By Philip Pilkington
I recently had an argument with a few New Keynesian types in the comments section of Lars Syll’s blog. I won’t get into the nuances here as they are not very interesting. Basically the New Keynesians were trying to defend the idea that, in the long-run, wages are indeed flexible. The argument went nowhere partially, I think, because they misunderstood what the phrase “wages are flexible in the long-run” means.

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To me that means that wages are both flexible in the sense that they will clear labour markets in the long-run (i.e. in the long-run there will be full employment so long as the correct level of interest rates is maintained in line with some Taylor Rule,

By Elliott Morss, Morss Global Finance
Introduction
Even with the US pulling out of the Paris Accord, there has been a lot of positive press about growth in the use of renewable energy worldwide. In this piece, I look at energy data to illustrate what has really been happening.

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Energy Consumption
Table 1 provides data on energy consumption by leading countries and regions. The countries/regions listed constitute 81% of the world total. Million tons oil equivalent (MTOE) standardizes data from all types of energy.
Note first the column on the far right. It measures energy consumption (tons oil equivalent) per capita. The US’s high consumption stands out. In terms of total consumption, China passed the US in 2009. The very low consumption figures for Africa, India, and the

By John Mauldin, Thoughts from the Frontline
All over America, kids who were fortunate enough to go to summer camp are busy telling mom and dad what they did. Their stories will be suspiciously incomplete, but that’s OK. We know they learned something.

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Well, I went to camp this summer, too. I go every year, and I always learn more than I can manage to remember. Camp Kotok is an invitation-only gathering of economists, market analysts, fund managers, and a few journalists. It takes place at the historic Leen’s Lodge in Grand Lake Stream, Maine. We fish, talk, eat, drink, and talk some more. It’s a three-day economic thought-fest (and more rich food and wine than is good for me or

By Timothy Taylor, Conversable Economist
Bees and pollination play an important supporting actor role in economic discussions of how and when markets will work well.

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In a 1952 article (Economic Journal, "External Economies and Diseconomies in a Competitive Situation") , James Meade suggested some problems that could arise between an apple farmer and a beekeeper. In Meade’s example, if an apple farmer thought about expanding the orchard, part of the economic benefit would be that local bees could make more honey. However, the apple farmer would not benefit from the gains in honey-making, and thus would have a reduced incentive to expand the orchard. Conversely, if a beekeeper and

By Philip Pilkington
Article of the Week from Fixing the Economists
In my last post I tried to argue that, for a number of reason, once we make additions to Sraffa’s theory to make it comprehensive enough to confront the real world any potential interpretation of the theory in line with the labour theory of value falls apart. In that post, however, I never dealt with why some people have sought out a labour theory of value in Sraffa’s work.

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The reason for this seems to start in chapter III of Productions of Commodities By Means of Commodities. In this chapter Sraffa considers what impact variations in wage-profit distributions will have on the prices of goods in any given economy.

By Elliott Morss, Morss Global Finance
Introduction
We hear endlessly that technology is advancing at an ever-increasing rate. But for the most part, we just plod along in our current life paths. Thinking back, I remember learning how to use a slide rule and typing my college thesis.

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At the University of Michigan, I punched cards and then handed them through a window to be loaded into an IBM 1080. And then in the early days at DAI, we had a typist who was error prone. So we got her a Selectric II typewriter with correcting tape. We knew something better was needed, so I purchased a Kaypro 2 using a CP/M operating system.
The Kaypro 2
I remember the early success of the Wang word

By Timothy Taylor, Conversable Economist
The number of shareholder-owned US corporations is in steep decline, falling from 7,507 in 1997 to 3,766 by 2015. Thus, Kathleen M. Kahle and René M. Stulz ask "Is the US Public Corporation in Trouble?" in their article in the Summer 2017 Journal of Economic Perspectives (31:3, pp. 67-88). (Full disclosure: I’ve been Managing Editor of JEP since its inception in 1987, and thus may be predisposed to believe that the articles appearing there are worth reading! All articles in JEP, from the most recent issue back to the first, are freely available online compliments of its publisher, the American Economic Association.)

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The blue line in this

By Philip Pilkington
Article of the Week from Fixing the Economists
Recently I discussed the fundamental differences between the Sraffian and the marginalist systems. Since then I was perusing Sraffa’s Production of Commodities By Means of Commodities (full PDF available here).

