Mark Sadowski on Krugman
Mark Sadowski continues to provide excellent comments:
Scott,
Here is Krugman’s latest:http://krugman.blogs.nytimes.com/2013/10/19/do-currency-regimes-matter/
“…First, nominal wage stickiness “” the key argument for the virtues of floating exchange rates “” is an overwhelmingly demonstrated fact. Rose doesn’t offer reasons why this doesn’t matter; he just offers a reduced-form relationship between currency regimes and economic performance, and fails to find a significant effect. Is this because there really is no effect, or because his tests lack power?
Second, there is the very striking empirical observation that debt levels matter much less for countries with their own currency than for those without. Here’s one view of the relationship between debt levels and borrowing costs (data from Greenlaw et al):
[Graph]
And here’s another view of the same data, with euro members identified:
[Graph]
It sure looks as if debt matters only for those on the euro, doesn’t it? For what it’s worth, here’s a regression of interest rates on debt that uses a dummy for euro membership, and allows an interaction between that dummy and debt:
[Table]
Indeed: debt only seems to matter for euro nations…”
So, four days ago Krugman posted a scatterplot in which the two thirds of the nations are eurozone members, igoring the effects of currency regime, in order to make the argument that fiscal policy matters at the zero lower bound. Today he posts another scatterplot in which a majority of the nations are eurozone members, but this time he literally highlights the currency regime, and tests for the effects of interaction, in order to make the argument that debt matters much less for countries with their own currency.
The fact that his previous post was the intellectual equivalent of Greenlaw et al, purporting to show a relationship through the use of a scatterplot consisting mostly of eurozone members without any recognition at all that the relationship is entirely driven by the fact that these nations do not have an independent monetary policy, seems to have completely escaped his notice.
Kevin Erdmann has some excellent new posts (here and here) that look at the causes of austerity, and how the effects depend on whether countries have an independent monetary policy. There doesn’t seem to be any statistically significant relationship among countries with independent monetary policy. My hunch is that a large enough study would show a significant relationship, but probably at least partly as a result of misidentification of “austerity.”
Tags:
21. October 2013 at 03:29
http://www.ritholtz.com/blog/2013/10/academic-studies-show-qe-doesnt-work/
In what world do those people live?
21. October 2013 at 05:17
Excellent work by Sadowski.
I cannot fathom what the ECB wants to accomplish, and I feel deeply sorry for the average European citizen or businessperson, who has no idea how to vote to get the ECB dragon slayed.
The ECB fails the democracy-test in transparency, accessibility and accountability.
No sovereign nation should ever give up the power of the currency printing press. It is turning over the most important macroeconomic policymaking tool to an entity not answerable to voters, or nearly anybody else.
21. October 2013 at 11:25
MFFA,
Barry Ritholtz destroys his reputation by constantly posting Washingtons Blog propaganda.
Washingtons Blog manages to find an ex-Dallas Fed economist who is evidently extremely skilled at taking quotes out of context.
Lacy Hunt:
“Dr. Hall also wrote the following about the large increase in reserves to finance quantitative easing: “An expansion of reserves contracts the economy.” In other words, not only have the Fed not improved matters, they have actually made economic conditions worse with their experiments.”
Robert Hall in context (page 26):
“With an interest rate on reserves above the market rate, the process operates in the opposite direction: Banks prefer to hold reserves over other assets, risk adjusted. They protect their reserve holdings rather than trying to foist them on other banks. An expansion of reserves contracts the economy. The Fed could halt this drag on the economy by cutting the rate paid on reserves to zero or perhaps 25 basis points.”
The bottom line is Robert Hall was arguing interest on excess reserves is contractionary, not that QE is contractionary.
Lacy Hunt:
“Dr. Shin states, “The trouble is that job creation is done most by new businesses, which tend to be small.” Thus, he found “disturbing implications for the effectiveness of central bank asset purchases” and supported Hall’s conclusions.”
Hyun Song Shin in context (Page 7):
“There are some disturbing implications for the effectiveness of central bank asset purchases. If Bob is right, and unemployment is due to high discount rates, pushing down the spreads on corporate bonds or mortgage backed securities will not do much for unemployment as long as bank lending rates are stubbornly high.”
Shin’s paper was not even a full blown paper. It was a commentary on Hall’s paper, and rather than supporting his conclusions, Shin was speculating on their implications.
