Friday, February 26, 2016

No recession. Q4 GDP revised up. Flows tell it all, as we have been saying. Deficit based forecasts have been wrong, wrong, wrong.

How many times do we have to say it? Matt and I have been saying over and over and over that these deficit-based forecasts are stubborn and wrong and it's all about the flows. And we've been right.

With $4-trillion-plus and rising (year-over-year) there won't be recession. Slow growth, perhaps, and that's because of the drag from lower capex in the energy sector, however, it's being offset by higher consumption.

The deficit-based forecasters have been wrong for three years running. If, five years from now, the economy goes into recession because of some unrelated reason, are all of you going to say that the deficit-based forecasters "called" it?

Come on.

20 comments:

Ryan Harris said...

Natural Gas Exports Have Begun This Month.

US Gas prices are much, much lower than the rest of the world, so the rest of the world may begin to see even lower chemical, plastic, fertilizer and electricity prices as exports ramp up this year to displace high priced middle east exporters.

LNG cargoes, will likely shift our trade balance noticeably and reduce net export drag that will enable consumers to continue to buy more imports before employment suffers, especially now that mortgage lenders are aggressively finding ways to bypass the great-recession era regulations.

With Government spending on the increase, it seems like we should be able to make it through the soft-patch in Business investment without too much pain.

Michael Norman said...

Yes, Ryan. Absolutely. What Matt Franko has been saying as well.

Dan Lynch said...

Steve Keen is not a "deficit based forecaster."

Q4 GDP was up due to inventories. This is a good thing ?

Mind you I am not predicting the future, other than to say that I don't see a lot of good news out there.

Matt Franko said...

So if the oil rent people screw the rest of us for over 10-years and pump oil and it is sold for rip-off prices and they put it in storage that is "good"... but then if we work to get rid of the oil rents and then some other industry increases previous domestic production rate for their product and expands inventories as a result that is "bad"?

Dan Lynch said...

@Matt domestic oil production is part of GDP.

The money people save on cheap gas is going into savings, not consumer spending. Savings are good for the individual, bad for the macro economy.

Michael Norman said...

Dan, in this morning's GDP report, non-residential business investment (energy related) fell by $10 billion, but personal consumption rose by $100 billion. Come on, Dan, stop being a Warren cheerleader already. What's with you?

Michael Norman said...

Dan-

Inventories? The inventory build was lower than Q2. What are you talking about?

Auburn Parks said...

Mike and Matt-

Taxes are a flow too and the difference between the two flows (the deficit) is important. Im not sure what the argument you two are making is. That you cant forecast the economy accurately by looking at the Govt deficit alone? I dont know any knowledgeable MMTers that think that.

Matt Franko said...

Auburn they say "the deficit is too small!" all the time... they are caught up in the NIA framework...

Newton developed his operational theories of physics FIRST.... THEN the accounting for energy conservation came 100 years later...

We dont LEAD with the accounting... sorry...

Matt Franko said...

Mike Boeing probably gets some new orders for Aircraft with the oil rent removed so they get some orders for $200M aircraft so maybe they are half complete in the quarter so probably GAAP says they have to carry it as new inventory of $100M...

People's concept of the economy is like we are running mom & pop's general store or wtf...

Matt Franko said...

Here:

"Isaac Newton discovered his laws of motion at the young age of 24 when he was living in the British country side away from Cambridge University to escape the plague of 1665-1667. "

http://www.pha.jhu.edu/~broholm/l7/node1.html

THEN:

"With the discovery by Robert Mayer (1814 - 1878) of the law of energy conservation,"

http://www.adolf-cluss.org/index.php?lang=en&topSub=heilbronn&content=w&sub=2.3.3


The accounting came 200 years LAAAAAATTTTTTEEEEEEERRRRRRRR....

John said...

Matt,

Not that it particularly matters to the argument about accounting, but I'm afraid you're not quite right.

Newton, Leibniz, Galileo and others understood that there had to be conservation of energy in motion. In Newton's equations of motion, momentum is conserved, which was understood as conservation of kinetic energy.

A full appreciation of conservation of energy came later, and only in the twentieth century were conversation laws understood as aspects of symmetries in nature (the application of group theory to physics), with Emmy Noether initiating a revolutionary way of understanding conservation laws.

Matt Franko said...

John momentum is a different concept than energy...

momentum is mv while kinetic energy is one half mv squared...

Here:

From physics I think one can list essentially the following differences:

momentum has a direction, kinetic energy not

momentum is conserved, kinetic energy not (but energy is)

momentum depends linear on velocity, kinetic energy depends quadratically on velocity

http://physics.stackexchange.com/questions/16160/difference-between-momentum-and-kinetic-energy

So when these people lead with the accounting, you see from above: "momentum has a direction, kinetic energy not" so they think if the deficit doesnt change "deficit too small!" then nothing has happened...

