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Larry Summers and the Crisis of Economic Orthodoxy
LB, I already read the article the first time. The economy was great until covid arrived.
Can you deny that Trump had the biggest increase in real wages since 1980 or the other fact that houses and vehicles which are usually the biggest 2 items are less affordable ever?
Back to the original post in this thread. It makes me giggle to read the phrase, "slightly Luddites."
All manner of financial "everything" has been dreamed up and created, in order to devise instruments to be bought and sold in the Markets. Remember Michael Burry? He went to GS to ask them to invent an instrument by which he could short the housing market. Smarter than them all.
He exploited what he was able to see in the statistics. OK. But "everything" needs to be regulated. Because the Market owns no conscience. PEOPLE ought to, but too often don't. And the people who too often don't, have lots of money to put to work. And Larry Summers jumped down the throat of Brooksley Born for pointing out the need to regulate (or more tightly regulate?) creditderivatives. Summers opposed it, vehemently. (And yes, the Head of the CFTC could not accurately be labeled as just a "staffer.")
That episode with Born in Summers' office goes back a lot of years. Perhaps it is too far back in the rearview mirror to matter anymore? Perhaps uncle Larry can be forgiven? At any rate, regulations, in turn, depend upon humans with a conscience in order to be enforced. Regulations cannot stop greed, but the regulations can prevent particular instances in which naked greed is center-stage and obvious. And we need more regulation, not less. Maybe more precisely, what I want to express is the need for a fundamental overhaul, so that regulations do not need to be created for A, B, C and onward all the way to Z, like continually sticking fingers into holes in the dike. I don't bet we'll ever see such a thing, though: too many vested interests would find their own oxen would be gored.
“Something went wrong. Try reloading.” Such was the message I got when I clicked on your link, @davidrmoran. I’m not a Twitter user, so unfamiliar with platform. I’m quite surprised, however, to find Twitter in wide use by journalists and those in finance. Maybe it used to be good.
What we're getting at is: do the metrics (statistical tools) used by the gummint and the Fed actually serve the purpose toward which they are applied? Maybe only incompletely? In plain language, only in a half-assed way. Eh? It's pretty difficult to turn a screw using a monkey wrench.
@davidmoran- Yes sir, there certainly is "lots of writing on why this is", and indeed I've read much of it, including Krugman on a regular basis.
That doesn't help at all at the grocery store or gas station.
FWIW I bought some batteries via Amazon the other day. Their price is up close to 100% over a year ago. I'm sure that there are reasons "on why this is", but I doubt that those "reasons" show on any official inflation data.
I once worked with a fellow who had reduced social observation down to a pithy kernel:
"The world runs on bullshit".
The longer that I live the more obvious that becomes.
It’s not just “stuff” that has risen in price. Services also. Car towing to the repair shop was more than double what I paid 3-4 years ago, to say nothing of the big check I just wrote to the septic tank pumper, 40-50% higher than five years ago. I am, however, grateful to have someone to haul my s#&t away!
Yeah, but none of that stuff is counted in "core" inflation. It's too "volatile", because it's gone up too much. "Core" inflation mainly counts stuff like apple cores, and they haven't hardly gone up at all (unless you buy the entire apple).
It’s not just “stuff” that has risen in price. Services also. Car towing to the repair shop was more than double what I paid 3-4 years ago, to say nothing of the big check I just wrote to the septic tank pumper, 40-50% higher than five years ago. I am, however, grateful to have someone to haul my s#&t away!
Back in the 1970s, Arthur Okun, an economist who had been a policy adviser to Lyndon Johnson, suggested a quick-and-dirty way to assess the nation’s economic condition: the “misery index,” the sum of inflation and unemployment. It was and is a crude, easily criticized measure. The measurable economic harm from unemployment, for instance, is much higher than that from inflation. Yet the index has historically done a quite good job of predicting overall economic sentiment.
So it seems worth noting that the misery index — which soared along with inflation during 2021 and the first half of 2022 — has plunged over the past year. It is now all the way back to its level when President Biden took office.
This remarkable turnaround raises several questions. First, is it real? (Yes.) Second, will ordinary Americans notice? (They already have.) Third, will they give Biden credit? (That’s a lot less clear.)
The plunge in the misery index reflects both what didn’t happen and what did. What didn’t happen, despite a drumbeat of dire warnings in the news media, was a recession. The U.S. economy added four million jobs over the past year, and the unemployment rate has remained near a 50-year low.
