It is commonly known that the CBO projects potential output, but they also have 2 measures for the natural rate of unemployment… a Short-term & a Long-term rate. (link) The description at FRED economic data says… “The natural rate of unemployment (NAIRU) is the rate of unemployment arising from all sources except fluctuations in aggregate […]

If you equate wealth and prosperity (not a crazy equation), then one of the best measures of a country’s prosperity is median household net worth. It arguably says a lot more about prosperity than various income measures. It tells you how the typical household (50% have more, 50% have less) is doing. If lots of […]

Via Naked Capitalism: Ballooning Finance: How Financial Innovation Produces Overgrowth and Busts Yves here. It’s a welcome surprise to see economists devise a model that delivers generally sensible results. Here, three economists looked at how financial innovation leads to an bloated financial sector as well as greatly increasing the risk of meltdown. One quibble is […]

On September 4, Nevada Governor Brian Sandoval announced that electric car-maker Tesla had chosen Nevada for the location of its much sought-after Gigafactory. Contrary to its claim that it wanted $500 million, Tesla in fact wanted speed plus the highest bidder. As I analyzed last month, a $500 million subsidy would have been relatively low […]

Tim Duy posted a graph of various rules to determine the base nominal interest rate of the Federal Reserve. Here is the graph that he posted. (link) The graph includes versions of the Taylor rule and the modified Taylor rule used by Glenn Rudebusch at the Federal Reserve Bank of San Francisco. Now I will […]

What is the primary error in macroeconomics? Potential output… and this error is huge. The measure of potential output is the foundation for many calculations. Natural real interest rate Natural level of unemployment Monetary policy Slack If you get these wrong, there will be problems. Paul Krugman wrote an article for the IMF, Increasing Demand. […]

Paul Krugman takes aim today at me (though he doesn’t know me from shinola), and others of my ilk who are at least somewhat obsessed with coming to a coherent definition of “money.” …people who spend too much time thinking about money in general — specifically, on trying to decode money’s true meaning and find the […]

Okay, so most of you who don’t live in Iowa (and most of you don’t live in Iowa, since it’s not a populous state) probably are unaware that the outcome of the election to replace retiring progressive Iowa senator Tom Harkin—which in turn may determine party control of the Senate—may turn on a dispute between […]

I have been reading the ebook on Secular Stagnation. It is interesting that two sections in the book have the titles… Three Issues: Potential Growth, Effective Demand and Sclerosis Further on Effective Demand Great! We see the term Effective Demand being used. Yet, Effective demand is never defined in the book. Moreover, the term is […]

The ECB raised its benchmark rate in 2011 from 1.0% to 1.5%. Since then the rate has moved down to 0.15%. After their benchmark rate was raised in 2011, the Euro area went into a recession. Did the ECB cause the recession by raising their benchmark nominal rate? Some say yes. I say the story […]