It is very interesting all things considered. I am personally mildly concerned about the coming years for a variety of reasons, but I have to admit that I am a little surprised that all the talks about recession, inflation and layoffs only seemed to make people buy more tangible goods to hold on to.
I am still trying to make some sense of all this.
One could argue that several recessions should have already happened ( and recent bank collapse was a signal of one such event ), but were merely held back by government rescue/bailout ( depending on your perception of things ).
edit: Oh yeah, and old guard trying reintroduce working in office by decree. It all does not really add up.
Economics is a pseudoscience, after all. In fact, it's probably just an extension of psychology. Nobody really knows what makes the economy tick, but one thing that can somewhat measure the economy's general strength is the M2 Velocity chart. If the velocity of money is high, it means lots of different people are out spending money and keeping money in quick circulation as opposed to hoarding it.
> In fact, it's probably just an extension of psychology.
This is true to the extent (and only to the extent) that behaviorism eventually managed to poke a little bit into economics, which had been dominated by the ivory tower rational actor model detached from empiricism before and longer than any of the other social sciences.
Or we have more? I hate to be That Guy, but all the apocalyptic nonsense about inflation and debt and crypto and spending and fiat currency and pestilence and whatever has been almost exclusively propagated via too-online echo chambers like the one right here on HN.
There are Serious People out there too, real economists who have been studying this stuff for whole careers. And quite frankly they haven't been saying any of this stuff. I think it's great that people (especially the GP) seem willing to reevaluate their priors. But maybe while you do that you could nod to the expertise of those "elites" you've been trying to ignore?
Well, election always stirs things up. And this one will have fancy new fake movies, sounds, you name it generated on the fly. One can only imagine the level of crazy it will unleash.
Related to that is the current level of crazy, which seems higher than what I normally observe. Only a year or so ago I ascribed it to people slowly moving back to the office, but it seems more lasting than expected ( crazy driving mode, less patience, more curt behavior and so on ).
And it seems that some of the previously fringe interests became mainstream in a weird way ( including memes among others, and how they weirdly can predict -- or cause -- events ), which only seems to further destabilize current society.
Note that all of these are not really economic changes. Something else else shifted apart from the usual stories about politicians being politicians.
> only seemed to make people buy more tangible goods to hold on to.
I wish I knew more of the truth/could make sense of the sea of stats/data out there on the topic of:
break down America's population by their wealth/income. anybody who isn't in debt and makes a decent income, we don't have to "worry" about
you see headlines that a lot of people are struggling, living paycheck to paycheck, in debt, housing is broken compared to 40 years ago and an entire generation on average can't afford to buy an average house on their average income
but then we have another group of people, not billionaires or $10-$100m, just like "average" rich people who have so much money it's affecting the entire system with high demand for tangible goods?
I personally can't make sense of it. I know both can be true, but I see it as a balance/see-saw in my mind. I know America doesn't work for everybody, etc. etc. I'm talking purely from a "how healthy is the economy right now" perspective. How is that we have what feels like polar opposite narratives constantly being mentioned (tons of poor people suffering/unable to get by + shrinking middle class versus too strong of a labor market and almost too much demand.
Is this all really just "appropriate response" to the fiscal/monetary policy done by the US government + federal reserve during covid?
You may be surprised at the sheer size of the American millionaire class. I know I was. It’s a good chunk of the population. Looks like there’s about 25 million millionaires in the States in 2021. Collectively, they can spend a hell of a lot of money.
I got this information from the Credit Suisse Global Wealth report - hopefully it’s reliable information despite that fact.
> Looks like there’s about 25 million millionaires in the States in 2021. Collectively, they can spend a hell of a lot of money.
I feel like people who scrape in and are "technically worth" $1m or $2m on paper (most likely due to single family home ownership appreciation over time) but still need to work a job/support a family probably shouldn't count but other than that... it sounds like you and I are in alignment that of the ~160m working "taxpayers", 15% of them are millionaires who are basically unaffected by any recessionary downturns at the moment and are still out there spending like crazy? (like $20k Formula 1 Miami or $12k Warriors courtside tickets)
Some of it is political, I'm certain. If a recession happens, the parties in power usually flip. The talking heads have been talking of a looming recession for probably 5-8 years now.
> recession, inflation and layoffs only seemed to make people buy more tangible goods to hold on to
Why is it surprising? As long as you believe that your job is secure, if you believe higher inflation is coming then buying things now may be a good solution.
I hope they’re trying to lower unemployment. But yes, my flippant comment is mainly just about these kinds of headlines. And a free chance to take a shot at the wrong and bad minimum wages.
I don’t think interest rates have the capacity to change unemployment right now until they hit some truly emergent effects like a much bigger banking crisis.
The US’ economy is not as capital intensive as other economies past.
A lot of back orders relate to the construction and fitting out of factories as part of the reshoring movement. Once those factories are ready to produce widgets, they need reasonably-priced labor to staff them (and export the unemployment to China).
It's going to be really tough to do that if they can't create some unemployment over here.
The Fed rate doesn't directly affect employment - at best it may encourage some larger businesses to postpone hiring, but most companies (outside tech, which a.) has some very good macroeconomists b.) intends to survive and c.) is unusually sensitive to cost of capital) aren't going to lay off people until their bottom line takes a hit that puts their survival in question. Smaller profitable companies aren't directly exposed to the cost of capital at all, because they fund operations out of cash flow.
