Inflation Archives

February 22, 2023

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Carter was the one who beat inflation. He inherited a modest deficit from his predecessor and kept it at about the same level throughout his presidency, and appointed Paul Volcker as the Fed Chair, who raised interest rates to 17.61%, causing the first Volcker Recession in 1980.
Carter was the Great Deregulator, not Reagan. Despite Reagan’s fiery rhetoric, he passed only two pieces of deregulation during his two terms in office, while Carter passed seven major pieces of deregulatory legislation.
Reagan didn’t increase defense spending by much. In dollar terms, Reagan increased military budgets, but when adjusted for GDP, it looks much less impressive and was much lower than the military outlays of earlier decades.
The fall of the USSR is more complicated. The most convincing economic explanation for the Soviet collapse in the late 80s comes from Yegor Gaidar, a Soviet official who later became Prime Minister of Russia, who suggested that the Soviet economy collapsed due to the oil glut that began around 1985.
Lessons to take away. Successful policy takes a long time to work, American policy is driven less by ideology and presidential personality than we think, and presidential elections are not always as cataclysmic as we may think.

Published February 21, 2023
Visit Noahpinion to read Noah Smith’s original post Repost: Much of what you’ve heard about Carter and Reagan is wrong

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No-Landing and the Anti-gravity Economy [kyla scanlon, Kyla’s Newsletter]

By William McClain

In Kyla Scanlon [Kyla's Newsletter]

February 17, 2023

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Retail Sales increased the most in TWO years in January, driven by food services and dining, motor vehicles and people spending in general.
For inflation, The CPI print came in kind of hot with core services and goods continuing to rise, mostly driven by shelter costs.
The labor market is still strong, with people looking for cars and homes again.
The worry now is that there is a new normal of inflation, that it will just hang out around 4-5%.
The economy is still moving and grooving, but dancing to the wrong song.
The market believes that the Fed will continue its hiking journey, but financial conditions have loosened.
People are still spending money on vacations, despite vacation inflation.
People are so sick of Things, they don’t care anymore, a phenomena known as the yoloconomy.
The market wants to keep dancing, but the Fed is moving towards them quickly, slowly wagging their finger in the no-no motion.
The Fed rate hikes have not moved through the economy yet, due to the design of the 30Y fixed-rate mortgage.
People are spending more money because of credit card debt and continued dip into savings.
People are exhausted and want to consume passively.
The economy is booming despite the Fed’s pressure because people are prioritizing profit over people.

Published February 16, 2023
Visit Kyla’s Newsletter to read kyla scanlon’s original post No-Landing and the Anti-gravity Economy

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Reversion to Reality: How Big Tech Impacts the Economy [kyla scanlon, Kyla’s Newsletter]

By Spencer Chen

In Kyla Scanlon [Kyla's Newsletter]

January 26, 2023

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• Tech layoffs are happening in a horrible way, with no communication, locked badges, and broken email access.
• There are multiple reasons for the layoffs, including tech bloat, ad sales, higher interest rates, AI, and planned obsolescence.
• The layoffs are sending a message to the market that the end of profligacy is here.
• The economy is a force within itself, and it’s questionable if the Fed rate hikes have even worked their way through yet.
• We need to evolve from focusing on bits to refocusing on atoms.
• We need to exercise empathy and compassion to understand the pain of others and help them.
• Big Tech layoffs can feel removed from reality, but we must strive to have perspective and care for those affected.
• Empathy and compassion are key to understanding and helping those in need.
• Mary Oliver and Barbara Alice Mann offer advice on how to teach children to appreciate the world and be devoted to it.
• U.S. fiscal stimulus has caused excess inflation, and Lael Brainard is a top contender for the National Economic Council.

Published January 26, 2023
Visit Kyla’s Newsletter to read kyla scanlon’s original post Reversion to Reality: How Big Tech Impacts the Economy

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Is the Fed hiking too fast? [Noah Smith, Noahpinion]

By Spencer Chen

In Noah Smith [Noahpinion]

January 14, 2023

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• Inflation is slowing but still above target, with headline inflation very low and core inflation moderate but above target.
• Many are worried about a recession, with an inverted yield curve being a decent predictor of slowing economic activity.
• The labor market is still strong, with payrolls adding 223,000 jobs in December and the prime-age employment-population ratio still around 80%.
• The Fed started hiking rates in March 2022, but some argue that the rate hikes haven’t had time to affect the economy yet and are unnecessary.
• Research is divided on how long it takes for rate hikes to have an effect, with some studies predicting a hump-shaped effect and others predicting a gradually increasing impact.
• It’s possible that fiscal policy is playing a role in the moderation of inflation, with deficits closing in late 2021 and disposable personal income stopping being anomalously high around the same time.
• As long as the trend continues, the Fed will likely taper off its rate increases, with the conquest of the post-pandemic inflation underway.

Published January 14, 2023. Visit Noahpinion to read Noah Smith’s original post.

