Softpanorama

May the source be with you, but remember the KISS principle ;-)
Contents Bulletin Scripting in shell and Perl Network troubleshooting History Humor

Numbers racket,"Potemkin numbers" and fake metrics

"Proofiness" as symmetric form of the term "truthiness"

News Bookshelf Recommended books Recommended Links NAIRU Destructive cult of  GDP Propaganda of Shareholder Value
Mathiness -- Mathematical Masturbations in Economics Lies, Damn Lies and Statistics Fake Employment Statistics Slightly skeptical view on core CPI Corruption of FED Productivity Myth and "Rising labor costs" hypocrisy  
Externality - Wikipedia, Wall Street Propaganda Machine Audatioues Oligarchy and Loss of Trust Famous quotes of John Kenneth Galbraith Grey Cardinal of Washington Financial Humor Etc

As noted in Bailout Nation, reliance on garbage data was one of the contributing factors in one of the world’s greatest economic catastrophes of all time. "Garbage in -- garbage out" rule holds in economics as well as in natural sciences.

One of the largest enablers of recent financial crisis were compromised data that distorts the true facts. In old days the word "data" usually has a meaning "raw data".  If it was already massaged for some reason  it was considered output of some model.  The more it was  massaged, the more exceptions were introduced to the model, the further they got away from what the raw data was initially conveying.

With the advent of computers this situation dramatically changed. As a result, a supposedly informed investor is not really informed at all, if the "data" he is basing his decisions on has been changed in ways the investor is unaware of. As a result, the "data" becomes useless; however, damage is done because people continued  making decisions based on the "data" available, making faulty decisions on defective data. This is a scary situation considering where we are financially and economically, not only in the USA, but also around the world.

In Proofiness- The Dark Arts of Mathematical Deception  Charles Seife introduces term "proofiness" as symmetric form of the term "truthiness" — the Word of the Year in 2005, according to the American Dialect Society, which defined it as "the quality of preferring concepts or facts one wishes to be true, rather than concepts or facts known to be true." The term was popularized by Stephen Colbert in the first episode of "The Colbert Report."

Proofiness id "the art of using bogus mathematical arguments to prove something that you know in your heart is true — even when it’s not."

Falsifying numbers is the crudest form of proofiness. Seife lays out a rogues’ gallery of more subtle deceptions.

"Potemkin numbers" are phony statistics based on erroneous or nonexistent calculations.

Justice Antonin Scalia’s assertion that only 0.027 percent of convicted felons are wrongly imprisoned was a Potemkin number derived from a prosecutor’s back-of-the-envelope estimate; more careful studies suggest the rate might be between 3 and 5 percent.

"Potemkin numbers" are phony statistics based on erroneous or nonexistent calculations.

One of the largest enablers to the economic crisis we find ourselves in today is compromised data that distorts the true facts. For example Greenspan's adherence to 'core CPI' took the asset inflation out of the picture. the latter was one of the major contribution of Fed to the dot-com crush and later housing bubble.

I have always viewed the word "data" as meaning raw data. It is whatever it is period. In my mind, it is no longer considered "data" if someone has already massaged it for some reason or another.

The "data" should always remain as raw data; because the more it is massaged to take in more and more exceptions to the model, it gets further and further away from what the raw data was initially conveying.

As pointed out in this post, a supposedly informed investor is not really informed at all, if the "data" he is basing his decisions on has been changed in ways the investor is unaware of. As a result, the "data" becomes useless; however, damage is done because everyone making decisions based on that "data" is making faulty decisions on defective data. This is a scary thought considering where we are financially and economically, not only in this Country but around the world.

Most large enterprise statistics also can't be trusted and margin of error is at least 20% (if not more ;-). And large corporations do fudge numbers as a matter of policy (bonus preservation strategy ;-), no question about it. The situation essentially became much like in the USSR. All tricks from Gerstner book of games with pension fund, 401K contributions and health insurance premiums (and more) are used.  For example quality of earlining is typically very low. Based on my very limited experience large companies are still cutting everything to the bones to preserve profitability. Short-termism prevails. As a result customer service often became third world class. Or you can navigate the maze of automatic voice menus' until you drop without reaching human operator.

See also:

mathiness

‘mathiness’ is economists' misuse of mathematics to justify their pet theories. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.

kbaa, The Irate Plutokrat

It is good to see Krugman write in opposition to ‘mathiness’, economists' misuse of mathematics to justify their pet theories. And his suggestion that ‘behavioral economics doesn’t provide anything like as much guidance as it should’ is probably as close to an admission as we are ever likely to get from an academic economist that it’s human psychology that drives the economy after all, and that all of the various high minded macroeconomics theories are nothing more than propaganda to be used by lobbyists who present them as scholarship.

Economics is a subject that is driven by data, i.e. numbers. Wherever there are numbers there is always the possibility of misusing mathematics to intimidate. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.

NB For those who have never studied Calculus, “Euler” is pronounced “oiler”, but there’s no connection with the price of oil or any other commodity, and don’t let any academic economist try to tell you otherwise.


Top Visited
Switchboard
Latest
Past week
Past month

NEWS CONTENTS

Old News ;-)

[Dec 15, 2017] Neoliberalism undermines workers health not only via the financial consequences of un/under employment and low wages, but also through chronic exposure to stress due to insecurity

Neoliberalism as "Die-now economics." "Embodiment into lower class" or "the representation as a member the lower class" if often fatal and upper mobility mobility is artificially limited (despite all MSM hype it is lower then in Europe). So just being a member of lower class noticeably and negatively affects your life expectancy and other social metrics. Job insecurity is the hazard reserved for lower and lower middle classes destructivly effect both physical and mental health. Too much stress is not good for humans. Neoliberalism with its manta of competition uber alles and atomization of the workforce is a real killer. also the fact that such article was published and the comments below is a clear sign that the days of neoliberalism are numbered. It should go.
Notable quotes:
"... In our new book , we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies. Focusing on the social determinants of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives, while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity, stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. ..."
"... Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment, inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in biologically measurable ways . ..."
"... Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction." In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children, families, household work ). So, even if class in our political economy is the driver, it's not everything. ..."
"... "Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning. ..."
"... Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve." ..."
"... As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we" are not possible because we have all become "I". ..."
"... Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is at once belittling (it's all about f-e-e-e-lings ..."
"... "we have measurable health outcomes from political choices" So True!!! ..."
Dec 12, 2017 | www.nakedcapitalism.com

...Neoliberal epidemics are particular pathways of embodiment. From Ted Schrecker and Clare Bambra in The Conversation :

In our new book , we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies. Focusing on the social determinants of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives, while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity, stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. They are epidemics because they are observable on such an international scale and have been transmitted so quickly across time and space that if they were biological contagions they would be seen as of epidemic proportions.

(The Case-Deaton study provides an obvious fifth: Deaths of despair. There are doubtless others.) Case in point for one of the unluckier members of the 90%:

On the morning of 25 August 2014 a young New Jersey woman, Maria Fernandes, died from inhaling gasoline fumes as she slept in her 13-year-old car. She often slept in the car while shuttling between her three, low-wage jobs in food service; she kept a can of gasoline in the car because she often slept with the engine running, and was worried about running out of gasoline. Apparently, the can accidentally tipped over and the vapours from spilled gasoline cost her life. Ms Fernandes was one of the more obvious casualties of the zero-hours culture of stress and insecurity that pervades the contemporary labour market under neoliberalism.

And Schrecker and Bambra conclude:

Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment, inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in biologically measurable ways .

... ... ...

Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction." In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children, families, household work ). So, even if class in our political economy is the driver, it's not everything.

nonclassical , December 11, 2017 at 8:30 pm

L.S. reminiscent of Ernst Becker's, "The Structure of Evil" – "Escape from Evil"? (..not to indicate good vs. evil dichotomy) A great amount of perspective must be agreed upon to achieve "change" intoned. Divide and conquer are complicit, as noted .otherwise (and as indicated by U.S. economic history) change arrives only when all have lost all and can therefore agree begin again.

There is however, Naomi Klein perspective, "Shock Doctrine", whereby influence contributes to destabilization, plan in hand leading to agenda driven ("neoliberal"=market fundamentalism) outcome, not at all spontaneous in nature:

"Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve."

Amfortas the Hippie , December 11, 2017 at 4:20 pm

Well done, as usual.

On Case-Deason: Sounds like home. I keep the scanner on(local news) ems and fire only since 2006(sheriff got a homeland security grant). The incidence of suicide, overdose and "intoxication psychosis" are markedly increased in the last 10+ years out here in the wilderness(5K folks in whole county, last I looked). Our local economy went into near depression after the late 90's farm bill killed the peanut program then 911 meant no hunting season that year(and it's been noticeably less busy ever since) then drought and the real estate crash(we had 30 some realtors at peak..old family land being sold off, mostly). So the local Bourgeoisie have had less money to spend, which "trickles down" onto the rest of us.:less construction, less eating out even at the cheap places, less buying of gas, and on and on means fewer employees are needed, thus fewer jobs. To boot, there is a habit among many employers out here of not paying attention to labor laws(it is Texas ) the last minwage rise took 2 years to filter out here, and one must scrutinize one's pay stub to ensure that the boss isn't getting squirrelly with overtime and witholding.
Geography plays into all this, too 100 miles to any largish city.

... ... ...

Rosario , December 11, 2017 at 10:55 pm

I'm not well versed in Foucault or Lacan but I've read some of both and in reading between the lines of their writing (the phantom philosophy?) I saw a very different message than that often delivered by post-modern theorists.

As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we" are not possible because we have all become "I".

Considering what both their philosophies claimed, if identity is a lie, and the subject is always generated relative to the other, then how the hell can there be any security or well being in self-actualization? It is like trying to hit a target that does not exist.

All potentially oppressive cultural categorizations are examples of this (black, latino, gay, trans, etc.). If the identity is a moving target, both to the oppressor and the oppressed, then how can it ever be a singular source of political action? You can't hit what isn't there. This is not to say that these groups (in whatever determined category) are not oppressed, just that formulating political action based strictly on the identity (often as an essential category) is impossible because it does not actually exist materially. It is an amalgamation of subjects who's subjectivity is always relative to some other whether ally or oppressor. Only the manifestations of oppression on bodies (as brought up in Lambert's post) can be utilized as metrics for political action.

... ... ...

Lambert Strether Post author , December 11, 2017 at 11:20 pm

I thought of a couple of other advantages of the "embodiment" paradigm:

Better Framing . Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is at once belittling (it's all about f-e-e-e-lings *) and disempowering (solutions are individual, like therapy or drugs). Embodiment by contrast insists that neoliberalism (the neoliberal labor market (class warfare)) has real, material, physiological effects that can be measured and tracked, as with any epidemic.

... ... ...

oaf , December 12, 2017 at 7:11 am

"we have measurable health outcomes from political choices" So True!!!

Thank you for posting this.

[Dec 13, 2017] Stress of long-term unemployment takes a toll on thousands of Jerseyans who are out of work by Leslie Kwoh

Notable quotes:
"... Leslie Kwoh may be reached at lkwoh@starledger.com or (973) 392-4147. ..."
Jun 13, 2010 | www.nj.com

At 5:30 every morning, Tony Gwiazdowski rolls out of bed, brews a pot of coffee and carefully arranges his laptop, cell phone and notepad like silverware across the kitchen table.

And then he waits.

Gwiazdowski, 57, has been waiting for 16 months. Since losing his job as a transportation sales manager in February 2009, he wakes each morning to the sobering reminder that, yes, he is still unemployed. So he pushes aside the fatigue, throws on some clothes and sends out another flurry of resumes and cheery cover letters.

But most days go by without a single phone call. And around sundown, when he hears his neighbors returning home from work, Gwiazdowski -- the former mayor of Hillsborough -- can't help but allow himself one tiny sigh of resignation.

"You sit there and you wonder, 'What am I doing wrong?'" said Gwiazdowski, who finds companionship in his 2-year-old golden retriever, Charlie, until his wife returns from work.

"The worst moment is at the end of the day when it's 4:30 and you did everything you could, and the phone hasn't rung, the e-mails haven't come through."

Gwiazdowski is one of a growing number of chronically unemployed workers in New Jersey and across the country who are struggling to get through what is becoming one long, jobless nightmare -- even as the rest of the economy has begun to show signs of recovery.

Nationwide, 46 percent of the unemployed -- 6.7 million Americans -- have been without work for at least half a year, by far the highest percentage recorded since the U.S. Labor Department began tracking the data in 1948.

In New Jersey, nearly 40 percent of the 416,000 unemployed workers last year fit that profile, up from about 20 percent in previous years, according to the department, which provides only annual breakdowns for individual states. Most of them were unemployed for more than a year.

But the repercussions of chronic unemployment go beyond the loss of a paycheck or the realization that one might never find the same kind of job again. For many, the sinking feeling of joblessness -- with no end in sight -- can take a psychological toll, experts say.

Across the state, mental health crisis units saw a 20 percent increase in demand last year as more residents reported suffering from unemployment-related stress, according to the New Jersey Association of Mental Health Agencies.

"The longer the unemployment continues, the more impact it will have on their personal lives and mental health," said Shauna Moses, the association's associate executive director. "There's stress in the marriage, with the kids, other family members, with friends."

And while a few continue to cling to optimism, even the toughest admit there are moments of despair: Fear of never finding work, envy of employed friends and embarassment at having to tell acquaintances that, nope, still no luck.

"When they say, 'Hi Mayor,' I don't tell a lot of people I'm out of work -- I say I'm semi-retired," said Gwiazdowski, who maxed out on unemployment benefits several months ago.

"They might think, 'Gee, what's wrong with him? Why can't he get a job?' It's a long story and maybe people really don't care and now they want to get away from you."


SECOND TIME AROUND

Lynn Kafalas has been there before, too. After losing her computer training job in 2000, the East Hanover resident took four agonizing years to find new work -- by then, she had refashioned herself into a web designer.

That not-too-distant experience is why Kafalas, 52, who was laid off again eight months ago, grows uneasier with each passing day. Already, some of her old demons have returned, like loneliness, self-doubt and, worst of all, insomnia. At night, her mind races to dissect the latest interview: What went wrong? What else should she be doing? And why won't even Barnes & Noble hire her?

"It's like putting a stopper on my life -- I can't move on," said Kafalas, who has given up karate lessons, vacations and regular outings with friends. "Everything is about the interviews."

And while most of her friends have been supportive, a few have hinted to her that she is doing something wrong, or not doing enough. The remarks always hit Kafalas with a pang.

In a recent study, researchers at Rutgers University found that the chronically unemployed are prone to high levels of stress, anxiety, depression, loneliness and even substance abuse, which take a toll on their self-esteem and personal relationships.

"They're the forgotten group," said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers, and a co-author of the report. "And the longer you are unemployed, the less likely you are to get a job."

Of the 900 unemployed workers first interviewed last August for the study, only one in 10 landed full-time work by March of this year, and only half of those lucky few expressed satisfaction with their new jobs. Another one in 10 simply gave up searching.

Among those who were still unemployed, many struggled to make ends meet by borrowing from friends or family, turning to government food stamps and forgoing health care, according to the study.

More than half said they avoided all social contact, while slightly less than half said they had lost touch with close friends. Six in 10 said they had problems sleeping.

Kafalas says she deals with her chronic insomnia by hitting the gym for two hours almost every evening, lifting weights and pounding the treadmill until she feels tired enough to fall asleep.

"Sometimes I forget what day it is. Is it Tuesday? And then I'll think of what TV show ran the night before," she said. "Waiting is the toughest part."


AGE A FACTOR

Generally, the likelihood of long-term unemployment increases with age, experts say. A report by the National Employment Law Project this month found that nearly half of those who were unemployed for six months or longer were at least 45 years old. Those between 16 and 24 made up just 14 percent.

Tell that to Adam Blank, 24, who has been living with his girlfriend and her parents at their Martinsville home since losing his sales job at Best Buy a year and half ago.

Blank, who graduated from Rutgers with a major in communications, says he feels like a burden sometimes, especially since his girlfriend, Tracy Rosen, 24, works full-time at a local nonprofit. He shows her family gratitude with small chores, like taking out the garbage, washing dishes, sweeping floors and doing laundry.

Still, he often feels inadequate.

"All I'm doing on an almost daily basis is sitting around the house trying to keep myself from going stir-crazy," said Blank, who dreams of starting a social media company.

When he is feeling particularly low, Blank said he turns to a tactic employed by prisoners of war in Vietnam: "They used to build dream houses in their head to help keep their sanity. It's really just imagining a place I can call my own."


LESSONS LEARNED

Meanwhile, Gwiazdowski, ever the optimist, says unemployment has taught him a few things.

He has learned, for example, how to quickly assess an interviewer's age and play up or down his work experience accordingly -- he doesn't want to appear "threatening" to a potential employer who is younger. He has learned that by occasionally deleting and reuploading his resume to job sites, his entry appears fresh.

"It's almost like a game," he said, laughing. "You are desperate, but you can't show it."

But there are days when he just can't find any humor in his predicament -- like when he finishes a great interview but receives no offer, or when he hears a fellow job seeker finally found work and feels a slight twinge of jealousy.

"That's what I'm missing -- putting on that shirt and tie in the morning and going to work," he said.

The memory of getting dressed for work is still so vivid, Gwiazdowski says, that he has to believe another job is just around the corner.

"You always have to hope that that morning when you get up, it's going to be the day," he said.

"Today is going to be the day that something is going to happen."

Leslie Kwoh may be reached at lkwoh@starledger.com or (973) 392-4147.

DrBuzzard Jun 13, 2010

I collect from the state of iowa, was on tier I and when the gov't recessed without passing extension, iowa stopped paying tier I claims that were already open, i was scheduled to be on tier I until july 15th, and its gone now, as a surprise, when i tried to claim my week this week i was notified. SURPRISE, talk about stress.

berganliz Jun 13, 2010

This is terrible....just wait until RIF'd teachers hit the unemployment offices....but then, this is what NJ wanted...fired teachers who are to blame for the worst recession our country has seen in 150 years...thanks GWB.....thanks Donald Rumsfeld......thanks Dick Cheney....thanks Karl "Miss Piggy" Rove...and thank you Mr. Big Boy himself...Gov Krispy Kreame!

rp121 Jun 13, 2010

For readers who care about this nation's unemployed- Call your Senators to pass HR 4213, the "Extenders" bill. Unfortunately, it does not add UI benefits weeks, however it DOES continue the emergency federal tiers of UI. If it does not pass this week many of us are cut off at 26 wks. No tier 1, 2 -nothing.

[Dec 13, 2017] Unemployment health hazard and stress

The longer you are unemployed, the more you are effected by those factors.
Notable quotes:
"... The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects. ..."
"... Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system. ..."
"... Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises. ..."
"... Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem. ..."
"... One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available. ..."
"... Depression is universally hated by anyone who's ever had it. ..."
"... Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either. ..."
"... You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard. ..."
Dec 13, 2017 | www.cvtips.com

It's almost impossible to describe the various psychological impacts, because there are so many. There are sometimes serious consequences, including suicide, and, some would say worse, chronic depression.

There's not really a single cause and effect. It's a compound effect, and unemployment, by adding stress, affects people, often badly.

The world doesn't need any more untrained psychologists, and we're not pretending to give medical advice. That's for professionals. Everybody is different, and their problems are different. What we can do is give you an outline of the common problems, and what you can do about them.

The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects.

For others, there are a series of issues, and the big three are:

Stress

Stress is Stage One. It's a natural result of the situation. Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system.

Over an extended period, the body's natural hormonal balances are affected, and this can lead to problems. These are actually physical issues, but the effects are mental, and the first obvious effects are, naturally, emotional.

Anger, and other negative emotions

Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises.

If the actual situation was already bad, this mental state makes it a lot worse. Constant aggravation doesn't help people to keep a sense of perspective. Clear thinking isn't easy when under constant stress.

Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem.

One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available.

If you have reservations about seeking help, bear in mind it can't possibly be any worse than the problem.

Depression

Depression is universally hated by anyone who's ever had it. This is the next stage, and it's caused by hormonal imbalances which affect serotonin. It's actually a physical problem, but it has mental effects which are sometimes devastating, and potentially life threatening.

The common symptoms are:

It's a disgusting experience. No level of obscenity could possibly describe it. Depression is misery on a level people wouldn't conceive in a nightmare. At this stage the patient needs help, and getting it is actually relatively easy. It's convincing the person they need to do something about it that's difficult. Again, the mental state is working against the person. Even admitting there's a problem is hard for many people in this condition.

Generally speaking, a person who is trusted is the best person to tell anyone experiencing the onset of depression to seek help. Important: If you're experiencing any of those symptoms:

Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either.

Alcohol, in particular, makes depression much worse. Alcohol is a depressant, itself, and it's also a nasty chemical mix with all those stress hormones.

If you've ever had alcohol problems, or seen someone with alcohol wrecking their lives, depression makes things about a million times worse.

Just don't do it. Steer clear of any so-called stimulants, because they don't mix with antidepressants, either.

Unemployment and staying healthy

The above is what you need to know about the risks of unemployment to your health and mental well being.

These situations are avoidable.

Your best defense against the mental stresses and strains of unemployment, and their related problems is staying healthy.

We can promise you that is nothing less than the truth. The healthier you are, the better your defenses against stress, and the more strength you have to cope with situations.

Basic health is actually pretty easy to achieve:

Diet

Eat real food, not junk, and make sure you're getting enough food. Your body can't work with resources it doesn't have. Good food is a real asset, and you'll find you don't get tired as easily. You need the energy reserves.

Give yourself a good selection of food that you like, that's also worth eating.

The good news is that plain food is also reasonably cheap, and you can eat as much as you need. Basic meals are easy enough to prepare, and as long as you're getting all the protein veg and minerals you need, you're pretty much covered.

You can also use a multivitamin cap, or broad spectrum supplements, to make sure you're getting all your trace elements. Also make sure you're getting the benefits of your food by taking acidophilus or eating yogurt regularly.

Exercise

You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard.

Don't just sit and suffer

If anything's wrong, check it out when it starts, not six months later. Most medical conditions become serious when they're allowed to get worse.

For unemployed people the added risk is also that they may prevent you getting that job, or going for interviews. If something's causing you problems, get rid of it.

Nobody who's been through the blender of unemployment thinks it's fun.

Anyone who's really done it tough will tell you one thing:

Don't be a victim. Beat the problem, and you'll really appreciate the feeling.

[Dec 12, 2017] Can Uber Ever Deliver Part Eleven Annual Uber Losses Now Approaching $5 Billion

Notable quotes:
"... Total 2015 gross passenger payments were 200% higher than 2014, but Uber corporate revenue improved 300% because Uber cut the driver share of passenger revenue from 83% to 77%. This was an effective $500 million wealth transfer from drivers to Uber's investors. ..."
"... Uber's P&L gains were wiped out by higher non-EBIDTAR expense. Thus the 300% Uber revenue growth did not result in any improvement in Uber profit margins. ..."
"... In 2016, Uber unilaterally imposed much larger cuts in driver compensation, costing drivers an additional $3 billion. [6] Prior to Uber's market entry, the take home pay of big-city cab drivers in the US was in the $12-17/hour range, and these earnings were possible only if drivers worked 65-75 hours a week. ..."
"... An independent study of the net earnings of Uber drivers (after accounting for the costs of the vehicles they had to provide) in Denver, Houston and Detroit in late 2015 (prior to Uber's big 2016 cuts) found that driver earnings had fallen to the $10-13/hour range. [7] Multiple recent news reports have documented how Uber drivers are increasing unable to support themselves from their reduced share of passenger payments. [8] ..."
"... Since mass driver defections would cause passenger volume growth to collapse completely, Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017. ..."
"... Socialize the losses, privatize the gains, VC-ize the subsidies. ..."
"... The cold hard truth is that Uber is backed into a corner with severely limited abilities to tweak the numbers on either the supply or the demand side: cut driver compensation and they trigger driver churn (as has already been demonstrated), increase fare prices for riders and riders defect to cheaper alternatives. ..."
"... "Growth and Efficiency" are the sine qua non of Neoliberalism. Kalanick's "hype brilliance" was to con the market with "revenue growth" and signs ..."
Dec 12, 2017 | www.nakedcapitalism.com

Uber lost $2.5 billion in 2015, probably lost $4 billion in 2016, and is on track to lose $5 billion in 2017.

The top line on the table below shows is total passenger payments, which must be split between Uber corporate and its drivers. Driver gross earnings are substantially higher than actual take home pay, as gross earning must cover all the expenses drivers bear, including fuel, vehicle ownership, insurance and maintenance.

Most of the "profit" data released by Uber over time and discussed in the press is not true GAAP (generally accepted accounting principles) profit comparable to the net income numbers public companies publish but is EBIDTAR contribution. Companies have significant leeway as to how they calculate EBIDTAR (although it would exclude interest, taxes, depreciation, amortization) and the percentage of total costs excluded from EBIDTAR can vary significantly from quarter to quarter, given the impact of one-time expenses such as legal settlements and stock compensation. We only have true GAAP net profit results for 2014, 2015 and the 2nd/3rd quarters of 2017, but have EBIDTAR contribution numbers for all other periods. [5]

Uber had GAAP net income of negative $2.6 billion in 2015, and a negative profit margin of 132%. This is consistent with the negative $2.0 billion loss and (143%) margin for the year ending September 2015 presented in part one of the NC Uber series over a year ago.

No GAAP profit results for 2016 have been disclosed, but actual losses likely exceed $4 billion given the EBIDTAR contribution of negative $3.2 billion. Uber's GAAP losses for the 2nd and 3rd quarters of 2017 were over $2.5 billion, suggesting annual losses of roughly $5 billion.

While many Silicon Valley funded startups suffered large initial losses, none of them lost anything remotely close to $2.6 billion in their sixth year of operation and then doubled their losses to $5 billion in year eight. Reversing losses of this magnitude would require the greatest corporate financial turnaround in history.

No evidence of significant efficiency/scale gains; 2015 and 2016 margin improvements entirely explained by unilateral cuts in driver compensation, but losses soared when Uber had to reverse these cuts in 2017.

Total 2015 gross passenger payments were 200% higher than 2014, but Uber corporate revenue improved 300% because Uber cut the driver share of passenger revenue from 83% to 77%. This was an effective $500 million wealth transfer from drivers to Uber's investors. These driver compensation cuts improved Uber's EBIDTAR margin, but Uber's P&L gains were wiped out by higher non-EBIDTAR expense. Thus the 300% Uber revenue growth did not result in any improvement in Uber profit margins.

In 2016, Uber unilaterally imposed much larger cuts in driver compensation, costing drivers an additional $3 billion. [6] Prior to Uber's market entry, the take home pay of big-city cab drivers in the US was in the $12-17/hour range, and these earnings were possible only if drivers worked 65-75 hours a week.

An independent study of the net earnings of Uber drivers (after accounting for the costs of the vehicles they had to provide) in Denver, Houston and Detroit in late 2015 (prior to Uber's big 2016 cuts) found that driver earnings had fallen to the $10-13/hour range. [7] Multiple recent news reports have documented how Uber drivers are increasing unable to support themselves from their reduced share of passenger payments. [8]

A business model where profit improvement is hugely dependent on wage cuts is unsustainable, especially when take home wages fall to (or below) minimum wage levels. Uber's primary focus has always been the rate of growth in gross passenger revenue, as this has been a major justification for its $68 billion valuation. This growth rate came under enormous pressure in 2017 given Uber efforts to raise fares, major increases in driver turnover as wages fell, [9] and the avalanche of adverse publicity it was facing.

Since mass driver defections would cause passenger volume growth to collapse completely, Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017.

MKS , December 12, 2017 at 6:19 am

"Uber's business model can never produce sustainable profits"

Two words not in my vocabulary are "Never" and "Always", that is a pretty absolute statement in an non-absolute environment. The same environment that has produced the "Silicon Valley Growth Model", with 15x earnings companies like NVIDA, FB and Tesla (Average earnings/stock price ratio in dot com bubble was 10x) will people pay ridiculous amounts of money for a company with no underlying fundamentals you damn right they will! Please stop with the I know all no body knows anything, especially the psychology and irrationality of markets which are made up of irrational people/investors/traders.

JohnnySacks , December 12, 2017 at 7:34 am

My thoughts exactly. Seems the only possible recovery for the investors is a perfectly engineered legendary pump and dump IPO scheme. Risky, but there's a lot of fools out there and many who would also like to get on board early in the ride in fear of missing out on all the money to be hoovered up from the greater fools. Count me out.

SoCal Rhino , December 12, 2017 at 8:30 am

The author clearly distinguishes between GAAP profitability and valuations, which is after all rather the point of the series. And he makes a more nuanced point than the half sentence you have quoted without context or with an indication that you omitted a portion. Did you miss the part about how Uber would have a strong incentive to share the evidence of a network effect or other financial story that pointed the way to eventual profit? Otherwise (my words) it is the classic sell at a loss, make it up with volume path to liquidation.

tegnost , December 12, 2017 at 9:52 am

apples and oranges comparison, nvidia has lots and lots of patented tech that produces revenue, facebook has a kajillion admittedly irrational users, but those users drive massive ad sales (as just one example of how that company capitalizes itself) and tesla makes an actual car, using technology that inspires it's buyers (the put your money where your mouth is crowd and it can't be denied that tesla, whatever it's faults are, battery tech is not one of them and that intellectual property is worth a lot, and tesla's investors are in on that real business, profitable or otherwise)

Uber is an iphone app. They lose money and have no path to profitability (unless it's the theory you espouse that people are unintelligent so even unintelligent ideas work to fleece them). This article touches on one of the great things about the time we now inhabit, uber drivers could bail en masse, there are two sides to the low attachment employees who you can get rid of easily. The drivers can delete the uber app as soon as another iphone app comes along that gets them a better return

allan , December 12, 2017 at 6:52 am

Yet another source (unintended) of subsidies for Uber, Lyft, etc., which might or might not have been mentioned earlier in the series:

Airports Are Losing Money as Ride-Hailing Services Grow [NYT]

For many air travelers, getting to and from the airport has long been part of the whole miserable experience. Do they drive and park in some distant lot? Take mass transit or a taxi? Deal with a rental car?

Ride-hailing services like Uber and Lyft are quickly changing those calculations. That has meant a bit less angst for travelers.

But that's not the case for airports. Travelers' changing habits, in fact, have begun to shake the airports' financial underpinnings. The money they currently collect from ride-hailing services do not compensate for the lower revenues from the other sources.

At the same time, some airports have had to add staff to oversee the operations of the ride-hailing companies, the report said. And with more ride-hailing vehicles on the roads outside terminals,
there's more congestion.

Socialize the losses, privatize the gains, VC-ize the subsidies.

Thuto , December 12, 2017 at 6:55 am

The cold hard truth is that Uber is backed into a corner with severely limited abilities to tweak the numbers on either the supply or the demand side: cut driver compensation and they trigger driver churn (as has already been demonstrated), increase fare prices for riders and riders defect to cheaper alternatives. The only question is how long can they keep the show going before the lights go out, slick marketing and propaganda can only take you so far, and one assumes the dumb money has a finite supply of patience and will at some point begin asking the tough questions.

Louis Fyne , December 12, 2017 at 8:35 am

The irony is that Uber would have been a perfectly fine, very profitable mid-sized company if Uber stuck with its initial model -- sticking to dense cities with limited parking, limiting driver supply, and charging a premium price for door-to-door delivery, whether by livery or a regular sedan. And then perhaps branching into robo-cars.

But somehow Uber/board/Travis got suckered into the siren call of self-driving cars, triple-digit user growth, and being in the top 100 US cities and on every continent.

Thuto , December 12, 2017 at 11:30 am

I've shared a similar sentiment in one of the previous posts about Uber. But operating profitably in decent sized niche doesn't fit well with ambitions of global domination. For Uber to be "right-sized", an admission of folly would have to be made, its managers and investors would have to transcend the sunk cost fallacy in their strategic decision making, and said investors would have to accept massive hits on their invested capital. The cold, hard reality of being blindsided and kicked to the curb in the smartphone business forced RIM/Blackberry to right-size, and they may yet have a profitable future as an enterprise facing software and services company. Uber would benefit from that form of sober mindedness, but I wouldn't hold my breath.

David Carl Grimes , December 12, 2017 at 6:57 am

The question is: Why did Softbank invest in Uber?

Michael Fiorillo , December 12, 2017 at 9:33 am

I know nothing about Softbank or its management, but I do know that the Japanese were the dumb money rubes in the late '80's, overpaying for trophy real estate they lost billions on.

Until informed otherwise, that's my default assumption

JimTan , December 12, 2017 at 10:50 am

Softbank possibly looking to buy more Uber shares at a 30% discount is very odd. Uber had a Series G funding round in June 2016 where a $3.5 billion investment from Saudi Arabia's Public Investment Fund resulted in its current $68 billion valuation. Now apparently Softbank wants to lead a new $6 billion funding round to buy the shares of Uber employees and early investors at a 30% discount from this last "valuation". It's odd because Saudi Arabia's Public Investment Fund has pledged $45 billion to SoftBank's Vision Fund , an amount which was supposed to come from the proceeds of its pending Aramco IPO. If the Uber bid is linked to SoftBank's Vision Fund, or KSA money, then its not clear why this investor might be looking to literally 'double down' from $3.5 billion o $6 billion on a declining investment.

Yves Smith Post author , December 12, 2017 at 11:38 am

SoftBank has not yet invested. Its tender is still open. If it does not get enough shares at a price it likes, it won't invest.

As to why, I have no idea.

Robert McGregor , December 12, 2017 at 7:04 am

"Growth and Efficiency" are the sine qua non of Neoliberalism. Kalanick's "hype brilliance" was to con the market with "revenue growth" and signs of efficiency, and hopes of greater efficiency, and make most people just overlook the essential fact that Uber is the most unprofitable company of all time!

divadab , December 12, 2017 at 7:19 am

What comprises "Uber Expenses"? 2014 – $1.06 billion; 2015 $3.33 billion; 2016 $9.65 billion; forecast 2017 $11.418 billion!!!!!! To me this is the big question – what are they spending $10 billion per year on?

ALso – why did driver share go from 68% in 2016 to 80% in 2017? If you use 68% as in 2016, 2017 Uber revenue is $11.808 billion, which means a bit better than break-even EBITDA, assuming Uber expenses are as stated $11.428 billion.

Perhaps not so bleak as the article presents, although I would not invest in this thing.

Phil in Kansas City , December 12, 2017 at 7:55 am

I have the same question: What comprises over 11 billion dollars in expenses in 2017? Could it be they are paying out dividends to the early investors? Which would mean they are cannibalizing their own company for the sake of the VC! How long can this go on before they'll need a new infusion of cash?

lyman alpha blob , December 12, 2017 at 2:37 pm

The Saudis have thrown a few billion Uber's way and they aren't necessarily known as the smart money.

Maybe the pole dancers have started chipping in too as they are for bitcoin .

Vedant Desai , December 12, 2017 at 10:37 am

Oh article does answer your 2nd question. Read this paragraph:-

Since mass driver defections would cause passenger volume growth to collapse completely , Uber was forced to reverse these cuts in 2017 and increased the driver share from 68% to 80%. This meant that Uber's corporate revenue, which had grown over 300% in 2015 and over 200% in 2016 will probably only grow by about 15% in 2017.

As for the 1st, read this line in the article:-

There are undoubtedly a number of things Uber could do to reduce losses at the margin, but it is difficult to imagine it could suddenly find the $4-5 billion in profit improvement needed merely to reach breakeven.

Louis Fyne , December 12, 2017 at 8:44 am

in addition to all the points listed in the article/comments, the absolute biggest flaw with Uber is that Uber HQ conditioned its customers on (a) cheap fares and (b) that a car is available within minutes (1-5 if in a big city).

Those two are not mutually compatible in the long-term.

Alfred , December 12, 2017 at 9:49 am

Thus (a) "We cost less" and (b) "We're more convenient" -- aren't those also the advantages that Walmart claims and feeds as a steady diet to its ever hungry consumers? Often if not always, disruption may repose upon delusion.

Martin Finnucane , December 12, 2017 at 11:06 am

Uber's business model could never produce sustainable profits unless it was able to exploit significant anti-competitive market power.

Upon that dependent clause hangs the future of capitalism, and – dare I say it? – its inevitable demise.

Altandmain , December 12, 2017 at 11:09 am

When this Uber madness blows up, I wonder if people will finally begin to discuss the brutal reality of Silicon Valley's so called "disruption".

It is heavily built in around the idea of economic exploitation. Uber drivers are often, especially when the true costs to operate an Uber including the vehicle depreciation are factored in, making not very much per hour driven, especially if they don't get the surge money.

Instacart is another example. They are paying the deliver operators very little.

Jim A. , December 12, 2017 at 12:21 pm

At a fundamental level, I think that the Silicon Valley "disruption" model only works for markets (like software) where the marginal cost for production is de minimus and the products can be protected by IP laws. Volume and market power really work in those cases. But out here in meat-space, where actual material and labor are big inputs to each item sold, you can never just sit back on your laurels and rake in the money. Somebody else will always be able to come and and make an equivalent product. If they can do it more cheaply, you are in trouble.

Altandmain , December 12, 2017 at 5:40 pm

There aren't that many areas in goods and services where the marginal costs are very low.

Software is actually quite unique in that regard, costing merely the bandwidth and permanent storage space to store.

Let's see:

1. From the article, they cannot go public and have limited ways to raise more money. An IPO with its more stringent disclosure requirements would expose them.

2. They tried lowering driver compensation and found that model unsustainable.

3. There are no benefits to expanding in terms of economies of scale.

From where I am standing, it looks like a lot of industries gave similar barriers. Silicon Valley is not going to be able to disrupt those.

Tesla, another Silicon Valley company seems to be struggling to mass produce its Model 3 and deliver an electric car that breaks even, is reliable, while disrupting the industry in the ways that Elon Musk attempted to hype up.

So that basically leaves services and manufacturing out for Silicon Valley disruption.

Joe Bentzel , December 12, 2017 at 2:19 pm

UBER has become a "too big to fail" startup because of all the different tentacles of capital from various Tier 1 VCs and investment bankers.

VCs have admitted openly that UBER is a subsidized business, meaning it's product is sold below market value, and the losses reflect that subsidization. The whole "2 sided platform" argument is just marketecture to hustle more investors. It's a form of service "dumping" that puts legacy businesses into bankruptcy. Back during the dotcom bubble one popular investment banker (Paul Deninger) characterized this model as "Terrorist Competition", i.e. coffers full of invested cash to commoditize the market and drive out competition.

UBER is an absolute disaster that has forked the startup model in Silicon Valley in order to drive total dependence on venture capital by founders. And its current diversification into "autonomous vehicles", food delivery, et al are simply more evidence that the company will never be profitable due to its whacky "blitzscaling" approach of layering on new "businesses" prior to achieving "fit" in its current one.

It's economic model has also metastasized into a form of startup cancer that is killing Silicon Valley as a "technology" innovator. Now it's all cargo cult marketing BS tied to "strategic capital".

UBER is the victory of venture capital and user subsidized startups over creativity by real entrepreneurs.

It's shadow is long and that's why this company should be ..wait for it UNBUNDLED (the new silicon valley word attached to that other BS religion called "disruption"). Call it a great unbundling and you can break up this monster corp any way you want.

Naked Capitalism is a great website.

Phil in KC , December 12, 2017 at 3:20 pm

1. I Agree with your last point.

2. The elevator pitch for Uber: subsidize rides to attract customers, put the competition out of business, and then enjoy an unregulated monopoly, all while exploiting economically ignorant drivers–ahem–"partners."

3. But more than one can play that game, and

4. Cab and livery companies are finding ways to survive!

Phil in KC , December 12, 2017 at 3:10 pm

If subsidizing rides is counted as an expense, (not being an accountant, I would guess it so), then whether the subsidy goes to the driver or the passenger, that would account for the ballooning expenses, to answer my own question. Otherwise, the overhead for operating what Uber describes as a tech company should be minimal: A billion should fund a decent headquarters with staff, plus field offices in, say, 100 U.S. cities. However, their global pretensions are probably burning cash like crazy. On top of that, I wonder what the exec compensation is like?

After reading HH's initial series, I made a crude, back-of-the-envelope calculation that Uber would run out of money sometime in the third fiscal quarter of 2018, but that was based on assuming losses were stabilizing in the range of 3 billion a year. Not so, according to the article. I think crunch time is rapidly approaching. If so, then SoftBank's tender offer may look quite appetizing to VC firms and to any Uber employee able to cash in their options. I think there is a way to make a re-envisioned Uber profitable, and with a more independent board, they may be able to restructure the company to show a pathway to profitability before the IPO. But time is running out.

A not insignificant question is the recruitment and retention of the front line "partners." It would seem to me that at some point, Uber will run out of economically ignorant drivers with good manners and nice cars. I would be very interested to know how many drivers give up Uber and other ride-sharing gigs once the 1099's start flying at the beginning of the year. One of the harsh realities of owning a business or being an contractor is the humble fact that you get paid LAST!

Jan Stickle , December 12, 2017 at 5:00 pm

We became instant Uber riders while spending holidays with relatives in San Diego. While their model is indeed unique from a rider perspective, it was the driver pool that fascinates me. These are not professional livery drivers, but rather freebooters of all stripes driving for various reasons. The remuneration they receive cannot possibly generate much income after expenses, never mind the problems associated with IRS filing as independent contractors.

One guy was just cruising listening to music; cooler to get paid for it than just sitting home! A young lady was babbling and gesticulating non stop about nothing coherent and appeared to be on some sort of stimulant. A foreign gentleman, very professional, drove for extra money when not at his regular job. He was the only one who had actually bought a new Prius for this gig, hoping to pay it off in two years.

This is indeed a brave new world. There was a period in Nicaragua just after the Contra war ended when citizens emerged from their homes and hit the streets in large numbers, desperately looking for income. Every car was a taxi and there was a bipedal mini Walmart at every city intersection as individuals sold everything and anything in a sort of euphoric optimism towards the future. Reality just hadn't caught up with them yet .

[Nov 22, 2017] Unemployment is Miserable and Doesn't Spawn an Upsurge in Personal Creativity

Notable quotes:
"... By Bill Mitchell, Professor in Economics and Director of the Centre of Full Employment and Equity at the University of Newcastle, NSW, Australia. Originally published at billy blog ..."
"... The overwhelming importance of having a job for happiness is evident throughout the analysis, and holds across all of the world's regions. ..."
"... The pattern of human concerns ..."
"... The pattern of human concerns ..."
"... Journal of Happiness Studies ..."
"... The results show the differences between having a job and being unemployed are "very large indeed" on the three well-being measures (life evaluation, positive and negative affective states). ..."
"... Psychological Bulletin ..."
"... 1. "unemployment tends to make people more emotionally unstable than they were previous to unemployment". ..."
"... 2. The unemployed experience feelings of "personal threat"; "fear"; "sense of proportion is shattered"; loss of "common sense of values"; "prestige lost in own eyes and as he imagines, in the eyes of his fellow men"; "feelings of inferiority"; loss of "self-confidence" and a general loss of "morale". ..."
"... in the light of the structure of our society where the job one holds is the prime indicator of status and prestige. ..."
"... Psychological Bulletin ..."
"... Related studies found that the "unemployed become so apathetic that they rarely read anything". Other activities, such as attending movies etc were seen as being motivated by the need to "kill time" – "a minimal indication of the increased desire for such attendance". ..."
"... In spite of hopeless attempts the unemployed continually look for work, often going back again and again to their last place of work. Other writers reiterate this point. ..."
"... The non-pecuniary effects of not having a job are significant in terms of lost status, social alienation, abandonment of daily structure etc, and that has not changed much over history. ..."
"... I think what is missing from this article is the term "identity." If you meet new people, often the conversation starts with what you do for a living. Your identity, in part, is what you do. You can call yourself a plumber, a writer, a banker, a consultant, a reporter but the point is this is part of your identity. When you lose your job long term, your identity here loses one of its main anchor points. ..."
"... This is a crucial point that UBI advocates often ignore. There is a deeply entrenched cultural bias towards associating our work status with our general status and prestige and feelings of these standings. ..."
"... When unemployed, the stress of worry about money may suppress the creative juices. Speaking from experience. People may well 'keep looking for jobs' because they know ultimately they need a job with steady income. The great experience of some freelancers notwithstanding, not all are cut out for it. ..."
"... When considering the world's population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed. ..."
"... Data like that provided by Mitchell is important to demolishing the horrid "economic anxiety" frame much beloved by liberals, especially wonkish Democrats.* It's not (a) just feelings , to be solved by scented candles or training (the liberal version of rugged individualism) and (b) the effects are real and measurable. It's not surprising, when you think about it, that the working class is about work . ..."
Nov 22, 2017 | www.nakedcapitalism.com

Posted on November 21, 2017 by Yves Smith Yves here. Reader UserFriendly sent this post with the message, "I can confirm this." I can too. And before you try to attribute our reactions to being Americans, note that the study very clearly points out that its finding have been confirmed in "all of the world's regions".

By Bill Mitchell, Professor in Economics and Director of the Centre of Full Employment and Equity at the University of Newcastle, NSW, Australia. Originally published at billy blog

Here is a summary of another interesting study I read last week (published March 30, 2017) – Happiness at Work – from academic researchers Jan‐Emmanuel De Neve and George Ward. It explores the relationship between happiness and labour force status, including whether an individual is employed or not and the types of jobs they are doing. The results reinforce a long literature, which emphatically concludes that people are devastated when they lose their jobs and do not adapt to unemployment as its duration increases. The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. Further, they do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose. The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support. The overwhelming conclusion is that "work makes up such an important part of our lives" and that result is robust across different countries and cultures. Being employed leads to much higher evaluations of the quality of life relative to being unemployed. And, nothing much has changed in this regard over the last 80 or so years. These results were well-known in the 1930s, for example. They have a strong bearing on the debate between income guarantees versus employment guarantees. The UBI proponents have produced no robust literature to refute these long-held findings.

While the 'Happiness Study' notes that "the relationship between happiness and employment is a complex and dynamic interaction that runs in both directions" the authors are unequivocal:

The overwhelming importance of having a job for happiness is evident throughout the analysis, and holds across all of the world's regions. When considering the world's population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed. The importance of having a job extends far beyond the salary attached to it, with non-pecuniary aspects of employment such as social status, social relations, daily structure, and goals all exerting a strong influence on people's happiness.

And, the inverse:

The importance of employment for people's subjective wellbeing shines a spotlight on the misery and unhappiness associated with being unemployed.

There is a burgeoning literature on 'happiness', which the authors aim to contribute to.

They define happiness as "subjective well-being", which is "measured along multiple dimensions":

life evaluation (by way of the Cantril "ladder of life"), positive and negative affect to measure respondents' experienced positive and negative wellbeing, as well as the more domain-specific items of job satisfaction and employee engagement. We find that these diverse measures of subjective wellbeing correlate strongly with each other

Cantril's 'Ladder of Life Scale' (or "Cantril Ladder") is used by polling organisations to assess well-being. It was developed by social researcher Hadley Cantril (1965) and documented in his book The pattern of human concerns .

You can learn more about the use of the 'Cantril Ladder' HERE .

As we read, the "Cantril Self-Anchoring Scale consists of the following":

Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time? (ladder-present) On which step do you think you will stand about five years from now? (ladder-future)

[Reference: Cantril, H. (1965) The pattern of human concerns , New Brunswick, Rutgers University Press.]

Christian Bjørnskov's 2010 article – How Comparable are the Gallup World Poll Life Satisfaction Data? – also describes how it works.

[Reference: Bjørnskov, C. (2010) 'How Comparable are the Gallup World Poll Life Satisfaction Data?', Journal of Happiness Studies , 11 (1), 41-60.]

The Cantril scale is usually reported as values between 0 and 10.

The authors in the happiness study use poll data from 150 nations which they say "is representative of 98% of the world's population". This survey data is available on a mostly annual basis since 2006.

The following graph (Figure 1 from the Study) shows "the self-reported wellbeing of individuals around the world according to whether or not they are employed."

The "bars measure the subjective wellbeing of individuals of working age" by employment status .

The results show the differences between having a job and being unemployed are "very large indeed" on the three well-being measures (life evaluation, positive and negative affective states).

People employed "evaluate the quality of their lives around 0.6 points higher on average as compared to the unemployed on a scale from 0 to 10."

The authors also conduct more sophisticated (and searching) statistical analysis (multivariate regression) which control for a range of characteristics (gender, age, education, marital status, composition of household) as well as to "account for the many political, economic, and cultural differences between countries as well as year-to-year variation".

The conclusion they reach is simple:

the unemployed evaluate the overall state of their lives less highly on the Cantril ladder and experience more negative emotions in their day-to-day lives as well as fewer positive ones. These are among the most widely accepted and replicated findings in the science of happiness Here, income is being held constant along with a number of other relevant covariates, showing that these unemployment effects go well beyond the income loss associated with losing one's job.

These results are not surprising. The earliest study of this sort of outcome was from the famous study published by Philip Eisenberg and Paul Lazersfeld in 1938. [Reference: Eisenberg, P. and Lazarsfeld, P. (1938) 'The psychological effects of unemployment', Psychological Bulletin , 35(6), 358-390.]

They explore four dimensions of unemployment:

I. The Effects of Unemployment on Personality.

II. Socio-Political Attitudes Affected by Unemployment.

III. Differing Attitudes Produced by Unemployment and Related Factors.

IV. The Effects of Unemployment on Children and Youth.

On the first dimension, they conclude that:

1. "unemployment tends to make people more emotionally unstable than they were previous to unemployment".

2. The unemployed experience feelings of "personal threat"; "fear"; "sense of proportion is shattered"; loss of "common sense of values"; "prestige lost in own eyes and as he imagines, in the eyes of his fellow men"; "feelings of inferiority"; loss of "self-confidence" and a general loss of "morale".

Devastation, in other words. They were not surprised because they note that:

in the light of the structure of our society where the job one holds is the prime indicator of status and prestige.

This is a crucial point that UBI advocates often ignore. There is a deeply entrenched cultural bias towards associating our work status with our general status and prestige and feelings of these standings. That hasn't changed since Eisenberg and Lazersfeld wrote up the findings of their study in 1938.

It might change over time but that will take a long process of re-education and cultural shift. Trying to dump a set of new cultural values that only a small minority might currently hold to onto a society that clearly still values work is only going to create major social tensions. Eisenberg and Lazarsfeld also considered an earlier 1937 study by Cantril who explored whether "the unemployed tend to evolve more imaginative schemes than the employed".

[Reference: Cantril, H. (1934) 'The Social Psychology of Everyday Life', Psychological Bulletin , 31, 297-330.]

The proposition was (is) that once unemployed, do people then explore new options that were not possible while working, which deliver them with the satisfaction that they lose when they become jobless. The specific question asked in the research was: "Have there been any changes of interests and habits among the unemployed?" Related studies found that the "unemployed become so apathetic that they rarely read anything". Other activities, such as attending movies etc were seen as being motivated by the need to "kill time" – "a minimal indication of the increased desire for such attendance".

On the third dimension, Eisenberg and Lazersfeld examine the questions – "Are there unemployed who don't want to work? Is the relief situation likely to increase this number?", which are still a central issue today – the bludger being subsidized by income support.

They concluded that:

the number is few. In spite of hopeless attempts the unemployed continually look for work, often going back again and again to their last place of work. Other writers reiterate this point.

So for decades, researchers in this area, as opposed to bloggers who wax lyrical on their own opinions, have known that the importance of work in our lives goes well beyond the income we earn. The non-pecuniary effects of not having a job are significant in terms of lost status, social alienation, abandonment of daily structure etc, and that has not changed much over history. The happiness paper did explore "how short-lived is the misery associated with being out of work" in the current cultural settings.

The proposition examined was that:

If the pain is only fleeting and people quickly get used to being unemployed, then we might see joblessness as less of a key public policy priority in terms of happiness.

They conclude that:

a number of studies have demonstrated that people do not adapt much, if at all, to being unemployed there is a large initial shock to becoming unemployed, and then as people stay unemployed over time their levels of life satisfaction remain low . several studies have shown that even once a person becomes re-employed, the prior experience of unemployment leaves a mark on his or her happiness.

So there is no sudden or even medium-term realisation that being jobless endows the individual with a new sense of freedom to become their creative selves, freed from the yoke of work. To bloom into musicians, artists, or whatever.

The reality is that there is an on-going malaise – a deeply entrenched sense of failure is overwhelming, which stifles happiness and creativity, even after the individual is able to return to work.

This negativity, borne heavily by the individual, however, also impacts on society in general.

The paper recognises that:

A further canonical finding in the literature on unemployment and subjective wellbeing is that there are so-called "spillover" effects.

High levels of unemployment "increase fear and heighten the sense of job insecurity". Who will lose their job next type questions?

The researchers found in their data that the higher is the unemployment rate the greater the anxiety among those who remain employed.

Conclusion

The overwhelming conclusion is that "work makes up such an important part of our lives" and that result is robust across different countries and cultures.

Being employed leads to much higher evaluations of the quality of life relative to being unemployed.

The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. They do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose.

The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support.

Modern Monetary Theory (MMT) allows us to understand that it is the government that chooses the unemployment rate – it is a political choice.

For currency-issuing governments it means their deficits are too low relative to the spending and saving decisions of the non-government sector.

For Eurozone-type nations, it means that in surrendering their currencies and adopting a foreign currency, they are unable to guarantee sufficient work in the face of negative shifts in non-government spending. Again, a political choice.

The Job Guarantee can be used as a vehicle to not only ensure their are sufficient jobs available at all times but also to start a process of wiping out the worst jobs in the non-government sector.

That can be done by using the JG wage to ensure low-paid private employers have to restructure their workplaces and pay higher wages and achieve higher productivity in order to attract labour from the Job Guarantee pool.

The Series So Far

This is a further part of a series I am writing as background to my next book with Joan Muysken analysing the Future of Work . More instalments will come as the research process unfolds.

The series so far:

  1. When Austrians ate dogs .
  2. Employment as a human right .
  3. The rise of the "private government .
  4. The evolution of full employment legislation in the US .
  5. Automation and full employment – back to the 1960s .
  6. Countering the march of the robots narrative .
  7. Unemployment is miserable and does not spawn an upsurge in personal creativity .

The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of my next book due in 2018. The book will likely be published by Edward Elgar (UK).

That is enough for today!

divadab , November 21, 2017 at 6:11 am

Perhaps I'm utterly depressed but I haven't had a job job for over 5 years. Plenty of work, however, more than I can handle and it requires priorisation. But I am deliberately not part of the organized herd. I stay away from big cities – it's scary how managed the herd is in large groups – and I suppose that unemployment for a herd animal is rather distressing as it is effectively being kicked out of the herd.

Anyway my advice, worth what you pay for it but let he who has ears, etc. – is to go local, very local, grow your own food, be part of a community, manage your own work, and renounce the energy feast herd dynamics. "Unemployment", like "recession", is a mechanism of control. Not very practical advice for most, I realize, trapped in the herd as they are in car payments and mortgages, but perhaps aspirational?

The Rev Kev , November 21, 2017 at 6:35 am

I think what is missing from this article is the term "identity." If you meet new people, often the conversation starts with what you do for a living. Your identity, in part, is what you do. You can call yourself a plumber, a writer, a banker, a consultant, a reporter but the point is this is part of your identity. When you lose your job long term, your identity here loses one of its main anchor points.

Worse, there is a deliberate stigma attached with being long term unemployed. In that article you have seen the word bludger being used. In parts of the US I have read of the shame of 'living off the county'. And yes, I have been there, seen that, and got the t-shirt. It's going to be interesting as mechanization and computers turn large portions of the population from workers to 'gig' workers. Expect mass demoralization.

nonclassical , November 21, 2017 at 10:24 am

yes the lives many of us have lived, no longer exist though we appear not notice, as we "can" live in many of same "ways" ..rather well known psychologist defined some 40 years ago, best to "drop through cracks"

jrs , November 21, 2017 at 12:13 pm

Well, you also lose money, maybe you become homeless etc. as you have nowhere else to turn (if there are kids involved to support it gets even scarier though there are some programs). Or maybe you become dependent on another person(s) to support you which is of course degrading as you know you must rely on them to live, whether it's a spouse or lover when you want to work and bring in money, or mom and dads basement, or the kindest friend ever who lets you sleep on their couch. I mean these are the things that really matter.

Privileged people whose main worry in unemployment would be losing identity, wow out of touch much? Who cares about some identity for parties, but the ability to have a stable decent life (gig work hardly counts) is what is needed.

sgt_doom , November 21, 2017 at 2:20 pm

I believe your comment sums up the situation the best -- and most realistically.

jgordon , November 21, 2017 at 7:08 pm

I normally wouldn't comment like this, but you have brought up some extremely important points about identity that I would like to address.

Recently I had the most intense mushroom experience of my entire life–so intense that my identity had been completely stripped and I was left in a formless state, at the level of seeing my bare, unvarnished animal neural circuitry in operation. Suddenly with a flash of inspiration I realized that the identity of everyone, all of us, is inextricably tied up in what we do and what we do for other people.

