Brandolini’s Law

“The Phillips Curve is alive,” said Fed Chair Janet Yellen at Wednesday’s post FOMC meeting press conference. We’ll offer some remarks on this in just a moment, including why Yellen is toast.  But first we must put her utterances into proper context.

This week, at a business meeting, we experienced the full veracity of Brandolini’s Law.  If you happen to be ignorant of Brandolini’s Law, we must apologize.  For we must forever end your bliss.

 

BrandoliniAlberto Brandolini introduces his magnificent, if sobering, law to the world.

 

Brandolini’s Law, or the BS Asymmetry Principle, as formulated by Italian programmer Alberto Brandolini, says: “The amount of energy needed to refute BS is an order of magnitude bigger than to produce it.”

In other words, it takes 10-times the energy to debunk a falsehood than it takes to spew it.  Certainly, Brandolini is on to something.  In fact, as far as we can tell, there are countless applications of this law.

 

Spewing Nonsense

Money, policy, economics.  You name it.  There’s an abundance of nonsense out there for each of these subjects.  Moreover, it’s exhausting to negate. But nowhere else does money, policy, and economics mix with such special vigor than in the dishonorable world of central banking.

Fiat money. Legal tender.  ZIRP.  NIRP.  Operation twist.  Quantitative easing.  Can you think of another profession out there that so dangerously operates upon a foundation of pure BS? Janet Yellen, no doubt, is in the business of spewing nonsense.  It’s a cornerstone job function of central bankers.  But, alas, she isn’t very good at it.

 

Yellen_data_dependent_cartoon_11.18.2015_largeIn fact, Ms. Yellen picks whatever data seem convenient…which is actually not a criticism. Even if a central planner were completely aware of all the data that exist at a given point in time and could firmly rely on their correctness, central planning of the economy would still be impossible.

 

For drivel to be effective it must be carried forward with unequivocal confidence.  It can be incoherent.  It can be contradictory.  It can be complete gibberish.  It can be all of these things, and more.  But it can’t be hesitant.

Yet everything that comes out of Yellen’s mouth is tentative and unsure.  She hedges.  She prevaricates.  She dithers.  She evades.  What’s more, she does so with the confidence of silly putty.  Nonetheless, we won’t give her a pass.

 

Yellen_cartoon_02.27.2015This cartoon will probably never get old…

 

As noted above, at Wednesday’s press conference Yellen remarked that “The Philips Curve is alive.”  This, indeed, is utter BS…driveled out in just five words.  Now, as established by Brandolini’s Law, we must expend 10-times the energy – or more – to refute it.

 

Why Janet Yellen is Toast

The Phillips curve, if you didn’t know, says there’s an inverse relationship between inflation and unemployment.  When unemployment goes down, inflation goes up.  Conversely, when unemployment goes up, inflation goes down.

The curve was produced by economist William Phillips using data for wage rates and unemployment in the United Kingdom in the years 1913 to 1948.  Like any economic theory derived from empirical data, the practitioners always miss one very important insight.  Namely, that the economy isn’t stagnant; it’s dynamic.  Its inputs change over time.

 

1-Phillips CurveThe modern-day adaption of the Phillips curve is known as “NAIRU” (or “non-accelerating inflation rate of employment”), the theoretical way for which was paved by Keynesian economist Abba Lerner in 1951 in “The Economics of Employment” (Lerner inter alia strongly believed in socialist central planning, natch). The study of wage rates and employment published by William Phillips actually came later, in 1958. In the 1960s, Samuelson and Solow published papers on the topic, while the term NAIRU was coined by Friedman in the 70s – he began to differentiate between “short-run” and “long-run” Phillips curve effects in a vain attempt to explain the stagflation of the 70s. In a word, it is all complete balderdash  – which should be glaringly obvious to anyone looking at the chart above. Supposedly, the two data series should be negatively correlated at all times. As Henry Hazlitt showed, if one looks at the post war data from 1946 to the late 1970s, it is in reality no better than a coin toss – the Phillips curve seemingly “worked” about half of the time. It hasn’t gotten any better since. So Ms. Yellen might as well have said “coin tosses are alive and well”. If anything, the Phillips curve shows why one cannot possibly construct a valid economic theory on the basis of historical data. Not surprisingly, at least 7 Nobel Prizes were won in the late 70s/ early 80s for papers debunking it! Not that it is difficult to debunk – it is already nonsense from a theoretical perspective. But Keynesians have no capital theory, and look at the economy in terms of aggregates and equilibrium equations. This has nothing to do with the real world, it is ultimately just a poor attempt to make economics more like physics. Of course, admitting to the fact that this is approach makes no sense would imply that central planners are surplus to requirements. A great many people would have to look for a real job – click to enlarge.

 

Perhaps, the Phillips curve provides a snapshot of what reality was like during a certain time and place.  But that certain time and place was prior to globalization, involved an on again off again pseudo gold exchange standard, and encompassed the Great Depression and two World Wars.

