If you don't mind a meta comment, personally I read and follow you for your economic writings because you explain contemporary topics of economics and political economy using economic theory and empirical economic science and reference them in your text while having a research background in this field yourself. This is what differentiates you from what one can find in typical news magazines.
Lately I had the feeling that there was an increase in more political commentary, e.g. regular jabs at "leftists", mostly on twitter but tempered also on Substack. While I share your political opinion in this regard, I think this is a sort of "cheap dopamine" for writer and readers that is detriment to long term quality of the content and the readership.
But it’s so tempting to bash leftists for their ridiculous economic ideas (and I think in fairness he bashes libertarians also). With admirable restraint he didn’t mention MMT in this article, but I imagine that a soft landing will bring these crazies back out of whichever table they’re hiding under since inflation kicked in.
Low interest rates didn't cause inflation so why would high rates fix it? Krugman, Sahm, and MMTers all called it right. Why not go and read Krugman's article about economists (Summers especially) who can't admit they're wrong?
We tried MMT under Bush/Cheney….it was an unmitigated disaster. Of course the MMT they implemented was focused on funneling dollars to wealthy Americans…and so we still haven’t tried MMT focused on something like paying reparations to descendants of American slaves that in general live paycheck to paycheck with very little savings. So if you believe giving people a little in savings and an emergency fund will lead to runaway inflation then maybe we need to rethink our economic system??
The U.S. got lucky, but I think it’s because the U.S. is a unique place.
We are the largest oil producer in the world, this both insulated us from and benefitted us with the energy price shock.
The U.S. also provided the largest helicopter drop of money in history during a period when you couldn’t really spend the money and many consumers deleveraged. Many businesses also deleveraged. It is plausible there was a massive reduction in debt which lessened the likelihood of a debt-deflationary cycle being tipped off by say a collapse in Tech Stocks. So systemic risks and contagion were minimized.
Finally after a decade of very low interest rates, where the private sector signaled to the government it wanted public investment, we got public investment. The U.S. implemented an industrial policy, which resolved first mover and hold up problems limiting the private sector’s investment in productivity enhancing investments. The opportunity cost of money and investment is now higher than it was years ago when VC funding was just being spent on Juiceros.
The Federal Reserve’s interest rate hikes didn’t cause a recession because they were small tailwinds relative to underlying fundamentals.
Or course some dissertations will sort this out in a decade, unless the real bullshit cycle theorists desk reject all reality based macro at journals and signal to students not to answer why things happened.
Private sector wanted public investment? Aren't business 'leaders' always calling for govt to get out of the way? They've picked every low hanging fruit they can to boost their share price, they simply can't fathom having to invest in their business like people used to
Powell deserves blame for the persistent shelter inflation…we needed higher rates before 3/2022. The supply chain disruptions were always going to get worked out and the fracking industry has exceeded expectations for over a decade.
The rise in shelter inflation was a pandemic related phenomenon. A large enough chunk of people wanted more space since their job was not either fully or partially remote combined with people moving to warmer or more isolated places under idea the would be permanent WFH and so therefore don’t need to be near their office.
It actually fits very well with Krugman’s theory. The very important part that Noah is leaving out is that Krugman always pointed to post WWII as the most appropriate comp given how disruptive WWII was to all facets of life all over the world.
One of the biggest problems for predicting how this inflationary period played out is the for the vast majority of Americans, including economists, the only large inflationary period they know is late 70s. And so the only data point people are using is this one episode and became sort of the only frame of reference people used to look at our current situation. And it’s like “sorry guys, you know history does include periods before the 70s that have their own lessons to learn for present day.”
LOL.... four simple theories.....none of which address the real cause... a rise in productivity driven by an unprecedented absorption of technology across the broad economy accelerated by the Covid shock. Not really surprised... economist seem to walk around with a static model of the underlying economy.
The technology you're talking about is the set of tools that enable remote work, I assume? If so, I think it's become clear that most of the resulting productivity increase was transitory. It made already-experienced, effective workers more productive, but seriously hindered the development of new staff, so much so that many companies have already seen the detrimental effects and are seeking to roll back remote work, at least partially. It seems like we are settling into a new "hybrid" model world, with days at home for focused productivity mixed with days in the office for skills transfer and more-effective communication.
Note that my personal bias is in favor of remote work; I've been fully-remote for about 20 years of my 30-year career, including all of the last 10, and I would really like to see complete vindication of the remote model. But I have seen the productivity hit.