Following from that, I understood that if we passively rely on others for survival, whether it be relying on friends, family, or government, then we do not have an identity or reason for existing. And the inner self, the animal core of who we are, will realise this lack of identity (even if the concious mind denies it), and will continually generate feelings of profound depression and intense nihilism that will inevitably destroy us if the root cause is not addressed.

Before this experience I was somewhat ambivalent about my politics, but immediately after I knew that the political right was correct on everything important, from attitudes on sex to economic philosophy. People need a core of cultural stability and hard work to grow and become actualized. The alternative is rudderless dissatisfaction and envy that leads nowhere.

On the topic of giving "out of kindnes and goodwill", giving without demanding anything in return is a form of abuse, as it deprives those who receive our feel-good generosity the motivation to form a coherent identity. If the parents of a basement-dweller were truly good people, instead of supporting said dweller they'd drag her out by the ear and make her grow food in the yard or some such. Likewise, those who have supported you without also giving concrete demands and expecations in return have been unkind, and for your own good I hope that you will immediately remove yourself from their support. On the other hand, if you have been thoughtlessly giving because it warms the cockles of your heart, then stop it now. You are ruining other people this way, and if your voting habits are informed by this kind of malevolence I'd encourage you to change those as well.

Anyway the original poster is right about everything. Working and having a purpose in life is an entirely different animal from making money and being "successful" in the government-sponsored commercial economy. Society and government deliberately try to conflate the two for various reasons, primarily graft of labor and genius, but that is only a deliberate mis-framing that needlessly harms people when the mainstream economic system is in catastrophic decline, as ours is today. You should try to clear up this misconception within yourself as a way of getting better.

Well, I hope this message can give you a few different thoughts and help you find your way out of the existential angst you're caught in. Don't wallow in helplessness. Think of something useful to do, anything, whether it earns you money or not, and go out and start doing it. You'll be surprised at how much better you feel about yourself in no time.

skippy , November 22, 2017 at 12:45 am

The problem is you said – I – had an extreme experience [burning bush], the truth was reviled to – I – and I alone during this extreme chemically altered state. Which by the way just happens to conform to a heap of environmental biases I collected. This is why sound methodology demands peer review. disheveled some people think Mister Toads Wild ride at Disneyland on psychotropics is an excellent adventure too.

Jeremy Grimm , November 21, 2017 at 12:33 pm

I think your observation about the importance of work to identity is most perceptive. This post makes too little distinction between work and a job and glosses over the place of work in defining who we are to ourselves and to others. I recall the scene in the movie "About a Boy" when the hero meets someone he cares about and she asks him what he does for a living.

I believe there's another aspect of work -- related to identity -- missing in the analysis of this post. Work can offer a sense of mission -- of acting as part of an effort toward a larger goal no individual could achieve alone. However you may regard the value in putting man on the moon there is no mistaking the sense of mission deeply felt by the engineers and technicians working on the project. What jobs today can claim service to a mission someone might value?

Henry Moon Pie , November 21, 2017 at 7:00 am

Agreed on your points. Wage slavery is nothing to aspire to. Self-determination within a context of an interdependent community is a much better way to live. We do our thing in the city, however.

ambrit , November 21, 2017 at 8:29 am

Finding that "interdependent community" is the hard part. My experience has been that this endeavour is almost chance based; Serendipity if you will.
Here Down South, the churches still seem to have a stranglehold on small and mid scale social organization. One of the big effects of 'churching' is the requirement that the individual gave up personal critical thinking. Thus, the status quo is reinforced. One big happy 'Holy Circlejerk.'

UserFriendly , November 21, 2017 at 10:10 am

from the article

This is a crucial point that UBI advocates often ignore. There is a deeply entrenched cultural bias towards associating our work status with our general status and prestige and feelings of these standings.

That hasn't changed since Eisenberg and Lazersfeld wrote up the findings of their study in 1938. It might change over time but that will take a long process of re-education and cultural shift. Trying to dump a set of new cultural values that only a small minority might currently hold to onto a society that clearly still values work is only going to create major social tensions.

FelicityT , November 21, 2017 at 3:07 pm

I would agree about the entenched cultural norms, etc. But not the pessimism and timeline for change. An individual can communicate a complex idea to millions in seconds, things move fast these days.

For me, it seems that what we (we being UBI/radical change proponents) are lacking is a compelling easily accessible story. Not just regarding UBI (as that is but one part of the trully revolutionary transformations that must occur) but encompassing everything.

We have countless think pieces, bits of academic writing, books, etc that focus on individual pieces and changes in isolation. But we've largely abandoned the all-encompassing narrative, which at their heart is precisely what religion offers and why it can be so seductive, successful, and resilient for so long.

The status quo has this type of story, it's not all that compelling but given the fact that it is the status quo and has inertia and tradition on its side (along with the news media, political, entertainment, etc) it doesn't have to be.

We need to abandon the single narrow issue activism that has become so prominent over the years and get back to engaging with issues as unseparable and intimately interconnected.

Tinkering around the edges will do nothing, a new political religion is what is required.

Yves Smith Post author , November 21, 2017 at 4:23 pm

Sorry, I disagree vehemently. Deeply held cultural attitudes are very slow to change and the study found that work being critical to happiness examined a large number of societies.

Look at feminism. I was a half-generation after the time when women were starting to get a shot at real jobs. IIRC, the first class that accepted women at Harvard Law School was in the 1950 and at Harvard Business School, 1965. And the number of first attendees was puny. The 1965 class at HBS had 10 8 women out of a graduating class of over 800; my class in 1981 had only 11% women.

In the 1980s, you saw a shift from the belief that women could do what men could do to promotion of the idea that women could/should be feminine as well as successful. This looked like seriously mixed messages, in that IMHO the earlier tendency to de-emphasize gender roles in the workplace looked like a positive development.

Women make less than 80% of what men do in the US. Even female doctors in the same specialities make 80% of their male peers.

The Speenhamland in the UK had what amounted to an income guarantee from the 1790s to 1832. Most people didn't want to be on it and preferred to work. Two generations and being on the support of local governments was still seen as carrying a stigma.

More generally, social animals have strongly ingrained tendencies to resent situations they see as unfair. Having someone who is capable of working not work elicits resentment from many, which is why most people don't want to be in that position. You aren't going to change that.

And people need a sense of purpose. There are tons of cases of rich heirs falling into drug addiction or alcoholism and despair because they have no sense of purpose in life. Work provides that, even if it's mundane work to support a family. That is one of the great dissservices the Democrats have done to the citizenry at large: sneering at ordinary work when blue-collar men were the anchors of families and able to take pride in that.

FelicityT , November 21, 2017 at 5:11 pm

So a few points.

Regarding the large number of societies, we often like to think we're more different than we actually are focusing on a few glaringly obvious differences and generalizing from there. Even going back a few hundred years when ideas travelled slower we were still (especially the "west" though the "east" wasn't all that much more different either) quite similar. So I'm less inclined to see the large number of societies as evidence.

Generally on societal changes and movements: The issue here is that the leadership has not changed, they may soften some edges here or there (only to resharpen them again when we're looking elsewhere) but their underlying ideologies are largely unchanged. A good mass of any population will go along to survive, whether they agree or not (and we find increasing evidence that many do not agree, though certainly that they do not agree on a single alternative).

It may be impossible to implement such changes in who controls the levers of power in a democratic fashion but it also may be immoral not implement such changes. Of course this is also clearly a similar path to that walked by many a demonized (in most cases rightfully so) dictator and despot. 'Tread carefully' are wise words to keep in mind.

Today we have a situation which reflects your example re: social animals and resentment of unfairness: the elite (who falls into this category is of course debatable, some individuals moreso than others). But they have intelligently, for their benefit, redirected that resentment towards those that have little. Is there really any logical connection between not engaging in wage labor (note: NOT equivalent to not working) and unfairness? Or is it a myth crafted by those who currently benefit the most?

That resentment is also precisely why it is key that a Basic income be universal with no means testing, everyone gets the same.

I think we should not extrapolate too much from the relatively small segment of the population falling into the the inherited money category. Correlation is not causation and all that.

It also seems that so often individuals jump to the hollywood crafted image of the layabout stoner sitting on the couch giggling at cartoons (or something similarly negative) when the concept of less wage labor is brought up. A reduction of wage labor does not equate to lack of work being done, it simply means doing much of that work for different reasons and rewards and incentives.

As I said in the Links thread today, we produce too much, we consume too much, we grow too much. More wage labor overall as a requirement for survival is certainly not the solution to any real problem that we face, its a massively inefficient use of resources and a massive strain on the ecosystems.

Yves Smith Post author , November 21, 2017 at 8:34 pm

I am really gobsmacked at the sense of entitlement on display here. Why are people entitled to an income with no work? Being an adult means toil: cleaning up after yourself, cleaning up after your kids if you have them, if you are subsistence farmer, tending your crops and livestock, if you are a modern society denizen, paying your bills and your taxes on time. The idea that people are entitled to a life of leisure is bollocks. Yet you promote that.

Society means we have obligations to each other. That means work. In rejecting work you reject society.

And the touting of "creativity" is a top 10% trope that Thomas Frank called out in Listen, Liberal. It's a way of devaluing what the bottom 90% do.

WobblyTelomeres , November 21, 2017 at 8:53 pm

My argument with the article is that, to me, it smacks of Taylorism. A follow-on study would analyze how many hours a laborer must work before the acquired sense of purpose and dignity and associated happiness began to decline. Would it be 30 hours a week of backbreaking labor before dignity found itself eroded? 40? 50? 60? When does the worker break? Just how far can we push the mule before it collapses?

The author alludes to this: "The overwhelming proportion relate their social status and life happiness to gaining a job"

Work equals happiness. Got it.

But, as a former robotics instructor, and as one who watches the industry (and former students), I see an automated future as damn near inevitable. Massive job displacement is coming, life as a minimum wage burger flipper will cease, with no future employment prospects short of government intervention (WPA and CCC for all, I say). I'm not a Luddite, obviously, but there are going to be a lot of people, billions, worldwide, with no prospect of employment. Saying, "You're lazy and entitled" is a bit presumptuous, Yves. Not everyone has your ability, not everyone has my ability. When the burger flipping jobs are gone, where do they go? When roombas mop the floors, where do the floor moppers go?

flora , November 21, 2017 at 9:38 pm

"WPA and CCC for all, I say. "

+1

We could use a new Civilian Conservation Corps and and a Works Progress Administration. There's lots of work that needs doing that isn't getting done by private corporations.

nihil obstet , November 21, 2017 at 10:05 pm

The outrage at non-work wealth and income would be more convincing if it were aimed also at owners of capital. About 30% of national income is passive -- interest, rents, dividends. Why are the owners of capital "entitled to an income with no work?" It's all about the morality that underlies the returns to capital while sugaring over a devaluation of labor. As a moral issue, everyone should share the returns on capital or we should tax away the interest, rents, and dividends. If it's an economic issue, berating people for their beliefs isn't a reason.

WobblyTelomeres , November 21, 2017 at 10:14 pm

Why are the owners of capital "entitled to an income with no work?"

THIS!!!! So much, THIS!!!! But, what else is a Wobbly to say, eh?

Yves Smith Post author , November 22, 2017 at 2:27 am

The overwhelming majority do work. The top 0.1% is almost entirely private equity managers who are able to classify labor income as capital gains through the carried interest loophole. Go look at the Forbes 400.

The 1% are mainly CEOs, plus elite professionals, like partners at top law and consulting firms and specialty surgeons (heart, brain, oncology). The CEOs similarly should be seen as getting labor income but have a lot of stock incentive pay (that is how they get seriously rich) which again gets capital gains treatment.

You are mistaking clever taking advantage of the tax code for where the income actually comes from. Even the kids of rich people are under pressure to act like entrepreneurs from their families and peers. Look at Paris Hilton and Ivanka as examples. They both could have sat back and enjoyed their inheritance, but both went and launched businesses. I'm not saying the kids of the rich succeed, or would have succeed to the extent they do without parental string-pulling, but the point is very few hand their fortune over to a money manager and go sailing or play the cello.

IsotopeC14 , November 22, 2017 at 2:58 am

Isn't the brother of the infamous Koch duo doing exactly that? Actually, if all the .001%ers were like him, we'd all be better off

IsotopeC14 , November 22, 2017 at 1:34 am

What's your take on Rutger Bergman's ted talk? i think most jobs aren't real jobs at all, like marketing and ceo's. why can't we do 20 hour work weeks so we don't have huge amounts of unemployment? Note, I was "unemployed" for years since "markets" decide not to fund science in the US. Yay Germany At least I was fortunate enough to not be forced to work at Walmart or McDonalds like the majority of people with absolutely no life choices. Ah the sweet coercion of capitalism.

flora , November 21, 2017 at 9:09 pm

Your hopes for a UBI are undone by some of the real world observations I've made over many years, with regard to how a guaranteed income increase, of any measure, for a whole population of an area, affects prices. Shorter: income going up means prices are raised by merchants to capture the new income.

Your assumption that any UBI would not be instantly captured by raised prices is naive, at best. It's also naive to assume companies would continue to pay wages at the same level to people still employed, instead of reducing wages and letting UBI fill in the rest. Some corporations already underpay their workers, then encourage the workers to apply for food stamps and other public supports to make up for the reduced wage.

The point of the paper is the importance of paid employment to a person's sense of well being. I agree with the paper.

Andrew Dodds , November 22, 2017 at 2:48 am

For the vast majority, a UBI would be income-neutral – it would have to be, to avoid massive inflation. So people would receive a UBI, but pay more tax to compensate. The effect on prices would be zero.

The advantage of a UBI is mostly felt at the lower end, where insecure/seasonal work does now pay. At the moment, a person who went from farm labourer to Christmas work to summer resort work in the UK would certainly be working hard, but also relentlessly hounded by the DWP over universal credit. A UBI would make this sort of lifestyle possible.

jsn , November 21, 2017 at 11:28 am

Davidab, Good for you, but your perspicacity is not scalable. People are social animals and your attitude toward "the herd", at least as expressed here, is that of a predator, even if your taste doesn't run toward predation. Social solutions will necessarily be scalable or they won't be solutions for long.

Lambert Strether , November 22, 2017 at 1:44 am

> the organized herd a herd animal trapped in the herd

I don't think throwing 80% to 90% of the population into the "prey" bucket is especially perspicacious politically (except, of course, for predators or parasites). I also don't think it's especially perspicacious morally. You write:

Not very practical advice for most, I realize, trapped in the herd as they are in car payments and mortgages, but perhaps aspirational?

Let me translate that: "Trapped in the herd as many are to support spouses and children." In other words, taking the cares of the world on themselves in order to care for others.

BJ , November 21, 2017 at 6:37 am

Unemployed stay at home dad here. My children are now old enough to no longer need a stay at home dad. Things I have done: picked up two musical instruments and last year dug a natural swimming pond by hand. Further, one would need to refute all the increased happiness in retirement (NBER). Why social security but not UBI? I get being part of the precariat is painful and this is a reality for most the unemployed no matter where you live in the world. A UBI is unworkable because it will never be large enough to make people's lives unprecarious. Having said that, I am almost positive if you gave every unemployed person 24 k a year and health benefits, there would be a mass of non working happy creative folks.

divadab , November 21, 2017 at 7:41 am

UBI seems to me to encourage non-virtuous behavior – sloth, irresponsibility, fecklessness, and spendthriftness. I like the Finnish model – unemployment insurance is not limited – except if you refuse work provided by the local job center. Lots of work is not being done all over America – we could guarantee honest work to all with some imagination. Start with not spraying roundup and rather using human labor to control weeds and invasive species.

I do agree that universal health insurance is necessary and sadly Obamacare is not that.

ambrit , November 21, 2017 at 8:34 am

The crux of this problem is the definition used for "non-virtuous behaviour." A new CCC is a good place to start though. (Your Tax Dollars At Work! [For some definition of tax dollars.]) As for BJ above, I would suppose that child rearing was his "employment" for years. good so far, but his follow-up is untypical. The 'Empty Nester' mother is a well known meme.

a different chris , November 21, 2017 at 9:19 am

Spendthriftness on 24K a year? Seriously? If we are disgorging unprofessional opinions, I will add my own: sloth and irresponsibility are more signs of depression rather than freedom from having to work. In fact, I believe (and I think much of the stuff here) supports the idea that people want to be seen as useful in some way. Doesn't include me! :) .. unfortunately, I have the charmingly named "dependents" so there you have it.

BJ , November 21, 2017 at 11:18 am

I lived 6 years as a grad student on 24k a year and would say it was easy. Only thing I would have to had worried about was awful health insurance. A two household each with 24k would be even easier, especially if you could do it in a low cost area. So I am not sure what you mean by spendthrift. But again it will never happen, so we will be stuck with what we have or most likely an even more sinister system. I guess I am advocating for a JG with unlimited number of home makers per household.

roadrider , November 21, 2017 at 9:23 am

except if you refuse work provided by the local job center

And who's to say that the local "job center" has work that would be appropriate for every person's specific talents and interests? This is no better than saying that you should be willing to go work for some minimum-wage retail job with unpredictable scheduling and other forms of employer abuses after you lose a high-paying job requiring special talents. I have to call bullshit on this model. I went through a two-year stretch if unemployment in no small part because the vast majority of the available jobs for my skill set were associated with the MIC, surveillance state or the parasitic FIRE sector. I was able to do this because I had saved up enough FY money and had no debts or family to support.

I can also attest to the negative aspects of unemployment that the post describes. Its all true and I can't really say that I'e recovered even now, 2.5 years after finding another suitable job.

Jesper , November 21, 2017 at 10:55 am

The job center in the neighbouring Sweden had the same function. Had is the important word. My guess is that the last time someone lost their unemployment insurance payout due to not accepting a job was in the early 1980s. Prior to that companies might, maybe, possibly have considered hiring someone assigned to them – full employment forced companies to accept what was offered. Companies did not like the situation and the situation has since changed.

Now, when full employment is a thing of the past, the way to lose unemployment insurance payouts is by not applying to enough jobs. An easily gamed system by people not wanting to work: just apply to completely unsuitable positions and the number of applications will be high. Many companies are therefore overwhelmed by applications and are therefore often forced to hire more people in HR to filter out the unsuitable candidates.
People in HR tend not to know much about qualifications and or personalities for the job so they tend to filter out too many. We're all familiar with the skills-shortage .
Next step of this is that the companies who do want to hire have to use recruitment agencies. Basically outsourcing the HR to another company whose people are working on commission. Recruiters sometimes know how to find 'talent', often they are the same kind of people with the same skills and backgrounds as people working in HR.

To even get to the hiring manager a candidate has to go through two almost identical and often meaningless interviews. Recruiter and then HR. Good for the GDP I suppose, not sure if it is good for anything else.

But back on topic again, there is a second way of losing unemployment insurance payout: Time. Once the period covered has passed there is no more payouts of insurance. After that it it is time to live on savings, then sell all assets, and then once that is done finally go to the welfare office and prove that savings are gone and all assets are sold and maybe welfare might be paid out. People on welfare in Sweden are poor and the indignities they are being put through are many. Forget about hobbies and forget about volunteering as the money for either of those activities simply aren't available. Am I surprised by a report saying unemployed in Sweden are unhappy? Nope.

nonclassical , November 21, 2017 at 10:42 am

meanwhile NYTimes testimonials Friday, show average family of 4 healthprofit costs (tripled, due to trump demise ACA) to be $30,000. per year, with around $10,000. deductible end of any semblance of affordable access, "murKa"

https://www.nytimes.com/2017/11/16/us/politics/obamacare-premiums-middle-class.html

Jeremy Grimm , November 21, 2017 at 1:53 pm

What do you mean by virtuous behavior?

Where does a character like Bertie Wooster in "Jeeves" fit in your notions of virtuous behavior? Would you consider him more virtuous working in the management of a firm, controlling the lives and labor of others -- and humorously helped by his his brilliant valet, Jeeves, getting him out of trouble?

For contrast -- in class and social status -- take a beer-soaked trailer trash gentleman of leisure -- and for sake of argument blessed with less than average intelligence -- where would you put him to work where you'd feel pleased with his product or his service? Would you feel better about this fellow enjoying a six-pack after working 8 hours a day 5 days a week virtuously digging and then filling a hole in the ground while carefully watched and goaded by an overseer? [Actually -- how different is that from "using human labor to control weeds and invasive species"? I take it you're a fan of chain-gangs and making the poor pick up trash on the highways?]

What about some of our engineers and scientists virtuously serving the MIC? Is their behavior virtuous because they're not guilty of sloth, irresponsibility [in executing their work], fecklessness, and spendthriftness? On this last quality how do you feel about our government who pay the salaries for all these jobs building better ways to kill and maim?

Bill Smith , November 21, 2017 at 8:01 am

How big is the swimming pool and how long did it take? Where did you put the dirt?

BJ , November 21, 2017 at 11:07 am

It is a design by David Pagan Butler. It is his plunge pool design, deepend is 14 by 8 by 7 deep. I used the dirt to make swales around some trees. Win win all around.

tegnost , November 21, 2017 at 9:32 am

curious to know whether you are married to someone with a job?

BJ , November 21, 2017 at 11:25 am

The answer is yes my spouse works. So I do have a schedule of waking up to make her lunch everyday, meeting her at lunch to walk, and making dinner when she gets home, but we do all those things on her days off so .

But again we would need to explain away, why people who are retired are happier? Just because they think they payed into social security? Try explaining to someone on the SS dole how the government spends money into existence and is not paid by taxes or that the government never saved their tax money, so there are not entitled to this money.

David Kane Miller , November 21, 2017 at 6:55 am

I hated working for other people and doing what they wanted. I began to feel some happiness when I had a half acre on which I could create my own projects. Things improved even more when I could assure myself of some small guaranteed income by claiming Social Security at age 62. To arise in the morning when I feel rested, with interesting projects like gardens, fences, small buildings ahead and work at my own pace is the essence of delight for me. I've been following your arguments against UBI for years and disagree vehemently.

a different chris , November 21, 2017 at 9:23 am

I feel I would behave the same as you, if I had the chance. *But* no statements about human beings are absolute, and because UBI would work for either of us does not mean it would work for the majority. Nothing devised by man is perfect.

Mel , November 21, 2017 at 9:42 am

It's not you; it's not me. It's those deplorable people.

tegnost , November 21, 2017 at 9:37 am

first you had to buy the half acre in a suitable location, then you had to work many years to qualify for social security, the availability of which you paid for and feel you deserve. You also have to buy stuff for fences gardens and small buildings. At most that rhymes with a ubi but is significantly different in it's make up.

Lambert Strether , November 22, 2017 at 1:56 am

> when I had a half acre on which I could create my own projects

That is, when you acquired the half acre, which not everyone can do. It seems to me there's a good deal of projecting going on with this thread from people who are, in essence, statistical outliers. But Mitchell summarizes the literature:

So for decades, researchers in this area, as opposed to bloggers who wax lyrical on their own opinions, have known that the importance of work in our lives goes well beyond the income we earn.

If the solution that works for you is going to scale, that implies that millions more will have to own land. If UBI depends on that, how does that happen? (Of course, in a post-collapse scenario, the land might be taken , but that same scenario makes the existence of institutions required to convey the UBI highly unlikely. )

Carla , November 21, 2017 at 7:16 am

Very glad to hear that Bill Mitchell is working on the "Future of Work" book, and to have this post, and the links to the other segments. Thank you, Yves!

Andrew , November 21, 2017 at 7:25 am

I don't agree with this statement. Never will. I'm the complete opposite. Give me more leisure time and you'll find me painting, writing, playing instruments and doing things that I enjoy. I recall back to when I was a student, I relished in the free time I got (believe me University gave me a lot of free time) between lectures, meaning I could enjoy this time pursuing creative activities. Sure I might be different than most people but I know countless people who are the same.

My own opinion is that root problem lies in the pathology of the working mentality, that 'work' and having a 'job' is so engrained into our society and mindset that once you give most people the time to enjoy other things, they simply can't. They don't know what to do with themselves and they eventually become unhappy, watching daytime TV sat on the sofa.

I recall back to a conversation with my mother about my father, she said to me, 'I don't know how your father is going to cope once he retires and has nothing to do' and it's that very example of where work for so many people becomes so engrained in their mindset, that they are almost scared of having 'nothing to do' as they say. It's a shame, it's this systemic working mentality that has led to this mindset. I'm glad I'm the opposite of this and proud by mother brought me up to be this way. Work, and job are not in my vocabulary. I work to live, not live to work.

I_Agree , November 21, 2017 at 11:26 am

I agree with Andrew. I think this data on the negative effects says more about how being employed fundamentally breaks the human psyche and turns them into chattel, incapable of thinking for themselves and destroying their natural creativity. The more a human is molded into a "good worker" the less they become a full fledged human being. The happiest people are those that have never placed importance on work, that have always lived by the maxim "work to live, not live to work". From my own experience every assertion in this article is the opposite of reality. It is working that makes me apathethic, uncreative, and miserable. The constant knowing that you're wasting your life, day after day, engaged in an activity merely to build revenue streams for the rich, instead of doing things that help society or that please you on a personal level, is what I find misery inducing.

nycTerrierist , November 21, 2017 at 12:18 pm

I agree. If financial insecurity is removed from the equation -- free time can be used creatively for self-actualization, whatever form that may take: cultivating the arts, hobbies, community activities, worthy causes and projects. The ideology wafting from Mitchell's post smells to me like a rationale for wage slavery (market driven living, neo-liberalism, etc.)

jrs , November 21, 2017 at 12:48 pm

Besides how are people supposed to spend their time "exploring other opportunities" when unemployed anyway? To collect unemployment which isn't exactly paying that much anyway, they have to show they are applying to jobs. To go to the movies the example given costs money, which one may tend to be short on when unemployed. They probably are looking for work regardless (for the income). There may still be some free time. But they could go back to school? Uh in case one just woke up from a rock they were under for 100 years, that costs money, which one may tend to be short on when unemployed, plus there is no guarantee the new career will pan out either, no guarantee someone is just chomping at the bit to hire a newly trained 50 year old or something. I have always taken classes when unemployed, and paid for it and it's not cheap.

Yes to use one's time wisely in unemployment in the existing system requires a kind of deep psychological maturity that few have, a kind of Surrender To Fate, to the uncertainty of whether one will have an income again or not (either that or a sugar daddy or a trust fund). Because it's not easy to deal with that uncertainty. And uncertainty is the name of the game in unemployment, that and not having an income may be the pain in it's entirety.

FelicityT , November 21, 2017 at 3:18 pm

Sadly this breaking down into a "good worker" begins for most shortly after they begin school. This type of education harms society in a myriad of ways including instilling a dislike of learning, deference to authority (no matter how irrational and unjust), and a destruction of a child's natural curiosity.

Yves Smith Post author , November 21, 2017 at 5:21 pm

I don't buy your premise that people are "creative". The overwhelming majority do not have creative projects they'd be pursuing if they had leisure and income. Go look at retirees, ones that have just retired, are healthy, and have money.

Yves Smith Post author , November 21, 2017 at 4:29 pm

You are really misconstruing what the studies have found and misapplied it to your situation. Leisure time when you have a job or a role (being a student) is not at all the same as having time when you are unemployed, with or without a social safety net.

Summer , November 21, 2017 at 6:25 pm
jrs , November 21, 2017 at 6:37 pm

one often has a role when unemployed: finding work. But it's not a very fulfilling one! But if one is trying to find work, it's not exactly the absence of a role either even if it still leaves significantly more free time than otherwise, maybe winning the lottery is the absence of a role.

But then it's also not like we give people a UBI even for a few years (at any time in adult life) to get an education. Only if they take out a student loan approaching the size of a mortgage or have parents willing to pony up are they allowed that (to pay not just for the education but to live because having a roof over one's head etc. is never free, a UBI via debt it might be called).

Lambert Strether , November 22, 2017 at 2:00 am

> Give me more leisure time and you'll find me painting, writing, playing instruments and doing things that I enjoy.
Nothing to breed resentment of "the creative class" here! Blowback from Speenhamland brought on the workhouses, so be careful what you wish for.

Jesper , November 21, 2017 at 7:47 am

Again the UBI vs JG debate .

UBI won't happen and JG has been tried (and failed).

The argument that JG would allow the public sector to hire more people is demeaning to people already employed in the public sector and demonstrably false – people are hired into the public sector without there being a JG. It is most certainly possible to be against a JG while wanting more people working in the public sector.

The way forward is to have a government acting for people instead of for corporations. Increase the amount of paid vacations, reduce the pension age and stop with the Soviet style worship of work: While some people are apparently proud of their friends and relatives who died while at work it is also possible to feel sad about that.

diptherio , November 21, 2017 at 10:00 am

JG has been tried (and failed).

When and where? The NCCC seemed to work pretty good here in the Western US.

Jesper , November 21, 2017 at 10:27 am

The JG was tried in Communist countries in Europe, Asia and Americas. The arguments then and there were the same as here and now, made by the same type of social 'scientists' (economists).

Would a JG be different here and now as the Republicans and Democrats are representing the best interests of the people? Or are they representing the same kind of interests as the Communist parties did?

Yves Smith Post author , November 21, 2017 at 4:39 pm

Data, please. The USSR fell because it was spending on its military to keep up with the US, a much larger economy. Countering your assertion we have this:

tegnost , November 21, 2017 at 10:00 am

As long as people argue that "it's not fair" to fix the inequality issue and employ things like debt jubilee or student loan forgiveness, or if we fix the ridiculous cost of health care what will all those insurance agents do then we will wind up with the real kind of class warfare, rather than the current punching from the top down, the punching will come from the bottom, because the situation is not fair now, it's just TINA according to those who profit from it. In my own life there is a balance of creativity and work, and I find work enables my creativity by putting some pressure on my time, i.e., I get up earlier, I practice at 8:30 am instead of sleeping til 10 and winding up with S.A..D., I go to bed rather than watch tv or drink to excess.. in other words i have some kind of weird schedule, I have days off sort of When I've been unemployed I feel the way s described in the article. I find the arguments in favor of ubi tend to come from people who already have assets, or jobs, or family who they take care of which is actually a job although uncommonly described as such. The only truth I see in real life is that the unemployed I am intimately familiar with first are mentally oppressed by the notion that to repair their situation will require they work every waking hour at substandard wages for the rest of their life and that is a major barrier to getting started, and that is a policy choice the gov't and elite classes purposefully made which created the precariat and will be their undoing if they are unable to see this.

tegnost , November 21, 2017 at 10:15 am

Hey look, even the msm is looking at it
https://www.seattletimes.com/seattle-news/is-uprising-the-only-way-out-of-gross-inequality-maybe-so/

j84ustin , November 21, 2017 at 10:08 am

As someone who works in the public sector I never quite thought of it like that, thanks.

hunkerdown , November 21, 2017 at 7:53 am

Disappointing that there's no analysis in this context of less employment, as in shorter work weeks and/or days, as opposed to merely all or none.

nonclassical , November 21, 2017 at 10:45 am

see – hear

(but no possibility without healthcare access, rather than healthtprofit)

Vatch , November 21, 2017 at 11:31 am

Interesting point. I read a science fiction story in which the protagonist arrives for work at his full time job at 10:00 AM, and he's finished for the day at 4:00 PM. I can't remember the name of the story or novel, unfortunately.

jrs , November 21, 2017 at 1:04 pm

Agreed. And they already have it in places like Denmark. Why don't we talk about that? It actually exists unlike utopian schemes for either total UBI or total work guarantee (government job creation is not utopian, but imagining it will employ everyone is, and I would like the UBI to be more widely tried, but in this country we are nowhere close). Funny how utopia becomes more interesting to people than actual existing arrangements, even though of course those could be improved on too.

The Danish work arrangement is less than a 40 hour week, and mothers especially often work part-time but both sexes can. It's here in this country where work is either impossibly grueling or you are not working. No other choice. In countries with more flexible work arrangements more women actually work, but it's flexible and flexible for men who choose to do the parenting as well. I'm not saying this should be for parents only of course.

Lambert Strether , November 22, 2017 at 2:02 am

Because the JG sets the baseline for employment, which private companies must meet, the JG (unlike the UBI) can do this.

Otis B Driftwood , November 21, 2017 at 7:58 am

My own situation is that I am unhappy in my well-paying job and would like nothing more than to devote myself to other interests. I'm thirty years on in a relationship with someone who grew up in bad financial circumstances and panics whenever I talk about leaving my job. I tell her that we have 2 years of living expenses in the bank but I can't guarantee making the same amount of money if I do leave my job. She has a job that she loves and is important and pays barely 1/2 of my own income. So she worries about her future with me. She worries about losing her home. I suppose that makes me the definition of a wage slave. And it makes for an increasingly unhappy marriage. I admire those who have faced similar circumstances and found a way through this. Sorry to vent, but this topic and the comments hit a nerve with me and I'm still trying to figure this out.

ambrit , November 21, 2017 at 8:38 am

Otis; We are presently going through a period where that "two year cushion" has evaporated, for various reasons. We are seeing our way through this, straight into penury and privation. Take nothing for granted in todays' economy.

jrs , November 21, 2017 at 1:11 pm

yes find the lower paying job that you like more first. If you just quit for nothing in the hopes of finding one it might not happen. Of course unemployment also happens sometimes, whether we want it or not.

bronco , November 21, 2017 at 12:47 pm

The newer generations are worse when it comes to lifestyle. Those of that are older can at least remember a time without cellphones internet streaming services leasing a new car every 2 years etc.

What about the young? My niece and her husband should be all set , his mom sunk money into a home on the condition she moved into a mother in law apartment. So far so good right? 2 years in they are imploding even with the free child care she provides. Combined their wireless bill a month is over $300. The sit on the couch side by side and stream netflix shows to dueling iphones in front of a 65 inch tv that is not even turned on. Wearing headphones in silence.

Both driving new vehicles , both have gym memberships they don't use . They buy lattes 3 or 4 times a day which is probably another 500 a month.

My uncle passed away recently and my niece asked if she was in the will. It was literally her only communication on the subject. They are going under and could easily trim a few thousand a month from the budget but simply won't. No one in the family is going to lift a finger for them at this point they burned every possible bridge already. I have seen people living in cars plenty lately but I think these will be the first I see to living in brand new cars .

Somewhere along the line they got the impression that the american dream was a leased car a starbucks in one hand and an iphone in the other .

Confront them with the concept of living within a paycheck and they react like a patient hearing he has 3 months to live.

Lambert Strether , November 22, 2017 at 2:03 am

Ah. Reagan's "welfare queens" updated. Kids these days!

JBird , November 22, 2017 at 3:00 am

Yeah being poor, never mind growing up poor, just well and truly sucks and it can really @@@@ you up. Gives people all sorts of issues. I'm rather like her, but I have had the joy of multi-hour commutes to unexciting soul crushing work. Happy, happy, joy, joy! However don't forget that with the current political economy things are likely to go bad in all sorts of ways. This whole site is devoted to that. My suggestion is to keep the job unless you have something lined up. Not being able to rent has it own stresses too. Take my word for it.

Thuto , November 21, 2017 at 8:00 am

I may be engaging in semantics but I think conflating work and jobs makes this article a bit of a mixed bag. I know plenty of people who are terribly unhappy in their jobs, but nonetheless extract a sense of wellbeing from having a stable source of INCOME to pay their bills (anecdotally speaking, acute stress from recent job losses is closely linked to uncertainty about how bills are going to be paid, that's why those with a safety net of accumulated savings report less stress than those without). Loss of status, social standing and identity and the chronic stress borne from these become evident much later I.e. when the unemployment is prolonged, accompanied of course by the still unresolved top-of-mind concern of "how to pay the bills".

As such, acute stress for the recently unemployed is driven by financial/income uncertainty (I.e. how am I going to pay the bills) whereas chronic stress from prolonged unemployment brings into play the more identity driven aspects like loss of social standing and status. For policy interventions to have any effects, policy makers would have to delineate the primary drivers of stress (or lack of wellbeing as the author calls it) during the various phases of the unemployment lifecycle. An Unemployment Insurance Fund (UIF) like we have here in South Africa appears to address the early stages of unemployment, and the accompanying acute stress, quite well by providing the income guarantee (for six months) that cushions the shock of losing a job. What's still missing of course are interventions that promote the quick return to employment for those on UIF, so maybe a middle of the road solution between UBI and a jobs guarantee scheme is how policy makers should be framing this, instead of the binary either/or we currently have.

TroyMcClure , November 21, 2017 at 9:19 am

Lots' of people think they're unhappy with their jobs. Let them sit unemployed for 9 months and ask them if they want that job back. The usual parade of anecdata is on display here in the comments. Mitchell's real data and analysis in the article above still stand.

Thuto , November 21, 2017 at 10:06 am

If you'd read through my comment, and not rushed through it with a view of dishing out a flippant response, you'd have seen that nowhere do I question the validity of his data, I merely question how the argument is presented in some areas (NC discourages unquestioning deference to the views of experts no??). By the way, anecdotes do add to richer understanding of a nuanced and layered topic (as this one is) so your dismissal of them in your haste to invalidate people's observations is hardly helpful.

jrs , November 21, 2017 at 1:15 pm

Yes people many not like their jobs but prefer the security of having them to not. Yes even if the boss sexually harasses one (as we are seeing is very common). Yes even if there is other workplace abuse. Yes even when it causes depression or PTSD (but if one stays with such a job long term it ruins the self confidence that is one prerequisite to get another job!). Yes even if one is in therapy because of job stress, sexual harassment or you name it. The job allows the having health insurance, allows the therapy, allows the complaining about the job in therapy to make it through another week.

Lambert Strether , November 22, 2017 at 2:04 am

> The usual parade of anecdata is on display here in the comments. Mitchell's real data and analysis in the article above still stand.

Ding ding ding!

Democrita , November 21, 2017 at 8:13 am

When unemployed, the stress of worry about money may suppress the creative juices. Speaking from experience. People may well 'keep looking for jobs' because they know ultimately they need a job with steady income. The great experience of some freelancers notwithstanding, not all are cut out for it.

I would love to see some more about happiness or its lack in retirement–referenced by stay-at-home dad BJ , above.

I wonder, too, about the impact of *how* one loses one's job. Getting laid off vs fired vs quitting vs involuntary retirement vs voluntary, etc feel very different. Speaking from experience on that, too. I will search on these points and post anything of interest.

jrs , November 21, 2017 at 1:40 pm

There are also other things that are degrading about the very process of being unemployed not mentioned here. What about the constant rejection that it can entail? One is unemployed and looking for work, one sends out resumes, many of them will never be answered, that's rejection. Then if one is lucky they get interviews, many will never lead to jobs, yet more rejection. Does the process of constant rejection itself have a negative effect on a human being whether it's looking for jobs or dates or whatever? Isn't it learned helplessness to if one keeps trying for something and keeps failing. Isn't that itself demoralizing entirely independent of any doubtful innate demoralizing quality of leisure.

freedeomny , November 21, 2017 at 10:23 am

I am not so sure if I agree with this article. I think it really depends on whether or not you have income to support yourself, hate or love your job, and the amount of outside interests you have, among other things. Almost everyone I know who lives in the NYC area and commutes into the city .doesn't like their job and finds the whole situation "soul-crushing".

Those that live in Manhattan proper are (feel) a bit better off. I for one stopped working somewhat voluntarily last year. I write somewhat because I began to dislike my job so much that it was interfering with my state of well being, however, if I had been allowed to work remotely I probably would have stuck it out for another couple of years.

I am close enough to 62 that I can make do before SS kicks in although I have completely changed my lifestyle – i.e. I've given up a materialistic lifestyle and live very frugally.

Additionally I saved for many years once I decided to embark on this path. I do not find myself depressed at all and the path this year has been very enriching and exciting (and scary) as I reflect on what I want for the future. I'm pretty sure I will end up moving and buying a property so that I can become as self sufficient as possible. Also, I probably will get a job down the line – but if I can't get one because I am deemed too old that will be ok as well. The biggest unknown for me is how much health insurance will cost in the future .

Yves Smith Post author , November 21, 2017 at 5:15 pm

The article made clear that the studies included "unemployed but with income" from government support. It is amazing the degree to which readers ignore that and want to make the findings about "unemployed with no income".

JBird , November 22, 2017 at 3:30 am

That's because we Americans all have work=good=worthy=blessed by God while workless=scum=worthless=accursed by God engraved into our collective soul. Our politics, our beliefs, are just overlays to that.

Even when we agree that the whole situation just crushes people into paste, and for which they have no defense regardless of how hard they work, how carefully they plan, or what they do, that underlay makes use feel that this is their/our fault. Any suggestions that at least some support can be decoupled from work, and that maybe work, and how much you earn, should not determine their value, brings the atavistic fear of being the "undeserving poor," parasites and therefore reprobated scum.

So we don't hear what you are saying without extra effort because it's bypassing our conscious thoughts.

Jamie , November 21, 2017 at 10:43 am

Add my voice to those above who feel that forced labor is the bane of existence, not the wellspring. All this study says to me is that refusing to employ someone in capitalist society does not make them happy. It makes them outcasts.

So, I say yes to a JG, because anyone who wants work should be offered work. But at the same time, a proper JG is not forced labor. And the only way to ensure that it is not forced labor, is to decouple basic needs from wage slavery.

Left in Wisconsin , November 21, 2017 at 12:02 pm

I am critical of those who distinguish between the job and the income. Of course the income is critical to the dignity of the job. For many jobs, it is the primary source of that dignity. The notion that all jobs should provide some intrinsic dignity unrelated to the income, or that people whose dignity is primarily based on the income they earn rather than the work they do are deluded, is to buy in to the propaganda of "passion" being a requirement for your work and to really be blind to what is required to make a society function. Someone has to change the diapers, and wipe the butts of old people. (yes, I've done both.) It doesn't require passion and any sense of satisfaction is gone by about the second day. But if you could make a middle class living doing it, there would be a lot fewer unhappy people in the world.

It is well known that auto factory jobs were not perceived as good jobs until the UAW was able to make them middle class jobs. The nature of the actual work itself hasn't changed all that much over the years – mostly it is still very repetitive work that requires little specialized training, even if the machine technology is much improved. Indeed, I would guess that more intrinsic satisfaction came from bashing metal than pushing buttons on a CNC machine, and so the jobs may even be less self-actualizing than they used to be.

The capitalist myth is that the private sector economy generates all the wealth and the public sector is a claim on that wealth. Yet human development proves to us that this is not true – a substantial portion of "human capital" is developed outside the paid economy, government investment in R&D generates productivity growth, etc. And MMT demonstrates that we do not require private sector savings to fund public investment.

We are still a ways from having the math to demonstrate that government investment in caring and nurturing is always socially productive – first we need productivity numbers that reflect more than just private sector "product." But I think we are moving in that direction. Rather than prioritize a minimum wage JG of make-work, we should first simply pay people good wages to raise their own children or look after their elderly and disabled relatives. The MMT JG, as I understand it, would still require people to leave their kids with others to look after them in order to perform some minimum wage task. That is just dumb.

jrs , November 21, 2017 at 1:31 pm

Maybe it's dumb, it's certainly dumb in a system like the U.S. where work is brutal and often low paid and paid childcare is not well remunerated either. But caretakers also working seems to work in countries with greater income equality, good job protections, flexible work arrangements, and a decent amount of paid parental leave – yea Denmark, they think their children should be raised by professionals, but also work-life balance is still pretty good.

Whiskey Bob , November 21, 2017 at 1:34 pm

My take is that capitalism has made the benefits and malus of having a job so ingrained into culture and so reinforced. Having a job is so closely linked to happiness because it gives you the money needed to pursue it.

A job affords you the ability to pursue whatever goals you want within a capitalist framework. "Everything" costs money and so having a job gives you the money to pay for those costs and go on to fulfill your pursuit of happiness.

Analyzing whether people are happy or not under these conditions seem apparent that it is going to lead to results heavily biased towards finding happiness through employment.

The unemployed are often living off someone else's income and feel like an undeserving parasite. Adults are generally ingrained with the culture that they have to grow up and be independent and be able to provide for a new family that they will start up. Becoming unemployed is like being emasculated and infantile, the opposite of what is expected of adults.

There's also that not having a job is increasingly being punished especially in the case of America. American wages have stayed either largely static or have worsened, making being unemployed that much more of a burden on family or friends. Unemployment has been demonized by Reaganism and has become systematically punishable for the long term unemployed. If you are unemployed for too long, you start losing government support. This compounds the frantic rush to get out of unemployment once unemployed.

There is little luxury to enjoy while unemployed. Life while unemployed is a frustrating and often disappointing hell of constant job applications and having many of them lead to nothing. The people providing support often start to become less so over time and become more convinced of laziness or some kind of lack of character or willpower or education or ability or whatever. Any sense of systemic failure is transplanted into a sense of personal failure, especially under neoliberalism.

I am not so sure about the case of Europe and otherwise. I am sure that the third world often has little or no social safety nets so having work (in exploitative conditions in many cases) is a must for survival.

Anyways, I wonder about the exact methodologies of these studies and I think they often take the current feelings about unemployment and then attempt to extrapolate talking points for UBI/JG from them. Yes, UBI wouldn't change culture overnight and it would take a very, very long time for people to let down their guard and adjust if UBI is to be implemented in a manner that would warrant trust. This article seems to understand the potential for that, but decides against it being a significant factor due to the studies emphasizing the malus of unemployment.

I wonder how different the results would be if there were studies that asked people how they would feel if they were unemployed under a UBI system versus the current system. I know a good number of young people (mostly under 30) who would love to drop out and just play video games all day. Though the significance of such a drastic demographic shift would probably lead to great political consequences. It would probably prove the anti-UBI crowd right in that under a capitalist framework, the capitalists and the employed wouldn't tolerate the unemployed and would seek to turn them into an underclass.

Personally I think a combination of UBI and JG should be pursued. JG would work better within the current capitalist framework. I don't think it is without its pitfalls due to similar possible issues (with the similar policy of full employment) either under Keynesianism (e.g. Milton Friedman sees it as inefficient) or in the USSR (e.g. bullshit jobs). There is the possibility of UBI having benefits (not having the unemployed be a burden but a subsidized contributer to the economy) so I personally don't think it should be fully disregarded until it is understood better. I would like it if there were better scientific studies to expand upon the implications of UBI and better measure if it would work or not. The upcoming studies testing an actual UBI system should help to end the debates once and for all.

redleg , November 21, 2017 at 2:28 pm

My $0.02: I have a creative pursuit (no money) and a engineering/physical science technical career (income!). I am proficient in and passionate about both. Over the last few years, the technical career became tenuous due to consolidation of regional consulting firms (endemic to this era)- wages flat to declining, higher work stress, less time off, conversation to contact employment, etc.- which has resulted in two layoffs.

During the time of tenuous employment, my art took on a darker tone. During unemployment the art stopped altogether.

I'm recently re-employed in a field that I'm not proficient. Both the peter principle and imposter syndrome apply. My art has resumed, but the topics are singular about despair and work, to the point that I feel like I'm constantly reworking the same one piece over and over again. And the quality has plummeted too.

In some fields (e.g. engineering), being a wage slave is the only realistic option due to the dominance of a small number of large firms. The big players crowd out independents and free lancers, while pressuring their own employees through just-high-enough wages and limiting time off. Engineering services is a relationship- based field, and the big boys (and they are nearly all boys) have vastly bigger networks to draw work from than a small firm unless that small firm has a big contact to feed them work (until they get gobbled up). The big firms also have more areas of expertise which limits how useful a boutique firm is to a client pool, except under very narrow circumstances. And if you are an introvert like most engineering people, there's no way to compete with big firms and their marketing staff to expand a network enough to compete.

In that way, consulting is a lot like art. To make a living at it you need either contacts or a sponsor. Or an inheritance.

ChrisPacific , November 21, 2017 at 5:30 pm

I would be interested to know what the definition of unemployment was for the purpose of this study (I couldn't find it in the supplied links). If it's simply "people who don't have a job," for example, then it would include the likes of the idle rich, retirees, wards of the state, and so on. Binary statements like this one do make it sound like the broad definition is the one in use:

When considering the world's population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed.

The conclusion seems at odds with results I've seen for some of those groups – for example, I thought it was fairly well accepted that retirees who are supported by a government plan that is sufficient for them to live on were generally at least as happy as they had been during their working life.

If, on the other hand, the study uses a narrow definition (e.g. people who are of working age, want a job or need one to support themselves financially, but can't find one) then the conclusion seems a lot more reasonable. But that's a heavily loaded definition in economic and cultural terms. In that case, the conclusion (people are happier if they have a job) only holds true in the current prevailing model of society. It doesn't rule out the possibility of structuring society or the economy differently in such a way that people can be non-working and happy. The existence of one such population already (retirees) strongly suggests that outcomes like this are possible. A UBI would be an example of just such a restructuring of society, and therefore I don't think that this study and its result are necessarily a valid argument against it.

nihil obstet , November 21, 2017 at 6:07 pm

Which makes a person happier -- being considered worthless by one's society or valuable? How many studies do we need to answer that question? Apparently, a lot, because studies like this one keep on going. The underlying assumption is that jobs make one valuable. So if you don't have a job you're worthless. Now, who's happier on the whole, people with jobs or the unemployed? That's surely good for a few more studies. Did you know that members of socially devalued groups (minorities, non-heteros, and the like) have higher rates of dysfunction, rather like the unemployed? Hmm, I wonder if there's maybe a similar principle at work. And my solution is not to turn all the people of color white nor to change all the women to men nor to "cure" gays. Well, maybe a few more conclusive studies of this kind will convince me that we must all be the same, toeing the line for those whom it has pleased God to dictate our values to us.

I am convinced that we shouldn't outlaw jobs, because I believe the tons of stories about happy people in their jobs However, I also believe we shouldn't force everyone into jobs, because I know tons of stories about happy people without jobs. You know, the stories that the JG people explain away: parents caring for their children (JG -- "oh, we'll make that a job!"), volunteers working on local planning issues (JG -- "oh, we'll make that a job, too. In fact, we'll make everything worth doing a job. The important thing is to be able to force people to work schedules and bosses, because otherwise, they'll all lie around doing nothing and be miserable"), the retired (JG -- "that's not really the same, but they'd be better off staying in a job"). And this is all before we get to those who can't really hold a job because of disability or geography or other responsibilities.

I support the JG over the current situation, but as to what we should be working for, the more I read the JG arguments, the more paternalistic and just plain narrow minded judgmental they seem.

Summer , November 21, 2017 at 6:52 pm

If someone else gives you a sense of purpose and takes it away what was the purpose?

Lambert Strether , November 22, 2017 at 1:24 am

Data like that provided by Mitchell is important to demolishing the horrid "economic anxiety" frame much beloved by liberals, especially wonkish Democrats.* It's not (a) just feelings , to be solved by scented candles or training (the liberal version of rugged individualism) and (b) the effects are real and measurable. It's not surprising, when you think about it, that the working class is about work .

* To put this another way, anybody who has really suffered the crawling inwardness of anxiety, in the clinical sense, knows that it affects every aspect of one's being. Anxiety is not something deplorables deploy as cover for less than creditable motives.

[Oct 31, 2017] Why GDP Is Fake by Eric ZUESSE

Example with GDP growth after natural disaster is pretty illuminating...
Notable quotes:
"... GDP = Consumption + Investment + Government Spending + Net Exports ..."
"... or more succinctly ..."
"... GDP = C + I + G + NX ..."
"... where consumption (C) represents private-consumption expenditures by households and nonprofit organizations, investment (I) refers to business expenditures by businesses and home purchases by households, government spending (G) denotes expenditures on goods and services by the government, and net exports (NX) represents a nation's exports minus its imports. ..."
"... Here's Dave's explanation: ..."
"... Once I learned about accounting, I figured out why the GDP metric wasn't sufficient. What is missing? ..."
"... The balance sheet. ..."
"... Hurricanes are a direct hit to your nation's balance sheet. The national income statement goes up because of increased spending to replace lost assets, but the "equity" part of the national balance sheet ends up taking a hit in direct proportion to the damage that occurred. Even if you rebuild everything just the way it was, your assets remain the same, while your liabilities have increased. ..."
"... We know this because we use the balance sheet equation: equity = assets – liabilities. Equity is another word for wealth. ..."
"... Before hurricane: ..."
"... wealth = (house + car) – (home debt + car debt) ..."
"... After hurricane, you rebuild your house, and buy a new car, using borrowed money: ..."
"... wealth = (house + car) – (2 x home debt + 2 x car debt) ..."
"... Wealth (equity) has declined by the sum (home debt + car debt) ..."
"... So when you see pictures of a hurricane strike, you can now look through all that devastation and see the impact on the balance sheet. National equity (wealth) just dropped by the amount of damage inflicted by the hurricane. Whether it is ever rebuilt doesn't actually matter; that equity is just gone. Destruction is always a downside for equity – even if there is a temporary positive impact on the income statement. ..."
"... Isn't it interesting that the mainstream economists, who don't use banks, debt, or money in their models, largely ignore balance sheets and instead just looks at the income statement alone? Its almost as if the entire education system was organized so that people paid no attention to banks, debt, and money. Who do you think might benefit from our flock of PhD economists ignoring the extremely profitable debt-elephant in the room, and its purveyors, the banks? ..."
"... without resistance from academics whom those aristocrats likewise finance ..."
Oct 26, 2017 | www.strategic-culture.org

Gross Domestic Product, or GDP, is the most commonly used measure and ranking of a nation's economy. According to the OECD and Wikipedia, its definition is: "an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs) " No subtractions are included in it for debts that were undertaken in order to generate the given "gross values added." A trillion dollars of increased assets (additional "gross values" of "production") adds a trillion dollars to GDP, even if all of it was produced by increasing the debts by a trillion dollars: only the assets-side of the balance-sheet is relevant to GDP.

However, wealth is assets minus liabilities; it is assets minus debts; it is not assets alone. Therefore, a nation's wealth has no necessary relationship at all to a nation's GDP, because the nation's wealth is its assets minus its liabilities, not its assets regardless of its liabilities (such as GDP is).

Britannica provides this definition of "GDP" : "Gross domestic product (GDP), total market value of the goods and services produced by a country's economy during a specified period of time. It includes all final goods and services -- that is, those that are produced by the economic agents located in that country regardless of their ownership and that are not resold in any form. It is used throughout the world as the main measure of output and economic activity." In this definition, too, no subtractions are included in it for the debts. Britannica then goes on to state:

GDP = Consumption + Investment + Government Spending + Net Exports

or more succinctly

GDP = C + I + G + NX

where consumption (C) represents private-consumption expenditures by households and nonprofit organizations, investment (I) refers to business expenditures by businesses and home purchases by households, government spending (G) denotes expenditures on goods and services by the government, and net exports (NX) represents a nation's exports minus its imports.

Kimberly Amadeo at "The Balance" uses that definition , and opens her article about GDP by saying: "Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. It doesn't matter if they are citizens or foreign-owned companies. If they are located within the country's boundaries, the government counts their production as GDP."

However: is GDP, in fact , "the best way to measure a country's economy"? If you're a banker whose income is derived from having a lot of money owed to you, then, of course, you will want to fool the public into believing that ignoring debts that were incurred in producing a given GDP is "the best way to measure a country's economy," because the more fools that believe it, the more income you will make, because people won't be measuring their economic welfare by deducting from it the debts they owe. They will be deceived to think their country to be in better economic and financial position than it is, if the debts that it incurs are being ignored; this ignoring of debt in the ranking of nations' economies will make easier a government's taking on more debt than it should.

Roy H. Webb, of the Richmond Fed, headlined in 1994, "The National Income and Product Accounts" and he presented there a lengthy breakdown of how GDP is calculated, but, yet again, nowhere in that article did any form of the terms "debt" or "liability" appear.

Isn't it obvious, that GDP is a fraud -- and a very influential one?

MBA-Tutorials has an article "Shortcomings of GDP" , but it, too, doesn't mention, in any form, "debts" or "liabilities"; and, so, it, too, is fake.

Bob McTeer, former President of the Dallas Fed, headlined in Forbes on 31 October 2012, "Hurricane Sandy And The Shortcomings Of GDP" , and he opened: "Natural disasters, like Hurricane Sandy, provide periodic reminders, not of the shortcomings of GDP necessarily, but what GDP is designed to measure and what it is not designed to measure." In other words: the bankers excuse GDP because "it is not designed to measure" what it is being routinely used to measure. If the ordinary-language meaning of "GDP" is devoid of the liabilities-side of the balance-sheet, and ranks nations' economic performance in that way -- by ignoring any additional indebtedness that went into generating that additional "production" -- then what language was Dr. McTeer even writing in, there (since it wasn't ordinary language -- language as it's commonly understood)? That statement by McTeer, too, therefore, is deceit. In the rest of his article, he blathers on. And, nowhere in that article, either, are the words "debts" or "liabilities" used, in any form.

Deceit regarding GDP is routine, just as such a fake 'misuse' of "GDP" is routine. (It's really no "misuse" of the term, at all.) GDP is designed to be a misleading basis for ranking the economic performance of countries; it's used for the purpose it's intended for, because the purpose it's intended for is to deceive the public in this very way -- to ignore debt -- and, so, that's the way it's used.

