Sunday, February 28, 2021

Analogy, ergodicity, and the cycle of civilization

Ergodicity, as Jerry has it:

So, if you have mapped out the [phase] space and found that 60% of the volume corresponds to a bad economy, and 40% corresponds to a good economy, then if the system is ergodic, the economy will be bad 60% of the time and good 40% of the time.

If the system is not ergodic, then the amount of time that it spends in each region won't directly correspond to the volume of the region.


Ergodicity, as Carroll Quigley has it (from pages 36-37 in the PDF):

The rule of simplicity or economy in scientific hypothesis has a number of corollaries. One of these, called "the uniformity of nature," assumes that the whole universe is made of the same substances and obeys the same laws and, accordingly, will behave in the same way under the same conditions.


Ergodicity, as Paul Davidson explains it in relation to economic prediction:

In simple language, the ergodic presumption assures that economic outcomes on any specific future date can be reliably predicted by a statistical probability analysis of existing market data.

In other words: Ergodicity means that given the past, we can predict the future. 


By assumption, New Classical economic theory imposes the condition that economic relationships are timeless or ahistoric ‘natural’ laws. The historical dates when observations are collected do not affect the estimates of the statistical time and space averages.

Ergodicity means: The fact that the economy changes over time does not interfere with our ability to predict the future based on the past.


In mainstream economics, economic data are typically viewed as part of time series realization generated by an ergodic stochastic processes. In fact, Nobel Prize winner Paul Samuelson (1969) has made the acceptance of the ergodic axiom the sine qua non of the scientific method in economics.

Samuelson says ergodicity is an absolutely necessary part of economics.

And Davidson:

if ergodicity is assumed, statistics calculated from past time series or cross-sectional data are statistically reliable estimates of the statistics probabilities that will occur at any future date.

The ergodic assumption is like saying that the laws of economics are equally valid at the height of the Roman Empire and during the Dark Age that followed; during the time that Charlemagne recreated the money economy and the time that Henry VIII made charging interest legal in England; in 1947 when there was about $3.50 of debt per dollar of M1 money in the US, and in 2007 when there was about $35 of debt per dollar of M1 money. 


The reason this comes up just now is that I was reminded of it by these thoughts:

The philosopher Paul Bartha ... citing the philosopher of science Cameron Shelly, offers the example of analogical reasoning among archaeologists in the Peruvian Andes. Unusual markings that were found on old clay pots remained mysterious until researchers noticed that contemporary potters used similar marks to identify the ownership of vessels baked in a communal kiln: they inferred that the old markings had a similar purpose.  Similar habits of analogical inference guide scientists in their speculations about features of the cosmos. Even if they cannot empirically verify that a remote corner of the universe exhibits a certain pattern of astronomical phenomena, analogy permits them to infer that the laws that obtain in our galaxy most likely obtain elsewhere, too.
  • Archaeologists figure the odd markings on ancient pottery have the same purpose as the odd markings on new pottery.
  • Astronomers figure the physics of the universe, where we can't see it, works the same way as the physics of the universe where we can see it.

I might add that similar habits of analogical inference guide economists in their predictions of the future behavior of the economy. Even though they cannot verify that the economy at some future date will exhibit a certain pattern of economic conditions, analogy permits them to infer that the economic laws which describe the past also describe the future.

  • Economists figure that the laws of economics operate the same way in the future as in the past.

Why? Because they assume ergodicity.

But if the economy is not ergodic, the analogy will fail. And the results of economic prediction often suggest that the economy is not ergodic. 


There is, however, another possibility: If the laws of economics are wrong or incomplete or too simply stated, economic prediction can fail easily. This is true whether or not the economy is ergodic.

Given that economic theory has evolved since The Wealth of Nations was published, and continues to evolve, and given the endless schools of economic thought and the endless disagreement between them and among them, I find it safe to say the laws of economics are incomplete and too simply stated, and therefore wrong when it matters.

The cycle of civilization is a massive economic cycle, driven by the concentration and distribution of wealth. The "active" phase of this great cycle determines the "economic relationships" that become what we consider to be "timeless or ahistoric ‘natural’ laws." 

But economists do not adjust or adapt their economic laws to suit the changing conditions imposed by the great cycle. Instead, they pretend business cycles create fluctuations around a persistent upward trend, and that this persistent trend is not slowing and does not slow. In this "fixed" environment that they imagine, they are free to assume that their economic laws are also fixed and unchanging.

But they are not. And the "persistent upward trend" that they imagine is actually part of the gently curving path of the cycle of civilization, always curving downward beneath our feet.

The cycle of civilization is more than a tool to help us correct and improve our understanding of the economy. It is also a road map that can be used to change the future. But economists do not imagine the possibility that we might find ourselves a sweet spot somewhere on the great cycle -- somewhere in the Age of Capitalism -- where growth and productivity are high, inflation and unemployment are low. 

They do not imagine that we might bring our economy to that sweet spot by careful design of policy, and keep it there, avoiding the disintegration of civilization, and allowing us to reach the five-digit years that today we only read about in science fiction stories.

Saturday, February 27, 2021

Beyond debt


Take steps to limit the growth of debt, or be prepared for the Age of Capitalism to give way to the next stage in the cycle of civilization.
It won't be an improvement.

-- mine of 21 Feb 2021


Curse my memory. I read Robert Heilbroner years and years back. I remember him saying business civilization won't last another 500 years. Funny thing: When I find the reference, it's only 100 years. From the Leonard Silk review of Business Civilization in Decline (March 21, 1976):

Is capitalism dying? Robert L. Heilbroner is sure it is. He expects it to be gone within a century.

