Category: Economics

  • The Real (Real) Wealth Effect: Do Wealth Changes Change Spending and Cause Recessions?

    My gentle readers who have followed me over time will have seen this graph and statement far too many times by now: Since 1970 in the U.S., (almost) every time you saw a year-over-year decline in real household assets or net worth, you were either just into or about to be into a recession.* It’s…

  • What Causes Recessions? A Physicists’ Complex Systems Model

    I received some very interesting comments from Yaneer Bar-Yam to my recent Evonomics post — “Capital’s Share of Income is Far Higher than You Think.” He pointed me to his very interesting paper, “Preliminary steps toward a universal economic dynamics for monetary and fiscal policy.” I’m using this space to reply with with some stuff that can’t…

  • Are Holding Gains “Pseudo” Income? A Response to Martin Sandbu

    I just noticed with pleasure that Martin Sandbu, whose work I much admire, has posted a response to a thread of posts between me and Matthew Klein. Here in chronological order: Me: Why Economists Don’t Know How to Think about Wealth (or Profits) Matthew: The virtues and pitfalls of putting capital gains into the national accounts Me:…

  • Wonky: More on Martin Sandbu’s “Pseudo” Income and Saving

    In my previous post, I replied to Martin Sandbu’s interesting response to my (and Matthew Klein’s) previous posts on holding gains, income, saving, and wealth. Here some more (accounting-dweeby) thinking on the subject, which I post here to avoid clogging the previous and making it even more overlong. Another way to explain this issue: I…

  • MMT and the Wealth of Nations, Revisited

    I just had occasion, in replying to a correspondent, to reiterate much of the thinking in my recent MMT Conference presentation. I thought it might be a useful and apprehensible form for some readers, so I’m reproducing it here. I’ve also explained this at somewhat painful length here. Correct me if I am wrong but…

  • Wealth and the National Accounts: Response to Matthew Klein

    I’m both abashed and delighted that the truly stand-out econ writer Matthew Klein has offered wonderfully fulsome praise of one of my pieces, Why Economists Don’t Know How to Think about Wealth, and some very interesting discussion as well. Some responses here. Please excuse me if I repeat some of the points from the first article. >His…

  • “In the Beginning…Was the Unit of Account” — Twelve Myths About Money

    Jan Kregel presented a great dinner speech at the recent Modern Monetary Theory Conference, touching on some of the fundamental ways we think about money and economics. (Sorry, no recording or transcript available.) I had a brief conversation with him afterwards, and we followed up with a few emails. The quotation in the title of…

  • The Giant Logical Hole in Monetarist Thinking: So-Called “Spending”

    Ralph Musgrave, who knows a thing or two about modern economic thinking, perfectly articulates the giant logical hole in monetarist thinking in a recent comment (emphasis mine): If the private sector’s stock of saving is what it wants at current rates of interest, then additional public spending will push savings above the latter desired level, which…

  • Liberals Getting It Wrong on the Job Guarantee

    I’ve been quite troubled lately by voices I’ve been hearing from my compatriots on the Left discussing the Job Guarantee — especially in relation to an alternative, Universal Basic Income. A new Jacobin article by Mark Paul, William Darity Jr., and Darrick Hamilton displays several of the aspects that make me uncomfortable. Get the Math Right. Right off the bat,…

  • My Letter to the Fed: Stop Misrepresenting the National Debt

    The Fed data portal, Fred, just posted a blog item that I take exception to, “suggested” by Christian Zimmermann, Assistant Vice President of Research Information Services. Here’s my response. Dear Mr. Zimmerman: I’m pleased to see that this post focuses on the interest burden of the federal debt. It’s an important measure that doesn’t get…

  • What’s All Our Stuff Worth? Tobin’s Q for America

    In recent posts on the Integrated Macroeconomic Accounts, I’ve highlighted that we have two market estimates of what America’s “capital” is worth — the cumulative sum of net investment (roughly, “book value”), and total household wealth (“market value”). I got curious: how to they compare over the decades? What’s America’s market-to-book ratio, or Tobin’s Q?…

  • No: Money Is Not Debt

    A quick note in response to recent twitter thread, and to a widespread usage that I find to be deeply problematic. You constantly hear very smart thinkers about money saying that money is debt. I strongly disagree. It’s not a useful way to think about money. Quite the contrary. Balance-sheet assets designating the value of claims may…

  • Economists Agree: Democratic Presidents are Better at Making Us Rich. Eight Reasons Why.

    In 2013, economists Alan Blinder and Mark Watson — no wild-eyed liberals, they — asked a very important question: Why has the U.S. economy performed better under Democratic than Republican presidents, “almost regardless of how one measures performance”? Start with their “performed better” assertion: it’s uncontestable. While you can easily cherry-pick brief periods and economic measures that…

  • Noahpinion: What Causes Recessions? Debt Runups or Wealth Declines?

    Noah Smith asks what seems to be an interesting question in a recent post: “what leads to big recessions: wealth or debt”? But I’d like to suggest that it’s actually a confused question. Like: is it the heat or the (relative) humidity that makes you feel so hot? Is it the voltage or the amperage…

  • How Perfect Markets Concentrate Wealth and Strangle Growth and Prosperity

    Capitalism concentrates wealth. Ridicule Marx and his latter-day disciples all you like (I’ll help); he definitely got that right. But capitalism is a big word with lots of meanings, and enough ideological baggage to fill a Lear Jet. Let’s talk about something more precise: perfect markets, with ownership, in which individuals compete with others to produce stuff,…

  • You Don’t Own That! The Evolution of Property

    Get off my lawn. In a recent post on the “evolution of money,” which concentrated heavily on the idea of (balance-sheet) assets, I promised to come back to the fundamental idea behind “assets”: ownership. Herewith, fulfilling that promise. There are a large handful of things that make humans uniquely different from animals. In many other…

  • Note To Economists: Saving Doesn’t Create Savings

    Is Saving a Sin? If you save more, if everybody collectively saves more, there are more savings, right? There’s more money that firms can borrow and invest to make us all more prosperous. Household saving “funds” business investment, so if we all save more, the world will be more productive and prosperous. You hear this all…

  • Why Economists Ignore So Much of Rich People’s Income

    I have a new post up at Evonomics, hoping my gentle readers will find it of interest…   Related posts: Why Prosperity Requires a Welfare State Now (Also) Blogging at Angry Bear Bleg: Fama/French on Market Size and Efficiency Question for Market Monetarists and MMTers: What Happens if IOR Goes to Zero? Bleg: Accounting for…

  • Yes: Concentrated Wealth and Inequality Crushes Economic Growth

    Like it or not, if countries want to join the “rich country-club,” they need to redistribute wealth. What has not been studied much — at least partially because the data is hard to come by — is the distribution of wealth within countries, and how that relates to economic growth. My devoted readers will undoubtedly remember…

  • Did Money Evolve? You Might (Not) Be Surprised

    You probably won’t be surprised to know that exchange, trade, reciprocity, tit for tat, and associated notions of “fairness” and “just deserts” have deep roots in humans’ evolutionary origins. We see expressions of these traits in capuchin monkeys and chimps (researchers created a “cash economy” where chimps were trained to exchange inedible tokens for food,…

  • Why Tyler Cowen Doesn’t Understand the Economy: It’s the Debt, Stupid

    In a recent post Tyler Cowen makes an admirable effort to lay out his overarching approach to thinking about macroeconomics, revealing the assumptions underlying his understanding of how economies work. (Even more salutary, this has prompted others to do likewise: Nick Rowe, Ryan Avent.) Cowen’s first assertion: In world history, 99% of all business cycles are real business…