tag:blogger.com,1999:blog-8764541874043694159.post6120365379349894264..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: Consumption booms and austerity Frances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger44125tag:blogger.com,1999:blog-8764541874043694159.post-77016854353452813072013-01-14T12:31:05.234+00:002013-01-14T12:31:05.234+00:00The essential feature of the relationship between ...The essential feature of the relationship between changes in public spending and changes in private sector growth is that it is empirical. The data are not assuming anything.<br /><br />The big problem is explaining the data. The data are so consistent over the past 60 years that they have the nature of a "law". But, as you say, what causes what? Thanks for all of this "food for thought", I will think about your last paragraph in depth. Johnhttps://www.blogger.com/profile/07442010719863995872noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-25602571084678466532013-01-14T04:52:48.883+00:002013-01-14T04:52:48.883+00:00When we're releasing Gold prices for food will...When we're releasing Gold prices for food will increase because the central bankers have been playing up, but the market can solve this issue: http://www.fastcoexist.com/1678464/let-them-eat-what-high-food-commodity-prices-could-cause-a-global-revolutionSlimBoynoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-78838392954045310712013-01-14T00:47:42.476+00:002013-01-14T00:47:42.476+00:00Some would disagree:
The Tiny Dot
http://www.you...Some would disagree:<br /> <br />The Tiny Dot<br />http://www.youtube.com/watch?v=H6b70TUbdfsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-7154406591365481902013-01-13T20:22:28.419+00:002013-01-13T20:22:28.419+00:00I don't think you can make any assumptions abo...I don't think you can make any assumptions about the direction of causation without knowing far more about what else was going on at the time. Yes, Chart 4 does appear to show a growth slowdown between 1933 and 1934. But after that growth picks up again and the curve actually follows the public spending growth curve with a slight lag - which suggests that if anything private sector growth was supported by the New Deal public spending, not choked off by it. You have homed in on two points to support your argument and ignored what the rest of the curve suggests. <br /><br />The causes of the 1938 contraction have been clearly identified as premature tightening of monetary and fiscal policy. I'll send you the academic papers on this if you wish. <br /><br />You haven't considered the possibility that the rises in public spending are caused by the public sector compensating for loss of private sector investment in economic downturns. That is consistent with the sectoral balances equation: if I reduces, then assuming that S and (X - M) remain constant, (G - T) must increase - i.e. the public sector must run a deficit. I've already discussed the possibility that I is forced to reduce BECAUSE OF increasing (G - T), but that can't possibly be the case when output is falling. Under these circumstances it is more likely that (G - T) would increase to compensate for a fall in I. It seems likely to me therefore that both crowding out and crowding in effects are present in your curve, and you don't have enough information to determine which is operating when. <br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-41797340052175948722013-01-13T19:54:41.621+00:002013-01-13T19:54:41.621+00:00"To say that a temporary slowdown in the rate..."To say that a temporary slowdown in the rate of positive growth indicates that public spending is choking off recovery is simply wrong. "<br /><br />True. Public sector spending increases appear to be reducing the rate of recovery. They appear to be slowing recovery down. But we need to know more. <br /><br />What is clear is that recovery was well underway before the large increase in public spending of the New Deal, private sector growth being positive just before the New Deal spending, and that as public spending increased the rate of private sector growth decreased. Did the New Deal inhibit this growth? We need to know why the second derivatives are so tightly coupled. The tight coupling of the second derivatives is fascinating because, since 1950, it has the nature of an inevitable and fixed relationship.<br /><br />Johnhttps://www.blogger.com/profile/07442010719863995872noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-25563076417145995812013-01-13T16:07:57.573+00:002013-01-13T16:07:57.573+00:00What's the mathematical equation for waste, fr...What's the mathematical equation for waste, fraud, abuse, crony capitalism, money printing, changes in accounting rules which has led to flat wage and wealth growth for the bottom 90% as the top 1% has captured 90% of these gains over the last 40 years?Fatboyhttps://www.blogger.com/profile/13777120295384956611noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-10429414557137530842013-01-13T15:07:28.527+00:002013-01-13T15:07:28.527+00:00But we are using these equations with reference to...But we are using these equations with reference to practical reality. