Tomorrow, January 20th, EconoFact celebrates its 5 year anniversary, providing non-partisan, incisive analyses on timely and important economic and social policy issues. It does so by bringing to the public debate the expertise of leading economists and social scientists via memos and podcasts.
With contributions from a network of economists and social scientists. (full disclosure: I’m one of the contributors.)
The entire topics list A-Z is here.
The March 10, 2021 discussion of labor unions was quite interesting. At one point it noted that labor markets are not perfectly competitive, which relates to a recent post here. They provide this link:
Manning, Alan, 2021. “Monopsony in labor markets: a review,” LSE Research Online Documents on Economics 103482, London School of Economics and Political Science, LSE Library.
‘Researchers’ interest in monopsony has increased in recent years. This article reviews the accumulating evidence that employers have considerable monopsony power. It summarizes the application of this idea to explaining the impact of minimum wages and immigration, in anti-trust, and in understanding how to model the determinants of earnings in matched employer–employee data sets and the implications for inequality and the labor share.’
Now Princeton Steve is so angry at such discussions that he has resorted to lecturing me as to how to write up simple illustrations in a way he gets to pre-approve. I bet Alan Manning’s paper is really going to set poor Stevie off!
I think this was the 1st discussion (1/20/2017) and was a nice critique of that Destination Based Cash Flow tax idea, which was discarded. Instead we got insane ideas like the Foreign Derived Intangible Income tax break which also violates trade law and allows a lot of companies with monopoly profits to be taxed on those profits at very low rates. It is insane tax policy and I hope Biden gets this Republican garbage repealed.
I had to laugh at this one. The headline article at EconoFact on it fifth anniversary is “Thinking Can Make It So: The Important Role of Inflation Expectations” … as if this were an established fact.
And to think that this article appeared shortly after Jeremy Rudd published a paper questioning the whole premise behind the use of inflation expectations.
As Neil Irwin wrote at the NY Times, “Many experts are rethinking longstanding core ideas, including the importance of inflation expectations.
It has long been a central tenet of mainstream economic theory that public fears of inflation tend to be self-fulfilling.
Now though, a cheeky and even gleeful takedown of this idea has emerged from an unlikely source, a senior adviser at the Federal Reserve named Jeremy B. Rudd. His 27-page paper, published as part of the Fed’s Finance and Economics Discussion Series, has become what passes for a viral sensation among economists.
The paper disputes the idea that people’s expectations for future inflation matter much for the level of inflation experienced today. That is especially important right now, in trying to figure out whether the current inflation surge is temporary or not.
But the Rudd paper is part of something bigger still. It reflects a broader rethinking of core ideas about how the economy works and how policymakers, especially at central banks, try to manage things.”
In case that Rudd’s paper isnot clear enough, Claudia Sahm writes, “Jeremy’s paper is one of the best piece I have EVER read about inflation expectations. I have read many and written a few. I was point at the Board on the Michigan Survey and consumer expectations in general, I have written many notes and internal memos on them. I said FOR YEARS inflation expectations are the biggest pile of horseshit. Jeremy said it better. read every goddamn footnote in his paper.”
My personal view is that it’s totally weird to survey people about something that they are clueless about. Instead of asking about expected inflation, those doing the survey might just as well ask people what they think economic growth will be in Bosnia over the next five years. Garbage in, garbage out. And even if ordinary folks had some idea about future inflation, they are still price takers…basically powerless. IMO inflation expectations are probably most useful in signaling corporate America as to how much they can increase prices with incurring a consumer backlash.
Based on a sample of this one piece alone, you would think the site should be called EconoDogma, not EconoFact.
Jason Furman is a contributor to EconoFact.
He published a piece in Project Syndicate with the title:
Why Did Almost Nobody See Inflation Coming?
It’s interesting that Furman did not publish this in EconoFact.
Oh wait – it was not in the NYTimes either so it does not count. Manfred and JohnH – two peas in a pod!
Manfred: Jason Furman had one EconoChat/Podcast on EconoFact where he’s interviewed; he’s not part of the network (although he is on the Board of Advisers). On the other hand, he is a nonresident senior fellow at PIIE (who compensates him for his work), with I’d guess over a 100 written contributions for PIIE. Project Syndicate also compensates (as opposed to EconoFact, who does not).
Hence, I do not find it particularly interesting that he did not publish the piece in EconoFact.
Manny, the guy who stated he was far too busy with life to spend time here… has been, yes, spending time ….here.
Isn’t this like saying futures markets have no effect on spot, even while futures and options trading eclipses spot trades in volume?