Lacy Hunt:
“Drs. Krishnamurthy and Vissing-Jorgensen also criticized the Fed for not having a clear policy rule or strategy for asset purchases. They argued that the absence of concrete guidance as to the goal of asset purchases, which has been vaguely defined as aimed toward substantial improvement in the outlook for the labor market, neutralizes their impact and complicates an eventual exit. Further, they wrote, “Without such a framework, investors do not know the conditions under which (asset buys) will occur or be unwound.” For Krishnamurthy and Vissing-Jorgensen, this “undercuts the efficacy of policy targeted at long-term asset values.””
Arvind Krishnamurthy and Annette Vissing-Jorgensen in context (Page 42):
“Our paper has three broad lessons for central banks. First, LSAPs targeted at markets affected by financial stress conditions can be beneficial. It is worth noting that this conclusion is likely to hold independent of whether or not the zero-lower-bound is binding. Second, it matters which assets are purchased. Third, it is imperative that central banks outline a framework for the use of LSAPs. Without such a framework, investors do not know the conditions under which LSAPs will occur or will be unwound, which undercuts the efficacy of policy targeted at long-term asset values.”
Clearly Krishnamurthy and Vissing-Jorgensen’s conclusion reads very different in context.
21. October 2013 at 12:34
I’m glad the point about price stickiness leading to the need for floating exchange rates came up in this post (albeit briefly). Not long ago, Lars Christensen in his blog pointed out that Milton Friedman used daylight savings time as an analogy for floating exchange rates. In much the same way that it’s easier to just change the clock rather than all sorts of schedules, it’s easier to just change the exchange rate rather than changing all sorts of prices. And isn’t it considered best to let the market determine the exchange rate?
This made me wonder why there’s so much resistance to NGDP level targeting. The fundamental rationale for floating exchange rates seems (to me) very similar to the rationale for NGDPLT. Is there a fundamental difference between the rationale behind both of these things or is the resistance to NGDPLT due to the typical human resistance to new concepts?
As a non-economist, I hope it’s okay to ask such questions here. I’m just trying to further my own understanding.
21. October 2013 at 12:44
Mark,
One of my best buds and fellow MP junkie knows Hunt.
Having read his stuff and watched him in action, he’s one of the kinds of guys I think could be made wot take a look at MM.
The issue is that, he’s not judging MM, he’s judging QE.
And QE in general
VS.
A LT that may require some more aggressive money now, but has a clear target at which we will raise rates, and oh by the way Fed loses discretionary power
And I bet Lacy is gettable. The issue is we do nothing to try and GET HIM.
We’re terrible at it.
NOTE: See David Beckworth who stuck hi big toe in it today with Jim Pethokoukis, he threw down gauntlet and FINALLY indicated that:
2003-2004 Money was TOO LOOSE.
And under NGDPLT we would have nipped housing crisis in bud.
And if all those bad debt tranches don’t get isold of on the homes that don’t get borrowed against…
NGDPLT would have stopped the financial crisis long before it ever started, under NGDPLT we’d never had needed QE etc. today.
We have to tell the full story, we have to tell people QE isn’t just good now no matter what.
We need to contextualize what NGDPLT really does.
There’s NO REASON to not have Lacy Hunt cheering for our cause instead of giving fuel to the liberals he literally DESPISES.
21. October 2013 at 14:52
Morgan,
“See David Beckworth who stuck hi big toe in it today with Jim Pethokoukis, he threw down gauntlet and FINALLY indicated that:
2003-2004 Money was TOO LOOSE.
And under NGDPLT we would have nipped housing crisis in bud.
And if all those bad debt tranches don’t get isold of on the homes that don’t get borrowed against…
NGDPLT would have stopped the financial crisis long before it ever started, under NGDPLT we’d never had needed QE etc. today.”
Here’s what David said:
http://www.aei-ideas.org/2013/10/beckworth/
“…So 2003-2004 I think is a case where the economy was improving. The Fed was over easy and they created an asset bubble, just like you described. But today, it’s the opposite. Today, the natural interest rate, the market-clearing rate, in my view has been negative. I think it’s getting a little bit higher, but it’s still below where market rates would be. And one reason is because of this idea we mentioned earlier, the zero lower bound…”
David is using the 2003-04 as an example to illustrate what he means by the “natural rate”. Nowhere does he claim that loose monetary policy in 2003-04 was responsible for the financial crisis.
However, I disagree with David about the stance of monetary policy during this period. Like Marcus Nunes, I believe NGDP was below trend at that point and that catch up growth was desirable. Furthermore there is absolutely no correlation between monetary policy stance and real house prices, so if that is what David is implying by his use of the phrase “asset bubble”, he is quite simply wrong.
