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Articles by shamyshabeer

Marginalist Microeconomics: The Path to Totalitarian Tyranny

4 days ago

By Philip Pilkington
Fixing the Economists Article of the Week
Kevin Hoover, although not generally well-known in Post-Keynesian circles, is easily one of the most interesting economists writing on epistemology and ontology today. He was originally an applied macroeconomist but, like anyone who is remotely philosophically literate, he quickly began to see an awful lot of problems with both the econometric approach and with the models that were generally being used — most particularly, microfounded macroeconomic models.

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In his article Microfoundations and the Ontology of Macroeconomics he makes any number of interesting points. One that Lars Syll recently picked up on and which I highlighted in a book review last year is that the Rational Agent in microfounded models is an

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How to Drink from a Firehose

6 days ago

By John Mauldin, Thoughts from the Frontline
Basic economics tells us all resources are scarce, but our demand for them is not. Hence we need methods to allocate the limited supply of each resource. A significant part of economics is the study of those methods.

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One exception to the rule, though, has developed in the last few years: The amount of information available to us is practically unlimited. Open your internet browser, and most of that information is just a few clicks way. But if media industry profits (or lack of them) are any indication, demand for that information is anything but infinite.
One problem with information is that much of it is biased. I know, for instance,

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Angst in America, Part 7: The Angst of the Millennial Generation

11 days ago

By John Mauldin, Thoughts from the Frontline

“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”– John Adams, 1826
“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”– Adam Smith

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“Being young and having no job remains stubbornly common. Wages for young people fortunate enough to get a job have gone down. Inflation-adjusted wages for young high school graduates were 11 percent higher in 2000 than they were more than a decade later, and inflation-adjusted wages of young college graduates (four years only) have fallen by more than 5 percent.

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Making Sense of the Sterling Depreciation of 2007-2008

12 days ago

By Philip Pilkington
Something rather strange happened in Britain around the time of the financial crisis. The sterling tanked, import prices rose substantially and yet the inflation rate didn’t respond as much as we might assume.

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Other weird stuff happened too. For example, export prices rose rather than fell and the trade deficit worsened. Although these two aspects seem to totally contradict macroeconomic theory I’m not as concerned about them. In our newly globalised world exports, outside of small open economies, don’t increase as much as economists might assume. I’ve known this since I started examining the data — and Nicholas Kaldor was well aware of this by the late-1970s

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The Fading American Dream: Trends in Absolute Income Mobility since 1940

14 days ago

by Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca and Jimmy Narang, Voxeu.org
Posted originally at Voxeu.org 05 May 2017
One of the defining features of the ‘American Dream’ is the ideal that children have a higher standard of living than their parents. This column examines rates of ‘absolute income mobility’ – the fraction of children who earn more than their parents – to assess whether the US is living up to this ideal. Rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. Most of this decline is driven by the more unequal distribution of economic growth rather than the slowdown in aggregate growth rates.

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Misdirection: Galbraith on Piketty’s Book on Capital

18 days ago

By Philip Pilkington
Article of the Week from Fixing the Economists
Note:  This article was written in April 2014.
I’ve been waiting for this for some time but now Jamie Galbraith has come out and provided an extensive discussion of Thomas Piketty’s new book Capital in the Twentieth Century. While I haven’t yet read Piketty’s book its difficult not to have heard about it given how much of a response it is getting among economics types.

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The moment the hype started I thought that something was amiss. In 2012 Galbraith and his team published an extensive empirical investigation of income distribution using new datasets that they constructed. Beyond the interview I did with Galbraith and a few other articles and the like the release of the study didn’t get much play among economist types. The reason should be obvious: whereas Galbraith arrived at heterodox conclusions, Piketty’s are mostly orthodox.
As Galbraith notes in his review Piketty seems to put some weight in the idea that the problems with income inequality that we face today are mainly to do with technology and education. Galbraith and his team, on the other hand, point to something that should be intuitively obvious to anyone following political and economic events in the past decade; namely, finance.

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What has Bank Capital ever Done for Us?

20 days ago

By Voxeu.org
— this post authored by Oscar Jorda, Bjorn Richter, Moritz Schularick, and Alan Taylor
Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies from 1870 to 2013 and for the post-WW2 period, and holds both within and between countries. The authors of this column reach this conclusion using newly collected data on the liability side of banks’ balance sheets in 17 countries. However, higher capital buffers have social benefits in terms of macro-stability: recoveries from financial crisis recessions are much quicker with higher bank capital.

