Rolling US Economy Into The Shitbin Thread

🧐 pic.twitter.com/XcZsNkiZxP

— Aaron Fritschner (@Fritschner) January 7, 2022

Maybe not the right thread for that really. Do we have a thread about the ontology of "the economy"?

"rolling us economy is a shitbin thread"

i've been reading Kate Soper's "Post Growth Living" and have been thinking about this kind of thing a lot.

Feels like we’re rolling into the shitbin again!

that's just the way it is
https://www.youtube.com/watch?v=Adw772km7PQ

Stonks

lol

https://www.businessinsider.com/federal-reserve-inflaton-everything-bubble-economy-stock-market-debt-2022-1

The scary contours of what's coming was summed up well by a former Federal Reserve official Thomas Hoenig, who voted against the Fed's easy money policies before retiring in 2011. Back in 2016, Hoenig was warning about the very large and long-term risks that the Fed was piling up through zero-percent rates and quantitative easing.

"You had seven years of basically zero-interest rates. Now, what happens in an economic system over seven years? The entire market system develops a new equilibrium — around a zero rate," Hoenig told me in 2016. "An entire economic system around a zero rate. Not only in the US, but globally. It's massive. Now, think of the adjustment process to a new equilibrium at a higher rate. Do you think it's costless? Do you think that no one will suffer? Do you think there won't be winners and losers? No way."

Thomas Hoenig of the Mercatus Center. Koch funded, "engaged in campaigns involving deregulation, especially environmental deregulation. According to The Guardian in 2010, it "now fills the role once played by the economics department at Chicago University as the originator of extreme neoliberal ideas.""

im not co-signing his life work to be clear! its just grist for the shitbin mill

Chicago University

Ahem, University of Chicago.

either way its a fuckin hive of scum and villainy

THE Chicago Stonk University

He sounds OTM on this one tbh though.

It’s not a loss until you sell pic.twitter.com/gvmOegtssl

— Dr. Parik Patel, BA, CFA, ACCA Esq. 💸 (@ParikPatelCFA) January 24, 2022

He sounds OTM on this one tbh though.

stopped calendar etc.

I know MMT has made loose monetary policy into a lefty thing, but I still believe it does way more to enrich the rich and widen the gap and it's always only at the tail end of these things that you start to see wages rise and benefits reach the bottom. Fiscal stimulus is the way to go, not monetary.

Fiscal stimulus is the way to go, not monetary.

otm. also tax policy needs to become more aggressively re-distributive.

Hoenig would not support fiscal stimulus. While on the Fed in 2008 his big worry was inflation. He has been a profit of doom for decades. That does not, in itself, make him "OTM on this one."

Now, think of the adjustment process to a new equilibrium at a higher rate. Do you think it's costless? Do you think that no one will suffer? Do you think there won't be winners and losers? No way.

As an argument against rate changes this is pure stupidity. It would apply to any change in monetary policy, because markets always produce winners and losers.

Not a good sign that the other two days comparable to today were in October 2008:

If you want to know how rare today's turnaround was off that sell off. https://t.co/hrqLWmvI4S

— Tracey Ryniec (@TraceyRyniec) January 24, 2022

tapered
pants

https://www.businessinsider.com/federal-reserve-inflaton-everything-bubble-economy-stock-market-debt-2022-1

The scary contours of what's coming was summed up well by a former Federal Reserve official Thomas Hoenig, who voted against the Fed's easy money policies before retiring in 2011. Back in 2016, Hoenig was warning about the very large and long-term risks that the Fed was piling up through zero-percent rates and quantitative easing.
"You had seven years of basically zero-interest rates. Now, what happens in an economic system over seven years? The entire market system develops a new equilibrium — around a zero rate," Hoenig told me in 2016. "An entire economic system around a zero rate. Not only in the US, but globally. It's massive. Now, think of the adjustment process to a new equilibrium at a higher rate. Do you think it's costless? Do you think that no one will suffer? Do you think there won't be winners and losers? No way."

― class project pat (m bison), Monday, January 24, 2022 1:05 PM (nine hours ago) bookmarkflaglink

this is backwards. the fed didn't set a zero rate and then an equilibrium developed around that. the equilibrium rate is near-zero (due to a confluence of factors outside of the fed's control that have lead to a secular decline in interest rates worldwide since the 90s) and the fed set its policy rate in accordance with that to achieve its mandate of stable inflation and low unemployment

high interest rates or low interest rates are not themselves inherently desirable. interest rates are low because the supply of private-sector savings are large relative to the private-sector demand for investment. if the fed keeps rates low, the federal government can take advantage of low rates and do public-sector investments on the cheap to increase overall demand for investment. having the fed raise rates raise the cost of public investment, and would also make the gap between private savings + investment wider

the reasons why savings dwarf investment are a mix of things like demographics (life expectancy increasing, families have fewer children mean older populations, old people saving more for longer retirements), slowing productivity growth (fewer productive investments to be made), increases in wealth inequality (rich people save more). none of these are controlled by central banks.