Virtualization: online education, telemedicine, work-from-home, deeper ecommerce, digital twins... etc..... on work-from-home ... it swung one way, swung back some... right now various forms of hybrid are the settling point. Let me respectively disagree on the topic of productivity... like any change... smarter companies develop better management methods.
Autonomy: agriculture, industrial, some in transportation, ecommerce support (warehouses)
Medicine: Just-in-time drug development. Acceleration in use of personalized medicine..etc..
Energy: muti-modal advances on all fronts. Just in the this five year, US oil/gas suppliers have optimized down costs in the range of 40%. The impact... OPEC cannot hold a price.
This is a short list... the level of change happening right now is at the scale of the industrial revolution. In my view, it is ridiculous to ignore the level of change happening, the impact on productivity and we have not even tied up AI based solutions yet.
I fear economists like generals are always ready to fight the last war.
Expectations are probably the biggest part but another factor to consider is much of where real growth comes from in the US, research & development & engineering (including software) was if anything positively impacted by the pandemic. Friends who are very high level technical management or research academics had very productive periods 2020-2022. Friends in their 3rd or 4th biotech startup also had a productive period. A big factor: travel, more specifically a lack of it. As a research director no more short notice travel from Boston (Varian in Gloucester) to Taiwan for a 4 hour meeting and then dinner and flying home. His research team (ca. 14 PhD's) continued to work in the lab through this period while he mostly worked from home (but went to the lab, usually on his bicycle, 14mi, regularly, not worried about covid under clean-room conditions in his labs). A friend at Intel, (PhD Theoretical Physics, Cambridge) had a group of 105 PhD mathematicians (semi-seriously he would tell me he only hired Russian mathematicians because their skills were what he needed) and was one of the 3 or 4 people that had to sign off on building a new chip, negotiated with Intel to no longer manage a large group, and go back to doing the math and coding for determining if a processor design will actually work (an interesting problem because it is true NP-hard, it is impossible to verify the logic of a modern computer chip for every possible set of conditions). He went back to being a peak technical contributor at Intel on his terms.
Across a number of occupations (including starting and owning major companies) among family and friends more people made, combined pay and stock, over $1m in 2022 than any time before.
While that is anecdotal I think it probable that the people who work primarily with their brains had overall a pretty productive period so it isn't surprising the GDP growth curve looks like it does. Basically you can take real GDP growth rate, chop out the 2020-2021Q1|Q2|Q3 period, and you can't detect the removed period. Fiscal stimulus was critical in avoiding financial crisis for service workers and others sidelined by the pandemic response. One can debate if the level was optimum, but the fact that we basically recovered our full economic output on trend indicates the response was close to optimum.
It seems very strange to describe "Fed irrelevance" as a contradiction of Old Keynesianism. The central point of Old Keynesianism was/is the importance of fiscal policy relative to monetary policy. It was only after the defeat of the Old Keynesians in the 1970s by Friedman's monetarism (the name tells the story) that central banks came to rule the roost..
The success of expansionary fiscal policy in the GFC and Covid supports Old Keynesianism, as does the contraction produced by fiscal austerity. As regards monetary policy, the most notable tenet of Old Keynesianism as the liquidity trap idea that expansionary monetary policy is "pushing on a string" The failure of a decade of zero interest rates to produce a strong recovery from post-GFC austerity is consistent with this.
That said, most Keynesians would agree that highly contractionary monetary policy, sustained long enough, can produce a recession. But, fortunately, that's not what the Fed did.
I came here to say something like this. Noah basically confused keynesian policy with Friedmans monetary policy...and that is a really bad mistake for someone like Noah to make.
Keynisian policy is about fiscal spending - literally what the government is spending or not spending. The fed's decisions via interest rates have nothing to do with that.
This is a reason I am really considering cancelling my subscription to Noah. This is a basic mistake that someone at his level should not be making.
You don’t consider the 2.5% GDP growth of 2014-2019 as “strong”?? I think America was in fairly solid shape in 2019 after the unmitigated disaster that was the Bush/Cheney regime which featured a lost economic decade. The Trump Tax Cuts were pretty dumb but not nearly as irresponsible as the Bush Tax Cuts that firehosed dollars into a suboptimal economy.
I estimate the long-run full capacity growth rate for the US at about 2.0 %. Given a lost decade as the starting point, I don't consider 2.5% a strong recovery.
