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Articles by shamyshabeer

The Great Unwinding: Some Thoughts on the Incoherence of Mainstream Economics

5 days ago

By Philip Pilkington
A recent post by Lord Keynes inspired me to write up some very general thoughts on the state of mainstream economics. Today, I believe, mainstream economics is completely incoherent. What do I mean by that? Well, basically if you are in the mainstream you can pretty much believe in whatever you want these days.

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Mainstream economics today can be made to say anything. But in being able to do this it says nothing. All the new gimmicks that have been introduced into the mainstream — from asymmetric information to rational expectations — have rendered it a total free-for-all. So, some of the mainstream will tell you that fiscal stimulus will have zero effect on the

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Automatic Job Storm Coming

5 days ago

By John Mauldin, Thoughts from the Frontline
Almost every weekday, some arm of the US government issues some sort of economic statistic. News media and financial analysts review and report it. Then 99.9% of the adult population, and probably 90% of the financial industry, forget all about it. And they’re probably right to do so.

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The monthly jobs report isn’t like that. Yes, any single month doesn’t tell us much. Yes, the Labor Department’s methodology has some flaws, both major and minor. But imperfect as it is, the jobs report is our best look at the economy’s pulse. Jobs matter in a visceral way to almost all of us, as you know well if you’ve ever lost one. Almost any survey

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Against Marginalist Pricing Theory: US Consumer Prices and Capacity Utilisation

8 days ago

By Philip Pilkington
Marginalist economic theory tells us that when there is unemployment of capital resources prices should fall. Some marginalists like the New Keynesians and the neo-Keynesians will supplement this by saying that prices can tend to be ‘sticky’. Let us ignore these for a moment and come back to them in a moment. Let us first take the idea that prices should fall when there is unemployed plant and equipment.

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First of all, some theory. The argument is extremely simple: if plant and equipment are unemployed then there is inadequate demand for the goods and services being produced. In marginalist theory firms should respond to this shortfall of demand by cutting

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Renovating the Fed

14 days ago

By John Mauldin, Thoughts from the Frontline

Earnings don’t move the overall market; it’s the Federal Reserve Board…. Focus on the central banks and focus on the movement of liquidity…. Most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.– Stan Druckenmiller (hat tip Steve Blumenthal)

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The Federal Reserve will soon have a new chair, assuming the Senate confirms Jerome Powell as Janet Yellen’s successor. Yellen’s departure will reduce the nominally seven-member Board of Governors to only three. That may or may not be a good thing, depending on some other events.
In fact, in talking with some of my Fed-watching friends, it

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Beware the Scholastics! Some Thoughts on the Curriculum Reform Movement

17 days ago

By Philip Pilkington
With the Rethinking Economics student movement in full swing the topic of curriculum reform is once again on the table. For those of you who read this aericle and are uncomfortable with this: sorry, you’ve already lost that debate, you just haven’t realised it yet. The question is now which direction this curriculum reform will take.

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The Institute for New Economic Thinking (INET) looks set to be the organisation that will build the platforms and generate the content which will be made available to those who are self-interested enough to notice that they will rapidly slip into obscurity if they don’t change with the times. The debate within INET on this topic,

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The Bonfire Burns On

20 days ago

By John Mauldin, Thoughts from the Frontline

“Life invests itself with inevitable conditions, which the unwise seek to dodge, which one and another brags that he does not know, that they do not touch him; but the brag is on his lips, the conditions are in his soul. If he escapes them in one part they attack him in another more vital part. If he has escaped them in form and in the appearance, it is because he has resisted his life and fled from himself, and the retribution is so much death.”– Ralph Waldo Emerson, “Compensation”

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Bonfires are fun to watch, but they eventually burn out. Human folly apparently doesn’t, so we just keep adding to the absurdities. The volume of daily

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Interest Rates and ‘Reserve Constraints’: Why Endogenous Money Works Without Central Bank Intervention

26 days ago

By Philip Pilkington
Article of the Week from Fixing the Economists
Endogenous money advocates often think that a central bank is required in order to offset increases in government borrowing. The story goes: the central bank targets the overnight interest rate by buying up government securities; if the government issues more debt in the form of securities to increase spending the central bank will soak this debt up to maintain the target interest rate. Thus government spending cannot cause higher interest rates. Rather the interest rate is set by the central bank.

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This is a nice story. I tell it myself sometimes. It is easy to communicate and it usually causes anyone arguing

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Bonfire of the Absurdities

28 days ago

By John Mauldin, Thoughts from the Frontline

“Vanity of vanities, saith the Preacher, vanity of vanities; all is vanity.”– Ecclesiastes 1:2, King James Version (attributed to King Solomon in his old age)

This week’s article takes a look at the growing number of ridiculous, inane, and otherwise nonsensical absurdities that fill the daily economic headlines. I have gone from the occasional smile to scratching my head now and then to “WTF” moments several times a week.

