"But no severe contraction appears to be on the horizon."
Severe contractions are never foreseen by the large, large fraction of predictors. However, I would argue that we have been in a low-grade recession for the last 18 months. High nominal inflation makes it relatively easy to game GDP numbers, either intentionally or by mistake. Labor force participation rate is still well under what it was in January 2020, before the COVID idiocy got started- that right there is your labor force tightness.
"Labor force participation rate is still well under what it was in January 2020, before the COVID idiocy got started- that right there is your labor force tightness."
Nominal housing prices are ~25% higher than the '12 - '20 trend would predict, which is measuring off a bottom, and the interest cost of buying a new house now is higher than at any point in that time frame.
Yeah - I'd suspect that you and Arnold are both right, in a way.
Arnold is right that people moved out of the city, but you're right that this had the effect of increasing the cost of "non-city" residency, so savings were moot (or costs increased).
I think, then, that a plausible explanation is that folks left the cities can be explained by crime concerns. Now freer to "choose" where to live, rather than be shackled within a certain radius due to commute, folks moved away from problems, driving up the overall price in housing - where, let's be honest, most of the desirable housing is outside American big cities.
Further, energy costs and other staples haven't made being a landlord any more profitable, so there may be a certain "floor" that landlords aren't dipping below and, even combined with lower demand in the cities, therefore are not depressing the cost of rent.
This is all random speculation on my part. Perhaps the data is simply not there to support my musings.
This "large deficits" explanation for inflation has the same problem as "greedflation." There is always corporate greed and there are always large deficits.
There was an absolutely huge deficit in 2020-21, and I do believe that that was a big cause of the inflation that followed. But now deficits are roughly back to what's been normal since Obama's first term, so I don't see why we should necessarily expect more.
According to the St. Louis fed, government revenue peaked at a yearly run rate of $5.06 trillion dollars in the 2nd quarter of 2022 and had fallen to $4.79 trillion by the 1st quarter of 2023. Apples to apples, 1st quarter of 2022 to 1st quarter of 2023, the drop was 184 billion dollars.https://fred.stlouisfed.org/series/FGRECPT
I read an article yesterday that corporations haven't yet had to up net interest payments on issued debt despite the rate raising cycle now approaching 18 months. Most had only longer-term debt (3 years duration and longer) financed/refinanced at interest rate lows reached at various times in the last 15 years. However, that can't last forever if the Fed doesn't start cutting rates in the next year. Business profits will be impacted at some point.
I remain convinced that "inflation" as measured by CPI is not total inflation. Because as the gov't prints more money, more of it goes to the rich, who increase their demand for ... assets, financial and other assets.
The stock market rising absorbs a lot of the gov't printing "inflation". As well as the market value of other assets. The demand for assets is far more elastic for rich folk than poor folk or for middle folk who don't even have 2 months income saved/ invested in liquid form.
My speculation is that price discovery was being attempted by the large inflationary increase of 2022, with the Covid & Supply Shock excuses, with genuinely restricted supply on many goods. When a company decides to raise consumer prices, it's better to raise them more, sooner, so that they will more rapidly stabilize & clear the current reduced demand. Then the company can lower their prices and encourage more consumption, in accordance with their own production costs. As many are now doing. Most consumer product producers are operating at less than full capacity, so if there are more orders they can easily increase. Is low skill labor in a shortage, or is it that most companies are looking for experienced, trained folk, and offering those desirable folk quite a bit more, but not just willing to hire unqualified bodies.
Just as companies want to make customers pay as much as possible, they want their own employees to be be paid only enough to satisfice them. If the % of avg profit increase is larger than the % increase in median wage, that should be evidence of these dynamics.
Japan shows debt of 250% of GNP is not a disaster. It's not the USA today - but no other country, nor time, is.
On finding a primary doc--my family moved to central Minnesota last year. No problem finding a primary care doctor. Though she is a PA rather than an MD. If we'd insisted on seeing an MD it might have taken longer. But my family has generally been happier with the care we have from PAs than MDs.
I got a new one just yesterday here in Oak Ridge, TN who can get me in next week, but I did have to shop around. Four other clinics could only get me in November at the earliest.
Here's what I'd like to know. Why do I need a doctor to renew the prescription for a drug I take for a chronic condition, as long as the results of my annual bloodwork show that the relevant parameter is between the prescribed lower and upper bounds? Why can't routine medical care like this be automated, so that a pharmacy could legally dispense the prescription drug based on the results of my bloodwork? Arnold Kling wants AI to displace human beings for writing, but he wants a real human being for medical care. My priorities are the other way around. I second the vote for PAs -- I have relied on PAs for skin cancer screenings. They can just as good as dermatologists in distinguishing between benign spots and potentially cancerous spots.
Kevin Roche posted this morning on actuarial considerations affecting anticipated 2024 health insurance premium adjustment. The linked report is only 8 pages, but includes a lot to think about:
"The government is still running very large deficits."
