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wth phase growth historical revisionism hoarding hodrick prescott household debt hover craft how to pay for it humor because you might not know if i didn t say i couldn t sleep iceberg inflation introduction is it ego captain jerry says krugman laffer curve limits long and variable loops malaise matched set fekete math problems medium of account military spending milton friedman mmt money multiplier more debt than money is policy motives moving average new tools of policy non linear not only household debt oil parameters for debt pfi policy predicting recession price controls printing vs spending problem x productivity questions r reading and writing red and green reduction reviews scott sumner sequence 2 serfdom simulacron simulated evidence slack special report spreadsheeting stagflation standard deviation star trek stimulus sumner symmetry in deception taxes taylor rule the difference between debt and credit the economy is transaction the k r shift the long decline the supply side the tint knob they don t know timeline tongue in cheek tot ulc umic unsustainable urgency verdoorn waste fraud abuse withering shoots zoho the new arthurian economics copyright 2010 2018 arthur shipman wednesday february 29 2012 plus ça change plus c est la même chose from the wall street journal obama s dividend assault a plan to triple the tax rate would hurt all shareholders the new dividend tax rate in 2013 would be 44 8 nearly three times today s 15 rate and on and on not at all like news more like a rant here s what i noticed there is no mention of the 100 deduction for business interest expense so the plan apparently is to keep encouraging credit use and the accumulation of debt to reward and encourage finance rather than production and productivity it s a bad plan posted by the arthurian at 4 00 am 0 comments tuesday february 28 2012 fcm and the long view using jazzbumpa s source i dug up productivity data from the bls website which took quit a bit of digging fortunately skeptic at reality base did the same thing and identifies the data series year over year non farm productivity growth change as prs85006092 we can now take a longer term view of productivity and the factor cost of money the bls site offers major sector productivity and costs and provides numbers with units given as change quarter ago at annual rate i couldn t get change from year ago numbers but it probably doesn t matter i grabbed the data for all the years i could get back to 1947 annual numbers since 1948 popped em into a google docs sheet and fiddled with moving averages to get something fairly smooth brought my fcm per gdp numbers into the file and threw a graph together source my google docs spreadsheet edit 8 feb 2019 the old link to the live graph is not working but the graph is okay in the spreadsheet so i replaced the live graph link with an image in outline productivity goes down as the factor cost of money increases and productivity goes up as the factor cost of money declines looking at the early years one could argue that productivity and the fcm moved up together when the fcm was very low when finance was still facilitating economic performance on my graph the two travel together until 1962 then veer apart if i plotted the moving average at the last year of the period the separation date would be 1966 so somewhere in the 1962 1966 period is when finance became excessive and started hindering rather than helping economic performance posted by the arthurian at 4 00 am 1 comments labels fcm monday february 27 2012 fcm and the macroeconomic miracle i still want to look at the factor cost of money in relation to the macroeconomic miracle years robert j gordon 2002 nber working paper no 8771 issued in february 2002 this paper examines the sources of the u s macroeconomic miracle of 1995 2000 and attempts to distinguish among permanent sources of american leadership in high technology industries as contrasted with the particular post 1995 episode of technological acceleration and with other independent sources of the economic miracle unrelated to technology dean baker and john schmitt 2007 from the mid 1990s on however official productivity growth again accelerated rapidly returning to a 2 9 rate reminiscent of the golden age quite suddenly though in the second half of 2004 productivity growth dropped sharply james kahn and robert rich 2011 following a resurgence of strong productivity growth in the late 1990s and early 2000s after nearly a quarter century of slow growth beginning in 1973 the latest reading from a trend tracking model now indicates that slow productivity growth returned in 2004 mary amiti and kevin stiroh 2007 chart 1 trend labor productivity growth source the conference board and groningen growth and development centre total economy database january 2007 http www ggdc net notes labor productivity is defined as real gdp per hour worked trend estimates are based on a hodrick prescott filter with a smoothing parameter of 100 that blue line on their chart shows us productivity dropping off continuously from 1961 to 1978 dragging the bottom till 1993 then rising during the miracle years finally i came upon bls productivity numbers for 1990 2011 i figured the annual change in productivity and plotted that against the factor cost of money as a percent of gdp source my google docs spreadsheet i m not making any bold claims for this graph but it looks to me like productivity and the factor cost of money tend to move in opposite directions keep in mind that productivity is not a policy it is a goal monetary policy is policy so if there is causality it is the factor cost of money that influences productivity not that monetary policy presently pays attention to the factor cost of money but maybe they should in evaluating my graph i would ask that you not only point out its weaknesses but also examine its possible strengths ask for example does it make sense for example if our basis for comparison is krugman s concern with the zero lower bound and the need to have negative interest rates to revitalize the economy then yes it makes sense in that context negative interest rates would reduce the factor cost of money and reducing the fcm would enhance productivity and growth given this basis of similarity let me point out what the fcm captures it is not only the rate of interest but also the size of accumulated debt that affects the cost that inhibits growth examine the strengths posted by the arthurian at 4 00 am 0 comments labels fcm productivity sunday february 26 2012 fcm pair and the fedfunds rate i took graph 2 from yesterday s post and renumbered it graph 1 federal outlays for interest relative to the two measures of debt the graph shows fred s fyoint federal outlays interest as a percent of the federal debt for both the 10b and 14b version of the federal debt i m considering the lower set of numbers as the average interest rate paid by the federal government on its gross debt i m in the early stages of using that set of numbers as a proxy for the average interest rate paid by everybody else on all the debt owed other than the federal debt i m calling this interest rate the pair or proxy average interest rate i took and slapped the fedfunds rate onto the graph for comparison graph 2 pair and the federal funds rate pair and fedfunds move in the same general direction up together until the early 1980s and down together thereafter fedfunds is a lot more variable of course but that s because