Thread 1/n. How to read this graph, from:

The Real (Real) Wealth Effect: Do Wealth Changes Change Spending and Cause Recessions?

asymptosis.com/the-real-real-…

• Income and spending changes correlate strongly over a two-year period. No surprise. 2/n

• Spending changes precede income changes, more than the reverse.

• Consumption spending and investment spending move together, change mostly concurrently.

Thread /1: US % capacity utilization over a half-century is down from high 80s to high 70s. More than 20% of our capacity is untapped and unused.

Spending is what mobilizes capacity. Ask any producer why they produce more (or, invest in more capacity). 2/ Now assume national wealth is the asset markets’ rough estimate/measure of our capacity—what all our stuff is worth. What could explain the insufficient spending to mobilize that capacity at our current wealth/capacity levels?

Try: extreme wealth concentration.

Thread: How Investment (Spending!) Creates Wealth

When economists talk about “investment,” they’re talking about spending: purchasing, or paying people to create, long-lived (productive) goods. 1/n Say you’re in the farming business, and you pay your neighbor to clear some of your land for agriculture. That creates real value. But how does the land’s higher value materialize on your balance sheet as greater assets, net worth, wealth? 2/n

What the Next Recession Will Look Like: More 2000 than 2008

Thread.

Start with the observation: every recession since the late 60s has been (closely) preceded by a year-over-year decline in real (inflation-adjusted) household assets/net worth. (The two measures are equally predictive; HH liabilities, only ~15% of assets, change slowly compared to assets.) Straightforward story: when people (suddenly) have less wealth, they spend less. And since spending is what causes production…

1/ Thought experiment:

Say we zeroed out half the wealth of the top X%, which holds $20T. $10T, gone. (Total U.S. household wealth, btw, is about $110T.) 2/ Those people turn over, spend, less than 5% of their wealth each year. So there'd be ~$500B less spending, out of $20T total GDP. A 2.5% decline. Eeek.

So many wrong things in this @mileskimball
article. Let me count…

• When you spend down your balance-sheet assets, the money vanishes. Like you consumed it.

• When you don’t spend down your wealth, you are "making resources available," so we have more assets to "invest." 1/

https://twitter.com/dandolfa/status/1077679218790608897

@mileskimball • Less consumption spending, slower wealth turnover, means we have more stuff.

• Spending is “appropriating resources for yourself,” rather than causing production of new stuff.

• Reducing C in C+I…magically increases I! /2

1/ @PatriciaNPino Matt’s right that “surplus” is super problematic in MMT-speak. I struggled with it for a decade+. It’s not an accounting term, and its usage is slippery, befuddles many conversations.

https://twitter.com/PatriciaNPino/status/1050180051994640391

2/ Eliezer Yudkowsky’s great solution to these tangles: remove the word from the conversation, replace it with more precise terms.

If the gov uses magic money-tree money to buy existing private-sector-held assets, gov balance sheet expands: +Ls, +As. No change in NW.

1/ Thread. I deeply disagree with Samuel Hammond's (@hamandcheese @NiskanenCenter) article in @NRO about paid family leave and Rubio's proposal that people use their Social Security accounts to pay for leave. bit.ly/2M7p7AX @hamandcheese @NiskanenCenter @NRO 2/ Premise: Individual freedom and liberty are not just about "choice." They're about having good alternative choices, choice sets, available.

@Noahpinion 1/ FDR facing serious inflation in WWII.

Proposed tax increases to drain demand.

Conservative congress critters HATED that idea. (Taxes BAD.)

So he proposed wage/price controls. @Noahpinion 2/ Conservatives luvved them some wage controls. Passed 'em. (So much for the sanctity of "free markets.")

Employers started competing for workers with benefits, notably health insurance.

1950s, congress made premiums tax deductible, but ONLY FOR FIRMS. Not individuals.

Thread: A History of America's Eternally Two-Party System

For the first half century there was lot of parties (mostly two at a time) and alignments juggling around, eventually settling on the more-liberal Whigs and more-conservative Democrats. 1/n Then the Whigs split and dissolved over slavery. Pro-slavery went to the Democrats, anti-slavery formed the Republican Party and elected Lincoln. Still two parties.

Thread:

Low unemployment.

But stagnant wage growth.

And low labor force participation rate (LFPR). Explain.

Workers have given up and accepted lower living standards. So departed the labor force. "Screw it, we’ll just live on the edge. A shitty job with shitty wages won't make things better."

Hopes and expectations, dashed and betrayed. Aspirations, crushed.