U.S. Economy Added Only 74,000 Jobs in December

[GVChamp]

Basic simple Keynes assumes that the economy uses savings and investment as supply-demand. To put it simply. There is no "stable" unemployment level. The "stability" is when investment meets savings and that unemployment could be 10% or 20% or 50%.
Basic monetary economics would be considering the monetary mechanism as the DECISIVE factor in determining a recession. To put it simply. If there is a recession, it's because money is scarce.

They have some different ways of looking at the world. A popular monetary blogger would be Scott Sumner at the Money Illusion. There would be some broad agreement between them though, certainly more so than with mainstream Austrians. To most Austrians, though, it'd be like arguing if Hitler or Stalin is more totalitarian or whether coral or teal is the lamer color.

[snapper]

snapper,

and this is incorrect.

for instance, monetarists don't agree that monetary and fiscal actions are the same. for different reasons, keynesians don't agree that monetary and fiscal actions are the same. ONLY austrians argue that way.

there are fairly set definitions of what goes into each economic theory, and economic theorists debate each other using these set definitions. you are arbitrarily creating your own definitions.

You really are a strange creature... I argue that when monetary policy is used for to achieve Keynesian ends ie. it stops being used to target inflation which you would no doubt like to pigeon hole as a 'monetarist' ambition and is specifically used to create credit to boost demand and through that employment - what both the Fed and the BoE are now doing - it has ceased to be used for monetarist purposes and is being used to achieve Keynesian ends; hence I call it monetary Keynesianism. Now I am glad you no longer dispute my right to use whatever terminology I think best and I apologise if I do not fit into one of defined 'isms' or 'ologies' but it's pretty clear that this is no longer monetarism in the normal sense. If what they are doing not comply to your orthodox terminology that is not my fault. If you wish to label my observation as Austrian fine - call it snapperism if you want; bothers me not.

ultimately hayek and the austrians had different arguments he used with Keynesians and different arguments he used with monetarists.

I do not entirely agree with monetarism even in the classical form but when it is used for Keynesian ends I call it a dog-duck as it were; it walks like a dog but makes quacking noises and claims it's going to lay eggs.

my spending is your income. your spending is my income. if everyone saves and no one spends, pray tell-- where does demand come from? how is "wealth created" if no one, private or public, is spending money?

What about when nobody saves? I welcome GVChamp's observation;

Basic simple Keynes assumes that the economy uses savings and investment as supply-demand. To put it simply. There is no "stable" unemployment level. The "stability" is when investment meets savings and that unemployment could be 10% or 20% or 50%.

Savings and investment have not met. There are virtually no savings! More credit has been created to stimulate demand so people are now more in debt than they were as is the country. Essentially what the west and probably the world needs is a massive debt write off all around but the same errors would only be repeated almost certainly as the fiat currency system is so clearly open to abuse. Yet by all these tired old paradigms we are forcing more debt on those already over burdened with debt and devaluing their currency simultaneously... and this we are told is wisdom! It is insane. You claim to be promoting equality and have enriched the richest while making debt slaves of the poorest... More madness. Get the Government out of the money business and abolish the central banks might not be a bad start.

[astralis]

snapper,

You really are a strange creature... I argue that when monetary policy is used for to achieve Keynesian ends ie. it stops being used to target inflation which you would no doubt like to pigeon hole as a 'monetarist' ambition and is specifically used to create credit to boost demand and through that employment - what both the Fed and the BoE are now doing - it has ceased to be used for monetarist purposes and is being used to achieve Keynesian ends; hence I call it monetary Keynesianism. Now I am glad you no longer dispute my right to use whatever terminology I think best and I apologise if I do not fit into one of defined 'isms' or 'ologies' but it's pretty clear that this is no longer monetarism in the normal sense

sigh. this shows you don't understand monetarism, either, because you're confusing the theory with the day-to-day actions/mandates of the Fed.

monetarism arose as a reaction to keynesianism. monetarism, in effect, said that recessions can be dealt with as long as you give the Fed free reign to control the money supply, and that as a result fiscal actions would not be needed.

the main focus of monetarism is not "target inflation". that's one of the two mandates of the Fed.

