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

Business tax cut or Increased Govt. spending?

This is a quick post to a question in the comments section by Jerry Critter on the circular flow model using labor income. He asks, “To improve the economy, we hear two somewhat conflicting stories.  One, we need to increase government spending, or, two, we need to reduce business taxes.  Can your model compare the […]

Taking the Circular Flow to the limit of equilibrium

As I said, I was going to post a version of the circular flow model for current conditions of the economy. Setting up the model Conditions for national accounts and other numbers are currently… (See these graphs CGINX, XM, Undistprof) Real GDP of $15.650 trillion. (2009 dollars) Effective demand limit of $16.1 trillion. (real 2009 […]

Extending the preliminary circular flow model with labor share

I want to expand on the last post where a simplified circular flow model was given incorporating labor share of income. That circular flow did not include sectors for a government nor foreign markets. I now will expand that model to include those sectors and more. Extended circular flow for labor share Here is the […]

Krugman & Kalecki, “injecting” to escape from a sub-optimal reality

Paul Krugman today wrote that we are in a “Keynesian crisis that calls for Keynesian policies”. Keynesian policies are monetary and fiscal policy to increase demand in the economy. I wrote a response earlier today about an article from Mark Thoma who called for the same Keynesian policies of monetary and fiscal policies to increase […]

Mark Thoma, cyclical unemployment & insufficient effective demand

Mark Thoma, professor at the University of Oregon,, posted an article about why labor markets are struggling, “What is driving changes in the job market?” at CBS Money watch. He basically says that the labor market problems are cyclical, which means a Keynesian demand-deficient unemployment. There isn’t enough demand to allow unemployment to fall more […]

EITC refund withheld in student loan default

Jared Bernstein writes about the EITC today (Earned Income Tax Credit), which is a program to help lift people out of poverty when they fall into low-paying jobs. I just want to add another wrinkle to the story. When a student defaults on their student loans, which is something that will happen more and more […]

Labor share affects the potential of investment to raise GDP

The circular flow is a model used to show how money and products move through an economy. I am going to use a simplified version to show the effect of labor share of income on GDP. Many people think that labor income is not quantitatively different than capital income. I will show that the equilibrium […]