If I sell an inflation swap, doesn’t that income affect the present spot on anything I sell today?
Why not manage inflation by setting breakevens as desired using open market operations to buy and sell inflation swaps? Is it worth a try, despite Rudd’s gut feelings?
Stocks and bonds are financial instruments. Options and futures strategies often involve holding these underlying instruments so that the sale or purchase of the derivative is offset by the sale or purchase of the underlying instrument. That’s one way the price of the derivative and the underlying are linked.
Inflation is not a financial instrument. One does not buy or sell inflation. One can only buy or sell derivatives the value of which is determined by realized inflation. The analogy with financial instruments simply doesn’t hold. So you are suggesting creating a policy mechanism when you have not been able to demonstrate how it would work. That’s nonsense. You are, once again, talking about stuff you don’t understand.
rsm likes to talk futures and options, but I feel he does not understand what they are. probably the reason he and his brother lost their shorts when they dipped into financial trading for a while.
WTF do you mean this? Not one of those posts said what you asserted.
“My personal view is that it’s totally weird to survey people about something that they are clueless about.”
This is from someone who is clueless about all things economics but that has never stopped you from getting on your soap box and acting like a carnival barker. Oh wait – your new thesis is that the janitors for Fortune 100 companies are the only ones worth surveying re expectations of inflation. Got it!
The abstract of the Rudd paper:
“Economists and economic policymakers believe that households’ and firms’ expectations of
future inflation are a key determinant of actual inflation. A review of the relevant theoretical
and empirical literature suggests that this belief rests on extremely shaky foundations, and a
case is made that adhering to it uncritically could easily lead to serious policy errors.”
You cherry picked and totally misrepresented what Rudd actually wrote here. But you have already been called out over this total misrepresentation. And yet you remind us that you are truly a carnival barker? OK!
JohnH did not identify or link to the post he ridiculed so permit me:
Please read it as JohnH clearly did not beyond the title. It is a well thought out discussion and yet this lying troll mocks a discussion he never bothered to read? Par for the course for JohnH!
January 18, 2022
Why did almost nobody see inflation coming?
By Jason Furman
In 2008, as the global financial crisis was ravaging economies everywhere, Queen Elizabeth II, visiting the London School of Economics, famously asked, “Why did nobody see it coming?” The high inflation of 2021 – especially in the United States, where the year-on-year increase in consumer prices reached a four-decade high of 7 percent in December – should prompt the same question.
Inflation is not nearly as bad as a financial crisis, particularly when price increases coincide with a rapid improvement in the economy. And whereas financial crises may be inherently unpredictable, forecasting inflation is a staple of macroeconomic modeling.
Why, then, did almost everyone get the U.S. inflation story so wrong last year? A survey of 36 private-sector forecasters in May revealed a median inflation forecast of 2.3 percent for 2021 (measured by the core personal consumption expenditures price index, the U.S. Federal Reserve’s de facto target gauge). As a whole, the group put a 0.5 percent chance on inflation exceeding 4 percent last year – but, by the core PCE measure, it looks set to be 4.5 percent.
The Fed’s rate-setting Federal Open Market Committee fared no better, with none of its 18 members expecting inflation above 2.5 percent in 2021. Financial markets appear to have missed this one as well, with bond prices yielding similar predictions. Ditto the International Monetary Fund, the Congressional Budget Office, President Joe Biden’s administration, and even many conservative economists.
Some of this collective error resulted from developments that forecasters did not or could not expect. Fed Chair Jerome Powell, among many others, blamed the Delta variant of the coronavirus for slowing the reopening of the economy and thus driving inflation higher. But Powell and others had earlier argued that the increase in inflation in the spring of 2021 was spurred by an overly rapid reopening as vaccination reduced case numbers. It is unlikely that both of these excuses are correct. The emergence of Delta, like the pandemic in 2020, probably kept inflation lower than it otherwise would have been.
Supply-chain disruptions were another unanticipated development that allegedly blew up inflation forecasts. But while the pandemic has caused some genuine bottlenecks in production networks, most are churning out much more than last year, with both U.S. and global manufacturing output and shipping up sharply.
This brings us to a more important source of forecasting error: not taking our economic models seriously enough….
Jason Furman is a Professor of the Practice of Economic Policy at the Harvard Kennedy School.
As for inflation expectations, the Chinese take changes in expectations sector by sector seriously and directly intervene when expectations as such change behavior patterns. The Chinese were adept this last year controlling producer prices to the extent that consumer price increases were minimal:
January 12, 2022
The Producer Price Index gained 8.1% for the year.
