What happened to manufacturing in Q1?

This post is a sort of bleg, as national income accounting is not my area.  One reason that I was surprised by the 2.9% fall in Q1 RGDP is that the other indicators had looked pretty good.  For instance manufacturing (the main component of industrial production) was strong in the first quarter, rising at more than a 2% annual rate.  So I decided to check the BEA GDP data to see if services were the problem in Q1.  Nope, services grew.

Then I noticed that the BEA data is expenditure based, not output based, so I tried to back out manufacturing output in 5 steps.  I looked at the contribution to the total change in RGDP from:

1.  Goods sold to consumers   (+.04%)

2.  Equipment sold to firms  (-0.16%)

3.  Change in inventories  (-1.70%)

4.  Export of goods  (-1.12%)

5.  Import of goods  (-0.25%)

I had thought that these 5 categories would add up to the change in manufacturing from the IP series, but it doesn’t even come close.  Indeed it adds up to minus 3.19%, more than explaining the entire 2.9% drop in RGDP.  It was a collapse in goods production.

And yet the manufacturing component of the monthly IP data series was up at more than a 2% rate in Q1.  All the other cyclical indicators such as monthly payrolls were also strong.  The privately estimated PMI index averaged above 50 (showing growth.)  So lots of goods were produced, but they weren’t sold to consumers nor were they sold to producers, nor were they exported, nor were they put into inventories.  So where did this goods output go?


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60 Responses to “What happened to manufacturing in Q1?”

  1. Gravatar of dw dw
    1. July 2014 at 08:25

    going to guess if they produced, they couldnt transport it. hard to move much unless its by train, if the roads are bad.

  2. Gravatar of Becky Hargrove Becky Hargrove
    1. July 2014 at 08:33

    dw,
    Oh the roads were okay and the ambulances were doing plenty of transporting! But once those who expect to receive services arrive at their destination, that does not necessarily mean the hoped for product is forthcoming…

  3. Gravatar of Sigmund Holmes Sigmund Holmes
    1. July 2014 at 08:54

    Scott,

    I don’t know how this might affect things but I think the IP numbers are being distorted by the mining sector which includes oil and gas. Fracking has increased oil and gas output which may just be going into storage. I’m not sure how that is accounted for in the national stats.

  4. Gravatar of ssumner ssumner
    1. July 2014 at 08:55

    dw, That suggests the BEA underestimated “inventories.”

  5. Gravatar of ssumner ssumner
    1. July 2014 at 08:55

    Sigmund, I used manufacturing, not IP.

  6. Gravatar of Heiko Gerhauser Heiko Gerhauser
    1. July 2014 at 09:28

    http://www.businessweek.com/articles/2014-06-25/good-news-on-health-care-spending-is-making-u-dot-s-dot-gdp-look-bad

    Businessweek claim it’s because of healtcare, and the numbers only look superficially weak.

    Incidentally, in international comparisons I always wonder whether price levels are properly accounted for when US GDP has the largest healthcare component in the whole world. To my mind, this may indicate that when comparing US GDP with other nations there may be a significant, implied overstatement as the healthcare contribution is effectively overvalued.

  7. Gravatar of Paul Paul
    1. July 2014 at 09:41

    Was it government consumption?
    Federal (nondefense): +5.9%
    State/local: +3%

  8. Gravatar of Major-Freedom Major-Freedom
    1. July 2014 at 09:53

    QE is destroying the industrial base of the country.

  9. Gravatar of srh srh
    1. July 2014 at 10:13

    Manufacturing remains strong as indicated by today’s ISM Manufacturing index release (https://www.investormill.com/data/ISM-manufacturing-index/) despite the fact that it was beneath the projection. The trade balance is still terrible, and consumption is not as strong as it should be, but it does provide hope that the next GDP report will be better.

    As to where the goods went, BEA counts all goods consumed in a quarter towards consumption for that quarter regardless of when they were produced.

  10. Gravatar of Caden Caden
    1. July 2014 at 10:51

    What about inventory revaluations after year-end?

