Economists’ projections of interest rates and unemployment have proved too high

https://www.wsj.com/articles/economists-got-the-decade-all-wrong-theyre-trying-to-figure-out-why-11576346400

by lxm • 7 years ago

77 153 7 years ago

Except for the MMT people. They mostly got it right but they don't count as 'real' economists to the WSJ.

aketchum• 7 years ago

I love MMT in theory but it is terrifying to consider actually making policy decisions with MMT as the justification. The downside risk of MMT being wrong and the resulting runaway hyper inflation would destroy the dominant economic standing that the US has spent the entire post war era cultivating.

helen___keller• 7 years ago

That risk exists independent of MMT. We could deficit spend an airdrop of a million bucks to every American with a bill today under modern economics, and still destroy the economy with hyperinflation. We could borrow trillions in a foreign currency and face hyperinflation risk today.

As I understand it, MMTs actionable insights range from issuing less/no debt for the same government spending, offering jobs to the unemployed and underemployed through a federal jobs program, and tinkering with government spending /taxation as a tool for controlling inflation (as opposed to interest rates as a tool for controlling inflation).

Note that regardless of your economic beliefs, these are all still subject to the same political system we live in today. Most of the worst case scenarios people imagine with MMT look like "we gave someone the power to print money and they printed too much money". But in the real world that's a problem with autocracy, incentives, and feedback loops. If we keep autocracy out and still monitor/alter incentives and feedback loops as needed, it's hard to imagine MMT having a massive downside risk any moreso than existing economic orthodoxy.

virmundi• 7 years ago

MMT is not enough to google for. Who are they and what do they think/teach?

lbotos• 7 years ago

https://en.wikipedia.org/wiki/Modern_Monetary_Theory

jfengel• 7 years ago

Modern Monetary Theory is the idea that the government can go ahead and just pay all its debts with IOUs, which is all cash really is anyway. You don't need taxes to pull in cash and dole it out, which just complicates things. You might do it anyway, to control inflation, but even orthodox Keynesian theory says that a little inflation is a good thing (since it encourages people to invest rather than put their money under a mattress).

The idea is to pump enough cash into the economy that employers (or worst case, the government itself) will find jobs for everybody who wants to work.

It's kind of the flip side of the inflation-averse Chicago/Austrian school of economics, with mainstream Keynesian economics in between. The Chicago school is strongly associated with the right wing, and MMT is receiving a lot of attention right now from the left, who want to use it to fund a lot of progressive spending policies.

qubex12• 7 years ago

I have plenty of quibbles with MMT but I’d classify it as a theory of endogenous money (albeit one of the least savoury ones).

claudeganon3• 7 years ago

Do you know does MMT says about printing money for the express purpose of infrastructure development? I’d be interested to see what their take would be on doing so for doing things like high speed internet expansion, decentralized green grids, etc. In housing, the fed doing this has obviously led to real estate asset bubbles, but what would happen in the case of public assets?

jmartrican• 7 years ago

Is this what China is doing? I often wonder about whether there are real downsides to just printing money as long as the rest of the world buys into your currency. Seems like printing money fails only when there is lost in confidence. But as long as the confidence is there, maybe it can just continue working.

ambernightcruse4• 7 years ago

There's no reason to assume that there's real estate asset bubbles, we don't have overlending/unqualified lending. You could argue that there's scarcity in real estate, driven by local governments restricting the supply of housing through historic regulations and single family housing. And that as a result, the only time of private investment that can earn a return is luxury housing which fails to be affordable for a large segment of the population.

