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got it slack is the thing we don t want but that s samuelson s definition of slack not mine he s talking about slack in the real economy i want to see slack in the financial system just because we know how to turn a dollar of money into 40 dollars of debt doesn t mean we should do it why not reduce that number to 20 of new debt from each new dollar of money and have 20 slack if that s not enough credit they can print more money it won t be inflationary as long as debt per dollar is restrained if 20 debt is still too much cut it in half again and double the money again what do we gain by this we reduce what it costs to have a money supply and that s a big deal it means we reduce the cost push pressures that have troubled our economy since the 1960s we don t need more slack in the real economy we need more slack in the financial sector that s where we need it posted by the arthurian at 4 00 am 0 comments monday august 25 2014 economists know about the crisis they know they missed a big one they know they misunderstand something yet they go back to the same old song and dance from robert j samuelson in the washington post interest rates and the fed s great slack debate call it the great slack debate for nearly six years the federal reserve has held short term interest rates near zero to boost the economy is it time to consider raising rates to preempt higher inflation the answer depends heavily on the economy s slack its capacity to increase production without triggering price pressures although economists are arguing furiously over this there s no scientific way to measure slack slack is economics jargon for spare capacity it means unemployed workers idle factories vacant offices and empty stores its significance is obvious if there s a lot of slack inflation shouldn t be a problem how much slack is there today we don t know economic policymaking is not an exact science ideally the fed would begin raising interest rates sometime just before the economy exhausts its slack but we don t know where that point is there is absolutely nothing new in samuelson s view people always argue whether the economy s growth indicates that interest rates should go up now or go up later there s nothing new in that there s nothing new either in thinking that raising interest rates is the right solution to the inflation problem that s widely agreed upon that s the problem raising interest rates is the ideal solution according to robert j samuelson but it isn t it s not even a good solution it s a bad solution it undermines growth it increases slack it increases unemployment a better solution arises from looking at the problem in a new light why cut off new growth by raising rates isn t that foolish it s not future growth that is responsible for inflation if and when we have inflation it s recent growth much of that recent growth will have been funded by recent borrowing recent borrowing the money has already been spent that s how we got the growth and there is extra money that s still in the economy contributing to price pressures our solution the universally accepted solution robert j samuelson s ideal solution is to raise interest rates cut off new growth and cut off inflation i think not leave rates low let it grow if you re concerned about inflation take the money out of the economy that s already in the economy causing inflation take out the extra money that was put there by recent borrowing take that money out of the economy by getting the people who borrowed it to pay it back pay back that debt extinguish that debt and extinguish the money that came into existence along with that debt fight inflation by reducing private debt fight inflation by creating incentives that encourage people to pay down debt pay down debt to fight inflation borrow you bastards borrow and grow the economy but tomorrow pay it back posted by the arthurian at 4 00 am 3 comments sunday august 24 2014 so i hit a rock with the mower assuming balance on current account is a flow not a stock graph 1 balance on current account as a percent of gdp the accumulated balance was certainly in our favor until the early 1980s the u s in other words must have had an accumulated surplus until the 1980s some minor trade deficits but no trade debt till later on this graph you can t even see much instability arising with the closing of the gold window in 1971 posted by the arthurian at 4 32 pm 0 comments an incident illustrates kenneth arrow quoted by lars p syll it is my view that most individuals underestimate the uncertainty of the world this is almost as true of economists and other specialists as it is of the lay public to me our knowledge of the way things work in society or in nature comes trailing clouds of vagueness experience during world war ii as a weather forecaster added the news that the natural world as also unpredictable an incident illustrates both uncertainty and the unwillingness to entertain it some of my colleagues had the responsibility of preparing long range weather forecasts i e for the following month the statisticians among us subjected these forecasts to verification and found they differed in no way from chance the forecasters themselves were convinced and requested that the forecasts be discontinued the reply read approximately like this the commanding general is well aware that the forecasts are no good however he needs them for planning purposes on that theme general george s patton i would rather have a good plan today than a perfect plan two weeks from now posted by the arthurian at 4 00 am 0 comments saturday august 23 2014 chapter 3 part iii paragraphs 1 and 2 the idea that we can safely neglect the aggregate demand function is fundamental to the ricardian economics which underlie what we have been taught for more than a century malthus indeed had vehemently opposed ricardo s doctrine that it was impossible for effective demand to be deficient but vainly for since malthus was unable to explain clearly apart from an appeal to the facts of common observation how and why effective demand could be deficient or excessive he failed to furnish an alternative construction and ricardo conquered england as completely as the holy inquisition conquered spain not only was his theory accepted by the city by statesmen and by the academic world but controversy ceased the other point of view completely disappeared it ceased to be discussed the great puzzle of effective demand with which malthus had wrestled vanished from economic literature you will not find it mentioned even once in the whole works of marshall edgeworth and professor pigou from whose hands the classical theory has received its most mature embodiment it could only live on furtively below the surface in the underworlds of karl marx silvio gesell or major douglas the completeness of the ricardian victory is something of a curiosity and a mystery it must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected that it reached conclusions quite different from what the ordinary uninstructed person would expect added i suppose to its intellectual prestige that its teaching translated into practice was austere and often unpalatable lent it virtue that it was adapted to carry a vast and consistent logical superstructure gave it beauty that it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress and the attempt to change such things as likely on the whole to do more harm than good commended