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rises fatas sees aussie unemployment running low and mostly flat since 2000 i see a one year period 2008 as their persistent low sure australia seems to have missed the great recession spike that we saw in 2008 09 maybe that makes their unemployment rate appear low but it has been persistently above 5 since 2009 and has reached above 6 i m a little disillusioned it is true that the aussie rise from 5 to over 6 was not sharp and sudden the way the increases are in the us during recession maybe that s what fatas was looking at but if he s thinking that low unemployment is anything under 6 5 then the us had a persistent low from 1962 to 1974 and that shoots a hole in the theory that the us economy has never managed to sustain a low rate of unemployment that persistent us low as it happens occurred when the total debt to gdp ratio was low and stable at 1 5 which brings us back to credit growth creating the embedded costs that make recession inevitable but credit growth wasn t a problem in the us in that period what with inflation driving the gdp numbers higher as fast as debt was growing there was a recession during that 1962 1974 period fatas said the us economy has never managed to sustain a low rate of unemployment without generating the imbalances that lead to a recession but the 1970 recession wasn t a credit growth recession that recession was the fed s way of fighting inflation so also was the 1967 recession that we almost had and so was the 1974 75 recession that terminated the 1962 1974 period the us history of 1962 1974 supports fatas s view that low unemployment or really rapid credit growth or even more really the financial cost associated with the high level of debt that develops during a period of rapid credit growth may be what leads to the recession that ends the period of low unemployment personally i find that conclusion just about right there remains one point to consider and that is the point fatas makes in his post titled the 2020 us recession which ends with the thought that if history is an indicator of future crisis and given the current low level of unemployment a recession is likely to be around the corner i still like the change in total nonfarm payrolls as a recession indicator graph 3 monthly change in total nonfarm payrolls and the h p trend click the graph for a larger view to get the hodrick prescott i exported the fred data to excel and used kurt annen s vba code the plotted line is default blue on the fred graph the dashed red line is excel s plot of the same data and the black line is the hodrick prescott it uses a smoothing factor of 14400 for the monthly data to show the h p on the fred graph with recession bars and all i used paint net to erase the background of the excel graph gif file and overlaid it on the fred graph it s fun to do that once in a while notice that the h p almost always falls before a recession since the 1980 recession it always falls for a couple years before the recession starts it s not falling now the most recent change in payrolls number was low by an order of magnitude 20 rather than around 200 definitely an eye catcher but one month s data point is not a trend a second one is a red alert the third one could be a trend but so far there is no hint of recession in these payroll numbers at march 16 2019 2 comments email this blogthis share to x share to facebook share to pinterest friday march 15 2019 two openings stephanie kelton opened her paul krugman s four questions about mmt 1 march 2019 at bloomberg with this thought there is a doctrine among mainstream economists holding that 1 government deficits push interest rates higher and 2 rising interest rates crowd out private investment paul krugman is a believer in this doctrine i m not i skipped over that intro in mine of the 11th brad delong grasping reality on the 7th of march opened thinking about this by łukasz rachel and lawrence h summers this week on falling neutral real rates fiscal policy and the risk of secular stagnation it says an awful lot of true things the average neutral 10 year safe real interest rate consistent with full employment in the global north does look like it has fallen from 4 per year in the 1990s to 0 5 per year today during this period of decline increased government debts have put perhaps 2 points of upward pressure on the neutral rate the actual decline has been 6 5 points there it is increased government debts are deficits so delong is saying deficits have pushed interest rates perhaps 2 percentage points higher an example of what kelton was saying no biggie i just like finding evidence that supports a generalization at march 15 2019 no comments email this blogthis share to x share to facebook share to pinterest thursday march 14 2019 from the preface to the french edition i believe that economics everywhere up to recent times has been dominated much more than has been understood by the doctrines associated with the name of j b say it is true that his law of markets has been long abandoned by most economists but they have not extricated themselves from his basic assumptions and particularly from his fallacy that demand is created by supply say was implicitly assuming that the economic system was always operating up to its full capacity so that a new activity was always in substitution for and never in addition to some other activity nearly all subsequent economic theory has depended on in the sense that it has required this same assumption yet a theory so based is clearly incompetent to tackle the problems of unemployment and of the trade cycle j m keynes at march 14 2019 no comments email this blogthis share to x share to facebook share to pinterest wednesday march 13 2019 on economic analysis i was a math major i remember doing homework problems when i didn t understand the process i d go thru a whole long process and come up with an answer that turned out to be wrong what i learned was that to solve the problem i had to start in the right place it s like that with the economy too start in the wrong place and you get the wrong answer at march 13 2019 no comments email this blogthis share to x share to facebook share to pinterest monday march 11 2019 what she said stephanie kelton quoted by robert waldmann in mmt ii at angry bear mmt would set public spending always to the level required to achieve full employment and then accept whatever deficit may result i addressed this topic a couple weeks ago but lets go again the quote sounds like a policy statement i have to see it in context incomplete analysis i found a source for the kelton quote at bloomberg paul krugman asked me about modern monetary theory here are 4 answers by stephanie kelton turns out the first of her four answers is the relevant one from her article paul krugman is a believer in this doctrine i m not and he s asked me to explain why he is responding to a column i wrote critiquing his view of modern monetary theory i m going to respond directly to the questions he raised are mmters claiming as kelton seems to that there is only one deficit level consistent with full employment that there is no ability to substitute monetary for fiscal policy are they claiming that expansionary fiscal policy actually reduces interest rates yes or no answers please with explanations of how you got these answers and why the straightforward framework i laid out above is wrong quick responses first followed by explanations behind my thinking 1 