MMT doesn't say anything about what you use the funds for, but, if you're a Keynesian then you need to keep your eye on productivity and growing GDP, and you need to worry about inflation. Depending on your politics then you could spend on public assets like infrastructure, green energy, etc. But most MMTers suggest a federal jobs guarantee that would create a buffer for people that the private market will not employ. The job guarantee would employ people to do all sorts of public projects to anyone willing and able to work. You just have to be careful about inflation. If you spend money on steel and concrete and you put people to work in construction, you're going to suck up resources that the housing industry needs, and if you don't have the resources you're going to get inflation. Ideally you'd spend money in areas where the private sector doesn't want to or cannot deliver low costs(e.g., education, environmental cleanup, healthcare.)

seibelj• 7 years ago

Their theory may work but I understand it's predicated on having control of a global reserve currency and being able to dynamically change income tax rates (and all tax rates?) on a daily basis. This is not possible so the theory can't be tested.

tvanantwerp• 7 years ago

I think the reliance on being able to adjust tax rates--especially upwards--makes MMT a non-starter politically. You'd basically have to remove the power of taxation from legislative bodies to unaccountable agencies, similar to how the Fed controls interest rates. And good luck convincing any legislative body to give up that power.

AnimalMuppet3• 7 years ago

The problem with MMT is this: It might work if you spend the money on infrastructure. But who's going to be making the spending decisions? Congress is. Do you trust Congress to spend the way MMT says they should? I don't, not by a long shot. Congress will say "Free money? Great! Ponies for everybody!" or something equally wasteful.

MMT might work (though I doubt it). MMT being run by Congress terrifies me.

joejerryronnie• 7 years ago

MMT works great, until it doesn't.

qubex12• 7 years ago

Paywalled, couldn’t read.

As an economist, strongly allergic to this kind of title. The theory of endogenous money (as opposed to non monetary and/or fractional reserve banking theories) accounts for what is described in the title fairly effectively: money needs to be viewed as a medium of exchange, and it needs to be plentiful so that information never gets bottlenecked: this will surprise no software developer if they compare it to, for example, storage space and/or network bandwidth. Economic theories that either ignore money as irrelevant or ascribe inherent value to it (as does neoclassical economics, and as do crypto-currency enthusiasts who effectively seek to recreate artificial sources of scarcity just as the gold or more accurately bimetallic standard did) fail to account for the economic expansion that accompanied the expansion of monetary supply; endogenous money models, though less widespread, do not make such disproven predictions, and thus should be allowed to stand whereas the others should be held to be manifestly disproven.

Now, could we please sit down and figure out not what the next currency shall be, but what an ‘antibank’ is going to be?

Rerarom• 7 years ago

There's something I don't get about endogenous money vs. fractional reserve. Namely, the factual claims.

So fractional reserve says that money is created by loans between banks as restricted by the money multiplier and endogenous money says that banks can create unlimited money. [1]

My question is not which of these is true but rather how can this be under dispute? Aren't the workings of banks established by laws and regulations? Can't one just ask the relevant people what are they actually doing?

[1] https://www.amazon.com/Where-Does-Money-Come-Ryan-Collins-eb...

qubex12• 7 years ago

Indeed the Bank of England famously proclaimed that it adheres to the Endogenous Theory of Money in an unexpected set of articles its economists published to dispense with the nonsense.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

raxxorrax2• 7 years ago

As a non-economist: Is there really any practical difference by now?

martindale• 7 years ago

Satoshi got it right; "Chancellor on Brink of Second Bailout for Banks" — 10 years and running strong. Seems the Austrians are winning back a century of lost ground!

qubex12• 7 years ago

Satoshi got it extremely wrong, to the point that if he had any economic background at all I’d suspect the first wave of crypto currencies to be a sick joke: artificial scarcity (and more generally, inflexible money supply) of the kind engendered by bitcoin and its ilk are the exact embodiment of what money must not be if one is to not artificially crimp the economy’s growth. There’s a very good reason why we came off the so-called Gold Standard (bimetallic standard, actually), and why coming off it heralded the greatest period of economic growth in Western history.

koheripbal• 7 years ago

Bingo. Money is only a useful medium of exchange if it is stable, and deflationary currencies are inherently volatile.

drcode4• 7 years ago

Satoshi used his/her economic theories to create a 100 billion market cap asset from literally zero... what would they have to do to convince you folks that they were on to something with their ideas? Also cure cancer?

larrysalibra• 7 years ago

"we" came off of the gold standard because Nixon was having trouble paying for the Vietnam war. Printing money doesn't create wealth, it redistributes it to the printer: this is seigniorage and it is a tax https://en.wikipedia.org/wiki/Seigniorage

Mirioron3• 7 years ago

There’s a very good reason why we came off the so-called Gold Standard (bimetallic standard, actually), and why coming off it heralded the greatest period of economic growth in Western history.