That would be by 2076. Just 55 years from now.

A decade or more after reading Heilbroner, I found the abridgement of Toynbee's A Study of History: a book about the rise and fall of civilizations, and the traits different civilizations have in common. I found it fascinating beyond fascinating.

From the Argument

The intelligible units of historical study are not nations or periods but 'societies'. An examination of English history, chapter by chapter, shows that it is not intelligible as a thing-in-itself but only as part of a larger whole...

The 'whole', or 'society', to which England belongs is identified as Western Christendom...

Exploration of its beginnings reveals the existence of another society which is now dead, namely the Graeco-Roman or Hellenic society, to which ours is 'affiliated'.

From Chapter I, page 11:

The continuity of history, to use an accepted phrase, is not a continuity such as is exemplified in the life of a single individual. It is rather a continuity made up of the lives of successive generations, our Western Society being related to the Hellenic Society in a manner comparable (to use a convenient though imperfect simile) with the relationship of a child to its parent.

As summarized in the Argument, Toynbee finds that

The Orthodox Christian society is, like our own Western society, affiliated to the Hellenic society...

Behind the Hellenic society we find the Minoan...

As offspring of the Sumeric society we find two more societies, a Hittite and a Babylonic...

... we have, in all, twenty-one specimens of 'civilizations' ...

I'm trying to show what makes A Study of History so fascinating to me. I was never interested in history, by the way; Toynbee makes it interesting by showing common features shared by many civilizations over the course of their lives. And by tying-in the few things that I do happen to know.

For example, seeking evidence of the parent/offspring relation that he calls "apparentation and affiliation", Toynbee evaluates the latter stages of one civilization and the origin stage of another, looking for particular signs:

The marks of this relationship are (a) a universal state (e.g. the Roman Empire), itself the outcome of a time of troubles, followed by (b) an interregnum, in which appear (c) a Church and (d) a Völkerwanderung of barbarians in an heroic age.

But these are just the "marks" of the relationship. They suggest scenes and scenarios that we might find among the facts of history. And Toynbee provides plenty of them. I'm omitting them and presenting just an overview, mostly from the Argument, which is "an abridgement of the Abridgement" of Toynbee's 5500+ pages. But hey, if you've got time to do some reading, Toynbee will keep you busy.

For me, the interesting thing is the civilization I'm part of, its ancestry, and, in particular, the possibilities for the future. 


Let me offer you one more dribble of enticement: the dates Toynbee applies to Western civilization. There is first an "interregnum", described as

the deep sleep of the interval (circa A.D. 375-675) which intervened between the break-up of the Roman Empire and the gradual emergence of our Western Society out of the chaos... 

And then, dates for the civilization itself:

So we have:

Western I ('Dark Ages'), 675-1075.
Western II ('Middle Ages'), 1075-1475.
Western III ('Modern'), 1475-1875.
Western IV ('Post-Modern'?), 1875-?

But we have strayed from the point...

It may be later than you think. But don't read too much into the dates. I mean, they're extraordinarily precise for dates that cover almost two thousand years. Surely the purpose of these dates is to convey the "big picture", not to reference specific, sharply-defined moments of transition. They are not like appointments with destiny.

Friday, February 26, 2021


I searched my blog-prep blog for the word civilization. First to come up was an unfinished post named "Buckle?" from a year ago, March 2019. Two years ago.

"Buckle?" I echoed...

At JSTOR, an article from 1947: Toynbee and the Decline of Western Civilization by Theodore A. Sumberg. From the first page of Sumberg's article:

... for speculative grandeur and great moral significance, Toynbee's philosophy of history is worthy of standing alongside the visions of the historical process of Augustine, Hegel, Marx, and Buckle.

According to Wikipedia, Henry Thomas Buckle was the son of Thomas Henry Buckle.

Henry Thomas Buckle (24 November 1821 – 29 May 1862) was an English historian, the author of an unfinished History of Civilization, and a strong amateur chess player. He is sometimes called "the Father of Scientific History".
Buckle's fame rests mainly on his History of Civilization in England. It is a gigantic unfinished introduction, of which the plan was, first to state the general principles of the author's method and the general laws that govern the course of human progress...

 The article lists ten "chief ideas" of Buckle's History. Among these:

That, owing partly to the want of ability in historians, and partly to the complexity of social phenomena, extremely little had as yet been done towards discovering the principles that govern the character and destiny of nations, or, in other words, towards establishing a science of history;

Some friction there, between Buckle and other historians. Reminds me of Toynbee, whose abridged work opens with these words:

Historians generally illustrate rather than correct the ideas of the communities within which they live and work...

 Another of those chief ideas from Buckle's History:

That climate, soil, food, and the aspects of nature are the primary causes of intellectual progress: the first three indirectly, through determining the accumulation and distribution of wealth, and the last by directly influencing the accumulation and distribution of thought, the imagination being stimulated and the understanding subdued when the phenomena of the external world are sublime and terrible, the understanding being emboldened and the imagination curbed when they are small and feeble;

Climate and soil and food are not high on my list. I go directly to "the accumulation and distribution of wealth", which is determined more by time and compound interest than by climate, soil, and food.

Also, I think Buckle's "intellectual progress" (in the context of the history of civilizations) is very much like a successful response in Toynbee's "challenge and response": It's what keeps civilization moving forward. So now, I'm more interested in what Buckle had to say.

Number 10 on Wikipedia's list of chief ideas confirms this view of intellectual progress:

That the progress of civilization varies directly as "scepticism", the disposition to doubt and to investigate, and inversely as "credulity" or "the protective spirit", a disposition to maintain, without examination, established beliefs and practices.