“There’s NO REASON to not have Lacy Hunt cheering for our cause instead of giving fuel to the liberals he literally DESPISES.”
Why on earth would MM need on its side some old Texas hardmoney ahole who passes his senesence by quoting research papers out of context just for the sheer cussedness of it?
21. October 2013 at 16:02
In Barry Ritholtz’s comment policy he says:
http://www.ritholtz.com/blog/comment-policy/
“Overall, the goal with this blog has been an attempt to discern the objective “Truth” (whatever that means) in an industry that does its best to hide that truth from public view. When I do uncover a small measure of truth, I enjoy sharing the discovery here.”
This is pure nonsense.
Any attempt to correct outright falsehoods posted at The Big Picture, or to place information in its proper context, with links to the original information, so as to empower readers so that they can reach independent judgements, will be summarily deleted no matter how civil it may be.
In a certain sense this is perfectly understandable. If the whole point of a blog is to disseminate lies then the last thing you want is for readers to discover that they are being treated with such contempt.
Needless to say the rest of Ritholtz’s commment policy is equally if not more Orwellian.
P.S. At least Washingtons Blog makes no such pretense. It has no comment policy and nobody expects it to discern the truth.
21. October 2013 at 16:32
“So 2003-2004 I think is a case where the economy was improving. The Fed was over easy and they created an asset bubble, just like you described. ”
It’s pretty clear.
We donne the #’s before here haven’t we? where around Q4, 2004 we’re kinda made up, altho I think I used 4.5%.
But the evidence is super clear that the day the earth turned to sh*t, was when the overnight lending decided they had no clue what this mortgage paper was worth.
Ask Scott, but I don’t think he’ll argue that it was these securities, that cause the feeling nobody could afford to trust anybody else even overnight.
It sure wasn’t the “safe asset” T Bills.
Anyway, why would we woo the some old Texas hardmoney ahole?
BECAUSE HE IS OUT NATURAL BROTHER.
Monetary is the consolation prize to the hard money guys.
From the getgo Friedman damn damn sure that the hard money aholes found him aleast tolerable.
And pssst, MM is even more tolerable! NGDPLT delivers a sharper stick than even old Milton came up with the gut the Fiscal / Keynesian excuse makers.
Look, Mark, I’m not saying we have to adopt any policy changes, not a one, IO’m simply pointing out that LONG TERM the libertarians, be they gold bugs or not, are gong to be cozier with us, than any of the MOAR govt. crowd.
We’d have had less inflation over last 20 years with 4.5% NGDPLT, then we had using Greenspan.
Why wouldn’t we whisper that to the Kudlows of the world? It’s the truth, no?
21. October 2013 at 17:26
Thanks MFFA.
Morgan, I’m going to three hard money conferences in November–trying to spread the word.
Gordon, Good question. I think people often find it easier to think in terms of certain constants (money supply, exchange rate, price level) instead of the one that really is best correlated with macro equilibrium. But we are making progress, NGDPLT is getting converts.
Mark, I hope I never get you as a referee, no mistake slips past your sharp eyes. 🙂
21. October 2013 at 18:18
The previous post in which Scott lifted a comment in which I criticized Paul Krugman elicited the following comment by Cullen Roche with a link to that post:
http://pragcap.com/budget-deficits-contribute-to-corporate-profits-but-dont-matter-right
“…This is the second time in the last few weeks I’ve emphasized this point. The reason why is because I see some economists rampaging against the impact of fiscal policy trying to claim that it has no positive impact on the economy…”
Personally I don’t think my comments last time were violent, uncontrolled, reckless, or destructive. All I did was point out that in Krugman’s previous post, where he presented evidence for the existence of the liquidity trap, he totally ignored how monetary and fiscal policy interact, and that it is crucial to consider such interactions.
However, Roche’s comment and link caused me to consider the subject of his post, which is the effect of fiscal policy on corporate profits.
Cullen Roche:
“In order to really understand the credit crisis and why we didn’t turn into Greece or Japan, it’s helpful to look at the components of corporate profits and why the business sector didn’t crater after 2008. Why did corporate profits surge in recent years despite the collapse in private investment (which almost always drives corporate profits)?
First, it’s helpful to review the Kalecki profits equation:
Proï¬ts = Investment – Household Savings – Government Savings – Foreign Savings + Dividends
And we can look at the components of this equation by understanding the following chart:
[Chart]…”
The first thing you should know is this is not exactly the same as the original Michal Kalecki profit equation. Kalecki never mentioned dividends. This was probably because Kalecki wasn’t talking about corporations but more generally about the entire business sector. Moreover Kalecki used the profit equation not to argue that fiscal policy drove profits, but to argue that business fixed investment drove profits.