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Wondering if it was just me, I recently sent an appeal to a what became a large number of my friends and fellow writers and analysts, asking for their graphic examples of this paranormal economic activity. Suffice

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Mortgage Default During the Great Recession Came from Real Estate Investors, Not Subprime Credit Holders

29 days ago

From Voxeu.org
— this post authored by Stefania Albanesi, Giacomo De Giorgi and Jaromir Nosal
The Global Crisis narrative has suggested that an expansion of subprime credit was the reason for rising mortgage defaults, leading to the large-scale recession in 2007-09. Taking a closer look at the characteristics of subprime credit holders over the period, this column argues that the growth in mortgage defaults did not occur predominantly amongst subprime credit holders. Instead, it was real estate investors that played a critical role in the rise in mortgage debt, specifically among the middle and the top of the credit score distribution.

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Understanding the fundamental factors behind

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‘Uncertainty’ in Contemporary DSGE Modelling: Not Even Wrong

November 15, 2017

by Philip Pilkington
Article of the Week from Fixing the Economists

Confusion of thought and feeling leads to confusion of speech. — John Maynard Keynes

Readers will note that I very rarely discuss DSGE modelling on here. Frankly, I’m not enormously interested. The fad is one in which economists — or, we should rather say: mathematicians with some loose economic training — have come to mistake analogy for literal explanation.

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What do I mean by that? Simply that they have taken certain contingent theoretical statements made by previous generations of economists as Iron-Clad laws and then used these as building blocks to construct ever more Byzantine towers that tell us nothing

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The Distribution of Pain

November 13, 2017

By John Mauldin, Thoughts from the Frontline
When you write about economics, you learn very quickly that the economy doesn’t care what you say about it. The forces that drive it are beyond any one person’s comprehension, much less control.

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But at the same time, the economy doesn’t work like a law of nature. Unlike gravity, for instance, the economy responds to human choices and preferences. We influence it, even if we don’t understand exactly how.
In last week’s “Fragmentation of Society” article, I wrote about the coming technological changes that will replace many human jobs and disrupt society. Some of the disruption will be good and necessary. Much of it will be painful, too,

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Tobin’s Q: A Wily Trickster and Slightly Vacuous

November 9, 2017

Article of the Week from Fixing the Economists
by Philip Pilkington
I was writing an article recently for an internet website about the recent IMF proclamations that there may be a global housing bubble underway. 

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While examining the potential impacts on the global economy if the IMF turns out to be correct I came across an interesting paper that the Bank of England published back in 2008 entitled Understanding Dwellings Investment. It’s a good paper, well put together and very coherent. Quite what I’d expect from the BoE. But it does show the Q-theory up to be rather vacuous, if only unintentionally.
Tobin’s Q for housing, as the paper lays it out, is as follows,

Where: Hn is

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The Bankers and the Euro

November 8, 2017

By Rudo de Ruijter
 After 18 years following its launching the euro still doesn’t work well. An essential element is still lacking to make it a durable currency. Behind the scene the central banks are still keeping it upright with temporary emergency solutions.

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Subject in short:
Banks lend out money that doesn’t exist. Borrowers receive a balance, a voucher of their bank. With it, they can order their bank to make payments for them. Banks mutually cross all payment orders against each other and at the end of the day they only pay the remaining differences. This way they can operate with very little money. However, with very little money the risk increases they cannot pay ocurring

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Should Americans Buy Guns for Protection?

November 8, 2017

By Elliott Morss, Morss Global Finance
Introduction
Remember the outrage a few weeks back about the Las Vegas shootings? Again, calls for stricter gun controls were heard. And once again, just as what happened after other tragic US shootings, people lost interest. And quite amazingly, bump stocks — the devices that make a rifle fire like a machine gun — are back on sale. And now the Texas massacre. There will probably be another call for more gun restrictions. And that too will.

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But there is one idea that continues to gain traction: an increasing number of Americans believe they should own guns for protection. Below, this question is explored with relevant data.
Guns in the US

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What Would Keynes Have Said About the Current Stagnation?

November 2, 2017

Article of the Week from Fixing the Economists
by Philip Pilkington
As part of the research for one of the chapters of my recently pubglished book, I was reading Keynes’ Treatise on Money. The book, while fundamentally flawed due to its Wicksellian (perhaps even New Keynesian!) framework, has a lot of interesting material that the General Theory lacks (not least a theory of profits). It is also cast, as GLS Shackle never tired of noting, in an explicitly dynamic framework rather than the inferior comparative statics framework of the General Theory.

