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Articles by shamyshabeer

Bank of England Endorses Post-Keynesian Endogenous Money Theory

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

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

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

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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Third Quarter 2016 GDP Growth is Impressive

By Rick Davis, Consumer Metrics Institute
In their third and final estimate of the US GDP for the third quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +3.53%, up +0.38% from their previous estimate and up +2.11% from the prior quarter.

Follow up:
The improvement in the headline number was broadly based: +0.14% came from higher consumer spending, +0.17% was from more fixed investment spending, and +0.09 of it came from additional governmental spending. None of the other changes were material, with the normally noisy inventory and import numbers completely unchanged.
The BEA’s "bottom line" (their "Real Final Sales of Domestic Product", which excludes inventory growth or contraction) recorded a +3.04% growth rate, up +0.38% from the previous

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Bidding War: The Quantity Theory of Money and the Price Level

By Philip Pilkington
Fixing the Economists Article of the Week
I was going to run a blog on Hans Albert’s critique of the quantity theory of money but it appears that Lord Keynes has gotten there ahead of me. I just wanted to pull out one point in this short note that he raised, as it proved to be one of the most difficult I encountered when trying to formulate a general theory of pricing.

Follow up:
Lord Keynes notes that some versions of quantity theory assume a linear, self-same relation between the increase in the quantity of money and the price level. So, if the quantity of money increases by, say, $1,000 then the price level must increase by the same. The assumption here appears to be twofold. Firstly, all the money is spent. And second, prices are bid up by the same amount as

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Minimum Wage Increases by US States Fuelled Earnings Growth in Low-Wage Jobs

By Voxeu.org
— this post authored by Sandra Black, Jason Furman, Laura Giuliano, and Wilson Powell
Over the past three years, 18 states plus the District of Columbia have implemented minimum wage increases, joining ten other states that have raised their minimum wages at least once since the last Federal increase in 2009. This column examines the impact of the more recent state increases on wages, weekly earnings, and employment among workers in the low-wage leisure and hospitality Industry. A comparison with states with no minimum wage increase since 2009 suggests that the recent legislation contributed to substantial wage increases with no discernible impact on employment levels or hours worked.

Follow up:
Real wage growth has picked up in the US in the last several years. Since

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Women in the US Labor Market

By Timothy Taylor, Conversable Economist
The role of US women in the (paid) labor force has shifted dramatically in the last half-century or so. For example, the figure shows the labor force participation rate (which includes both those holding jobs and those who are unemployed and looking for work) for men and women since the late 1940s.

Follow up:
Circa 1950, almost 90% of men were in the labor force, compared with about one-third of women. But the labor force participation of men has sagged, while the labor force participation of women rose strongly until about 2000, when it flattened out and even started tailing off a bit.

The Russell Sage Foundation Journal has devoted its August 2016 issue to the overall topic "A Half-"Century of Change in the Lives of American Women," The

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Trump on Trade – What Will He Really Do?

By Elliott Morss, Morss Global Finance
Introduction
We have heard a lot of “loose” statements from Trump on what he will do to countries “cheating on trade” when he becomes President. In this piece, I examine the underpinnings of his assertions and speculate on what his trade policies will actually be when he becomes President.

Follow up:
Largest US Trade Partners
Table 1 lists the US’ ten largest trading partners based on the total of imports and exports. The US is running a deficit with all of them. But there is a positive side to this: American consumers have benefited from these imports: better prices and higher quality products than were available from US-produced goods.
Table 1 – US: Largest Trading Partners, 2015 (mil. US$) Source: UN Comtrade
Stated Policies
Here are some of

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Hans Albert Expands Robinson’s Critique of Marginal Utility Theory to the Law of Demand

By Philip Pilkington
Fixing the Economists Article of the Week
A few days ago I wrote a post outlining Joan Robinson’s criticisms of the logical structure of marginal utility theory. It got quite a good response. Robinson’s point was that the manner in which the theory was constructed rendered it useless. Examined carefully it said or could say nothing of substance.

Follow up:
The theory posited that preferences must be fixed. Then we could attribute any change in consumer demand to price or income fluctuations. But if these preferences are not fixed in reality — as they certainly are not — then we could never be sure to what extent changes in consumer demand relied on price/income effects and to what extent they were due to a change in preferences.
I came across a very similar

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A Lesson from the Great Depression that the Fed might have Learned

By Voxeu.org
— this post authored by Michael Bordo and Arunima Sinha
A Comparison of the 1932 Open Market Purchases with Quantitative Easing
In the wake of the Great Recession, the Federal Reserve took unprecedented measures to stem economic decline. This column uses the Fed’s open-market operations in 1932, another period of short-term rates near the zero lower bound, as a comparison for the QE1 operation of 2008-09. Although the 1932 policy boosted output and inflation, if the Fed had announced the operation in advance and carried it out for a full year, the Great Depression could have been attenuated considerably earlier.

Follow up:
Towards the end of the financial crisis of 2007-09, and especially once short-term yields approached the zero lower bound, the Federal Reserve

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What Should Trump Do? – Your Questions Answered

By John Mauldin, Thoughts from the Frontline
This will be a shorter article, in keeping with the need for holiday fun and relaxation. However, my last article with my thoughts on what Trump should do generated more responses than any other letter had in the last 17 years. As you might suspect, with a topic so controversial, not everyone agreed with me.

Follow up:
But there were many good questions and comments and some thoughtful disagreements, so I want to address a few of those. And I will specifically go into why I seemingly deviate from core conservative principles regarding taxes. It’s all about debt and the consequences of debt – that’s the overriding factor for me. And I’ll try to make the case that there are times when we just have to make hard, even philosophically

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Joan Robinson’s Critique of Marginal Utility Theory

By Philip Pilkington
In her excellent book Economic Philosophy (available as a PDF here) Joan Robinson undertakes an extensive discussion of marginal utility theory. Here I will be more so interested in her technical criticisms. But before going into these it should be noted that Robinson characterises the impetus of marginal utility theory in a way many might find unusual.

Follow up:

Basically, she claims that it is a revolutionary leftist doctrine. The reason she makes this claim is because if we apply the law of diminishing returns to income it soon becomes clear that radical egalitarianism — indeed, some sort of socialism or communism — is the best manner in which to maximise the utility of society as a whole. Robinson points out that the early marginalists — many of whom, like

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The Truth About Trade Agreements – and Why We Need Them

From Voxeu.org
— this post authored by Chad Bown, Peterson Institute for International Economics; CEPR Research Fellow
The recent pace of globalisation has led to disheartening job loss for some Americans, especially in certain communities that backed Mr. Trump in the election. While imports and exports indisputably contribute big gains to the US economy overall, those resulting benefits have not been adequately shared.

Follow up:
However, even the largest estimates find international trade has caused only a fraction of the US economic dislocation — including that likely suffered by Mr. Trump’s key voters. Recognised studies observe that the surge in imports from China is an important contributor to US unemployment, for example, but it is responsible for less than 20% of the

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Fixing Obamacare – Why It Won’t Be Easy

By Elliott Morss, Morss Global Finance
Introduction
In the run-up to the election, Trump and Congressional Republicans emphasized that the first order of business would be to get rid of Obamacare. They pointed to the premium rate jumps announced for the current year and those projected for next year as indicated I the following table.

