Wrap Up for December 2023

Until the Fed adopts a level target, mistakes such as the Great Recession and the more recent excessive inflationary level gain, are likely. 

"Many boomers will face tough choices as they age." Indeed, one of the more difficult aspects of the almost 10 percent level rise just in the last 4 years.

There were interesting business books this year. Material World in particular had positive reviews.

Why the robust holiday shopping season that defied economic anxieties?

Thinking about the use of one's time when it's not strictly in productivity terms.

How real is the decoupling between the U.S. and China?

Does it make sense to think of societal collapse as bad luck? Over the years I've emphasized how government redistribution to support ongoing knowledge use in society, is particularly fragile. Here, much more than luck is needed!

Sometimes when it comes to politics, the issues aren't as important as they seem.

Young voters aren't happy about their 2024 voting options, yet they are concerned regarding economic issues.

At $33.2 trillion, the U.S. holds more than one-third of the world's government debt.

The first roadway in the U.S. which will charge EVs.

There are medium-term challenges now faced by the ongoing energy transition.

Public services in the UK are being described as a "doom loop".

When is a monetary "puzzle" not actually a puzzle? Also, for once a soft landing is possible.

Is AI really on a path that will improve our financial realities? Plus, what might be expected regarding productivity potential in the near future? 

Central bankers have the tendency to celebrate too soon, when it comes to addressing inflationary episodes.

Speaking of premature celebrations, Why did public health officials archive the "excess deaths" webpage?

Has China's decline been exaggerated?

Francis Coppola reflects on current economic circumstance in the UK.

Digital tech activity is finally spreading out in the U.S.

A closer look at real interest rates in recent decades.

Christmas as an experiential journey, rather than an explicit goal.

Food supply adaptation might be the biggest challenge due to climate change.

One advantage for monetary policy over fiscal, is that monetary stimulus doesn't increase public debt.

What might we expect of healthcare spending in the near future?

Homelessness in the U.S. is now at a record level. And despite other factors, the cost of today's housing is the main cause. However, moral expectations also get in the way of housing abundance.

It turns out Americans are most satisfied with the care provided by their nurses.

Rising flood risk results in abandoned neighborhoods. Even as people continue moving to flood prone areas, they're becoming more aware of the risks involved.

Until now, the Suez Canal had actually been experiencing a "renaissance".

It shouldn't be necessary, to just say "delete fiscal" from the macro policy equation. Especially since the governmental action of advanced economies does not define general equilibrium circumstance, regardless of policy decisions. Why isn't it obvious by now, how human activity in aggregate creates the macro outcomes that matter? When governments insist on fiscal dominance, it shows their reluctance to take seriously their own citizens. 

While price increases finally slowed, their hoped for reversal never materialized as so many had hoped. The CPI has increased 19% since February 2020.

The Fed walks a narrow tightrope. Nevertheless, Some theories for the Fed's "soft landing".

There is real value in synchronized time.

Simple explanations for the Solow model. Despite the value of his exogenous growth model, total factor productivity remains a mystery. Nevertheless, for me it helps to think of TFP as what physical capital accomplishes alongside human capital. Plus, for the wealth created in a single year, there are upstream wealth claims on human capital which impact the output potential of knowledge economies. What if some central bankers might be afraid to adhere to appropriate nominal limits when knowledge based output is purposely withheld?

Tyler Cowen discusses great economists with David Beckworth. Scott Sumner responds.

Matthew Klein's year in review.

Shifting patterns for domestic migration. Migration from blue states to red states also impacts political outcomes.

At the very least, the NATO alliance has renewed purpose.

Wrap Up for November 2023

Extreme weather continues to affect insurance rates.

American civil society: it's time for a reboot.

Why isn't the valuable knowledge from clinical trials more widely shared?

What is most important for quality product that is reasonably priced?

In a sense, Taiwan could be considered China's best province.

U.S. foreign aid has changed considerably.

Ireland has become an unexpected success story.

How important is cash as a mechanism for the hot potato effect?

Strategies for a more resilient U.S. economy.

There's a wide range of spoken languages in the U.S. besides English and Spanish.

How unified does the EU really need to be?

Should long real rates remain as they are now, it will take time to achieve debt stabilization. 

Claudia explains how there can be exceptions to her Sahm rule.

Singapore has some unique characteristics.

How useful is the gap between r and g for fiscal capacity?

Zero sum thinking explains some of the puzzling aspects of policy views.

"What kind of good is housing?"

The primary role for central banks is management for the supply and demand of liquidity. However, it can be dangerous when central banks are pressured to facilitate fiscal dominance.

I was surprised which companies had the best employee retention. Especially considering the years my Dad worked for Phillips.

The central banks which moved quicker, got better results.

"Economics in Early Modern Philosophy"

Middle class expectations have changed in complex ways.

Welding continues to adapt to the automation frontier.

What caused the Great Depression has never been satisfactorily explained.

Five books on economic nationalism.

Diplomas that don't require state approval. It almost feels as though our educational system is casting about in the wilderness. Eventually, we can only hope it might finally achieve a greater purpose that aligns with human aspiration and personal meaning.

Brink Lindsay takes a closer look at what productivity represents.

Brookings on the recent increase in the budget deficit.

Monetary and fiscal policy as equilibrium restoring forces.

Alan Blinder describes hard and soft landings (youtube)

Becoming a public historian has its challenges and responsibilities.