How sure are we that this was a good idea in the long run? Politicians and their appointees aren't always the most responsible people. If it's possible for them to obfuscate some of their spending without upsetting people then we could end up with quite a surprise later. The US already has a big debt problem. I get where you're coming from, but I'm just not sure whether we know the long-term consequences of this.

logicchains2• 7 years ago

Satoshi got it extremely wrong, to the point that if he had any economic background at all I’d suspect the first wave of crypto currencies to be a sick joke

...

coming off [the Gold Standard] heralded the greatest period of economic growth in Western history.

You got this extremely wrong, to the point that if you had any economic background at all I'd suspect your comment to be a sick joke. The US saw average growth rates of over 4% in the 19th century as it industrialised. By the time the Gold Standard was abandoned, most of the west was already thoroughly "developed", and could not grow as fast as before due to there being fewer lower-hanging fruit. This is the same reason places like China and India see growth rates of 6-8% in recent years (compared to 2-3% in the west): there are many more low-hanging fruit in a developing economy (e.g. moving the 50%+ of the population engaged in subsistence farming into more productive factory or service work).

As an aside, such language is unbecoming of anyone who wishes economics to be considered a real science. Even in physics, where it's possible to craft exact, repeatable experiments that can prove a statement true with 99.999% accuracy, practitioners still try to avoid bombast and smuggery because of how easy it is to make mistakes. Yet in economics, a field where it's difficult to even repeat the same experiment twice, and no model can predict the future anywhere near as accurately as a simple model such as Newton's laws can in physics, many practitioners seem quite comfortable making grandiose, bombastic and mocking statements with complete confidence in their own correctness. To me this smells like a consequence of economists never having been exposed to the humbling experience of having to validate their models' predictions against the real world, and not being held accountable for bad predictions.

neonate• 7 years ago

http://archive.md/nUmz5

frandroid• 7 years ago

Thank you for your service

Excel_Wizard2• 7 years ago

a savings glut is the thing that Krugman has suggested, and is the thing which makes sense to me.

Which stinks because I hate Krugman.

nathan_compton4• 7 years ago

Can you elaborate? Intuitively, no one I know has a "savings glut." If anything, people in my generation are saddled with debt.

Excel_Wizard2• 7 years ago

There is more money saved up than there are good productive investments available for it, in comparison to the past.

This correlates with a few things: - Inflation of the value of investment assets (high P/E ratios) - Low interest rates on bonds - Secular stagnation

nopriorarrests• 7 years ago

Someone being in debt means that someone has an obligation on said debt, so "savings glut" means "debt glut",tautologically.

Mikeb852• 7 years ago

The rich, banks and corporations have too much cash on hand and not enough to invest in.

tuberelay• 7 years ago

The official US inflation measure is garbage.

It doesn't include enough of the big 3 costs in people's lives : housing, education and healthcare.

It includes whacky stuff like "oh your cellphone is faster now than 5 years ago, we're going to say that you're getting 10x the phone for roughly the same price and use that to disprove inflation".