Why does the Quantity Theory of Money not get a shoutout? According to the QTM, MV=PY, where M is the total supply of money, v is the velocity of money (how many times the average dollar is spent in a year), P is the price level, and Y is GDP. The pandemic begins, we quarantine, Y drops and V plummets. The government responds by printing money, M2 goes up by 25% (https://fred.stlouisfed.org/series/M2SL), and so P stays relatively stable. Then we get vaccines, people start to emerge into the outside world once more, V starts creeping back up (https://fred.stlouisfed.org/series/M2V), but the Fed doesn't reduce M2 by anywhere near as much and so P goes up.
IMO, this also has the advantage of being the most parsimonious theory of them all. GDP is (roughly) the same before and after the pandemic, and the same amount of value is divided between far more dollars, so each dollar is worth less.
What if macroeconomics is a cultural phenomenon that only explains behavior of WASPs? Why does macroeconomics have to be like physics and maths?? Japan has never seemed to figure out macroeconomics and yet they have a successful economy.
I wonder if the collapse of crypto helped. The theory is that all this money running around at near zero rates caused speculative pricing on financial assets. A lot of that went into crypto. The wealth effect meant that people felt wealthier, so spent more. Crypto crashed wiping out paper wealth. People pulled back on spending, without needing job losses to do so. There were job losses across the IT industry, but it had shortages of people anyway, so most of those people probably found jobs of some kind quickly, even if not at pay as high as before.
This theory could be disproven by showing that consumer spending stayed on its previous trend line.
The Rolex index along with G-Wagon demand showed how much dumb money was in the system. And municipalities need to ban airbnb tomorrow!! Airbnb should be illegal outside of resort areas.
I think there's a nice middle ground on short term rentals. My locality has a permitting process and a cap, so people who are irresponsible to their neighbors can be revoked and it doesn't distort the housing market too much.
In the city I live in they just rent out furnished homes on a monthly basis to get around the regulations…but it is already too expensive and so I guess it doesn’t make much of a difference. I’m thinking more like in Austin and Dallas in which young people are trying to move there and start their careers and dicks are buying up homes to use as STRs. I’m a big fan of Uber, but Airbnb always struck me as something that should be illegal. When you are driving you understand you have to share the road with whoever happens to be driving at the moment…but when you buy a house you want actual neighbors and to be part of a community.
Couple of things: 1) During Volker's time, President Reagan also increased spending significantly. The difference is that he spent on military and Biden spent on the people of the U.S. This achieved a classic case of the multiplier effect which benefited the U.S. economy. I calculated the amount and talked about it here: https://medium.com/datadriveninvestor/the-multiplier-effect-the-case-for-continuing-a-1-200-monthly-check-a080ea4618bc 2) I was one of the economists (panel of economic experts on Finder) that predicted a soft landing. Monetarists consistently downplay the power of fiscal policy. 3) Demand went up because it was pent up for almost two years of lockdown. That was a weird, temporary fluke that doesn't fit into past models at all. I'd love to see an analysis that includes these three things. Thanks for writing. I always enjoy your work.
I remember many people talking about “bullwhip effect” in 2021 like we had after WW2…and we even ended up with labor unrest like after WW2. Also, we had significant deflation in March/April/May 2020 which meant inflation in 2021 was inevitable once that month over month data fell out of the year over year data.
Over here in the real world, there has been no such thing as a soft landing. We are still in the clutch of a full blown recession. People are hurting and rhetoric is not making it go away.
Yes, if the inflation rate is going down (does anyone really believe government inflation figures?) that does not erase the across the board increases of 20+ to 100+% in the cost of essentials and luxuries. The damage is already done! Gold jumped from $1100/oz to $2000/oz. So that increase is okay if it slows down now? The same can be said for petroleum, food, overall energy, services, etc.
Comparing gold prices for inflation is absurd. It was $1700/oz in 2012 and then $1100/oz in 2016. Was everything else 50% cheaper from 2012 to 2016? Likewise, gas prices (not inflation adjusted!) are back to where they were in 2019, and lower than in 2014.
Inflation has not come back to the 2% target and Noah has already declared victory? This sounds ab awful lot like Bernanke telling us the fundamentals of the economy are sound in 2007. We are also at a time of historically low prime age male employment, so the official unemployment line does not properly capture the millions of American who are not working but would have been in a previous generation.