The Consumer Price Index gained 0.9% for the year.
January 30, 2018
Consumer Prices for China, United States, India, Japan and Germany, 2017-2021
January 30, 2018
Consumer Prices for China, India, Brazil, Mexico and South Africa, 2017-2021
“As for inflation expectations, the Chinese take changes in expectations sector by sector seriously and directly intervene when expectations as such change behavior patterns.”
Only Nixon can go to China. I guess when he did – he showed the PRC had to do wage and price controls.
I am reminded of the writing of Frank Wolak on the California energy market and the way in which utilities controlled energy prices by creating expectations of price increases. Paul Krugman wrote about this, and was criticized, but Krugman and Wolak were correct:
May 27, 2002
Frank (Wolak) Thoughts On the California Crisis
By Paul Krugman
[ Correspondingly, China intervened in energy markets with marked success in limiting price increases this last year. ]
Menzie writes in his inflation article on that site:
《Inflation — both actual and expected — matters. Inflation makes it harder for consumers and workers and firms to distinguish between relative and general price changes. 》
Aren’t general price changes necessarily the result of relative price changes, so this objection is simply incoherent jargon? If the S&P 500 goes up because of five big winners, isn’t that a general price increase due to a few relative price winners?
《 It also makes it more difficult to make plans for saving and investment.》
What if the Fed paid the inflation rate as interest on individual Fed deposit accounts, to encourage savings directly as inflation rises?
Do inflation swaps eliminate inflation risk in private contracts?
《 And, higher expected inflation raises borrowing costs for the government (although higher actual inflation erodes the real value of government debt). 》
Has the Fed proven it has unlimited liquidity to act as a value buyer?
《Finally, the Fed tends to respond to higher inflation by tightening monetary policy, which depresses economic activity. 》
Is the Fed making a policy error?
《Hence, the stakes are high for avoiding a sustained acceleration in inflation. 》
What if we fully indexed instead?
“Aren’t general price changes necessarily the result of relative price changes, so this objection is simply incoherent jargon?”
Are you some kind of dumb bot? Anyone who writes such an utterly STUPID comment clearly has an IQ in the single digits. Now the term incoherent jargon is the perfect description for each and every one of your asinine comments.
By Milton Friedman
[ Indexing… ]
Most of your questions have already been answered elsewhere by me, maybe you did not read them or understand what I wrote.
In this case, I do not see a clear yes on any of your questions, with most of them solid noes. Maybe a maybe on this murky one about Fed as “value buyer,” but otherwise, all noes.
Do you think I will stop trying to get you to question the ignorance of your negative answers?
UK is relaxing travel restrictions initially put in for Omicron. Should be good for the economy.
Um…and oil is $85. Markets are over the omicron spook.
‘Last month was concern…now…expecting shortlived and less severe than earlier worries.”
Today we saw Brent decline below WTi for the first time in well over a decade.
Ooops. That did not last long. WTI fell hard today and back down to being about $3 per barrel lower than Brent again.
We need more inquiries like this:
Bristol Myers is one of the several Big Pharma multinationals that have used clever schemes to shift what should be US taxable income to tax havens. Of course the Big Four accounting firms and the big shot law firms makes lots of money endorsing these tax dodges. The Senate is asking them openly – sir, please explain thyself.
Congratulations on five of the best.
UK is relaxing travel restrictions initially put in for Omicron. Should be good for the economy.
[ Supposing this is correct, then what is the value of public health protection in the United Kingdom? ]
January 20, 2022
Cases ( 15,613,283)
Deaths ( 153,202)
Deaths per million ( 2,239)
Cases ( 105,411)
Deaths ( 4,636)
Deaths per million ( 3)
January 20, 2022
Chinese mainland reports 66 new COVID-19 cases
The Chinese mainland recorded 66 confirmed COVID-19 cases on Wednesday, with 43 linked to local transmissions and 23 from overseas, data from the National Health Commission showed on Thursday.
A total of 28 new asymptomatic cases were also recorded, and 755 asymptomatic patients remain under medical observation.
Confirmed cases on the Chinese mainland now total 105,411, with the death toll remaining unchanged at 4,636 since January last year.
Chinese mainland new locally transmitted cases
Chinese mainland new imported cases
Chinese mainland new asymptomatic cases
January 20, 2022
Over 2.95b COVID-19 vaccine doses administered on Chinese mainland
More than 2.95 billion COVID-19 vaccine doses had been administered on the Chinese mainland as of Wednesday, data from the National Health Commission showed Thursday.