The way interest hikes combat inflation is that they make certain lines of business unprofitable, which makes companies either voluntarily shutter them or go out of business for being unprofitable, which frees up the workers involved in those businesses to compete for core, need-to-have industries like food and logistics, which holds down wages. This is happening in tech, but it hasn't filtered down into the broader economy. And it needs to - even if you lay off everyone who "learned to code" in the last 10 years and force them back to working retail, there are still way more job openings than workers.
We'll see unemployment go up when we see major Fortune 500 companies go bankrupt, and we'll see inflation drop sustainably when people are on bread lines.
Interesting. This is different than the narrative (with no proof) that gets upvoted to the max at r/stocks that "the stock market is filled to the brim with zombie companies who shouldn't be in business/are artificially surviving"
My theory. If you are in Austin, look at all the new buildings being built on every block. Those building, often with the bank that financed them at almost free money loan rates shown an a placard outside, will eventually finish being built without anymore being financed at today's interest rates. Then look at thousands of laborers doing the building. Every month those buildings are being completed. We are at the apex right now. Eventually everyone one of those laborers are going to have to find a new job however there will not be loans to finance more building.
The money injected into the system was created 2, 3, and 4 years ago. It takes a few years for the effects of multi million dollar financing to show.
No, the fed has a dual mandate of controlling inflation and keeping unemployment low.
They are absolutely not “trying to raise unemployment”. They are trying to control inflation and the expectation is that they will eventually have to stop raising interest rates (or lower them) because unemployment increases too much before they hit their inflation target.
Yes they are. They’re very clear about this. They are trying to raise unemployment as a lever to reduce inflation. That is not to say they want unemployment to rise indefinitely, but they do want it to rise.
Fed mandate is clear: Price stability and low unemployment.
Their main lever is interest rates. Interest rate increases do not necessarily increase unemployment. Now that unemployment is low enough, their priority is inflation, and for that they will raise interest rates. If higher unemployment is a side effect that leads to 2% inflation, then their mandate is still achieved. But rest assured, if inflation comes down to 2% with unemployment flat or improved, it's all the better according to them. Their intention is not "more unemployment -> less inflation", it's just "less inflation," by any means necessary. They will accept causing higher unemployment to achieve 2% inflation because it's a balancing act between their two goals.
"Powell said he hoped that a slackening of demand might reduce pressure in the labor market without raising unemployment."[0]
No they are not, they are very clear about this. They will keep raising interest rates until inflation hits their target. They will only stop before that if it starts to drastically impact employment.
No, they have said, literally, that they will not stop rate hikes until they hit their inflation target. They will also consider stopping if it starts to interfere with their max employment mandate.
The critical difference that you are missing is that if inflation stops before employment declines, they will stop raising rates.
> The fed is trying to raise unemployment, not lower
No, the Fed is trying to lower aggregate consumer demand to rein in the growth in consumer prices. If it could acheive that entirely by adversely impacting availability and cost of credit while unemployment kept dropping, that would be ideal, given the other side of its dual mandate.
It accepts as a natural consequence that unemployment will likely need to go up to acheive its goals on inflation, but raising unemployment is not a goal.
> No, the Fed is trying to lower aggregate consumer demand to rein in the growth in consumer prices. If it could acheive that entirely by adversely impacting availability and cost of credit while unemployment kept dropping, that would be ideal, given the other side of its dual mandate.
It would be ideal. But it is not achievable. So raising unemployment is a short term goal to achieve the broader goal of stability.
That's going to be very hard to do, the Boomers have retired and there isn't anyone to replace them and unless and until we fix immigration there won't be anyone to replace them. In addition, look at the job opening 50% of open jobs are in food service and retail. These are not good jobs they are kid jobs or jobs of last resort, nobody aspires to work the drive through at McDonalds. Powell is happy to drive wages down, he's probably thrilled that with the huge number of higher wage earners that had t file for unemployment last week -the most ever. As Powell said, this is going to suck for you working stiffs but at least your eggs will only cost $2.99.
Hasn't Jerome Powell been quoted verbaitm on saying "we need to get wages down", implying that they have gotten too high and are unsustainable for most small/medium businesses to pay?
I wish I could find the interview, but at one point someone brought up the question of wages going up and he basically said "Don't stress we'll get that under control soon"
As an extreme example, if the minimum wage went to $100/hr, inflation would skyrocket because demand for goods would skyrocket which would send prices for just about everything to the moon.
A metric that matters a lot more is purchasing power. It's better to make $10/hr if a dozen eggs cost $2 (20% of your hourly wage), compared to making $20/hr with a dozen eggs costing $6 (30% of your hourly wage).
> By moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that.
"Wage inflation" is talked about as a problem by various politicians and TV networks. I think the underlying logic is "if wages keep going up, it makes it harder to bring inflation down".
In other words, if people get paid more, demand stays the same (or increases) which is counterproductive to lowering inflation.
I don't disagree at all. I also know it isn't this simple but in my mind it's roughly:
Hey entry level worker. 2 years ago we (company) would have paid you $12/hr. Now you have made it (by not applying for our open positions we need filled/quitting over time) that you refuse to work for less than $14/hr. That's a 16% increase in our payroll. That's fine! We'll just charge 16% more for our product and the entire thing will be "put off" by the customer who will front the bill. Our bottom line is unaffected and the entire thing is a passthrough for us.