Kevin Erdmann doubts the possibility of production efficiencies in housing.

A look at data on life expectancy worldwide.

In the past few years, I've come to understand (along with millions of others) why disinflation alone isn't enough to remain positive about economic outcomes.

Wrap Up for October 2023

Some noteworthy books on economic history.

Regulations often result in prohibitive costs, in part because they tend to benefit the elites.

There is still a role for storytelling in economics.

Brian Albrecht highlights some of Claudia Golden's work which won her this year's economics Nobel. More on Claudia Golden from Timothy Taylor. Here's the press release from the Nobel Committee. Noah Smith also provides numerous references.

Is the poverty line an arbitrary measure that is actually holding us back?

"Why are we losing the bottom rung of the ladder in housing and cars alike?"

A visual of different global investment risks.

Intergenerational mobility continues to decline.

The pandemic didn't notably change our present slow growth trajectory.

Which has proven more effective for homelessness: "treatment first", or "housing first"?

Vitalik Buterin's recent example of intentional community. Previously I've written about domestic summits, as a potential sorting mechanism for start ups in common interest communities. In particular, such groups could more fully integrate personal time commitments as economic values in daily life.

Normally, monetary cycles tend to have a "longhorn" shape.

How did the population of Gaza end up in such dire circumstance, in the first place?

The growing popularity of citizens' assemblies.

"Alexandra Hudson on the Soul of Civility."

Tactical errors were made. But strategic errors were also made. There is still insufficient symmetry.

Debt service will likely reshape fiscal politics. And more on the current $2 trillion deficit.

An update for global recovery.

Roads have been quite beneficial, but they still have costs.

The WTO takes on arguments against globalization (Timothy Taylor).

Some illustrations for what has been an unusual recession and recovery.

A needed reminder that free markets are also conducive to housing density.

Will trade continue to grow between the U.S. and China?

Aging populations don't necessarily have to be an economic problem. Likewise, "Demography is not destiny".

This time around, the bond vigilantes seem to be more relevant.

Happiness is a subjective - yet important - economic factor.

There's a difference between the concept of "bureaucracy" and what a civil service actually consists of.

Confusion about real estate "bubbles" is one aspect of what we don't really know about macroeconomics.

Can workers still expect above average wage increases in 2024?

How might the use of knowledge change, if it is envisioned as a journey rather than an end?

Comparing output per hour for the European Union versus the U.S.

Houston public school administration was recently taken over by the state.  This seems problematic to me on several levels. For one, consider the degree of local taxation without representation that's involved. Texas has high property tax requirements, much of which is slated for public education.

"How do you respond to the intolerant when you believe tolerance is a virtue?"

A visualization for monetary outcomes in the U.S. and the EU.

Wrap Up for September 2023

Public schools haven't addressed learning losses that resulted from the pandemic.

A visual for the current difference between cost to rent versus cost to buy a home.

Much of the debate about China's economic potential is misleading.

The college wage premium is not as pronounced as before.

Odd Lots with Barry Eichengreen on the "New Era of High Public Debt"

Will AI become an equalizer for human capital potential?

Vertical relationships between primary care physicians and health systems are resulting in higher costs.

A visual of China's slowing economy.

Much of the inflation that remains is due to healthcare.

Does China have economic incentives for war?

Scott Sumner highlights a recent paper from the San Francisco Fed.

Time management has changed as the monetary value of time has evolved.

Confidence in the current Federal Reserve chairman has reached a low ebb.

Inflation has come down. Yet the cost of living remains inflated. Who is right?

Many nations have a poor perception of capitalism as concept.

Should a period of high inflation also becomes associated with a higher wage level, it's a kind of inflation which cannot be defined as "transitory". Which also holds true for the recent inflationary period.

"economics is too silent on big issues"

Anupam Bapu Jena discusses his book Random Acts of Medicine with Russ Roberts.

The link between medical debt and homelessness.

Noah Smith is optimistic about the next phase of globalization.

Religious attendance used to be associated with interpersonal trust.

Who has incentive to take on significant extension of new transmission lines?

Tokyo has turned out to be one of the most affordable yet desirable places to live.

"Joe Gagnon on Inflation Progress and the Path Ahead".

The U.S. is fortunate indeed to hold a global currency, if it can keep it.

Measuring healthcare has become too difficult to manage the inflation it causes.

Economic growth in the U.S. has remained fairly close to trend for the last 150 years.

Large central bank balances are increasingly being questioned.

Continuing inflation could also have political effects.

"Commutes are down, but people are finding other reasons to leave the house."

What if recent YIMBY deregulation hasn't really been all that effective in California?

Once borrowing becomes more expensive, the likelihood of austerity increases.

In what way does supply and demand explain inflation?

The parallel crisis of nursing homes and child care.

Victor Fuchs also believed healthcare costs were largely responsible, for the ever growing imbalance between our nation's GDP and fiscal trajectory .

How does today's Social Security funding challenge compare to the one in 1983? As the deadline for reduced SS approaches, I've wondered whether recent retirees are moving forward in time important spending decisions - the kind which otherwise tend to be spread out over decades. The (likely) future shortfall has certainly affected my recent spending decisions. As Baby Boomers continue retiring, perhaps a growing awareness of this problem is reflected in today's stronger than expected consumer activity.

Robert McCauley discusses bond market crisis with David Beckworth.