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-72896354903210935662013-01-13T14:08:47.945+00:002013-01-13T14:08:47.945+00:00If you look at the equation again you will see tha...If you look at the equation again you will see that under most circumstances S must be > I. Which means that there will always be a proportion of savings that are not invested. Cullen Roche's link explains this by decomposing S into I, which is direct investment in the economy, and (S - I), which are net financial assets (cash and government debt). The accounting identity derived from that is:<br /><br />S = I + (S - I) = I + (G - T) + (X - M)<br /><br />Hence the (S - I) in the main equation is not the whole of S, but only the part of S that is "uninvested" as you put it.<br /><br />In other words, the government deficit and trade deficit together account for the proportion of savings NOT invested directly in productive activity within the domestic economy. It follows that when the government deficit and trade deficits are large, S > I by quite a bit. <br /> Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-90967447319205229372013-01-13T13:57:02.168+00:002013-01-13T13:57:02.168+00:00You are still assuming that correlation=causation,...You are still assuming that correlation=causation, and in one particular direction which (I assume) suits your ideological stance. You can't assume that two concurrent peaks on a chart are necessarily related, and nor can you assume that one necessarily causes the other. There are other factors - for example, interest rates were progressively hiked from mid-2004 onwards, which would have caused a slowdown in private sector growth starting from 2005. What is more surprising is that private sector growth appears to have recovered immediately prior to the crash despite higher interest rates. <br /><br />I've also now checked your data set for the 1930s (at the end of your post), and I suggest you re-plot your graph on a simple linear basis. Graph 1 in the Sydenham post is a second derivative - it plots the RATE OF CHANGE of GDP growth, not GDP growth itself. Therefore when the line slopes downwards it simply indicates that growth has slowed, not that it has reversed. To say that a temporary slowdown in the rate of positive growth indicates that public spending is choking off recovery is simply wrong. The figures show that the private sector grew throughout the period 1933-38, despite the New Deal spending. <br /><br />Non-public sector GDP is as follows:<br /><br />1929 91.92<br />1930 79.28<br />1931 64.33<br />1932 46.26<br />1933 43.78<br />1934 53.19<br />1935 58.52<br />1936 67.04<br />1937 74.68<br />1938 68.42<br />1939 73.15<br />1940 80.98<br /><br />Actually you have the same problem with your UK data graph. It is a second derivative. I would be a bit careful with what you deduce from it if I were you.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-1936299253982983842013-01-13T12:58:55.087+00:002013-01-13T12:58:55.087+00:00This codifies the central fallacy of this entire d...This codifies the central fallacy of this entire discussion.<br /><br />Savings do not equal investment because incomes do not equal expenditure. Savings may remain uninvested.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-41415158469836667062013-01-13T12:53:49.650+00:002013-01-13T12:53:49.650+00:00The reason Sydenham's Law is called a "La...The reason Sydenham's Law is called a "Law" is that in the past 60 years rising public spending <b>always</b> accompanies falling private sector growth in the UK and US economies.<br /><br />The graphs in the article <a href="http://pol-check.blogspot.co.uk/2013/01/sydenhams-law-of-public-expenditure-and.html" rel="nofollow">Sydenhams Law of Public Expenditure and Economic Growth</a> are all empirical data. They contain no assumptions.<br /><br />The analysis of Sydenham's Law is, as you point out, problematical. Does rising public spending cause falling private sector part of GDP or is it, as you say, a reflex response? If we look at the 1930s the data show that private sector GDP growth was recovering before the New Deal expenditure. It is only as public spending is ramped up that private sector GDP growth falters. Similarly, in the UK data we see a rise in public sector spending in 2005 that was ideological, not due to global economic conditions or faltering GDP growth, and private sector GDP falls "pari passu". The other inflections in public spending in the 30s have the expected effect on the private sector, rises cause falls and vice versa. It is only with the mega spend of the war years that truly huge public spending raises the private sector briefly.<br /><br />In the <a href="http://pol-check.blogspot.co.uk/2013/01/can-increased-public-spending-end.html" rel="nofollow">UK Data</a> (Graph 2) there is an entirely ideological increase in public spending in 2005 and it is immediately accompanied by a fall in private sector growth.