One more of those chief ideas:

That religion, literature and government are, at the best, the products and not the causes of civilization;

No question there.


I see Project Gutenberg has three volumes of History of Civilization in England available for download.

I see that Part One is listed "Among my Favorites" at Excursions into Libertarian Thought. For what that's worth.

Wednesday, February 24, 2021




At that point, the text fades away, but no matter. I got what I wanted: "carloadings".

Before GDP, GNP. And before GNP, Carloadings. I love it.


See also: Two moments in the broad sweep

Tuesday, February 23, 2021

Inflation and the Google Ngram overlay

For no particular reason: a Google Ngram Viewer view for the word "inflation", with the background erased, overlaid on a FRED graph of the CPI:

Sunday, February 21, 2021

Democracy in America

Paul Schumann at Insights and Foresight preserved part of Wikipedia's 2007 text on Democracy in America:

Tocqueville's penetrating analysis sought to understand the peculiar nature of American civic life. In describing America, he agreed with thinkers such as Aristotle, James Harrington and Montesquieu that the balance of property determined the balance of political power, but his conclusions after that differed radically from those of his predecessors.

The uniquely American mores and opinions, Tocqueville argued, lay in the origins of American society and derived from the peculiar social conditions that had welcomed colonists in prior centuries. Unlike Europe, venturers to America found a vast expanse of open land. Any and all who arrived could own their own land and cultivate an independent life. Sparse elites and a number of landed aristocrats existed, but, according to Tocqueville, these few stood no chance against the rapidly developing values bred by such vast land ownership. With such an open society, layered with so much opportunity, men of all sorts began working their way up in the world: industriousness became a dominant ethic, and "middling" values began taking root.

Key points:

  • The balance of property determined the balance of political power.
  • Any and all who arrived could own their own land and cultivate an independent life.
  • Sparse elites and a number of landed aristocrats existed.
  • According to Tocqueville, these few [elites and landed aristocrats] stood no chance against the masses and their rapidly developing values bred by such vast land ownership.

In hindsight, we might say it is not the sparseness of great accumulations of wealth that tips the balance of political power in favor of those less wealthy, but rather the small size of the great accumulations in proportion to the total volume of lesser accumulations. In other words: the absence of extreme concentration of wealth.


Concluding chapter 6 of Democracy in America, Tocqueville wrote:

and if, finally, the principal purpose of a government is not, in your view, to make the nation as a whole as glorious or powerful as can be but to achieve for each individual the greatest possible well-being while avoiding misery as much as possible; then equalize conditions and constitute a democratic government.
We already have democratic government. What we need is to "equalize" conditions. Not complete equality, but less inequality than at present. We still need our sparse elites and the modern equivalent of "landed aristocrats" -- but countably few in number.

And again, it's not the fewness of them that matters so much as it is an upper limit on the size of their accumulated wealth. In the early years of our democracy, the upper limit was provided naturally by the youthful age of our nation (as opposed to the France of Tocqueville's day, for example). But wealth has continued to accumulate in the US for near 200 years now, after Democracy in America was written.


Please bear in mind that the goal cannot be achieved by an aggressive policy of raising the minimum wage. Nor can we achieve the necessary growth of wealth by making conditions better for wealth-holders. The one is only a way to cope with the problem, and the other makes the problem worse. We need policies in place to limit the mechanisms that promote inequality, mechanisms like the growth and accumulation of debt.

This brings to mind Steve Keen's quote from Ben Bernanke:

Fish­er’s idea was less influ­en­tial in aca­d­e­m­ic cir­cles, though, because of the coun­ter­ar­gu­ment that debt-defla­tion rep­re­sent­ed no more than a redis­tri­b­u­tion from one group (debtors) to anoth­er (cred­i­tors). Absent implau­si­bly large dif­fer­ences in mar­gin­al spend­ing propen­si­ties among the groups, it was sug­gest­ed, pure redis­tri­b­u­tions should have no sig­nif­i­cant macro­eco­nom­ic effects.  (Bernanke 1995, p. 17)

The quote is from Bernanke's The Macroeconomics of the Great Depression: A Comparative Approach (PDF, 28 pages). In addition to the "academic" view, Bernanke describes the "agency approach, which has come to dominate modern corporate finance":

From the agency perspective, a debt-deflation that unexpectedly redistributes wealth away from borrowers is not a macroeconomically neutral event.... By inducing financial distress in borrower firms and households, debt-deflation  can have real effects on the economy. [page 18]

If I have trouble with these views it is because both of them focus on "debt-deflation" rather than on an earlier stage when the economy is still viable enough that debt-deflation can be avoided. And that this earlier stage must also be problematic, as it sets the stage for debt-deflation.

As Bernanke presents them, the academic view is that debt-deflation is no more than a harmless redistribution, except in "implausible" circumstances; and the agency view is that debt-deflation is not "neutral" and could (plausibly) be harmful. As long as economists and policymakers keep thinking in terms of plausibility and implausibility they will never adopt a mindset that allows them to understand the seriousness of the problem and drives them to work to resolve it. I note that the agency view's "domination of modern corporate finance" was not enough to prevent the financial disruption of 2007-2010.

Even at its lowest and most harmless level, debt causes a transfer of wealth or income from borrower to lender -- or sometimes, in highly inflationary times, from lender to borrower. Admit this, and take steps to limit the growth of debt, or be prepared for the Age of Capitalism to give way to the next stage in the cycle of civilization. 

It won't be an improvement.

The effects of debt are non-linear. Debt always does harm to the economy; the use of credit is always beneficial. But the cost/benefit ratio varies with the growth of accumulated debt. It's not rocket science.