Jobs in a previous generation did not require as much literacy, numeracy, and computer savvy as those of today. Many Americans of today simply aren't qualified for today's jobs.
Jobs are also very spiky. The jobs that require literacy, numeracy, and computer savvy tend to be on the coasts and tend to be politically left. There are very high costs of entry for both the cost of living of those places, and on top of that people don't want to stick out for their politics.
There's a mirror image of this in the blue tribe as well. How many people in blue coastal cities want to be police officers, firefighters, truckers or petroleum workers? Among the STEM fields, engineering has the most politically conservative worker.
That still doesn't counter my point. Noah was declaring victory before inflation has even gotten to the Fed's target, let alone shown its ability to stay there. And he uses rosy statistics while ignoring the millions of men who aren't doing much of anything.
Thanks to smart phones, the deterioration of public schools, mass immigration of low skilled people, and the transformation of universities from learning institutions into those of political indoctrination.
The problem I have with the expectations theory is that Fed threats are not, or should not be, credible.
The Fed was threatening to do everything it could to bring inflation down to 2%? Was this the same Fed that set as its target 2% inflation and yet inflation stubbornly persisted well below that target? And what did the Fed do to actually achieve its oft-stated goal? Not much, from what I could tell over the years.
So why was the Fed credible this time? Oh I get it. It's because businessman and financial types, who passionately hate inflation and are happy with a slack labor market, knew the Fed was lying when it said it was committed to getting inflation up to the 2% level but, because the Fed is biased toward their view, was actually very serious about getting inflation down to 2%, even possibly if that meant greatly increasing unemployment to squeeze that last bit of inflation from 3% or even 2.5% down to the sacred, credibility-confirming 2% level.
Hi Noah, another good article.
If you don't mind a meta comment, personally I read and follow you for your economic writings because you explain contemporary topics of economics and political economy using economic theory and empirical economic science and reference them in your text while having a research background in this field yourself. This is what differentiates you from what one can find in typical news magazines.
Lately I had the feeling that there was an increase in more political commentary, e.g. regular jabs at "leftists", mostly on twitter but tempered also on Substack. While I share your political opinion in this regard, I think this is a sort of "cheap dopamine" for writer and readers that is detriment to long term quality of the content and the readership.
Best regards
But it’s so tempting to bash leftists for their ridiculous economic ideas (and I think in fairness he bashes libertarians also). With admirable restraint he didn’t mention MMT in this article, but I imagine that a soft landing will bring these crazies back out of whichever table they’re hiding under since inflation kicked in.
Low interest rates didn't cause inflation so why would high rates fix it? Krugman, Sahm, and MMTers all called it right. Why not go and read Krugman's article about economists (Summers especially) who can't admit they're wrong?
We tried MMT under Bush/Cheney….it was an unmitigated disaster. Of course the MMT they implemented was focused on funneling dollars to wealthy Americans…and so we still haven’t tried MMT focused on something like paying reparations to descendants of American slaves that in general live paycheck to paycheck with very little savings. So if you believe giving people a little in savings and an emergency fund will lead to runaway inflation then maybe we need to rethink our economic system??
The U.S. got lucky, but I think it’s because the U.S. is a unique place.
We are the largest oil producer in the world, this both insulated us from and benefitted us with the energy price shock.
The U.S. also provided the largest helicopter drop of money in history during a period when you couldn’t really spend the money and many consumers deleveraged. Many businesses also deleveraged. It is plausible there was a massive reduction in debt which lessened the likelihood of a debt-deflationary cycle being tipped off by say a collapse in Tech Stocks. So systemic risks and contagion were minimized.
Finally after a decade of very low interest rates, where the private sector signaled to the government it wanted public investment, we got public investment. The U.S. implemented an industrial policy, which resolved first mover and hold up problems limiting the private sector’s investment in productivity enhancing investments. The opportunity cost of money and investment is now higher than it was years ago when VC funding was just being spent on Juiceros.
The Federal Reserve’s interest rate hikes didn’t cause a recession because they were small tailwinds relative to underlying fundamentals.
Or course some dissertations will sort this out in a decade, unless the real bullshit cycle theorists desk reject all reality based macro at journals and signal to students not to answer why things happened.
Private sector wanted public investment? Aren't business 'leaders' always calling for govt to get out of the way? They've picked every low hanging fruit they can to boost their share price, they simply can't fathom having to invest in their business like people used to
If we do get the full soft landing, I'm making a shrine to Powell in my room.