However, Charles Hugh Smith, at several blogs, explained the matter honestly, instead of (as is normally done) as a representative of the debt-industries, when he headlined on 19 October 2017, "GDP Is Bogus: Here's Why" , and he presented there a superbly clear example, which applies not only to Hurricane Sandy, but to any natural disaster or war, and thus (by implication) constitutes a threat to not only the debt-industries (the financial firms), but also the man-made-disaster industries (the war-firms), such as Dwight Eisenhower famously (but only vaguely) referred to in his final words parting from the White House and handing it over to JFK in 1961, as "the military-industrial complex," against which Eisenhower vaguely was warning there.

Charles Hugh Smith's example, much clearer than McTeer's blather, had allegedly come from some accountant, "Dave," and presented (without linking to) the following:

Here's Dave's explanation:

Once I learned about accounting, I figured out why the GDP metric wasn't sufficient. What is missing?

The balance sheet.

Hurricanes are a direct hit to your nation's balance sheet. The national income statement goes up because of increased spending to replace lost assets, but the "equity" part of the national balance sheet ends up taking a hit in direct proportion to the damage that occurred. Even if you rebuild everything just the way it was, your assets remain the same, while your liabilities have increased.

We know this because we use the balance sheet equation: equity = assets – liabilities. Equity is another word for wealth.

Before hurricane:

wealth = (house + car) – (home debt + car debt)

After hurricane, you rebuild your house, and buy a new car, using borrowed money:

wealth = (house + car) – (2 x home debt + 2 x car debt)

Wealth (equity) has declined by the sum (home debt + car debt)

So when you see pictures of a hurricane strike, you can now look through all that devastation and see the impact on the balance sheet. National equity (wealth) just dropped by the amount of damage inflicted by the hurricane. Whether it is ever rebuilt doesn't actually matter; that equity is just gone. Destruction is always a downside for equity – even if there is a temporary positive impact on the income statement.

Isn't it interesting that the mainstream economists, who don't use banks, debt, or money in their models, largely ignore balance sheets and instead just looks at the income statement alone? Its almost as if the entire education system was organized so that people paid no attention to banks, debt, and money. Who do you think might benefit from our flock of PhD economists ignoring the extremely profitable debt-elephant in the room, and its purveyors, the banks?

By means of deceits such as using false measures of nations' economic performance, like that, the aristocracy and its agents, in all countries -- the owners of banks like HSBC, and of 'defense' contractors like Lockheed Martin, etc. -- can, and do, without resistance from academics whom those aristocrats likewise finance , use fake 'measures' of nations' economic performance, so as to advance their own private economic performances, by fooling their narcoticized public into accepting these economic and financial bloodsuckers, accepting them by ignoring whatever blood might be lost in the process. Or: are they, too, merely fools? They function more like vampires, than like fools. But, apparently, the victims -- here, the public -- just don't awake from this bite, and, so, it will probably continue until the next great economic crash, after which, yet again, the government will go into still more debt, in order to 'recover' from these 'mistakes'. That sounds like a good business to be in -- a stable business, of the "heads I win, tales you lose" type. It might not be irresistible, but no one is resisting it. Now, why would that be?

[Sep 17, 2017] GDP was never meant to be a measure of how well-off society is. Only under neoliberalism it has become such a fake indicator with huge propaganda value

Notable quotes:
"... "Here is my two cents: these three researchers may have just put the nail in the coffin of using production-side measures of the free economy-and that is not really all that bad. GDP is a measure of total production. It was ever meant to be a measure of how well-off society has become. ..."
"... While introduction of the concept of GDP and systematic its measurement (with all its warts, especially in calculation of "real GDP") was a great achievement, absolutization of GDP under neoliberalism and, especially, false equivalence between GDP growth and growth of the standard of living of population are dangerous neoliberal myths. ..."
"... We should fight neoliberal cult of GDP. ..."
"... Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what. ..."
Jun 12, 2017 | economistsview.typepad.com

Christopher H. , June 12, 2017 at 03:10 PM

Interesting post at Digitopoly by Shane Greenstein

"Here is my two cents: these three researchers may have just put the nail in the coffin of using production-side measures of the free economy-and that is not really all that bad. GDP is a measure of total production. It was ever meant to be a measure of how well-off society has become.

More to the point, maybe it is time to focus on the demand-side measures of free goods. In other words, you get a lot more for your Internet subscription, but nothing in GDP reflects that. For example, the price index for Internet services should reflect qualitative improvement in user experiences, and needs to improve."

libezkova said in reply to Christopher H.... , June 12, 2017 at 07:44 PM
While introduction of the concept of GDP and systematic its measurement (with all its warts, especially in calculation of "real GDP") was a great achievement, absolutization of GDP under neoliberalism and, especially, false equivalence between GDP growth and growth of the standard of living of population are dangerous neoliberal myths.

We should fight neoliberal cult of GDP.

Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements":

The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

In 1962, Kuznets stated:

Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

[Sep 11, 2017] The only countervailing force, unions, were deliberately destroyed. Neoliberalism needs to atomize work force to function properly and destroys any solidarity among workers. Unions are anathema for neoliberalism, because they prevent isolation and suppression of workers.

Highly recommended!
Apr 15, 2017 | economistsview.typepad.com
Denis Drew , April 15, 2017 at 06:58 AM
What's missing in each and every case above -- at least in the USA! -- is countervailing power. 6% labor union density in private business is equivalent to 20/10 blood pressure in the human body: it starves every other healthy process.

It is not just labor market bargaining power that has gone missing, it is not only the lost political muscle for the average person (equal campaign financing, almost all the votes), it is also the lack of machinery to deal with day-to-day outrages on a day-to-day basis (that's called lobbying).

Late dean of the Washington press corps David Broder told a young reporter that when he came to DC fifty years ago (then), all the lobbyists were union. Big pharma's biggest rip-offs, for profit school scams, all the stuff you hear about for one day on the news but no action is ever taken -- that's because there is no (LABOR UNION) mechanism to stay on top of all (or any) of it (LOBBYISTS).

cm -> Denis Drew ... , April 15, 2017 at 12:16 PM
It is a chicken and egg problem. Before large scale automation and globalization, unions "negotiated" themselves their power, which was based on employers having much fewer other choices. Any union power that was ever legislated was legislated as a *result* of union leverage, not to enable the latter (and most of what was legislated amounts to limiting employer interference with unions).

It is a basic feature of human individual and group relations that when you are needed you will be treated well, and when you are not needed you will be treated badly (or at best you will be ignored if that's less effort overall). And by needed I mean needed as a specific individual or narrowly described group.

What automation and globalization have done is created a glut of labor - specifically an oversupply of most skill sets relative to all the work that has to be done according to socially mediated decision processes (a different set of work than what "everybody" would like to happen as long as they don't have to pay for it, taking away from other necessary or desired expenditure of money, effort, or other resources).

Maybe when the boomers age out and become physically too old to work, the balance will tip again.

Peter K. -> cm... , April 15, 2017 at 12:18 PM
"What automation and globalization have done is created a glut of labor - "

No it's been policy and politics. Automation and globalization are red herrings. They've been used to enrich the rich and stick it to everyone else.

They don't have to be used that way.

There is nothing natural or inherent about it. It's all politics and class war and the wrong side is winning.

cm -> Peter K.... , April 15, 2017 at 01:32 PM
OK - they have *enabled* it. The agency is always on the human side. But at the same time, you cannot wish or postulate away human greed.
cm -> Peter K.... , April 15, 2017 at 01:44 PM
Same thing with the internet - it has been hailed as a democratizing force, but instead it has mostly (though not wholly) amplified the existing power differentials and motivation structures.

Anecdotally, a lot of companies and institutions are either restricting internal internet access or disconnecting parts of their organizations from the internet altogether, and disabling I/O channels like USB sticks, encrypting disks, locking out "untrusted" boot methods, etc. The official narrative is security and preventing leaks of confidential information, but the latter is clearly also aimed in part at whistleblowers disclosing illegal or unethical practices. Of course that a number of employees illegitimately "steal" data for personal and not to uncover injustices doesn't really help.

Denis Drew -> cm... , April 15, 2017 at 03:19 PM
Surely there is a huge difference between the labor market here and the labor market in continental Europe -- though labor there faces the same squeezing forces it faces here. Think of German auto assembly line workers making $60 an hour counting benefits.

Think Teamster Union UPS drivers -- and pity the poor, lately hired (if they are even hired) Amazon drivers -- maybe renting vans.

The Teamsters have the only example here of what is standard in continental Europe: centralized bargaining (aka sector wide labor agreements): the Master National Freight Agreement: wherein everybody doing the same job in the same locale (entire nation for long distance truckers) works under one common contract (in French Canada too).

Imagine centralized bargaining for airlines. A few years ago Northwest squeezed a billion dollars in give backs out of its pilots -- next year gave a billion dollars in bonuses to a thousand execs. Couldn't happen under centralized bargaining -- wouldn't even give the company any competitive advantage.

libezkova -> Denis Drew ... , April 15, 2017 at 04:14 PM
"What's missing in each and every case above -- at least in the USA! -- is countervailing power."

It was deliberately destroyed. Neoliberalism needs to "atomize" work force to function properly and destroys any solidarity among workers. Unions are anathema for neoliberalism, because they prevent isolation and suppression of workers.

Amazon and Uber are good examples. Both should be prosecuted under RICO act. Wall-Mart in nor far from them.

Rising fatalities from heart disease and stroke, diabetes, drug overdoses, accidents and other conditions caused the lower life expectancy revealed in a report by the National Center for Health Statistics .

http://www.cdc.gov/nchs/products/databriefs/db267.htm

http://economistsview.typepad.com/economistsview/2017/03/paul-krugman-the-scammers-the-scammed-and-americas-fate.html#comment-6a00d83451b33869e201b7c8e3c7c6970b

== quote ==
Anne Case and Angus Deaton garnered national headlines in 2015 when they reported that the death rate of midlife non-Hispanic white Americans had risen steadily since 1999 in contrast with the death rates of blacks, Hispanics and Europeans. Their new study extends the data by two years and shows that whatever is driving the mortality spike is not easing up.
... ... ..

Offering what they call a tentative but "plausible" explanation, they write that less-educated white Americans who struggle in the job market in early adulthood are likely to experience a "cumulative disadvantage" over time, with health and personal problems that often lead to drug overdoses, alcohol-related liver disease and suicide.

== end of quote ==

Greed is toxic. As anger tends to accumulate, and then explode, at some point neoliberals might be up to a huge surprise. Trump was the first swan.

Everybody bet on Hillary victory. And then...

[Jul 12, 2017] Ever more official lies from the US government by Paul Craig Roberts

Notable quotes:
"... John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries. ..."
"... It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%. ..."
Jul 12, 2017 | www.unz.com

The "recovery" is more than a mystery. It is a miracle. It exists only on fake news paper.

According to CNN, an unreliable source for sure, Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, reports that about half of Americans report that their living expenses are equal to or exceed their incomes. Among those aged 18 to 25 burdened by student loans, 54% say their debts are equal to or exceed their incomes. This means that half of the US population has ZERO discretionary income. So what is driving the recovery?

Nothing. For half or more of the US population there is no discretionary income there with which to drive the economy.

The older part of the population has no discretionary income either. For a decade there has been essentially zero interest on the savings of the elderly, and if you believe John Williams of shadowstats.com, which I do, the real interest rates have been zero and even negative as inflation is measured in a way designed to prevent Social Security cost of living adjustments.

In other words, the American economy has been living on the shrinkage of the savings and living standards of its population.

Last Friday's employment report is just another lie from the government. The report says that the unemployment rate is 4.4% and that June employment increased by 222,000 jobs. A rosy picture. But as I have just demonstrated, there are no fundamentals to support it. It is just another US government lie like Saddam Hussein's weapons of mass destruction, Assad's use of chemical weapons against his own people, Russian invasion of Ukraine, and so forth and so on.

The rosy unemployment picture is totally contrived. The unemployment rate is 4.4% because discouraged workers who have not searched for a job in the past four weeks are not counted as unemployed.

The BLS has a second measure of unemployment, known as U6, which is seldom reported by the presstitute financial media. According to this official measure the US unemployment rate is about double the reported rate.

Why? the U6 rate counts discouraged workers who have been discouraged for less than one year.

John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries.

It is very easy for the government to report a low jobless rate when the government studiously avoids counting the unemployed.

It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%.

Now, let's do what I have done month after month year after year. Let's look at the jobs that the BLS alleges are being created. Remember, most of these alleged jobs are the product of the birth/death model that adds by assumption alone about 100,000 jobs per month. In other words, these jobs come out of a model, not from reality.

Where are these reported jobs? They are where they always are in lowly paid domestic services. Health care and social assistance, about half of which is "ambulatory health care services," provided 59,000 jobs. Leisure and hospitality provided 36,000 jobs of which 29,300 consist of waitresses and bartenders. Local government rose by 35,000. Manufacturing, once the backbone of the US economy, provided a measly 1,000 jobs.

As I have emphasized for a decade or two, the US is devolving into a third world workforce where the only employment available is in lowly paid domestic service jobs that cannot be offshored and that do not pay enough to provide an independent existance. This is why 50% of 25-year olds live at home with their parents and why there are more Americans aged 24-34 living with parents than living indepenently.

This is not the economic profile of a "superpower" that the idiot neoconservatives claim the US to be. The American economy that offshoring corporations and financialization have created is incapable of supporting the enormous US debt burden. It is only a matter of time and circumstance.

I doubt that the United States can continue in the ranks of a first world economy. Americans have sat there sucking their thumbs while their "leaders" destroyed them.

(Republished from PaulCraigRoberts.org by permission of author or representative)

[Jul 05, 2017] NAIRU is dead, not because of measurement problems, but because the underlying employment theory is false

Notable quotes:
"... NAIRU is a specific claim and estimate about the way the economy works. As you discovered yourself, the Fed literally produces a NAIRU estimate and uses that estimate to determine policy. NAIRU cannot be estimated accurately, and furthermore there is zero evidence of accelerating inflation. So there is literally nothing redeeming about the theory except to say that there is some relationship between supply labor, and inflation. Which is to say, that your support of the thing is wrong, and all of our criticisms that NAIRU is trash are correct. ..."
"... The answer is that there is no unemployment rate that generates accelerating inflation. As inflation is not simply a relationship between unemployment and prices. Inflation is a result of many different types of inputs. ..."
"... There are literally zero examples of low unemployment rates, even below 1% during WWII, that have resulted in accelerating inflation. You and the NAIRU crowd have no legs to stand on. ..."
"... You make the same mistake as all illiterate persons, that is, you cannot read. What I have clearly stated is: "NAIRU is dead, not because of measurement problems, but because the underlying employment theory is false."* The measurement problem is a side issue.** ..."
"... "better to say that there is no necessary or constant relationship between employment and inflation that can be expressed either as a function or a rule," ..."
"... Good line here Tom... they don't have a function... ..."
"... I've closely followed this NAIRU argument here and on other threads. I don't have a dog in this fight, but it seems perfectly obvious from all this that Auburn and Brian have this exactly right. And for the life of me I cannot fathom how anyone can misunderstand their argument: there may be a link between employment and inflation, but the NAIRU doesn't capture it. There may be a link between dogs barking at a full moon, but my theory of a moon made out of green cheese doesn't capture it. ..."
"... Standard labor market theory as it is incorporated in the NAIRU-Phillips curve is not vaguely true, or evolutionary true as David Glasner maintains, but provable false. ..."
Jul 05, 2017 | mikenormaneconomics.blogspot.com

Ralph Musgrave said... February 28, 2017 at 4:06 PM

Brian,

For the second time, you claimed "Nobody says there is no relationship between supply, employment, and inflation." My answer is the same as before: what does Brian Romanchuk mean by saying NAIRU should be "bashed, smashed and trashed". Seems a pretty outright condemnation of the whole idea to me.

Tom,

You say "Probably better to say that there is no necessary or constant relationship…". Quite agree. But whoever said there WAS a constant relationship? Certainly not the Fed. Anyone with a bit brain ought to realise that NAIRU will vary with a whole host of variables: standards of education, recent unemployment levels (hystersis) and so on.

EK-H,

You make the naïve mistake many people make of thinking the because something cannot be measured accurately that therefor it does not have a precise value. The amount of iron in the Moon has a very very precise value indeed. Ask God how much iron there is on and in the Moon and he'd tell you the figure to the nearest 0.00000001%. In contrast, astronomers might not know the quantity to better than plus or minus 10% for all I know. It is therefor perfectly permissible to write equations or get involved in discussions which assume a very very precise value for the amount of iron in the Moon. Same goes for NAIRU.

Much of the stuff I've written makes the latter assumption: it is helpful to make that assumption sometimes.

Auburn Parks said.. February 28, 2017 at 4:39 PM .

No Egmont, its not about scientific idiocy. Its about the nature of the subject. Economics is not different than social psychology in this regard.

Ralph-

NAIRU is a specific claim and estimate about the way the economy works. As you discovered yourself, the Fed literally produces a NAIRU estimate and uses that estimate to determine policy. NAIRU cannot be estimated accurately, and furthermore there is zero evidence of accelerating inflation. So there is literally nothing redeeming about the theory except to say that there is some relationship between supply labor, and inflation. Which is to say, that your support of the thing is wrong, and all of our criticisms that NAIRU is trash are correct.

What is the unemployment rate that would correspond to accelearating inflation right now Ralph?

Auburn Parks said.. February 28, 2017 at 4:42 PM .
The answer is that there is no unemployment rate that generates accelerating inflation. As inflation is not simply a relationship between unemployment and prices. Inflation is a result of many different types of inputs.

There are literally zero examples of low unemployment rates, even below 1% during WWII, that have resulted in accelerating inflation. You and the NAIRU crowd have no legs to stand on.

AXEC / E.K-H said.. February 28, 2017 at 4:43 PM .
Ralph Musgrave

You say: "You make the naïve mistake many people make of thinking the because something cannot be measured accurately that therefore it does not have a precise value."

You make the same mistake as all illiterate persons, that is, you cannot read. What I have clearly stated is: "NAIRU is dead, not because of measurement problems, but because the underlying employment theory is false."* The measurement problem is a side issue.**

Egmont Kakarot-Handtke

* See 'NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather'
http://axecorg.blogspot.de/2017/02/nairu-exhaustive-dancing-angels-on.html
** See 'NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy'
http://axecorg.blogspot.de/2017/02/nairu-and-scientific-incompetence-of.html

AXEC / E.K-H said.. February 28, 2017 at 5:11 PM .
Auburn Parks

The moronic part of economists, i.e. the vast majority, maintains that economics is a social science. Time to wake up to the fact that economics is a system science.#1

Economics is NOT a science of individual/social/political behavior - this is the social science delusion - but of the behavior of the monetary economy . All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/ Darwinism, political science, social philosophy, history, etcetera) and are taken in from these by way of multi-disciplinary cooperation.#2

The economic system is subject to precise and measurable systemic laws.#3

Egmont Kakarot-Handtke

#1 See 'Lawson's fundamental methodological error and the failure of Heterodoxy'
http://axecorg.blogspot.de/2016/03/lawsons-fundamental-methodological.html
#2 See 'Economics and the social science delusion'
http://axecorg.blogspot.de/2016/03/economics-and-social-science-delusion.html
#3 See 'The three fundamental economic laws'
http://axecorg.blogspot.de/2016/03/the-three-fundamental-economic-laws.html

Tom Hickey said.. February 28, 2017 at 6:19 PM .
But whoever said there WAS a constant relationship? Certainly not the Fed.

Not now. They had to learn this by first the NAIRU model that assumed a natural rate and cet. par., and then the difficulty of writing a rule that could be applied across time.

Too many confounding factors involved that are not directly related to employment or the interest rate.

And there are still people calling for a rule.

Noah Way said.. February 28, 2017 at 7:30 PM .
"Economic science" is an oxymoron.
AXEC / E.K-H said.. March 1, 2017 at 5:39 AM .
Noah Way

You say: "'Economic science' is an oxymoron."

It is, first of all, of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics the scientific standards of material and formal consistency are observed.

Political economics has produced NOTHING of scientific value in the last 200+ years. The four majors approaches - Walrasianism, Keynesianism, Marxianism, Austrianism - are mutually contradictory, axiomatically false, and materially/formally inconsistent.

A closer look at the history of economic thought shows that theoretical economics (= science) had been hijacked from the very beginning by the agenda pushers of political economics. These folks never rose above the level of vacuous econ-waffle. The whole discussion from Samuelson/Solow's unemployment-inflation trade-off to Friedman/Phelps's natural rate to the rational expectation NAIRU is a case in point.

The NAIRU-Phillips curve has zero scientific content. It is a plaything of retarded political economists. Samuelson, Solow, Friedman, Phelps, and the rest of participants in the NAIRU discussion up to Wren-Lewis are fake scientists.*

Egmont Kakarot-Handtke

* See also 'Modern macro moronism'
http://axecorg.blogspot.de/2017/02/modern-macro-moronism.html

Matthew Franko said.. March 1, 2017 at 8:13 AM .
"better to say that there is no necessary or constant relationship between employment and inflation that can be expressed either as a function or a rule,"

Good line here Tom... they don't have a function...

But I would point out that with the employment issue, we have had an unregulated system interface (open borders) for decades which is ofc going to result in chaos..

Ralph Musgrave said.. March 1, 2017 at 10:20 AM .
EK-H,

I see: so you're saying the "underlying employment theory" of NAIRU "is false": i.e. you're saying there is no relationship between inflation and unemployment.

Why then don't you advocate a massive increase in demand. Think of the economic benefits and social problems solved.!!

Reason you don't advocate that is that, like all the other NAIRU deniers, you know perfectly well that THERE IS a relationship between inflation and unemployment.!!

AXEC / E.K-H said.. March 1, 2017 at 1:43 PM .
Ralph Musgrave

It would be fine if you could first learn to read and to think and to do your economics homework.

The point at issue is the labor market theory and the remarkable fact of the matter is that economists have after 200+ years NO valid labor market theory. The proof is in the NAIRU-Phillips curve. So what these failures are in effect doing is giving policy advice without sound theoretical foundation. Scientists don't do this.

What is known since the founding fathers about the separation of politics and science is this: "A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision." (J. S. Mill)

The first point is that economists violate the separation of politics and science on a daily basis.#1 The second point is that their unwarranted advice is utter rubbish because they have NO idea how the economy works. The problem society has with economists is that it would be much better off without these clowns.

You ask me: "Why then don't you advocate a massive increase in demand. Think of the economic benefits and social problems solved.!!"

Answer: The business of the economist is the true theory about how the economic system works and NOT the solution of social problems. This is the proper business of politicians. In addition, an economist who understands how the price and profit mechanism works does not make such a silly proposal, only brain-dead political agenda pushers do.#2

What I am indeed advocating is that retarded econ-wafflers are thrown out of economics and that economics gets finally out of what Feynman aptly called cargo cult science.#3

Economists claim since more that 200 years that they are doing science and this is celebrated each year with the 'Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel'. Time to make this claim come true.

The only thing economist like you can actively do to contribute to the progress of economics is switching on TV and watching 24/365.

Egmont Kakarot-Handtke

#1 See 'Scientific suicide in the revolving door'
http://axecorg.blogspot.de/2016/11/scientific-suicide-in-revolving-door.html
#2 See 'Rethinking deficit spending'
http://axecorg.blogspot.de/2016/12/rethinking-deficit-spending.html
#3 See 'Economists and the destructive power of stupidity'
http://axecorg.blogspot.de/2017/02/economists-and-destructive-power-of.html

Ralph Musgrave said.. March 1, 2017 at 2:14 PM .
EKH,

"The business of the economist is the true theory about how the economic system works and NOT the solution of social problems. This is the proper business of politicians."

"The business of the economist" is not just "true theory": it is also to give the best economic advice they can even where the theory is clearly defective. In the case of the relationship between inflation and unemployment, the EXACT nature of that relationship is not known with much accuracy, but governments just have to take a judgement on what level of unemployment results in too much inflation. Ergo economics have a duty to give the best advice they can in the circumstances.

Re social problems, your above quote also doesn't alter the fact that economists are in a position to solve HUGE social problems if they promote an increase in demand where that is possible. So why are you so reluctant to solve those social problems by advocating a huge increase in demand. It's blindingly obvious.

Like all the other NAIRU deniers, you know perfectly well there is a relationship between inflation and unemployment!!

David Swan said.. March 1, 2017 at 3:23 PM .
To say that there is "a" relationship between inflation and unemployment does not even remotely support the claims inherent in the NAIRU, nor does it justify its use to guide the macroeconomic framework. NAIRU does not claim that there is "a" relationship between inflation and unemployment (that lesser claim is covered adequately by the Phillips Curve). NAIRU claims that low levels of unemployment generate ACCELERATING inflation (i.e. "hyperinflation"), a claim based on pure sophistry and nothing else. If you would like to support the NAIRU's utterly fallacious claim that low unemployment generates ACCELERATING inflation, then please provide data to support that claim.

Furthermore, "a" relationship between unemployment and inflation in no way justifies the central bank intervention of choking off economic growth to prevent "too many jobs". Is the inflation harmful or benign? With the historical perspective available to us from nearly 5 decades of NAIRU, all that is required is to look at the chart of hourly wage growth vs productivity and observe that real wages growth took a sharp right turn at the very time NAIRU was implemented worldwide. There has not been one iota of real wage growth since the 70's (despite low inflation), whereas the real wage grew steadily prior to that (despite moderate inflation). If that is the price of "protecting" us from inflation, then in what way is it beneficial to do so?

Brian Romanchuk said.. March 1, 2017 at 3:38 PM .
I see Ralph Musgrave referred to my article again.

Good Lord, how can I make what I wrote simpler to understand?

The DEFINITION of NAIRU is the level of the unemployment rate at which the price level starts to accelerate. Sure, there's usually another variable in there mucking up the works, but it's going to be a second order effect in the current environment.

AXEC / E.K-H said.. March 1, 2017 at 4:42 PM .
Ralph Musgrave

You say: "Ergo economics have a duty to give the best advice they can in the circumstances."

The only duty of scientifically incompetent economists is to throw themselves under the bus. Economists are a menace to their fellow citizens as Napoleon already knew: "Late in life, moreover, he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust." (Viner)

Economists do NOT solve social problems they ARE a social problem.

You repeat your silly question: "So why are you so reluctant to solve those social problems by advocating a huge increase in demand. It's blindingly obvious."

Yes it is blindingly obvious that deficit spending does NOT solve social problems but CREATES the social problem of an insanely unequal distribution (see the references above).

This follows from the true labor market theory which is given with the systemic employment equation.#1 "The correct theory of the macroeconomic price mechanism tells us that ― for purely SYSTEMIC reasons ― the average wage rate has in the current situation to rise faster than the average price. THIS opens the way out of mass unemployment, deflation, and stagnation and NOT the blather of scientifically incompetent orthodox and heterodox agenda pushers."#2

Right policy depends on true theory: "In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion." (Stigum)

Economists do not have the true theory. They have NOTHING to offer. The NAIRU-Phillips curve is provable false. Because of this ALL economic policy conclusions drawn from it are counterproductive, that is, they WORSEN the situation. So, Samuelson, Solow, Friedman, Phelps and the other NAIRU-Phillips curve proponents bear the responsibility for mass unemployment and the social devastation that comes with it.

From the fact that the NAIRU labor market theory is false follows that economists are incompetent scientists and that ALL their economic policy proposals are scientifically worthless.

Egmont Kakarot-Handtke

#1 See 'NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather'
http://axecorg.blogspot.de/2017/02/nairu-exhaustive-dancing-angels-on.html
#2 See 'NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy'
http://axecorg.blogspot.de/2017/02/nairu-and-scientific-incompetence-of.html

John said.. March 2, 2017 at 9:53 AM .
I've closely followed this NAIRU argument here and on other threads. I don't have a dog in this fight, but it seems perfectly obvious from all this that Auburn and Brian have this exactly right. And for the life of me I cannot fathom how anyone can misunderstand their argument: there may be a link between employment and inflation, but the NAIRU doesn't capture it. There may be a link between dogs barking at a full moon, but my theory of a moon made out of green cheese doesn't capture it.
AXEC / E.K-H said.. March 5, 2017 at 5:29 AM .
NAIRU and economists' lethal swampiness.

Comment on David Glasner on 'Richard Lipsey and the Phillips Curve Redux'

David Glasner contributes to the NAIRU discussion#1 by reproducing essential content of his 2013 paper. Back then he propagated Lipsey's concept of multiple equilibria or band of unemployment (NAIBU) which is consistent with a stable rate of inflation. The NAIBU concept is a fine example of the tendency of economists to soften, relativize, qualify, and semantically dilute every concept until it is senseless and useless.

It is the very characteristic of economics that there are no well-defined concepts and this begins with the pivotal economic concepts profit and income. The habit of swampification keeps the discourse safely in the no man's land where "nothing is clear and everything is possible" (Keynes) and where anything goes.

Swampification is what Popper called an immunizing strategy. The beauty of vagueness and ambiguity is that it cannot be falsified: "Another thing I must point out is that you cannot prove a vague theory wrong." (Feynman)#2

David Glasner applies the concept of evolution in order to swampify the NAIRU: "The current behavior of economies … is consistent with evolutionary theory in which the economy is constantly evolving in the face of path-dependent, endogenously generated, technological change, and has a wide range of unemployment and GDP over which the inflation rate is stable."

In other words, presumably there is a relationship between unemployment and inflation but nobody knows what it is. While science is known to strive for uniqueness, economics is known to strive for ambiguity and obfuscation. This swampiness is rationalized as realism. After all, reality is messy, isn't it?

To recall, the Phillips curve started as a simple and remarkably stable EMPIRICAL relationship between wage rate changes and the rate of unemployment. The original Phillips curve was reinterpreted and thereby messed up by Samuelson and Solow who introduced the economic policy trade-off between inflation and unemployment which was finally thrown out again with the NAIRU.

A conceptional error/mistake/blunder slipped in with the bastardization of the original Phillips curve that was never rectified but in effect buried under a huge heap of inconclusive economic shop talk. This means that until this very day economics has no valid theory of the labor market.

See part 2

AXEC / E.K-H said.. March 5, 2017 at 5:34 AM .
Part 2

So, the microfounded NAIRU-Phillips curve has first of all to be rectified.#3 The macrofounded SYSTEM-Phillips curve is shown on Wikimedia
https://commons.wikimedia.org/wiki/File:AXEC62.png

From this correct employment equation follows in the MOST ELEMENTARY case that an increase of the macro-ratio rhoF=W/PR leads to higher total employment L. The ratio rhoF embodies the price mechanism. Let the rate of change of productivity R for simplicity be zero, i.e. r=0, then there are three logical cases, that is, THREE types of inflation.
(i) If the rate of change of the wage rate W is equal to the rate of change of the price P, i.e. w=p, then employment does NOT change NO MATTER how big or small the rates of change are. That is, NO amount of inflation or deflation has any effect on employment. Inflation is neutral, there is no trade-off between unemployment and inflation.
(ii) If the rate of change of the wage rate is greater than the rate of change of the price then employment INCREASES. There is a POSITIVE effect of inflation on employment.
(iii) If the rate of change of the wage rate is smaller than the rate of change of the price then employment DECREASES. There is a NEGATIVE effect of inflation on employment.

So, it is the DIFFERENCE in the rates of change of wage rate and price and not the absolute magnitude of change that is decisive. Every PERFECTLY SYNCHRONOUS inflation/deflation is employment-neutral, that is, employment remains indefinitely where it actually is. The neutral inflation can start at ANY point between full and zero employment. The crucial fact to notice is that there is no such thing as "inflation", there are THREE types of inflation.

The systemic employment equation defines the causal relationship of "inflation" on employment. However, there is the inverse causality of employment on "inflation".

Common sense suggests that positive inflation (ii) is more probable the closer actual employment is at full employment and negative inflation (iii) is more probable the farther away actual employment is from full employment. In other words: the market economy is inherently unstable. The feed-back loop between employment and "inflation" is the very antithesis to the idea of equilibrium. To recall, the NAIRU is DEFINED as an equilibrium. Standard economics has built equilibrium right into the premises, i.e. into the axiomatic foundations. All of economics starts with the idea that the market economy is an equilibrium system. It turns out that this premise is false, just the opposite is the case.

Standard labor market theory as it is incorporated in the NAIRU-Phillips curve is not vaguely true, or evolutionary true as David Glasner maintains, but provable false.

Egmont Kakarot-Handtke

#1 See 'NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather'
http://axecorg.blogspot.de/2017/02/nairu-exhaustive-dancing-angels-on.html
and 'NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy'
http://axecorg.blogspot.de/2017/02/nairu-and-scientific-incompetence-of.html
#2 "By having a vague theory it is possible to get either result. ... It is usually said when this is pointed out, 'When you are dealing with psychological matters things can't be defined so precisely'. Yes, but then you cannot claim to know anything about it."
#3 See 'Keynes' Employment Function and the Gratuitous Phillips Curve Disaster'
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2130421

[Jun 12, 2017] Monopoly power can increase nairu, while suppressing unions can decrease nairu

Jun 12, 2017 | economistsview.typepad.com

djb , June 10, 2017 at 01:42 AM

Fed Needs a Better Inflation Target - Narayana Kocherlakota

yes for a given amount of monopoly power, which the fed does not really control,

the most the fed can do is work on the real interest rates

but if we have less monopoly power that would reduce the part of nairu that is also known as involuntary unemployment, and help real wages, without having so much inflation

in other words closer we get to full a perfectly componetitive market, the less change of accelerating inflation because in a perfectly competitive market , firms are price takers not price makers

in a perfectly competitive market, the unions couldn't drive inflation, without monopoly power there is no accelerating inflation period

the fed cant control that only the legislature and judiciary can control the ext of monopoly power

the point is the can only target inflation and real interest rates

but there are other factors that can get us to full employment, ie eliminate involuntary employment, that affect inflation wages and employment in different ways and different directions

and those factors other than inflation and interest rates that affect involuntary unemployment seem to be ignored when we are having these discussion

pgl - , June 10, 2017 at 01:49 AM
Good point. Thanks for remembering this is an economist blog.
djb - , June 10, 2017 at 07:34 AM
NAIRU is painted as some dyed in the wool equilibrium point that the universe will always tend

you know the "natural level" of unemployment

you know where 'NATURE" wants to go

fact is it is no such thing

monopoly power can increase nairu

suppressing unions can decrease nairu,

both hurt workers

djb - , June 10, 2017 at 07:37 AM
a stronger safety can increase nairu and help wages

[Jun 12, 2017] Digitopoly The Value of Free in GDP

Jun 12, 2017 | www.digitopoly.org
Did the rise of free information technology improve GDP? It is commonly assumed that it did.

After all, the Internet has changed the way we work, play, and shop. Smartphones and free apps are ubiquitous. Many forms of advertising moved online quite a while ago and support gazillions of "free" services. Free apps changed leisure long ago-just ask any teenager or any parent of a teenager. Shouldn't that add up to a lot?

Think again. The creation of the modern system of GDP economic accounting was among the greatest economic inventions of the 20th century. Initially created in the US and Britain, this system has been improved for decades, and, for all intents and purposes, it is the system in every modern government around the world today.

Although this system contains some flexibility, it also has its rigidities, especially when it comes to free services. I expect the answer to sit awkwardly with most readers. Nonetheless, a little disciplined thinking yields a few insights about the modern experience, and that is worth the effort.

... ... ...

This was an obvious problem when commercial television first spread using advertising as its primary revenue source. The consumption is free, and the only revenue comes from advertising. When the TV experience improved- say, as it moved from black and white to color - GDP recorded only the revenue for television sets and advertising, not the user experience.

There was hope that industry specialists would find some underlying proportional relationship between consumption of services and advertising revenue-for example, between the time watching TV and the value of watching commercials. Such proportionality would have been very handy for economic accounting, because it would yield an easy proxy for improvement in the quality of services. Accountants would merely have to examine improvement in advertising revenue.

Alas, no such relationship could be found. Just look at the history of television to understand why. Television has gotten much better over the last few decades, but-for many reasons-total advertising has not grown. The economics is just not that simple.

A similar problem has arisen today. Search engines attract users, and that generates tens of billions of dollars of revenue from advertisers, and that revenue contributes to GDP. However, the services delivered by search contribute no revenue and, by definition, contribute nothing to GDP. With so many free services today, this weakness in GDP accounting seems awkward. It does not matter how amazing the services are, nor how much they have improved over time. Any improvement in the quality of search services is not a contribution in GDP except insofar as it generates more advertising dollars.

Recently, three professional economists- Leonard Nakamura, Jon Samuels, and Rachel Soloveichik-tried to wade into this topic again, and tried something experimental and novel. They wondered how GDP would change if these free services were reconceived as a barter.

Kien says: Jun 10, 2017 at 11:43 pm

Hi, thanks for your wonderful blog.

A good way to try and quantify the value of free goods/services is to estimate (as best as one can) how those goods/services make us healthier and/or live longer active lives. A solution free environment and public parks are good examples of free services that make us healthier. In principle, the social media (e.g., Facebook) and voluntary work could reduce social alienation, and make people healthier.

On the other hand, some goods/services that contribute to the GDP can have negative effects on health & wellbeing – e.g., gambling.

Just a suggestion!

Kien

[May 31, 2017] Nairu does not make sense

Notable quotes:
"... Of course part of the point of 401(k) and similar plans is to "align" workers with the company and companies in general, aside from paying them in stock rather than cash. I suspect it works more so than it doesn't, overall. ..."
"... Sarcasm or satire, yes. I'm not claiming that the narrative is "correct", but that it exists. Surely you must have heard of "alignment" between shareholders and employees. Usually used to justify large stock grants to executives, but also applicable more broadly. ..."
"... And in the case of vesting, (3) employees are supposedly reluctant to "leave money on the table" by quitting before the stock is vested. This must work in aggregate or companies wouldn't do this. ..."
"... Honestly cm, I have not heard about the alignment between shareholders and employees. That doesn't mean it doesn't exist, I realize that. ..."
"... I don't have any stats to cite but I would say that is ridiculous. I would say that almost all people who are characterized as working class make their income through their labor. Not from some stock ownership. ..."
"... It is supposedly common for startups to pay below-market (compared to established companies) to their employees, with the promise of appreciation of stock grants after an IPO/acquisition. Usually that's a bad deal for most employees, as the IPO may not happen, or when it happens, their stock has been heavily diluted. ..."
"... In established companies, stock-based compensation can be more substantial for managerial or professional staff, but not life-changing - e.g. you may get a 5-20% upgrade on your salary depending on how important you are considered, which is nice, but it will not change the fact that you still have to show up for work every day. ..."
Feb 17, 2017 | economistsview.typepad.com

Jerry Brown -> Poison Pen... February 17, 2017 at 02:18 PM

What country (or planet) are you referring to when you say Workers are primarily stock holders? It ain't this country.

cm -> Jerry Brown... February 17, 2017 at 10:44 PM

It is a commentary on a narrative. Of course part of the point of 401(k) and similar plans is to "align" workers with the company and companies in general, aside from paying them in stock rather than cash. I suspect it works more so than it doesn't, overall.

Jerry Brown -> cm... February 17, 2017 at 10:52 PM

Say What?? Are you saying that Poison Pen was being sarcastic? I hope he was. Or are you saying that narrative is correct?

cm -> Jerry Brown... February 18, 2017 at 12:03 AM

Sarcasm or satire, yes. I'm not claiming that the narrative is "correct", but that it exists. Surely you must have heard of "alignment" between shareholders and employees. Usually used to justify large stock grants to executives, but also applicable more broadly.

Companies have several programs: ESPP (employees can buy a limited amount of company stock at a 15% discount), 401(k) retirement accounts that may contain company stock or other investment funds, stock and stock option grants (employees are not buying the stock but get it as part of a regular or retention bonus program, usually with vesting - commonly your grant will vest over 4 years).

The idea behind all programs involving company stock is (1) disbursing stock is usually cheaper to the company than cash, for the same nominal amount - for large programs where administration overhead is amortized, (2) employees are supposedly "incentivized" to act to increase the stock price.

The latter is believable at higher management levels, for lower level employees it is supposed to increase their motivation to put business priorities before their own, how much it works is anybody's guess.

cm -> cm... February 18, 2017 at 12:07 AM

And in the case of vesting, (3) employees are supposedly reluctant to "leave money on the table" by quitting before the stock is vested. This must work in aggregate or companies wouldn't do this.

If somebody absolutely wants to quit because of a bad situation or a sufficiently compelling offer, they will. But it raises the bar. Also I have heard about companies sufficiently interested in hiring somebody with "handcuffs" offering compensation, i.e. effectively buying out your unvested stock (or replacing it with their own extra grant).

Jerry Brown -> cm... February 18, 2017 at 12:50 AM

Honestly cm, I have not heard about the alignment between shareholders and employees. That doesn't mean it doesn't exist, I realize that.

Regardless, I would want to see a bunch of stats that showed that workers were primarily (or "predominately" was the actual word used) stock holders and that they derive a meaningful part of their yearly income through that ownership while they are working.

I don't have any stats to cite but I would say that is ridiculous. I would say that almost all people who are characterized as working class make their income through their labor. Not from some stock ownership.

cm -> Jerry Brown... February 18, 2017 at 02:25 PM

I am not claiming that workers are primarily stockholders. I am claiming that companies have programs to issue, or sell stock at a discount, or match 401(k) contributions up to a limit (in all applicable cases with our without vesting) to their employees. 401(k) and ESPP probably have to be offered to everybody, stock grants are usually selective. (Probably restricted by grade level and job function.)

The primary motivations for companies are that stock is usually cheaper for them than cash, and the retention effect of vesting. Employee alignment with the stock price is also a narrative, but it is not clear to me who believes it.

Are you disputing that companies are interested in pushing narratives of their labor relations that are beyond just "you work here and we pay you", and are in fact doing this?

cm -> Jerry Brown... February 18, 2017 at 02:33 PM

It is supposedly common for startups to pay below-market (compared to established companies) to their employees, with the promise of appreciation of stock grants after an IPO/acquisition. Usually that's a bad deal for most employees, as the IPO may not happen, or when it happens, their stock has been heavily diluted.

In established companies, stock-based compensation can be more substantial for managerial or professional staff, but not life-changing - e.g. you may get a 5-20% upgrade on your salary depending on how important you are considered, which is nice, but it will not change the fact that you still have to show up for work every day.

[May 31, 2017] Defence of NAIRU and Phillips curve is an attempt to defend indefensible

Notable quotes:
"... Almost three and a half years ago, I published a post about Richard Lipsey's paper "The Phillips Curve and the Tyranny of an Assumed Unique Macro Equilibrium. ..."
"... One important early post-WWII debate, which took place particularly in the UK, concerned the demand and inflationary pressures at which it was best to run the economy. The context for this debate was provided by early Keynesian theory with its absence of a unique full-employment equilibrium and its mainly forgotten, but still relevant, microeconomic underpinnings. The original Phillips Curve was highly relevant to this debate. ..."
Mar 03, 2017 | uneasymoney.com

Almost three and a half years ago, I published a post about Richard Lipsey's paper "The Phillips Curve and the Tyranny of an Assumed Unique Macro Equilibrium." The paper originally presented at the 2013 meeting of the History of Econmics Society has just been published in the Journal of the History of Economic Thought , with a slightly revised title " The Phillips Curve and an Assumed Unique Macroeconomic Equilibrium in Historical Context ." The abstract of the revised published version of the paper is different from the earlier abstract included in my 2013 post. Here is the new abstract.

An early post-WWII debate concerned the most desirable demand and inflationary pressures at which to run the economy. Context was provided by Keynesian theory devoid of a full employment equilibrium and containing its mainly forgotten, but still relevant, microeconomic underpinnings. A major input came with the estimates provided by the original Phillips curve. The debate seemed to be rendered obsolete by the curve's expectations-augmented version with its natural rate of unemployment, and associated unique equilibrium GDP, as the only values consistent with stable inflation. The current behavior of economies with the successful inflation targeting is inconsistent with this natural-rate view, but is consistent with evolutionary theory in which economies have a wide range of GDP-compatible stable inflation. Now the early post-WWII debates are seen not to be as misguided as they appeared to be when economists came to accept the assumptions implicit in the expectations-augmented Phillips curve.

Publication of Lipsey's article nicely coincides with Roger Farmer's new book Prosperity for All which I discussed in my previous post . A key point that Roger makes is that the assumption of a unique equilibrium which underlies modern macroeconomics and the vertical long-run Phillips Curve is neither theoretically compelling nor consistent with the empirical evidence. Lipsey's article powerfully reinforces those arguments. Access to Lipsey's article is gated on the JHET website, so in addition to the abstract, I will quote the introduction and a couple of paragraphs from the conclusion.

One important early post-WWII debate, which took place particularly in the UK, concerned the demand and inflationary pressures at which it was best to run the economy. The context for this debate was provided by early Keynesian theory with its absence of a unique full-employment equilibrium and its mainly forgotten, but still relevant, microeconomic underpinnings. The original Phillips Curve was highly relevant to this debate.

All this changed, however, with the introduction of the expectations-augmented version of the curve with its natural rate of unemployment, and associated unique equilibrium GDP, as the only values consistent with a stable inflation rate. This new view of the economy found easy acceptance partly because most economists seem to feel deeply in their guts - and their training predisposes them to do so - that the economy must have a unique equilibrium to which market forces inevitably propel it, even if the approach is sometimes, as some believe, painfully slow.

The current behavior of economies with successful inflation targeting is inconsistent with the existence of a unique non-accelerating-inflation rate of unemployment (NAIRU) but is consistent with evolutionary theory in which the economy is constantly evolving in the face of path-dependent, endogenously generated, technological change, and has a wide range of unemployment and GDP over which the inflation rate is stable. This view explains what otherwise seems mysterious in the recent experience of many economies and makes the early post-WWII debates not seem as silly as they appeared to be when economists came to accept the assumption of a perfectly inelastic, long-run Phillips curve located at the unique equilibrium level of unemployment. One thing that stands in the way of accepting this view, however, the tyranny of the generally accepted assumption of a unique, self-sustaining macroeconomic equilibrium.

This paper covers some of the key events in the theory concerning, and the experience of, the economy's behavior with respect to inflation and unemployment over the post-WWII period. The stage is set by the pressure-of-demand debate in the 1950s and the place that the simple Phillips curve came to play in it. The action begins with the introduction of the expectations-augmented Phillips curve and the acceptance by most Keynesians of its implication of a unique, self-sustaining macro equilibrium. This view seemed not inconsistent with the facts of inflation and unemployment until the mid-1990s, when the successful adoption of inflation targeting made it inconsistent with the facts. An alternative view is proposed, on that is capable of explaining current macro behavior and reinstates the relevance of the early pressure-of-demand debate. (pp. 415-16).

In reviewing the evidence that stable inflation is consistent with a range of unemployment rates, Lipsey generalizes the concept of a unique NAIRU to a non-accelerating-inflation band of unemployment (NAIBU) within which multiple rates of unemployment are consistent with a basically stable expected rate of inflation. In an interesting footnote, Lipsey addresses a possible argument against the relevance of the empirical evidence for policy makers based on the Lucas critique.

Some might raise the Lucas critique here, arguing that one finds the NAIBU in the data because policymakers are credibly concerned only with inflation. As soon as policymakers made use of the NAIBU, the whole unemployment-inflation relation that has been seen since the mid-1990s might change or break. For example, unions, particularly in the European Union, where they are typically more powerful than in North America, might alter their behavior once they became aware that the central bank was actually targeting employment levels directly and appeared to have the power to do so. If so, the Bank would have to establish that its priorities were lexicographically ordered with control of inflation paramount so that any level-of-activity target would be quickly dropped whenever inflation threatened to go outside of the target bands. (pp. 426-27)

I would just mention in this context that in this 2013 post about the Lucas critique, I pointed out that in the paper in which Lucas articulated his critique, he assumed that the only possible source of disequilibrium was a mistake in expected inflation.

If everything else is working well, causing inflation expectations to be incorrect will make things worse. But if there are other sources of disequilibrium, it is not clear that incorrect inflation expectations will make things worse; they could make things better. That is a point that Lipsey and Kelvin Lancaster taught the profession in a classic article "The General Theory of Second Best," 20 years before Lucas published his critique of econometric policy evaluation.

I conclude by quoting Lipsey's penultimate paragraph (the final paragraph being a quote from Lipsey's paper on the Phillips Curve from the Blaug and Lloyd volume Famous Figures and Diagrams in Economics which I quoted in full in my 2013 post.

So we seem to have gone full circle from the early Keynesian view in which there was no unique level of GDP to which the economy was inevitably drawn, through a simple Phillips curve with its implied trade-off, to an expectations-augmented Phillips curve (or any of its more modern equivalents) with its associated unique level of GDP, and finally back to the early Keynesian view in which policymakers had an option as to the average pressure of aggregate demand at which economic activity could be sustained.

However, the modern debated about whether to aim for [the high or low range of stable unemployment rates] is not a debate about inflation versus growth, as it was in the 1950s, but between those who would risk an occasional rise of inflation above the target band as the price of getting unemployment as low as possible and those who would risk letting unemployment fall below that indicated by the lower boundary of the NAIBU as the price of never risking an acceleration of inflation above the target rate. (p. 427)

[May 30, 2017] How Milton Friedmans NAIRU Has Increased Inequality, Damaging Innovation and Growth

Notable quotes:
"... Never underestimate an [neoliberal] economist's ability to ignore reality. ..."
"... In a kleptocracy, looters are not called looters. That might cause the serfs to rebel. So they are called "creators" instead, and their stolen loot becomes the just and righteous reward for their work. Indeed it is the manifestation of natural law without which society and the economy would fall into darkness, etc., etc. ..."
"... NAIRU is not to blame but the looters who espoused it. They are afterall the crafters of the conventional wisdom. There were no mistakes. As looting-enabling propaganda, NAIRU functioned exactly as it was supposed to. ..."
"... NAIRU is the perfect example of purpose-driven science, and Milton Friedman et al and NAIRU rank right up there with the German racial scientists and eugenics and social Darwinism when it comes to justifying pure evil. ..."
"... The idea that there really is no "Gault" in a modern economy is not new. J.K. Galbraith described the inherent interdependence between management and workers in his book The New Industrial State in which he coined the term "technostructure" to describe how modern industry no longer could realistically claim to run by a single person. Instead, the rise of scientific and business specialties made nearly all employees of a business vital. No one, especially the CEO, could really claim to all the profits. ..."
"... Relative wealth is the key to power and concentrated wealth to absolute power, the holy grail. Thus inequality is not an unintended consequence at all; it's the neolibs' actual goal, a feature not a bug. Power is their ultimate narcotic. And their pursuit of it is relentless and violent. ..."
"... I believe this is the elemental nature of our criminal elite that people must understand, first and foremost, before change is remotely possible. Unfortunately it's difficult for sane people to comprehend such madness, and they continue to believe people like Obama have a conscience, that Congress really seeks the greater good, that our warriors really want to avoid war. They can no more relate to people like Jamie Dimon, Lloyd Blankfien, or Benjamin Shalom than they can to a pedophile or a rapist. They have no common reference with the enemies of humanity. ..."
"... Feudalism wasn't concerned with economic growth and performance. Those ideas came with the Enlightenment and the Modern eras, and the end of monarchy. My point was to use "vassal" in the sense of someone who owe allegiance to a master but is not a slave. ..."
"... Mexico, you made the claim that NAIRU was "purpose-driven science". I countered with the point that NAIRU was pseudo-science and that economics is not a science. Neither statement has anything to do with indicting science. ..."
Aug 26, 2013 | www.nakedcapitalism.com
Edward Lambert , August 26, 2013 at 12:57 am

Great article!!! The drum beat continues Productivity is definitely constrained by tight consumer liquidity from weak labor compensation.
Economists are going to learn a big lesson, when they see unemployment get stuck above 6.7%. They will try to explain it by pointing to problems in the economy or government. But the dynamic to limit employment is already established and it is due to low labor share. My calculations say the limit is 7.0% but I am allowing some margin of error.

The next two years should certainly be enlightening for many economists, including Krugman, Delong and Thoma. They do not see the effective demand limit coming.

diptherio , August 26, 2013 at 9:22 am

Never underestimate an [neoliberal] economist's ability to ignore reality.

Impishparrot , August 26, 2013 at 1:08 am

Hello? All talk of policy and regulations have left-out the workers. They make shit and they buy shit. Without them, how would multi-national corporations be able to afford the lawyers, lobbyists, members of Congress – both House and Senate, and it would now appear, members of the US Supreme Court.

Min , August 26, 2013 at 3:21 am

"Higher real wage claims necessarily reduce firms' profitability and hence, if firms want to protect profits (needed for investment and growth), higher wages must lead to higher prices and ultimately run-away inflation. The only way to stop this process is to have an increase in "natural unemployment", which curbs workers' wage claims.

"What is missing from this NAIRU thinking is that wages provide macroeconomic benefits in terms of higher labour productivity growth and more rapid technological progress."

True. But that aside, the original argument is a non-sequitur. Certainly, a fight between labor and capital over how to share the economic pie can lead to inflation, but it does not follow that full employment leads to accelerating inflation instead of converging inflation or fairly constant inflation. The NAIRU argument takes the behavior of capital as given and puts the onus of responsibility on labor. It amounts to special pleading.

BTW, it is not unusual in human systems to have conflicts that threaten to become a runaway feedback cycle. But somehow that rarely happens, for reasons that are not always clear. We still do not understand human systems all that well.

nonclassical , August 26, 2013 at 12:48 pm

..Greenspan's (therefore Rand "goddess") ideological position is based upon equal access and most especially information to markets this "equality" is undone by secrecy, insider trading, HFT, etc, etc.

In other words, it's all ideological-never existed, anywhere, any time, in reality..

Hugh , August 26, 2013 at 4:20 am

In a kleptocracy, looters are not called looters. That might cause the serfs to rebel. So they are called "creators" instead, and their stolen loot becomes the just and righteous reward for their work. Indeed it is the manifestation of natural law without which society and the economy would fall into darkness, etc., etc.

"Greenspan's stance reflected the conventional wisdom , codified in the theory of the non-accelerating-inflation rate of unemployment (NAIRU). It must take the blame for unleashing and at the same time legitimizing a vastly unequal and ultimately unsustainable growth process."

NAIRU is not to blame but the looters who espoused it. They are afterall the crafters of the conventional wisdom. There were no mistakes. As looting-enabling propaganda, NAIRU functioned exactly as it was supposed to.

"firms want to protect profits (needed for investment and growth)"

No. Firms are inanimate. They do not want anything. Nor is it the case that their managements want to protect their profits for the purpose of investment and growth. In a kleptocracy, management wishes not just to keep but increase profits in order to loot them.

The authors of this article, like those they criticize, leave out the social purposes for why we have an economy and why we allow corporations to exist. Both look on the economy as a natural process governed by natural laws (that is what this article is about: which laws best describe the economy), and not the human enterprise it is. The real measure of the economy is whether it is producing the society we want to live in. Classical measures, such as growth and productivity, may be irrelevant or even at odds with this construction.

from Mexico , August 26, 2013 at 7:23 am

Hugh said:

NAIRU is not to blame but the looters who espoused it. They are afterall the crafters of the conventional wisdom. There were no mistakes. As looting-enabling propaganda, NAIRU functioned exactly as it was supposed to.

Exactly!

NAIRU is the perfect example of purpose-driven science, and Milton Friedman et al and NAIRU rank right up there with the German racial scientists and eugenics and social Darwinism when it comes to justifying pure evil.

David Lentini , August 26, 2013 at 10:06 am

I isn't fair to call NAIRU "science", since it, like economics, isn't scientific in any way. Science has enough problems without having to take on charlatans like Friedman.

Friedman's work, as exemplified by NAIRU, is pseudo-science used to justify the demands of the industrtialists and financiers to remove governmental economic regulation. It's an example of what I like to call "Laissez-Faire Lysenkoism ", after the infamous Soviet agronomist who rigged his experiments and data to demonstrate that communism had a biological basis.

I agree very much with the article's analysis and conclusions. But I want to add two things:

1. The idea that there really is no "Gault" in a modern economy is not new. J.K. Galbraith described the inherent interdependence between management and workers in his book The New Industrial State in which he coined the term "technostructure" to describe how modern industry no longer could realistically claim to run by a single person. Instead, the rise of scientific and business specialties made nearly all employees of a business vital. No one, especially the CEO, could really claim to all the profits.

2. I think the question of economic performance is too narrow. The real issue ultimately is power. At some point, wealth will become so concentrated that the rich won't care about economic performance; they'll just make vassals and slaves of the rest of us. At some point money per se will become obsolete, since everything will be owned by a few anyway.

Massinissa , August 26, 2013 at 10:22 am

On number 2, I don't remember Feudalists ever worrying about economic growth, except when it came to how much grain they could extract from their serfs.

It doesn't matter all that much to the ruling classes how much growth there is or not as long as they control all that there is.

If low growth means easier control, then they will prefer that. Though I must say im not sure that low growth does mean easier control.