Friday, February 19, 2021

On insurrection

What is missing, in all of the televised opinion I have seen, is analysis that says the insurrectionists have some legitimate complaints, though the expression of these may have been misdirected by "stop the steal". 

As Hayek says, people never have economic motives. You don't go and invade the Capitol because the economy sucks. You go under a bold political banner.

However, it is only when the troubled economy becomes the foremost underlying concern that insurrection becomes likely.

Tuesday, February 16, 2021

A "FRED Adds Federal Reserve Weekly Balance Sheet Records Since 1914" sampler

Seems like something that I might want to refer back to:

FRED Adds Federal Reserve Weekly Balance Sheet Records Since 1914

"... about 120 series on weekly historical balance sheet records ..."

Also, they link to the Center for Financial Stability which looks like an interesting place.

I took a quick look at a few of these new series. Not much idle chatter today.

Three log graphs

Graph #1: The Treasury Account at the Fed

The first graph shows decline from the first World War to the Great Depression, followed by a rise. Perhaps we see another version of this decline-and rise in the decline of jigginess from the mid-1990s to the Great Recession. Note that if you look at the uptrend of the 1980s and imagine it continuing, the increase during the Great Recession was not a sudden shock so much as it was a return to the uptrend of the 1980s. Now that's interesting. 

I'm thinking the Clinton budgets of the 1990s -- the balancing act -- explains why the trend runs flat from the early 1990s to 2009 or so. And then economic forces that are always ignored (by people that focus on balancing the federal budget) forced government funds back to the uptrend of the 1980s... which may be an uptrend that started around 1960, but went a little high in the 1970s due to inflation.

Graph #2: "Total Deposits" at the Fed

Interesting how the line appears to grow increasingly wider from the early 1970s to the Great Recession. Really it is increasing jigginess, or volatility. This increasing jigginess occurs during a time of increasing financial innovation and my guess is there's cause-and-effect.

Graph #3: Fed holdings of US Treasury Notes

Oh -- This one stops before the financial crisis. Not as interesting as I expected.

Some interesting shapes

Graph #4: Special Drawing Rights

Caught my eye because I heard of SDRs but don't know much about them.

Graph #5: "Total Federal Agency Obligations"

Graph #6: Total Gold Held By Federal Reserve Banks (1914-1934)

And this gets us to gold... and "gold certificates".

Gold Certificates

Graph #7: I dunno

"Ratio of gold certificate reserves to deposit and Federal Reserve Note liabilities [of the Fed]".

The vertical axis uses a log scale, because without it the graph shows nothing but one vertical spike.

Looks like all the data is below zero... Can't be, because logs don't cooperate below zero. I checked the original values: They are above zero but less than one.

Dunno why there's that one huge spike.

Graph #8: Gold Certificate Account

Lots of action early on, then nothing.

Graph #9: Total Reserves

Similar shape to Graph #8, but this one starts earlier.

Since both #8 and #9 are elements of "Resources and Assets" I wanted to compare them:

Graph #10: Gold Certificate Account as Percent of Total Reserves

It might mean nothing. I'm not familiar with the data. Looks like it runs high, but with a tendency to drop off.

There's a high point in August 2005 which looks to me like and early indicator of the financial crisis and all that.

Friday, February 12, 2021

Why were they so gullible?

I've been watching some of the impeachment proceedings. Sometimes it's impressively good. Sometimes it puts me to sleep.

I saw only part of it, so I could be wrong about this, but it seems to me that something has been left out. I don't think the impeachment prosecutors asked this about the people that believed Trump: Why were they so gullible?

Do we really think, for example, that Trump supporters believe the Q-anon story that Democrats eat babies?

I don't think so. A few of them believe it, maybe. But I think most of them are just so fed up with the way things are that they're willing to go along with the joke, and perhaps they take some pleasure in how frustrating it is for people on the other side. Dunno, but that would be my view, if I was one of them.

Seeing it this way, I must also ask: Why are they so fed up?


On this blog I do economics, or what to me is economics. So of course I think those people are fed up because the economy has been so bad for so long.

I don't expect that they see it that way. They seem to see themselves as political revolutionaries who can no longer accept our existing government. But as I said, I do econ, and I happen to think politics (and almost everything else in the modern world) is driven by economic concerns.

I can tell you exactly why I see the world as driven by economic concerns: F.A. Hayek, The Road to Serfdom, chapter 7. You can get a PDF of the book (with a few chapters missing).

Here are three quotes from chapter 7, by which I hope to show how I came to prioritize economic concerns above political concerns:

So long as we can freely dispose over our income and all our possessions, economic loss will always deprive us only of what we regard as the least important of the desires we were able to satisfy. A "merely" economic loss is thus one whose effect we can still make fall on our less important needs, while when we say that the value of something we have lost is much greater than its economic value, or that it cannot even be estimated in economic terms, this means that we must bear the loss where it falls. And similarly with an economic gain.
Economic values are less important to us than many things precisely because in economic matters we are free to decide what to us is more, and what less, important.

And one more piece:

Once we realise that there is no separate economic motive and that an economic gain or economic loss is merely a gain or a loss where it is still in our power to decide which of our needs or desires shall be affected, it is also easier to see the important kernel of truth in the general belief that economic matters affect only the less important ends of life, and to understand the contempt in which "merely" economic considerations are often held.
In chapter 7 Hayek was writing about totalitarianism. Turns out, totalitarianism is bad for economic reasons.


So anyway, I think the Trump supporters are not pleased with the US economy, and they blame the government, and they think it's time to end the government.