  11. Gravatar of Michael Byrnes Michael Byrnes
    1. July 2014 at 10:57

    Major wrote:

    “QE is destroying the industrial base of the country.”

    Brief, but still ridiculous.

  12. Gravatar of TallDave TallDave
    1. July 2014 at 10:58

    I would imagine much less services were consumed, due to what appears to have been one of the harshest winters on the record.

    By the by, the fact every economist seems to agree Q1 was cold in the Unites States, along with record late Great Lakes ice, is creating some problems for the climate change crowd, because USHCN claims this was actually a relatively warm Q1 (even in the Great Lakes region). Blogger “Steve Goddard” noticed about 40% of the last month’s data was actually “infilled,” meaning it was generated by computer algorithm as opposed to being measured, and that “infilled” data adds almost the entire warming trend to the overall data. This discovery was greeted with a lot of skepticism at first, and I actually wrote my own script to process the USHCN data from their site to confirm this claim. After a few news articles, and the now-obligatory completely wrong reporting from Politifact, it looks like NCDC is now acknowledging there may be a serious problem here.

  13. Gravatar of Major-Freedom Major-Freedom
    1. July 2014 at 11:03

    Michael:

    Brief yes, but not ridiculous.

    When market forces are screaming for deflation, which we can infer is the case today by considering how much more money the Fed has to print relative to recent past years in order to pretend today’s economy is sustainable, meaning in order to reverse the market’s deflationary forces, it is incredibly destructive to economic coordination to counter-act such strong market forces.

    QE is a lifeblood sucker of economic recovery, and is leaving a wake of destruction. You seem to not understand how the market process works.

  14. Gravatar of Major-Freedom Major-Freedom
    1. July 2014 at 11:13

    And the notion that deflationary market forces means “the markets want more fiat money” is a totally false inference to make. It is totally false because the whole reason such strong deflationary forces exist at all is because of past inflation that has distorted the economy and only market driven deflation today can reveal the malinvestments.

  15. Gravatar of Major-Freedom Major-Freedom
    1. July 2014 at 11:18

    It is a rank self contradiction to claim that markets “want” non-market anything, including non-market toilet paper notes backed by non-market enforcement.

    The free market is constantly putting pressure on the supply of government’s fiat notes to fall to ZERO. That is why initiations of force (legal tender laws, tax laws, etc) are being used to keep them circulation. Without such non-market activities, the market would create market based money and the market would deflate fiat notspes out of existence.

  16. Gravatar of Dan W. Dan W.
    1. July 2014 at 12:03

    Anyone care to comment on these charts?

    http://www.powerlineblog.com/archives/2014/07/the-fed-bubble.php

  17. Gravatar of mpowell mpowell
    1. July 2014 at 12:16

    Major Freedom continues to amaze. Such stamina and persistence is awesome in it’s own way.

  18. Gravatar of Daniel Daniel
    1. July 2014 at 12:43

    Dan W,

    Looking for something to worry about, eh ?

    Why don’t you lecture us some more on how “humans act”, therefore [insert sadistic policy].

  19. Gravatar of Hillary Hillary
    1. July 2014 at 13:41

    December and January were the worst months since the seventies from a transportation perspective. Most of the publicly traded companies (i.e. Con-Way, YRC, Werner) have announced multimillion dollar charges related to the weather, not to mention what happened to UPS and Fedex. The railroads were hit too, they couldn’t operate on schedule with the cold, and lost a lot of business. I suspect the inventory declines are related to Q4 stock ups and an inability to get raw materials delivered in Q1.

    From what I’m seeing on a micro level, Q2 is going to more than match the confidence in the ISM index. I haven’t been this busy since 2005.

  20. Gravatar of Jason Jason
    1. July 2014 at 14:48

    Michael Byrnes and mpowell:
    Please remember not to feed the troll. If you do not feed him, he will die.

  21. Gravatar of ThomasH ThomasH
    1. July 2014 at 15:01

    Whatever happened to manufacturing, does the usual explanation of the fall in GDP — the weather was so bad people could not shop — imply a demand shock or a supply shock?

