tag:blogger.com,1999:blog-582368152716771238.post6780141411312461104..comments2024-03-29T07:18:14.271-05:00Comments on The Grumpy Economist: Three views of consumption and the slow economyJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger71125tag:blogger.com,1999:blog-582368152716771238.post-14856051166010049552016-08-13T14:50:50.929-05:002016-08-13T14:50:50.929-05:00This article on Effects of Public Expenditure on P...This article on <a href="http://www.knowledgiate.com/effects-of-public-expenditure/" rel="nofollow">Effects of Public Expenditure on Production and Distribution </a> is also helpful. Thanks for this.Hosnehttps://www.blogger.com/profile/03041425080746679437noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-88685936715860264872016-02-05T13:20:00.615-06:002016-02-05T13:20:00.615-06:00"I've always wondered why buying a car is...<em>"I've always wondered why buying a car is good (consumption) but buying a forklift is bad (investment) in new-Keynesian models."</em><br /><br />If a business owner in a depressed economy buys a forklift, she will park it next to the other forklifts in the warehouse that have nothing to do. She already can't move her inventory because of lack of consumption demand. If, on the other hand, consumption rises substantially she will have hope that she will sell a good part of her inventory. She will not only put her mothballed forklifts and their operators back to work, but she may place an order with the factory to renew her depleted inventory. <br /><br />I observe a tendency amongst economists who are skeptical of keynesian models to think investment and consumption should be just as stimulative and see this as a tradeoff between C and I. But the forklift is the wrong tradeoff to consider. The basic <a href="http://www.bea.gov/scb/pdf/national/nipa/methpap/mpi1_0907.pdf" rel="nofollow">methodology</a> of the BEA shows us why.<br /><br />The BEA maintains the NIPA as a double entry bookkeeping system. This is critical to making sure that you don't violate accounting identities like S = I. When I go down to the dealership and buy a car for $30,000 the BEA enters the transaction in PCE as I will be driving for personal consumption. But, by doing this I just eliminated $30,000 from savings. Therefore, investment must fall by $30,000, too. Fortunately, there is an obvious counterpart to my consumption. When I bought the vehicle, it no longer belongs to the dealership. The BEA must remove $30,000 from the Inventory Investment account as the second part of the transaction. It is easy to see from this analysis that the tradeoff to consumption is not forklift vs car. It is car being used for personal consumption vs car sitting unused in dealership inventory. The forklift may sound as if it is as good an option as the car (even though it isn't), but the car sitting unused on the lot for years is far worse than the car being used as a consumption good. <br /><br />Ibnyaminhttps://www.blogger.com/profile/02200468798337178145noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-742883210319158812013-09-29T07:17:28.766-05:002013-09-29T07:17:28.766-05:00Their basic facts seem to scream: The demand for f...Their basic facts seem to scream: The demand for financial services shifted out. People with scarce skills supplying such services made a lot of money. The investor should analysis before investing where they are going to invest.