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

An Effective Demand look at the 1980 recession to envision the next recession

It is good to look back at the 1980 recession and analyze what happened. First, the recession officially started in July of 1980. Be that as it may, the business cycle had already topped off in the 3rd quarter of 1978 when the economy hit the effective demand limit. Capacity utilization started falling the same […]

Sumner: Has CPI Been Wildly Overstating Inflation?

Scott Sumner makes a very good point (though my interest here is somewhat peripheral to the main thrust of his post): Government price indices don’t measure the prices that are of macroeconomic interest.  For instance in the 6 years after the housing bubble peaked the US, BLS data shows housing prices rising by about 10%, while Case-Shiller […]

How to calculate capital income’s consumption rate for recession forecasting

During the posts about the percentage rate of capital income used for consumption, it seemed readers were not sure how I calculated the number. Well, I want to show here how I calculate the percent of capital income used for consumption. The number is currently rising from quarter to quarter. When it begins to fall, […]

Regular coastal towns and cities and sea level rising

Seeing this piece by Andrew Revkin Can cities adjust to a retreating coastline? reminded me to also look closer to home. We all too readily forget that NYC is not a typical problem of a coastal communitiy…so what do planners in smaller towns face? How do they choose responses, for instance, if an engineering report […]

Capital flows

Put all this together, and you have a classic recipe for vulnerability. Capital inflows (borrowing overseas plus foreigners coming into the local stock market) tend to keep the exchange rate more appreciated than it would be otherwise. This encourages imports and discourages exports, so it is easy to develop a current account deficit (meaning that […]

Specifying “Demand”: Nick Rowe Meets Steve Keen on His Own Ground

You might well ask: “Whaddaya mean by ‘his,’ buster?” Nick does a full-faith effort here (including the comments) to characterize Steve Keen’s position (aggregate demand = GDP + change in debt), using Nick’s preferred language and mental modeling. It’s a darned good effort, but I think it’s crippled (as is Steve’s construct) by a conceptual failing […]

Nick Rowe says it is hard for an economy to get stuck in a Liquidity trap, but it is actually easy.

Nick Rowe from the blog Worthwhile Canadian Initiative asked a very good question on August 30th… “How can you get an economy INTO a liquidity trap?” He goes through some scenarios that would put an economy in a liquidity trap … and then shows that a reversal in monetary policy could pull the economy out […]

The Fed driving too fast down an unknown road

Is the current aggressive monetary policy effective? Do the risks outweigh the benefits? Mark Thoma wrote on August 31st… “It’s just that some members of the Fed do not believe the Fed has much influence over the economy beyond stabilizing the financial system. Once that is done, the Fed’s powers are very limited (when at […]

Was the cause of the 1960 recession psychological? and now?

What caused the recession of 1960? Here is an answer given at “The recession of 1960-1961 was mainly due to the high inflation, high unemployment rates, and a bad gross national product rating. This recession lasted for 10 months and resulted in the second longest economic expansion in U.S. history. During Kennedy’s 1960 presidential […]