  22. Gravatar of Daniel Daniel
    1. July 2014 at 15:45

    Jason,

    You are severely underestimating the moron’s persistence.

  23. Gravatar of Michael Byrnes Michael Byrnes
    1. July 2014 at 16:16

    Major,

    If “the industrial base of the country” was being destroyed, that ought to mean higher prices, not lower. Whatever its cause, destruction of the industrial base becomes a supply-side problem, a negative supply shock. If supply falls, real prices (regardless of what nominal system they are denominated in) must rise, or major shortages must ensue. Not really happening…

    The free market isn’t “putting pressure on the supply of government’s fiat notes to fall to ZERO”. Of course, it could put pressure on the VALUE of government’s fiat notes until that value falls to zero, but we are not seeing that happen right now. It would look very different – instead of hoarding massive excess reserves, banks would be looking to get rid of reserves.

  24. Gravatar of TravisV TravisV
    1. July 2014 at 16:29

    Prof. Sumner,

    In this post: http://econlog.econlib.org/archives/2014/05/the_correct_rea.html you wrote “I’ll try to do a post soon defending utilitarianism.”

    Have you had the chance to write that post yet?

  25. Gravatar of TravisV TravisV
    1. July 2014 at 17:23

    Krugman just wrote a post criticizing market monetarists:

    “Neomonetarist Delusions”

    http://krugman.blogs.nytimes.com/2014/07/01/neomonetarist-delusions

  26. Gravatar of Michael Byrnes Michael Byrnes
    1. July 2014 at 17:47

    Krugman said:

    “The more important point is that the neomonetarists are deluded in imagining that there is any constituency for their ideas in the modern conservative movement.”

    I think he’s right on. Who are the conservatives *in government* who are sympathetic to market monetarist ideas? It’s a short, maybe empty, list. Didn’t Scott describes the two parties as one having bad ideas and the other having no ideas? There are some conservative bloggers/media who have endorsed MM, but none who will be elected to high office any time soon. Remember, too, that conservatives are all for fiscal stimulus if it is tax cuts.

    I think the bigger problem is that most in government (whether elephant or donkey) *want* to be in the business of picking winners and losers and distributing handouts. Market Monetarism represents an alternative to that.

  27. Gravatar of JP Koning JP Koning
    1. July 2014 at 18:19

    “So lots of goods were produced, but they weren’t sold to consumers nor were they sold to producers, nor were they exported, nor were they put into inventories.”

    Just a theory, but when companies account for inventories, they usually use the first-in-first-out method (FIFO). If prices are rising, this can result in a large capital gains (vice versa for falling prices). These aren’t real gains of course, since the firm needs to replenish its inventories at these much higher prices. The BEA tries to adjust inventories to remove these inventory gains/losses. This is called the inventory valuation adjustment (IVA). When the IVA is negative, it means that firms enjoyed large gains on inventory due to rising inventory prices.

    So during the first quarter, strong manufacturing numbers would have boosted inventories, but if the IVA was significantly negative (which it was), then this would have canceled out the manufacturing-inspired boost to inventories. In short, inventories probably did increase, but a large adjustment for capital gains may have overshadowed that effect. Just a theory, though.

  28. Gravatar of dtoh dtoh
    1. July 2014 at 20:43

    Scott,
    Please do a post on the Krugman column so that I can further explain to you why your explanations are defective.

  29. Gravatar of dtoh dtoh
    1. July 2014 at 20:45

    Scott,
    If you had better explained your position, the conservatives would be totally on board and they’d be looking at you instead of Mankiw for policy advice.

  30. Gravatar of Full Employment Hawk Full Employment Hawk
    1. July 2014 at 21:39

    Paul is on the right track. Clearly to have the change in sales add up to the change in manufacturing, sales to governments have to be included. But this should show up as part of the change in RGDP.

