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d this data to show wage inflation relative to cpi inflation what i found was pretty surprising graph 2 wage inflation as a percent of consumer price inflation again indexed to make them equal at the start the blue line runs at 100 0 consistently from 1947q1 to 1977q4 then suddenly falls beginning in 1978q1 that s pretty weird it almost looks like they were using business sector compensation costs to figure the cpi and then suddenly they weren t see also kitov s warning at may 20 2018 no comments email this blogthis share to x share to facebook share to pinterest friday may 18 2018 the consensus is dangerously wrong palley says following up on palley s latest nirp has quickly become a consensus policy within the economics establishment this paper argues that consensus is dangerously wrong resting on flawed theory and flawed policy assessment if the consensus is wrong it means our solution is part of the problem if the consensus is dangerously wrong it means the problem is bigger than we think in a growing civilization arnold j toynbee wrote a challenge meets with a successful response which proceeds to generate another and a different challenge which meets with another successful response there is no term to this process of growth there is no end to it he says unless and until a challenge arises which the civilization in question fails to meet a tragic event which means a cessation of growth and what we have called a breakdown here the correlative rhythm begins the challenge has not been met but it nonetheless continues to present itself a second convulsive effort is made to meet it and if this succeeds growth will of course be resumed the depressions and great recessions of the capitalist era are the rhythmical challenge that we have failed to meet our economic troubles will defeat us unless we rise to the challenge and by they will defeat us i mean civilization dies as toynbee said it s on us people who speak of the end of the american century people who express concern about the rise of totalitarian governments they see it coming the breakdown the nature of the breakdown can be summed up in three points toynbee wrote a failure of creative power in the creative minority which henceforth becomes a merely dominant minority an answering withdrawal of allegiance and mimesis on the part of the majority a consequent loss of social unity in the society as a whole losing its creativity the creative minority becomes a merely dominant minority government becomes more oppressive a common complaint today government is more oppressive everybody complains about government these days withdrawal of allegiance that is but we can t solve our problems by focusing on government what s missing is the creativity to fix the problem we need the right solution to the right problem changing the government doesn t necessarily do it toynbee thought creativity solves the problem by creativity toynbee meant the problem solving ability if it sounds like circular argument when i say it then i m not saying it right where we are now is late in the process things now are so bad that we see government as the problem but that s a cascade effect when a challenge meets with a successful response civilization continues to grow but when there is no successful response there are consequences these consequences we call problems they are problems but they are consequences they are cascade effect problems they are results and you can t solve results you have to solve the problem identify and solve the problem we have to solve the original problem the one that keeps coming back here the correlative rhythm begins toynbee said the challenge has not been met but it nonetheless continues to present itself what causes depressions and great recessions thomas palley identifies the problem the flawed model of growth based on debt and asset price inflation which has already done such harm it is a problem of our own making that s what makes it so difficult to solve we think of it as our solution our solution is part of the problem and the problem is bigger than we think at may 18 2018 no comments email this blogthis share to x share to facebook share to pinterest labels arnold j toynbee cycle of civilization thursday may 17 2018 tom palley exactly not sure what i did to get on thomas palley s mailing list oh i contacted him by email one time i m sure of that but i don t remember what economic detail i focused on or what i might have said about it and i don t know whether palley liked what i said and put me on his mailing list because he liked what i said or hated what i said and put me on his mailing list as a form of harassment or none of the above but here s what i do know about once a month maybe less frequently i get an email from thomas palley that opens with the words dear friends colleagues and for some reason that opening is just exactly right i m not a colleague so i must be a friend and the once a month thing is nice it doesn t feel like i m being harassed it doesn t feel like spam it is something that quite frankly i m starting to look forward to and i am a total curmudgeon opening my email early this morning this is part of what i found from palley my own website has a new peri working paper titled negative interest rate policy nirp and the fallacy of the natural rate of interest why nirp may worsen keynesian unemployment which i hope is of interest which i hope is of interest he says such understatement palley s ego is so small that you can t even see it i like that then this abstract nirp has quickly become a consensus policy within the economics establishment this paper argues that consensus is dangerously wrong resting on flawed theory and flawed policy assessment regarding theory nirp draws on fallacious pre keynesian classical economic logic that asserts there is a natural rate of interest which can ensure full employment that pre keynesian logic has been augmented by zlb economics which claims the natural rate may be negative in times of severe demand shortage so that policy must deliver it since the market cannot in contrast keynes argued investment could become saturated so lower interest rates cannot increase aggregate demand ad and no natural interest rate exists okay here s what i think not knowing anything we should still know that consensus can be a problem ten years ago the consensus was that the financial crisis was not a problem eleven years ago the consensus was that the central problem of depression prevention has been solved consensus is a dangerous thing ooh look at that palley said that consensus is dangerously wrong palley s view nirp draws on fallacious pre keynesian classical economic logic that asserts there is a natural rate of interest which can ensure full employment that pre keynesian logic has been augmented by zlb economics which claims the natural rate may be negative in times of severe demand shortage so that policy must deliver it since the market cannot in contrast keynes argued investment could become saturated so lower interest rates cannot increase aggregate demand ad and no natural interest rate exists ooh and then he says regarding policy assessment nirp turns a blind eye to the possibility that negative interest rates may reduce ad cause financial fragility create a macroeconomics of whiplash owing to contradictions between policy today and tomorrow promote currency wars that undermine the international economy and foster a political economy that spawns toxic