Typography

Real t-bill and bond yields have been falling for decades and are incredibly low right now, even negative (see chart below). With an eye to historical real returns of 2%, folks like Martin Feldstein think that bonds are currently mis-priced and warn that a bond bubble is ready to burst. Investors need to be careful about comparing real interest rates over different time periods. Today's bond is a sleek electronic entry that trades at lightning speed. Your grandfather's bond was a clunky piece of paper transferred by foot. It's very possible that a modern bond doesn't need to provide investors with the same 2% real coupon that it provided in times past because it provides a compensating return in the form of a higher liquidity yield. [By now, faithful readers of this blog will know that I'm just repeating the same argument I made about equity yields .] Here's a way to think about a bond's liquidity yield. Bonds are not merely impassive stores-of-value, they ...

I've learnt enough about the terms income , savings , consumption , investment , capital , and other major macroeconomic categorizations to pass a basic economics exam. But I've never been a big fan of the style of thinking these terms force on me. Am I just being lazy? I'll lay out my points and give an alternative. Squarely Rooted recently commented on the somewhat arbitrary nature of the boundary economists set between consumption and saving, opining that travel should be thought of as investment, not consumption. On twinkies as savings, here is Squarely Rooted from an earlier post : Think of a Twinkie. Twinkies are an odd product; on the one hand, they are a cheap, delicious, unhealthy snack; on the other hand, they are (at least according to legend) practically immortal. So is buying a Twinkie consumption or saving? Does it depend when you eat it? And for those who will say “but Twinkies aren’t an investment, they bear no interest, they just sit there” – so does mone...

Nick Rowe writes a post called Macroeconomics and the Celestial Emporium of Benevolent Knowledge . It is a conjunction of a bunch of themes he has touched on in the last few weeks, including the great debt debate and categorization. I asked him: In your previous post, you advocated adopting the most "useful" way of dividing up the world into categories. But what does that mean? Useful in terms of teaching students, reaching the layman, articulating theory amongst other economists, calculating statistics, conducting policy? Are you saying that economists should have multiple "categorical universes" in their head? Or is their "one ring to rule them all" way of dividing up the universe that you are trying to tease out? One useful reason for having one standardized way of splitting the world into categories is it makes conversation easier. Having multiple ways adds subtlety but confusion. I am learning that the core of economics (or at least near to it) is abo...

I didn't comment much on the great debt debate, stirred up a Krugman post called Debt Is (Mostly) Money We Owe to Ourselves , but followed it quite closely. Nick Rowe taught me ( here , here , here , and here ), and Bob Murphy clarified ( here , here , here , here , here , here , here , and here ), that present generations can indeed take resources from future generations via debt issuance. I also learnt via Daniel Kuehn here and here that if you use a very unintuitive definition of "generations", than this is not the case. Basically, you can swap the meanings of terms to argue your way out of a tight spot. My comment is from a Murphy post : I’ve learnt that the method by which one aggregates individuals into groups, and the labels that one attaches to such groups, can have an important influence on a debate’s ability to reach resolution. If people are aggregating differently, and using non-standard words for their categories, then the debate will degenerate into shouti...