Music for the New Year

I was never a fan of the B52s but this song makes you think you are at the beach bodysurfing a wave.

It makes the bass guitar the centre of the music and it works!!

Seems appropriate for New Year's day in Sydney.

The original lead guitarist dies of aids I think and had only 4 cords on his guitar. Strange but apparently it worked

Last Post for the Year

The following are interesting articles from various blogs around the place just in time for holiday reading.

• Firstly from the Land of Oz Ken Parish looks at the political year and all the mud slinging. Lengthy but worthy of a read
• Paul Krugman looks at structural deficits and sees some cyclical issues. This is becoming an issue in its own right. sometimes structural deficits/surpluses are affected by cyclical events. (econspeak on this as well.) This is about how some people never learn. It happens here as well! ( Brad De Long on fire on this.)
• Noah Smith here and here looks at whether Japan can reflate. If the BOJ cannot hit a 1% CPI target how in the hell will it get near 2%!!
• Menzies Chin looks back at 2012 and has a bit of fun.
• The inimitable Mark Thoma provides great food for thought. the two Davids examine the Taylor rule and NGDP targeting and find problems.
• Brad De Long  on showing why economic history is one of his strong points
• Simon Wren-Lewis looks at the state of academic economics. hmm
• Lastly Carbon taxes making Ireland greener. Begorrah

Possibly the first Around the Traps

Okay it is Christmas day but the boys are watching Batman Begins so I have a bit of time on my hands.

If you enjoy economics here are some articles for you.

• Mark Thoma naturally has all the Krugman/Mankiw debate
• David Glasner has a short piece on whether History matters
• Menzies Chin looks at the Anti-Keynesian rants
• Nick Gruen looks at generosity and political preferences
• Simon Wren-Lewis looks at the state of macro debate
• Jonathon Portes marks his views to market
• Philip Lane  looks at the British economy
• Kruggers on the Fed and interest rates

Interesting but not so wonkish

• Tim Lambert on the the Australian's recurring war on science. ( just for something different.)
• Angry Bear here and here on guns
• Calculated Risk on the 10 economic questions for 2013

Some good holiday reading

Merry Christmas

Christmas is about the coming and birth of Jesus Christ.

The birth and life of Jesus Christ is incontrovertible.

Humanity is incorrigible  with respect to Jesus.We just do not want him to be Lord of our life and live his way.
He is inconvenient. We try to ignore him. We remember at Christmas or Easter.We take the holidays and the fun but not the truth.

It is incredible not inconvenient at all!!

This Church has the full version but alas not in electronic form!!

More classical music

The internet is fantastic.

Whilst I was trying to get versions of Songs my mother taught me I came across this lady.

not only a good voice but has great looks as well.Enjoy

Classical touch

Songs my mother taught me is one of my favourite songs.

 Choose your version

Two comments.

Only a prat would try and  outstage our Joan.

The better version is Lizzy's. A lilting voice simply made for the song.

Why Handel was a genius

Although this song  is really about Easter it is my favourite 'christian  'song and shows what a genius Handel was.

Yes I know it is ironic heretics sing this so beautifully when they clearly cannot believe the words!

Try this as well

Enjoy and enjoy Christmas. God gave us his son for a reason!

Know your subject

Okay I know I said I wouldn't be writing but someone has annoyed me/



Sam Wylie at Core Economics ( sorry no link as the article is that bad!) makes a number of rather silly remarks about the fiscal position of the Australian government.

In no particular order.

• He thinks it is real GDP that is important to the budget position. It isn't it is nominal GDP
• He doesn't understand the government doesn't want to obviate the automatic stabilisers as the economy is slowing
• He thinks that cutting spending by 1% of GDP is no big deal. It has no impact on revenues for example
• He then cannot nominate by how much he wants the public sector to detract from Growth
• His policy would lead to either a slowdown or a recession and just remember we are slowing down at present
• He is not aware of advice from both the OECD and IMF on fiscal policy
• Finally he has a very thin skin as he deletes  comments he cannot or will not answer.

