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>>it is an excessive demand for one particular asset (the medium of exchange) relative to other assets. It's about the composition of their portfolios of assets, not about the total size of that portfolio.

Exactly!

>>Recessions are not about saving and investment.

Isn't that the opposite of what you said above?

>>The volume of monetary exchange of flows of newly-produced goods and services is just one part of the story.

yes

>> It's not all about GDP and its components.

Well GDP does have that underrated (I) component (the fruit trees) , not just the (C) (the fruit).

>>It's about gains from trade, where trade requires the use of money.

Maybe a little bit but I'm not sure that the 'will only eat the fruit from their own tree' assumption is that representative of reality.

There is something missing in this discussion about a tree saplings, about planting the next generation of trees either to replace aging trees or accommodate population growth.

'Shortage of money' causing insufficient investment in saplings is when real lasting damage to the economy arises. In the extreme case, no one will be able to eat in a few years.

What if their tastes changed and they all preferred to eat more of their own fruit. Same output, less exchange. Is the only way to tell its a recession by asking them? Or do we assume stable preferences?

Benoit: "Saving" is defined as "income from newly-produced goods and services minus consumption of newly-produced goods and services". So there isn't any saving (either actual or desired) in the second version of my parable. Every individual always wants to eat all the fruit he has produced himself. They don't save part of their income to accumulate an increased stock of assets (fruit trees plus money).

I have (implicitly) assumed trees last forever, and you can't grow new trees, so their is no investment in my parables. But if I did add investment, then yes, recessions would have longer-lasting effects (there is less incentive to plant new trees if you can't sell the future tree or its fruit).

Lord: fair point. If trade declined because of a sudden fad for living in self-sufficient communes, I wouldn't call that a "recession".

Nick Rowe’s soapbubbling about money
Comment on Nick Rowe on ‘The Parable of the Fruit Trees’

“The apple producer produces apples. The banana producer produces bananas. The cherry producer produces cherries.” The economist produces proto-scientific garbage.

What is wrong with Nick Rowe’s depiction of the economy? The subject matter of economics is, as Keynes said, the ‘monetary theory of production’. This sets the frame for the theory of money. The fact that Nick Rowe clings to a long defunct barter parable proves that he has no idea how the economy works.

As the correct analytical starting point, the elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

Under the conditions of market clearing X=O and budget balancing C=Yw in each period the price is given by P=W/R (1). This is the most elementary form of the macroeconomic Law of Supply and Demand.

The price P is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. The quantity of money is NOT among the price determinants. This puts the commonplace Quantity Theory forever to rest.

What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.

Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw. Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income.

For the case of a balanced budget C=Yw, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown on Wikimedia.#1

The household sector’s deposits/overdrafts are ZERO at the beginning and end of the period. Money is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the autonomous market transactions between the household and the business sector.

From this follows the average stock of transaction money as M=kYw, with k determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy NEVER runs out of money. There is NO such thing as “an excessive demand for one particular asset (the medium of exchange) relative to other assets.”

The transaction equation reads M=kPRL (2) in the case of budget balancing and market clearing. If employment L is doubled, the average stock of transaction money M doubles. If employment is halved, the average stock of transaction money M halves.

As long as the central bank finances the wage bill Yw=WL with money creation out of nothing, and with wage rate W and productivity R fixed, the price P does not move one iota according to (1). The average quantity of money M increases/decreases according to (2) but there is no inflation/deflation. Money is absolutely neutral. The creation of fiat money is the correct way of bringing money into the economy.

Egmont Kakarot-Handtke

#1 Wikimedia, Idealized transaction pattern
https://commons.wikimedia.org/wiki/File:AXEC98.png

(Just wanted to say -- great post.)

BJH: thanks!

Nick,

"In the new version of the parable, just like in the original version, a shortage of money (an excess demand for the medium of exchange) would cause a decline in the volume of trade. Unable to sell as many apple trees as they want, the owners of apple trees buy fewer banana trees than they normally would. And so on around the triangle."

Nope, in the new version of the parable money is not required at all. Your assumption:

"I have (implicitly) assumed trees last forever"

That makes it easy enough to create a contract (three party) that transfers ownership of trees once every year for all time without ever touching money.
The Wicksellean "tree market" only needs to exist once.

The problem with creating a Wicksellean fruit market is that you need to do it for each harvest - hence, money becomes very convenient.
And the reason that money is convenient is that it tends to be more persistent than the goods being purchased.
Meaning that I can sell my cherries for money and hold on to the money for a while until my banana growing buddy arrives at the Wicksellean market with his bananas.