It ignores asset inflation (stocks, real estate, venture capital, everything else) driven by QE. The average person never saw the QE because it went straight to banks and inflated asset prices. Rich people with assets made 4x their money. Wage slaves saw none of it. None of this is counted in inflation measures.

joycian• 7 years ago

Could you point me to resources where I could learn about this?

oppositelock• 7 years ago

The BLS is completely nuts with computing CPI. What the previous poster is referring to is called "hedonic adjustment" [1]. For example, the CPI contains a TV, and adjusts its price [2]. As an example, say that you put a 19" CRT TV in there in the 1980's, and it cost $400 at the time. Over time, as televisions got better, and it became impossible to buy that specific TV, the BLS started adjusting the price of the original tv down, because it's clearly inferior to anything available today. At the end of those adjustments, you end up with a situation where the TV may "cost" $100 post-adjustment, but it's impossible to buy any $100 TV today because that would be the price of something which doesn't exist. This type of adjustment happens in many categories, and it biases the CPI downwards. It's a giant sham.

1: https://www.bls.gov/cpi/quality-adjustment/home.htm 2: https://www.bls.gov/cpi/quality-adjustment/televisions.htm

aishvar• 7 years ago

That's just flat false.

Look at the latest CPI report:

https://www.bls.gov/news.release/pdf/cpi.pdf

It includes the list of items, weightings, and price changes.

All 3 of those (shelter, medical care, and education) are on there.

bpt3• 7 years ago

The parent poster didn't say they weren't there, but that they are under-weighted, and I'd agree with that assessment personally.

tree3• 7 years ago

What he said was:

It doesn't include enough

airstrike2• 7 years ago

I'm no CPI expert, but I don't think this statement is really accurate.

Rent is including in CPI; home prices are not. See https://economics.stackexchange.com/a/4779. The sidebar should provide links to multiple other questions asking why that is the case.

Tuition and fees are included in the CPI as well. See https://www.bls.gov/cpi/factsheets/college-tuition.htm and https://www.bls.gov/cpi/factsheets/elementary-and-high-schoo...

Finally, some measure of healthcare is also part of the CPI. See https://www.bls.gov/cpi/factsheets/medical-care.htm.

It includes "out-of-pocket" expenses which in the BLI's definition means:

* patient payments made directly to retail establishments for medical goods and services;

* health insurance premiums paid for by the consumer, including Medicare Part B; and

* health insurance premiums deducted from employee paychecks.

rayiner5• 7 years ago

Most inflation measures include housing, education, and healthcare. The perception that the national inflation measure isn’t accurate is rooted in the fact that a small but very vocal segment of the population (yuppies in coastal metro areas) are facing very high housing and educational costs. But that’s not true of most people. Housing prices aren’t skyrocketing in the Kansas City suburbs. Most people aren’t in college and don’t have any college debt.

claudeganon3• 7 years ago

They’re actually beginning to blow up in smaller markets as well, causing a housing and affordability crisis for people without higher education (and because wages are lower on average in these regions):

https://www.wsj.com/articles/in-boise-and-grand-rapids-the-h...

I don’t know if or when it will reach the Kansas City suburbs, but here in Michigan, my brother, a construction worker, is priced out of the market. He could move way out to the country, but his kid would have to change schools and have a long commute, and it’s actually a lot more dangerous to do so in the winter here.

steveklabnik• 7 years ago

I don't know if Austin is considered a "coastal metro area" or a "Kansas City suburb," but it's certainly happening here. Largely due to tech.

danans2• 7 years ago

Housing prices aren’t skyrocketing in the Kansas City suburbs.

True, but neither are employment opportunities, so it's not a great comparison. They have plenty of housing supply relative to the demand.

https://www.bls.gov/regions/mountain-plains/news-release/are...

jrs235• 7 years ago

It ignores asset inflation (stocks, real estate, venture capital, everything else)

I consider education and health[care] to be assets too (which you include in the big three costs, in fact the big three costs are all assets).

I agree the official US inflation measure is garbage.

paulddraper3• 7 years ago

???

You can read the weights here: https://www.bls.gov/news.release/pdf/cpi.pdf .

* Rent of shelter 33.1%

* Medical care services 7.1%

* Medical care commodities 1.7%

* Tuition, other school fees, and childcare 2.9%

* Educational books and supplies 0.1%

Rent is the biggest item in the entire report. The healthcare number seems about right. And remember that education is averaged over an entire lifetime.

