REVISITED: How Worried Should We Be About Rising Inflation?; & BRIEFLY NOTED: For 2023-02-07 Tu
Looking back on my debate late last summer with Josh Hausman on whether controlling U.S. inflation is likely to require a substantial recession. At the time, the most ground that I could give was...
Josh tried to pick apart my argument that 1947 and 1951 were quite plausibly better analogies to what is now going on than 1966-1984 was. At the time, the most ground that I could give was perhaps. If:
Supply sharks remain small and, well, transitory…
The Federal Reserve continue to hold two it's commitment to make a long-run inflation control job one…
Markets continue to credit the Federal Reserve’s commitment…
If all three of these held, then 1947 and 1951 would be better analogies than 1966-1984.
The case that I was right looks significantly stronger now than it looked back last August.
Josh Hausman & J. Bradford DeLong (2023): “How Worried Should We Be About Rising Inflation?” Journal of Policy Analysis and Management 42:1 (Jan), pp, 305-322. <https://doi.org/10.1002/pam.22452>
Point/Counterpoint
Paul Decker & Kevin Kelly, Co-Editors:
As we are well aware, U.S. inflation rates have been on the rise for well over a year now, reaching levels that are reminiscent of the 1970s. Consumers are experiencing rising prices in necessities like gasoline and groceries. These heightened costs led to the majority of voters reporting inflation as their primary issue of concern in the 2022 midterm elections.
However, not all experts agree on how worried the Americanpublic should be about these elevated inflation levels, or how long we might expect inflation to persist. While some notable experts, including former U.S. Treasury Sec-retary and Director of the National Economic Council Larry Summers, have warnedof an impending recession given the high rates of inflation, others have argued that current levels may not necessarily indicate longer-term problems. Given this visible concern and mixed messages about the level of worry we should feel about it, weturned to two macroeconomists to share their perspectives on the current trend in rising inflation rates and their expectations for what these rates mean for the future.
In this issue, Joshua Hausman of the University of Michigan notes that he anticipates current inflation rates will remain high in the near term, but what may bemore concerning is that political pressures could prevent the Federal Reserve from enacting policies to lower inflation, which could lead to persistent inflation rates above 4 or 5 percent.
In his response essay, J. Bradford DeLong of the University of California at Berkeley describes each of the past cases of high inflation in the U.S.to understand which of these cases might best parallel the current trend. He notes that current indicators like expectations in the bond market suggest that today’s caseis most similar to those in 1947 and 1951, which were relatively short-lived; however, he notes that uncertainty around the war in Ukraine could lead to a long-term inflationary spiral comparable to the 1970s.
To conclude the column, Hausman argues that while he agrees with much of DeLong’s commentary, he sees the 1970sas a better comparison to today’s case than 1947 or 1951, leading to a concerning longer-term outlook.
Journal of Policy Analysis and Management, Vol. 42, No. 1, 305–322 (2023)© 2022 by the Association for Public Policy Analysis and Management. Published by Wiley Periodicals, Inc.
View this article online at: <http://wileyonlinelibrary.com/journal/pamDOI:10.1002/pam.22456>
7899 words
Very Briefly Noted:
Sophia Ankell: China flew spy balloons over the US while Trump was president, but nobody realized until after he left office, reports say…
Laura Blassey: Some parts of the Colorado River Basin may not heal in our lifetimes…
Andrew Glover, José Mustre-del-Río, & Alice von Ende-Becker: How Much Have Record Corporate Profits Contributed to Recent Inflation?: ‘Firms raised markups during 2021 in anticipation of future cost pressures, contributing substantially to inflation…. Markups… could account for more than half of 2021 inflation… firms raising prices in anticipation of future cost increases…
Robin Wigglesworth: The US jobs mystery: ‘“A ripple, not a wave”…. Goldman Sachs economists led by Jan Hatzius… most of the lay-offs have been concentrated among tech companies that went on a hiring binge over the pandemic…. They don’t see the spate of job cuts from the likes of Alphabet, Amazon, Dell, Meta and, erm, Goldman Sachs as a harbinger for a wider employment downturn…
John Quiggin: Phoenix crumbling into ashes: ‘The likely acquisition of the so-called University of Phoenix by the University of Arkansas System…. The whole for-profit boom was not an upsurge in enthusiasm for the free-market but a straightforward regulatory scam, exploiting public aid to low-income students… a predictable outcome of introducing the profit motive into a system built largely on assumptions of professionalism and trust
Matthew Panzarino: Apple execs on M2 chips: ‘With confirmed 20% improvements in CPU and 30% in GPU performance in under 2 years and a really aggressive entry price point, the M2 adds to Apple’s lead in portable chipsets.... The M1 whacked a big old reset button… putting portable back into the power computing lexicon. And with M2, Millet says, Apple did not want to milk a few percentage points of gains out of each generation in perpetuity...
