The Brookings Institute has just come out with a new paper seeking to explain the decline in labor’s share of national income. The paper is titled, The Decline of the U.S. Labor Share. It was written by Michael W. L. Elsby, Bart Hobijn, and Ayşegül Şahin. Here is a video of Justin Wolfers explaining the […]
Nick Rowe at Worthwhile Canadian Initiative asks a question… “What happened in 2008? Why didn’t the cut in interest rates prevent Aggregate Demand from falling? Was it just that the cut in interest rates wasn’t big enough? Or is the rate of interest the wrong thing to look at? Because it’s only a relative price, […]
The FOMC statement has just come out… They have decided to not change the policy of buying $85 billion in bonds per month. “The bigger they are, the harder they fall.” … The next recession will be interesting.
The transmission mechanisms that distribute liquidity to consumer demand labor are broken. More QE just feeds the supply-side of the economy making it more and more top-heavy. There is evidence of a bubble forming from Tim Duy. The Fed is making the economy more and more unstable as time goes by. The imbalance between capital […]
In the previous post, capacity utilization is low and steady, and inflation is too. Low inflation is a sign that labor has a liquidity disadvantage to capital. Explanation below. Here is inflation (all items less food and energy on a quarterly basis). Link to graph #1. Quarterly inflation. Is this a problem? Well… One way […]
Here is the latest reading on capacity utilization. Data for August 2013 released yesterday. Link to graph. It has been flat-lining for over a year and a half. Look familiar? Similar thing was happening before the crisis. Note: To really appreciate capacity utilization, here is a table giving the sectors of industrial output involved and […]
I wrote that Paul Krugman is assuming full-employment. Yesterday Krugman basically pleaded with the Fed to not taper. I see full-employment as constrained by effective demand, which can be determined by quite simple equations. My view comes from Keynes and chapter 3 of his General Theory book. “An alternative, though equivalent, criterion is that at […]
The principles of effective demand can be used to evaluate the aggregate profit rate on capital. This measure is a useful indicator of the business cycle. When the aggregate profit rate gets sluggish or falls, the economy is tempting a recession. The basic equation to determine the aggregate profit rate on capital is… Aggregate profit […]
Paul Krugman asked today… “Are we getting close enough to “full employment” that it’s time to let up on the gas? How much slack is there in the economy, really?” By letting up on the gas, he is referring to tapering by the Federal Reserve. Tapering would signal tightening as he ends his post with […]
INET has a great interview with Robert Skidelsky. It is well worth watching. Here is the link… He talks about political power in determining which economic theories get applied. He talks about fiscal policy. He mentions that trying to re-work supply side reforms while the markets are weakening in demand can be unproductive. Many other […]