Follow up:
Average Monthly Premiums for Second-Lowest Cost Silver Plans for a 27-Year-Old (Before Tax Credits), 2016–2017
Source: Affordable Care Act Research
 So Trump and Republicans look at these numbers and say we have to get rid of Obamacare? But what is behind these rate jumps? It turns out it has very little to do with Obamacare. Instead, it is the direct result of changing demographics, unhealthy American life styles, manpower imbalances, and the

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Adjustments to 3Q 2016 GDP Include Increased Consumer Spending

By Rick Davis, Consumer Metrics Institute
BEA Estimates 3rd Quarter 2016 GDP Growth to be 3.15%: In their second estimate of the US GDP for the third quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +3.15%, up +0.24% from their previous estimate and up +1.73% from the prior quarter.

Follow up:
Most of the improvement in the headline number came from a +0.42% upward revision to consumer spending. Spending on consumer goods was revised upward by +0.26%, and spending on consumer services was reported to be +0.16% better than previously thought. However, both of these numbers remain below the growth levels recorded in the prior quarter (and were in aggregate -0.99% lower than 2Q-2016). The generally noisy inventory growth rate was revised

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Proud to Be a Nihilist: Bill Mitchell on Econometrics and Numerical Prediction

By Philip Pilkington
Fixing the Economists Article of the Week
Someone said to me a while back:

“Phil, you are always railing against econometrics but some of the MMT guys and quite a few Post-Keynesians maintain that these techniques are useful and valid”.

I recognise this fully well actually. It preoccupies me perhaps more than it should. Indeed, Post-Keynesians are using econometrics with increasing frequency — and at the very same time they are becoming increasingly interested in highly abstract modelling. I’m not a big fan of this trend as readers of this blog will probably have guessed.

Follow up:
Recently I had the good fortune to stumble upon a paper by the MMT economist Bill Mitchell entitled Econometrics, Realism and Policy in Post-Keynesian Economics. It is a defence of

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What Should Trump Do?

By John Mauldin, Thoughts from the Frontline

“The problems of victory are more agreeable than those of defeat, but they are no less difficult.”– Winston Churchill
“Crying is all right in its way while it lasts. But you have to stop sooner or later, and then you still have to decide what to do.” – C.S. Lewis, The Silver Chair
“I must have a prodigious amount of mind; it takes me as much as a week, sometimes, to make it up!”– Mark Twain

Follow up:
No matter who won the presidency, the economic way forward was not going to be easy. The Republican team understands they must “stand and deliver.” But as we will see in today’s letter, that is not going to be easy. I’m going to depart from the normal format of my letters, where I talk about the economic realities we face and how we should

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Ergodicity Versus History: A Critical Commentary on the Work of Ole Peters

By Philip Pilkington
Article of the Week from Fixing the Economists
Lars Syll linked to a fantastic interview with the mathematician Ole Peters  that dealt with the topic of ergodicity and how it relates to economic and financial markets. First, a comment on the source.

Follow up:
The interview was conducted by Michael Mauboussin who is currently the Managing Director and Head of Global Financial Strategies at Credit Suisse but who was working with a hedge fund called Legg Mason Capital Management at the time of the interview. The latter firm was the one who published the interview.
The reason I call attention to this is because I think people working in the financial industry ‘get’ the fact that economic processes are non-ergodic far, far better than most economists. The reason for

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Know Your Facts: Poverty Numbers

By Voxeu.org
— this post, authored by Jose Cuesta, Mario Negre, and Christoph Lakner, appeared originally 07 November 2016
The percentage of people living in extreme poverty around the world has fallen by more than half over the past three decades. But polls show that most people are not only ignorant of this fact, but believe that poverty has increased. This column explores progress towards ending global poverty by 2030, the first of the UN’s Sustainable Development Goals. Poverty figures have fallen around the world since 1990, and there is a broad consensus on the policies needed for further reductions. Eradicating global poverty is achievable, but it is dependent on global and domestic political cooperation.

Follow up:

“Did you know that, in the past 30 years, the percentage of

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How to Rebuild Healthcare Right

By John Mauldin, Thoughts from the Frontline

“I reject the insurance model. I think we should have a free-market approach to healthcare.”– Gary Johnson
“The goal of real healthcare reform must be universal coverage in a cost-effective way.”– Bernie Sanders
“The fault, dear Brutus, is not in our stars, but in ourselves….”– Julius Caesar (I.ii.140–141)

Follow up:

“The numbers [referring to the growth in the aging population and its relationship to Alzheimer’s] point to a disaster that will be the real zombie apocalypse. Western societies simply won’t be able to bear the costs of Alzheimer’s as the incidence continues to rise. Faced with impossible financial, emotional and psychological costs, we would have to funnel so much of our resources into the care of Alzheimer’s patients that

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Abstraction, Language and Modelling in Economics

By Philip Pilkington
Fixing the Economists Article of the Week
Alciphron is the title of the book by the philosopher George Berkeley that was most popular in his own time and is probably his least popular in ours. The reason for this is because the book deals with atheism and religion and many would suppose that this has little bearing on questions unrelated.

Follow up:
Most of the book is rather enjoyable on its own terms. It is written in dialogue form in a prose style that is easily among the best that you will encounter among Anglo-Saxon philosophers. The Alciphron of the title is the representative of what at the time was called ‘free-thinking’ but what Berkeley renames ‘minute philosophy’ — basically, skeptical atheism, hyper-rationalism, distrust of authority in general and

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Earnings ex-Losers Look Great

By John Mauldin, Thoughts from the Frontline

“Formula for success: rise early, work hard, strike oil.”– J. Paul Getty
“Any jerk can have short-term earnings.”– Jack Welch

Follow up:
Profits are the mother’s milk of economic, stock market, and portfolio growth. Employment and tax revenues are driven by profits, too. Nothing good happens unless there are profits and lots of them. So it is no wonder that we pay attention to the earnings of companies in the stock market quite closely.
It’s quarterly report time for US stocks. If you just casually glance at the earnings news, you might think companies are having a great year. Many are beating expectations and reporting impressive revenues and profits. The markets reward companies for meeting expectations (as we shall see below). But the

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Disturbing Distributions in Economic Statistics

By Philip Pilkington
Article of the Week from Fixing the Economists
Lars Syll has recently published an excellent post on the dilemma of probability theory when applied to the social sciences in general and economics in particular. Syll argues that in order to apply probability theory — which is deeply embedded not simply in mainstream economic models but also in econometric techniques — we must first be sure that the underlying system being studied conforms to certain presuppositions of probability theory.

Follow up:
Syll illustrates this nicely by comparing the economy with a roulette wheel — something that, if ‘fairly balanced’, will actually yield outcomes to which probability theory can be applied.

Probability is a relational element. It always must come with a specification of

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Shadow-boxing with DSGE Models

By Philip Pilkington
Fixing the Economists Article of the Week
Lars Syll has recently linked to a post by Noah Smith criticising DSGE models. Criticising DSGE models is the latest fad in mainstream macroeconomics — hey, it’s easy to use the model that was in fashion just before the crisis as a scapegoat to distract the profession from the fact that they still have no idea how to begin to explain the crisis or its aftermath.

Follow up:
I’m somewhat miffed that Syll gave Smith a pass on this one, to be honest. These criticisms of the DSGE models are so transparently self-serving that they really need to be called out. I can show this quite clearly by breaking down Smith’s argument and reconstructing it in a somewhat different way. Once this is done such criticisms of DSGE models can be

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Debt Derangement Syndrome: Saving Our Grandkids from Wall Street

By William K. Black, New Economic Perspectives
Pete Peterson is back, and his message and rhetoric are always the same. The federal budget deficit is a disaster and – any day now – will produce massive inflation. Peterson has written his 20,000th version of this fantasy in the NYT with Paul Volcker.