  1. I'm sure not *all* of them are angry about the economy. I think most of em skip over the economy and go direct to anger at government. But even a view like white supremacy can tentatively be traced back to economic roots.
  2. Blaming the government is correct, yes and no. Yes, because it is the government's responsibility to "promote the general welfare" of the people. No, because if you want a better economy, the way to get it is not by trying to kill politicians (if that was the goal), but by studying the economy for as long as it takes. That's what I do, anyway.
  3. To get from blaming the government to ending the government is one hell of a big jump to conclusion. That shows how fed up they really are.

And that's all I have to say on that, for now.

Wednesday, February 10, 2021

Wow. Just Wow.

Writing a new post. Going thru old stuff on my old blog. I came across Creatures of habit from 9 October 2016:

At my old job, before I retired, we did a lot out of habit. Whenever we got a new project to work on, the first question was always "What similar project did we do before?" We relied on previous projects to answer "How did we solve that problem?" questions for new projects.


Sometimes I wonder if the Federal Reserve makes decisions out of habit. When a problem arises do they ask "How did we solve that problem before"? It sure looks that way: Need to promote growth? Lower interest rates. Need to fight inflation? Raise interest rates. Need to promote growth? What'd we do last time? Lower interest rates. Already at the zero bound? Lower rates anyway ...

It also shows this graph, with my markups:

Graph #1: Growth Rate of the Monetary Base

The graph shows the growth of base money, the thing that the Fed was created to manage. It sure looks to me like the policymakers at the Fed are creatures of habit.

I like that old graph. But not enough to interrupt myself to write about it. I kept going thru my old stuff, looking for what I was looking for, some statement from Bernanke on policy. And that's when I came across AMBSL goes back to 1918 from 11 October 2011. 

AMBSL is one of FRED's measures of base money, the same shown in Graph #1 above. In the 2011 post I show a couple "base money" graphs, and describe the log view:

Slow growth until 1930. Rapid growth from 1930 to 1945. Slow from 1945 to 1962. Moderate growth from 1962 to 2007 (with a little droop at the end of it). And then, more-than-rapid growth after 2007, the Bernanke fix.

So I'm thinkin... Suppose the kink at 2007 is like the kink at 1930, the start of a Depression. And suppose the 1930-1945 money growth was the solution to the Depression. The question, then, is: How much more will the Bernanke fix have to increase Base Money, if a proportional increase is required now?

In other words: Assuming we had the same problem after 2007 that we had after 1929, and assuming we do the same thing, where will the numbers go? (Note that this question can be seen as a "creatures of habit" question. It wasn't. I had nothing else to go on except comparison to what happened before, so that's what I went with.)

The 2011 post continues:

We know from experience that there was a large increase in the quantity of base money and we (Ben Bernanke and I) think we know that the increase of base money was what fixed the economy and ended the Depression. So Ben is orchestrating a comparable increase of base money now. I want to know what will happen to the money supply if it increases by the same multiple now as it did during the Great Depression.

You with me?

In 1930, the level of base money was $5.879 billion. In 1945, it was $31.685 billion. That's more than a five-fold increase. The multiple is 5.39.

So. Suppose we take our base money from 2007 and multiply it by 5.39. That will give us an increase comparable to the increase we think fixed the Great Depression.

In 2007, FRED has base money at $850.529 billion. That's before the quantitative easings began. Now, take that number and multiply by 5.39 to see how much base money we might need to end this Depression: $4584.35 billion.

Obviously, I had to stop what I was doing and quote that last number, because it is pretty damn close to how things turned out. The graph at FRED shows AMBSL stopped climbing and leveled off at the 4000 billion level, or 4.7 times the 2007 number and only a little shy of my guess.

In October 2011 when I wrote the post, actually from mid-2011 to the end of 2012, AMBSL was hovering around the 2600 level.

Total assets held by Federal Reserve banks, a related number, leveled off at 4500 billion in 2015. 

These numbers are close enough to my uneducated guess that I have to wonder if policymakers have a plan, or if they have nothing else to go on except comparison to what happened before, so that's what they go with. Like creatures of habit.

Tuesday, February 9, 2021

A Clockwork Toynbee

How long is a business cycle? It varies. But I hear tell, on average 5½ years.

How long is the Kondratieff wave? It varies, but "about 40 to 60 years" according to Google.

How long does a civilization last? "340 years," Google reports boldly. That's not what I was thinking. I tried one of the search results, from Larry Freeman at owlcation:

Recently, I was talking with a colleague at work and I mentioned that civilizations usually only last 500 years. The only problem was that I couldn't remember where I had heard that. In fact, I wasn't all that sure that I was right. I know that the Roman Empire lasted roughly 500 years but how about the Egyptians, the Chinese, the Ottomons, etc...

Yeah, no, without looking I'll say the Roman empire lasted near 500 years. The Roman civilization lasted much longer. The Roman empire was the "universal state" phase of the Roman civilization. Just a phase. If I remember right.

To be fair, the title of Freeman's post mentions "the empires of ancient civilizations" and so does the text of the link address. But let's not confuse empires with civilizations.

One more search result: Luke Kemp's The lifespans of ancient civilisations at BBC Future. According to his graphic, "The average lifespan of a civilisation is 336 years". Maybe they're short like that if you spell it with an "s"...?

"In the graphic," Kemp writes, 

I have compared the lifespan of various civilisations, which I define as a society with agriculture, multiple cities, military dominance in its geographical region and a continuous political structure.

There it is. I bolded it: "a continuous political structure". In other words, Kemp sees the Roman Monarchy, the Roman Republic, and the Roman Empire as three separate civilizations. Good grief.