Powell deserves blame for the persistent shelter inflation…we needed higher rates before 3/2022. The supply chain disruptions were always going to get worked out and the fracking industry has exceeded expectations for over a decade.
The rise in shelter inflation was a pandemic related phenomenon. A large enough chunk of people wanted more space since their job was not either fully or partially remote combined with people moving to warmer or more isolated places under idea the would be permanent WFH and so therefore don’t need to be near their office.
It actually fits very well with Krugman’s theory. The very important part that Noah is leaving out is that Krugman always pointed to post WWII as the most appropriate comp given how disruptive WWII was to all facets of life all over the world.
One of the biggest problems for predicting how this inflationary period played out is the for the vast majority of Americans, including economists, the only large inflationary period they know is late 70s. And so the only data point people are using is this one episode and became sort of the only frame of reference people used to look at our current situation. And it’s like “sorry guys, you know history does include periods before the 70s that have their own lessons to learn for present day.”
I still believe we had high inflation from 2005-2008 with it peaking at 5.5% in the months before the Financial Crisis.
LOL.... four simple theories.....none of which address the real cause... a rise in productivity driven by an unprecedented absorption of technology across the broad economy accelerated by the Covid shock. Not really surprised... economist seem to walk around with a static model of the underlying economy.
The technology you're talking about is the set of tools that enable remote work, I assume? If so, I think it's become clear that most of the resulting productivity increase was transitory. It made already-experienced, effective workers more productive, but seriously hindered the development of new staff, so much so that many companies have already seen the detrimental effects and are seeking to roll back remote work, at least partially. It seems like we are settling into a new "hybrid" model world, with days at home for focused productivity mixed with days in the office for skills transfer and more-effective communication.
Note that my personal bias is in favor of remote work; I've been fully-remote for about 20 years of my 30-year career, including all of the last 10, and I would really like to see complete vindication of the remote model. But I have seen the productivity hit.
Virtualization: online education, telemedicine, work-from-home, deeper ecommerce, digital twins... etc..... on work-from-home ... it swung one way, swung back some... right now various forms of hybrid are the settling point. Let me respectively disagree on the topic of productivity... like any change... smarter companies develop better management methods.
Autonomy: agriculture, industrial, some in transportation, ecommerce support (warehouses)
Medicine: Just-in-time drug development. Acceleration in use of personalized medicine..etc..
Energy: muti-modal advances on all fronts. Just in the this five year, US oil/gas suppliers have optimized down costs in the range of 40%. The impact... OPEC cannot hold a price.
This is a short list... the level of change happening right now is at the scale of the industrial revolution. In my view, it is ridiculous to ignore the level of change happening, the impact on productivity and we have not even tied up AI based solutions yet.
I fear economists like generals are always ready to fight the last war.
Expectations are probably the biggest part but another factor to consider is much of where real growth comes from in the US, research & development & engineering (including software) was if anything positively impacted by the pandemic. Friends who are very high level technical management or research academics had very productive periods 2020-2022. Friends in their 3rd or 4th biotech startup also had a productive period. A big factor: travel, more specifically a lack of it. As a research director no more short notice travel from Boston (Varian in Gloucester) to Taiwan for a 4 hour meeting and then dinner and flying home. His research team (ca. 14 PhD's) continued to work in the lab through this period while he mostly worked from home (but went to the lab, usually on his bicycle, 14mi, regularly, not worried about covid under clean-room conditions in his labs). A friend at Intel, (PhD Theoretical Physics, Cambridge) had a group of 105 PhD mathematicians (semi-seriously he would tell me he only hired Russian mathematicians because their skills were what he needed) and was one of the 3 or 4 people that had to sign off on building a new chip, negotiated with Intel to no longer manage a large group, and go back to doing the math and coding for determining if a processor design will actually work (an interesting problem because it is true NP-hard, it is impossible to verify the logic of a modern computer chip for every possible set of conditions). He went back to being a peak technical contributor at Intel on his terms.
Across a number of occupations (including starting and owning major companies) among family and friends more people made, combined pay and stock, over $1m in 2022 than any time before.
While that is anecdotal I think it probable that the people who work primarily with their brains had overall a pretty productive period so it isn't surprising the GDP growth curve looks like it does. Basically you can take real GDP growth rate, chop out the 2020-2021Q1|Q2|Q3 period, and you can't detect the removed period. Fiscal stimulus was critical in avoiding financial crisis for service workers and others sidelined by the pandemic response. One can debate if the level was optimum, but the fact that we basically recovered our full economic output on trend indicates the response was close to optimum.