It's objectively true that people are choosing to spend more on better/faster phones. That doesn't necessarily mean inflation; it means that phones have become more useful and capable and therefore worth a larger relative expense to people. If people started buying $100k self-driving cars, you can't claim that inflation did that.

gonational3• 7 years ago

If you can find me economists that have predicted economic activities/results with any level of accuracy (e.g., greater than 50% even), then I will find you ~10 times as many prominent economists who have predicted the opposite. Economists probably predict things accurately at a rate lower than throwing a 20 sided die into the air and guessing which number will be facing up when it lands.

Does that matter? Well, if they can’t predict things with any degree of accuracy based on the data given, this must mean that they don’t understand the ends that are achieved by the means that generated the data, doesn’t it?

If economists don’t understand the outcomes that result from the inputs, then they shouldn’t be trusted to advise on the inputs?

TBH, why do we even care what “economists” think at all, given the above? Economists are no better, from an objective value perspective, then tarot readers. Economics, as a study / practice, has been corrupted by the followers of Keynes, and by the worship of monetarism, and, as a result, fails to provide any value to the economy, let alone to society as a whole.

Business leaders. Business leaders provide value to the economy by staking their own success on being able providing enough value to turn a profit. Business leaders make predictions, and when they fail they don’t make money (they probably lose a lot of money). If their predictions come true, they become rich. Economists just sit on the sidelines, watching and squawking like railbirds, and postcasting things to boost their ego, staking nothing but the time it takes to type out 280 characters of their precious wisdom.

sideshowb2• 7 years ago

TBH, why do we even care what “economists” think at all, given the above? Economists are no better, from an objective value perspective, then tarot readers

Because the people with data to prove this are themselves economists. Yes, economics has had a lot of failures (I often find myself informing people of these) but anything you replace it with is ultimately going to be another form of economics.

For every successful business leader you could probably find 100 who failed: taking your guidance from business leaders just leads to survivorship bias.

gonational3• 7 years ago

I think it’s pretty core to my thesis that economics is a practice/study that provides little to no value to anyone, so why would it need to be replaced?

dv_dt• 7 years ago

Businesses only become profitable in a almost completely artificial human made financial landscape. There is really no reason to believe much more than a successful businessman is someone who was smart, sure, but also lucky at some very particular niche. And as bad as economists are, they're the few which are studying how that landscape's construction affects how businesses and people grow within them. That isn't to say we should blindly follow their advice, but to throw out all economists in favor or successful businessmen is looking to implement cargo cult surviorship biases.

gonational3• 7 years ago

You’re right; we shouldn’t throw out what they have created.

Economists have been working tirelessly for decades to generate models that can demonstrate how economies don’t work.

If we destroy the earth in nuclear war or some other calamity, these models could help to ensure that future civilizations fail before they ever reach the point that we did.

AnimalMuppet3• 7 years ago

Businesses only become profitable in a almost completely artificial human made financial landscape.

Baloney. Some may; many good ones are profitable anyway.

duxup• 7 years ago

Is it because say unemployment has proven to be a strange concept these days with "underemployment" being a larger concern?

Perhaps they were simply predicting the wrong thing / things that don't seem as relevant.

CoolGuySteve• 7 years ago

The US non-farm payrolls report does include average hourly earnings and average hours worked per week but for some reason it's not as widely reported. IMO the multiple of those 2 values and participation rate are much more meaningful than the total number of jobs added or removed.

The average hourly earnings has been hovering around a 3% YoY increase for years now: https://tradingeconomics.com/united-states/average-hourly-ea...

AmericanChopper4• 7 years ago

Underemployment is an entirely subjective concept though. Having skills that that you can’t sell due to insufficient demand doesn’t necessarily say anything about the market at all.

