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Industrial production continues to decelerate

Industrial production continues to decelerate

Industrial production is the King of Coincident Indicators. In dating the onset and end of recessions, in practice the NBER relies upon industrial production more than any other measure.

March 2019 production continued a string of recent disappointments, with overall production declining -0.1%, and manufacturing production unchanged. For the first quarter of 2019 in total, overall production declined -0.3%, and manufacturing declined -0.8%. Here’s the graphic look at the past nine years:

Note that the recent flatness is on par with, e.g., 2012, which was nowhere near to recession.

But on the other hand, after a surge last summer, leading some to conclude that we were in a “boom,” both total and manufacturing production have decelerated sharply on a YoY basis. Both levels YoY were last seen in late 2017:

 

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The Limits of Human Joy and Sorrow

In this post I will use revealed preference and assume people are rational. Sorry. I’m an economist and I can’t entirely resist.

I will argue that our joy and suffering is bounded, that we can’t be infinitely happy or infinitely miserable.

The first argument is standard, the second is something Peter Mollgaard thought of the instant I explained the first.

Both discussions are typically limited (as economists tend to be) to selfish swinish agents who care only about consumption. This has nothing to do with the argument.

The proof that we are not rational utility maximizers with utility unbounded above follows. It is called the St Petersburg paradox.

If we were capable of unbounded joy, for any positive epsilon no matter how small there is a lottery which we would rationally play which gave us horrible pain with probability 1-epsilon and good outcomes with probabilities adding up to epsilon. The trick is an infinite series of good outcomes. goodoutcome(i) for i a natural number. goodoutcome(i) occurs with probability epsilon/2 and gives us happiness 2/epsilon. Goodoutcome occurs with probability 2^(-i)epsilon and gives us happiness 2^(i)/epsilon

So expected happiness if we take the bet is (1-epsilon)(a very large negative number) + the sum from one to infinity of 1. That is infinite expected happiness.

We don’t make such bets. What if epsilon = 1/google that is 10^(-100) ? 10^100 is the original meaning of the word “google”. The company chose the word for that number exactly as the Apple corporation chose the name of a fruit.
what if epsilon = 1/(google plex)= 10^(-google) = 10^(-10^100). or one over a google plex plex and so on.

Similarly, we are not rational utility maximizers capable of infinite misery. For any X>0 no matter how huge and any epsilon >0 no matter how tiny, we would accept happiness of -X with certainty rather than + X with probability 1-epsilon and a series of increasingly horrible outcomes
getting -2/epsilon with probability epsilon/2 and -2^i/epsilon with probability 2^(-i) so if we didn’t take -X with certainty our expected welfare is minus infinity.

Again epsilon can be so low that if something happened with probability epsilon every millisecond, the chance that it has happened since the big bang is 1/(google plex). I guess I should call the second paradox the Mollgaard paradox, but I want to call it the Leningrad paradox, because Leningrad is St Petersburg and because the limits of human misery were well explored by the Stalinist purge of Leningrad followed soon after by the Nazi (and Finnish) seige of Leningrad. We are talking about two of the most massive losses of human life ever (and much slow death by borderline fatal malnutrition become fatal after long suffering). But it would be worth a 1/google plex risk of that happening again even if there were a series of risks of it happening once, twice, four times etc.

This has been another explanation of why the concept of infinity is pernicious following in the tradition of Zeno’s paradox but never reaching the end of the list of errors due to the concept of infinity (which list is infinite). Borges tried to catalogue them (he does that sort of thing) in “Avatars of the Tortoise.”

There is a concept which corrupts and upsets all others. I refer not to Evil, whose limited realm is that of ethics; I refer to the infinite.

Oh my look at the second google hit for [avatars of the tortoise]

I think it is also not needed. But I am confident with probability epsilon (not a type not 1-epsilon) that every counterintuitive result in mathematics has something to do with infinity and could not be explained if instead of natural numbers we started with the cyclical group with N elements (no matter how big N is) and then went on to define rational and real numbers as we do.

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The three best arguments against an economic slowdown

by New Deal democrat

The three best arguments against an economic slowdown

I still think I’m right that there will be a worsening economic slowdown that shows up by about summertime and continues towards the end of the year.But there is one long leading indicator and two important short leading indicators that are going the other way. Rather than ignore them, I accept them and explain why I don’t think they negate my forecast. This article is up at Seeking Alpha.

——-

On a more somber note, Today We Are All Parisians.

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The economy in 2019: a look at the “big picture”

by New Deal democrat

The economy in 2019: a look at the “big picture”

Although I have a bunch of nerdy forecasting models, I view my primary mission as trying to explain what is going on in the economy for ordinary middle and working class American workers and consumers.I’ve been meaning to do a “30,000 foot perspective” on the economy for awhile, to draw together all the information into a Big Picture narrative. Well, I finally got around to it, and it is up at Seeking Alpha. This is something that should be of particular interest to those who have followed me all the way back from my Daily Kos days.

The most overlooked feature of the economy in the past five years has been the way low gas prices have allowed room for the economy – and real wages – to grow without being strangled by high interest rates.

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Is Stephen Moore a Gold Bug?

Is Stephen Moore a Gold Bug?

