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.

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

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:

  • Gold Sector: Positioning and Sentiment
      A Case of Botched Timing, But... When last we wrote about the gold sector in mid February, we discussed historical patterns in the HUI following breaches of its 200-day moving average from below. Given that we expected such a breach to occur relatively soon, the post turned out to be rather ill-timed. Luckily we always advise readers that we are not exactly Nostradamus (occasionally our timing is a bit better). Below is a chart of the HUI Index depicting the action since the January...
  • India: The next Pakistan?
      India’s Rapid Degradation This is Part XI of a series of articles (the most recent of which is linked here) in which I have provided regular updates on what started as the demonetization of 86% of India's currency. The story of demonetization and the ensuing developments were merely a vehicle for me to explore Indian institutions, culture and society.   The Modimobile is making the rounds amid a flower shower. [PT] Photo credit: PTI Photo   Tribal cultures face...
  • March to Default
      Style Over Substance “May you live in interesting times,” says the ancient Chinese curse.  No doubt about it, we live in interesting times.  Hardly a day goes by that we’re not aghast and astounded by a series of grotesque caricatures of the world as at devolves towards vulgarity. Just this week, for instance, U.S. Representative Maxine Waters tweeted, “Get ready for impeachment.”   Well, Maxine Waters is obviously right – impeaching the president is an urgent...
  • The Long Run Economics of Debt Based Stimulus
      Onward vs. Upward Something both unwanted and unexpected has tormented western economies in the 21st century.  Gross domestic product (GDP) has moderated onward while government debt has spiked upward.  Orthodox economists continue to be flummoxed by what has transpired.   What happened to the miracle? The Keynesian wet dream of an unfettered fiat debt money system has been realized, and debt has been duly expanded at every opportunity.  Although the fat lady has so far only...
  • Welcome to Totalitarian America, President Trump!
      Trump vs. the Deep State If there had been any doubt that the land of the free and home of the brave is now a totalitarian society, the revelations that its Chief Executive Officer has been spied upon while campaigning for that office and during his brief tenure as president should now be allayed.   Image adapted from the cover of “Deep State #5” - depicting an assassin from the future   President Trump joins the very crowded list of opponents of the American...
  • Searching for Truth
      Heresy or Truth? RANCHO SANTANA, NICARAGUA – In the fifth century, Christian scholars counted 88 different heresies. Arianism. Eutychianism. Nestorianism. If there was a way to “offend” God, they had a name for it. One group of “heretics” argued that there was no such thing as “original sin.” Another denied the trinity. And another claimed Jesus was not divine. Which one had the truth?   Depiction of the first Council of Ephesus in 431 AD, convened by Emperor...
  • Gold and the Fed's Looming Rate Hike in March
      Long Term Technical Backdrop Constructive After a challenging Q4 in 2016 in the context of rising bond yields and a stronger US dollar, gold seems to be getting its shine back in Q1. The technical picture is beginning to look a little more constructive and the “reflation trade”, spurred on further by expectations of higher infrastructure spending and tax cuts in the US, has thus far also benefited gold. From a technical perspective, there are indications that the low at $1045.40,...
  • The Unstable Empire – A Campfire Tale
      Campfire Tale   Caesar: The Ides of March are come. Soothsayer: Ay, Caesar, but not gone. — Julius Caesar, Shakespeare   GRANADA, NICARAGUA – Today, we stop the horses and circle the wagons. For 19 years, we have been rolling along, exploring, discovering. We began with the assumption that we didn’t “know” anything - so we kept our eyes open. Now we know even less.   Famous people who knew nothing and were not shy to admit it: Sergeant Schultz...
  • Why Silver Went Down – Precious Metals Supply and Demand
      Rumor-Mongering vs. Data The question on the lips of everyone who plans to exchange his metal for dollars—widely thought to be money—is why did silver go down? The price of silver in dollar terms dropped from about 18 bucks to about 17, or about 5 percent.   Reportedly silver was already assassinated in the late 19th century... so last week they must have assassinated its corpse. [PT] Illustration taken from 'Coin's Financial School'   The facile answer is...
  • Systematic Trading - Unwrapping the Onion
      Lumpy but Robust   [ed note: this article has originally appeared at the Evil Speculator and was written by trader and ES contributor Scott. We provide a link to Scott's past articles below this post for readers who want to get more familiar with his ideas and/or any unusual terminology used in this article]   One continual theme in my trading is that every time I think I have it figured out, I get punched in the face by an unexpected problem. The tendency is to go more...
  • LIBOR Pains
      Wrong Focus If one searches for news on LIBOR (=London Interbank Offered Rate, i.e., the rate at which banks lend dollars to each other in the euro-dollar market), they are currently dominated by Deutsche Bank getting slapped with a total fine of $775 million for the part it played in manipulating the benchmark rate in collusion with other banks (fine for one count of wire fraud: US$150 m.; additional shakedown by US Justice Department: US$625 m., the price tag for a deferred prosecution...
  • “People Need to Understand that their Biggest Asset is Individual Liberty” - an Interview with Claudio Grass
      Preserving Liberty in a Difficult Time   In his latest interview for the X22 Report, Claudio Grass shares his views on the future of the Euro, the Trump Presidency, the monetary system and the advantage of of owning gold in these times of global uncertainty.   Claudio Grass, managing director at Global Gold   As election season is upon us in Europe and political and economic tensions are heating up, Claudio Grass notes that “the euro is the most artificial...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com