Can_Not2• 7 years ago

One person not being able to sell their skills is a personal problem, a significant number of people who can't find work with their skillset and a significant number of employers unable to find people with skills is a market failure. We're at a market failure and there is economic loss as a result.

tonyedgecombe2• 7 years ago

It does include part time workers who would like to be full time, so can't be "entirely subjective".

DubiousPusher• 7 years ago

I'm not a subscriber so I can't read the article but I have a personal hypothesis about this. Developed economies have begun to enter a post scarcity state. Daily goods like food and household items are not responding to inflation because they are no longer scarce. The combination of economies of scale, automation and cheap foreign labor have brought many goods to this point.

Meanwhile, things which are still governed by scarcity, medicine, property, education are skyrocketing in price. In part because those are more opaque markets with some bad incentives but also in some part ecause people can devote much greater percentage of their income to these things.

What it really looks like to me is these economies are straddling a the line between acarcity and non-scaecity. I'm no economist though.

legitster• 7 years ago

Whether intentionally, you are describing the Baumol effect - where productivity gains in some sectors actually cause other sectors to become more expensive in comparison.

airstrike2• 7 years ago

https://www.fullwsj.com/articles/economists-got-the-decade-a... ;-)

harryh• 7 years ago

Inflation has nothing to do with the scarcity of goods. It has to do with the scarcity of money.

ambernightcruse4• 7 years ago

The first sentence is incorrect, inflation is about too many dollars for the amount of goods available for purchase. You're thinking of deflation, which is the relatively small amount dollars for real goods in the economy.

imglorp• 7 years ago

Someone please correct my impression here, but why aren't both macro- and micro-econ viewed as a largely academic ideal that completely ignores many realities of human civiliation?

I'm thinking specifically of malice and manipulation, at all levels of all systems: if there is a way to enrich (ie steal), motivation is towards it happening and towards weakening rules and oversight. For example, who wants to quibble over peanuts like $1T federal deficits or $10T NASDAQ total caps when there are $370T tied to the LIBOR, which has a big fat steering wheel on it? Your econ textbook doesn't have a nice chart for that.

https://www.bloomberg.com/news/articles/2018-05-06/libor-ref...

ur-whale• 7 years ago

why aren't both macro- and micro-econ viewed as a largely academic idea

Because it's easier to get funding when you claim to be a science.

The fact that the discipline has exactly zero predictive power is rarely brought up by practitioners (of course), nor particularly noticed from the people who consume the by-product of said discipline.

baja_blast• 7 years ago

Economists are the Wizards/Shamans of today, both pretend to have special insight and knowledge of how future outcomes will unfold only difference is instead of cutting off the head of a chicken and seeing where it lands, they have "models".

paulddraper3• 7 years ago

For the same reason that computer science focuses on academic ideals more than user privacy, social engineering, censorship, fraud, addiction, etc.

Those do affect how computing is done in the real world, but they are very squishy and opinionated topics.

aazaa• 7 years ago

Economists have been casting around for the answer, a theory to explain their inability to peer accurately in the months ahead, let alone the years. ...

No mention of "quantitative easing" anywhere.

QE ran in various forms from 2008-2013. Short term rates were held at zero in the US from 2008-2015. Several industrialized areas now have negative nominal rates. The Fed has started QE back up again to prop up the failing repo market, insisting that what's happening isn't another round of QE. None of these unusual activities were considered worth discussing by most economists prior to 2008. No wonder why their predictions are so off the mark.

Can ultra-loose monetary policy lead to marketplace distortions? Can it lead to malinvestments like we see in the tech sector? Can it lead companies into a false sense of security, delaying and scaling back layoffs, because the usual economic signals have been swept under the rug by government policies?

Of course. The only surprise here is that the WSJ chooses to completely ignore these completely obvious distortions.

ambernightcruse4• 7 years ago

There's no mention about QE because QE is only about lowering the cost for the private sector to borrow money. The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. The repo purchases are operating as intended, with new liquidity requirements for banks from Basel 3 reforms.