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A well-run bank needs no capital. No amount of capital will rescue a badly run bank.—Walter Bagehot

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The institutional response to the Global Crisis has centred on higher capital buffers and regulation of bank leverage. Bagehot’s quip, however, reminds us that the trouble might start when a bank decides how much to lend, and to whom: no amount of capital provisioning can make up for poor business acumen.
In theory, larger capital buffers should reduce both the probability and cost of financial crises, just as higher levees better protect against floods.

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Angst in America, Part 6: Middle Class Blues

21 days ago

By John Mauldin, Thoughts from the Frontline

“We of the sinking middle class may sink without further struggles into the working class where we belong, and probably when we get there it will not be so dreadful as we feared; for, after all, we have nothing to lose.”– George Orwell
“A strong, educated middle class is what made America the greatest country in the world.”– Lincoln Chafee

Follow up:
As we continue our tour of the widespread angst afflicting investors large and small today, I want to ask a more fundamental question: Is the angst all in our heads?
The quick answer: No, it’s not. The economic challenges we face are real. Fear, or angst, is often a perfectly reasonable response. I’ve said that, with one exception, we can muddle through the coming crises. But “we” doesn’t mean every single one of us. The nation will survive the next recession, but some of its citizens may not, at least not with the same financial security that they currently enjoy and expect. The coming pension crisis will put quite a dent in expectations. Economic strain can lead directly to sickness, disability, and sometimes suicide or fatal illness. It happens. I don’t want to minimize that risk.
It’s precisely the risk that we will find ourselves among those who can’t muddle through that creates so much angst. Worse, we know the risks aren’t randomly distributed.

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Trade and Increased Commercial Investment Saved Q1 2017 GDP from Contraction

24 days ago

April 28, 2017 – BEA Estimates 1st Quarter 2017 GDP Growth At 0.69%:
by Rick Davis, Consumer Metrics Institute
In their first (preliminary) estimate of the US GDP for the first quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +0.69% annual rate, down roughly two thirds (-1.39%) from the +2.08% reported for the prior quarter.

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Total consumer spending grew at a meager +0.23% annualized rate during the quarter, down a significant -2.17% from the prior quarter. Inventory contraction removed another -0.93% from the headline number, a swing of -1.94% from the prior quarter. Government spending contracted during the quarter, removing -0.30% from the headline. The good news was that commercial fixed investment added +1.62 to the headline, the strongest contribution since 1Q-2012 — five years ago. And foreign trade also improved markedly to an essentially neutral contribution (+0.07%), up some +1.89% from the prior quarter. The BEA’s "bottom line" (their "Real Final Sales of Domestic Product", which excludes the growing inventories) was nearly a full percent better than the headline at +1.62%, up +0.55% from the 1.07% rate recorded 4Q-2016.

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Angst in America, Part 5: The Crisis We Can’t Muddle Through

25 days ago

By John Mauldin, Thoughts from the Frontline

“The ship of democracy, which has weathered all storms, may sink through the mutiny of those on board.”– Grover Cleveland, the 22nd and 24th president of the United States
“It is your concern when your neighbor’s wall is on fire.”– Horace

Follow up:

“The biggest mistake investors make is to believe that what happened in the recent past is likely to persist. They assume that something that was a good investment in the recent past is still a good investment. Typically, high past returns simply imply that an asset has become more expensive and is a poorer, not better, investment.”– Ray Dalio, Founder, Bridgewater Associates

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When you spend a couple of decades writing weekly letters to hundreds of thousands of people you think of as friends, your readers naturally come to associate you with a few key ideas. I have certainly become known for at least one. My longtime regular readers think of me as the “Muddle Through” guy. That’s not an image I have tried to cultivate, but I have it anyway.
I have to confess that it’s usually accurate. In a typical letter I will describe some sort of potentially scary problem, explain what might happen, then conclude that we’ll probably avoid the worst and muddle through.

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Was Marx Right?

26 days ago

By Philip Pilkington
Well, it looks like The New York Times has opened a bit of a can of worms by asking Was Marx Right?. I generally find that this question to be a bit annoying. Was Marx right about what, specifically? That labour is the True and Only source of value? No, he was wrong on that. That communism was an inevitable outgrowth of capitalism? He’s been wrong on that — so far, at least. That capitalism was prone to financial crises? Yes, he was quite right about that.