Follow up:
The first rhetorical game that Peterson plays is to assert that it is bad for a sovereign nation to run budgetary deficits because they are not “sound and sustainable.” Except that the U.S. has run deficits for most of its existence without ever suffering hyper-inflation. For a nation like the U.S. with a sovereign currency, a federal budgetary deficit is not unsound and it is not unsustainable. Federal budget deficits can, depending on the circumstances, be the very definition

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A Short Note on a Connection Between Marginalist Economics and Folk Medicine

By Philip Pilkington
One peculiar aspect of modern marginalist economics is its obsession with equilibrium. I was recently re-listening to an excellent lecture given by Joan Robinson in Stanford in 1974 entitled ‘What is Wrong With Neoclassical Economics?‘. The entire lecture is about the inability of marginalist economics, which is obsessed with equilibrium positions, to deal with historical time.

Follow up:
I would add to this that even a dynamical economics that used differential equations would also be unable to incorporate historical time — the simple fact is that mathematics cannot be used to do history and economics done correctly and with any relevance to the real world is basically an applied historical methodology.
Now, what really struck me was the Q&A section at the end of

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Run A High Pressure Economy? Janet Yellen Does Not Understand the Problem

By Elliott Morss, Morss Global Finance
Introduction
Since the 2008 collapse, the Fed has been buying government debt to keep interest rates low in hopes of inducing more spending by individuals and business.

Follow up:
There are several reasons this approach is wrong:
It eliminates the safe source of income for retirees;
It inflates true value of assets;
It does not address the underlying reasons for the languid labor market recovery.
These issues are covered below.
Eliminating Safe Income
In 2007, the 10-yr Treasury bond yield was 5%. Today, it is 1.7%. In 2007, many retirees were holding Treasuries: with 5% annual payments, and they were fixed for life. The Fed’s action wiped out this safe retirement strategy. Needing more than a 1.7% payment annually, retirees have been forced to

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Taking a Wrench to Healthcare

By John Mauldin, Thoughts from the Frontline

“The US has the most dysfunctional healthcare system in the world.”– Elizabeth Holmes
“Healthcare is the cornerstone of the socialist state.”– Monica Crowley

Follow up:

“You’ve got this crazy system where all of a sudden, 25 million more people have health care and then the people that are out there busting it – sometimes 60 hours a week – wind up with their premiums doubled and their coverage cut in half.”– Former President Bill Clinton last week in Flint, Michigan
Cassius: “The fault, dear Brutus, is not in our stars, but in ourselves…”– Julius Caesar (I, ii, 140-141)

No matter what happens on Election Day, we know one thing for sure: Barack Obama will stop being president on January 20. He will leave behind the signature

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Comments on Feyerabend’s ‘Against Method’, Part III

Intellectual Support for Mainstream Economics
by Philip Pilkington
Article of the Week from Fixing the Economists
If you read Paul Feyerabend’s Against Method closely and you take the argument seriously a rather unnerving fact comes to light: namely, that the argument contained therein lends full intellectual support to mainstream marginalist economics. 

Follow up:
While the theories of philosophers like, say, Popper or Lakatos can easily be applied to refute marginalist economics by showing either that is inconsistent with the facts or is a ‘degenerating research program’, Feyerabend’s approach actually lends it weight.
Feyerabend’s argument is that a theory cannot be judged simply based on the facts that supposedly refute it or on the ad hoc propositions that are often needed to

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Federal Repression System

By John Mauldin, Thoughts from the Frontline

“However beautiful the strategy, you should occasionally look at the results.”– Winston Churchill

Follow up:
And from “To a Mouse, on Turning Her Up in Her Nest with the Plough”:
Scottish version:

But Mousie, thou art no thy-lane,In proving foresight may be vain:The best-laid schemes o’ Mice an’ MenGang aft agley,An’ lea’e us nought but grief an’ pain,For promis’d joy!
English translation:
But little Mouse, you are not alone, In proving foresight may be vain: The best laid schemes of Mice and Men Go often askew, And leave us nothing but grief and pain, For promised joy!– Robert Burns, 1785

The Federal Open Market Committee, to almost no one’s surprise, did absolutely nothing at its last meeting other than say that maybe, if the data

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Comments on Feyerabend’s ‘Against Method’, Part II

Revolutions in Subjectivity
 by Philip Pilkington
Fixing the Economists Article of the Week
In my previous commentary on Feyerabend’s book I criticised him for being incoherent in his understanding of the relationship between the philosophy of science that he is actually expounding and his own philosophy which he thinks to be materialist but which is quite evidently not. In this commentary I seek to clarify what is actually taking place in the conceptual revolutions that Feyerabend documents in the book. He argues that these are revolutions in ‘language’ and ‘concepts’ but I think when they are examined closely it is obvious that they are rather revolutions in subjectivity.

Follow up:
In chapter 7 Feyerabend documents how Galileo overturns the contemporary arguments against the idea

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Trade Globalisation in the Last Two Centuries

By Voxeu.org
— this post authored by Michel Fouquin and Jules Hugot
Appeared originally on Voxeu.org 17 September 2016
Historians and economists generally identify two periods of trade globalisation, the first beginning around 1870 and the second during the 1970s. The column argues that new data from 1827 onwards shows globalisation beginning as trade barriers were lowered around 1840, and that both periods of globalisation were surprisingly fuelled by a regionalisation of world trade. If globalisation continues to grow in future, regionalisation may decline.

Follow up:
Most studies based on trade statistics date the emergence of the First Globalisation around 1870. These studies, however, generally rely on data that begins in 1870. To better understand the chronology of

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The Economic Future of the Berkshires

By Elliott Morss, Morss Global Finance
Editor’s note:  While this analysis is specific to the Berkshires, it has elements in common with many rural areas in the U.S. that are experiencing economic retrenchment and population declines.
Introduction
I live in The Berkshires, a small region in the mountains of western Massachusetts. It is bounded by declining industrial towns to the north (Adams North Adams and Pittsfield,) and a former whaling town to the south (Hudson). Efforts to revive these towns have not been successful.

Follow up:
But the mid-Berkshires are popular vacation destinations, with outdoor activities including hiking, fall foliage water sports and skiing. In addition, it has world-renowned music, theatrical and arts institutions led by the Boston Symphony Orchestra’s

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Conceptual Challenges in International Finance

By Voxeu.org
— this post authored by Stefan Avdjiev, Robert McCauley and Hyun Song Shin
Working with the wrong accounting classifications can lead to wrong conclusions in any area of economics. But it is especially treacherous in international finance, due to the importance of key currencies and the operations of multinational firms, especially global banks. Much of the analysis in international finance is still conducted under the assumption that the GDP area, decision-making unit and the currency area coincide – the so-called ‘triple coincidence’. This column illustrates the common analytical missteps that can arise by reviewing three examples from the recent past, and argues that a proper analysis of capital flows necessitates paying greater attention to basic accounting building

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Comments on Feyerabend’s ‘Against Method’, Part I

Real Materialism Versus Marxian Materialism
by Philip Pilkington
Article of the Week from Fixing the Economists
I am currently rereading Paul Feyerabend’s excellent book Against Method. It’s a very good book and I find myself in agreement with an awful lot that is in it. I have noted, however, that the argument suffers in some places because of the author’s lack of concern about rigour.

