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the earth into small squares and shows an output stack in each square representing the gdp or gcp of that small region four globes are available on his sidebar i started with the large pixeled contour globe wow hey thanks for the macromath pdf professor posted by the arthurian at 4 00 pm 0 comments for example not sure who i have to thank for this i googled graph of us real output since 1800 and turned up macromath_v2 pdf the url includes the words nordhaus and yale edu so professor nordhaus maybe let s graph us real gdp since 1800 using an arithmetic scale and a logarithmic scale also show a constant growth curve in the log scale which is more useful arithmetic graph log graph from this example you can see why economists like to put log x t on the vertical axis for output prices and other trended variables because a series with a constant growth rate is a straight line because a series with a constant growth rate is a straight line yesterday i said it is always an unwavering path a straight line on a log chart this straight line path is the universal fundamental assumption whether we think it exists or not the straight line is the wrong picture the long term trend looks like a sine curve it looks like a business cycle only longer than the normal business cycle longer than a kondratieff wave longer than david hackett fischer s great wave i m looking at a really long business cycle what we normally think of as civilization the rise and fall of civilization the log graph above shows the straight line that economists always assume but the logged data shows a curve that relative to the straight line is high in the center and low at the ends it is some kind of curve a sine curve maybe the graph runs 200 years from 1800 to 2000 that is one tenth of a 2000 year cycle no i don t call this evidence but i do call it interesting posted by the arthurian at 4 00 am 0 comments thursday june 14 2012 the unit root thing arcane unit root no i don t understand wikipedia says in time series models in econometrics the application of statistical methods to economics a unit root is a feature of processes that evolve through time that can cause problems in statistical inference if it is not adequately dealt with if a linear stochastic process has a unit root the process is non stationary otherwise it is stationary something like that based on the wikipedia article apparently it is something that can be calculated sometimes maybe this rang a bell from the same article the diagram above depicts an example of a potential unit root the red line represents an observed drop in output green shows the path of recovery if the series has a unit root blue shows the recovery if there is no unit root and the series is trend stationary the blue line returns to meet and follow the dashed trend line while the green line remains permanently below the trend the unit root hypothesis also holds that a spike in output will lead to levels of output higher than the past trend okay the dotted line is potential gdp the red line is actual gdp the blue and green lines are two possible post crisis paths we seem to be on the green path this is exactly what james bullard was talking about what john taylor worked out and john cochrane showed what david andolfatto presented and what i reviewed a few months back see especially cochrane s presentation of taylor s graphs i was totally fascinated by bullard s approach i didn t know it had all this backstory among the ending thoughts of the wikipedia article the issue is particularly popular in the literature on business cycles research on the subject began with nelson and plosser whose paper on gnp and other output aggregates failed to reject the unit root hypothesis for these series since then a debate entwined with technical disputes on statistical methods has ensued while the literature on the unit root hypothesis may consist of arcane debate on statistical methods the implications of the hypothesis can have concrete implications for economic forecasts and policies arcane debate indeed paul krugman the wikipedia article links to him provides a relevant example which i ve highlighted march 3 2009 9 06 pm roots of evil wonkish as brad delong says sigh greg mankiw challenges the administration s prediction of relatively fast growth a few years from now on the basis that real gdp may have a unit root that is there s no tendency for bad years to be offset by good years later i always thought the unit root thing involved a bit of deliberate obtuseness it involved pretending that you didn t know the difference between say low gdp growth due to a productivity slowdown like the one that happened from 1973 to 1995 on one side and low gdp growth due to a severe recession for one thing is very clear variables that measure the use of resources like unemployment or capacity utilization do not have unit roots when unemployment is high it tends to fall and together with okun s law this says that yes it is right to expect high growth in future if the economy is depressed now but to invoke the unit root thing to disparage growth forecasts now involves more than a bit of deliberate obtuseness how can you fail to acknowledge that there s huge slack capacity in the economy right now and yes we can expect fast growth if and when that capacity comes back into use kling responds but the unemployment rate is not trend stationary either the natural rate tends to wander around this all comes up because i came upon a link from besttrousers at reddit reddit links to a pdf 50 pages a paper dated 1989 written by lawrence j christiano and martin eichenbaum from a time before computers by the look of it from the opening of the paper macroeconomists have traditionally viewed movements in aggregate output as representing temporary fluctuations about a deterministic trend according to this view innovations shocks to real gross national product gnp should have no impact on long run forecasts of aggregate output increasingly however this view of aggregate fluctuations has been challenged following the important work of nelson and plosser 1982 numerous economists have argued that real gdp is best characterized as a stochastic process that does not revert to a deterministic trend path let me ask a question what is this trend that may or may not exist it is always an unwavering path a straight line on a log chart this straight line path is the universal fundamental assumption whether we think it exists or not the straight line is the wrong picture the long term trend looks like a sine curve it looks like a business cycle only longer than the normal business cycle longer than a kondratieff wave longer than david hackett fischer s great wave i m looking at a really long business cycle what we normally think of as civilization the rise and fall of civilization the cycle of civilization change that dotted line to a sine wave with a 2000 year period and all your assumptions about stationary non stationary and unit root go out the window posted by the arthurian at 4 00 am 0 comments labels cycle of civilization wednesday june 13 2012 if you have to have a metaphor i really liked the opening of the cecchetti mohanty zampolli pdf debt is a two edged sword used wisely and in moderation it clearly improves welfare but when it is used imprudently and in excess the result can be disaster i liked the two edged sword metaphor all the while i was writing yesterday s post soon as i finished i had another thought perhaps