  31. Gravatar of Full Employment Hawk Full Employment Hawk
    1. July 2014 at 21:45

    “that there is any constituency for their ideas in the modern conservative movement”

    There should be a constituency for market monetarism in the progressive movement. It offers a way to restore the economy to full employment even when conservatives have paralyzed expansionary fiscal policy.

  32. Gravatar of Edward Edward
    1. July 2014 at 22:51

    scott,
    Krugman is at it again:
    http://krugman.blogs.nytimes.com/2014/07/01/neomonetarist-delusions/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

  33. Gravatar of Edward Edward
    1. July 2014 at 23:04

    MF
    “And the notion that deflationary market forces means “the markets want more fiat money” is a totally false inference to make. It is totally false because the whole reason such strong deflationary forces exist at all is because of past inflation that has distorted the economy and only market driven deflation today can reveal the malinvestments.”

    Faith based nonsense pulled out of your rear end

    “including non-market toilet paper notes backed by non-market enforcement”

    cute, If you REALLY think those notes are toilet paper, send me some :-)

    “Without such non-market activities, the market would create market based money”
    which could be things like bit coin( which ALREADY EXISTS) or e-gold or e-silver. There is no inherent tendency for deflation in a free market, your smug arrogant prattling notwithstanding

    A word about bit coin. Yes bit coin has a bit of a deflationary tendency. But we are already seeing “alt” coins springing up into existence competing with it. rather than the market staying with bicoin as a monopoly. A “free market in money” would work in a similar way. Some moneys would be deflationary. More power to you if you want them. But some would be inflationary. It’s a FALLACY to assume the anarchist money market wouldn’t want an inflationary currency.

    IF THERE IS GOING TO BE A GOVERNMENT MONOPOLY ON MONEY AT LEAST IN THE SHORT TERM, WE HAD BETTER MAKE SURE IT WORKS WELL- NOT WITH A GOLD STANDARD , BUT WITH NGDI TARGETING

  34. Gravatar of James in London James in London
    1. July 2014 at 23:24

    Krugman’s piece actally suggests the opposite of what he is saying. If he was actually right he wouldn’t have bothered writing the piece. Followoing the various links through shows that there is a growing move to accept a role for monetary policy inside the conservative momvement, just that is it is still a bit shy. As his main link Vinik says in his piece:
    “Douthat has also written in the past in favor of monetary stimulus. Many other reform conservatives have as well.”

    And Krugman is absolutely right to bring up the 2010 letter, it is an embarrassment, but a useful one.
    http://www.ritholtz.com/blog/2013/11/qe-debasement-inflation/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+(The+Big+Picture)
    All who signed it should have re-thought their views by now. Many early sympathisers have changed their minds, or made up confused minds in favour of market monetarism. The 2010 letter would look really very silly today.

  35. Gravatar of Vivian Darkbloom Vivian Darkbloom
    1. July 2014 at 23:44

    I see that everyone is playing right into Krugman’s hand. Forget about the politics and concentrate on the economics. Here is Krugman’s only answer to why he thinks monetary policy can’t work as a matter of economics:

    “Instead, they argue that the Fed and its counterparts can do the job all on their own if they really want to.

    I don’t buy this on the economics; to do what’s needed central banks either have to take on a lot of risk, which is in effect a form of fiscal policy, or change inflation expectations, which is far beyond conventional monetary policy. But we don’t need to hash this out here.”

    Yeah, I can see why Krugman would want to change the subject, and quickly. “We needn’t has that out here”? Why not? I hope Sumner concentrates on the lack of economics in that blog post and doesn’t fall into the trap of sidestepping the issue by engaging in an irrelevant political debate.

    The above strikes me as a pretty weak attempt at a rebuttal. He does not even attempt to argue that Sumner’s policy prescriptions won’t work–only that what is needed and called for doesn’t satisfy *his* definition of “monetary policy”. For example, “non-conventional monetary policy” is no longer “monetary policy”.

    Pretty weak stuff, and it shows exactly why Krugman is no longer an economist but merely a political hack.

  36. Gravatar of Vivian Darkbloom Vivian Darkbloom
    1. July 2014 at 23:46

    *”We needn’t hash that out here”?