Follow up:
In fact this is a constant problem in the book and it stems from the manner in which the author thinks. Feyerabend insists that empiricism as commonly understood is wrong. In a watered-down version of empiricism we must test theories against facts and if the facts refute them then we must throw away the theory. In plain empiricism then, the facts come first.
For Feyerabend, however, science

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Start Moving Some Dirt

By John Mauldin, Thoughts from the Frontline

“Economic stimulants produce Bridges to Nowhere. Strategic investment in infrastructure produces a foundation for long-term growth.”– Roger McNamee
“Our American ancestors prioritized growth and investment in our nation’s infrastructure.”– Cory Booker
“There are two Americas – separate, unequal, and no longer even acknowledging each other except on the barest cultural terms.”– David Simon

Follow up:
I, along with about 80 million of my fellow US citizens, watched the Clinton/Trump debate last Monday night. I am sure that we all have our own takeaways, and I won’t add my own thoughts on who won. But today’s letter is going to be about one of the few things the candidates agreed on: they both believe we need more infrastructure spending.
I

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Popular Acceptance of Inequality Due to Brute Luck and Support for Classical Benefit-Based Taxation

By Voxeu.org
— this post authored by Matthew Weinzieri, Harvard University
Appeared originally 24 September 2016
Tax policy to correct inequality assumes that nobody is entitled to advantages due to luck alone. But the public largely rejects complete equalisation of ‘brute luck’ inequality. This column argues that there is near universal public support for an alternative, benefit-based theory of taxation. Treating optimal tax policy as an empirical matter may help us to close the gap between theory and reality.

Follow up:
Around the world, scholars, analysts, and policymakers are scrambling to design a policy response to concerns about economic inequality. This needs a broadly accepted, flexible framework for policy analysis that sets priorities and incorporates key tradeoffs. Tax

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Falling Mortgage Rates Increase Buyer Subsidy But No Longer Stimulate Sales

By Lee Adler, Wall Street Examiner
There were two important releases on the US housing market today. One is the widely followed Existing Home Sales report from the NAR and the other is a lesser known but more in depth report from the online real estate brokerage Redfin.com. The Wall Street Journal reported that “Existing-Home Sales Fall for Second Straight Month,” referring to the NAR report. Redfin’s report took a more positive slant on its data, but it gets more media coverage. Redfin also pointed out, correctly, that calendar factors played a significant role in the August numbers.

Follow up:
Summarizing the data, the Journal reported that:

“Sales of previously owned homes fell 0.9% from a month earlier to an annual rate of 5.33 million, the National Association of Realtors said

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Consumers Carry Weak GDP Number Out of the Red

By Rick Davis, Consumer Metrics Institute
September 29, 2016 – BEA Revises 2nd Quarter 2016 GDP Growth Upward to 1.42%

Follow up:
In their third and final estimate of the US GDP for the second quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +1.42%, up +0.33% from their previous estimate and up +0.59% from the prior quarter. Most of the improvement in the headline number came from a +0.24% upward revision in commercial fixed investment. None of the other revisions were statistically significant.
Despite the upward revision to commercial fixed investments, that line item remained in contraction at a -0.18% annualized rate. Inventories also contracted materially (at a -1.16% annualized rate). Consumer spending growth continues to provide the

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The Theory of the Monetary Circuit: A Critique

By Philip Pilkington
Article of the Week from Fixing the Economists
In a series of comments on my previous post involving myself, Neil Wilson and Oliver it became clear quite quickly how closely my asset-pricing framework is tied up with the Post-Keynesian theory of endogenous money. Oliver suggested that I look into the Theory of Monetary Emissions (TME) — a forerunner of the modern ‘Circuitist school’ of monetary theory. In this post I consider how and why my approach differs from the Circuitist theory through a reading of Sergio Rossi’s excellent paper The Theory of Monetary Emissions which can be found in A Handbook of Alternative Monetary Economics.

Follow up:
I will not here deal with the theory of the monetary circuit itself. It is, in all respects, basically identical to the

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Reinhard Selten: Pioneering Analyst of Rationality and Human Behaviour

By Voxeu.org
— this post authored by Benny Moldovanu and Axel Ockenfels
Appeared originally 14 September 2016
Reinhard Selten, co-recipient of the 1994 Nobel Memorial Prize in Economic Sciences, passed away in August. This column outlines the intellectual life and career of a pioneering analyst of strategic interaction of both fully rational players (game theory) and real human beings with ‘bounded rationality’ (experimental economics).

Follow up:
Selten called himself a ‘methodological dualist’, making a sharp distinction between normative game theory and descriptive theories of social and economic interaction. Nobody else has made such substantial and important contributions to both lines of research.
Reinhard Selten was born in Breslau, Germany (now Wroclaw, Poland) in 1930. His

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Hjalmar Schacht, Mefo Bills and the Restoration of the German Economy 1933-1939

Article of the Week from Fixing the Economists
by Philip Pilkington
So, I was doing a bit of that aimless reading one so often does on the internet and I came across the transcript from the trial of Hjalmar Schacht at Nuremberg after the war. Schacht was, of course, the chief architect of Nazi economic policy and the inventor of the infamous Mefo bill, which we shall discuss in more detail below. The transcript is fascinating because it includes a nice overview of Nazi economic policy during the war and the years of rearmament.

Follow up:
I’ll give some context first of all. As is well-known, after WWI the allies had banned the defeated Germany from having a size-able standing army. In the 1930s, however, after the election of Hitler in 1933 the allies moved more and more to appease

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Reviewing the IMF’s Role in the Greek Crisis: What Its Independent Evaluation Office Missed

By Elliott Morss, Morss Global Finance
Introduction
The Independent Evaluation Office of the IMF (IEO) recently released a critical report on how the IMF handled the crises in Greece, Ireland and Portugal. I have closely followed the role of the IMF in Greece and have identified where things went wrong. It turns out that my list differs quite considerably from that of the IEO. In what follows, I consider my conclusions against those of the IEO. But first, a little background on the IMF’s role in the Greek crisis.

Follow up:
Who in Their Right Mind Would Have Bought Greek Debt?
Table 1 provides economic data for Greece. Anyone taking the time to look at these numbers should have seen that by 2008, the wheels were most definitely coming off. By then, the government deficit has grown to

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Negative Rates Nail Savers

By John Mauldin, Thoughts from the Frontline

“You shall not crucify mankind upon a cross of gold.”– William Jennings Bryan, July 9, 1896
“You shall not crucify the retiree and saver on a cross of negative rates.”– John Mauldin, September 14, 2016

Follow up:
The Economy Is Rigged
As is now the practice on many college campuses, I should preface this week’s newsletter with a trigger warning. What you are about to read could give you serious heartburn, especially if you are an economist or a central banker. Or a retiree or just someone who has lived life playing by the rules, and now you find yourself getting no return on your savings, forcing you to save even more and work even longer. Let me be careful to point out that I am not including all economists in my rather sweeping

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Technological Progress in a Below Full Employment Economy

By Philip Pilkington
Article of the Week from Fixing the Economists
I recently came across a rather interesting argument that the famous Post-Keynesian economist Abba Lerner made in relation to his well-known doctrine of Functional Finance. Basically Lerner said that labour-saving technological innovation in a below full employment economy was not particularly socially useful.