<br /><br />The other factor that puzzles me is that increased private sector growth would be exploited by UK socialist governments to increase public spending but in every case the rate of public spending increase decreases....<br /><br />PS: thanks for discussing this. I am truly puzzled by this empirical data that appears to contradict orthodox views.Johnhttps://www.blogger.com/profile/07442010719863995872noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-62978957653085556302013-01-13T12:33:05.483+00:002013-01-13T12:33:05.483+00:00Would you please identify yourself. It's hard ...Would you please identify yourself. It's hard talking to someone who is faceless and nameless. I accept anonymous posts because some people find Blogger's sign-in protocol difficult, but I would prefer it if serious posters identified themselves. <br /><br />You are entitled to your views on the nation state, money, production and so forth, but I can't see what they have to do with a post that is discussing how funds flow around nation state economies.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-50509007050670929932013-01-13T12:18:12.625+00:002013-01-13T12:18:12.625+00:00Ralph,
I think you've misunderstood the equat...Ralph,<br /><br />I think you've misunderstood the equation. It is flow of funds, not cash movements - they aren't the same thing. Capital investment is included in the equation as I in the identity (S - I). By defining savings too narrowly as "cash" you force exclusion of non-cash forms of savings acquired in that period - which (along with cash) make up "net financial assets" in JKH's expansion of S to S = I + (S - I). I really recommend you read Cullen's link.<br /><br />Keynes' definition of savings is this:<br /><br />Savings = excess of disposable income over consumption spending<br /><br />That's pretty much the definition I have used and the definition required by this equation.<br /><br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-37018666480344465992013-01-13T12:11:01.838+00:002013-01-13T12:11:01.838+00:00Ok...you have to remember, with me, there's 0 ...Ok...you have to remember, with me, there's 0 point in talking about any "country"; a 'geographically contiguous state' is an alien idea, a fiction, no matter what you call said state, seeing as any and all states can only ever be one person or a group, who by definition move around. BUT ANYWAY, no I do not think that only one (relatively) small group of people is going to "produce all the food for the world".<br />And no, I have no idea about freegold. Just the State-money-franchise is ending, clearly! If it helps, imagine X person produces food for Z and Z produces clothing for X.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-6853882247044944582013-01-13T12:05:31.897+00:002013-01-13T12:05:31.897+00:00"Using equations" without regard for pra..."Using equations" without regard for practical reality caused a global depression, by the way. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-22964903351766521882013-01-13T12:00:00.681+00:002013-01-13T12:00:00.681+00:00Wouldn’t it be best to say something like (NS) = (...Wouldn’t it be best to say something like (NS) = (G-T) + (X-M), where NS is “net saving of cash by the private sector”?<br /><br />I’m not happy with the following definition given by Frances: "S in this equation is the excess of private sector income over consumption spending". Reason is that that drags in concepts like the difference between consumption spending and spending which is of a capital investment nature. The latter difference is irrelevant to the “cash movement between sectors” question. <br /><br />Does that improve things?<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-90394765444525592322013-01-13T11:21:56.663+00:002013-01-13T11:21:56.663+00:00For one country to produce all the food for the wo...For one country to produce all the food for the world would turn the rest into slaves - or beggars.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-19505577900879240972013-01-13T11:15:24.916+00:002013-01-13T11:15:24.916+00:00Okay, I've got you now....Freegold, yes?Okay, I've got you now....Freegold, yes?Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-40869513748837342552013-01-13T11:12:03.365+00:002013-01-13T11:12:03.365+00:00When using equations we do have to have agreed def...When using equations we do have to have agreed definitions. In the post, I gave the usual definition of savings in this equation:<br /><br />"S in this equation is the excess of private sector income over consumption spending"<br /><br />Can I please refer you to my reply to Ralph above regarding the difference between savings as a flow and savings as a stock. This is the flow definition, because the equation is a flow equation. <br /><br />The word "save" itself has many different meanings, but only one of those meanings can apply in each use of the word. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-56251824142081717662013-01-13T11:05:46.961+00:002013-01-13T11:05:46.961+00:00Ralph,
