Wrap Up for July 2022

What is really meant by the idea of "banning cars"?

Disinflation is finally getting started.

Jason Furman explains the subtleties of rising wages. Perhaps "wage-price persistence" is a better framing.

What might the future look like with energy superabundance?

Three miscalculations which sent NGDP too high. "Team transitory" certainly got it wrong.

Even if recession is avoided we could be in for a period of stagnation. Still, much depends on whether the Fed can keep NGDP on a "stable trend path".

The problem of conformity in medical practice.

Trepidation on the eve of the 4th.

What happens if globalization goes into reverse?

Horizontal alignment can create exponential gain in applied knowledge.

BIS takes a closer look at inflation.

"The era of sustainable construction has arrived."

It might be "now or never" for the supply side

Chris Blattman considers war options for Ukraine and Russia.

The immigration shortfall has already impacted labour. Plus, an interview with Leah Boustan on immigration.

Scott Sumner highlights the importance of monetarism.

"The Energy Crisis Will Deepen."

A new approach is needed for Canada's healthcare.

Sri Lanka is a textbook example how things can go wrong.

Politics is a lot of things but it it isn't very serious.

Mobile homes have been unpopular for a long time. Also, Part II.

Joseph Politano reviews sectoral shifts since the start of the pandemic. 

Few remember when coal was the "newfangled power source" that no one wanted.

Which countries consume the most energy per capita? Plus, a visual of energy transitions.

"How do you know if AD is too high?"

Randal Quarles discusses his time at the Federal Reserve.

Switzerland is moving ahead with a plan for underground freight.

What if bicyclists could reclaim the roads?

U.S. counties which have seen the most growth and decline.

Maintenance is a major part of our stories.

Can the ECB convince markets it is serious about closing spreads? 

"A year ago, Chevy dealer Paul Zimmermann had about 700 new cars for sale on his lot just outside of Detroit. Today he has about 25."

Is this a turning point in "the conservative age"?

How has manufacturing changed?

A simple definition of monetary policy.

Litigation is all too frequent in the nursing home industry.

Government regulation which limits ESG policies is distorting financial market outcomes.

Growth potential is more complicated than it may appear.

When Samuel Rumph made peaches market worthy, that was just the beginning.

Q & A for Branko Milanovic with James Pethokoukis.

"When the Levee Breaks" there'll be no place to stay.

Ownership and Output in Excess Nominal Claims

Excess nominal income claims are too common in local service markets which are not discretionary. Governments and special interests alike tend to limit these options, thereby reducing effective management for both our personal obligations and physical environments. If this unfortunate circumstance weren't enough, excess claims in these areas are starting to impact monetary policy as well.

Our potential for ownership and personal responsibility are sorely compromised, when too many markets for basic life needs are narrowly defined. The markets most affected are those involving human capital, skill potential and housing. Alas, these are now mostly intended for the use of higher income groups. What's left for ownership potential, includes traditional housing (with its legal benefits of family inheritance), financial markets for the traditional capital of wealth building, and the formal institutions which now link human capital to status and monetary gain. All of these are associated with equilibrium imbalance and excess nominal claims. 

How might one think about this? What's most affected includes the framing of artificial scarcity. Recently a gap has opened between aggregate nominal income and the output of GDP. Might this gap have been induced by purposeful reduced output (artificial scarcity), while maintaining similar levels of income expectations? And how does artificial scarcity contrast with natural scarcity for such correlations? After all, when income is derived from production via natural scarcities, existing output is more likely close to what is feasible and consistent with equilibrium or GDP potential. Perhaps due in part to the contributions of production via natural scarcities, nominal income has closely mirrored aggregate output for quite some time.

I'd like to think that production reform for non traditional housing and applied human capital, could help diminish the unexpected gap between aggregate income and GDP output. Non traditional housing options and horizontal alignment for services coordination, could lead to good deflation. Eventually such reform could lead to better equilibrium balance with other sources of wealth.

