Edward Lambert: Forecasting the Stock Market thru Effective Demand

Dave here. The markets have taken a beating in 2016, and while the fallacy of thinking the market=the economy seems like an oversimplification, this post provides a competing viewpoint that, without taking a position in affirmation or dissent, I thought I would offer up for discussion.

For some background, you can read Edward’s other posts at his .

By Edward Lambert, an independent researcher who discovered an equation for Effective Demand. Cross-posted from .

Most economists do not put stock in the stock market. That is to say that they do not include the stock markets in their analyses. Yet, economists should have a sense of what the markets will do if they are actually good economists.

Economists seem to think that the stock markets are ruled by psychology and irrationality. Maybe so, but they can still be understood. Economists do not seem to understand stock markets. However, Larry Summers says that economists and policy-makers should not ignore the stock markets. ()

Tim Duy who is a respected economist stands by his prediction that there will not be a recession this year. () Yet he also predicted that the stock markets would rise modestly this year. () Who really thinks the Dow could make it back up to 18,000 this year? There would have to be massive easy monetary policy globally. Yet that would just make the markets that much more top heavy.

What economists really need is a way to measure the limits of the business cycle. I have the advantage of being able to measure an effective demand limit on the business cycle.

In 2014, I said that the Dow would orbit around 17,300 for the rest of the business cycle. Then I said last summer that the Dow would not go much above 17,300 and would eventually come down from that point into recession. After this past week, I can more easily repeat my prediction. It would take a lot of psychological healing from China to other parts of the world to bring back faith in stock markets to get the Dow over 18,000 before the next recession.

What did I do to make these correct predictions?

It is just an understanding of effective demand, which signals the natural top of the business cycle. My models are developing in order to foresee this top years in advance. I seem to be the only economist using a measure of effective demand to make correct predictions ahead of the markets. Other economists make correct predictions without using a measure of effective demand. But my point is that effective demand can be used to much easier.

If other economists are able to understand what I understand about effective demand, we might see better predictions and policies. Of course, the proof in the pudding will come if there really is a recession this year. Then my measure of effective demand hit spot on the natural top of the business cycle near the end of 2014.

Am I a great economist? No… but the great ones would be better if they understood effective demand.

Keynes emphasized effective demand in his great book, but does anyone but me put a number to it? Not that I see… and my numbers are hitting spot on… so far.

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About David Dayen

David is a contributing writer to Salon.com. He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.

45 comments

  1. dk

    Economists seem to think that the stock markets are ruled by psychology and irrationality. Maybe so, but they can still be understood.

    I would generalize this to say that “Foolish and malicious behaviors are ruled by psychology and irrationality, hence they can be understood.”

    But it’s necessary to specify the usage of “understood” to be “comprehend (and possibly predict)”, rather them more casual contemporary usage of “accept and sympathize with”.

    The specification is especially necessary for people who recognize evil; collaterally with the concept of evil, they feel that evil must be rejected in whole, because its mechanics are either incomprehensible or because to comprehend them is polluting (sometimes going further to conclude that they are proven good by their incomprehension of evil). These concepts are, of course, an example of the pattern.

  2. Paul Tioxon

    Demand side economics, for want of a simple label, and Keynesian economics are considered non-scientific ideological lies of the left leading to communism, and therefore, tyranny. The opposing school of thought, supply side economics, the reigning ideology of neo-liberalism, ushered in with President Reagan and the Lafler Curve, completely rejects demand side economics and demonizes it if it mentions it at all.

    If 70% of the economy is dependent on the consumption of goods and services by individuals and families, their capacity to spend is will predict the duration of the business cycle. The industrial capacity to produce more than, not only what we need or want, but can afford to pay for is obvious by the regular over expansion of many business that open up too many stores, that build too many factories and then turn around and close them due to, get this, lack of demand.

    I can see 2 types of lack of demand. One, where there is no financial capacity to shop and two, where there is satiation of desire, shopped til you dropped. Of course, planned obsolescence created the return customer with deliberate production of shoddy merchandise that would have to be replaced in an engineered period of time of sooner rather than later. The intensive crapification of everything has sped up the life cycle of planned obsolescence from beyond the pale to the unseemly.

    Today, with several decades of wage suppression, job off shoring, downsizing and general abuse of workers blue and white collared, a dystopian convergence of crap and less money to buy crap or even reasonably good quality crap, has left us with slack demand because the rent is too damn high, the car payments go on for longer than most marriages and college debt is a new form indentured servitude, unless you win a really big lottery.

