Recent Posts

Tuesday, September 16, 2014

Drill, Baby, Drill!

Chart: North American Drilling Rig Count
One of the developments in the North American real economy which is of extreme importance for forecasting is the surge in oil and gas drilling activity. Although the number of people directly employed in drilling is minuscule, there are multiplier effects along the supply chain. What is ominous about this activity is the track record of fixed investment in North America since at least the early 1980s - every large surge in fixed investment turned out to be a bubble that precipitated a recession when it deflated.


Sunday, September 14, 2014

Book Review: The End Of Growth

Jeff Rubin's book The End Of Growth is a good introduction to the impact of Peak Oil on the economy and markets. It was published in 2012, and the Kindle version has been updated since then (note that I did not read the updated version). Although the book is not perfect, I think it has some advantages over other analyses of Peak Oil. Although Peak Oil has been proclaimed to be dead, I explain the advantages of starting to analyse it now - you want to understand the concept before it rises again from the grave.


Wednesday, September 10, 2014

Primer: Understanding Stock – Flow Norms

A stock–flow norm is a relationship between stock and flow variables within an economic model, which we assume also holds true for the real economy. Normally, we do not expect the holdings of an asset to become "too large" relative to incomes. They are core behavioral relationships within stock-flow consistent (SFC) models. Within this article, I explain how these stock – flow norms work within these models. I will discuss the implications of stock-flow norms in later articles, but I note that they are incredibly important for the analysis of government debt dynamics.



Sunday, September 7, 2014

North American Labour Market Convergence

Chart: U.S. Employment Ratio

The American and Canadian labour market data for August were released last Friday, and they continued to follow their relatively dismal trends. As always, there was some excitement around the U.S. Nonfarm Payrolls number, which I think can be safely ignored. Although the Canadian and American economies have quite different outlooks - the Canadian housing bubble has not yet popped - there is a continued qualitative convergence in the labour market. In particular, there is weak aggregate job growth, despite allegedly unsustainable loose monetary policy, and a continued rotation towards part-time work. Since the United States already devastated its labour market, things are unlikely to get much worse, but Canada remains far more exposed to another leg down.

Monday, September 1, 2014

Labor Market Conditions Index - The Right Answer To The Wrong Question?

The latest innovation in Fed-watching is the Labor Market Conditions Index (LMCI), which was developed by Chung, Fallick, Nekarda and Ratner in a working paper (FEDS Notes). This work was referred to by Fed Chair Janet Yellen in her Jackson Hole speech. If you want to measure the slack in the labour market, something like the LMCI is probably the best way to do it. But my concern is that the assumption that we can aggregate the employment situation into a single market is misleading, and the current environment is more easily understood if we dis-aggregate the labour market. Unfortunately, this is easier said than done. My comments here will be relatively brief, as I had been busy enjoying the summer over recent weeks.

Sunday, August 24, 2014

Sustained Growth On A Finite Planet

In recent years, it has been increasingly popular to make statements along the line that exponential* economic growth cannot forever in a finite planet. (One of the more popular examples of this argument was the essay Exponential Economist Meets Finite Physicist, by Tom Murphy, an Associate Professor of Physics at the University of California, San Diego.) I follow what I would describe as a minimal Peak Oil viewpoint, but I believe that this framing of the issue in terms of a finite planet is largely incorrect in terms of analysing the economy. My reading of the situation is that under a non-catastrophic Peak Oil scenario, economic growth in the developed world will continue much as it has been doing for a fairly long horizon (30 to 50 years?). Much longer horizons (100 years, for example) is when very serious problems would show up in the economic data.