Tuesday , March 21 2017
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Articles by shamyshabeer

Angst in America, Part 1: Aimless Men

20 hours ago

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,

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

12 days ago

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,

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

13 days ago

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.

Follow up:
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

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

13 days ago

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.

Follow up:
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

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

18 days ago

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

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

20 days ago

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

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

21 days ago

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

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Wasteful Health Care Spending

22 days ago

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

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Democratic Development Lowers the Cost of Credit

24 days ago

from Voxeu.org
— this post authored by Manthos Delis, Iftekhar Hasan, and Steven Ongena
The positive relationship between democratic development and economic outcomes is well established. Using three decades of international data, this column identifies a new channel for this effect – the cost of credit to corporations. It also analyses loan pricing in Turkey to reveal a substantial rise in the average cost of lending after the attempted coup d’etat in July 2016. Together, these results highlight how efficiency in loan pricing results in a comparative advantage for firms in democratic countries over those in less democratic or authoritarian countries.

Follow up:
The interplay between political institutions and economic outcomes has been at the centre of economic analysis since the

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

26 days ago

By John Mauldin, Thoughts from the Frontline
Today we come to part 3 of my tax reform series. So far, we’ve introduced the challenge and begun to describe the main proposed GOP solution. Today we’ll look at the new and widely misunderstood “border adjustment” idea and talk about both its good and bad points. What follows may make more sense if you have first read part 1 and part 2.

Follow up:
Next week we’ll explore what I think would be a far superior option, though one that is based on the spirit of the current proposal. If House leadership thinks they can get the present proposal through (doubtful), then they should stop messing around and do something really controversial by changing the entire terms of engagement. As my friend Newt Gingrich has often told me, “John, real change

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China, Russia, and the United States: Are They Superpowers?

27 days ago

By Elliott Morss, Morss Global Finance
Introduction
Every so often, it is worth standing back and asking where is the world going. A recent book and set of interesting articles on global futures by Dr. Frank Li provides a good starting point. Li focuses on three “kingdoms” – China, Russia and the US. He argues they are the most important global players. A good starting point but worth exploring further.

Follow up:
The Three Kingdoms
Table 1 provides data on Li’s three kingdoms along with data on the European Union and India.
Table 1. – Socioeconomic Indicators, 2017 Source: IMF
I believe Europe remains important. Problems in Europe started the two world wars. The creation of the European Union was intended to prevent that from ever happening again. But as I have written, Britain is

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A New Era of Central Banking?

28 days ago

By Philip Pilkington
As I noted in my last post the Bank of England have released an official policy document that concedes that much of Post-Keynesian endoegnous money theory is indeed correct. Interestingly, they have also released some Youtube clips with the authors where they expound on their work in more details. You can watch these videos at the BoE website here.

Follow up:
The videos are fascinating. The language the authors use — which contains references to ‘fiat money creation’ and money as IOUs — is straight out of either David Graeber’s book Debt: The First 5000 Years or MMT. If I were to guess I would say that it is some combination of both.
This is an enormous step forward. But I found it particularly interesting how young the authors in the videos were. One of them must

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Bank of England Endorses Post-Keynesian Endogenous Money Theory

February 16, 2017

By Philip Pilkington
Article of the Week from Fixing the Economists
Well, the Bank of England has finally come out and said it: loans create deposits; banks create money and don’t simply lend out savings; and the money multiplier in the economics textbooks is false. Actually, we’ve known this for a long, long time. While the BoE report references much Post-Keynesian work — including early work by Nicholas Kaldor and Basil Moore’s path-breaking 1988 book Horizontalists and Verticalists — they would have done well to look up the findings of the Radcliffe Commission in the UK in 1957 (I have written about this extensively here).

Follow up:
It is fantastic that the BoE has finally decided to lay its cards on the table and be honest with the public about how money is created.