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Anyway, in reading the book one of the Fundamental Equations caught my eye as being particularly relevant to the present moment. The

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The Fragmentation of Society

November 1, 2017

By John Mauldin, Thoughts from the Frontline
Lately, my life has been completely packed with speeches, meetings, and in-depth, often lengthy, conversations. Plus ongoing research and writing, of course. It all culminated Thursday afternoon at the beginning of a business meeting with the leadership team from a firm that will become a significant new business partner. At the very beginning of the meeting, the head of the firm leaned over to me and asked, “What’s on the top of your mind? What are you thinking about?” The previous night we had a small group of about 15 people in my living room after dinner, and the question was similar, “What keeps you up at night?”

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It has become an

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Promising Ideas for Future Research on the Employment Effects of Minimum Wages

October 30, 2017

By Voxeu.org
— this post authored by David Neumark
Studies of the employment effects of minimum wages have been wide-ranging, but a consensus proves elusive. This column summarises the existing literature and proposes some key questions to better inform policy in the context of minimum wages across different states in the US.

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Future areas for research should include understanding why different approaches yield different answers, as well as a recognition that there is not one minimum wage effect, but several across different contexts.
The debate among researchers about the employment effects of minimum wages remains intense and unsettled. There is clear variation in the magnitude

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Trump’s Planned Tax Reforms: A Look at the Numbers

October 30, 2017

By Elliott Morss, Morss Global Finance
Introduction
Tax reform is never easy. There are with lobbying groups aligned on all sides to protect their special interests and create new ones. This makes tax reform one of the most difficult political feats to accomplish. At this point, only the broad outlines of Trump’s tax reform plan are available. Below, the numbers on what is known are presented. There appear to be some problems.

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The President’s Budget
The Congressional Budget Office (CBO) has examined the President’s 2018 budget.
It concludes:

“Excluding economic feedback effects, CBO…estimates federal budget deficits under the President’s proposals would shrink relative to the

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‘Strong’ GDP Growth Is Really Not So Strong

October 29, 2017

By Rick Davis, Consumer Metrics Institute
In their first (or "preliminary") estimate of the US GDP for the third quarter of 2017, the Bureau of Economic Analysis (BEA) reported that the US economy was growing at a +2.98% annual rate, down -0.08% from the prior quarter.

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The changes from the prior quarter reflect a general weakening of consumer and commercial spending growth, nearly offset by increased inventories and reduced imports. The contribution from consumer spending on goods dropped -0.24%, while the contribution from spending on services dropped -0.38% (a combined -0.62%). The inventory contribution became significant, at +0.73%, roughly a quarter of the entire growth.

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Rethinking Education

October 29, 2017

By John Mauldin, Thoughts from the Frontline
This week’s letter will be more like an Outside the Box than a Thoughts from the Frontline. I am feeling under the weather, and while I can read and move around somewhat, I am really not thinking all that well and am not up to wasting your time writing a letter that neither you nor I will be happy with.

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Thankfully, my friend Peter Diamandis sent a letter detailing his vision of the future of education, and I want to share it with you. I have been struck by the number of times in the last year when, as I begin to talk about the problems our society will face in the coming years – especially as regards the future of work –someone says:

“The answer is more education.”

I don’t want to be glib, but our educational system is largely

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The Difference Between Keynesian Kaleido-Static Reasoning and Mainstream Methodology

October 25, 2017

By Philip Pilkington
In order to give an adequate definition of what has been called Keynesian kaleido-statics it is first relevant to define it against that out of which it grew. Keynes’ work, as has been noted many times, grew out of the work of Alfred Marshall. Keynes, in a very real sense, should be seen as an economist working in the Marshallian tradition.

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What then defined the Marshallian tradition? Basically Marshall’s work was based on a partial equilibrium approach. The idea was to define an equilibrium position — that is, a position in which all activity had stabilised and come to a point of rest — and then change one variable while leaving everything else constant to

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Two Different Approaches to Economics and One Approach to Pseudo-Economics

October 19, 2017

By Philip Pilkington
In the comments to my piece on Janet Yellen the hypocrisy of my position was pointed out, as it so often is, by a certain reader of this blog. What was my hypocrisy on this particular occasion? It was the fact that I complained about Yellen’s obsession with ‘closing’ models but, in other circumstances, champion Godleyian Stock-Flow Consistent (SFC) modelling which, of course, contains models that have ‘closures’ of various forms.

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I think that it’s worth talking about this in a little bit more detail. I should say right off the bat that my endorsement of SFC modelling is purely opportunistic. I know that there are many people out there who make their living by

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Some Economics of Immigration

October 17, 2017

By Timothy Taylor, Conversable Economist
The Fall 2017 issue of the Cato Journal includes 11 accessible papers on "The Economics of Immigration." Here, I’ll mention some insights that especially caught my eye from two of the papers.