<br /><br /><a href="http://www.greenworldbvi.com/alternative-investments-options/agricultural-farmland/" rel="nofollow">farmland investment funds</a>hasanhttps://www.blogger.com/profile/16352622685799052049noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-3814692174705956422013-04-23T11:12:17.387-05:002013-04-23T11:12:17.387-05:00This isn't related to the model issue per se b...This isn't related to the model issue per se but I think Harry is on to something. We may want to spend less time on economic models and more time on demographic models. I'm a financial economist, not a macro- or development economist, but it seems like there should be work out there that let's us strip out demographic effects from the long time-series of consumption growth. Obviously, there wasn't a sudden shift in 2007-2009 (except young Mexicans returning home), but there could be important aspects of changes that tell us what to expect over the next 10 years. A couple anecdotes: my baby-boomer sisters both retired in the last few years and I bet their consumption has each declined by 10%. My parents have gone from an active retirement of traveling, shopping, etc. to inactive retirement where their only consumption growth is in healthcare services. It just seems to me that if we want to really understand and compare the implications of macro models we need to adjust for any first-order demographic effects.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-67714757971087965602013-02-13T07:29:21.836-06:002013-02-13T07:29:21.836-06:00It seems that the Bank of England is also New Keyn...It seems that the Bank of England is also New Keynesian...<br /><br />http://uk.reuters.com/article/2013/02/13/uk-inflation-forecast-idUKBRE91C0JE20130213<br /><br />Once I read the most stupid reason why Keynesian is the "most successful" modelling approach: "Just look at how many people is employed to work with these models! All central banks, several investment banks, etc."<br /><br />Not difficult to reach this conclusion if the only reasons for an (active) central bank to exist are keynesian models! And then, of course, you need to employ people to forecast what these central banks will do to the economy.<br /><br />Maybe here we have: a reason why the financial sector is so inflated (and we can clearly argue that this is *not* optimal as the press likes to say). But this only happens because of the distortion that the government imposes in the market!<br /><br />What about that as a research topic?<br /><br />Regards,<br />ThiagoThiagohttp://www.portfolioresearch.orgnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-18446125801852654932013-02-10T16:32:58.229-06:002013-02-10T16:32:58.229-06:00"Lavish unemployment insurance" - LOL."Lavish unemployment insurance" - LOL.Pinkybumhttps://www.blogger.com/profile/14966880596265799283noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-92110399765717315672013-02-08T22:32:06.355-06:002013-02-08T22:32:06.355-06:00"If so, the trouble is in the second term on ..."If so, the trouble is in the second term on the right hand side of the basic equation (2). And this basic equation has a dramatic and important lesson for us: Long-run ("supply") will depress today's consumption every bit as much as expected future interest rates ("demand") effects do. And improving the long-run "supply" effects can have a direct "stimulative" effect on consumption today."<br /><br />Usually, I think, the second term is discounted, such as:<br />lim(T to infinity)C_T*{(discount factor)^(T-t)}<br />where discount factor is affected by the paths of i_t and pi_t, as well as rho. In that case, "the improving the long-run "supply" effects" are limited. And if today's austerity leads to higher discount rate than otherwise, the effect will be reduced furthermore.<br />himaginaryhttp://himaginary.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-74414808740931412522013-02-07T01:33:04.940-06:002013-02-07T01:33:04.940-06:00If you explore the last graph, it looks to ME that...If you explore the last graph, it looks to ME that this graph isn't linear. the expansion rate is slowly fastness over time. because the low hanging productivity fruit is taken, it becomes tougher and tougher to take care of X growth in consumption.<a href="http://the-equation.com/" rel="nofollow">The Equation</a>Anonymoushttps://www.blogger.com/profile/10159729733302400611noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-51957550239420676702013-02-06T21:05:34.951-06:002013-02-06T21:05:34.951-06:00Interesting write-up.
