I need to update my assessment I made 14 months ago about "Team Transitory" vis-à-vis "Team Persistent" on US early-2020s inflation. I need to update it because I am supposed to be giving the Tobin...
What most people do not realize or acknowledge is that they got the labor market wrong. The labor force increase did a lot of the inflation-reducing work for the Fed. And the labor demand was so strong that employers absorbed nearly all of the increase in the labor force. That left us with low unemployment and moderating wage pressures. Waiting for you to enlighten us on why this is novel to the current period. Just to throw spaghetti on the wall, could it perhaps be a function of readily available information about job vacancies, easier job searches due to access to that information, and quicker matching of workers to jobs (because interview and employment can essentially occur remotely online). This time we sure did employ a massive number of people in a short duration, despite high retirement rates during Covid.
If economists cannot forecast the economy any more than historians can predict future events, why is so much attention given to forecasting rather than just explaining economic history? Historians don't try to predict the future but can offer possibilities based on what seems to rhyme with the past. The public-facing attention of economists is predicting the future based on the economic present and events taken. The result seems to be many failed predictions, even if the models have some value. Maybe it is a mathiness approach that provides a false sense of accuracy, that with hindsight proves wrong. Are economists less like sorcerers and more like sorcerers' apprentices?
Calendar year (real GDP growth, annual rate %): 2022 (1.3%), 2023 (3.2%), 2024 (2.5%).
Calendar year (private domestic final sales, annual rate %): 2022 (1.6%), 2023 (3.3%), 2023 (3.0%).
Calendar year (PCE) in Dec.; annual rate %): 2022 (5.5%), 2023 (2.7%), 2024 (2.6%).
All numbers rounded off. Question: Was there even a "landing" of GDP or private domestic final sales? There was surely a "landing" of inflation; transitory, as we used to call it. So, why is there doubt that your historical approach didn't work? I don't get it.
Quarterly core PCE has hung around 2.5% (annualized) for 5 of the 6 past quarters. That's close enough to declare victory, particularly since measurement isn't that accurate. The consumption boost from the wealth effect on high-tech equities and crypto will subside. Plus, an aging society is prone to disinflation, so let's not screw this up.
What inflation sources should we fear in the future? Tariffs and trade wars; supply-side shocks from military aggression (especially Taiwan); hidden investment leverage via options and bank lending to non-depository financial institutions (private credit). In each case, the source of inflation is created or exacerbated by the actions of the Oval Office. If the Fed raises interest rates to combat such inflation then their independence may be short-lived.
Also, the domination of the economy by rent-seeking corporations operating under a feudal rather than a competitive model, coupled with price-fixing via algorithmic data services for those sectors not fully centralized, and no governmental oversight.
What most people do not realize or acknowledge is that they got the labor market wrong. The labor force increase did a lot of the inflation-reducing work for the Fed. And the labor demand was so strong that employers absorbed nearly all of the increase in the labor force. That left us with low unemployment and moderating wage pressures. Waiting for you to enlighten us on why this is novel to the current period. Just to throw spaghetti on the wall, could it perhaps be a function of readily available information about job vacancies, easier job searches due to access to that information, and quicker matching of workers to jobs (because interview and employment can essentially occur remotely online). This time we sure did employ a massive number of people in a short duration, despite high retirement rates during Covid.
I think the right answer is: we simply do not know... - B.
If economists cannot forecast the economy any more than historians can predict future events, why is so much attention given to forecasting rather than just explaining economic history? Historians don't try to predict the future but can offer possibilities based on what seems to rhyme with the past. The public-facing attention of economists is predicting the future based on the economic present and events taken. The result seems to be many failed predictions, even if the models have some value. Maybe it is a mathiness approach that provides a false sense of accuracy, that with hindsight proves wrong. Are economists less like sorcerers and more like sorcerers' apprentices?
Calendar year (real GDP growth, annual rate %): 2022 (1.3%), 2023 (3.2%), 2024 (2.5%).
Calendar year (private domestic final sales, annual rate %): 2022 (1.6%), 2023 (3.3%), 2023 (3.0%).
Calendar year (PCE) in Dec.; annual rate %): 2022 (5.5%), 2023 (2.7%), 2024 (2.6%).
All numbers rounded off. Question: Was there even a "landing" of GDP or private domestic final sales? There was surely a "landing" of inflation; transitory, as we used to call it. So, why is there doubt that your historical approach didn't work? I don't get it.
Quarterly core PCE has hung around 2.5% (annualized) for 5 of the 6 past quarters. That's close enough to declare victory, particularly since measurement isn't that accurate. The consumption boost from the wealth effect on high-tech equities and crypto will subside. Plus, an aging society is prone to disinflation, so let's not screw this up.
What inflation sources should we fear in the future? Tariffs and trade wars; supply-side shocks from military aggression (especially Taiwan); hidden investment leverage via options and bank lending to non-depository financial institutions (private credit). In each case, the source of inflation is created or exacerbated by the actions of the Oval Office. If the Fed raises interest rates to combat such inflation then their independence may be short-lived.
Also, the domination of the economy by rent-seeking corporations operating under a feudal rather than a competitive model, coupled with price-fixing via algorithmic data services for those sectors not fully centralized, and no governmental oversight.