Jul 31, 2023·edited Jul 31, 2023Liked by Noah Smith
Agree with your comments.
One area where we're not doing well and it's causing real pain is home/apt building. No one could credibly disagree with the observation that we have a real housing crisis. Yet that's exactly where the current economy is coming up most short. Home builder's can't build (because they can't sell) in volume. And apartment construction has fallen off a cliff owing to the doubling of debt costs combined with equity having run to the sidelines (I'm a large scale apartment developer.)
So just when we need a large supply boost, and the YIMBY movement is making real headway on the entitlements front, the factors required for a big housing supply increase have run into a head wall in the form of the current economy.
I think this misses an important point, which is that while INFLATION has gone down, PRICES haven't. Now, I know: inflation going down doesn't mean prices go down. Prices going down would be DEFLATION, and that's bad. Yes yes yes. But most people don't get this. For most people, inflation means "My groceries cost 15% more than they did two years ago!" And groceries still cost 15% more than they did two years ago. So inflation hasn't gone away. Again, I'm not endorsing that thought process, I'm just saying it's very common.
Why economists will not acknowledge that the economy is good I have no idea, but I know why the average person has a problem.
Inflation is deeply troubling—many of us spend a lot of energy trying to find low prices, and when prices go out of control, like $5 eggs and $5 gas, it's a shock to the system. And when economist tell us inflation is over, the prices are still way higher than what we were used to. And our wages probably have not gone up correspondently.
There's a similar problem with the term "recession." When a recession ends, that only means that the economy has stopped getting worse. It doesn't mean that all the damage done by the recession, especially lost jobs, has been repaired. The average person who's gone through a recession is still suffering significantly when the recession has been proclaimed “over."
Incidentally, the people who have the privilege to announce that an inflation or a recession is over, all have well paid secure jobs. That fact shows in their clothing and the serene look on their faces. That's why ordinary folks have trouble buying it.
Especially when compared to other nations, the United States managed the Covid impact on the economy very well. Both the Biden Administration and The Fed deserve kudos for the job they have done. They will be taught in future economics textbooks.
I think there is a fifth element folks want from the economy: Stability and predictability. All this economic chaos reframed as business cycles is very unsettling to the common household trying to provide for a decent life, and plan for a dignified retirement, and leave a bit for the kids.
This seems right. Here are some anecdotal reasons why it subjectively "feels" like the economy is bad in my own life:
- The grocery store in my neighborhood, which was open until midnight for more than a decade, now closes at 10. The deli is rarely open even during posted hours. Often there is no one running a regular checkout line, and usually half the self-checkout lines are closed as well. The formerly 24/7 supermarket a little further out is now open until midnight only.
- Many restaurants are closed one weeknight a week. This was unheard of in my town until 2021.
- It's impossible to get an appointment to see my primary care doctor less than a month in advance, and from what I hear trying to find a new one is even more impossible.
If these reflect broader trends, it could be that the labor market isn't at equilibrium yet--wages might need to rise further (with more inflation consequently?). Or maybe the service economy is just going to be providing worse service to the consumer from now on at the new equilibrium.
Something I've really learned over the past couple years is the extent to which certain middle-class/upper-middle-class amenities rely on a large pool of cheap labor that has now, to an extent, dried up. To be clear, I think this is great, but I do think it lowers quality-of-life in some visible ways.
The most obvious thing are the much more limited hours many restaurants are keeping post-covid. If you want to go out to dinner Monday night in my neighborhood, your options are extremely limited right now. Late night dining has been obliterated.
You can also feel that fast-food service quality has declined significantly while prices are way up. Lines are longer, quality is worse, and things are just more likely to go wrong. This is starting to stabilize and get better as major chains are deploying some fancier technology, but it's still often a worse experience than I remember pre-pandemic.
I take these sorts of changes as being evidence of a good economy. But I can easily see how someone who doesn't think about it as much might take these sorts of things as a sign of a bad economy.
People feel the economy is not doing well when they see boarded up businesses wherever they go. (I'm fine, but my neighbours have gone bankrupt.) What's the vacancy rate for commercial businesses these days in the USA, and does it vary a lot depending on where you are? Anecdotally, I read that Americans are moving to the suburbs (where they need new commercial business buildings) and working remotely a lot more, which would leave the cities with a lot of empty commercial buildings that are unlikely to find tenants any time soon.
I’d recommend not celebrating too early. There’s a tsunami of consumer debt accruing at 25% compounded, commercial real estate is in dire trouble, the stock market is overvalued, and real life goods like gas, energy and groceries are sky high. You may think things are better because you don’t live in a world where your necessities are 30% so you have to charge basic needs. Recent data shows consumer savings is pretty much tapped out.