Are hospitals with substantial market power more productive?

Price gouging is a good example why economics is so difficult to understand.

A visual of subsea cables.

From Claudia Sahm: GDP revisions are a reminder not to rely too much on any one data point.

Claudia Sahm also recently noted that Covid could have caused poor consumer sentiment. Scott Sumner suggests political polarization is responsible. While both have valid arguments, I'm partial to higher costs in housing and transportation which have permanently reduced lifestyle options for millions. This, in spite of successful global efforts to bring down aggregate inflation. 

Chances are, loneliness is a greater problem for lower income groups than was once the case, because money is now more of a necessity just to partake in a wide range of social activities. For me this is yet another reason to implement time arbitrage as a component/measure of economic activity. Over the years, I've also advocated for time arbitrage in local education, in part as a way for students to regain much needed independence in their youth. It's time to reduce the battles of parental control versus teacher/administrator control over student educational decisions, instead how about letting students assume active roles in these processes? After all - not surprisingly - lack of independence negatively impacts childrens' well being.

David Beckworth highlights a speech by Isabel Schnabel.

"the life expectancy of capital investment has been declining."

Healthcare is one aspect of immigration which could find some bipartisan agreement.

Stefanie Stantcheva explains how zero sum thinking impacts polarization.

There are more single-parent households in the U.S. than anywhere else.

Thomas Hoenig discusses public debt sustainability and the current state of banking.

100 years of macroeconomics: Perhaps critiques are better than models.

Rising real rates have yet to become prominent in mainstream news.

Realistically, it's their last chance to strike in a quickly changing environment for auto manufacturing.

Documenting the recent upsurge of new firm formation in the U.S.

Tyler Cowen notes the need for price transparency in hospitals.

Wrap Up for August 2023

Daron Acemoglu discusses Power and Progress with Russ Roberts.

California farmers are thinking differently re harnessing flood waters for aquifer management.

What makes level targeting better than growth rate targeting?

Part of the inspiration for Nikola Tesla's lifelong work with electricity, came from his pet cat.

Recommendations for five books on fiscal policy.

Doctors are dealing with moral distress.

What happened to small dollar mortgages?

Which states have the most job openings for workers?

Brink Lindsey argues for economic independence.

The actual Phillips curve relationship was between wage inflation and unemployment, not price inflation and unemployment.

Chances are the Fitch downgrade was overdue.

For central bankers, the low R star view of the world prevailed for too long.

In recent years, a flight of taxable income from large urban areas.

AI is proving effective for antibody treatments.

The real risk identified by Fitch, stems from politics. And Greg Ip explains why he thinks the downgrade shouldn't be ignored.

Once you add money to a barter economy, inflation is possible.

There are ways to make better use of the electrical grid we already have.

Unemployment is associated with inflation but it is not a causal factor.

Why were slaves treated more harshly in richer societies?

China: "Authoritarian impasse" or "structural dead end"?

For healthcare, electronic payments turned out to be a ruse.

How strong is lock-in from low rate mortgages, really?

Chronic absenteeism in U.S. public schools has nearly doubled recently.

Banks no longer expand lending in response to base money increases.

When gross output is taken into consideration, consumption assumes a more rational one third approximate for total economic activity.

What if the recent assessment regarding China's slowdown is wrong?

Bill McBride notes the evidence for a rising natural rate of interest.

It's Martin Wolf's musings in the introduction that make this five books recommendation worthwhile.

Liberty Street Economics looks at possibilities for the natural rate of interest in the near future.

How useful is central bank balance sheet expansion, really?

Some musings from Kevin Erdmann on Jackson Hole.

"Did the U.S. Really Grow Out of Its World War II Debt?"

Fixed rate mortgages have created quite a conundrum for U.S. central bankers. Meanwhile, inflation in the U.K. still has its own problems.

Some recent economic trends are unfortunate.

Jeanna Smialek sums up the latest Jackson Hole meeting. Here's the Arslanalp/Eichengreen report on higher public debt.  Axios touches on their paper and Timothy Taylor highlights it alongside other examples.

The stress of coping too much.

A thought provoking discussion on cancer screening.

There are growing labour shortages in what are vital disciplines.

How can home prices still be going up?

There's an upsurge in business formation.

Christine Lagarde at Jackson Hole: "Policymaking in an age of shifts and breaks"

From the Richmond Fed: "The Pandemic's Effects on Children's Education"

"Medium Term" Concerns are Becoming Short Term Realities

Fitch recently downgraded the United States' long term ratings to AA+, but why? For many economists and policy makers, their recent report is both confusing and seemingly, untimely. Others however, such as John Cochrane and Olivier Blanchard, argued that the downgrade makes sense, and I agree. 

Indeed, there are good reasons for immediate concern. Among those but certainly not limited to, are higher interest rates on government debt, the rising debt stock, and rising healthcare costs. Unfortunately, in the 12+ years I've paid close attention to such matters online, these fiscal issues have often been scarcely noticed, other than occasional warnings to take heed and "do something". 

Consequently, the general lack of seriousness about the matter, made the the medium term seem as though something which would never arrive. In short, there's a broad based unwillingness to face fiscal burdens head on, which has left us with a government no longer fully committed to its debts. Alas, it is futile to insist "This is about Republicans" because - after all - Republican representation is part and parcel of our institutional makeup. Perhaps that explains why Olivier Blanchard declared our budgetary process is no longer reliable. 

