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Monday, 28 December

08:37

Central bank propaganda from Minneapolis Bill Mitchell – billy blog

My blog in the next week or so will be possibly rather holiday-like given the time of the year and the fact that I have rather a lot of travel and related commitments to fulfil over that period. So I will be pacing myself to fit it all in. Today, a brief comment on an article that appeared in the December 2015 issue of The Region, a publication of the Federal Reserve Bank of Minneapolis – Should We Worry About Excess Reserves (December 17, 2015). It is that one of those articles that suggests the author hasn’t really been able to see beyond his intermediate macroeconomics textbook and understand what is really been going on over the last several years.

The essence of the article is that:

Banks in the United States have the potential to increase liquidity suddenly and significantly—from $12 trillion to $36 trillion in currency and easily accessed deposits—and could thereby cause sudden inflation.

Why is that? Well, according to the author, US banks have large volumes of excess reserves, and:

Note the use of the word ‘might’, an uncertainty that is characteristic of these ridiculous, speculative type articles. To style of prose is along the lines of ‘well the sky might fall in’ all ‘all hell could break loose’ if pigs learned to fly – that sort of reasoning.

The author wants to generate, in the more irrational readers, a sort of hysteria that something dreadfu...

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Sunday, 27 December

05:00

Saturday Quiz – December 26, 2015 – answers and discussion Bill Mitchell – billy blog

Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Question 1:

A hallmark of the neo-liberal period has been the declining share of wages in national income which in part meant that economic growth became more dependent on credit to maintain growth in consumption spending. Increasing the wage share will require that real wages grow in the coming years.

The answer is False.

A faster rate of real wages growth is not even a necessary condition much less a sufficient condition for a rising wage share.

Abstracting from the share of national income going to government, we can divide national income into the proportion going to workers (the “wage share”) and the proportion going to capital (the “profits share”). For the profit share to fall, the wage share has to rise (given the proportion going to government is relatively constant over time).

The wage share in nominal GDP is expressed as the total wage bill as a percentage of nominal GDP. Economists differentiate between nominal GDP ($GDP), which is total output produced at market prices and real GDP (GDP), which is the actual physical equivalent of the nominal GDP. We will come back to that distinction soon.

To compute the wage share we need to consider total labour costs in production and the flow of production ($GDP) each period.

Employment (L) is a stock and is measured in persons (averaged over some period like a month or a quarter or a year.

The wage bill...

Saturday, 19 December

05:00

Saturday Quiz – December 19, 2015 Bill Mitchell – billy blog

Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.

Please go to Saturday Quiz – December 19, 2015 to view the quiz

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