it to authority that it afforded a measure of justification to the free activities of the individual capitalist attracted to it the support of the dominant social force behind authority john maynard keynes posted by the arthurian at 4 00 am 0 comments friday august 22 2014 this is how investigation begins graph 1 when i look at this graph i see a period of relative stability which ended by 1970 after that a series of downward steps each downward step shows a sag in the blue line a sag that runs from recession to recession the recessions provide relative high points but each high point is lower than the last i don t see balance sheets i don t see arguments about how it s really a problem or really not a problem i don t see things like that i see a line on a graph impressions sure i have impressions my impression is that something is seriously different before and after 1970 it looks sustainable before 1970 unsustainable after i don t think you look at this graph and say every liability is somebody s asset that s not an argument that s a definition i think you look at the graph and say okay well the federal government has been doing something different since around 1970 best case best case the government has been trying to do good for us pumping money into the economy trying to make things better you know the keynesian thing update 1 46 pm 24 august added graphs note on these graphs the height of the white background graph area is less because there are more series titles in the upper blue border because the height of the white area is less the blue line looks smaller but it s exactly the same data as in graph 1 no that can t be right there s a big sag in the blue line on graph 2 what the hell hey i did these graphs quickly but i didn t change the blue line i bet it s another fred glitch i ll get back to ya i m supposed to be mowing the lawn graph 2 blue line is the same as on graph 1 bad fred okay the glitch on graph 2 has to do with data frequency the 10 year space between 1990 and 2000 on the graph is much larger than the 20 year space between 1970 and 1990 fred would say i was careless with data frequency i would say they should prevent this kind of error for another example see my i don t know what that is but it isn t gdp i wasn t sure which version of trade deficit numbers to use so i tried three different ones the units are all over the place red and blue lines are the same millions of dollars the red line is very close to the zero line the green line was dollars so i divided by a million and the gray line was billions so i multiplied by a thousand i was glad to see gray and green are similar makes me think that s a good one to use either of those revised graph 2 graph 2 do over just the blue and gray this time now the blue is as in graph 1 the next graph graph 3 shows the gray one as a percent of the blue one i did this one over too graph 3 balance on current account as a percent of federal government net worth very interesting posted by the arthurian at 4 00 am 13 comments thursday august 21 2014 federal government net worth relative to gdp and the federal debt well i was just going to go with this graph today blue line the federal government net worth data from yesterday s graph converted to billions and divided by gdp red line federal debt as a percent of gdp expressed as negative values but after the responses to yesterday s post the above seems inadequate so i tracked down the data behind the federal government net worth graph i googled table s 7 q and got to the bea integrated macroeconomic accounts for the united states page they list several tables with an a suffix annual and a q suffix quarterly table s 7 in both cases is federal government data i m only looking at annual data as the file is a lot smaller and only the most recent values which is 2012 for some reason also i m deleting the first 95 line items from the file to get to the changes in balance sheet account part total assets line 96 4626 9 billion dollars not far off from the 4 trillion greg noted in comments yesterday total liabilities and net worth line 128 also 4626 9 billion but the liabilities line 129 are 15245 9 billion and the net worth line 145 is 10619 billion that s more than enough detail for me posted by the arthurian at 4 00 am 1 comments wednesday august 20 2014 federal government net worth ima level the units are a bit confusing the units in the left side border are given as millions of dollars and the lowest number on the vertical scale is given as 12m that s 12 million in the hole but it s not twelve million dollars it s twelve million million 12 trillion in the hole but you probably knew that posted by the arthurian at 4 00 am 4 comments tuesday august 19 2014 effective demand google small business by demand media what is the difference between demand and effective demand by ronald kimmons demand media demand demand is the term that economists use to describe the ability and willingness of buyers to purchase a product or service this is a general term that takes a number of issues into account such as buyer income buyer perceptions and buyer needs demand is a market force opposite of supply which is the ability and willingness of producers and service providers to provide products and services on the market this general idea of demand is often called notional demand which is composed of both latent demand and effective demand latent demand even if a buyer needs or would be willing to purchase a particular product or service he cannot do so if he lacks the necessary funds or if he does not know about that product or service this portion of market demand is called latent demand the importance of latent demand is that it presents an opportunity to firms to increase revenue by investing in marketing efforts or introducing low cost products effective demand effective demand is a representation of the actual amount of goods or services that buyers are purchasing in a given market effective demand is the difference between notional demand and latent demand effective demand is a reflection of the extent to which buyers income perceptions and needs combine to result in an actual purchase rather than a mere desire to purchase in recent comments at angry bear i said to ed lambert i would suggest again that what you are measuring is potential demand not effective demand lambert replied the term effective implies a limit so it is better than potential but the terms are very close potential output has been surpassed many times but not effective demand effective implies the top limit i refer you to the definitions above from google and ronald kimmons i still think potential demand is the better name for the work lambert is doing but of course i might misunderstand him here s my problem if i can t get clear on what he s looking at i can t even begin to understand what he s saying he s definitely not looking at effective demand as defined by google and ronald kimmons a year back at angry bear i wrote i m thinking lambert s effective demand is really a kind of potential demand after all lambert says the best way to think about effective demand is the unused capacity of demand in the economy what he is describing is demand in an economist s perfect world just as potential output is a measure of real output in that perfect world though even that perfect world is far from perfect lambert your explanations help but your use of the ...
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