Postscript

Samuel J at Catallaxy has also written something on the budget so breath-taking ignorant on simple fiscal policy I wonder how it ever got to air so to speak.

I will simply say no matter who was in government they couldn't possibly post a surplus ( because of slowing nominal GDP growth) and you would slow the economy even more if you tried.



Have family coming over so I might do something tomorrow.

all the best

Forrest Gump

If you treat people as idiots then it could possibly mean they are idiots.

Sinclair Davidson attempts to argue black is white in true Goebellian fashion.

In true SA fashion the commenters except for a noble few, agree that black is white.

Please note the commenter Pedro. Although sympathetic to the view usually promulgated at this blog he cannot believe what he is reading!

I believe we can call this the Forrest Gump column!!

Christmas is coming so few posts are likely until after the third test!

Fiscal Policy again

Well at last Wayne Swan has bowed to reality.
As I have mentioned almost ad finitum given we have had below trend nominal GDP growth for some time and it is nominal GDP that is all important to the budget bottom line we were never going to get a balanced budget ( for that is what you have if the bottom line is less than 1% of GDP.)

In no particular order the reasons why we should not have a balanced budget are:

• It isn't possible. If you try to cut spending to overcome automatic stabilisers you will increase the deficit not reduce it as we see in Europe
• Fiscal policy is not an end it is a means. It is there to boost GDP growth and reduce unemployment not the opposite
• Austerity works in good times as Keynes pointed out in 1936 not in times when the economy is slowing
• Fiscal policy is quite potent but monetary policy is not is some circumstances. This means lower interest rates may not offset tighter fiscal policy even if the RBA is not behind the curve.
• It may lead to the $A depreciating and going to levels reflecting its fundamentals
• Even the OECD and IMF have said so

Wayne Swan has shown again he takes a long time to change his mind. After browbeating by the Treasury Secretary and RBA Governor he eventually agreed to use fiscal stimulus to overcome the GFC, thank the Lord.
Now he has been eventually convinced he couldn't get a surplus. Why did it take so long?
Why is he such a hopeless politician. On this see Mumble ( second last on the sidebar.)

I should add AGAIN that when anyone claims the budget should be in substantial surplus then you know they are fiscal incompetents.

Compare the last three years of the last government with the last three years of this government in terms of budgets. One thing stands out like a saw thumb.

Revenue is a lot weaker this time round than last. Check out Mark the Graph

POSTSCRIPT

If it was easy to balance the budget then Hockey would promise to do that. He hasn't.!

Compare and contrast:
John Quiggin
Nick Gruen
Sinclair Davidson


Okay I think Nick's is easily the best around the traps

The Budget and all that

Ross Gittins writes about the budget and the economy and he makes a lot of sense.

I only support putting the budget into the black if they do it via smoke and mirrors. After-all fiscal policy is if anything too contractionary. Only a very silly person would make it even more contractionary particularly when cash rates are at 3%!

When nominal GDP is below trend as it has been for some time then the budget will not be balanced.

Without smoke and mirrors fiscal policy can only become more contractionary by attempting to balance the budget. This means weakening the economy and wella the budget blows out. We see this happening in Europe.
(The Irish economy is still below what it was before the GFC!)
Such measures if anything would lead to $A appreciation which is contractionary as well.

Monetary policy just wouldn't offset this just as it isn't at present.

Update

Wayne Swan at a press conference has bowed to reality. He will not try and obviate automatic stabilisers.

He was quite good at the press conference as well.

Around the Traps

The following is sorry are some interesting articles from blogs I have read.