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One of the most powerful concerns about immigration of low-skill workers is that even if it provides benefits for high-skilled workers (because services that they purchase from low-skilled workers become cheaper), it has a negative effect on the wages of low-skilled US workers. Giovanni Peri is among those who has most strongly made the argument that immigration does not in fact injure the wages of low-skilled workers, and he explains his case in "The

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Global Value Chains and the US Missing Exports

October 13, 2017

By Voxeu.org
— this post authored by Yuqing Xing
The last few decades have seen the US running its largest ever trade deficit. This column uses the case of Apple to demonstrate that the failure of trade statistics to capture flows of intellectual property embedded in exports explains a significant share of this deficit.

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Reforming trade statistics by including the value added of intellectual property embedded in products manufactured abroad is an essential step towards a better understanding of how trade benefits all countries involved, in particular countries specialising in exporting intangible intellectual property.
The US has run its largest world trade deficit ever in the

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Slackers: How the Multiplier Works in the Real World

October 11, 2017

By Philip Pilkington
In a previous post I wrote about the key reason that the natural rate of interest does not exist. There I discussed the Kahn Multiplier. We saw that when investment increased consumption increased along with it due to the fresh income received from the investment spending.

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The increase in consumption was then multiplied out into the wider economy in accordance with the Kahn Multiplier. This increase in consumption must be met by productive capacity that is already in existence. In this post, I want to get away from the fantasy constructions that marginalists use and explain how the multiplier functions in the real world.
A nice way to introduce this might be

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Uncle Sam’s Unfunded Promises

October 9, 2017

By John Mauldin, Thoughts from the Frontline
Here’s a surprisingly profound question: What is a promise? Dictionaries offer various definitions. I like this one:

“An express assurance on which expectation is to be based.”

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That definition captures the two-sided nature of a promise. One party offers an assurance, which the other converts into an expectation. You deposit money in your checking account, and the bank assures you that you can have it back on demand. You expect that the bank will fulfill its promise when you visit an ATM.
Governments likewise make promises, but those are different. Government is the ultimate enforcer of promises, but we have no recourse if it chooses

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The Natural Rate of Interest Does Not Exist

October 5, 2017

By Philip Pilkington
I just want to make a quick note on the multiplier and the theory of liquidity preference that is not generally recognised. When the full implications of this argument are recognised and integrated with marginalist theories of savings and investment (including the Austrian theory) these theories basically fall apart unless some very restrictive assumptions are put in place.

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In his book The Years of High Theory, GLS Shackle sums up the problem of the multiplier nicely and succinctly as such,

The Kahn Multiplier multiplies extra income not matched by extra consumable output, and it is of no consequence to the people of one country, seeking a means to increase

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Global Retirement Reality

October 2, 2017

By John Mauldin, Thoughts from the Frontline
Today we’ll continue to size up the bull market in governmental promises. As we do so, keep an old trader’s slogan in mind: “That which cannot go on forever, won’t.” Or we could say it differently: An unsustainable trend must eventually stop.

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Lately I have focused on the trend in US public pension funds, many of which are woefully underfunded and will never be able to pay workers the promised benefits, at least without dumping a huge and unwelcome bill on taxpayers. And since taxpayers are generally voters, it’s not at all clear they will pay that bill.
Readers outside the US might have felt smug and safe reading those stories. There go

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Why Thomas Piketty is Wrong About Inflation and Interest Rates

September 30, 2017

By Philip Pilkington
I have pointed out on here recently that Thomas Piketty’s views on public sector debt are wholly un-Keynesian. Well, we should also point out that his view of inflation and interest rates are also fairly un-Keynesian.  Piketty basically thinks that the reason that governments have been able to run persistent government deficits is due to consistent inflation which erodes the real interest rates governments must pay on their debt.

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This may be true, but the conclusions he draws from it are altogether incorrect and, again I must stress, not the conclusions a Keynesian economist would draw. Piketty writes,

The inflation mechanism cannot work indefinitely. Once

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Consumer Spending is Driving Healthy Economic Growth

September 30, 2017

By Rick Davis, Consumer Metrics Institute
September 28, 2017 – BEA Revises 2nd Quarter 2017 GDP Growth Slightly Upward to 3.06%:
In their third and final 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 +3.06% annual rate, up +0.02% from their previous estimate and up +1.82% from the prior quarter.

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The changes from the previous estimate are little more than statistical noise. For example, consumer spending was revised downward -0.03% to a +2.24% annualized growth rate. The inventory contribution continued to be essentially neutral (+0.12), while the previous growth in commercial fixed

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