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17 января, 15:50

Без заголовка

**Should-Read: JEC**: _[The Next New Macro][]_: "The seeds of disaster... lay... [The Next New Macro]: https://meansquarederrors.blogspot.com/2016/09/the-next-new-macro.html >...in how easily New Classical-style models could be tweaked to get Keynesian behavior.... The mess in macro did not come about because some economists committed to a modelling style which turns out to yield...

11 января, 20:10

Debunking the Multiplier Effect

I do not intend this to be a lengthy post because though the topic of economics and the multiplier effect may seem complex and nuanced, the truth is the entire economics "profession" has gone so far beyond it's philosophical roots, laughably treating itself as a "science," that so many mistakes have been made along the way that some of it's key tenets are easily debunked, prominent among them, the "multiplier effect."If you don't know what the multiplier effect is or why it's important, it basically states that any new introduction of money into an economy will result in increased economic production MULTIPLE TIMES the original increase.  This is based on the fact that one person's expenditure is another person's income, so an increase of $1,000 can result in a total economic production of say $5,000.Bob gets a tax break of $1,000 and buys a new computer from Jim.Jim takes the money and spends some of it, say $900, buying a new suit from Bill.Bill takes $800 of that $900 and buys himself a set of tools from Amyand this cycle continues on and on and on till the fractional expenditure is so small little Leroy is buying a 1 cent piece of bubble gum, resulting in $5,000 in total new spending.While this explains the multiplier effect, it does not, however, explain the political motivation behind it and why (leftist) politicians love it.  The multiplier effect basically authorizes or legitimizes increased government spending, especially deficit spending because that $100 billion in welfare to the poor, or that $10 billion forgivable government loan to Solyndra will result in MULTIPLE times that amount in economic growth, and therefore tax revenue.  This is why Nancy Pelosi foolishly said unemployment and government checks was the best thing for the then-economy, why Paul Krugman believes in aliens, and why nearly every leftist is for increasing government spending on the parasitic - it not only wins them votes, adoration, and popularity among the sheeple, but the multiplier effect is quite literally magic economics with no costs because in theory it generates more tax revenue than it costs.Now, you don't have to be an economist to know something is fishy when politicians and pundits start claiming there's such a thing as a free economic lunch and you can have something for nothing.  And so to debunk this malarkey we can simply look at whether or not increased government spending has resulted in economic growth in the past.  And the truth is, it hasn't.  It simply hasn't.  Not only has government spending coincided with slowing economic growth, the Obama presidency was a Keynesian wet dream come true that has only further proven the multiplier effect just does not work.  Obama doubled the national deficit, spending an additional $10 trillion the country simply didn't have, and GDP continued to limp along at a pathetic 2.2% average growth rate.  I only need further point out if there was a Multiplier Effect, we wouldn't have to be running deficits...which we most certainly have the past decade.In short, to those of us living in the real world, the multiplier effect simply doesn't work.But while anybody (if they're so inclined) can look up the data on the FRED database and prove it to themselves, it's more important, especially in an attempt to educate the public, to explain WHY the multiplier effect doesn't work and why economic policy based on it is doomed to fail.  And that answer comes in way before the government check is cut, the tax break given, and Bob pays Bill $1,000.  Specifically...where did the money come from?If you look at the multiplier effect, it is truly magical because it assumes we have this pile of money that just "POOF!" shows up out of thin air when the economy conveniently needs it.  But, again, any adult who has lived in the real world knows there is no such thing as a free lunch.  The money has to come from somewhere, so where?There are several sources, but regardless of the source they are all "other people's money."  And it is here economists and politicians conveniently forget this fact because for every penny of economic growth you garnered by giving Bob $1,000, it is obsoleted from the lack of economic growth that didn't happen because you took that $1,000 from Bill.Say you increase taxes on "the hated rich."  You do this because it's popular, you want to get re-elected, and you believe in Santa Claus the multiplier effect.  Congratulations, you managed to take $10 bill from rich people and give it to poor people.  Now instead of yachts, champagne, and caviar, that money will be spent on rims, trailer park fences, and antibiotic STD treatments.  You didn't create any new economic growth, you merely shifted it.  Worse, (though Keynesians will knee-jerk to quickly point out poor people are more likely to spend money) congratulations!  You increased SPENDING, NOT INVESTMENT!  Nobody ever points out it is rich people who are more likely to invest their excess reserves, which leads to....jobs and GENUINE economic growth.Buying rims doesn't lead to long term economic growth.  Paying for day care for your bastard baby daddy children does not increase the economy's economic growth potential.  But building a new plant or creating a new business DOES create jobs, DOES increase our economic growth capacity, and DOES improve long term, sustainable economic standards of living. But in the world of Keynesians they do not differentiate.  Blowing $400 on grills for your teeth or tattoo sleeves for your arms is just as viable economic "growth" as investing in a new semiconductor plant. Second, let's just agree with leftists/Keynesians and say rich people don't spend their money as much as the poor.  And that money would "just sit in the bank anyway."  Well, do banks just let money sit in their vaults collecting dust?  No, of course not.  They lend it out so people can buy things, but also invest be it a house, an education, or a company, all of which leads to more than just mere "consumption" and "spending."  Additionally, taxing people with money simply because "it would just sit in the bank" leaves them with less money to put into the bank.  This lowers the supply of lendable dollars which increases interest rates and lowers economic growth.And third, perhaps more pertinent to today's economy, would be the closest we can get to "economic magic" where the federal reserve just prints off money.  These monies are infused into the economy either through government programs, bank bail outs, or (as I soon predict will happen) student loan bail outs, and will all be heralded by leftist politicians as "investments."  This simply causes inflation, taking away real economic growth from the economy by lowering the purchasing power of every one else to bail out the banks, hipsters, liberal arts majors, or lazy and stupid people who just can't keep their legs shut.  This has happened in Argentina, Brazil, the Weimar Republic, and any other country that has tried to print their way to success, and the only reason it hasn't happened in the US YET is because we have the world's reserve currency (which is an entirely other topic).We could go on citing different examples, but whatever the source of the original "seed money" to get the multiplier effect going, there is an equal and opposite economic effect because you simply took money out of another part of economy and overall economic growth will remain unchanged.The truth is economic growth is caused by hard work, innovation, creativity, self-supportation, and increased efficiency.  It's nothing new or mysterious as human kind has, through trial and error (and not faux "studies" done by idiots in the economic departments of academia or Washington) figured this out over the millennia.  And the fact something as stupid as "the multiplier" effect can not only be swallowed, but be so prominent among economist and professional circles, is more a testament to the human mind's amazing ability to lie to itself than any kind of epiphany or "discovery" by the "profession" of economics.  It is here I simply ask Americans and westerners to do something they pride themselves off of.  Be TRULY independent minded people with genuine critical thinking skills.  Wake the F up, use your brain, think things through and realize just what a bunch of frauds, posers, and charlatans most economists and politicians are._____________________________________PodcastAsshole ConsultingYouTubeTwitterBooksAmazon AffiliateHHR4HM7ZPMV3

