The anti-inflation pivot of 2022
adamtooze.substack.com
adamtooze.substack.com
Though I'll admit, I still found the stat that of 20% youth unemployment in China to be shockingly high. The idea that they're lowering their interest rates is also bonkers to think about. Their economy has been slow motion train wrecking for soooo long now. God help them if they get another covid flare up over the winter and and are stupid enough to do another lockdown.
Tomorrow we might discover a new kind of math, requiring newly trained mathmeticians in a novel field.
Those mathmeticians will need admins, business services, places to work, food, etc.
Thus even the discovery of a few jobs has more jobs created than found.
It's not clear that this thread is about. Jobs a weak approximation of utility creation + equalit of the distribution of that utility.
Feeding one person is easy. Feeding 200 people with a mix of allergies is hard.
But I guess to answer the question, jobs, especially at the bottom are "enabled" more than anything. We want people to do simple tasks, but tech advancements make it efficient enough to actually pay people to do it. Like rideshare drivers, ignoring valid claims about vc money burning. Some new types of jobs might be created or discovered but most jobs changes are about determining whether its viable to pay something to do something you want to do. The idea to have them do it has always been there.
But you may be interested in knowing that models of labor markets are often based on matching models - you've got two groups (employers, employees) and everyobdy is trying to find {one,many} members of the other group that are a good match.
As I understand it, those are mainly concerned with reduction in labor costs.
Job discovery is a phrase used by Clayton Christensen to describe finding a job to be done. He uses it to describe finding a product to sell to people to perform some function in their lives - a job to be done by a product that you make. I'm using it as an alternative to the idea of "job creation" because I don't think that's real.
There is a certain political narrative about job creation and job creators. I tried to find support for it in academia and I could not.
I didn't want to put all this in my original question because then I would only get political replies.
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About politics - Yes my question has some political motivation, but I am genuinely interested in the subject. My motivation is not to prove or disprove, but to learn. You don't have to believe that about me, but I do.
Where does your understanding derive from? Reducing macroeconomics to "reducing labor costs" is akin to reducing classical mechanics to "computing projectile trajectories". I don't know Christensen but I take it that he's a business school professor and I guess that was the target audience he was speaking to there.
You're not wrong that economics is a discipline that is not free from ideological biases, but I guess you're going a bit far in reducing the discipline to that. People still want to answer questions with data, like "what happens to unemployment (and exchange rates, and investment,...) if we raise interest rates?". Labor economics might ask more narrow questions like "what happens if we raise the minimum wage?". That's the sort of questions that economics deals with, not musing over the semantics of creation vs discovery.
Jobs are the same, when you create an organization there are countless ways to structure it and you will create different jobs depending on how you do things. Job creators are the people who create organizations, the better they do their job the more these organizations can do with less people so the more wealth there will be to share, so job creation is an extremely important job.
Your understanding of what economics is interested in is also incorrect. I guess business programs are concerned with reduction of labor costs. Economics is concerned with efficiently allocating scarce resources.
https://economics.mit.edu/files/7400
and Open Coursework page
https://ocw.mit.edu/courses/14-661-labor-economics-i-fall-20...
A labor matching model is better because it recognizes the need for a worker and a job opening, and for those to find each other.
Was "social media manager" created or discovered? How about (to take an older example) telex operator?
You can also let your rate float with the market, which is called a variable rate mortgage.
The mortgage market was very tightly regulated to really only permit the 30-year fixed-rate mortgages until 2002.
Anyone who has taken a five-minute look at the real estate market in any major US city can see those market distortions plain as day.
The U.S. has been heavily subsiding mortgages since the great Depression, through programs such as FHA. Banks would not be willing to loan people money at such low rates over 30 years unless the government and taxpayers backed the loan.
It's not at all clear whether the policy actually helps ownership.
I purchased a home at the start of this mess with an 2.6%. Right now it's hovering around 6%. I would say I MASSIVELY lucked out.
Does Canada not fix the rate? I am confused -
So in these times where rates go up, it makes Canadian homeowners suddenly have to pay more for their houses they're already living in.
In variable rate mortgages, the amount going to principal vs interest changes. The monthly payments remain constant.
I have my doubts that the US will allow that to happen. The resource curse is real.
* Plenty of land
* Plenty of wood
* Plenty of sources of fresh water
* Pro-immigrantion policy could reducing construction costs
* Seemingly high rate of 'cottage' ownership which seems like a second home to me, which seems to indicate abundance?
* Remote working situation good
* Fiber can't be that hard to roll out to new places right next to roads plus Starlink exists
* People don't seem to mind the weather too much?
In US, these things seem less abundant as lots of our land is allocated already as opposed to just being crown land
I would start with questioning this assumption.
Also, based on their terrible choices of ISP and mobile networks, I would question this one too:
> Fiber can't be that hard to roll out to new places right next to roads plus Starlink exists
Land is generally not very valuable by itself, it is locations that are valuable (specifically desirable locations in growing cities). There are highly limited locations available in Canadian cities, particularly the desirable cities of Toronto and Vancouver.
Same with the Bay Area, NYC, Hong Kong, Singapore, Sydney, Auckland etc. Singapore does probably the best job of the above at keeping housing relatively affordable despite very limited locations.
1. There has been more demand for living in cities and less for rural areas
2. That demand has not been met with the same increases in housing supply, so prices rise
3. Low interest rates make housing an even more attractive investment, and throw gasoline on the fire
Look at USD FX rates. The US may be able to purchase resources and goods abroad at more favorable exchange, but who can afford to buy US exports as the USD rockets skyward? And what is the logical follow-on to unobtainable USD units of trade? Substitutes that China, for example, are more than delighted to support if it means they exert (even) more control over the global monetary system.