[ January 15, 2022
Over 1.22 billion fully vaccinated against COVID-19 on Chinese mainland. ]
January 19, 2022
Cases ( 69,769,486)
Deaths ( 880,751)
Deaths per million ( 2,638)
Cases ( 105,345)
Deaths ( 4,636)
Deaths per million ( 3)
EOA weekly petroleum inventory is out. Mildly bearish. Light build in crude and large build in gasoline. Draw in diesel.
Could be omicron worries, but might just be weather. Decent amount of east coast snow. Note that home heating oil and diesel fuel are almost identical chemically.
gasoline is brightest point, but year on year is about same as 15 jan, 2021 with hopefully a stronger demand picture……
other products are drawn yoy distilled fuels ~20%
do you accept the thesis the draw is consistent with stronger economy with robust production is okay?
maybe jan 2021 all that spring 2020 cheap oil is still in the inventory balannce.
reuters did a piece on usa energy stock levels.
seems gasoline, the sole product at near average.
distillate fuel is -15% average and 20% down from year ago.
crude is also below average.
us (and persian gulf) lng and a mild weayher is keeping eu aflaot.
In a couple of shi*cos (I mean shalecos) will be shalecos moments:
1. CHK (BK not that long ago) is buying a several billion competitor,Chief. Great leaseline and operating synergy. They are right next to each other in the core of the NE PA Marcellus.
Still kind of funny to see how well CH11 allows the guilty to move on and keep misbehaving.
2. CLR is hiring the old CHK CEO as COO. (Not the literally killed himself one, but his relief.) Seems like a strange culture fit, with CHK/AKA (where he was before) having a pattern of exec spending excesses. And CLR being pretty tight with the nickel on G&A costs. Maybe limited labor market for top execs in OK City? Kind of seems like the guy might move up to CEO soon also, he’s more of a top boss than an operator. Or maybe Hamm plans to sell out? Donno. But just sense some Paul Harvey rest of the story…
Off topic, but of interest in those who feel corruption in high places ought not be ignored, McKinsey is back in court on RICO charges for fraudulent actions in bankruptcy cases:
Named in the case is former McKinsey senior managing partner Dominic Barton, currently Canada’s ambassador to China. The privileged failing upward is not limited to the U.S.
I think the problem is that they used to eschew any government work, at least in the US. So the culture and experience is very much of commercial work and sort of chummy relations with top execs. This changed around 2000+.
Then they decided to move into it. (“How can we help.” I kid you not, that’s how they talk, instead of just considering themselves a normal commercial firm going after opportunities to make money selling something of value…more about sharing their top-tieredness.) But they really lack the sorts of controls that more mundane government contractors have. I was blown away when I heard about them sending English-major female, never-served associates into Iraq occupation.
They also miserably screwed up the investigation of firefighter operations in Twin Towers. Failing to report a direct error the chief had made, failiure to turn on radio repeaters….this even when they had forensic evidence to prove it. The issue was they saw the fire dept as their client, not the people, and not just doing a 100% honest, warts and all analysis. They should never have volunteered themselves for this sort of an endeavor. It’s a very different thing than doing some shmoozy pro bono city charity work, where you try to drum up business from the other big execs involved in the public private wastes of time.
Brent crude hits a seven year high. https://markets.businessinsider.com/news/commodities/oil-prices-today-abu-dhabi-attack-brent-supply-demand-opec-2022-1
And http://www.eia.gov reports gasoline prices have hit $3.30 a gallon. Now your news is likely to excite Princeton Steve so much that he will pee in his pants but before he does, he should consult this forecast:
see this survey:
proly consistent with eia research.
this out today on usa inventory draw from long term averages:
gasoline is about even this week with long term averages.
distilled fuel: stove and deisel is down 15% from long term average and 20% year over year.
usa nat gas is a biyt low.
both gas and stove fuel will likel tick up for dec price stabilization tracking.
$3.30 per gallon is what the national average for gasoline has been for a couple of weeks. Crude markets went up a lot, although may now have hit their peak with so many other markets falling hard (stocks, gold, and especially cryptos). But it is beginning to look like for the January inflation numbers retail gasoline will be about zero, although I do not see Fox News or others out there particularly noticing this.
While WTI plunges. Weird stuff going on, JohnH.
Why are you all missing the effect of momentum traders going all in on OTI OTM long-dated calls, which creates a gamma squeeze to manipulate prices upward independently of supply or demand?