    Even as I write, the trickle down effect of more money in the form of increases in minimum wages being offered by the crap jobs of America’s new normal economy, Walmart, Target and the newest local indicator, Sheetz and WaWa convenience stores, are all announcing entry level wages of $10/hr and no, they will not cut back on hours for the full time crowd. Right, sure, the check is in the mail. Well, we’ll just have to wait and see. If it is clear that people can’t shop because they are simply not paid enough to do much more than pay rent, eat a little something then transport themselves to work, then that would explain why the crap jobs are trying to give up a little more money than they did just one year ago.

    A lot of Federal government jobs, local and state jobs as well, have been promised more pay in the pay check. For example, various air port baggage handlers are supposed to see a rise in wages as well as various sub-contractors that do the domestic work in federal facilities, the food prep and household cleaners under contract etc.
    The whole $15/hr living wage movement that has been behind national walkouts at fast food joints as well as putting pressure on the big box retailers seems to support the effective demand as necessary to understand economic vitality. If wages are rising and the labor market is tightening, there should be more effective demand, just by all of the people back to work that were let go during the Great Collapse of Wall St II, and $7.25/hr being a minimum on the books, but not a reality for most people today in 2016.

    When I took the rudimentary econ 101 course back in the mid 1970s, Keynesian wasn’t a dirty word, it was orthodoxy. Demand was a logical precursor to production. And wages were continually increasing creating a higher standard of living year after year. Of course, that came to grinding halt in the 1980s with downsizing, wage freezing which apparently led to diminished demand. And nothing seems to be able to replace giving more money to people to spend other than giving more money to people to spend. Debt did not work, only higher wages will. We need to effectively demand more money!!

    1. Myron Perlman

      Good summary. I would add that a decline in “social wages” must be considered as well. Due to the austerity agenda losses in education and other public services turn into larger out of pocket expenses. Working people may be given 20 dollars more per week on the check while being forced to spend 30 dollars a week to make up for lost services.

      1. Paul Tioxon

        Exactly! Cost shifting in health care is a prime example. Co-pays were non existent. Insurance meant your costs for prescriptions and doctor visits were covered. The slow creep of HMOs, co pays 80% coverage after out of pocket $xyz amount of deductibles and health savings accounts. Health savings accounts? We used to have Christmas clubs where we saved money at banks all year long so we would have a few hundred bucks to splurge at holiday time. And that was back in the 60s. Money is being sopped up into insurance costs, housing and car loans with little else beyond basics, food and clothing. Small pay raises or annual bonuses in the range of $400 or $500 bucks means catching up on bills, not more income for more consumption.

    2. Rhondda

      I think there’s another kind of lack of demand to add to your list: willful repudiation.

      I am this way as are many of the people I know. And becoming more so. It doesn’t matter much what I need or want. I only buy what’s necessary — and necessary has become a harder bar to measure up to. For ex.: Roof and plumbing are necessary, but we’re fixing and patching rather than replacing. We could afford to replace but the future looks dim and dark and broke. We do a lot more “making do.” It’s a conscious decision — both to hunker down but also to stiff the banksters and the corrupt system. I no longer perform solemn sacrifice to Moloch. As in, no buying anything new. (Except the rare need for clothes and shoes.) And no credit, except mortgage and we are working very hard on that.

      1. jrs

        Not buying does stiff them at they don’t make money, shoplifting stiffs them even more since they actively lose money, so it’s one better. But it could backfire on oneself in a way frugality doesn’t. Being lazy at work also stiffs them but if you get in trouble for it backfires.

  3. JCC

    I just read Edward Lambert’s Synopsis of Effective Demand. It looks like just another math model that depends on a lot of the opinion of whether any of these public measures of rGDP (real GDP), G (real Government consumption expenditures and gross investment) can be actually/factually determined.

    I would be willing to bet a fair amount that we’re already in recession, but that’s based on common sense and a total distrust of Govt numbers. Then again, being just a member of the common labor pool, as far as I can tell we’re still in the same old recession we’ve been in for the last 7 to 8 years.

    1. run75441

      JCC:

      I can not speak outright for Edward; but, I believe he would tell you we are close to recession.

        1. Yata

          …just saying

          Well you just can’t say that. The entire discussion becomes a bit more cerebral, and as a recent panel of scientific experts has determined, you can actually make money by saying shit you get paid for.