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It’s a very nice piece of work. Tightly argued, elegantly written and quite illuminating in many respects. It is also completely free of nonsense; the argument makes no outlandish assumptions about how humans behave or firms operate or anything of the sort. Now, as I said in the original piece: Sraffa’s is just a narrative framework for broadly conceptualising how the economy kind-of-sort-of functions.

By John Mauldin, Thoughts from the Frontline

“I never liked quantitative easing. Flattening the yield curve is not stimulative; flattening the yield curve is anti-stimulative.”– Ken Fisher
“There is a limit to how much the United States Treasury can borrow.”– Alan Greenspan
“In other words, we have the models we have because of inertia and theology, but also because all we can do is all we can do.”– Kit Webster

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“[T]he specific manner by which prices collapsed is not the most important problem: A crash occurs because the market has entered an unstable phase, and any small disturbance or process may have triggered the instability. Think of a ruler held up vertically on your

By Rick Davis, Consumer Metrics Institute
July 28, 2017 – BEA Estimates 2nd Quarter 2017 GDP Growth At 2.56%: In their first (preliminary) estimate of the US GDP for the second quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.56% annual rate, up +1.14% from a downward revised first quarter.

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Consumer spending rebounded, growing at a +1.93% annualized rate during the quarter, up +1.18% from the prior quarter and very similar to the fourth quarter of 2016. The inventory contraction of the prior quarter essentially disappeared (-0.02%), as did the previous robust growth in commercial fixed investment (at only +0.36%).

By Philip Pilkington
I note that there is oftentimes confusion today when the gold standard era is brought up. The reason for the confusion when discussing this era is because the monetary system functioned in an entirely different way.

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The confusion goes two ways; both from the past to the present and from the present to the past. Austrian-style economists and gold bugs tend to project the manner in which the 18th and 19th century monetary system functioned onto today’s world. While more modern theorists tend to project the way that the monetary system of today’s world works back onto the system of the 18th and 19th century.
I’m not going to lay out how the contemporary monetary

By John Mauldin, Thoughts from the Frontline

“The world in which we live has an increasing number of feedback loops, causing events to be the cause of more events (say, people buy a book because other people bought it), thus generating snowballs and arbitrary and unpredictable planet-wide winner-take-all effects.”– Nassim Nicholas Taleb, The Black Swan

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“What do you do?” is a common question Americans ask people they have just met. Some people outside the US consider this rude – as if our jobs define who we are. Not true, of course, but we still feel obliged to answer the question.
My work involves so many different things that it isn’t easy to describe. My usual quick answer is

— this post authored by Nicholas Crafts and Terence Mills, Voxeu.org
Estimates of trend total factor productivity growth in the US have been significantly reduced, contributing to fears that the slowdown is permanent. This column provides an historical perspective on the relationship between estimated trends in total factor productivity growth and subsequent outcomes. It argues that In the past, trend growth estimates have not been a good guide for future medium-term outcomes, and ‘techno-optimists’ should not be put off by time-series econometrics.

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Productivity growth in the US has slowed down markedly since the heady ‘new economy’ days around the turn of the century. The

By John Mauldin, Thoughts from the Frontline

“We’re already in a trade war with China. The problem is we’ve not been fighting back.”– Peter Navarro
“The battle for Helm’s Deep is over. The battle for Middle Earth is about to begin.”– Gandalf the White

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This post should find you buckled in for the turbulence I described last week. If not, I hope this one convinces you. The storm is seven days closer now. There are times when normality slips out of reach, and I believe we are approaching such a time.
I have lived through recessions and bear markets; I know what they look like. I wish I could forget what they feel like. They don’t come out of nowhere; there are always warning signs.

By Voxeu.org
— this post authored by Fabiano Schivardi, Enrico Sette, and Guido Tabellini
There is a widespread perception that under-capitalised banks can prolong crises by misallocating credit to weaker firms and restraining credit to healthy borrowers. This column explores the extent and consequences of credit misallocation in Italy during and after the Eurozone Crisis. Bank undercapitalisation may have been costly in terms of misallocation of capital and productive efficiency in the medium term due to the higher exit of healthy firms, but it had at best a limited role in aggravating the recession induced by the Eurozone Crisis.