is there only one right deficit level answer no the right deficit depends on private behavior which changes mmt would set public spending always to the level required to achieve full employment and then accept whatever deficit may result so there s the quote waldmann used and the context is the right deficit depends on private behavior which changes important point i was gonna bring that up if the federal debt is safe assets then the federal deficit is the supply of new safe assets but the economy is the interaction of supply and demand the demand for safe assets arises in the private sector as kelton says and it changes we cannot consider only supply we must consider also demand similarly the federal debt is not only safe assets it s also a cost if it wasn t a cost to the public sector it wouldn t be an income producing asset in the private sector it is incomplete analysis to think of the federal debt only as an asset there is something else the private sector demand for net savings as kelton calls it it s not natural demand it is exaggerated demand exaggerated on the one hand by policies that encourage saving and on the other by the precariously unsound state of our economy if we got rid of the policies that create the exaggerated demand for saving and similar lopsided policies i expect the unsoundness of our economy would slowly fade away on its own i quoted kelton above the right deficit depends on private behavior which changes yes and policy changes it if we fail to consider that our problems may be consequences of our policies our analysis is incomplete that s not how it works stephanie kelton quoted by robert waldmann in mmt ii at angry bear kelton comes back to our topic after three other quick responses is there only one right deficit level no because for one thing mmt would establish a public option in the labor market a federally funded job guarantee thereby ensuring full employment across the business cycle the deficit then would rise and fall with the cycle as the job guarantee becomes a new stabilizer automatically moving toward the right size in response to changes in the level of aggregate spending uh sorry can t use that answer it is based on the hypothetical result of a hypothetically established public option in the labor market it is fantasy analysis thereby insuring precisely the outcome desired by the storyteller got anything else kelton does in the absence of a job guarantee things get trickier leaving monetary and exchange rate policy aside the government has to allow the deficit to go where it needs to go in order to accommodate the private sector s net savings desires if the private sector wants to spend less and save more the public sector will need to accommodate that desire by running a bigger deficit or the economy will be pushed away from full employment krugman drew up the perfect schematic based on the sector balance framework adopted by mmt to explain all of this 10 years ago skipping to the end of kelton s paragraph krugman s perfect schematic is interesting and it fits it supports kelton s argument but that schematic is ten years old now krugman writing in mid 2009 was looking at a goldman sachs memo about the change in private behavior which occurred between 2006q3 and 2009q1 minsky moment stuff minsky moments are momentary they don t last forever kelton wants us to accept the implicit idea that a permanent quasi minsky moment exists and justifies the existence of annual federal deficits but that s not how it works we are not trapped in a permanent ongoing minsky moment that doesn t explain the deficits lopsided policies finally at brad delong s a 1965 article from time magazine discusses keynes and the keynesians of the 60s from the opening in washington the men who formulate the nation s economic policies have used keynesian principles not only to avoid the violent cycles of prewar days but to produce a phenomenal economic growth and to achieve remarkably stable prices in 1965 they skillfully applied keynes s ideas together with a number of their own invention to lift the nation through the fifth and best consecutive year of the most sizable prolonged and widely distributed prosperity in history keynes s ideas plus a few of their own like the full employment budget kelton describes that one set public spending always to the level required to achieve full employment and then accept whatever deficit may result but that was not what keynes had in mind what keynes called for was deficits when the private sector cut back mike kimel wrote years back in a comment at presimetrics and surpluses at other times or get it from the horse s mouth in the new york times of 10 june 1934 keynes wrote i see the problem of recovery accordingly in the following light how soon will normal business enterprise come to the rescue what measures can be taken to hasten the return of normal enterprise on what scale by which expedients and for how long is abnormal government expenditure advisable in the meantime keynes did not say we should have deficits year in and year out forever he wanted the economy to get back to normal asap and stop with the deficits already kelton s plan is to accept the deficits the growing deficits whatever they are however much they turn out to be mmt would set public spending always to the level required to achieve full employment and then accept whatever deficit may result in the public option paragraph that we skipped the double hypothetical paragraph kelton hypes the federally funded job guarantee as a way of ensuring full employment across the business cycle full employment in boom and recession alike remarkable for all practical purposes the full employment problem has been solved the deficit kelton says would rise and fall with the cycle note that she does not say deficit in the recession surplus in the boom kelton expects deficits always larger in recessions and smaller in recoveries but deficits always never surpluses and that s with normal recessions not great ones keynes expected deficits to give way to surpluses when the great depression ended the full employment problem is worse now than it was in the time of keynes the problem was worse in the time of keynes than it was during the greatest age of the inducement to investment this is not a one time change it is either a recurring change or a continuing long term change either way until the cause of this change is addressed the employment problem will continue to grow worse kelton s plan is necessarily different from keynes s because the economy has changed it changed enough that keynes s plan deficits giving way to surpluses couldn t work today but if the economy has changed maybe we don t need kelton s marathon dance of deficits we just need to discover the cause of the change that cause is the problem we must address hint the policies creating excessive finance are the cause stephanie kelton is not looking for the cause of the change she is looking to work around the change she hopes to restore full employment using an extreme version of 1960s keynesianism but the problem keeps getting worse and the solution keeps getting worse keynes wanted a one time burst of annual deficits kelton wants deficits always as the employment problem grows worse kelton s deficits will grow ever bigger even if that is harmless it does not solve the problem but rest assured the employment problem will continue to grow worse until the underlying cause of that problem is solved see also the public debt is...