I think you should add option 5:
The U.S. achieved a soft landing by not achieving a soft landing and prematurely saying "mission accomplished." It wouldn't be the first time.
i.e. There was no soft landing and there will be no soft landing.
It seems very strange to describe "Fed irrelevance" as a contradiction of Old Keynesianism. The central point of Old Keynesianism was/is the importance of fiscal policy relative to monetary policy. It was only after the defeat of the Old Keynesians in the 1970s by Friedman's monetarism (the name tells the story) that central banks came to rule the roost..
The success of expansionary fiscal policy in the GFC and Covid supports Old Keynesianism, as does the contraction produced by fiscal austerity. As regards monetary policy, the most notable tenet of Old Keynesianism as the liquidity trap idea that expansionary monetary policy is "pushing on a string" The failure of a decade of zero interest rates to produce a strong recovery from post-GFC austerity is consistent with this.
That said, most Keynesians would agree that highly contractionary monetary policy, sustained long enough, can produce a recession. But, fortunately, that's not what the Fed did.
I came here to say something like this. Noah basically confused keynesian policy with Friedmans monetary policy...and that is a really bad mistake for someone like Noah to make.
Keynisian policy is about fiscal spending - literally what the government is spending or not spending. The fed's decisions via interest rates have nothing to do with that.
This is a reason I am really considering cancelling my subscription to Noah. This is a basic mistake that someone at his level should not be making.
You don’t consider the 2.5% GDP growth of 2014-2019 as “strong”?? I think America was in fairly solid shape in 2019 after the unmitigated disaster that was the Bush/Cheney regime which featured a lost economic decade. The Trump Tax Cuts were pretty dumb but not nearly as irresponsible as the Bush Tax Cuts that firehosed dollars into a suboptimal economy.
I estimate the long-run full capacity growth rate for the US at about 2.0 %. Given a lost decade as the starting point, I don't consider 2.5% a strong recovery.
Why does the Quantity Theory of Money not get a shoutout? According to the QTM, MV=PY, where M is the total supply of money, v is the velocity of money (how many times the average dollar is spent in a year), P is the price level, and Y is GDP. The pandemic begins, we quarantine, Y drops and V plummets. The government responds by printing money, M2 goes up by 25% (https://fred.stlouisfed.org/series/M2SL), and so P stays relatively stable. Then we get vaccines, people start to emerge into the outside world once more, V starts creeping back up (https://fred.stlouisfed.org/series/M2V), but the Fed doesn't reduce M2 by anywhere near as much and so P goes up.
IMO, this also has the advantage of being the most parsimonious theory of them all. GDP is (roughly) the same before and after the pandemic, and the same amount of value is divided between far more dollars, so each dollar is worth less.
What if macroeconomics is a cultural phenomenon that only explains behavior of WASPs? Why does macroeconomics have to be like physics and maths?? Japan has never seemed to figure out macroeconomics and yet they have a successful economy.
I wonder if the collapse of crypto helped. The theory is that all this money running around at near zero rates caused speculative pricing on financial assets. A lot of that went into crypto. The wealth effect meant that people felt wealthier, so spent more. Crypto crashed wiping out paper wealth. People pulled back on spending, without needing job losses to do so. There were job losses across the IT industry, but it had shortages of people anyway, so most of those people probably found jobs of some kind quickly, even if not at pay as high as before.
This theory could be disproven by showing that consumer spending stayed on its previous trend line.
The Rolex index along with G-Wagon demand showed how much dumb money was in the system. And municipalities need to ban airbnb tomorrow!! Airbnb should be illegal outside of resort areas.
I think there's a nice middle ground on short term rentals. My locality has a permitting process and a cap, so people who are irresponsible to their neighbors can be revoked and it doesn't distort the housing market too much.
In the city I live in they just rent out furnished homes on a monthly basis to get around the regulations…but it is already too expensive and so I guess it doesn’t make much of a difference. I’m thinking more like in Austin and Dallas in which young people are trying to move there and start their careers and dicks are buying up homes to use as STRs. I’m a big fan of Uber, but Airbnb always struck me as something that should be illegal. When you are driving you understand you have to share the road with whoever happens to be driving at the moment…but when you buy a house you want actual neighbors and to be part of a community.
