mid 1960s to the early 1980s caused by the high inflation of that period if that is the case i think the natural trend of the blue line would follow the red line from say 1962 to 1982 after the black and blue peaks 1982 1984 both interest rate lines trend downward just as they did from 1873 to 1900 but not as they did after the second black peak in 1921 now i am wondering about the blue peak at 1931 in 1928 the blue line is still on the downward path of 1923 1937 after 1937 war created an anomalous low perhaps after 1928 depression created an anomalous high yes that makes sense the blue line differs from the black by the rate of inflation three high periods of inflation wwi wwii and the seventies created three anomalous lows and the one period of extreme deflation the great depression created an anomalous high if that is the case and if we ignore the anomalies perhaps there is a natural downward trend from 1923 to perhaps the mid 1940s this would correspond to the earlier decline pattern following 1873 and to the later decline pattern following 1982 i know there is a lot of if in this analysis treating the blue peak at 1931 as an inflation related anomaly rather than as trend we are left with a blue line that runs up and down in a pattern much like the black real and nominal interest rates moving together except for episodes of high inflation or high deflation makes sense i think granted there are almost as many anomaly years as normal trend years the period between the peaking of interest rates and the peaking of debt per dollar is a period of financial euphoria there is a lot of if in the above analysis does that weaken my case perhaps but i think it weaken it less to say as i say that these unique events disturb the pattern than it does to say as rothbard says that these events create the pattern i agree with rothbard that government actions sometimes create disturbances when i look at my graphs i can see those disturbances but i also see a natural wavelike pattern only temporarily disturbed and after each disturbance i see rapid return to the wavelike pattern the first world war for example created a sharp drop in real interest rates but after the war the real interest rate trend returned to the pattern it showed before the war the disturbance in every case is a price disturbance the natural pattern itself arises from the accumulation of financial cost and the accumulation of financial wealth these accumulations are monetary phenomena imbalances sometimes so severe that they topple governments posted by the arthurian at 4 00 am 0 comments saturday december 17 2011 egads http news research stlouisfed org 2011 12 new fred category structure new fred category structure we will soon be reorganizing the categories in our fred database during this process users will still be able to access and search for all series after these modifications fred will have 7 main categories national accounts population employment and labor markets production and business activity prices money banking and finance international data u s regional data several existing categories will be eliminated and series listed under those categories will be moved to more descriptive categories all email notifications for the eliminated categories will be updated for more clarification see the mockup of the changes we intend to complete this transformation by the end of this year posted by the arthurian at 7 08 pm 0 comments tfa suffix from yesterday graph 1 components of total financial assets i m wondering what the red line would look like if we separated household assets from the assets of nonprofit organizations i went to fred and did a search for balance sheet of households fred turned up a list of 47 data series every one of those series descriptions ends with the phrase balance sheet of households and nonprofit organizations sometimes the information you re looking for just isn t so easy to find reminds me of looking for data series on private debt posted by the arthurian at 4 00 am 0 comments friday december 16 2011 tfa found total financial assets at fred by accident just now graph 1 components of total financial assets red household and nonprofit organizations blue nonfarm nonfinancial corporate business green nonfarm noncorporate business omitted are farm assets of course economists sure don t like them farmers also omitted financial business i m sure there s a g...
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