Where does this equation, with this novel fiscal policy interpretation, come from?
Well, about a year and a half ago Roche did a post on James Montier who derived this equation and who predicted at that time (GMO White Paper: “What Goes Up Must Come Down!”) as “the government moves toward some form of deficit reduction plan” this would lead to “mean reversion of profit margins”.
Well needless to say a year and a half later this prediction has not come to pass. Instead after tax corporate profits were 10.0% of GDP in 2013Q2, a level only exceeded once, in 2011Q4, when they reached 10.3% of GDP.
Because of this Roche felt compelled to do a post on the James Montier version of the Kalecki profit equation a couple of weeks ago where he explained (“Why Hasn’t the Budget Deficit Decline Hurt Corporate Profits More?”):
“…If we look at the components of profits the overall changes (or no changes) since 2012 have been:
*a substantial decline in overall government deficits (-31% YoY)
*modestly expanding private investment (+7.2% YoY)
*a substantial decline in private saving (-15% YoY)
*some deterioration in foreign saving (-5.8% YoY)
*a big rise in dividend payments (+40%)
In other words, the two main drivers that have offset the decline in the budget deficit have been dividend payments and household saving declines while investment growth has remained pretty steady in the high single digits…”
He goes on to explain the decline in household savings rate and the increase in dividends as being due to improved household net worth and “because corporate America is a lot healthier than it has been in a long time” (whatever that may mean). In particular he says:
“…In other words, if private saving, dividends and investment hadn’t continued to move higher in the last 18 months we would have seen a substantial decline in profits…”
Obviously he meant to say “…if private saving hadn’t continued to move lower, and dividends and investment higher…”. But stop and think about the most important of these three reasons: dividends.
This is a tautology. Dividends are a component of corporate profits, so it occurs on both sides of the equation. (This is especially clear if you read James Montier’s derivation.) This is tantamount to saying corporate profits went up…mostly because…corporate profits went up.
And at this point I turn the microphone over to Paul Krugman (“Fallacies of Immaculate Causation”), because sometimes Krugman just says it better than anyone else can:
“The point, in any case, is that accounting identities can only tell you so much. Anyone who claims that the identities tell you everything you know, without an actual model of how things work, is just doing bad economics.”
I have more to say about this issue, particularly with respect to the international evidence.
21. October 2013 at 20:33
“Personally I don’t think my comments last time were violent, uncontrolled, reckless, or destructive”
Nah, Mark, just a little ‘irrational’ and ‘unhinged.’ All you have to do is even suggest fiscal policy can work and those are the kinds of words thrown around.
21. October 2013 at 21:49
Mike Sax,
“All you have to do is even suggest fiscal policy can work and those are the kinds of words thrown around.”
You’ve done way more than that. You’ve accused people of having motivations they deny having and of arguing for policies that they have not.
21. October 2013 at 22:26
Cullen Roche:
“In order to really understand the credit crisis and why we didn’t turn into Greece or Japan, it’s helpful to look at the components of corporate profits and why the business sector didn’t crater after 2008.”
A few things bothered me about that statement. First, here’s what James Montier had to say about profit margins in Europe and Japan in March 2012 (Page 6):
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/02/Montier%20-%20What%20goes%20up%20must%20come%20down.pdf
“…Of course, exceptionally high profit margins are not the sole province of the U.S. European, U.K., and Japanese margins are all high relative to their own historical averages. Like the U.S., they will be subject to the same drivers of profits at the macro level…”
Exhibit 7 shows that Japan’s corporate profits as a percent of GDP had recovered to a level higher than at any time since 1990 except during the Koizumi Boom (2003-07) which happened to largely coincide with Japan’s original “ryÅteki kin’yÅ« kanwa” (QE).
Another thing bothered me was the fact that while Greece has done a lot of fiscal consolidation since 2010, Japan has consistently decreased its general government cyclically adjusted primary balance every calendar year in 2008 through 2013 according to the IMF Fiscal Monitor.
And finally, how does Roche know that profits have “cratered” in Greece, especially since he evidently doesn’t know that Japanese corporate profit margins have been high relative to their historic margins.