If my cherries lasted forever and I lived forever, I could forgo money and just wait as long as needed at the Wicksellean market for the bananas to arrive.

Regarding your second version:

Suppose in the framework of your parable I sell an apple tree.

The apple tree produces output in the current accounting period – the corresponding fruit production that the buyer wanted.

That single period fruit production associates with income of equivalent value. The value of the income is embedded in the sale price of the capital asset. Otherwise, the capital asset would be worth zero and sell for zero. It isn’t and it doesn’t.

And that income value is monetized in effect because its money value is also embedded in the sale price and sale of the capital asset. While the sale of the capital asset itself is not recorded as income, that part of the value that associates with current income is monetized as part of the money received in the sale of the capital asset.

From there, it becomes a more conventional paradox of thrift situation.

Because in that framing – when I sell at apple tree at the margin, it creates output useful to the buyer and income useful to me.

And in respect of that MARGINAL transaction, my income as recognized becomes saving and the buyer’s spending becomes dissaving.

Saving and dissaving add to zero in that context, consistent with any or no investment at the macro level.

When the buyer doesn’t have enough money to buy the tree, he makes a decision that results in reduced output (i.e. output with any utility). That’s a recession. But that lack of money associates directly with the attempt to avoid dissaving at the margin - essentially the same as attempting to save at the margin.

And the recession is associated with that saving dynamic.

The paradox of thrift does not require an economy with investment. It only requires an economy with output and income and the attempt to avoid dissaving (at the micro level) – i.e. the attempt to save at the micro level relative to the counterfactual of spending.

It’s similar to the idea of spending or not spending on haircuts. Both cases can involve avoiding dissaving at the margin, which shrinks the economy. That holds with or without macro investment and macro saving.

So you can’t fully separate the monetary aspect from the consideration of the attempt to save or avoiding dissaving in such an economy (whether or not there is investment). What matter is that the economy has output. And an economy of producing capital assets is also an economy with output.

“The only difference is that in the new version there is no trade in newly-produced goods and services (by assumption); the only trade is in assets -- people exchange fruit trees for money.”

The trade aspect doesn’t matter.

What matters is that there is still an economy of output and income, notwithstanding the restriction of trade to transactions in capital assets. So saving comes into play along with money in the recession dynamic.

“The only difference is that in the new version there is no trade in newly-produced goods and services (by assumption); the only trade is in assets -- people exchange fruit trees for money ... It's not all about GDP and its components. It's about gains from trade, where trade requires the use of money.”

The capital assets being traded do create GDP – provided they are traded (which is necessary to sustain utility, by assumption).

If they are not traded, GDP shrinks, because the output no longer has the same utility.

So in effect, transitively, there is trade in newly produced goods and services. It was in that sense that I associated part of the sale price of the capital asset with income corresponding to the output.

I admit that this sort of accounting attribution is twisted, but the logic is similar to that for the paradox of thrift. The difference between buying and not buying a capital asset is a function of money supply, yes … but there is also a resulting difference in GDP (at least expressed in terms of utility).

JKH: "If they are not traded, GDP shrinks, because the output no longer has the same utility."

True, if we measure GDP in units of utility. But we don't normally do that.

(Purely as an aside, we don't normally include consumption of home-produced goods in GDP either, with 2 exceptions (that I'm aware of) -- owner-occupied housing services and farmers' consumption of food they produce themselves (that's for the US, I don't know if it also applies to Canada). But let's ignore that aside in this parable, and count all consumption as part of GDP.)

I don't see how the agents in the 2nd version of my parable are planning to save part of their income to increase their total stock of assets. Each is planning to sell $100 worth of trees for $100 of money, then buy $100 worth of trees (of a different kind). It's purely a desired change in portfolio composition. Even in the first of those two steps, the agent is doing no saving, because his income drops to zero when he holds money instead of trees (assuming for simplicity money pays no interest) but his consumption drops to zero as well, so his saving stays at zero.

Frank: "That makes it easy enough to create a contract (three party) that transfers ownership of trees once every year for all time without ever touching money.
The Wicksellean "tree market" only needs to exist once."

That's a centralised Walrasian market (strictly an Arrow-Debreu market). I have explicitly ruled that out. Yes, it's not so much harder for 3 people to meet and trade than for 2 people to meet and trade. But in the real world my "3" is a metaphor for "3 billion" people and goods.