Follow up:
In a 2003 paper entitled Functional Finance and Unemployment: Lessons From Lerner For Today in the book Reinventing Functional Finance Matt Forstater laid out this argument. First he quotes Lerner himself to the following effect,

When there is unemployment… it is not important or even useful to use less resources in any task… There is no point, for instance, in managing to carry out some task with

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Macri and Argentina: It Started With Such Hope – An Update

By Elliott Morss, Morss Global Finance
Introduction
Last February, I wrote a piece on the reforms the newly elected President of Argentina was in the process of introducing. Things looked quite promising. But as we all know, the devil is in the details. So in this piece, I look at the progress and lack of progress since February. As I did earlier, I have asked a friend who lives in Buenos Aires to comment on these matters. Hendrik Jordaan is the founder of Laurik International, a company that he started to promote business relations and interactions between Argentina and South Africa. His thoughts on these issues (HJ) follow along with my questions/observations (EM).

Follow up:
EM: Currency controls – is the peso still floating freely? And if so, is their evidence that exporters are

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Monetary Mountain Madness

[unable to retrieve full-text content]by John Mauldin, Thoughts from the Frontline

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” – John Maynard Keynes

Full story »

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Purchasing Power Parity (PPP) and the Exchange Rate

By Philip Pilkington
Article of the Week from Fixing the Economists
There is a theory that floats around out there called the ‘Purchasing Power Parity theory of the Exchange Rate’ — or something to that effect, the name seems to change depending on what source you go to.

Follow up:
The theory, stripped right down, amounts to something like this: the ‘correct’ value of the exchange rate will be the old exchange rate times the change in the price level in one of the two countries involved divided by the change in the price level of the other of the two countries involved.
Let’s take a concrete example to be a bit clearer: the exchange rate between the yen and the US dollar (USD). So,

On the left hand side of the equation, denoted by a *, is the ‘equilibrium’ exchange rate between the

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Six Ways NIRP Is Economically Negative

By John Mauldin, Thoughts from the Frontline

“Positive anything is better than negative nothing.”– Elbert Hubbard
“Once you replace negative thoughts with positive ones, you’ll start having positive results.”– Willie Nelson

Follow up:
If you have any doubt that we’ve wandered into a new and unexplored economic universe, consider this number: $12.6 trillion. That’s the face value of government and corporate bonds currently trading worldwide with nominal yields below zero.
Note that word trading. These bonds are in fact trading. Liquidity has not dried up. An active market exists for negative-yield bonds. Buyers haven’t gone on strike, and sellers aren’t desperately dumping the bonds. This is weird. None of it should be happening. Plainly, however, it is happening.
Have traders and

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Further Problems With the Static Framework of the ISLM

By Philip Pilkington
Article of the Week from Fixing the Economists
Last week I did a short post on how the ISLM model misrepresents how interest rates function because it views them as static. Today I would like to make a further, if more difficult point: namely, that the very way in which the interest rate stimulates investment is inherently limited in that it cannot produce cyclical upswings in effective demand — and thus, cannot produce cyclical upswings in output. In doing this I will be drawing on Jan Kregel’s excellent paper Of Prodigal Sons and Bastard Progeny which in turn draws on some of Joan Robinson’s own writings on the ISLM.

Follow up:
As Kregel shows in the paper, Robinson had a very clear-sighted view about how interest rates function. The first part of Robinson’s

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The Economy Will Fluctuate

By Lee Adler, Wall Street Examiner
Lest we get too bearish on the US economy in the short run, it pays to remember that even though the Fed has outlawed the business cycle, “the economy will fluctuate.” Contrary to the wisdom of JP Morgan, the stock market may not fluctuate, but the economy will.

Follow up:
Unlike the good old days when economic cycles typically ran roughly 4 years between recessions and grew at an average of 5% over time, today it doesn’t work that way. Today, the economy fluctuates over 3-4 months, almost imperceptibly, and economic growth averages 1.5% or 2%, depending on the time of the month. In the second quarter, GDP growth was reportedly +1.2%, which real time tax collection data had clearly foreshadowed.
We were reminded of the 3-4 month cycle in July when

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The Two Oil Production Revolutions and What They Mean for the Price of Oil, Politics, the Economy, and the Environment

By Voxeu.org
— this post authored by Roberto F. Aguilera and Marian Radetzki
Appeared originally at Voxeu.org 17 August 2016.
After decades of oil price rises, new extraction techniques for shale and conventional deposits mean that recent dramatic price falls will be here to stay. This column argues that, even with oil at $50 a barrel, global producers will invest to catch up with US-led technological innovation and so add 40 million barrels a day to production by 2035. This will revolutionise domestic energy policymaking, environmental commitments and global geopolitics.

Follow up:
Oil price developments over the past 40 years have been truly spectacular. In constant money, prices rose by almost 900% between 1970-72 and 2011-13 (UNCTAD 2015, UNSTAT 2015). Compare this to other

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What is GDP and Do We Need It?

By John Mauldin, Thoughts from the Frontline

“Measurement theory shows that strong assumptions are required for certain statistics to provide meaningful information about reality. Measurement theory encourages people to think about the meaning of their data. It encourages critical assessment of the assumptions behind the analysis.

Follow up:

“In ‘pure’ science, we can form a better, more coherent, and objective picture of the world, based on the information measurement provides. The information allows us to create models of (parts of) the world and formulate laws and theorems. We must then determine (again) by measuring whether these models, hypotheses, theorems, and laws are a valid representation of the world.”– Gauri Shankar Shrestha
“In science, the term observer effect refers

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Can Anything Save the Eurozone?

By Elliott Morss, Morss Global Finance
Introduction
Ever since I started covering the plight of Greece in 2010, I have believed that the ultimate resolution for Greece and other “weak sister” countries would be to go back to their own currencies. Why? The short answer: depreciation of their own currencies would compensate for productivity differences between them and countries using the Euro. And here, there is an analogy with the US and Japan. To neutralize Japan’s productivity edge in the ‘70s, the dollar has weakened from more than ¥300 to the current 100¥ to the dollar.

Follow up:
However, many cannot follow this logic. So below, I compare US states with Eurozone countries. The comparison is apt inasmuch as US states use the same currency just as all Eurozone countries use the

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Problems with Static Interest Rates in the ISLM

By Philip Pilkington
Article of the Week from Fixing the Economists
The ISLM takes quite a beating from Post-Keynesians — and, I would argue, rightly so. There are any number of reasons for this but let me just here highlight one that is not very regularly talked about.

Follow up:
As is well-known and can be seen in the below diagram the ISLM considers output to be a function of the interest rate. At a higher level of interest rates output is thought to be lower and at a lower level of interest rates output is thought to be higher.

The problem with this presentation? It is not true. You see, even if we allow that interest rates have a substantial effect on output, it is not so much the absolute levels of interest rates that matters so much as it is the relative rate. Relative to

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A Primer on Helicopter Money

By Voxeu.org
— this post authored by Stephen Cecchetti and Kim Schoenholtz
Appeared originally 19 August 2016
Helicopter money is not just another version of unconventional monetary policy. Using simple central bank and government balance sheets, this column explains how helicopter money today is different from what Milton Friedman imagined back in 1969 – it is expansionary fiscal policy financed by central bank money.