The USD is strong because people need to buy things from the US to begin with. That is, at best, a "nobody goes there it's too popular" kind of comment. The idea that you weaken your currency to increase exports is something you do to benefit from growth, like moving industry to China. But if something like an energy shortage or a fertilizer shortage start limiting your ability to produce things with that opportunity, you're just doubled down on a bad situation.
This isn't even a story on "reserve currency" status. This is just the US (and Canada) being in an incredible competitive situation. What do you do when there's a global food shortage and the US is the only country unhindered? You suck it up, buy those stupidly expensive US dollars, and import US food. And get screwed if you owe USD denominated debts while your currency goes down.
And if the US finds it's not at the right level, it can always just... spend more money. It's basically free. Everyone's getting hit with inflation because it's genuinely harder to make and ship things. Slapping on some excess money sloshing around to try and keep things going is dangerous.
You do this enough and your allies become collateral damage, the system begs for a change. Rest of the world starts to only base their trades in gold (or some other standard) and when faced with USD debt, change the debt amount through policy. US has to keep their (future) allies afloat either openly or with hidden support.
Odd but that Snowcrash reference seems oddly prescient given the rise of Uber, Instacart, GrubHub, etc. Not quite pizza delivery but similar genres.
Energy and infrastructure are the venes of Europe which clocked and overstretched to the max. Something will need to give and it already begins by small bakeries closing and more to follow..
It wont end well. I don't believe we will have any growth in Europe for the next 3 years.
Who is going to invest in Europe if energy is literally unpredictable and expensive?
^ even so it would probably take a couple of years to get methane generation going at scale.
They only wanted gas as a switch off / switch on power source, you cant do that with nuclear.
Instead, people protested also against wind and solar and we switched to cheap gas from Russia.
Which the green parties didn't want at all..
I used to work in the Pentagon, and while we never took Zeihan's talks without a grain of salt, directionally he tends to be very accurate. Nations like China which lack a culture of immigration have extremely predictable demographic booms and busts, and Zeihan is spot on with those. He also hits on the reality of how dependent most nations, especially China, are on imports that pass through oceanic shipping lanes they have no ability to control or secure without the US Navy.
There is no way for a cargo ship to arm itself against submarines.
The only way I see the landscape changing meaningfully in the direction you suggest (cargo ships going up against seafarers they are not able to defend themselves from) is if letters of marque were reinstated. At least one proposal has been floated -- and when we all stop laughing about it I grant that it might become a thing
Say, because Taiwan was being invaded?
And in the form of a blockade, of course.
Korean air lines flight over Russia, us shooting down Iranian jet in the gulf, Russia shooting down Malaysian air over Ukraine, Iran shooting down a Ukrainian jet over itself.
I presume gp means Not swept under the rug in terms of information suppression, swept under the rug in terms of very little diplomatic fallout
There's a list here that would be a reasonable starting point for any further digging you might wish to do:
https://en.wikipedia.org/wiki/List_of_airliner_shootdown_inc...
I think there are a few other things that have lined up, like Sri Lanka collapse being a bellwether for his forecasts.
The last time someone mentioned this, they said he'd predicted they'd invade in 2014, which is after they'd invaded and annexed Crimea.
I found a talk form 2018 in which he said there are going to be 3 major bush wars of global import, Ukraine-Russia, Iran-Saudi Arabia, and China-Indian Ocean. So far Ukraine has panned out, he also predicted where the political parties are going right now in the US and why they seem so out of whack.
https://en.m.wikipedia.org/wiki/Iran%E2%80%93Saudi_Arabia_pr...
Source: https://books.google.com/books?id=vn-BAwAAQBAJ&printsec=fron...
EDIT: I had an incomplete copy paste on the link so I corrected it
Do agree with his broad thesis though. America is in a very good spot.
https://www.youtube.com/watch?v=7CmXz8Qd9yw
(I highly recommend Perun's channel for analysis of the Ukraine war)
Also, it's a bit hard to take seriously someone that says "so no jets, no F-35, no battleships". Sure it's a throwaway line but it seems like someone trying to communicate something serious wouldn't refer to literal battleships, which nobody in the world uses anymore. It's not something that Perun would say.
Not to mention, the notion that the US was a free market at any point in its history is unequivocally false, and anyone who thinks a system that observes slavery qualifies as a free market should be embarrassed.
> anyone who thinks a system that observes slavery qualifies as a free market should be embarrassed.
I usually say "excluding the slave south". Nevertheless, let's compare the slave south with the free north. The free north economically buried the slave south, which was a major cause of the southern rebellion. They wanted to protect their economy from the depredations of free labor.
The south lost the war because the north buried them with arms and supplies and trains and everything needed in plentiful supply to destroy the southern barefoot armies.
A similar thing happened in both WW1 and WW2. The American free market decided the fate of Germany and Japan the day the US entered the war, because Germany and Japan simply were overwhelmed. The US supplied not only themselves, but supplied Britain, France, and Russia, and still buried Japan with overwhelming endless supplies of everything the military wanted.
The Japanese understood this (Hitler didn't), and tried to win WW2 with one stroke (Pearl Harbor). When that failed, they put everything on the line at Midway. The carriers were sunk, their best pilots were killed, the planes were lost, and Japan could not replace them, and everything went downhill for them from there. The US lost carriers and airplanes and just built lots more.
Hitler lost WW2 the day he declared war on the US, in probably the stupidest military move in history. You can't win against a free market country unless yours is free market, too.