What about the price level

Plp: if the price level drops sufficiently, to reduce the quantity of nominal money demanded (without also reducing the supply, and without making people expect future deflation which would increase quantity demanded) then yes, that would eliminate the excess demand for money and end the recession. But some prices seem to be sticky.

That is absolutely Keynesian. Keynes said that the problem is the composition of the asset portfolios between liquidity and the other, no the volume of portfolios.

Miguel: you have a point. But the other theme in Keynes is the idea that excessive saving is the problem.

Nick,

“Each is stuck consuming too much of his own fruit, and too little of the fruit he prefers to eat … I would call that a "recession", even though (by assumption) output, employment, and (aggregate) consumption are unchanged”

I was thinking of reduced “utility” in that preference sense, not in the sense of how it might be considered in formal economics, I guess.

“The only difference is that in the new version there is no trade in newly-produced goods and services (by assumption); the only trade is in assets -- people exchange fruit trees for money.”

So in my explanation I’m merely translating the present value of the capital asset to an annuity of future values of the output of the capital asset. So my cash outlay for an apple tree translates to a cash outlay for a fruit annuity. I'm probably cheating in terms of correct accounting.

“I don't see how the agents in the 2nd version of my parable are planning to save part of their income to increase their total stock of assets. Each is planning to sell $100 worth of trees for $100 of money, then buy $100 worth of trees (of a different kind). It's purely a desired change in portfolio composition. Even in the first of those two steps, the agent is doing no saving, because his income drops to zero when he holds money instead of trees (assuming for simplicity money pays no interest) but his consumption drops to zero as well, so his saving stays at zero.”

I think you’re right. I was trying to force out some intuition that I was uncertain about to begin with. The translation of asset values to annuity output values is part of that intuition that seems reasonable to me. But the rest doesn’t work the way it does using haircuts for example in a more regular economy with other types of output and income held the same. It doesn’t work because your parable is about an economy that’s closed off with respect to other types of output and income.

I think it would work as I anticipated if your parable was a contained sub-economy of a more normal economy. If I didn’t have enough money to buy an apple tree with apple output, then I would be attempting to save from the rest of my income (in terms of not acquiring the consumable output of the capital asset), still hoping that I would be able to sell the banana tree that I owned, with its own annuity output for the economy. If I could do that, in the context of my broader income apart from the tree sub-economy, then my own share of the attributed macro income of trees in the current period would be unchanged and I would have saved more than before in total – with somebody else saving less.

But your parable is set up as a closed tree economy.

The point I’m making about translating capital asset values to annuity values of output is one thing. The point about your parable as a closed economy is another.

Very good post.

Unusual - but good.

JKH: Thanks!

" If I didn’t have enough money to buy an apple tree with apple output, then I would be attempting to save from the rest of my income (in terms of not acquiring the consumable output of the capital asset), still hoping that I would be able to sell the banana tree that I owned, with its own annuity output for the economy."

That seems plausible to me.

I think I have seen hairdressers doing each others' hair while waiting for a customer. More simply (since it's hard to cut your own hair) we can imagine an unemployed car mechanic spending all day tinkering with his own car, since he can't find a paying customer who really needs his car repaired. In one sense that mechanic is "working" full time, but in the sense that matters he is still unemployed. His utility is lower. It's true that his productivity may also be lower (if he doesn't have access to the garage lift etc., or spends part of his time gardening for his own food, where he doesn't have a comparative advantage), but that lower productivity is a consequence of the difficulty of doing monetary exchange, which lowers utility by itself even if productivity stayed the same.

Since the price of the medium of exchange does not adjust instantly to the changing desires for fruit or fruit tree exchange. we could also say that recessions are "only" about sticky prices.

Nick,

I think in a “regular” economy with money income and spending on output of all types, you can identify recessions with an increase in the demand for the medium of exchange. This to me as almost a truism, because if you work backward from the eventual result of a shrinking economy, you can’t but conclude that the use of money in exchange has declined. Therefore, there must have been an increase in the demand for money.

But even if that economy has no investment, that increase in demand for the medium of exchange and the corresponding decrease in the demand for goods services also translates to an increase in saving somewhere at the expense of dissaving somewhere else. I think a simple haircut example illustrates this point, where the economy shrinks by 1 haircut, the customer increases his saving, and the barber decreases his saving. No investment required.

Therefore, in a regular economy, I don’t think you can avoid the association of recessions with both an increase in the demand for money and an increase in desired saving. And I think it then becomes problematic to identify the cause of the recession as one or the other, because the dynamic for each in inextricably entangled with the other.

