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from Edward Fullbrook Scientific education entails taming the authority of one’s intuition.  Responsible citizenship in a democracy may entail it as well. Keynes argued that markets often create inaccurate expectations of economic reality which people then act upon thereby changing reality.   This reflexivity that Keynes identified as central to capitalist markets is the opposite of the basic process described by traditional economic theory, both in Keynes’ day and in our own, whereby it...

States tend to be pro cyclical. As tax collections slow, so does spending:

Highlights Consumer spending was unusually weak in the first quarter and doesn’t look to be improving this quarter. Retail sales fell 0.3 percent in May vs Econoday’s consensus for a 0.1 percent gain. Weakness riddles the report including a 1.0 percent drop for department stores, a 0.2 percent decline for autos, and a 0.1 percent dip for restaurants. Two readings that echo price contraction in this morning’s consumer price report are gasoline stations, down 2.4 percent, and...

from Lars Syll So in what sense is this “dynamic stochastic general equilibrium” model firmly grounded in the principles of economic theory? I do not want to be misunderstood. Friends have reminded me that much of the effort of “modern macro” goes into the incorporation of important deviations from the Panglossian assumptions that underlie the simplistic application of the Ramsey model to positive macroeconomics. Research focuses on the implications of wage and price stickiness, gaps and...

Trumped up expectations coming off only slowly. Actual business conditions havenot yet responded: Not much optimism here: Trumped up expectations reversed more quickly here: Indicates active selling of US equities and buying of euro equities. This could be part of the process of portfolio managers selling $US to buy euro, reversing shifting in the other direction for the last several years as portfolios shifted out of euro due to political fears and fears of ‘money...

from Dean Baker The Trump administration’s “infrastructure week” ended whatever hope any of us had that something positive could come out of this administration. It’s clear that his promise for rebuilding the country’s infrastructure is just another Trump scam. During his campaign, Trump had made a point of complaining about the poor state of the country’s infrastructure. He had a point, as both the federal and state and local governments have cut back spending in recent years. In the...

Long story short: labor productivity, as economists define it, is best understood as the amount of ‘stuff’ the income (wages, profits, rents, interest) related to one hour of work can buy (this is a somewhat idiosyncratic take on productivity. Look however here). Productivity is, as economists define it, not any kind of physical entity. It is supposed to be ‘value added’, or total income cq. the nominal value of net production, per hour of work. For about two centuries, give or take some...

from David Ruccio Recently, I showed that conventional thinking about factor shares has been finally overturned: they are not necessarily constant, especially within existing economic institutions. In fact, labor’s shares have been declining for decades now. The opposite is true of capital’s shares: they’ve been rising for almost three decades.   The profit share of national income has, of course, a cyclical (short-term) component. It falls in the period preceding each recession, and...

The collapse continues. With total bank credit just over $12.5 trillion, it’s about $500 billion less than it would have been had last year’s loan growth continued. If this lower rate of loan growth continues, and isn’t replaced by some other channel that facilitates agents spending more than their incomes, the implication is that GDP could be a full 2% less than last year, as a substantial portion of bank lending finances purchases of real goods and services:...