11 января, 18:59

Monetary offset isn't really a choice, it's built in to policy, by Scott Sumner

James Alexander directed me to a very good Bloomberg article on "monetary offset": Federal Reserve Chair Janet Yellen may well be thinking it. Jeffrey Lacker, president of the Richmond Fed, came close to saying it. "A more stimulative fiscal outlook usually warrants higher policy rates," Lacker said a week after Donald Trump won the presidency. Translation: Trump's plans to stimulate economic growth could inspire the Fed to move in the opposite direction. Such a move, which would put the U.S. president and its central bank at odds, is called a monetary offset. In my view, monetary offset is less discretionary than most people assume. Of course in a literal sense the title of this post is wrong, the Fed can choose to engage in monetary offset, or not choose to. But in a deeper sense I don't really think they have much choice. Right now the Fed has a very impressive economic research apparatus, which models the economy under alternative monetary policy options. FOMC members then produce forecasts of inflation under "appropriate monetary policy". When you look two years out, the Fed's inflation forecast is generally about 2%. That's because the Fed's inflation target is 2%, and they wish to set policy at a level where they achieve this target. An exception might occur during a deep slump like 2009, where the Fed might believe that it will take a bit more than 2 years to get back to 2% inflation. But of course that's not where we are today. As long as the Fed decides policy using this deliberative procedure, monetary policy is somewhat automatic, or at least less discretionary than most people assume from looking at the FOMC ponder over rate changes. And this means that as long as they continually set the fed funds target at a level expected to produce 2% inflation a couple years in the future, they will be automatically adjusting interest rates to completely offset the demand-side effects of fiscal stimulus (of course supply-side effects are another story.) How would we know if the Fed had decided not to sterilize the impact of fiscal stimulus from the Trump administration? The answer is simple, you'd see the Fed's 2018 inflation forecast rise to 2.5%, or 3%. But that's not what we see, and I think it's very unlikely that we will see this sort of inflation forecast in the near future. If they didn't raise the inflation target during the recession (when it would have been helpful for growth) why would they raise it now? Perhaps people are confused about this because they think in terms of stimulus being aimed at boosting growth, not inflation. Since the Fed has no mandate to restrict growth, why would it offset fiscal stimulus? But the direct effect of fiscal stimulus is to boost NGDP, and any further impact on RGDP depends on the slope of the short run AS curve. (Or the Phillips curve, if you prefer.) Even some economists appear confused on this point. Here's Simon Wren-Lewis, discussing empirical studies of monetary offset: As far as I know, no one had expressed a concern about fiscal austerity because of the impact this will have on nominal GDP. The issue is always the impact on real activity, for reasons that are obvious enough. Here Wren-Lewis confuses the ultimate goal with the direct effect. Real GDP can rise for many reasons, including demand and supply-side shocks. Keynesian stimulus is generally assumed to work through demand-side effects, which means that both growth and inflation should rise if stimulus is boosting demand. If you see growth rise but no change in NGDP, then the cause of the growth is obviously not "more spending" it's an increase in the incentive to work, invest and innovate. That sort of growth would not validate the theories of John Maynard Keynes; it would validate the theories of Arthur Laffer. Here's how Nick Rowe responded to Wren-Lewis: I disagree on the NGDP vs RGDP thing. Sure, RGDP is what we care about, but we don't know whether a rightward shift in the AD curve will cause increased RGDP, increased price level, or (more likely) some mixture of the two. Using NGDP instead of RGDP is a crude way of acknowledging our ignorance about the slope of the Short Run Phillips Curve. Now, if fiscal loosening (in countries with flexible exchange rates) causes RGDP to increase but does not cause NGDP to increase, which is what your results and Mark's [Sadowski] results seem to imply, when taken together, we have a very uncomfortable conclusion for all of us. It tells us that the Short Run Phillips Curve slopes the wrong way. It tells us that an expansionary fiscal policy causes inflation to *fall*. Which is a very strange result indeed, unless you want to talk about the supply-side benefits of bigger deficit spending. Now the supply-side argument is not stupid. If you suddenly lay off thousands of government workers, that causes some real supply side issues, because those workers won't be able to reallocate instantly even if aggregate demand does not fall. The search theorists do have some sort of a point. Any sort of change in the composition of demand between private and government sectors, in either direction, will cause some temporary increase in frictional unemployment, shifting the SRPC in the bad direction. I don't find my above "explanation" fully convincing. But it's better than assuming the SRPC slopes the wrong way, so that an expansionary fiscal (or monetary) policy *reduces* inflation in the short run. I agree. But an even simpler explanation is that tax increases reduce output in exactly the way predicted by Art Laffer. I'm not an enthusiastic supply-sider like Laffer or Larry Kudlow, but even a moderate supply-sider like me would predict some negative growth effects from tax increases. To summarize, Wren-Lewis thought he was testing the Keynesian model, whereas it was actually a test of whether Keynesian or supply-side models are correct. His results suggest that the basic demand-based Keynesian model is wrong and the supply-side model is right. PS. New Keynesian models actually do allow for some supply-side effects. Thus if you spend a lot on military goods, then workers will feel poorer, and therefore they will wish to work harder to maintain their living standards. Obviously this is not the sort of transmission mechanism that people like Paul Krugman and Wren-Lewis have in mind when advocating fiscal stimulus. HT: Ramesh Ponnuru, Stephen Kirchner (7 COMMENTS)