> Hasn't Jerome Powell been quoted verbaitm on saying "we need to get wages down", implying that they have gotten too high and are unsustainable for most small/medium businesses to pay?
He has suggested that wage decreases are potentially one of the paths between rate increases and reduced inflation which is just an observation of basic facts of economics.
Do you want him to pretend he doesn’t understand how the main monetary policy lever available to the Fed impacts the things that the Fed is responsible for targetting?
The federal minimum wage is irrelevant in almost every region now. It might be relevant in maybe a poor part of Mississippi, but I wouldn’t be surprised if it wasn’t the bottom even in those places.
Our current job boom has little with minimum wage allowing for lots of low productivity workers and more to do with a demographic shift, baby boomers are retiring and dying off, the demographic pyramid is imbalanced.
Someone who makes $0.01 more than the minimum wage is not counted in your 0.15% figure. There are millions of people who would benefit from the minimum wage raising from $7.25 to $10.
Effectively ending all minimum wages could actually be a big factor in making unemployment so low.
Is anyone looking into that idea?
Also how weird that we de facto ended minimum wage with no discussions. Just let it happen. Strange things happen when laws don’t account for inflation.
Fair point, but I while it's technically true, I don't think it's relevant to the discussion at hand.
Let me rephrase my original comment: a person who hasn't been earning anything and made a *rational decision* to earn something is in a better position than he was before.
I honestly don't think that significant portion of these new jobs are filled with people who decided to be disqualified from social services to earn less money that they have been receiving before.
This is statistically incorrect. The percentage of multiple jobholders is still lower than before the pandemic [0]. This is despite the prime age labor force participation rate being the highest since like 2002, and higher than it was before the pandemic in January 2020 [1]
You should reflect on why you feel this way despite the facts painting a very different picture.
The claim is money supply debasement, which is related to but not directly aligned with consumer price index (CPI) which only measure inflation for some theoretical "average" consumer based on some bucket of goods, services, and assets that increase or decrease in cost at sometimes wildly different rates.
Adjusted for inflation, $7.25 in January 2009 (when it was last set) has the equivalent purchasing power of $10.36 in March 2023. I live in a part of the country where many jobs pay $9-10 an hour despite rent being $600/month for a room.
A person making $0.01 more than minimum wage is technically not making the minimum wage. Citing the percentage of people who make exactly the minimum wage is not a compelling argument for how many people are affected by it.
That is technically true, but pragmatically, anywhere close to minimum wage is a joke these days, people just won't work for $7.25 or $7.26 an hour anymore in most places.
Even in Vicksburg Mississippi, where I lived for a bit as a kid, a poor place, although not Yazoo poor, McDonalds is starting at $11/hour now.
It's not statistically incorrect. KPIs are generally discussed in time frames, year over year, quarter over quarter. There is year over year growth in multiple jobholders, three years running. That constitutes a strong trend, even if regressing to the mean. Also, if you're not filtering your multiple jobs data to prime age, you should use aggregate participation rate (unfiltered), which tells a different story.[0]
It's prime age because our population pyramid is balanced towards people that are likely to retire about now anyway. The prime age is far more relevant.
And for the record, the year over year growth should indicate that it's not the negative economic signal OP implied it was, since the economy was otherwise weaker during the bottom of the metric!
The fact that the minimum wage has remained unchanged for so long has an interesting economic consequence: it has effectively abolished the concept of a minimum wage. Nordic countries like Germany don't have a minimum wage. Rather, labor unions negotiate pay rates for various industries, and businesses are free to set their own rates. Left-wing people in the US think that abolishing the minimum wage would be a disaster, as businesses would be free to pay their workers peanuts. But this is not what's actually happening in other industrialized countries without a mandated minimum wage. Sure, a business could offer $4/hour, but because it would not be a liveable wage, no one would take those jobs, even people who are desperate. Likewise, $7.25/hour, the mandated minimum wage in the US, is now so low compared to the cost of living that no business is paying that anymore, even the penny-pinching ones. So the labor market situation in the US at the moment resembles more that of Nordic European countries.
It may be that the lack of a minimum wage in a situation of labor scarcity empowers workers. When there is a mandated minimum wage, a business can pay that, because it's an easy decision. But when there is no minimum wage, businesses have to work harder to determine an appropriate pay level. They have to conduct market research, hire consultants, study their competitors, and make a decision.
That employers pay more than the minimum wage is purely a function of labor power. Should unemployment hit >20% again like it did in April 2020, there would be no shortage of people willing to work $4/hour jobs if it was literally the only option to keep food in their mouths. There are plenty of states that forbid able-bodied adults without children from accessing SNAP, without any exemption for high unemployment rates or negative GDP growth.
most are food service and retail -jobs that work you like a rented mule. pay minimum wage,have no benefits and only give you 31 hours a week with a schedule that changes constantly.
It's a ha-ha-only-serious joke. Overemployment definitely exists - there's a whole r/overemployed subreddit with 174K members, where people routinely post about the 2-3 jobs they have. And I (eng manager at a FAANG) have seen fellow managers post about what to do about reports that they find have multiple jobs.
I'm not endorsing the practice - it will get you fired if one of your employers find out (although maybe its practitioners don't care, they'll just get another 10 jobs) - and it's pretty ridiculous that it exists. But it's sort of the logical outgrowth of late-stage capitalism where the only thing that matters is securing the transaction that puts money in your bank account and actually doing the job that you promised to do is secondary.