Indeed we've been fortunate that equilibrium imbalance can take centuries to become a macroeconomic problem. It's interesting how Adam Smith worried about equilibrium imbalance in his framing of"productive" and "unproductive" workers (Wealth of Nations), before the closely related Baumol effect became a legitimate concern. Perhaps the fact this process took so long to evolve, is what makes it difficult to relate to in the present.

Just the same, much is at stake. We need to recognize and respond to the burdens imposed by the expectations of our domestic services markets. Should we instead elect not to change anything, even the best NGDP monetary policy scenario would eventually lead to less applied knowledge for societies in the decades to come. Excess nominal claims with no other market options, would mean a gradual loss of our capacity to fulfill the challenges of a modern economy. It's time to consider building a future on more viable and sustainable terms.

Upstream Nominal Claims Matter for Equilibrium Balance

Will the Fed successfully curtail inflation in the near future? Fortunately there have been encouraging signs of disinflation, even if the causes aren't obvious yet. However, while the Fed uses monetary policy to tame inflation, in certain respects this is a technical result. In other words, "pulling back" won't address supply side shortcomings such as the perennial inflation contributors in our secondary markets. Unfortunately, these local markets are woefully incomplete in basic respects, with housing and skilled services as the most egregious examples. Consequently, were the Fed were to pursue nominal stability and a stable growth level (as a market monetarist "best case" scenario), this would only be a partial answer - albeit the monetary one - for optimal equilibrium balance. 

Indeed, the Fed has often emphasized how its hands are tied in terms of supply side reform possibilities. Despite the recent pullback on traditional housing loan activity, Fed members must be wondering now, who in a decision making capacity is really paying attention and ready to take action? After all, we need incremental ownership options for flexible housing and land use, before many citizens can lead more productive lives. Without such options, millions still function in their own "recessionary" economy, even as others move on. For that matter, tiny homes, manufactured homes, and modular homes are already available, but few communities remain willing to make room for lower income options. Alas, there's a relative few sad exceptions for flood prone areas which are often long distances from employment opportunities. 

While there's a growing understanding of supply side issues, supply side reform means different things to different people. Consequently we aren't ready to address how local secondary market deficiencies contribute to equilibrium imbalance. In all this, upstream nominal claims tend to define production and consumption landscapes, plus such claims are more locally supported than it appears at first glance. Upstream nominal claims come not only from profit and non profit decision makers, for the Nimby impulses of local citizens lead to surging property taxes as well - taxes for rising asset values rather than local service gains! How can the Fed keep a decent reputation indefinitely, if the constraints of artificial housing scarcity remain enforced? Yet since these claims matter for skilled services, communities often refuse newcomers who lack discretionary income for additional service costs.

In a recent post I noted the structural shift of additional nominal claims from originating wealth sources. Fortunately, some of these pressures are starting to let up, which should make the Fed's job a little easier. That said, problems of excessive expectations will remain with us. Only consider how some of those expectations might have come about in the first place. Part of the high inflation of the sixties and seventies was due to the introduction of higher costs for healthcare in general across the board - costs which could have been rationalized by increased fossil fuel wealth in the U.S. during that period. Now, imagine what might happen to those expectations should that fossil fuel wealth shift into reverse! For that matter, once the Fed finally reduced those earlier high inflation levels, recall how our healthcare institutions enforced hard limits on physician supply. Chances are this nominal structural shift was more than a coincidence. 

It's hard to imagine secondary markets giving up much ground to primary markets in terms of monetary representation, or for that matter acknowledging their dependence on originating wealth sources. But that doesn't mean new market institutions aren't possible - markets that are more free yet don't present direct challenges to the old. New sets of expectations would not include the same excessive nominal demands as the old. Instead, new institutions would make room for flexible ownership and time value as wealth. Good deflation and skilled knowledge use in local markets, could be our best chance for greater market freedom and equilibrium balance in the near future.