More credit has been created to stimulate demand so people are now more in debt than they were as is the country.

care to back that up with data?

[GVChamp]

Snapper,

I would take a look at the figures Astralis provided. There seems to be a strong trend towards somewhat higher private savings rate, and higher corporate savings rates as well. There's definitely someone saving money somewhere. Also, just to add, savings=investment is an accounting identity in national income accounting, so it's "always" true. Like, if 1+1=2, then 2-1=1, it's always true that savings=investment.

However, if "investment" is undesired, IE businesses are accumulating inventories they do not want, they fire workers until they are no longer accumulating inventories. This is how the savings-investment equilibrium is reached. A monetarist would say, the issue is that people want to hold more money. Whatever the reason, that's the effect. This has the effect of draining money out of the economy and creating the recession.

This more or less appears to be what happened in 2008. The sub-prime bubble bursting created a flight to quality and a huge increase in risk premiums. People hoarded cash, and businesses ended up laying off workers and GDP fell to the floor. While I do not agree with all the responses to the recession, and think we have a big problem with long-term unemployment benefits, SSDI, etc. it's hard to say that the model has failed or failed to prescribe some "good" policies (issue more debt, print more money).

I would say that the recovery has been meager but the US has defintiely recovered a bit, while Europe continues to flounder. Japan is just SOL.

[DOR]

[/SIZE]snapper,

when monetary policy is used for to achieve Keynesian ends ie. it stops being used to target inflation...

I’m not sure what you mean by “Keynesian ends,” or why seeking to reduce unemployment by increasing the money supply – or, seeking to reduce inflation by tightening – would negate inflation targeting. In the first case, the objective is to raise inflation so as to stimulate hiring (see this week’s excellent article in The Economist on sticky nominal wages and the difference between the US and UK inflation rates in recent years); in the second, it is to reduce inflation by curtailing the money supply.

As for savings v. investment, remember that an economy can use savings – or investment – than isn’t sourced internally. US T-bills sold to the UK, for example, tap into UK savings.

And, no, posting data never hurts. But, what was the point of saying US growth slowed, when it was still miles ahead of the EuroZone economies?

[snapper]

[astralis]

snapper,

i'm not sure how these three graphs support your case.

your assertion is that Fed meddling has resulted in greater income inequality, decreases household income, and leads to greater household debt.

yet the Fed has been around since 1913 and the modern Fed has been around since the 1950s. how do you explain why US household income has grown since then? did the Fed stop operations from 1992-1998, or from 2004-2008?

moreover, your household debt to GDP ratio is not complete. here's the latest data.



how do you explain the decline of the debt ratio if your assertion is that Fed actions increase household debt? according to your theory, we should see a huge increase in the debt ratio in the last few years given the extraordinary Fed actions, not a 20% decline.

by the way, guess which credit mechanism was introduced in the 60s-70s and became popular throughout the 1980s-1990s.

[Doktor]

Few questions:

1. Why no comment on Median Income?
2. Can someone explain to me how Americans reduced the debt with lower median incomes?
3. How is household debt measured?

[astralis]

doktor,

1. Why no comment on Median Income?

i did mention it. there's clearly factors other than Fed operations that explain why median income has increased or fallen.

2. Can someone explain to me how Americans reduced the debt with lower median incomes?

by vastly reducing consumption, thus lowering demand.

3. How is household debt measured?

Household debt - Wikipedia, the free encyclopedia

[GVChamp]

Median household income (and declines there-in) does not necessarily reflect business cycle fluctutations. Or, to consider it another way, how about just median real hourly earnings? Those have not risen for white men since the 1970s. That does not mean we have been in a recession since 1972.
Households can afford to pay down their debts if they increase their savings rate, which they have done substantially. At the height of the bubble, personal savings rate were zero and negative. They aren't "high" right now, but ANY savings is substantially higher than what we were at before the bubble burst.