Gideon Rachman: How the spy balloon popped a US-China rapprochement: ‘Leading Republican politicians used the balloon’s journey across the US to accuse the Biden administration of weakness towards Beijing. The White House’s decision to shoot the balloon down just off the US coast may have reflected domestic political imperatives, as much as national security ones…
Gideon Rachman: Brexit could be reversed: ‘King Charles I was executed in 1649. Eleven years later, the English decided they had made a mistake and restored the monarchy…. It took 11 years for Britain to restore the monarchy. Why not try to beat that by a year—and reverse Brexit inside a decade?…
Tyler Cowen: How Should You Talk to ChatGPT? A User’s Guide…
¶s:
Mohamed El-Erian: The paradox of financial conditions: ‘A gap has emerged between the US central bank and its peers at a time when its policy signals have become at odds with financial conditions…. A notable variance between the latest signals from the US Federal Reserve and the financial conditions through which monetary policy delivers outcomes…. A… contrast… between how the Fed portrayed financial conditions and what the most widely followed indices are telling us…. Developments in financial conditions have divorced themselves from monetary policy. They are as loose today as they were a year ago before the Fed embarked on its 4.50 percentage point rate hiking cycle; and this loosening has been turbocharged since the December Fed policy meeting…. The longer this “financial conditions paradox” remains unresolved, the larger the scope for another policy mistake…
Steve Clemons: The red balloon: ‘The way Washington has hyperventilated over a Chinese spy balloon feels silly, and a little depressing, to me. Chinese, American, and Russian satellites orbit earth every day, carrying out intelligence gathering with incredible photographic precision. The balloon isn’t much different, yet it’s sparked an uproar that’s forced Secretary of State Antony Blinken to cancel his trip to Beijing. That’s unfortunate. The U.S. needs to keep a dialog open with China...
Damon Linker: America the Unserious: ‘What the Chinese spy balloon incident reveals about the degradation of our public life. I don’t want my headline to be misconstrued. The United States has an elected government with the responsibility of responding to unanticipated events, like a Chinese spy balloon slowly traversing the country over the course of several days. Assuming the preliminary reporting in The New York Times is accurate, the Biden administration handled the situation with the proper mix of gravity and deliberativeness. Could the president and his team have done things a little differently? Sure, probably. But for now, I don’t see grounds for any sweeping critique of their moves over the past week as the drama unfolded in the skies and on the ground. So when I use the word “unserious” to describe our country, I don’t mean to impugn the people running the show in Washington, let alone all Americans. But neither am I simply responding to cognitive toxicity on Twitter. That’s certainly a big part of it—but not just in the form of know-nothing anonymous accounts and troublemaking bots. I’m talking mainly about how the right responded to the balloon—on Twitter, but also in published articles, on cable news, on talk-radio programs, and in public statements…
Duncan Black: A Source Familiar With Donald Trump's Thinking: ‘Every few years "we" return to the discussion about overuse of anonymous sources, sometimes it gets some agreement from journalists and editors, they promise to do better for about 3 weeks and then "we" forget about it again for years. This isn't in response to anything that's happening at the moment, but there's no doubt in my mind that, for example, one of Maggie Haberman's close anonymous sources was Sarah Sanders, who would contradict things that Sarah Sanders would say on the lectern hours earlier. That political journalists *regularly* let people be anonymous sources about their own fucking thoughts is just crazymaking. For lots of reasons, but one is that of course only *some* people are granted the cover of anonymity for ridiculous reasons. That's a grant of power by the journalist to the "source," and not a power that is granted evenly. That's Governor Sanders, now. Thanks, Maggie!…
Noah Smith: Can India industrialize?: ‘The most important economic development question in the world…. India’s massive size and low income levels mean that it has far more poor people than any other country on the planet. This is true if you look at extreme poverty (people living on less than $2 a day), and it’s even more true if you look at the number of people living on less than $3.65 a day…. India’s rapid growth in the 1990s, 2000s, and early 2010s was driven by a spate of policy changes — pro-business policies in the 1980s, followed by economic liberalization in 1991. But it’s widely believed that those policies have reached the limit of their ability to drive rapid growth on their own, and the economy saw a deceleration in the mid 2010s. Something more is needed in order to propel India onto a China-like trajectory…
Sticky price index less food & energy - 3 mo annualized change is 5.3%
If you exclude shelter as well it is 2.1%.
A whole lot of inflation is caused by a shelter rent imputation that is completely at odds with market measures of rent and home prices.
https://fred.stlouisfed.org/graph/?g=ZMrc
I think you are right about the present inflation most closely resembling that of the 1940s and 1950s. We've had a number of supply side shocks, but they've been working through the system. The 1966-1984 inflationary era lines up all too well with the baby boomers hitting age 20, but more recent generations have been much less affluent and less likely to drive inflation.