If recessions occur because...Interesting write-up.<br /><br />If recessions occur because some portion of the capital base looses it's economic value (say via over-investment, but could be an earthquake), then a period of above average investment would be required to return consumption to trend: i.e. to replace or reallocate the lost capital in addition to expanding at the trend rate.<br /><br />With this view, continue to invest at pre-recession rates would put consumption on a lower but parallel path following the end of the recession, while a drop in the investment rate would put one on a lower slope following the recession's end.<br /><br />This view seems in conflict with conventional wisdom but consistent with actual behavior.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-70444477954361533892013-02-06T18:15:57.403-06:002013-02-06T18:15:57.403-06:00Yes, of course there was a big rise in consumption...Yes, of course there was a big rise in consumption as we rode a classic debt fueled bubble. But growth has been slow not because of a lack of demand, but because of a lack of investment.<br /><br />Capital is going into other nations, mostly to Asia.KyleNhttps://www.blogger.com/profile/15766641765942339253noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-1774708808483724842013-02-06T17:08:15.422-06:002013-02-06T17:08:15.422-06:00"The graph which you link to shows that PCE/G..."The graph which you link to shows that PCE/GDP grew in every recession."<br /><br />But consumption did not fall back after the recession was over and GDP growth returned to trend. And so I don't know how you can argue that consumption is stable over time when it has in fact become a larger and larger portion of GDP over time. FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38973269130436901162013-02-06T17:03:00.018-06:002013-02-06T17:03:00.018-06:00I don't see much disagreement from those numbe...I don't see much disagreement from those numbers, but the idea would be to detrend first...LALhttps://www.blogger.com/profile/08196675112184615614noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-53909912664683375972013-02-06T16:21:28.300-06:002013-02-06T16:21:28.300-06:00Are the graphs total consumption or consumption pe...Are the graphs total consumption or consumption per capita?<br /><br />We knew that during the boom, consumer grew as a share of GDP - that was clearly unsustainable.<br /><br />Looking at the chart longer term - it looks like the rate of increase in consumption dropped around 1975. It also looks like consumption bulged above a 1992-1998 trend line during the period 1998 to 2006 - perhaps fueled by the "Greenspan put".Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-60751922512513994332013-02-06T13:26:40.193-06:002013-02-06T13:26:40.193-06:00Frank,
Thank you, your graph helps to illustrate ...Frank,<br /><br />Thank you, your graph helps to illustrate my point. The graph which you link to shows that PCE/GDP is grew in every recession. This is because PCE is relatively stable and GDP is fluctuating, causing the ratio increase.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-25591598899494139672013-02-05T23:34:57.251-06:002013-02-05T23:34:57.251-06:00Thanks, that's a really interesting read.Thanks, that's a really interesting read.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62877250768362848012013-02-05T19:26:39.549-06:002013-02-05T19:26:39.549-06:00Anonymous,
Consumption is not stable at all.
US ...Anonymous,<br /><br />Consumption is not stable at all.<br /><br />US personal consumption expenditures as a percentage of GDP:<br /><br />http://research.stlouisfed.org/fred2/graph/fredgraph.pdf?&chart_type=line&graph_id=&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23b3cde7&graph_bgcolor=%23ffffff&txtcolor=%23000000&ts=8&preserve_ratio=true&fo=ve&id=PCE_GDP&transformation=lin_lin&scale=Left&range=Custom&cosd=1950-01-01&coed=2012-12-01&line_color=%230000ff&link_values=&mark_type=NONE&mw=4&line_style=Solid&lw=1&vintage_date=2013-02-05_2013-02-05&revision_date=2013-02-05_2013-02-05&mma=0&nd=_&ost=&oet=&fml=a%2Fb&fq=Quarterly&fam=avg&fgst=lin<br /><br />In 1960, PCE about 63% of GDP and swung between 61% and 63% from 1960 to 1970.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-67565018080873282122013-02-05T19:02:08.395-06:002013-02-05T19:02:08.395-06:00Claudia great comment. Thanks.
