The returns that capital demands (and the government obliges to) are ultimately unsustainable. That's the core problem here.
Rising wages? There has been no meaningful real increase in wages in 40 years despite a massive increase in productivity. Profits keep going up and up. The expectations for profits keep going up. The problem here is that the people who make companies possible don't get to share in the proceeds of what they contribute to.
Rising wages and lower profits would actually represent in workers actually getting an actual real increase in wages and getting a greater share in the fruits of their labor. But no, that's unacceptable. We have to raise prices to maintain the profits and effectively erode those wage increases.
The real failure here is the government.
Take rising energy prices. The government could take action to hasten development of existing leases and/or restrict the export of refined petroleum products. Oil hasn't gotten more expensive to produce. Oil and gas companies are simply raking in massive profits.
What we actually need is a system like Norway where we don't simply give away natural resources like this for private investors to profit off. At least in Norway, the government is making a ton of revenue from the increased prices, which it can direct back to people who need it.
Housing? Shelter is or should be a human right. What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. Also those skyrocketing rents do even more to erode the income of particularly lower income people to keep them living paycheck to paycheck.
This is modern serfdom in action. The government acts at the behest of the capital-owning class regardless of party and part of that is having a compliant labor pool. This is turning into the West's version of Pakistan's brick kilns.
After going into massive debt for college, having to pay a huge amount for your car, gas and rent and so on, you're absolutely showing up to work. That's the point.
The Norway example is really annoying. It keeps coming back as an example to follow, when everybody knows it is a complete outlier that cannot be reproduced elsewhere.
Norway is sitting on a gigantic pile of offshore gas that it uses to generate massive profits that go into a huge fund they don't know what to do with, all of that for a 5M population that drowns into social programs.
There is literally no country in the world that has this ratio of natural resources $ / capita.
Yet, when you look at what Norway has actually produced over the past few decades in terms of innovation, companies, etc. the picture is very, very empty.
The US government only takes a 12.5% royalty on profits from oil and gas extraction on public land [1]. Norway has a petroleum tax of 27% and a special tax of 51% for a total of 78% [2] in comparison.
While we would generate less tax revenue per capita than Norway would, that's not the point. The point is the state should take a much larger share of the profits of extracting natural resources that state owns.
The royalty rate is on production, not profits. The government takes 12.5% of all produced oil and has the right to the revenues. This is a much more burdensome tax than a tax on profits in that the government gets paid before the oil company, even if the oil company loses money on their investments. That’s why it’s not taxed at standard corporate tax rates.
Norway may be at the far end of the spectrum, but it's not black and white. Most countries have resources and very few share them with their citizens. It's not just to be born into a system where an incumbent oligarchy has control of resources. That kind of modern realpolitik doesn't develop any kind of civic duty or pride.
> Norway is sitting on a gigantic pile of offshore gas that it uses to generate massive profits that go into a huge fund they don't know what to do with, all of that for a 5M population that drowns into social programs.
> Yet, when you look at what Norway has actually produced over the past few decades in terms of innovation, companies, etc. the picture is very, very empty.
I don't agree with this being used as a primary metric for determining the worth of a nation or the value of its policies.
The #1 priority of a country should be the well-being of its people. Not "of its wealthiest"; not "of its economy". The well-being of all its people.
Norway is, last I knew, consistently among the happiest countries on Earth. I think that's a far, far more meaningful metric than "how many new ways to part people from their money have they come up with?"
(Now, I think there's a reasonable argument to be made with respect to things like basic scientific research, improved green technologies and other advances toward ending climate change, etc—particularly since that's vitally important for every nation's long-term well-being. But that's not at all the same thing as "innovation, companies, etc".)
If you are going to use the happiness of the country as justification for something you need to do a bunch of fancy statistics to try and disagregate the specific thing you are justifying from the large basket of differences between the countries you are comparing, as there are often large differences that are unrelated to what you are talking about driving happiness differentials.