It turns out that coming up with corporate profit figures for other nations that are equivalent to the measure used by the Montier version of the Kalecki profit equation, that is corporate profits after tax (CPATAX), is not an easy matter. The rest of the planet uses the System of National Accounts (SNA), whereas the US uses the National Income and Product Accounts (NIPA). The closest equivalent measure can be computed by adding gross disposable income to the non-interest distributed income of corporations and subtracting consumption of fixed capital for both the non-financial and financial corporate sectors and then summing the results together. The only real difference between this data and the US data is that government enterprises and partnerships are part of the corporate sector under the SNA.
This data was available for 26 nations via Eurostat and four nations via the OECD. In addition Eurostat has such data for the 17 nation Euro Area as a whole.
The following is real (adjusted by the GDP implicit price deflator) after tax corporate profits indexed to 100 in the previous peak with year of observation and year of peak:
1.Poland-435.8-2012-2000
2.Korea-166.4-2011-2004
3.Spain-140.3-2012-2003
4.U.S.-121.2-2012-2006
5.Ireland-101.7-2012-2007
6.Slovakia-96.8-2011-2010
7.Mexico-95.6-2011-2007
8.Belgium-95.5-2011-2007
9.Luxembourg-94.2-2011-2008
10.Germany-91.0-2012-2007
11.Romania-90.9-2011-2007
12.Hungary-90.0-2011-2010
13.Japan-89.1-2011-2010
14.Austria-88.8-2011-2007
15.Norway-88.0-2012-2006
16.Euro Area-87.6-2012-2007
17.Latvia-87.2-2011-2007
18.Portugal-85.8-2012-2006
19.Estonia-83.0-2011-2007
20.France-82.5-2012-2007
21.Cyprus-82.2-2011-2010
22.Netherlands-82.1-2012-2007
23.Denmark-81.6-2012-2006
24.Switzerland-78.8-2011-2010
25.Sweden-75.2-2012-2007
26.Czech Republic-74.1-2012-2008
27.U.K.-70.8-2012-2007
28.Russia-67.2-2010-2007
29.Finland-61.8-2012-2007
30.Italy-61.5-2012-2005
31.Slovenia-57.5-2012-2007
32.Greece-39.6-2012-2007
Now it’s true that Greece, Italy and the UK are at or near the bottom of this list, and they have done a relatively large amount of fiscal consolidation, but corporate profits in Spain, the US and Ireland are at record levels, and they have also engaged in considerable fiscal austerity. So it would seem that corporate profitabiity is neither helped nor hindered by fiscal consolidation.
Is there a more systematic way of checking whether this is true?
Moreover, does the change in corporate profit margin correlate with overall economic performance?
More on this later.
22. October 2013 at 04:03
Mark, I find with Cullen’s crowd it easiest to stick with:
1. Corporations can have profits without govt. debt.
2. Corporations can have no profits while there is govt. debt.
Govt debt is not a net gain – bc it gets credit for helping out corp profits. It is neither a necessary nor a sufficient condition.
I run into the same thing with them on Govt. debt as being a assert / wealth.
It is lost on them that 15 years ago we were figuring out how to run Monetary Policy assuming that there would be no T-Bills. And Greenspan didn’t go before Congress and say “we need govt. debt to run MP” he said “govt running a surplus is bad bc taxes suck, so lower them”
BTW, Sadowski, your skills are much better put to work on that St. Louis Fed paper.
Take that thing down and write your own MM ticket.
22. October 2013 at 08:05
Antonio Fatas also takes issue with the views of Lacy Hunt as posted on Barry Ritholtz’s blog:
http://fatasmihov.blogspot.com/2013/10/the-wrong-reading-of-money-multiplier.html
Lacy Hunt:
“Today the monetary base is $3.5 trillion, and M2 stands at $10.8 trillion. The money multiplier is 3.1. In 2008, prior to the Fed’s massive expansion of the monetary base, the money multiplier stood at 9.3, meaning that $1 of base supported $9.30 of M2. The September 2013 level of 3.1 is the lowest in the entire 100-year history of the Federal Reserve. Until the last five years, the money multiplier never dropped below the old historical low of 4.5 reached in late 1940. Thus, LSAP may have produced the unintended consequence of actually reducing economic growth.”
Antonio Fatás:
“The money multiplier has collapsed because the panic from the financial crisis triggered a very large increase in demand for liquidity. The money multiplier is inversely related to the demand for liquidity of households and financial institutions. In those instances, if the central bank does not increase the monetary base, the money supply will collapse with catastrophic consequences for the real economy (these were the dynamics of the Great Depression). By increasing the monetary base (QE) the central bank is ensuring that the money supply is not falling and therefore supporting growth. Reading the fall in the money multiplier as a failure of monetary policy to stimulate growth is not correct.”