Wages don't rise. Rising wages means the wealthy can't exert as much control on the government and the economy as they'd like. Look at a long term chart for wages on a 20,30,40,50 year scale. Wages have not kept up with productivity, and this is by design.
But this assumes there isn’t excess production capacity. If supply is elastic then demand increasing makes supply increase, which creates investment and expansion, leading to a virtuous cycle.
Parallel to the story here is that supply chains have normalized to about 2019 levels of backlog. We aren’t seeing mass production stoppage due to outbreaks. We have an enormously elastic just in time economy so long as the parts are functioning - and they are.
The fed is managing things with a playbook from 45+ years ago. It’s not been updated for the modern globalized just in time economy with enormous ability to scale to almost any amount of demand. It’s not the 1970’s, which is the last time we tried to manage inflation. But the Fed still dances to disco and wears bell bottoms, so they must strangle wage growth and full employment to make sure people save 5% on a bag of Doritos.
But that theory is false because there are plenty of other inherent inflationary powers at play, such as the fact that there are 2 people whose combined net worth (Musk and Bezos) is nearly a trillion dollars....and they are barely taxed relative to the amount of economic power they wield.
A one-time "this is your fee for us allowing you to exist and your business to thrive despite you putting a ton of burden on tax payers through tax credit abuse, creative accounting, lobbying, etc..." tax for the 10-20 wealthiest people (or families) would be one of the most deflationary events in the history of this country.
You take 30% of Bezos' net worth away and he'd still have enough to buy the entire NFL....which would probably increase his net worth (and still have a few billion to screw around with). Take 30% of the Walton's collective net worth away and they wouldn't blink an eye. Take 30% of Musk's net worth away and he could still afford to piss away 20, 30, 40, 50 billion on some vanity project and still be one of the top 10 wealthiest people on the planet.
Such a tax would be the biggest shot in the arm to the US (and world) economy in a very long time. It would also be extremely deflationary because it would spike the M2 Velocity chart to unseen highs, which is generally an indicator of middle and lower class economic activity.
It's insane that we have people that are worth hundreds of billions of dollars and we don't tell them "we created this system that allowed you to attain astronomical wealth, and we maintain that system....you should consider that when it comes to tax season, rather than hiring an army of lawyers to avoid paying tax". THEY are the cause of inflation, because there's absolutely fuck all reason to just hoard billions when we have inflation and massive income inequality.
Holding aside the other points, them holding wealth of immense size is anti-inflationary because they’re holding their wealth and not spending it. If you released their wealth into the economy overall to be freely spent on Doritos by everyone, that would cause inflation. One reason raising interest rates decreases inflation is it causes more savings (to collect interest) and less leveraged spending (to decrease debt and interest payments). The wealthy tend to retain their wealth as savings regardless of interest rates simply because they can’t possibly spend it all that fast.
This is where the M2 Velocity chart again comes into play.
Taxing the uber-wealthy is actually deflationary, not inflationary. Taking away their ability to hoard unimaginable amounts of money actually helps the economy tremendously. The money that sat around in Jeff's or Elon's bank account doing nothing but accruing interest actually flows back into the economy, reducing the need government's need to print more money.
How, and why? People still need money, the economy still needs money, the business cycle and the real world still need to continue. Even if one person takes an outsized percentage the money supply, the underlying conditions that allows everyone else to participate in the overall economy remain unchanged except for one critical point. The only change is that because one person has so much money that they've effectively skewed the velocity of an average (currency of your choice), the government has no choice but to step in and print more money.
> This seems like a bad statement to make without any comment on what’s happening to wages. Are wages rising?
This might be in reference to during the pandemic, nobody really wanted to work (labor shortage), so employers had to offer incentives and above-average (for them) wages in order to entice people to work.
I know in some minds we might think "good, higher wages for entry level workers"
The only problem is, as you know, that money has to come from somewhere. Cut a cost somewhere, raise a price to a customer somewhere, or the owners make less money. The third one doesn't really happen/isn't worth the risk of owning a business at that point, right?
Yes, wage gains have been averaging 6% or so for the past two years. Obviously in the longer run inflation will be correlated with nominal purchasing power of consumers
It seems like (AFAIK) the only major sector cooling off for jobs is tech (and I’m guessing finance/banking, temporarily).
Interest rates seem most directly tied to easy/hard money, but in the current economy that doesn’t appear to have the same secondary correlation to workforce demand that might usually have been common in the past.
However I should note that the linked article doesn’t give a ton of detail on the sector & quality (pay scale) of jobs where there is growth, and that is a big consideration. Shrinking inventory of high paying (tech) jobs would be harder to makeup for if the increases are coming from lower paying $40k-$50k/year jobs.
The link between interest rates and investment seems pretty sound, I think it's more likely that we are just seeing a secular trend of retail still recovering from covid or something.
Like another comment mentioned housing starts have fallen off, but there's still work on ones already being built.
The bad businesses/investments that have been propped up by zero interest rate financing also will need to hit their loan maturity dates for them to adjust upwards.
It is normally 6-12 months after the Fed stops raising rates that there's a recession.
And the big recovery from covid right now is hospitality.
Based on this, almost 200K tech workers out in 2023 alone with additional 160K gone in 2022. That is a lot of jobs. I'll caveat with saying these are not all in the US and that as a % of the total workforce, tech is not that large so impact on this unemployment number is low. Just pointing out the tech sector is by the numbers/facts available definitely cooling.
