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Edward Lambert

Phoenix, Arizona

Independent researcher for a model of Effective Demand.

Recent Activity

Approaching Effective Demand Limit Again

The famous economist John Maynard Keynes tried to put forth a theory of effective demand. Keynes even devoted chapter 3 of his General Theory book to it. However, nowadays you will not see the term effective demand in economic textbooks. What happened to it? Why is the term effective demand... Continue reading

Posted Oct 14, 2017 at Effective Demand Research

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Capital is Optimizing again

In my calculations of utilization of labor and capital, there is a derivative of one equation that tells to what extent capacity and labor is being optimized. Here is the graph of current monthly data. As the lines get closer to 0%, they are more optimized. When they reach 0%,... Continue reading

Posted Sep 2, 2017 at Effective Demand Research

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Projecting the Effective Demand Limit

The economy expands in terms of capacity utilization until the effective demand limit is reached. The following graph shows the effective demand limit. (link to data... https://fred.stlouisfed.org/graph/?g=eUj3) The red link of effective demand stays above real GDP. One thing to notice about the red line of effective demand is that... Continue reading

Posted Aug 30, 2017 at Effective Demand Research

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Effective Demand Model did very well

Just to look back... My model of effective demand performed very well. The line bounced off of the "zero lower bound" of effective labor share. Continue reading

Posted Apr 4, 2017 at Effective Demand Research

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Watching the Craziness

I have not posted in a while. I am watching the craziness as Trump turns the economy against the general population. From what I see, inequality will grow... and importantly, negative externalities will grow and accumulate. Businesses will make more profit in the short-term, but in the medium-term, the negative... Continue reading

Posted Feb 13, 2017 at Effective Demand Research

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Inflation as a Mouse not being Chased

Here is a graph that shows the fall of core PCE inflation from its peak in 1981 to the present. (link to quarterly data) Inflation has fallen with stable swoop downwards. We are currently at about the 0.1 mark on the x-axis showing a core PCE of 1.6% on the... Continue reading

Posted Nov 26, 2016 at Effective Demand Research

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Projecting a Fed Rate Path

Last week the markets moved. Bonds yields went up. Stocks went up. Inflation expectations were awakened. What will the Fed funds rate do? How might the Fed respond? I will do an analysis to project a path for the Fed Funds rate based on my research into effective demand. (a... Continue reading

Posted Nov 12, 2016 at Effective Demand Research

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One trend toward a Recession: yoy % change of U3 & U6

This graph shows yoy %change for the U-3 and U-6 rates for unemployment. (link) They are on a normal trend of a business cycle where they bottom out and then head upwards. When the trend starts to go positive, a recession is imminent. The trend is just now hitting 0%... Continue reading

Posted Nov 6, 2016 at Effective Demand Research

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Picture of Output gap from Effective Demand

Equation for potential real GDP Real GDP - $2.6T * (capacity utilization/(labor share index*0.76) - 1) Continue reading

Posted Oct 29, 2016 at Effective Demand Research

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Repost from June 2014: Defining Effective Demand as Keynes saw it

Many think that effective demand is simply aggregate demand. But that is not true. They are different concepts. It is very important in the current economic sickness to understand the role of effective demand. So I will define effective demand in this post as Keynes saw it. 1. Effective Demand... Continue reading

Posted Oct 27, 2016 at Effective Demand Research

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Yellen wants to understand effective demand

Janet Yellen gave a speech where she posed 4 questions to economists in general seeking answers... The first question she asked was this... "The Influence of Demand on Aggregate Supply The first question I would like to pose concerns the distinction between aggregate supply and aggregate demand: Are there circumstances... Continue reading

Posted Oct 18, 2016 at Effective Demand Research

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A glitch in the IS-LM model

Many top economists use the IS-LM model to support low interest rates. The LM curve of the IS-LM model is built upon a model of financial markets. In the graph above, money supply has been pushed far to the right to keep interest rates low. The model implies that the... Continue reading

Posted Oct 18, 2016 at Effective Demand Research

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Larry Summers is beginning to see Effective Demand

Larry Summers wrote a post yesterday about the hollowing out of the middle class and how that has lowered consumption and led to secular stagnation. He says that this effect must be taken into account for policy. Well I sit here after 4 years of building models of Effective Demand... Continue reading