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11 января, 05:10

New models for macroeconomic policy

Recent economic events cast doubt on the standard macroeconomic models. This column looks at new economic models built on the idea that inequality and income risk matter for the business cycle and long-run outcomes. While still in their infancy, these models show promise in addressing the concerns about the old New Keynesian models, and in bringing about a shift in the way that macroeconomists think about aggregate fluctuations and stabilisation policy. 

11 января, 00:52

Deficits always matter, by Scott Sumner

Paul Krugman has a new post entitled "Deficits Matter Again": Not long ago prominent Republicans like Paul Ryan, the speaker of the House, liked to warn in apocalyptic terms about the dangers of budget deficits, declaring that a Greek-style crisis was just around the corner. But now, suddenly, those very same politicians are perfectly happy with the prospect of deficits swollen by tax cuts; the budget resolution they're considering would, according to their own estimates, add $9 trillion in debt over the next decade. Hey, no problem. He's right about the GOP hypocrisy, but I can't help noticing that the GOP is not the only group that changed their tune after the election. Unlike Krugman, I've consistently argued that deficits are not a good way of stimulating the economy, and that monetary policy should be used to assure the appropriate level of aggregate spending. Those apocalyptic warnings are still foolish: America, which borrows in its own currency and therefore can't run out of cash, isn't at all like Greece. But running big deficits is no longer harmless, let alone desirable. The way it was: Eight years ago, with the economy in free fall, I wrote that we had entered an era of "depression economics," in which the usual rules of economic policy no longer applied, in which virtue was vice and prudence was folly. In particular, deficit spending was essential to support the economy, and attempts to balance the budget would be destructive. This diagnosis -- shared by most professional economists -- didn't come out of thin air; it was based on well-established macroeconomic principles. Furthermore, the predictions that came out of those principles held up very well. In the depressed economy that prevailed for years after the financial crisis, government borrowing didn't drive up interest rates, money creation by the Fed didn't cause inflation, and nations that tried to slash budget deficits experienced severe recessions. That last sentence is incorrect. If you look at the group of nations with independent monetary policy, there is no correlation between (cyclically-adjusted) deficit reduction and growth. At the beginning of 2013, a letter signed by 350 Keynesians warned that fiscal austerity risked pushing the US into recession. Instead the deficit fell by nearly half, and economic growth actually sped up in calendar year 2013 (Q4 to Q4). The reason is simple---monetary offset. But these predictions were always conditional, applying only to an economy far from full employment. That was the kind of economy President Obama inherited; but the Trump-Putin administration will, instead, come into power at a time when full employment has been more or less restored. How do we know that we're close to full employment? The low official unemployment rate is just one indicator. What I find more compelling are two facts: Wages are finally rising reasonably fast, showing that workers have bargaining power again, and the rate at which workers are quitting their jobs, an indication of how confident they are of finding new jobs, is back to pre-crisis levels. What changes once we're close to full employment? Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and "crowds out" private investment. This isn't really the issue. To the extent that the Keynesian model allows fiscal stimulus to work, it is based on the zero bound issue, not the economy being deeply depressed. Thus in 1982 the economy was deeply depressed, but nowhere near the zero bound. Fiscal stimulus would have been almost completely ineffective at boosting demand (even in the New Keynesian model) because Paul Volcker would have tightened monetary policy enough to keep the economy on track for his low inflation goals. (Of course, there may have been supply-side effects.) One area where I do agree with Krugman is that economic slack is almost gone. In this recent MoneyIllusion post I also cited the acceleration in hourly wage growth. James Alexander contested this argument, pointing to more ambiguous data for weekly wage growth. But I like hourly wages best, because they are a particularly sticky variable. When the growth rate of hourly wages changes, it usually signals a disequilibrium in the labor market. (In fairness, James points to one case (2008) where they briefly gave a false signal. They probably are not the best forward looking indicator, but I do think they are one of the best indicators of the current condition of the labor market--perhaps with a slight lag. Krugman links to an earlier post that provided one argument for stimulus, even without much economic slack: Does this mean that the case for easy monetary and fiscal policies is over? No, but it's subtler now: it hinges mainly on the precautionary motive. Right now the economy looks OK, but things may change. Of course they could get better, but they could also get worse -- and the costs of weakness are much greater than those of unexpected strength, because we won't have a good policy response if it happens. What I mean is that because interest rates are still near zero, a bout of economic weakness can't be met with strong monetary expansion; and discretionary fiscal stimulus is politically hard, especially given who'll be running things. This strongly suggests that you want to build up some momentum, get further away from a lee shore, pick your metaphor; that means letting the economy build strength, inflation rise modestly. In this post I criticized this view. The Fed may want to raise its inflation target (although I prefer other reforms) but it should not overshoot an unchanged inflation target to build up ammunition against a potential zero bound problem. Doing so would make inflation even more procyclical, and make another recession more likely. Indeed excessive monetary stimulus in 2006 was one of the causes of the 2008 recession. It pushed inflation above target, and a couple year slater the Fed tightened to reduce inflation at the worst possible time. A better solution would be to switch to 4% NGDP level targeting. This would generate countercyclical inflation. (24 COMMENTS)

09 января, 22:46

Без заголовка

**Should-Read: Nils Gilman**: _[The Twin Insurgency][]_: "By the 1970s,... the social modernist states were increasingly failing to deliver [The Twin Insurgency]: http://www.the-american-interest.com/2014/06/15/the-twin-insurgency/ >...In the West, inflation eroded the technical foundations of the Bretton Woods financial order, and economic stagnation undermined the technocratic consensus in favor of Keynesian demand management and...

