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Who: Kimball Corson. Text and Photos not disclaimed or that are obviously not mine are copyright (c) Kimball Corson 2004-2016
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Scatterbrained Commentary
Kimball Corson
04/30/2016, Pago Pago, American Samoa

Social commentary and the general media are substantially dominated by what the authors of such media think is important from a macroeconomic viewpoint. But much, if not most, really isn't relevant to understanding or predicting the course of the macro economy. Why that is so is my topic in this essay.

Those addressing, explicitly or implicitly, the macro economic course of events or the direction of the macro economy, or engaged in discussion of one or another topic with those goals in mind, of necessity have some form of macro economic model in the back of their minds, at the very least to determine the relevance of their chosen topic, if not to judge relevant events to come.

The rub for almost all such authors and commentators in those forums is they do not understand or have any sensible, worthwhile or sound macro economic model in mind, and too often are simply following the heard of such commentators and addressing what they seem to think is important. It is often a case of the blind leading the blind.

A core failing here is being unable to distinguish between the financial economy, as engineered by the Fed and Wall Street within the financial sector, and the real economy which deals with the real production and distribution of goods and services and how the two sectors interact and which is overwhelmingly dominant and which draws the commentary.

The habit of mind of such commentators is most often very much unlike that of an economist and very much more alarmist in pursuit of readers and sales. This volume of economic commentary is huge and exceedingly scatterbrained, with little idea of what is meaningfully going on at a macro level in the real economy.

The gamut runs from from 'a depression is coming tomorrow" and "the sky is falling . . . soon" to the macro economy is just fine and our problems are minor, with both groups not really knowing what it is taking about. Everyone is an economist, whether they have any training in the area or not. However, most are not even able to discern what is economically important and why, even though they can muster a savvy sounding economic "news speak," if called upon.

If these groups are noisy and scatterbrained, those who really can do economics and address macro economic matters most usefully, are often too silent and unwilling to participate in the mindless fray which really can't focus on real macroeconomics anyway. Would that the reverse were the true.. So there is much flaying about as the scatterbrains endlessly searching for answers or an economic Messiah on one or another macro topic, if not for assurance, at least for authority.

It is a tiring scene and one that mutilates good economics and that never really recognizes that virtually any economy can have sectoral problems related to the immediate prospects of one or another market, and still not materially affect the macro economy.

Monetarism vs Keynesianism, a False Paradigm
Kimball Corson
04/30/2016, Pago Pago, American Samoa

Monetarism, as developed by Friedman and others, looked to regulating the economy by using changes in the money supply rather than in interest rates. It assumed there was a demand for money by each household and firm that varied with economic circumstances. Monetarism failed in my view because the meaningful demand is not for money per se but for liquidity and it developed that there became a plethora of instruments which could provide various degrees of liquidity along with a considerable variety of money from M1 thru M4. The Fed was unable to control such liquidity or the money supply very well.

The focus then shifted from trying to regulate the economy by controlling or regulating the money supply directly, to trying instead to do that by controlling interest rates instead. That was thought to be the better way to regulate the economy. That has more messed up asset valuations than been very effective. The truth is the money supply is determined by bank borrowings which is too largely beyond the control of the Fed. QE is a form of return to gross monetarism where the Fed massively intervenes directly to increase the money supply by buying huge quantities of mostly impaired assets in secondary markets. Open market operations on steroids.

Robinson was correct that the Americans bastardized Keynes' "General Theory," but the Brits did little better. Keynes' real and primary concern is with why Say's law fails (why all income in one period is not spent on consumption and real investment in the next period) or with hoarding, with the liquidity trap as the extreme example of that. The trap confused the hell out of most people who when then missed the main point or the idea of hoarding.

Today that concept and perspective is almost totally lost. There is no real room for it in the IS-LM and expanded models. They assume Keynes' main concern away by taking Y=C+I+G+NE (as though Say's Law applies) instead of Y=C+I+G+NE-H or hoarding where I is investment in real productive capacity only (and not money used for "investment," speculation or trading in secondary markets, hoarded as cash or held off shore). Such real investment was highly uncertain, looked to many other variables and could be driven by cycles of animal spirits. Keynes is acutely misunderstood on both sides of the pond and few understand his focus on hoarding. Let me explain.

The liquidity trap occurred where, at some low interest rate, the demand for money became so elastic (infinitely so) that money would be hoarded in whatever quantity was made available and not at all spent on any consumption or real investment. The Fed could very substantially increase M2 at some low interest rate and yet consumption and investment would not significantly increase.