our troubles with debt arise from the ambiguity of the double edge debt is good and debt is bad perhaps if we only thought of debt as bad we would stay out of trouble or if we only thought of debt as good we d never think ourselves in trouble nah it s good and bad and we just have to deal with our confusion on the matter oh there are explanations sure the pdf opens with one from the abstract at moderate levels debt improves welfare and enhances growth but high levels can be damaging so it s not the debt that gives us trouble but the level of debt low levels of debt or moderate levels as the bankmen say are not problematic but high levels of debt are a problem i agree my key phrase is excessive debt but remember how it was when you were a kid when you are little everything is out of reach when income is little even moderate debt can be insurmountable low and high big and small these are relative terms that s how we get into trouble we don t see the debt as too high until we re in trouble then it is obvious but then it is too late we need a better way to look at debt the double edged sword is a useless metaphor that does not keep us out of trouble to make it right we need an extra word credit debt is always bad credit is always good but using credit creates debt before you use it opm other people s money is credit it is credit until you use it but the moment you spend a borrowed dollar all that s left is debt you don t have the money anymore after that you just have the debt debt is the record of credit we have put to use a record of money borrowed and not yet paid back credit is always good because it is available for use or because you re using it adding to aggregate demand boosting the economy keeping somebody working it s all good debt is always bad because you don t have the money anymore you don t have the credit anymore you just have the obligation to pay back money you no longer have let me revise the bit i quoted from the pdf debt is not a two edged sword debt is one edge perhaps the sharper edge the other edge is credit money the sword is finance if you have to have a metaphor the sword is finance posted by the arthurian at 4 00 am 7 comments tuesday june 12 2012 where the supply side does not matter the rex nutting post links to the real effects of debt a 34 page pdf by stephen g cecchetti m s mohanty and fabrizio zampolli just a brief look at moderate levels debt improves welfare and enhances growth but high levels can be damaging when does debt go from good to bad we address this question using a new dataset that includes the level of government non financial corporate and household debt in 18 oecd countries from 1980 to 2010 our results support the view that beyond a certain level debt is a drag on growth debt is a two edged sword used wisely and in moderation it clearly improves welfare but when it is used imprudently and in excess the result can be disaster for individual households and firms overborrowing leads to bankruptcy and financial ruin for a country too much debt impairs the government s ability to deliver essential services to its citizens high and rising debt is a source of justifiable concern we have seen this recently as first private and now public debt have been at the centre of the crisis that began four years ago data bear out these concerns and suggest a need to look comprehensively at all forms of non financial debt household and corporate as well as government over the past 30 years summing these three sectors together the ratio of debt to gdp in advanced economies has risen relentlessly from 167 in 1980 to 314 today or by an average of more than 5 percentage points of gdp per year over the last three decades when debt ratios rise beyond a certain level financial crises become both more likely and more severe reinhart and rogoff 2009 this strongly suggests that there is a sense in which debt can become excessive but when we take an empirical approach to this question using a new dataset on debt levels in 18 oecd countries from 1980 to 2010 based primarily on flow of funds data we examine the impact of debt on economic growth our data allow us to look at the impact of household non financial corporate and government debt separately in this section we briefly review trends in household non financial corporate and government debt in what follows we will refer to the total combined debt of these three sectors as the total non financial debt as shown in graph 1 from 1995 to the middle of the last decade public debt had been relatively stable as a percentage of gdp but this period of relative public sector restraint was accompanied by a rapid rise in household and non financial corporate debt the righthand panel of graph 1 makes the rather stark point that real household debt tripled between 1995 and 2010 dwarfing the accumulation of debt in other sectors of the economy the place that supply is deemed not to matter finance here s a older graph from a seeking alpha post of january 09 by contrahour source contrahour at seeking alpha the highest line there the pink one is the total of all the other lines that s the problem yeah total debt but just look at the components just look at one of them on the right side the second highest line highest among the components is financial debt domestic financial debt on the left side at the start financial debt is the lowest in other words financial debt was the fastest growing component of total debt not household debt or any of the others financial debt oh by the way they re all bankmen cecchetti is economic adviser at the bank for international settlements bis and head of its monetary and economic department mohanty is head of the macroeconomic analysis unit at the bis and zampolli is senior economist at the bis maybe they have a vested interest in failing to see financial debt as a problem that would be like me saying household debt does not matter something i do not say and yes it would be like the private sector pointing the finger at public debt posted by the arthurian at 4 00 am 0 comments monday june 11 2012 david brooks the debt indulgence from the opinion pages of the new york times by david brooks 4 june 2012 every generation has an incentive to borrow money from the future to spend on itself but until ours no generation of americans has done it to the same extent why why because policy does nothing to prevent it policy only encourages it still today federal reserve policy is to grow the economy by getting everyone to borrow more this must change a huge reason is that earlier generations were insecure they lived without modern medicine without modern technology and without modern welfare states they lived one illness one drought and one recession away from catastrophe they developed a moral abhorrence about things like excessive debt which would further magnify their vulnerability try to focus david brooks you are not doing economics here your stories are irrelevant in case you didn t notice in the 1990s and 2000s we had a growth industry dedicated to making money by helping people out of debt so even then we had a moral abhorrence about things like excessive debt some kind of abhorrence anyway our character is not the problem our policies are the problem recently life has become better and more secure but the aversion to debt has diminished amid the progress credit card companies seduced people into borrowing more politicians found that they could buy votes with borrowed money pe...
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