Doug Terpstra , August 26, 2013 at 4:43 pm

Dave's close, but you got it! Neoliberal economics is not interested in a dynamic economy, in optimum output, or in aggregate wealth-creation, and most certainly not in shared prosperity (egad!). It is only relative wealth that concerns our neoliberal elite.

Relative wealth is the key to power and concentrated wealth to absolute power, the holy grail. Thus inequality is not an unintended consequence at all; it's the neolibs' actual goal, a feature not a bug. Power is their ultimate narcotic. And their pursuit of it is relentless and violent.

I believe this is the elemental nature of our criminal elite that people must understand, first and foremost, before change is remotely possible. Unfortunately it's difficult for sane people to comprehend such madness, and they continue to believe people like Obama have a conscience, that Congress really seeks the greater good, that our warriors really want to avoid war. They can no more relate to people like Jamie Dimon, Lloyd Blankfien, or Benjamin Shalom than they can to a pedophile or a rapist. They have no common reference with the enemies of humanity.

David Lentini , August 26, 2013 at 5:16 pm

Feudalism wasn't concerned with economic growth and performance. Those ideas came with the Enlightenment and the Modern eras, and the end of monarchy. My point was to use "vassal" in the sense of someone who owe allegiance to a master but is not a slave.

As for the other points you made, I was trying make those too: At some point the inequality makes modern economics irrelevant.

from Mexico , August 26, 2013 at 10:37 am

David Lentini says:

I isn't fair to call NAIRU "science", since it, like economics, isn't scientific in any way.

No true Scotsman, hun?

I think the indictment of science is far broader than mere economics.

from Mexico , August 26, 2013 at 10:46 am

And by the way, who gets to decide what is science and what is pseudo-science? How does the layman tell the difference?

David Lentini , August 26, 2013 at 11:28 am

I'll assume that you're not just baiting me. Or are you taking the side of the climate-change deniers? Try starting with the basic definitions:

http://en.wikipedia.org/wiki/Science

You can also take the time to read the classics of Bacon, Descartes, Newton, et al.

A succinct definition of "science" is not that easy. But I argue that scientific statements at the least have to be robust-they have to be capable of reliable confirmation i.e., identical conditions should lead to the same observations, in other words "predictability" (Popper's "falsification" is a useful rule of thumb); a new theory should be able to explain or describe all relevant phenomena described by older theories as well as new phenomena to maintain unified explanation.

As I've argued many times on this 'blog, economics fails both tests. Instead economists offer statements that ape scientific forms, what I call "pseudo-science". They do this out of ignorance and a desire to cow the public (including scientists).

And we're all entitled to review the facts and make our judgment in light of the definitions and uses of the term "science".

I don't see your point in attacking science, which you of course never define. I believe that humanity needs a view of life that is far broader than provided by science alone. But the scientific view is still vital to our lives. The problem is that far too many have become mesmerized by the usefulness of science in addressing certain types of questions, and have been trying to force their own investigations into a scientific mold rather than admitting that the scientific method cannot address all questions equally well.

from Mexico , August 26, 2013 at 3:52 pm

Well for me, the question is still who gets to decide what is science and what is pseudo-science?

The school of hard knocks has taught us that none of the above are trustworthy or reliable. The historian of science Naomi Oreskes gives a great talk about this phenomenon here:

http://www.blogtalkradio.com/virtuallyspeaking/2012/04/12/naomi-oreskes-tom-levenson-virtually-speaking-science-1

This means that one is therefore forced back onto their own lights.

Which brings us back to the question: How does the layperson tell the difference between science and pseudoscience? I don't know many laypersons who have read Bacon, Newton or Descartes.

And what if they've read Hume, Kant or Nietzsche? Then they come away with a very different idea of what science is. For example:

Thus, though metaphysics is an illusion from the point of view of science, science in turn becomes but another state of illusion as far as absolute truth is concerned. In The Birth of Tragedy Nietzche already attacks the scientific optimism of his time under the guise of "Socratism." The "theoretic man" pursues truth in the delusion that reality can be fathomed, and even purged of evil, by rational thought and its applications. But faith in the omnipotence of reason shatters, for the courageously persistent thinker, not only on the fact that science can never complete its work but chiefly on the positive apprehension that reality is irrational. As Nietzsche writes later, "We are illogical and therefore unjust beings from the first, and can know this : that is one of the greatest and most insoluble disharmonies of existence."

–GEORGE A. MORGAN, What Nietzsche Means

David Lentini , August 26, 2013 at 5:24 pm

Mexico, I already answered that question. I really don't care what Naiomi Oreskes thinks; I think for myself. And I don't have much patience for people who won't make the effort to learn enough about science to answer the question for themselves.

There's a world of difference between Oreskes's writings about the abuse of science to further partisan political positions, and the meaning of science itself and deciding what qualifies as science. Just make the effort to learn and stop quoting everyone else.

As for your quote about Nietzsche, all this argument leaves is the usual relativistic confusion. And that just invites abuse. Science and the scientific method can be defined well enough to distinguish reliable claims from charaltanism. If you want absolutes, you might just as well accept what the most powerful tell you to accept.

from Mexico , August 26, 2013 at 8:39 pm

Oh I get it!

You get to decide what science is and what pseudo-science is.

It's like Humpty Dumpty said:

'I don't know what you mean by "glory",' Alice said.

Humpty Dumpty smiled contemptuously. 'Of course you don't - till I tell you. I meant "there's a nice knock-down argument for you!"'

'But "glory" doesn't mean "a nice knock-down argument",' Alice objected.

'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean - neither more nor less.'

'The question is,' said Alice, 'whether you can make words mean so many different things.'

'The question is,' said Humpty Dumpty, 'which is to be master - that's all.'

–LEWIS CARROL, Through the Looking Glass

OldFatGuy , August 27, 2013 at 12:10 pm

Yes, someone does get to decide. Because there ARE universal truths, like it or not.

For example, the world is not flat. Period. All the relativism in the world won't change the fact that the world is NOT flat.

Arguing against fact doesn't make one some sort of relativist intellectual (is that a term??) it makes one WRONG. And the only way humanity can ever transcend chaos is to acknowledge those truths that are universal. We, as a species, are still nowhere near there, and it's like trying to play a baseball game with no foul lines, basees, umpires, or even a ball. Yes, if life were like a baseball game there are entire groups of people today that argue it can be played without a ball. We'll never get beyond this chaos and into a peaceful order until we all get on more or less the same playing field, and the only way to do that is to acknowledge truths (or rules, like foul lines, in baseball).

Science is but one avenue to identify those truths. There are others.

David Lentini , August 26, 2013 at 11:06 am

Mexico, you made the claim that NAIRU was "purpose-driven science". I countered with the point that NAIRU was pseudo-science and that economics is not a science. Neither statement has anything to do with indicting science.

If you argue about flaws in science, whatever that means,n then start a new thread.

Hugh , August 26, 2013 at 2:59 pm

Science is a method, but what that method is applied to and how its results are interpreted are not. Science is also a human activity and so must be viewed through the lens of our humanity, not as objective truth external to us.

allcoppedout , August 26, 2013 at 4:33 am

Lord save us! Humans are biological systems and such systems have all kinds of modularity to protect various sub-systems and the overall system from collapse.

So where is a modular economics?

Growth? What's that? A sensible, scientific notion of it would be a system that raises everyone a lot, curtails rich by-products that capture politics and load the many with economic rents, educates to planet level responsibility, reduces work and squalid energy burning and related wars

We should be seeking stability and incorporating real well-being and a new understanding of growth. Growth as we have it is a Gucci handbag while others live on a squalid jack tuna boat earning almost nothing for your fish, eaten with a fancy T-shirt on proclaiming 'save the dolphins', served with salad picked by migrant workers to keep your figure trim along with the coke you snort.

What growth should be one of the first questions of economics, followed by how we might create a modular financing of what we should be doing. Without such, no subject.

Aussie F , August 26, 2013 at 7:33 am

In reality all the dynamism is in the state sector – from the internet, to superconductors, pharmaceuticals, biotechnology, containerisation. 'The market' just deals with copyright and marketing.

diptherio , August 26, 2013 at 9:30 am

Does this mean it's time to stop wearing my NAIRU jacket?

David Lentini , August 26, 2013 at 11:31 am

Only if it's a NAIRU straight jacket. :-)

[May 30, 2017] With unemployment measures irrevocably corrupted by political pressures, how one can be talk about validity of derivatives such as NAIRU, unless he/she is drunk

Feb 18, 2017 | economistsview.typepad.com
libezkova -> pgl..., February 18, 2017 at 05:34 PM
pgl,

This is all about mathiness and corruption of neoliberal economist, which is a real Fifth Column of financial oligarchy no question about it. With unemployment measures irrevocably corrupted by political pressures, how one can be talk about validity of derivatives based on them, unless he/she is drunk ?

In this sense NAIRU is yet another sophisticated neoliberal fake that help to drive the public policy in the interests of financial oligarchy under mathiness smoke screen and a bunch of corrupt neoliberal economics serving as a propagandist army of financial oligarchy.

It's time to revamp the old quote changing it to " When I hear the term NAURU...I reach for my gun!."

If course it would be too cruel to shoot all neoliberal economists, so reeducation camps should probably be considered.

I think only U6 has some connections to reality. And the discrepancy between official and Gallup value of U6 is 4%

In other words only the first digit is probably valid and the range is 10 to 20%.

== quote ==
For January 2016 the official Current U-6 unemployment rate was 10.1% up from last month's 9.1%. On the other hand the independently produced Gallup equivalent called the "Underemployment Rate" was 14.1% up from 13.7 in December and 13.0% in November. The current differential between Gallup and BLS on supposedly the same data is 4.0%!

marcus nunes : , February 17, 2017 at 12:44 PM
Alternative "NAIRU bashing": https://thefaintofheart.wordpress.com/2015/02/14/why-insist-on-searching-for-the-holy-grail-aka-nairu/
RGC : , February 17, 2017 at 04:11 PM
SWL is becoming aggressively neoliberal. There is no sound theoretical basis for NAIRU and no empirical reinforcement:

Time to Ditch the NAIRU

James K. Galbraith

The Journal of Economic Perspectives, Vol. 11, No. 1. (Winter, 1997), pp. 93-108

http://tek.bke.hu/files/szovegek/galbraith_time_to_ditch_the_nairu.pdf

pgl -> RGC... , February 17, 2017 at 04:37 PM
SWL strikes me as someone who goes well beyond the usual neoliberal laziness. Is that what you mean by "aggressive"?
RGC -> pgl... , February 17, 2017 at 04:45 PM
In reading his blog lately it seemed that he was very defensive about his economics and also angry at the Corbyn wing of Labour.
marcus nunes : , February 17, 2017 at 12:41 PM
"How do we link the real economy to inflation"? NAIRU a waste of time. Try aggregate nominal spending growth

http://ngdp-advisers.com/2017/02/08/fantasy-world-conventional-central-bankers-money-no-role/

libezkova : , February 18, 2017 at 06:17 PM
Sorry Anne, but neoliberal economists are really prostitutes of Financial oligarchy. Well paid, of course.

That's where NAIRU comes from. Phillips curve is a joke and always was. It's king of sad that it still mentioned in in non--humorous context:
https://thefaintofheart.wordpress.com/2012/07/20/seven-years-on-things-still-look-the-same/

The NAIRU essentially presupposes the existence of the wage-price spiral. Which can happen only if wages are either indexed to inflation by law, or there are strong trade unions to defend workers rights. Under neoliberalism both are those factors are suppressed and can be viewed as non-existent.

And the statement that the NAIRU myth belongs to the vocabulary of charlatans does not deviate from the serious character of the discussion. This is just a historical truth.

Hot of the presses: "Debunking the NAIRU myth" January 19, 2017 By Matthew C Klein

https://ftalphaville.ft.com/2017/01/19/2182705/debunking-the-nairu-myth/


== quote ==

First, some history. In 1926, Irving Fisher found a relationship between the level of unemployment and the rate of consumer price inflation in the US. In 1958, AW Phillips studied UK data from 1861-1957 and found a relationship between the jobless rate and the growth of nominal wages, although the relationship seems to have been an artifact of the gold standard given the vertical line he found in the postwar period:

Some people (wrongly) interpreted Phillips's data to mean that there was a straightforward trade-off between the inflation rate and the unemployment rate. Policymakers could just pick any spot on "the Phillips Curve" they want. Among a certain set, the big debates in the 1960s were about whether the government should target an unemployment rate of 3 per cent or 5 per cent.

This worked out poorly, but the reaction took the form of an equally dubious idea: the Non-Accelerating Inflation Rate of Unemployment, or NAIRU. In this view, the change in the inflation rate should be related to the distance between the actual jobless rate and some theoretical level. If the unemployment rate were above this "neutral" level the inflation rate would slow down and potentially turn into outright deflation. If the jobless rate were "too low", however, consumer prices would rise at an accelerating rate.

Suppose you believe NAIRU is a real thing. What would be the argument against pushing the unemployment rate as close to zero as possible? In theory, the cost of the policy would be ever-accelerating inflation, eventually perhaps leading to hyperinflation. But the reason to dislike excessive inflation is that it ultimately makes everyone poorer, which should, among other things, increase unemployment. (Just look at Venezuela, for a recent example.)

According to the wacky world of NAIRU, however, hyperinflation can coexist just fine with hyper-employment. Clearly there must be other mechanisms at work, or else we are leaving money on the table by allowing the jobless rate to ever rise above zero.
== end of quote ==

Some comments are interesting too:

grputland, Jan 22, 2017

To test the NAIRU hypothesis against historical data, shouldn't we plot unemployment vs. change in inflation? -- instead of CHANGE in unemployment vs. change in inflation?
Be that as it may:

If there is such a thing as a NAIRU, it is still a mistake to treat the NAIRU as a "given" rather than a function of policy.

If a certain tax feeds into prices, it leaves less room for wages to feed into prices before (according to NAIRU logic) inflation accelerates. So any tax that feeds into prices will tend to raise the NAIRU. This is especially the case if the tax causes the cost of labor for employers to be higher than workers' take-home pay.

Thus the NAIRU, if it exists, is not a counsel of despair, but rather a counsel to get rid of taxes that feed into prices (especially taxes on labor) and replace them, as far as necessary, with taxes that DON'T feed into prices -- that is, taxes on economic rents.

marcus nunes , Jan 20, 2017

NAIRU - RIP

https://thefaintofheart.wordpress.com/2015/02/14/why-insist-on-searching-for-the-holy-grail-aka-nairu/

Contrapunctus9, Jan 20, 2017

Many variables contribute to the inflation rate, certainly more than just domestic employment (and how it is calculated). The Fed's dual mandate is inflation and employment, so it makes sense that these are a focus of the Fed's communication. But the Fed tends to focus on the result rather than the cause. It is troubling that there is little discussion from most of the FOMC on inflation factors which are now more important than unemployment (currency values, foreign labor, technology, commodity demand and speculation, labor monopsony, underemployment, labor skill demand mismatch, etc).

Producer and consumer prices are increasing, largely due to China driven commodity prices. Managerial compensation and production hourly wages are increasing. But weekly wages are stagnant due to fewer hours. The Fed is ignoring the latter, even though it is what is more important to sustained core inflation.

Observer, Jan 19, 2017

Looking just at the U3 unemployment rate for the NAIRU without considering the still high U6 rate and lower labour participation rate in the US may be the issue. There's still labour market slack even though U3 is at its "full" employment level.

grumpy, Jan 19, 2017

Models have to be used with caution (they are only tools) and interpreted with awareness of the real world - including for example, the varying wage bargaining power of labour, which is different, post globalisation, to what it was in the '70s.

Who do you think wanted globalisation and liberalisation of trade, and why?

Many economists revere their models excessively.

[May 30, 2017] NAIRU worship at FED

Notable quotes:
"... In the 90s, Democrats like Yellen and Blinder were pushing Greenspan to raise rates when he located the trap line at a different location than they did and held off. ..."
"... A story that fits the actions. But I suspect misses the motive. Perhaps Green stain far from wanting to improve job markets i.e. defy the false wage repressing NAIRU taboo zone. He simply wanted the crazy stock bubble to continue to inflate... ..."
"... I assume Greenspan never really bought the NAIRU fairy tale. Anymore then I do. Otherwise he could never have so skillfully repressed bottom half wage rates for more then fifteen years. ..."
"... Kocker buys the general story as much as say larry sommers buys it. They simply, like Greenspan, move the mythic NAIRU up or down to support other motivations ..."
"... To simply deny the NAIRU ppens the pearly gates to a job class FED. Heaven forbid -- ..."
May 30, 2017 | economistsview.typepad.com

Paine, May 30, 2017 at 10:45 AM

The models are just rationalizations of a deeply embedded policy paradigm In place since Greenspan

The motivation: Wage rate regulation

Inflation of product prices by other means then wage costs is ignored. The relation between job market conditions and wage rate change
Is the core focus

If UE can go lower without wage rates accelerating. There is no urgency Ie There is no need to accelerate the present pace of normalizing the policy rate

Hence the informed expert opinion now calling for the FED to play it kool

However the wall street silk hat set takes a more cynical view

" why take a chance "

Christopher H., May 30, 2017 at 11:00 AM
Yes Sanjait and PGL are (willfully?) naive in their pleas for Obama's Fed to behave better.

It's not the models. It's not a bug it's a feature. The Fed has to be pushed by a popular movement which would also enact significant reforms on the fiscal side.

Paine, May 30, 2017 at 11:49 AM
No

Buys the basic wage trap line

"This may seem like a strange objective, given that Congress has charged the Fed with promoting "maximum employment," which sounds like "try to make employment as high as you can." But the Fed knows that if it pushes economic activity above its long-run level in pursuing that goal, it will eventually have to hit the brakes and bring growth below normal to cool the economy and keep inflation under control. The Fed doesn't want to be in that position, so it gets just as worried when unemployment falls below its target as it does when unemployment is too high. 1 As a result, when the economy is close to what the Fed sees as full employment, the central bank takes a decidedly anti-growth policy stance to keep employment in check."

Paine, May 30, 2017 at 11:55 AM
This is NAIRU worship. NK fails to bash this up. For example: How can we glibly conclude that over shoots must be over corrected. Seems on the face of it a convenient asymmetry: The system can run control ably Up. But not Down

The fed can lower UE step by step without some inevitable over shoot. But not back up. The reverse gear causes a destructive excessive jolt. Well maybe so

But we ought to really look this fearsome dynamic assymetric right in the eyes. For a long time. Not just assume its credible because it fits some morality play plot written to please wall street

Christopher H., May 30, 2017 at 11:57 AM
Kocherlakota buys it?

Depends where you locate the "basic wage trap line."

In the 90s, Democrats like Yellen and Blinder were pushing Greenspan to raise rates when he located the trap line at a different location than they did and held off.

Paine, May 30, 2017 at 12:08 PM
A story that fits the actions. But I suspect misses the motive. Perhaps Green stain far from wanting to improve job markets i.e. defy the false wage repressing NAIRU taboo zone. He simply wanted the crazy stock bubble to continue to inflate...
Paine, May 30, 2017 at 12:11 PM
I assume Greenspan never really bought the NAIRU fairy tale. Anymore then I do. Otherwise he could never have so skillfully repressed bottom half wage rates for more then fifteen years.
Paine - , May 30, 2017 at 12:15 PM
Kocker buys the general story as much as say Larry Summers buys it. They simply, like Greenspan, move the mythic NAIRU up or down to support other motivations

To simply deny the NAIRU ppens the pearly gates to a job class FED. Heaven forbid --

[May 30, 2017] The concept of NAIRU is false

Feb 18, 2017 | economistsview.typepad.com
Jerry Brown -> New Deal democrat... , February 17, 2017 at 10:03 PM
You might enjoy this blog
http://www.concertedaction.com/2017/02/17/simon-wren-lewis-nairu-and-tina/

Main points

I agree with both of those statements.

Ed Brown -> Jerry Brown... , February 18, 2017 at 08:58 AM
Jerry, http://tek.bke.hu/files/szovegek/galbraith_time_to_ditch_the_nairu.pdf
JF -> New Deal democrat... , February 18, 2017 at 06:46 AM
New Deal, I thought the hyper inflation of the 70s came about because pricing determinations all aligned in a ratcheting, a sign of a complete breakdown in market-based economics, inviting govt intervention to halt it.

Where was it proven that wages caused these results then?

The notion of wages being related to general pricing trends is clear during deflationary trends. Common sense, hurting and wages follow the downward spiral. If I asked a question about wages I might agree that the downward trend is being caused by the downward trend in general pricing and demand.

But it needs to be proven that there us a correlation and then a cause and effect reality when general prices are rising rapidly, if you are asking if wages are a cause if this rapid rise. The data do not now support this as you know.

The Fed needs to figure out what it can do when general prices begin to ratchet. I wish they would look at wages last, look at other factors and other 'tools' to influence pricing determinations, again, long before they use these false notions to justify attacking employment.

I want better economics and better logic, a different actions. For instance, can the Fed order the credit channels not to ratchet their pricings rapidly, this would have a direct influence on pricing. Can the Fed stop rolling over their book of assets with new purchasing subsidies to the financial asset marketplaces and instead lower the amount of buying and selling so that the markets see that low rates still exist (and so premia built into pricing need not use this as a reason to ratchet). Do something differently than slamming hard on the Volker rate-peddle and tell everyone to take it out on employment.

[May 29, 2017] As GDP includes such things a military production and consumption as well as gambling profits (Wall Street firms profits, stock market gains) how realistic is productivity as a metric?

May 29, 2017 | economistsview.typepad.com

libezkova -> cm... May 27, 2017 at 10:35 PM

I have a question:

Productivity is typically defined as GDP divided by the total number of hours worked by population.

As GDP includes such things a military production and consumption as well as gambling profits (Wall Street firms profits, stock market gains) how realistic is productivity as a metric?

I do not think it is realistic. Like many other neoliberal metrics (and first of all GDP), I think it is a fake -- a pseudoscience, if you wish.

Sandwichman -> libezkova... May 27, 2017 at 09:49 PM
Productivity is only a realistic concept when dealing with stable units. Dividing GDP by labor hours (or private sector labor hours) is not realistic because the monetary units are not actual stable units because the composition of goods and services measured by GDP changes over time.

In other words, even if GDP may be useful for comparing aggregate monetary value of goods and services from period to period. It tells us nothing about physical output and THAT, not monetary value is what the concept of productivity implies.

If the proportions of various goods and services remained constant from quarter to quarter, then GDP/hours would tell us something about productivity. But they don't, so it doesn't.

See "Productivity as a Social Problem: The Uses and Misuses of Social Indicators," Fred Block and Gene A. Burns

https://www.jstor.org/stable/2095366

Sandwichman ... May 28, 2017 at 05:03 AM

https://www.researchgate.net/publication/271685715_Productivity_as_a_Social_Problem_The_Uses_and_Misuses_of_Social_Indicators

December, 1986

Productivity as a Social Problem: The Uses and Misuses of Social Indicators
By Fred Block and Gene A. Burns

The study of social indicators is valuable for understanding the role that the social sciences play in the political arena. One common pattern is for a particular social indicator to become frozen in place once it takes on political significance, and this can result in ironic consequences. This study traces out the case of indicators of aggregate productivity trends in the United States. These measures were initially developed as part of an underconsumptionist argument that was linked to the political left, but there was considerable debate over different measurement schemes. Over time, one particular measure of trends in aggregate productivity became central for wage negotiations and for government policy. This created a context in which the slower rates of growth of this measure of productivity in the 1970s helped to validate the views of those on the political right who saw the need for greater restrictions on wage gains and government civilian spending. The paper raises questions about the value of this particular measure and ends by emphasizing the problems of locking in place an "objective" social indicator when the reality being measured is in continual flux.

Paine, May 28, 2017 at 06:20 AM

Is not really engaged if you stop with the discover it's not all baby. There is bath water --

Yes indeed
But we must proceed to the necessary task

Throw out as much bath water as we can whilst holding tight to the baby


It's too easy and too useless to simply condemn the whole procedure of indexation
Despite its inevitable contradictions

Paine -> Paine ... Sunday, May 28, 2017 at 06:24 AM

Specifically. Retain the sublime LTV. It never lets us down if we use it with careful skill
Like excalibur
Drawn from the stone

anne -> Paine ... May 28, 2017 at 06:36 AM

Retain the sublime LTV

[ At which point there is no reason for me to read further, since I am not capable of understanding such initials. Does a VTL have fur and growl? ]

Paine -> anne... May 28, 2017 at 08:06 AM

We marxians so reverence the notion We dare not spell it out in full LTV -- Labor theory of value

Once. The bourgeois theory of value until ricardoput too sharp a point on it

And it became the intellectual sword of the exploited toilers

All lasting exchange value is created by social labor

The part of the value of social product exchange thru markets
Not reflected in labors compensation is a product of one or other form of class exploitation

Complication

This includes rewards to innovation
Real cost reduction
And improvements of all sorts
as well as arbitrage wind fall and mere rent

anne -> Paine ... May 28, 2017 at 06:27 AM

It's too easy and too useless to simply condemn the whole procedure of indexation. Despite its inevitable contradictions

[ Really important criticism, which is why I am far more interested in accumulating data for current comparative productivity measures. I find current comparative productivity measures revealing and important, and readily available. ]

anne -> Sandwichman ... May 28, 2017 at 06:23 AM

Criticizing measures of productivity is reasonable, but where are the alternate measures and the data to be used in recording these alternates? Current measures are backed by extensive data and used comparatively the measures so far strike me as meaningful and important.

JF -> Sandwichman ..., May 28, 2017 at 06:43 AM

"It tells us nothing about physical output and THAT, not monetary value is what the concept of productivity implies."

Yes, GDP presentations should also report the data removing the Finance and insurance segments from the statistical program and calculations.

Considering that with the age of the computer and advanced telco capabilities it is silly to include these segments in productivity duscussions, so we need a GDP view that matches.

And as we know these segments grew in terms of top line revenue flows remarkably in a very short time, and this should raise questions about its role in the economic system and whether the views of even the 1980s make sense.

Paine -> libezkova..., May 28, 2017 at 07:57 AM

You could use crude oil or electricity or debt or any numbered entity as the denominator. Thy are all formally similar

Why labor hours ?

This is the labor theory of exchange value in modern bourgeois scientific framing

If we posit a simple historical mission for capitalism it might be the minimizing of the social necessary labor time to produce the material requisites of society itself

Liberating humans from the burden of necessary labor

[May 29, 2017] Difficulties of comparing GDP between various countries: exampe of Russia

May 29, 2017 | www.moonofalabama.org
Jen | May 27, 2017 10:02:53 PM | 61
Khalid @ 51:

"... but GDP is a better measure of what is available to each country for domestic use ..."

I've now found where you've got your information about Russia having a smaller economy than South Korea, Canada and Italy. It's at this link:
http://databank.worldbank.org/data/download/GDP.pdf

The same list tells me that Saudi Arabia had a greater GDP than Sweden, Belgium, Norway and Denmark did in 2015. But does this information tell us anything about the health or long-term prospects for the Saudi economy compared to the economies of the other countries I just mentioned? Does the information tell us how well average Saudi citizens live compared to how well the average citizen lives in Sweden? Does the information say anything about what Saudi Arabia produces and/or exports, and about the range of products the KSA makes, compared to what Sweden does?

I'm sure you can do better than come up with a stack of numbers and nothing else that explains or qualifies them.

Oh and BTW, most labour migration between Russia and other countries is made up of Central Asian migrants travelling to Russia to work in construction and other jobs requiring little or no technical skills, or to study in the country's universities, and going back home to visit family on special occasions (like Persian New Year) or help gather in local harvests. Money flows in the form of remittances between Russia and Central Asian countries like Uzbekistan and Tajikistan tend to be out of Russia and into those other countries.

"Tajikistan: Migrant Remittances Now Exceed Half of GDP"
http://www.eurasianet.org/node/68272

"Remittances Inflows to Uzbekistan, Tajikistan and Kyrgyzstan in 2016: Current Trends and Prospects"
http://www.ayu.edu.tr/static/aae_haftalik/aae_bulten_en_80.pdf

The Economist "From Russia with Love"
http://www.economist.com/news/finance-and-economics/21688441-remittances-are-good-thing-except-when-they-stop-russia-love

/div

Khalid | May 28, 2017 1:40:29 AM | 65

@61. So GDP is a measure of what is produced in the country. GNP adds or subtracts from it money that is sent from elsewhere. Russia with a significantly larger GNP compared to GDP is a net recipient of income inflow, the Central Asian migrants not withstanding.

There are two potential problems with higher GNP. Firstly, Taxes on the income being sent have been paid in a different country. So for example the millions of Mexicans who send money from US to Mexico pay their taxes in US. The Mexican government does not see any of that revenue. Secondly the money coming is primarily spent via consumption. While this may help the local economy a little bit there is also demand for more infrastructure to support this added consumption but the government is not getting revenue to address this need for greater infrastructure and is always trying to play catch up.

Most countries with higher GNP (compared to GDP) continue to have weak economies susceptible to the ravages of the World economy. Russia is no exception. A weak economy cannot support a strong military without significantly sacrificing spending for improving it citizens well being. There are a number of countries maintaining large armies (for various reasons) that are disproportionate compared to their economic power. Russia is an extreme case of this. And the Russian citizens suffer because of this.

Jackrabbit | May 28, 2017 3:40:48 AM | 68
Kalid @50:
Russia has an economy that is smaller than that of South Korea, smaller than Canada, smaller than Italy.
On the basis of purchasing power parity (PPP) , Russia has an economy that is more than TWICE that of South Korea or Canada and 61% greater than Italy's.

The Russian economy is about 20% that of USA but the Russian per capita GDP economy grew faster than USA, Canada, or Italy from 1990-2015.

<> <> <> <> <> <> <> <> <> <>

2015 per capita, adjusted for PPP multipled by current population (from Wikipedia):

> USA: 18.244

> RF+Crimea: 3.639

> Italy: 2.258

> South Korea: 1.782

> Canada: 1.556

dh | May 27, 2017 11:49:10 AM | 15

[May 08, 2017] Goods and services in Russia are considerably less expensive than in the West (and this includes the cost of producing fighter jets or rockets), so for such purposes GDP PPP is a better indicator than is nominal GDP

Some interesting notes about difficulty of comparing GDP of various countries, in this case the USA and Russia.
Notable quotes:
"... Russia's overall GDP PPP places it slightly below Germany - 6th place in the world ..."
"... But the US GDP is of an different structure. Compared it is overblown with pure financial sales and "hedonistic adjustments". More is blown by the culture. In the US much more everyday things relies on money. In case of case they are all worth nothing. Furthermore, if it comes to conflicts than the whole US Infrastructure has to be "revalued", and i doubt that it can withheld some stress tests. ..."
"... Over the years, the Pentagon encouraged Congress to move parts of national security spending out of its budget to the extent that almost half is found outside the DOD. The USA really spends over a trillion dollars a year. For example, nuclear weapons research, testing, procurement, and maintenance is found in the Dept of Energy budget. ..."
"... [AKA "SmoothieX12"] ..."
"... No serious analyst takes US GDP as 18 trillion dollars seriously. A huge part of it is a creative bookkeeping and most of it is financial and service sector. ..."
"... In general, overall power of the state (nation) is not only in its "economic" indices. I use Barnett's definition of national power constantly, remarkably Lavrov's recent speech in the General Staff Academy uses virtually identical definition. ..."
Apr 17, 2017 | www.unz.com

Anonymous , April 17, 2017 at 5:31 am GMT

Russia spent almost 5.4% of GDP on military spending. The US last year spent 3.3% and with Trump's proposed increase this number will increase by a few decimal points.

Russia is a middle income country while the US is a rich country, in the top 10 of GDP per capita. If oil prices don't substantially improve and Russia continues to spend the way it does on the military it will simply go broke.

Sources: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita (Russia is between Mexico and Suriname)

https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

@AP
Goods and services in Russia are considerably less expensive than in the West (and this includes the cost of producing fighter jets or rockets), so for such purposes GDP PPP is a better indicator than is nominal GDP. In terms of GDP PPP, Russia is of course not on par with the United States but is considerably higher than Mexico. It is in the same neighborhood as places such as Hungary.

Russia's overall GDP PPP places it slightly below Germany - 6th place in the world :

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

@Lewl42
Russia is a middle income country while the US is a rich country, in the top 10 of GDP per capita.

But the US GDP is of an different structure. Compared it is overblown with pure financial sales and "hedonistic adjustments". More is blown by the culture. In the US much more everyday things relies on money. In case of case they are all worth nothing. Furthermore, if it comes to conflicts than the whole US Infrastructure has to be "revalued", and i doubt that it can withheld some stress tests.

If oil prices don't substantially improve and Russia continues to spend the way it does on the military it will simply go broke

No country that relies on oil ( Russia do not) has made substantial improvements. Normally they are problem states where the problems made by oil are solved by money.

So from my point of view the opposite is true. Russia has made the big mistake to open itself to the west and was bitten. Now they readjust (with a border to china). Thank's to the US Oligarchs which thrown away that chance for they're primitive Neanderthal tribe thinking.

@Carlton Meyer
Over the years, the Pentagon encouraged Congress to move parts of national security spending out of its budget to the extent that almost half is found outside the DOD. The USA really spends over a trillion dollars a year. For example, nuclear weapons research, testing, procurement, and maintenance is found in the Dept of Energy budget.

http://www.pogo.org/straus/issues/defense-budget/2016/americas-1-trillion-national-security-budget.html

And as others have noted, GDP is a measure of activity, not prosperity. For example, mortgage refinancing creates lots of GDP, but no real wealth. Hurricanes and arson are good for GDP too!

@5371

Stupid beyond belief. Countries can't go broke doing something, if they control the natural and human resources they need to accomplish it. In addition, you apparently did not read Smoothie's explanation of why just comparing the sums spent is silly.
@Joe Wong
"Russia is a middle income country while the US is a rich country, in the top 10 of GDP per capita." this is very funny, how about the 20 trillions of US national debt and it is skyrocketing fast? If you only count asset without counting liability US maybe in the top 10 GDP per capita, but if you count net asset the US is in the negative GDP per capita, a broke nation. Perhaps it is American Exceptionalism logic, claiming credit where credit is not due, living in a world detached from reality.

"If oil prices don't substantially improve and Russia continues to spend the way it does on the military it will simply go broke." this is even funnier, Russian does not use USD in Russia, nor Russian government pay its MIC in USD, meanwhile Russian Central Bank can print Ruble thru the thin air just like the Fed, why does oil price have any relationship with Russian internal spending? Another example of "completely triumphalist and detached from Russia's economic realities" which is defined by meaningless Wall Street economic indices and snakeoil economic theories and rhetoric taught in the western universities.

Andrei Martyanov [AKA "SmoothieX12"] , Website

... ... ...

P.S. No serious analyst takes US GDP as 18 trillion dollars seriously. A huge part of it is a creative bookkeeping and most of it is financial and service sector. Out of very few good things Vitaly Shlykov left after himself was his "The General Staff And Economics", which addressed the issue of actual US military-industrial potential.

Then come strategic, operational and technological dimensions. You want to see operational dimension -- look no further than Mosul which is still, after 6 months, being "liberated". Comparisons to Aleppo are not only warranted but irresistible.

In general, overall power of the state (nation) is not only in its "economic" indices. I use Barnett's definition of national power constantly, remarkably Lavrov's recent speech in the General Staff Academy uses virtually identical definition.

[Apr 20, 2017] You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is output , of course, remains a complete mystery

Notable quotes:
"... Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point–structure of GDP. ..."
"... In general, we speak here different languages and I may only refer you back to Michael Lind's quote in my text. Judged in a larger, geopolitical framework, one can observe very clearly the process of US literally running out of resources and no amount of "raised capital" can change it. This is not to speak about the whole house of cards of Pax Americana which rested on US military imperial mythology. Once this mythology is debunked (the process which is ongoing as I type it) the house of cards folds. ..."
"... Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point--structure of GDP. ..."
"... You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is "output", of course, remains a complete mystery, same as many other services, once one considers the "quality" of education in US public schools which reflects in the most profound way on US labor force which increasingly begins to look like a third world one. ..."
www.unz.com
Andrei Martyanov says: • Website Show April 18, 2017 at 2:34 pm GMT
@inertial You just illustrated my point. Facebook vs. Gazprom market caps - all that shows is that Facebook has access to vastly larger amounts of capital than Gazprom. Well, duh.

Market capitalization is determined mostly by institutional investors - mutual funds, pension funds, insurance companies, etc. - who pool private savings and channel them into various investments. There are massive amounts of such savings available in USA; in Russia, not so much.

In Russia, the government is just about the only major saver and investor. This works fine in areas where the government must play a role, such as weapons manufacture. In other areas, enterprises that need capital to develop must either accumulate it themselves over the years (which puts limit on growth,) or get the government to help them out, or borrow abroad at usurious rates. That's not good. Ideally, Russian enterprises should enter Russian stock or fixed income market and raise as much capital as they need.

As for Boeing, yes it's a gem. But it does have some difficulties in raising capital. It's been balancing on the edge of bankruptcy for years and, unlike Facebook, it has huge liabilities. Incidentally, Boeing very much engages in all that "useless" high finance stuff. The buy and sell and issue bonds and short term paper; I don't know if they issue options but they certainly trade them. They don't believe that they are performing "virtual transactions with virtual money;" on the contrary, they consider this and essential part of the business, as important as building engines or whatever. Perhaps they know something you don't?

Finally, a tip. Any "expert" who doesn't treat US (or other) economic data seriously is an idiot.

Market capitalization is determined mostly by institutional investors – mutual funds, pension funds, insurance companies, etc. – who pool private savings and channel them into various investments. There are massive amounts of such savings available in USA; in Russia, not so much.

Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point–structure of GDP.

You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is "output", of course, remains a complete mystery, same as many other services, once one considers the "quality" of education in US public schools which reflects in the most profound way on US labor force which increasingly begins to look like a third world one.

https://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5114=a&5102=15

In general, we speak here different languages and I may only refer you back to Michael Lind's quote in my text. Judged in a larger, geopolitical framework, one can observe very clearly the process of US literally running out of resources and no amount of "raised capital" can change it. This is not to speak about the whole house of cards of Pax Americana which rested on US military imperial mythology. Once this mythology is debunked (the process which is ongoing as I type it) the house of cards folds.

Ondrej , April 18, 2017 at 3:20 pm GMT

@Andrei Martyanov
Market capitalization is determined mostly by institutional investors – mutual funds, pension funds, insurance companies, etc. – who pool private savings and channel them into various investments. There are massive amounts of such savings available in USA; in Russia, not so much.
Sure, and that is why a company which produces nothing of value "commands" the so called "investments" which are several times larger than those of Boeing who is de facto US national treasure and who, as you stated, has problems with raising "capital". That pretty much says it all. Again, I omit here the trick with stock buybacks. But in the end, you seem to miss completely the point--structure of GDP.

You may go here and see for yourself how FIRE overtook manufacturing in US in output. What is "output", of course, remains a complete mystery, same as many other services, once one considers the "quality" of education in US public schools which reflects in the most profound way on US labor force which increasingly begins to look like a third world one.

https://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5114=a&5102=15

In general, we speak here different languages and I may only refer you back to Michael Lind's quote in my text. Judged in a larger, geopolitical framework, one can observe very clearly the process of US literally running out of resources and no amount of "raised capital" can change it. This is not to speak about the whole house of cards of Pax Americana which rested on US military imperial mythology. Once this mythology is debunked (the process which is ongoing as I type it) the house of cards folds. Maybe this would help to someone:-)

„Excluding as we do noncapitalist change, we have to define that word which good economists always try to avoid : capitalism is that form of private property economy in which innovations are carried out by means of borrowed money, which in general, though not by logical necessity, implies credit creation. A society, the economic life of which is characterized by private property and controlled by private initiative, is according to this definition not necessarily capitalist, even if there are, for instance, privately owned factories, salaried workers, and free exchange of goods and services, either kind or through the medium of money. The entrepreneurial function itself is not confined to capitalist society, since such economic leadership as it implies would be present, though in other forms, even in a primitive tribe or in a socialist community." (Schumpeter 1939, 216)

This means that in perfect equilibrium interest would be zero in the sense that it would not be a necessary element of the process of production and distribution, or that pure interest tends to vanish as the system approaches perfect equilibrium. Proof of this proposition is very laborious, because it involves showing why all the theories which lead to a different result are logically unsatisfactory.

Hence, the money market with all that happens in it acquires for us a much deeper significance than can be attributed to it from the standpoint just glanced at. It becomes the heart, although it never becomes the brain, of the capitalist organism (Schumpeter 1939)

http://classiques.uqac.ca/classiques/Schumpeter_joseph/business_cycles/schumpeter_business_cycles.pdf

[Apr 15, 2017] Statistical Significance Is Overrated - Noah Smith

Apr 15, 2017 | economistsview.typepad.com
Gerald Scorse , April 14, 2017 at 06:20 AM
Statistical Significance Is Overrated - Noah Smith

"[R]emember that statistical significance is only part of what you need to know. How strong an effect is, and how important it is in the real world, might matter even more."

I try to learn something new every day. This is it for Friday, April 14, 2017. Thanks Noah.

Chris G -> Gerald Scorse... , April 14, 2017 at 07:29 AM
I thought Smith's column was quite good. (I don't write that very often.) "We know what the effect accurately and precisely. It's really small and doesn't matter." is important if/when that's the case. You want to know when you can get away with ignoring something when you're creating your (approximate) model of how the world works. Conversely, "We know what the effect is pretty accurately but not super precisely. We know enough that we can say that it's a big deal but we're still figuring out precisely how big a deal." is also critical information. Knowledge re the former effect may be more statistically significant than the latter while at the same time being less materially significant. That can be a fairly subtle point to a non-technical audience. Heck, it can be a subtle point to technically-oriented audience.
libezkova said in reply to Chris G ... , April 14, 2017 at 04:11 PM
I think that requirement of the normal (or Gaussian) distribution that is behind most statistical metrics is the weakest part.

Normal distribution is the distribution with the maximum entropy for a specified mean and variance. As such it is poorly suited as the distribution of the data reflecting economic or social processes (fat tails problems).

[Apr 14, 2017] Declining consumption of electricity in the USA might mean that GDP data are fudged

Apr 14, 2017 | economistsview.typepad.com
libezkova , April 13, 2017 at 08:51 AM
Another face of secular stagnation and outsourcing of manufacturing:

The De-Electrification of the U.S. Economy - Bloomberg View
https://www.bloomberg.com/view/articles/2017-04-12/the-de-electrification-of-the-u-s-economy

== quote ==
In much of the world, of course, electricity demand is still growing. In China, per-capita electricity use has more than quadrupled since 1999. Still, most other developed countries have experienced a plateauing or decline in electricity use similar to that in the U.S. over the past decade. And while the phenomenon has been most pronounced in countries such as the U.K. where the economy has been especially weak, it's also apparent in Australia, which hasn't experienced a recession since 1991.
== end of quote ==

From comments:

One interesting data point that should be within that "industrial" number: "U.S. aluminum production has gone from 2.5 million tons in 2005 to 1.6 million in 2015." http://www.seattletimes.com...

Aluminum smelting uses a lot of electricity, and that's a 36% decline. I'm not sure of the total electricity use of the aluminum industry in the U.S. but it's conceivably big enough to make a difference in that last graph.

anne -> libezkova... , April 13, 2017 at 09:16 AM
The essay is surely interesting, but what "might" it mean?
Fred C. Dobbs -> anne... , April 13, 2017 at 11:54 AM
(Bloomberg)
... In an article published in the Electricity Journal in 2015, former Lawrence Berkeley energy researcher Jonathan G. Koomey, now a consultant and a lecturer at Stanford, and Virginia Tech historian of science Richard F. Hirsch offered five hypotheses for why electricity demand had decoupled from economic growth (which I've paraphrased here):

In an article published in the Electricity Journal in 2015, former Lawrence Berkeley energy researcher Jonathan G. Koomey, now a consultant and a lecturer at Stanford, and Virginia Tech historian of science Richard F. Hirsch offered five hypotheses for why electricity demand had decoupled from economic growth (which I've paraphrased here):
1.State and federal efficiency standards for buildings and appliances have enabled us to get by with less electricity.
2.Increased use of information and communications technologies have also allowed people to conduct business and communicate more efficiently.
3.Higher prices for electricity in some areas have depressed its use.
4.Structural changes in the economy have reduced demand.
5.Electricity use is being underestimated because of the lack of reliable data on how much energy is being produced by rooftop solar panels. ...

https://law.stanford.edu/publications/electricity-consumption-and-economic-growth-a-new-relationship-with-significant-consequences/

anne -> Fred C. Dobbs... , April 13, 2017 at 05:18 PM
I appreciate these conjectures or hypotheses, which I had read initially and should have set down as well. The problem is there is no clear defining of the hypotheses, or provision for coming to a tentative conclusion as to the effect of any hypothesis.

The matter is of course important, and I will welcome further consideration.

libezkova -> anne... , April 13, 2017 at 04:28 PM
"what "might" it mean?"

It might mean that GDP data are fudged.

[Apr 12, 2017] How corporate profit-shifting distorts measured productivity - Equitable Growth

Apr 12, 2017 | equitablegrowth.org

pgl said... April 11, 2017 at 01:19 AM Nick Bunker ( How corporate profit-shifting distorts measured productivity - Equitable Growth ) reports on a paper from economists at Penn State that should interest Brad Setser:

'By shifting profits overseas, economic output that should be counted in the United States ends up being registered in other countries.

This shifting appears to have happened in part due to the rise in "intangible assets." To borrow an example from the four economists, think of a simplified version of the profits from an iPhone. Employees at Apple Inc. design the phone, which is then produced abroad at a cost of $250 and sold to a customer in the United States for $750. If we assume the reason people buy iPhones is the branding and design created by Apple, then a good portion of the $500 net profit is a return on "intangible assets" produced in the United States. But if a company sells the rights to these intangible assets to a subsidiary in a low-tax country, then the profits will end up there.

The result? An increase in the Gross Domestic Product of the low-tax country and a decline in the GDP of the United States without any real change in economic activity.'

Transfer pricing abuse! Of course that Ryan DBCFT tax deform would allow this tax avoidance on a permanent basis in a way that is all perfectly legal. Reply Tuesday, pgl said in reply to Peter K.... "hey would still be taxed on their sales."

Seriously? Most of Apple's sales are abroad. Same for Coca Cola, Boeing, Caterpillar, the list goes on.

Reply Tuesday, April 11, 2017 at 07:47 AM djb said in reply to pgl... yes sales tax might happen in the united states but pgl is talking about corporate tax on profit

transfer pricing manipulates the situation to show most of the profits as being earned in the low tax country. So that lets say the true cost of the manufacture of the iphone is 250 dollars,

they might say that the American subsidiary of the same company went to the low tax country and paid 700 dollars for the iphone

at least say that on paper

that's what he is talking about

sales tax doesn't affect the tax on profit

besides, sales tax is paid over and above the 750 dollars Reply Tuesday, April 11, 2017 at 11:00 AM pgl said in reply to djb... "pgl is talking about corporate tax on profit". Yep - you get it.

Reply Tuesday, April 11, 2017 at 11:56 AM J Johannes Y O Highness said in reply to Repeal 2 Replace 1...
Do you see how deflation fulfills the Keynesian Dream?

By inducing Keynesian Stimulation from Keynesian Expectations. Here is how works :

A car dealer has contract to buy from auto factory set amount of cars each month. Contract allows factory to churn out Tesla-s at steady rate thus efficient clip.

Unlike his customers, savvy dealer watches deflation rate carefully. He holds onto inventory when he expects less or no future deflation, but when he expects greater deflation, he deftly dumps inventory before price drops, accelerates M2V. Deflation causes dealers of each product and service to stimulate economic expansion. Here is my impression of Tyler Cohen :

When a government hardens its currency most of that currency is held by the citizens serving that government. Each citizen then has more buying power, more wealth because of her/his shrewd rulers.

As deflation allows full reserve, full reserve makes the predictions of Nouriel Roubini irrelevant. Full reserve eliminates uncertainty that nauseates business ventures that hire folks.
Awareness!

Get
it --
Reply Tuesday, April 11, 2017 at 11:17 AM Justin Cidertrades said in reply to Johannes Y O Highness...
How, Howard? How does ruler harden the currency?

By spending less, but taxing more, taxing foreigners by way of import duties. Is that what communist rulers of China are now doing? Import tariff? To harden currency thus enrage 45th President?

Don't worry nothing!
Don't worry!
Be happy!

45th will soon become aware. First aware; then, "company, attenzione!
forward march
!!
" Reply Tuesday, April 11, 2017 at 11:38 AM point said in reply to pgl... It's a terrific article, especially showing aggregate debt exceeds aggregate assets through use of tax havens.

On calculating GDP, it sure seems the standard labor arbitrage maneuver of transferring the production of intermediate goods to a favorable labor rate jurisdiction for importation should have implications beyond transfer pricing abuse.

If I, a US citizen, own a US located factory producing product with entirely US located inputs, then transfer an intermediate production stage to a low wage rate jurisdiction, where I still own the entire chain, this seems insufficiently foreign to account as exporting and importing.

People sometimes create "look through" earnings to consolidate unconsolidated results of minority subsidiaries to get a better look at a parent's full results. Something similar could be worthwhile here where a company's "insufficiently foreign" production would be consolidated into a look-through US production number.
Reply Tuesday, April 11, 2017 at 06:20 AM pgl said in reply to point... It is an interesting paper. Glad you read it. I see that PeterK did not. Reply Tuesday, April 11, 2017 at 07:48 AM

[Apr 04, 2017] The GDP Is a Flawed But Magical Indicator by Leonid Bershidsky

GDP is a classic junk science, some sort of 'economic Lysenkoism" and "cult of GDP is an immanent feature of neoliberal propaganda designed to substitute arbitrary metric for more scientific measurements of the wellbeing of people. That's a neoliberal lie: "That's why per capita GDP is one of the strongest predictors of happiness measured through people's subjective perceptions of their well-being. "
And it is generally connected strongly only with well being of financial oligarchy, which in the USA is at all time high. Preetty much disconned with well being of ordinary people as declining wages signify in the USA>
Sitting regular neoliberal stooges like Feldstein is just Argument from authority - Wikipedia thanks god he did not cite Mankiw.
Notable quotes:
"... GDP calculation isn't an exact science ..."
"... As Federal Reserve Chair Janet Yellen recently pointed out, GDP is "a pretty noisy indicator" at best. ..."
Apr 03, 2017 | www.bloomberg.com

Economists have long argued that the gross domestic product has many flaws as a measure of well-being and policy success. Yet there's a good reason it's still being used: There's a certain magic to it, despite its science being somewhat iffy.

QuickTake GDP: Measuring Income or Well-Being?

On Monday, the National Bureau of Economic Research published a paper by Harvard economist Martin Feldstein detailing an argument he has been making for years -- that GDP calculations underestimate actual growth and productivity. This optimistic argument is based on the difficulty of measuring changes in the quality of products and services, and therefore of life. Feldstein points out, for example, that official measurements, for the most part, only catch quality improvements if a product or service requires more expensive inputs: "If it doesn't cost more to produce a product or service this year than it did last year, there has been no improvement." That way, for example, leaps in the quality of health care -- when a patient who used to need a week in hospital to recover from a cataract operation is now discharged on the day of the procedure -- are not measured. The way official statistics measure the introduction of new products, too, doesn't account for their actual contribution to consumers' well-being or to the economy as a whole.

According to Feldstein, government messaging should be more optimistic to make sure people understand that their savings will buy more in the future. Goods and services are improving lives more than price increases would indicate.

Nobel laureate Joseph Stiglitz has long held the opposite view -- that the GDP as measured today may overestimate well-being. For example, it counts any increase in government spending as positive, even though these increases may be inefficient or even counterproductive. And as for those improvements in health care quality that form the basis of Feldstein's argument, they, too, can be overestimated in the U.S. because health care spending there is higher than other countries while the outcomes are the same or worse.

Some recent work also argues against the theory, supported by Feldstein, that the recent productivity slowdown is due to a failure of measurement. Last year, Chad Syverson of the University of Chicago pointed out that even the most generous estimates of the value added by the growth in digital technology aren't big enough to bring productivity growth to its pre-2004 trajectory. Another analysis by International Monetary Fund economist Marshall Reinsdorf found that their unmeasured effect on productivity could only be small. Statistics fail to record some of the added value because of the tech sector's use of tax havens, he wrote. But even the "free" internet services provided now are counted through the advertising they attract. And some of the improvements that tech created for consumers don't belong in the GDP calculation in the first place: If they save a user some personal time, that stays in the home and doesn't affect economic activity. (Even if it did, it might be canceled out by the time our digital addictions take out of our productive workday.)

All the back and forth about how GDP is calculated is only possible because, despite all the flaws, the measure somehow ends up feeling right. The distortions often end up canceling themselves out.

In 2013, Nicholas Oulton of the London School of Economics' Center for Economic Performance wrote a paper to disprove the notion that U.K. economic growth had been overestimated because official calculations overstated the contribution of banking to GDP. He showed that "if banking output has been overstated, then the output of some other industry or industries must have been understated."

Earlier this year, a team of IMF economists attempted to figure out how GDP numbers would have changed for a number of developed countries had they used an outdated deflation method, still used by China and India. It turned out that the effects wouldn't have been consistently negative or positive for most countries; for Western European countries, on aggregate, the effects would have been small. The team's recommendation was that more countries adopt the more progressive deflation methods now used by most of the G20 -- but their research made it clear that in some cases the difference in the results would be tiny.

As much as GDP calculation isn't an exact science , the results usually make sense. That's why per capita GDP is one of the strongest predictors of happiness measured through people's subjective perceptions of their well-being.

It's fine to argue for better measures of well-being. These measures, however, add even harder-to-measure indicators, such as levels of social support, freedom and generosity. For many countries, these data are either unavailable or subjectively colored. The choice is between engineering and science: The former will accept an imperfect approximation, while the latter will always strive for perfection. As Federal Reserve Chair Janet Yellen recently pointed out, GDP is "a pretty noisy indicator" at best. Yet it remains extremely useful as a reference.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

[Mar 31, 2017] http://www.calculatedriskblog.com/2017/03/weekly-initial-unemployment-claims_30.html

Mar 31, 2017 | www.calculatedriskblog.com

"Weekly Initial Unemployment Claims decrease to 258,000"

by Bill McBride...3/30/2017...08:40:00 AM

The DOL reported:

..... In the week ending March 25, the advance figure for seasonally adjusted initial claims was 258,000, a decrease of 3,000 from the previous week's unrevised level of 261,000. The 4-week moving average was 254,250, an increase of 7,750 from the previous week's unrevised average of 246,500.

The previous week was revised up.

...This was above the consensus forecast.

The low level of claims suggests relatively few layoffs."
Reply Thursday, March 30, 2017 at 05:40 PM libezkova said in reply to im1dc... This "seasonally adjusted" magic is more like another flavor of statistical fraud... Because assumptions behind those adjustments are so wrong they are not even discussed.

Also McJobs and Walmart jobs -- anything paying below subsistence level are not actually jobs.

It's more like slavery. That's another nail in the coffin of "free market" ideology. What is so free in a person taking job in Wal Mart? Or any other McJob? That's neo-feudalism with Wal Mart as a huge feudal landlord and mass of desperate, hungry peasants.


Please note that around $100K jobs in the USA are needed just to accommodate growing workforce.

http://www.economicpopulist.org/content/how-many-jobs-are-needed-keep-population-growth

== quote ==

How Many Jobs Are Needed to Keep Up with Population Growth?

Submitted by Robert Oak on September 8, 2012 - 6:45pm

The press quotes all sorts of figures for the number of monthly job gains needed to keep up with population growth. We see numbers like 80,000, 100,000, 125,000 and 175,000 thrown around like statistical snow as the number of jobs needed each month just to keep up. What's the right one? How many jobs are needed each month just to keep up with population growth?

The actual monthly amount can be calculated and the Atlanta Fed even did us a huge favor by publishing an interactive monthly jobs calculator so you can go check for yourself. This month shows we need 104,116 payroll jobs to maintain the same unemployment rate of 8.1% with all of the other same terrible conditions the state of employment is in.
Reply Thursday, March 30, 2017 at 08:06 PM

[Mar 26, 2017] There is no such thing as a natural rate of interest

Mar 26, 2017 | economistsview.typepad.com
RGC, March 26, 2017 at 07:06 AM
In short, there is no such thing as a "natural rate of interest".

........................

What then? It is difficult to say, exactly, whether the prevalent confusions are the result of sloppy thinking, an incoherent textbook pedagogy, or a deliberate desire to cover for the Federal Reserve and to obstruct potential criticism of the independent central bank. As a next step, let us ask: is there a better theory of interest rates out there, somewhere in the great work of the economists?

In the CEA paper, as in most of this so-called literature, the 20th century British economist John Maynard Keynes is not cited. Yet it is a fact that Keynes did write an influential book with the word "Interest" in the title. It was called The General Theory of Employment Interest and Money, published in 1936. In which Keynes states, of the classical theory of interest – that theory of loanable funds overlying a natural rate – that his own analysis "will have made it plain that this account of the matter must be erroneous" (p. 177). Perhaps it is worthwhile to seek Keynes's counsel at this point?