  37. Gravatar of W. Peden W. Peden
    2. July 2014 at 01:32

    James in London,

    I think Krugman is justified in being worried, because as we should keep on repeating, a country in which NGDP grows along a fairly smooth 5% (or 4% or 3% or 1% etc.) trendline is one in which the world of the so-called “classical” economists is true.

    Vivian Darkbloom,

    Well said. I’m amazed that Krugman’s opposition to market monetarism is now just “non-conventional monetary policy is not monetary policy”, which is a reification of “monetary policy = interest rate targeting” to a new level. The main proponent of the liquidity trap has been reduced to (bad) scholasticism.

  38. Gravatar of Peter K. Peter K.
    2. July 2014 at 05:11

    I think Krugman is right. John Taylor is leading other conservatives against proper monetary policy and NGPD level targeting more so than Krugman is leading progressives against them. Yellen ally John Williams is being forced to respond to Taylor here, not to market monetarists/neomonetarists.

    http://www.marketwatch.com/story/feds-williams-hits-back-at-critics-like-stanfords-taylor-2014-06-30?siteid=bigcharts&dist=bigcharts

    “Williams meanwhile said the Fed is already taking steps towards the exit and its easy policy is not permanent.”

    I know, I know.

    Here’s David Glasnter on another prominent, respected conservative James Grant:

    http://uneasymoney.com/2014/06/30/the-enchanted-james-grant-expounds-eloquently-on-the-esthetics-of-the-gold-standard/

    Anyway I see Krugman and Sumner as being somewhat similar: smart and knowledgeable with a relish for intellectual combat which can be bracing. Scott’s triumphant post on his quiet comment section must have goaded Krugman. People probably forwarded the link to Krugman.

    But I see the two and their supporters sharing a goal: an economy running at full capacity/potential which I understand to be around a 5 percent NGDP path level. There can be compromise on how we achieve that even as we hold true to our principles.

  39. Gravatar of ssumner ssumner
    2. July 2014 at 05:24

    Heiko, I agree that medical spending biases US GDP.

    Paul, But what was their share of GDP growth?

    srh, Yes, but they also take out inventories change, so GDP measures production, not consumption.

    TallDave, Services rose in Q1.

    Thomas, It probably affects both.

    Travis, I have written a first draft, but it will be a few weeks before I have time to post it.

    Michael, Why would I try to influence the government? They have no power over Fed policy. I’m trying to convince my fellow economists, and thus indirectly the Fed. In any case, it’s equally true that Krugman has no influence over the conservative movement, so what’s the point?

    JP, Does that impact nominal or real inventories?

  40. Gravatar of Peter K. Peter K.
    2. July 2014 at 05:25

    “I think Krugman is justified in being worried, because as we should keep on repeating, a country in which NGDP grows along a fairly smooth 5% (or 4% or 3% or 1% etc.) trendline is one in which the world of the so-called “classical” economists is true.”

    Yet imagine an alternate timeline where the Feed had an NGDP level mandate of 5 percent or so. What would it have done from 2007 on? Lower rates more quickly and engaged in QE more robustly?

    What does QE do? It targets the housing sector and makes government borrowing cheaper. It seems rather arbitrary that the Fed would stabilize the economy via those two sectors. It’s not that I’m against QE in that I’d rather the Fed did anything rather than nothing.

  41. Gravatar of Steven Kopits Steven Kopits
    2. July 2014 at 05:41

    Ah, this is when you scroll down to see what the Mark says. Hasn’t said anything yet, though.

  42. Gravatar of Steven Kopits Steven Kopits
    2. July 2014 at 05:44

    On a slightly related note (and not for the first time), why are economists not screaming about the quality of preliminary GDP data? A revision from -1.0% to -2.9% is huge. If BEA can’t get this much better then:

    i) it should not issue preliminary statistics
    ii) it should improve its methodology by an order of magnitude
    iii) it should change management.