The liquidity trap was the most extreme breach of Say's law imaginable where all new money made available would be totally hoarded. People didn't understand this or why Keynes focused on it. They still don't or why Keynes focused so on real investment and why it might be less than savings (S > I). Keynes has been grossly misread in the US and his core insights on why Say's law does not apply has been ignored.

"Keynes had struggled for years since his repudiation of the intellectual apparatus of "Treatise" to induce a compelling theoretical cause for his burning belief that investment could, even under flexible prices, fail to harmonize with savings in a way that would maximize aggregate income. In "The General Theory," he believed he had found it. It was the concept of "liquidity preference," or the idea that people might choose to hoard inert cash rather than consume or invest the fruits of their labor." from Keynes and Money: A Man Obsessed? by Benn Steil on

Say's law is alive and well in mainstream neoclassical economics which is why it is so useless in predicting anything very useful, like slack aggregate demand. output gaps, under consumption, under investment and much of what really interests us.

Hillary Oinks as She Walks
Kimball Corson
04/30/2016, Pago Pago, American Samoa

Hillary Clinton and her husband, former President Bill Clinton, combined to earn more than $153 million in paid speeches from 2001 until Hillary Clinton launched her presidential campaign last spring, a recent analysis shows.

In total, the two gave 729 speeches from February 2001 until May, receiving an average payday of $210,795 for each address. This includes at least $7.7 million for at least 39 speeches to big banks, including Goldman Sachs and UBS, with Hillary Clinton, the Democratic 2016 front-runner, collecting at least $1.8 million for at least eight speeches to big banks.

So much for the two being in public service and acting in the public's best interest, instead of in their own personal financial interest.. Hillary is bought off totally and paid for, lock, stock and barrel. Such payments are bribes paid in advance or pre-bribes as I call them. Not payments for treasured words of wisdom.

Kimball Corson
04/25/2016, Pago Pago, American Samoa

percentage of working age US population that is employed (1-x = unemployed), Chart to go with previous post.

More on Our Current Economic Situation
Kimball Corson
04/25/2016, Pago Pago, American Samoa

The post-2000 trend line (or LLS fit) on US industrial production (i.e., US output of productive effort) is certainly well below the pre-2000 output trend line. It is essentially flat. The difference between these trend lines reflects our the US output gap. Before 2000 we had a much higher percentage of the working age population in the US employed. In terms of production and consumption we are in a stable new "lower low" and we can stay there for quite some time.

Output or industrial production remains depressed because consumption is depressed. Consumption drives industrial production. Consumption is depressed because because the distribution of income in the US has become badly and increasingly skewed toward the top such that now the top 10 percent got a record 48.2 percent of all national income last year.

U.S. income inequality has been growing for almost three decades. The rich hoard much of their income so that is does not get spent on current consumption or real productive investment in the US --- much sits in off shore accounts and much in cash. That depresses aggregate demand and aggregate production adjusts downward to clear markets and not have huge inventory build-ups. We now live in a new lower low and will stay there as long as income is so mal-distributed. Distribution is American capitalism's greatest failure.

Not one in twenty economists get this and most lay people, including those here, don't either. It is an inconvenient truth most want to deny. The answer is political, not economic.


Post script

With export of much American industry abroad to take advantage of cheaper labor, Many Americans became super rich on the savings in labor costs while many Americans lost their jobs and became super poor or were squeezed into the US service sector with jobs at much lower pay. These developments were one source of American income inequality, but other factors are involved too. Neither production, nor employment of American's of working age population has been able to recover from the Great Recession which quickly ensued. It was the shake out of the aftermath.

On Our Economic Situation
Kimball Corson
04/25/2016, Pago Pago, American Samoa

Warren Mosler, not to be dismissed at all, argues "it would not surprise him if data revisions in coming years show the US has been in recession since not long after oil prices got low enough for capex to collapse.

"And it's an old fashioned 'under consumption theory' slowdown- any agent that spent less than his income needed to be 'offset' by another who spent more than his income, or the output wouldn't have been sold, etc. Unsold output = rising inventories = cutbacks output = reduced income = reduced sales = reduced income = reduced sales = pro cyclical downward spiral, etc. as income reductions in one sector 'spread' to cuts into reduced sales in the rest."

It could well be that production has been overstated or not, but still all be consumed, if -- given the income inequality we have -- there 1) could well be a recession for those below the median income, 2) but the super rich could still have been buying at higher levels while still hoarding at high rates and 3) those between the median income and the top 2% could well be buying very much more -- enough to clear actual aggregate production levels. Also, we have been in a new lower low, where consumption and production is not at all what they could be. There is a large output gap we know.