Keynes's theory of interest does not rest on the capital stock. And in Keynes as in the real world, there is no "capital market" that equates household saving with business investment.

Instead, Keynes's theory of interest is about the market for money – a market that definitely does exist in the real world. He wrote: "The rate of interest is not the 'price' which brings into equilibrium the demand for resources to invest with the readiness to abstain from consumption. It is the 'price' which equilibrates the desire to hold wealth in the form of cash with the available quantity of cash" (p. 167). In other words, interest rates are a portfolio issue. They are determined in the money markets, by how – in what form – people with wealth choose, at any given time, to hold that wealth. You pay interest, in order to get people to hold their wealth in less-liquid forms, such as bonds – and this is what provides firms with a secure source of financing, which then permits them to invest.

Keynes's theory of interest is the pure common sense of how financial markets work. So why is it treated, by our leading liberal economists, as though it didn't exist? Why all this confusing folderol about natural and neutral rates? The apparent answer is damning. In the theories our economists like, a technical theory of interest creates a technical theory of income distribution, since interest rates govern the incomes of creditors against debtors, of the rich against the poor, of profits against wages. Thomas Piketty's recent book is a nice instance of this point, with its argument that the great inequalities of capitalism are due to interest rates higher than the rate of economic growth. If interest somehow reflects the physical productivity of the capital stock, then the consequences may be unfortunate – but they are inevitable and not something of which it is proper to complain.

http://www.paecon.net/PAEReview/issue78/Galbraith78.pdf

RGC -> RGC... , March 26, 2017 at 07:39 AM
"Why all this confusing folderol about natural and neutral rates? The apparent answer is damning. In the theories our economists like, a technical theory of interest creates a technical theory of income distribution, since interest rates govern the incomes of creditors against debtors, of the rich against the poor, of profits against wages..........If interest somehow reflects the physical productivity of the capital stock, then the consequences may be unfortunate – but they are inevitable and not something of which it is proper to complain."

[Is that clear enough?......Galbraith is accusing mainstream economists of acting as apologists for rentiers.]

[Mar 25, 2017] Is productivity metric as problematic as GDP?

Mar 24, 2017 | cepr.net

anne: March 24, 2017 at 05:21 AM

Marketplace Radio Has Not Heard About the Productivity Slowdown

Marketplace radio had a peculiar piece * asking what the world would have looked like if the North American Free Trade Agreement never had been signed. The piece is odd because it dismisses job concerns associated with NAFTA by telling readers that automation (i.e. productivity growth) has been far more important in costing jobs.

"As in, ATMs replacing bankers, robots displacing welders. Automation is a very old story that goes back 250 years, but it has really picked up in the last couple decades.

"'We economic developers have an old joke,' said Charles Hayes of the Research Triangle Regional Partnership in an interview with Marketplace in 2010. 'The manufacturing facility of the future will employ two people: one will be a man, and one will be a dog. And the man will be there to feed the dog. And the dog will be there to make sure the man doesn't touch the equipment.'

"Ouch. But it turns out technology replaced workers in the course of reporting this very story."

Actually, the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

[Graph]

While more rapid productivity growth would allow for faster wage and overall economic growth, no one has a very clear path for raising the rate of productivity growth. It is strange that Marketplace thinks our problem is a too rapid pace of productivity growth.

The piece is right in saying that the jobs impact of NAFTA was relatively limited. Certainly trade with China displaced many more workers. NAFTA may nonetheless have had a negative impact on the wages of many manufacturing workers. It made the threat to move operations to Mexico far more credible and many employers took advantage of this opportunity ** to discourage workers from joining unions and to make wage concessions. It's surprising that the piece did not discuss this effect of NAFTA.

* https://www.marketplace.org/2017/03/23/economy/what-if-nafta-were-never-born

** http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1018&context=cbpubs

-- Dean Baker

anne said in reply to anne...

https://fred.stlouisfed.org/graph/?g=d6jh

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Percent Change)


https://fred.stlouisfed.org/graph/?g=d7LU

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Indexed to 1952)

pgl said in reply to anne... March 24, 2017 at 06:01 AM

Thanks for the data. It confirms what Dean wrote here:

"the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

anne said in reply to pgl... March 24, 2017 at 06:10 AM

Looking internationally, I consider the evidence conclusive that productivity growth has slowed significantly since 2005 in countries that have had limited infrastructure development, regardless of the emphasis in those countries on information technology advance and application.

libezkova -> anne... March 25, 2017 at 09:33 AM

And what is productivity ?

== quote ==

The OECD defines it as "the ratio of a volume measure of output to a volume measure of input".] Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation.

== end of quote ==

If you use GDP the result is suspect for the reasons GDP is suspect. If not, then it is sector/industry based metric.

In this sense growth of GDP in 1990th is not only the result of technological changes (Internet, PCs, cell phones) but also looting of the xUSSR economies

And as looting slowed down after 2000 growth of productivity also allowed down.

libezkova -> libezkova... March 25, 2017 at 10:32 AM

Steve Keen pointed out that all production is driven by energy (mostly oil and electricity). And the energy comes ultimately from the sun.

Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons or indirectly via electricity supply).

That means that growth of productivity is inversely correlated with the price of oil. As the period of cheap hydrocarbons ended (remember $.99 per gallon of gas in 90th) the period of rapid productivity growth ended as well.

One of the aspects od the idea of "secular stagnation" is that high oil prices hit neoliberal economies like a hammer and the period of high oil prices started to undermine neoliberal globalization by making shipping more expensive.

That also means that without continuation of low oil prices the next debt crisis (aka Minsky moment) is eminent for the USA economy.

BTW none of US shale companies is profitable. They are all up to the neck in debt, and their method of extracting oil includes generating a flow of junk bonds. If financing stops most of them will be bankrupt in one year period.

Obama clever game with Iran helped to produce "Obama recovery" due to the period of "normal" oil prices which started in mid 2015.

It probably can be extended for another year or two. What happens next is completely unknown territory. It is clear that the US shale is a card that was already played. It can't be played again as output probably can be substantially raised (say 2 Mbd/day) only with high or very high oil prices (as in above $70 or higher).

After "Obama recovery" (which depends on continuing low oil prices created by clever political maneuvering in Arab world -- Hail Mary pass that worked) we might well face the period of "elevated oil prices" and increased stagnation of the US economy with noticeably higher level of unemployment.

Much depends on Trump playing his trump card of "détente" with Russia which theoretically could extend this period (Russia has the same level of oil production as Saudis and more reserves), but there were to much sand thrown by neocons and DemoRats for this scenario to work. I thing Russia now is no longer interested in partnership with the USA on the basis of maintaining low oil prices -- like KSA today, and might cut output further to get higher oil prices which are vital for their economy. Of course Russia has strong neoliberal fifth column (including pro-western directors of oil companies and oligarchs who have their wealth transferred to Western banks) but even they are pissed off by the USA now.

DemoRats wiped up Anti-Russian hysteria to the level when even contact with Russian official can be a "career limiting move" in the USA.

This hysteria now has its own self-propagating dynamics and is difficult to stop. It might last for the same period of time as McCarthyism hysteria (roughly from 1947 to 1956).

"... "The principal problem for Democrats is that so many media figures and online charlatans are personally benefiting from feeding the base increasingly unhinged, fact-free conspiracies - just as right-wing media polemicists did after both Bill Clinton and Obama were elected - that there are now millions of partisan soldiers absolutely convinced of a Trump/Russia conspiracy for which, at least as of now, there is no evidence. ..."

It put the Democrats and Republicans in sync as two equally warmongering parties, but what good that would bring for the American people and the world is hard to fathom.

The USA lost the possibility of switching personal car fleet to more economical hybrid models by adopting some drastic measures and now is less prepared for a new period of high oil prices. People are still buying SUV which became the most popular type of personal transportation in the USA, and small tracks.

On the electricity front there are some problems too. The looting of Russia and the flow of cheap uranium stopped. Building of high voltage East -West line necessary for substantial wind and solar production is still on the drawing board.

[Mar 25, 2017] Like most integral metrics (and, especially, like GDP) productivity growth is very suspect. Its importance was artificially amplified under neoliberalism to the sacred cow status

Notable quotes:
"... The long term absence of convergence in productivity growth between developed and developing countries should be of considerable concern, but seems overlooked even in settings such as trade negotiations in which such concerns especially need to be addressed. ..."
"... You need to understand that like most "integral" metrics (and, especially, like GDP) productivity growth is very suspect. Its importance was artificially amplified under neoliberalism to the "sacred cow" status. ..."
"... While the strong earnings growth of US-based corporations might, at least partially, be real and not all accounting tricks, the question arise what part of those gains are coming from improvements in domestic productivity and what part from offshoring. ..."
"... Productivity growth is an important part of the system of neoliberal myths (along with "cult of GDP" ) and this mythology is directed at deceiving the public that it is indirectly benefitting from the neoliberal transformation of the society, while in reality we observe impoverishment of the majority of population. As in " The USA is the country with fastest productivity grown." Rejoice. ..."
Mar 25, 2017 | economistsview.typepad.com

anne -> anne... March 25, 2017 at 10:31 AM

The long term absence of convergence in productivity growth between developed and developing countries should be of considerable concern, but seems overlooked even in settings such as trade negotiations in which such concerns especially need to be addressed.

libezkova -> anne..., March 25, 2017 at 04:42 PM

Anne,

You need to understand that like most "integral" metrics (and, especially, like GDP) productivity growth is very suspect. Its importance was artificially amplified under neoliberalism to the "sacred cow" status.

Government bureaucrats also are afraid to tell the truth. Richard Benson , a well-known critic of government labor statistics, who wrote several insightful papers on the subject, noted "The BLS is mindful of how politically sensitive any reported job data is to the White House, so there is a strong bias for the government bureaucrats to publish a favorable jobs report."

One hidden fact is that it is offshoring that is the driver of corporate profits and it distorts "productivity" statistics.

While the strong earnings growth of US-based corporations might, at least partially, be real and not all accounting tricks, the question arise what part of those gains are coming from improvements in domestic productivity and what part from offshoring.

Rising stratification of the society also affects this metric (via the ratio of "have more" vs "have not")

Productivity growth is an important part of the system of neoliberal myths (along with "cult of GDP" ) and this mythology is directed at deceiving the public that it is indirectly benefitting from the neoliberal transformation of the society, while in reality we observe impoverishment of the majority of population. As in " The USA is the country with fastest productivity grown." Rejoice.

It is also simplifies the adoption of pro financial oligarchy policies masked with technocratic jargon -- policies that destroyed New Deal and hurt the majority of the population ("rising labor costs" is one such usage).

Adopting technocratic posture (economics like Boeing there by using certain controls you can change flight course) serves like anesthetic. Rephrasing Marx we can say "neoliberal economics is the opium for the people". And it is by design. which confirms the iron law of oligarchy in a very interesting, unexpected way.

That's why jargon use by priests of neo-classical economics is almost in-penetrable for an ordinary person. The well known neoliberal stooge Greenspan was a real master of it.

So the importance assigned to such measures as GDP and productivity is, to a certain extent, politically motivated.

For example, in the denominator we have all those hedge funds managers and other members of financial oligarchy bonuses, and top managers exorbitant remuneration within all kinds of firms (which definitely drives productivity growth down ;-)

In the numerator are military expenses and income of financial sector (and now another somewhat parasitic sector close to banking -- medical insurance industry).

Both are essentially money stolen from people and, to a certain extent, from "real" economy.

Of cause, not all money are wasted as military spending in addition to war for neoliberal empire expansion (and related loot) also employs a lot of people and fund fundamental research; the myth about innovation of Silicon Valley is partially a myth; in reality in many cases this is a direct transfer of technology from the military sector.

Among the examples are integrated circuits, laser, wireless, Internet, multiprocessing, etc; even some algorithmic languages :-).

So when you have such fuzzy numerator and denominator, the result is also fuzzy and all conclusions based on them might be not worth electrons with which they are depicted on our screens.

As I mentioned before, productivity should be somewhat inversely correlated with the oil price, as "amount of energy per worker" is what defines at the end worker's productivity (via the level of automation, mechanization of his work). That's were the USA strong (or week, if you wish) point is -- it has the largest consumption of energy per capita in the world. If we normalize productivity via per capita energy consumption we will get a more interesting picture.

[Mar 25, 2017] Is productivity metric as problemtic as GDP?

Notable quotes:
"... The OECD defines it as "the ratio of a volume measure of output to a volume measure of input".] Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation. ..."
"... If you use GDP the result is suspect for the reasons GDP is suspect. If not, then it is sector/industry based metric. ..."
"... In this sense growth of GDP in 1990th is not only the result of technological changes (Internet, PCs, cell phones) but also looting of the xUSSR economies ..."
"... And as looting slowed down after 2000 growth of productivity also allowed down. ..."
"... One of the aspects of the idea of "secular stagnation" is that high oil prices hit neoliberal economies like a hammer and the period of high oil prices started to undermine neoliberal globalization by making shipping more expensive. ..."
"... BTW none of US shale companies is profitable. They are all up to the neck in debt, and their method of extracting oil includes generating a flow of junk bonds. If financing stops most of them will be bankrupt in one year period. ..."
Mar 24, 2017 | cepr.net

anne: March 24, 2017 at 05:21 AM

Marketplace Radio Has Not Heard About the Productivity Slowdown

Marketplace radio had a peculiar piece * asking what the world would have looked like if the North American Free Trade Agreement never had been signed. The piece is odd because it dismisses job concerns associated with NAFTA by telling readers that automation (i.e. productivity growth) has been far more important in costing jobs.

"As in, ATMs replacing bankers, robots displacing welders. Automation is a very old story that goes back 250 years, but it has really picked up in the last couple decades.

"'We economic developers have an old joke,' said Charles Hayes of the Research Triangle Regional Partnership in an interview with Marketplace in 2010. 'The manufacturing facility of the future will employ two people: one will be a man, and one will be a dog. And the man will be there to feed the dog. And the dog will be there to make sure the man doesn't touch the equipment.'

"Ouch. But it turns out technology replaced workers in the course of reporting this very story."

Actually, the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

[Graph]

While more rapid productivity growth would allow for faster wage and overall economic growth, no one has a very clear path for raising the rate of productivity growth. It is strange that Marketplace thinks our problem is a too rapid pace of productivity growth.

The piece is right in saying that the jobs impact of NAFTA was relatively limited. Certainly trade with China displaced many more workers. NAFTA may nonetheless have had a negative impact on the wages of many manufacturing workers. It made the threat to move operations to Mexico far more credible and many employers took advantage of this opportunity ** to discourage workers from joining unions and to make wage concessions. It's surprising that the piece did not discuss this effect of NAFTA.

* https://www.marketplace.org/2017/03/23/economy/what-if-nafta-were-never-born

** http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1018&context=cbpubs

-- Dean Baker

anne said in reply to anne...

https://fred.stlouisfed.org/graph/?g=d6jh

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Percent Change)


https://fred.stlouisfed.org/graph/?g=d7LU

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Indexed to 1952)

pgl said in reply to anne... March 24, 2017 at 06:01 AM

Thanks for the data. It confirms what Dean wrote here:

"the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

anne said in reply to pgl... March 24, 2017 at 06:10 AM

Looking internationally, I consider the evidence conclusive that productivity growth has slowed significantly since 2005 in countries that have had limited infrastructure development, regardless of the emphasis in those countries on information technology advance and application.

libezkova -> anne... March 25, 2017 at 09:33 AM

And what is productivity ?

== quote ==

The OECD defines it as "the ratio of a volume measure of output to a volume measure of input".] Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation.

== end of quote ==

If you use GDP the result is suspect for the reasons GDP is suspect. If not, then it is sector/industry based metric.

In this sense growth of GDP in 1990th is not only the result of technological changes (Internet, PCs, cell phones) but also looting of the xUSSR economies

And as looting slowed down after 2000 growth of productivity also allowed down.

libezkova -> libezkova... March 25, 2017 at 10:32 AM

Steve Keen pointed out that all production is driven by energy (mostly oil and electricity). And the energy comes ultimately from the sun.

Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons or indirectly via electricity supply).

That means that growth of productivity is inversely correlated with the price of oil. As the period of cheap hydrocarbons ended (remember $.99 per gallon of gas in 90th) the period of rapid productivity growth ended as well.

One of the aspects of the idea of "secular stagnation" is that high oil prices hit neoliberal economies like a hammer and the period of high oil prices started to undermine neoliberal globalization by making shipping more expensive.

That also means that without continuation of low oil prices the next debt crisis (aka Minsky moment) is eminent for the USA economy.

BTW none of US shale companies is profitable. They are all up to the neck in debt, and their method of extracting oil includes generating a flow of junk bonds. If financing stops most of them will be bankrupt in one year period.

Obama clever game with Iran helped to produce "Obama recovery" due to the period of "normal" oil prices which started in mid 2015.

It probably can be extended for another year or two. What happens next is completely unknown territory. It is clear that the US shale is a card that was already played. It can't be played again as output probably can be substantially raised (say 2 Mbd/day) only with high or very high oil prices (as in above $70 or higher).

After "Obama recovery" (which depends on continuing low oil prices created by clever political maneuvering in Arab world -- Hail Mary pass that worked) we might well face the period of "elevated oil prices" and increased stagnation of the US economy with noticeably higher level of unemployment.

Much depends on Trump playing his trump card of "détente" with Russia which theoretically could extend this period (Russia has the same level of oil production as Saudis and more reserves), but there were to much sand thrown by neocons and DemoRats for this scenario to work. I thing Russia now is no longer interested in partnership with the USA on the basis of maintaining low oil prices -- like KSA today, and might cut output further to get higher oil prices which are vital for their economy. Of course Russia has strong neoliberal fifth column (including pro-western directors of oil companies and oligarchs who have their wealth transferred to Western banks) but even they are pissed off by the USA now.

DemoRats wiped up Anti-Russian hysteria to the level when even contact with Russian official can be a "career limiting move" in the USA.

This hysteria now has its own self-propagating dynamics and is difficult to stop. It might last for the same period of time as McCarthyism hysteria (roughly from 1947 to 1956).

"... "The principal problem for Democrats is that so many media figures and online charlatans are personally benefiting from feeding the base increasingly unhinged, fact-free conspiracies - just as right-wing media polemicists did after both Bill Clinton and Obama were elected - that there are now millions of partisan soldiers absolutely convinced of a Trump/Russia conspiracy for which, at least as of now, there is no evidence. ..."

It put the Democrats and Republicans in sync as two equally warmongering parties, but what good that would bring for the American people and the world is hard to fathom.

The USA lost the possibility of switching personal car fleet to more economical hybrid models by adopting some drastic measures and now is less prepared for a new period of high oil prices. People are still buying SUV which became the most popular type of personal transportation in the USA, and small tracks.

On the electricity front there are some problems too. The looting of Russia and the flow of cheap uranium stopped. Building of high voltage East -West line necessary for substantial wind and solar production is still on the drawing board.

[Mar 24, 2017] GDP and statistican charlatans

Notable quotes:
"... With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...] ..."
Mar 24, 2017 | economistsview.typepad.com
libezkova -> pgl... Reply Friday, March 24, 2017 at 10:38 AM , March 24, 2017 at 10:38 AM

Do you really think that GDP is "econofact"?

Or is it "econo-opinion" ?

People like you pray on the altar of GDP growth, don't they?

Look at the formula and shake from fear because the formula:

GDP = C + G + I + NX 

or

GDP = consumption + government+ investment + (exports − imports) 

is clearly open to huge machinations (BTW G includes purchase of weapons for the military; you get the idea what I am hinting at). Also all the contribution of financial firms to GDP should probably be counted with negative sign ;-). Because large part of it is either racket or illicit rent extraction from the society which weakens the "real" economy.

The problem with all major statistical aggregates is that "it is better not to see them being made."

And if you measure GDP via

GDP = Compensation of employees + Gross operating surplus + Gross mixed income 

are you sure that you will get the same metric?

The same is true for unemployment, inflation, oil production, and other "politically sensitive" economic metrics.

When I see a person who quotes GDP figures or unemployment without discussing his view of its reliability and margin of error (for example for GDP via inflation, or the method of including "services" part of economy; same for the difference between fake U3 and more realistic U6 for unemployment), I suspect that particular person is either charlatan, or neoclassical economist ( which is basically highly intersecting subsets ).

We probably should introduce the term "statiness" in analogy with "mathiness" (or would "number racket" be a better term?)

As Kuznets told to "statistical charlatans" long ago:

The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria.

With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known.

And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

[Mar 24, 2017] The Mechanical Turn in Economics and Its Consequences

Notable quotes:
"... In the same way, neoliberals are no different. They aren't bad people – they just see their policies as right and just because those policies are working well for them and the people in their class, and I don't think they really understand why it doesn't work for others – maybe, like Adam Smith, they think that is the "natural state" .. ..."
"... Read the first sentence of the Theory of Moral Sentiments – it makes an assumption which is the foundation of all of Adam Smith. He asserted that all men are moral. Morality in economics is the invisible hand creating order like gravity in astronomy. Unfortunately, Adam Smith's assumption is false or at least not true enough to form a sound foundation for useful economic theory. ..."
"... But "morality" means different things to different people. Smith only saw the morality of his own class. For example, I am sure a wealthy man would consider it very moral to accumulate as much money as he could so that he would be seen by his peers as a good and worthy man who cares for his future generations and the well being of his class – he doesn't see this accumulation as amoral – whilst a poor man may think that kind of accumulation is amoral because he thinks that money could be better used provide for those without the basic needs to survive ..."
"... "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." ..."
"... Another I remember from Smith was something like, "The law exists to protect those who have much from those who have little." Sounds about right. ..."
"... One of Steve Keen's favourite analogies is astronomy. Neoclassical economics is like Ptolemy's epicycles; assume the Earth is at the centre, and that the planets orbit in circles and simply by adding little circles-epicycles-you can accurately describe the observed motion of the planets. The right epicycles in the right places can describe any motion. But they can't explain anything, they add nothing to understanding, they subtract from it, because they are false but give the illusion of knowledge. Drop the assumptions and you can begin to get somewhere. ..."
"... Steve Keen seems to have latched onto this in the last year or so, pointing out that all production is driven by energy. And the energy comes ultimately from the sun. Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons extracted from plant and animal remains). ..."
"... I have a question about a similar thing. Simon Kuznetz is credited as someone who has invented modern concept of GDP and he revolutionized the field of economics with statistical method (econometrics). However, Kuznets , in the same report in which he presented modern concept of GDP to US congress, wrote following(from wikipedia): ..."
"... "The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. ..."
"... All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above. Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what." ..."
"... "So , my question is why economists keep treating GDP as some scared metric when its creator himself deems it not reliable? Why all qualifications about GDP by Kuznetz is ignored by most of the economists nowadays?"@Vedant ..."
"... That is your explanation right there. Large abstract numbers such as GDP obscure social issues such as "the personal distribution of income." and the effort that goes into creating that income. Large abstract numbers obscure the moral dimension that must be a part of all economic discussion and are obscured by statistics and sciencism. As the genius of Mark Twain put it, "There are lies, damned lies and statistics." Beware the credentialed classes! ..."
"... Interesting. There is a great book by John Dupré called 'Human Nature and the Limits of Science (2001)", which tackles this subject in a general way: the facts that taking a mechanistic model as a paradigm for diverse areas of science is problematic and leads to myopia. ..."
"... He describes it as a form of 'scientific imperialism', stretching the use of concepts from one area of science to other areas and leading to bad results (because there are, you know, relevant differences). As a prime example, he mentions economics. (When reading EConned;s chapter of the science ( 'science') of economics, I was struck by the similar argument.) ..."
"... Soddy was a scientist. He should have written as a scientist with definitions, logic and rigour, but he wrote like a philosopher, full of waffle and unsubstantiated assertions like other economists. It is unscientific to apply universal laws discovered in physics and chemistry to economics without proving by observations that those laws also apply to economics. ..."
"... I get irritated by radical free-marketeers who when presented with a social problem tend to dogmatically assert that "The free market wills it," as if that ended all discussion. It is as if the free market was their God who must always be obeyed. Unlike Abraham, we do not need to obey if we feel that the answer is unjust. ..."
"... Gibbon's Decline and Fall of the Roman Empire ..."
"... The moralistic explanations for the disintegration of the (Western) Roman Empire were long ago discarded by all serious analysis of late antiquity. More practical explanations, especially the loss of the North African bread basket to the Vandals, are presented in the scholarly work these days. ..."
"... That book of Gibbon's is an incredible achievement. If it is not read by historians today, it is their loss. Its moral explanations, out of fashion today, are actually quite compelling. They become more so when read with de Tocqueville's views of the moral foundations of American township democracy and their transmission into the behavior, and assumptions, of New Englanders, whose views formed the basis of the federal republican constitution. ..."
"... The loss of the breadbasket was problematical, too. And it may be that no civilization, however young and virile, could withstand the migrations forever, as they withstood or absorbed them, with a few exceptions, for eight hundred years. But the progressive losses to the migratory tribes may have been a symptom of the real, "moral," cause of the decline. ..."
"... From 536-539AD the entire planet suffered a staggering holocaust. Krakatoa blew up - ejecting so much dust that it triggered a 'nuclear winter' that lasted through those years. ..."
"... It was this period that ended agriculture in North Africa. ( Algeria-Tunisia ) The drought blew all of the top soil into the Med. It was an irreversible tragedy. ..."
"... Economics is not science, simply because economics does not take facts seriously enough to modify flawed theories. ..."
"... In college I couldn't help but notice the similarities between modern economic theory and the control theory taught in engineering. Not such a great fit though, society is not a mechanical governor. ..."
"... " ..."
Mar 21, 2017 | www.nakedcapitalism.com
Yves here. This post takes what I see as an inconsistent, indeed, inaccurate stance on Adam Smith, since it depicts him as advocating laissez faire and also not being concerned about "emotions, sentiment, human relations and community." Smith was fiercely opposed to monopolies as well as businessmen colluding to lower the wages paid to workers. He also saw The Theory of Moral Sentiments as his most important work and wanted it inscribed on his gravestone.

Nor is it true that Smith advocated government not intervening in business. From Mark Thoma , quoting Gavin Kennedy :

Jacob Viner addressed the laissez-faire attribution to Adam Smith in 1928 ..Here is a list extracted from Wealth Of Nations:

"Viner concluded, unsurprisingly, that 'Adam Smith was not a doctrinaire advocate of laissez-faire'.

By Douglass Carmichael, perviously a Professor at University of California at Santa Cruz and a Washington DC based consultant, which clients including Hewlett-Packard, World Bank, Bell laboratories, The White House and the State Department. For the last ten years he has focused on the broad social science issues relevant to rethinking humanity's relationship to nature. Cross posted from the Institute for New Economic Thinking website

With Adam Smith, and hints before in Ricardo and others, economics took the path of treating the economy as a natural object that should not be interfered with by the state. This fit the Newtonian ethos of the age: science was great, science was mathematics; science was true, right and good.

But along the way the discussion in, for example, Montaigne and Machiavelli - about the powers of imagination, myth, emotions, sentiment, human relations and community - was abandoned by the economists. (Adam Smith had written his Theory of Moral Sentiments 20 years earlier and sort of left it behind, though the Wealth of Nations is still concerned with human well-being.) Gibbon's Decline and Fall of the Roman Empire was published in 1776, the same year as Smith's Wealth , but hardly read today by most economists.

In philosophy and the arts (romanticism among others) there was great engagement in these issues economics was trying to avoid. But that philosophy and art criticism have not been widely read for many years.

The effect of ignoring the human side of lives was to undermine the social perspective of the "political," by merging it with the individually focused "interest." So, instead of exploring the inner structure of interest (or later utility or preference), or community feeling and the impact of culture, these were assumed to be irrelevant to the mechanics of the market. Politics, having to do with interest groups and power arrangements, is more vague and harder to model than economic activity.

Those who wanted economics to be a science were motivated by the perception that "being scientific" was appreciated by the society of the time, and was the path to rock-solid truth. But the move towards economics as a science also happened to align with a view of the landed and the wealthy that the economy was working for them, so don't touch it. We get the equation, embracing science = conservative. This is still with us because of the implication that the market is made by god or nature rather than being socially constructed. Since economics is the attempt at a description of the economy, it was more or less locked in to the naturalist approach, which ignores things like class and ownership and treated capital as part of economic flow rather than as a possession that was useable for social and political power.

Even now, economics still continues as if it were part of the age of Descartes and avoids most social, historical and philosophical thought about the nature of man and society. Names like Shaftesbury and Puffendorf, very much read in their time, are far less known now than Hobbes, Descartes, Ricardo, Mill and Keynes. Karl Polanyi is much less well known than Hayek. We do not learn of the social history such as the complex interplay in Viennese society among those who were classmates and colleagues such as Hayek, Gombrich, Popper and Drucker. The impact of Viennese culture is not known to many economists.

The result is an economics that supports an economy that is out of control because the feedback loops through society and its impact of the quality of life - and resentment - are not recognized in a dehumanized economics, and so can't have a feedback correcting effect.

The solution, however, is not to look for simplicity, but to embrace a kind of complexity that honors nature, humans, politics, and the way they are dealt with in philosophy, arts, investigative reporting, anthropology and history. Because the way forward cannot be a simple projection of the past. We are in more danger than that.

Anthony Pagden, in Why the Enlightenment is Still Important , writes that before the enlightenment, late feudalism and the Renaissance, "The scholastics had made their version of the natural law the basis for a universal moral and political code that demanded that all human beings be regarded in the same way, no matter what their culture or their beliefs. It also demanded that human beings respect each other because they share a common urge to 'come together,' and it required them to offer to each other, even to total strangers, help in times of need, to recognize 'that amity among men is part of the natural law.' Finally, while Hobbes and Grotius had accepted the existence of only one natural right - the right to self-preservation - the scholastics had allowed for a wide range of them." -

Pagen also writes, "The Enlightenment, and in particular that portion with which I am concerned, was in part, as we shall now see, an attempt to recover something of this vision of a unified and essentially benign humanity, of a potentially cosmopolitan world, without also being obliged to accept the theologians' claim that this could only make sense as part of the larger plan of a well-meaning, if deeply inscrutable, deity."

But as Pagen shows, that effort was overcome by market, technical and financial interests.

The reason this is so important is that the simple and ethical view in Smith (and many other classical economists if we were to read them) that it was wrong to let the poor starve because of manipulated grain prices, was replaced by a more mechanical view of society that denied human intelligence except as calculators of self interest. This is a return to the Hobbesian world leading to a destructive society: climate, inequality, corruption. Today, the poor are hemmed in by so many regulations and procedures (real estate, education, police) that people are now starved. Not having no food, but having bad food, which along with all the new forms of privation add up to a seriously starved life, is not perceived by a blinded society to be suffering. Economics in its current form - most economics papers and college courses - do not touch the third rail of class, or such pain.

HeadShaker , March 21, 2017 at 11:13 am

Interesting. I've been reading (thanks to an intro from NC) Mark Blyth's "Austerity" and, thus far, seems to imply, if not outright state, that Adam Smith was quite suspicious of government intervention in the economy. The "can't live with it, can't live without it, don't want to pay for it" perspective. The bullet points you've listed above seem to refute that notion.

justanotherprogressive , March 21, 2017 at 11:39 am

Adam Smith tried to make a moral science out of what his class wanted to hear. If he had actually gone into those factories of his time, he might have had a different opinion of what labour was and how there was no "natural state" for wages, but only what was imposed on people who couldn't fight back. If he had gotten out of his ivory tower for a while, he might have had a different opinion of what those owners of stock were doing. He also might have had different views on trade if he could have seen what was happening to the labourers in the textile industries in France. And I could go on. But instead he created a fantasy that has been the basis for all economic thinking since.

In the same way, neoliberals are no different. They aren't bad people – they just see their policies as right and just because those policies are working well for them and the people in their class, and I don't think they really understand why it doesn't work for others – maybe, like Adam Smith, they think that is the "natural state" ..

Sorry, but there needs to be a Copernican Revolution in Economics just as there was in science. We have to realize that maybe Adam Smith was wrong – and I know that will be hard – just as it was hard for people to realize that the Earth wasn't the center of the universe.

Since I am retired, maybe I will go back to school, hold my nose and cover my lying eyes long enough to finish that Economics degree, so that I can get good access to all the other windows in Economics. I can't really believe I am the only person thinking this way – there must be some bright people out there who have come to similar conclusions and I would dearly love to know who they are.

Lyonwiss , March 21, 2017 at 2:49 pm

Read the first sentence of the Theory of Moral Sentiments – it makes an assumption which is the foundation of all of Adam Smith. He asserted that all men are moral. Morality in economics is the invisible hand creating order like gravity in astronomy. Unfortunately, Adam Smith's assumption is false or at least not true enough to form a sound foundation for useful economic theory.

justanotherprogressive , March 21, 2017 at 3:18 pm

But "morality" means different things to different people. Smith only saw the morality of his own class. For example, I am sure a wealthy man would consider it very moral to accumulate as much money as he could so that he would be seen by his peers as a good and worthy man who cares for his future generations and the well being of his class – he doesn't see this accumulation as amoral – whilst a poor man may think that kind of accumulation is amoral because he thinks that money could be better used provide for those without the basic needs to survive

Lyonwiss , March 22, 2017 at 2:29 am

You have not read the first sentence of the book, where he stated what he meant – to me, it is his general statement of universal morality.

lyman alpha blob , March 21, 2017 at 3:03 pm

I've read a fair amount of Wealth of Nations although far from all of it and my take was that Smith was describing the economic system of his time as it was , not necessarily as it should or must be. Smith gets a bad rap from the left due to many people over the last 200+ years hearing what they wanted to hear from him to justify their own actions rather than what he actually said.

I'm cherry picking a bit here since I don't have the time to go through several hundred pages, but I think Smith might actually agree with you about the plight of labor and he was well aware of what the ownership class was up to –

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Adam Smith – Wealth of Nations

diptherio , March 21, 2017 at 7:00 pm

Yup, wish I would have had that one handy in my intro to micro course

Another I remember from Smith was something like, "The law exists to protect those who have much from those who have little." Sounds about right.

Grebo , March 21, 2017 at 4:58 pm

there needs to be a Copernican Revolution in Economics

One of Steve Keen's favourite analogies is astronomy. Neoclassical economics is like Ptolemy's epicycles; assume the Earth is at the centre, and that the planets orbit in circles and simply by adding little circles-epicycles-you can accurately describe the observed motion of the planets. The right epicycles in the right places can describe any motion. But they can't explain anything, they add nothing to understanding, they subtract from it, because they are false but give the illusion of knowledge. Drop the assumptions and you can begin to get somewhere.

digi_owl , March 22, 2017 at 1:36 pm

And that is exactly what Marx did, but then got himself sidetracked by trying to find (or create) support for his labor theory of value.

Actually most of what he writes in Capital basically refutes said theory, instead hinting at energy being the core source of value (how much food/fuel is needed to produce one unit, basically).

Steve Keen seems to have latched onto this in the last year or so, pointing out that all production is driven by energy. And the energy comes ultimately from the sun. Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons extracted from plant and animal remains).

mejimenez , March 21, 2017 at 1:41 pm

Since words have somewhat flexible boundaries, it's hard to tell from what perspective this response is looking at the history of science. Characterizing cybernetics as mechanistic would require an unusually broad definition of "mechanistic". Even a superficial reading of Norbert Wiener, Warren McCulloch, W. Ross Ashby, or any of the other early contributors to the discipline will make one aware that they were explicitly trying to address the limitations of simplistic mechanistic thinking.

In the related discipline, General Systems Theory, von Bertalanffy expressly argued that we should take our cues from the organic living world to understand complex systems. With the introduction of Second Order Cybernetics by Heinz von Foerster, Margaret Mead, Gregory Bateson and others, the role of a sentient observer in describing the system in which he/she is embedded becomes the focus of attention. Bateson was an original participant with many of the people mentioned above in the Macy conferences where cybernetics was first introduced. The bulk of his work was a direct attack on the mechanistic view of the natural world.

Of course, many writers treat cybernetics, General Systems Theory, and their related disciplines as pseudoscientific. But those are typically people who are firmly committed to mechanistic explanations.

Vedant , March 21, 2017 at 1:02 pm

Yves,

I have a question about a similar thing. Simon Kuznetz is credited as someone who has invented modern concept of GDP and he revolutionized the field of economics with statistical method (econometrics). However, Kuznets , in the same report in which he presented modern concept of GDP to US congress, wrote following(from wikipedia):-

"The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification.

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.
Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what."

So , my question is why economists keep treating GDP as some scared metric when its creator himself deems it not reliable? Why all qualifications about GDP by Kuznetz is ignored by most of the economists nowadays?

Allegorio , March 21, 2017 at 2:48 pm

"So , my question is why economists keep treating GDP as some scared metric when its creator himself deems it not reliable? Why all qualifications about GDP by Kuznetz is ignored by most of the economists nowadays?"@Vedant

" Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income."

That is your explanation right there. Large abstract numbers such as GDP obscure social issues such as "the personal distribution of income." and the effort that goes into creating that income. Large abstract numbers obscure the moral dimension that must be a part of all economic discussion and are obscured by statistics and sciencism. As the genius of Mark Twain put it, "There are lies, damned lies and statistics." Beware the credentialed classes!

Mucho , March 21, 2017 at 1:20 pm

Interesting. There is a great book by John Dupré called 'Human Nature and the Limits of Science (2001)", which tackles this subject in a general way: the facts that taking a mechanistic model as a paradigm for diverse areas of science is problematic and leads to myopia.

He describes it as a form of 'scientific imperialism', stretching the use of concepts from one area of science to other areas and leading to bad results (because there are, you know, relevant differences). As a prime example, he mentions economics. (When reading EConned;s chapter of the science ( 'science') of economics, I was struck by the similar argument.)

Lyonwiss , March 21, 2017 at 2:31 pm

Science does not imply only mechanistic models, which may be appropriate for physics, but not economics. Science is a method of obtaining sound knowledge by iterative interaction between facts and theory.

http://www.asepp.com/what-is-science/

UserFriendly , March 22, 2017 at 1:37 am

Just because equilibrium is shitty mechanistic model to try and stamp onto economics doesn't mean that all scientific modeling of economics futile. Soddy just about derived MMT from the conservation of energy in 1921.

http://habitat.aq.upm.es/boletin/n37/afsod.en.html?iframe=true&width=100%&height=100%

And refined it in a book in 1923.

http://dspace.gipe.ac.in/xmlui/bitstream/handle/10973/21274/GIPE-009596.pdf?sequence=3&isAllowed=y

UserFriendly , March 22, 2017 at 2:00 am

excellent job with the prepositions there. sigh. WAKE UP!

Lyonwiss , March 23, 2017 at 2:50 am

Soddy was a scientist. He should have written as a scientist with definitions, logic and rigour, but he wrote like a philosopher, full of waffle and unsubstantiated assertions like other economists. It is unscientific to apply universal laws discovered in physics and chemistry to economics without proving by observations that those laws also apply to economics.

Soddy needed to have developed a scientific methodology for economics first, before stating his opinions which are scientifically unproven like most economic propositions.

http://www.asepp.com/methodology/

Jim A. , March 21, 2017 at 1:36 pm

I get irritated by radical free-marketeers who when presented with a social problem tend to dogmatically assert that "The free market wills it," as if that ended all discussion. It is as if the free market was their God who must always be obeyed. Unlike Abraham, we do not need to obey if we feel that the answer is unjust.

PKMKII , March 21, 2017 at 1:57 pm

Gibbon's Decline and Fall of the Roman Empire was published in 1776, the same year as Smith's Wealth, but hardly read today by most economists.

Other than as a reflection of the sentiments of the time Gibbon was writing in, historians don't spend much time reading it either. The moralistic explanations for the disintegration of the (Western) Roman Empire were long ago discarded by all serious analysis of late antiquity. More practical explanations, especially the loss of the North African bread basket to the Vandals, are presented in the scholarly work these days.

PhilM , March 21, 2017 at 5:07 pm

That book of Gibbon's is an incredible achievement. If it is not read by historians today, it is their loss. Its moral explanations, out of fashion today, are actually quite compelling. They become more so when read with de Tocqueville's views of the moral foundations of American township democracy and their transmission into the behavior, and assumptions, of New Englanders, whose views formed the basis of the federal republican constitution.

The loss of the breadbasket was problematical, too. And it may be that no civilization, however young and virile, could withstand the migrations forever, as they withstood or absorbed them, with a few exceptions, for eight hundred years. But the progressive losses to the migratory tribes may have been a symptom of the real, "moral," cause of the decline.

After all, the Romans did not always have that breadbasket; indeed, they had to conquer it to get it, along with the rest of the mighty and ancient civilizations of the Mediterranean and beyond, using the strengths derived from the mores of their martial republic. The story of the Punic Wars is a morality play in history, as much as anything else. But the main problem was the dilution of the Roman republican mores into a provincial stew.

And after that nice detached remark, about which historians can surely natter on in the abstract, I'll toss in this completely anti-historicist piece of nonsense: I think it's actually much the same problem the Americans are having today, as the mores of the founders have dissolved into the idea that the nation is about national government, centralized administration, world leadership, global domination through military might, and imperialist capitalism. That is not a national ethic that leads to lasting nobility of purpose and moral strength-as George Washington and Ike Eisenhower both pointed out.

blert , March 21, 2017 at 6:48 pm

Dendrochronology ( tree ring dating & organic history ) has established a wholly new rationale for the termination of the Roman Empire the re-boot of the Chinese and Japanese cultures and the death of a slew of Meso-American cultures.

From 536-539AD the entire planet suffered a staggering holocaust. Krakatoa blew up - ejecting so much dust that it triggered a 'nuclear winter' that lasted through those years.

The Orientals actually heard the blasts recognized that they emminated from the Indonesian islands. ( Well, at least to the south. ) The erruption and the weather was duly recorded by Court scribes.

Roman accounts assert that 90% of the population of Constantinople died or fled. ( mostly died ) The Emperor and his wife were at the dockside ready to flee - when she talked him back off the boat. Her reasoning was sound: it's Hell everywhere. He won't have any authority once he leaves his imperial guard.

It was this period that ended agriculture in North Africa. ( Algeria-Tunisia ) The drought blew all of the top soil into the Med. It was an irreversible tragedy.

This super drought triggered the events in Beowulf - and the exodus of the Petrans from Petra. They marched off to Mecca and Medina both locations long known to have mountain springs with deep water. The entire Arabian population congregated there.

This was the founding population amongst which Mohammed was raised many years later.

The true reason that Islam swept through Araby and North Africa was that both lands were still largely de-populated. The die-off was so staggering that one can't wrap ones mind around it.

Period art is so bleak that modern historians discounted it until the tree ring record established that this trauma happened on a global scale.

Lyonwiss , March 21, 2017 at 2:21 pm

Economics is not science, simply because economics does not take facts seriously enough to modify flawed theories.

http://www.asepp.com/facts-and-economic-science/

justanotherprogressive , March 21, 2017 at 3:00 pm

Or throw them out! I remember the very first thing I was taught in Economics 101 about supply and demand and how they would balance at an equilibrium price. It didn't take much thinking to realize that there is no equilibrium price and that an equilibrium price was exactly the last thing suppliers or demanders wanted, and that the price of a good depended on who had the most power to set the price. Yet, we had to accept the "supply and demand theory" as coming directly from God. It's as if we were taught in Chemistry that the only acceptable theory of bonding possible was the hydrogen-oxygen bond and even though we could see with our own eyes that hydrogen also bonds to carbon, we should throw that out because it is an aberration from "acceptable theory" ..

PhilM , March 21, 2017 at 4:44 pm

Yes, coming from God; Platonic, like a Form. Economics is written in Forms, like "homo economicus" and "the efficient market." But we live in the Cave, where the markets that humans actually make are sad imitations of the Forms in the textbooks.

There's a lot good in the post, I think; noting the important philosophical underpinnings and challenges to Economics, and particularly in making it a moral, and therefore political and "social" science. But it's great to see where people's use of "incantatory names from the past" is called out by the curator. It's a pet peeve.

digi_owl , March 22, 2017 at 1:45 pm

Economics is the last "science" to hold onto the notion of equilibrium. The rest has moved on to complex systems/chaos theory, first demonstrated in meteorology. Trying to apply complex systems to economics have been the goal of Steve Keen's work for several decades now.

Rosario , March 21, 2017 at 2:38 pm

In college I couldn't help but notice the similarities between modern economic theory and the control theory taught in engineering. Not such a great fit though, society is not a mechanical governor.

craazyboy , March 22, 2017 at 7:20 am

Ha. That's the same thing that got economists so excited. Things is, an engineering student attempting to model a simple system with two moving parts cares a great deal about whether the moving parts are connected by a spring, or ball screw, or shock absorber, or lever, or even invisible stuff like a temperature gradient when coming up with the system math model. Economists seem to think wtf is the difference?

Next, if the math gets a bit unwieldy as the number of moving parts increase, which it does in a hurry, they decide to simplify the math. Next, assume they have perfect sensors for everything and system lag can assumed to be zero for talking purposes, and in research papers too. Next, hysteresis effects due to bent parts, leaky valves and stretched springs are assumed not to exist. Congress has the "Highway Bill" thingy to address that.

Next, the guy with the control knob will do the "right thing". Or better yet, a "market" is doing the control knob. There could be "intermediaries", but these are modeled as zero loss pieces of golden wire and gold plated connectors.

Finally, money comes from batteries and there is no such thing in the real world like "shorts", "open circuits", or "semiconductors" with their quantum tunneling properties.

Other than that, it's all good!

knowbuddhau , March 21, 2017 at 5:23 pm

Thanks for this, and especially the heads up about the author's take on Smith. This is exactly what I'm on about. Not only are there more ways of knowing than the infamous mechanical, it itself should've died long ago.

I learned that from this Chomsky lecture I found last year: Noam Chomsky: The machine, the ghost and the limits of understanding; Newton´s contribution to the study of mind" . (Quotes are from Science, Mind, and Limits of Understanding , an essay that seems to me to be the basis of the lecture.) Pretty sure I mentioned it in comments somewhere.

The author stresses economics is stuck in the age of Descartes. The history of Newton's refutation of Descartes's mechanical philosophy is very interesting. Yes, refutation. Descartes's mechanical philosophy is as dead as a dodo. So why does it still plague us? Obviously, because thinking of and acting on nature as if it were all just one great big machine works at getting you paid, much better than that wishy-washy humanism crap. /f (facetious).

I used to go on and on against reducing everything to mechanisms, and I largely blamed Newton. I was wrong.

I've spent an hour trying to boil this down. Ain't happenin. Apologies for the length.

The background is the so-called "mechanical philosophy" – mechanical science in modern terminology. This doctrine, originating with Galileo and his contemporaries, held that the world is a machine, operating by mechanical principles, much like the remarkable devices that were being constructed by skilled artisans of the day and that stimulated the scientific imagination much as computers do today; devices with gears, levers, and other mechanical components, interacting through direct contact with no mysterious forces relating them. The doctrine held that the entire world is similar: it could in principle be constructed by a skilled artisan, and was in fact created by a super-skilled artisan. The doctrine was intended to replace the resort to "occult properties" on the part of the neoscholastics: their appeal to mysterious sympathies and antipathies, to forms flitting through the air as the means of perception, the idea that rocks fall and steam rises because they are moving to their natural place, and similar notions that were mocked by the new science.

The mechanical philosophy provided the very criterion for intelligibility in the sciences. Galileo insisted that theories are intelligible, in his words, only if we can "duplicate [their posits] by means of appropriate artificial devices." The same conception, which became the reigning orthodoxy, was maintained and developed by the other leading figures of the scientific revolution: Descartes, Leibniz, Huygens, Newton, and others.

Today Descartes is remembered mainly for his philosophical reflections, but he was primarily a working scientist and presumably thought of himself that way, as his contemporaries did. His great achievement, he believed, was to have firmly established the mechanical philosophy, to have shown that the world is indeed a machine, that the phenomena of nature could be accounted for in mechanical terms in the sense of the science of the day. But he discovered phenomena that appeared to escape the reach of mechanical science. Primary among them, for Descartes, was the creative aspect of language use, a capacity unique to humans that cannot be duplicated by machines and does not exist among animals, which in fact were a variety of machines, in his conception.

As a serious and honest scientist, Descartes therefore invoked a new principle to accommodate these non-mechanical phenomena, a kind of creative principle. In the substance philosophy of the day, this was a new substance, res cogitans, which stood alongside of res extensa. This dichotomy constitutes the mind-body theory in its scientific version. Then followed further tasks: to explain how the two substances interact and to devise experimental tests to determine whether some other creature has a mind like ours. These tasks were undertaken by Descartes and his followers, notably Géraud de Cordemoy; and in the domain of language, by the logician-grammarians of Port Royal and the tradition of rational and philosophical grammar that succeeded them, not strictly Cartesian but influenced by Cartesian ideas.

All of this is normal science, and like much normal science, it was soon shown to be incorrect. Newton demonstrated that one of the two substances does not exist: res extensa. The properties of matter, Newton showed, escape the bounds of the mechanical philosophy. To account for them it is necessary to resort to interaction without contact. Not surprisingly, Newton was condemned by the great physicists of the day for invoking the despised occult properties of the neo-scholastics. Newton largely agreed. He regarded action at a distance, in his words, as "so great an Absurdity, that I believe no Man who has in philosophical matters a competent Faculty of thinking, can ever fall into it." Newton however argued that these ideas, though absurd, were not "occult" in the traditional despised sense. Nevertheless, by invoking this absurdity, we concede that we do not understand the phenomena of the material world. To quote one standard scholarly source, "By `understand' Newton still meant what his critics meant: `understand in mechanical terms of contact action'."

It is commonly believed that Newton showed that the world is a machine, following mechanical principles, and that we can therefore dismiss "the ghost in the machine," the mind, with appropriate ridicule. The facts are the opposite: Newton exorcised the machine, leaving the ghost intact. The mind-body problem in its scientific form did indeed vanish as unformulable, because one of its terms, body, does not exist in any intelligible form. Newton knew this very well, and so did his great contemporaries.

And later:

Similar conclusions are commonplace in the history of science. In the mid-twentieth century, Alexander Koyré observed that Newton demonstrated that "a purely materialistic pattern of nature is utterly impossible (and a purely materialistic or mechanistic physics, such as that of Lucretius or of Descartes, is utterly impossible, too)"; his mathematical physics required the "admission into the body of science of incomprehensible and inexplicable `facts' imposed up on us by empiricism," by what is observed and our conclusions from these observations.

So the wrong guy was declared the winner of Descartes vs. Newton, and we've been living with the resultant Frankenstein's monster of an economy running rampant all this time. And the mad "scientists" who keep it alive, who think themselves so "realistic" and "pragmatic" in fact are atavists ignorant of the last few centuries of science. But they do get paid, whereas I (relatively) don't.

Vatch , March 21, 2017 at 5:40 pm

Alexander Koyré observed that Newton demonstrated that "a purely materialistic pattern of nature is utterly impossible (and a purely materialistic or mechanistic physics, such as that of Lucretius or of Descartes, is utterly impossible, too)"

I think that Newton considered phenomena like gravity, magnetism, and optics to be non-material, perhaps even spiritual, and separate from matter. Modern physicists would disagree, and would consider gravity and electro-magnetism to be purely material phenomena. Newton didn't prove that the world is non-mechanical; he showed that objects do not need to touch for them to have influence on each other.

It is still quite possible that there are non-material phenomena, but those would be separate from gravity and electro-magnetism, which Newton considered non-material.

diptherio , March 21, 2017 at 7:10 pm

It is still quite possible that there are non-material phenomena

Like love, courage, hope, fear, greed and compassion?

Vatch , March 21, 2017 at 7:37 pm

Sure! The existence of souls is another possibility (even for Buddhists, although I suppose they would have to be pudgalavadins to believe in this).

Plenue , March 22, 2017 at 1:54 pm

Are all products of the brain. I don't see how the results of the interaction of electrical impulses and chemicals are non-material. Magic is not an explanation for anything.

M Quinlan , March 21, 2017 at 7:50 pm

So Newton formulated his theories because of his belief in Alchemy and not, as I had thought, despite it. Discussions like this are what make this site so great.

blert , March 21, 2017 at 7:08 pm

All modern economic thought ( 1900+ ) has been corrupted by the arrogance of Taylor's Time & Motion Studies. The essence of which is that bean counters can revolutionize economic output by statistics and basic accounting.

AKA Taylorism.

Big Government is Taylorism as practiced.

At bottom, it arrogantly assumes that if you can count it, you can optimise it.

The fact is that 'things' are too complicated.

Taylor's principles only work in a micro environment. His work started in machine shops, and at that level of simplicity, still applies.

Its abstractions and assumptions break down elsewhere.

MOST economic models in use today are the grandsons of Taylorism.

They are also the analytic engines that have driven the global economy to the edge of the cliff.

RBHoughton , March 21, 2017 at 7:24 pm

For my penny's worth the sentence "Today, the poor are hemmed in by so many regulations and procedures (real estate, education, police) that people are now starved" reveals the main problem.

Too many of the most lucrative parts of every national economy have been closed off by politicians and reserved for their friends.

Peter L. , March 23, 2017 at 9:55 pm

The introductory remarks on Adam Smith reminded me of a funny exchange between David Barsamian and Noam Chomsky. Barsamian complements Chomsky on his research on Adam Smith :

DAVID BARSAMIAN: One of the heroes of the current right-wing revival is Adam Smith. You've done some pretty impressive research on Smith that has excavated a lot of information that's not coming out. You've often quoted him describing the "vile maxim of the masters of mankind: all for ourselves and nothing for other people."

NOAM CHOMSKY: I didn't do any research at all on Smith. I just read him. There's no research. Just read it. He's pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised.

People read snippets of Adam Smith, the few phrases they teach in school. Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be.

And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits.

And here is a link to Adam Smith's poignant denunciation of division of labour:

http://www.econlib.org/library/Smith/smWN20.html#V.1.178

This mention of division of labor is, as Chomsky points out, left out of the index of the University of Chicago scholarly edition! Of George Stigler's introduction Chomsky claims, "It's likely he never opened The Wealth of Nations. Just about everything he said about the book was completely false."

I recommend reading the entire paragraph at the link above. Smith writes:

"The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it. "

[Mar 24, 2017] Are Empirical Economists Idiot Savants?

Notable quotes:
"... Only the people who understand both the data and its limitations, and not get lost in the illusion of precision ..."
"... Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right. ..."
www.ritholtz.com

By Barry Ritholtz - November 21st, 2010, 8:31AM

The Economist asks: "Fifty years after the dawn of empirical financial economics, is anyone the wiser?"

My short answer: "Only the people who understand both the data and its limitations, and not get lost in the illusion of precision."

Markets are driven by myriad factors, most of which are readily quantifiable. But the small number of inputs that do not lend themselves to easy modeling is how certain empiricists get themselves into trouble. They believe their models accurately account for the real world, when they do not.

One would imagine that the parade of Black Swan events that keep upending their models would convince these economists otherwise, but you would be surprised at how foolishly stubborn these folks are.

The EMH proponents, the VAR analysts, the "stocks for the long run" folks - the grim reality of their performance has not dissuaded them from their beliefs. This has Yale Professor Robert Shiller concerned:

"[Shiller] worries that academic departments are "creating idiot savants, who get a sense of authority from work that contains lots of data". To have seen the financial crisis coming, he argues, it would have been better to "go back to old-fashioned readings of history, studying institutions and laws. We should have talked to grandpa."

Shiller puts his finger on the right pressure point. The factors ignored by the quants were the underlying changes in laws and regulations. That allowed banks to run wild, something the pure quants were not prepared to detect and act upon. The radical deregulation of the past 3 decades was the equivalent of dark matter, undetectable by Newtonian physics - or quant trading funds.

Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right.

Here is the Economist:

IT ALL began with a phone call, from a banker at Merrill Lynch who wanted to know how investors in shares had performed relative to investors in other assets. I don't know, but if you gave me $50,000 I could find out, replied Jim Lorie, a dean at the University of Chicago's business school, in so many words. The banker, Louis Engel, soon agreed to stump up the cash, and more. The result, in 1960, was the launch of the university's Centre for Research in Security Prices. Half a century later CRSP (pronounced "crisp") data are everywhere. They provide the foundation of at least one-third of all empirical research in finance over the past 40 years, according to a presentation at a symposium held this month. They probably influenced much of the rest. Whether that is an entirely good thing has become a matter of debate among economists since the financial crisis.

It is an interesting article worth perusing . . .

Source:
Data birth
Economist Nov 18th 2010
http://www.economist.com/node/17519706?story_id=17519706

34 Responses to "Are Empirical Economists Idiot Savants?"

KentWillard: November 21st, 2010 at 8:51 am

My personal experience has been that most 'quants' in Finance don't have economics degrees. Often a PhD in Physics. Sometimes in Math, sometimes in Finance. Many aren't from the US, or even the West. They don't have an understanding, or often interest in markets. They can sure run a lot of simulations quickly though.

machinehead : November 21st, 2010 at 8:53 am

'Shiller puts his finger on the right pressure point. The factors ignored by the quants were the underlying changes in laws and regulations.'