since inflation remained low and unemployment remained high, central banks have mostly kept interest rates low for the last decade

a notable exception was when the fed started raising rates in 2015 to preemptively stop inflation because it thought it was near full employment. it choked off the labor market recovery and arguably got trump elected. inflation remained below target anyway and the unemployment rate fell to lowest levels ever under trump on the even of the pandemic.

this was a huge unforced error as it was obvious to anyone who looked at broader labour market indicators like prime-age employment to population ratios that the labour market had a lot more slack than indicated by the unemployment rate

the fed will almost surely raise interest rates now because inflation is high, but it (hopefully) won't have to raise them very high or very fast in order to choke off inflation, or else it would threaten the labour market recovery. the structural factors leading to long-term low interest rates are not reversing (the demographic shift is accelerating, productivity remains low, and wealth inequality keeps getting higher), so it's unlikely that we're moving to a new long term period of lower saving/higher investment

I know MMT has made loose monetary policy into a lefty thing, but I still believe it does way more to enrich the rich and widen the gap and it's always only at the tail end of these things that you start to see wages rise and benefits reach the bottom. Fiscal stimulus is the way to go, not monetary.

― longtime caller, first time listener (man alive), Monday, January 24, 2022 4:19 PM (six hours ago) bookmarkflaglink

MMT didn't make loose monetary policy a lefty thing. the argument that loose monetary policy was better than loose fiscal policy for countercyclical policy was the consensus among neoliberal economists pre-2008. MMT made loose fiscal policy a lefty thing (Stephanie Kelton's book is called The Deficit Myth) but loose fiscal policy was already a lefty thing, so the most you can say is that they made it a little bit more of a lefty thing (by creating a new horde of online econ quack)

MMT advocates for the de-separation of monetary and fiscal policy, in order to let fiscal policy roam free. rather than have the federal reserve set monetary policy independently of the treasury, MMT argue that congress/treasury should exert "fiscal dominance" and demand that the fed accommodate whatever spending it wants to do. the idea is then that the federal government can spend until it hits "real resource constraints", at which point it can raise taxes to cut inflation. this means that if (for example) republicans control congress (and/or the presidency) during a period of high inflation, they would need to vote to raise taxes to rein in inflation. this would obviously not happen, and that's why severing fed-treasury independence is considered a recipe for runaway inflation

fwiw, none of what i said above is MMT. deficit spending during periods when private savings push equilibrium interest rates near (or below) zero is good because (i) public investments are good, (ii) buying even more of them when they can be had for cheap, and (iii) fiscal policy can help the economy achieve full employment beyond what monetary policy can achieve when interest rates are at the zero lower bound. all of this is consistent with monetary independence

using monetary policy to solve wealth inequality is a bad idea. not only are there better ways to reduce wealth inequality (taxing wealth, confiscating inheritances, creating sovereign wealth funds and issuing citizens dividends, nationalizing industries), but higher interest rates would not solve wealth inequality. the mechanism through which higher interest rates affect things like inflation and asset prices is through lower nominal income growth and investment and higher unemployment. since most people get nearly all their income from labour earnings, this would (and historically always has) affected workers more than the rich. it's relatively painless for the rich to undergo income volatility from transitions to higher interest rates--their income is high, so even if it goes up and down, it's still high even when it's way down--and they can change their portfolios (for example by moving towards low duration stocks that aren't affected by the fed rate). whereas it's very hard for normal people to adjust to any shock to labor income, especially loss of a job

there's a great empirical example of this. wealth inequality went on a tear in the decade after the volcker shock:

https://www.cbpp.org/sites/default/files/styles/report_580_high_dpi/public/atoms/files/1-13-20pov-f6.png?itok=DUEJDHYp

oh look it's Reagan's face again

xp: ok yeah that sounds right. I guess it's more just that I have lefty friends now who think low rates forever is a great idea and in my mind that is tied to the popularity of MMT but maybe that's not the origin of it or maybe they are bastardizing MMT.

TBC, not suggesting higher rates would help solve income inequality, just suggesting that low rates may have contributed to it because those who already have wealth are in the best position to take advantage of the wealth generation opportunities created by low rates, whereas there doesn't seem to be evidence of low rates creating jobs and raising wages and that sort of thing.

it’s hard to get direct evidence, because by design the fed cuts rates when things are going badly and raises rates during booms. this econometric challenge is known as Milton Friedman’s thermostat. the idea is the thermostat turns on when it’s cold and off when it’s warm in order to keep the temperature inside constant, so a simple correlation between thermostat and temperature would be weak. but you can suss out the effects when you study sudden changes like the volcker shock or monetary policy mistakes like the great depression (where they did the opposite and raised rates during a recession). economists also try to tease out more marginal surprises from fed statements etc. https://eml.berkeley.edu/~dromer/papers/AER_September04.pdf

I realize this is very squishy and observational, but it seemed to me like in both of the last crises (2008 and COVID), the enormous amount of monetary stimulus immediately had a strong upward effect on asset prices, but took much longer to have an impact on things that help ordinary people (and had a much smaller impact).