That’s only half of Fatas’ objections. He also addresses Hunt’s contradictory argument that reserve balances are somehow both inert and are fueling speculation and bubbles at the same time.
22. October 2013 at 13:27
To apply any Kalecki equation how does one account for foreign derived profits? A US budget deficit, or Spanish fiscal position won;t effect that. A company like Identex in Spain has a lot of operations outside of the US. Or Apple in the US.
22. October 2013 at 13:38
I found some errors in the list of countries by real corporate profits which I have corrected.
The most common problem was that I neglected to subtract *received* non-interest distributed income of corporations. Note also that there are now 27 countries via Eurostat with the addition of Lithuania.
The following is real (adjusted by the GDP implicit price deflator) after tax corporate profits indexed to 100 in the previous peak with year of observation and year of previous peak:
1.Poland-416.0-2012-2000
2.Korea-196.5-2011-2002
3.Cyprus-166.7-2011-2008
4.Spain-123.6-2012-2001
5.U.S.-121.2-2012-2006
6.Lithuania-113.5-2011-2007
7.Luxembourg-108.9-2011-2008
8.Belgium-98.3-2011-2010
9.Norway-96.2-2012-2006
10.Switzerland-95.8-2011-2007
11.Russia-95.0-2010-2008
12.Mexico-94.9-2011-2007
13.Austria-94.9-2011-2006
14.Denmark-94.5-2012-2008
15.Hungary-93.9-2011-2006
16.Latvia-92.9-2011-2007
17.Romania-92.2-2010-2007
18.Netherlands-90.8-2012-2008
19.Slovakia-89.8-2011-2007
20.Germany-88.6-2012-2007
21.Euro Area-88.4-2012-2007
22.Ireland-88.1-2012-2007
23.Portugal-86.8-2012-2010
24.Estonia-83.6-2011-2007
25.Sweden-81.8-2012-2007
26.Czech Republic-80.1-2012-2008
27.Japan-75.6-2011-2004
28.Slovenia-75.5-2012-2007
29.France-72.9-2012-2007
30.U.K.-72.0-2012-2007
31.Italy-62.3-2012-2000
29.Finland-50.9-2012-2007
32.Greece-40.8-2012-2004
The most obvious changes are Ireland which has dropped from record level status to being below average, and Cyprus which has risen from below average status to record levels (although the most recent figure is for 2011).
More later.
22. October 2013 at 13:40
Obviously
“29.Finland-50.9-2012-2007
32.Greece-40.8-2012-2004”
should read
“32.Finland-50.9-2012-2007
33.Greece-40.8-2012-2004”
22. October 2013 at 14:13
Matt McOsker,
“To apply any Kalecki equation how does one account for foreign derived profits?”
The original Kalecki profit equation treated foreign savings simply as net exports of goods and services. The James Montier version treats it as the current account balance, which is of course conceptually more correct.
“A US budget deficit, or Spanish fiscal position won;t effect that. A company like Identex in Spain has a lot of operations outside of the US. Or Apple in the US.”
The BEA provides different measures of profits for National Income than for Domestic Income. All of the measures here are for the former, and that is consistent with the use of the current account balance for foreign savings.
Nevertheless I think you may have a point. I have actually been thinking about how international flows of profit may be impacting this myself.
22. October 2013 at 16:12
Mark you’re kidding aren’t you? I’ve never gratuitously tried to insult anyone. My qauestions have always been about policy implications never personal as you’re jibes at me were.
Meanwhile Daniel did exactly what you say I did when accused me ‘and my ilk’ of somehoe being responsible for the current protracted downturn.
As someone who has suffered from unemployment-though for the record I’ve had a job since Sept 2012, thought the jobs have changed-during this time that’s brutally insensitive to say the least.
For more http://diaryofarepublicanhater.blogspot.com/2013/10/the-wonderful-world-of-chemical-sales-i.html
I can say this in all honesty. My questions have always been in regard to the policy implications of MM. I’ve never gotten personal just for the sake of it. My questions and comments are substantive. That even you-who in the past appeared to be study in decorum-tells me that I’m hitting a nerve somehow. You caginess-not just yours but MMers in general-tells me something is wrong and I should keep digging.
Fifth grade snark wont stop it. Some intelligent answers that saves the useless attempts to delve into the psychological reasons I might ask a question is the only way to advance things.