To these factors, I would add the cyclical analysis described in a Big Picture post about Felix Zulauf a couple of days ago. Quantitative models do a pretty good job of identifying 'late expansion phase' syndrome: bubbly equity markets, loose credit standards, tightening capacity, persistent inflation (properly measured).

But every time, economists as a group say that the Federal Reserve will achieve a soft landing, and recession will be averted. Many of them are saying this now about China, currently manifesting 'late expansion phase' syndrome with a vengeance.

Why are economists so poor at reading the business cycle? I'd contend that most of them are conflicted. Their paychecks come from corporate entities who don't want to hear recession forecasts. Federal Reserve economists certainly aren't going to bite the FOMC's guiding hand. Academic economists should be freer, you'd think, but some have corporate research funding. Robert Schiller at Yale was one of the few (with Irrational Exuberance, January 2000) to get a cyclical peak right.

Behavioral economics says that economists, like every other cohort, will be victims of groupthink at inflection points, always zigging when they should zag. This is the tragedy of the Federal Reserve's interest rate central planners. Never will they succeed at day-trading this vast economy into prosperity. They've spectacularly failed at even the much narrower task of enriching their client banking cartel at the expense of everyone else.

Here's hoping that B.S. 'Benny Bubbles' Bernanke will be history's last Fed chairman.

ToNYC: November 21st, 2010 at 9:02 am

Granpa knew that Moral Authority took care of business and was worth more to effect continuity or change than any manipulation of currency or credit. JP Morgan knew that Lending was all about Character and told Congress that other factors were secondary. Quants know how to manipulate data and the value of nothing.

Opir: November 21st, 2010 at 9:27 am

If we accept, for the sake of argument, that economics is really 90% mass psychology, 10% math, then isn't a large part of the issue that many of its professional practitioners have tried to understand problems though a lens where those percentages are reversed? There is perhaps kind of bias that causes many of these people to only see the world using neat models, and discount that what economics is really about trying to understand (once you get beyond the simple cases where said models and standard ideas about incentives work):

what people do and want to do; how many of them do it; and for how long, modified by:

1) geopolitical events 2) the zeitgeist 3) culture (and subculture)

People may go into the field with a love of numbers and an interest in money; what we may really need, however, are people who care about understanding human behavior as it pertains to resources and power within and between societies. A "sociology for money", as it were.

Go Dog Go: November 21st, 2010 at 9:27 am

Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right.

I just got that. Very funny

Mark E Hoffer: November 21st, 2010 at 9:42 am

funny, the Argument, ~"over-reliance on imperfect Models/questionable Data", is, no doubt, True..

though, substitute "AGW/"Climate Change" for "Econometrics/Financial Engineering" and . ~~

differently, Economists, of course, should be snorting more *Exhaust Fumes, and less Laser Toner..

billkeep: November 21st, 2010 at 9:42 am

There are empiricists and then there are empiricists. A quick look at Reinhart and Rogoff's book "This Time Is Different," shows the incestual limitation of quant jocks (whether trained in econ or physics or math - it's all the same because they use the same tired data) and the power that can come from fresh data, fresh thinking, and an absence of self-interest in the outcome (see Folbre's piece on the ethics of economists in the NYT Economix column).

Bill W: November 21st, 2010 at 9:47 am

Despite our great triumphs of science and advances in understanding, we still don't know jack about the universe. I believe in the constant advance of knowledge, but I also believe in being realistic.

We need to be prudent when we apply our theories about the world to the real world. The results can be disappointing.

What's much worse than a fool? A fool with ambition.

How the Common Man Sees It Says:

November 21st, 2010 at 10:08 am The fact is, if you pay people to look the other way, they usually do.

mhdoc: November 21st, 2010 at 10:14 am

Many years ago I was a biology graduate student when we got our first computer terminal and I discovered the joys of stepwise regression. I spent hours searching out the last 5% of the variance. Then I went on my first field trip of the season to check on the rainfall collectors I had randomly scattered through the forest. We measured the dissolved elements in the water we collected; parts per million potassium, etc.

One of the collectors had gotten plugged, filled with water, and a thirsty chipmunk had fallen in and drowned. In addition, the water was covered with pollen. Suddenly the value of stepwise regression for explaining what was going on took a serious hit. I guess my black swan looked like a chipmunk :)

Bill W: November 21st, 2010 at 10:26 am

billkeep, I like what you said about fresh thinking and and absence of self-interest. How often do "data driven," "open-minded," scientists become high priests of their own theories. They will put down traditional religious beliefs, without realizing the dogma of their own thinking. There will always be religion of some sort in this world, whether the practitioners realize it or not.

I think the quants are probably missing a healthy dose of the applied knowledge of experienced investors. You don't have to be able to mathematically formulate why something works to understand that it does. How do you separate the quack theories from the real ones? If I knew that I'd be considerably wealthier.

farmera1: November 21st, 2010 at 10:34 am

Misuse of statistics by economist/quants is a root cause of our recent meltdown.

Seeing the world and economics as a normal/Gaussian/bell curve world (it isn't in most cases) will lead you to a path of unforeseen and destructive events. You end up making all kinds of risk assessments and predictions that are built upon "facts/Gaussian models/bell curve" that just don't reflect the real world. Some big unpredicted event will get you.

For example thinking (and building an investment house of cards) just because models show you that the real estate market never goes down (nation wide) that it will never happen is a fool's approach, but it built huge bonuses (say a cool $100,000,000/yr for several) for the executives so in that sense it was successful. It also made the Ownership Society possible. It allowed this country to live way beyond its means for years so most benefited. Cut taxes and start wars, no problem, we got this baby humming. Since we were able to predict and control risk so well who needs regulations. Leverage, no problem, we have it under control (aka being fully hedged). RIGHT.

By the way the social sciences do the same thing, in using things like ANV, standard deviations, risk, relative error (?)etc. This misuse is just as big in its' own way as the quants/economists' errors.

Petey Wheatstraw: November 21st, 2010 at 11:12 am

"Markets are driven by myriad factors, most of which are readily quantifiable." _______________

The least quantifiable of which is direct intervention in, and manipulation by, central bankers. The markets are rigged. Quantify THAT, bitch.