On the other hand, if you deliberately construct an economy with the purpose of eliminating the possibility of saving as typically defined, you come to the medium of exchange explanation. However, in your parable, you included the restriction that the medium of exchange would not be used directly to purchase goods and services output. That seemed to be necessary to arrive at your more general conclusion. I proposed equating the purchase of a capital asset with money as the purchase of an output annuity of goods and services in order to get around that. Not sure I did though.

I find it interesting that this idea of the role of money in recessions seems to be a truism – it’s almost an accounting result (I know you’ll hate this) - of comparing factual and counterfactual results and concluding that the demand for the medium of exchange would have to decline just based on such a simulation of eventual results comparing a recession with no recession.

Nick Rowe et al.

In the two preceding posts* it has been argued that Nick Rowe’s barter parable lacks the elementary features of the monetary economy. Barter models have always been false and will always be false because the economy constitutes itself through the interaction of real and nominal variables.#1

It has been argued that the composition of output and changes in the composition of output (apples, bananas, cherries) are irrelevant for the money transactions between the household- and the business sector and that they do not cause a recession. Only a reduction of total nominal demand causes a recession.

To see this, let us make a simple example. Imagine two firms, 1 and 2 for short. The wage rates in both firms are equal, so the total wage income is Yw=WL1+WL2 and total employment is L=L1+L2.

In the initial period, the respective prices are equal to unit wage costs, i.e. P1=W/R1 and P2=W/R2. Therefore, the profit in both firms is initially zero. The household sector spends total wage income on the two products, i.e. C=Yw, so there is neither saving nor dissaving.

The distribution of total consumption expenditures C=C1+C2 between the two products determines the production of the respective quantities and the respective labor inputs L1 and L2. It holds C=C1+C2=W(L1+L2)=WL=Yw.

So, if the household sector wants more of product 1 it spends more on it and less on product 2, such that C1 goes up and C2 goes down and C remains unchanged. Accordingly, the business sector employs more workers in firm 1 and less in firm 2, such that L1 goes up and L2 goes down and total employment L and total income Yw remain unchanged.

The relative price, i.e. the exchange relation between the two products remains unchanged, i.e. P1/P2=R2/R1.

So, changes in the preferences between the two products are mirrored in changes in the distribution of labor input between the two firms. This configuration can go on forever. Problems arise only if the household sector reduces total consumption expenditures C, such that saving Sm≡C−Yw is now greater zero. In this case, the business sector makes a loss and the economy goes into recession.

Egmont Kakarot-Handtke

* Reference
https://axecorg.blogspot.com/2018/06/nick-rowes-soapbubbling-about-money.html

#1 The irreparable unreality of all ‘real’ models
https://axecorg.blogspot.com/2015/11/the-irreparable-unreality-of-all-real.html

In both versions of the parable, with the shortage of money, won't the price of fruit or the price of trees drop commensurately to adjust to the new level of money stock, so that there is no real effect on output?

Nick Rowe

The lethal flaw of The Parable of the Fruit Trees is the obsolete concept of direct barter. In the monetary economy, the barter is indirect. In methodological terms, barter economists commit the Fallacy of Insufficient Abstraction.

In the monetary economy, agent 1 does not produce product 1 and barters directly with agent 2 who produces product 2.

In the monetary economy, agent 1 works in firm 1 which produces product 1 and gets the wage income Yw1 which is paid with a transfer of deposits at the central bank.

Analogous for agent 2.

Agent 1 then spends part of his income on product 2. Analogous for agent 2 who spends part of his income on product 1. This is how INDIRECT barter happens. By buying the other firm’s output, agent 1 barters “his” product with agent 2 and vice versa.

Indirect barter presupposes the existence of money which is used (i) to pay the wage bill, and (ii), to buy the products. Money is created and destroyed in the process. The cycle can be repeated ad infinitum. Transaction money is NOT a stock and NOT an asset. It is zero at the beginning and the end of the cycle.

Changes in preferences lead to changes in output and production and the allocation of labor between the two firms. Total spending and total employment and the relative prices do NOT change in the process. Production adapts quantitatively to preferences.

Put simply, if agents want more of product 1 and less of product 2 more labor input has to be allocated to firm 1 and less to firm 2. The change in the composition of output has NO effect on the monetary transactions. Total income and total consumption expenditures remain unaffected.

Only if the household sector saves, which gradually increases its “stock of money” = average amount of deposits at the central bank, problems arise in the elementary production-consumption economy. Changes in the composition of output do not, they only lead to a reallocation of labor input.