What did happen was a rapid decline in inflation. But is this decline sustainable? You may have seen news reports pointing out that “core” inflation, which excludes volatile food and energy prices, has been “sticky,” suggesting that improvement on the inflation front will be only a temporary phenomenon.
But just about every economist paying attention to the data knows that the traditional measure of core inflation has gone rotten, because it’s being driven largely by the delayed effects of a surge in rents that ended in mid-2022. This surge, by the way, was probably caused by the rise in remote work triggered by the Covid-19 pandemic rather than by any Biden administration policy.
Alternative measures of core inflation that exclude shelter by and large show a clear pattern of disinflation; inflation is still running higher than it was before the pandemic, but it has come down a lot. If you really work at it, it’s still possible to be pessimistic about the inflation outlook, but it’s getting harder and harder. The good news about inflation, and about the economy as a whole, does look real.
But are people noticing this improvement? Traditional measures of economic sentiment have become problematic in recent years: Ask people how the economy is doing, and their response is strongly affected both by partisanship and, I believe, by the narratives conveyed by the news media. That is, what people say about the economy is, all too often, what they think they’re supposed to say.
But if you ask Americans more specific questions, such as whether now is a good time to find a quality job, they typically say yes. At the same time, their expectations about future inflation have declined substantially.
I should have explained that it was my1993 Nissan 300ZX. Neither our Accord nor our Odyssey would stoop so low as to not start. The dealer, who has a seasoned Z mechanic, could not replicate the problem. The service manager drove it around for a while, pronounced it trouble-free and returned it to me no charge. He got to drive a 5-speed convertible and said he thoroughly enjoyed his day. I got to pay $150 for a 3-mile tow. Every now and then the starter fails to catch, but it functions if I put a little cognac in the tank to relax its nerves.
”put a little cognac in the tank to relax its nerves”
Great idea @BenWP. I dumped a bottle of harsh tasting scotch down the drain one time. Maybe should have “fed” it to my car instead. Thanks for confirming the Accord is alive and well. Same here.
Yuppers - Labor’s sky high around here. $100+ per hour for small engine mechanics is the norm.
"No matter what the retirees who are the majority of posters here think, economic well being in the U.S. is not just about the inflation rate."
@LewisBraham- Hey there Lewis... I'm not sure that anyone here has suggested that economic well being in the U.S. is just about the inflation rate. Of course there are lots of other components and considerations with respect to the overall economic well being of the U.S.
However, that doesn't change a thing with respect to the inflation "measurements" that don't really measure much of anything real.
It is evident that a number of media outlets focus more on the inflation numbers than the employment numbers, and it is evident here, too. That's despite the fact that many Americans may care more about having a job than whether or not they are paying more for various items. Obviously, retirees worry more about the inflation part than the job part.
An interesting exercise is to compare the Google News Search for headlines on "inflation" and "unemployment" in the past 12 months versus a broader Google Web search for the terms people are searching for overall.
Asking people to see the economic forest instead of just the one inflation tree is not preaching revolution. Larry Summers is fixated on the inflation tree and is comfortable with millions of people losing their jobs to chop it down. If retirees have children, it’s worth asking them if they’d rather pay more for bread or because of unemployment have no money to pay for bread at all? That is especially so as the current policies seem to be working on inflation without the blood sacrifice of high unemployment Summers seems to desire. Hardly revolutionary.
As a father I do think about the economy that my kids are facing. The younger two (32 and 25), who rent, are for the most part shut out of the home-buying market and it’s likely to be some time before they’d even consider buying. Among my three siblings and me, two occupy a distinctly lower economic rank than did our parents or in-laws. I grew up believing that I and my generation would do better than our parents. It has not worked out that way for my sibs, nor does it seem to be the case for my kids. Inflation figures and price increases are so much background noise compared to the main narrative which is trying to predict (optimistically because it’s July 4th) where our citizens are headed.
I worry about the future, too. Everybody does. But I’ll take this inflation over the hard landing Summers seems to want or mistakenly thinks we need any day of the week.
For the record, I'm with Krugman, and have little regard for Summers, with respect to the general economic overview. Summers is a complete jerk, and always has been.