There's little denying as well, how the world has changed after recent domestic market inflation which is far trickier to eradicate than tradable sector inflation. In his support of the Fitch decision, Adam Ozimek explains how excessive inflation made the world economy a heavier burden for many consumers. I get that for younger workers with good incomes, non tradable sector inflation is more of an irritation than anything. However, for many who have recently retired, such as myself, there's still a higher price level for housing and vital time based services which may be permanent, even if it no longer increases. This reality has dramatically changed the life expectations and trajectory of retirees who are mostly dependent on Social Security.

Again, much of what transpired relates to the secondary or non tradable sectors I've written about over the years. I still believe a lot of fiscally induced austerity could have been avoided in the near future, had proactive measures been taken for building manufacture and knowledge maintenance in domestic markets. Yet governments now focus instead on industrial policy which largely involves tradable sector activity. While some of this could turn out well, still recall how many of these institutions eventually find their way back to good deflation via internal means. Whereas we could have realized clear benefits from innovation in domestic non tradable sectors. Indeed, careful attention to the creation of good deflation in these markets, might have kept our government from becoming so unstable in the first place. 

In all of this, what if Fitch wasn't an "appropriate" institution to raise a fuss about government fiscal shortcomings? Axios wrote: 

There is no doubt that U.S. policymaking can be a messy affair and that the current deficit trajectory is problematic. But it's not as if credit analysts have special insight into the scale of those challenges or how likely they are to spill over into some kind of default or crisis.

Well, who else should have suggested taking action, in their stead? For that matter, what institutions have we created, that are specifically positioned to address such concerns? Perhaps one reason such warnings went unheeded, is that no such institution exists. What we have isn't designed for these tasks in the first place. It seemed every time institutional "onlookers" referred to the medium term problems of fiscal burdens - even onlookers with extremely important responsibilities - people reasoned how they should not concern themselves with such things. 

The result? We inadvertently destroyed much of the impetus that might have existed, to address "medium term" concerns regarding fiscal burdens. Nevertheless, kudos to those who continued to sound the alarm just the same. That said, talking about it was only a starting point. The real challenge in all this, was to start doing things, and often just simplifying things, so as to actually reduce daily living costs for consumers on a regular basis. Then, and only then, a real chance to reduce government fiscal burdens as well, in a way that likely doesn't necessitate punishing austerity. Is there still a chance of doing so? I have grown tired and weary, and I'm hardly the only one.

Wrap Up for July 2023

Peter Turchin discusses his new book End Times.

Should emerging economies follow the new "turning inward" consensus that includes national industry subsidies?

Even if moderation seems like common sense, sometimes it's perceived as a weak virtue.

The 2020s as the new 1970s?

Matthew Klein reflects on his first two years publishing The Overshoot.

The story of titanium is a surprising one.

Janet Yellen's China trip was one of "managed tension". Plus, China appears to be at the height of its powers.

Storytelling can help people understand the role of central banks.

Visualizing the roads of the world.

The auto industry was born from three different maintenance philosophies.

Scott Sumner considers some aspects of recession risk.

Will services exports become a more substantial part of economic development?

Remembering when it was possible to order kits for home building by mail.

State and local tax exemptions for non profit hospitals, are increasingly being questioned. 

After 10 years, the belt and road initiative has reached the debt bailout stage.

What lies on the other side of our unsettled times?

Noah Smith grades "economic schools of thought".

Many banks are no longer willing to take on small mortgages.

The federal deficit almost tripled in the first nine months of the fiscal year.  And interest costs on government debt are quickly rising.

The path to mass flourishing particularly depends on (greatly) reduced consumer costs.

When it comes to industrial policy, much more is at stake than "good jobs".

NIMBYs continue their opposition to more accessible housing.

Sectoral imbalances lead to losses in total factor productivity. Plus, some clarification.

How does the work of Joseph Tainter hold relevance for the present?

Was there a "constrained efficient inflation"? Marcus Nunes responds. 

Confidence in the value of higher education, continues to decline.

A new healthcare journal looks at some of healthcare's most pressing challenges.

Veterinarians face some of the same supply side problems as physicians.

"Will interest rates eventually revert back to pre-pandemic norms?"

Timothy Taylor highlights a life spent in productivity research. 

What if marginal costs and calculations aren't really relevant anymore?

It's hard to fathom how Germany has deindustrialized in recent years.

Skills polarization has come to China. Yet neither China or the West has begun to address it.

Rural people in the U.S. have struggled to maintain healthcare access.

Some notes from an interview with Robert Solow.

A great essay about "great work".

I'd never thought about increased levels of physical pain during the Great Recession, but it makes sense.

Labour shortages will ultimately change the nature of rural farming.

Visualizing global livestock densities.

Wrap Up for June 2023

Service sector companies are less likely to use tax cuts in ways that promote growth and investment capacity.

Can China transition from its local real estate patterns to more closely resemble developed countries?

Brian Potter highlights the "golden age of the power industry" (Part II).

Would a recovery of real wages pose problems for needed reductions in inflation?

Modern schooling was built to foster national identities, democratic civic engagement and economic development, rather than local community engagement and support.

Banking has adapted since the Silicon Valley Bank's demise.

Farmers are starting to return to the integration of forest and pastureland.

"You can't tell how much someone earns simply by looking at their home address."

Expectations play a more important role in inflation today, than was once the case.