08 января, 12:11

Milton Friedman: The Compromise Candidate, by Emily Skarbek

As the economics job market is underway and the AEA meetings in Chicago wrap up today, it is perhaps apropos to recount how one of the leading figures of economics in the 20th century was hired. Milton Friedman is one of the few names synonymous with Chicago Economics. For many it would be easy to assume that he was a straightforward appointment when hired at University of Chicago in 1946. As it turns out, he was not. Friedman was the compromise candidate. Before a job offer was made to Milton Friedman, Chicago made offers to John Hicks, Albert Hart, and George Stigler. Offers were also approved for Lionel Robbins and Paul Samuelson. F.A. Hayek was proposed for a position in the department that same year. Had any combination of these appointments gone through, Chicago Economics would look distinctively different from what it became. In 1946, the economics department at University of Chicago was in transition. Jacob Viner left for Princeton and T. W. Schultz took over as head of department. Two loose factions of the department emerged along theoretical, methodological, and ideological divides. On the one hand, you had Frank Knight, Henry Simons, Lloyd Mints, and H. Gregg Lewis - Marshallian in theoretical leaning, appreciative of free markets, and emphasizing policy applications. On the other hand, you had Jacob Marschak and Tjalling Koopmans of the Cowles Commission - favoring economic planning, active government intervention, aggregate econometric modelling, and a Walrasian general equilibrium framework. Within this context, a new paper in the Journal of Political Economy by David Mitch gives a behind the scenes account of the hiring of Friedman drawing on detailed archival evidence. Using the Borda count method, on February 11, 1946, 12 members of the department cast votes. John Hicks was clearly the first choice, despite the Knight group favoring Stigler as a theorist and to teach the core graduate price theory course. Hicks declined and instead took an appointment at Oxford. Albert Hart was the second choice, but he had already committed to spend a year at Columbia and ended up staying. The remaining offer in the first round was made to George Stigler. The University's central administration famously vetoed Stigler's initial job offer and it wasn't until 1958 that he was attracted back to Chicago. With the department's first three picks off the table, Paul Samuelson and Milton Friedman were left. As the paper documents, the department wasn't just searching for the best economists. They were looking to make appointments that would define the field and what it meant to do economics at Chicago. In 1945, Henry Simons writes: Friedman is young, flexible, and available potentially for a wide variety of assignments. He is a first-rate economic theorist, economic statistician, and mathematical economist, and is intensely interested over the whole range of economic policy. ... Perhaps the best thing about Milton, apart from his technical abilities, is his capacity for working as part of a team. He is the gregarious kind of intellectual, anxious to try out all his ideas on his colleagues and to have them reciprocate. He would doubtless be worth his whole salary, if he neither taught nor published, simply for his contribution to other people's work and to the Department group as a whole. But he is also intensely interested in teaching, and far too industrious not to publish extensively. Our problem would be not that of finding ways to use him but that of keeping him from trying too many tasks and, especially, of leaving him enough time for his own research. Samuelson was particularly controversial. As Mitch details in the paper, "All four members of the Knight group ranked Samuelson as 5 out of 5, as did Kyrk and Harbison. On the other side, the Cowles group and affiliates (Marschak, Koopmans, Lange, and Douglas) along with Schultz all ranked Samuelson as second after Hicks..... The opposition to Samuelson seems to have been grounded as much in perceptions of his activist and Keynesian approach to government economic policy and his arrogant personality as on his formal, mathematical approach to economic theory or his technical approach to applying theory to policy issues." Marschak knew Friedman was ideologically free-market but argued that appointing him along with Samuelson "will just preserve the present dis-equilibrium. Since both are sincere thinkers and not shallow politicians, a hearty controversy between them will not do the harm it usually does between men who have more respect for faith than truth, and who refuse to face an argument if it threatens to lead to unpleasant conclusions." A memo likely by Simons written in early 1946 states, "Friedman is, I think, the most talented and promising of younger economists. His technical equipment (mathematical economics and statistics) is superlative. But Friedman has also an inordinately catholic interest in the whole range of economic policy and mature judgment on policy problems. Unlike other persons with comparable technical skills, he remains primarily interested in real policy problems and in political economic philosophy." It was arguably this mix of technical skills and serious policy interests that made Friedman viable as a compromise candidate. Clearly Samuelson and Friedman revolutionized economics in dramatically different ways. Their comparable Google scholar citation counts are stunning: Samuelson (99,856 citations / h-index: 106) and Friedman (123,649 citations / h-index: 96). There are also less measurable, arguably equally important ways of making an impact. One wrote the nation's economics textbooks for 30 years, the other had a much more immediate influence on policy and public discourse. A Google Ngram picks up some of this difference: For 2017 job candidates, two things are clear from this case study of inside baseball. For the candidate, there is a recipe to have in hand: (PhD + publications + teaching) + or - your personality = academic potential. Bring your A game. But there are always internal dynamics and differences in vision for future departmental development. You can't control what is going on behind closed doors and it really is often about finding the right "fit". May the odds be ever in your favor. (4 COMMENTS)

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07 января, 21:14

Keynesian Complexity

from Asad Zaman This continues the sequence of posts on re-reading Keynes. The fundamental point about the labor market which is made in Chapter 2 is that the micro level negotiations on wages between firms and laborers do not determine the real wage in the macro-economy. Before explaining this point in detail, we want to […]

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05 января, 11:06

Links for 01-05-17

What If US Importers and Exporters are Largely the Same? - Tim Taylor Medicaid expansion boosts Michigan's economy, pays for itself - EurekAlert The economic impact of Brexit-induced reductions in migration - VoxEU Two Trade Policy Terms to Remember: VER...