    2. Edward Lambert

      JCC,
      Like Run says, I would say that there is a 70% chance of recession this year. We have already hit the effective demand limit, but the economy can bounce around there for a while. buth the odds increase that a recession can be triggered.

  4. Keith

    The Neo-Liberal ideology has swept the world and now its inherent flaws are coming home to roost.

    It was carefully vetted by the rich and powerful to ensure it looked after their interests, which unfortunately, is the reason it is just so wrong.

    Neo-Liberal economics believes in the polar opposite of reality in most cases and is just wrong in many others.

    1) It is based on supply side, trickledown economics

    There was an approximation to this when bank credit was almost un-limited prior to 2008. Now we are seeing the problems with lack of demand everywhere and businesses won’t invest until they see a rise in demand, they don’t believe the supply side nonsense either.

    Every system is designed to benefit those that put it in place.

    To think anyone is going to design a fair system would totally ignore human nature.

    Capitalism is the dominant system today because it is works on greed and self-interest (human nature).

    Every social system since the dawn of civilization has been set up to support a Leisure Class at the top who are maintained in luxury and leisure through the economically productive, hard work of the middle and lower classes.

    (The Theory of the Leisure Class: An Economic Study of Institutions, by Thorstein Veblen. The Wikipedia entry gives a good insight. It was written a long time ago but much of it is as true today as it was then. This is the source of the term conspicuous consumption.)

    In the UK we call our Leisure Class the Aristocracy and they have been doing very little for centuries.
    The UK’s aristocracy has seen social systems come and go, but they all provide a life of luxury and leisure and with someone else doing all the work.

    Feudalism – exploit the masses through land ownership
    Capitalism – exploit the masses through wealth (Capital)

    Today this is done through the parasitic, rentier trickle up of Capitalism:

    a) Those with excess capital invest it and collect interest, dividends and rent.
    b) Those with insufficient capital borrow money and pay interest and rent.

    The system itself provides for the idle rich and always has done from the first civilisations right up to the 21st Century.

    For 5,000 years the rich have been taking from the poor, now there is some flow the other way they don’t like it, they don’t like it at all.

    Trickledown, are they insane?

    The FED puts money in at the top expecting it to trickle down.
    It just stays at the top blowing asset bubbles.
    A big problem with upside-down economics.

    2) No differentiation between “earned” and “unearned” wealth
    The parasitic, unproductive, rentier, FIRE (finance, insurance, real estate) sectors are destroying the real economy.
    Michael Hudson “Killing the Host”

    3) Ignores the true nature of money

    One of the fundamental flaws in the economists’ models is the way they treat money, they do not understand the very nature of this most basic of fundamentals.

    They see it as a medium of exchange enabling trade that exists in steady state without being created, destroyed or hoarded by the wealthy.

    They see banks as intermediaries where the money of savers is leant out to borrowers.

    When you know how money is created and destroyed on bank balance sheets, you can immediately see the problems of banks lending into asset bubbles and how massive amounts of fictitious, asset bubble wealth can disappear over-night.

    When you take into account debt and compound interest, you quickly realise how debt can over-whelm the system especially as debt accumulates with those that can least afford it.

    a) Those with excess capital invest it and collect interest, dividends and rent.
    b) Those with insufficient capital borrow money and pay interest and rent.

    Add to this the fact that new money can only be created from new debt and the picture gets worse again.
    With this ignorance at the heart of today’s economics, bankers worked out how they could create more and more debt whilst taking no responsibility for it. They invented securitisation and complex financial instruments to package up their debt and sell it on to other suckers (the heart of 2008).

    Economists can’t see the problem due to the fundamental flaw in the way they treat money.

    Neo-Liberal dogma is so wrong it could never work.

    It did function well for a while by allowing bankers to flood the world with almost unlimited supplies of money through debt.

    Debt just borrows from the future to spend today and the repayments are now due.

    It’s success was a debt based illusion.

  5. hemeantwell

    I’m left wondering if this is a complete post. Isn’t it the case that most, or all, models of the economy pay attention to “effective demand,” which presumably is different from expected/hoped for/fantasized demand (though maybe not as decisively as one might think)? If so, what’s interesting about his model?

