Austerity by governments is a policy to reduce budget deficits by cutting spending and/or raising taxes. Basically governments withhold money from the economy. The result is that aggregate demand is reduced. Yet, there is another form of austerity where businesses lower pay to labor. In effect, businesses withhold money from the economy by reducing pay […]

Laurence Ball wrote an article called The Great Recession’s Long-term Damage. He writes about how potential output has been reduced in many countries after the recession… “Through what mechanisms do recessions reduce potential output? This question is addressed in a number of recent papers (see Ball 2014). While the results vary, it appears that recessions […]

In a post by Shobhana Chandra and Jeanna Smialek at Bloomberg called Yellen Spending Mix lacks Ingredient of Higher Pay, there is a quote… “It doesn’t “add up,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York. “Consumer confidence is at a cycle high, and consumption is declining. You also […]

  This video of a speech by Ben Bernanke in 2003, is quite interesting. In the speech he laid the groundwork for what would eventually be his policy to combat the Great Recession. He talked about inflation, slack in the economy, price stability and even the possibility of taking the Fed funds rate to the […]

With the model presented in the previous post, Attractor States in the Business cycle, we could conceivably project the path of the next business cycle. How could we do this? The model shows that productive capacity regularly rose by 18%. The last rise was 17%. So I will assume a 17% rise in attractor productive […]

This post has been updated! I just posted about the Silly Confusion over Potential GDP. The main idea of the post is that real GDP made a transition to a new normal level after the crisis. And patterns from past business cycles show that real GDP stays close to this new level. But then two […]

As a small economist, my views are not seriously taken seriously. But still, if I turn out to be right, I will have bragging rights. So Paul Krugman wrote today about how the IMF way over-estimated the potential growth path of GDP. His post is titled, The Damage Done… “That’s a huge shortfall.  Yet the […]

The stock market has reached stall speed. What is a stall speed? “An aircraft flying at its stall speed cannot climb, and an aircraft flying below its stall speed cannot stop descending. Any attempt to do so by increasing angle of attack, without first increasing airspeed, will result in a stall.” (wikipedia) What does it […]

I see that the low productivity in the United Kingdom is still a mystery. (WSJ article by Paul Hannon). Since the beginning of 2013, productivity in the UK has been stalled. Last week I posted a model of effective demand that showed how productivity stalls at the effective demand limit. This model is new and […]

Tyler Cowen has a post at the New York Times about how war can rejuvenate the economy in various ways. We need to be very careful not to jump on him and accuse him of being a war-monger. I remember when many people jumped on me for recommending a recession based on Christina Romer’s speech. […]