In tech, it's particularly messy. I'll speak to the handful of areas I've analyzed: semis, Big Tech, and VC markets.
Semis existing in this super-position of extreme demand in some areas, but massive questions about how these fabs will actually get filled. Yes, AI is hot, but NVIDIA doesn't actually use enough wafers compared to consumer applications like the iPhone to keep a fab completely utilized. As consumer sentiment wanes, it's forcing semiconductor manufacturers to question their growth strategies at the same time that the US government is providing massive subsidies to build new factories here. The result is a strain on the labor force: sales and marketing is getting layoffs and trying to find hot areas to stay, while engineering and manufacturing are working especially hard to deliver fabs that may or may not be used.
Big Tech has gone through its "efficiency" stage, shrugging off a huge amount of people. There are just permanently fewer Big Tech jobs (at least on the growth side), and the startup ecosystem can't absorb them all. These orgs may still be shedding jobs (Google is still perceived as being overstaffed) so it will be a while until they start staffing up again. These were extremely well-paid jobs with cushy benefits (and questionable productivity) that are just gone. Anecdotally, the people I knew in this situation have gone to more traditional companies (grocery stores, hotels, etc.) trying to figure out their digital media strategy. I am curious how the Big Tech growth playbook shapes those companies in the near future.
Lastly, there's VC and startups in general. The short version is that the VCs had less capital to deploy, so capital that flowed like water in 2021 is now a streetfight. Worse, they all are raising at the same time with worse valuations and terms. 2021 was insanity for startups, with a glut of new companies raising at insane valuations. Typically they would raise 18 months worth of capital, meaning they would all be looking for new capital by mid-2023. In the intervening months, the Fed raised interest rates, which put a chill on how much capital flowed into new VC funds, such that there are fewer deals. One deal tracker put Q2-2023 as the worst quarter for startup dealmaking ever observed: https://twitter.com/AngelList/status/1684594617629503488?s=20. It also closed the "IPO window", such that more established companies looking to exit via IPO either can't or shouldn't (the price would be worse, can get capital elsewhere, etc.). The result is fewer companies, jobs, harder to start a new company (in anything but AI), and no liquidity from any work at those existing startups. VCs have predicted Big Tech would start acquiring them in Q2-Q4 of this year, as companies ran out of cash. Considering how tech has powered the stock market, it's also reduces potential investment opportunities, though I expect the best still make it to the IPO window.
I think it's fair to roll many of these anxieties into "upper middle class people are less well-off" which describes most of the issues discussed here. But I expect we have not fully reckoned with their implications yet. If the CHIPs Act spurs a bunch of empty factories or factories too expensive to turn on, the shortages of workers is going to reverse overnight. Will there just be permanently fewer paths to upper middle class lifestyles with fewer Big Tech jobs? Does something replace that? Is there just a missing class of tech companies or do they get pushed to a glut hitting the market as soon as Wall Street sentiment shifts? Are they productive in the mean-time, or do they have to sell and big companies either absorb their benefit or erase a potential competitor for a while?
I've always been a low income earner. The last few years my income has been about 29k annually. Even though low income I've been fairly smart and own a home and a rental house. I'm 65.4, still work almost full time, and have not taken social security yet.....trying to hold out at least until full retirement age of 66.8. It's been harder for me to buy healthy food than ever before in my life. You say inflation is going down, but prices at the grocery continue to rise. My costs for electricity and insurance have gone way up for the last few years. I live paycheck to paycheck with a very small cushion. And if I hadn't been at least a little smart with my investment in real estate I can't imagine what my life would be like. And there are MANY people in that boat with no hope of ever owning a home at this point...and that's been THE major investment for the majority. And from what I hear about the rise in cost of materials for manufacturing we are going to see some severe inflation as those price increases reach the consumer. As an example some materials for making car parts are seeing a 1000 percent increase. I'm sorry, but you do sound like a shill for Biden.
Behold! An “okay” economy is when there are lots of high-paying job openings. A “good” economy is when I in particular have lots of high-paying job offers
I wonder if the techcession might be part of the problem? Thousands of high end developers and sysadmins have been laid off at places like Amazon, Microsoft, Google, Meta. Obviously thousands is peanuts when looking at an economy the size of the U.S., but I think that cohort exerts a pretty big influence on how the rest of us view things. I don't have any data to back up this view, but it seems like it might have legs.
The "you could have all this, all on one income" meme is dumb (you could have 1950s living standards today on one income, yes, you just don't want them) but there have been relative price shifts against things many people want: housing and most things child-related. Kids and houses are (relatively!) more expensive than they used to be.
It's not specific to what's happening now but may lead to background discontent and ill-feeling.
Agree with your comments.