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Tax Reform: The Good, the Bad, and the Ugly, Part Two

February 14, 2017

By John Mauldin, Thoughts from the Frontline

“Taxation is the price we pay for failing to build a civilized society.” – Mark Skousen
“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”– Ronald Reagan

Follow up:
Taxation is almost never an exciting subject, nor do we want it to be. The best tax system would be silent and unobtrusive. It would raise enough revenue to cover essential government functions and not a penny more. Sadly, our US system is nowhere near the ideal.
In part one of this series, I talked about whether the new tax proposals would actually create jobs and discussed the proposed “Border Adjustment Tax” and some of its possible complications. In part

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Wine Descriptors Reconsidered

February 12, 2017

By Elliott Morss, Morss Global Finance
Introduction
There are many ways to portray wines. Most have limited value because they do not help drinkers distinguish between wines they like and dislike. This piece reviews the descriptors in use and suggests ones that will be helpful. Before looking at what can be done, consider first the current practice.

Follow up:
Completely Useless Descriptors
Some time back, Richard Quandt wrote an oft-quoted piece: “On Wine Bullshit: Some New Software?” In it, he listed 143 useless descriptors. The following quote wherein he discusses descriptors applied to a Chateau d’Yquem and a Santenay Gravières provides a good sense of his thinking:

“Consider the Yquem. The eight flavors are honey, raisin, jam, quince, fig, hazelnut, orange and mandarin. The last

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Tax Reform: The Good, the Bad, and the Ugly: Part One

February 10, 2017

By John Mauldin, Thoughts from the Frontline

Vizzini: He didn’t fall?! Inconceivable!Inigo Montoya: You keep using that word. I do not think it means what you think it means. – From The Princess Bride
“A tariff is a scale of taxes on imports, designed to protect the domestic producer against the greed of his consumer.” – Ambrose Bierce
“Vast possibilities matured into realities before their very eyes. Nevertheless, they saw nothing but cramped economies struggling with ever-decreasing success for their daily bread.” – Joseph Schumpeter on the Industrial Revolution

Follow up:
The usual thrust of this letter is economics, finance, and investing. Lately, however, the political process has been invading my normal domain – sometimes to the dismay of some of my readers. I get that

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Thirlwall’s Law in Historical Context

February 9, 2017

By Philip Pilkington
Fixing the Economists Article of the Week
There has been some reticence on the blogs to discuss Thirlwall’s Law and I myself have also been somewhat reluctant to deal with it in any great detail (although I did hint at some problems with it in this post). I think it might be worth discussing it in more depth, however, because I think that the model it is based on is actually quite interesting — albeit misleading. I will rely for this exposition on a very succinct account of the model in a recent paper by Thirlwall entitled Kaldor’s 1970 Regional Growth Model Revisited.

Follow up:
At the beginning of the paper Thirwall notes the assumptions made by the model. He writes,
The first proposition of the model is that regional growth is driven by export growth. Kaldor

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Marginalist Microeconomics is a Highly Normative Ethical Doctrine

February 2, 2017

By Philip Pilkington
Fixing the Economists Article of the Week
In a recent post Lord Keynes raises the question of the so-called ‘law’ of diminishing marginal utility. The ‘law’ states that we will derive ever diminishing satisfaction from the acquisition of a good or service. Lord Keynes notes that this is true for some goods — like washing machines — but may not true of others. He gives a number of examples — such as addictive arcade games and drugs — that seem to defy the ‘law’.

Follow up:
I think that it is interesting to note that all the examples he gives might be considered in some way to be ‘pathologies’. I don’t mean that they would be taken to be pathologies by marginalist economic theory — although they undoubtedly would — but rather that they would generally be taken to

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Post-Real Economics

February 2, 2017

By John Mauldin, Thoughts from the Frontline

“Too large a proportion of recent ‘mathematical’ economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.” – John Maynard Keynes
“Simplicity does not precede complexity, but follows it.” – Alan Perlis
“Stop trying to change reality by attempting to eliminate complexity.”– David Whyte

Follow up:
One of the most important concepts that my economic, philosophical, and political mentors have drilled into my head is this simple statement: Ideas have consequences.  As a corollary to that, bad ideas have bad consequences.  Mauldin’s corollary is that bad ideas can often

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Inventories and Low Deflator Boost Low GDP Estimate

January 29, 2017

BEA Estimates 4th Quarter 2016 GDP at 1.87%
by Rick Davis, Consumer Metrics Institute
In their first (preliminary) 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 +1.87%, down by nearly half (-1.66%) from the prior quarter.