Hey, figure it however you want. But don't ignore Arnold J Toynbee who said, as I remember it, that civilizations rise out of a Dark Age, and fall into the next Dark Age. Doing it Toynbee's way you can get civilizations lasting 2000 years. That's a big difference from 336 or 340.

Monarchy, republic, and empire are different stages in the government of civilization. Plato said something like that too, I hear:

From The Lessons of History by Will and Ariel Durant

I read something one time where the General asked for a long-term weather forecast so that he could plan his military strategy. The weather people told the General that a long term forecast would be too unreliable to be useful. The General acknowledged this, but said "I need it anyway, to plan my strategy." Sorry, can't remember where that story comes from.

Stephen Blaha has studied Toynbee's Study enough to be able to develop a sort of mathematical approximation of the pattern of civilization described by Toynbee.

I'm not totally comfortable with the idea of setting Toynbee to music like that (though others -- Peter Turchin comes to mind -- similarly set civilization to music). But I figured Blaha's summaries of Toynbee's descriptions should be quite excellent. So here we are, at the Google Books version of Blaha's The Life Cycle of Civilizations, which includes links to the text of several chapters.

I took the link to Chapter 8: General Considerations on the Theory of Civilizations, where under the subheading "The Length of a Cycle" we read:

Our initial selection of 267 years as the approximate period of oscillation was based on Toynbee's observations that the time of troubles of a civilization was roughly 400 years as was the time interval of the universal state that typically followed a time of troubles. Toynbee also pointed out that in this 800 year time interval there were oscillations normally amounting to three and a half beats. The time of troubles was not entirely a downward move. It usually had a rally within it. The universal state was most often not just a rally. It often had a rout within it. Consequently Toynbee's basic picture of a time of troubles was rout-rally-rout, and of a universal state as rally-rout-rally...

Just one stage of civilization as described by Toynbee, the Time of Troubles, lasts longer than the 336 to 340 years that I find on the internet. So does the stage that comes next, the Universal State. So does the Dark Age that follows the Universal State, I want to say; but now we're treading on the thin ice of my memory.

I have no use for definitions that treat the different governments of a people as different civilizations. It's like killing an animal so you can study it.

It's like taking our unsustainably massive public and private debt, breaking it up into a bunch of small pieces -- household debt, nonfinancial business debt, financial business debt, the federal debt, and state and local government debt -- and saying "Where's the problem?"

Everywhere, apparently.


I use the numbers, Blaha's and Toynbee's both, as examples that allow me to think through the pattern of civilization, somewhat like the General's use of a long-term weather forecast.

Sunday, February 7, 2021

Where I've been and where I'm going

The last time I had a Sunday post it was Cost Pressure and Long-Term Decline. In that post I said the following:

  • Cost-push is just like demand-pull except that cost pressure exists.
  • Cost pressure need not be short-lived.
  • Finance causes long-term cost pressure and the decline of economic growth.

I also categorized the post as "Cost Pressure and the Decline of Civilization" to make clear what I meant by "Long-Term" in the title.

I summarize that post because brief is good and briefer is better. I summarize it because the idea -- that the cost pressure created by finance may be responsible for the long-term decline of economic growth -- is important if true, to say the very least. And I summarize it because I've never seen anyone else tie finance to economic decline through a cost-push mechanism. So, now you've seen it twice.

And yes, I get the same impression proofreading the above that I got from reading the earlier post: I describe a couple properties of cost-push (or "cost pressure" as I call it) and then out of the blue I'm blaming finance for creating the problem. Maybe I need a smoother transition there.

This post is me skirting the foothills of that problem.

Friday, February 5, 2021

In the long run we are all dead

 Search: "long term" meaning (econ)

Long term refers to the extended period of time that an asset is held. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 30 years or more. Apr 7, 2020

Long Term Definition & Example - Investopedia


The long-run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas, in the short run, firms are only able to influence prices through adjustments made to production levels. May 14, 2019

Long Run: Overview - Investopedia


Short run – where one factor of production (e.g. capital) is fixed. This is a time period of fewer than four-six months. Long run – where all factors of production of a firm are variable (e.g. a firm can build a bigger factory) A time period of greater than four-six months/one year.

Short-run, long-run, very long-run - Economics Help


Short term growth is, as the name suggests, growth in the output of a country in terms of GDP over a given (short, usually a year) period of time. ... Long term growth however is when the country's productive potential is increased, the potential of the country's GDP is increased.

Explain the difference between short term growth and long ...


The long run is generally anything from 5 to 25 miles and sometimes beyond. Typically if you are training for a marathon your long run may be up to 20 miles. If you're training for a half it may be 10 miles, and 5 miles for a 10k. Oct 18, 2019

The Long Run - How Long is Long? | Zwift


Long run costs are accumulated when firms change production levels over time in response to expected economic profits or losses. In the long run there are no fixed factors of production. The land, labor, capital goods, and entrepreneurship all vary to reach the the long run cost of producing a good or service.

Production Cost | Boundless Economics - Lumen Learning

For my purposes...

  • The long term is not so vague as "as little as one year or for as long as 30 years or more."
  • It is "a period of time", but more specific.
  • It is definitely greater than four-to-six months or a year.
  • But it is not "when" anything.
  • And it is not measured in miles.

Boundless Economics is pretty good, saying "In the long run there are no fixed factors of production." I think the idea of the short run is that it allows us to say "ceteris paribus, nothing else changes" except the change we happen to be considering, and the consequences of that change. By contrast, in the long run anything and everything may change. 

But that's not what Keynes had in mind when he said "In the long run we are all dead."