We should acknowledge that most "experts" noted the trifecta you noted was possible even if they discounted the chances. And I'd add the continued large deficits to the spot on the card.
Asking why inflation has come down is a very good question. As for your reasons it might be transitory, I haven't tried to estimate relative numbers but my guess is those are all pretty small compared to the increase in federal deficits. I know that during the pandemic states used federal largesse to retire debt. Could avoidance of new state and local debt be countervailing? What about individual and business debt? What else might be helping reduce inflation? Expectations are a huge influence. Could it be as simple as people expecting inflation to come down?
State and local government debts (those explicitly tied to issued debt securities) have been very, very flat since 2010 at around 3.2 trillion dollars. From the peak in Q3 2021, that outstanding debt has fallen only $52 billion dollars. So, states and local governments have been restrained in debt issuance for going on 14 years now. Of course, all of this ignores the unfunded liabilities (pensions and medical care for retirees) that aren't captured in the balance sheets that the St. Louis Fed analyzes.
Despite having no evidence to prove otherwise, I'm a little surprised by that. Be that as it may, I did a little digging and came up empty but it was enough to find a couple of interesting tidbits on the federal debt and deficits. In 2021 federal debt as a percent of GDP dropped about 4%. Yes, GDP went up 5.7% but it's still better than I might have guessed. (And a reminder that small deficits are sustainable) In 2022 the deficit was half of 2021.
You weren't the only one surprised, but I suspect, but can't immediately prove, that the state and local governments have taken on a lot more liabilities than show up in issued debt securities over the last 14 years.
"But no severe contraction appears to be on the horizon."
Severe contractions are never foreseen by the large, large fraction of predictors. However, I would argue that we have been in a low-grade recession for the last 18 months. High nominal inflation makes it relatively easy to game GDP numbers, either intentionally or by mistake. Labor force participation rate is still well under what it was in January 2020, before the COVID idiocy got started- that right there is your labor force tightness.
"Labor force participation rate is still well under what it was in January 2020, before the COVID idiocy got started- that right there is your labor force tightness."
Agreed!
'Remote work has allowed people to escape from high-rent cities, bringing down their housing costs.'
This is difficult to square with the data. Rent costs never declined and have accelerated over the last 2 years
https://fred.stlouisfed.org/series/CUUR0000SEHA
Home prices didn't decline until mid '22 and acclerated upwards in '20 and '21.
https://fred.stlouisfed.org/series/CSUSHPINSA
Nominal housing prices are ~25% higher than the '12 - '20 trend would predict, which is measuring off a bottom, and the interest cost of buying a new house now is higher than at any point in that time frame.
Yeah - I'd suspect that you and Arnold are both right, in a way.
Arnold is right that people moved out of the city, but you're right that this had the effect of increasing the cost of "non-city" residency, so savings were moot (or costs increased).
I think, then, that a plausible explanation is that folks left the cities can be explained by crime concerns. Now freer to "choose" where to live, rather than be shackled within a certain radius due to commute, folks moved away from problems, driving up the overall price in housing - where, let's be honest, most of the desirable housing is outside American big cities.
Further, energy costs and other staples haven't made being a landlord any more profitable, so there may be a certain "floor" that landlords aren't dipping below and, even combined with lower demand in the cities, therefore are not depressing the cost of rent.
This is all random speculation on my part. Perhaps the data is simply not there to support my musings.
This "large deficits" explanation for inflation has the same problem as "greedflation." There is always corporate greed and there are always large deficits.
There was an absolutely huge deficit in 2020-21, and I do believe that that was a big cause of the inflation that followed. But now deficits are roughly back to what's been normal since Obama's first term, so I don't see why we should necessarily expect more.
Inflation feeds on itself. The US government spent 9.3% more in 2022 than it did in 2021, and is on track to beat that mark this year.
A lot of that is canceled out by new tax revenue, though. GDP was also higher by almost 10% in '22 than '21.
Not true on the revenue- revenue was down $200 billion dollars in 2022 from 2021's rate. Almost all that 10% of GDP growth was pure inflation.
That's not what this says (inflation adjusted, 4.9T in '22, 4.4T in '21) https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/
Is the spending increase you're talking about in nominal or real dollars itself?
According to the St. Louis fed, government revenue peaked at a yearly run rate of $5.06 trillion dollars in the 2nd quarter of 2022 and had fallen to $4.79 trillion by the 1st quarter of 2023. Apples to apples, 1st quarter of 2022 to 1st quarter of 2023, the drop was 184 billion dollars.https://fred.stlouisfed.org/series/FGRECPT
I read an article yesterday that corporations haven't yet had to up net interest payments on issued debt despite the rate raising cycle now approaching 18 months. Most had only longer-term debt (3 years duration and longer) financed/refinanced at interest rate lows reached at various times in the last 15 years. However, that can't last forever if the Fed doesn't start cutting rates in the next year. Business profits will be impacted at some point.
