Relevant and even prescient commentary on news, politics and the economy.

The Consumption rate from Capital Income (Labor Day special)

In honor of LABOR DAY… Yesterday, I posted a graph showing the percentage of capital income that is used for consumption. It is a new graph being developed. Since yesterday, I have gone back and changed just one number that determines the consumption rate of capital income. I replaced the number for “net government saving”, […]

Looking at the Consumption rate of Capital Income

Theoretically, capital income, especially in the form of retained earnings by corporations and some capital gains would be used for saving and investment in the means of production, while labor income is used for consumption of finished goods and services from production. However, a portion of capital income is used for consumption, when the incentives […]

Behavior of capital income is a precursor to a recession

A precursor is something that signals the arrival of something else. There are precursors to a recession. The trick is finding them. I want to show a precursor to the 2007 recession looking at the spending behavior of capital income. Let’s look at a flow chart for the 1st quarter of 2007. Graph of 2007 […]

Brad Delong does not see a sign for low path of potential GDP

Brad Delong wrote today… “There are no signs in the pace of technological progress, in the level of investment, in the pace at which the American labor force educates itself, in measures of capacity utilization, in signs of upward wage pressure due to labor quality bottlenecks, or in surging commodity prices due to supply bottlenecks […]

Comparing Labor and Capital incomes (Past and Present)

Labor and capital both receive income. How do labor and capital consume products or contribute to savings differently? How have these differences changed over the years? What can we learn from the changes? To answer these questions, I made a model based on the circular flow of the economy, where I separated labor income from […]

More Reflections on the Circular Flow of National Income

After posting an article about how imports create saving for investment, a conversation was started. The conversation led to doing more research and developing new explanations to understand the basic circular flow model. This is actually a very important issue to get right. The circular flow is such a basic part of understanding the economy. […]