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.