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I suppose I’ve made my point. Marx said a lot of things. It would be rather unusual if he were right about everything he wrote and it would be equally surprising if he was wrong about everything he wrote. Marx was right about some things and wrong about some things. Although the man had a marked tendency to play the prophet in truth he was really just a man, no matter how much some of his contemporary acolytes may insist to the contrary. He was right sometimes and wrong sometimes.
Anyway, the series gives me an opportunity to clear up a few Marxian myths. The first is propounded by Brad Delong in his piece Marx Was Blind to the System’s Ingenuity and Ability to Reinvent.

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Brexit – Who Wins and Loses

April 21, 2017

By Elliott Morss, Morss Global Finance
Introduction
In all likelihood, Brexit is coming. What will its effects be and what countries will be injured the most? It clearly “depends.” While it is apparent that the UK would like trade linkages to remain the same, numerous Economic Union (EU) members have been piqued by Brexit and want to strip away some of the UK’s trade benefits. At least they do as a starting point for negotiations. Below, the benefits and costs of a breakup are examined.

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So Far
Initially, the sense was that Brexit would weaken Britain. This resulted in a weaker Pound: down nine percent against the Euro and twelve percent against the Dollar. And as a result, the UK’s exporters have been doing quite well since the vote.
What Will the Trade Effects Be?
The outcome of the Brexit negotiations remains uncertain. However, it is reasonable to assume that trade between the UK and the EU will be restricted in various ways. Who will this hurt the most? This will be reflected in lower exports and/or higher import prices.
a. EU Members
If Brexit occurs, it is likely that the completely free trade access that the UK now enjoys will be lessened. Table 1 provides EU members’ exports and imports to and from the UK.

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Why Long-Run Theories of Profit and Accumulation Fall Short

April 20, 2017

By Philip Pilkington
Nothing gets heterodox economists quite so fussed as the long-run theory of the rate of profit. Yet, Keynes did without one altogether and when examined closely there is no way that such a theory can say anything tangible about the real world. In order to lay this out I am going to take my leave from Joan Robinson’s excellent book Economic Heresies: Some Old-Fashioned Questions in Economic Theory.

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When Robinson discusses Keynes she says that he had no real interest in a long-run theory of profits and accumulation. In the long-run, Keynes famously said, we are all dead. All that matter is short-term analysis. Crucially Keynes thought that profits and accumulation could not be discussed without reference to expectations — that is, to his ‘animal spirits’ — and thus any discussion about profits and accumulation in the long-run is only building so many castles in the sky.
In her book Robinson takes Keynes to task for discussing financial markets rather than the actual sphere of production. The Marxian and Ricardian influences on Robinson are clear when she writes, for example,

Keynes rather lost his grip on the distinction between the rentier and the entrepreneur.

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Angst in America, Part 4: Disappearing Pensions

April 19, 2017

By John Mauldin, Thoughts from the Frontline

“Companies are doing everything they can to get rid of pension plans, and they will succeed.”– Ben Stein
“Lady Madonna, children at your feet Wonder how you manage to make ends meet Who finds the money when you pay the rent? Did you think that money was heaven sent?” -– “Lady Madonna,” The Beatles

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There was once a time when many American workers had a simple formula for retirement: You stayed with a large business for many years, possibly your whole career. Then at a predetermined age you gratefully accepted a gold watch and a monthly check for the rest of your life. Off you went into the sunset.
That happy outcome was probably never as available as we think. Maybe it was relatively common for the first few decades after World War II. Many of my Baby Boomer peers think a secure retirement should be normal because it’s what we saw in our formative years. In the early 1980s, about 60% of companies had defined-benefit plans. Today it’s about 4% (source: money.CNN). But today defined-benefit plans have ceased to be normal in the larger scheme of things. We witnessed an aberration, a historical anomaly that grew out of particularly favorable circumstances.
Circumstances change.

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Krugman Uses ISLM to Proclaim Looming Fiscal Crisis, Denounces Those Who Don’t Use ISLM

April 13, 2017

By Philip Pilkington
Editor’s note:  This was written in March 2014.
Some people often ask why I complain about Krugman. “Hey Phil, Krugman is a good guy. He likes government spending. You like government spending. Therefore you must like Krugman,” says our budding young Socrates. Well, I’ll tell you why: because Krugman is a pretty awful economist who pushes completely outdated views and tricks people into thinking that they’re cutting edge. Anything that is of interest he poaches from elsewhere, typically engages in dubious accreditation and ultimately gets it wrong.