I doubt production data will be revised that much, nor will any revisions preclude this aggregate scenario. Different people are getting very different mixed signals from this situation.

Suicide on the Rise
Kimball Corson
04/25/2016, Pago Pago, American Samoa

Suicide in the United States has surged to the highest levels in nearly 30 years, a new study finds, with increases in every age group except older adults. The rise was particularly steep for women. It was also substantial among middle-aged Americans, sending a signal of deep anguish from that group whose suicide rates had been stable or falling since the 1950s.

The suicide rate for middle-aged women, ages 45 to 64, jumped by 63 percent over the period of the study, while it rose by 43 percent for men in that age range. The overall suicide rate rose by 24 percent from 1999 to 2014, according to the National Center for Health Statistics.

The nation's suicide rate is the highest since 1986. The rate rose by 2 percent a year starting in 2006. "This is part of the larger emerging pattern of evidence on the links between poverty, hopelessness and health," said Robert D. Putnam, a professor of public policy at Harvard. (Digested from NY Times article.)

The Core Issue
Kimball Corson
04/24/2016, Pago Pago, American Samoa

The key and central question that separates and divides all of us is this --

Do you really care about how all of us are doing or do you only really care about how you, you family and your friends are doing?

We are a nation sharply divided on this question.

The Idea of Consols (Alert: Important)
Kimball Corson
04/24/2016, Pago Pago, American Samoa

What is suggested is that instead of using government bonds and deficit spending we could use "consolidated shares" or consols, an undated government financing instrument (think 'stock') that has more in common with equity than debt.

It would be like a perpetual bond or a share in America redeemable only at the option of the government (think stock buy back) which pays interest like a mandatory dividend.

This could eventually replace or could be used to reduce public debt and give us the advantages of deficit spending without running up a a deficit to be repaid. No more claimed stealing from future generations which was nonsense anyway because debt is simply rolled over and not much repaid.

Using consols instead of treasury bonds is not much different substantively with current practices, but it sure sounds different.

I can see the sales pitch now. Buy shares in America. A secondary market would provide the necessary liquidity and valuations or yields. Like for stocks. Makes debt disappear.

A Note on Welfare Economics
Kimball Corson
04/24/2016, Pago Pago, American Samoa

Whether any allocation of resources is truly efficient is the issue. But efficient at what? By efficiency in economics we mean whether any state or situation regarding resource allocation maximizes social welfare. In welfare economics attempt is made to establish criteria or norms with which to judge or evaluate alternative economic states and policies from the viewpoint of total efficiency or social welfare.

These criteria or norms serve as a basis for recommending economic policies which will increase social welfare. Thus the norms established by welfare economics are to guarantee the optimal allocation of economic resources of the society.

Putting it more specifically, Prof. Baumol of Princeton writes, "Welfare Economics has concerned itself mostly with policy issues which arise out of the allocation of resources, with the distribution of inputs among the various commodities and the distribution of goods and services among various consumers." And it may be emphasized again that allocation of resources is efficient or optimum when social welfare is maximum.

The core difficulty which is faced in welfare economics is that it is not possible to measure social welfare objectively, for it involves making interpersonal comparison of utilities or welfares of different individuals comprising the society. However, there is a way around this, in part.

In order to avoid making interpersonal comparison of utility, whose scientific nature has been challenged, among others, by Lord Robbins, economists have mostly used what is known as Pareto- optimality criterion for evaluating whether social welfare increases or decreases as a result of a specific change in economic state, situation or policy. But it works only near optima.

According to Pareto criterion of optimality or efficiency, any change near optimum that makes at least one individual better off without making any other worse off is an improvement in social welfare. Pareto optimality is really a second order condition to assure an optimum. Before that , in approaching an optimum all individuals' welfare must be weight equally . Of course, when a certain change makes everyone in the society better off, social welfare will undoubtedly increase.

On the other hand, social welfare will decrease if a certain change makes no individual better off while it makes at least one individual worse off. With the aid of this criterion we can define the state of maximum social welfare and what is known as Pareto optimality or maximum economic efficiency.

The rub, of course, is some pigs think they are more equal than others for any one of a number of reasons none of which are anything other than bogusly self serving. Macro economists, absent good reasons not to, tend to treat everyone equally.