04 января, 21:03

Eurozone Inflation Up - But Not Enough For Draghi And The ECB To Stop Acting

We have yet another of those interesting little proofs which the recent economic bad times have given us. And again the proof is that a central contention of Keynesian economics is simply not so. For the monetary policy by the European Central Bank, all that QE and so on, has [...]

01 января, 01:12

2007 Krugman on Milton Friedman

Mathew Kahn: 2007 Krugman on Milton Friedman: As you read this direct Paul Krugman quote, do you hear this song in the background. "What’s odd about Friedman’s absolutism on the virtues of markets and the vices of government is that...

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31 декабря 2016, 11:06

Links for 12-31-16

Rethinking how the housing crisis happened - MIT Sloan A (Keynesian) Change Is in the Air - Baseline Scenari Understand the Energy Department Before Closing It - Noah Smith Grand Hotel Abyss - Understanding Society Free Market for Education? Economists...

28 декабря 2016, 15:30

«Одинокие ковбои» макроэкономической критики, или Почему борьба с инфляцией – не самоцель

А многие оценки и прогнозы экономистов зачастую являются безосновательными

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27 декабря 2016, 21:41

Keynes betrayed

from Lars Syll To complete the reconciliation of Keynesian economics with general equilibrium theory, Paul Samuelson introduced the neoclassical synthesis in 1955 … In this view of the world, high unemployment is a temporary phenomenon caused by the slow adjustment of money wages and money prices. In Samuelson’s vision, the economy is Keynesian in the […]

27 декабря 2016, 14:30

Military Keynesianism and the Military-Industrial Complex

from Jonathan Nitzan Theories of Military Keynesianism and the Military-Industrial Complex became popular after the Second World War, and perhaps for a good reason. The prospect of military demobilization, particularly in the United States, seemed alarming. The U.S. elite remembered vividly how soaring military spending had pulled the world out of the Great Depression, and it […]

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24 декабря 2016, 15:52

P7: GT02 Keynesian Unemployment

from Asad Zaman This 7th post in a series about re-reading Keynes, starts the discussion of Chapter 2 of General Theory, which deals with the Classical (and neoclassical) Postulates characterizing the Labor market. The astonishing fact is that Keynes central arguments regarding how the labor market can fail to be at equilibrium, despite flexible wages, […]

22 декабря 2016, 18:37

Economics is held in low repute, by Scott Sumner

Matt Yglesias has an excellent post discussing the views of Peter Navarro, who was just named head of Trump's National Trade Council: "When net exports are negative," Ross and Navarro write, "that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth." They believe that, therefore, we can boost growth by curtailing imports: To score the benefits of eliminating trade deficit drag, we don't need any complex computer model. We simply add up most (if not all) of the tax revenues and capital expenditures that would be gained if the trade deficit were eliminated. We have modeled only the impacts of implicit profits and wages, not any other economic aspect of the increased activity. Trump proposes eliminating America's $500 billion trade deficit through a combination of increased exports and reduced imports. Again assuming labor is 44 percent of GDP, eliminating the deficit would result in $220 billion of additional wages. This additional wage income would be taxed at an effective rate of 28 percent (including trust taxes), yielding additional tax revenues of $61.6 billion. Reading this, you might wonder why it is that in the real world, economists actually do try to develop complex computer models of the economy. The answer is that the alternative method Ross and Navarro are proposing doesn't even remotely work. A simple sanity check Here's a quick way to tell that something has gone wrong with the Ross/Navarro argument. Last year, the United States imported $180 billion worth of petroleum products -- oil and such. According to Ross and Navarro, if the United States made it illegal to import oil, thus wiping $180 billion off the trade deficit, our GDP would rise by $180 billion. With labor constituting 44 percent of GDP, that would mean about $80 billion worth of higher wages for American workers. So why doesn't Congress take this simple, easy step to boost growth and create jobs? Well, because it's ridiculous. Navarro and Ross are making the EC101 mistake of drawing causal implications from the famous GDP identity: GDP = C + I + G + (X - M) Students often assume that trade deficits subtract from GDP, because there is a minus sign attached to imports. What they forget is that the goods imported then show up as a positive in either the consumption of investment category. Navarro also seems to have forgotten this fact. Navarro's claim is not just wrong, it's nonsensical. Naming him to lead the NTC is akin to appointing an Energy Secretary who believes cold fusion can meet all our energy needs, or putting an astrologer in charge of NASA. But that is not how the pick will be viewed outside the economics community. Why not? I see a number of reasons: 1. Peter Navarro has good credentials. He's a Harvard educated economist who teaches at UC Irvine, a respected research university. 2. Other economists such as Paul Krugman have occasionally pointed to the trade deficit with China as a problem. 3. Economists often disagree about important issues like fiscal stimulus, supply side economics, the minimum wage, and the national debt. This leads outsiders to believe that economics is "not a science". As far as I know, leading economists (liberal and conservative) do agree that Navarro's reasoning is inaccurate. When people like Krugman have pointed to the issue of trade deficits, they've been careful to state that deficits are not generally a problem, but that measures to lower saving in surplus countries can shrink their surpluses and improve AD when the world is at the zero lower bound. Navarro is implicitly relying on an aggregate demand side argument. But with the Fed in the process of raising interest rates, it's not applicable to the US, even in the most primitive Keynesian model. To return to the example above, the neo-mercantilists believe that if we stopped imports from China, consumption would not decline. Instead all those toys and sneakers and iPhones would be built in America with American workers. But Janet Yellen has made it clear that the Fed regards 4.6% unemployment as roughly full employment, and any attempt by Trump to boost AD will be met with tighter money. The only way to boost output significantly is supply-side policies, and mercantilism is certainly not a supply-side policy. It's often said that all sciences are just "applied physics". But as systems get more complex, it becomes harder to make precise predictions. Thus when physics is applied to global warming, the predictions are less accurate than when used to derive the optimal orbit for a satellite. Hence global warming is a political issue in the way that NASA orbiting decisions are not. Obviously economics deals with a complex, hard to predict system, and is more akin to climate science than to simple physics. Economists are like the boy who cried wolf. By insisting that Keynesian stimulus is "science" and supply-side tax cuts are "voodoo", they have discredited themselves in the eyes of the public. When an actual charlatan comes along, no one will believe us. Especially since trade deficits do seem like a problem, from a common sense perspective. If we are unhappy with how we are viewed, then we first need to get our own house in order. PS. It's not at all clear that Navarro's ideas will actually be implemented. Some people believe that Trump is more likely to govern as a traditional Republican. The next four years will provide a test of the "Great Man" theory of history. I'm in the camp that believes presidents are far less consequential than most people assume. (18 COMMENTS)