Many of the most successful free market economies embody the concept of "was born on third base and thinks he hit a triple."
The United States and Canada had relatively easy access to territorial expansion, which offered them huge amounts of fertile, temperate land and almost any natural resource needed. They also started with a high-immigrant and relatively educated population.
South Korea got to build their economy late enough to be relatively unburdened by legacy costs. They also had a Western world more than willing to ignore a series of presidents-for-life, domestic crackdowns, and incestuous government-industry relationships as long as they kept Kim Il-Sung up in the attic.
Even Singapore had the advantage of being ideally located for trade purposes.
With those benefits, was the free market necessary to unlock their success?
Conversely, if you dropped (say) the American Founders in 1917 Moscow or 1948 Peking, would they do any better?
> if you dropped (say) the American Founders in 1917 Moscow or 1948 Peking, would they do any better?
Absolutely. See Hong Kong, Japan & Germany after WW2, Chile does better when they go free market, does worse when they veer back left, etc. South American countries have vast resources, but little prosperity.
US immigration consisted of people in abject poverty, who arrived illiterate with nothing but a suitcase.
https://news.ycombinator.com/item?id=32765771
> Mining a bunch of copper, helping your cronies get rich, and pumping up land prices is not a "miracle".
And that's from an ideologically aligned source.
> This record is less bad than Allende’s, but it’s far from what I’d call good, and it’s certainly nothing that anyone should call an economic “miracle”.
The success was astounding. We're talking child mortality being halved and poverty rates dropping off a cliff, in only a few years. Of course, US businesses did not like it very much and US imperialism shut it down in violent fashion, and Guatemala has been an unstable and violent place ever since, with a long string of brutal dictators.
What is "funny" in a deeply grim and sad sense is that this was at once socialism (i.e. means of production to the people who work, rather than a separation between those who work and those who own), but also very much the American Dream: a plot of land which was your own, for you to work, and where you own the fruits of your labour. You, not a king, not a robber baron, you. That's why the violent stampdown by the US is especially disgusting and hypocritical.
As for Chile, it had a democratically elected left-wing government. Even if Pinochet's economic policy turned out better (which it by most measures did not), NOTHING can justify a violent operation to overthrow that government, to the tune of tens of thousands of tortures and deaths, to implant one that pursues your favoured brand of economics.
I really don't understand the romance with leftism, where the historical record of its implementations is pretty miserable.
They do seem to have a very planned part (looks like so from the other side of the world), that isn't internationally competitive. But simply claiming that their economy is planned is clearly wrong.
I didn't claim that. I was pointing out that the centrally planned part isn't working. China has a mixed economy.
North America is in a pretty good place compared to the rest of the world when it comes to energy/food/labor demographics.
China is, unfortunately, a long way from the competent leadership of Hu Jintao and the other previous post-Mao leaders. Unlike the previous leaders (primarily selected on merit), who WANTED to prevent another Mao-like cult of personality, Xi is a deeply-insecure man whose rise was entirely built on family connections. He has fostered a cult of personality while simultaneously using the cover of anti-corruption stings to remove all of his CCP rivals, or anyone critical of him.
The result is a huge departure from the previously competent CCP decisions. The current CCP is carrying out foolish, self-destructive, and non-sensical policies that can only make sense in the context of local decision makers desperate to please Xi. Xi is the ultimate centralizer of all decisions, having knee-capped the previous CCP policies of pushing decision making to local officials as much as possible. It's a real nightmare, and has resulted in China having an image of a shining (although somewhat authoritarian) city on a hill to a weird techno-dystopia with people starving in their apartments under absurdly stupid "Zero Covid" lockdown policies because the CCP can't admit the SinoVax is a complete failure.
Countries like China and Cuba had to manufacture their own vaccines without the new mRNA process and it was less effective as a result but still better than nothing. Cuba even had to get permission from the US to import syringes to be able to administer the vaccine they manufactured. How is that defensible?
All of this without even saying that the CPC has an incredibly high approval rating (https://news.harvard.edu/gazette/story/2020/07/long-term-sur...), even when the polling is done by outside entities and anonymized. It seems incredibly condescending to treat a billion+ humans as inept drones under the iron grip of a tyrant simply because they're geopolitical rivals.
I also would not extrapolate public opinion about the CCP based on polling, even if it's done by outside entities and anonymized. Any Chinese with an IQ higher than room temperature would know better than to speak out against the CCP in a western-designed poll. Xi Jinping is leading his country like Stalin...they have GULAGs for dissenters.
So, I don't disagree with you. I just think culturally, the Chinese are rightly reticent to express any antigovernmental sentiment, for good reason. Let's remember that the Chinese people have been occupied and oppressed by the Chinese Communist Party since the Chinese civil war. I pray for their liberation.
Drones, no, but it's very instructive to look at what the elites of China do. Many who achieve success in China spend significant resources to have a foot out the door, because they know that success is fleeting, depending on remaining in favor of the CCP. Even Xi Jinping's daughter went to school in the US.
If the CCP is actually so benign and China is well run and a good place to be, why does that happen?
They could be targeting economic policy around the, say, 1.3 billion or so non-elites.
A few million at the top may see a net burden in "we have to be responsive to overall planning goals" and "we might have less raw economic opportunity", but maybe it's a choice the CCP is willing to make. At least on an aggregate, society-wide level, the quality-of-life metrics do seem to be pointing in the right direction.
I don't think "schooling in the US" is inherently a culpable thing. Premier American universities are globally very highly respected, and I could see value in "cross training" to make sure they're not missing any good ideas worth investigating.
