Wednesday, May 16, 2012

How the EPJ Word Gets Out

A bank employee, who is a subscriber to the EPJ Daily Alert, was explaining to her boss about the EPJ view and how the business cycle is dependent on what the Federal Reserve does as far as money printing and that there was one big splurge of money printing, 20% plus, at the end of last year and that it had slowed to 6% since, which is why we now have a sluggish economy, after the earlier boom.

Not quite enough of a slowdown in money printing to crash the economy, but enough to make it sluggish.

Her boss responded, "Economists most of the time don't know what they are talking about." She then walked into a meeting with him where he repeated to the group verbatim what she had just told him about the economy.


  1. Gotta take whatever you can get!

  2. This makes perfect sense, you privatize the winning thought and socialize any losing ones.

  3. Hope he doesn't get religion today and read that post!!!

  4. Very cool. I'd like to know what their reaction was.

  5. Wenzel, you're making the same mistake you accuse Fed economists of making: You are presuming a constancy relation in human action. You are clearly insinuating a constant relationship between money supply growth rates and how people act, i.e. what the economy looks like.

    You say 6% is related to a "sluggish" economy. You say 20% is related to a "booming" economy. or at least you are saying "20% to 6% growth = sluggish economy."

    You of all people should know that the more inflation is used over the years, the less effective it becomes, which means it is possible that something somewhat less than 6% money growth COULD bring about a crash where before it was sufficient to avoid it.

    How do you know that a reduction to 4% money growth won't bring about a crash? How do you know that "only" 1% or around 1% will do it? You can't even say it's because that's what happened in 2008, because then you would still be presuming a constancy.

    Maybe we are closer to the end game of inflation than you realize, and that 6% growth today only barely sustains the economy, and that 10% or 15% growth is now needed to "grow" the economy like 6% used to grow the economy, and that instead of 1% growth resulting in a collapse like it did in 2008, maybe less than 4% will do it today.

    1. Pete,

      I have covered all your points in the EPJ Daily Alert, including the fact that the 6% growth becomes less effective over time.

      As for the post above, it is just that as a post, I can't put in every post a full explanation of business cycle theory. Especially when I am relating what someone else said.

      Further, in many other posts, I have commented on how the desire to hold cash balances influences money printing, along with other factors such as productivity. This is an example of things you haven't put in your comment to me.

      It's just impossible to put in a post or comment all the factors that are in play with ABCT. Currently, I do believe that the 6% growth is causing just sluggishness. I outline reasons in the Alert for my holding this view, but it is to voluminous to put here.

      I have probably already mentioned in a post that the 6% growth becomes less effective over time, but I will be sure to do so in an up coming post.

    2. If m2 is the right indicator, what I would like to know is how you could explain the lack accelerating inflation so far? You've been awfully quiet about inflation lately and only show up to talk about it when a few blips show up, but the decelerating trend this past year has been quite clear.

      Back in late 2010/early 2011, m2 growth was not anything crazy. I believe it grew around 5% between mid 2010 and mid 2011. And before that, it was even lower if you're a believer of long monetary lags. Yet, inflation did get fairly high and you put most of the blame on the Fed.

      In the second half of 2011 and in this first half of 2012, m2 growth has in fact been fairly high. It has grown 10%. Yet we have been experiencing DEcelarating inflation by the most part. Through out the past year, you have given numerous warnings of accelerating inflation when the opposite has been happening.

      Why are allowed to get credit for supposedly predicting a "booming" economy based off m2, but have been very wrong about about predicting inflation? Same goes for interest rates.

    3. RW:

      I am not saying you need to put in every post the full ABCT.

      I outline reasons in the Alert for my holding this view, but it is to voluminous to put here.

      Could you put that in your posts next time? Because when I read something like this:

      "20% plus, at the end of last year and that it had slowed to 6% since, which is why we now have a sluggish economy"

      That "which is why" makes it seem like the sluggish economy is the effect, and 20% to 6% M2 is THE cause.

      I don't subscribe to the daily alert because I don't have much money, so I can only go by the posts. For non-daily alert readers, there is no other foundation for your prediction of sluggishness versus an outright crash other than some constant relationship between money supply growth changes and the state of the economy.

      In your 2008 posts, you also predicted a crash that appeared to be solely due to changes in the values of money supply growth. Back then, you said a crash is coming on the basis that M2 growth went from 10% to 1%. In fact you made multiple posts screaming that M2 is collapsing ergo human action will be such and such in the future.

      Were there other factors that didn't make it in the everyday posts back in 2008, the way you are saying is the case now? I mean come on, you said on many occasions (paraphrased) "M2 is collapsing! If this keeps up a crash is inevitable!" That is clearly an "If A, then B in human action" prediction, which is definitely a prediction based on a constancy assumption in human action.

      Let's suppose for argument's sake that there are "other" factors that you are taking into account besides M2 growth changes. Aren't those other factors also being treated in a constancy way? If not, what makes you change your view on a given factor change? Like, if it's money demand, or productivity, how do you go from these statistics, to "sluggish economy" or "crash is coming"?