(sorry for the last sentence, not aimed at anyone.)

~~~

BR: $600 Billion dollars over 6-9 months.

Mark E Hoffer: November 21st, 2010 at 11:35 am

though, speaking of 'Empiricists', these cats http://www.gapminder.org/ offer some interesting analytics, esp. here http://www.gapminder.org/labs/

as per, YMMV, YOMP ..

louis: November 21st, 2010 at 11:38 am

There are a myriad of factors that set a point spread.

Sechel: November 21st, 2010 at 11:55 am

There's an old joke about the drunk economists looking for his keys by the light post even though they were lost elsewhere, when asked he responded, "because this is where the light is

The market seems intent on assuming the market operates under the efficient market hypothesis, price distribution is normal and that participants always act rationally. Nothing could be further from the truth. Mandelbrot discussed how observations of Cotton price movements disproved this. We know there is information asymmetry in the marketplace.

The market knows what models to use, it just chooses not to. It's beyond fat tails, it requires extreme value theory, knowing that risk scales at the extremes and that bad news comes in threes(dependence).

So why use the failed tools, the answer is simple. If the market gives up on OAS, Black-Scholes and the like, it has to accept being in the dark more than it's used to.

Sechel: November 21st, 2010 at 12:02 pm

Barry, the mortgage market learned that VAR does not work, that OAS is a terrible tool. Many have turned to scenario analysis, but a great deal many like the simplicity of the old failed tools.

daf48: November 21st, 2010 at 12:12 pm

"most of which are readily quantifiable" Really? I'd be careful if that was my point of view. Economic reality is compiled by using data points from thousands of governments, corporate think tanks, independent agencies, etc'. But little work has been done to look at the system as a whole. Or better yet. is there a global economic system?

Uchicagoman: November 21st, 2010 at 12:18 pm

http://en.wikipedia.org/wiki/Dimensional_Fund_Advisors

Uchicagoman: November 21st, 2010 at 12:22 pm

$190 billion under management.

RW: November 21st, 2010 at 12:28 pm

IMO your "short answer" is spot on BR: The illusion of precision is a major problem not only because the data are limited or much more granular than suspected - e.g., the fact that price can be recorded down to the penny does not mean that is where the significant digit is - but also because increased precision cannot significantly improve predictability of system behavior if nonlinear factors are present.*

*this was a key insight of the meteorologist Edward Lorenz, one of the first 'chaos' theoreticians (1963), that and the sensitivity of even the best model simulations to minute changes in initial conditions (butterfly effect).

Uchicagoman: November 21st, 2010 at 12:38 pm

Here's an old (physics?) saying:

"You can either dazzle me with data, or butter me with bullshit."

b_thunder: November 21st, 2010 at 3:16 pm

"[Shiller] worries that academic departments are "creating idiot savants, who get a sense of authority from work that contains lots of data".

I wonder who Shiller had in mind? How about that guy who used to go over massive amounts of data while in his bathtub? Remember the Maestro? And another one who says we're under threat of deflation (according to statisticians) and who doesn't see that other than houses and flat-screen TVs, prices for everything else are rising in the real world. The one who thinks that because cost of gasoline and food are not in his data tables and charts, they do not matter. The one who thinks that in times of 17% U6 un/under-employment and massive outsourcing wages will rise and people will get hired if prices go up.

I also wonder what Barry's buddy "Invictus" thinks about all this. He seems to trust the charts and data more than the real world sentiment.

Sechel: November 21st, 2010 at 4:01 pm

Who can believe anything they say. With one breadth they tell us quantitative easing is meant to spur bank lending, then they pay banks on their reserves encouraging them not to lend those same reserves out. As far as the Fed goes, no credibility.

Julia Chestnut: November 21st, 2010 at 4:02 pm

You know, BR, the best economics class I had during my graduate studies was econometrics. The thing that was so good about it (and so incredibly annoying at the time) was that the prof made us work the matrix algebra from the ground up in building regression analyses. We were going to be using computers to regress the data - but he was adamant that unless you understood the math, and knew exactly what the math was doing with the data we input, you would have no idea what the limitations of the analysis were. He also insisted that we understand the limitations of the data – how it was collected, what it meant. I've used that course at least weekly since I graduated embarrassingly long ago (unlike "finance," where I at least learned that derivatives are for hedging, not investing).

I'd say that either a true statistician or an applied mathematician for a quant is the way to go. I meet loads of economists who couldn't figure their way out of a paper bag. Know what's worse, though? The number of MDs with less than a clue about the math underlying normative numbers in lab tests. I'm less likely to get killed by a quant.

TerryC: November 21st, 2010 at 4:07 pm

"Only the people who understand both the data and its limitations, and not get lost in the illusion of precision."

Barry, I think you mean accuracy.

billkeep: November 21st, 2010 at 4:08 pm

Bill W

Actually if you knew that you wouldn't be wealthy. You would only be wealthy if you knew it first and with enough time to act in your own interests. There is a unreconcilable difference of purpose between public and private interests when it comes to understanding markets. As Sechel says We know there is information assymetry in the marketplace. In fact, we bet on it. The problem we seem to now have is that a few analysts who do understand the psychology of investors or not "public" analysts. As a result, the public analysts lag behind because they have been trained too narrowly in terms of the data and lack the understanding of investor behavior. That is the way it appears to me anyway.

constantnormal: November 21st, 2010 at 5:35 pm

As in most things, the quality of the question says more than the completeness of the answer.

Andy T: November 21st, 2010 at 6:35 pm

Opir@9.27 AM

Amen to that my friend.

What many people lose sight of is the fact that we humans tend to move in "excesses." First there is excessive greed which causes asset bubbles, then comes the excessive fear after the bubble bursts.

This has been going on for several hundred years, regardless of regulatory structure.

And, you know what?

That's OK. It is it what it is

Attempts to "modify" human behavior or attempts to disrupt the natural flow of things will have it's own unintended consequences.

ezrasfund: November 21st, 2010 at 7:21 pm

So right. You can build a giant edifice of precise calculations. But so often that edifice is build on a foundation of vague assumptions such as "housing prices won't go down."

RodgerMitchell: November 21st, 2010 at 7:26 pm

All the mathematical formulas in the world are trumped by the simple fact that the U.S. is monetarily sovereign.

1. It does not need to borrow

2. It can pay for any deficits of any size, without raising taxes

3. It never should engage in "austerity."

4. It cannot be forced into bankruptcy, nor can any of its agencies (i.e. Social Security, Medicare et al) be forced into bankruptcy. .

Spending by the U.S. neither is constrained by taxes and borrowing, nor is it even related to taxes and borrowing. Either can be done or eliminated without affecting the other. That is, taxing does not affect spending, and spending does not affect taxing. They, in fact, are two, unrelated operations. . The sole constraint on federal spending is inflation. We are nowhere near inflation, and it easily can be prevented and cured with interest rate control. . Those who do not understand monetary sovereignty do not understand economics. .

Rodger Malcolm Mitchell

Mark E Hoffer: November 21st, 2010 at 7:35 pm

RMM,

aren't you overlooking http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Federal+Reserve+Act+of+1913 ?

and, because of such, it, actually, "does need to borrow", contra to your first assertion..(?)

soloduff: November 21st, 2010 at 9:50 pm

The author exhibits an elementary conceptual confusion. Financial economics (of the EMH/Modern Portfolio fame) is not "empirical" economics. Rather, it is based upon analogy with 19th century statistical mechanics; hence its fetish of the bell curve ("normal distribution"), which fails as a benchmark in every crisis. B. Mandlebrot and E. Derman have written extensively on this genre of economics; which differs from mainstream ("neoclassical" a la Samuelson et al.) only inasmuch as neoclassical economics takes its metaphor from an even more antiquated department of 19th century physics, namely, "rational mechanics"–remember your Econ 101 text's proud mention of the "production function" (Cobb-Douglas) and the Lagrangian multiplier? About 15 years ago Philip Mirowski wrote an expose of the neoclassical analogy–"More Heat Than Light"–demonstrating conclusively that the luminaries of economics understood neither the physics that they borrowed nor the economics that they data-fitted to their analogy. (Ditto with financial economics in the critiques provided by Mandlebrot and Derman.) –Oh, well, should we expect scholarly accuracy from a mere financial reporter when the scholars themselves serve up such wanton slop? In a word: All idiots, no savants.

CitizenWhy: November 21st, 2010 at 10:32 pm

Empirical economists are idiot savants only in regard to economics. In other things they are probably OK.

[Mar 23, 2017] Cambell law: The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to

Mar 23, 2017 | economistsview.typepad.com
reason : , March 22, 2017 at 07:25 AM
The most valuable part of Chris Dillow's piece is the link to Campbell's law.

https://en.wikipedia.org/wiki/Campbell%27s_law

I have often referenced this without being aware of it.

My version is that any proxy measure will become less relevant over time as it drifts away from the intended target (the more so if it is used to guide policy).

anne -> reason ... , March 22, 2017 at 07:36 AM
https://en.wikipedia.org/wiki/Campbell%27s_law

Campbell's law is an adage developed by Donald T. Campbell, an example of the cobra effect:

"The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."

Campbell's law was published in 1976 by Campbell, a social psychologist, an experimental social science researcher and the author of many works on research methodology: "When a measure becomes a target, it ceases to be a good measure."

JF -> anne... , March 22, 2017 at 07:50 AM
Chris G probably liked this too. I had Campbell's stuff next to my bed for a long long time.
anne -> JF... , March 22, 2017 at 08:18 AM
I had Donald Campbell's stuff next to my bed for a long long time.

[ Do suggest a reading for us. ]

JF -> anne... , March 22, 2017 at 10:31 AM
"Experimental and Quasi-Experimental Designs for Research" - copyright 1963, my version was the tenth printing in 1973
anne -> JF... , March 22, 2017 at 08:23 AM
http://www.nytimes.com/1996/05/12/us/donald-t-campbell-master-of-many-disciplines-dies-at-79.html

Donald T. Campbell, Master of Many Disciplines
By ROBERT MCG. THOMAS JR.

Donald T. Campbell, a nimble-minded social scientist who left his mark on half a dozen disciplines and helped revolutionize the fundamental principles of scientific inquiry common to them all, died on Monday in a hospital near his home in Bethlehem, Pa....

Dr. Campbell, who did his major work at Northwestern University, was by training and his Berkeley doctorate a social psychologist, but it was a tribute to his bewildering range as a master methodologist that when he took up his last academic post, at Lehigh University, in 1982 university officials threw up their hands and simply designated him "university professor," with faculty listings in the departments of psychology, sociology and anthropology and the department of education.

They could easily have thrown in biology, the philosophy of science and market research. For a generation, virtually no respectable researcher this side of the chemistry lab has designed or carried out a reputable scientific study without a thorough grounding in what Dr. Campbell called quasi-experimentation, the highly sophisticated statistics-based approach he invented to replicate the effects of the truly randomized scientific studies that are all but impossible in the slippery and unruly world of human interactions....

JF -> anne... , March 22, 2017 at 10:34 AM
Should have added influence in political science and public administration to itemize the influence this should have on public policy making.
im1dc -> reason ... , March 22, 2017 at 08:59 AM
It is a valid and reliable adage from a Social Psychologist who Economists should take seriously. His adage explains why Economists are so often wrong, i.e., they fail to take into account the nature and thus behavior of people as individuals, groups, and as both sentient and thinking beings who can and do change behavior routinely sometimes for rational reasons but just as often just to do and be different.

That's impossible to predict with statistical models although with statistical models scientists can capture WHEN a change is occurring, even where and sometimes why and how but only after the change has occurred, which makes Prediction most difficult.

libezkova -> im1dc... , March 22, 2017 at 02:08 PM
Add to this what Marxists used to call "class interest" of financial oligarchy and we get closer to understanding why neo-classical economics is so bad.

[Mar 19, 2017] They say when all you have is a hammer, every problem looks like a nail. And the risk is that when every policy adviser is an economist, every problem looks like inadequate per-capita gross domestic product

Notable quotes:
"... Sociologists spend their careers trying to understand how societies work. And some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem. So maybe the people who study just that could be worth listening to. ..."
"... "Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer," said Michèle Lamont, a Harvard sociologist and president of the American Sociological Association. "That's not to take anything away from what they do. It's just that many of the answers they give are very partial." ..."
"... For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity. ..."
"... "Wages are very important because of course they help people live and provide for their families," said Herbert Gans, an emeritus professor of sociology at Columbia. "But what social values can do is say that unemployment isn't just losing wages, it's losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function. ..."
"... That seems to be doubly true in the United States. For example, Ofer Sharone, a sociologist at the University of Massachusetts, Amherst, studied unemployed white-collar workers and found that in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than a matter of arbitrary luck. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection. ..."
"... By and large, 'librul' economists ignore distribution...preferring to concentrate on growth from policies like corporate-negotiated 'free' trade and trickle down monetary policy that favors the Wall Street banking cartel. ..."
"... BTW what happened to Krugman's perfunctory twice a year column on inequality? ..."
"... The nicotine addict cares about as much about 'risk under uncertainty' as Harford. ..."
Mar 19, 2017 | economistsview.typepad.com
Fred C. Dobbs : March 18, 2017 at 03:02 AM

, 2017 at 03:02 AM
What if Sociologists Had as Much Influence as
Economists? https://nyti.ms/2m9yDHL via @UpshotNYT
NYT - NEIL IRWIN - MARCH 17, 2017

Walk half a city block in downtown Washington, and there is a good chance that you will pass an economist; people with advanced training in the field shape policy on subjects as varied as how health care is provided, broadcast licenses auctioned, or air pollution regulated.

Turn on cable news, and the guests who opine on the weighty public policy questions of the day quite often have some title like "chief economist" underneath their name. And there are economists sprinkled throughout the government - there is an entire council of them advising the president in most administrations, if not yet in this one.

But as much as we love economics here - this column is named Economic View, after all - there just may be a downside to this one academic discipline having such primacy in shaping public policy.

They say when all you have is a hammer, every problem looks like a nail. And the risk is that when every policy adviser is an economist, every problem looks like inadequate per-capita gross domestic product.

Another academic discipline may not have the ear of presidents but may actually do a better job of explaining what has gone wrong in large swaths of the United States and other advanced nations in recent years.

Sociologists spend their careers trying to understand how societies work. And some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem. So maybe the people who study just that could be worth listening to.

"Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer," said Michèle Lamont, a Harvard sociologist and president of the American Sociological Association. "That's not to take anything away from what they do. It's just that many of the answers they give are very partial."

As a small corrective, I took a dive into some sociological research with particular relevance to the biggest problems facing communities in advanced countries today to understand what kinds of lessons the field can offer. In 1967, Senator Walter Mondale actually proposed a White House Council of Social Advisers that he envisioned as a counterpart to the well-entrenched Council of Economic Advisers. It was never created, but if it had been, this is the sort of advice it might have been giving recent presidents.

For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity.

"Wages are very important because of course they help people live and provide for their families," said Herbert Gans, an emeritus professor of sociology at Columbia. "But what social values can do is say that unemployment isn't just losing wages, it's losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function.

That seems to be doubly true in the United States. For example, Ofer Sharone, a sociologist at the University of Massachusetts, Amherst, studied unemployed white-collar workers and found that in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than a matter of arbitrary luck. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection.

(When the job search becomes a blame game
http://phy.so/310028844 via @physorg_com)

It seems plausible that this helps explain why so many Americans who lost jobs in the 2008 recession have never returned to the labor force despite an improved job market. Mr. Sharone is working with career counselors to explore how to put this finding to work to help the long-term unemployed. ...

ilsm -> Fred C. Dobbs... , March 18, 2017 at 03:43 AM
I thought they did, and they stay on one side of the shark.
JohnH -> Fred C. Dobbs... , March 18, 2017 at 07:54 AM
By and large, 'librul' economists ignore distribution...preferring to concentrate on growth from policies like corporate-negotiated 'free' trade and trickle down monetary policy that favors the Wall Street banking cartel.

BTW what happened to Krugman's perfunctory twice a year column on inequality?

ilsm : , March 18, 2017 at 03:41 AM
Tobacco survived buying politicians and better lawyers. And Madison Ave.

Inference (what Harford call "fact") may be truth in the confidence band.

The nicotine addict cares about as much about 'risk under uncertainty' as Harford.

Climate change action (the idea that US should park the SUV and move in to the city) is denied in the same way.

"Facts" about the study populations are inferences to one making a 'decision'. If the decision maker is an addict....

Same for Obamacare idolatry.

[Mar 03, 2017] Debunking the NAIRU myth by Matthew C Klein

Notable quotes:
"... If there is such a thing as a NAIRU, it is still a mistake to treat the NAIRU as a "given" rather than a function of policy. ..."
Feb 19, 2017 | ftalphaville.ft.com

By: Matthew C Klein

It's important to try to estimate the unemployment rate that is equivalent to maximum employment because persistently operating below it pushes inflation higher, which brings me to our price stability mandate. –Janet Yellen, January 18, 2017

A little more than half the income generated in America is paid to workers and most of the money spent in America goes to personal consumption. So it's reasonable to think there is some relationship between the health of the job market and other important macro variables.

And, in fact, there is a robust connection between the change in the unemployment rate and the change in the real value of money spent on employee compensation per working-age American since the mid-1980s:

Real COE vs unemployment

That chart shows the link between two real variables that have a logical connection to each other. The question for NAIRU believers is: why should a purely real variable (unemployment) have any bearing on a purely nominal one (inflation)?

In particular, is it reasonable to think there is an unemployment rate below which inflation necessarily gets faster and above which the pace of consumer price increases slows down? And even if there were such an unemployment rate at any point in time, would it be stable enough to be useful for policymakers concerned with smoothing the business cycle?

Many, including Federal Reserve boss Janet Yellen, seem to think the answer is "yes", but the evidence points the other way, particularly since the mid-1980s.

First, some history. In 1926, Irving Fisher found a relationship between the level of unemployment and the rate of consumer price inflation in the US. In 1958, AW Phillips studied UK data from 1861-1957 and found a relationship between the jobless rate and the growth of nominal wages, although the relationship seems to have been an artifact of the gold standard given the vertical line he found in the postwar period:

Phillips Curve 1948-1957 original

Some people (wrongly) interpreted Phillips's data to mean that there was a straightforward trade-off between the inflation rate and the unemployment rate. Policymakers could just pick any spot on "the Phillips Curve" they want. Among a certain set, the big debates in the 1960s were about whether the government should target an unemployment rate of 3 per cent or 5 per cent.

This worked out poorly, but the reaction took the form of an equally dubious idea: the Non-Accelerating Inflation Rate of Unemployment, or NAIRU. In this view, the change in the inflation rate should be related to the distance between the actual jobless rate and some theoretical level. If the unemployment rate were above this "neutral" level the inflation rate would slow down and potentially turn into outright deflation . If the jobless rate were "too low", however, consumer prices would rise at an accelerating rate.

Suppose you believe NAIRU is a real thing. What would be the argument against pushing the unemployment rate as close to zero as possible? In theory, the cost of the policy would be ever-accelerating inflation, eventually perhaps leading to hyperinflation. But the reason to dislike excessive inflation is that it ultimately makes everyone poorer, which should, among other things, increase unemployment. (Just look at Venezuela, for a recent example.)

According to the wacky world of NAIRU, however, hyperinflation can coexist just fine with hyper-employment. Clearly there must be other mechanisms at work, or else we are leaving money on the table by allowing the jobless rate to ever rise above zero.

In case this argument seems strange, consider the following exchange the Fed had on this very topic back in July 1994 (emphasis added):

MR. LINDSEY. If we ran the model out, do we believe that if we applied some social rate of discount, the losses in output later on would be more than, less than, or equal to the gains in output in the short run [from letting inflation accelerate]?

MR. KOHN. The model itself doesn't have, I don't believe, losses in output from higher inflation rates.

MR. LINDSEY. Ever? We never have a net loss in output resulting from a choice to go for inflation?

MR. PRELL. It does not take, in terms of a normal simple cost of capital calculation, a very big inflation differential to get you a net loss in the present value in the long run.

CHAIRMAN GREENSPAN. The argument as to why we get a net loss is "the Federal Reserve will react–do something." But the question is, we are the Federal Reserve and why should we react if that's true?

MR. LINDSEY. If we don't believe that the present value of output in this economy will be lower by letting inflation alone, then we should let inflation go up. It's as simple as that Do we believe that printing money will increase the present value of output?

MR. BLINDER. Yes, I think we would. I believe that printing money will give the economy a temporary high that will not last and therefore in the integral sense that you said, yes, you get a larger integral of output over an historical period, if you never decided to end it–if you never said, when you got to 10 percent inflation, whoops, that wasn't very good, and you went back to lower inflation.

CHAIRMAN GREENSPAN. Yes, but why would you conclude that at that point when, because as Ed Boehne says, 11 percent is still better?

MR. BLINDER. If 11 percent is better than 10 percent, if there's no cost to inflation–I am a little bit surprised at the tenor of this conversation around here! [Laughter] There is some academic content that is–

CHAIRMAN GREENSPAN. In all seriousness, the question really gets to the models. Why would you believe that there is a cost of increased inflation from the models?

Greenspan never got a straight answer to his question but the consensus was that models based on NAIRU are basically wrong. Tellingly, it was none other than Janet Yellen who wrongly worried the unemployment rate was "too low" in the mid-to-late 1990s and would cause inflation to accelerate.

As it happens, the data don't support the idea of NAIRU either, at least not since the mid-1980s. The test would be to compare changes in the unemployment rate against changes in the inflation rate. If NAIRU made sense, there should be a strong inverse relationship between the changes in the two series. And yet:

NAIRU core pce vs unemployment since 1985

Regressing changes in core inflation against changes in the jobless rate gets you an r-squared of 0.11, which is basically meaningless. Moreover, that result is purely a product of the data points in the blue circle, which all occurred during the teeth of the financial crisis and could be blamed on the co-movement of employment and commodity prices. Take those out, and you end up with two perfectly unrelated series:

NAIRU core pce vs unemployment since 1985 excluding GFC

You get similar results if you use headline inflation rather than core inflation.

The intellectual confusion over the relationship between unemployment and inflation was especially salient during the Fed's own policy debates in the aftermath of the crisis. The unemployment rate rose by 5 percentage points between mid-1979 and late 1982. It also rose by 5 percentage points between early 2008 and late 2009. Moreover, the jobless rate stayed above 9 per cent through first nine months of 2011. The Fed staff expected this would produce massive disinflation, or even deflation, yet it never happened.

By the January 2011 FOMC meeting , it should have been clear the old models weren't sufficient. Instead of ditching the NAIRU concept, however, the Fed's staff and many of the regional presidents tried to rehabilitate it by arguing the NAIRU had changed. (There were lots of reasons provided, including the extension of unemployment insurance benefits and skill mismatches.)

With the admirable exception of Richard Fisher at the Federal Reserve Bank of Dallas, the overwhelming consensus was that the crisis had raised the "non-accelerating inflation rate of unemployment" by about 1.5 percentage points :

FOMC 2011 Jan NAIRU estimates table

Moreover, everyone except Fisher and the New York Fed's Bill Dudley thought the crisis produced such long-lasting damage that the NAIRU would still be higher by 2015 (!) than it was before 2007. In reality, of course, the Fed has been forced to steadily revise its NAIRU estimates lower as the unemployment rate gradually normalises and inflation remains quiescent. The net effect was this rather ridiculous chart:

NAIRU fomc midpoint

NAIRU isn't just a useless concept, it's a counterproductive one that encourages policymakers to focus on the jobless rate as a means to an end (price stability) even though there is zero connection between the two variables. The sooner NAIRU is buried and forgotten, the better.

Policy Tensor, 17 hours ago

Matthew, there's strong evidence that what drives US inflation (and more generally DE inflation) is not domestic slack but global slack. See https://policytensor.com/2016/12/17/global-slack-us-inflation-and-the-feds-policy-error/

grputland, Jan 22, 2017

To test the NAIRU hypothesis against historical data, shouldn't we plot unemployment vs. change in inflation? -- instead of CHANGE in unemployment vs. change in inflation?

Be that as it may:

If there is such a thing as a NAIRU, it is still a mistake to treat the NAIRU as a "given" rather than a function of policy. If a certain tax feeds into prices, it leaves less room for wages to feed into prices before (according to NAIRU logic) inflation accelerates. So any tax that feeds into prices will tend to raise the NAIRU. This is especially the case if the tax causes the cost of labor for employers to be higher than workers' take-home pay.

Thus the NAIRU, if it exists, is not a counsel of despair, but rather a counsel to get rid of taxes that feed into prices (especially taxes on labor) and replace them, as far as necessary, with taxes that DON'T feed into prices -- that is, taxes on economic rents.

Drago Jan 21, 2017

@ Ralph Musgrave So according to Galileo Galilei the earth is a perfect sphere. Great news. So presumably he believes there's some magical force of nature that keeps us all from falling into space, and apparently one can travel in a straight line and end up exactly where he departed.

Never read such twaddle.

Ralph Musgrave, Jan 21, 2017

@ Drago @ Ralph Musgrave Totally daft response to my points - but what I'd expect from the anti-NAIRU brigade. But for the benefit of the latter cerebrally challenged brigade, I'll spell out what I mean in more detail. I'd honestly appreciate a detailed and intelligent answer.

NAIRU is the idea that there is a relationship between inflation and unemployment: specifically, when demand rises and unemployment falls, inflation will at some point also rise (assuming the rise in demand continues).

Klein & Co claim that NAIRU relationship does not exist. That means, unless I've missed something, that if unemployment falls and continues to fall, inflation WILL NOT RISE, (because, to repeat, according to Klein & Co there is no relationship between inflation and unemployment).

Ergo it should be possible to implement a very large rise in demand plus a very large fall in unemployment, and according to Klein & Co there will be no automatic rise in inflation. Now what have I missed?

Drago Jan 21, 2017 ;

@ Ralph Musgrave @ Drago MCK perhaps went too far in saying that there is zero connection between inflation and unemployment, but the rest of his points stand.

And regarding my previous reply, I was merely alluding to the fact that what is intuitive is not always what is true.

NeilW@MMT Jan 22, 2017

@ Ralph Musgrave "So presumably he favors bumping up demand to the point where unemployment almost vanishes"

There won't if you hold the level of competition high and using buying power to stop price rises taking hold. The key is for a significant purchaser to refuse to trade at any suggested higher prices which then starves the system of aggregate demand forcing either innovation or failure. And you do that directly rather than trying to do it indirectly by trying, and failing, to price loans higher.

In a tight labour market the capital/labour ratio gets better which forces replacement of jobs with machinery and improved methods. If you can't get the staff you have to get cleverer with the ones you have.

Inflation is people trying higher prices and having them confirmed by market purchases. So you set up the system so it refuses to confirm them which forces time serialisation on the market at a lower price.

Everybody knows that the labour market pricing is controlled by trying to keep a pool of people out of work and not producing. It is a very sick design that impoverishes many, many people. And the policy concept on which it is based is a belief system, not even science. You can't see them. You can't measure them. You just have a bunch of 'Very Clever People' who make them up based upon what they feel and what they believe.

Far better to have a pool of people employed outside the private sector at a fixed living wage which the private sector has to bid against to get any labour. Then the labour market is always 'tight' against the living wage and excess bids of labour wages fall back to the living wage when the businesses fail. Both of which allow you to keep business competition white hot intense - which is what controls prices and drives productivity.

marcus nunes Jan 20, 2017

NAIRU - RIP

https://thefaintofheart.wordpress.com/2015/02/14/why-insist-on-searching-for-the-holy-grail-aka-nairu/

Contrapunctus9 Jan 20, 2017

Many variables contribute to the inflation rate, certainly more than just domestic employment (and how it is calculated). The Fed's dual mandate is inflation and employment, so it makes sense that these are a focus of the Fed's communication. But the Fed tends to focus on the result rather than the cause. It is troubling that there is little discussion from most of the FOMC on inflation factors which are now more important than unemployment (currency values, foreign labor, technology, commodity demand and speculation, labor monopsony, underemployment, labor skill demand mismatch, etc).

Producer and consumer prices are increasing, largely due to China driven commodity prices. Managerial compensation and production hourly wages are increasing. But weekly wages are stagnant due to fewer hours. The Fed is ignoring the latter, even though it is what is more important to sustained core inflation.

JustSmith Jan 20, 2017

Mr Klein, your work is usually excellent, but this, I am afraid, is very poor. Your regression analysis does not test for labour market slack (unemployment minus NAIRU); you do not discuss how the unemployment rate can be an imperfect measure of labour market slack if the structure of the labour market changes; no one has ever assumed the NAIRU is constant and policymakers are well aware of the pitfalls of using an unobservable quality; the Philips curve can shift and indeed monetary policy making is in no small part about trying to judge under what conditions it may shift.

Drago Jan 20, 2017

@ JustSmith Trying and failing....

Observer Jan 19, 2017

Looking just at the U3 unemployment rate for the NAIRU without considering the still high U6 rate and lower labour participation rate in the US may be the issue. There's still labour market slack even though U3 is at its "full" employment level.
Brito , Jan 19, 2017

" The test would be to compare changes in the unemployment rate against changes in the inflation rate."

Wait what? That doesn't test for NAIRU, that simply tests the Philips Curve, but the NAIRU and the Philips Curve is not the same concept.


"zero connection between the two variables."

What? How can there be zero connection? If the labour market becomes very tight, firms have to raise wages to attract workers. Are you saying wages cannot impact prices? That would be a bizarre claim. Wage price spirals are an observable phenomena. And what about simple supply & demand? At some point you're not going to be able to employ enough additional people to supply the rising demand for your product, this increased scarcity is likely to result in higher prices.

NeilW@MMT Jan 22, 2017

@ Brito "If the labour market becomes very tight, firms have to raise wages to attract workers. Are you saying wages cannot impact prices?"

Or do without the person, or invest in capital to replace the labour - because the capital/labour ratio just changed. Both of which drive productivity. Which is what we want.

Tight labour markets drive innovation, and if you keep the level of competition active at the front end then prices remain stable.

grumpy Jan 19, 2017

Models have to be used with caution (they are only tools) and interpreted with awareness of the real world - including for example, the varying wage bargaining power of labour, which is different, post globalisation, to what it was in the '70s.

Who do you think wanted globalisation and liberalisation of trade, and why?

Many economists revere their models excessively.

marcus nunes Jan 19, 2017

Yellen in the 90s and today

https://thefaintofheart.wordpress.com/2015/11/09/yellens-unchanging-beliefs/

marcus nunes Jan 19, 2017

For laughs:

https://thefaintofheart.wordpress.com/2012/07/20/seven-years-on-things-still-look-the-same/

user8347 Jan 19, 2017
What a silly piece. NAIRU, like many economic concepts, requires a ceteris paribus clause. Your unconditional evaluation of hypothesis is naive at best. If you're having a surge in productivity due to, say, tech, or globalization, all else is not equal.
Drago Jan 19, 2017
@ user8347 Regardless, even if such a thing as NAIRU exists, its value can only be estimated post factum, which makes it completely useless for policy purposes.
Ralph Musgrave Jan 23, 2017

@ Drago @ user8347

There's a whole string of other relationships in economics which cannot be estimated with any sort of accuracy. For example it is widely accepted that devaluation will sooner or later improve a country's balance of payments, but no one really claims to know by how much and by when. So what do we do: abandon currency re-alignments as a method of rectifying external surpluses or deficits?

And again, it is widely accepted that interest rate hikes curb demand, but no knows with any great accuracy exactly by how much. What do you suggest: abandon interest rate adjustments?

Postkey Jan 24, 2017

@ Ralph Musgrave @ Drago @ user8347

"What do you suggest: abandon interest rate adjustments?"

Maybe?

"The funny thing is: they haven't. In fact, among the more than 10,000 research articles produced by the major central banks in the two decades prior to the 2008 crisis, none explored the correlation or causation between nominal interest rates and nominal GDP growth. Fortunately, this task is not very demanding, and once we conduct such an examination, we conclude that, in actual fact, there is no evidence to back these assertions whatsoever. To the contrary, empirical evidence shows that the central banking narrative on interest rates is diametrically opposed to the observable facts in two dimensions: instead of the proclaimed negative correlation, interest rates and economic growth are positively correlated. Secondly, the timing shows that interest rates do not move ahead of growth, but instead are either coincidental or even follow it."

https://professorwerner.org/shifting-from-central-planning-to-a-decentralised-economy-do-we-need-central-banks/

yellowbrickroad Jan 26, 2017

@ Ralph Musgrave This is gold standard thinking Ralph. There is no balancing payment of gold to send to China any more.

Instead China's pounds are sitting in an account in London, right alongside yours and mine. What difference does it make to anything if for instance China were to buy something for you and now those Pounds sit in your account rather than China's??

What do you think that changes..?

Your neighbours bought Chinese TV's and now China is sitting on a bunch of Pounds it can't easily spend - except on property, and educating the children of the wealthy. The incorrect thinking that 'we need to get those Pounds back' just means that we're more likely to sell vital infrastructure to China.

How is that a good response? We're NEVER going to export as much to China as China exports to us, and selling them our vital infrastructure is the result the flawed logic of thinking that moving numbers from one account to another account in London is something we 'need' to do in order to balance things up.

What if you could erase your old misassumptions Ralph? Rather than falling back on automatic mistakes.

Viewed correctly, the Pound IS the export, and the trade already balances. It's just that we don't happen to measure it this way.. yet..

Ralph Musgrave Jan 26, 2017
@ yellowbrickroad @ Ralph Musgrave Your comment is totally an completely unrelated to the above article and to my comments. Never mind being right or wrong: you haven't the faintest idea what this debate is about.
Drago Jan 26, 2017
@ Ralph Musgrave @ Drago @ user8347 It's not a binary choice...
doodle Jan 19, 2017
Isn't the point that the NAIRU theory is based on the concept of a wage-price spiral which is only sustainable in a situation where wages are either indexed or there are strong trade unions? With the rise of the precariously employed, in the services sector, even if there are many other minimum wage jobs in town, the threat to leave is not going to result in meaningful pay increases.
Ralph Musgrave Jan 23, 2017
@ doodle

I suggest there is a NAIRU type relationship even absent trade unions: i.e. trade unions just boost or amplify the relationship. In other words, even given no trade unions and no employment protection, if there was a ridiculously large increase in demand (e.g. a ridiculously large helicopter drop), demand for labour would sky-rocket, and you'd get bumper wage increases and inflation as every employer scrambled to get labour to meet demand.

[Feb 25, 2017] NAIRU: Dangerous Dogma at the Fed

This is not a dogma. This is a convenient pretext for suppressing wages, which is part of FED agenda
Notable quotes:
"... When I wrote my piece on NAIRU bashing, I mainly had in mind a few newspaper articles I had read which said we cannot reliably estimate it so why not junk the concept. ..."
"... It conjures up lots of bad associations. ..."
"... Last month, Matthew C Klein wrote an article for Financial Times' blog Alphaville arguing against the concept of NAIRU. ..."
"... Instead of their statutory mandate, these central bankers sought guidance from the so-called non-accelerating inflation rate of unemployment, or NAIRU. Proponents of the NAIRU doctrine claim that some fixed level of unemployment exists that will yield a stable rate of inflation. If the actual unemployment rate surpasses this level, they say, the inflation rate will decline. If unemployment drops below this level, inflation will increase. Most economic research over the last two decades placed the NAIRU between 5.8 and 6.6 percent. ..."
Feb 25, 2017 | economistsview.typepad.com
RGC : , February 25, 2017 at 08:43 AM
Re: The NAIRU: a response to critics - mainly macro

[Simon is catching a lot of heat and is getting a little irritated.]
....................
The NAIRU: a response to critics

When I wrote my piece on NAIRU bashing, I mainly had in mind a few newspaper articles I had read which said we cannot reliably estimate it so why not junk the concept. What I had forgotten, however, is that for heterodox economists of a certain hue, the NAIRU is a trigger word, a bit like methodology is for mainstream economists. It conjures up lots of bad associations.

As a result, I got comments on my blog that were almost unbelievable. The most colourful was "NAIRU is the economic equivalent of "Muslim ban"". At least two wanted to hold me directly responsible for any unemployment at the NAIRU. For example: "So according to you a fraction of the workforce needs to be kept unemployed." Which is a bit like saying to doctors: "So according to you some people have to be allowed to die as a result of cancer."
...........
[PostKeynesians fire back]:
........
Simon Wren-Lewis, NAIRU And TINA

Last month, Matthew C Klein wrote an article for Financial Times' blog Alphaville arguing against the concept of NAIRU. Today, Simon Wren-Lewis published a reply to Klein on his blog defending NAIRU. SWL's argument is essentially that there is no alternative (TINA):

http://www.concertedaction.com/2017/02/17/simon-wren-lewis-nairu-and-tina/

RGC -> RGC... , February 25, 2017 at 08:54 AM
[By coincidence I posted this comment by Dean Baker yesterday]:

NAIRU: Dangerous Dogma at the Fed

BY DEAN BAKER

The Full Employment and Balanced Growth Act of 1978 established two goals to guide the
Federal Reserve's conduct of monetary policy: price stability and full employment, defined by
the Act as four percent unemployment. While the central bank has diligently pursued the first
goal, it has often given the second part of its mission short shrift. Indeed, past Fed policy
makers have publicly labeled four percent unemployment unobtainable for practical purposes.
..............
The experience of the last six years has unambiguously repudiated the NAIRU - at least insofar as an economic theory may ever be disproved with evidence.

Die-hard adherents simply proclaim the NAIRU a moving target that has shifted. But none of these advocates has explained convincingly why previous consensus estimates of the NAIRU went so far awry.

http://cepr.net/documents/publications/fmsno00.pdf

anne -> RGC... , February 25, 2017 at 08:57 AM
http://cepr.net/documents/publications/fmsno00.pdf

December, 2000

NAIRU: Dangerous Dogma at the Fed
By DEAN BAKER

The Full Employment and Balanced Growth Act of 1978 established two goals to guide the Federal Reserve's conduct of monetary policy: price stability and full employment, defined by the Act as four percent unemployment. While the central bank has diligently pursued the first goal, it has often given the second part of its mission short shrift. Indeed, past Fed policymakers have publicly labeled four percent unemployment unobtainable for practical purposes.

Instead of their statutory mandate, these central bankers sought guidance from the so-called non-accelerating inflation rate of unemployment, or NAIRU. Proponents of the NAIRU doctrine claim that some fixed level of unemployment exists that will yield a stable rate of inflation. If the actual unemployment rate surpasses this level, they say, the inflation rate will decline. If unemployment drops below this level, inflation will increase. Most economic research over the last two decades placed the NAIRU between 5.8 and 6.6 percent.

The operating differences between a legal target of four percent unemployment and a NAIRU target matter tremendously for the economy and the public....

[Feb 19, 2017] EconoSpeak Krugman, the Gang of Four and the NAIRU Straitjacket

Notable quotes:
"... Second, the empirical evidence for a vertical Phillips curve and the associated hypothesis that lowering unemployment past the NAIRU leads to unacceptable acceleration of inflation is weak, and has become much weaker in the past decade. Third, viewed collectively, attempts to estimate the location of the NAIRU have become a professional embarrassment; disagreements remain on too many basic issues. Fourth, adherence to the concept as a guide to policy has major costs and negligible benefits. Conversely, the risks of dropping the natural rate hypothesis are minor, while the benefits from a sustained pursuit of full employment could be substantial. ..."
Feb 19, 2017 | econospeak.blogspot.com
First is Dean Baker's post about the latest Economic Report of the President's "insight into the question of how fast the economy can grow, and more importantly how low the unemployment rate can go."
Economists have long held the view that lower rates of unemployment would be associated with rising rates of inflation and vice versa. When the Federal Reserve Board decides to raise interest rates to slow the economy it is based on the belief that unemployment is falling to a level that would be associated with a rising rate of inflation.
Most economists now put the unemployment rate at which inflation starts to rise somewhere near the current 4.9 percent rate. (This is called the non-accelerating inflation rate of unemployment or NAIRU.) So does the ERP. But its analysis suggests a somewhat different story.
Second is Jamie Galbraith's 1997 -- that's almost 20 years ago -- Journal of Economic Perspectives article, " Time to ditch the NAIRU "
First, the theoretical case for the natural rate is not compelling. Second, the empirical evidence for a vertical Phillips curve and the associated hypothesis that lowering unemployment past the NAIRU leads to unacceptable acceleration of inflation is weak, and has become much weaker in the past decade. Third, viewed collectively, attempts to estimate the location of the NAIRU have become a professional embarrassment; disagreements remain on too many basic issues. Fourth, adherence to the concept as a guide to policy has major costs and negligible benefits. Conversely, the risks of dropping the natural rate hypothesis are minor, while the benefits from a sustained pursuit of full employment could be substantial.
G. Friedman's projections may well be wrong. But the argument that they are "implausible" is based on uncompelling theory, weak empirical evidence, embarrassing estimates and "a guide to policy [that] has major costs and negligible benefits."

But, hey, you can't criticize the top wonks if the they don't come right out and say it.

UPDATE: John T. Harvey writes, at Forbes:

In the words of Christina Romer, former chair of the Council of Economic Advisors under Barack Obama:
"Just as there is no regularity in the timing of business cycles, there is no reason why cycles have to occur at all. The prevailing view among economists is that there is a level of economic activity, often referred to as full employment*, at which the economy could stay forever."
*Often referred to as full employment? War is Peace. Freedom is Slavery. Ignorance is Strength. NAIRU is full employment.

[Feb 09, 2017] Path-dependence of measuring real GDP

Feb 09, 2017 | worthwhile.typepad.com
Nick Rowe

I normally try to avoid index number theory. Don't trust me on this.

It is well understood that real GDP is a very imperfect measure of welfare. We teach that in first year macro. That is not what this post is about. What I'm worried about is whether real GDP is an imperfect measure of itself. Does it have internal validity?

If better technology enabled producers of new goods to ramp up production more quickly to meet initial demand, would that cause the measured growth rate to fall? Initially an economy produces 100 kg of apples at $1 per kg. Then bananas get invented. After a long slow adjustment, the economy eventually reaches a new long run equilibrium and produces 50 kg of apples at $1 per kg and 50 kg of bananas at $1 per kg.

We know that nominal GDP stays the same at $100. But what happens to real GDP? The answer depends on what happened during the long slow process of adjustment. Was it supply, or demand, or both, that caused the slow adjustment?

To keep it simple, assume the price of apples is always $1 per kg (the central bank targets the price of apples). And assume the quantity of bananas produced and consumed increases slowly and continuously from 0 to 50 kg. And assume the statistical agency that measures GDP has access to continuous time data (so we can ignore the difference between Paasche, Laspeyres, and Fisher price indices ). Remember that Real GDP = Nominal GDP/Price Level. What happens to the price of bananas during the long slow adjustment period?

  1. Assume that supply and demand adjust equally slowly to the invention of bananas. It takes producers time to switch from producing apples to producing bananas, and it takes consumers time to switch from consuming apples to consuming bananas. So the price of bananas is constant at $1 per kg during the adjustment. The weights in the price index slowly change (with a falling number of apples and increasing number of bananas in the basket), but the price index stays constant, because neither price is changing. Real GDP is the same as it was before bananas were invented.
  2. Assume that supply adjusts more slowly than demand. Producers need a high price to give them the incentive to adjust. So the price of bananas starts out above $1, and slowly falls over time to $1. So the price index falls over time. Real GDP ends up higher than it was before bananas were invented.
  3. Assume that demand adjusts more slowly than supply. Consumers need a low price to give them the incentive to adjust. So the price of bananas starts out below $1, and slowly rises over time to $1. So the price index rises over time. Real GDP ends up lower than it was before bananas were invented.

Even if you say that my third case is implausible, and that demand always adjusts more quickly than supply, so the price of new goods (relative to existing goods) always starts out high and falls over time, that does not resolve the problem. The initial price of bananas, when they first appear on the market, depends on how many bananas can be grown in that very first season. Anything that enables producers of new goods to increase production for the initial roll-out will permanently reduce the measured level of real GDP.

The underlying problem is that we do not observe the price of bananas before bananas are invented. Unless you allow a discontinuous jump in real GDP the moment the new good hits the market, even if initial production is negligible, I don't think you can avoid this paradox.

Thanks to commenters (especially louis ) on my previous post, and to Brent Moulton via Twitter and David Rosnick via email. Errors and opinions are mine alone. As this starts as an apple economy, the large effect is to lower apple investment, but apple investment can't fall beneath depreciation (or more accurately, can't fall below depreciation at all) without affecting the price of apples, so there is a limit to how fast banana production can ramp up without causing this. Then there is the matter of relative investment costs, higher investment costs would lower growth while lower investment costs would increase growth and only if these were nearly equal would pricing be significant and even then only as one good among many. I expect pricing would have this effect which would differ depending on whether apples and bananas were treated as substitutes. It would take some time for bananas to even make it into baskets reducing their impact on measurements, missing both any discontinuity or initial change.

Posted by: Lord | February 07, 2017 at 11:52 AM Lord: there's lots of things that could be determining what's happening during the adjustment period. But for the question addressed in this post, the only thing that matters is whether the *relative* price of bananas starts out above one apple or below one apple. Dollar prices won't matter. I made the assumption that the *nominal* price of apples stays at $1 throughout, just to make the discussion simpler.

Posted by: Nick Rowe | February 07, 2017 at 12:48 PM Clarifying question about price indexes.

When a new good is introduced how is it factored int the price index ? For example suppose in period 1 100 apples are produced, and in period 2 50 Apples and 25 Banana. As the price of apples is fixed at $1 and GDP is fixed at $100 we know the price of bananas is $2. But how do we use this information to calculate the change in the price level between period 1 and period 2?

(I can see that once we have sales data and prices for all periods after bananas have appeared the logic that Nick describes kicks in - but I can't see how we deal with the introduction of bananas)

Posted by: Market Fiscalist | February 07, 2017 at 02:26 PM I think you're right. There's a technical literature on path dependence of Divisia indices (see, for example, a paper from Nick Oulton ). The chain indices used for GDP and the CPI are approximations to the continuous-time Divisia indices, so it's clearly relevant. The problem arises whenever new goods are introduced or old ones disappear, and would also be relevant when large shocks (e.g., major wars) take place that result in temporary major changes to consumption patterns. It's a hard problem, and though the literature suggested some potential solutions, they haven't reached the stage of statistical agency implementation.

Regarding your third case, sometimes sellers offer low initial prices for goods or services for which consumption is likely to be persistent -- new social networks, narcotics. So I don't think it's implausible.


Posted by: Brent Moulton | February 07, 2017 at 02:30 PM Your price index doesn't have to rise or fall monotonically with time. If we weight the price of each good by its share of nominal spending, then the starting and ending price indexes are the same – the price level is 1.

What happens in the meantime depends on supply and demand effects.

Imagine we're partway through the transition, and our economy sells 50kg of apples at $1 and 25kg of bananas at $2 (the remaining banana trees are waiting to mature). Nominal GDP is $100 as before, but the expense-weighted price index is 50%*($1 + $2) = $1.50, so real GDP is $66. This is lower than the long-run equilibrium of $100, but so is the actual fruit consumption. It would be accurate to call this economy comparatively depressed.

If banana trees mature quickly but can only be planted slowly, then maybe we're selling 90kg of apples at $1 and 10kg of bananas at $2. Nominal GDP is now $110, and the expense-weighted price index is about 1.18 (9/11*1 + 2/11*2), so the economy still looks depressed (real GDP of 93) but not as badly.

In the other case (apple trees are exogenously converted to banana trees but bananas are an acquired taste), then we might sell 90kg of apples at $1 and 10kg of bananas at $0.50. Nominal GDP is $95, and the price index is about 0.973 (9/9.5 + 0.25/9.5), so real GDP is about 97.6. If the new bana

In both cases, a statistician would observe a fall in real GDP due to a preference shift, followed by a rebound to its prior level. The unstated assumption for meaningful RGDP is that the utility of a price-index basket is approximately the same throughout the interval, and that's what's obviously untrue with preference changes.

Posted by: Majromax | February 07, 2017 at 02:49 PM Nick: You price the value of bananas at a constant $1 over the long period that it takes to ramp production from zero to 50 Kg.

It seems to me that you need to simultaneously recognize that to establish 'price', you need to have two persons trading and agreeing on a commonly accepted value ('price').

Hence, one option is that the banana producer is otherwise unemployed but now producing his first banana. The GDP should increase. OTOH, the buyer may be substituting goods so his contribution to increased GDP is negative, making the final GDP change zero. Further OTOH, the buyer may be borrowing to fund the purchase which would result in a valid GDP increase.

I think I am pointing out that just considering the producer's contribution to GDP is an incomplete exercise. A new product has several tentacles that impact GDP.

Posted by: Roger Sparks | February 07, 2017 at 02:59 PM MF: Brent Moulton (who commented just after you) knows much more than I do about how your question is normally answered by those who actually measure GDP. But I think the short answer is: "with difficulty". I think the point of this post is to say that that the problem posed by new goods does not get very small even if the expenditure share of new goods starts out very small when they are first introduced. The problem gets bigger over time.

Thanks Brent! Glad to hear I'm not totally out-to-lunch on this! Purely speculative, but I'm wondering if this might be part of the productivity growth slowdown puzzle? If new goods don't fall in price nowadays as much as they used to, simply because it's easier to build a big batch of new phones before releasing them (and/or they keep initial prices low because of network effects, as you say).

Posted by: Nick Rowe | February 07, 2017 at 03:11 PM Majro: "Your price index doesn't have to rise or fall monotonically with time. If we weight the price of each good by its share of nominal spending, then the starting and ending price indexes are the same – the price level is 1."

The share of nominal spending before bananas are invented? Or after we get to the new long run equilibrium? If "before", then the price of bananas doesn't matter at all.

Roger: "Nick: You price the value of bananas at a constant $1 over the long period that it takes to ramp production from zero to 50 Kg."

Why? And suppose we have a different example, where the (relative) price of bananas never reaches some constant level, because of ongoing technological improvement in growing bananas.

Posted by: Nick Rowe | February 07, 2017 at 05:03 PM Market Fiscalist: The way the CPI is calculated by statistical agencies, they would simply ignore the bananas in calculating the period 1 to period 2 price change. The "market basket" that is selected in period 1 doesn't have any bananas in it, so the price change from period 1 to period 2 is based solely on apples (no price change).

Nick: The standard (Konus) constant-utility cost-of-living index theory assumes that each period's consumption is on a stable demand curve. If, for your second case, you assume that it takes time for producers to switch but that each period consumers are consuming along their demand curve, I think the continuous time price index should come close to the true Konus cost-of-living index--especially if there isn't any discrete jump in consumption when the item is first introduced. Real GDP increases, and that's what we expect given that consumers prefer consuming A+B to A. Your first and third cases involve adjustment costs for consumers and thus don't fit easily in the standard cost-of-living index model.

Posted by: Brent Moulton | February 07, 2017 at 09:48 PM Brent: I was wondering if something like that would work. We could maybe imagine extending my second case to have a succession of new goods invented.

Posted by: Nick Rowe | February 08, 2017 at 04:09 AM Do they teach students in first year macro that when they later become professors they should say "we teach that in first year macro"? I see that expression a lot these days. It sounds like, this is truth. ;)

I remember Kotlikoff once using it when I suggested to him that it might not be clarifying to say that the "true" debt is 119 gazillion dollars. "I have been teaching my students that for 20 years." Oh, well could you then please stop writing that AND stop confusing your young charges?

More seriously, I am curious how important you think this index number issue might be compared with the more basic issue of measuring and aggregating individual utility. What is GDP supposed to correlate with? Back in the day it was about the flow of nominal demand but then seemed to morph into aggregate real goodness.

I love your work. Thanks.

Posted by: Gerard MacDonell | February 08, 2017 at 08:21 AM At risk of straying too far off topic, let's think of this in a trade context.
Instead of bananas being new to the world, let's say they are just new to a market. Country A can produce only apples, Country B produces both apples and bananas. In country B, one apple is tradeable for one banana.
When country B opens up to trade with country A, suddenly there is a global jump in demand for bananas. The price of bananas in terms of apples rises in country B to induce the people to consume fewer bananas and more apples. A certain number of apples flows to country B in exchange for a smaller flow of bananas back to A.
A's GDP, in terms of apples, shouldn't change -- its apple crop is the same as it was the previous year, although consumers are better off due to trade.
You'd think B's GDP should rise, as the value of the bananas it produces is worth more in terms of apples than it used to be. Or would we just say that's a change in the price level and real GDP is unchanged? Seems like this depends on how you construct the price index.
Gains from trade are real, but it seems they would be tricky to capture in GDP framework

Posted by: louis | February 08, 2017 at 10:24 AM Gerard: thanks!

The main cases where I use that "we teach that in first year" line is (for example, like in this case) some anti-economist says "GDP is a bad measure of welfare!" thinking they are making some devastating new critique of economics.

How important is this particular issue, empirically? I don't know. And I first wanted to make sure my head was straight on the theory. But speculating wildly, I am wondering if the productivity growth slowdown might be caused by something like this? I have no evidence to back that up, but that is what is at the back of my mind about *possible* empirical relevance. It's less about utility per se (which was at the back of my mind in the last post) than productivity.

louis: only a little off-topic. I'm going to be a bit shaky on the answer. I *think* country B's real GDP stays the same, since it is measured in terms of the basket it produces. But its real income *measured in terms of the basket it consumes* will rise or stay the same, depending on whether we use a Paasch or Laspeyres index (old basket or new basket). More simply, if your Terms of Trade improve, real GDP can stay the same, but increase when NGDP is deflated by the CPI.

Posted by: Nick Rowe | February 08, 2017 at 10:42 AM Didn't Hausman address this issue back in the '90s?

Posted by: marcel proust | February 08, 2017 at 11:39 AM "this issue" == valuing newly introduced products.
Briefly (IIRC, and I may well not), the solution he presents for getting the price index right is to estimate a demand curve for bananas (presumably right after their introduction) and set the pre-introduction price to the point where demand is zero. This allows for comparison of the CPI's before and after bananas hit the market.

Posted by: marcel proust | February 08, 2017 at 11:51 AM marcel: yes. But that was a different question (trying to measure utility gains). And that assumes an extreme version of my case 2, where demand adjusts instantly and supply adjusts slowly.

Posted by: Nick Rowe | February 08, 2017 at 12:09 PM Let's get the same result but use the basket brigade model. Instead of a continuous result,m this result is the same but never leaves probability space.

Chiqita introduces bananas, and initially we love them. So the delivery trucks and consumer baskets are fuller than normal. Each time we move goods our cash cards swipe at market price, so the Savings and Loan machine is building the significant probability distribution of cash swipes in (deposit) or out (loan). The S&L machine enforces amortization on the full baskets and everyone pays a suprising 'rate' on their purchases.

As a result of the bananas, the yield curve is steeper. The S&L machine is forcing us to go to work and build bigger baskets, or develop a more granular distribution that we can make more frequent trips and keep our basket from ov er filling. If we choose the latter, we get more term points on the yield curve. Or, we can go home and work out a substitution between bananas and mangos, making our baskets fill normally again.

The key here is our sense of equilibrium, we know when our baskets ate optimally full. We know that because we hate waiting in line, so our sense of frustration stabilizes the queues. When queues ate sable, mean equals variance in our basket. At that condition, then every single person in the monetary zone can independently calculate the probability of the basket overflowing or underflowing. Supply then equals demand and container algebra works, we can pretend to be continuous.

It is Nicks model, fouled up a bit, but just recast as a sequence of probabilistic purchases.

Posted by: Matt Young | February 08, 2017 at 01:41 PM

[Feb 08, 2017] A Utilitarian Welfare Analysis of Trade Liberalization

econpapers.repec.org

The currently established welfare criterion used in international trade theory results in conclusions that are not only intellectually dishonest and deceptively misleading but are not as value free as is commonly believed. Although academic economists have devoted much effort to understanding the distributional effects of trade, the current welfare conclusions of trade basically ignore entirely the distributional effects. This paper argues that trade policy needs to be framed within a legitimate moral framework that moves distribution to the forefront. The welfare effects of trade should be judged by what actually happens, not by what could potentially happen in an idealized world with costless transfers.

In the first section the inadequacy of current international welfare economics is discussed. Second, the justification for using a utilitarian framework is developed along with a brief history of the doctrine and its role in Cambridge welfare economics. Next the properties of a utility function that would be realistic as well as having desirable mathematical properties are discussed. Welfare considerations would not be especially important if trade did not create significant redistributions; therefore the size of the redistributions relative to the efficiency gains from trade liberalization is examined. Finally, the welfare effects of trade liberalization using various trade models and simulations are discussed.

The current approach to the welfare analysis of trade is to follow the recommendation of Hicks and Kaldor and equate national welfare with real national income and ignore entirely how income is distributed. Although admitting that considering distribution involves an unscientific value judgment, numerous economists (such as I.M.D. Little, Frank Knight, Edward Chamberlin) have concluded that distribution is too important to ignore and it is better to consider it even if that makes the analysis less than scientific. As Blaug has stated (1978,p. 626), "the true function of welfare economics is to invade the discipline of applied ethics rather than to avoid it."

The basic objective of trade policy under modern welfare analysis therefore is to maximize national income. This outcome is considered optimal because of the Hicks-Kaldor compensation principle whereby everyone could potentially be made better off than in any other alternative with the appropriate lump sum transfers. For some, the possibility that these transfers could be made is sufficient, regardless of whether any transfers are actually made. For others, there is a naive belief that after all the income maximizing policies are implemented, that the government (or society) then consistently redistributes income in a manner consistent with its specific social welfare function. However, Rodrik (1997, p.30) is correct when he states that in regard to trade policy changes, "compensation rarely takes place in practice and never in full."

Even if society wanted to redistribute income, however, it can not be done in a zero costs lump sum fashion.

[Jan 18, 2017] FRBSF The Current Economy and the Outlook

Jan 18, 2017 | economistsview.typepad.com
libezkova :
Mathiness and "number racket" are two feature of neoliberalism that are especially damaging.

I like how neoclassical economics works: bought economists operate with fake models that use fake data.

It probably would be more interesting to discuss how US government measures unemployment those days. And all those "not in labor force" tricks.

Just seasonal adjustment make winter figures highly suspect.

Only U6 still has some connections to reality and if this measure shows "close to full employment", you can call any half empty glass "full".

http://unemploymentdata.com/current-u6-unemployment-rate/

== quote ==

Current U-6 Unemployment Rate is 9.1% (BLS) or 13.7% (Gallup)

Current U-6 Unemployment Rate:

Unemployment U6 vs U3 For December 2016 the official Current U-6 unemployment rate was 9.1% up from last month's 9.0% but still below the recent low of 9.3% in April and September and October's 9.2%.

On the other hand the independently produced Gallup equivalent called the "Underemployment Rate" was up to 13.7 in December from 13.0% in November nearing the 13.8% of April. The current differential between Gallup and BLS on supposedly the same data is 4.6%!

jonny bakho : , January 18, 2017 at 05:07 AM
"The labor market remains near its sustainable, full employment level."

This is a hope not a fact
There is plenty of slack if the underemployed move into jobs and we return the 20-50 yr olds to pre-recession participation rates.

pgl -> jonny bakho... , January 18, 2017 at 07:28 AM
Yep. Which is why I focus on the employment to population ratio. We are far from full employment.
John San Vant -> pgl... , January 18, 2017 at 09:54 AM
nope,nope,nope. you don't get how employment to population ratio is calculated. it can't rise and should not rise unless the calculations are adjusted.
John San Vant -> jonny bakho... , January 18, 2017 at 09:52 AM
Sorry, but it is a fact. Capital is at full employment.

Underemployed is cost savings adjustment made 30+ years ago and the pre-recession trend is always the end of the expansion.

urban legend -> John San Vant... , January 18, 2017 at 11:09 AM
Let's see:
SUPPORTING the belief that we are "close" to full employment is the U-3 measure of unemployment, a measure with an arbitrary cut-off that excludes from the official labor force as many people as possible who are not employed but do want jobs -- by requiring (1) an "active" search effort only within the last four weeks, based on (2) a definition of "active" that probably does not fit rational behavior by the unemployed who now have access to comprehensive Internet jobs databases that did not exist 20 years ago. (It is not terribly hard to surmise the institutional interests that are served by keeping the size of the labor force for purposes of determining the official unemployment rate as small as possible.)

NOT SUPPORTING the belief that we are close to full employment:

(1) the lowest employment-to-population ratio in almost half a century;
(2) negating the intellectually-lazy demographic excuse that invariably gets raised to point No. 1, the lowest employment-to-population ratio in 30 years in the prime working age group (25-54), a group that is 99.99% unaffected by the phenomenon of voluntary retirement;
(3) a U-6 (that counts many more of the unemployed in the labor force) that is still three percentage points higher than the low point reached in 2000 (three percentage points is a lot, representing about 7.5 million people who want jobs but are not counted in the labor force for calculating the U-3);
(4) an aggregate growth in full-time jobs of only 9% since the relative high point in 2000 even though the working age population has grown by 20%;
(5) average weeks unemployed among those who are counted as part of the labor force (26 weeks) that is still more than twice as high as it was in 2000 (under 13 weeks) and is still 10 weeks higher than it was before the Great Recession;
(6) involuntary part-time employment still 75% higher than it was in 2000, 33% higher than before the Great Recession;
(7) whereas in 2000, the U.S. was near the top in employment rate among the OECD countries, in 2017 it is close to the bottom; most OECD countries have recovered in their employment rates since the depths of the Great Recession, and many have moved to new levels (even supposedly sick France has a higher employment rate in the 25-54 prime working age group than te U.S.).

With this array of negative date to overcome, it takes a lot of wise monkeys who neither speak, hear nor see any evil to expound a belief that we are close to full employment.

RW said... January 18, 2017 at 07:05 AM

Inflation for the 4th quarter of 2016 is zero -- no change Oct through Dec -- and real interest rates remain near the zero boundary. Republican history WRT governing particularly as it pertains to the economy is sufficiently poor that optimism appears entirely unwarranted. I hear a lot of investors are adjusting their portfolio allocations to favor equities over bonds. Two years ago that was a smart move; now, not so much.

mulp said...

"All else equal, tax cuts boost household and business income."

In 2001, I was rif'd from my 100K++ job and got a $20,000 tax cut.

That tax cut did not boost my household income.

That economists have been bamboozled into thinking this way is beyond my comprehension.

Economies are zero sum. For every action, there is a reaction. Tax cuts mean revenue cuts which means spending cuts and spending cuts mean lower household income.

Very few sectors of the economy are subject to demand price elasticity that results in higher revenue from price reduction due to the quantity increasing explosively from a small reduction in price.

For example, cutting the profit tax by 30% on $100 oil so gasoline falls from $4.05 to $4.00 and thus doubles the quantity of gasoline sold to boost profit taxes is an impossibility.

And cutting the tax on economic profits from restricting oil production to drive up prices and profits can only increase tax revenue if oil production is cut further by cutting jobs so gasoline prices can be increased from $4 to $5 to $6 per gallon.

Since Reagan, economists seem to have self lobotomized so they spout totally illogical nonsense like "All else equal, tax cuts boost household and business income."

Might as well say "if you believe, you can fly when tinker bell hits you with pixie dust."


Reply Wednesday, January 18, 2017 at 11:07 AM

[Jan 16, 2017] Even though healthcare spending is nearly 18 percent of GDP, for some reason healthcare comprises less then six percent of the CPI basket

Jan 16, 2017 | www.nakedcapitalism.com
fresno dan , January 15, 2017 at 1:59 pm

https://www.peakprosperity.com/blog/106107/mad-hell

"As explained in the Fuzzy Numbers chapter of The Crash Course, even though healthcare spending is nearly 18% of GDP, for some reason healthcare comprises only 5.85% of the CPI basket:
U.S. health care spending grew 5.8 percent in 2015, reaching $3.2 trillion or $9,990 per person. As a share of the nation's Gross Domestic Product, health spending accounted for 17.8 percent.

Does it make any sense to record something that's nearly 18% of GDP as only 5.8%*** of your inflationary experience? Nope, it sure doesn't. Unless your desire is to mask the actual rate of inflation.

In simple terms, just healthcare's share of inflation alone comes to (0.25)*(0.18) = 4.5%. That's more than twice the rate of the supposed total inflation we are experiencing all by itself. Throw in rising rents, car prices, and energy and it's far more likely that an urban consumer is experiencing total price inflation closer to 6% or more per year."

==========================================================================
AND
and although I have posted this many times before, it is always good for a laugh .or a cry .

https://www.bls.gov/cpi/cpifact4.htm
"Although medical insurance premiums are an important part of consumers' medical spending, the direct pricing of health insurance policies is not included in the CPI. As explained below, BLS reassigns most of this spending to the other medical categories (such as Hospitals) that are paid for by insurance. The extreme difficulty distinguishing changes in insurance quality from changes in its price forces the CPI to use this indirect method."

AND
"The US now routinely subjects its citizens to racketeering, charging excessive prices that are increasingly cumbersome to avoid. One example among thousands; a Viagra pill that costs less than $1 in India, costs over $38 in the US"

I am hoping that when masturbatoriums are popping up like Starbucks, and the population ages, the expanding need for viagra will uh stimulate Galbraiths theory of countervailing power, and the stiff increases in the price of viagra will soften.

***I note that the BLS cpi link I use says healthcare composes about 6.5% of the cpi. Of course, the definition is Medical commodities AND medical services, so this may account for the difference .

[Dec 11, 2016] Twenty percent of US GDP was created from thin air via QE of well over 4 Trillion dollars.

Dec 11, 2016 | peakoilbarrel.com
Watcher says: 12/10/2016 at 4:24 pm
Okay, look.

20% of US GDP was created from thin air via QE of well over 4 Trillion dollars. That doesn't even count whimsical creation over the same time period elsewhere. The ECB just yesterday extended their QE program so that it will add up to about 2 Trillion Euros - which will have taken place over about 18 – 24 months.

There is no economy. That has all gone away, and there is no way in hell these bond and bond packages on central bank balance sheets are going to be retired (thereby extracting that money from the system overall) and so It's Not Coming Back. Probably Ever.

This is critical to oil because we do micro-economic evaluations of what wells are profitable and which are not, and our analysis and conclusions make less and less sense as we've seen from the non profitable activity going on. That's symptomatic of the disease.

Nothing was "fixed" from 2008 onward, and that's not a swipe at Obama. It's not a swipe at anything. It's just reality. When you create 20% of your GDP by whimsy, the measure can't possibly mean anything. And that's global.

We all have to live in the world using money in our own microscopic bubbles of economy, but from the macro perspective, that's pretense, and it's pretense everything depends on. Just keep in mind Fed Governors themselves have been quoted saying "we're in completely uncharted territory. No one knows what is going to happen, and that includes us, despite the superb people we have on staff trying to figure it out."

Trump is the wildcard inserted into a world of wildcards. I can assure you if the administration strongly doesn't want Ford building cars in Mexico, they probably won't.

[Nov 07, 2016] Inside that Great Wage Growth Number

Notable quotes:
"... In our artificial economy real things do not matter so much, but politics and managing the perceptions of the public are of paramount importance. And so the 'Goldilocks' Jobs Report, which is how the business TV channels described that lukewarm piece of dreck, did little to rally the markets except fleetingly intraday. ..."
"... The headline includes ALL employees, but if you take out the top 15-20% of managers, the average hourly earning growth showed a pronounced downward divergence to a lower growth rate. The BLS switched to this number including all employees a few years ago from the non-supervisory number. As a rule of thumb, when someone shows you the 'average' number, find out the median number for the same sample. Especially in these days of historically high inequality. ..."
Nov 07, 2016 | jessescrossroadscafe.blogspot.com

"The wealth of another region excites their greed; and if it is weak, their lust for power as well. Nothing from the rising to the setting of the sun is enough for them.

Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

Tacitus


"He who makes a beast of himself gets rid of the pain of being a man."

Samuel Johnson

In our artificial economy real things do not matter so much, but politics and managing the perceptions of the public are of paramount importance. And so the 'Goldilocks' Jobs Report, which is how the business TV channels described that lukewarm piece of dreck, did little to rally the markets except fleetingly intraday.

In the first chart below I take a look inside that 'average hourly earnings growth' number.

The headline includes ALL employees, but if you take out the top 15-20% of managers, the average hourly earning growth showed a pronounced downward divergence to a lower growth rate. The BLS switched to this number including all employees a few years ago from the non-supervisory number. As a rule of thumb, when someone shows you the 'average' number, find out the median number for the same sample. Especially in these days of historically high inequality.

Be that as it may, the markets overall were in a flight to safety as the financiers bowed to their fears of the upcoming presidential election, that something might happen that will upset their status quo.

Not the status quo- theirs.

... ... ...

[Oct 19, 2016] October 19, 2016 at 12:17 PM

Oct 19, 2016 | economistsview.typepad.com

Anon : , 2016 at 12:17 PM

so when people criticize the big deflation in computer/electronics hardware using baseless measures like "if the computer has a processor twice as fast then it has fallen by half in price" they are wackos. but now the real growth that is artificially generated by this way (quality improvements) to keep inflation down is being criticized by Fox. Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is.
Ben Groves -> Anon... , October 19, 2016 at 01:10 PM
Oh please, when RFK was talking about the massive poverty in eastern kentucky in 1968, where was the huge increase in living standards?

Government data is flawed right now, to a extent in needs a total reworking. There is no artificial growth. Just lost growth by outdated models.

pgl -> Ben Groves... , October 19, 2016 at 02:19 PM
Do you have some weird need to spew nonsense completely unrelated to the post every time you comment? Geesh.
DrDick : , October 19, 2016 at 12:20 PM
Color me shocked by this revelation./s
anne : , October 19, 2016 at 12:28 PM
https://fred.stlouisfed.org/graph/?g=7yCj

January 15, 2016

Manufacturing Production Index, 1992-2016

(Indexed to 1992)


https://fred.stlouisfed.org/graph/?g=7OvR

January 15, 2016

Manufacturing Production and Manufacturing Durable Computer and Electronic Indexes, 1992-2016

(Indexed to 1992)

anne -> anne... , October 19, 2016 at 02:03 PM
Using separate axes for clarity:

https://fred.stlouisfed.org/graph/?g=7OBH

January 15, 2016

Manufacturing Production and Manufacturing Durable Computer and Electronic Indexes, 1992-2016

(Indexed to 1992)

anne -> anne... , October 19, 2016 at 02:40 PM
What is the share of manufacturing production of durable computer and electronic manufacturing? I do not know how to graph this.
anne -> anne... , October 19, 2016 at 03:32 PM
Getting closer:

https://fred.stlouisfed.org/graph/?g=7OFU

January 15, 2016

Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

(Indexed to 1992)

anne -> anne... , October 19, 2016 at 03:37 PM
https://fred.stlouisfed.org/graph/?g=7OG5

January 15, 2016

Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

8.8% in 1992
to 11.4% in 1999
to 5.2% in 2014
to 6.1% in 2016.

Ben Groves : , October 19, 2016 at 01:08 PM
Manufacturing hasn't boomed since the 60's. The FRED graphs are garbage and useless in general. They are improperly calculated and they have out right admitted they may have "problems".

Manufacturing is dying out and becoming automated over the decades. There is no such thing as artificial growth either. Demand based on consumption is just as valid as industrial production shipped to other countries.

pgl -> Ben Groves... , October 19, 2016 at 02:21 PM
"The FRED graphs are garbage and useless in general."

No - your comments are garbage and useless. Actually READ the post. He did not get his graphs or data from FRED. Seriously - you need professional help.

Ben Groves -> pgl... , October 19, 2016 at 02:48 PM
poppycock. the garbage on their industrial production chart in the 90's and 00's was stupid bad. The US hasn't had a industrial boom since the 60's when our consumption was surging while we still made most of our products. No wonder inflation surged by the late 60's. The war against communism was having a painful bad side effects to rentiers and bankers, which spread to capital by the late 60's.
pgl -> Ben Groves... , October 19, 2016 at 04:07 PM
"the garbage on their industrial production chart in the 90's and 00's was stupid bad."

Can we focus on the single word "their". You think he used FRED. No jackass, he made his own charts from the source data - BLS. But noooooooo - you are too stupid to get even this simple point. So the rest of your ramblings is nothing more than your usual intellectual garbage.

likbez : , October 19, 2016 at 02:02 PM
Quality adjustments = number racket
jonny bakho : , October 19, 2016 at 03:28 PM
Auto mfg dropped by half post 2008.
It is now back but has nowhere to grow.
Urbanization makes cars less necessary and less desirable
There is not enough room to park them all now.
People who earn MinWage cannot afford them
sanjait : , October 19, 2016 at 03:53 PM
Interesting point but many will overinterpret this. Leave in the expansion of computer and electronics manufacturing value add, and we have manufacturing output slightly expanding. Take it out entirely and we have manufacturing output basically steady.

The difference isn't telling an important macro story.

The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes.

The two big factors are the increased productivity of manufacturing globally and the declining share of manufactured products as a % of GDP globally. The smaller factor is the US's declining share of global manufacturing output, which itself is only fractionally attributable to trade policy.

This one graph tells most of the story:

http://1.bp.blogspot.com/-JEZXR9XK7vc/Tbr46ReInRI/AAAAAAAAPQ0/HlLXeVin_g0/s1600/worldmfg.jpg

I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change.

The only big question is how we adapt to the world as it actually is.

anne -> sanjait... , October 19, 2016 at 04:23 PM
Nicely done.

Also, I did not realize I was being presented with an argument about Chinese growth and sustainability. I foolishly stopped reading and I am entirely sorry. I have set down data and begun to answer the argument below on Links:

http://economistsview.typepad.com/economistsview/2016/10/links-for-10-19-16.html#comment-6a00d83451b33869e201bb09479d0e970d

October 19, 2016

anne -> sanjait... , October 19, 2016 at 04:26 PM
What is significant though is how China insists on holding to growth targets that are very likely not sustainable. Stability is a worthy aim but when growth is achieved through pushing bad private sector loans, that is ultimately the enemy of stability.

[ For these 39 past years China has been holding to and achieving growth targets that were repeatedly considered unsustainable so I prefer to figure out why Chinese growth targets have been and from my perspective are now sustainable. ]

the forgotten spirit of American protectionism : , -1
YES! Of course US manufacturing isn't booming - how could it? We have horrible economic policies that are focused almost entirely on destroying our industrial base. High overvalued currency, combined with 0% tariffs and we have no VAT, so foreign imports from countries with a VAT receive export subsidies but are not taxed on the US side. That we have even one factory left is amazing and testament to the quality of American workers. Under Clinton, we'll lose what's left. Trump is our only hope. If we don't get Trump's protectionism we will quickly become a country as poor as Armenia or Moldova - stripped of industry and wealth, dependent on remittances from our migrant workers in Asia and Europe.

[Oct 19, 2016] No, U.S. Manufacturing Isnt Really Booming

Notable quotes:
"... Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is. ..."
"... The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes. ..."
"... I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change. ..."
Oct 19, 2016 | economistsview.typepad.com
Justin Fox:

No, U.S. Manufacturing Isn't Really Booming :...[Is]American manufacturing .. in decline? An answer frequently offered by wonky economics journalists is that, no, U.S. manufacturing output has actually kept growing. ...

There's a catch, though. As economist Susan N. Houseman of the W.E. Upjohn Institute for Employment Research ... points out , about half of the growth in U.S. manufacturing output since 1997 has been in just one sector: computer and electronics manufacturing.

If it weren't for computers and electronics (which includes semiconductors), manufacturing output would still be well below its 2008 peak and only 21 percent higher than in 1997...

The ... way those computers-and-electronics numbers are arrived at is worthy of a closer look. ... Without adjusting for deflation, value added in computer and electronics manufacturing is up 45 percent since 1997. With the adjustments, it's up 699 percent! What's happening here is that the Bureau of Economic Analysis has been trying to account for vast improvements in ... quality... Writes Houseman:

Such quality adjustment ... can make the numbers difficult to interpret..., figures that exclude this industry ... arguably provide a clearer picture of trends in manufacturing output.

As it stands now, those trends don't look impressive. U.S. manufacturing output has held up a lot better than manufacturing employment. But it definitely isn't booming.

Anon : October 19, 2016 at 12:17 PM

so when people criticize the big deflation in computer/electronics hardware using baseless measures like "if the computer has a processor twice as fast then it has fallen by half in price" they are wackos. but now the real growth that is artificially generated by this way (quality improvements) to keep inflation down is being criticized by Fox.

Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is.

anne -> anne... , October 19, 2016 at 03:37 PM
https://fred.stlouisfed.org/graph/?g=7OG5

January 15, 2016

Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

8.8% in 1992
to 11.4% in 1999
to 5.2% in 2014
to 6.1% in 2016.

likbez : , October 19, 2016 at 02:02 PM
Quality adjustments = number racket
jonny bakho : , October 19, 2016 at 03:28 PM
Auto mfg dropped by half post 2008. It is now back but has nowhere to grow. Urbanization makes cars less necessary and less desirable
There is not enough room to park them all now. People who earn MinWage cannot afford them
sanjait : , October 19, 2016 at 03:53 PM
Interesting point but many will overinterpret this. Leave in the expansion of computer and electronics manufacturing value add, and we have manufacturing output slightly expanding. Take it out entirely and we have manufacturing output basically steady.

The difference isn't telling an important macro story.

The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes.

The two big factors are the increased productivity of manufacturing globally and the declining share of manufactured products as a % of GDP globally. The smaller factor is the US's declining share of global manufacturing output, which itself is only fractionally attributable to trade policy.

This one graph tells most of the story:

http://1.bp.blogspot.com/-JEZXR9XK7vc/Tbr46ReInRI/AAAAAAAAPQ0/HlLXeVin_g0/s1600/worldmfg.jpg

I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change.

The only big question is how we adapt to the world as it actually is.

anne -> sanjait... , October 19, 2016 at 04:23 PM
Nicely done.

Also, I did not realize I was being presented with an argument about Chinese growth and sustainability. I foolishly stopped reading and I am entirely sorry. I have set down data and begun to answer the argument below on Links:

http://economistsview.typepad.com/economistsview/2016/10/links-for-10-19-16.html#comment-6a00d83451b33869e201bb09479d0e970d

October 19, 2016

anne -> sanjait... , October 19, 2016 at 04:26 PM
What is significant though is how China insists on holding to growth targets that are very likely not sustainable. Stability is a worthy aim but when growth is achieved through pushing bad private sector loans, that is ultimately the enemy of stability.

[ For these 39 past years China has been holding to and achieving growth targets that were repeatedly considered unsustainable so I prefer to figure out why Chinese growth targets have been and from my perspective are now sustainable. ]

the forgotten spirit of American protectionism : , -1
YES! Of course US manufacturing isn't booming - how could it? We have horrible economic policies that are focused almost entirely on destroying our industrial base. High overvalued currency, combined with 0% tariffs and we have no VAT, so foreign imports from countries with a VAT receive export subsidies but are not taxed on the US side. That we have even one factory left is amazing and testament to the quality of American workers. Under Clinton, we'll lose what's left. Trump is our only hope. If we don't get Trump's protectionism we will quickly become a country as poor as Armenia or Moldova - stripped of industry and wealth, dependent on remittances from our migrant workers in Asia and Europe.

[Oct 19, 2016] Why distrust data

Notable quotes:
"... **Opinions here are mine and should not to be attributed to anyone with whom I work.** ..."
Oct 19, 2016 | claudiasahm.postagon.com
48% of Trump supporters "completely distrust the economic data reported by the federal government" including unemployment, spending, jobs. https://t.co/5l9GhucBFI
- Justin Wolfers (@JustinWolfers) October 15, 2016

That tweet and the linked article got my attention (no trust of data by 25% of adults!) ... Still why reflect on this? ... so much else to get stuck on these days. First, I use official statistics in my work A LOT; second, I am always on the look out for new survey insights; and finally, I am a bit obsessed lately with models in which people are not acting on the same information. This level of distrust is troubling ... even though I doubt it's new or entirely about the data ... I want us to think about WHY.

I study consumer behavior as an economist, which in 2016 still means reading lots of research with dynamic optimization and Euler equations. This is a typical early morning ritual for me, that quiet time before my kids wake up when I can still imagine a world in which we know everything about everything, including ourselves, and we choose calmly and appropriately. BUT I balance out my openness to such models with a determination to also understand what people ACTUALLY do and think.

Nevertheless, I am picky about the survey insights that I absorb, pass on, and try to understand. My cognate in grad school was survey methodology and I still write survey questions in my research ... thus I understand how much responses can be manipulated, or even carelessly biased by poor methods and human nature. Also I want to know what people think, not what someone writing up the survey results wants me as a reader to think. (I'm not a fan of the tweet, by the way.) So I googled and found the survey's homepage , a Marketplace-Edison Research poll designed to measure economic anxiety. And, I found a description of the methods AND the full survey too (see page 30 for this question). It's not the micro data online, so I can't replicate the statistic in the tweet, but I could see that the "data trust" question was asked before voting intentions or political affiliation. I have learned from pollsters that asking about politics conjures up an identity that can be hard to shake in the rest of the survey. The main roadblock I see in interpreting the data distrust is this survey's short time series; it only began last fall as a quarterly survey. My hunch is that distrust of economic data is nothing new but I can't prove that here. Plus changes in attitudes are often more informative than a snapshot, since subjective questions are tricky to interpret. What does it mean to "trust data" anyway? Do you trust data?

To be clear, I am not justifying anyone's views, but I am also trying not to be judgmental. A key principle of surveying is not to make people feel bad or shameful about their views. Because, guess what, if you do, they are less likely to tell you what they think or did ... then you are fighting blind and may miss the chance to learn why we sometimes see the world differently. I am not in the 25% of adults who have "no trust at all" in economic statistics from the government. In fact, I am in a rare set of adults who spends more time on the Bureau of Economic Analysis ' website sorting through spending data than on Amazon adding to it. So what's up with all this distrust? I have a few hypotheses to take to the data.

Hypothesis 1: government economic data don't match people's life

Sometimes I think the Representative Agent is a frenemy of economists. (Oh, not the Twitter persona , he's great, but the concept.) How can a simplifying assumption ... a focus on the typical or aggregate household ... be an enemy in disguise? Well, sometimes it gives theoretical models the focus they need and other times, especially in empirical work, it glosses over important details. Details, also known as people . So maybe distrust of economic data comes from not seeing your life experience in the numbers that roll across the screen. National aggregates get a lot of attention, so maybe it is minorities that end of distrusting data more, data that doesn't tell their story as loudly.

Not so, at least in terms of data about the economy, minorities are more trusting than whites. Only 15 percent of African-American have no trust at all in economic data almost half the fraction of whites. And among Hispanics, only12 percent have complete distrust of data. With whites comprising over 70 percent of all adults, they are well represented in both aggregate statistics and the distrust of them. Of course, this is just one cut of the data and not seeing your life experience in the data may raise other issues (more below). Government agencies have made a push to improve regional statistics and even make neighborhood data more readily accessible and help improve local decision making. And of course, lots of household level surveys exist too. Another reason to take distrust (or even disinterest) in government economic data seriously is that the quality of the data we have depends on people's participation in our surveys. Response rates on numerous surveys have been falling and research suggests that non response could impact official statistics, making them a less accurate reflection of life experiences.

Hypothesis 2: distrust stems from people being "hurt" by data