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Three economics happenings of note [Noah Smith, Noahpinion]

By Spencer Chen

In Noah Smith [Noahpinion]

January 7, 2023

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• The FTC has proposed a national ban on noncompetes, which are clauses in a worker’s employment contract that prevent them from working for a competitor for a set period of time.
• Evidence suggests that banning noncompetes can raise wages for low-wage workers by 2-3%, and for workers bound by noncompetes by as much as 14-21%.
• Businesses argue that noncompetes make them more willing to hire and train workers, and that they allow them to invest more in creating new technologies.
• Opponents argue that noncompetes quash innovation by preventing new companies from entering an industry.
• The debate is ultimately about the choice between a dynamic, competitive economy and one dominated by big, secure companies.
• Park et al. (2023) argue that papers and patents are becoming less disruptive over time, with a measure of disruptiveness (CD index) declining across a variety of fields.
• Alternative explanations for the decline include: low-hanging fruit hypothesis, burden of knowledge hypothesis, and cultural/institutional changes in academia.
• Pierre Azoulay’s analysis of life sciences papers suggests that the decline in disruptiveness may have halted in the 80s.
• Olivier Blanchard’s thread asserts that inflation is the outcome of a distributional conflict between firms, workers, and taxpayers.
• Paul Krugman’s “Football Game Theory of Inflation” likens the process to a football game in which everyone tries to stand up to see over everyone else.
• Ivan Werning’s model suggests that a wage-price spiral can occur even with falling real wages.
• Ricardo Reis argues that labor may not be the most important variable cost for companies, and thus wage demands may not be driving inflation.

Published January 7, 2023. Visit Noahpinion to read Noah Smith’s original post.

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Mind the Cup [kyla scanlon, Kyla’s Newsletter]

By Spencer Chen

In Kyla Scanlon [Kyla's Newsletter]

December 29, 2022

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• This year was a year of uncertainty, with many systems being fragile and the promise of “This is How It Will Be” being broken.
• The Federal Reserve’s job is to manage expectations and to make sure that inflation expectations do not become unanchored.
• Causes of inflation include deglobalization, tightness in labor markets, sky high energy and commodity prices, WFH trends, and supply bottlenecks.
• The Fed’s tools are ambiguous in the context of real world narrative, and their treatment plan should be bolstered by additional toolsets.
• On a micro level, uncertainty can be a fuel as we navigate new normals, and individual actions are what shape the world that we live in.
• Love is an action, a way that we exist in the world rather than a relationship, and this year was a year to recognize that the world does react to us.

Published December 29, 2022. Visit Kyla’s Newsletter to read kyla scanlon’s original post.

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Ghana, you were doing so well! [Noah Smith, Noahpinion]

By Spencer Chen

In Noah Smith [Noahpinion], Politics

December 19, 2022

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Ghana recently defaulted on most of its external debt and is experiencing high inflation, leading to an economic crisis.
Ghana is an important country for African development, as it is one of the leading candidates to become the “first mover” in the region.
The crisis was caused by a rapid depreciation of the Ghanaian currency, the cedi, which made it harder to afford imports like food and fuel.
Ghana’s government borrowed a lot of external debt over the past 15 years, which raised government debt to about 100% of GDP.
Ghana’s inflation is not due to an attempt to pay off external debt by printing local currency, but rather due to businesspeople expecting the government to eventually print money to pay off its debt.
Ghana’s government wisely defaulted on its debt, drastically lowering the country’s overall government debt burden and making it easier to get a bailout from the IMF.

Click HERE for original. Published December 19, 2022

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A Non-Zero Interest Rate World [kyla scanlon, Kyla’s Newsletter]

By Spencer Chen

In Kyla Scanlon [Kyla's Newsletter]

December 17, 2022

160 views

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• The Fed is trying to manage the economy, but the market is starting to rebel against them.
• The market thinks rate cuts are likely relatively soon, whereas the Fed is like “well hm, no, we plan to keep hiking”.
• There is an idea in some corners of the tech world that only tech people can be executors of Goodness and that anything that stops tech people from doing what they want is Very Bad.
• We have started to see softer prints in inflation, inflation expectations ticking down, supply chains easing, and a loosening in the labor market in quits.
• The Fed is really focused on the labor market via “Things We Have To Spend Money on To Stay Alive”, which is an inflation category.
• SBF was charged with a litany of things, including “Wire Fraud, Wire Fraud Conspiracy, Securities Fraud, Securities Fraud Conspiracy and Money Laundering”.
• Empathy is a function of understanding the emotions of others, but markets don’t really price this. It requires looking beyond individual forces of supply and demand.
• Vincent Van Gogh quote: “Many people seem to think it foolish, even superstitious, to believe that the world could still change for the better. And it is true that in winter it is sometimes so bitingly cold that one is tempted to say, ‘What do I care if there is a summer; its warmth is no help to me now.’ Yes, evil often seems to surpass good. But then, in spite of us, and without our permission, there comes at last an end to the bitter frosts. One morning the wind turns, and there is a thaw. And so I must still have hope.”

Published December 17, 2022. Visit Kyla’s Newsletter to read kyla scanlon’s original post.

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TagInflation

Repost: Much of what you’ve heard about Carter and Reagan is wrong [Noah Smith, Noahpinion]

No-Landing and the Anti-gravity Economy [kyla scanlon, Kyla’s Newsletter]

Reversion to Reality: How Big Tech Impacts the Economy [kyla scanlon, Kyla’s Newsletter]

Is the Fed hiking too fast? [Noah Smith, Noahpinion]

Three economics happenings of note [Noah Smith, Noahpinion]

Mind the Cup [kyla scanlon, Kyla’s Newsletter]

Ghana, you were doing so well! [Noah Smith, Noahpinion]

A Non-Zero Interest Rate World [kyla scanlon, Kyla’s Newsletter]

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