Couple of things: 1) During Volker's time, President Reagan also increased spending significantly. The difference is that he spent on military and Biden spent on the people of the U.S. This achieved a classic case of the multiplier effect which benefited the U.S. economy. I calculated the amount and talked about it here: https://medium.com/datadriveninvestor/the-multiplier-effect-the-case-for-continuing-a-1-200-monthly-check-a080ea4618bc 2) I was one of the economists (panel of economic experts on Finder) that predicted a soft landing. Monetarists consistently downplay the power of fiscal policy. 3) Demand went up because it was pent up for almost two years of lockdown. That was a weird, temporary fluke that doesn't fit into past models at all. I'd love to see an analysis that includes these three things. Thanks for writing. I always enjoy your work.
I remember many people talking about “bullwhip effect” in 2021 like we had after WW2…and we even ended up with labor unrest like after WW2. Also, we had significant deflation in March/April/May 2020 which meant inflation in 2021 was inevitable once that month over month data fell out of the year over year data.
Interesting. Good points. Didn't take into account the deflation in 2020 but that makes perfect sense. I always say, truth is in the numbers.
Over here in the real world, there has been no such thing as a soft landing. We are still in the clutch of a full blown recession. People are hurting and rhetoric is not making it go away.
Yes, if the inflation rate is going down (does anyone really believe government inflation figures?) that does not erase the across the board increases of 20+ to 100+% in the cost of essentials and luxuries. The damage is already done! Gold jumped from $1100/oz to $2000/oz. So that increase is okay if it slows down now? The same can be said for petroleum, food, overall energy, services, etc.
Comparing gold prices for inflation is absurd. It was $1700/oz in 2012 and then $1100/oz in 2016. Was everything else 50% cheaper from 2012 to 2016? Likewise, gas prices (not inflation adjusted!) are back to where they were in 2019, and lower than in 2014.
Inflation has not come back to the 2% target and Noah has already declared victory? This sounds ab awful lot like Bernanke telling us the fundamentals of the economy are sound in 2007. We are also at a time of historically low prime age male employment, so the official unemployment line does not properly capture the millions of American who are not working but would have been in a previous generation.
Jobs in a previous generation did not require as much literacy, numeracy, and computer savvy as those of today. Many Americans of today simply aren't qualified for today's jobs.
Jobs are also very spiky. The jobs that require literacy, numeracy, and computer savvy tend to be on the coasts and tend to be politically left. There are very high costs of entry for both the cost of living of those places, and on top of that people don't want to stick out for their politics.
There's a mirror image of this in the blue tribe as well. How many people in blue coastal cities want to be police officers, firefighters, truckers or petroleum workers? Among the STEM fields, engineering has the most politically conservative worker.
That still doesn't counter my point. Noah was declaring victory before inflation has even gotten to the Fed's target, let alone shown its ability to stay there. And he uses rosy statistics while ignoring the millions of men who aren't doing much of anything.
Thanks to smart phones, the deterioration of public schools, mass immigration of low skilled people, and the transformation of universities from learning institutions into those of political indoctrination.
The hybrid theory may have too many moving parts to be elegant, but it seems right nonetheless.
The problem I have with the expectations theory is that Fed threats are not, or should not be, credible.
The Fed was threatening to do everything it could to bring inflation down to 2%? Was this the same Fed that set as its target 2% inflation and yet inflation stubbornly persisted well below that target? And what did the Fed do to actually achieve its oft-stated goal? Not much, from what I could tell over the years.
So why was the Fed credible this time? Oh I get it. It's because businessman and financial types, who passionately hate inflation and are happy with a slack labor market, knew the Fed was lying when it said it was committed to getting inflation up to the 2% level but, because the Fed is biased toward their view, was actually very serious about getting inflation down to 2%, even possibly if that meant greatly increasing unemployment to squeeze that last bit of inflation from 3% or even 2.5% down to the sacred, credibility-confirming 2% level.
Or do I sound cynical?
The Fed put interest rates down to zero and bought an unprecedented amount of debt. What else should they have done?
"Oh I get it. It's because businessman and financial types, who passionately hate inflation"
You know who else passionately hates inflation? Just about everyone.
Once again, completely ignores the roles of corporate greed in this situation.
Bold article. But I still think the question is, Can the US achieve a soft landing? The jury is still out. imo