    Why is it, Scott, that economists are so complacent about huge BEA misses quarter after quarter? In any private sector business, management would have been replaced some time ago.

  43. Gravatar of Anthony McNease Anthony McNease
    2. July 2014 at 06:35

    Scott & commenters,

    What are your thoughts on this metric, Gross Output?

    http://online.wsj.com/news/articles/SB10001424052702303532704579483870616640230

    There seem to be many adjustments to GDP that seem to change over time like for instance the Q1′s adjustment for the calculation on health care spending. The Gross Output metric would eliminate these. The author makes a persuasive argument that GO is a better overall measure of total economic activity.

  44. Gravatar of Nick Nick
    2. July 2014 at 06:44

    I too would like to hear from mr sadowski. Maybe he’s on vacation. In the mean time, maybe we should believe GDI when it says we had an effective tax increase and believe gdp when it says we contracted. Can’t manufacturing census info just be the noisy number here? And maybe score one for the ‘we don’t quite have full monetary offset’ camp?

  45. Gravatar of Dan W. Dan W.
    2. July 2014 at 09:36

    Daniel,

    No worries. Why should anyone worry?

    Question for you and everyone: Does the size of the central bank balance sheet matter? Does it matter if it is smaller or if it is larger? Does anything matter? If there are no bad consequences then how can one claim there are good consequences? If there are no consequences then why do we care?

  46. Gravatar of Daniel Daniel
    2. July 2014 at 10:02

    Does the size of the central bank balance sheet matter?

    No.

  47. Gravatar of Daniel Daniel
    2. July 2014 at 10:07

    Also, you do realize that “central bank balance sheet” is pretty much synonymous with “money supply”, right ?

    The demand for money went up, so did the money supply. When demand goes down, so will the money supply.

    Move on, nothing to see here.

  48. Gravatar of Anthony McNease Anthony McNease
    2. July 2014 at 10:14

    I think the size of the balance sheet matters but not very much. One of the tools the Fed can employ to tighten the supply of base money is to sell assets. If the assets on its balance sheet decline in value then this tool’s utility is reduced, and I think the probability that those assets decline in value increases with the size of the balance sheet. But the Fed has other ways it can tighten or ease monetary policy.

  49. Gravatar of Brian Donohue Brian Donohue
    2. July 2014 at 12:30

    Daniel,

    The size of the Fed balance sheet doesn’t matter?

    Sounds wrong. To me, a growing Fed balance sheet feels like monetizing debt in advance.

  50. Gravatar of Major-Freedom Major-Freedom
    2. July 2014 at 13:00

    mpowell:

    “Major Freedom continues to amaze. Such stamina and persistence is awesome in it’s own way.”

    I was once told I am an elemental force of nature.

    I like that characterization, not only because it appeals to my vanity, such as it is, but it also appeals to everyone else too. Each of us are an elemental force of nature.

    Jason:

    “Please remember not to feed the troll. If you do not feed him, he will die.”

    I’m not a troll Jason. Trolls say what they say solely to get an emotional rise out of people, with the intention to flame or upset.

    I on the other hand say what I say because I think it is correct and because I see what I think are logical and argumentative errors that if corrected will make my life better off.

    Trolls are not those who disagree with you. Dismissing me as a troll really just shows you don’t want to debate me. That is fine, I would understand, but don’t blame me for your choice.

    Daniel:

    “You are severely underestimating the moron’s persistence.”

    You haven’t shown how anything I said is “moronic”.

    Michael:

    “If “the industrial base of the country” was being destroyed, that ought to mean higher prices, not lower.”

    Not necessarily. There are other things sold for money besides manufactured goods. Also, it depends on the quantity of money and demand for money holding. Lots of factors.

    Even so, prices are rising.

    “Whatever its cause, destruction of the industrial base becomes a supply-side problem, a negative supply shock. If supply falls, real prices (regardless of what nominal system they are denominated in) must rise, or major shortages must ensue. Not really happening…”

    Supply problems can be, and often are, money induced. I know you know that, just wanted to emphasize it because you said it becomes a supply issue. Well yes, but not entirely.