22. October 2013 at 16:14
“As someone who has suffered from unemployment-though for the record I’ve had a job since Sept 2012, thought the jobs have changed-during this time that’s brutally insensitive to say the least.”
I meant to finish off by pointing out how brutally insensitive it is to accuses a person who has suffered chronic unemployment as being the cause of all this unemployment.
22. October 2013 at 16:17
Mike enough with the drama queen bull$hit already.
22. October 2013 at 16:18
Geoff you’re one to talk about drama queens your name ought to be Cybil
22. October 2013 at 16:49
Mark, I expected to find a similar comment at pragcap, but you didn’t leave one. Why not?
22. October 2013 at 17:09
Mike, grow a pair why don’t you. You sound like a hormone imbalanced teenager.
22. October 2013 at 17:11
To consider the question of the correlation between fiscal policy and corporate profit margin, and the correlation between the corporate profit margin and real growth, I chose 2008 as the base year. This was done intentionally to take into account Roche’s claim that corporate profits didn’t fall in the US after 2008 due to fiscal policy. I chose 2012 as the final year in order to capture as much of the effect of fiscal consolidation as possible. This meant there was a set of only 16 nations to work with.
The following is the change in the general government balance as a percent of GDP, the change in after tax corporate profit share of GDP as a percent of GDP, and the change in RGDP as a percent of RGDP in 2008. The change in fiscal balance is not a very good measure of fiscal consolidation (the change in cyclically adjusted balance is much better) but this is consistent with the Kalecki profit equation. The fiscal balance data comes from the IMF Fiscal Monitor, and the RGDP data comes from Eurostat and FRED (for the US).
Nation—-Balance-Profit-RGDP
Czech Rep.-(-2.2)-(-2.9)-(-1.4)
Denmark-(-7.5)-(-0.3)-(-3.5)
Finland-(-6.7)-(-4.9)-(-3.7)
France-(-1.5)-(-1.7)-(+0.5)
Germany-(+0.2)-(-1.7)-(2.7)
Greece-(+3.6)-(-5.3)-(-19.9)
Ireland-(-0.3)-(+3.9)-(-5.2)
Italy-(-0.2)-(-0.3)-(-5.9)
Netherlands-(-4.6)-(-1.3)-(-2.5)
Norway-(-5.0)-(-2.4)-(+3.1)
Portugal -(-2.7)-(+2.4)-(-5.4)
Slovenia -(-2.9)-(-1.0)-(-8.5)
Spain-(-6.4)-(+3.2)-(-5.6)
Sweden-(-2.9)-(-1.9)-(+5.2)
U.K.-(-3.0)-(-3.4)-(-2.4)
U.S.-(-1.8)-(+3.1)-(+4.3)
Average-(-2.7)-(-0.9)-(-3.0)
Regressing the change in corporate profit margin on the change in fiscal balance produces an R-squared value of only 1%. Finland, the Netherlands, Sweden and the UK all had a larger than average decrease in the fiscal balance and a lower than average increase in the corporate profit margin. Greece, Ireland, Portugal and the US all had a smaller than average decrease in the fiscal balance and a larger than average increase in the corporate profit margin.
Regressing RGDP growth on the change in corporate profit margin produces an R-squared value of only 3%. Denmark, Ireland, Italy, Portugal and Spain all had a larger than average increase in the corporate profit margin and a smaller than average increase in RGDP. The Czech Republic, Germany, France, the Netherlands, Norway, Sweden and the UK all had a smaller than average increase in the corporate profit margin and a larger than average increase in RGDP.
In short, there is no evidence of a relationship between the change in the fiscal balance and the corporate profit margin, and there is no evidence of a relationship between the change in the corporate profit margin and RGDP growth.
22. October 2013 at 17:20
Tom Brown,
“Mark, I expected to find a similar comment at pragcap, but you didn’t leave one. Why not?”
Roche’s last post on this subject is old. It took me this long to generate the international data. If he ever does another post on the Kalecki profit equation, I’ll be prepared.
22. October 2013 at 17:23
Mark:
One can show via deduction that higher budget deficits increases pre-tax profits, ceteris paribus.
An increase in the budget deficit generates a transfer of relative share of total spending from the private sector to the government sector. Agree?
If a greater share of total spending is shifted to the government, then even if the percentage of investment spending relative to total spending in the private sector was just 1%, then investment spending will fall relative to total spending, with the higher deficit. Agree?
With a lower investment spending relative to total spending, aggregate costs relative to aggregate revenues will decrease. If aggregate costs relative to aggregate revenues decreases, then the difference between costs and revenues, i.e. profits, will correspondingly increase.