politics saving the best for last he adds this thought worst of all nirp maintains and encourages the flawed model of growth based on debt and asset price inflation which has already done such harm exactly the flawed model of growth based on debt exactly debt and asset price inflation which has already done such harm exactly exactly the link at peri at may 17 2018 no comments email this blogthis share to x share to facebook share to pinterest tuesday may 15 2018 cost income and markets as a rule it is a problem when cost is too high but not when income is too high to the recipient there is no such thing as income being too high excessive cost however can bring transactions to a dead stop cost is a problem income is not and yet one person s income is another person s cost if there is any limit to income it is because every dollar of income is somebody s cost in other words the limit to income is a cost side limit when cost is widely distributed and income narrowly the cost side limit to income is less effective the larger the market for your product the less effective is the limit to your income markets allow inequality of income larger markets allow greater inequality now you know why the wealthy favor globalization at may 15 2018 1 comment email this blogthis share to x share to facebook share to pinterest sunday may 13 2018 the 10 year average 10 years out springtime time for mowing the lawn every fourth day between that and binge watching with the wife who has time for blogging expect these posts to be intermittent on the 10th i showed this graph of rgdp growth gordon growth i called it and some other stuff graph 1 gordon growth and productivity incremental 10 year periods today i keep the blue line and drop the rest in that earlier post i said that last little tic it shows from 2017 to 2018 is an uptick ooh ooh trump but it isn t trump i said the old data is gradually dropping out of the 10 year average and the old data happens to be from 2007 2008 2009 the time of the great recession the blue line shows an uptick at the end because 2007 dropped out of the 2018 average and over the next couple years the rest of the low numbers from the recession will drop out of the average as current data is added in so if current growth is at all higher than growth was during that recession the blue line will go up more the rgdp data i ve been using in these gordon growth posts is real gross domestic product percent change from preceding period quarterly seasonally adjusted annual rate the last data item is 2 3 for 2018q1 preliminary and subject to change i ll go with that number a 2 3 annual rate of economic growth if the economy stays at the 2 3 growth rate it is higher than growth during the recession the blue line will go up assuming growth stays constant at 2 3 for ten years that s not a prediction just a number to work with the blue line will follow the path shown here in red graph 2 how 10 years of 2 3 growth affects the average in the near term at the start the red line rises rapidly but after a couple years it is already close to the 2 3 level and after that there is not much change point of interest on this graph the sudden change in the red line from mostly rising to mostly flat occurs at 2020q1 half a year or so before the next presidential election of course it also takes time for the data to be reported so if the economy suddenly goes flat near 2 3 as shown here we re not going to know about it until after the election in another hypothetical future economic growth increases at 0 1 per quarter from 2 3 in 2018q1 to 2 4 in 2018q2 to 2 5 in q3 and like that until it reaches a 3 1 annual rate and then remains at 3 1 again the red line shows the future path graph 3 how 10 years of rising growth affects the average here the red line rises rapidly at first as the great recession falls out of the 10 year period then it rises more slowly until the average approaches the 3 1 level but there is a definite difference between this graph and the previous one i used the unfortunate term prediction to identify data on the graphs in the spreadsheet the word meant that some other data was the actual data but on the graphs it looks like a prediction that was not my intent i just wanted to see how the numbers affect the average as time passes and i missed my 4am deadline at may 13 2018 no comments email this blogthis share to x share to facebook share to pinterest friday may 11 2018 no early warning of course there s an early warning anticipating recession john mauldin writes look around at all the great economic news i m aware of it but the economy was hitting on all cylinders in early 2000 and late 2006 too the numbers always look great right before a recession then it all rolls over at once i ll throw the challenge flag the economy was hitting on all cylinders in late 2006 depends what numbers you look at graph 1 household debt quarterly change in billions the growth of household debt peaked in the first quarter of 2006 it was seriously downhill from there to the recession and come to think of it household debt peaked in the first quarter of 2000 a year or more before the 2001 recession so i don t buy mauldin s story that the numbers are all great and then suddenly there s a recession i don t buy that by the way the most recent data fred provides at the moment is for the last quarter of 2017 it shows increase it shows a trend of increase no indication of recession as indicators go the yield curve mauldin discusses may be a little more leading than the change in household debt but at the moment the debt numbers give no indication of impending recession nor do the change in employment numbers suggest impending recession graph 2 change in employment after running pretty flat jiggy but flat from 1997 to 2000 the change in employment suddenly started dropping a year or so later recession after showing increase since the 2001 recession the change in employment peaked in 2005 and started dropping two and a half years later recession since climbing out of the 2008 09 recession the change in employment has run rather flat you might see a hint of an s curve in the trend but there is definitely no dropping off there is no indication of recession at this time capacity utilization wanders a lot but it goes downhill fast during recessions it tends to fall or to run flat for six months or more before a recession but sometimes the downhill fast starts even before the recession notice though that capacity utilization is never going uphill fast when a recession starts graph 3 capacity utilization at the moment capacity utilization is going uphill fast my conclusions no impending recession and there are always early warnings at may 11 2018 1 comment email this blogthis share to x share to facebook share to pinterest thursday may 10 2018 the moment we ve been waiting for what i m now calling gordon growth is a comparison of time periods where gdp growth is measured between quarters with identical unemployment rates i figure it by making a scatterplot showing the time periods with unemployment on the x axis and rgdp growth on the y axis then comparing the linear trend lines created by excel the gordon growth number is the average of trend line growth rates at this point i couldn t tell you how i managed to turn the phrase measured between quarters with identical unemployment rates into the process i m using but the process works far as i can tell so here we are i want to go back to that fi...
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