    “The free market isn’t “putting pressure on the supply of government’s fiat notes to fall to ZERO”. Of course, it could put pressure on the VALUE of government’s fiat notes until that value falls to zero, but we are not seeing that happen right now.”

    I define supply in terms of value, not physicality. Sorry for not making that explicit.

    Yes, you’re right, we are not seeing the value decline to zero. But that is part of my argument. It doesn’t refute it. The value isn’t going to zero because people value staying out of prison (government taxes in dollars so people have to acquire dollars in exchanges if they want to remain out of a cage). Also, people value dollars out of habit.

    But if the government stopped taxing people in dollars, and stopped enforcing legal tender laws in dollars, then dollars would almost certainly be outcompeted by more effective commodities used for storing value. Precious metals for example are more useful than paper, which is too plentiful and cheap to serve as optimal store of value.

    A lot is resting on the coercive aspect of socialist money. It cannot be underestimated.

    “It would look very different – instead of hoarding massive excess reserves, banks would be looking to get rid of reserves.”

    Not necessarily.

    Edward:

  51. Gravatar of Major-Freedom Major-Freedom
    2. July 2014 at 13:12

    Edward:

    “Faith based nonsense pulled out of your rear end”

    Not a substantive counter argument.

    “including non-market toilet paper notes backed by non-market enforcement”

    “Cute, If you REALLY think those notes are toilet paper, send me some :-)”

    As soon as the government stops threatening people with a cage for not paying them in that toilet paper, and as soon as the government makes good on their reneged promise to redeem the toilet paper for gold they hold in Fort Knox, then you can call up the government and ask for all the toilet paper you want, because I won’t have any.

    But as long as the threat of the cage is there, then sorry, I will reluctantly keep the toilet paper.

    “Without such non-market activities, the market would create market based money”

    “which could be things like bit coin( which ALREADY EXISTS) or e-gold or e-silver. There is no inherent tendency for deflation in a free market, your smug arrogant prattling notwithstanding”

    Yes, there is an inherent tendency. The proof is in the fact that coercion is necessary to keep the toilet paper in circulation as generally accepted.

    Arrogant? You’re far more arrogant than me, because you are willing to support throwing people in cages if they don’t want to live like you do with their own persons and property.

    Bitcoin is not money. It is not generally accepted, yet.

    But I expect that Bitcoin earnings will be taxed in dollars the more popular it gets. Right now the government is working to do this.

    “A word about bitcoin. Yes bit coin has a bit of a deflationary tendency. But we are already seeing “alt” coins springing up into existence competing with it. rather than the market staying with bicoin as a monopoly. A “free market in money” would work in a similar way. Some moneys would be deflationary. More power to you if you want them. But some would be inflationary. It’s a FALLACY to assume the anarchist money market wouldn’t want an inflationary currency.”

    I never claimed the market would not want more market based money.

    I said it is a contradiction to assume the market wants more non-market money.

    “IF THERE IS GOING TO BE A GOVERNMENT MONOPOLY ON MONEY AT LEAST IN THE SHORT TERM, WE HAD BETTER MAKE SURE IT WORKS WELL- NOT WITH A GOLD STANDARD , BUT WITH NGDI TARGETING”

    If only the short term is ever addressed, then long term goals become impossible.

    And I didn’t even have to yell.

  52. Gravatar of Major-Freedom Major-Freedom
    2. July 2014 at 13:15

    Daniel:

    Of course the size of the central bank’s balance sheet matters. If tomorrow the balance sheet fell in half, then you would almost certainly squeal.

  53. Gravatar of Philippe Philippe
    2. July 2014 at 13:48

    The only people I see calling for end to the dollar are a handful of anarcho-capitalist kooks. The only people I see calling for an end to taxation and abolishing the government are a handful of anarcho-capitalist kooks. So much for ‘market forces’.

    Austrians and anarcho-capitalist nutters lost in the marketplace of ideas a long time ago, and they keep losing. And that makes them mad.

