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i asked why was the economy slow in the 1970s to see what people think other people asked let me repeat that one the economy of the seventies was terrible dubbed with an oil embargo and a mix of other problems led the american nation to an almost depression state the energy shortage was the start followed by high unemployment and inflation us history economics of the 1970 s omg 1 i never saw the word dubbed used that way and i don t think it s right 2 a mix of other problems that s not an explanation 3 an almost depression state what i was there yes new york city almost went bankrupt and yes farmers were ploughing their crop into the soil to reduce their costs but the main problem that policy was addressing was inflation and policymakers addressed it by creating recessions to reduce inflation by slowing the economy 4 the energy shortage was the start no it wasn t the start 5 the energy shortage was the start followed by high unemployment and inflation no the rising price of oil was a response to inflation the high unemployment was a result of the anti inflation policy looks like the bit i quoted was part of a high school history project maybe i was too hard on them for example item 2 a mix of other problems i ve used non explanations like that myself and sometimes you have to look at them a long time in my case years before you can see how empty they are so to jackie deanna will jan randall jon and kevin i say i m glad you re interested in economics keep at it your explanations will improve oh and don t take anybody s word for anything that ll come back to bite you every time but to their teacher i have to say what the hell don t teach people that the problem started with oil and don t teach people that the economy was slow when recessions aside growth in the 1970s was as good as it was in the 60s and the recessions were created on purpose by policy as a way to reduce inflation and to google to the question what were the key economic problems of the 1970s you respond with an oil embargo and a mix of other problems really the key economic problem then as now was our failure to understand the economy at october 16 2019 no comments email this blogthis share to x share to facebook share to pinterest monday october 14 2019 from a woodford interview i found an interview with michael woodford by the editor of the minneapolis fed publication the region here is the gist of the discussion at one point region what are the advantages of the latter of a nominal gdp target policy woodford one advantage is it would be a single criterion whereas the thresholds that the fed announced were two different criteria region perhaps dueling criteria at times woodford right there was a threshold for the unemployment rate but there was also a threshold for inflation expectations the question of whether those could be in conflict was being sidestepped the question of what to do if the inflation target and the unemployment target come into conflict was not addressed or not even the question of whether the targets could come into conflict was not being addressed it s a good point in favor of ngdp or not really but at least it s a good point against the current system it doesn t mean ngdp targeting would be better that s wide of the mark but the idea of what we need to happen with inflation being in conflict with what we need to happen with unemployment is certainly a point worth pondering deeply if things get so bad that we have dueling criteria then i m not confident even ngdp targeting can solve the problem it leaves me confident only that somewhere along the way our understanding of the economy went wrong what we need is a massive re think of all the things we are sure about in 1977 i wrote the solution to inflation is less money the solution to unemployment is more money this is a magnificent answer for an either or problem but when the problem is both the logical solution is to increase and decrease at the same time the country s money supply our economy is facing a both problem the solution to that problem is to do two contradicting things to the money supply woodford and i both focus on the possibility that to solve the economy s problems we may need self contradictory policy but no it was woodford in 2014 who said we may run into that problem almost 40 years earlier i said we were already facing that problem but at least we both recognize conflict within policy as a problem apparently some people don t woodford s concern was that the question of whether those policies could be in conflict was being sidestepped i m not sure sidestepping is the big issue here inflation and unemployment are our two main economic concerns and getting them on target is the whole heart and soul of policy if our economic policies are in conflict this is no small thing inflation was too high back in the 1970s so was unemployment remember stagflation it was a both problem and the standard prescription called for self contradictory policy if that s the situation doesn t it make you want to question our understanding of the economy what we should wait for a financial crisis to raise such concerns maybe there is something wrong with our understanding and maybe our error is the source of our troubles that s easy for me to say of course because i m not an economist and i don t have the big investment in understanding the economy it would be costly for economists to take the view that i take so maybe we should expect their concern to be only sidestepping and maybe we should expect that their resolution to the conflict in policy would emerge from their conflicting conclusions rather than from a rethink that begins at initial assumptions almost 40 years earlier i said we were already facing that problem the problem was that unemployment was too high but also inflation was too high it was a manufactured problem we had created high unemployment by using recessions to fight inflation and we had created high inflation either by leaving old keynesians in charge or by failing to address the cost push issue that was being generated by a growing financial sector well we got rid of the old keynesians that didn t help at october 14 2019 1 comment email this blogthis share to x share to facebook share to pinterest saturday october 12 2019 a hundred dollars last time i said one of the biggest distortions life creates is that in the real world our reliance on credit grows over time if we start out borrowing an average of a hundred dollars a year as in 1956 we can end up fifty years later borrowing forty four hundred dollars a year but that s what happens when economists and policymakers think that a constantly rising debt goes hand in hand with improvements in economic well being that hundred dollars to be clear i was looking at household debt when i said it take household debt change the units to change from year ago billions of dollars and make the frequency annual so you get only one number for each year then divide it by u s population with units in thousands verify it and multiply the ratio by a million to convert debt in billions to debt in thousands to get a per capita number here s what i got last time graph 1 101 16508 in 1956 about a hundred dollars and 4398 80697 in 2006 about 44 times as much debt per capita as i said but come to think of it we should probably correct for inflation we re looking at the change in debt that s a flow variable so we can use the same calculation you d use to convert gdp from nominal to