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The reason for this? Because Krugman loves models and hates books. He loves little simplifications of the world and hates complexity. That is why he has been wrong on most substantive issues over most of his career. What are the roots of this hatred? From his public writings it appears to have something to do with the influence of JK Galbraith and American institutional economics (which, in Krugman’s mind, is tied up with all heterodox economics).
In the mid-1990s Krugman used to write awful reviews of Galbraith’s books.

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A Stroll through US Trade Statistics, and How It Always Balances

April 7, 2017

By Timothy Taylor, Conversable Economist

"America’s commerce with the rest of the world must be and always is balanced when taking into account investment flows as well as the exchange of goods and services. … [O]ne key insight for public policy is that the total outflow of dollars each year from the United States to the rest of the world is matched by an equal inflow of dollars from the rest of the world to the United States. There is no need to worry about a `leakage’ of dollars siphoning off demand from the domestic economy. Dollars spent on imported goods and services return to the United States, if not to buy US goods and services, then to buy US assets in the form of an inward flow of investment. … When we account for all the dollars flowing into the United States, with an adjustment for the statistical discrepancy, it totals the exact same amount. The difference between dollars flowing out and dollars flowing in each year is zero."

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Thus writes Daniel Griswold in "Plumbing America’s Balance of Trade," a paper published for the Mercatus Center at George Mason University. For noneconomist readers, Griswold’s statements may seem ideological or controversial.

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Some Metaphors Are Better Than Others: Deirdre McCloskey and the Capital Debates

April 6, 2017

By Philip Pilkington
Fixing the Economists Article of the Week
Well, my previous piece on the work of Deirdre McCloskey generated some discussion. I just thought that perhaps I should lay out what I find problematic about her work.

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Please share this article – Go to very top of page, right hand side for social media buttons.The problem with McCloskey is that she practices a sort of false postmodernism of the most insipid kind. Now, I’m not one to throw around that term too much — I greatly admire many of the post-structuralist philosophers. What I mean when I say that is that McCloskey reduces everything to literary criticism and then consigns rational debate to the bin.
I think that this is disingenuous in the extreme because, of course, she herself as a working economist does think that some theories are more true than others that are more false. But the discourse in her books shuts the debate down before it reaches this stage. Consider the following passage on the Cambridge Capital Controversies from her book The Rhetoric of Economics,

The metaphor [of ‘capital’] got out of its coffin in an alarming fashion in the Debate of the Two Cambridges in the 1960s. The violence of the combat suggests that it was about something beyond mathematics or fact.

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Angst in America, Part 3: Retiring Broke

April 5, 2017

By John Mauldin, Thoughts from the Frontline

“The trouble with retirement is you never get a day off.”– Abe Lemons
“Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.”– George Burns

Follow up:

“To be, or not to be, that is the question:Whether ’tis nobler in the mind to sufferThe slings and arrows of outrageous fortune,Or to take Arms against a Sea of troubles,And by opposing end them.”
– Shakespeare, Hamlet

Today we continue looking at angst in America, the financial worries that so afflict us here in the world’s largest economy and by extension in much of the developed world. We may be the envy of the world in some ways, but we also have no shortage of stress. Today we’ll look at some data on retirement savings – or lack thereof.
Let’s start by backing up a little bit. I’m not the only one talking about financial anxiety. Last week I ran across a survey from NerdWallet on this very issue. They engaged the Harris Poll to ask 2,000 Americans of all ages about their biggest financial concerns. Here’s a chart showing the top worries.

The biggest worries are healthcare expenses, lack of emergency savings, and lack of retirement savings. Yet only 28% worry they lack retirement savings? Compare this with what we know about people’s actual savings, and that number is far too low.
We can see in another recent survey by GOBankingRates.

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Economic Growth in the US: A Tale of Two Countries

April 3, 2017

From Voxeu.org
— this post authored by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman
Appeared originally at Voxeu.org 29 March 2017
The rise of economic inequality is one of today’s most hotly debated issues. But a disconnect between the different data sets used to measure and understand inequality makes it hard to address important economic and policy questions. In this column, the authors highlight the findings from their attempt to create inequality statistics for the US that overcome the limitations of existing data by creating distributional national accounts.

