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en 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 and business around the world the levels of debt how much debt is outstanding and the flows of debt how much the level of debt changes over time are basic macroeconomic data and vary between countries 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 apart from the spelling there are at least two problems with this introductory bit of the article 1 debt is used to finance and pay for stuff no it s not a debt is an obligation owed by one party the debtor to a second party the creditor if i borrow a dollar from you to get a candybar from the machine two transactions occur 1 you give me a dollar and i give you an iou 2 i give the machine a dollar and the machine gives me a milky way two transactions the first one puts money into circulation and creates debt the second one uses the money to make a purchase the second transaction is completed as soon as i have my candybar in my hot little hand the first transaction is not completed until i repay the debt we might say debt is used to finance the candybar but debt is not used to pay for it the money i get in exchange for the iou is what i use to pay for the candy i m not inventing any stories here i m just trying to be clear about what happens 2 private debt is not seen as a problem no it s not it is a problem but it s not seen as a problem and to be blunt that is the reason we cannot solve the problem i ve said it before but you and i are like little versions of the federal reserve the fed puts new money into circulation by buying stuff from the private sector so do we what s different is where the new money comes from you and i have to go to the bank to get it but the fed is a bank so they don t have to go to the bank the fed is a special case that s where our money comes from the fed has a limitless supply of money that they are keeping out of circulation that s their job to keep most of that money out of circulation if they want new money they can get it out of an empty box you and i are not so lucky we have to go to the bank for new money we unlike the fed create debt when we create new money and we unlike the fed are obligated to pay back that debt every dollar of debt is the record of a dollar somebody put into the spending stream and has not yet removed from the spending stream every dollar of debt is a dollar somebody has to pay interest on the money used to pay interest goes into the financial sector maybe it came from the financial sector or maybe it came from the productive sector but it definitely goes to the financial sector and most of it comes from the productive sector interest is income to the financial sector interest is a cost to the productive sector you don t need any more explanation than that to see why excessive levels and flows of private debt can become the problem of central importance posted by the arthurian at 4 00 am 6 comments wednesday december 21 2011 the interaction of cycles but there is no ground to believe that there should be just one wave like movement pervading economic life joseph a schumpeter wandering through google results for unemployment historical data the other day turned up the natural rate of unemployment a pdf by david brauer of the congressional budget office 16 pages lots of pictures the paper is from april 2007 shortly before the crisis brauer s figure 2 shows a prediction based on pre crisis thinking brauer s figure 2 demographics and the natural rate of unemployment david brauer writes in its summer 2006 forecast cbo reduced its estimate of the current natural rate from 5 2 percent to 5 0 percent reflecting a decline since the mid to late 1990s in the share of the labor force that is below the age of 25 that decline is attributable not to a change in the age mix of the general population but to an unexpected sharp and sustained drop in the labor force participation rate of teens and young adults most likely because of higher rates of school enrollment weird science 1 people can t find work 2 people go to school to improve their chances of finding work 3 the labor force participation rate falls because people are in school 4 the natural rate of unemployment falls it s sort of like people can t afford so much steak so they switch to pasta and then steak is taken out of the basket of goods used to figure inflation and pasta is put in because of this change the inflation rate number is less this is sick puppy arithmetic all of it and bad economics but that s not why i called this meeting i think it s a little funny that the projected rate is five point oh percent the number wants to convey more accuracy than it can hold i think and once that trend line hits 5 0 it is rock solid a straight line projection out to 2015 and beyond laughable i also think it s a little funny that in 2006 when cbo reduced its projection to 5 0 percent apparently they reduced it all the way back to the year 2000 we have always been at war with eastasia but that s not why i called this meeting here is the opening sentence from the abstract of brauer s paper this paper assesses the natural rate of unemployment the unemployment rate t...
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