Also you complain about negative nominal rates, which make banks less likely to lend; then you speculate on malinvestments and market distortions. So which way do you want it, is money too tight or too loose?

Retric• 7 years ago

Banks are far from the only lender. The US bond market is 40 trillion dollars worth of loans, where banks are closer to 14 trillion in loans.

tenpies• 7 years ago

The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear.

Obligatory comment that the measure of inflation used by the Fed - core inflation - intentionally under presents inflation. It literally takes a basket of all goods, sorts by least volatile, and picks the least volatile items possible.

roenxi3• 7 years ago

The main threat to QE is inflation, which is hovering around 2%

If I lent money at 6% interest from 2007 to today, I would have performed about the same as the capital gains from owning an equivalent amount of everyone's Favourite Shiny Rock, gold. Not including the recent price jump from QE4.

Owning a rock should not be generating a real return. In reality, it probably isn't. Real inflation is likely different from consumer price inflation.

It isn't perfect evidence, but gold is basically as pure an asset as we can get and it lines up with what should be happening if the government is printing money with its ears pinned back. No practical uses, easy to store, rare enough to be valuable. Anyone who is interested in saving for their retirement would be unwise to treat CPI as inflation in their calculations.

JamesBarney2• 7 years ago

Why is QE a market distortion? Is all monetary policy a market distortion? If we used a gold standard is that not a market distortion? If the price of gold changes drastically due to gold mines closing/opening changing interest rates is that a market distortion?

deevolution• 7 years ago

"Government manipulation"

lmm• 7 years ago

QE is a market distortion because it consists of orders intended primarily to manipulate prices.

mindslight• 7 years ago

Technically getting $50 in a Christmas card is a market distortion. What matters is the scale of it. With technology and economic optimization (eg offshoring), we expect the cost of production to continually drop. Yet the Fed has seen fit to declare that the exact opposite should generally occur to consumer prices.

How this plays out is obvious if you draw a diagram of the feedback loop that is the CPI. Prices of manufactured goods do go slowly down. To keep the overall average rising other components have to go up, and the natural ones are where consumers have access to newly-created money (debt). Easy credit then prices straightforward cash out of the market, pushing us all to sign up for more overfinancialized monthly payments instead of simply saving for a rainy day.

cletus• 7 years ago

One huge issue I've seen as a result of near-zero interest rates is how this has hit tax collection from corporations and the very wealthy.

Currently, if a company earns profits overseas and doesn't repatriate those funds then the IRS doesn't tax them. This all came about due to ridiculous IP licensing that tech companies engaged in (eg sell their IP to an Irish subsidiary and then license it as a form of transfer pricing, essentially).

So companies are faced with a choice of repatriating "foreign" profits at 21%+ or just borrowing money locally at 1-2% to cover local cash needs. This is a big reason why corporate debt has ballooned: it's essentially just deferring tax obligations for years, hopefully long enough so they can buy another Congress to pass a "one-time" tax holiday. Then rinse and repeat.

What the US needs to do is to treat all borrowings as the repatriation of that same amount of money of foreign profits.

dragonwriter• 7 years ago

What the US needs to do is to treat all borrowings as the repatriation of that same amount of money of foreign profits.

That would be ludicrously punitive to entities using debt financing that aren't shielding foreign profits from taxation.

If the US wants to tax foreign profits without repatriation, it should just do that.

jokoon• 7 years ago

Politically I will always be against policies that attempt to reduce unemployment. It's counter productive. Jobs is not a good metric.

There are way too many subsidies to sustain wage slavery. I'm not against capitalism, but fighting unemployment has not reduced inequality. The UBI, even at a low amount, would enable a much more virtuous labor economy.

hash8723• 7 years ago

It's fascinating to me that even august publications like the Wall Street Journal continue to use 'unemployment rate' as any kind of reliable metric, and says stuff like 'the unemployment rate is at a 50 year low now'. Unemployment just measures those who are actively looking for full-time employment but are unable to find it (and yes there is a separate underemployment metric, which seems a little more accurate).