  54. Gravatar of TravisV TravisV
    3. July 2014 at 05:08

    Janet Yellen Signals She Won’t Raise Rates to Fight Bubbles

    http://www.thereformedbroker.com/2014/07/03/janet-yellen-game-on

  55. Gravatar of ssumner ssumner
    3. July 2014 at 07:40

    Peter, If they had adopted a 5% NGDP trend line in 2007, interest rates would have been higher. There would have been no need for QE. Low rates are not easy money.

    Steven, Yes, the BEA needs to be fixed.

    Anthony. I don’t like gross output. It counts the same output multiple times. Why would you do that?

  56. Gravatar of Major_Freedom Major_Freedom
    6. July 2014 at 08:45

    Philippe:

    Anarcho-capitalists don’t want “an end to the dollar.”

    They want an end to the coercion that underlies the dollar.

    If you want to continue accepting toilet paper in your exchanges in a context of non-aggression, then ancaps will say good luck and thank you for not imposing your desired store of value on everyone else by guns.

    Ancaps didn’t lose in the marketplace of ideas. You did. You statists lost in the marketplace of ideas. That is precisely why you require violence and coercion against other individual’s persons and property to bring your ideal about. It is because people won’t willingly go along with your ideal if they had the choice, because what they want and what they value for themselves, is different from what your ideal calls for.

    You have it exactly backwards, as usual!

  57. Gravatar of Anthony McNease Anthony McNease
    7. July 2014 at 11:04

    Scott, the admittedly little I’ve read of Gross Output gives me the impression that it might be a good measure of activity over time but not, as you point out, of accurate net output. I don’t think it would replace GDP but could relative movements in GO be an early indicator or add some analytical color to GDP? I can’t find GO data anywhere, but it would seem to me that reading monthly changes in GO would be a good indicator of changes in that quarter’s GDP.

  58. Gravatar of Major-Freedom Major-Freedom
    7. July 2014 at 15:35

    The main reason why it doesn’t seem right that unemployment has been low in recent months and still lowering, while RGDP remains sluggish, is because the “official” unemployment numbers are bogus.

    If we include discouraged workers, and eliminate the never constant and always changing monthly seasonal adjustments, actual unemployment is about 23%.

  59. Gravatar of flow5 flow5
    8. July 2014 at 08:24

    “ridiculing the idea that monetary policy could be stimulative at zero rates”

    The Fed’s “open market power” has been emasculated. Instead of buying for the short-term (pending more profitable dispositions), zero risk-weighted assets, without incurring new capital requirements (e.g., T-bills), the CBs after Oct 2008, now hold larger volumes of excess reserve balances.

    Between 1942 & 2008 the CBs voluntarily increased their liquidity reserves during economic contractions & in the process expanded the money stock. Recent IMF papers wrongly attributed the Fed’s POMO purchases to predominately the non-banks (where new money would have been created). It was the opposite (a reconciliation of outside factors proves this). The primary broker-dealers bought > 60 percent of the FRB-NY “trading desk’s” securities for the commercial bankers (which are supposedly just asset swaps but under the current shadow banking, & E-D banking, practices are inherently contractionary).

    This is extremely simple. Unless money expands at least at the rate prices are being pushed up, output can’t be sold and hence jobs will be lost. The shortfall in the money stock during the 1st qtr of 2011 was repeated by an identical shortfall in the money stock during the 1st qtr of 2014 (using the 24 month roc for monetary flows, or the proxy for inflation). Both shortfalls created economic contractions.

  60. Gravatar of TallDave TallDave
    8. July 2014 at 11:30

    TallDave, Services rose in Q1.

    Yeah, sorry I don’t know what I was thinking there.

    I do wonder how that breaks down, though — I’ve used Peapod for many years, and for the first time this winter I was suddenly getting hit with three-week wait times. That had to be good for Peapod but bad for brick-n-mortar groceries. And of course we consumed lots of cold-related services that we would have preferred to avoid; presumably there was some opportunity cost to other services and to purchases of goods. I guess we’d have to dig into the data.

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