real divide the change in prices out of the debt numbers and multiply by 100 i ll be nice and use the personal consumption expenditures chain type price index instead of the cpi the fed uses a pce index not the cpi but i m not going with the one that excludes food and energy prices i m not all that nice here s what i got now graph 2 668 19738 in 1956 and 4932 83577 in 2006 something above a seven fold increase less than seven and a half seven seven and a half versus a 44 fold increase the difference between them due entirely to inflation but anyway per capita household borrowing in 1956 668 20 that s in today s dollars or year 2012 dollars really does that sound a little more reasonable than 100 so as i was saying one of the biggest distortions life creates is that in the real world our reliance on credit grows over time if we start out borrowing an average of a 668 20 a year as in 1956 inflation aside we can end up fifty years later borrowing 4932 84 a year but that s what happens when economists and policymakers think that a constantly rising debt goes hand in hand with improvements in economic well being there is no doubt in my mind that we are a cashless society today because of our pro credit use pro growth policies we should change those policies before it s too late because the reliance on credit is killing us at october 12 2019 no comments email this blogthis share to x share to facebook share to pinterest friday october 11 2019 debt effects suppose we borrow an amount equal to 10 of our income every year and suppose we pay off 10 of our debt every year what does our economy look like assume the interest rate is always 5 assume we start with zero debt assume our income is 10 000 per year always assume our standard of living is equal to our income plus what we borrow minus the debt service we pay assume we start work at age 16 and drop dead at 80 i put all that crap in a spreadsheet graph 1 we start at age 16 with zero debt we borrow a thousand every year and pay back 10 of what we owe our debt accumulates but when it gets to 10 000 we re paying back a thousand every year same as we borrow so our debt stabilizes at that level the 10 000 level in the real world our borrowing varies from year to year prices and hopefully incomes go up interest rates change and terms of repayment change in the real world accumulated debt differs from what this graph shows but the graph shows the kind of thing that would happen if prices and incomes and borrowing and interest rates and terms of repayment weren t all changing what happens in the real world looks like what the graph shows but twisted and distorted by the facts of life one of the biggest distortions life creates is that in the real world our reliance on credit grows over time if we start out borrowing an average of a hundred dollars a year as in 1956 we can end up fifty years later borrowing forty four hundred dollars a year but that s what happens when economists and policymakers think that a constantly rising debt goes hand in hand with improvements in economic well being i can t believe they had the nerve to say that hand in hand thing graph 2 with income of 10 000 and 1000 borrowed we can spend 11 000 the first year we started with no debt so debt service that first year is zero in later years debt service takes some of our money and our standard of living falls after 10 years or so the debt service payment goes above 1000 a year that s more than the thousand we borrow each year so our standard of living goes below our 10 000 income level our standard of living continues to drop thereafter but more slowly as we saw above our accumulated debt eventually levels off as our debt stops rising our debt service stops rising so our standard of living stops falling why does it level off 500 below our income level looks like it s due to the cost of interest in my spreadsheet for this simulation the interest portion of the debt service payment gradually approaches the 500 level the numbers fit on the standard of living graph the blue line runs above our 10 000 income for a while and below it thereafter in the spreadsheet calculation the difference from the 10 000 level is due only to our borrowing which pushes the blue line up and to debt service costs which drag it down for those first 10 years or so when the blue line is above 10 000 we re ahead of the game but after those early years the standard of living goes below our income level and our creditors are ahead of the game that s a bit of a simplification creditors can have bad days too but you get the idea we re ahead of the game in the early years and behind the game thereafter the standard of living graph indicates our standing for each year separately it doesn t add last year s number to this year s for each year it shows how that year s borrowing and that year s debt service payment tally with that year s income in life we may take things a year at a time or a day at a time but if we re ahead every year for ten years or so things seem pretty good and if we re behind every year without ever a good one things can seem pretty bad so i want to look at the cumulative effect of being ahead of the game or behind it due to the effects of borrowing and loan repayment on income graph 3 on the earlier graph the standard of living graph we start at 11 000 a thousand dollars above our income level over the next ten years the blue line gradually falls and eventually gets down to our income level that year there is no gain on this graph the cumulative gain or loss graph the blue line starts at the 1000 level because our standard of living was 1000 above our income level over the next ten years the blue line rises as we add in gains from later years but it rises more and more slowly because each year s gain is less than the one the year before after 10 years the cumulative gain reaches a maximum just below the 5000 level on the graph at the maximum the line is just about flat because the gain from borrowing has just about dissipated and our standard of living is just about equal to our income in the years thereafter our debt service is more than the 1000 we borrow each year as a result our standard of living runs below our 10 000 income level we re behind the game and each year is a loss when you take those annual losses and add them to our cumulative gain or loss graph what you get is a shockingly large cumulative loss and yes i checked that 100 number 100 per year per capita borrowing in 1956 at october 11 2019 no comments email this blogthis share to x share to facebook share to pinterest wednesday october 9 2019 non sequitur high debt low demand the public sector should borrow to fill the spending gap cecchetti et al again 2011 pdf page 4 in principle as highly indebted borrowers stop spending less indebted borrowers or lenders could take up the slack for example wealthy households could purchase goods at reduced prices and cash rich firms could invest at improved expected return but they need not as eggertson and krugman 2011 point out it is the asymmetry between those who are highly indebted and those who are not that leads to a decline in aggregate demand those authors suggest that in order to avoid high unemployment and deflation the public sector should borrow to fill the spending gap left by private sector borrowers as the latter repair their balance sheets here s what i get from that paragraph there is a lot of debt higher debt service or a decision to cut ba...
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