My aggravation is with the fact that the inflation numbers presented to us as reflecting reality are total BS. Let's just eliminate everything that's "volatile" and pretend that the numbers have some actual relationship to the cost of damned near everything that we actually use on a regular basis. Wizard of Oz, folks.
Comments
Can you deny that Trump had the biggest increase in real wages since 1980 or the other fact that houses and vehicles which are usually the biggest 2 items are less affordable ever?
All manner of financial "everything" has been dreamed up and created, in order to devise instruments to be bought and sold in the Markets. Remember Michael Burry? He went to GS to ask them to invent an instrument by which he could short the housing market. Smarter than them all.
He exploited what he was able to see in the statistics. OK. But "everything" needs to be regulated. Because the Market owns no conscience. PEOPLE ought to, but too often don't. And the people who too often don't, have lots of money to put to work. And Larry Summers jumped down the throat of Brooksley Born for pointing out the need to regulate (or more tightly regulate?) credit derivatives. Summers opposed it, vehemently.
(And yes, the Head of the CFTC could not accurately be labeled as just a "staffer.")
That episode with Born in Summers' office goes back a lot of years. Perhaps it is too far back in the rearview mirror to matter anymore? Perhaps uncle Larry can be forgiven? At any rate, regulations, in turn, depend upon humans with a conscience in order to be enforced. Regulations cannot stop greed, but the regulations can prevent particular instances in which naked greed is center-stage and obvious. And we need more regulation, not less. Maybe more precisely, what I want to express is the need for a fundamental overhaul, so that regulations do not need to be created for A, B, C and onward all the way to Z, like continually sticking fingers into holes in the dike. I don't bet we'll ever see such a thing, though: too many vested interests would find their own oxen would be gored.
https://twitter.com/paulkrugman/status/1675075725122994176
... the misery index — unemployment plus inflation — is all the way back to where it was when Biden took office ....
Doesn't leave much, does it?
That doesn't help at all at the grocery store or gas station.
FWIW I bought some batteries via Amazon the other day. Their price is up close to 100% over a year ago. I'm sure that there are reasons "on why this is", but I doubt that those "reasons" show on any official inflation data.
I once worked with a fellow who had reduced social observation down to a pithy kernel:
"The world runs on bullshit".
The longer that I live the more obvious that becomes.
My inflation gripe this summer:
$73.00 for a gallon of interior latex paint at local Ace. (Custom mixed to color)
And $8.00 for an empty 1 gallon paint can at Lowe’s.
https://www.nytimes.com/2023/06/16/opinion/core-inflation-statistics.html
https://www.axios.com/2023/06/30/slow-progress-core-inflation-problem
- Yep. That’s a job I’d not want - at any price.
Great idea @BenWP. I dumped a bottle of harsh tasting scotch down the drain one time. Maybe should have “fed” it to my car instead. Thanks for confirming the Accord is alive and well. Same here.
Yuppers - Labor’s sky high around here. $100+ per hour for small engine mechanics is the norm.
PS - That’s ”small engines” - not ”small mechanics”.
@LewisBraham- Hey there Lewis... I'm not sure that anyone here has suggested that economic well being in the U.S. is just about the inflation rate. Of course there are lots of other components and considerations with respect to the overall economic well being of the U.S.
However, that doesn't change a thing with respect to the inflation "measurements" that don't really measure much of anything real.
https://www.brookings.edu/articles/how-does-the-government-measure-inflation/
(2y old, I think)
It is evident that a number of media outlets focus more on the inflation numbers than the employment numbers, and it is evident here, too. That's despite the fact that many Americans may care more about having a job than whether or not they are paying more for various items. Obviously, retirees worry more about the inflation part than the job part.
An interesting exercise is to compare the Google News Search for headlines on "inflation" and "unemployment" in the past 12 months versus a broader Google Web search for the terms people are searching for overall.
News coverage: https://trends.google.com/trends/explore?geo=US&gprop=news&q=inflation,unemployment
People's general web searches: https://trends.google.com/trends/explore?geo=US&q=inflation,unemployment
Why, if we did have children, we'ld tell them to subscribe to Kiplingers, where Lewis Braham preaches the revolution.
jeez louise
My aggravation is with the fact that the inflation numbers presented to us as reflecting reality are total BS. Let's just eliminate everything that's "volatile" and pretend that the numbers have some actual relationship to the cost of damned near everything that we actually use on a regular basis. Wizard of Oz, folks.