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The rise of economic inequality is one of the most hotly debated issues today in the US (Furman 2016) and indeed in the world. Yet economists and policymakers alike face important limitations when trying to measure and understand the rise of inequality.
One major problem is the disconnect between macroeconomics and the study of economic inequality. Macroeconomics relies on national accounts data to study the growth of national income, while the study of inequality relies on individual or household income, survey, and tax data. Ideally all three sets of data should be consistent, but they are not.

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Empty Rhetoric: On the Work of Deirdre McCloskey

March 30, 2017

By Philip Pilkington
Fixing the Economists Article of the Week
Yesterday I read a short pamphlet by Deirdre McCloskey entitled The Secret Sins of Economics. You can get it here for free in PDF form. A friend of mine told me a while ago that I would like McCloskey. He told me she writes very well and has a take on economics similar to my own.

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Well, he was half correct; she does write very well. I would also say that she is quite well read. But her take on economics is very far from my own. In the pamphlet she claims that the two things that economics is often attacked for by other social sciences is not its gravest sin; these two things are, of course, quantification and mathematisation.
I certainly agree on the first point. There is nothing wrong with quantification in economics. Indeed, properly handled data analysis can give us insights into what is going on in the economy. But I think the Samuelsonian tendency toward mathematisation was extremely problematic in that the form began to take over from the content in any number of ways.
She doesn’t seem to mind this much. She says that the often bizarre formal arguments concocted by economists sometimes lead to relevant insights.

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Men Without Work

March 30, 2017

By John Mauldin, Thoughts from the Frontline
I have been promising a review of Nicholas Eberstadt’s very important book, Men Without Work: America’s Invisible Crisis.  The book is relatively short at 216 pages, but it is packed with meaty facts and insights.

Follow up:
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One of the reasons I seldom read an actual physical book anymore is because I can highlight text and make notes in my Kindle app on my iPad and then find those notes and highlighted sections on my Amazon page for later review. I actually highlighted 36 pages with 22,000 words from this book to go back and review. And while I will be using a lot of quotes in this letter, I hope this simply spurs you to order the book and read it for yourself. The “invisible crisis” that the author is writing about is at the very center of our economic and political turmoil.
At its heart, the book is about the fact that there are some 10 million American men of prime working age (25 to 54) who have simply dropped out of the workforce, and the great majority of them have not only dropped out of the workforce, they have also dropped out from any commitments or responsibilities to society. It is not just the labor force they are not participating in; they are not participating in the normal ebb and flow of community life.

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The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 2

March 22, 2017

By Philip Pilkington
I’ve got quite a response to my last piece on the Job Guarantee program and it’s possible influence on wage-price spirals. Some of the kickback I received is, I think, based on a misunderstanding. A few people seemed to think that the JG program itself might induce a wage-price spiral. This is not what I was saying at all.

Follow up:
What I was really saying is that a JG program, as it provided continuous full employment, would lead to a sharp increase in worker bargaining power. If an external shock — like an oil price shock or a substantial currency devaluation — caused inflation to bounce workers may then try to push the costs of the inflation onto capitalists through increases in wages. The capitalists may then try to push these costs back onto the workers and other capitalists by raising prices. So, the causality runs,

JG Program => Tight Labour Markets => Increased Worker Bargaining Power => Potential Tinderbox Scenario Where a Wage-Price Spiral May Occur

Now, Neil Wilson said that I have no evidence that this would happen. Well, as with all applied economics I can never prove this beyond a shadow of a doubt. I am engaged in crystal ball-gazing to some extent here. But I can show historical correlations that imply that the mechanisms that I outline have the potential to do what I say that they might do.

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Angst in America, Part 1: Aimless Men

March 21, 2017

By John Mauldin, Thoughts from the Frontline

“America was not built on fear. America was built on courage, on imagination and an unbeatable determination to do the job at hand.” – Harry S. Truman
“Unemployment is a weapon of mass destruction.”– Dennis Kucinich

“Depression Breadline,” 1991, by George Segal
Follow up:

“Ever since 2000, basic indicators have offered oddly inconsistent readings on America’s economic performance and prospects. It is curious and highly uncharacteristic to find such measures so very far out of alignment with one another. We are witnessing an ominous and growing divergence between three trends that should ordinarily move in tandem: wealth, output, and employment. Depending upon which of these three indicators you choose, America looks to be heading up, down, or more or less nowhere.”–Nicholas Eberstadt, “Our Miserable 21st Century”

Angst is “a feeling of anxiety, apprehension, or insecurity.” Many of us feel it acutely right now – and that’s new. Angst isn’t a temporary, individual thing anymore. Now we all feel it together – or at least most of us do – and it’s not at all temporary. Millions can remember feeling no other way.
There’s a general sense in much of the developed world that we’re headed for more difficult times.