Many recruiters are saying that companies are keeping their pipelines warm and still putting applicants through the process but few are actually hiring. There was also a recent post on LinkedIn about a trucking company in south Alabama that was upset with their recruiter because they were sure the FAANG layoffs meant they could get FAANG engineers to move to Alabama to work for a trucking company at a sub $100k salary. That's n=1 but does make me wonder if many non tech companies are convinced they now have a shot at top talent for bottom tier prices instead of hiring the local university graduates they usually get. If so, eventually the need to actually fill those roles will bring the hiring managers back to reality but it will take time for that to happen. Also if we get into a recession, companies are going to close the open positions and no manager wants to lose headcount so that should spur some of them into action. For now, the tech job market is full of bad information and unrealistic expectations.
Construction fell off long ago (heard numbers like 40%,80% reductions). Which makes sense given construction is kind of the “marginal” effort of real estate - where interest rates would factor in most obviously.
Regardless, it’s a decentralized system and inherently complicated. I’m even feeling a little impressed with its resilience shown here.
Have construction jobs really declined yet? I’m still getting outrageous quotes for jobs with long delays in starts, since material isn’t in shortage, I thought it was related to a labor shortage.
I think construction starts have fallen off. There's a long construction period and different construction trades are phased at different points, and have different backlogs.
My experience is that the parts of construction which typically happen at the beginning of a job (things like financing, land acquisition, architecture, demolition / asbestos removal) are hunting for work, while trades which typically happen at the end (plumbing/electrical/HVAC) are still booked full-up and nearly impossible to get at reasonable prices. This is all consistent with the construction pipeline having dried up, but most of the individual trades having a solid backlog as existing projects complete.
This statistic is pretty meaningless without knowing the wage/salary rate for those jobs, and the number of hours.
[edit: US govt maintains wage data and it should be simple to characterize the average & median values for compensation for the 'new jobs created': https://www.bls.gov/oes/current/oes_nat.htm ]
Also, > "But the jobless rate fell in part because 43,000 people left the labor force, the first drop since November, and were no longer counted as unemployed."
What kind of nonsense statistic is an unemployment rate that doesn't count this fraction? It's not like those people still don't need a place to live and food to eat even if they can't find a job after six months of looking.
Finally, >"The central bank has expressed concern that a robust job market exerts upward pressure on wages — and prices."
Translation: workers get a larger fraction of the profits created by their labor if job markets are tight, putting downward pressure on executive bonuses and shareholder dividends, and we can't have that! Everything must go to the rich, since the most important measure of societal success is the billionaire count.
> What kind of nonsense statistic is an unemployment rate that doesn't count this fraction? It's not like those people still don't need a place to live and food to eat even if they can't find a job after six months of looking.
"leave the labor force for good" can be legitimate - think someone on a longer sabbatical, going FIRE (financially independent / retire early), going to an extended stay in prison or becoming a permanent stay-at-home parent.
> What kind of nonsense statistic is an unemployment rate that doesn't count this fraction?
Like the inflation rate, unemployment statistics are more bread and circuses than useful information. They're designed to help the people in power remain in power, not to provide guidance for practical governing.
There are multiple numbers for inflation that are all tracked accurately. The most commonly excited is the unemployed and looking number. However, there's also many more numbers like total labor force participation rate that capture retired people or people who are no longer looking
I wonder, to what degree are the drivers of inflation tied to Main Street trends (jobs numbers, consumption spending, etc) vs Wall St trends (asset bubbles, money supply, expectations, etc)?
I recall in 2008 discussing this divide a lot. Finance recovered, but normal people never did. Whereas both sides used to be codependent, the stock market rose in ‘09 when folks still didn’t have jobs.
I wonder if we’re bringing things back in line now. Inflation IS declining, the last MoM report notwithstanding, even as we’re adding net jobs.
Perhaps I’m a bit optimistic. But could we finally be actually recovering from ‘08?
Like Warren Mosler (founder of MMT) argues, you can think of rate hikes as basic income for the rich.
Since the US Debt to GDP ratio is so high now, rate hikes are creating a higher deficit spending from the government into the economy (bondholders) which can be more than enough to counteract the contractive effect of rate hikes.
Can't you also think of rate cuts as basic income for the rich, because they tend to cause a rise in asset values as money searches for yield, and the rich own most of the assets AND rich people can take out very low interest loans backed by their assets rather than selling, which allows them to spend money without triggering a tax event?
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[ 3.1 ms ] story [ 163 ms ] threadI am still trying to make some sense of all this.
One could argue that several recessions should have already happened ( and recent bank collapse was a signal of one such event ), but were merely held back by government rescue/bailout ( depending on your perception of things ).
edit: Oh yeah, and old guard trying reintroduce working in office by decree. It all does not really add up.
Economics is a pseudoscience, after all. In fact, it's probably just an extension of psychology. Nobody really knows what makes the economy tick, but one thing that can somewhat measure the economy's general strength is the M2 Velocity chart. If the velocity of money is high, it means lots of different people are out spending money and keeping money in quick circulation as opposed to hoarding it.
This is true to the extent (and only to the extent) that behaviorism eventually managed to poke a little bit into economics, which had been dominated by the ivory tower rational actor model detached from empiricism before and longer than any of the other social sciences.
There are Serious People out there too, real economists who have been studying this stuff for whole careers. And quite frankly they haven't been saying any of this stuff. I think it's great that people (especially the GP) seem willing to reevaluate their priors. But maybe while you do that you could nod to the expertise of those "elites" you've been trying to ignore?