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An important dimension of financial crises is a

By Philip Pilkington
Recently Cameron Murray directed me to an interesting paper entitled Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science. The paper surveyed a whole bunch of professional economists to see if they could answer a basic question on the microeconomic theory of the ‘opportunity cost’.

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The results were not so good. They are laid out in the table below — note that there is only one correct answer!

Most of the profession viewed this as some sort of failure of economic education. So too did Murray on his blog. But I’d like to put forward a different interpretation: what if the entire technical idea of

By Philip Pilkington
Fixing the Economists Article of the Week
In response to Krugman’s awful dismissal of heterodox economics about three years ago (see here) Ramanan has dug up an old quote reminding us that Krugman actually got his Swedish bank prize for being a defender of the status quo. In a 1996 lecture paper Krugman lays out a propaganda plan so that economists can argue in favour of free trade.

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Krugman is, rather interestingly, very self-conscious in thinking that he is pushing an orthodox line while playing at being a rebel — something interesting to note given that he is taking what seems to be a very similar line today when it comes to the ISLM and what he thinks to

By John Mauldin, Thoughts from the Frontline

“The job of the central bank is to worry.”– Alice Rivlin
“The central bank needs to be able to make policy without short-term political concerns.”– Ben Bernanke
“… from the standpoint of the overall economy, my bottom line is we’re watching it closely but it appears to be contained.– Ben Bernanke, repeatedly, in 2007

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“Would I say there will never, ever be another financial crisis? You know, probably that would be going too far, but I do think we’re much safer, and I hope that it will not be in our lifetimes, and I don’t believe it will be.”– Janet Yellen, June 27, 2017
“My good friends, for the second time in our history, a British

By Philip Pilkington
Well, as I pointed out last week the Capital Controversies have come up once more. Now, again, there were a number of important issues in the controversies — the measurement of capital being one as this leads to some very salient criticisms of using production functions in empirical work — but I want to follow up on the same theme I discussed yesterday; namely, income distribution.

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The mainstream economists have a very difficult time figuring out why Post-Keynesians and Sraffians get fired up on this point. After all, they insist, you can account for various aspects of income inequality in their marginalist models. What’s more you can do this without assuming

By John Mauldin, Thoughts from the Frontline

“A serious writer may be a hawk or a buzzard or even a popinjay, but a solemn writer is always a bloody owl.”– Ernest Hemingway

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Longtime readers know I am not the Federal Reserve’s #1 fan. I can’t recall ever resting easy, confident that the Fed was ably looking out for our economy and banking system. However, I have experienced varying degrees of skepticism and distrust. I must also acknowledge that we are all still here despite the Fed’s many mistakes.
Once or twice a year the Fed rekindles my frustration and concern with a particularly boneheaded statement or policy change. Last summer, the Fed’s annual Jackson Hole Economic Policy

By Rick Davis, Consumer Metrics Institute
In their third and final estimate of the US GDP for the first quarter of 2017, the Bureau of Economic Analysis (BEA) revised the growth of the US economy upward to a +1.42% annual rate, up +0.26% from their previous estimate for the first quarter but still down over a half percent (-0.66%) from the +2.08% reported for the fourth quarter of 2016.

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Weak consumer spending grew at a meager +0.75% annualized rate during the quarter, up +0.31 from the previous estimate but still down a significant -1.65% from the prior quarter. The previously reported inventory contraction worsened slightly to a -1.11% annual pace (a swing of -2.12% from the

Fixing the Economists Article of the Week
by Philip Pilkington
In recent days the old capital controversies have come up again. This has been in response to the work of Thomas Piketty and its championing by the likes of Paul Krugman. Because this work deals with the issue of inequality it is natural that the capital debates should come up once more.

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The capital debates were, it should be said, about rather a lot of things. But the most immediate concern was with income distribution. The mainstream marginalist argument tried to show that income is passed over to the factors of production — that is, capital and labour — in line with their marginal productivities. This implies that

By Philip Pilkington
I’m currently reading Robert Solow’s paper A Contribution to the Theory of Economic Growth in which he lays out his famous Solow growth model. I don’t want to get into the actual model laid out here but instead ask what exactly this paper is trying to address. As readers of this blog will probably know I find so-called ‘long-run’ models to be about as useful for understanding the economy as toy train sets are for understanding the operations of an actual train. But in many instances the reasoning they are based on is poisonous and somewhat dangerous.