Financial servi...Claudia great comment. Thanks. <br /><br />Financial services might appear low now because they were over stated per crash. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-10940318025976719942013-02-05T18:29:15.793-06:002013-02-05T18:29:15.793-06:00This comment has been removed by the author.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-2472022875206425392013-02-05T18:09:58.853-06:002013-02-05T18:09:58.853-06:00Here is personal consumption expenditures dating b...Here is personal consumption expenditures dating back to 1960 compared with nominal ten year interest rates:<br /><br />http://research.stlouisfed.org/fred2/graph/fredgraph.pdf?&chart_type=line&graph_id=&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23b3cde7&graph_bgcolor=%23ffffff&txtcolor=%23000000&ts=8&preserve_ratio=true&fo=ve&id=PCE,DGS10&transformation=pc1,lin&scale=Left,Left&range=Custom,Max&cosd=1960-01-01,1962-01-02&coed=2012-12-01,2013-02-04&line_color=%230000ff,%23ff0000&link_values=,&mark_type=NONE,NONE&mw=4,4&line_style=Solid,Solid&lw=1,1&vintage_date=2013-02-05,2013-02-05&revision_date=2013-02-05,2013-02-05&mma=0,0&nd=,&ost=,&oet=,&fml=a,a&fq=Monthly,Daily&fam=avg,avg&fgst=lin,lin<br /><br />"All current macroeconomic theories start with the same basic story: when interest rates are higher, people consume less today, save, and then consume more in the future."<br /><br />Nice theory. The numbers say otherwise. FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36514948104916912382013-02-05T18:05:16.746-06:002013-02-05T18:05:16.746-06:00"So, at this level of abstraction, the questi..."So, at this level of abstraction, the question is, does it really matter that we are at the ZLB and real interest rates on government bonds are -2%, not the usual +1%? Is that the key most important fact and distortion causing our doldrums?"<br /><br />No it is not. The key most important fact and distortion causing our doldrums is a failure to realize:<br />1. The federal government should sell equity instead of debt<br />2. On an after tax basis, the private cost of servicing debt can be BELOW THE ZERO BOUND, totally eliminating the "need" for Keynesian inflation or pump priming or whatever else you would like to call it.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8767767922709672952013-02-05T16:50:08.098-06:002013-02-05T16:50:08.098-06:00I do not buy into the Low Hanging fruit theory. Si...I do not buy into the Low Hanging fruit theory. Simply because it would have appeared the same way at any time in history. We are not capable of predicting the new technologies, methods, or circumstances which will produce future economic growth.KyleNhttps://www.blogger.com/profile/15766641765942339253noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-24314147365812772052013-02-05T16:46:52.971-06:002013-02-05T16:46:52.971-06:00I do not think it will be possible to return to th...I do not think it will be possible to return to the 3% growth trend line under current policies. Rather our growth will be the anemic variety which has long characterized Europe. And rightly so since we are following similar polices that Europe followed in the past.<br /><br />The only way that would change is if we were the recipient of some major breakthrough such as a slashing of energy prices. <br /><br />The focus on demand is the problem. Get the basics right, get productivity and investment up, and demand will take care of itself.<br /><br />KyleNhttps://www.blogger.com/profile/15766641765942339253noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87264476156402077612013-02-05T14:09:47.187-06:002013-02-05T14:09:47.187-06:00it seems like it does really matter, because it is...it seems like it does really matter, because it is a telltale sign of the fact that private actors are suffering from excess of risk aversion, i.e. underinvesting in profitable projectsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-79595522437440887222013-02-05T13:35:51.029-06:002013-02-05T13:35:51.029-06:00Thanks for that - very helpful!Thanks for that - very helpful!JDelagehttps://www.blogger.com/profile/09342693030504861581noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-28655728729006604942013-02-05T08:32:41.942-06:002013-02-05T08:32:41.942-06:00It doesn't. We are at the ZLB, and the real in...It doesn't. We are at the ZLB, and the real interest rate on government bonds is negative. (Private parties borrow at higher rates, and risk premia are much more important than most macro says.)<br /><br />The question is, how relevant is this fact for understanding the level of consumption. The PIH is not "the" model. As I wrote to the point of ridiculous repetition, it is a grossly oversimplified model, useful (maybe) for digesting one part of what's going on. It does not say WHY income fell, and in the big picture it alludes to, understanding the wedges in the economy's prodcutive capacity is key. <br /><br />So, at this level of abstraction, the question is, does it really matter that we are at the ZLB and real interest rates on government bonds are -2%, not the usual +1%? Is that the key most important fact and distortion causing our doldrums? Or is that a fact, an interesting, fact, but a secondary epicycle, that we don't really need for reducing the big picture down to one equation in a blog post? <br /><br />The art of economic modeling includes a lot of throwing out "realism" so you can get the important big picture. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.com