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Tax Reform: The Good, the Bad, and the Really Ugly, Part Five

March 10, 2017

By John Mauldin, Thoughts from the Frontline

“A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform”– Russell B. Long
“Corporate tax reform is nice in theory but tough in practice.”– Andrew Ross Sorkin

Follow up:

“I hold it that a little rebellion, now and then, is a good thing, and as necessary in the political world as storms in the physical. Unsuccessful rebellions, indeed, generally establish the encroachments on the rights of the people, which have produced them. An observation of this truth should render honest republican governors so mild in their punishment of rebellions, as not to discourage them too much. It is a medicine necessary for the sound health of government.” – Thomas Jefferson, in a letter to James Madison. January 30, 1787 (230 years ago)
“You say you want a revolutionWell, you know we all want to change the worldYou tell me that it’s evolutionWell, you knowWe all want to change the world…
You say you got a real solutionWell, you know we’d all love to see the planYou ask me for a contributionWell you know we’re doing what we can.
But it’s gonna be all right!”
– John Lennon/Paul McCartney, the Beatles, 1968

Today, patient reader, we hopefully reach the end of our tax reform saga, which has grown much longer than I expected. I seriously thought at the beginning that I could fit all this into one letter.

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Thinking Makes It So: The IMF Bailout of the UK in 1976 and the Rise of Monetarism

March 9, 2017

By Philip Pilkington
Monetarism began it’s rise to world prominence in the ever-conservative Bundesbank in 1974. But it would be the government of Margaret Thatcher in the UK, elected in 1979, that would truly launch monetarism in central banking. After Thatcher’s monetarist experiment undertaken between 1979 and 1984, every economics student would be taught to recite the various monetary aggregates by heart for at least a decade or two.

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This is what accounts for the monetarist bent we see in the economists of the last generation. Basically any economist trained between roughly 1980 and 1995 would be heavily exposed to monetarist dogma. And only those that read alternative accounts of money creation — namely, the theory of endogenous money — would be fully immunised. This explains, for example, why certain economists that champion Keynesian policies — like Paul Krugman — actually speak in monetarist tones.
But it was the Labour government of James Callaghan that paved the way for the monetarist dogma. The short version of the story runs something like this: in 1976 Callaghan needed a $3.9bn loan from the IMF because he was concerned that the value of the sterling was about to crash. The IMF insisted that Callaghan undertake austerity policies and that he establish a monetary target for the central bank. This is how monetarism entered the UK.

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Trump, Ryan, and Price: Can They Make the Healthcare Numbers Add Up?

March 9, 2017

By Elliott Morss, Morss Global Finance
Introduction
During his campaign, Trump said he would get rid of Obamacare on his first day in office. He did not and instead suggested that he might keep part of the Affordable Care Act (ACA). He then said he will not enforce the penalties for those who do not sign up for healthcare insurance.

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And last week, he conceded: …it’s an unbelievably complex subject. Nobody knew that health care could be so complicated.” Oh? But Trump continues to insist his legislation will provide lower cost health insurance for all. Is there any way he can do this?

If Trump is going to bring down health care costs, his policies must address the causes for their growth. So far, the only thing we have heard from Trump and other Republicans on how they plan to do this is by fostering greater competition among insurers by allowing them to compete nationally. Will this work? At present, each state has its own regulations on what health insurance covers. Are these state rights going to be eliminated in favor of Federal control? This does not sound like something Republicans would support.
But there are other problems. Selling insurance in a new region/state takes more than just getting a state license. It also involves setting up favorable contracts with doctors and hospitals so that customers will be able to get access to health care.