Extrapolating that reality into the present and attempting to fabricate new data to support it is an application of absurdity. Since Phillips first derived the Phillips Curve there have been lengthy episodes that are inconsistent with his original findings.  Particularly, the late 1970s – when inflation and unemployment went vertical in tandem.

How could it be that both went up at once?  Weren’t they mutually exclusive?  According to the Phillips Curve this was impossible.  Yet it happened all the same.  In short, the Phillips Curve is a BS theory.

The fact that Yellen still spews this nonsense is intolerable and insulting.  This, among other reasons, is why she is toast.  Her four-year appointment is set to end in February 2018.  We suspect she won’t make it much past the next Presidential inauguration.

 

Chart by: St. Louis Federal Reserve Research

 

Chart and image captions by PT

 

M N. Gordon is the editor and publisher of the Economic Prism.

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

3 Responses to “Why Janet Yellen is Toast”

  • MikeWilliamson:

    I agree with everything except Yellen being toast.
    Incredibly, even as the global economy grinds to a halt, she will be spewing more BS and she will be eulogised for it by politicians, fellow bureaucrats and the media.
    Why?
    Because they will never have the guts to admit they were wrong and will keep applying the same failed policies.
    And, let’s be honest, Hillary ‘More of the same’ Clinton is going to be the next president, so get ready for NIRP, deeper NIRP, confiscation of gold, the cashless society, punishment for bartering or using cash substitutes, theft of savings and pensions and, ultimately, abject poverty for all but the ‘elite’.
    And still they will not recognise what they have done.

  • JoeBren:

    For the definitive explanation of the curve check out: http://www.hussmanfunds.com/wmc/wmc110404.htm

  • wmbean:

    One of the greatest false assumptions of economics and economists is the use of aggregates. Aggregate demand is suppose to meet aggregate supply. It is the lazy academician’s way to think about national and world economies. Thus the Phillips Curve relies on all things being equal when at least half the time they are not. Lumping all energy supplies (nuclear,hydro, natural gas, solar, wind, heating oil, gasoline, etc.) into one aggregate category called energy supply means that depending on the demand and supply of each energy type one’s general energy cost can easily be skewed. It is much the same as lumping all fruit supply and demand by inclusion of every possible type of fruit and then attempting to find the average cost of apples and oranges. It really makes no sense but that is what is taught by those with PhDs in the subject. And if one wants to pass the classes and obtain that degree one must come to believe in the insanity. The fact that so many continue to believe such stupidity only confirms Einstein’s early observance. Janet Yellen is a political appointment supposedly made on the basis of merit. Her merit is that she believes what the main stream economists believe.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 21st Century Shoe-Shine Boys
      Anecdotal Flags are Waved   "If a shoeshine boy can predict where this market is going to go, then it's no place for a man with a lot of money to lose." - Joseph Kennedy   It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if...
  • India: The Genie of Lawlessness is out of the Bottle
      Recapitulation (Part XVI, the Last) Since the announcement of demonetization of Indian currency on 8th November 2016, I have written a large number of articles. The issue is not so much that the Indian Prime Minister, Narendra Modi, is a tyrant and extremely simplistic in his thinking (which he is), or that demonetization and the new sales tax system were horribly ill-conceived (which they were). Time erases all tyrants from the map, and eventually from people’s...
  • Christopher Columbus and the Falsification of History
      Crazed Decision The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.   Christopher Columbus at the Court of the Catholic Monarchs (a...
  • The Government Debt Paradox: Pick Your Poison
      Lasting Debt “Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”   Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo...
  • The Forking Paradise - Precious Metals Supply and Demand Report
      Forking Incentives A month ago, we wrote about the bitcoin fork. We described the fork:   Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!   BCH, son...
  • The United States of Hubris
      Improving the World, One Death at a Time If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.   Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial...
  • Long Term Statistics on AAPL
      Introductory Remarks by PT Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of...
  • Tragedy of the Speculations
      The Instability Problem Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future. In fact, it is not.   A tragedy... get the hankies out! :) [PT]   Why not? To answer, let us start with a look at the incentives offered by bitcoin. We saw a comment this week, which is apropos:   "Crypto is so...
  • To Hell In A Bucket
      No-one Cares... “No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week.  “You keep writing about it as if anyone gives a lick.” We could tell he was just warming up.  So, we settled back into our chair and made ourselves comfortable.   The federal debtberg, which no-one cares about (yet). We have added the most recent bar manually, as the charts published by the Fed will only be updated at the end of the...
  • Despite 24/7 Trading: Bitcoin Investors are Taking off for the Weekend on Friday Already
      Crypto-Statistics In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.   Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to...
  • Precious Metals Supply and Demand
      Fundamental Developments There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30. Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.   Gold and silver prices in USD terms (as of last week Friday) - click to enlarge.   Next, this is a...
  • Janet Yellen's 78-Month Plan for the National Monetary Policy of the United States
      Past the Point of No Return Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it.  This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return.  That's when the cucumber has pickled over and the prospect of turning back is no longer an option.   Depravity and bedlam through the ages. The blue barge of perdition in the...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com