The U.S. budget deficit has reached a point it is starting to reduce living standards.

The current mediocre GDP growth with its unusual component of labour scarcity, might be a result of two current trends: secondary market services sector dominance, in a historical moment when relatively more services sector labour is required due to a growing wave of retiring baby boomers. Which could also explain why some now expect a full-employment recession.

Oil producers are learning to avoid the boom and bust patterns of yesteryear.

The UK has recently faced declining living standards.

A 2023 map for economic freedom. Also, countries with good options for lithium production.

Homeschooling is becoming more diverse in the United States.

The productivity slowdown in Europe is different from what has transpired in the U.S. Also, part 2.

The constituency for smaller budget deficits is small indeed.

Inflation also involves grief processes which must be dealt with.

J.W. Mason responds to a paper by Daniela Gabor re industrial policy.

More on the electric power grid (part III). Part IV. And, grid reliability has been less of a problem in other countries.

Supply chains in the U.S. are starting to heal.

"Market" or "government" labels tend to be imprecise when it comes to actually getting things done.

Income inequality has increased within occupations.

Why does dollar strengthening cause problems for the global economy?

Consumer demand is causing inflation to rise, not corporate profits.

"Real manufacturing construction spending has doubled since the end of 2021."

How might weight gains compare to price gains?

The economy seems to be doing fine. So why aren't people "feeling" it? Plus, Canada has a strong immigration strategy. Now it just needs to build more housing.

The urban wage premium has declined.

Wrap Up for May 2023

ChatGPT was actually more accurate and empathetic than the doctors.

I was interested in the sixth chapter of this eBook as it explores issues surrounding rural healthcare markets.

It's not yet clear how AI can benefit healthcare at a basic level.

A debate on the $250,000 deposit insurance ceiling.

Imagine if rural communities in the U.S. had viable non formal learning centers such as this. Instead, taxpayers are still expected to support local educational institutions which - although they hold value, don't emphasize practical survival methods or local social connections.

What makes industrial policy today different from the past?

"Are banks inherently fragile?"

Immigration has proved a lifesaver for rural citizens who otherwise struggle to access local physicians.

"Austerity" doesn't have to be a dirty word this time.

Recession? The most important monthly indicators remain strong.

Rising interest rates are still being confused with monetary tightening.

What work is most exposed to ChatGPT?

There are still risks in the banking system.

Brink Lindsay begins to explore definite positive actions.

Two factors particularly account for the possibility of long term inflation.

The economics profession has a class problem.

Debt default would erode dollar dominance.

Diane Coyle reviews Seven Crashes by Harold James.

Encouraging "doing business" is not the same thing as economic reform.

Has progress slowed, or does it just manifest differently now?

Brink Lindsey considers ways that life could ultimately be made more affordable.

Robert Lucas: His greatest strength was asking good questions, which in turn motivated people to find solutions. Timothy Taylor highlights some of his thoughts on economic growth. In particular, he made people think about general equilibrium differently. Plus, Thomas Sargent highlights recollections of time spent with Lucas.

The productivity potential of AI.

A larger framing for fiscal burdens.

Jeanna Smialek has written a new book on the recent evolution of the Federal Reserve.

There's a resurgence in manufacturing across the U.S.

Martin Wolf recommends five books on the world economy.

What if no debt ceiling crisis actually exists?

Might low inflation return? It's certainly a possibility.

What may transpire this time instead of a recession.

Decoupling is inevitable. What will be changed? Also, an interview with Dan Wang.

David Beckworth highlights a paper re 400 years of central bank balances.

Dan McDowell details the international backlash against the dollar in a new book.

There's a 1949 electrical transmission grid map in this Construction Physics post. What especially stood out to me was an area in East Texas which didn't yet have lines. Many relatives from both sides of my family were - at the time - living here.

"Furman and Bernanke on NGDP as an indicator."

The geography of remote work is still evolving.

If globalization is "dead", what happens to productivity?

Michael Strain on the debt ceiling debacle.

How effective is current macro data for real GDP and productivity measurement?

Markets as knowledge ecosystems.

Women hold many of the jobs which could be affected by AI.

Full-reserve banking is not a good option to address banking failures.

R** and financial stability.

Kevin Erdmann highlights his recent papers.

Wrap Up for April 2023

The Fed Put was invalidated. But what does that mean?

A current visualization of global dollar dominance.

These industrial book recommendations aren't guides, rather, they are different ways of understanding the world.

"...across all measured countries, the real price of housing has increased nearly 30% on average since 2010."

Building construction costs are only about 25 percent of their total lifetime expenses, yet this is often not adequately considered.

Auto inflation is still with us.

"Financial dominance and fiscal dominance make the Fed's job harder."

An argument from Niskanen for affordable manufactured housing.

It's been a meaningful labour market recovery.

When "Made in America" goes too far.

Peter Turchin has a fairly simple model of societal breakdown.

Why isn't Europe ready to be a "third superpower'?

When it comes to knowledge accessibility, industrial policy is as problematic as ever. But for different reasons this time.

"Greenways can be a simple low-tech solution to complex intersecting issues."

U.S. national debt has an interesting history.

"The Role of Wages in Trend Inflation: Back to the 1980s?"

A debt default could have considerable macroeconomic effects. The possibility of debt default was also discussed in this FOMC 2013 meeting.

How will Republicans move forward?