You really believe that? In that case I'm sure you also believe that no Uyghurs have been harmed as well.
91 percent of Chinese people have absolutely no say in their government based on statistics of membership in the CCP. Nobody is saying they are inept drones but they certainly get disappeared if they protest their government.
Without strong leadership, China might still be a pre-ondustrial/low-industrial poor region plagues by wars between small nations.
This is all self-inflicted. You can't prevent people and countries from shooting themselves in the foot.
Don’t these industries depend on inputs from around the world?
I’m not an economist so I can’t tell you how far they can go with this. But they have an atypical margin for error correction re: interest rates / money creation.
Let's just hope that the upcoming megadrought (worst in 1,200 years) in the Western US does not get too dry.
With inflation at 10%, fears about "going too far with interest rates" make sense only *at least* north of 5%, and realistically, 8%.
If I can invest in businesses with 0% return and make a profit, that's generally good for short-term economic growth, and bad for long-term economic efficiency.
I'm not arguing for more or less interest, but I don't think there is a "natural." Interest rates have gone negative several times in several contexts, and the universe didn't explode in a numerical singularity. I am arguing for having reason beyond "we've always done it that way" or "it doesn't make sense."
Why would I lend someone money to get the same amount back (in real terms)? You'd need at least some premium to account for risk of non-payment, changes in inflation, etc.
There doesn't need to be a consistent premium to borrowing money. So if I borrow $1M for 30 years right now the interest rate doesn't have to be 10% because most people assume inflation will come down, so the average inflation over 3 years might be 3-4%, so an interest rate of 5-6% is probably enough of a premium.
1) Risky return-yielding instruments, like stocks and bonds
2) Non-liquid assets, like land
3) A Scrooge McDuck giant vault full of cash
4) ... and so on.
In many cases, a negative interest account works better than any of the above.
Sweden was the first to employ them in 2009, with an interest rate of -0.25%. The world didn't implode, as people predicted. If I deposit $100B overnight at -0.25%, I've lost just north of half a million dollars for that night. That's enough to push me to look for other places to stash my money (stimulating the economy), but not enough to break me (assuming I have $100B, which unfortunately, I don't).
Critically, if the economy is collapsing, and you expect stocks to go down, removing other places to stash money can prop them up.
Yep, you take your $100B and invest it in the US capital markets. Does nothing for Sweden's economy other than make it comparatively less competitive.
If I borrow $1M in USD to buy a 11M SEK property in Sweden, and the dollar goes up, I'm drowning underwater. If the dollar goes down, I'm sitting pretty.
Is this supposed to be some kind of joke? When you have 3% deflation then a -3% negative rate just sets real returns back to 0% like one would expect in a functioning market.
Also, a negative interest rate on cash allows the abolishment of inflation as central banks no longer need to target a positive inflation rate and can instead do price level targeting which is the complete destruction of the concept of inflation itself.
Lower interest payments mean most of the payments go towards the principal which means the money supply shrinks given a sufficient debt brake on government spending.
Negative rates allow 100% reserve requirements to function and mitigate almost all the problems with the loanable funds model which means the central bank doesn't have to control the interest rate anymore.
If anything it is the opposite, if interest rates exceed returns in the real economy, the government has to borrow and spend to stimulate the economy until there is enough inflation to pay the interest rates expected of it.
Wikipedia says we had negative real interest rate since 2010, but it was only -2%, now we have -7% real interest rate.
Honestly, I know cynicism and despondency are in vogue right now but the last 20 years have shown global policy makers are doing an absolutely outstanding job. Fiat currency and Keynesian orthodoxy have been vindicated at every turn. Obviously not everything has gone perfect but considering the amount of disasters faced, we've suffered far less than in the past.
US federal debt is 30 trillion dollars. If the federal government had to pay 10% interest on its debt, it’d require almost all of federal spending be paid on our debt.
Of course that’d never happen. Instead they’d just borrow more to pay the interest, which means more dollars would be minted and we’d print several trillion dollars a year in unwanted stimulus each year just paying our federal debt. (Or enter a debt crisis.)
It seems like there should be an intrinsic time-value of money (e.g. 1 stuff today is worth 1.05 stuff next year) which is tradable (supply of future-stuff will equal demand for future-stuff at some rate like 1.05). And that single rate of stuff-interest would exist if the central bank does nothing. If that's true, then in a long-run equilibrium, shouldn't there be zero inflation if the interest rate in dollars (i.e. the fed rate) matches that intrinsic rate of stuff-interest?
Any explanation or links to the same would be helpful! I'm just past the point of grasping the fact that interest rates going down causes inflation to go up, but finding it hard to find sources on anything that give me intuition on answering e.g. how much things would go up if you held one policy forever, and what factors that answer would depend on.
Def not mom-and-pop investors who use pension funds and wealth managers/advisors to keep their investments in (usually) diversified portfolios.
The mechanism of higher rates reducing inflation isn't clear to me.
Does it go down because people with cash choose to park it and earn interest instead of buying goods and services? Or does it go down because higher interest rates make the cost of doing business more expensive which leads to reduction in overall business activity?
If it's by reducing business activity, then seems like the "breaking point" can be at any arbitrary interest rate for a given country in a given year.
Also, if inflation is caused by the lack of supply (like the supply chain issues / chip shortage and such), then I think reducing business activity will only exacerbate the problem by reducing the supply further (and I don't hear anyone explore this angle).
Another reason is that a high enough interest rate makes people sell their risky assets and hold more money until the risk adjusted return on money and risky investments is the same. The latter is a short term effect that actually goes away eventually as paying a 70% interest rate makes the debt problem worse and necessitates even more debt just to pay the ridiculous interest rate.