One area where we're not doing well and it's causing real pain is home/apt building. No one could credibly disagree with the observation that we have a real housing crisis. Yet that's exactly where the current economy is coming up most short. Home builder's can't build (because they can't sell) in volume. And apartment construction has fallen off a cliff owing to the doubling of debt costs combined with equity having run to the sidelines (I'm a large scale apartment developer.)
So just when we need a large supply boost, and the YIMBY movement is making real headway on the entitlements front, the factors required for a big housing supply increase have run into a head wall in the form of the current economy.
I think this misses an important point, which is that while INFLATION has gone down, PRICES haven't. Now, I know: inflation going down doesn't mean prices go down. Prices going down would be DEFLATION, and that's bad. Yes yes yes. But most people don't get this. For most people, inflation means "My groceries cost 15% more than they did two years ago!" And groceries still cost 15% more than they did two years ago. So inflation hasn't gone away. Again, I'm not endorsing that thought process, I'm just saying it's very common.
Why economists will not acknowledge that the economy is good I have no idea, but I know why the average person has a problem.
Inflation is deeply troubling—many of us spend a lot of energy trying to find low prices, and when prices go out of control, like $5 eggs and $5 gas, it's a shock to the system. And when economist tell us inflation is over, the prices are still way higher than what we were used to. And our wages probably have not gone up correspondently.
There's a similar problem with the term "recession." When a recession ends, that only means that the economy has stopped getting worse. It doesn't mean that all the damage done by the recession, especially lost jobs, has been repaired. The average person who's gone through a recession is still suffering significantly when the recession has been proclaimed “over."
Incidentally, the people who have the privilege to announce that an inflation or a recession is over, all have well paid secure jobs. That fact shows in their clothing and the serene look on their faces. That's why ordinary folks have trouble buying it.
Especially when compared to other nations, the United States managed the Covid impact on the economy very well. Both the Biden Administration and The Fed deserve kudos for the job they have done. They will be taught in future economics textbooks.
I think there is a fifth element folks want from the economy: Stability and predictability. All this economic chaos reframed as business cycles is very unsettling to the common household trying to provide for a decent life, and plan for a dignified retirement, and leave a bit for the kids.
This seems right. Here are some anecdotal reasons why it subjectively "feels" like the economy is bad in my own life:
- The grocery store in my neighborhood, which was open until midnight for more than a decade, now closes at 10. The deli is rarely open even during posted hours. Often there is no one running a regular checkout line, and usually half the self-checkout lines are closed as well. The formerly 24/7 supermarket a little further out is now open until midnight only.
- Many restaurants are closed one weeknight a week. This was unheard of in my town until 2021.
- It's impossible to get an appointment to see my primary care doctor less than a month in advance, and from what I hear trying to find a new one is even more impossible.
If these reflect broader trends, it could be that the labor market isn't at equilibrium yet--wages might need to rise further (with more inflation consequently?). Or maybe the service economy is just going to be providing worse service to the consumer from now on at the new equilibrium.
Something I've really learned over the past couple years is the extent to which certain middle-class/upper-middle-class amenities rely on a large pool of cheap labor that has now, to an extent, dried up. To be clear, I think this is great, but I do think it lowers quality-of-life in some visible ways.
The most obvious thing are the much more limited hours many restaurants are keeping post-covid. If you want to go out to dinner Monday night in my neighborhood, your options are extremely limited right now. Late night dining has been obliterated.
You can also feel that fast-food service quality has declined significantly while prices are way up. Lines are longer, quality is worse, and things are just more likely to go wrong. This is starting to stabilize and get better as major chains are deploying some fancier technology, but it's still often a worse experience than I remember pre-pandemic.
I take these sorts of changes as being evidence of a good economy. But I can easily see how someone who doesn't think about it as much might take these sorts of things as a sign of a bad economy.
I think we just also need a grumpy lag.
Only just now has inflation cratered and the recession been called off.
People's views might lag as much as shelter data.
People feel the economy is not doing well when they see boarded up businesses wherever they go. (I'm fine, but my neighbours have gone bankrupt.) What's the vacancy rate for commercial businesses these days in the USA, and does it vary a lot depending on where you are? Anecdotally, I read that Americans are moving to the suburbs (where they need new commercial business buildings) and working remotely a lot more, which would leave the cities with a lot of empty commercial buildings that are unlikely to find tenants any time soon.
A good economy would look exactly like this one but with about half the cost of housing.
I’d recommend not celebrating too early. There’s a tsunami of consumer debt accruing at 25% compounded, commercial real estate is in dire trouble, the stock market is overvalued, and real life goods like gas, energy and groceries are sky high. You may think things are better because you don’t live in a world where your necessities are 30% so you have to charge basic needs. Recent data shows consumer savings is pretty much tapped out.