Things have actually changed for millennials, and for the better.

Some cultural and geographic aspects of gun violence.

A simpler way to think about monetary policy.

There's more to regulations than meets the eye.

"...stopping supervolcanoes from erupting is something we as a civilization are likely underinvesting in." Especially since doing so could provide promising sources of electricity.

Does Joseph Tainter's model suggest potential societal solutions?

Might federal lands pose housing opportunities?

The debt limit drama has worse implications than millions of citizens currently recognize.

"The US banking system is still stressed."

"Software only nibbled around the edges of the world."

Wrap Up for March 2023

Presently, China globalizes its auto sector as the U.S. (temporarily?) caters mostly to higher income groups.

On the decline of knowledge diffusion.

What is really responsible for the failures of Britain's economy?

Chronic loneliness alters the brain in unfortunate ways.

Lack of housing access is the primary cause of homelessness.

Monetary Policy Report from the Fed dated March 3, 2023.

A visual of the world's forests.

Nearly one quarter of U.S. mortgages originated in 2021.

Noah Smith reflects on the 2000s.

Why isn't low inflation an alternative to quantitative easing?

It didn't take long to reduce the debt/GDP ratio.

More (Macro) musings on the current state of the economy.

Keeping NGDP stable continues to be the best way to manage inflation.

Noah Smith provides details of the SVB bank run. And a take from Adam Tooze. Joseph Politano explains the Fed's quick actions. 

The real bailout story is about much more than SVB liabilities. The Fed's new collateral treatment is unsettling to some since it represents a regime change. However, Joseph Politano notes that the program is but a small part of present totals, and it might even end up stigmatized. In all of this, there has also been confusion regarding moral hazard.

Adam Tooze highlights various sources regarding the banking crisis.

Many young people in the U.S. now face auto loan problems.

Douglas Diamond explains how SVB violated basic tenets of sound banking.

Why did other banks come to First Republic's rescue?

Still, what if the debt ceiling debacle turns out to be worse than the bank crisis?

Or, what if the U.S. uses an inflation "tax" in a long proxy war with China?

With greater nominal stability, banks would have fewer problems overall with their balance sheets.

Ricardo Reis provides helpful references for dollar swap operations.

Private school choice is not always an option for rural counties in Texas. Ultimately we'll need a new approach for local education, one that is not only economically sustainable for populations as a whole, but also takes student preferences into consideration. 

On recent declines in bank asset values.

Banks have not responded quickly enough to QT and QE on the part of the Fed.

David Beckworth discusses the SVB collapse with Steven Kelly.

"The 1950s was an anomaly."

What countries hold the most U.S. debt?

What makes it possible for banks to "create money"?  Scott Sumner explains profit maximizing and non profit maximizing factors. 

Since high costs and immigration restrictions get in the way of semiconductor production in the U.S., why not encourage the more optimal conditions in Canada?

Cities are trying new approaches for extreme flooding events.

Tyler Cowen notes how our living history is rapidly changing.

Younger people are primarily driving less for economic reasons. Younger people also account for a considerable amount of the decline in U.S. life expectancy.

A failure to raise the debt ceiling is more dangerous than government shutdowns.

It's time to get serious about budget reform.

In real estate, there's a new east-west divide.

It turns out some of that "robust" hiring activity was actually an illusion.

Scott Sumner provides a link in this post to a free copy of his new book, Alternative Approaches to Monetary Policy.

An agenda from Niskanen Center for abundant housing.

Higher interest rates will be needed as a component of future Fed stress tests.

NPR highlights the "Shorter Lives" study.

Wrap Up for February 2023

What might happen if the debt ceiling disaster can't be averted?

While the labour market remains overheated, excessive wage expectations aren't entrenched, and that makes a "hard landing" less likely.

California could finally be making progress with more accessible housing.

Building cost trends are headed in an unfortunate direction.

Highlights of a recent NBER paper, and Brookings notes: 

Julian di Giovanni of the Federal Reserve Bank of New York and co-authors estimate the impact government spending had on inflation between December 2019 and June 2022. According to the authors, the surge in aggregate demand generated two-thirds of recent headline inflation. Of this, fiscal stimulus accounted for roughly half of the total increase in aggregate demand. Sectoral supply shocks, measured as deviations in the total hours worked, and sectoral demand shocks, measured as deviations in consumer spending, also contributed to overall inflation.

Some national growth predictions in GDP.

The latest job numbers are anything but recessionary, to say the least.

India could still become quite a success story.

After remote workers left, rural housing costs remained high.

Some real wage declines in the last three years.

Velocity is an important part of monetary policy that is often missed.

Global inflation will still run high in 2023. also what countries have lower inflation? 

The White House is keeping a close watch on services inflation.

Many jobs don't even need the skills sets that are taught in college, which is especially true for the care of young children.

How to respond to an economy that remains stronger than expected?

Are central bankers becoming less independent over time?

Matthew Klein's interview with Jonathan Haskel.

How does fiscal dominance affect rising interest rates? For David Beckworth, a continuing theme.

Some predictions for near future fertility by country.

How might supply side constraints be framed?

Tim Harford worries about "chronic economic disease" in the UK.

Some fiscal considerations regarding inflation.

How have automakers adapted to fuel saving technologies?

What were the Dutch doing better than the English?

Nearly half of Texas hospitals are operating in the red.

The pandemic is unexpectedly coming back to bite on used car prices.