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Solow starts out the paper by criticising the Harrod-Domar growth model (for an excellent overview of the Harrod-Domar model which is one of the most suggestive in macroeconomics see the following three

By John Mauldin, Thoughts from the Frontline

“China’s economy has entered a state of new normal.”– Premier Li Keqiang, 2015
“Success breeds a disregard of the possibility of failure.”– Hyman Minsky

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Hollywood thrives on tropes. Most things that are possible to portray on film have been portrayed at some point in the last century. Today’s producers mostly just rearrange those tropes – and that’s OK.
Much of what we think is new and different is actually one variation or another on ancient themes. My favorite book genre, science fiction, has many archetypal tropes that can be traced back to Greek mythology, which itself must have grown out of tales that must have been told for

By John Mauldin, Thoughts from the Frontline

“Forget the past. The future will give you plenty to worry about.”– George Allen, Sr.
“I try not to worry about the future, so I take each day just one anxiety attack at a time.”– Tom Wilson

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The middle ground can be uncomfortable. As someone now widely known as the “muddle-through guy,” I have learned this the hard way. My bullish friends call me a worrywart, and the bearish ones think I am Pollyanna incarnate.
The irony here is that I’ve never claimed to be a great trader or a short-term forecaster. I think I have a pretty good record of calling major turning points. Next week or next month is another matter. Anything can happen, and

By Elliott Morss, Morss Global Finance
Introduction
In earlier writings, I have pointed to the primary shortcoming of democracy as a form of government. Special interest groups get what they want via lobbying and campaign contributions while the general question of what is good for the country is put on the back burner.

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An excellent example of this is what Eisenhower warned about – the military-industrial complex. The complex is not happy unless the US is at war. And for the last 60 years, it has gotten what it wants: since Vietnam, the US has almost always been at war, wars of questionable merit. The military-industrial complex has been helped along by an electorate that is

By Timothy Taylor, Conversable Economist
Given the tumultuous changes in the US economy in recent years, I would have guessed that average "job tenure"–that is, the average time that someone with a job has held that job–was declining. My guess would have been wrong. Henry R. Hyatt and James R. Spletzer present the evidence that job tenure has been mostly on the increase since about 2000 in "Shifting Job Tenure Distribution" (U.S. Census Bureau, Center for Economic Studies, May 2016, CES 16-12R).

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For example, they write:
"According to published statistics from the Current Population Survey (CPS), the proportion of workers with five or more years of tenure on their main job has

By Philip Pilkington
Article of the Week from Fixing the Economists
Recently I ran a post that briefly delved into the connection between Keynes and the money cranks of the 1920s and 1930s. There I showed that Keynes’ ideas cannot be said to have been influenced in any substantial way by the money cranks. Rather they were an outgrowth of a modifying of his earlier views, put forward in his Treatise on Money and taken from the Swedish economist Knut Wicksell.

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In what follows I will draw upon an article by Robert Dimand entitled Cranks, Heretics and Macroeconomics in the 1930s. Dimand’s narrative is centered on a periodical that was started in the US in 1932 entitled Economic Forum.

By John Mauldin, Thoughts from the Frontline

“I often joke that 100 years from now I hope people are saying, ‘Dang, she looks good for her age!’”– Dolly Parton
“Just because you live 20 years or 100 years doesn’t make it less meaningful. They’re both short amounts of time. So all we can do is just live in that time, whatever time we’re given.”– Ansel Elgort
“If I had more time, I would have written a shorter letter.”– Blaise Pascal, 1657 (and a few score other later attributions)

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Author’s note:  Welcome to the new, improved, faster-to-read, better yet still-free Thoughts from the Frontline. My team and I have been doing a lot of research on what my readers want. The reality is

By Philip Pilkington
Article of the Week from Fixing the Economists
One of the nicest stylised facts in applied economics is that if the Fed inverts the yield curve it will cause a recession. Inverting the yield curve basically means that the Fed hikes the short-term interest rate goes higher than the long-term interest rate. In theory this should lead to long-term lending drying up, investment falling significantly (usually in housing and inventories) and, ultimately, a recession.

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The track record of this as an indicator of recessions in the US is too impressive to dismiss. Take a look at the chart below. The shaded areas are recessions. As you can see, every time the short-term