    1. Edward Lambert

      hemeantwell,
      You hear aggregate demand, but that is different from effective demand. You will see that in chapter 3 of Keynes’ General Theory.
      You will also hear people use the term effective demand once in a while, but they never put a number to it. They just guess that it is out there somewhere. I have found a way to put a number to it. and the economy is following my numbers very well.

      Effective demand in a brief definition… There is a future point in the business cycle where entrepreneurs will curtail further aggregate utilization of labor and capital because profits have maximized.
      Aggregate demand talks about the current demand. Effective demand talks about the eventual future limit of demand.

  6. craazyboy

    Anything would be an improvement over the stock market. It can tell you that something big broke, after the fact. Then we can’t even tell after the fact if what broke was in the real economy or the financial parallel universe. Tho my bet is on finance being the major culprit in the last 30-40 years.

    Market PE ratios can swing from 7 to 20, so the stock market yardstick is rather useless. Then monetary policy has a mind of its own with regard to transmission paths it takes. Seems it heads towards the financial sector lately into speculation rather than the real economy.

    Shiller has a good approach with his smoothing of historical PEs over many years to take out the emotional swings and end up with a somewhat improved measure of earnings/payroll generating capacity of the biz_economy. But mainly it can give you an idea if stock valuations are high or low. It’s still not a policy tool, except maybe to let the Fed know they are blowing bubbles again.

    So I took a quick look at Edward’s equations, and without really understanding them, it looks like “labor share of GDP” is a prominent factor in demand. Hard to argue with that, if the data is any good. But the other factor people have been pointing out lately is debt overhang and the resulting(reduced) availability of credit. Since 2008, the focus is on consumer debt, but corporate and government debt can be a factor too. So somehow we would need to get to demand = purchasing power – debt service – (savings for emergencies and retirement). Then the data would have to be good and distribution reasonable so that one billionaire = 100,000 consumers is not how we do the formula in the real world.

    Then if we could understand the 2008-2009 Great Credit Crunch, we would have a great math model. Then we’ll have another Great Credit Crunch, but at least we can forecast it coming and get the hell out of stocks.

  7. Boatwright

    Over beers a few weeks ago, a friend and I were imagining a future in which “the consumer” decided he had enough cheap crap to last a lifetime. Everyone emptied out their storage units and the economy became a vast Moroccan souk with chickens in the backyard.

    We had a few laughs, but by the end of last week I wasn’t even smiling. Personally, I’m 100% cash, not spending as much on restaurants, etc., and looking in the garage it’s clear we already have WAY more crap than anyone could possibly need. When the snow melts — time for a yard sale.

    Seems like a classic Keynesian failure of demand, doesn’t it?………………………….

    1. Yata

      Yes, If you are an average member of society a garage sale seems a matter of course, if you were a financial ghoul you anticipate parking your funds in waste removal and landfills.

    1. diptherio

      “Effective demand” is just a fancy way for economists to say that someone wants to buy something and they have the finances with which to purchase it. Homeless people, for instance, may wish they had a house, but they create no effective demand because they don’t have the money to turn the wish into a reality.

      1. Steven Greenberg

        Insufficient description of the model this author is talking about. What about government induced effective demand? Is that in his model? What else is in his model, and what isn’t? Where does he get his numbers from? How accurate are his predicitions 1%, 10%, 100%, 1000%? Who is measuring the accuracy and how is it measured? Have these ideas been peer reviewed and published? Where can we judge these ideas for ourselves?

        It is easy to give a qualitative, weak definition, but actually measuring it for the entire economy at any moment in time and keeping track of its trends over time would be a significant advance. Claiming it can be done, but showing no evidence it can be done, makes it sound like all the other fairy tales and snake-oil remedies we have heard about.

        1. sd

          It’s on his website, Effective Demand.

          Basic principles of effective demand

          The effective demand limit determines a maximum for the percentage utilization of labor and capital in production. Thus, the effective demand limit establishes a constraint upon the utilization rates of labor and capital. (T in the equations below)

          The utilization of labor is the unemployment rate. The utilization of capital is the capacity utilization rate.

          The basic principle is that profits will be maximized at the effective demand limit. If aggregate production tried to go beyond that point, the decline in profit rates would deter businesses from employing more labor and capital. Normally recessions will form at that point as some businesses struggle to keep afloat in an environment of stagnating profit rates.

          1. The utilization of available labor & capital depends upon the share that labor receives from total value-added income.

          2. The utilization of labor & capital also depends upon net exports, investment, government expenditures, headline inflation, core inflation, short & long term interest rates from a central bank.