Follow up:Helicopter money is not monetary policy. It is a fiscal policy carried out with the cooperation of the central bank. That is, if the Fed were to drop $100 bills out of helicopters, it would be doing the Treasury’s bidding.le="text-align: left;">We are wary of joining the cacophony of commentators on helicopter money, but our sense is that the discussion

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An Inheritance of Incompetence

By John Mauldin, Thoughts from the Frontline

 “Always remember that the future comes one day at a time.”– Dean Acheson
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”– John Maynard Keynes

Follow up:
I don’t often agree with Keynes, but he is the most quotable of all major economists. The above sentence was one of his best. He was right about defunct economists. Of course, he was talking about all those other defunct economists who no longer kept up with his new and improved way of thinking about all things economic. Now his quip comes back to haunt his legacy and his followers.
Theories and practices often outlive their usefulness in our fast-changing world. So do institutions, including

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Capital Sins: To What End Should Economic Life Be Directed?

By Philip Pilkington
Victoria Chick published an interesting paper in the journal Economic Thought on the World Economic Association website entitled Economics and the Good Life: Keynes and Schumacher. In it she explores what both men thought that the end goal of economics should be. As she says in the paper she finds rather a lot of overlap but also some differences in approach. I will here run through both of these here.

Follow up:
Both men share the ideal of bringing economic life closer to how they think that people should live. Broadly speaking both think that people should engage in less stultifying work and spend more time doing things that will provide some sort of inner contentment or enjoyment. The manner in which this might be achieved and the form that, consequently, this

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Higher Local Minimum Wages: Early Results from Seattle

By Timothy Taylor, Conversable Economist
In June 2014, the city of Seattle passed a law raising the minimum wage for many employers in the city. The law went into effect on April 1, 2015, with an $11/hour minimum wage taking effect for many employers at that time, a $13/hour minimum wage scheduled to start in January 2016, and then ongoing rises up to $18/hour in years to come.

Follow up:
A group called the Seattle Minimum Wage Study Team, based at the University of Washington, is planning to study the effects of this rise in the minimum wage over time. The team investigators are Jacob Vigdor, Mark C. Long, Jennifer Romich, Scott W. Allard, Heather D. Hill, Jennifer Otten, Robert Plotnick, Scott Bailey, and Anneliese Vance-Sherman. It has now published a study on the first nine months

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The Trouble with Trade

by John Mauldin, Thoughts from the Frontline “When goods don’t cross borders, armies will.”– Frequently attributed to Frédéric Bastiat “Free trade agreements are trade agreements that don’t stick to trade.”– Ralph Nader

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Helicopter Money: The Illusion of a Free Lunch

by Voxeu.org — this post authored by Claudio Borio, Piti Disyatat and Anna Zabai Appeared originally[link to source] at Voxeu.org 24 May 2016 Seven years on from the great financial crisis and despite central banks being seen by many as ‘the only ga…

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Promises, Promises, Pension Promises

by John Mauldin, Thoughts from the Frontline You made me promises, promises You knew you’d never keep Promises, promises Why do I believe? – Naked Eyes (1983) Follow up: It’s election year in the US, so once again we see politicians promising the moo…

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The CAPM and the Non-Ergodic Axiom

by Philip Pilkington Article of the Week from Fixing the Economists While doing my dissertation on constructing a new theory of asset-pricing I became exposed to some contemporary theories. To be frank, I didn’t really know how to integrate them beca…

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When the Future Becomes Today

by John Mauldin, Thoughts from the Frontline “There are decades where nothing happens, and there are weeks where decades happen.”– Vladimir Lenin “However beautiful the strategy, you should occasionally look at the results.”– Winston Churchill

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The Economics of Counterfeit Money

by Philip Pilkington Endogenous money theory, which is usually associated with the Post-Keynesian school of economics, has long told us that central banks do not control the supply of money in the economy. Instead the amount of money is determined by…

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Europe Is a Minefield

by John Mauldin, Thoughts from the Frontline “Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is t…

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Thinking the Unthinkable

by John Mauldin, Thoughts from the Frontline If buttercups buzz’d after the beeIf boats were on land, churches on seaIf ponies rode men and if grass ate the cowsAnd cats should be chased into holes by the mouseIf the mamas sold their babiesTo the Gyp…

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NAR Home Sales Data Shows Bubble II Still Boiling

by Lee Adler, Wall Street Examiner The NAR released it May report on sales of existing housing–what it calls “Pending Home Sales.” The report covers actual sales contracts reached during the previous month. The NAR reports the data both on a seasonal…

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Paul Krugman Misses Key Component of His Own Model

by Philip Pilkington Article of the Week from Fixing the Economists John McHale over at Irish Economy has written a post on the possibility of a default by a sovereign currency issuer. In the post he discusses Paul Krugman’s stripped-down Mundell-Fle…

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Generational Chaos Ahead

by John Mauldin, Thoughts from the Frontline “This generation of Americans has a rendezvous with destiny.”– Franklin D. Roosevelt “Each generation imagines itself to be more intelligent that the one that went before it, and wiser than the one that co…

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Matter and Models

by Philip Pilkington Article of the Week from Fixing the Economists What if all the world’s inside of your headJust creations of your own?You can live in this illusionYou can choose to believeYou keep looking but you can’t find the woodsWhile you’re …

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New Angles on Inequality in Life Expectancy

by Timothy Taylor, Conversable Economist We know several facts about US life expectancy with a high degree of confidence. Overall, life expectancy is rising: indeed, it is rising for every age group. However, there have long been gaps in life expecta…

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The Persistence of Racial Inequality in the US

— this post authored by Robert A. Margo,Voxeu.org Appeared originally at Voxeu.org 08 June 2016 In 2010, the most recent US census year, the per capita income of Black Americans was 64% of that of White Americans – a stark reminder (if any were need…

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Hot Summer Economic Weirdness

by John Mauldin, Thoughts from the Frontline “A lost election can have the jolt of a drop through the gallows door, leading to a dark night of the soul in which the future presses down like a cloud that will never lift.”– James Wolcott

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Low Energy Prices – Will They Continue?

by Elliott Morss, Morss Global Finance As Table 1 indicates prices of the world’s leading energy sources fell precipitously in 2015 and 2016. Recently, they have rebounded a bit but are still 50% less than what they averaged during the 2010-14 period.

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How Much has Global Economic Power Really Shifted

by Jayati Ghosh, Triplecrisis.com — this post coauthored by C.P. Chandrasekhar Appeared originally at Triple Crisis 31 March 2016 Much has been made of how there has been a substantial shift in the balance of economic power between the advanced capi…

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Life on the Edge

by John Mauldin, Thoughts from the Frontline “Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither pers…

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Open Letter to the Next President, Part 3

by John Mauldin, Thoughts from the Frontline “The liberating army we need in the Americas today is one of leaders who come together in peace, in the spirit of cooperation.”– Oscar Arias “There are two Americas – separate, unequal, and no longer even …

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Open Letter to the Next President, Part 2

by John Mauldin, Thoughts from the Frontline “Europe was created by history. America was created by philosophy.”– Margaret Thatcher “Nobody in Europe will be abandoned. Nobody in Europe will be excluded. Europe only succeeds if we work together.”– An…

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Latest GDP Data Puts Pressure on the Fed

by Rick Davis, Consumer Metrics Institute In their third and final estimate of the US GDP for the fourth quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +1.38% annualized rate, up +0.38% from their pr…

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Why Globalization Reaches Limits

by Gail Tverberg, Our Finite World Appeared originally at Our Finite World 01 March 2016 Also appeared at Doomstead Diner 03 March 2016 We have been living in a world of rapid globalization, but this is not a condition that we can expect to continue …