Another key point to make here is that because wages are financed out of investment spending, a fall in investment spending relative to total spending will reduce wage payments relative to total spending as well. Hence there will be a decrease in real wages, ceteris paribus.
The next time you hear someone complain about super high profits and low wages, during the period of coming out of a recession, where deficits tend to be higher, remind them that deficits are partly responsible.
22. October 2013 at 17:43
Geoff most hormone influenced teenagers say things like ‘grow a pair’
22. October 2013 at 17:49
Mike Sax,
“Mark you’re kidding aren’t you?”
No, of course not. You accused me of arguing for fiscal austerity. When I pointed out there’s no record of me ever having done that, you accused me of having hiden motivations.
“My qauestions have always been about policy implications never personal as you’re jibes at me were.”
Mike, you were the one who first started making extremely unfair accusations about me. Anything I may have said about you was purely in response to that.
“Meanwhile Daniel…”
I have no interest in what Daniel may have done, or what Morgan may have done, or what anyone else may have done. I am no more responsible for their behavior than I am for yours.
“As someone who has suffered from…”
I’m also not really interested in your life’s story.
“I can say this in all honesty.”
This is pure BS. When was the last time you said anything substantive or asked a question about something substantive?
22. October 2013 at 18:16
Drama queens such as yourself say “I know you are but what am I?”
22. October 2013 at 18:37
“Mark you’re kidding aren’t you?”
“No, of course not. You accused me of arguing for fiscal austerity. When I pointed out there’s no record of me ever having done that, you accused me of having hiden motivations.”
Mark it was never about you personally I don’t know why you keep trying to make it that. I was talking about the implications of monetary offset. I said that they actually justify austerity. You came back with I’m histrionic or unhinged.
You are the ones brining the personal edge to it. Now here you simply misconstrue what I’m saying and take it out of context.
“Meanwhile Daniel…”
I have no interest in what Daniel may have done, or what Morgan may have done, or what anyone else may have done. I am no more responsible for their behavior than I am for yours.
“As someone who has suffered from…”
“I’m also not really interested in your life’s story.”
Again, not really necessary and I never offered you my life story. I just pointed out that I’ve been unemployed. In a blog that claims to care about helping the unemployed through this allegedly perfectly effective policy why is that not releveant.
The reason I metnioned Daniel is that he did exactly what you claimed I did:
“You’ve done way more than that. You’ve accused people of having motivations they deny having and of arguing for policies that they have not.”
He claimed that I ‘and my ilk’ am responsbile for the recession. As someone who has suffered unemployment that’s pretty brutal in its insenstivity. You can’t claim I’ve said anything worse than that.
“This is pure BS. When was the last time you said anything substantive or asked a question about something substantive?”
I do so all the time usually I find that MMers like yourself don’t want to answer them. My substantive policy point here is the implications of this monetary offset idea I hear so much about. I can think of few more substantive and important questions. You can’t answer it without getting snarky which tells me that I’ve hit a nerve.
As a matter of fact I remember asking you some questions over at Monetary Realism that you answered without getting snarky. IN any case all I care about is knowledge and truth.I just want to understand the economic world. When people start with the snark that’s usually because a nerve has been hit.
22. October 2013 at 18:42
Mike, you’re doing an excellent job disproving the thesis that you’re not a drama queen.
22. October 2013 at 18:53
Mike Sax,
“As a matter of fact I remember asking you some questions over at Monetary Realism that you answered without getting snarky.”
That was at Interfluidity, and it was over a month ago. Since then your comments have been completely devoid of substance and they have become increasingly personal over time. At this point I find your behavior more disturbing than any other single commenter I interact with.
Frankly I wish you would stop talking to me and about me, and I shall try and do the same with respect to you.
22. October 2013 at 19:27
That’s fine but this is not true:
“That was at Interfluidity, and it was over a month ago. Since then your comments have been completely devoid of substance and they have become increasingly personal over time. At this point I find your behavior more disturbing than any other single commenter I interact with.”
I was asking you during this threat about monetary offset. IT wasn’t personal. I still have made no personal comments. You don’t want to answer it fine. However, I’ve engaged in no personal attacks and won’t agree that I have
23. October 2013 at 14:38
“Greece, Ireland, Portugal and the US all had a smaller than average decrease in the fiscal balance and a larger than average increase in the corporate profit margin.”
should read
“Ireland, Italy, Portugal and the US all had a smaller than average decrease in the fiscal balance and a larger than average increase in the corporate profit margin.