          3. After a recession, when the utilization of labor and capital is below the effective demand limit, there is profit incentive for businesses in the aggregate to utilize more labor and more capital.

          4. When the utilization of labor and capital hits the effective demand limit, there is profit incentive for businesses in the aggregate to utilize more labor and LESS capital.

          4. After the utilization of labor and capital hits the effective demand limit, over time a recession will form. Profits have been maximized and start to decrease. Businesses in the aggregate will begin to utilize LESS labor and LESS capital.

    2. Edward Lambert

      Effective demand in a brief definition… There is a future point in the business cycle where entrepreneurs will curtail further aggregate utilization of labor and capital because profits have maximized.
      Aggregate demand talks about the current demand. Effective demand talks about the eventual future limit of demand.
      Aggregate profits rates maxed near the end of 2014 just when my models said they would.

  8. xformbykr

    Thanks for bring this ‘effective demand’ stuff up. It’s a near-equilibrium approach with some quantitative reasoning to illuminate the stuff one reads from DeLong and Krugman and others. I plan to follow it, since there will likely be some Fed-policy-tap-dancing over the coming months. But I don’t expect ‘effective demand’ to help with understanding the bigger issue like the oil price war, maintenance of the empire, etc.

    1. Edward Lambert

      Actually, the effective demand limit in the US has affected China. I saw the problems of China coming at the beginning of 2014. I wrote that China would have problems when the US hit its effective demand limit.
      Now the drop in the price of oil, I did not see coming. I would have said that a drop in China would put downward pressure on oil, but the drop is way beyond what I foresaw.

  9. susan the other

    Isn’t this more about our industrial capacity being gargantuan… a sleepy monster that can produce tons more than we will ever need in a very short period of time? So we only want to wake it up for very short durations and it is impossible to keep it going (supply side insanity) because saturation and dreaded sures. So yet another contradiction for our modern supply side economix – it doesn’t work. Another example of success being suicide. Etc. We need to modify the old solution (war) for slurping up sures – we need a war on pollution and CO2 and devastated social benefits and neglected science. We need a war on the real enemy.

    1. Chauncey Gardiner

      Re: …“[W]e need a war on pollution and CO2 and devastated social benefits and neglected science. We need a war on the real enemy.”

      Thanks, STO. This winter’s photos of pollution in major Chinese and Indian cities, and the stark recent evidence of effects of ocean acidification and GW, raise fundamental questions about the implicit premise that perpetual economic growth is desirable.

      Setting aside public policy considerations, in terms of assessing the validity of the author’s predictive model I would like to see a complete history of his specific predictions concerning the business cycle and stock markets. Effects on “effective demand” of underlying factors such as demographics; private, public and sovereign debt levels and interest rates; currency flows; purchases and construction of durables; income distribution and wealth concentration; energy cost and availability; commodities prices; geopolitical events; psychology; culture and values; elite criminal behavior; regulatory effectiveness; corruption; tax rates; environmental degradation; etc. on global demand and markets are complex with unforeseen back loops and outside context issues that reveal themselves in unexpected ways.

      The social and economic effects of mass migration of M.E. refugees into the EU core is but one recent example. I would not have guessed that coarse, abusive and sexually threatening behavior by migrants in a crowd during the New Year’s Eve celebration outside a cathedral in Cologne would precipitate a possible crisis of confidence in the current German government that arguably affected financial markets.

      What was that observation by former Yankee catcher, Yogi Berra? …”It’s tough to make predictions, especially about the future.” AKA “unknown unknowns”… not to suggest we shouldn’t keep trying.

      1. polecat

        today, being a modestly warm day for a change, happened to notice activity in front of 2 of the 3 bee hives I own,….so I stood there…. mesmerized……happy and grateful that they’ve survived the winter so far…….. I managed to rid myself of all the negative stuff going on….if only for a few moments. Thank Gaia for the bees !!!

  10. Chuck Roast

    In my antediluvian days I had the great good fortune to be taught by a bunch of unreconstructed Keynesians. We pretty much got pounded on aggregate demand…and leading economic indicators. Not the nonsense crap in the bus-pages.
    Thanks to my patched-elbow instructors and this blog, and it’s repeated discussion (months ago) about the failing Australian iron ore market, I didn’t need a model to figure out which way the wind was beginning to blow.