21 декабря 2016, 19:30

Will Tax Cuts And More Federal Borrowing/Spending Fix What's Broken?

Submitted by Charles Hugh-Smith via OfTwoMinds blog, Solutions abound, but not within our centralized state-cartel neofeudal system. Not to rain on the new administration's parade, but one question needs to be asked of any new administration: will tax cuts and more federal borrowing/ spending fix what's broken in the U.S./global economy? The short answer: if tax cuts and more federal borrowing/ spending were the cure for what ails the economy, we'd have reached Paradise long ago. Stripped of partisan politics and rah-rah, tax cuts and more federal borrowing/ spending--on infrastructure, education, defense, healthcare, you name it--have been the de facto status quo policies of both parties for the past 70 years. Despite decades of these centralized, standard-issue Keynesian "fixes," the economy's structural ills are only getting worse. I outlined five of the most critical issues in What Have the "Experts" Gotten Right? In the Real Economy, They're 0 for 5 (December 20, 2016). Ultimately, two dynamics will dominate everything else: the paid work/earnings of non-elites and the transition from wasteful, debt-funded "growth" to a sustainable "Degrowth" economy. 45 years of Keynesian "stimulus"--tax cuts and federal borrowing/ spending--haven't stemmed the decline of labor's share of the economy (GDP). As these charts reveal, if labor's share of the economy was still at 50% rather than 42%, households with earnings from work would be getting an astounding $1.35 trillion more per year. This equates to an additional $10,800 per household, per year (there are roughly 125 million households in the U.S.) or about $100,000 per household per decade. Would you be better off if your household had been paid an extra $100,000 in the 10 years since 2007? I am guessing the answer is "yes." Is it mere coincidence that while labor's share of GDP declined by $1.35 trillion, corporate profits rose from $400 billion annually to $1.8 trillion? Garsh, do you reckon there's a connection? Another factor is the top 5%'s rising share of earnings. I call this the since I'm doing well, the economy is swell syndrome. The top 5% dominate the managerial class in the media, government, think tanks, foundations and corporate America, and from their perch high atop the centralized pyramid of wealth/power in America, things look just grand. Things look considerably different from the bottom of the pyramid. The Powers That Be have three basic fixes for every systemic ill: 1. Concentrate even more power and wealth in the central state 2. Borrow and blow a couple more trillion dollars 3. Guaranteed minimum income for the bottom 95%, which is a politically correct code phrase for: We're tossing you on the trash heap of society, making sure you have just enough cash to get to the dollar store or Wal-Mart and enough to scrape by so you won't rise up against your "betters" who own all the wealth and income streams. Sorry, but I think we can do better. In terms of aligning social-economic policy with the emerging economy, I think the real solutions are: 1. Decentralize / devolve power to regional metro areas, cities, towns, communities and neighborhoods. I explain how this works in my book Resistance, Revolution, Liberation: A Model for Positive Change. I'm not alone in seeing this as the only solution that aligns with the emerging economy. Consider The Most Disruptive Transformation in History: How the clustering of knowledge lays bare the need to devolve power from the nation-state to the city. 2. Align our educational system with the emerging economy and reduce the cost of higher education by 90%. Yes, I know, it can't be done, blah blah blah, we need our buggy whip industry, we'll perish without it, Baumol's Disease, etc. etc. etc. I explain how to revolutionize education in my book The Nearly Free University and the Emerging Economy. 3. Transform our sick, centralized culture of consumption to a vibrant healthy culture of productive entrepreneurism. As you have probably guessed, I lay out how to do this in my book Get a Job, Build a Real Career and Defy a Bewildering Economy. 4. Create capital and opportunity at the bottom of the pyramid where the 95% live rather than in the apex of the pyramid inhabited by the top .1%. I explain how this would work in my book A Radically Beneficial World: Automation, Technology and Creating Jobs for All. 5. Limit the power of privilege by creating multiple pathways from the low-opportunity disadvantaged class to the abundant-opportunity advantaged class. If you reckon I wrote a book on this, bingo: Inequality and the Collapse of Privilege. If you suffer from since I'm doing well, the economy is swell syndrome, I suggest taking a look at Why Our Status Quo Failed and Is Beyond Reform. Solutions abound, but not within our centralized state-cartel neofeudal system. "You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." R. Buckminster Fuller

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21 декабря 2016, 19:25

Why Y?