The reason we have 'slack' in the labor market is because the adult prime-age participation rate in the economy was quite low for a long time after 2008, and even now is only getting back to early 2000s numbers. This just seems like a much better metric to understand the health of the labor market & perceived slack. Disability has exploded over the last 20-30 years, and someone collecting a disability check- especially if they are simply milking the system- doesn't show up as 'unemployed' because they're not actively looking for work. It's actually pretty concerning for the US how low the adult participation rate has fallen. There's pretty good evidence that this decade of low interest rates has started to slowly bring in people off the sidelines who weren't looking for work, had given up, were in the informal sector and weren't counted, etc. That's a massively good thing for society.

I don't think you can understand labor market slack or the point at which wages will start to rise until you ditch the somewhat gimmicky 'unemployment rate' and start looking at adult participation in the economy period

bhupy3• 7 years ago

The U6 rate is also at historic lows, and that's the broadest definition of "unemployment", which includes discouraged workers.

https://fred.stlouisfed.org/series/u6rate

coldtea2• 7 years ago

What they never measure is the big rise in BS near-substinence hand-to-mouth jobs over higher quality gigs - which is the case in many (most?) countries...

rayiner5• 7 years ago

Labor market participation rate is not a great measure. Look at the breakdown of changes in labor market participation by age: https://www.bls.gov/emp/tables/civilian-labor-force-particip...

From 1998 to 2018 participation dropped just 2 points for those age 25-54. That is projected to stay stable through 2028. It went up for those 55+. The only place it dropped significantly was 16-24. I.e. our society is richer and we can afford to have more young adults spend their early 20s binge drinking instead of working.

As to disability—it’s hard to tell whether increasing numbers of people on disability is good or bad. If the government has simply gotten more generous and allowing more people with real problems to draw disability, that’s not a bad thing.

refurb• 7 years ago

This is a great example of why you should dig into the numbers behind a statistic.

Everyone claims labor participation is still low and throws around their pet theories as to why, yet if you simple dig into the numbers like rayiner did, you’d realize most of those pet theories are wrong.

hash8723• 7 years ago

FRED seems to have some different results https://fred.stlouisfed.org/series/CIVPART. These are huge numbers in a country the size of the US. Anyways, 'projected' is meaningless.

It's pretty widely acknowledged that disability is abused, it seems to be a mix of people with real problems and those without. The very high disability rates in a few counties I think shows that it's not always legitimate usage

paulddraper3• 7 years ago

use 'unemployment rate' as any kind of reliable metric

All metrics are flawed, and each has their use.

The unemployment rate helps you understand how likely the average worker is to find a job if they look for one.

Obviously many potential workers will choose not to: health, wealth, sloth, depression, age, wages.

But one aspect of a functioning economy is being able to match willing workers to jobs.

For example: Though I don't put much stock in the "replaced by robots" forecasts, if it were to happen, the unemployment rate would rise.

throwaway743• 7 years ago

What you'll never hear is how the bottoming of unemployment has preceded the last 9 or so market crashes. So it's quite the opposite in terms of being an indication of the market's good health.

ramblerman• 7 years ago

That's a bit like saying, the patient seemed to be in good health right before he got sick the last 9 times.

acd• 7 years ago

But that there are economic expansion without inflation depends on globalization. We are importing goods from low wage countries. In other words we are importing low inflation until trade barriers stop that.

Ie central banks try to operate like they control wage inflation. But wage inflation is a global market nowadays.

whydoyoucare• 7 years ago

There is a reason why Economists aren't billionaires! :-)

Mikeb852• 7 years ago

Two of the richest investors I can think of off the top of my head (Warren Buffett and Steven Cohen) have an education in economics. In fact, lots of fund managers do. Also, economists as a group are quite varied, and dare I say the more successful ones are making millions trading and working for banks, not making public predictions.

Economists’ projections of interest rates and unemployment have proved too high

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