A lot of the criticisms of putting the twin village idiots known as Herman Cain and Stephen Moore on the FED assert that they are gold bugs. Kate Riga watched CNN when Erin Burnett interviewed Stephen Moore on this allegation:

Stephen Moore tries to flip-flop on the gold standard — but Erin Burnett is prepared and armed with a montage of his past statements

Watch and enjoy! Now Moore did say he would prefer targeting an index of commodity prices, which led me to FRED and its Global Price Index of All Commodities. Moore has not be all that specific how his commodity price target would work but let’s speculate his index would be a lot like this one. Suppose the FED targeted commodity prices to be where they were in 2005 since this index is based where it would equal 100 in 2005. Just imagine how a Moore monetary policy would have worked say during the booming 1990’s. Commodity prices were low so his policy prescription would have been massively expansionary during a booming economy. For much of the period from 2007 to 2014, we would have had a contractionary monetary policy even as U.S. aggregate demand was often incredibly weak. In other words, his commodity price based monetary policy would be about as destabilizing as was monetary policy under the gold standard.

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Economics, the Realm of Money and the Significance of GDP Growth, with an Application to Child Labor

Economics, the Realm of Money and the Significance of GDP Growth, with an Application to Child Labor

What’s economics?  There are two answers.  One is it’s the sphere of human activity encompassing the production and distribution of goods and services, which has sometimes been referred to as provisioning.  This is quite a lot but not everything.  It includes meditation classes but not meditation, making and selling binoculars but not bird-watching, etc.  The problem is that it includes so much of human life that it is barely a delineation at all.  From this perspective farming is part of the economy, and so is shopping for food, cooking the food at home, and even piling some of it on your plate.  It’s a matter of debate whether eating the food should qualify as economic, not to mention the trip to the toilet sometime later.  (I think the answer should be yes to the toilet part.)

Then there’s a much narrower conception that confines itself to just the money economy, things that are produced for sale, paid labor, and money congealed into financial assets and obligations.  This is largely what mainstream economics is about, although it claims to be about human well-being in a much more encompassing sense, using welfarism as a bridge between the empirical world of markets and the putative substrate of “utility”.

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February JOLTS: a mirror of the poor jobs report

February JOLTS: a mirror of the poor jobs report

The JOLTS report on labor is noteworthy and helpful because it breaks down the jobs market into a more granular look at hiring, firing, and voluntary quits. Its drawback is that the data only goes back less than 20 years, so from the point of view of looking at the economic cycle, it has to be taken with a large dose of salt.
With that disclaimer out of the way, Tuesday’s JOLTS report for February generally mirrored the poor jobs report (+20,000, revised to +33,000) for that month. With the exception of one new high, the other series are off their best levels, and two continued to decline:

  • Quits declined -0.1% from their peak of one month ago.
  • Hires declined and are -3% off their October peak.
  • Total separations rose slightly but remain about -2% off their peak in last July.
  • Job openings declined about -7% from their October all time high, which was virtually tied one month ago. While this is a sharp decline, it has typically happened once or twice a year in this series even during expansions.
  • Layoffs and Discharges rose slightly and remain about 9% higher than their September 2016 low, although well below their levels of most of the past 18 months.

Let’s update where the report might tell us we are in the cycle.
First, below is a graph, averaged quarterly through the fourth quarter, of the *rates* of hiring, quits, layoffs, and openings as a percentage of the labor force since the inception of the series (layoffs and discharges are inverted at the 3% level, so that higher readings show fewer layoffs than normal, and lower readings show more):

 

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Elizabeth Warren Wants to Collect More in Corporate Profits Taxes

Elizabeth Warren Wants to Collect More in Corporate Profits Taxes

John Harwood reports:

Democratic presidential candidate Elizabeth Warren proposes raising $1 trillion in government revenue from a new tax on profits of the largest corporations. The proposed surtax would prevent Amazon and other companies with profits exceeding $100 million from wiping out their tax liabilities altogether. Instead of taxable corporate income as defined by the IRS, the 7% surtax would apply to profits companies report to their investors.

A lot to like. Look – I hated that 2017 tax scam, which we were told would clean up how corporations are allowed to shield income by all sorts of tricks including transfer pricing manipulation. Alas, its complexity was a boondoggle for shifty tax attorneys rather than simplification and closing loopholes. So proposals to “repeal and replace” this awful tax deform are highly welcomed. But this part of Harwood’s reporting was dreadful:

Warren cited two high-profile examples: Amazon has reported $10 billion in 2018 profits but zero in U.S. corporate taxes; Occidental Petroleum has reported $4.1 billion in profits and also paid zero.

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Real wages got gassed in March

Real wages got gassed in March

The consumer price index rose +0.4% in March, mainly as a result of a big monthly increase in gas prices. That really shouldn’t have been a surprise, since almost every time gas prices have increased by as much as they did in March — up 9% for the month — consumer prices as a whole have gone up at least +0.4%. I’m showing just the last 10 years in the graph below:

In fact, ex-gas, consumer inflation ex-energy has been remarkably stable between 1.5% and 2.5% YoY ever since gas prices made their long term bottom in early 1999. The only big exceptions were in the year before each of the last two recessions:

 

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