If "we" is a few old timers sitting around playing cards and bitchin, then "the long run" might be only a few years. But if "we" is "all" of us, as Keynes explicitly specified, then you have to count even newborn babies, some of whom may live near 100 years. So the long run might be a hundred years. 

But surely you also have to count their offspring.

Somebody once said that for economists the "long run" is 10 years. Okay, ordinarily. But for one moment, in one infamous sentence, Keynes didn't mean ten years. He meant a hundred years easy, and more. 

And maybe by "we ... all" he meant not only those not yet dead at the moment, but those, present and future, who make up this civilization. Or the civilization itself. 

For my purposes, this is the "long run" after which we are all dead: the run of civilization. 


Keynes was not a short-term thinker:

Asked whether there had ever been anything like the Great Depression before, John Maynard Keynes replied, "Yes, it was called the Dark Ages, and it lasted 400 years."
 -- Jon Meacham

Thursday, February 4, 2021

An Arthurian Plan

You might want to click this graph to see it bigger, and print out a copy to look at while you read. C'mon, do it for me. Print it out, mark it up, make it your own.

Debt Other Than Federal relative to the
Funds Readily Available for Spending

"Funds readily available for spending" is the money we ordinarily use to pay the bills. If you take money out of an IRA, for example, you have to pay a "penalty"; that makes IRA money less readily available for spending.

"Debt other than Federal" is the bills we pay.

When the line on the graph goes up, there is more debt for every dollar of money in the "readily available" money supply. In 1960 there was less than $5 of debt for every dollar of that money. Because money circulates, debt at that level was not much of a problem.

In 1960 the "velocity" of readily available money was something less than 4. On average, a dollar was spent between 3 and 4 times that year. That was not enough to pay off all of the debt we owed. (Remember, this is all of our debt except the Federal debt.) 

Fortunately, not all of that debt came due in 1960. If we paid off 10% of it, that's probably a lot. Back then, our debt wasn't so much of a problem.

The blue line declined noticeably in the early 1990s. After this decline, each readily accessible dollar had less debt to pay. It was like we had more money to spend. With our debt burden lighter, the economy picked up. The "tech bubble" gets all the credit for the good years of the latter 1990s, but it was the decline of the blue line that made those good years possible.

By the end of the year 2000, the blue line had returned to its pre-1990s trend, and that put an end to the vigor.

In 2008 the blue line peaked at almost $35 debt per dollar of readily available money. Money had to move damn fast, and we had to juggle the bills. But it was too much. The economy could no longer support the debt, and the house of cards fell. Remember John McCain putting his presidential campaign on hold and returning to Congress to deal with the crisis?

By the end of 2017, the blue line had fallen to below $15 debt per dollar of money. However, this was evidently not low enough to boost the economy as it had in the mid-90s. Instead, we had media people saying "2% growth is good growth". Those people are assholes.

At the extreme right side of the graph, during 2020, we see the blue line falling in response to covid conditions. I'm writing today to point out that this drop, from above 14 to below 11, is a bigger drop than we saw in the early 1990s. The current decline takes us from above the 1991 high to below the 1994 low.

With some luck, and perhaps if there is a "magic number" below which the debt-per-dollar ratio allows people to feel that they can again take on more debt, then when this covid thing is over we could find ourselves with a surprisingly vigorous economy.

I'm not predicting it (this time). I'm just pointing out the possibility.

Even if we do get surprising vigor, if the vigor is built upon the increase of our debt, then it won't last very long. After the second World War, the economy was vigorous for 20 years or more. But we started with debt-other-than-federal at a very low level, and when that debt got to a high level it brought the vigor to an end.

Also, this policy of reducing the debt-per-dollar ratio by just printing money makes me nervous. At some point -- like if the economy ever comes back from the dead -- inflation is gonna be a problem. The better solution is not to print more money, but to accumulate less debt. We need to pay down debt faster than we do. And we need policy to make it happen.

As you may recall from the time of the financial crisis and recession, paying down debt can bring on deflation because demand goes low. We don't want that because deflation drives incomes down and makes existing debt harder to pay. What we want is accelerated debt repayment, but not so much that it causes deflation. Plus we want to boost the quantity of money readily accessible for spending, just enough to balance out against the deflation and keep prices stable. Sort of like what happened in the 1990s... except we need to be paying down debt more quickly.

The blue line on the graph comes down when the Fed prints money. But that money doesn't necessarily end up in the hands of spenders. It didn't, for example, during the Quantitative Easing. That's why there was no massive increase in consumer prices, but a lot of "asset inflation".

The money has to actually be readily available for spending, meaning in the hands of people who are willing to do the kind of spending that happens in a normal economy. Not just "asset inflation" spending.

In the hands of consumers, the extra money would mean extra spending and greater demand. In the hands of business people it could mean an investment boom, job creation, and economic growth. Or it could mean only more asset inflation. I can't guess how it will go.

What we need, I think, is a policy more accepting of wage increases than we've had for 40 years. Bringing home more pay, workers become consumers who need to do less borrowing. Many people say we need less borrowing in the household sector and more in the business sector. This is a step in that direction. But the long-term goal is less debt everywhere.

By the way, when reducing the level of debt-other-than-federal improves economic vigor, there will be less need for some costly government social programs. And better economic growth will boost tax revenues. So it will be easier to reduce the Federal debt.

One final note: The label "funds readily available for spending" -- the description of M1 money at FRED -- no longer applies specifically to M1 money, due to a change in Federal Reserve regulations. (See mine of 12 January.) But for all the years before 2020, the above analysis is good.