  11. alex morfesis

    There are no recessions and no depressions…just boredom or economic warfare among the capital class. Eccles saw this and it was the reason fdr created the new chairman position to allow him to try to deal with the capital strike fdr faced after the buffoonery of the herbert hoover mispresidency…there is always demand…most humans can easily be hooked by some shinny jig in the tackle box…the question is how do they pay for it…very few have the self discipline(the nc crew would not fall under the flippant consumer category) to just get by and tighten a belt when need be…media masters absorb the mindspace available and compete for the 100 hours per week of consciousness available to the half of the global population with functioning modern utilities and whose existance relies on motorized pleasantries…

    Erisa converted the stock market into a new type of currency and turned the two(or three) major ratings agencies into central bankers and the nyssa into loan officers handing out lines of credit based on “notions” or as is purported to have been the mindset of jp morgan
    ..character…

    The stock market creates currency for what used to be about a thousand us firms and now globally is about ten thousand firms to acquire assets and human capital on the notion they are good and proper stewards of capital and future growth…the new economic “electors” who are allocated free floating capital to absorb mountains of small operations and who only have to answer when they get past a 20% threshold of current capital value…erisa also supports and loops back by forcing moneymarket type capital to flow only to “approved” capital structures…approved by the rating agencies…capitals unelected and unsupervisable central bankers

    Can not say there is any energy in this old soul to attempt to absorb any of the inclings that pass for the theories of economists…

    Most humans think in either 15 minute intervals…daily grinds…weekly survival…monthly carnivals or 13 week spans…hardly anyone thinks 18 or 30 months out…ibg ybg is now and has always been the mindset of the capital/plutonomy class…

    When the bullshovyx gave out their “stamp” currency, the average koppeckistani did not imagine the nobility had lied about not sending its gold to the uk for collateralized loans to pay for the graft and conversion of the incompetence of the tsarist mic in 1915 and 1916…and they imagined with british troops in northern russia in 1921…the days of lenin and his crew were numbered…so they used old tsarist currency instead of lenins “stamps”…currency to facilitate barter at its finest…

    There are three forms of oppression…economic…physical and spiritual…spiritual being the most powerful…if one can make you think you have chosen to leap at the shinny jig and forget the hook in the jaw, there is no need to make you hungry or put a knife to a throat…

    circus and sugar…

    Sadly…most people are no longer worried about bread…just funtertainment…or neutertainment…and will melt away into a bag of bones for the next fix…

  12. two beers

    “We need a war on the real enemy.”

    A successful war of that sort would result in a re-balancing of the accelerating inequality of the last forty years. That means a much better life for the 99%, and a little less wealth and power for the oligarchs. But that’s communism, un-American, and just downright untenable!

    So I’m expecting a war of the type that usually breaks out when the oligarchs decide the supply and demand chains need shaking up.

  13. Steven Greenberg

    Completely useless post without a link to a description of the model. It is easy to boast that you know something that other people don’t, and then fail to divulge what it is you claim to know. I have tried using this trick myself, and it never works for me, either. There is no credibility in these kinds of statements. Even if there is something behind the boast, the boaster will have lost all credibility before anyone gets to see the details.

    I have seen it happen too many times, that brilliant technical people get dismissed out of hand because they want to protect their ideas from being stolen. If you aren’t willing to divulge the details, better to stay silent about them. Your ideas will have no impact on the world if you guard them over-zealously.

      1. run75441

        sd:

        Nicely said.

        I know Edward, met him over a Starbucks coffee, and brought him to Angry Bear. He is a unique person and one of the most polite people I know who will take the time to explain.

        There is an overwhelming amount of his information on the blogoshere if people just look for it or as you said, “click on the links.”

        You have provided some of it also above this discussion.

  14. nortino

    The author is a Keynesian. His post of 11/10/15 is chilling. I agree with a lot of his observations and predictions, but I differ on how I arrive at the same conclusions and predictions he does.

    The borrowing that is going on in the economy is not borrowing from “the future”, it is borrowing from *somebody else* in the present. A light bulb should go off once you look at things from this perspective. All the wealth and things around us are not an illusion.

    We are doomed to business cycles based on the fundamental fact that workers (consumers) can not afford to purchase all they produce because they are subject to rent extraction. Since the owners/employers are not really consumers but net savers, a sur builds up. The sur can be mopped up with debt, but only to a point. When that point is reached, production is cut back and a recession ensues.