How much have house prices really gone up since 1970? This chart is astounding.

"...the Fed desperately doesn't want to get caught in the crossfire of one of the bitterest economic struggles of modern history."

States are benefiting from unprecedented rainy day funds.

World War 2 was not as good for the economy as it may have seemed.

Modular is still the way to go for building in the future.

A discussion of the paper "Managing Disinflations".

Plastic asphalt slows pothole formation and also helps to resist rainwater. Plus, some plastics innovation is occurring below the road surface.

Fiscal policy has its own effects on inflation.

What accounts for Starbucks latte price differences by country?

Too many of the same obstacles to land development are still in place.

Low Income Wage Pressures in General Equilibrium

As the Fed's efforts regarding wage deceleration continue, the good news is unprecedented job growth which now holds greater responsibility than nominal wage gains. However, while nominal wages were rising, low income groups actually benefited the most. As Joseph Politano earlier noted:

Arguably, the only group to see real wage gains since the pandemic has been low-income workers, with workers in the bottom 10% seeing very strong real gains. The labor shortage has also enabled rapid wage gains for young, non-white, non-college-educated, and part time workers to a degree that is nearly historically unprecedented, and was helping break America out of the cycle of labor market underperformance it suffered throughout the 2010s.

How might one think about this phenomenon at a general equilibrium level? For one, even as the earlier low wage pressures affected nominal stability, the fact remains this group needed its real wage gains the most, since there's been too little supply side effort to generate housing and time based services for a full income spectrum. Just the same, the Fed was slow to react - and nominally adjust for - the fact many employers ended up "paying the price" to retain low income workers who otherwise would have gone elsewhere, or possibly exited the workplace.

Given this relatively brief but substantive rise in low income levels, why weren't there also real wage gains for higher income level groups? Indeed they've mostly missed out on this latest inflation cycle. One reason could be micro level pressures haven't been as strong as for lower income groups. Perhaps the lack of such pressures is due to (most) middle to upper income groups having sufficient economic options to remain gainfully employed.  

Alas, while lower income levels still have fewer economic options for workplace participation, their employers can only offer additional monetary reimbursement up to a point. Consequently, some time based services which people find valuable will gradually become more difficult to offer on monetary terms, which is one reason I've argued for time arbitrage. Unfortunately, many municipalities don't yet understand this general equilibrium reality, which especially matters in terms of housing options. Consider also that as many Baby Boomers retire, housing and time based services limitations affect them in crucial ways. Not only do fixed income retirees struggle to find affordable low maintenance housing, retirees of all income levels struggle to obtain home services, since many of these workers have understandably departed for more rewarding employment options.

There's another important aspect of secondary market domination in time based services for higher income levels. While employment options are plentiful now for these groups, this unprecedented scenario still obscures the fact aggregate price making in time based services is only feasible up to a point, given general equilibrium revenue needs for redistribution. Granted, such revenues were expanding alongside originating wealth gains in primary markets during the Great Inflation, and more recently, via redistribution which accompanied global dollar dominance during the Great Moderation. However now, aggregate revenue potential for secondary markets in time based services is plateauing in mature economies, which is why high income wage growth is more likely to result in inflation. Indeed, this helps explain a recent healthcare paradox in Britain, which was noted by Marginal Revolution:

Universities have been told they must limit the numbers of medical school places this year or risk fines, a move attacked as "extraordinary" when the NHS is struggling with staff shortages.

Lest this seem ridiculous, only recall how the conundrum is more evident for Britain due to the straightforward nature of its healthcare system. Less obvious are similar sets of supply side problems in the U.S., which are more difficult to discern due to numerous intermediaries between healthcare practitioners and patients. 

Nevertheless, underneath it all, the evolving general equilibrium dynamic is the same. Even though secondary market higher income levels have become relatively less likely to benefit from wage gains, lower income levels must deal with the reality of partial and incomplete non discretionary markets. It's these incomplete markets which can create financial obligations that are higher than wage realities. So much so, there will likely be more instances in the foreseeable future, the Fed needs to adjust monetary representation downward once again, should low income citizens need additional wages just to participate in work activities which citizens and businesses alike, continue to find important enough to maintain.

Wrap Up for January 2023

2022 was "supposed to be the year that we returned to normal."

Has inequality become less of a problem?

When institutions "try to preserve the problem to which they are the solution."

Wars have often gone hand in hand with high inflation.

Why is employment being viewed as a lagging indicator when it comes to recession?

Chatbots are already good at answering common medical questions.

Countries have started paying residents to move to lower population density regions.

Real wages can fall when capital becomes the constraint on supply. Still, some of the inflation run up was perceived as fiscal necessity.

Might pigeons be able to properly discern medical images?

Employment growth rates and NGDP are highly correlated in the short run.

Noah Smith highlights some recent economics news.

Highlighting those who no longer work as many hours as before.

Some new insights on Roman concrete. Still, there are good reasons for today's concrete to be built via reinforcement.

"A new model for mobile home buyouts."

Ideally, the Fed could achieve its macroeconomic objectives with a much smaller balance sheet. Meanwhile as Scott Sumner noted, QE seems to be the lesser of evils.

On the importance of central bank independence. 

"Biggest sources of electricity by state and province."

Robert Hetzel's proposal for a soft landing.

Happiness is turning out to be rather subjective for precise economic measurements. I'm still convinced that the optimal economic indicator, calculates how our economic time contributes to general welfare.

