Economic Presence
  • Home
  • Paradox found
    • Paradox found

Deflationary Pressures

10/3/2014

0 Comments

 
Via FT
"Consider some of the global non-policy forces that might now be weighing on price inflation:

– Aging demographics, high debt loads, weak nominal wage growth and persistent output gaps in advanced economies.

– Slowing growth in emerging economies, as their catch-up period has stalled.

– The shale revolution and improving technologies across the energy landscape, along with weaker commodity price growth in recent years.

– Entrenched deflation in non-construction investment goods (and consumer durable goods) since the late 1990s.

– There continues to be a residual belief in most developed-world markets, resilient since the 1980s and the subsequent Great Moderation period, that central banks can reverse breakaway inflation. This makes it hard for inflation expectations, which can have a feedback effect on current inflation itself, from becoming too unanchored even if unexpectedly aggressive demand-side policies are pursued. (The same expectation of stability also probably helps prevent deflation.)
.......


Subdued inflation obviously isn’t a permanent state. Looking only at the broad global trends conceals tremendous variation between countries. Some economies are also more vulnerable to specific global pressures, and to currency fluctuations, than others. Domestic policy still matters most, and even when it is inadequately aggressive, plodding growth can still slowly lead an economy back towards full employment eventually, provided it goes on for a while.

But the problem that comes with running a low-pressure economy for too long is that the expansion stays precarious. Geopolitical (not to mention domestic-political) risks are always looming. The opening months of the year demonstrated that even the weather can knock the strengthening US economy off its growth path, if temporarily. Another slowdown in growth, or even a downturn, becomes more likely if negative cyclical forces reassert themselves. The same applies if measurement flaws lead policymakers to believe that their economies are stronger than they really are, prompting complacency. Finally, the delay itself is problematic given the possible hysteresis effects of people and capital going unused, lowering the slope of potential growth.

Look at the set of trends listed above, and you might recognise that many of them are diametrically the opposite of those that prevailed in the 1970s. A few of them are also quite obvious reversals from the decade leading up to the recent crisis. The point is not that policy can do nothing to countervail these global forces; it can do plenty. The point is simply that when the world changes, so does the mix of influences on price behaviour."

Picture
0 Comments

Other Popular Economists are starting to call out Scott Winship

10/3/2014

0 Comments

 
Scott Winship and his intellectual brethren have been first denying then minimizing the impact of growing inequality for years. I have said many many times on these pages that he/they are being intellectually dishonest Here is my first post on the matter 21/2 years ago.

This from Matt Yglesias

"And then something enormously predictable happened. Any time a depiction of growing inequality in the United States becomes popular, people who believe that increased inequality isn't bad, even if it's real, start arguing that it isn't real either. Scott Winship is one of the brightest lights of that school of thought, so he presented a long series of quibbles with both the Saez/Piketty data and Tcherneva's presentation of it which he framed as a debunking of their claims."

Matt ends with:


The bottom line is that while there is lots of room for arguing about the details of data selection, the conclusion that inequality is growing is not an eccentric discovery made by two French economists working with a particular source of income data. The broad trend is clear from a diverse set of data. Median household income growth has badly lagged per capita GDP growth, corporate profits as a share of national income have risen, and stock markets have reached record highs.

Outside the sphere of political debate, you also see the real world impact of inequality. Merrill Lynch recommends an investment strategy to its clients based on the growing economic clout of plutocrats, Singapore Airlines is now selling $18,400 first class cabin tickets, and observers think Apple is going to start selling a $10,000 watch. Conversely, Walmart is now primarily worried about competition from dollar stores. The executives at these companies are not hysterical liberals trying to drum up paranoia about inequality, they are trying to respond to real economic conditions — conditions that have entailed very poor wage growth paired with decent returns for those proserous enough to own lots of shares of stock.

Looping back to the beginning, the most striking fact about the entire dispute is that Winship himself does not disagree that inequality is at a very high level and that it has risen since the Reagan Revolution. He simply thinks it's wrong to obsess over this, and therefore that it's wrong to try to think up ways to dramatize it. But if you think that America is slipping into a doom loop of oligarchy then naturally you will want to dramatize the trend. Tcherneva's chart does that very well, which is exactly why it's so controversial.