1. People realized going into an officce to work was unncessary and even anachronistic for many jobs;
2. Employers like employees in the office as a form of control;
3. Employers made short-term decisions to lay off huge amounts of people (even after taking PPP loans for the purpose of preventing this);
4. After 1-2 years of suppressed demand, companies weren't equipped for the increased demand and couldn't hire back their staff at the same rate;
5. As always, there are no labor shortages, only under-market wages;
6. The pandemic created a situation where a lot of people could (and did) get their first real increase in wages in decades.
7. Much of those real wages have been eroded by inflation.
Take all this together and you realize that policymarkers consider labor movements an existential threat to profits. Suddenly it's increased wages that are responsible for inflation.
And then you have ideas (as in this post) where the only way of reining in inflation is by increasing borrowing costs, which hurts a lot of individual borrowers.
Why isn't corporate taxation being used to control the money supply? It would have the same net effect except that it would fund the government rather than lenders. Several countries have imposed windfall profits taxes.
We saw this last week with the averted rail strike. Those workers could face consequences for taking off unpaid sick days for themselves or their family. To give them all 15 paid sick days a year would cost 3.5% of the industry's profits (~$680m/year IIRC for 125,000 workers). Not revenue. Profits.
This system wants to keep you in debt, low-paid (just sufficient to service your debt) and have limited other options. Then you'll show up to work and not make trouble by asking for raises.
That underpins all the policy decisions around inflation, interest rates and the looming recession.
Because corporate donations are one of the primary ways to control politicians.
[0]https://itep.org/four-tax-policy-wins-in-the-inflation-reduc...
But as bad as management is, having watched OWS downfall, I did not expect propaganda effort for fighting WFH to be so downright awful. I still remember the initial batch of articles claiming commuting to work is my zen time. It felt so ridiculously bad that even people, who would normally accept any advertisement at face value kinda asked:"The fuck?" since it is so at odds with their daily experience.
And now policy makers are openly discussing saying "Lets crash the economy so that companies can keep their leverage." I was always mildly cynical, but I found it ridiculously sad that "We are in this together." slogan is just a slogan the moment the sacrifice has to be shared by the ruling classes.
And as always, the sacrifice hits the poor the most.
Where have you seen policy makers openly discussing this? So far, it hasn't been open enough for me to see it...
I think the only reasonable objection here is whether individuals listed below could be considered policy makers, but the pattern seems relatively clear to me. Note that economy is weirdly connected to how a person feels. Just hearing that recession is just around the corner could potentially set it off ( not completely unlike say.. shortage after hearing something is about to be no longer accessible or run on a bank after finding out it is about to under ). And not surprisingly, the same decision process also applies to CEOs[9].Edit: And of course, it helps when all the platforms sing the same song nearly in concert.
Snippets indicating thought process from various government officials and their assorted influencers can be found with basic google search[1]("Some commentators argue that the US needs a recession to bring inflation down.") Those tend not to be some random bloggers with an idea, but rather a person with agenda in mind sometimes sending trial balloons into ether. Now those commentaries are much more careful now after initial outcry of some poorly chosen words, but Bloomberg in April[7] reported that "Labor demand is poised to ease, which will help the Federal Reserve tame inflation with less risk of triggering a recession." ( see also: "The Fed view is that when there's too much of an imbalance between labor demand and supply, you get a dysfunctional market with too much turnover and pay increases that lead to a unacceptable level of inflation.")
If you follow Powell's original comments that raise all that recent ire, you could see how those could be easily construed as "Lets crash the economy" ( "There’s too much demand. For example, in the labor market, there’s more demand for workers than there are people to take the jobs, right now, by a substantial margin. And, because of that, wages are moving up at levels that are unsustainably high and not consistent with low inflation. And so what we need to do is we need to get demand down, give supply a chance to recover and get those to align.")
Note that the May 2022 interview[8] comments are much softer as a result of pushback to some of the previous comments ( "And we need to get back to 2% inflation, that’s the main thing. The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will." || "I will also say that the process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like. " ||
"Ryssdal: What keeps you up more at night: the prospect of inflation sticking around? Or the idea that you’re going to cause a recession?
Powell: Well, look, I think it’s a very challenging environment to make monetary policy. And we certainly, our goal, of course, is to get inflation back down to 2% without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong." ||
"The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will."
Naturally, with few exceptions, few current officials ( say from FED or current Biden administration ) will put themselves on record by saying something like this, but former officials[4] have some reasons to do it regardless ("“Almost certainly there will be a full-blown recession. If we’re not in one yet, I think we will be in the next 12 months,” Dudley, the former president of the New York Federal Reserve, told CNN in a phone interview.").
Separately, sometimes for their own reasons, various executives from private sectors feel the need to weigh in [5]( Stephen Ross in June predicted that “employees will recognize as we go into a recession, or as things get a little tighter, that you have to do what it takes to keep your job and to earn a living.” Later that month, Intuit CEO Sasan Goodarzi told MarketWatch that “the power is shifting to employers,” and as “people move from hiring to now cutting jobs, and a possible recession, you might see more of a move back to work.”) on future recession and its impact on WFH.