Core CPI remains higher than expected. The price of services continues to rise.

There's no macroeconomic models which actually predict recessions.

The Eurozone continues to face more supply side constraints than the U.S.

The decades-long decline in construction sector productivity.

Has macro lost some of its relevance in economics education?

Technological innovations can take longer when higher levels of human capital are involved.

Victoria Guida discusses financial regulation and other Federal Reserve developments.

If the U.S. political system continues to malfunction, (think debt default), the dollar becomes more risky to hold around the world. Which would in turn greatly impact our way of life. This argument is just part of what is an important Macro Musings conversation.

The Fed is also paying close attention to core services other than housing.

Arthur Burns is not a good candidate for a revisionist explanation re 1966-1981 inflation.

Noah Smith reviews three recent technology books.

De-dollarisation? Not yet.

Global auto production still struggles with supply side issues.

Doubts regarding U.S. healthcare existed well before the pandemic.

"rent dispersion has increased far less than price dispersion"

"3.5% today is not the same thing as 3.5% unemployment in early 2020." 

Despite other issues, Japan's housing policies have encouraged overall economic growth.

Can we build the institutions that would be necessary for a more inclusive capitalism?

"Why the goods trade ratio declined"

Lael Brainard explains that the Fed needs to stay the course on inflation.

How will the ECB deal with inflation in 2023?

Inflation in the U.S. should continue its decline in the months ahead.

There's been plenty of inflation which wasn't even associated with supply side shocks.

This highlighted climate change statistic made me smile.

Are we still faced with secular stagnation?

The conditions that suggest a "soft landing" are possible in housing markets.

Don't Forget About Basic Resource Scarcities

Not long ago, some became convinced society's main problem was finding better ways to share resource abundance! But it didn't take long for a global pandemic and the vicissitudes of war, to remind everyone once again that resource scarcities are still part of the equation. For mature economies in particular, resource scarcities in the utilization of time and place are starting to impact how the Fed manages inflation. Limited markets in time based services are evident in high skill human capital, but this phenomenon is also emerging in simpler forms of (highly sought after) personal attention. Meanwhile, place based scarcity is reflected in the high costs of housing relative to actual incomes. 

Still, it's easy to forget how these imbalanced markets affect current underlying inflationary levels. Instead, macroeconomic discussions tend to alternate between employment issues or irresponsibility on the part of fiscal and monetary policy. At the very least, some of our supply side resource scarcities should resolve in 2023 via resource substitution, which can in turn help ease inflation. Unfortunately though, time and place based resources need to be framed in more understandable context, before the Fed benefits from supply side assistance towards monetary stability. In the meantime, the Fed is reduced to inadequate measures such as reducing traditional housing starts, when what is really needed is more accessible non traditional housing production!

One way to think about the natural scarcities of economic time and place, is determining how we created too many additional layers of artificial scarcity to the real scarcities we already face. It could also help to respect the rationale that existing institutions initially used for additional limits to market access, then move forward to create new beginnings from this understanding.

Respect for existing institutions which work with resources involving time and place based product, means fewer attempts to dismantle them, and more attempts to evolve production processes where these institutions are actually growing fragile. Consider for instance what it actually means when builders cannot afford to build affordable homes for low to middle income consumers! Recall as well the fragile nature of healthcare institutions which can ill afford to function in many areas which don't benefit from vast wealth holdings. Both of these are institutional fragility. New institutional efforts would do well to create alternative means of social support to address where older institutions can no longer easily function. 

Indeed, by not attacking existing institutions directly, we can still respect how they evolved to address different sets of social realities and historical contexts. For instance, Nimby based zoning allowed people to at least partially manage their personal fears around living close to others they didn't know enough to trust. Likewise, skills use limitations were a way to address people's fears about what might happen if they paid for services which turned out poorly. And enforced professional limits in human capital, also made it possible for professionals to live among others who already benefited from higher and more directly derived incomes.

Nevertheless, regulatory moves which increase artificial scarcity now mean basic non discretionary markets beyond reach of average consumers. Such markets also require a level of monetary representation which makes the job of central bankers more difficult. What's more, these domestic market income sources - not to mention their corresponding housing representation - contribute to an NGDP growth level which is currently too high to maintain economic stability. Clearly, more is now at stake than missing markets for lower income consumers, as this aspect of market dominance could compel central bankers to impose additional reductions in aggregate demand. Alas, doing so would further reduce the output potential of discretionary markets in more direct wealth origination sources as well. 

Should new institutions arise to create broader domestic market options, they would nonetheless need to acknowledge the main reason consumers tolerated earlier forms of market dominance for so long despite lack of access: trust. Many countless regulations arose in environments where social trust had been eroded at least to some extent. Hence people became willing to pay dearly (when and if they could) for specific quality promises in time based services and housing options. New institutions need to build much more than just greater economic access, for they would need to restore societal trust through time value which doesn't require the same level of monetary compensation as in decades past.

At the very least, we've been quite fortunate our current services sectors functioned as long and as well as they have. Nevertheless, we appear to have entered an era in which today's services sectors could impart undue burdens for inflation, should new domestic markets not materialize. For this reason I might add that when it comes to Fed inflation management, I would probably understand if they maintain a "hawkish" stance in response to continued supply side inaction. Especially should NGDP levels remain as high as is currently the case.