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Tax Reform: The Good, the Bad, and the Really Ugly, Part Four

March 4, 2017

By John Mauldin, Thoughts from the Frontline

“The values to which people cling most stubbornly under inappropriate conditions are those values that were previously the source of their greatest triumphs over adversity.”– Jared Diamond, Collapse, 2005
Tax reform means, “Don’t tax you, don’t tax me. Tax that fellow behind the tree.”– Russell B. Long, Democratic Senator from Louisiana, longtime chairman of the Senate Finance Committee (and a strong believer in capitalism who was a champion of tax breaks for businesses)

Follow up:
This letter turns out to be the penultimate installment in my now five-part series on tax reform. Part one was an introduction and a discussion of some of the problems of the proposed border adjustment tax. Part two went further into the proposed reforms and reasons for them, focusing mainly on what I liked in the proposal. Part three was a determined evisceration of the border adjustment tax proposal (which I think potentially has all sorts of negative consequences, up to and including starting a global recession). You can read parts one, two, and three by clicking on the links. I also sent as an Outside the Box this past Wednesday, written by Constance Hunter of KPMG, who analyzed the proposed reforms, discussing the difficulties of the proposed border tax as well as other issues.

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When Marxists Deploy the Quantity Theory of Money and Other Economic Nonsense

March 2, 2017

By Philip Pilkington
Article of the Week from Fixing the Economists
It’s truly infuriating to watch left-wingers talk absolute nonsense when discussing the economy. I encounter it all too often. What you generally get is a hodge-podge of incoherent economic ideas — usually incorporating the worst aspects of right-wing doctrines like monetarism — topped off with a general hand-wave that, well, capitalism is full of ‘contradictions’ and doesn’t work anyway so what’s the use of discussing it in any detail.

Follow up:
Joan Robinson — probably the Post-Keynesian economist who dealt with the left in the most depth (I think others just get peeved) — noted this time and again. In her Open Letter From a Keynesian to a Marxist she mocked the tendency of left-wing economists to simply worship at the feet of Marx rather than trying to figure out what was good and what was bad in his analysis. A classic example of this is the following two paragraphs,

Again, suppose we each want to recall some tricky point in Capital, for instance the schema at the end of Volume II. What do you do? You take down the volume and look it up. What do I do? I take the back of an envelope and work it out.
Now I am going to say something still worse. Suppose that, just as a matter of interest, I do look it up, and I find that the answer on my old envelope is not the one that is actually in the book.

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Consumer Spending Increase Saves 4Q 2016 GDP Estimate from a Decline

March 1, 2017

By Rick Davis, Consumer Metrics Institute
February 28, 2017 – BEA Revision Revises 4th Quarter 2016 GDP Growth To 1.85%: In their second estimate of the US GDP for the fourth quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the US economic growth rate was +1.85%, essentially unchanged from the +1.87% previously reported but down by nearly half (-1.68%) from the prior quarter.

Follow up:
Although there was no material change in the headline number, the composition of that number was revised in several ways. Consumer spending on goods and services was revised upward by an aggregate of +0.35%. Meanwhile fixed commercial investment, inventories and governmental spending were revised in aggregate downward by -0.37% — completely offsetting the consumer gains. The BEA’s "bottom line" (their "Real Final Sales of Domestic Product", which excludes the growing inventories) continues to record a sub 1% growth rate (+0.91%), down over 2% (-2.13%) from 3Q-2016. Real annualized household disposable income was reported to have grown by $127 quarter-to-quarter, to an annualized $39,481 (in 2009 dollars). The household savings rate was unchanged at 5.6%. For the fourth quarter the BEA assumed an effective annualized deflator of 2.03%.

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Wasteful Health Care Spending

February 28, 2017

by Timothy Taylor, Conversable Economist
The high costs of health care are not just an issue for the United States, but for countries all over the world. The OECD addresses the issue of How to Tackle Wasteful Health Care Spending in a January 2017 (which can be ordered or read online for free here).

Follow up:
Here’s a taste of the findings from the "Foreword":
Across OECD countries, a significant share of health care system spending and activities are wasteful at best, and harm our health at worst. One in ten patients in OECD countries is unnecessarily harmed at the point of care. More than 10% of hospital expenditure is spent on correcting preventable medical mistakes or infections that people catch in hospitals. One in three babies is delivered by caesarean section, whereas medical indications suggest that C-section rates should be 15% at most. Meanwhile, the market penetration of generic pharmaceuticals – drugs with effects equivalent to those of branded products but typically sold at lower prices – ranges between 10-80% across OECD countries. And a third of OECD citizens consider the health sector to be corrupt or even extremely corrupt. At a time when public budgets are under pressure worldwide, it is alarming that around one-fifth of health expenditure makes no or minimal contribution to good health outcomes. …

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