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

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

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

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

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

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

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

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

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

By Elliott Morss, Morss Global Finance
Introduction
A United Kingdom (UK) departure from the European Union (EU) would generate important changes in global finance and trade. International financial markets do not as yet reflect these changes, suggesting they don’t think Brexit will happen. Will it ever really happen?

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The key question is whether the protagonists – the UK and the EU – can work out a deal that will satisfy both of them. It will be difficult. There is considerable bad blood. The EU, and particularly Germany, is angered by the UK’s wish to get out. Below, they key issues are identified and supplemented with data.
Background
Table 1 indicates that the UK’s GDP is

By Philip Pilkington
Here’s an interesting fact that I’ll bet many of you didn’t know: the current head of the Federal Reserve, Janet Yellen, wrote a short paper in 1980 examining the theories of the Post-Keynesians. You can find it here.

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The paper is very clear and logically articulated. But it also manifests quite a few sicknesses of the mind that, for example, the current pluralist movement among students will almost certainly encounter in the coming months and years. Yellen cannot really think outside the confines of what she understands to be economics. So, the analysis is mainly an exercise in trying to reduce Post-Keynesian theories to their neo-Keynesian counterparts. She

By John Mauldin, Thoughts from the Frontline
This time is different are the four most dangerous words any economist or money manager can utter. We learn new things and invent new technologies. Players come and go. But in the big picture, this time is usually not fundamentally different, because fallible humans are still in charge. (Ken Rogoff and Carmen Reinhart wrote an important book called This Time Is Different on the 260-odd times that governments have defaulted on their debts; and on each occasion, up until the moment of collapse, investors kept telling themselves “This time is different.” It never was.)

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Nevertheless, I uttered those four words in last week’s letter. I stand

By Elliott Morss, Morss Global Finance
Introduction
Good data are available on what is happening in the wine industry. Nielsen surveys US off-premise (non-restaurant) wine sales and Wine by the Numbers has just issued a report on global wine trading that includes and informative piece by Mike Veseth. In what follows, I summarize key features from each and offer a few thoughts on where they suggest the industry is going. Tables 1 and 2 provide data from the Nielsen surveys. Off-Premise sales exclude restaurants. It is perhaps the best indication of what customers want when given all options.

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Several points in Table 1 are worth noting. Red wines outsell whites and they are growing

By Philip Pilkington
In recent comments to my blog there was a somewhat interesting discussion about hoarding and unemployment. One commenter claimed that hoarding only caused unemployment in a monetary economy. I have heard this a lot, but I have never thought it to be remotely true.

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I laid out a simple example. Here I will give another. Imagine an economy of robots with a constant population and a zero growth rate. This economy, then, just reproduces itself day after day. In order to do this oil is needed. The robots need to consume 80 barrels of oil a day to do their work (i.e. consumption) which is wholly occupied with operating the machinery, while 20 barrels are needed to

Why Am I Seeing This?
Internal server errors can occur for multiple reasons. One of the most common is a resource issue, but incorrect permissions or an improper directive within the .htaccess file can also result in a 500 error.

By Philip Pilkington
In Keynes’ General Theory is is famously stated that the demand for money relies on three distinct functions. These are: the transactions demand for money; the precautionary demand for money; and the speculative demand for money.

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Or, more formally:

M = Mt + Mp + Ms

In that work Keynes — as he regularly did in his monetary theories — laid rather a lot of emphasis on the speculative demand for money and not a great deal of emphasis on the precautionary demand for money. In chapter 13 of his General Theory he wrote,

It may illustrate the argument to point out that, if the liquidity-preferences due to the transactions-motive and the precautionary-motive are

By John Mauldin, Thoughts from the Frontline
The top-of-mind news is the havoc wreaked by Hurricane Harvey on South Texas and Louisiana. Houston is getting most of the publicity, but the affected area is much larger. As a lifelong Texan, I have many friends in that region.

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They’ve lived through many storms and normally take what natures throws at them in stride. Not this time. I am seeing headlines calling this a thousand-year flood. It seems that over 100,000 homes in Houston alone were flooded. Harvey meant business. Recovering from this storm will take a long time and a lot of resources.
Economically, Harvey will likely be big enough to actually show up in national data. The

By Elliott Morss, Morss Global Finance
Introduction
Politicians in Massachusetts, New York and Rhode Island have put aside moral and/or addiction concerns over gambling. Instead, they recently asked why all the gambling dollars from their citizens go to the casinos (and governments) in Connecticut and New Jersey. They responded by approving for new gaming facilities in all three states. Below, data on these actions is presented with commentary.