0 Comments

Cullen Roche thinks that consumers overestimate food inflation

7/23/2014

0 Comments

 
See his post here. 

I think it matters which reference point you pick and where you are in the income distribution. If you go back to 2000, average wages for a typical worker have risen 49% while food prices are up 129%. By that metric I would say complaining is warranted. Perhaps Cullen is a 1%er and his income growth has outpaced food inflation.
Picture
Picture
0 Comments

Inflationary expectations are not formed via rational expectations

7/22/2014

0 Comments

 
Via Econbrowser.
0 Comments

Old Post (2012) by Mark Thoma on why weed need more redistribution- pretty much how I see the world.

8/26/2013

0 Comments

 
Economist's View
Mark says:
"My view on whether this  problem will correct itself:
 
I’ve never favored redistributive policies, except to correct distortions in the distribution  of income resulting from market failure,
political power, bequests and other  impediments to fair competition and equal opportunity. I’ve always believed that  the best approach is to level the  playing field so that everyone has an equal  chance. If we can do that – an  ideal we are far from presently – then we should  accept the outcome as fair. Furthermore, under this approach, people are  rewarded according to their contributions, and economic growth is likely to be  highest.

But increasingly I am of the view that even if we could level the domestic playing field, it still won’t solve our wage stagnation and inequality problems. 

We’ve given self-correction mechanisms 40 years to solve the problem of growing  inequality, and the result has been even more inequality. ... Some people say education is the answer, but we have been trying to reform education  for decades, yet the problems remain. The idea that a fix for education is just  around the corner is wishful thinking.

If we want to preserve a growing and socially healthy economy, and avoid  moving to lower growth points on the inequality curve, then we will need to do much more redistribution of income than we have done over the last several  decades. We must ensure that the rising economic tide lifts all boats, not just the yachts. That means the wealthy will no longer get it all, they will be asked  to share economic growth with the workers who helped to bring it about, workers who ought to be rewarded for their growing productivity.

 We can expect considerable protest when the wealthy are asked to give up a portion of the growth that has been flowing exclusively to them for so long, and we’ll hear every reason you can think of and a few more as to why redistributive  polices are bad for America. But sharing economic gains among all those who had  a hand in creating them is the right thing to do. For the
foreseeable future,  redistributive polices appear to be the only way to ensure that workers receive  their share of the growing economic pie.

Many of the policies enacted during and after the Great Depression  not only addressed economic problems but also directly or indirectly  reduced the ability of special interests to capture the political  process. Some of the change was due to the effects of the Depression  itself, but polices that imposed regulations on the financial sector,  broke up monopolies, reduced inequality
through highly progressive  taxes, and accorded new powers to unions were important factors in  shifting the balance of power toward the typical household.

But  since the 1970s many of these changes have been reversed. Inequality has reverted to levels unseen since the Gilded Age, financial regulation  has waned, monopoly power has increased, union power has been lost, and  much of the disgust with the political process revolves around the  feeling that politicians are out of touch with the interests of the  working class.
 
We need a serious discussion of this issue,  followed by changes that shift political power toward the working class.  But who will start the conversation? Congress has no interest in doing  so; things are quite lucrative as they are. Unions used to have a voice,  but they have been all but eliminated as a political force. The press  could serve as the gatekeeper, but too many news outlets are  controlled  by the very interests that the press needs to confront. Presidential  leadership could make a difference, but this president does not seem  inclined to take a strong stand on behalf of the working class...
 
Another option is that the working class will say enough is enough and demand  change.  There was a time when I would have scoffed at the idea of a mass  revolt against  entrenched political interests and the incivility that  comes with it. We aren’t
there yet – there’s still time for change – but  the signs of unrest are growing, and if we continue along a two-tiered  path that ignores the needs of  such a large proportion of society, it  can no longer be ruled out."


If you want to see a pretty silly critique on this post read Mish.



0 Comments

Ascribing intent to the Federal Reserve

2/9/2012

1 Comment

 
A friend send me this note about the Fed's intent regarding  QE2 and my view that the Fed may be purposely trying to generate moderate inflation.