So they are looking at no change in total energy meanwhile US citizens have received $500B of Medicare/Medicaid services which reflects a $35B YoY increase which they dont even know happened because (to them) the taxes net of xfers didnt change...

Nothing in the universe works that way.

They dont even know what is going on...



Matt Franko said...

John its like if the conservation of energy was discovered FIRST, then Newton would have never come up with his stuff because he'd keep looking at total energy as constant and think nothing was happening... this is how these people are thinking...

John said...

Matt,

I'm not arguing that conservation of energy was discovered before the laws of motion (it wasn't), although if I remember my history of physics classes Thales and others before Galileo, Newton and Leibniz had notions of such a conservation principle (Descartes had developed a principle of conservation of motion, albeit on theological foundations). And I'm not arguing that momentum and energy are not different concepts, although they are very closely related. Concepts are in general different, but many of them are closely related and are manifestations of deeper concepts. Mass and weight are different concepts, but they are manifestations of deeper physical laws.

I'm making a historical point about how Leibniz and Newton understood what they were doing. The two concepts of momentum and kinetic energy are too closely related for them not to appreciate that they were aspects of another physical principle - conservation of energy.

Although they had a good grasp of conservation of energy, they were unable to articulate it scientifically and prove it mathematically. We know as a historical fact that conservation of energy had been mooted since about 500BC, Leibniz had made various impressive attempts at a general conservation principle (Leibniz had a neo-Cartesian theory of substance), and Newton was also thinking along the same lines. Since they were incapable of making this advance, they did what they could: laws of motion, inverse law of gravitation, developing calculus along the way and the like.

If Newton had a better developed understanding of conservation of energy, the laws of motion would not have been so difficult for him to discover. The concept of conservation of energy had to await much a much lesser mind than Leibniz, and an infinitely lesser mind than Newton, the greatest genius the world has ever known.

Matt: "John its like if the conservation of energy was discovered FIRST, then Newton would have never come up with his stuff because he'd keep looking at total energy as constant and think nothing was happening... this is how these people are thinking..."

That's exactly how they were *not* thinking. Conservation of kinetic energy would have helped Newton discover his laws! (How would an energy conservation principle associated with motion (kinetic energy) not help Newton? Would he believe that motion was impossible because of a conservation law that he was trying to develop?) Historians of science understand this, physicists and the interested lay reader don't. For example if you take a class in classical mechanics, you'll be told near the end that Newton had developed a mechanical universe, a "clockwork" universe which ticks along predictably. The exact opposite is the case. Newton showed that there could be no mechanical or "clockwork" universe because his law of gravitation could not possibly be mechanical (there could be no mechanical explanation for instantaneous action at a distance), hence Leibniz's accurate criticism of its "occult quality".

Matt Franko said...

"Conservation of kinetic energy would have helped Newton discover his laws!"

Well then why didnt it happen that way?

That's like saying if you could have developed a car with a gasoline tank first then that would have helped invent the car...

Matt Franko said...

They LEAD with the accounting...

Its based on a metallic "money" systemic paradigm... iow no one could predict how much gold/silver mankind would happen upon so they would just let mankind go out and dig/beg/borrow/steal/rape/pillage gold and silver and then add up what happened ex post over the previous accounting period...

This is what they are STILL doing...

Its right out of their beloved OT prophet Isaiah:

17 Behold Me rousing against them the Medes, who are not accounting silver, And gold - they are not delighting in it. (Isaiah 13:17)

Well we're not accounting silver either anymore but no one understands what/how our now numismatic system operates empirically.... they are still leading with the accounting ie "deficit too small!" ie "didnt happen upon enough silver!"....



Footsoldier said...

I'm not sure guys maybe it is a mixture of both ?

Is the bottom line of all this not about savings ?

And nobody can forecast properly how much savings are going to be spent in Q4 because of the obvious reasons.

Ther's a lot of things to save up for in Q4 ?

John said...

Matt: "Well then why didnt it happen that way?"

Quite simply because it hadn't been adequately developed to be of use, or at least not for interacting bodies. It may have been in Rene Dugas' great book A History of Mechanics, but I may well be wrong. Newton wasn't a dummy!

It's like knowing time doesn't go backwards but not having a physical law to make it an impossibility. We know it can't be the case, but people in four hundred years time shouldn't look back on us and question why it is we couldn't figure out something so simple.

Matt Franko said...

Well I am asserting that was the way the knowledge would naturally be developed...

Conservation of momentum would naturally be a prerequisite for a broader/more detailed conservation of energy...

But we went off the metals a couple of decades ago and the people in the academe that are supposed to be looking into those things and non-academic practitioners still dont understand what this means nor are they working on it...