In tech, it's particularly messy. I'll speak to the handful of areas I've analyzed: semis, Big Tech, and VC markets.
Semis existing in this super-position of extreme demand in some areas, but massive questions about how these fabs will actually get filled. Yes, AI is hot, but NVIDIA doesn't actually use enough wafers compared to consumer applications like the iPhone to keep a fab completely utilized. As consumer sentiment wanes, it's forcing semiconductor manufacturers to question their growth strategies at the same time that the US government is providing massive subsidies to build new factories here. The result is a strain on the labor force: sales and marketing is getting layoffs and trying to find hot areas to stay, while engineering and manufacturing are working especially hard to deliver fabs that may or may not be used.
Big Tech has gone through its "efficiency" stage, shrugging off a huge amount of people. There are just permanently fewer Big Tech jobs (at least on the growth side), and the startup ecosystem can't absorb them all. These orgs may still be shedding jobs (Google is still perceived as being overstaffed) so it will be a while until they start staffing up again. These were extremely well-paid jobs with cushy benefits (and questionable productivity) that are just gone. Anecdotally, the people I knew in this situation have gone to more traditional companies (grocery stores, hotels, etc.) trying to figure out their digital media strategy. I am curious how the Big Tech growth playbook shapes those companies in the near future.
Lastly, there's VC and startups in general. The short version is that the VCs had less capital to deploy, so capital that flowed like water in 2021 is now a streetfight. Worse, they all are raising at the same time with worse valuations and terms. 2021 was insanity for startups, with a glut of new companies raising at insane valuations. Typically they would raise 18 months worth of capital, meaning they would all be looking for new capital by mid-2023. In the intervening months, the Fed raised interest rates, which put a chill on how much capital flowed into new VC funds, such that there are fewer deals. One deal tracker put Q2-2023 as the worst quarter for startup dealmaking ever observed: https://twitter.com/AngelList/status/1684594617629503488?s=20. It also closed the "IPO window", such that more established companies looking to exit via IPO either can't or shouldn't (the price would be worse, can get capital elsewhere, etc.). The result is fewer companies, jobs, harder to start a new company (in anything but AI), and no liquidity from any work at those existing startups. VCs have predicted Big Tech would start acquiring them in Q2-Q4 of this year, as companies ran out of cash. Considering how tech has powered the stock market, it's also reduces potential investment opportunities, though I expect the best still make it to the IPO window.
I think it's fair to roll many of these anxieties into "upper middle class people are less well-off" which describes most of the issues discussed here. But I expect we have not fully reckoned with their implications yet. If the CHIPs Act spurs a bunch of empty factories or factories too expensive to turn on, the shortages of workers is going to reverse overnight. Will there just be permanently fewer paths to upper middle class lifestyles with fewer Big Tech jobs? Does something replace that? Is there just a missing class of tech companies or do they get pushed to a glut hitting the market as soon as Wall Street sentiment shifts? Are they productive in the mean-time, or do they have to sell and big companies either absorb their benefit or erase a potential competitor for a while?
I've always been a low income earner. The last few years my income has been about 29k annually. Even though low income I've been fairly smart and own a home and a rental house. I'm 65.4, still work almost full time, and have not taken social security yet.....trying to hold out at least until full retirement age of 66.8. It's been harder for me to buy healthy food than ever before in my life. You say inflation is going down, but prices at the grocery continue to rise. My costs for electricity and insurance have gone way up for the last few years. I live paycheck to paycheck with a very small cushion. And if I hadn't been at least a little smart with my investment in real estate I can't imagine what my life would be like. And there are MANY people in that boat with no hope of ever owning a home at this point...and that's been THE major investment for the majority. And from what I hear about the rise in cost of materials for manufacturing we are going to see some severe inflation as those price increases reach the consumer. As an example some materials for making car parts are seeing a 1000 percent increase. I'm sorry, but you do sound like a shill for Biden.
Behold! An “okay” economy is when there are lots of high-paying job openings. A “good” economy is when I in particular have lots of high-paying job offers
I wonder if the techcession might be part of the problem? Thousands of high end developers and sysadmins have been laid off at places like Amazon, Microsoft, Google, Meta. Obviously thousands is peanuts when looking at an economy the size of the U.S., but I think that cohort exerts a pretty big influence on how the rest of us view things. I don't have any data to back up this view, but it seems like it might have legs.
The "you could have all this, all on one income" meme is dumb (you could have 1950s living standards today on one income, yes, you just don't want them) but there have been relative price shifts against things many people want: housing and most things child-related. Kids and houses are (relatively!) more expensive than they used to be.
It's not specific to what's happening now but may lead to background discontent and ill-feeling.