I agree. All that stimulus money should have just gone to the ordinary people.

low rates absolutely do support the job market aiui. a decision to raise rates is a decision to make people unemployed.

I realize this is very squishy and observational, but it seemed to me like in both of the last crises (2008 and COVID), the enormous amount of monetary stimulus immediately had a strong upward effect on asset prices, but took much longer to have an impact on things that help ordinary people (and had a much smaller impact).

― longtime caller, first time listener (man alive), Tuesday, January 25, 2022 11:48 AM (twenty-nine minutes ago) bookmarkflaglink

moreso in 2008, due to the debt-deleveraging cycle which was mostly avoided in the covid recession (partly due to way more powerful fiscal policy response)

i think it's now widespread (if not consensus) among mainstream macroeconomists that the pre-2008 neoliberal consensus view of the dominance of monetary policy was wrong. fiscal policy is effective when monetary policy is not, and is also complementary in a bunch of ways

low rates juicing asset prices is one channel whereby monetary policy affects inequality. if you could narrowly isolate that channel, i tentatively agree it would increase inequality. but i don't think it makes sense to think of that channel in isolation from the other downstream effects of monetary policy on output and employment

i agree with you on the broader point that fiscal policy is important for getting the redistributive side of countercyclical policy right. but high rates are bad even if you like fiscal stimulus because they make it more expensive

I agree. All that stimulus money should have just gone to the ordinary people.

― removing bookmarks never felt so good (PBKR), Tuesday, January 25, 2022 12:12 PM (six minutes ago) bookmarkflaglink

central bank setting interest rates is not equivalent to or incompatible with giving out stimulus money though. central bank doing more QE or setting lower rates does not prevent the fiscal authority from doing more stimulus. in the case of low rates it's complementary.

most stimulus money in the last recession went out to employers in the paycheck protection program (which a recent paper found was an effective but extremely expensive way to preserve employment relationships https://www.nber.org/papers/w29669), or to workers in the form of expanded UI benefits, or to everyone in the form of stimulus checks

low rates absolutely do support the job market aiui. a decision to raise rates is a decision to make people unemployed.

― Tracer Hand, Tuesday, January 25, 2022 12:26 PM (one minute ago) bookmarkflaglink

otm

GDP growth dramatically outpaced forecasts made a year ago. Most forecasters expected the economy to grow 3 to 4 percent this year. Instead it has grown 5.5 percent. That is more than a percentage point faster than even the most optimistic forecast was expecting. pic.twitter.com/ocZ3S41sWW

— Jason Furman (@jasonfurman) January 27, 2022

If the economy is so great how come I see “Help Wanted” signs everywhere, answer me that smart guy?

The economy is so great, people need help with it!

the redundancy of that tweet’s last sentence is sublime

That is more than 1.49 percentage points, even!!!

As I read that chart, "the most optimistic forecast" was from the FOMC, who predicted 4.2% growth. That's in contrast to "most forecasters", who were slightly less optimistic.

this is funny

https://www.vice.com/en/article/5dg5qz/what-you-learn-from-a-year-of-watching-bad-financial-advice-on-tiktok

but not as funny if you chase it with

https://inthesetimes.com/article/the-ticking-bomb-of-crypto-fascism

Here's a really wild chart.

Shares of Hilton have now matched the performance of Zoom since February 19, 2020, the market right before the pandemic.

Just incredible reversal of the "COVID winners" trade. The hotel business is booming. https://t.co/ZnyYdIut2Q $HLT $ZM pic.twitter.com/qz1eYqx3bv

— Joe Weisenthal (@TheStalwart) February 15, 2022

Hotel rooms got crazy expensive

Honestly surprising given the cancellations of conferences and weddings, the kinds of things that sell ballroom space and blocks of rooms.

they've also stopped cleaning/refilling everything automatically every day

Isn't the story more than Zoom's insane hype has died down while Hilton basically coasted back to where it was (factoring in the general performance and inflation of the market)?

I should add: crazy expensive and (for the last 5-6 months or so) more popular than you’d think

hey things are kind of expensive in general now

Yeah

This tracks with our local hotel market, I was just talking to someone in the industry last week. She said their business travel is still substantially down, but it's been more than compensated for by a boom in leisure travel. And also what they call "B-leisure," which is a combo thing where people on a business trip bring their families and stay a few extra days, turning it into a working vacation. This has been greatly abetted by remote work, people aren't pressured to come back home to the office.

Software CEOs need to delete Headspace and watch this clip every morning pic.twitter.com/gXC2dtGxce

— E-BIT-dee-AY Exit Multi🅿️le.usd (💵,💵) (@ExitMultiple) February 17, 2022

legally