One the first Friday of the every month, my Twitter feed is overflowing with chatter about the latest employment report from the Bureau of Labor Statistics . That makes me weird. I firmly believe that few people absorb the government statistics in the way that I and my fellow econos do. Why should they? People confront economic data when it affects them. One example I can think of is the cost-of-living adjustment, such as for Social Security benefits. That came to mind when I looked at data distrust by age.

no cost-of-living adjustment to benefits had led some seniors to "distrust" government data, like the CPI-W? Again, this hypothesis would be a lot better to test with a time series of data, comparing years with benefit increases and without. But feeling shortchanged by the data may be understandable given wide variation relative price changes , few of us exactly consume the representative basket. Alternatively, as risk aversion appears to rise with age, maybe so too does distrust? I wrote earlier that age is more than just a number , the impact of demographic change deserves more study.

Hypothesis 3: it's not the data, it is the way we use them ... the spin

I don't trust data, I trust people. And even then, trust but verify, right? Perfectly measured data (dream, dream), can be still be suspect. In fact, data can codify a lot of the biases and mistakes we have made together in the past. Maybe we should also be concerned for the people who "completely trust" government economic data? (Do read Cathy O'Neil's book on Big Data and algorithms.) Yet, I suspect the distrust in the survey is not about data construction (I've never seen a protest at the ever-interesting BEA advisory committee meetings ) ... or even about the government employees who construct the statistics in excruciating detail, and in line with international standards . I bet the distrust is more about how the numbers are interpreted and how they are used in policy making. Drawing conclusions from data is hard and reasonable disagreement is to be expected. As just one example, the seasonally-adjusted unemployment rate for African Americans was 8.3 in September , which is below its average of 10.8 percent over the past 20 years but is almost double the 4.4 percent unemployment rate of whites. Should we call that 8.3 (or 4.4, for that matter) victory or 'full employment'? And is the unemployment rate even the right statistic to assess? Relative to the past it may well be but the past can be an imperfect guide for the future. Every data point has its shortcoming, especially where there is no clear counterfactual or agreed upon target. My "moderate" growth could easily be your "weaker-than-expected" growth. And, of course, on top of honest disagreements about data, plenty of motivated reasoning is done with numbers. BUT when we start with the same data, there are at least some bounds on the disagreement. In contrast, when government data are wholesale rejected one quarter of adults, it's no surprise that we aren't living in the same world. And we stop trying to understand each other. I would be lost (and bored out of my mind) in my work on consumer behavior without data. You don't want me extrapolating from my tiny circle of experience ... and frankly no one should make decisions with that little information. We can learn a lot from the data, including these attitudinal surveys. And data adds accountability, including in how its collected. Even so, no one likes to feel manipulated or, worse, written off, especially with numbers.

Data can't solve problems but maybe it holds clues to a path forward ... to rebuild trust.

**Opinions here are mine and should not to be attributed to anyone with whom I work.**

Is it just not done to ask people why they distrust Government figures ?
2016-10-17, Stuart Gibson The same thing happened here in Italy with Silvio Berlusconi. He got a lot of reforms but a lot of people ignored facts.
2016-10-17, pietro No one 'trusts' data. We all have confidence intervals.
This combined with your point number 3 is the main issue I suspect.
Point number 1 is also in play, I think point 2 is essentially irrelevant, it might be true for some data, but not for data.
As far as economics goes, people intuitively understand that economics attempts to push the envelope and use data to draw conclusions that are not really addressable with the data. Economists don't even have agreement on how data is used - thinking mostly of macro. I see no reason to puzzle on this until you can get economists to all agree. I don't mean this as a challenge, just a description of the situation.
2016-10-17, Dan The headline unemployment number is obviously false, and this affects confidence in the other numbers.
There is no particular mystery about what is going on.
2016-10-17, Dave Chapman Because your aggregated statistics does not reflect the experience of the individuals:
"But several underlying factors also appear to have contributed to the closeness of the race. For starters, many Americans are economically worse off than they were a quarter-century ago. The median income of full-time male employees is lower than it was 42 years ago, and it is increasingly difficult for those with limited education to get a full-time job that pays decent wages.
Indeed, real (inflation-adjusted) wages at the bottom of the income distribution are roughly where they were 60 years ago. So it is no surprise that Trump finds a large, receptive audience when he says the state of the economy is rotten. But Trump is wrong both about the diagnosis and the prescription. The US economy as a whole has done well for the last six decades: GDP has increased nearly six-fold. But the fruits of that growth have gone to a relatively few at the top – people like Trump, owing partly to massive tax cuts that he would extend and deepen. "
https://www.project-syndicate.org/commentary/trump-candidacy-message-to-political-leaders-by-joseph-e--stiglitz-2016-10
2016-10-17, PSteele

[Oct 12, 2016] Interesting read on the history of the Nobel Prize in Economics and its ideological tendency

Notable quotes:
"... In the West, the priority accorded to the individualist self-regarding norms underlying the Washington Consensus created a nurturing environment for growth in corruption, inequality, and mistrust in governing elites – the unintended consequences of rational-choice, me-first premises. With the emergence in advanced economies of disorders previously associated with developing countries, Swedish political scientist Bo Rothstein has petitioned the Academy of Sciences (of which he is a member) to suspend the Nobel Prize in economics until such consequences are investigated." ..."
Oct 11, 2016 | economistsview.typepad.com

JohnH : October 11, 2016 at 06:58 AM

Interesting read on the history of the Nobel Prize in Economics and its ideological tendency:

Avner Offer: "a group of center-right economists captured the process of selecting prizewinners...The prize kingmaker was Stockholm University economist Assar Lindbeck, who had turned away from social democracy. During the 1970s and 1980s, Lindbeck intervened in Swedish elections, invoked microeconomic theory against social democracy, and warned that high taxation and full employment led to disaster. His interventions diverted attention from the grave policy error being made at the time: deregulation of credit, which led to a deep financial crisis in the 1990s and anticipated the global crisis that erupted in 2008.

Lindbeck's concerns were similar to those of the International Monetary Fund, the World Bank, and the US Treasury. These actors' insistence on privatization, deregulation, and liberalization of capital markets and trade – the so-called Washington Consensus – enriched business and financial elites, led to acute crises, and undermined emerging economies' growth.

In the West, the priority accorded to the individualist self-regarding norms underlying the Washington Consensus created a nurturing environment for growth in corruption, inequality, and mistrust in governing elites – the unintended consequences of rational-choice, me-first premises. With the emergence in advanced economies of disorders previously associated with developing countries, Swedish political scientist Bo Rothstein has petitioned the Academy of Sciences (of which he is a member) to suspend the Nobel Prize in economics until such consequences are investigated."

https://www.project-syndicate.org/commentary/economics-nobel-versus-social-democracy-by-avner-offer-2016-10

[Sep 14, 2016] Yes, Donald Trump is wrong about unemployment. But he's not the only one

Spirited defense of the establishment from one of financial oligarchy members. " The economy overall is doing just fine." Does this include QE? If the Fed is pouring billions of new money into the economy, how accurate is it to say that the economy is doing just fine?
Notable quotes:
"... "That was a number that was devised, statistically devised, to make politicians - and in particular, presidents - look good. And I wouldn't be getting the kind of massive crowds that I'm getting if the number was a real number." ..."
"... In the 1950s and 1960s, for instance, organized labor was fairly convinced that the government was purposely underestimating inflation and the cost of living to keep Social Security payments low and wages from rising. George Meany, the powerful head of the American Federation of Labor at the time, claimed that the Bureau of Labor Statistics, which compiled both employment and inflation numbers, had "become identified with an effort to freeze wages and is not longer a free agency of statistical research." ..."
"... Employment figures are sometimes seen as equally suspect. Jack Welch, the once-legendary former CEO of GE, blithely accused the Obama administration of manipulating the final employment report before the 2012 election to make the economic recovery look better than it was. "Unbelievable jobs numbers … these Chicago guys will do anything … can't debate so change numbers," he tweeted ..."
"... His arguments were later fleshed out by New York Post columnist John Crudele , who went on to charge the Census Bureau (which works with BLS to create the samples for the unemployment rate) with faking and fabricating the numbers to help Obama win reelection. ..."
"... The chairman of the Gallup organization, Jim Clifton, sees so many flaws with the way unemployment is measured that he has called the official rate a "Big Lie." In the Democratic presidential campaign, Bernie Sanders has also weighed in, saying the real unemployment rate is at best above 10 percent. ..."
"... What a useless article. The author explains precisely nothing about what the official statistics do and do not measure, what they miss and what they capture. ..."
"... I had the same impression as well. Notice he does not mention that the Gallop number is over 10% and is based on their polling data. ..."
"... But never mentioned that Reagan changed how Unemployment was figured in the early 80's. He included all people in the military service, as employed. Before that, they was counted neither way. He also intentionally left out that when Obama, had the unemployed numbers dropped one month before the election, from 8.1% to 7.8% --because it was believed that no one could be reelected if it was above 8%. ..."
"... U6 is 9.8% for March 2016. We still have 94 million unemployed and you want to say its 5 % what journalistic malpractice. ..."
"... Trump has emphasized that he is looking at the percent of the population that is participating in the workforce - and that this participation rate is currently at historical lows -- and Trump has been clear that his approach to paying down the national debt is based on getting the participation rates back to historical levels ..."
"... "The government can't lie about a hundred billion dollars of Social Security money stolen for the Clinton 'balanced budget', that would be a crime against the citizens, they would revolt. John, come one now. " ..."
"... I didn't say it first, Senator Ernest Hollings did, on the Senate floor. ..."
"... And here is how they did it: http://www.craigsteiner.us/articles/16 ..."
"... There is plenty of evidence the figures are cooked, folks, enough to fill a book: Atlas Shouts. Don't believe trash like this article claims. GDP, unemployment and inflation are all manipulated numbers, as Campbell's Law predicts. ..."
"... I can't believe the Washington Post prints propaganda like this. ..."
"... I do remember when the officially-announced unemployment rate stopped including those who were no longer looking for work. That *was* a significant shift, and there's no doubt it made politicians (Reagan, I think it was) look better; of course, no President since then has reversed it, as it would instantly make themselves look worse. ..."
"... Working one hour a week, at minimum wage, is 'employed', according to the government. No wonder unemployment is at 5%. ..."
"... Add in people who are working, but want and need full time jobs, add in people who have dropped out of the labor market and/or retired earlier than they wanted to, and unemployment is at least 10%. Ten seconds on Google will show you that. ..."
"... The writer should be sacked for taking a very serious issue and turning it into a piece of non-informative fluff. Bad mouthing Trump and Sanders is the same as endorsing Hilly. ..."
Apr 08, 2016 | The Washington Post
Yes, Donald Trump is wrong about unemployment. But he's not the only one. - The Washington Post

Listen to President Obama, and you'll hear that job growth is stronger than at any point in the past 20 years, and - as he said in his final State of the Union address - "anyone claiming that America's economy is in decline is peddling fiction."

Listen to Donald Trump and you'll hear something completely different. The billionaire Republican candidate for president told The Washington Post last week that the economy is one big Federal Reserve bubble waiting to burst, and that as for job growth, "we're not at 5 percent unemployment. We're at a number that's probably into the 20s if you look at the real number." Not only that, Trump said, but the numbers are juiced: "That was a number that was devised, statistically devised, to make politicians - and in particular, presidents - look good. And I wouldn't be getting the kind of massive crowds that I'm getting if the number was a real number."

It's easy enough to dismiss - as a phalanx of economists and analysts did - Trump's claims as yet another one of his all-too-frequent campaign lines that have little to do with reality. But with this one, at least, Trump is tapping into a deep and mostly overlooked well of popular suspicion of government numbers and a deeply held belief that what "we the people" are told about the economy by the government is lies, damn lies and statistics designed to benefit the elite at the expense of the working class. The stubborn persistence of these beliefs should be a reminder that just because the United States is doing well in general, that doesn't mean everyone in the country is. It's also a warning to experts and policymakers that in the real world, there is no "the economy," there are many, and generalizations have a way of glossing over some very rough patches.

Since the mid-20th century, when the U.S. government began keeping and compiling our modern suite of economic numbers, there has been constant skepticism of the reports, coming from different corners depending on economic trends and the broader political climate. In the 1950s and 1960s, for instance, organized labor was fairly convinced that the government was purposely underestimating inflation and the cost of living to keep Social Security payments low and wages from rising. George Meany, the powerful head of the American Federation of Labor at the time, claimed that the Bureau of Labor Statistics, which compiled both employment and inflation numbers, had "become identified with an effort to freeze wages and is not longer a free agency of statistical research."

Over the decades, those views hardened. Throughout the 1970s, as workers struggled with unemployment and stagflation, the government continually tweaked its formulas for measuring prices. By and large, these changes and new formulas were designed to make the figures more accurate in a fast-changing world. But for those who were already convinced the government was trying to paint a deliberately false picture, the tweaks and innovations were interpreted as a devious way to avoid spending money to help the ailing middle class, not trying to measure what was actually happening to design policies to help address it. The commissioner of BLS at the time, Janet Norwood, dismissed those concerns in testimony to Congress in the late 1970s, saying that when people don't get the number they want, "they feel there must be something wrong with the indicator itself."

Employment figures are sometimes seen as equally suspect. Jack Welch, the once-legendary former CEO of GE, blithely accused the Obama administration of manipulating the final employment report before the 2012 election to make the economic recovery look better than it was. "Unbelievable jobs numbers … these Chicago guys will do anything … can't debate so change numbers," he tweeted after that last October report showed better-than-expected job growth and lower-than-anticipated unemployment rate. His arguments were later fleshed out by New York Post columnist John Crudele, who went on to charge the Census Bureau (which works with BLS to create the samples for the unemployment rate) with faking and fabricating the numbers to help Obama win reelection.

These views are not fringe. Type the search terms "inflation is false" into Google, and you will get reams of articles and analysis from mainstream outlets and voices, including investment guru Bill Gross (who referred to inflation numbers as a "haute con job"). Similar results pop up with the terms "real unemployment rate," and given how many ways there are to count employment, there are legitimate issues with the headline number.

The cohort that responds to Trump reads those numbers in a starkly different light from the cohort laughing at him for it. Whenever the unemployment rate comes out showing improvement and hiring, those who are experiencing dwindling wages and shrinking opportunities might see a meticulously constructed web of lies meant to paint a positive picture so that the plight of tens of millions who have dropped out of the workforce can be ignored. The chairman of the Gallup organization, Jim Clifton, sees so many flaws with the way unemployment is measured that he has called the official rate a "Big Lie." In the Democratic presidential campaign, Bernie Sanders has also weighed in, saying the real unemployment rate is at best above 10 percent.

Beneath the anger and the distrust - which extend to a booming stock market that helps the wealthy and banks flush with profit even after the financial crisis - there lies a very real problem with how economists, the media and policymakers discuss economics. No, the bureaucrats in the Labor and Commerce departments who compile these numbers aren't a cabal engaged in a cover-up. And no, the Fed is not an Illuminati conspiracy. But the idea that a few simple big numbers that are at best averages to describe a large system we call "the economy" can adequately capture the stories of 320 million people is a fiction, one that we tell ourselves regularly, and which millions of people know to be false to their own experience.

It may be true that there is a national unemployment rate measured at 5 percent. But it is also true that for white men without a college degree, or white men who had worked factory jobs until the mid-2000s with no more than a high school education, the unemployment reality is much worse (though it's even worse for black and Hispanic men, who don't seem to be responding by flocking to Trump in large numbers). Even when those with these skill sets can get a job, the pay is woefully below a living wage. Jobs that don't pay well still count, in the stats, as jobs. Telling people who are barely getting by that the economy is just fine must appear much more than insensitive. It is insulting, and it feels like a denial of what they are experiencing.

The chords Trump strikes when he makes these claims, therefore, should be taken more seriously than the claims themselves. We need to be much more diligent in understanding what our national numbers do and do not tell us, and how much they obscure. In trying to hang our sense of what's what on a few big numbers, we risk glossing over the tens of millions whose lives don't fit those numbers and don't fit the story. "The economy" may be doing just fine, but that doesn't mean that everyone is. Inflation might be low, but millions can be struggling to meet basic costs just the same.

So yes, Trump is wrong, and he's the culmination of decades of paranoia and distrust of government reports. The economy overall is doing just fine. But people are still struggling. We don't have to share the paranoia or buy into the conspiratorial narrative to acknowledge that. A great nation, the one Trump promises to restore, can embrace more than one story, and can afford to speak to those left out of our rosy national numbers along with those whose experience reflect them.

the3sattlers, 4/8/2016 1:05 PM EDT

" The economy overall is doing just fine." Does this include QE? If the Fed is pouring billions of new money into the economy, how accurate is it to say that the economy is doing just fine?

james_harrigan, 4/8/2016 10:14 AM EDT

What a useless article. The author explains precisely nothing about what the official statistics do and do not measure, what they miss and what they capture.

Derbigdog, 4/8/2016 11:40 AM EDT

I had the same impression as well. Notice he does not mention that the Gallop number is over 10% and is based on their polling data.

captdon1, 4/8/2016 5:51 AM EDT

Not reported by WP
The first two years of Obama's presidency Democrats controlled the house and Senate. The second two years, Republicans controlled the Senate. The last two years of Obama's term, the Republicans controlled house and Senate. During this six years the national debt increase $10 TRILLION and the Government collected $9 TRILLION in taxes and borrowed $10 TRILLION. ($19 Trillion In Six Years!!!) (Where did our lovely politicians spend this enormous amount of money??? (Republicans and Democrats!)

reussere, 4/8/2016 1:43 AM EDT

Reading the comments below it strikes me again and again how far out of whack most people are with reality. It's absolutely true that using a single number for the employment rate reflects the overall average of the economy certainly doesn't measure how every person is doing, anymore than an average global temperature doesn't measure any local temperatures.

One thing not emphasized in the article is that there is a number of different statistics. The 5% figure refers to the U-3 statistic. Nearly all of the rest of the employment statistics are higher, some considerably so because they include different groups of people. But when you compare U-3 from different years, you are comparing apples and apples. The rest of the numbers very closely track with U-3. That is when U-3 goes up and down, U-6 go up and down pretty much in lockstep.

It is unfortunate that subpopulations of Americans are doing far worse (and some doing far better) than average. But that is the nature of averages after all. It is simply impossible for a single number (or even a group of a dozen different employment measurements) to accurately reflect a complex reality.

Smoothcountryside, 4/8/2016 12:04 PM EDT

The alternative measures of labor underutilization are defined as U-1 through U-6 with U-6 being the broadest measure and probably the closes to the "true" level of unemployment. Otherwise, all the rest of your commentary is correct.

southernbaked, 4/7/2016 11:02 PM EDT

Because this highly educated writer is totally bias, he left out some key parts, I personally lived though. He referred back to the late 70's twice. But never mentioned that Reagan changed how Unemployment was figured in the early 80's. He included all people in the military service, as employed. Before that, they was counted neither way. He also intentionally left out that when Obama, had the unemployed numbers dropped one month before the election, from 8.1% to 7.8% --because it was believed that no one could be reelected if it was above 8%.

Then after he was sworn in--- in January, they had to readjust the numbers back up. They blamed it on one employees mistakes-- PS. no one was fired or disciplined for fudging. Bottom line is, for every 1.8 manufacturing job, there are 2 government jobs, that is disaster. Because this writer is to young to have lived in America when it was great. When for every 1 government job, you had 3 manufacturing jobs.

I will enlighten him. I joined the workforce -- With no higher education -- when you merely walked down the road, and picked out a job. Because jobs hang on trees like apples. By 35 I COMPLETELY owned my first 3 bedroom brick house, and the 2 newer cars parked in the driveway. Anyone care to try that now ??

As for all this talk about education-- I have a bit of knowledge about that subject-- because I paid in full to send all under my roof through it. Without one dime of aide from anyone. The above writer is proof-- you can be heavily educated, and DEAD WRONG. There is nothing good about this economy. Signed, UN-affiliated to either corrupted party

Bluhorizons, 4/7/2016 9:43 PM EDT

"we're not at 5 percent unemployment. We're at a number that's probably into the 20s if you look at the real number." Trump is correct. The unemployment data is contrived from data about people receiving unemployment compensation but the people who's unemployment has ended and people who have just given up is invisible.

"It may be true that there is a national unemployment rate measured at 5 percent. But it is also true that for white men without a college degree, or white men who had worked factory jobs until the mid-2000s with no more than a high school education, the unemployment reality is much worse "

The author goes on and on about the legitimate distrust of government unemployment data and then tells us Trump is wrong. But the article convinces us Trump is right! So, this article its not really about the legitimate distrust of government data is is about the author's not liking Trump. Typical New Left bs

Aushax, 4/7/2016 8:24 PM EDT

Last jobs report before the 2012 election the number unusually dropped then was readjusted up after the election. Coincidentally?

George Mason, 4/7/2016 8:15 PM EDT

U6 is 9.8% for March 2016. We still have 94 million unemployed and you want to say its 5 % what journalistic malpractice.

F mackey, 4/7/2016 7:57 PM EDT

hey reporter,Todays WSJ, More than 40% of the student borrowers aren't making payments? WHY? easy,they owe big $ money$ & cant get a job or a well paying job to pay back the loans,hey reporter,i'd send you $10 bucks to buy a clue,but you'd probably get lost going to the store,what a %@%@%@,another reporter,who doesn't have a clue on whats going on,jmo

SimpleCountryActuary, 4/7/2016 7:57 PM EDT

This reporter is a Hillary tool. Even the Los Angeles Times on March 6th had to admit:

"Trump is partly right in saying that trade has cost the U.S. economy jobs and held down wages. He may also be correct - to a degree - in saying that low-skilled immigrants have depressed salaries for certain jobs or industries..."

If this is the quality of reporting the WaPo is going to provide, namely even worse than the Los Angeles Times, then Bezos had better fire the editorial staff and buy a new one.

Clyde4, 4/7/2016 7:34 PM EDT [Edited]

This article dismissing Trump is exactly what is wrong with journalism today - all about creating a false reality for people instead of investigating and reporting

Trump has emphasized that he is looking at the percent of the population that is participating in the workforce - and that this participation rate is currently at historical lows -- and Trump has been clear that his approach to paying down the national debt is based on getting the participation rates back to historical levels

The author completely ignored the big elephant in the room -- that is irresponsible journalism

The author may want to look into how the unemployment rate shot up in 2008 when the government extended benefits and then the unemployment rate plummeted again when unemployment benefits were decrease (around 2011, I believe) - if I were the author I would do a little research into whether the unemployment rate correlates with how much is paid out in benefits or with unemployment determined through some other approach (like surveys

dangerbird1225, 4/7/2016 7:25 PM EDT

Bunch of crap. If you stop counting those that stop looking for a job, your numbers are wrong. Period. Why didn't this apologist for statistics mention that?

watchkeptoverthewatcher, 4/7/2016 6:27 PM EDT

Ya with a labor participation rate of 63%

http://data.bls.gov/timeseries/LNS11300000

AtlasRocked, 4/7/2016 5:12 PM EDT

"The government can't lie about a hundred billion dollars of Social Security money stolen for the Clinton 'balanced budget', that would be a crime against the citizens, they would revolt. John, come one now. "

I didn't say it first, Senator Ernest Hollings did, on the Senate floor.

"Both Democrats and Republicans are all running this year and next and saying surplus, surplus. Look what we have done. It is false. The actual figures show that from the beginning of the fiscal year until now we had to borrow $127,800,000,000." - Senate speech, Democratic Senator Ernest Hollings, October 28, 1999

http://www.c-span.org/video/?c3319676 at 5:30

And here is how they did it: http://www.craigsteiner.us/articles/16

rgengel, 4/7/2016 5:03 PM EDT

Go to New Orleans Chicago Atlanta Los Angeles Detroit stop anybody on the street and ask if unemployment is 5% and that there is a 95% chance a guy can get a job.

Then you will have a statistic reference point. Its not a Democratic or republican issue because both of them have manipulated the system for so long its meaningless. Go Trump 2016 and get this crap sorted out with common sense plain English

AtlasRocked, 4/7/2016 4:37 PM EDT

There is plenty of evidence the figures are cooked, folks, enough to fill a book: Atlas Shouts. Don't believe trash like this article claims. GDP, unemployment and inflation are all manipulated numbers, as Campbell's Law predicts.

I can't believe the Washington Post prints propaganda like this.

TimberDave, 4/7/2016 2:23 PM EDT

I do remember when the officially-announced unemployment rate stopped including those who were no longer looking for work. That *was* a significant shift, and there's no doubt it made politicians (Reagan, I think it was) look better; of course, no President since then has reversed it, as it would instantly make themselves look worse.

astroboy_2000, 4/7/2016 1:28 PM EDT

This would be a much more intelligent article if the writer actually said what the government considers as 'employed'.

Working one hour a week, at minimum wage, is 'employed', according to the government. No wonder unemployment is at 5%.

Add in people who are working, but want and need full time jobs, add in people who have dropped out of the labor market and/or retired earlier than they wanted to, and unemployment is at least 10%. Ten seconds on Google will show you that.

The writer should be sacked for taking a very serious issue and turning it into a piece of non-informative fluff. Bad mouthing Trump and Sanders is the same as endorsing Hilly.

Manchester0913, 4/7/2016 2:12 PM EDT

The number you're referencing is captured under U6. However, U3 is the traditional measure.

Son House, 4/7/2016 2:24 PM EDT

The government doesn't claim that working one hour a week is employed. Google U 3 unemployment. Then google U 6 unemployment. You can be enlightened.

Liz in AL, 4/7/2016 7:21 PM EDT

I've found this compilation of all 6 of the "U-rates" very useful. It encompasses the most restrictive (and thus smallest) U-1 rate, though the most expansive U-6. It provides brief descriptions of what gets counted for each rate, and (at least for more recent years) provides the ability to compare at the monthly level of detail. U6 Unemployment Rate Portal Seven

[Mar 16, 2016] GDP never measures economic efficiency of the country

Notable quotes:
"... Energy intensity of the World economy has decreased from 1970 to 2014. This is probably due to deindustrialization of the Western countries. Aka "growth of service economy." ..."
peakoilbarrel.com

Dennis Coyne , 03/15/2016 at 6:56 pm

Energy intensity of the World economy has decreased from 1970 to 2014. Energy intensity is energy consumed by the economy divided by the real GDP produced.
In 1970 314 tonnes of oil equivalent(toe) were needed for each million 2005$ of GDP produced and by 2014 energy intensity had fallen to 225 toe per million 2005$ of GDP.

SRSrocco , 03/15/2016 at 9:46 pm
Dennis,

While you produce some fine charts, I hope you don't believe GDP and energy consumption will continue higher indefinitely. Also I hope you realize GDP figures are overstated due to understated inflation rates.

For example the policy of substitution says if top sirloin beef is too expensive, then we switch to eating ground chuck. If chuck becomes too high, then its plain ole ground beef. Once ground beef becomes too costly, then we switch to ground rat.

Lastly, why don't you add the debt into your equations and see what the trend lines look like.

Steve

Dennis Coyne , 03/16/2016 at 8:16 am
Hi Steve,

No inflation is not understated, the Shadowstats stuff is not believable. If you believe the Shadowstats CPI adjustment and us those numbers to find the real oil price from 1970 to 2012 and do the same using the BLS CPI we get the following chart. Does the Shadowstats estimate for the real oil price in 1980 look reasonable?

You cannot be serious. :-)

likbez , 03/16/2016 at 12:01 am
Dennis,

Energy intensity of the World economy has decreased from 1970 to 2014. This is probably due to deindustrialization of the Western countries. Aka "growth of service economy."

Ulenspiegel , 03/16/2016 at 2:26 am
"This is probably due to deindustrialization of the Western countries. Aka "growth of service economy.""

The GLOBAL industrial production did not decrease, therefore, your argument does not make sense. It is only useful in a national e.g. US-centric discussion.

Or if you actually check data for developed countries with quite different share of industry to their GDP you do not see the correlation of low share of industry = low energy intensity!

Dennis Coyne , 03/16/2016 at 8:20 am
Hi likbez,

As Ulenspiegel says correctly, for the World your point does not apply. The World Energy intensity has fallen as I have used Global GDP and Global energy consumption.

As long as we don't do a lot of interplanetary trade, this estimate will be close enough. :-)

likbez , 03/16/2016 at 7:21 pm
Ulenspiegel ,

GDP does not reflect only production (compare with GNI). It is completely different metric which takes into account the "value" produced by financial services, prostitution (yes in some countries income from prostitution is included into GDP; GB (3-4% or ~£10 billion) and Italy (2% of national GDP) are two examples: https://www.rt.com/news/161140-italy-drugs-prostitution-economy/ ) and like.

GDP is defined as the total value of final goods and services produced within a territory during a specified period (or, if not specified, annually, so that "the UK GDP" is the UK's annual product). GDP differs from gross national product (GNP) in excluding inter-country income transfers, in effect attributing to a territory the product generated within it rather than the incomes received in it.

So the country with zero production in which people just wash dirty linen for each for remuneration or trade on stock market has a positive GDP. Other classic example: if somebody marries his secretary and she stays home to look after children GDP drops.

GDP never measures economic efficiency of the country; it measures the level of economic activity. Healthcare is a classic example. The USA spends 20% to subsidize maladaptive behavior between producers and consumers in the medical food chain. Another example is sales of high sugar context flavored water called Coca Cola and Pepsi Cola. It is negatively affect children health leading to obesity and early diabetes, but it is positively reflected in GDP. And then medical expenses for treating diabetes further increase GDP. That brings us to the problem of conspicuous consumption or consumption for the sake of status. Which in the USA is a real national epidemics (Keeping up with Jones). Many other components of GDP (especially FIRE - finance, insurance and real estate) are partially anti-social and their fast growth is a sign of the problems inherent in neoliberal societies rather then social progress of the particular country. This is especially true for the USA, which in this sense is the most wicked (aka neoliberal) country in the world.

This voodoo cult of GDP that dominates US economic discourse since 1991 is just a sign of the level of degradation of economic science under neoliberalism.

See http://www.bloomberg.com/news/articles/2014-05-23/counting-drugs-and-prostitution-in-gdp-makes-a-mockery-of-budget-rules

[Dec 17, 2015] GDP Forecasts Have Consistently Been Too High

cepr.net

December 17, 2015

GDP Forecasts Have Consistently Been Too High

In an article * on the Federal Reserve Board's decision to raise interest rates, the Washington Post referred to the 2.4 percent median growth forecast of the Fed's Open Market Committee. For example, last December their median forecast for growth in 2015 was 2.8 percent. It now appears growth will be around 2.2 percent for the year. The Fed was not out of line with other forecasts. For example the Congressional Budget Office, which quite explicitly tries to be near the middle of major forecasts, forecast 2.9 percent growth for 2015.

* https://www.washingtonpost.com/news/wonk/wp/2015/12/16/federal-reserve-launches-campaign-to-raise-interest-rates-and-return-u-s-economy-to-normal/

-- Dean Baker

[Dec 08, 2015] GDP often is not a good measure of a society's wellbeing

Notable quotes:
"... The international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired and on which Deaton served, had earlier emphasized that GDP often is not a good measure of a society's wellbeing. These new data on white Americans' declining health status confirms this conclusion. The world's quintessential middle-class society is on the way to becoming its first former middle-class society. ..."
Project Syndicate

When Inequality Kills by Joseph E. Stiglitz - Project Syndicate

The basic perquisites of a middle-class life were increasingly beyond the reach of a growing share of Americans. The Great Recession had shown their vulnerability. Those who had invested in the stock market saw much of their wealth wiped out; those who had put their money in safe government bonds saw retirement income diminish to near zero, as the Fed relentlessly drove down both short- and long-term interest rates. With college tuition soaring, the only way their children could get the education that would provide a modicum of hope was to borrow; but, with education loans virtually never dischargeable, student debt seemed even worse than other forms of debt.

... ... ...

The international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired and on which Deaton served, had earlier emphasized that GDP often is not a good measure of a society's wellbeing. These new data on white Americans' declining health status confirms this conclusion. The world's quintessential middle-class society is on the way to becoming its first former middle-class society.

[Dec 05, 2015] The Real Stuff Economy Is Falling Apart Zero Hedge

www.zerohedge.com
What is the service sector? Mostly software, restaurants, banks, construction companies, retailers, doctors and hospitals.

Can an economy thrive if it doesn't make or move physical things? Intuitively the answer is no, because most of the services mentioned above either maintain the status quo (like healthcare and restaurants) or (like houses) consume rather than build capital. As for banking, in its current incarnation it's almost certainly a net negative, draining capital from productive uses and funneling it to trading desks and political action committees.

The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting. As with so many of today's monetary and fiscal experiments, no one knows when definitive results will come in. But the data so far aren't encouraging.


Noplebian

History shows when the fiat currency system reaches it's end cycle, there is always a call for war. This one however, will wipe out billions!

http://beforeitsnews.com/conspiracy-theories/2015/12/road-to-ww3-time-to...

Eyeroller

"The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting."

Should read:

"The US, in short, is engaged in an experiment to see how long an economy can function with services growing and manufacturing contracting while the MSM tells us how awesome everything is."

toady

Another "oldy-but-a-goody". This "transition from a manufacturing to a services economy" has been going on since before NAFTA, and it's now almost finished we'll finally get to see what the Reagan-Bush1 voodoo economics hath wrought.

Good times!

Amish Hacker

In politics, "definitive results" do not exist. Causes and effects can be, and are, argued and denied ad infinitum , in spite of overwhelming evidence to the contrary. For example, Cheney & the neocons still claim they did the right thing in Iraq & Afghanistan, and proudly boast that they would do the same thing again today. Keynesian economists will argue that they made no mistakes over the last 8 years, we just didn't apply their prescriptions aggressively enough. And so on.

In politics, confirmation bias is the leading cause of blindness.

[Dec 04, 2015] The alleged 'decoupling' of GDP from energy

peakoilbarrel.com
Don Stewart, 12/01/2015 at 12:25 pm

Dear Ron and Others
Relative to the alleged 'decoupling' of GDP from energy. Please see:
http://www.pnas.org/content/112/20/6271.full
The material footprint of nations

The apparent decoupling turns out to be mostly a mirage. It is true that rich countries outsource some of the more energy and materials intensive operations to poor countries, but if you count back from consumption, the rich countries are essentially as energy and materials dependent as they ever were. For fossil fuels, the coefficient is 90 percent…a 90 point increase in fossil fuels is needed for a 100 point increase in GDP.

Part of what happens can perhaps be understood by thinking about beef imports. If England imports beef from Africa, then there is a great deal of materials and energy consumed in Africa to produce the beef. Only a small percentage of the resource used gets exported to England. If you start with the steak in England and look back at the supply chain, you find that the consumption of the pound of steak in England was responsible for the consumption of lots of energy and materials in Africa.

I think that 'decoupling' is not the same as energy efficiency. Suppose, for example, that we look at the efficiency with which firewood is burned in an ordinary house. Back in the olden days, the wood was burned in a fireplace, which is inefficient. Then Franklin invented the Franklin stove and heating became more efficient in terms of calories of usable heat per cord of wood. But the stove wasn't necessarily any less or more expensive than the fireplace. Since GDP essentially measures cash outlay, the increased efficiency doesn't necessary have any direct impact on GDP.

Recently, we have begun to adjust GDP for 'hedonic factors'. Suppose, for example, that one has an old radio with lots of static and poor sound quality. Then one buys a new radio with better sound quality. But suppose that the price you pay for the new radio is the same as it was for the old radio. GDP would be the same for both radios. But, recently, the US government has begun to make adjustments for the quality of the sound.

Whether the hedonic adjustments make any sense depends on what sort of question you are trying to answer. If you are asking 'will my radio company be able to pay our debts?', then all that matters is your actual income. The fact that you had to improve the sound quality in order to remain competitive is an ancillary fact. If you are not getting any more income, then paying your debts doesn't get any easier.

Don Stewart

Fred Magyar, 12/01/2015 at 1:41 pm
Why the GDP Is Not An Good Measure of A Nation's Well Being
https://goo.gl/xKKHZx

In their book, The Spirit Level: Why Greater Equality Makes Societies Stronger (link is external), Professors Richard Wilkinson and Kate Pickett, present data taken from multiple credible sources that show the gap between the poor and rich the greatest in the U.S. among all developed nations; child well being is the worst in the U.S. among all developed nations; and levels of trust among people in the U.S. among the worst of all developed nations.

The Subcommittee on International Organizations, Human Rights and Oversight of the U.S. Congress' House Committee on Foreign Affairs stated, after examining the issue of the U.S.'s declining image abroad, "the decline in international approval of U.S. leadership is caused largely by opposition to the invasion of Iraq, U.S. support for dictators, and practices such as torture and rendition. They testified that this opposition is strengthened by the perception that our decisions are made unilaterally and without constraint by international law or standards-and that our rhetoric about democracy and human rights is hypocritical."

The US ranks 114th out of 125 countries in international peace and security.

http://www.goodcountry.org/

To those in power who believe that only strength counts, and that people are always self-interested, I say "We tried it your way, and it didn't work. Let's try something new."

Simon Anholt

Ves, 12/02/2015 at 8:49 am
Hi Dennis,
I see up there little discussion about GDP and what it means.
Let's say:
Country A: use washable rags to clean kitchen counter-tops.
Country B: use paper towels to clean same kitchen counter-tops.

As result they both have clean kitchen counter-tops but Country B has higher GDP due to use of paper towels.

So GDP means absolutely nothing or anything depending what you want to present.

GDP is like looking at the sunset and your mind is thinking that you are actually looking at the sunset. But it takes 8 minutes for sunlight to reach the earth and that sun that we think we are looking at is already gone. (Since this site is loaded with scientist they can correct me with if that 8 minutes is more or less correct )

Anyway, mostly GDP is used by some "smart" people we call economist to tell us some "story". For example they tell us: "You see sunny boy that GDP is big number this year, bigger than one from last year. So you should be content and happy. Not convinced? Don't worry we will "super size" that GDP for you next year. Isn't your tummy already feeling full and content?"

This kind of storytelling is usually printed as financial news about GDP. Meaningless if you ask me from the point of average citizen.

I have to go now because I have whole day of work planned for me by this economy and I will catch you later tonight to see your thoughts. Another thing that crosses my mind is how come that we work more or at least the same now when oil is at $40 compared to when oil was $100 last year? Wasn't the official meme that use of oil as our biggest invention beside sliced bread, made our life easier so we actually work less and spent more time with family & friends and doing odd staff like canoeing How come I don't feel that I did not get 60% discount due to price of oil in terms of work load from the last year Who is pocketing that 60%
How about employed folks who bought kiwi Leaf? Do they work less and have more time with family and friends or they are paddling in the same hamster wheel we call economy?

Dennis Coyne, 12/02/2015 at 12:39 pm
Hi Ves,

I agree GDP is a poor measure of well being. Another example would be World War 2 where a lot of output was created to destroy stuff (tanks, bombs, planes, ships, guns, etc), then stuff was destroyed, cities and other infrastructure in Europe and Asia and then it was rebuilt leading to a lot of economic growth. Were we better off? Probably not, especially the millions who died and their families.

GDP has many problems, beyond paper towels and paper plates and other wasteful (in my opinion) uses of resources.

I did a different chart using the human development index (HDI) from 1980 to 2013 which shows World primary energy use per unit of HDI(a dimensionless number) has been increasing roughly linearly, not decreasing as is the case for energy intensity.

The HDI is also far from perfect as a measure of human welfare, but probably better than GDP.

[Dec 03, 2015] GDP and energy

Notable quotes:
"... A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. ..."
"... GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass. ..."
"... I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling. ..."
"... Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP. ..."
peakoilbarrel.com

VK, 11/30/2015 at 4:10 pm

So much for decoupling…

http://www.theguardian.com/commentisfree/2015/nov/24/consume-conserve-economic-growth-sustainability

"A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. It points out that governments and economists have measured our impacts in a way that seems irrational.

Here's how the false accounting works. It takes the raw materials we extract in our own countries, adds them to our imports of stuff from other countries, then subtracts our exports, to end up with something called "domestic material consumption". But by measuring only the products shifted from one nation to another, rather than the raw materials needed to create those products, it greatly underestimates the total use of resources by the rich nations.

For instance, if ores are mined and processed at home, these raw materials, as well as the machinery and infrastructure used to make finished metal, are included in the domestic material consumption accounts. But if we buy a metal product from abroad, only the weight of the metal is counted. So as mining and manufacturing shift from countries such as the UK and the US to countries like China and India, the rich nations appear to be using fewer resources. A more rational measure, called the material footprint, includes all the raw materials an economy uses, wherever they happen to be extracted. When these are taken into account, the apparent improvements in efficiency disappear."

BC, 11/30/2015 at 4:37 pm
VK, precisely. The US has been in a net-exergetic deficit in debt-money-based terms per capita since the mid- to late 1960s to mid-1970s to mid-1980s, having compensated by increasing to an unprecedented level to date debt to wages and GDP.

Moreover, the BEA-determined industry requirement costs as the basis of estimated gross and real value-added output (what we refer to as GDP), adjusted for our net-exergetic deficit in debt-money terms, the US has been in recession/"slow-motion depression" since Q4 2000-Q1 2001, and the world since 2005-08.

Senior BEA, BLS, Commerce, White House economic advisors, CIA, NSA, military intelligence, and Pentagon planners all know this in varying degrees as it relates to their imperatives and prerogatives.

However, the mass public and most political leaders are utterly unaware, or in the case of the latter, have no incentive to know or to share with the public what they know because they will not be able to raise a nickel thereafter for reelection if they do share.

And so it goes . . .

Ron Patterson, 11/30/2015 at 5:02 pm
Thanks VK, I suspected as much.

He told me that he and his colleagues had conducted a similar analysis, in this case of the UK's energy use and greenhouse gas emissions, "and we find a similar pattern". One of his papers reveals that while the UK's carbon dioxide emissions officially fell by 194m tonnes between 1990 and 2012, this apparent reduction is more than cancelled out by the CO2 we commission through buying stuff from abroad. This rose by 280m tonnes in the same period.

GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass.

Jimmy, 12/02/2015 at 11:38 am
I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling.

Only a divergence due to more units of GDP produced per unit of energy consumed. When somebody can create units of GDP and consume no energy at all then we will have decoupling. Coupling and decoupling are all or none terms/states of being. You're either coupled or your decoupled. Any arguments to the contrary are pedantic and uninformed.

Ron Patterson, 12/02/2015 at 11:58 am
Thanks Jimmy, with all the Pollyannas on this site I need all the support I can get.
Dennis Coyne, 12/02/2015 at 1:56 pm
Hi Jimmy,

Look up the meaning of decouple it is reduce or eliminate the effect of one part of a circuit on another. In this context the appropriate meaning is reduce.

Doesn't really matter, nobody thinks that energy inputs can be eliminated, that would be absurd.

Dennis Coyne, 12/01/2015 at 8:07 am
Hi VK,

The problem is solved by looking at World output and World primary energy use.

Energy intensity for the World has improved, though during the Chinese rapid expansion from 2000-2010, the progress stopped for a decade as energy was not used very efficiently in China over that period, since 2010 the progress has continued. Energy intensity is energy per unit of GDP produced.
Chart below for 1965 to 2014 using World Bank(from FRED), UN, and BP data.

Left vertical axis is in metric tons of oil equivalent (toe) per millions of 2005$ of real GDP (M2005$).

Javier, 12/01/2015 at 9:23 am
Hi Dennis,

That graph shows several things mixed that have co-evolved independently, so not many conclusions can be extracted.

We don't know the contribution of each to that graph (at least I don't), but given the magnitudes involved I would guess that the real efficiency improvement is small. This is supported by how the graph reacts to recessions (not the Chinese expansion as you claim), indicating that the main factor is economic, not energetic.

Now we know that debt has a limit, and once debt saturation is reached the economy, and specially the tertiary sector would be very badly affected. If that happens we might very well see that graph turn around and energy intensity increase.

Dennis Coyne, 12/01/2015 at 1:56 pm
Hi Javier,

GDP only increases if your money is spent on goods or services. It is output of goods and services. On a World level the debts and liabilities balance, so if I save my money and lend it to you, I spend less and you spend more. You should review your economics. At a World level, the debt has no effect, assuming we don't have ant interstellar debts. There was a World recession from 2000 to 2010? I hadn't heard about that.

Yes services might have increased, if that is what people want to spend their money on, then the share of services in the economy will increase. I don't have figures on the "non-service economy". Part of this increase reflects women entering the labor pool in greater numbers, some of the work cleaning the house or taking care of the garden are now part of GDP when before they were taken care of by the family. We may not have good data for the World on this effect.

Javier, 12/01/2015 at 2:21 pm
Dennis,

I think I do understand. If I go to the bank and ask for a 200,000 $ mortgage loan, that money is created from thin air, and when I go and pay for the house, GDP jumps by 200,000 $, so yes, increasing debt increases GDP as soon as the debt money is used. Since no oil was used to create the money, it counts as a reduction in oil intensity. Of course if I return the money to the bank the operation is reversed (they do keep the interests), but since on average debt is always expanding, except during crisis periods, oil intensity is always decreasing, except during crisis periods. Debt that is used to buy stocks or companies or to extract oil from the ground is the same.

Dennis Coyne, 12/01/2015 at 3:16 pm
Hi Javier,

The point is that you purchased a $200,000 house. That house was not created from thin air, not my house anyway. :)

It is not the debt, it is building a house that creates the GDP.

Rune Likvern, 12/01/2015 at 3:26 pm
So what comes first; The debt that allows for building the house, or first building the house and then creating the debt?
Dennis Coyne , 12/01/2015 at 3:47 pm
Hi Rune,

In most cases the debt will come first if the home is purchased with financing. It is possible to build a home using savings, in which case there would be no debt.

So the debt is not a requirement for GDP, just creating a new house, car, or other good or service.

Would GDP be lower if there were no debt, of course!

As long as debt grows at reasonable rates (similar to GDP growth at full employment), when there is a recession debt will initially grow faster than GDP and then will slow down until GDP growth catches up and surpasses the debt rate of growth.

Dennis Coyne, 12/01/2015 at 4:25 pm
Hi Rune,

I am curious. Do you think what Javier is saying is correct? Energy intensity has decreased because Debt to GDP ratios have increased? I am pretty sure Javier is not right, but you are very knowledgeable about economics. Perhaps you can explain it to me, if I am mistaken.

If all GDP was created with no debt (all of it was based on savings and income with no new borrowing) in year 1. And in year 2 50% of income was borrowed from banks to create the same level of GDP, would that mean in year 2 we have 150% of the first year because of the debt?

I don't think so, but I may be missing something.

Nick G, 12/02/2015 at 2:14 pm
Dennis,

Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP.

Let's say there two houses on an island, and 2 residents, 1 in each house. One owns both houses, the other rents from the 1st. Then the renter borrows from the owner, and buys the house he/she lives in. Their monthly payment was rent, now it's a mortgage payment. The renter is now leveraged.

But, has anything "real" changed? No. Same amount of wealth, same amount of income, with different kinds of ownership, and different obligations (the renter now has to fix his own roof!).

Dennis Coyne, 12/01/2015 at 4:16 pm
Hi Javier,

You should read up on national income accounting. Debt does not really come into play, and more or less debt says absolutely nothing about the energy intensity of GDP. The chart I created is primary energy in metric tons of oil equivalent divided by real GDP in millions of 2005$. Debt plays no role.

Try the following link for a detailed introduction to national income accounting:

http://grizzly.la.psu.edu/~bickes/nia.pdf

Javier, 12/01/2015 at 7:06 pm
Dennis,

I still disagree. It is well known that the increase in debt has a positive effect on GDP, while the total outstanding debt can become a drag on GDP if too high. It is difficult to sustain that debt plays no role in GDP in light of the evidence.

For example China has had a phenomenal rate of growth accompanied by the highest rate of debt growth that the world has seen.

I think it is easy to understand.

Both countries use the same oil so both report the same oil intensity. However country B has brought half of the wealth used to increase the GDP from the future without bringing any future oil. That wealth will have to be repaid eventually, detracting from future GDP but at that point no oil will be recovered.

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

Net effect is that debt reduces oil intensity when it is created and it increases oil intensity when it is payed. We have not seen that yet because we have not paid any debt yet. Debt is always increasing.

Dennis Coyne, 12/01/2015 at 10:17 pm
Hi Javier,

Many problems with your example.

First we need the GDP level of countries A and B, not just their growth rate. If we only talk about the incremental increases in GDP and energy use for each country it makes a little more sense.

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

What you say above is incorrect.

For simplicity I will assume if output grows by 2%, that energy use also grows by 2%, I will further assume each country has the same GDP, we will say it is $100 million before the 2% growth in your example.

If country B does not take on any debt and its GDP grows by 1%, then its energy use will also grow by 1% (not by 2%) as the energy use is proportional to GDP. So the energy intensity would remain the same. There is no reason for it to change, it depends on technology and the structural features of the economy (proportion of agriculture, manufacturing, and services).

Another basic fact of economics is that the loans taken out by a business are to take advantage of a business opportunity and they will tend to lead to higher growth, so your example is flawed.

If countries A and B are of similar size and similar levels of development (twins as it were), then if country A and country B both shunned any borrowing they will both grow at the same rate, say 2% and have the same energy intensity (energy use also grows by 2%). Let's now assume both countries are the same except that country A's culture is such that they think debt is bad, but country B does not have the same aversion to debt.
Country B borrows at 2% interest to take advantage of an investment opportunity which will have a rate of return of 4%, so country B grows faster than country A at 3% and its energy use also grows at 3% (energy intensity remains the same). The extra income earned is used to pay back the debt and the individual businesses come out ahead earning a net profit of 2% after paying back the interest. This is how rational businesses operate, they borrow money to make money.

Javier, 12/02/2015 at 8:54 am
Dennis,

I also have lots of problems with your example, so let's take a step back to look at the big picture.

That an increase on debt increases GDP is not in doubt. It is not only supported by evidence, but the basis for an entire economic theory that supports fighting recessions with debt-based stimulus.

So the question is if an increase in debt increases also GDP without oil consumption as to reduce oil-intensity. The answer is a resounding yes. Financial services are proportional to debt increase. Net interest expenses in the financial sector are seen as production and value added and are added to GDP. Any service charged by financial companies also increases GDP, and none of this economic activities uses oil, and very little energy.

I believe that a significant part of oil intensity reduction has come from the financialization of the economy linked to debt-increase, and therefore oil intensity is a fake measure of oil decoupling. If you look at energy-intensity you see the same phenomenon as with oil. It seems that we are decoupling from energy because we are moving towards a fake economy based on financial instruments. Finanzialization also appears linked to raising inequality as it effect is to increase the wealth only of owners of financial instruments.

I do not doubt that some oil and energy efficiency is real, after all it is a process that has been going on forever since the first oven was built to cook. But I seriously doubt that it is a process significant enough to solve an energy deficit problem which is what peak oil is going to bring. And to me oil intensity is a fake measure of increases in oil efficiency, that I do not doubt are real but much overstated.

Gail Tverberg has a lot more to say about decoupling GDP growth from energy growth in her article at TOD for anybody interested in the matter:

http://www.theoildrum.com/node/8615

Javier, 12/02/2015 at 9:23 am
Or to put it more clearly:

Dennis Coyne, 12/02/2015 at 10:43 am
Hi Javier,

Yes the financial sector has increased to a small degree from 4% of GDP to 8% based on the chart you posted (which is only for the United States rather than the World).

This has probably increased to some degree (more or less than the US is unknown) at the World level as well. This might explain a very small slice of the decrease in energy intensity, but I doubt it accounts for most of the change.

I agree with you that changes in the structure of the World economy (higher proportion of services) has probably decreased energy intensity, but I doubt that accounts for all of the change. The bottom line is that the World economic system is becoming more service oriented with services accounting for a larger share of GDP. At some point, services may reach some maximum level, in percentage terms, beyond which they cannot go. I don't know where that level is, debt levels will also reach some maximum level (in percentage terms) beyond which they cannot rise (maybe total debt of 300% to 350% of GDP at a World level as a potential maximum).

When those points are reached growth may be limited by how much more efficiently we can use energy and how quickly we can ramp up alternative energy as fossil fuel output declines. There is much that is unknown about the future.

Dennis Coyne, 12/02/2015 at 10:51 am
Hi Javier,

Note that you keep talking about oil, the chart shows primary energy (all forms of energy used by the economic system.)

Can you explain why country B in your example uses the same amount of energy whether it grows at 1% or 2%. One would expect that the energy use would be proportional to GDP, as that is what the World data shows.

Javier, 12/02/2015 at 11:55 am
Dennis,

That is not what I said or meant. Country B by increasing GDP 1% through an increase in debt is in essence bringing GDP from the future to the present. That borrowed GDP is using present energy.

The financial sector has increased from 2% to 8%, a 4x increase. This is not small peanuts. Specially considering that only a minor part of the financial transactions are considered towards GDP. Probably only Luxembourg and perhaps Switzerland and other banking paradises have a bigger share.

Dennis Coyne, 12/02/2015 at 2:01 pm
Hi Javier,

You said:

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

You say above without the borrowing country B would grow by 1% (why does it grow less than country A?) but it uses the same amount of oil as country A, why if it grows more slowly?

Dennis Coyne, 12/02/2015 at 5:57 pm
Hi Javier,

Look closely at your chart in 1970 (when energy intensity started to decline) it was 4% and the most recent points on the chart are about 8.4%. I used the data from your chart (even though it is for the US rather than the World) and did an exponential trend from 1970 to 2010 for 4% to 8% and then extended to 2014 (8.5%) for financial GDP of World economy (probably not correct, but this is an illustration). Then I found the Energy intensity of the non-financial sector by assuming the financial sector has zero energy inputs (I expect they are low, this is an approximation). The Non-Financial Energy intensity is in the chart below.

Finally, Aggregate Demand is increased when there is more debt, but consider the Aggregate supply of goods produced to meet that demand. Whether the aggregate demand is because of private or public debt or not does not change the amount of energy needed to produce the supply of goods and services, it only changes how much demand there will be for those goods and services. I really cannot make it any simpler than that. Oh one more thing, do you think the energy needed to build a car (total energy embodied in all processes used to create the car and its components) changes if someone pays cash for the car vs financing the car?

Rune Likvern, 12/01/2015 at 2:23 pm
Dennis,

Bank of England has a different take on this;

" This article explains how the majority of money in the modern economy is created by commercial banks making loans.

Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits."

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Dennis Coyne, 12/01/2015 at 3:37 pm
Hi Rune,

Yes that is correct. The banks create money by lending and borrowers destroy money as they pay back their loans. The money supply is controlled by the Central Bank buying and selling bonds.

The debt is only a problem if it grows too quickly. If the rate of debt growth slows or the rate of GDP growth increases there will not be a problem. There are differing views on how much debt is too much.

For public debt there is:

http://www.economist.com/blogs/freeexchange/2015/06/public-debt

http://www.forbes.com/sites/michaellingenheld/2015/10/22/the-world-needs-more-debt/

Rune Likvern, 12/01/2015 at 5:45 pm
Dennis,

Did you read the document from Bank of England?

Dennis Coyne, 12/02/2015 at 8:30 am
Hi Rune,

Yes I did. Under normal circumstances the supply of money is primarily influenced by the interest rate that is paid by commercial banks for money borrowed from the central bank. When the economy is in a severe recession and this interest rate falls to the "effective lower bound" (about 0.5%), the central bank loses its ability to increase the supply of money through lower interest rates.

Under these circumstances the central bank will buy assets (government bonds) to increase the money supply, it does not sell assets to reduce the money supply, it simply raises the interest rate it charges the commercial banks.

Dennis Coyne, 12/02/2015 at 8:18 am
Hi Rune,

Thanks for that link, it is a nice review of how central banks influence the supply of money by setting the interest rate which banks must pay on money borrowed from the central bank, which feeds through to interest rates throughout the economy and affects saving and borrowing through market interest rates set by banks.

I would encourage Javier to read that link as it addresses many misconceptions about money.

Glenn Stehle, 12/01/2015 at 10:00 am
Dennis,

You are comparing apples to oranges. GDP is determined using a price, or market, theory of value. So you are comparing a value determined using a market theory of value to a value determined using an intrinsic theory of value - the toe of energy.

If you want to compare apples to apples, then you have to compare GDP to the market value of the energy used.

Dennis Coyne, 12/01/2015 at 1:41 pm
Hi Glenn,

If we are concerned the energy constraints will limit real GDP, then the amount of energy consumed per unit of GDP produced is very relevant in my view.

It is not a comparison, it is a measure of energy intensity and how it has changed over time. See

https://en.wikipedia.org/wiki/Energy_intensity

I have simply charted the World Energy Intensity from 1965 to 2014.

Glenn Stehle, 12/01/2015 at 10:17 pm
Well again, Dennis, a valid comparison is one which compares dollars and cents to dollars and cents, not dollars and cents to toe.

There was a time (1970 to 2010) when the EIA published the total amount spent in the United States on energy. I have plotted the ratio of total spent on energy to total nominal GDP for those years. This is a true measure of "energy intensity," as it compares apples to apples, and does not omit the price of energy as your graph does.

I have added YOY growth in real GDP (calculated using constant 2009 dollars).

I don't want to draw too many conclusions from the graph, but it paints a far bleaker picture than your graph does. When energy intensity goes over .08 - as it did in 1974 and 2008 - then the economy began having convulsions.

The period from 1983 to 2006 is what is known as "the Great Moderation." It is also a period of low and generally declining energy intensity. When energy intensity began increasing again, as it did in 1999, surpassing .08 in 2006, then this marked the end of the Great Moderation. Is this mere coincidence?

Botton line: In my opinion not only is the quantity of energy (measured in toe) important to the performance of the economy, but the price of that energy is also important.

Using your graph, which makes no allowance for the price of energy, it is easy to see how you have come to believe that the economy is decoupling from energy.

Dennis Coyne, 12/02/2015 at 8:52 am
Hi Glenn,

It is not a comparison of money spent, energy intensity is defined as energy consumed per unit of output (measured in dollars) as there are many different goods and services and their monetary value is measured in constant dollars.

The difficulty with using price is that there are many different forms of energy (oil, coal, natural gas, nuclear, hydro, solar, wind, geothermal, and biofuels) which are included in the "primary energy" category. Note that your chart shows only one country not the world. I would present a chart for the World if I had it, I am using the data I have for primary energy divided by real GDP. I think it is useful because it is energy contraints we are concerned about, currently some forms of energy (fossil fuels especially) have very low prices so in monetary terms money spent on Energy divided by real GDP would be quite low.

Energy prices are quite volatile so I like the Energy intensity measure better as it shows energy needed to produce a unit of GDP, which has in fact declined since 1970 by about 30%(or an average annual decrease of about 0.8% per year).

Glenn Stehle, 12/02/2015 at 12:28 pm
Dennis,

I suppose price doesn't matter as long as one can get somebody else to pick up the tab.

For instance, we can compare a new $40,000 Chevy Bolt ev to a new $20,000 Honda HRV. There's no way the Bolt can compete on price. But if you can get somebody else to pick up the tab for the Bolt? Well then, no sweat!

As part of its COP21 coverage, CBS did a puff piece on their Evening News last night about how EVs are sweeping Norway.

http://www.cbsnews.com/videos/how-electric-cars-are-taking-over-norways-roads/

They interviewed one fellow who said he "had done the math" and will be able to drive his new EV "for free."

So I did a little bit more digging, and sure 'nuf, it looks like he's right.

According to the Wall Street Journal, Norway currently has 54,000 EVs on the road. Last year their owners received $540,000 in various forms of rebates, tax breaks and other perks from the Norwegian state. That's a cool $10,000 per car per year. So at that clip, it would only take 4 years to recover the cost of a $40,000 EV. And then after that one can enjoy almost free driving, all on the government's tab.

http://www.wsj.com/articles/electric-car-perks-put-norway-in-a-pinch-1442601936

But it looks like there's trouble in paradise. The WSJ says the government give-a-ways are set to end. The day of reckoning is still up in the air, but the latest date for phasing out the government largess is 2020. So the Norwegian government is taking the punch bowl away. The EV crowd, of course, isn't taking this horrible injustice lying down:

Christina Bu, secretary-general of the lobbying group Norwegian Electric Vehicle Association, said the 25,000-member association has been stalking political parties and government officials to ensure the main incentives remain in place, at least until 2020.

"If you cut all the incentives overnight, sales will plummet," she said.

Weaning buyers from such purchase incentives could add new headwinds to sales of vehicles already undercut by cheap fuel prices in some markets. In the U.S., the state of Georgia halted its $5,000 tax credit on July 1. Electric cars were about 2% of purchases in the state in 2014, estimates Washington-based think tank Keybridge Research LLC. It forecasts a 90% decline, or 8,700 fewer sales annually, as a result of the loss.

Glenn Stehle, 12/02/2015 at 1:06 pm
Edit

Last year their owners received $540 million in various forms of rebates, tax breaks and other perks from the Norwegian state.

Dennis Coyne, 12/02/2015 at 2:06 pm
Hi Glenn,

Do you have the price of primary energy from 1965 to 2014? I would be happy to do the chart you would like, but I don't know the appropriate price of energy, which has many different forms and prices throughout the World.

I agree price matters, as does the amount of energy available to purchase (which is what is in my chart).

Nick G, 12/02/2015 at 2:32 pm
Glenn,

You're looking at something different.

The original study in question was asking about whether an economy can grow without increasing it's inputs of oil, steel, etc.*

That's a very different question than whether an economy will be hurt by a sudden increase in the price of a key commodity, like oil. If the price of oil spikes, that can create a shock for the economy (e.g., people wait to see what happens with prices before they buy their next vehicle, and that delay causes a recession), but an increase in prices doesn't mean energy consumption has gone up.

-----------------
* (it can, of course, but that's separate issue from whether our societies have chosen to do so).

Ralph, 12/02/2015 at 8:46 am
I am far from convinced that GDP growth is a good way of measuring progress in a society. Let's take an example from the UK economy. (btw I am not worried about the genders here, I would happily be a house husband if my wife's earning potential was close to mine).

Today, nearly 70% of women of working age work. Families need both incomes to meet a reasonable standard of living. As a result, a large majority of UK children grow up in families with both parents working. Many parents end up sending young children to child minders and crèches so that they can work. This employs a lot of people, mostly women. More wealthy families then employ house cleaners and gardeners and handymen etc. to clean, garden and repair their homes that they don't have time to do themselves. Poorer people do without. This employs a lot more people. All the working women and the people employed by the working women pay taxes which means that people end up working more hours to afford to pay someone else to do these jobs than it would take to do the jobs themselves. Unless your own rate of pay is significantly higher than the people you pay to do the jobs, you would be financially better off doing it yourself. The government and the economists are delighted because tax take and GDP rise. All these extra people in useful employment driving around from low skilled job to to low skilled job, consuming extra resources, especially fossil fuels, when they would be a lot less stressed, more free time and financially better off, just doing all these activities for themselves.

It is a major mistake to professionalise low skilled domestic work. All it does is free up time for the rich and increases government tax take. Society as a whole is worse off.

Dennis Coyne, 12/02/2015 at 10:14 am
Hi Ralph,

I agree GDP is by no means a perfect measure, just a measure that is available at the World level. There are other measures such as the social progress index, but this is not available at the World level. There is also the United Nations Human Development Index(HDI), but again these measures are not published at the World level (or I couldn't find it). Actually I found some World data for the HDI from 1980 to 2013. The measure is not perfect see link below for data:

http://hdr.undp.org/en/content/table-2-human-development-index-trends-1980-2013
Discussion of HDI at

https://en.wikipedia.org/wiki/Human_Development_Index

Also from UN document:

Human Development Index (HDI): A composite index measuring average achievement in three basic dimensions of human development-a long and healthy life, knowledge and a decent standard of living. See Technical note 1 (http://hdr.undp.org/en) for details on how the HDI is calculated.

Chart below with World Primary energy (ktoe) divided by World HDI from 1980 to 2013. Based on the HDI, more energy is needed to improve well being and GDP is not a good measure of human welfare.

There is also an index for HDI that takes account of inequality, but the index (called IHDI) is only available from 2010 to 2013.

[Oct 24, 2015] How The U.S. Government Covers Up 72% Inflation Before Your Very Eyes

Notable quotes:
"... The Modern Survival Manual: Surviving the Economic Collapse, ..."
Zero Hedge

scatha

...Look at basic staples eggs, beef, chicken and other foods, rent/housing, education, even transportation and telecommunication cost are "effectively" raising, not to mention medical care, all those things people need to live are raising precipitously.

Even those 1%-ters facing massive inflation forced to buy risky bonds at unbelievable high prices to get any yield at all. The global inflation bubble is here while global demand is dying and commodity nominal prices are collapsing as we speak since with such a high "real" prices everybody expects loss or severe decline of income or profit in the future expressed by a dead body of CapEx and consumption.

On the top of it typical the inflation hiding maneuvers of the retailers producing serving size inflation, quality collapse inflation, component substitution inflation, choice narrowing inflation, package cost and quality inflation, air conditioning, freezing/heating power limitation inflation, shopping experience quality collapse inflation, and other manipulations to keep so called nominal "at the store" price marginal increase of few percent only per year but even that was impossible in 2015 so far.

.. ... ...

More on the scam of evaluating inflation in various forms including CPI I found at:

https://contrarianopinion.wordpress.com/2015/01/29/invisible-hand-and-ot...

nosam

The reduction in product sizes and quality is not so much a measure of inflation as a measure of the declining wealth of the population. People can afford less so the manufacturers change product size/quality to match.

The area I live in now has high inflation but salaries are growing at a faster pace. So I notice a gradual increase in quality and size of products. That said, if you can afford to pay premium prices, you can get good quality pretty much anywhere.

Canoe Driver

American culture is based on financial rape of the working class by a criminal elite. Always was. Part of the system is the illusion fed the common man that his interests are represented by the political class, who in reality are merely business agents for the rich. This illusion dies hard.

ebworthen

"1/2 gallon" of ice cream now 3 pints instead of 4 pints, canned vegetables going to 14 oz instead of 16 oz, "1 pound" bacon now transforming to 12 oz "healthier" packages with a "great price".

I swear to God they are going to sell a "bakers dozen" of 10 eggs instead of 12 for the same price 'ere long.

TeamDepends

It's nuts, sometime over the summer the cans of tomatoes we buy went from 14.75 oz to 14.0. Are they going to start making the cans thicker? Will the cans shrink to G.I. Joe size? Times is tough, people!

Whodathunkit

Buy the imported brand from Europe. They haven't caught on to the smaller size package same amount of $. YET

Escapeclaws

Not true that Europe doesn't have the same problem. Just look at tuna: smaller can, half-full, higher price. Same with everything. Inflation gets going because of corporate greed, which they "justify" by saying their costs are going up. It's a scam through and through. About time someone does a study to analyze when their costs really go up as opposed to them "claiming" their costs are going up.

This inflation is a form of SYSTEMIC PRICE FIXING. Because it is systemic it is not considered price fixing as such from a legal point of view, so they get away with it. Like everything the elite does, they have total control and we are obliged to accept it.

Same story with "gotcha capitalism". They pump a bag of potato chips full of air and then use the excuse that the the chips, which are cozily nestled in the bottom quarter of the bag, are being protected that way. Kind of like the mafia killing one of your kids and then offering to protect the others for a small stipend.

The Yurpeans also pay much higher prices due to how things are packaged. I buy dried beans and pressure cook them, but even there, you cannot buy beans in bulk. Instead you must pay an arm and a leg for a small package. It has gotten to the point that if a bean falls to the floor, I search for it like the widow searching for her lost penny. Pretty soon they will be packaging single beans. I figured that out using mathematical induction.

Eventually, we former middle class people will enjoy the same standard of living as the poor in the third world.

Normalcy Bias

This reminds me of Ferfal's The Modern Survival Manual: Surviving the Economic Collapse, written by a guy who lived through the collapse in Argentina. There are so many paralells to what's going on in the US, they're hard to count. Highly recommended...

http://www.amazon.com/The-Modern-Survival-Manual-Surviving/dp/9870563457

seek

That's "Ferfal." For what it's worth, he's super accessible via his own website forums and a couple of the larger survival forums (I think the ones on ar15.com and ovet at survivalistsboards.com) He's got a recent posting with information from people in the Ukraine that's especially interesting.

If anyone has any doubts about these adjustments, just buy a roll of TP and compare it to the size of the TP holder in any house older than 10 years, it's quite obvious. I have TP that predates the '08 collapse of the identical brand and product line, and it's at least 1/2" wider and wrapped more densely as well.

There is substantial inflation, and it's covered up, and there's no interest being paid by banks but they're charging the average credit card holder something around 14.9 percent. Meanwhile 51% of workers in the US now make under 30K a year. The financial system is absolutely raping the common people in the US, in part due to greed and in part in a desperate attempt to save itself from collapsed caused by their greed accumulated over the past 100 years.

TBT or not TBT

I am shocked, shocked, to find stealth inflation going on in this establishment!

Supernova Born

Every ZH'er should support FerFAL's books (it is the 7.62x51 rifle his "name" is referencing, FAL being an acronym for Fusil Automatique Léger ("Light Automatic Rifle"), and the first three letters are from his first name, Fernando).

Surviving the Economic Collapse is filled with great insights and has proven prophetic.

First thing I think when I see shrinking retail packaging and lowered quality (diluted in the case of SodaStream) was FerFAL said this would happen...

OceanX

Ya'll slam Castro and what he did was kick out the banksters you profess to hate. The way I see it, what happened to Cuba was the retalliation of the banksters. He was blocked from global trade and financing.

In addition, the conservation of their natural resources have preserved Florida's fishing waters!

http://www.amazon.com/Deep-Cuba-American-Oceanographic-Expedition/dp/082...

When therre is an offshore oil spill in Cuba, it will be carried by the Gulf Stream all across the Atlantic and destroy a lot of Florida beach.


[Oct 18, 2015] What Prosperity Is, Where Growth Comes from, Why Markets Work

Notable quotes:
"... In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output." ..."
"... In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. ..."
"... Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society. ..."
"... Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. ..."
"... And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous. ..."
"... This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems. ..."
December 1, 2014 | Democracy Journal ( also reprinted in Evonomics )

The Price of Everything, the Value of Nothing

The most basic measure we have of economic growth is gross domestic product. GDP was developed from the work in the 1930s of the American economist Simon Kuznets and it became the standard way to measure economic output following the 1944 Bretton Woods conference. But from the beginning, Kuznets and other economists highlighted that GDP was not a measure of prosperity. In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output."

In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. Some countries have experimented with other metrics to augment GDP, such as Bhutan's "gross national happiness index."

Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society.

Since the field's beginnings, economists have been concerned with why one thing has more value than another, and what conditions lead to greater prosperity-or social welfare, as economists call it. Adam Smith's famous diamond-water paradox showed that quite often the market price of a thing does not always reflect intuitive notions of its intrinsic value-diamonds, with little intrinsic value, are typically far more expensive than water, which is essential for life. This is of course where markets come into play-in most places, water is more abundant than diamonds, and so the law of supply and demand determines that water is cheaper.

After lots of debate about the nature of economic value in the nineteenth and early twentieth centuries, economists considered the issue largely settled by the mid-twentieth century. The great French economist Gerard Debreu argued in his 1959 Theory of Value that if markets are competitive and people are rational and have good information, then markets will automatically sort everything out, ensuring that prices reflect supply and demand and allocate everything in such a way that everyone's welfare is maximized, and that no one can be made better off without making someone else worse off. In essence, the market price of something reflects a collective judgment of the value of that thing. The idea of intrinsic value was always problematic because it was inherently relative and hard to observe or measure. But market prices are cold hard facts. If market prices provide a collective societal judgment of value and allocate goods to their most efficient and welfare-maximizing uses, then we no longer have to worry about squishy ideas like intrinsic value; we just need to look at the price of something to know its value.

Debreu was apolitical about his theory-in fact, he saw it as an exercise in abstract mathematics and repeatedly warned about over-interpreting its applicability to real-world economies. However, his work, as well as related work in that era by figures such as Kenneth Arrow and Paul Samuelson, laid the foundations for economists such as Milton Friedman and Robert Lucas, who provided a devastating critique of Keynesianism in the 1960s and '70s, and recent Nobel laureate Eugene Fama, who pioneered the theory of efficient markets in finance in the 1970s and '80s. According to the neoclassical theory that emerged from this era, if markets are efficient and thus "welfare-maximizing," then it follows that we should minimize any distortions that move society away from this optimal state, whether it is companies engaging in monopolistic behavior, unions interfering with labor markets, or governments creating distortions through taxes and regulation.

These ideas became the intellectual touchstone of a resurgent conservative movement in the 1980s and led to a wave of financial market deregulation that continued through the 1990s up until the crash of 2008. Under this logic, if financial markets are the most competitive and efficient markets in the world, then they should be minimally regulated. And innovations like complex derivatives must be valuable, not just to the bankers earning big fees from creating them, but to those buying them and to society as a whole. Any interference will reduce the efficiency of the market and reduce the welfare of society. Likewise the enormous pay packets of the hedge-fund managers trading those derivatives must reflect the value they are adding to society - they are making the market more efficient. In efficient markets, if someone is willing to pay for something, it must be valuable. Price and value are effectively the same thing.

Even before the crash, some economists were beginning to question these ideas. Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. Likewise, behavioral economists like Daniel Kahneman began showing that real people didn't behave in the hyper-rational way that Debreu's theory assumed. Other researchers in the 1980s and '90s, even Debreu's famous co-author Arrow, began to question the whole notion of the economy naturally moving to a resting point or "equilibrium" where everyone's welfare is optimized.

An emerging twenty-first century view of the economy is that it is a dynamic, constantly evolving, highly complex system-more like an ecosystem than a machine. In such a system, markets may be highly innovative and effective, but they can sometimes be far from efficient. And likewise, people may be clever, but they can sometimes be far from rational. So if markets are not always efficient and people are not always rational, then the twentieth century mantra that price equals value may not be right either. If this is the case, then what do terms like value, wealth, growth, and prosperity mean?

Prosperity Isn't Money, It's Solutions

In every society, some people are better off than others. Discerning the differences is simple. When someone has more money than most other people, we call him wealthy. But an important distinction must be drawn between this kind of relative wealth and the societal wealth that we term "prosperity." What it takes to make a society prosperous is far more complex than what it takes to make one individual better off than another.

Most of us intuitively believe that the more money people have in a society, the more prosperous that society must be. America's average household disposable income in 2010 was $38,001 versus $28,194 for Canada; therefore America is more prosperous than Canada.

But the idea that prosperity is simply "having money" can be easily disproved with a simple thought experiment. (This thought experiment and other elements of this section are adapted from Eric Beinhocker's The Origin of Wealth, Harvard Business School Press, 2006.) Imagine you had the $38,001 income of a typical American but lived in a village among the Yanomami people, an isolated hunter-gatherer tribe deep in the Brazilian rainforest. You'd easily be the richest Yanomamian (they don't use money but anthropologists estimate their standard of living at the equivalent of about $90 per year). But you'd still feel a lot poorer than the average American. Even after you'd fixed up your mud hut, bought the best clay pots in the village, and eaten the finest Yanomami cuisine, all of your riches still wouldn't get you antibiotics, air conditioning, or a comfy bed. And yet, even the poorest American typically has access to these crucial elements of well-being.

And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous.

This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems.

These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for deadly diseases. Ultimately, the measure of a society's wealth is the range of human problems that it has found a way to solve and how available it has made those solutions to its citizens. Every item in the huge retail stores that Americans shop in can be thought of as a solution to a different kind of problem-how to eat, clothe ourselves, make our homes more comfortable, get around, entertain ourselves, and so on. The more and better solutions available to us, the more prosperity we have.

The long arc of human progress can be thought of as an accumulation of such solutions, embodied in the products and services of the economy. The Yanomami economy, typical of our hunter-gatherer ancestors 15,000 years ago, has a variety of products and services measured in the hundreds or thousands at most. The variety of modern America's economy can be measured in the tens or even hundreds of billions. Measured in dollars, Americans are more than 500 times richer than the Yanomami. Measured in access to products and services that provide solutions to human problems, we are hundreds of millions of times more prosperous.

[Oct 03, 2015] Reflections on Ten Years Deficits, the Financial Crisis, Textbook Economics and Data Paranoia

Oct 03, 2015 | Econbrowser

"When so many think the numbers are manipulated to some nefarious end, it is no wonder that empirical observations carry so little weight in informing thought on how the economy works."

[Sep 21, 2015] The Mystery Of The Missing Inflation Solved, And Why The US Housing Crisis Is About To Get Much Worse

For the last 20 years, realistic US inflation rate was probably higher then official figures considerably. Some estimate it between 4% to 5% a year. Medical expenses rose probably 200%. Cost of higher education skyrocketed. We can say that rent alone from 1995 to 1996 rose probably 60% (assuming 3% a year official figure). Food prices are highly correlated with oil and they rose more (but they do not represent major expense item in most budgets).
"... Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400. ..."
Sep 21, 2015 | Zero Hedge
We hinted at the key features of this unprecedented conversion in June, when we wrote the following:

... by now everyone knows that the artificially suppressed, "hedonically-modified" and seasonally-adjusted inflationary readings is what has permitted the Fed to not only grow its balance sheet to $4.5 trillion but to keep rates at 0% for 8 years. Because "how will the economy recover if there is no broad inflation", the Keynesian brains in the ivory tower scream, demanding more, more, more easing just to push inflation higher.

There is only one problem with this: it is all a lie - just ask any average American whose cost of living has soared in the past decade.

Still, with reality diverging so massively from the government's official data, reality just had to be wrong somehow.

Turns out reality was right all along, as revealed by the latest "State of the Nation's Housing" report released by the Center for Housing Studies at Harvard, which showed that while inflation among most products and services may indeed be roughly as the Fed and BLS represent it, when it comes to rent - that most fundamental of staple costs - things have never been worse.

According to the report, for American renters 2013 marked another year with a record-high number of cost burdened households - those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.

It gets worse: a whopping 11.2 million, or more than a quarter of all renter households, had "severe cost burdens, paying more than half of income for housing." The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs. Renter housing costs are gross rents, which include contract rents and utilities.

... ... ...

And since there is an unprecedented demand for rental units across the US (as the "owning" alternative has become inaccessible), the median asking rent not only soared at an annual rate of over 6%, it has never been higher, with the Census Department recently reporting that the Median US asking just hit an all time high $803.

... ... ...

What is odd is that according to the BLS, rent inflation is far less: at just 3% in the most recent print. One wonders what seasonal adjustments American renters should use to make their monthly paycheck smaller, the way the BLS perceives it. Still, at 3.6% this is the highest annual rent inflation since 2008.

And herein lies the rub: because it is not so much what the real, honest inflation growth rate of rent is, it is what the offsetting income growth. Unfortunately, while the BLS can seasonally adjust rent payments to make them as low as a bunch of bureaucrats want, the bigger problem is that US household income is not only not keeping up with rent inflation, it is far below it. In fact, as reported last week, real income is now back at 1989 levels!

And here is the punchline:

"in the years following 2000, gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind (Figure 3). As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960."

... ... ...

Furthermore, rent inflation isn't going anywhere - in fact, it will only get worse: "as of 2013, the median rent of a newly constructed unit of $1,290 was equal to about half the median renter's monthly household income, underscoring the urgent need for policy makers to consider enhanced levels of support for rental housing particularly for lowest income households but across a range of income levels."


Hype Alert

Housing and healthcare are severely under reported on inflation. How healthcare can triple and not set off flashing red lights on inflation is unreal.

Never One Roach

I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% the past several years despite soaring food, health costs, utinilites, etc.

AGuy

"I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% "

Simple: many still work while collecting SS. Some have part-time jobs (aka Wallmart) others maintained their full time jobs. If you look at the employment chart, Employment for those 55 and older has risen considerably. I believe employment for the 70+ group has also increased.

However, many 65+ have a lower cost of living. (ie no mortgage payments, no college loans, lower healthcare -on Medicare, etc). They can afford to take on one part time job to meet ends since they have SS.

Consuelo

"The reason for this is a simple, if dramatic one: the U.S. transformation from a homeownership society, to one of renters."

All well & good in the context of officialdom's lies and deceit, but there's just a ~tiny~ bit of clarification needed here...

Home 'ownership' is a misnomer, and just a plain bald-faced Falsehood in reality. You don't 'own' ~anything~ until that last mortgage payment is made - assuming you're not a $cash buyer. And even then, try skipping a property tax payment... And didn't we just find out a few years back, the real meaning of 'home ownership' to the ball & chain tied schlub paying (or not) his mortgage...?

WTF_247

Wage growth has lagged most other costs for at least a decade or more. Inflation and other cost increases are compound functions. The correction will take care of itself. Healthcare and rent are taking more and more of peoples $$ You can only stretch it so far - at some point there is no more money.

Either incomes will rocket up OR housing, including rent, will crash huge. You cannot get renters to pay for something they have no money for. No one is going to rent and choose not to eat or to eat ramen noodles permanently. You cant even get rid of health insurance now or the IRS comes after you - no matter how much it increases each year (estimated 15-20% increase next year). You can get 1 roommate, then 2. But most cities limit the number of renters based upon the number of bedrooms - this only goes so far.

The solution is to stop working or only work a bare minimum - get benefits. Section 8 housing. EBT. Free healthcare. Welfare benefits.

Something is wrong in the US when a working mother making 29k has a better standard of living that someone making 69k per year. If anyone thinks this is not lost on the population as a whole, they would be mistaken. As costs keep going up it is more lucrative to NOT fight anymore. Let the govt pay for i