Related to that is the current level of crazy, which seems higher than what I normally observe. Only a year or so ago I ascribed it to people slowly moving back to the office, but it seems more lasting than expected ( crazy driving mode, less patience, more curt behavior and so on ).
And it seems that some of the previously fringe interests became mainstream in a weird way ( including memes among others, and how they weirdly can predict -- or cause -- events ), which only seems to further destabilize current society.
Note that all of these are not really economic changes. Something else else shifted apart from the usual stories about politicians being politicians.
I wish I knew more of the truth/could make sense of the sea of stats/data out there on the topic of:
break down America's population by their wealth/income. anybody who isn't in debt and makes a decent income, we don't have to "worry" about
you see headlines that a lot of people are struggling, living paycheck to paycheck, in debt, housing is broken compared to 40 years ago and an entire generation on average can't afford to buy an average house on their average income
but then we have another group of people, not billionaires or $10-$100m, just like "average" rich people who have so much money it's affecting the entire system with high demand for tangible goods?
I personally can't make sense of it. I know both can be true, but I see it as a balance/see-saw in my mind. I know America doesn't work for everybody, etc. etc. I'm talking purely from a "how healthy is the economy right now" perspective. How is that we have what feels like polar opposite narratives constantly being mentioned (tons of poor people suffering/unable to get by + shrinking middle class versus too strong of a labor market and almost too much demand.
Is this all really just "appropriate response" to the fiscal/monetary policy done by the US government + federal reserve during covid?
I got this information from the Credit Suisse Global Wealth report - hopefully it’s reliable information despite that fact.
https://www.credit-suisse.com/media/assets/corporate/docs/ab...
Checking it now, will update this comment with "how big is the American millionaire class"
https://www.zippia.com/advice/millionaire-statistics/#:~:tex....
> Looks like there’s about 25 million millionaires in the States in 2021. Collectively, they can spend a hell of a lot of money.
I feel like people who scrape in and are "technically worth" $1m or $2m on paper (most likely due to single family home ownership appreciation over time) but still need to work a job/support a family probably shouldn't count but other than that... it sounds like you and I are in alignment that of the ~160m working "taxpayers", 15% of them are millionaires who are basically unaffected by any recessionary downturns at the moment and are still out there spending like crazy? (like $20k Formula 1 Miami or $12k Warriors courtside tickets)
In an inflationary market it makes a lot of sense to buy today what you can't afford tomorrow.
Why is it surprising? As long as you believe that your job is secure, if you believe higher inflation is coming then buying things now may be a good solution.
If your KPI is "number of jobs" then keep the minimum wage so low that countless people need two or three of them.
Prepare to be disappointed. They are openly trying to raise it in order to lower "inflation".
How long will they need to hold interest rates at 5%+ before we see a raise in unemployment?
The US’ economy is not as capital intensive as other economies past.
I don't know. New + used car sales as well as new 15/30 year mortgages (or what would typically be refinances maybe) have to have some effect.
A car salesman closes less deals, he has less money to go on vacation with, etc. etc.
Lots of companies still filling back orders and latent demand from the last three years
When unemployment is low companies are reluctant to lose staff for fear of not being able to rehire when needed
The housing market hasn’t slowed much which is a huge employer
Pent up demand for travel and services is still strong
It's going to be really tough to do that if they can't create some unemployment over here.
The Fed rate doesn't directly affect employment - at best it may encourage some larger businesses to postpone hiring, but most companies (outside tech, which a.) has some very good macroeconomists b.) intends to survive and c.) is unusually sensitive to cost of capital) aren't going to lay off people until their bottom line takes a hit that puts their survival in question. Smaller profitable companies aren't directly exposed to the cost of capital at all, because they fund operations out of cash flow.
The way interest hikes combat inflation is that they make certain lines of business unprofitable, which makes companies either voluntarily shutter them or go out of business for being unprofitable, which frees up the workers involved in those businesses to compete for core, need-to-have industries like food and logistics, which holds down wages. This is happening in tech, but it hasn't filtered down into the broader economy. And it needs to - even if you lay off everyone who "learned to code" in the last 10 years and force them back to working retail, there are still way more job openings than workers.
We'll see unemployment go up when we see major Fortune 500 companies go bankrupt, and we'll see inflation drop sustainably when people are on bread lines.
The money injected into the system was created 2, 3, and 4 years ago. It takes a few years for the effects of multi million dollar financing to show.
They are absolutely not “trying to raise unemployment”. They are trying to control inflation and the expectation is that they will eventually have to stop raising interest rates (or lower them) because unemployment increases too much before they hit their inflation target.
Their main lever is interest rates. Interest rate increases do not necessarily increase unemployment. Now that unemployment is low enough, their priority is inflation, and for that they will raise interest rates. If higher unemployment is a side effect that leads to 2% inflation, then their mandate is still achieved. But rest assured, if inflation comes down to 2% with unemployment flat or improved, it's all the better according to them. Their intention is not "more unemployment -> less inflation", it's just "less inflation," by any means necessary. They will accept causing higher unemployment to achieve 2% inflation because it's a balancing act between their two goals.
"Powell said he hoped that a slackening of demand might reduce pressure in the labor market without raising unemployment."[0]
[0]https://www.bloomberg.com/opinion/articles/2022-07-29/higher...