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Do Business Cycles Die of Old Age?

by Timothy Taylor, Conversable Economist Whenever the US economy looks shaky, one of the most common questions I hear is whether this recovery has “run its course” or “gotten old.” The downturn of the US economy during the Great Recession ended back …

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ZIRP and NIRP: Killing Retirement As We Know It

by John Mauldin, Thoughts from the Frontline “Baby boomers who are counting on the stock market are in trouble.” – Robert Kiyosaki “Pension and health care costs for our employees are going to bankrupt this city.” – Michael Bloomberg

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Should Latin America Be Counter Cyclical or Not?

by Carlos A. Vegh and Guillermo Vuletin,Voxeu.org Appeared originally at Voxeu.org 24 February 2016 By the end of 2013, growth in Latin America had begun to decelerate. The ensuing policy responses to this have differed across countries. This column …

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Bayesianism and Non-Ergodicity in Economics

by Philip Pilkington The atomic hypothesis which has worked so splendidly in Physics breaks down in Psychics. We are faced at every turn with the problems of Organic Unity, of Discreteness, of Discontinuity – the whole is not equal to the sum of the …

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Will HELOCs Trigger a Banking Crisis?

by Keith Jurow, Capital Preservation Real Estate Report After disregarding the looming home equity line of credit (HELOC) disaster for several years, Wall Street and media pundits have finally taken notice. Homeowners with HELOCs will soon see them c…

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The Fed Prepares to Dive

by John Mauldin, Thoughts from the Frontline “No one will lend at a negative interest rate; potential creditors will simply choose to hold cash, which pays zero nominal interest.”– Ben Bernanke, 2009

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Money and Banking, Part 6

by Eric Tymoigne Appeared originally in New Economic Perspectives 14 February 2016 Treasury and Central Bank Interactions This post concludes our study of central banking matters (there would be a lot more to cover … maybe another time). The post stu…

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Money and Banking, Part 5

by Eric Tymoigne Previous posts studied the balance sheet of the fed, definitions and relation to the balance sheet of the fed, and monetary-policy implementation. In this post, I will answer some FAQs about monetary policy and central banking. Each …

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$100 Trillion Up in Smoke

by John Mauldin, Thoughts from the Frontline “We aren’t addicted to oil, but our cars are.”– James Woolsey “The greatest asset, even in this country, is not oil and gas. It’s integrity.”– George Foreman

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Discounting Climate Change Investments

by Stefano Giglio, Matteo Maggiori, Johannes Stroebel and Andreas Weber, Voxeu.org Appeared originally at Voxeu.org 23 January 2016 While some of the costs of climate change won’t be incurred for centuries, the actions to mitigate them need to be tak…

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Global and U.S. Trends in Glyphosate Herbicide Use

by Charles M. Benbrook Accurate pesticide use data are essential when studying the environmental and public health impacts of pesticide use. Since the mid-1990s, significant changes have occurred in when and how glyphosate herbicides are applied, and…

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Money and Banking, Part 4

by Eric Tymoigne For convenience, I have put the balance sheet of the Fed below. A previous post examined the balance sheet and another one provided important information about the meaning of reserves and other basic concepts and their relation to th…

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The U.S. is Not in a Recession

by James D. Hamilton, Econbrowser.com Appeared originally at Econbrowser 29 January 2016 The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 0.7% annual rate in the fourth quarter. That’s a bad quarter to be sure, and real GD…

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China in Transition: Concerns Vastly Overblown

by Elliott Morss, Morss Global Finance Introduction China: every day, the media reports disquieting news. We hear that China is in recession, pulling down all other emerging countries with it, stock markets crashing, currency manipulations, et al.  S…

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BEA Estimates 4th Quarter 2015 GDP Growth at 0.69%

by Rick Davis, Consumer Metrics Institute  In their first “Preliminary” estimate of the US GDP for the fourth quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +0.69% annualized rate, down -1.30% from t…

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Money and Banking: Part 3

by Eric Tymoigne Appeared originally at New Economic Perspectives 24 January 2016 (A quick note: I noticed that the M&B posts get posted on other blogs. If you want me to respond to you, you should comment at NEP.)

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Money and Banking, Part 2

by Eric Tymoigne Appeared originally in New Economic Perspectives 16 January 2016 Central bank balance sheet and immediate implications The previous post reviewed basic balance-sheet mechanics. This post begins to apply them to the Federal Reserve Sy…

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Money and Banking – Part 1

by Eric Tymoigne Appeared originally in New Economic Perspectives 09 January 2016 I struggled a few years to get a Money and Banking (M&B) course together. It lacked coherency and students had difficulty linking the different parts of the class. A go…

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Final 3Q GDP Little Changed at 1.99% Growth Rate

by Rick Davis, Consumer Metrics Institute In their third (and “final”) estimate of the US GDP for the third quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +1.99% annualized rate, down -0.08% from the…

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Designing Fiscal Policy for Steady, Enduring Growth

by Marco Buti and Vitor Gaspar Appeared originally at Voxeu.org 10 December 2015 Designing fiscal policy for today’s complex and uncertain economic climate is a problem that perplexes governments worldwide. This column proposes a solution – a new fis…

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7 Year Trend of Falling Unemployment Claims Slows

by Lee Adler, Wall Street Examiner First time claims for unemployment compensation continued their string of record lows for the same week of the year but the improvement in the weekly number slowed radically last week in what could be the first sign…

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If You Enjoy Wine – Avoid Blind Tastings

by Elliott Morss, Morss Global Finance I started enjoying wine years back. I vaguely remember Lancer’s Sparkling Rosé, Mateus and Thunderbird. On special occasions, my parents would buy the “heavy whites” from France – the Meursaults and Montrachets….

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The Post-Keynesian View of Monetary Policy

Article of the Week from Fixing the Economists by Philip Pilkington Among Post-Keynesians there is a general consensus about interest rate policies: they are not, unless used in extreme form to generate recessions, very effective at regulating the vo…

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Why Inflation Is Lower Than You Think

by Robert Huebscher, AdvisorPerspectives.com Financial pundits routinely claim that inflation is much higher than the reported statistics. We hear, for example, that food prices have risen much faster than the roughly 1.5% increase in the consumer pr…

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The Gig Economy Is the New Normal

by John Mauldin, Thoughts from the Frontline An already-confusing employment environment grew even more complicated this past week. Many readers responded to my “Crime in the Jobs Report” letter with their own stories. Some confirmed what I wrote, wh…

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Taking Inventory: 3Q GDP Estimate Revised Higher

by Rick Davis, Consumer Metrics Institute In their second estimate of the US GDP for the third quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +2.07% annualized rate, up +0.58% from their previous est…

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U.S. Unemployment is Criminal

by John Mauldin, Thoughts from the Frontline “When more and more people are thrown out of work, unemployment results.” – Calvin Coolidge, US president, 1923-29, in his role as Mr. Obvious “Unemployment is of vital importance, particularly to the unem…

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Selective Default on Corporate Bonds

by Ajay Shah and Bhargavi Zaveri, ajay shah blog M. C. Govardhana Rangan and Satish John have an article in the Economic Times where they describe selective default by Amtek Auto to some bondholders but not to others.