    I believe we have been in a depression since 2008. Whatever recovery we have had since then is ending in line with the typical timing of a business cycle.

    1. run75441

      1978 was a unique year.

      In a 2012 interview , John Galbraith said this:

      “Between the end of World War II and 1980, economic growth in the United States is mostly an equalizing force, and job creation isn’t dependent on rising economic inequality. But after 1980, economic booms and rising inequality go hand in hand. So what’s going on? In 1980, we really went through a fundamental transformation. ‘We stopped being a wage-led economy with a growing public sector that was providing new services. Programs like Medicare and Medicaid were major drivers of growth in the 1970s.

      Instead, we became a credit-driven economy.'”

      Skip the Medicare and Medicaid comment and put the other two lines together. We stopped . . . and Instead, we . . .

      1978 was a unique year as one SCOTUS decision was to have a profound effect on the economy even with 2008 and onward. No longer could states set limits as to what interest rates could be charged for out-of-state banks incorporated in one state and establishing credit cards in another state. 1978 SCOTUS Decision: Marquette National Bank of Minneapolis v. First of Omaha Service Corp.

      “state anti-usury laws regulating interest rates cannot be enforced against nationally chartered banks based in other states. Justice William Brennan wrote that it was clearly the intent of Congress when it passed the National Banking Act that nationally chartered banks would be subject only to federal regulation by the Comptroller of Currency and the laws of the state in which they were chartered, and that only Congress or the appropriate state legislature could pass the laws regulating them.

      The case has been called one of the most important of the late 20th century, since it freed nationally chartered banks to offer credit cards to anyone in the U.S. they deemed qualified, and more specifically because it allowed them to export credit card interest rates to states with stricter regulations, opening up a race between states in an effort to attract lending institutions to set up shop in their states and offer a wider variety of consumer credit products. Over the next decade, the states accelerated a process that had already begun of repealing or loosening their anti-usury laws, allowing state-chartered banks to compete more equally with national ones. As a result, the use of credit cards has vastly increased, and since the mortgage industry soon followed suit, the issuance of subprime mortgages also increased drastically, facilitating the housing bubble that led to the 2008 housing crisis.”

      Justice Brennan later said: “But the protection of state usury laws is an issue of legislative policy, and any plea to alter [the law] to further that end is better addressed to the wisdom of Congress than to the judgment of this Court.” Yea, as if there is any wisdom there? Brennan actually thought Congress would change the National Banking Act to allow states again to set Usury Laws. It was the start of one disappointment after another as Congress turned the tables on constituents to favor business. Wiki should be sufficient to explain it: .

      A comment I made on AB.

  15. Russell Scott Day

    More of the On Demand manufacturing would make a real difference if there was more money to spend.
    More and more I end up being nearly forced to buy from Amazon and everything I produce is produced on demand.
    I do not think all my failure is due to the lack of the currency of fame, though a good deal of it is.
    As, or if, wages were to rise above the rent, which is being jacked up as it was before the dot com bubble burst, and On Demand manufacturing become alined past cultural lag, we might move forward together along with population growth.
    It would take redress of the misuse of the gifts given in hope that made Americans reinsurers of the reinsurer.
    The politicians who asked and seemed to expect some long gone real investment to create manufacturing jobs that paid well to anywhere near a majority were deluded. Meyer Lansky Financial engineering was going on and was entrenched all as gaming to loot.
    Can you imagine that we are to seriously expect Mars to be a good escape destination?
    The money was taken and spend on deeds and rent raised.
    (About the same thing happened in music as went the Payola Scandal. DJs were no longer paid to play, and then it was just the Station Managers.)
    You’d have to impose national standards of rent control, tax Wall Street Transactions, impose Glass Steagall regulations by regulatory fiat and or law, and use tariffs to protect immature businesses throwing out the insanity of “Free Trade”.
    Seems to me all of “Economics” is the attempt by the nation to protect the people from the greed of those with the deed.
    Hence then John Commons said capitalism is great but will require socialism as the result of itself.
    I study this for the Insurodollar and Transcendia, my model country.
    I’m getting good for a creative economist don’t you think, and what is the measure of demand but adding up the population and what they need?

  16. equote

    Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.
    said Adam Smith

    1. Edward Lambert

      equote,
      Keynes said something similar too.

      “Keynes’s analysis of the demand for output as a whole is derived from the recognition that `all production is for the purpose of ultimately satisfying a consumer‘” –

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