The critical difference that you are missing is that if inflation stops before employment declines, they will stop raising rates.
No, the Fed is trying to lower aggregate consumer demand to rein in the growth in consumer prices. If it could acheive that entirely by adversely impacting availability and cost of credit while unemployment kept dropping, that would be ideal, given the other side of its dual mandate.
It accepts as a natural consequence that unemployment will likely need to go up to acheive its goals on inflation, but raising unemployment is not a goal.
It would be ideal. But it is not achievable. So raising unemployment is a short term goal to achieve the broader goal of stability.
There is a difference between an accepted cost and a goal.
I wish I could find the interview, but at one point someone brought up the question of wages going up and he basically said "Don't stress we'll get that under control soon"
"That" basically meaning poor people.
As an extreme example, if the minimum wage went to $100/hr, inflation would skyrocket because demand for goods would skyrocket which would send prices for just about everything to the moon.
A metric that matters a lot more is purchasing power. It's better to make $10/hr if a dozen eggs cost $2 (20% of your hourly wage), compared to making $20/hr with a dozen eggs costing $6 (30% of your hourly wage).
In other words, if people get paid more, demand stays the same (or increases) which is counterproductive to lowering inflation.
Hey entry level worker. 2 years ago we (company) would have paid you $12/hr. Now you have made it (by not applying for our open positions we need filled/quitting over time) that you refuse to work for less than $14/hr. That's a 16% increase in our payroll. That's fine! We'll just charge 16% more for our product and the entire thing will be "put off" by the customer who will front the bill. Our bottom line is unaffected and the entire thing is a passthrough for us.
He has suggested that wage decreases are potentially one of the paths between rate increases and reduced inflation which is just an observation of basic facts of economics.
Do you want him to pretend he doesn’t understand how the main monetary policy lever available to the Fed impacts the things that the Fed is responsible for targetting?
Our current job boom has little with minimum wage allowing for lots of low productivity workers and more to do with a demographic shift, baby boomers are retiring and dying off, the demographic pyramid is imbalanced.
For most jobs you simply can't get someone to do the work for that rate.
Is anyone looking into that idea?
Also how weird that we de facto ended minimum wage with no discussions. Just let it happen. Strange things happen when laws don’t account for inflation.
Let me rephrase my original comment: a person who hasn't been earning anything and made a *rational decision* to earn something is in a better position than he was before.
I honestly don't think that significant portion of these new jobs are filled with people who decided to be disqualified from social services to earn less money that they have been receiving before.
I haven’t looked at the data recently but I would bet small money that you’re incorrect. I’m thinking of people near retirement age specifically.
You should reflect on why you feel this way despite the facts painting a very different picture.
[0] https://fred.stlouisfed.org/series/LNS12026620
[1] https://fred.stlouisfed.org/series/LNS11300060
$7.25 in March 2023 has the equivalent purchasing power as $6.05 in January 2019.
Even in Vicksburg Mississippi, where I lived for a bit as a kid, a poor place, although not Yazoo poor, McDonalds is starting at $11/hour now.
Yes, if you start with a dumb premise, you come to a meaningless conclusion.
[0] https://fred.stlouisfed.org/series/CIVPART
And for the record, the year over year growth should indicate that it's not the negative economic signal OP implied it was, since the economy was otherwise weaker during the bottom of the metric!
It may be that the lack of a minimum wage in a situation of labor scarcity empowers workers. When there is a mandated minimum wage, a business can pay that, because it's an easy decision. But when there is no minimum wage, businesses have to work harder to determine an appropriate pay level. They have to conduct market research, hire consultants, study their competitors, and make a decision.
https://news.ycombinator.com/item?id=27454589
I'm not endorsing the practice - it will get you fired if one of your employers find out (although maybe its practitioners don't care, they'll just get another 10 jobs) - and it's pretty ridiculous that it exists. But it's sort of the logical outgrowth of late-stage capitalism where the only thing that matters is securing the transaction that puts money in your bank account and actually doing the job that you promised to do is secondary.
This seems like a bad statement to make without any comment on what’s happening to wages. Are wages rising?
But this assumes there isn’t excess production capacity. If supply is elastic then demand increasing makes supply increase, which creates investment and expansion, leading to a virtuous cycle.
Parallel to the story here is that supply chains have normalized to about 2019 levels of backlog. We aren’t seeing mass production stoppage due to outbreaks. We have an enormously elastic just in time economy so long as the parts are functioning - and they are.
The fed is managing things with a playbook from 45+ years ago. It’s not been updated for the modern globalized just in time economy with enormous ability to scale to almost any amount of demand. It’s not the 1970’s, which is the last time we tried to manage inflation. But the Fed still dances to disco and wears bell bottoms, so they must strangle wage growth and full employment to make sure people save 5% on a bag of Doritos.
A one-time "this is your fee for us allowing you to exist and your business to thrive despite you putting a ton of burden on tax payers through tax credit abuse, creative accounting, lobbying, etc..." tax for the 10-20 wealthiest people (or families) would be one of the most deflationary events in the history of this country.
You take 30% of Bezos' net worth away and he'd still have enough to buy the entire NFL....which would probably increase his net worth (and still have a few billion to screw around with). Take 30% of the Walton's collective net worth away and they wouldn't blink an eye. Take 30% of Musk's net worth away and he could still afford to piss away 20, 30, 40, 50 billion on some vanity project and still be one of the top 10 wealthiest people on the planet.
