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early 1980s generated arguments that would become familiar to participants more than a decade later questions such as how much should the committee risk its price stability goal to gamble that nascent accelerations in productivity will persist if the committee were to regard the risk as unacceptable and tighten policy preemptively as suggested by inflation forecast targeting with models that do not incorporate the positive shock to productivity growth how much output is lost and how does this interact with the fomc s dual mandate from the congress to seek both price stability and maximum sustainable economic growth i have an advantage over the fed i don t operate in real time setting policy based on the latest news reports i just look at the past and evaluate trends but sometimes i have to wonder whether the fed ever looks at the past and evaluates trends oh sure unexpectedly strong productivity growth during the early 1980s generated arguments that would become familiar to participants more than a decade later but more than a decade later the fomc had progressed only toward greater uncertainty knightian uncertainty i can tell you why they are uncertain they don t look for answers they say things like models that do not incorporate the positive shock to productivity growth as though by calling it a shock all questions are answered don t stick your finger in the socket why mommy because you ll get a shock it is an answer appropriate for children it is not appropriate for the federal reserve in this article we thus examine how monetary policymakers recognized and responded to the productivity acceleration of the 1990s the focus on self is not productive rather than examine how policymakers recognized and responded it is necessary to examine the underlying causes of the productivity acceleration of the 1990s and as a hint in what direction the analysis should proceed consider that the federal reserve sets monetary policy the appropriate analysis is the analysis of monetary causes of the productivity acceleration of the 1994 2001 period posted by the arthurian at 4 00 am 0 comments tuesday december 27 2011 a stronger argument is needed in debt and growth in the g7 paul krugman writes i ve written fairly often about the often cited reinhart rogoff claim that terrible things happen to economic growth if the ratio of debt to gdp exceeds 90 percent it s a claim that has been pretty thoroughly debunked he says linking back to his own stuff pk shows a graph of the debt gdp ratios of the g7 countries since 1946 together with a line representing the famous 90 percent threshold what do we see the answer is that the 90 club consists of the english speaking nations in the immediate aftermath of world war ii britain for a longer postwar stretch italy since the late 80s japan since the mid 90s and a couple of years in canada i would call his tone dismissive krugman notes the occasions when the ratio was over 90 but does not dwell on the problematic aspects of those occasions fair enough his point is that debt above the 90 level isn t a problem but he does not make a strong argument he notes the facts and dismisses them krugman provides one paragraph in defense of his view and a summary line the english speaking economies contracted in the years immediately after the war not because of debt but because rosie the riveter went back to being a housewife italy and japan both experienced sharp growth slowdowns before their debt went so high and you can make a strong case that slow growth caused high debt not the other way around so this really looks like a case of spurious correlation the rosie the riveter line could be developed into an argument about an economy dealing with major changes due to the ending of a major war but krugman doesn t bother nor does he explain why the presumably brief contraction after the war was brief nor why it was immediately followed by a golden age of economic growth here again this could be a strong argument and as for italy and japan pk says you can make a strong case that slow growth caused high debt my emphasis but krugman does not make that case either 1 krugman does not make clear that his discussion excludes private debt 2 he dismisses claims that 90 is a problematic level for debt 3 he admits there was a contraction after the war and provides an explanation but no evidence to support it 4 he fails to point out the 25 years of superb growth that followed the brief contraction and fails to show how this growth occurred despite or perhaps because of the high level of debt 5 he fails to make the one strong case that he says can be made and what is krugman s strong case slow growth caused high debt even if pk made this case it would be a weak argument when you leave private debt out of the picture it is difficult to show that private debt is the cause of the slow growth that caused high debt posted by the arthurian at 4 00 pm 0 comments unit labor cost posted by the arthurian at 4 00 am 2 comments labels ulc monday december 26 2011 nuance from mine of the 22nd from wikipedia within mainstream economics levels and flows of public debt government debt are a cause of concern while levels and flows of private debt especially households and corporations is not seen as being of central importance okay but there is economic evolution the economy changes all the time private debt has become a problem of central importance consider that the federal reserve was not created until 1913 fed policies have been developing since that time and the u s was still on a gold standard until the 1930s so the door was wide open for economic evolution in the decades after wwii as things stand today there can be no doubt that private debt has become a problem of central importance but perhaps there was a time when private sector debt was never a problem as i wrote in my series on the free banking era of 1836 1863 money being tied to gold would have changed the nature of the problem it would have changed the way the problem worked itself out the early panics rothbard wrote seemed to be ten years apart 1837 1847 1857 in those days gold was money money was gold banks issued paper money that was exchangeable for gold you d come home from the market or come home on payday take the money out of your pockets and put it on the kitchen table if it was mostly gold that was obvious if it was mostly paper that was obvious too when the money started to be mostly paper people got concerned they started taking their paper to the bank to get hard money for it to get gold zoom out and look at that and you can see a panic develop in the 19th century there never got to be an extreme imbalance between money and debt like there is today because it was easy to tell the difference between money and debt if it was gold it was money if it was paper it was somebody s debt and panics flushed debt from the system frequently when money was gold it was easy to see the difference between money and debt it is not so easy to see the difference anymore because money is paper and debt is paper or today both are notations even harder to see evolution in the free banking era there were frequent panics too frequent to permit debt accumulation like the bizarre inexplicable debt accumulation we have today those panics kept recurring every few years flushing debt from the system in the 19th century frequent panics