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I believe that Japan's largest problem is the competition for the American and European consumer markets from the rest of southeast Asia. With that competition, Japan can not raise labor share.

Their monetary policy is not going to fix that. Their monetary policy has just kept the Japanese economy on life support for about 25 years. And the Japanese government's fiscal policies have provided only intermittent relief. Japan should be a warning to us all that fiscal policies and monetary policies are at best, a temporary and inadequate respite from the real world. (Good enough for ordinary recessions but not good enough to resolve deeper problems in the real world.)

The US is in a very different predicament. We have much more of our own raw materials so we could go back to consuming the product of each other's labor. (And thus raise labor share.)

In the end, if the powers-that-be want to raise inflation then they must raise labor share. Our economic system is dependent on consumers and those consumers must have sufficient incomes. Eventually the powers-that-be will accept that limitation. But watching this play out is like watching grass grow.

Economists are not going to understand labor share. It is not talked about with models like I do.
I like being able to see things differently. I like it when my models work and theirs don't.


I understand that it will require your work on effective demand or something very like it, for mainstream economists to see the errors in their assumptions.

Antonio Fatás wrote: "Either this is the end of growth as we know it or the start of a 30-year period of extremely low inflation combined with deflation or our expectations are seriously off and we are up for an interesting surprise."

To put it kindly, he is looking at the economic world from 30,000 feet so he is not seeing the details.

The changes to our economy over the last 20+ years should be all the motivation needed to give up on Say's Law.

Supply does not create its own demand and today it is very difficult to understand how economists thought that it ever did.

My guess is that economists before 1992 always implicitly assumed that the vast majority of production and consumption would occur within the same country. Then the production workers were the consumers. Today in the US and much of Europe that is no longer true.

Production workers were also less the consumers before Henry Ford's voluntary raises in wages and very active labor unions.

One would think that mainstream economists would take note that our economy expanded and flourished during the period after working class wages rose dramatically and before free trade reduced those working class wages.

Perhaps deflation will be the medicine that will bring on the 'Aha' moment.

Let the federal government stop running up debt trying to prop up the economy. Let our current version of capitalism wreck consumers and corporations. No bailouts, just bankruptcy and nationalization. Then the mainstream economists will be more open to rethinking their assumptions and inadequate models.

Or we can continue on our current path for a couple of decades.

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Data as of 1stQ-2018
Effective Demand = $17.386 trillion
Real GDP = $17.379 trillion
Productive Capacity = $23.479 trillion
UT index is at effective demand limit = +0.03%
Effective demand limit = 74.0%
TFUR = 74.0%
ED Fed rate rule = 3.4%
Estimated Natural Real Interest rate = 2.2%
Short-term real interest rate (fallen from 2.8% peak in 2014) = 2.4%

There is no recession for 1stQ-2018. Chance of recession is growing as economy heads toward 2nd effective demand limit in this business cycle. I am forecasting that economic conditions will begin to contract in the second half of 2018.

Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index



z derivatives in terms of labor & capital:

z derivatives in terms of labor & capital

Effective Demand, real GDP & Potential GDP:

ED, real GDP & pot rGDP

ED Output Gap:

ED Output gap

Corporate profit rate over real cost of money:

Corp profit rate over real cost of money

Exponential decay of Inflation:

Corporate profits impact Inflation

Measures of Inflation:

Measures of Inflation

YoY Employment change:

YoY employment change

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages

Real Wage Index:

real wage index



Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Tracking inflation expectations:

Fisher effect?

M2 velocity still falling:

Measures of Inflation

All in one:

All in one

Double checking labor share with unit labor costs & inflation:

My Photo
Edward Lambert: Independent Researcher on Effective Demand.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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