Such a tax would be the biggest shot in the arm to the US (and world) economy in a very long time. It would also be extremely deflationary because it would spike the M2 Velocity chart to unseen highs, which is generally an indicator of middle and lower class economic activity.
It's insane that we have people that are worth hundreds of billions of dollars and we don't tell them "we created this system that allowed you to attain astronomical wealth, and we maintain that system....you should consider that when it comes to tax season, rather than hiring an army of lawyers to avoid paying tax". THEY are the cause of inflation, because there's absolutely fuck all reason to just hoard billions when we have inflation and massive income inequality.
Taxing the uber-wealthy is actually deflationary, not inflationary. Taking away their ability to hoard unimaginable amounts of money actually helps the economy tremendously. The money that sat around in Jeff's or Elon's bank account doing nothing but accruing interest actually flows back into the economy, reducing the need government's need to print more money.
How, and why? People still need money, the economy still needs money, the business cycle and the real world still need to continue. Even if one person takes an outsized percentage the money supply, the underlying conditions that allows everyone else to participate in the overall economy remain unchanged except for one critical point. The only change is that because one person has so much money that they've effectively skewed the velocity of an average (currency of your choice), the government has no choice but to step in and print more money.
This might be in reference to during the pandemic, nobody really wanted to work (labor shortage), so employers had to offer incentives and above-average (for them) wages in order to entice people to work.
I know in some minds we might think "good, higher wages for entry level workers"
The only problem is, as you know, that money has to come from somewhere. Cut a cost somewhere, raise a price to a customer somewhere, or the owners make less money. The third one doesn't really happen/isn't worth the risk of owning a business at that point, right?
In other words, people make more money in robust job markets and can spend more money on goods and services.
https://www.atlantafed.org/chcs/wage-growth-tracker
Interest rates seem most directly tied to easy/hard money, but in the current economy that doesn’t appear to have the same secondary correlation to workforce demand that might usually have been common in the past.
However I should note that the linked article doesn’t give a ton of detail on the sector & quality (pay scale) of jobs where there is growth, and that is a big consideration. Shrinking inventory of high paying (tech) jobs would be harder to makeup for if the increases are coming from lower paying $40k-$50k/year jobs.
Like another comment mentioned housing starts have fallen off, but there's still work on ones already being built.
The bad businesses/investments that have been propped up by zero interest rate financing also will need to hit their loan maturity dates for them to adjust upwards.
It is normally 6-12 months after the Fed stops raising rates that there's a recession.
And the big recovery from covid right now is hospitality.
Is that happening overall?
I know some high profile tech companies have done large layoffs but I suspect most of tech is not them.
Based on this, almost 200K tech workers out in 2023 alone with additional 160K gone in 2022. That is a lot of jobs. I'll caveat with saying these are not all in the US and that as a % of the total workforce, tech is not that large so impact on this unemployment number is low. Just pointing out the tech sector is by the numbers/facts available definitely cooling.
Regardless, it’s a decentralized system and inherently complicated. I’m even feeling a little impressed with its resilience shown here.
My experience is that the parts of construction which typically happen at the beginning of a job (things like financing, land acquisition, architecture, demolition / asbestos removal) are hunting for work, while trades which typically happen at the end (plumbing/electrical/HVAC) are still booked full-up and nearly impossible to get at reasonable prices. This is all consistent with the construction pipeline having dried up, but most of the individual trades having a solid backlog as existing projects complete.
[edit: US govt maintains wage data and it should be simple to characterize the average & median values for compensation for the 'new jobs created': https://www.bls.gov/oes/current/oes_nat.htm ]
Also, > "But the jobless rate fell in part because 43,000 people left the labor force, the first drop since November, and were no longer counted as unemployed."
What kind of nonsense statistic is an unemployment rate that doesn't count this fraction? It's not like those people still don't need a place to live and food to eat even if they can't find a job after six months of looking.
Finally, >"The central bank has expressed concern that a robust job market exerts upward pressure on wages — and prices."
Translation: workers get a larger fraction of the profits created by their labor if job markets are tight, putting downward pressure on executive bonuses and shareholder dividends, and we can't have that! Everything must go to the rich, since the most important measure of societal success is the billionaire count.
Or just expand to any retirees not just those who do it early.
Retirees left the labor force and should not be counted as unemployed.
Immigrants on a visa that had to return to their countries after being fired left the labor force and should not be counted as unemployed.
Someone that was arrested left the labor force and should not be counted as unemployed.
Just a few examples.
"leave the labor force for good" can be legitimate - think someone on a longer sabbatical, going FIRE (financially independent / retire early), going to an extended stay in prison or becoming a permanent stay-at-home parent.
Like the inflation rate, unemployment statistics are more bread and circuses than useful information. They're designed to help the people in power remain in power, not to provide guidance for practical governing.
I recall in 2008 discussing this divide a lot. Finance recovered, but normal people never did. Whereas both sides used to be codependent, the stock market rose in ‘09 when folks still didn’t have jobs.
I wonder if we’re bringing things back in line now. Inflation IS declining, the last MoM report notwithstanding, even as we’re adding net jobs.
Perhaps I’m a bit optimistic. But could we finally be actually recovering from ‘08?
Since the US Debt to GDP ratio is so high now, rate hikes are creating a higher deficit spending from the government into the economy (bondholders) which can be more than enough to counteract the contractive effect of rate hikes.
https://fred.stlouisfed.org/series/MTSDS133FMS