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

Mr. Mankiw is reading the wrong paper on minimum wages

Greg Mankiw reviews a paper written trying to support minimum wages. Mr. Mankiw is not in favor of minimum wages and was not sold by the paper. The best paper that I know of on minimum wages was written by Bruce Kaufman. His paper was titled, Institutional Economics and the Minimum Wage: Broadening the Theoretical […]

Labor share is chopped liver to Mr. Krugman

When someone is not being noticed, there’s the saying, “What am I? Chopped liver?” There is something that Paul Krugman is simply not noticing. First, let me quote Mr. Krugman from his recent post, The Depressed Economy is all about Austerity. “I don’t want to pretend to spurious precision here. Instead, I just want to […]

William Dudley on the economic outlook… An “Effective” response

William Dudley is the President and CEO of the Federal Reserve Bank of New York. He gave a speech about the economic outlook. The speech is standard talk about economic improvement that is not good enough yet. He states that demand is a constraint on the economy. “Turning first to consumer spending, such spending has […]

Has hourly self-employment income stayed relatively constant to hourly payroll income?

The Brookings Institute has just come out with a new paper seeking to explain the decline in labor’s share of national income. The paper is titled, The Decline of the U.S. Labor Share. It was written by Michael W. L. Elsby, Bart Hobijn, and Ayşegül Şahin. Here is a video of Justin Wolfers explaining the […]

Nick Rowe explores interest rates & aggregate demand… What about profit rates, optimism & effective demand?

Nick Rowe at Worthwhile Canadian Initiative asks a question… “What happened in 2008? Why didn’t the cut in interest rates prevent Aggregate Demand from falling? Was it just that the cut in interest rates wasn’t big enough? Or is the rate of interest the wrong thing to look at? Because it’s only a relative price, […]

Fed, please taper, I beg you…

The transmission mechanisms that distribute liquidity to consumer demand labor are broken. More QE just feeds the supply-side of the economy making it more and more top-heavy. There is evidence of a bubble forming from Tim Duy. The Fed is making the economy more and more unstable as time goes by. The imbalance between capital […]

Inflation low and steady as she goes…

In the previous post, capacity utilization is low and steady, and inflation is too. Low inflation is a sign that labor has a liquidity disadvantage to capital. Explanation below. Here is inflation (all items less food and energy on a quarterly basis). Link to graph #1. Quarterly inflation. Is this a problem? Well… One way […]

Capacity utilization low and steady as she goes…

Here is the latest reading on capacity utilization. Data for August 2013 released yesterday. Link to graph. It has been flat-lining for over a year and a half. Look familiar? Similar thing was happening before the crisis. Note: To really appreciate capacity utilization, here is a table giving the sectors of industrial output involved and […]

Would Keynes say Krugman is assuming Say’s law? … Just saying

I wrote that Paul Krugman is assuming full-employment. Yesterday Krugman basically pleaded with the Fed to not taper. I see full-employment as constrained by effective demand, which can be determined by quite simple equations. My view comes from Keynes and chapter 3 of his General Theory book. “An alternative, though equivalent, criterion is that at […]

Estimating profit rates of capital

The principles of effective demand can be used to evaluate the aggregate profit rate on capital. This measure is a useful indicator of the business cycle. When the aggregate profit rate gets sluggish or falls, the economy is tempting a recession. The basic equation to determine the aggregate profit rate on capital is… Aggregate profit […]