Posted Sep 30, 2016 at Effective Demand Research

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Investment rises as opportunity cost of money increases

Stan Fischer: "I think we'd be better off if there was a price for using money, or for not investing, in terms of monetary returns" — Matthew B (@boes_) September 27, 2016 Data link... Red circle is 2nd quarter 2016. Continue reading

Posted Sep 27, 2016 at Effective Demand Research

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Blanchard & Posen: Inflation tied to Corporations Trying to Maintain Profit Margins

I have posted this model of core inflation before. Core inflation on y-axis. Corporate-after-tax profit rate minus nominal rates on x-axis. The model implies that inflation depends upon the difference between an aggregate corporate profit rate and nominal rates. The more nominal rates cut into corporate profit rates, the more... Continue reading

Posted Sep 17, 2016 at Effective Demand Research

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Monthly Movements of Core Inflation

Here is a graph from FRED showing monthly percentage movements of core inflation. (link to data) There used to be ranges that core inflation moved within. The monthly change either hit the maximum of that range or the minimum with some breakout movements in between. Monthly movements made sense by... Continue reading

Posted Sep 14, 2016 at Effective Demand Research

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Labor Share Supply Limit Still Holding

This graph plots labor share (left) against the unemployment rate (bottom) since 1948 to 2ndQ 2016. (data at FRED) The data points suggest a labor supply limit shown by the down-sloping red line. As labor share drops, unemployment tends to bottom out at higher levels. The last 3 quarters are... Continue reading

Posted Sep 9, 2016 at Effective Demand Research

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Why would anyone still talk about a Phillip's Curve?

Which of these models would you trust to evaluate inflation? (quarterly data since 1957) Phillip's curve... core inflation plotted against unemployment. (link) My model plotting core inflation against corporate profit rates minus a mix of short & long-term nominal rates... (link) Who in their right mind would consider the Phillip's... Continue reading

Posted Aug 24, 2016 at Effective Demand Research

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Prediction about Future of Inflation

The Phillip's curve is obsolete. Inflation does not reliably depend on employment. So what other model could we depend on? This one showing core inflation plotted against an aggregate corporate profit rate minus a mix of nominal rates. (FRED data link) Mixed nominal rate = 0.56*Fed rate + 0.44*10-year treasury... Continue reading

Posted Aug 24, 2016 at Effective Demand Research

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Model of Japan's low inflation & need for higher labor share

I have been presenting a new model to explain the forces around inflation. (link1, link2) Antonio Fatas poses a very good question. You can lower interest rates, but can you raise inflation? "But if monetary policy is being successful we expect inflation expectations and growth expectations to increase. Both of... Continue reading

Posted Aug 10, 2016 at Effective Demand Research

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Could an Inflation Target depend on Labor Share?

I continue to explore the model that I posted this... Continue reading

Posted Aug 9, 2016 at Effective Demand Research

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Extended model for capacity utilization & inflation

I have been in the workshop building a model for inflation, capacity utilization and other things. It builds upon the model for forecasting the profit rate cycle. And also upon the model for the relationship between inflation and net profit rates. The model was provoked by a video from Khan... Continue reading

Posted Aug 8, 2016 at Effective Demand Research

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The Case for a 3% Inflation Target

There have been calls for a 4% inflation target. But I have my doubts that it would work. Let me show you why. Look at this chart that plots net profit rate with core inflation... (quarterly data since 1958) Net profit rate = Corporate profit rate - nominal interest rate... Continue reading

Posted Jul 28, 2016 at Effective Demand Research

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Exponential Decay of Inflation

The graph shows how inflation drops as net corporate profits rise. (quarterly data since 1958 to 1st quarter 2016) Net corporate profit rate = Corporate profits/GDP - nominal interest rate The trend line (bright red curving downward) implies an exponential decay of inflation. We have been at the decay extreme... Continue reading

Posted Jul 25, 2016 at Effective Demand Research

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Inflation & Corporate Profits

Is there a relationship between Inflation and Corporate Profits? I think so. But I do not know of anyone talking about the relationship, so I will. The point I want to make is that corporations control prices. They set prices. They are not just price-takers. Corporations will change prices with... Continue reading

Posted Jul 24, 2016 at Effective Demand Research

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