• Simon Wren Lewis has an excellent article on looking at whether it takes a lot of Harberger triangles to fill an Okun gap. Read it and find out.
• Jonathon Portes has an excellent guest contribution from Adam Posen on the UK economy
• Mark the ballot has some interesting stuff on the polls. as I said on Friday read the blogs on his sidebar. The ALP can still win the next election IF history repeats itself!
• The thin-skinned Ken Parish has a fantastic article on the 'Slipper ruling and the rest'
• Lord Keynes looks at who the main critics of Hayekian business cycle theory were
• Stephen King looks at two school attacks. One in the USA and the other in China. One person had guns and the other a knife. In one attack a lot of people were murdered and in the other none were!
• Mark Thoma shows how todays is vastly different to the 1970s and son worries of stagflation are overdone
• Bill Mitchell in an old article which I have only just read shows why I lost faith in Milton Friedman. ( I read about this at Uni.)

If I find more as I go reading today I will post more.

Enjoy

Book Review and possible Christmas present

I wrote quite recently about Kaiser Fong and his analysis of the Lance Armstrong Affair.

Well here he is reviewing Nate Silver's book.

I really enjoyed it. I must buy the book.

(As an aside the last Neilsen poll is being done this weekend so on Monday when it is released I will via Mark the poll show the latest figures.

Just remember to read most of the blogs on his side-bar. They are fantastic.)

Musical interlude

East west is one of the all time great music tracks.

Solos from Mike Bloomfield and Elvin Bishop on guitar and Paul Butterfield on Mouth harp.

It is mouthwatering stuff and made in 1965!!! Well I reckon it was 1965 but you tube says differently.

I first heard this on Chris Winter's Room to move on 2BL Monday nights. That is pre-FM radio  folks.

I give you both the studio version and the live version.

I have hyper-linked them instead of using you tube for reasons you will see when you open the link

Europe

Europe has been a disaster for those supporters of classical economics.

for some enlightened reading  try Kevin O'Rourke and of course Kruggers.

Read the links as well. The Netherlands is now affected!!

I really should add Jonathon Portes as well.

CRA again.

Mike Konzal  demolishes the case that CRA lead to risky lending.

I do wish people who try to portray CRA as the villain behind the GFC would try and show how papers from the Fed and each Regional Fed on this issue were wrong.

They never do. They simply ignore them. This is usually proof they have no case.

Whoopsy I forgot Noah Smith has also written on this.

Okay read this Fed research paper on the topic!

The Curious case of the $A

It used to be easy to know the direction of the $A. It merely followed the direction of the terms of trade ( in other words commodity prices).

However in recent times commodity prices have fallen BUT the $A has remained at high levels. why?

It appears sovereign wealth funds find the yields on our government bonds with its AAA rating from all three rating agencies (The only time thus far this has occured) irresistible.

The $A being at high levels is contractionary for the economy. This combined with fiscal policy is outweighing the stimulatory effects of lower interest rates.

Indeed it appears to be the major reason why nominal GDP levels has been lower than trend for sometime and why disinflation has made real GDP higher then nominal GDP.

Can this continue?

Ricardian Ambivalence believes it can.( see the comment on the jobs article). He thinks it can as long as the terms of trade keep falling. You then get a European situation of net exports only rising through very low wage growth.
In other words very tepid growth which means rising unemployment.

How does a policy maker change this?

Well a loosening of fiscal policy would achieve this. You would then get expansion through both fiscal policy and a lower $A. However as the economy expands and then you get a tighter fiscal policy you then get back to a stronger $A than the fundamentals would lead you to.

The problem at present is that old fashioned fundamentals has taken a back seat. It seems to me it will continue to do so whilst the European crisis continues.

An old fashioned Keynesian would find himself in a bind. At present the government is following Keynesian policies. A reliance on monetary policy with fiscal policy going from neutral to contractionary.

What to do?

Lance Armstrong

Do you enjoy statistics?


I admit so.  That is why I loved reading Nate Silver , Simon Jackman etal on the US election.

In this hugely enjoyable article Kaiser Fong goes through the stats with regard to Lance Armstrong.