And just to add a little spice to this, I wanted to add my favorite relatively recent opinion piece[10], where author gleefully notes tech jobs will finally stop being cushy ("The chief executives of Meta Platforms Inc. META, +1.18% and Alphabet Inc.’s GOOGL, +0.26% GOOG, +0.21% Google have warned employees of tough times ahead — with Mark Zuckerberg telling employees on the last day of the second quarter that the company faced one of the “worst downturns that we’ve seen in recent history” —and Microsoft Corp. MSFT, -0.09% is slowing hiring in some groups and eliminating a few jobs. Even the world’s most valuable company, Apple Inc., AAPL, +2.51% reportedly plans to scale back hiring and spending, after profligate spender Amazon.com Inc. AMZN, +0.91% signaled cutbacks earlier this year.")
We can then move to state officials, who stand to gain/lose from RTO/WFH. For example, NY Adams governor[6] ( "Adams has in recent weeks mounted a major advocacy push for private businesses in the city to order their employees back to their offices, arguing that the economy at large is hampered by telework policies popularized during the pandemic" || “I’m trying to fill up office buildings, and I’m telling JPMorgan, Goldman Sachs, I’m telling all of them, ‘Listen, I need your people back into office so we can build the ecosystem.’).
Naturally, after several recorded conversations that indicated that type of thinking, PR campaign began to claim that it was never the case[3]("We're not trying to have a recession, and we don't think we have to,"||"That's what we're trying to achieve and we continue to think there's a path to that. We know that path has clearly narrowed… and it may narrow further.") and FED is actually trying really hard not to say stuff out loud[2] (“They’re trying to slow down the overall economy, and that would include firms’ appetite to hire, without ever saying that out loud,” ).
Perception is reality and it looks to me like more than just policy makers are involved in creating this particular scenario ( recession ). All this while the job market remains stubbornly strong.
Still, I might be wrong. I am open to arguments.
[1]https://www.ft.com/content/31b15e03-929f-40c1-b2f8-782df4bd6... [2]https://www.bankrate.com/banking/federal-reserve/will-the-fe... [3]https://www.axios.com/2022/07/28/recession-fed-powell [4]https://www.cnn.com/2022/08/04/economy/recession-inflation-f... [5]https://fortune.com/2022/08/17/recession-return-to-office-ce... [6]https://www.nydailynews.com/news/politics/new-york-elections... [7]https://www.bloomberg.com/opinion/articles/2022-04-12/fed-s-... [8]https://www.marketplace.org/2022/05/12/fed-chair-jerome-powe... [9]https://fortune.com/2022/06/17/majority-executives-anticipat... [10]https://www.marketwatch.com/story/its-the-end-of-fantasyland...
Sure, I can see how it can be construed that way. I think a broader reading of what Powell is saying would lead you to "let's bring inflation under control, even though it means crashing the economy". That's quite different from "Lets crash the economy so that companies can keep their leverage."
I think the Powell comments you quote later indicate that he'd prefer to get inflation under control without crashing the economy, if possible.
The comments from business leaders don't impress me. Of course they want businesses to go back to having the leverage.
Trying to tackle inflation by suppressing wages is both immoral and silly. How is that a 'free market' solution? It's the equivalent of price controls. I am glad that the Fed has taken that as their position, only because it seems to have made people across the political spectrum realize that there is a real antagonistic relationship between the architects of the system and those living within it.
That's exactly what the "Inflation Reduction Act" is doing. It's a significant increase in corporate income tax.
Er, no. See https://fred.stlouisfed.org/series/LES1252881600Q.
Real wages are up since 1980, with a particular spike beginning in Q1 2017 and ending in Q2 2020.
The onset of lockdowns clearly began a _decline_ in real wages.
But shortly after, when all inefficient companies bankrupt, they'll wake up in the booming economy, finding places in perspective businesses.
Crisis is good for the economy in the long term. I only worry that governments won't allow young trees to grow after the forest's fire.
Crisis time needs to be shortened then. Banks should raise rates firmly, reaching levels higher than inflation. Big companies should not be artificially saved from collapsing, and regulations simplified. The unemployment period will be then short.
Interesting belief. Things like the Long Depression challenge it, though.
Eh. It sounds great in theory, but in practice ( including in US, where all the more recent crises shown ) inefficient companies get saved if they are sufficiently connected or 'important' enough to the system writ large.
I am not defending the practice, but I want to point to obvious flaw in the analysis since it diverges from reality somewhat ( I just noticed the inclusion of government involvement ).
While many, myself included, dislike the practice, I don't think it happens on a large enough scale to make a significant impact on the economy at large.
How do you measure the effects of the moral hazard created by the post-housing crisis bailouts circa 2008? Are major financial institutions incentivized to take outsized risks if they're too big to fail? How can we be sure that doesn't "make a significant impact on the economy at large"?
there is some name for this kind of dismissive optimism, but I do not know it.. suggestions?
I hear this kind of thing from the Cato Institute Human Progress people, who have trillions in paper wealth and the Oil and Gas economy to defend. What could go wrong?
https://www.youtube.com/watch?v=II4Ct2n5FiE
The pertinent part is at ~2 minutes.
>Those who advocate a tightening of fiscal and monetary policy in the name of stopping inflation, do so because they fear a build up of inflationary momentum. That risk may be real. No less real, however, are the costs of the contractionary policy mix being applied now.
My intuition on the problem is that no matter where we fall along the spectrum once it lands, we will have both unacceptably high inflation (which we've already had) and an unacceptably large recession. Don't know which one will hurt more yet.
If trend continues it seems we should be back in normal yoy inflation rates shortly once we start comparing against that post spike floor
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That being said, I agree with you. Core-CPI exists for a reason, and its a better measure of long-term trends. Oil/food prices change dramatically, while they're important real world measures of cost of living, they change too quickly to be useful. We should typically ignore oil/food prices and focus on other costs of living to try to glean the longer-term trend.