Needless to emphasize that normally the two processes, growth/shrinkage of total production/output/average stock of transaction money and change in the composition of output are mixed. Analytically, though, they have to be strictly kept apart.

Egmont Kakarot-Handtke

Egmont,

Interesting.

"Transaction money is NOT a stock and NOT an asset. It is zero at the beginning and the end of the cycle."

This doesn't appear sound.

There has to be money to start the transaction cycle. Money is needed for a purchase.

Henry Rech

Money is created in the act of transaction. Either the business sector creates an IOU and hands it over as wage payment to the household sector, or the central bank creates uno actu deposits for the wage receivers and corresponding overdraft for the firms. The purchase of the output destroys money = deposits at the central bank again. This is how fiat money works. The transactions themselves create/destroy money.

At the logical beginning of economic activity, there is neither a stock of goods nor of money. All physical stocks have to be produced and money is produced (or ‘created out of nothing’) by the central bank/banking system. Economic analysis starts at zero. And this holds also for the theory of money.

Egmont Kakarot-Handtke

'trade all three fruits simultaneously'

Simultaneous is a relative when money moves faster than fruit. An unexpected change in demand for fruits means the money makers were asleep, they should have been a half step ahead.

The recession comes from getting term length wrong, betting that the time to adjust fruit production is shorter than is really turned out. Time accuracy especially important given the life span of fruit trees, and more than one farm recession been caused by changes in fruit preferences. The farmer bet ten years on oranges and then avocados became all the rage after five, this really happens.

Step into the problem for a moment. Consider the wealthiest man having the most sudden desire to consume bananas over the other fruit. Money means faster than goods, accurate money,in this case, should be applying an ever higher interest charges to the wealthy, in favor of those less inclined to bananas. Accurate money means the supply and demand are 'stepped' into the new equilibria, with a barely noticed disturbance. The interest charges appearing fast enough to just 'back pressure' excess flow volatility.

Matthew Young

You say: “Simultaneous is a relative when money moves faster than fruit.”

The purpose of a parable is to make one point as clear as possible. For this purpose, the situation is radically simplified. Needless to emphasize that simplification and idealization are legitimate tools of analysis. However, as always, there is the possibility that the tool is misapplied and that the dilettantish scientific craftsman hits his thumb instead of the nail.

The problem with simplification/idealization is that it erroneously abstracts reality away instead of all the details that are indeed irrelevant for the question at issue. One of the most prominent examples of the Fallacy of Insufficient Abstraction is simultaneity. This is to eliminate time and this is sufficient to relegate any model/parable into the Dancing-Angels-On-A-Pinpoint category.

Nick Rowe’s Parable of the Fruit Trees, too, falls into this category. Its lethal defect is long known as the Hahn problem: “The Hahn problem reveals three things. First, a perfect barter GE solution always exists in any ‘monetary’ model erected on Walrasian GE microeconomic foundations. Second, inessential monetary features are easily attached to perfect barter microeconomic foundations but as easily removed, leaving the perfect barter solution intact. Third, attaching such inessential additions leads to logical error; the misuse of language that produces invalid conclusions.”*

Nick Rowe and Matthew Young have not gotten the point that in the monetary economy barter is indirect and that therefore the discussion of direct barter is pretty much a revival of the Dancing-Angels-On-A-Pinpoint disputations of the Middle Ages.

Egmont Kakarot-Handtke

* Colin Rogers, Review of Political Economy
https://www.tandfonline.com/doi/abs/10.1080/09538259.2018.1442894?journalCode=crpe20

This point of this post really seems to be about whether there could be something we would recognise as a recession in an economy with no GDP and hence no saving.

One problem we have translating your parable to the real world is that asset prices are generally highly flexible (and arguably asset markets can be much more easily cleared by price movements than goods and labour markets). We don't tend to see an excess supply of bonds; changes in portfolio preference just show up in the price.

The best way I can think of to translate your model is in relation to housing. First, this is an asset where the benefit generated accrues directly to the owner in kind, rather than in monetary form or as something which has to then be sold. Like the trees in your second version. Secondly, there can be price stickiness, particularly when the market declines, so we do see people wanting to sell their house and unable to do so.

Personally, I don't really think of a housing market slump as a recession, although it can often coincide with a GDP recession. It may be you just see it that way because it's a natural extension of what you see as almost the definition of a recession.

Nick Edmonds

You say: “One problem we have translating your parable to the real world is that asset prices are generally highly flexible (and arguably asset markets can be much more easily cleared by price movements than goods and labour markets).”