Follow up:
The quarter to quarter decline in the headline growth rate came from a number of sources: the growth of consumer spending on services was more than halved (down -0.68%), exports went into contraction (off a dramatic -1.69%) and imports were down yet another -0.86%. Partially offsetting those declines were upticks in consumer spending on goods (up +0.34%), and increases in the growth rate for commercial fixed investment (+0.65%) and inventories (+0.51%). The

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Keynes and Loanable Funds

January 25, 2017

By Philip Pilkington
I was recently discussing econometrics and Keynes’ critique of it with Severin Reissl, a particularly clever student currently attending the University of Glasgow who is critical of mainstream economics. (You can find some examples of his writing here in which I am quoted to criticise some of the assumptions in a mainstream macroeconomic textbook).  Click on image below for larger view.

Follow up:
Anyway, I sent Reissl a copy of Keynes’ famous paper on econometrics entitled Professor Tinbergen’s Method and, while we were discussing it, Reissl pointed out the short piece that appeared below it. The paper, you see, was a book review published in The Economic Journal in 1939 and below it was another review by Keynes. This review was entitled The Process of Capital

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The Surprising Pevalence of Surprises in Export Specialisation

January 23, 2017

By Voxeu.org
— this post authored by Diego Daruich, William Easterly and Ariell Reshef
National trade policies have been at the heart of recent policy debates, with many calls for industrial policies to help pick winners. This column shows that while a few export goods account for the bulk of export value within each country, hyper-specialisations are very unstable, making it unlikely that industrial policy will work even in the medium run. The best policy to promote exports would be just to let entrepreneurs exploit new opportunities as they arise.

Follow up:
Aware that export success is the key to the success of industries and entire countries, national trade policies have been at the heart of recent policy debates. Donald Trump got elected in part by blaming the ails of many US

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Finance and Growth: The Direction of Causality

January 20, 2017

By Voxeu.org
– this post authored by Eilyn Yee Lin Chong, Ashoka Mody and Francisco Varela Sandoval
Recent research suggests a point beyond which the benefits of financial development diminish, and further development can even hurt growth. This column describes how a negative relationship between credit and growth emerged strongly after 1990 and was particularly pronounced in the Eurozone, consistent with the notion that an overgrown financial sector weakens economic growth potential. It also argues that slower growth leads to more rapid financial sector expansion. Policymakers need to be aware of the possibility that causality runs in both directions.

Follow up:
Average private credit-to-GDP – a commonly used measure of financial development – has increased steadily since 1960

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Minsky’s Theory of Asset Prices: Why Minsky Was NOT a Neo-Monetarist

January 18, 2017

By Philip Pilkington
Article of the Week from Fixing the Economists
On a recent blogpost that I wrote there was some confusion in the comments section regarding Hyman Minsky’s theories and their relationship to the phenomenon of rising asset prices. I have seen this confusion made many times before — even by some otherwise good Post-Keynesian economists — but I think that it is time to finally clear it up once and for all.

Follow up:
The confusion runs something like this:

“Hyman Minsky’s theory of rising asset prices is that debt drives asset prices. If we want an explanation for rising asset prices we simply look at the levels of debt in the economy. This is tied to the fact that Minsky was a proponent of Post-Keynesian endogenous money theory and this theory states that private

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2017 Forecast: Skeptically Optimistic

January 13, 2017

By John Mauldin, Thoughts from the Frontline

“Quantity is being confused with abundance and wealth with happiness.” – Tom Waits
“The shift from sailing ships to telegraph was far more radical than that from telephone to email.”– Noam Chomsky

Follow up:
One might think that all our newfangled technology would make forecasting the future a little easier. I read just last week that scientists have devised electrical wires only three atoms thick. Imagine how powerful a computer chip made with that wiring will be. Yet all our computing horsepower still can’t predict worth a darn what Washington or Wall Street will do to us this year. In fact, there is convincing evidence is that every model that forecasters us is really bad at forecasting, beyond giving us a vague sense of direction.