"QE2 was announced in November 2010.
At that time CPI-U was running considerably under 2.0% and had declined from January 2010:
http://inflationdata.com/inflation/inflation_rate/currentinflation.asp

Given the example of 1937-1938 U.S. recession, I can understand the intent as being avoiding deflationary expectations or entrenchment of "too low" inflation expectations while accepting inflation risk - or even as being outright mechanical monetary stimulus (versus expectations management)."

I think he has a point, I checked the inflation calculator (his link) from start of 2010 to October 2010 (0.93%) and August (and September) 2010 to October 2010 (0.18%) so inflation was trending lower at the time. I like my friends choice of words in the characterization.

That said, here is what David Einhorn, a prominent hedge fund manager, of Greenlight Capital recently said on the issue of inflation. He is skeptical of the inflation numbers the Fed looks at and whether they are reliable indicators of what is actually happening.

"The official basket excludes most healthcare costs, which go up fast and includes a huge weighting for OER, which is a cost economists calculate, but no one actually pays. Notably, OER did not rise quickly during the housing bubble, but continues to suppress inflation in the housing bust. Finally, they exclude food and energy, because they are supposedly volatile -- and we wouldn't want that. Never mind that the CRB, which is mostly food and energy inputs has roughly doubled over the last few years."

Einhorn was responding to this post on "why we fear deflation".
"So, there is an asymmetric risk in monetary policy right now. The massive injection of base money raises the tail risk of high inflation down the road –which we know how to tame- but monetary abstinence presents the tail risk of a deflationary spiral, which central bankers do not know how to reliably reverse. " That's what my friend said.

As I said in an earlier post, "In a world where  the Fed creates a problem by being too accommodative, their  response to the problem is being historically accommodative, and the new big ideas (NGDP targeting and QE) are "The FED should be even more accommodative" - well this is “Inception”."
 
I would point out,  that when the Fed was looking at their macro numbers they failed to recognize a credit bubble forming and failed to see the bubble in the housing markets(or at least the implications) and campaigned in favour of leverage restrictions being eased for FIs and against controls on the OTC market. In other words, at most of the key points of  leverage to prevent the current crisis the Fed failed to act or acted counter to society's long term interests. Instead of raising rates and provoking a  recession to cool the housing bubble they stood by and watched. Now we are supposed to accept their analysis that extreme extreme extreme monetary stimulus is necessary. Meh.

I still disagree with QE2, still think it was unnecessary given the problems in the banking sector had been contained. I acknowledge though that based on the numbers at  the time, it may have been more of a judgement call than I had previously allowed.

We will see soon see how adept the Fed is at "taming". There are two types of people in this world...........

1 Comment

Inflation Watch -New Car Prices

2/6/2012

1 Comment

 
Average new car prices are expected to rise 6% in the US this year.  Editorial note: (Brent makes a good comment; the article expects a significant increase in luxury car sales so the actual inflation number for cars for the median buyer may be substantially lower than 6%. IE average prices are increasing because more people decided to buy exspensive cars not because of a general rise in car prices acroos the board. The change in median car prices would be more indicative if this number was available. Looking at Scotia's Price chart on page seven we see that average new car prices in US (page 7) appear to be up 4% last year. The implication for this year's inflation, if any, is unclear.)
1 Comment