Good blog as well.

Goebbels Award

I am going to start the Goebbels award.
Each time I see something written which is soooo inaccurate that Joesph Goebbels would be proud of it then it will be awarded..

The inaugural winner is  Sinclair Davidson who attempts to say part of the rise in GDP is because of Government spending.

Now go to the National Accounts and they say the public sector actually detracted 0.5 percentage points from GDP growth.

Wow. He is asserting, in a kind of indirect way the exact opposite of what has actually occurred!

This shows how well the Goebbels technique is employed. He isn't spouting some falsehood from the rooftops alah Alan Jones. He is simply quietly slipping in the lie and then everyone accepts it.

Global Warming

Do you think or believe the official forecasts on climate change are overblown and always over the top?

Well you are WRONG

Know your Subject

Yikes this is too good to be true.

A person using the amazingly accurate epithet of 'Poor old Rafe' writes about part-time employment and strikes and productivity.

Only one problem he is wrong on both counts.
The ABS released their labour force statistics yesterday. Now yes over the month he is right but ( remember there is a lot of noise in monthly figures)  why over the year to November has part-time employment fallen but full-time employment risen?

On Industrial disputes and Productivity I will outsource this to Grog's Gamut again.

Notice the difference between the evidence and the assertion.

The link is in the national accounts. He asserts something and has no idea of the primary source. wow!

This person is living in a parallel universe

Almost the start of Around the Traps

National Accounts

Yesterday the National Accounts were released.

please see Ricardian ambivalance and Mark the Graph ( please note for all political junkies he has another blog as well now Mark the Ballot)  on the sidebars
See also Grog's Gamut.

Nice graphs and analysis if you read them all.

What to me is important.

Real GDP is > than Nominal GDP because of DEFLATION. Yes folks deflation.

Remember it is nominal GDP that is important for the budget bottom line.

Unit labour costs are falling sorry rising much more slowly and productivity is still increasing.

Mr Hockey

Times are tough for Mr Hockey. Cash rates and budget deficits/public debt are inexorably linked.
However he just cannot explain how interest rates are lower now than under Mr Howard.

He wants greater public spending cuts BUT the public sector actually detracted 0.5  percentage points from GDP growth.

Just how much of this does he want and how does he think it will affect the budget bottom line?

Interesting stuff

Catch up with Noah Smith on the sidebar on a debate about multipliers, Simon Wren Lewis about how much inflation should a Central Bank allow and Jonathon Portes on self defeating fiscal policies.

Yes another lesson if one was needed that classical economics is a disaster for policy makers to follow as Europe well knows now.

Polls and the Next Election

Just before I start writing read Mumble's thoughts with which I heartedly concur and also let us assume the parties are at 52:48 ( Liberal/Labor).

Now let us take a bit of history.

• Governments, usually and most particularly 2nd term Governments, usually get a swing to them during the campaign) in the Election. ( think 2004, 2007 elections

• Opposition leaders usually do very well in their first election but decline after that IF still Opposition Leader.

That means the government could still win the next election.

Surprised? I was to some extent. I was always confident a scare against the ETS would be devastating BEFORE implementation but a yawn after it came in ( just like the GST).

I will be interested if the Government can exploit Abbott's many bouts of hyperbole after all he has a long history in this area.

We will see.

Will the ALP dare to say interest rates will always be lower under them than the Liberals!!

Postscript.

This article is a great read about recent political developments



Later Postscript.

Polls have gone back to around 54-46ish which makes the above academic. The result would be a win for the coalition but the win would be thinner given a swing towards to the Government.

Spend Money on Roads

The Federal Reserve of San Francisco has looked at spending on roads and likes it.

And it has large multipliers.

People who are of the same age as me will remember John cox saying similar things for Australia.

I remember being poo-pooed for saying the stimulus should have spend money ensuring a dual carriage way from Melbourne to Brisbane.