Links to Consider, 4/10
Scott Sumner on measuring inflation; Daniel Klein on libertarianism and the election; Population Density Lowers Fertility; Rob Henderson's experience with substack;
Josh Hendrickson directed me to a paper by Marijn A. Bolhuis, Judd N. L. Cramer, Karl Oskar Schulz, and Lawrence H. Summers (BCSS), which estimates recent inflation using the techniques that were used prior to 1983.
In their revised estimates, 12-month CPI inflation peaked at 18% in November 2022, and remained at 9% even in November 2023. (The official figures show CPI inflation peaking at only 9.1%.) Unless I’m mistaken, the revised data implies a 28.6% total increase in the CPI between November 2021 and November 2023.
…Taken at face value, a 28.6% rise in the price level at a time of much slower nominal growth implies that the US fell into one of the deepest depressions in US history.
Sumner sees this as a reductio ad absurdum argument against using the revised numbers. I would agree. If you were to deflate nominal GDP using the revised numbers, it would show real GDP plummeting. Meanwhile, employment was soaring. The implied devastation in productivity is implausible.
But the method used to calculate the alternative CPI is not absurd. It was in fact the method used in the 1970s, when the economy seemed to go haywire. The sensitivity of the economy to the methods by which key economic indicators are calculated does not receive enough attention. Economists rush to interpret every wiggle in aggregate productivity, but in practice most of the changes in productivity trends are within measurement error, taking into account the range of reasonable ways to measure price indices and quality changes.
Declaring “Never B” and portraying the people who say B > C as “all in for B” or as saying “B is the most libertarian option” does not engage where civic engagement is needed. Don’t fight a strawman who says B is best (“the most libertarian”). Engage the real man who says A > B > C.
He thinks that some leading libertarians are smearing other libertarians who plan to hold their noses and vote for B (although Klein does not say so, B clearly is Mr. Trump). We will discuss this with Klein tomorrow at noon New York time, on Zoom. I’ll repost the link, for paid subscribers only.
Amanda Rotella and others write,
In the present study, we draw on life history theory to examine the relationship between population density and fertility across 174 countries over 69 years (1950 to 2019). We find a robust association between density and fertility over time, both within and between-countries. That is, increases in population density are associated with declines in fertility rates, controlling for a variety of socioeconomic, socioecological, geographic, population-based, and female empowerment variables.
Pointer from Tyler Cowen. I note that there are a number of plausible explanatory variables for the decline in fertility. And many of them are self-correcting, which is obviously the case if high population density is a major causal factor of declining fertility.
I recently read a study indicating that—unsurprisingly—negative words in headlines increase click-through rates (words like “wrong,” “bad,” “awful,” “hate,” “sick,” etc.). Such headlines are optimized to perform well on social media, and play on fear and outrage. One reason newsletters have become successful is that they have different incentives. I notice that the open rate for this newsletter remains the same (around 40%), regardless of headlines. It’s gratifying to know that readers will open whatever I happen to publish that day.
He has a number of other interesting observations. One of my past observations was that the most popular substacks in the general space of cultural/political/economic commentary are ones with a strong pugilistic mission. “I am fighting for you against the forces of …” Think of Bari Weiss as an example.
Recently I have observed that my readers have a strong expectation that I will be moderate in tone and charitable to those who disagree. When they think that I deviate from that, they call me out on it. I am glad that they have such expectations.
I also find that some of my pedantic posts are the most popular. That is, when I explain a topic in economics or statistics or social epistemology, with my individual perspective on that topic, that seems to work well. So I plan to do more of that. I am thinking of devoting some of my posts to extracting key points from my books.
Henderson also writes,
Arthur Koestler:
“A writer’s ambition should be to trade a hundred contemporary readers for ten readers in ten years, and for one reader in a hundred years. But the general atmosphere in this country directs the writer’s ambition into different channels . . . on immediate success here and now.
I like the philosophy, but I think that it is hard to execute. Some of my most satisfying moments are when someone gives me a comment or an email recalling something that I wrote many years ago. I used to tell my high school students that I did not care how much of the material they learned for my tests or for the AP exam, but if they remembered just one thing that they found especially useful years later that would be a win.
I think that one key to having a long-term impact is to avoid writing on The Current Thing. I wrote intensively about the current thing during the 2008 financial crisis, because I thought that my experience at the Fed and Freddie Mac, along with my study of banking and finance, were relevant. I also wrote intensively in the first few months of the pandemic, because I thought that my understanding of probability and statistics, and my sense of how bureaucracy functions, were relevant. I would like to believe that excerpting those posts can be a worthwhile exercise, to see what I got right and wrong in the moment.
substacks referenced above:
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"Taken at face value, a 28.6% rise in the price level at a time of much slower nominal growth implies that the US fell into one of the deepest depressions in US history. Sumner sees this as a reductio ad absurdum argument against using the revised numbers. I would agree."
Yeah, that's totally crazy!
Except ... you know ...
I keep a household finances spreadsheet and record most of my expenditures, especially the big regular bills. I also buy some things routinely on Amazon and other big online retailing websites, so I can compare some price changes over time, with more accurate and precise insight into whether there have been any quality adjustments that should be taken into account. My budget pattern is not volatile and judging by those charts of how people spend their money, I'd say my household in in the normal-ish ranges for our income bracket, though less than average on cars and eating out. Obviously I know income and taxes and maintenance pretty well in my own case.
This lets me track a few plausible indices of "personal real inflation rates" which, sure, aren't "the" price level by any means, but at least tells me how - whatever it is that happened - affected my personal position and was experiences as a boost or a hit requiring belt-tightening and substitution.
Personally, it's been a hit to the tune of an average of over 10% a year in real terms for several years in a row now. 30% in two years seems high, but still, not 'absurdum' high. Then again, if I had to refinance at current rates at what the county assessor says my house is worth ... oof. Friends of mine who hire average people say there has a sudden drop in worker quality (and morals) and they do indeed now have to pay a lot more to get the same kind of "good worker", and they are increasingly looking at ways to shift into more automation.
Of course this is all anecdotal and I'm not claiming this has any bearing on the overall price level whether the official numbers are right or wrong. But if you are personally experiencing 10% a year, then when some metric comes out close to 10% a year, one's first impression is not to balk or scoff as being totally implausible.
I have written it before- you can generate a positive GDP from a negative one by just underreporting inflation by a % number or two. Like Handle below, I track my expenditures and those of my mother since we are the household- the reported inflation rate by the BLS is significantly lower than the rate in our own personal finances for food, insurance, and utilities which is pretty much all of our purchases since we own the home free and clear and never have spent much outside of Christmas for discretionary items.
And employment is not "soaring"- the participation rate in the civilian labor force never recovered to the rate it was in January 2020 and has flatlined for the last year.