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Thursday, August 27, 2015

Pondering Post-Peak Oil Theory

Although I would consider myself to be in broad agreement with "Peak Oil" theory, I am less sure about some of the recent approaches to it. The Oil Drum was the go-to site for peak oil analysis, and I am unaware of any comparable replacement. My diagnosis is that Peak Oil theory developed a public relations problem after the 2009 Financial Crisis - many believed that oil prices would keep going on up to $300/barrel (or whatever), and there was a shock when oil prices collapsed. My feeling is that many in the Peak Oil camp over-reacted to that event.

Tuesday, August 25, 2015

Why The Fed Should Ignore The Equity Markets

Global equity markets are trading in a disjointed fashion, but there are reasonable arguments for the Fed to ignore the wailing for intervention. Although I do not think a rate hike is needed based on trends in the real economy, if I thought a September rate hike was needed a few weeks ago, it would still be the right response. If the equity market weakness is a sign that the global economy is really keeling over, a couple of rate hikes by the Fed would not make much of a difference at this point.

[UPDATE - 2015-08-27] Another reason to ignore the stock market (that I forgot to mention) is that it bounces up and down in a deranged fashion. A few days after the "end of the world" commentary by equity strategists, everything is apparently back to normal. Another advantage of following credit, and not equities, is that the credit market only tends to break down after a spate of defaults, which are not just transitory mark-to-market events.

MMT And Net Financial Assets

There have been some recent characterisations of Modern Monetary Theory (MMT) which I believe are incorrect. In my view, the MMT positions are largely common sense positions, albeit phrased in an original fashion. I am luckily outside of academia, so I have little interest in the question of determining publication priority of analysis. It may be that academics within the MMT tradition would offer a more pointed defence of their analytical framework; I am just offering my interpretation of the MMT literature.

Monday, August 24, 2015

Mosler On Krugman On Debt

Warren Mosler offers a good analysis of Paul Krugman's article "Debt is Good." I try to avoid writing "Paul Krugman does not get it" articles, as that is already a crowded field. However, since the article caught a lot of attention, and is right up my alley, I feel I should comment on it.

Sunday, August 23, 2015

Productivity Data Just Telling Us Growth Is Mediocre

Tim Duy recently published an article "Some Thoughts On Productivity And The Fed." He reflects on Fed Chair Yellen's July 10th speech. My view is that the fall in productivity is just a direct effect of the weak growth that has afflicted the United States, and is not telling us anything else. If policymakers tolerate weak demand growth, lousy productivity is what they should expect. This tells us little about inflation, as weak productivity growth could translate either into weak growth of real wages or real profits.

Monday, August 17, 2015

The Limited Role Of Currency In Government Finance

There is a tendency to associate currency (in North America, dollar bills and coins) with the concept of "money." This is somewhat unfortunate, as currency is of limited importance for most developed countries, at least outside of the underground economy.

Since the underground economy consists of activity that is precisely aimed to avoid interference by government (laws, taxes), it has limited effect on government finance under most circumstances. This article contains an excerpt from my eReport Understanding Government Finance. It explains how currency interacts with the rest of the financial system, based on what I refer to as the Simplified Framework of Government Finance (discussed in an earlier article). The Simplified Framework is based on the Canadian system of government finance, with a few simplifications.

Wednesday, August 12, 2015

Inflation And Debt Burdens

Nathan Tankus recently published an article entitled "No, Inflation Doesn’t Erode the Burden of Debts" (h/t Tom Hickey at Mike Norman Economics). Nathan correctly diagnoses that mainstream economists (he cites Paul Krugman) routinely jump between the concepts of "inflation" and "CPI inflation" (Consumer Price Index), and that a rise in the level of the CPI does not help out borrowers. What matters is wage inflation. I have made the same complaint myself. However, the mainstream logic is not exactly incorrect, it is just based on an embedded assumption about the long term. This seems to be done for reasons of politics, or more accurately, attempting to hide politics from economics.