But what's even worse than using "CPI" or "core-CPI", is when people switch between the two to make a focused political argument, rather than an analysis into the state of the economy. Stay consistent damn it.
We probably can't rely on fuel prices falling 10% again next month.
Mid-term elections are approaching and gas pump prices are an easy talking point. With SPR releases, why won't USA fuel prices drop?
And yes gas has already fallen 10% in September. From $4.087 in August to $3.677 today.
https://www.bls.gov/news.release/pdf/cpi.pdf
Inflation isn't increasing much in August - relatively to July, but July was still high.
That graph needs to go negative (a decrease in the inflation rate each month) for a long time before we get back to something "normal" like 2-3% inflation.
I think we'll find that just like reports of Mark Twain's death, rumors of the end of the pandemic are greatly exaggerated.
Only if people are stupid enough to repeat the last two years of nonsense. Take away all the fear mongering and testing and you probably wouldn't even notice covid was a thing. You'd get sick like you always do and just shrug it off as "that thing that was going around" like we all did in 2019...
It has significantly affected workforce participation, with a large disability burden.
You'd notice. Unless you're somewhat dense.
As for "continuing lockdowns" - most of the western world hasn't had a single actual lockdown. So let's not pretend that's the issue, or a desired approach to the problem.
What is needed is
- data transparency, instead of reduced data collection.
- targeted measures, instead of blanket measures. Utilizing the above data, and focusing on leading indicators, not trailing ones.
- a medical system that actually makes the tools we have available, as opposed to undermining them and pricing them out of range.
- a focus on ventilation.
- a normalization of mask wearing in public indoor settings.
None of those are close to "lockdowns". That's a strawman nobody is asking for.
> normalization of mask wearing in public indoor settings.
However, I am curious how this is not normalized now? It’s personal choice where I live and nobody blinks twice if you want to wear it. And my state is full of antimaskers. The issue becomes when you expect other people to wear it and they don’t want to.
There is such a thing as collective responsibility and a social compact.
For example I could care less about someone wearing a mask if they want. I am not staying home for not wearing a mask. If I’m reading you right, you’d want me to stay home. So, we’re pretty far from any type of social compact and IMO have no hope for getting there given so many more people feel much more extreme about it than myself.
Social compact is an agreement and nobody is agreeing on this. Somehow everyone mostly agrees with pants.
Not to make it a personal attack, but I really find it strange how the “extreme measures” cohort of people on Covid and risks are still at it with this type of stuff. The news cycle on Covid is over. The turmoil is still happening but for most people the disease is not a daily concern anymore. They’ve resumed their lives. Are you still hoping things like mandatory masks become a thing? Do you really believe that’s even tenable? On a global scale? I never viewed that as particularly possible given how much cooperation would be required.
What is a lockdown if that isn’t? And how come those “real lockdown” places still have Covid? Or did they not “lockdown” hard enough either? I’m very confused here.
And as I explained to you above, nobody except you is in any form talking about lockdowns. Put the strawman down already, it's starting to get worn on the edges.
Covid mortality rates for those in the working age are meh. More people died of accidents than everyone under the age of 55 from Covid.
> so we can continue in the lavish lifestyles to which we've become accustomed
We should just tax the rich instead, which of course is the true source of that lavish lifestyle.
When the SPR draining is finished (for midterms), upward pressure on energy prices globally will resume.
Inflation compounds and we've been at relatively high inflation for a while now. Of course the Biden admin will want to just normalize this sustained inflation.
People are effectively getting around a month of salary stolen from them. Transaction cost of a new job hurts most people & depresses wage growth (the obvious side-effect of monetary expansionism).
It's fair to say that we won't experience deflation since no central bank will allow that. And our high debt load prevents raising interest rates anywhere near the necessary amount, if you compare it to Volcker. The only responses they seem to have, in practice, are: print tons of money or print slightly less than that.
We're trapped in a debt spiral and my guess is that the world suffers enormously from central planning (artificially low interest rates in the modern era in order to finance government disasters) and the US suffers less than everyone else because of their global hegemony (reserve status), economy & geography.
The west invested heavily in manufacturing and resource extraction in the developing world for profit (mostly) and virtue (slightly) and inflation was always the likely outcome.
The only alternative to a global recession is step changes in productivity that relieves supply side pressure. Historically, those advancements can emerge quickly, but they are usually slow to propagate.
https://www.bostonsolar.us/solar-blog-resource-center/blog/h...
Arthur Hayes did an entertaining write-up of some of the other factors the Fed can use, two of which are either not being leveraged or actively conflicting with the interest rate hikes [0]. We could guess at political motivations for going soft on inflation until the election (while appearing to be hard on inflation) and then really ramping it up (including finally reducing the Fed's balance sheet and ramping up reverse repo sizes) in November when inflation continues, predictably, because the Fed keeps expanding its balance sheet and interest rates are still low (relative to most of its history).
That more stable societies support low interest rates, because in a stable society, money is more likely to be paid back 1, 5, or 10 years from now.
Does the sharp rise of interest rates in the past year indicate that we are existing a period of prolonged stability and entering a period of relative instability?
The reason interest rates are going up is not a mystery. A dozen people meet semi-quarterly and vote on what the interest rate should be.
The rise is a correction that rates have been artificially low for 5-10 years, because the massive growth with no real risk assessment was addictive. If Fed rates get around 5% or more and they are still hinting at increases that's probably a bad sign for the long term. Short term instability already is happening.