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Your Own Personal Inflation Rate

by John Mauldin, Thoughts from the Frontline “Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.” – Ronald Reagan “To me, a wise and humane policy is occasionally to let inflation rise even when inflat…

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Someone Is Spending Your Pension Money

by John Mauldin, Thoughts from the Frontline

“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money.”– Jonathan Clements
“In retirement, only money and symptoms are conseq…

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More Fraud Is Coming in the Global Wine Industry

by Elliott Morss, Morss Global Finance
Introduction
The world is replete with wine conferences, e.g., The American Association of Wine Economists, Wine Vision, and Vinexpo. And typically, these conferences have one or more sessions on the future of t…

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Austrian Business Cycle Theory: Dinosaur Economics

Fixing the Economists Article of the Week
by Philip Pilkington
Just a very quick note so as to weigh in on a debate which, frankly, I don’t really want to weigh in on. It relates to the Austrian Business Cycle Theory (hereafter: ABCT) and its relatio…

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Thin Air’s Money Isn’t Created Out of Thin Air

by Michael Pettis, China Financial Markets
A recurring conversation I have with clients concerns the ability of banks to create credit, and of governments to monetize debt, and whether this ability is the solution to or the cause of financial instabi…

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Can the Dollar Go Higher?

Written by David Petch, Treasure Chests
I thought I would do a deeper dive to revisit the currencies and US Dollar again, because there are a lot of comments out in cyberspace and the general media about how things are not that bad.

Follow up:
The …

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Exchange Rates Moving

by Timothy Taylor, Conversable Economist
Major exchange rates for countries around the world are in the midst of movement that is large by historical standards.

Follow up:
The International Monetary Fund offers some background in its October 2015 W…

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BEA Deflates GDP Higher

BEA Revises 2nd Quarter 2015 GDP Growth Upward Again, to 3.92%
by Rick Davis, Consumer Metrics Institute
In their third estimate of the US GDP for the second quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growin…

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Updating America’s Scariest Chart

by Constantin Gurdgiev, TrueEconomics.Blogspot.in
As you know I rarely post on the U.S. economy. But recently I was updating a presentation involving the state of financial flows for retail investors and savers around the world and had to check up o…

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Needed at the Fed: An Inverse Volcker

by John Mauldin, Thoughts from the Frontline

“The world’s biggest problems are the world’s biggest business opportunities.” – Peter Diamandis

Follow up:

One pill makes you largerAnd one pill makes you smallAnd the ones that mother gives youDon’t…

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Remittances, Foreign Aid and Other Capital Flows

by Constantin Gurdgiev, TrueEconomics.Blogspot.in
So globally, remittances by migrants are now worth more than double the total flows of foreign aid and more than portfolio flows (financialised investment).

Follow up:
In fact, remittances are now …

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Muddling Through Shanghai

by John Mauldin, Thoughts from the Frontline

“He who knows when he can fight and when he cannot, will be victorious.”– Sun Tzu

A couple of weeks ago I was complaining about 47,000 China reports clogging my e-mail. The number now feels like it is we…

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The Rise and Fall of the City

by Hans-Hermann Hoppe
Appeared originally at mises.org 23 November 2005
Nearly every urban setting in the world is fraught with conflicts between groups, so much so that political commentators can speak of votes and candidates mostly in terms of the …

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What the General Public Knows About Monetary Policy

by Carin van der Cruijsen, David-Jan Jansen and Jakob de Haan
Appeared originally at Voxeu.org 23 August 2015
Central banks have typically targeted their communication at financial markets. Increasingly, however, many have started actively communicat…

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Liquidity is the Visible Hand

Fed Minutes Are Minutia Except For One Critically Important, Widely Ignored Detail
by Lee Adler, Wall Street Examiner
The FOMC meeting minutes are a key instrument of official Fed propaganda. They show how the Fed wants you to view policy. There’s so…

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Weapons of Economic Misdirection

by John Mauldin, Thoughts from the Frontline

“Measurement theory shows that strong assumptions are required for certain statistics to provide meaningful information about reality. Measurement theory encourages people to think about the meaning of th…

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Can We Believe the “Wonderful” GDP News?

2Q 2015 GDP “Bounces” Up to 3.7% Growth
by Rick Davis, Consumer Metrics Institute
In their second estimate of the US GDP for the second quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 3.70% annualize…

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Did Capitalism Cause the Irish Famine?

Article of the Week from Fixing the Economists
by Philip Pilkington
Nathan Cedric Tankus ran a piece a couple of years ago on Naked Capitalism about Karl Marx’s interpretation of the Irish famine in his Das Kapital. The theory that Tankus is referrin…

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Playing the Chinese Trump Card

by John Mauldin, Thoughts from the Frontline

“I know the Chinese. I’ve made a lot of money with the Chinese. I understand the Chinese mind.” – Donald Trump, 2011

Follow up:
Back in the olden days (pre-2000 or so), information junkies like me reli…

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Riding the Energy Wave to the Future

by John Mauldin, Thoughts from the Frontline

“Formula for success: rise early, work hard, strike oil.”– J. Paul Getty

This week’s yuan devaluation was big news, but it’s really part of a much bigger saga. Events around the globe are combining to cr…

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Kaldor’s Theory of Speculation: An Overview

Fixing the Economists Article of the Week
by Philip Pilkington
I’ve been reading up a lot on economic theories of speculation as this is precisely what my dissertation is on and so far as I can tell the only real attempt to deal with speculative dyna…

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Parsing a Financial Transactions Tax

by Timothy Taylor, Conversable Economist
Controversies over a financial transactions tax have a long history in economics (going back Keynes’ advocacy of such a tax in the 1930s) and public policy (the British have imposed a “stamp duty” on stock tra…

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Monetary Policy at the Zero Lower Bound

by Angus Armstrong, Francesco Caselli, Jagit Chadha and Wouter den Haan
Appeared originally in Voxeu.org 02 August 2015
Does monetary policy really face a zero lower bound or could policy rates be pushed materially below zero per cent? And would the …

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Clement Atlee: Full Employment Austerian?

Fixing the Economists Article of the Week
by Philip Pilkington
The following is an article that I wrote for a newspaper and was never published:
In a recent interview with The Guardian Ed Miliband summoned up the ghost of the post-war prime ministe…

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Was Kyle Bass Wrong About Japan?

by Chris, Capitalist Exploits
Have you ever read John Steinbeck’s Of Mice and Men? It’s part of the high school curriculum in many western countries. The story is of two lonely and alienated farm labourers in the depression. One, George, who is shar…

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When China Stopped Acting Chinese

by John Mauldin, Thoughts from the Frontline

“The one thing I know for sure about China is, I will never know China. It’s too big, too old, too diverse, too deep. There’s simply not enough time.” – Anthony Bourdain, Parts Unknown

Full story »

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BEA Deflates Its Way to Second Quarter Growth

BEA Reports 2nd Quarter 2015 GDP Growing at 2.32%
by Rick Davis, Consumer Metrics Institute
 
In their first estimate of the US GDP for the second quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 2.32…

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Procyclical Emerging Market Policy: New Evidence

by Otaviano Canuto, Francisco Carneiro, Leonardo Garrido, Voxeu.org
Appeared originally at Voxeu.org 01 July 2015
Industrialised and developing countries have differing fiscal strategies for dealing with the business cycle. But are countries’ strateg…

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The Dreaded Specter of Nihilism in Economic Theory

Fixing the Economists Article of the Week
by Philip Pilkington
There’s a funny point on which almost all economists that I’ve come across agree upon — from neoclassical to Marxian to Post-Keynesian. And that is that something which they call “nihili…

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