A professor emails me:My students have the pleasure to use your economics textbook. I have one question: where the symbol "Y" for GDP comes from? All the others, we could detect, such as NX , NCO, etc. My students are curious, and I could not give them a good answer.My unsatisfying response:To be honest, I don't know. It is an old convention to use Y to denote real GDP, and I am just following that. But I don't know where or why the convention began.If anyone knows the history and reason for this notation, please email me.Update 1: Several people email me that the usage goes back to the early Keynesians, which is certainly true. Others suggest that Y is the generic dependent variable, as in y=f(x), which seems an unlikely explanation to me. Still others point out that I is already used for investment, which is true but does not explain the choice of Y for income and output. Some say Y stands for "yield," which seems a useful mnemonic, but I have never seen that word used to describe GDP in a standard published source. So I still don't have a fully satisfying answer.Update 2: One person writes:I thought it was well understood that 'Y' is the symbol for real GDP because it is short for "Income" as in "National Income."  Since 'I' is already used for other macroeconomic variables, we use the letter that is phonemically or orthographically related to 'I,' namely 'Y' (which is known in languages like French and Spanish as "Greek i").Maybe this is the right answer, but one thing I am sure of is that this is not "well understood," at least not by readers of this blog, judging from the many other emails I received.Update 3: A Harvard student looks at the history: The earliest reference to GDP as "Y" I could find is Kalecki 1937. The first articles to formalize the IS-LM model (Hicks 1937, Harrod 1937, Meade 1937) all seem to refer to national income as "I" (for income), and Cobb Douglas (1928) calls it "P" (for production). I'd be curious to see if anyone can find an earlier reference to "Y" than Kalecki 1937. It appears there as Y=f(I) (income as a function of investment), which seems like a vote in favor of the y=f(x) argument (but I agree that's not a very satisfying explanation).

21 декабря 2016, 16:42

Без заголовка

**Should-Read: John Muellbauer**: _[Why Central Bank Models Failed. How to Repair Them][]_: "At the core of representative agent DSGE models is the Euler equation for consumption... [Why Central Bank Models Failed. How to Repair Them]: http://voxeu.org/article/why-central-bank-models-failed-and-how-repair-them >...popularised in the highly influential paper by Hall (1978)... essential to the iterative forward...

03 сентября 2016, 06:00

Antoniusaquinas.com: Джон Мейнард Кейнс “Общая теория”: Восемьдесят лет спустя

2016 год ознаменовал восьмидесятилетнюю годовщину публикации одной из самых влиятельных книг по теме экономики когда-либо увидевших свет. Эта книга – “Общая теория занятости, процента и денег” Джона Мейнарда Кейнса – нанесла непоправимый экономический и политический ущерб Западному миру и другим… читать далее → Запись Antoniusaquinas.com: Джон Мейнард Кейнс “Общая теория”: Восемьдесят лет спустя впервые появилась .

28 ноября 2014, 11:37

Владимир Мау, Алексей Улюкаев: Глобальный кризис и тенденции экономического развития