It is also extremely disingenuous to call innovation and companies "new ways to part people from their money." People are often parting with their money because that new thing meaningfully improves their lives. Also, the basic scientific research argument is extremely overplayed. Breakthroughs in basic scientific research amount to nothing if they don't make it into the supply chain for goods and services eventually and that happens through company formation.
Norway's state oil&gas revenue pays and subsidizes pensions, tuition free education and healthcare while actually growing rather than shrinking most of the time. Unless your definition of feeling rich is the government buying you a lambo I'd feel very rich in Norway based on services provided at no or little cost alone.
This is how almost every single human being alive right now or alive in the past thinks. I have a lifelong friend who through a combination of luck, hard work, and being a legitimate genius is now wealthy ($10,000,000+ net worth and climbing).
However, he and his wife insist they are not 'rich'.
If you own a penthouse in a 30 story condominium and a lake house on the Great Lakes and haven't flown less than first / business class in the past 10 years, you're rich by any nation's standard.
I can see how getting a bunch of stuff without working for it appeals to a certain segment of the populace. Venezuela (and Libya) also had oil-backed welfare for their populace. Best not to get too used to it.
Ah the old patronizing saw "you just want free stuff"... no sir, I don't. I'm just playing another Game with a different equilibrium. One where everyone doesn't get to die for lack of health-care, like animals in the wilderness. One where my neighbor's education is not considered a threat to the small place under the sun I've managed to rip out of their hands, like predators quarreling for some spoils.
Hey who doesn't like free stuff. I like free stuff. Just pointing out not to get too used to it. History hasn't been kind to those who become too dependent on oil revenue, including in the form of distributions from the state.
>"you just want free stuff"
Ah the old patronizing "I invent a quote the person didn't say, and then I straw man against it like they did."
Yeah, Elon really worked super-hard for those $200B. Man clearly outworked every other person in world history except Bezos, who has a team that photoshops him into vacation scenes practically every other week to keep Amazon employees to from understanding what a tremendous strain he puts himself under.
Oh, wait. He was born rich, continues to suckle the teat of the US government, and will generally make money if all he does is sit there and do nothing, because money is power, and power has a gravitational pull of its own.
Also, the reason that wealthy people with families who have hundreds of years of wealth are so stingy is because they don't want to work for it.
There is a difference between paying for things directly with oil money and buying a diversified portfolio with oil money and using the profits from that portfolio to buy things.
> Yet, when you look at what Norway has actually produced over the past few decades in terms of innovation, companies, etc. the picture is very, very empty.
Do you have anything to back this claim up? Most of what I've searched about the Nordic countries in terms of innovation seems to disagree with this assertion.
>What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO.
There are plenty of affordable places to live. People just don't want to move there. Buying a house in a hip U.S. city/suburb isn't a human right.
This comment is too simplistic, but I have noticed this scenario playing out with a lot of the younger people I work with. We have a remote org and hire remote, but a lot of the young people we hire out of college have relocated to some of the most expensive cities.
There’s a growing attitude that if they’re already paying exorbitant amounts for housing and have a large amount of student debt, why not go all-in and buy a house that’s an extra $100-500K more than what they could find in a cheaper location?
There’s also a lot of FOMO from people who watched their friends over-extend themselves on expensive home purchases and then be rewarded heavily for it by rising home values. I’ve talked to a lot of younger people who have feel a severe sense of urgency to buy the most expensive house they can afford before they miss out on future gains or get priced out of the market entirely.
If you think house prices only go up rapidly and your entire adult life has confirmed that idea, you also wouldn’t be interested in moving to a boring location and buying a cheap house. You’d want to move somewhere exciting and get the most expensive house the bank will let you buy.
I work remote and the thing that keeps me living in a relatively high CoL city is fear of being locked in if I'm fired and unable to find other remote work.
Getting a mortgage in the country, for a tech worker, is basically a bet that either home values will stay high enough you can back out or that you'll be able to stay remote for the length of the mortgage.
If you lived in a high col city by default doesn’t that mean you live in a desirable area meaning you can likely sell your home? Or are you referring to a lease?