The Kaldor-Hicks criterion is another way of judging economic re-allocations of resources among people that captures some of the intuitive appeal of Pareto efficiency, but has less stringent criteria and is hence applicable to more circumstances. A re-allocation is a Kaldor-Hicks improvement if those that are made better off could hypothetically compensate those that are made worse off and lead to a Pareto-improving outcome. The compensation does not actually have to occur (there is no presumption in favor of status-quo) and thus, a Kaldor-Hicks improvement can in fact leave some people worse off.

This framework is where many economists are coming from with their policy and social prescriptions. Those opposing them don't care about social optima, but only in keeping the excesses they have acquired (read, republican elites).

What Does It Mean to Lie?
Kimball Corson
04/24/2016, Pago Pago, American Samoa

Much can be classified as lying that really isn't. This is so because there is no real intent to deceive on a matter that is of material importance regardless of any concept of the truth. Excluding those "lies," we are left with "real or serious lies" which occur where there is an intent to deceive on a matter of material importance or consequence where the truth is knowingly and deliberately concealed by the one lying.

It is this kind of lying that is, I contend, substantially on the rise in America. It is often done to gain or take advantage, to cheat, to place an opponent at a disadvantage, to alter perceptions in your favor, and for other types of usually direct personal gain.

Tibetan proverb
Kimball Corson
04/24/2016, Pago Pago, American Samoa

"The secret to living well and longer is: eat half, walk double, laugh triple and love without measure..."

Cyclone/Hurricane Amos Hits Us
Kimball Corson
04/24/2016, Pago Pago, American Samoa

The Navy forecasts a near hit on American Samoa, with winds of 90 to 110 knots on (April) 24/12Z. Windguru and zygrib has it missing us by a bit, dropping south, with top speeds in the 50 to 55 knots range. Local NOAA, which is not too good, has winds at from 70 to 85 knots. The McDonalds near the docks is all boarded up. We wait to see and check for updates.

We have prepared pretty well. It is hard to think of something else we should do. Now we wait. We stocked up on food (and, me, movies) today. The wind is just starting to howl, as wind does in a blow.

UPDATE: We got hit hard but earlier than expected. All forecasters got the timing wrong. It came through hard and heavy last night (April 22) with wind around us peaking at about 90 knots or a bit over 100 mph and was gone this morning, the 23rd. The eye was slightly to the north by maybe 10 miles.

Minimal damage. But our huge cement mooring block, to which my and another boat rafted together are attached, which is staked to the bottom of the bay was dragged 150 yards west in the bay on the bottom during the blow.

All's well that ends well, I suppose. We are all tired.

MORALE: A life too secure is boring and lacking in adventure.

'A Lesson America Can Teach Europe'
Kimball Corson
04/24/2016, Pago Pago, American Samoa

According to James Zogby, a spokesman for Arab interests, Europe clearly has a problem with anti-Semitism, Islamophobia, and intolerance toward new immigrants and should look to Americans as a guiding light on these issues. What a joke. Like Europe's concerns are wholly vacuous and we are worthy examples?

In an effort to examine these so called worrisome concerns, Zogby, as a member of the United States Commission on International Religious Freedom, supports the Commission's recent move to convene discussions with European Muslims and Jews to address Europe's prejudices. Also, Europeans just love religious commissions.

Good Luck, I think.

America Is in a Serious Rut
Kimball Corson
04/24/2016, Pago Pago, American Samoa

After a flurry of articles attempting to look at and behind Trump as a phenomenon and at the wreckage of the republican party as a spectacle and at Hillary and why she should not be, and after the usual sea of financially dire and doomsday articles on one or another market or the economy and on the doings of Hollywood's foot notables -- while simultaneously surrounded by an ocean of bad American cinema preoccupied with mayhem, evil and blowing things up and an equally forgettable fountain of new books, it seems American culture and print are stuck in a rut and have nowhere to go.

Our social problems are adequately understood by most, and a few good solutions have emerged, but the republican party serves as a running block for the oligarchy to prevent most fixes and repairs, as the elites of the party fight with its base. Lay republicans are learning their economic interests are being screwed by their party and they are beginning to disbelieve in the boogiemen those elites have been selling them for years - that voting for democrats will cause you to lose your guns and religion and blacks and gays or worse will move in next door. Regrettably, the democratic party is little better for it too has sold out its constituency economically for personal gain, most unprogressively.

The power of the social threats of the Republican Party is waning and the power of the republican base's damaged economic interests is rising. Yet nothing has broken lose as of yet. So we are in a political rut, too, and we will stay there if Hillary is elected.

That America is stalled out is my point. We likely won't stay that way, but that is where we are for now. The calm before the storm?


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