Unfortunately, the decade of continuous monetary intervention has completely addled the mind of usually intelligent people. Their response to everything is always the same: begin stimmy, continue stimmy.
Guess I was in the B group for a while.
Substack is a breath of fresh air. Then they will have to make money.
It's the same cycle over and over, for every startup. I don't why at the start of a new cycle people think this time it will be different.
I see it as a war of generations. The boomers/genXers are eager to preserve their wealth and are once again dumping on young people. The 70s was a period of high inflation, it was also, according to piketty a period of high income equality for the world over. The central banks are going beyond what is mandated by them. If I were young, i would not take that deal.
https://www.newyorker.com/news/john-cassidy/pikettys-inequal...
Lowering rates improves employment, but comes with inflation risks. As it turns out, the poor also hate inflation.
Screwed if you do, screwed if you don't. Dual mandate says that the Fed aims for as good employment as possible, while also aiming at a targeted 2% to 3% inflation rate.
> Especially core inflation.
EDIT: My understanding is that core-inflation isn't about "good or bad for people", its about "good or bad for statisticians". Food/Oil prices move too quickly and are therefore bad measurements. Too noisy. If food prices go up or down 10%, is it because the economy is bad? Or is it because of a terrible storm that wiped out a chunk of crops somewhere?
Ignoring food means we ignore these volatility / storm / disease issues. Oil is similar. A war started in Europe, and lo-and-behold, oil prices went crazy, both upwards and downwards. There's no amount of economic policy you can do to predict a war.
Unemployment is obviously a problem, but the labor market is super tight right now. There's room to fight inflation without a big dip in employment.
Hmm. I think you're mistaken. "CPI" is across all prices. "Core-CPI" is across most prices (ignores energy and food).
Turns out that poor people use electricity and eat food, at least in America. Upon first glance, it would seem that "CPI" is a better measurement. The issue, as I stated earlier, is that energy/food prices swing wildly in ways completely unrelated to economics. (Look: war in Ukraine... Food prices and Oil prices in peril. Its not "unimportant", its just unpredictable and unrelated to greater economic issues)
We ignore energy/food not because they're "unimportant", but because they're too volatile to draw conclusions from. Even without wars, there's famine, hurricanes, storms, disease, swarms, locusts, etc. etc. which wreck food/energy prices. Even with a perfectly balanced economy in a peaceful world, Mother Nature would still wreck us in an unpredictable fashion.
Yes, that's exactly what I'm referring to. I mean that looking at the core number gives a better picture of the trend.
Bad for making decisions. If there's too much noise in a signal you can't steer the ship. If you do try to take action on noisy data, there's a big chance that you'll over- or understeer, especially when effects are slow to be seen.
You can't predict a war, but you can secure your supplies of basic commodities against it, preferably by producing them domestically.
The entirety of this year's fluctuations isn't because "we don't have oil/energy", but because global oil/energy prices were changing. In fact, USA exports more energy than we import.
So the higher price of energy is "good" for the US economy, as our companies obtain higher profits. Nonetheless, it still means higher prices at the gas pump and other inflationary measures.
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Just having a domestic base of energy didn't do jack diddly squat for oil prices. Oil prices will rise and fall with geopolitical reasons.
Now USA has a domestic energy source, which gives us a leg up compared to say, Germany, who was relying upon natural gas from a country to their East. But this has to do with supply of energy more so than price.
Energy prices are also floating upon the weather. La Nina this year will give us a mild winter, meaning Europe won't need as much natural gas... which counter-acts the war somewhat. We're lucky that Mother Nature smiles upon us this year...
The downside of inflation is wages and cost of living adjustments often don't keep pace with inflation because government statistics are rigged to understate the real rate of inflation and many things aren't even indexed to inflation. For example, the minimum wage has been $7.15 an hour in the US for about 15 years. Wage growth not keeping pace with inflation is, as far as inflation hawks are concerned, a feature not a bug as it increases public support for inflation hawk policies.
Honestly, given how much they're invested into the stock market, raising interest rates will hurt their 401k / retirement accounts the most. Its not like the stock market or bond-market likes it when rates go up.
The job of an investor is to navigate these waters as the tides of the economy rise and fall. If you're in the wrong spot at the wrong time, you can lose everything. Alternatively, you keep your wealth spread out in a large basket of different goods: Stocks, Bonds (including I-bonds/TIPS), Cash, Real Estate, and hope for the best.
As a tail-end UK Gen Xer, while I have some wealth I have built from working for over 20 years, I missed out on houses costing 2-3x your income just as much as the younger generations did. I'm not sitting on a million dollar property that I paid 10c for in 1972, largely because I wasn't born then...
Boomer hate is stupid. The enemy are the elites, corporations and billionaires.
Hate of any generation - especially an individual member of a generation based on their membership in it - is stupid.
However, the critique against Boomers by younger generations is not about you as an individual, but is about largely Boomer-backed policies that pull up the the ladder of affordability behind them for housing and education.
That doesn't mean every Boomer is to blame, or that the wealthy among younger generations don't often advocate the same positions as Boomers. But as a cohort, Boomers' voting patterns at both a national and local level have tended to exacerbate the specific problems of housing and education unaffordability.
Because most of them are going to work well into their 70s.
I do agree though: suggesting that the Fed stop rate hikes today because of the international consequences is madness. We are getting a much needed rebalancing, the Fed is kind of exporting deflation but this is being made up for with exchange rates moving downwards, the Fed's low rates during the last decade have heavily distorted international markets, continuing isn't helpful.
His books (particularly Crashed) are also really, really good.
We just ruined average peoples lives in the southern part, especially Greece, in order to save the big banks.