the fed jerks it around to influence economic activity then too the pair is an average interest rate for debt accumulated over many years so you might expect it to be slow moving as the fedfunds rate is essentially the lowest interest rate we have in the us i have to say the pair is really a lowball estimate probably a good average for government debt but even the red line is probably lower than the actual average interest rate on private sector debt posted by the arthurian at 4 00 am 0 comments labels fcm saturday february 25 2012 fcm the factor cost of money further review turns out the info i needed to figure the factor cost of money is right there in fred a quick search turned up four data series on the federal debt series maxvalue units description gfdebtn 14b millions federal government debt total public debt fygfd 14b billions gross federal debt fygfdpun 10b millions federal debt held by the public fgtcmdodns 10b billions total credit market debt owed by domestic nonfinancial sectors federal government the 4 billion difference between the first two series and the last two is the 4 billion of the federal debt held internally by parts of the federal government such as the social security administration the two series that end up something over 14b look similar to each other on the graph and the two that end up in the neighborhood of 10b look similar to each other graph 1 the federal debt four ways from sunday one of the two series that passes 14b is given in millions and the other in billions same is true for the two series that end up near 10b i want to use the debt number as a denominator under the interest number interest paid by the federal government and the interest number is given in millions so i will use the two debt series that use millions and ignore the two that use billions graph 2 federal outlays for interest relative to the two measures of debt graph 2 shows fred s fyoint federal outlays interest as a percent of the federal debt for both the 10b version and the 14b version of the federal debt the red line shows the average interest rate the government pays based on the smaller debt number the blue line shows the average interest rate the government pays based on the bigger debt number i m assuming that the blue line is the accurate one in other words i m assuming that federal outlays interest includes outlays for interest paid to the social security administration and the other government agencies holding parts of the federal debt the government don t get to not pay the interest just because of who holds the debt i think the lower line on graph 2 the blue line shows the same peak as the vertical bar graph i showed a few days back a peak around 7½ in the early 1980s graph 3 the proxy average interest rate pair so the interest rate i have figured is a lowball estimate also federal debt has always been considered less risky than anybody else s debt so the federal government has typically paid lower interest rates than anybody else so again when i use that rate to estimate the total interest cost of the private sector that number is a lowball estimate posted by the arthurian at 4 00 am 0 comments labels fcm friday february 24 2012 friedman did it with strawberries the fallacy of composition composition is the notion that what s good for the goose is good for the whole damn flock the fallacy is that it s not always true sometimes what applies to the individual does not apply to society as a whole from the epilogue of money mischief by milton friedman the contrast between the way things appear to the individual and the way they are to the community if you go to the market to buy some strawberries you will be able to buy as many as you wish at the posted price subject only to the dealer s stock to you the price is fixed the quantity variable but suppose everyone suddenly got a yen for strawberries for the community at large the total amount of strawberries available at a given time is a fixed amount a sudden increase in the quantity demanded at the initial price could be met only by a rise in price sufficient to reduce the quantity demanded to the amount available for the community at large the quantity is fixed the price variable just the opposite of what is true for the individual posted by the arthurian at 4 00 am 2 comments thursday february 23 2012 private debt 2012 8 smoke n mirror smokin gun based on total credit market debt owed tcmdo from fred the federal government s share of debt in red and everybody else s share in blue graph 1 the federal debt is a wisp of smoke the blue line is our share private sector mostly the red line is the federal share the federal government s share really can t get much lower oh it could drop from 20 of the total back down to 10 but that s where it was when our recent troubles started so maybe that s not such a good idea as a matter of fact the federal debt was at its lowest on this graph for pretty much the whole first decade of the 21st century and that was the time of the weakest economic boom we ever had oh to be sure the federal government had a lot of debt at the time but not compared to the rest of us some things cannot be said often enough excessive private debt is the problem posted by the arthurian at 4 00 am 1 comments wednesday february 22 2012 microbes from the money illusion back in late 2008 and early 2009 most people focused on the debt crisis as being the problem but debt is a problem only to the extent that it exceeds one s ability to repay the loans which depends on one s income microbes i say i say again micro bs one s income is micro the relation of one s debt to one s income is micro the sum of all debts relative to the sum of all incomes is still micro ours is a macro problem the fly in sumner s ointment is the pretense that income can exist without debt he says debt is only a problem if it is too heavy for your income but he forgets that in our economy almost all income comes from somebody using debt we do not increase income without increasing debt at the macro level this is the problem income can exist without debt of course but only if we change the way we do things we have to increase the quantity of money relative to output and at the same time decrease the amount of credit generated from every newly printed dollar but as long as people continue to think money and credit are the same that will never happen sumner does not call for the necessary change he says a few of us market monetarists argued that you also needed to look at the denominator of the debt income ratio not just the numerator by looking at the denominator of the debt income ratio he means look at income well yeah income is too low income is gdp and gdp is too low so income is too low if you don t get a headache because this is such basic stuff well you should gdp growth has been too slow since the mid 1970s what s that going on forty years now gdp growth has been too slow for 40 years for the most part getting worse all the while the money illusionist waves his hand and pretends that the whole gdp problem never existed until late 2008 or something and with that magical analysis sumner declares that the problem is not excessive debt but insufficient income does it matter well yes excessive debt is the reason income has been lagging for forty years the solution that calls for more income is likely to be nothing but an inflationary solution that s because we re not getting growth if we don t get growth all we get fro...
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