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The Current Situation
Table 1 provides gambling revenues and how they have changed since 2007 for northeast US states, with California, Nevada and Macau included as points of reference. The growth in Macau has been truly amazing. And

By Voxeu.org
— this post authored by Biagio Bossone and Stefano Labini
Despite facing many of the same challenges, Germany’s current macroeconomic policy is substantially different to those of other countries, in part due to the economy legacy of Walter Eucken. This column considers the economic policy of Hjalmar Schacht, whose ‘MEFO-bills’ monetary solution ended the years of economic struggle caused by the Treaty of Versailles’ reparations commitments. By tying the bills to output, Schacht was able to stimulate output, and eliminate unemployment. This historical implication has clear modern-day implications, with parallels to ‘helicopter money’ policy and Italy’s recent ‘fiscal money’ proposal.

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By Philip Pilkington
Roy Harrod has some rather interesting opinions on the effectiveness of interest rates. As readers of this blog know I am rather skeptical of using interest rates to steer the economy. Basically this is because I think that using them on their own will only result in ever-diminishing returns. Steve Randy Waldman discussed this with reference to the work of Michal Kalecki here, but similar arguments can be found in Joan Robinson’s Introduction to the Theory of Employment from 1937.

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Another problem with using interest rates to steer economic activity is that they can, as Kaldor pointed out, lead to substantial instability in expectations and thus diminish

By Rick Davis, Consumer Metrics Institute
August 30, 2017 – BEA Revises 2nd Quarter 2017 GDP Growth Upward to 3.04%:
In their second 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 +3.04% annual rate, up +0.48% from their previous estimate and up +1.80% from the prior quarter.

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Consumer spending was revised upward to a +2.27% annualized growth rate (up +0.34% from the previous estimate and up +0.95% from the prior quarter). The inventory contribution continued to be essentially neutral (+0.02), while the previous growth in commercial fixed investment was revised upward (to +0.58%).

By John Mauldin, Thoughts from the Frontline

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”– Sir John Templeton

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Dogs bark, birds sing, stock markets (and stocks themselves) fluctuate. Bonds, commodities, currencies, and all else that moves in the economic world will fluctuate. Only the economic market, however, transforms into a new beast when it changes direction to become a bull or a bear. Oddly, though, it’s not easy to objectively define either one: Observers see whichever they prefer to see.
Academic research has consistently pointed out that perma-bulls and perma-bears make far less profit than those who are cautiously

By Voxeu.org
— this post authored by Peter Bofinger
At first sight, it is difficult to explain why the macroeconomic debate and macroeconomic policy in Germany differ considerably from other countries, despite the same academic textbooks and models being used as elsewhere. This column explains how a specific paradigm of macroeconomics, developed by Walter Eucken and diametrically opposed to Keynesian economics, is behind the German formal theoretical apparatus. The success of German macroeconomic policy can be attributed to the openness of the German economy, which allows it to benefit from macroeconomic policies pursued in other major countries.

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There is no doubt that the

By Philip Pilkington
Roy Harrod, usually remembered today for his part in the development of the Harrod-Domar growth model was also, so far as I can see, the most sophisticated monetary economist among the early Post-Keynesians. His book Money, designed as a sort of textbook put together over the years using his lecture notes, is a testament to how a course on monetary economics should be taught.

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Harrod should probably be credited, for example, with the first truly institutional description of endogenous money theory — a theory that the Bank of England has now come to endorse. In his book he discusses how the British banks of the time lend to one another in the open market — this

by John Mauldin, Thoughts from the Frontline

“There is only one side of the market and it is not the bull side or the bear side but the right side.”– Jesse Livermore
“At least us old men remember what a real bear market is like. The young men haven’t got a clue.”– Jeremy Grantham

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With regard to the stock market, some people are true perma-bears while others merely adopt a bearish outlook when indicators suggest trouble ahead. There’s a big difference between the two.
Call it nature, nurture, or something else, but some people have a reliably bearish outlook. You know before they say a word which way they will lean. The same is true of perpetual bulls.
Perma-bulls and

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.