I see what you did there in the essay title.
I remain convinced that "inflation" as measured by CPI is not total inflation. Because as the gov't prints more money, more of it goes to the rich, who increase their demand for ... assets, financial and other assets.
The stock market rising absorbs a lot of the gov't printing "inflation". As well as the market value of other assets. The demand for assets is far more elastic for rich folk than poor folk or for middle folk who don't even have 2 months income saved/ invested in liquid form.
My speculation is that price discovery was being attempted by the large inflationary increase of 2022, with the Covid & Supply Shock excuses, with genuinely restricted supply on many goods. When a company decides to raise consumer prices, it's better to raise them more, sooner, so that they will more rapidly stabilize & clear the current reduced demand. Then the company can lower their prices and encourage more consumption, in accordance with their own production costs. As many are now doing. Most consumer product producers are operating at less than full capacity, so if there are more orders they can easily increase. Is low skill labor in a shortage, or is it that most companies are looking for experienced, trained folk, and offering those desirable folk quite a bit more, but not just willing to hire unqualified bodies.
Just as companies want to make customers pay as much as possible, they want their own employees to be be paid only enough to satisfice them. If the % of avg profit increase is larger than the % increase in median wage, that should be evidence of these dynamics.
Japan shows debt of 250% of GNP is not a disaster. It's not the USA today - but no other country, nor time, is.
On finding a primary doc--my family moved to central Minnesota last year. No problem finding a primary care doctor. Though she is a PA rather than an MD. If we'd insisted on seeing an MD it might have taken longer. But my family has generally been happier with the care we have from PAs than MDs.
I got a new one just yesterday here in Oak Ridge, TN who can get me in next week, but I did have to shop around. Four other clinics could only get me in November at the earliest.
Here's what I'd like to know. Why do I need a doctor to renew the prescription for a drug I take for a chronic condition, as long as the results of my annual bloodwork show that the relevant parameter is between the prescribed lower and upper bounds? Why can't routine medical care like this be automated, so that a pharmacy could legally dispense the prescription drug based on the results of my bloodwork? Arnold Kling wants AI to displace human beings for writing, but he wants a real human being for medical care. My priorities are the other way around. I second the vote for PAs -- I have relied on PAs for skin cancer screenings. They can just as good as dermatologists in distinguishing between benign spots and potentially cancerous spots.
Kevin Roche posted this morning on actuarial considerations affecting anticipated 2024 health insurance premium adjustment. The linked report is only 8 pages, but includes a lot to think about:
https://healthy-skeptic.com/2023/07/26/another-perspective-on-health-insurance-premium-trends/
Re PCP, it's not too bad in Massachusetts.
"The government is still running very large deficits."
We should acknowledge that most "experts" noted the trifecta you noted was possible even if they discounted the chances. And I'd add the continued large deficits to the spot on the card.
Asking why inflation has come down is a very good question. As for your reasons it might be transitory, I haven't tried to estimate relative numbers but my guess is those are all pretty small compared to the increase in federal deficits. I know that during the pandemic states used federal largesse to retire debt. Could avoidance of new state and local debt be countervailing? What about individual and business debt? What else might be helping reduce inflation? Expectations are a huge influence. Could it be as simple as people expecting inflation to come down?
State and local government debts (those explicitly tied to issued debt securities) have been very, very flat since 2010 at around 3.2 trillion dollars. From the peak in Q3 2021, that outstanding debt has fallen only $52 billion dollars. So, states and local governments have been restrained in debt issuance for going on 14 years now. Of course, all of this ignores the unfunded liabilities (pensions and medical care for retirees) that aren't captured in the balance sheets that the St. Louis Fed analyzes.
Despite having no evidence to prove otherwise, I'm a little surprised by that. Be that as it may, I did a little digging and came up empty but it was enough to find a couple of interesting tidbits on the federal debt and deficits. In 2021 federal debt as a percent of GDP dropped about 4%. Yes, GDP went up 5.7% but it's still better than I might have guessed. (And a reminder that small deficits are sustainable) In 2022 the deficit was half of 2021.
https://fred.stlouisfed.org/series/SLGSDODNS
You weren't the only one surprised, but I suspect, but can't immediately prove, that the state and local governments have taken on a lot more liabilities than show up in issued debt securities over the last 14 years.
Oh goodie
Recession is the cure-all
for corporate greed/excess. NOT!
They'll get those multi million $ bonuses year end. But us folk get and feel the recession for our wanton wants (needs): food costs
Rent costls
Minimal wage increases... Yet not even close to a living wage: these folks really enjoy recession the most
Holding my breath for your recession cure all.
Cheers
Note to readers: don't feed the trolls
That's a nasty word for what I expect is a heartfelt emotional reaction. Maybe the advice is good though.