Recent Posts

Monday, April 6, 2020

Modern Monetary Theory After The Crisis (Part II)

The uncertainty about the medical containment of the pandemic remains high, and forecasting at this point is largely an exercise in wild guesses. However, it seems likely that we will be in a environment of high unemployment even after a vaccine tames the virus. Modern Monetary Theory (MMT) will be highly relevant in that environment.

Saturday, April 4, 2020

Macro Models Aren't Useful Now, And That Is Perfectly Fine

There has been a small flurry of publications by neoclassical economists attempting to fit a pandemic into standard frameworks. This is what to be expected, as neoclassical models are frameworks designed to maximise the amount of publications over time. However, aggregated models are not particularly useful right now. This is true both for neoclassical as well as traditional heterodox macro models. The reason is that they do not offer much insight into either forecasting, nor are they useful for policymakers. That will change, but we are not there yet.

Friday, April 3, 2020

Quick Comment On The Difference Between Provincial And U.S. State Finances

There has been a lot of interest in state and municipal finance in the United States; a recent publication is by Alexander Williams (link). This article qualitatively outlines the key differences between U.S. state and local finances and that of the Canadian provinces.

As a disclaimer, I am working solely from memory, and want to stay away from specific data. My comments here are based on my experience as working as an analyst in a fixed income portfolio where our mandate was against provincial bond indices.

Thursday, April 2, 2020

Neil Wilson Is Back

I just wanted to let everybody know that the MMT blogger Neil Wilson is back. I have not had much time to look at his new project, but he has a cute video here:

(Thanks to "Footsoldier" for letting me know in a comment.)

Supply Chains Are Being Hit By Consumption Pattern Changes

Will Oremus has written an interesting article "What Everyone's Getting Wrong About the Toilet Paper Shortage." The key takeaway is that it is not all about hoarding or even inventory building, it is also a consumption shift. His source from inside the industry gave a guesstimate that 40% of toilet paper is for commercial buildings. With the shutdown in activity, that commercial usage is moving to houses. The problem is straightforward: commercial toilet paper is a completely different product than residential, with different inputs*, produced at different plants, and use a completely different supply chain.

Wednesday, April 1, 2020

Economics After The Pandemic (Part I): Fighting The Last War

The world faces a great deal of challenges in the coming months, but it appears that challenges will be quite different for each country. The medical challenges will depend upon the number of initial infections, as well as the readiness of the medical authorities and cultural norms (e.g., mask wearing). The medical challenges in turn will help determine the magnitude of the economic disruption. In this two-part article, I want to discuss some of the issues that will come to the fore after the virus is vanquished.

Monday, March 30, 2020

U.S. Oil Production In Process Of ... Peaking

Figure: U.S. Crude Liquids Production
My base case view matches what is priced into the markets: the crude oil market is glutted and demand is falling off a cliff. Storage constraints are in sight, and I am not seeing an immediate catalyst for a demand rebound. The nearly inevitable outcome is that drilling drops dead, and capacity is shuttered. At some point, one will be able to take the chart of U.S. crude liquid products (conventional oil plus the products of fracking), stick a red line through the maximum value, and all other values on the chart will below that maximum. In common parlance, this behaviour is known as a "peak." As a long-suffering card-carrying Peak Oil believer, I will be flooding the internet with "I told ya so!" missives.