Глобальный кризис формирует экономико-политическую повестку. Она требует переосмысления многих выводов экономической теории и практики, которые до сих пор считались общепринятыми. В статье ректор Российской академии народного хозяйства и государственной службы при Президента РФ и Владимир Мау и Министр экономического развития РФ Алексей Улюкаев, опубликованной в журнале "Вопросы экономики" (11/2014) анализируют ключевые вопросы экономического развития на среднесрочную перспективу. В числе важных для формирования новой модели экономического поста проблем рассматриваются: темпы роста и вероятность долгосрочной стагнации, новые вызовы макроэкономической политики в связи с широким распространением ее нерадиационных инструментов, неравенство и экономический рост, контуры нового социального государства, перспективы глобализации,а также реиндустриализация в развитых странах. В. Мау , А. Улюкаев[1] Глобальный кризис и тенденции экономического развития* Аннотация на русском, ключевые слова, коды JEL Глобальные кризисы – общее и особенное Экономическое развитие ведущих стран определяется прежде всего предпосылками и характером глобального кризиса, который начался в 2008 г. и продолжается по настоящее время. Это кризис особого рода: он не описывается одним-двумя параметрами (например, спадом производства и ростом безработицы), а является многоаспектным, охватывая разные сферы социально-экономической жизни, и, как правило, имеет серьезные социально-политические последствия. Это системный кризис, и в этом отношении он аналогичен кризисам 1930-х и 1970-х годов (Мау, 2009). Разумеется, здесь не может быть прямых аналогий. Структурные кризисы уникальны, то есть опыт, накопленный в ходе преодоления каждого из них, практически нельзя использовать в новых условиях. Тем не менее есть ряд качественных характеристик, которые позволяют относить их к одному классу, то есть эти кризисы можно сравнивать, учитывать их особенности, но не прилагать рецепты антикризисной политики, эффективные в одном случае, к другому. Можно выделить следующие черты системных кризисов. Первое. Такой кризис одновременно и циклический и структурный. Он связан с серьезными институциональными и технологическими изменениями, со сменой технологической базы (некоторые экономисты используют термин «технологические уклады»). Эти изменения выводят экономику на качественно новый уровень эффективности и производительности труда. Системное обновление технологической базы на основе новейших достижений науки и техники – важнейшее условие успешного выхода из кризиса[2]. Второе. Существенным элементом системного кризиса выступает финансовый кризис. Именно наложение последнего на собственно экономический кризис (спад производства и падение занятости) затрудняет выход из него, обусловливает необходимость проведения комплекса структурных и институциональных реформ для выхода на траекторию устойчивого роста. Третье. Неизбежным результатом кризиса выступает формирование новой модели экономического роста: она предполагает структурную модернизацию как развитых, так и развивающихся стран, что связано с созданием новых технологических драйверов. Возникновение новых отраслей и секторов реального производства, их географическое перемещение по миру определяют новую глобальную экономическую реальность и одновременно создают предпосылки для появления новых вызовов и инструментов экономической политики. Эту тенденцию хорошо отражает появившийся в 2009 г. термин «новая нормальность» – newnormal (Улюкаев, 2009). Четвертое. Отметим серьезные геополитические и геоэкономические сдвиги, формирование новых балансов сил (отдельных стран и регионов) в мировой политике. В начале кризиса можно было предположить, что он приведет к закреплению двухполярной модели, на сей раз основанной на противостоянии США и Китая, которых иногда обозначают как G2 – «большую двойку» (Brzezinski, 2009), а Н. Фергюсон назвал «Кимерикой» (Chimerica = China + America; см.: Ferguson, 2008). Однако постепенно все отчетливее проступают контуры многополярного мира, который хотя и не отрицает наличия двух-трех ключевых экономических центров, на практике означает возврат к хорошо известной по XIX в. модели «концерта стран», балансирующих интересы друг друга. С поправкой на нынешние реалии речь может идти, скорее, о балансе интересов ключевых региональных группировок. Пятое. В ходе системного кризиса происходит смена модели регулирования социально-экономических процессов. В 1930-е годы завершился переход к индустриальной стадии развития и закрепились идеология и практика «большого государства», сопровождаемого ростом налогов, бюджетных расходов, государственной собственности и планирования, а в некоторых случаях – и государственного ценообразования. Напротив, кризис 1970-х годов привел к масштабной либерализации и дерегулированию, к снижению налогов и приватизации – словом, к тому, чего требовал переход к постиндустриальной технологической фазе. В начале последнего кризиса создавалось впечатление, что мир вновь вернется к модели, основанной на доминирующей роли государства в экономике (появился даже термин «примитивное кейнсианство» – Crass-Keynesianism). Практика, впрочем, пока не подтверждает такую тенденцию. Роль государственного регулирования действительно возрастает, однако это относится преимущественно к сфере регулирования финансовых рынков на национальном и глобальном уровнях. Действительно, в настоящее время важнейшим противоречием выступает конфликт между глобальным характером финансов и национальными рамками их регулирования. Важно выработать механизм регулирования глобальных финансов в отсутствие глобального правительства. Шестое. Системный кризис ставит на повестку дня вопрос о новой мировой финансовой архитектуре. В результате кризиса 1930-х годов сформировался мир с одной резервной валютой – долларом. После 1970-х годов сложилась бивалютная система (доллар и евро). Направление эволюции валютных систем после новейшего кризиса пока не определилось. Можно предположить усиление роли юаня, а также региональных резервных валют, если значение региональных группировок в мировом балансе сил возрастет. Множественность резервных валют могла бы поддержать тенденцию к многополярности мира и способствовать росту ответственности денежных властей соответствующих стран (поскольку резервные валюты будут конкурировать между собой). Седьмое. Начнет формироваться новая экономическая доктрина, новый мейнстрим в науке (по аналогии с кейнсианством и неолиберализмом в ХХ в.). Из всего сказанного вытекают важные выводы относительно перспектив преодоления системного кризиса и соответствующих механизмов. Во-первых, системный кризис связан с масштабным интеллектуальным вызовом, требующим глубокого переосмысления его причин, механизмов развертывания и путей преодоления. Как генералы всегда готовятся к войнам прошлого,  так и политики и экономисты готовятся к прошлым кризисам. До поры до времени это срабатывает, пока приходится иметь дело с экономическим циклом, то есть с повторяющимися проблемами экономической динамики. Поэтому сначала для борьбы с системным кризисом пытаются применить методы, известные из прошлого опыта. Применительно к 1930-м годам – это стремление правительства Г. Гувера (прежде всего его министра финансов Э. Меллона) не вмешиваться в естественный ход событий, жестко балансировать бюджет и укреплять денежную систему, основанную на золотом стандарте. Как свидетельствовал опыт предшествующих 100 лет, кризисы обычно рассасывались примерно за год и никакой специальной политики для этого не требовалось. Аналогично в 1970-е годы с началом кризиса попытались задействовать традиционные для того момента методы кейнсианского регулирования (бюджетное стимулирование в условиях замедления темпов роста и даже государственный контроль за ценами в исполнении республиканской администрации Р. Никсона), но это обернулось скачком инфляции и началом стагфляционных процессов. К системным кризисам плохо применимы подходы экономической политики, выработанные в предыдущие десятилетия. Возникает слишком много новых проблем, изначально не ясны механизмы развертывания кризиса и выхода из него, его масштабы и продолжительность. В ХХ в. на преодоление системных кризисов требовалось порядка десяти лет. Именно на это обстоятельство указывал П. Волкер, когда в июле 1979 г., в разгар предыдущего системного кризиса, вступил в должность руководителя ФРС: «Мы столкнулись с трудностями, которые до сих пор еще не встречались в нашей практике. У нас больше нет эйфории…, когда мы возомнили, что знаем ответы на все вопросы, касающиеся управления экономикой». Во-вторых, системный кризис не сводится к рецессии, росту безработицы или панике вкладчиков банков. Он состоит из ряда эпизодов и волн, охватывающих отдельные секторы экономики, страны и регионы. Это предопределяет его продолжительность – примерно десятилетие, которое можно назвать турбулентным. Более того, статистические данные могут неточно или даже неадекватно отражать происходящие в экономике процессы. Сам факт технологического обновления может искажать (причем существенно) динамику производства, поскольку новые секторы сначала плохо учитываются традиционной статистикой. Проблемы создает и статистика занятости. Если в ходе циклического кризиса одним из важных показателей его преодоления выступает рост занятости, то при системном кризисе этот критерий действует лишь в конечном счете. Технологическое обновление предполагает качественно новые требования к трудовым ресурсам, то есть серьезные структурные изменения на рынке труда. Поэтому для выхода из системного кризиса характерно запаздывающее восстановление занятости, когда высокая безработица сохраняется на фоне экономического роста. Возникает своеобразный конфликт между новой экономикой и старой статистикой, и для его разрешения требуется определенное время. В-третьих, нельзя преодолеть системный кризис лишь мерами макроэкономической политики, макроэкономического регулирования при всей важности бюджетных и денежно-