[astralis]

median income and the savings rate is closely related to inequality. the stagnation of middle-class income in the 1980s was in parallel to the rise of the credit card.

because wealth is to a great extent a positional good, people "kept up with the Joneses" despite this stagnating income by borrowing more on credit cards and later, against the value of their homes. it's no accident that the term "mass market luxury" began springing up in the 1990s as well.

[Doktor]

I am a skeptic (or an idiot if one prefers ;) ), but if my income is lower now, I lower the demand and save more? On top of that I reduce my debt?

Somehow, somewhere in what's left of my gray matter I am sure this sharp decline in debt vs GDP is some perfect storm of several factors.
Otherwise, I'd have to question if the books are cooked and I am (still) not that kind of a person.

[GVChamp]

IIRC, the savings rate took a dive after the Long Recession of the early 1980s and never really recovered. After that it just kept trending downwards. Only relatively recently has the savings rate staged any kind of come-back (and GOK how permanent it will be). My thought is that people thought they were richer than they actually were with the stock market bubble and subsequent home price bubble and people are starting to get a little more realistic about what they can actually afford.
I do not think this explanation REQUIRES income inequality or positional goods...because then it would be continuing now. Instead we're seeing a lot more savings. I'd say you would have seen the same thing even if Gini decreased, because the critical factors were 401k values and housing equity.

Either way, it's not directly related to business cycle fluctations. You can have an economy that is "recovering" towards full employment while still experincing declining median incomes. The decline of the middle class is a long-term trend strecthing all the way back to the 1970s.

It is not at all clear that we should even be looking at inflation for counter-cyclical policy. Your more modern monetarists want to target NGDP futures. Inflation is an interesting theoretical concept, not a measurable variable that should guide policy-making.
TheMoneyIllusion » More reasons to ignore inflation
The summary is here:

Macroeconomists need to start ignoring inflation (unless they are trying to compare living standards across time–a pretty hopeless enterprise.) And they need to start focusing on the nominal aggregates that really matter, NGDP and nominal hourly wages. It’s the W/NGDP ratio, stupid. (And always has been.)

[astralis]

GVChamp,

I do not think this explanation REQUIRES income inequality or positional goods...because then it would be continuing now. Instead we're seeing a lot more savings. I'd say you would have seen the same thing even if Gini decreased, because the critical factors were 401k values and housing equity.

well, i'd say part of the reason why it's not continuing is because the people lending credit were burned very badly (sometimes completely through fault of their own: see bank lending standards, robo-signing, etc).

and of course, there's parts of this that are not entirely virtuous: debt is "eliminated" via bankruptcy or defaulting on the mortgage, or the people whom run out vice paying for their underwater house.

note, too, that the savings rate is still fairly low despite all of this. the main driver of this, however, is not fed policy, but income stagnation as a result of technology and globalization. the world labor pool became exponentially bigger throughout the 90s and 2000s.

Your more modern monetarists want to target NGDP futures. Inflation is an interesting theoretical concept, not a measurable variable that should guide policy-making.
TheMoneyIllusion » More reasons to ignore inflation
The summary is here:

damn, didn't know monetarists were even around anymore. i mean bernanke took monetarist solutions and just went with it. it's pretty clear now that the monetarist solution might work for recessions but it's too puny a gun for depressions. i wonder what Friedman would think were he alive.

[snapper]

Few questions:

1. Why no comment on Median Income?
2. Can someone explain to me how Americans reduced the debt with lower median incomes?
3. How is household debt measured?

Statistical anomalies like the 97m US citizens who aren't 'unemployed' but who aren't working. Great world innit when all statistics are slanted for political ends? 'Tis entirely the same within the EU - if not worse.

snapper,

i'm not sure how these three graphs support your case.

your assertion is that Fed meddling has resulted in greater income inequality, decreases household income, and leads to greater household debt.

The increase in any household income has largely been credit in either national debt or the Fed's "assets" of which those purchased before May last year now show a loss so perhaps we can quit the 'QE' BS and call it what it is; debt monetisation.





Just pluses and minus's on who holds the debt.

Median household income (and declines there-in) does not necessarily reflect business cycle fluctutations.

GV,

Please define a 'business cycle'.