Not at all! The real problem is that economists have after 200+ years still no clue how the price- and profit-mechanism works.

To begin with, there are TWO fundamentally different types of markets.#1 In the elementary production-consumption economy one has the flows of labor input and product output (apples, bananas, cherries per period). The quantity produced is, for a start, equal to the quantity sold and consumed. So the stock of products is zero at the beginning and the end of the period. The primary markets (e.g. product, labor) deal with flows.

If part of the output is not consumed in the same period then there remains a stock of durable goods = real assets, e.g. houses. This is how the secondary markets come into existence.

The point is that the primary and secondary markets run on entirely different principles and that they can by no stretch of the scientific imagination be described with the barter parable nor with supply-demand-equilibrium. What Leijonhufvud has called the Totem-of-the-Micro has always been nincompoop-economics.

Egmont Kakarot-Handtke

#1 Primary and Secondary Markets
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1917012

Nick E: Good comment (as usual).

The main point of the post is to argue that recessions are caused by an excess demand for money, rather than excess saving. (The question is complicated by the fact that accumulating money is *one* form of saving).

Some assets are very liquid, and have prices that adjust very quickly. "Bonds" are one example. But other assets are much less liquid, and so have stickier prices. Yes, houses would be one example. But nearly all physical capital goods are not very liquid either. And a lot of loans are not very liquid. Not to mention land and used cars etc. It's not obvious to me that durable goods (assets) in general are more liquid and have more flexible prices than non-durables. At a minimum, the standard dichotomy between non-durables having sticky prices and assets (all swept together into "bonds") having flexible prices can be questioned.

"Personally, I don't really think of a housing market slump as a recession, although it can often coincide with a GDP recession. It may be you just see it that way because it's a natural extension of what you see as almost the definition of a recession."

Fair point. If we see recessions as a cluster of symptoms, that usually (but not always) go together, it's not obvious how we define a "recession", and whether we define it in terms of symptoms or of causes. And what's true by definition and what's true/false as a statement of fact. Bit like defining different illnesses.

Nick Rowe

Nick Rowe concludes: “If we see recessions as a cluster of symptoms, that usually (but not always) go together, it’s not obvious how we define a ‘recession’, and whether we define it in terms of symptoms or of causes. And what’s true by definition and what’s true/false as a statement of fact. Bit like defining different illnesses.”

There is science, and it is binary true/false with NOTHING in between. Truth is well-defined since 2000+ years by formal and material consistency. And there is the large swamp of cargo cult science where, as Keynes said, “nothing is clear and everything is possible.”

In the swamp, vagueness, indeterminacy, inconclusiveness, confusion dressed up as complexity, unresolved contradictions, storytelling, filibuster, gossip, finicky scholasticism (Popper), unknown unknowns, and the Humpty Dumpty Fallacy are the prevailing components of communication.#1, #2, #3

This, of course, did not go unnoticed: “The currently prevailing pattern of economic theorizing exhibits the following three characteristics: (1) a syncopated style of argument fluctuating back and forth between literary and symbolic modes of expression, (2) naive translation, or the loose paraphrasing of formulae into sentences, and (3) loose verbal reasoning for certain aspects of theoretical argumentation where explicit symbolic formulation is lacking.” (Dennis, 1982)

From Nick Rowe’s Parable of the Fruit Trees nothing can be learned about how the price- and profit-mechanism works. This does not matter, though, because the purpose of economics has never been to clarify matters and to advance science but to keep everything and everybody in the swamp of inconclusiveness.

Vagueness and inconclusiveness protect the scientifically incompetent and secure the status quo because:
• “... you cannot prove a vague theory wrong.” (Feynman)
• “With enough fog emitted, almost anything becomes possible.” (Mirowski)

One will not find one scientist in the swamp.#4 It has always been the habitat of parable-tellers and cargo cult scientists.

Egmont Kakarot-Handtke

#1 It is better to be precisely right than roughly wrong
https://axecorg.blogspot.com/2016/11/it-is-better-to-be-precisely-right-than.html

#2 “This is a tough question to adjudicate on scientific grounds since the issue is largely definitional and, as Lewis Carroll pointed out, everyone is entitled to his own definitions.” (Blinder)

#3 “’When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ ‘The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all’.”

#4 Getting out of the economics swamp
https://axecorg.blogspot.com/2017/05/getting-out-of-economics-swamp.html

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How about a post covering the US / Canadian trade war?

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