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Basic Macroeconomics of Income Distribution Cannot Explain Today’s Rising Inequality

January 11, 2017

By Philip Pilkington
I was recently looking over the debates surrounding the Pasinetti theorem and I thought it might be worth writing a few words on it. Pasinetti formulated his theorem — which is dealt with in detail in a fantastically thorough Wikipedia article — in 1962 in response to Nicholas Kaldor’s seminal paper Alternative Theories of Distribution.

Follow up:
What Pasinetti’s theorem showed was that while propensity to save by workers has no long-run effect on the share of profits in the national income, it does have a long-run effect on the manner in which these profits were shared between workers and capitalists.
The Pasinetti theorem actually has very interesting implications for how we should approach actually existing capitalist economies. In his equations Pasinetti

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Keynes’ Liquidity Preference Trumps Debt Deflation in 1931 and 2008

January 5, 2017

By Philip Pilkington
Fixing the Economists Article of the Week
I have pointed out before that the meaning of the term ‘liquidity trap’ has today become completely altered — with said alteration mainly coming from Paul Krugman’s bizarre redefinition which seems tied up with his idea about a natural rate of interest and the central bank being unable to hit this natural rate due to their coming up against the zero-lower bound.

Follow up:
In actual fact, a liquidity trap occurs when people rush out of assets and instead hold money. This leads to a fall in asset prices and high interest rates which then do not respond to central bank action. We encountered a liquidity trap proper very briefly in late-2008 but due to unprecedented central bank interventions we had exited this liquidity trap

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What Could Go Wrong?

January 3, 2017

By John Mauldin, Thoughts from the Frontline

“Experience is simply the name we give our mistakes.”– Oscar Wilde
“Mistakes are the usual bridge between inexperience and wisdom.”– Phyllis Theroux
“Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do – and nothing is more unpredictable.”– Thomas Sowell

Follow up:
We’ve reached that wonderful time of year when financial pundits pull out their forecaster hats and take a crack at the future. This time the exercise is particularly interesting because we’re at several turning points. Any one of them could remake the entire year overnight. I should probably say up front that I am actually somewhat optimistic about 2017 – optimistic, meaning I think

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John Hicks’ Book on Non-Ergodicity: A Forgotten Post-Keynesian Classic

December 29, 2016

By Philip Pilkington
Article of the Week from Fixing the Economists
Lars Syll recently provided an interesting quote from John Hicks’ 1979 book Causality in Economics. I thought that what Hicks said made an awful lot of sense, so I got my hands on a copy of the book. I have only so far scanned the book but I think that it is something of a masterpiece and I hope that someone suggests reissuing it; it could easily be a standard textbook for Post-Keynesian methodology.

Follow up:
Take this quote from the preface to see just what Hicks wants to explain about economics,

I find that all experimental sciences are, in the economic sense, ‘static’. They have to be static, since they have to assume that it does not matter at what date an experiment is performed. There do exist some economic

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Public Policy in a Zero-Growth Scenario

December 26, 2016

By Voxeu.org
— this post authored by Enrico Perotti
Per-capita income in developed countries has stagnated, which most economists regard as a departure from the long-run trend. This column argues that zero long-term growth will be the new normal. In this zero-growth world, spending increases must always be balanced against spending reductions elsewhere or in the future, which creates a further problem: no politician could implement policy changes with such bleak outcomes.

Follow up:
Since the Global Crisis, per-capita income in developed countries has stagnated. Europe took until 2015 to recover to the 2008 level of output. Unprecedented monetary expansion has failed to counter this stagnation. Even international trade, the ultimate engine of growth, is falling.
The debate on what

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