I defined S in the post:
"S in this...Ralph, <br /><br />I defined S in the post:<br /><br />"S in this equation is the excess of private sector income over consumption spending"<br /><br />Since income and spending are both flows, S must also be a flow, not a stock. Asset buildup - accumulated savings over time - is a stock. <br /><br />This equation describes flows, not stocks. Therefore it applies to the current period only, not to savings over time. It is entirely correct to state that within any given period, global savings and investment flows are equal, unless we are trading with Martians. But that doesn't mean that sectoral ones are. <br /><br />I thought you were an MMT fan? This is the standard MMT sectoral balances equation. Cullen's link explains the decomposition of (S -I) to include net financial assets separately from investment, thus resolving the tension between the Keynesian equivalence S = I (except in distressed circumstances) and the requirement of this equation that S > I.<br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-13723285504371954192013-01-13T10:46:29.313+00:002013-01-13T10:46:29.313+00:00Are there ONLY two meanings to the word “save” ? S...Are there ONLY two meanings to the word “save” ? Surely each person thinks differently, no? I mean, there can be a rough, generally agreed upon idea, but definitions are by definition not entirely fixedAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-23309683816357440992013-01-13T10:40:42.283+00:002013-01-13T10:40:42.283+00:00I should have added, sorry, the state of play as f...I should have added, sorry, the state of play as far as we are concerned is as follows: <br /><br />Imagine a man (US economy) who's jumped out of a plane, and is now speeding towards the Earth. When Gold is let loose it's like the sudden halt of a parachute, causing Stocks to plummet, but not in dollar terms ;-) So at around $15,000 for Gold people will buy the dip for stock in agriculture, helping to generate a fairly remarkable return to mother nature, if you will. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69407656527583742812013-01-13T10:39:38.737+00:002013-01-13T10:39:38.737+00:00This equation is misleading: (S - I) = (G-T) + (X-...This equation is misleading: (S - I) = (G-T) + (X-M).<br /><br />The problem lies in the fact that there are two meanings of the word “save”. There is, first, “accumulate cash”. And second there is “sacrifice current consumption so as to build up an asset with a life of more than say 3 years and anything up to about 100 years.”<br /><br />The equation is true in the saving (or “dissaving”) cash sense. However it is certainly not true in the “build up assets” sense. Think about it: suppose the dividing line between consumption expenditure and investment expenditure is the above 3 years. And suppose there is a shift from spending on stuff designed to last 2-3 years to stuff designed to last 3-10 years. That implies that G,T,X or M have to change, which of course is nonsense.<br /><br />It’s the above ambiguity that leads to Anonymous above saying above that “Saving and investment are equal. Always.”, and to the subsequent comments.<br /><br />I suggest those using the equation always make it clear they are using it in the “saving or dissaving cash” sense.<br /> <br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-33294162172399543442013-01-13T10:31:00.855+00:002013-01-13T10:31:00.855+00:00Quite so. You will learn just as much if you consi...Quite so. You will learn just as much if you consider DoubleLine's recent conference call for a second: https://event.webcasts.com/viewer/event.jsp?ei=1011461 Another famed US financier looking for a slightly similar angle is Jim Rogers, though he seems to be betting more on Asia. I personally favour America because it is able to act (and react) more quickly thanks to its unique type of flexibility (governance is essentially already privatised). <br /><br />Also, although the US has problems with conflicts of interest - as each State on Earth does - to me at least, it is less opaque than China. But, then again, maybe that's only because I do not speak their language. <br /><br />I have also just uploaded the slides for your convenience, Frances: <br />http://www.scribd.com/doc/120138531/DoubleLine-Snake<br /><br />Perhaps it would be best, however, if you first acquainted yourself with this article: http://www.bloomberg.com/news/2012-11-30/bond-investor-gundlach-buys-stocks-sees-kaboom-ahead.html<br /><br />I have tried to show you why I think that about US agriculture. Hope I have remained on topic enough for you.<br /><br />Best Wishes <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69526506699399981742013-01-13T09:34:47.729+00:002013-01-13T09:34:47.729+00:00You're thinking that agriculture could be the ...You're thinking that agriculture could be the solution to the US's trade deficit? Do you think the US COULD "feed the world"? Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.com