Wednesday, February 3, 2021

Hayek, politics, and the economy

In regard to the events of January sixth, I can only say that conditions are evidently much worse than I thought.

In regard to solving this problem, I repeat what I always say: Most of our problems are economic in nature. Not political. 

I don't forget what Hayek said:

Most planners who have seriously considered the practical aspects of their task have little doubt that a directed economy must be run on more or less dictatorial lines... The consolation our planners offer us is that this authoritarian direction will apply "only" to economic matters... Such assurances are usually accompanied by the suggestion that, by giving up freedom in what are, or ought to be, the less important aspects of our lives, we shall obtain greater freedom in the pursuit of higher values...

Unfortunately, the assurance people derive from this belief that the power which is exercised over economic life is a power over matters of secondary importance only, and which makes them take lightly the threat to the freedom of our economic pursuits, is altogether unwarranted. It is largely a consequence of the erroneous belief that there are purely economic ends separate from the other ends of life...

That's from The Road to Serfdom, Chapter 7: "Economic Control and Totalitarianism". 

I quote those words from Hayek for his view of the economy, his view that people sometimes think, or are sometimes led to believe, that economic matters are "matters of secondary importance only". Hayek strongly disagrees with that. So do I.

As I have noted before, Hayek's chapter is about totalitarianism, but his argument is about the often-overlooked importance of economic matters. From Hayek I learned the great importance of the economy: Other people say the world is driven by politics. I say politics is driven by economic forces and economic conditions.

By the morning of the presidential election of 2016, half the world was politicized. Both halves were politicized by the next morning. All of those people think the world is driven by politics.

They're running down a blind alley, all of em. Economic problems require economic solutions, not political solutions. Because we persist in applying political solutions, conditions never improve. Because conditions never improve, each side blames the other for things getting worse. Because each side blames the other, politics becomes ever more polarized. Because politics becomes ever more polarized, the chances of actually solving the problem become ever more remote.

Economic problems require economic solutions.

The above started as the opening to a long and still unfinished post. It came back to life suddenly while I was reading Interview with Benjamin Friedman on Religion, Economic Growth, and Much Else at Conversable Economist. Here, Ben Friedman is exactly right:

... no matter how rich our society is, if we get into a situation in which large numbers of people feel that they no longer have a sense of forward progress in their material lives, and they don’t see that turning around anytime soon, and they don’t have optimism either that their children will face a better economic future, that’s the circumstance under which people turn away from these small-l liberal, small-d democratic values, like tolerance and respect for diversity, generosity, openness of opportunity, even respect for democratic political institutions.

No. He's right, but I don't know about "exactly". I don't know about "small-l liberal, small-d democratic values, like tolerance and respect for diversity, generosity" and all that crap. That's a political view.

Here's what I know: Hayek says failing to notice the significance of economic matters will lead to bad political decisions. Benjamin Friedman says a bad economy makes the political situation worse. I agree with both of them.

Set politics aside. Use your free time to study the economy

The problem is cost. That's most of what you need to know, right there. And you already knew it.

I don't have a good ending for this post, so I'll just quote the historian Rostovtzeff again, on the Fall of Rome:

What happened was a slow and gradual change, a shifting of values in the consciousness of men. What seemed to be all-important to a Greek of the classical or Hellenistic period, or to an educated Roman of the time of the Republic and of the Early Empire, was no longer regarded as vital by the majority of men who lived in the late Roman Empire and the Early Middle Ages.

We can have another Fall, or we can fix the economy. It's our choice. 

But remember what Toynbee said: civilizations die by suicide.

Monday, February 1, 2021

The Fallacy of Composition

I have described the Fallacy of Composition: 

"Composition" is the notion that what's good for the goose is good for the whole damn flock. The "fallacy" is that it's not always true. Sometimes, what applies to the individual does not apply to society as a whole.


Wikipedia quotes the Bible:

There is that scattereth, and yet increaseth; and there is that withholdeth more than is meet, but it tendeth to poverty.
 — Proverbs 11:24

J.S. Mill described the fallacy:

All funds from which the possessor derives an income … are to him equivalent to capital. But to transfer hastily and inconsiderately to the general point of view, propositions which are true of the individual, has been a source of innumerable errors in political economy.


Milton Friedman described it as

the contrast between the way things appear to the individual and the way they are to the community. If you go to the market to buy some strawberries, you will be able to buy as many as you wish at the posted price, subject only to the dealer's stock. To you, the price is fixed, the quantity variable.

But suppose everyone suddenly got a yen for strawberries. For the community at large, the total amount of strawberries available at a given time is a fixed amount. A sudden increase in the quantity demanded at the initial price could be met only by a rise in price sufficient to reduce the quantity demanded to the amount available.

For the community at large, the quantity is fixed, the price variable -- just the opposite of what is true for the individual.

Kurt Richebacher described it in terms of profits:

The widespread measures that individual firms take to improve their own profits have, in the aggregate, the opposite effect on the profits of other firms. Business spending is the key source of business revenues, not consumer spending. A retrenchment in business spending cuts business revenues. Higher profits and higher prosperity cannot possibly come out of general cost cutting.

John Maynard Keynes described it in terms of saving:

... the apparent “free-will” of the individual to save what he chooses irrespective of what he or others may be investing, essentially depends on saving being, like spending, a two-sided affair. For although the amount of his own saving is unlikely to have any significant influence on his own income, the reactions of the amount of his consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself.


Note that Richebacher's last two sentences make the same argument regarding producers that Keynes makes regarding consumers: A retrenchment in spending cuts revenues. Richebacher agrees with Keynes that Say's law -- "Supply creates its own demand" -- does not apply without fail.