prevented debt from accumulating the way debt has been accumulating for us since world war two so perhaps it is true that in the 19th century private debt never became a problem or at least it was a self correcting problem i m quite certain it is true also that the great body of western economic thought originated in that same 19th century oh sure there was adam smith a little early and maynard keynes a little late but in the years between those two men the foundation of what we think of as modern economics developed look at recent thought it s mostly based on say s law and ricardian equivalence and on what keynes called classical economics it s mostly based on economic thought from a time when gold and recurring panics prevented debt from becoming a problem evolution it s time to flush 19th century thinking from the system it s time to accept the fact that private debt accumulates until it becomes a problem people know it already debtors know it and creditors know it too the only people who don t seem to know it are our modern day 19th century economists posted by the arthurian at 4 00 am 0 comments sunday december 25 2011 odious policy from wikipedia the free encyclopedia odious debt in international law odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation should not be enforceable i got that far and i said oh yeah this is how we solve the debt problem such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state well it will take some work change regime to policymakers and not debts of the state to not debts of the people and that should take care of it the doctrine was formalized in a 1927 treatise by alexander nahum sack according to sack when a despotic regime contracts a debt not for the needs or in the interests of the state but rather to strengthen itself to suppress a popular insurrection etc this debt is odious for the people of the entire state this debt does not bind the nation it is a debt of the regime a personal debt contracted by the ruler and consequently it falls with the demise of the regime change despotic regime to well meaning and benevolent government for a reason say because it mistakenly thinks it is in the best interest of the people to encourage their use of credit and accumulation of their debt say this bizarre and unnatural growth of debt was the result of a misunderstanding of economic principles and consequently it falls with the demise of the policy that works for me and then i read the first footnote graeme smith a new euro crisis strategy deny the debt the globe and mail 20 november 2011 and discovered that i was neither the only person nor the first to think we can reduce debt by treating it as odious you have to be a subscriber to see the linked article but you can also read it at http www europe solidaire org spip php article23575 graeme smith writes when demonstrators scream make the bankers pay or the equivalent in greek spanish or italian many of them are embracing a concept that has gained popularity during the crisis it s a deceptively simple way of dealing with a crushing sovereign debt declare the loans illegal or odious i m in the argument is that when a lender knowingly gives money to a corrupt or dictatorial regime for purposes that don t benefit the country the debt should be erased when the tyrant falls when lenders profit from incorrect and unsustainable economic policies regardless of the purposes of those policies the debt should be erased when the policies fall none of europe s finance ministers have proposed anything of the kind but they have been forced to explain why not ireland s finance minister quickly dismissed the proposal as deranged and crazy well sure because the alternative to saying deranged and crazy is to say yes our policies were foolish yes our policies were wrong posted by the arthurian at 11 01 am 0 comments merry christmas maynard keynes when the accumulation of wealth is no longer of high social importance there will be great changes in the code of morals we shall be able to rid ourselves of many of the pseudo moral principles which have hag ridden us for two hundred years by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues we shall be able to afford to dare to assess the money motive at its true value the love of money as a possession as distinguished from the love of money as a means to the enjoyments and realities of life will be recognised for what it is a somewhat disgusting morbidity one of those semi criminal semi pathological propensities which one hands over with a shudder to the specialists in mental disease all kinds of social customs and economic practices affecting the distribution of wealth and of economic rewards and penalties which we now maintain at all costs however distasteful and unjust they may be in themselves because they are tremendously useful in promoting the accumulation of capital we shall then be free at last to discard posted by the arthurian at 4 00 am 8 comments saturday december 24 2011 rgdp annual change and a 21 year moving average i was impressed by jazzbumpa s 21 year moving average in his disturbing look at gdp growth so i decided to extend the 21 year m a as far out in time as i could for the u s the annual real gdp numbers from measuringworth run from 1790 to 2010 i figured percent change from year ago from that so my first number is for 1791 and i figured a 21 year average and plotted it at the last year of the period so my first m a comes in at 1811 so i got a hundred numbers to look at graph 1 sorry about the scrollbar without it google docs was just ignoring everything after the mid 1950s information overload i guess posted by the arthurian at 4 00 pm 1 comments a christmas story from ft via gang8 posted by the arthurian at 4 00 am 2 comments friday december 23 2011 the meme that refuses to die at econospeak a good one from peter dorman i can t take an excerpt from it you sort of need to read the whole thing in the comments don levit asked a good question and i gave an impromptu answer i often have second thoughts when i don t put enough time into something i write so i m looking again at my reply giving myself a chance to fine tune it anyway here is my comment tweaked don s question is excellent how was the economy able to do so well for the years 1950 1980 with very little government debt yet for the last 30 years with huge government debts median households have lower incomes the answer is found by comparing the level of government debt to the level of private debt for it is private debt not government debt that holds back private sector growth for the last 30 years private debt has been so vast that all of the growth of government debt we ve had was not enough to generate vigorous growth for the 30 years before that private sector debt was relatively low so it was able to increase rapidly creating vigorous economic growth the changes of the past 30 years reaganomics skewed income toward the top that s why the median income fell and the fall of median income is a problem but those changes were designed to solve a prior problem the problem that gdp total income growth was too slow gdp growth was already inadequate in the 1970s because of excessive private debt posted by the arthurian at 4 00 am 1 comments thursday december 22 2011 nuance wikipedia debt levels and flows debt is used to finance and pay for entreprises...
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