      I guess what I am asking you in general is this:

      How can you possibly predict the future state of the economy, based on observing particular historical data like M2 growth changes and whatnot, unless you are tacitly presuming constancy in human action of the form "If X, Y, and Z hold true today, then human action in the future will be A"?

      You see, if you truly accepted non-constancy in human action, you wouldn't dare make any predictions based on historical data that REQUIRE constancy to even make sense!

      I think that in all honesty you want to have things both ways. You don't want anyone to listen to predictions of the Fed, but you want people to listen to your predictions, even though, by all rights, you are also presuming constancy in human action. How else could you possibly say that M2 growth from 20% to 6% (along with "other" factor changes) will do a particular thing to human action in the future, without constancy between those factors and human action?

      Someone who says there are no constancies in human action is not entitled to make any predictions of future human action based on historical data. Predictions imply causality, and causality implies constancy. Either you accept non-constancy and stop making predictions, or you continue to make predictions and be compelled to drop the non-constancy.

      Your 2008 prediction of an upcoming crash could only have been an actual prediction, and not just guesswork, if constancy in human action is presupposed. "If M2 changes by X, and if productivity changes by Y, and if demand for money changes by Z, THEN the economy, i.e. human action, will be A in the future."

      That's presupposing constancy in human action.

      I think I am the first person to truly have you nailed, RW.

    4. Please note that you cannot escape this constancy assumption presupposed in prediction making by saying something like "OK Pete, I grant that we cannot say that going from 20% to 6% will always generate a sluggish economy. For I accept that 6% M2 growth will lose effectiveness over time." You can't even say "6% will LOSE effectiveness over time" without presupposing constancy as well, because the constancy there is one that ALWAYS makes 6% lose effectiveness over time!

      If non-constancy were accepted, you'd have to say that 6% M2 growth could sometimes INCREASE in effectiveness over time, then it could have no effect, and then it could lead to sluggishness, or even a crash. You couldn't say it ALWAYS decreases in effectiveness over time. Not without constancy in human action you couldn't. You'd have to say that humans always react to a given rate of inflation in such and such a way over time that results in the economy doing this and that over time.

      Heck, you couldn't even say "All I am saying is that if M2 changes by X TODAY, if productivity changes by Y TODAY, if demand for money changes by Z TODAY, then the economy will become sluggish SOON. I am not saying these same data will always do this." You couldn't say that without turning your prediction into a guessing game, because you would be admitting that you lack the necessary data to make your proposition a prediction rather than a cherry picked data guess, and you would be admitting that your known data is incomplete, for that is the only way that the same data occurring again would be followed by different outcomes - if there is other data that you did not look at before that have a causal influence.

      What I am saying is that you are presupposing constancy when you make predictions, you just don't know it. Either that are you have yourself convinced that you have found a foolproof method of predicting human action, which would lead me to asking you why you're not a billionaire!

      If you are right that 20% to 6% M2 growth (along with your other "secret to paying customers only" variables) are the cause for an upcoming sluggish economy, then why not put your life savings into an investment that will pay off on that prediction? If you say "Bernanke can always print more money tomorrow at raise M2 to 10%", then that would ALSO presuppose constancy, because you would be saying "If 6% to 10% M2 growth occurs, then human action will be such that such and such investments will lose money and such and such investments will make money."

    5. Pete,

      I am not making any constancy assumption. You just used 5 paragraphs to prove your point. If I had to put that all these paragraphs of "constancy" disclaimer in every post on money supply, I would have as little traffic as you do at your blog.

      This is a live on going blog where all bases are eventually touched, all of ABCT is not going to be found in one given post, a regular reader on the other hand will get it.

    6. I am not making any constancy assumption.

      I know you don't think you're doing it.

      What then is the foundation for "If M2 growth goes from 20% to 6%, then sluggish economy" and "If M2 growth goes from 10% to 1%, then crashing economy", if it's not constancy between this change in M2 growth and the outcome?

      If today M2 growth fell not from 20% to 6%, but 20% to 1%, would you have predicted another crash?

      If in 2008 M2 growth fell not from 10% to 1%, but 10% to 6%, would you have predicted a sluggish economy rather than a crash?

      If I had to put that all these paragraphs of "constancy" disclaimer in every post on money supply, I would have as little traffic as you do at your blog.

      Exactly! It's pretty clear what motivates you in violating non-constancy.

      If you instead said something like "M2 growth fell from 20% to 6%, and as someone who does not accept constancy in human action, I cannot tell my readers what humans will do with this in the future, so I cannot say for certain that the economy will be sluggish, or if it will crash, or if it will boom. I suspect it will remain sluggish, but that's a guess at what future human choices will be."

      then all your investor readers looking for a more "definitive" prediction will cease visiting this blog, for they could get the same prediction by flinging monkey feces at a picture of Ben Bernanke.

      I know what game is being played here.

  6. Pete, you're confusing the assumption of constancy in a general sense (that causality exists in the broadest form) with the assumption of constancy over time in a market economy.