    Author

    Karl Pinno

    Categories

    All
    60 Minutes
    Abnormal Returns
    Academic Publishing
    Advice For Econ Students
    Age
    Aid
    Algo Trading
    Aluminum
    Argentina
    Assortive Matching
    Austerity
    Bank Of England
    Behavioural Economics
    Bio Weapons
    Bis
    Bloomberg
    Bonds
    Bono
    Book Of Mormon
    Brain
    Brazil
    Brics
    Bridgewater Associates
    Buffet
    Calgary
    Canada
    Capital Flight
    Carola Binder
    Cds
    Central Banks
    Chainmail Bikinis
    Chanos
    Child Rearing
    China
    Chris Martenson
    Christmas Wishlist
    Climate Change
    College Humor
    Commercial Banks
    Commodities
    Community
    Computer Programming
    Confirmation Bias
    Conservatism
    Conservative
    Constructive Ambiquity
    Consumer Confidence
    Copper
    Corporate Lending
    Counterparty Risk
    Creativity
    Credit
    Culture
    Cwb
    David Einhorn
    David Rosenberg
    Debate
    Debt Crisis
    Deflation
    Demographics
    Depression
    Development
    Dragons
    Dr. Ed's Blog
    Econ Blogs
    Economics
    Ecri
    Education
    Electricity
    Eurasia Group
    Eurozone
    Excercise
    Externalities
    Falkenblog
    Ferguson
    Fertility
    Filtering
    Financial Crisis 2008
    Financial Engineering
    Financial Reform
    Financial Repression
    Financial Research
    Fiscal Policy
    Fiscal Stimulus
    Fisher
    Fixed Income
    Flood
    Food Prices
    Frank And Cook
    Fraud
    Freidman
    Ft
    Game Theory
    Gender
    Generalist
    George Soros
    Get Smart
    Giffen Good
    Global Banking
    Global Economy
    Gmo
    Godfather
    Gold
    Goldman Sachs
    Great Careers
    Greece
    Greenlight Capital
    Happiness
    Hayman Capital Management Lp
    Hbo
    Health
    Hedge Funds
    Homosexuality
    Housing Market
    Hubbard
    Hugh Hendry
    Hussman
    Ian Bremmer
    Imf
    Inception
    Income Smoothing
    India
    Inequality
    Inflation
    Inflationary Expectations
    Inside Job
    Interest Rates
    Interfluidity
    Intuition
    Inventories
    Iran
    Iraq
    Italy
    Janusian Thinking
    Japan
    Jordan Peterson
    Jp Morgan
    Judgement
    Kalecki Equation
    Krugman
    Kyle Bass
    Larry Smith
    Larry Summers
    Lehman Brothers
    Levitt
    Liberal
    Lonely Island
    Luck
    Macro
    Macro Intro
    Macro Predictions
    Management Consulting
    Marginal Revolution
    Market Design
    Market Monetarism
    Marx
    Matt Taibbi
    Mercantilism
    Michael Portillo
    Milton Friedman
    Mircea Eliade
    Mish
    Mishkin
    Monetary Policy
    Monetary Stimulus
    Multipliers
    Mundell
    Music
    Nanex
    Nfl
    Noahpinion
    Nobel Price In Economics
    Oil Price Volatility
    Oil Production
    Omitted Variable Bias
    Optimism Bias
    Overcomingbias
    Palantir
    Pettis
    Phillips Curve
    Placebo
    Podcasts
    Poker
    Poland
    Politico
    Politics
    Populism
    Portfolio Management
    Positivism
    Prisoner's Dilemma
    Productivity
    Psychology
    Publishing
    Quality
    Quantitative Easing
    Race
    Rand Paul
    Ray Dalio
    Rbc Theory
    Real Interest Rates
    Reality Tv
    Recession
    Redistributionist Reform
    Regulators
    Regulatory Capture
    Remembrance Day
    Research
    Richard Wilkinson
    Riots
    Risk
    Risk Taking
    Robots
    Roubini
    Russia
    Ryan
    Sachs
    Salt
    Saudi Arabia
    Sec
    Seth Klarman
    Shadowbanking
    Shiller
    Signaling
    Smes
    Snap
    Social Policy
    Social Unrest
    Society
    Sorkin
    Soros
    S&P
    Spain
    Specialization
    Speculation
    State Sponsored Terrorism
    Status
    Steve Jobs
    Steven Keen
    Stress
    Structural Unemployment
    Structure Finance
    Sugar
    Suicide
    Svars
    Systemic Risk
    Tax
    Taylor Rule
    Technology
    Ted
    Television
    The Clash
    The Economist
    The Wire
    Thinking
    Thoureau
    Trade
    Trilemma
    Turkey
    Tyler Cowen
    U2
    Unemployment
    Us 2012 Election
    Us Economy
    Us Foreign Policy
    Velocity
    Volatility
    Welfare
    Williams
    Words
    Work
    Writing
    Zerohedge
    Zig Ziglar

    Archives

    November 2017
    October 2017
    March 2017
    January 2017
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    February 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011

    RSS Feed

Powered by Create your own unique website with customizable templates.