Why shouldn't we expect people who work in cities to be able to live dignified lives in those cities? There are always going to be janitors, home care providers, baristas, grocery store employees, etc. Our daily lives depend upon them. It's insane to me that we have a system that requires those people to exist but barely pays them enough to afford to live.
If workers couldn't afford to live close to those cities they'd move somewhere else. Those cities would then experience a shortage of workers. Wages would have to rise to attract new workers. Costs to everyone else in those cities would have to rise in order to accommodate this. If non-workers could no longer afford these costs they would have to sell their homes and move out. This would increase supply and bring the value of housing down in these cities.
Workers can’t afford to live close, and they haven’t moved elsewhere. Why? Perhaps moving costs money while they never have an opportunity to save for it.
Unfortunately the places where workers congregate is also the places where the most opportunity can be found in the job market and social sphere. Pushing people out of our most dynamic cities so that a bunch of landlords can artificially restrict supply to profit more is idiotic and a failure of public policy.
I can buy a plot of dirt for maybe $10k near a city with lots of jobs in my state. The problem is actually building something requires following codes and building regulations. A simple adobe house is doable by hands by a family with the occasional help from extended family or friends. But government say "bad" and I need permits, even if it's on a 5 acre plot with zero chance of any structural failure spreading to a neighbor.
Meanwhile even shithole houses go for $250k+ in part because affordable housing is simply irreplaceable due to that housing being built before such onerous regulations being implemented.
I don't think its onerous safety regulations that limit affordable housing. Its a well documented phenomenon that housing policy is driven to protect past buyers over future ones (NIMBY, using zoning laws to limit density of housing, minimal acreage in cities etc).
A combination of loosening up zoning laws around residential buildings and a land value tax would do lots to facilitate affordable housing, but nobody wants to disrupt current homeowners on behalf of renters and future buyers
You are talking about an entirely different situation of building in an existing neighborhood, not what GP described. If affordable housing is your goal then would not it be better to have it somewhere instead of insisting that either it has to be near the evil NIMBY's houses or not at all? Many people would be fine with a cheap SFH in suburbs instead of a micro-apartment in the middle of downtown.
I see you interchanged the words I actually used "onerous regulations" and instead addressed "onerous safety regulations." Nowhere in the comment you replied to is the word "safety" found.
But it is true a lot of regulations are made in the name of "safety." What these fail to account for, is that many of these regulations increase expense, so there are tradeoffs such as those who lose healthcare or education opportunities by instead spending it making housing more safe (thus, they may actually become less safe by having a safer house). Or even worse, people who end up homeless because although they could have built an "unsafe" shack, the regulations in all their wisdom deem it's better to be dead of the elements on the street than to live in a sub-par structure.
> Its a well documented phenomenon that housing policy is driven to protect past buyers over future ones (NIMBY, using zoning laws to limit density of housing, minimal acreage in cities etc).
>A combination of loosening up zoning laws around residential buildings and a land value tax would do lots to facilitate affordable housing, but nobody wants to disrupt current homeowners on behalf of renters and future buyers
Agree on all accounts here, the stars really align against new entrants.
Fair enough, but constraining supply of housing in desirable places by placing absurd obstacles on those that want to build more units isn't a human right either.
It's alright man, we'll agree to disagree. Housing is artificially constrained by treating it as an investment opportunity. Your solution is to pick up and leave everyone and everything you know because someone else decided that housing should be used as a game at the casino.
I know it's allowed, but is this what we want for society? I hope not.
I clicked a handful of those and every single one of them looked like they needed roughly 75-100k worth of repairs to make them livable. Then on top of that I would be worried about my safety if I lived there. Not the best example.
I'm not arguing anything. I'm pointing out that there are affordable places to live and the issue isn't supply but it's that you don't want to live there.
It is a problem of supply. You're probably a person who believes in free market economics. In every market high prices are a signal that supply is constrained relative to demand. As for the quip about it not being a right to live in 'hip' cities, it shouldn't be a right either for NIMBY homeowners to obstruct housing production.
Your need for shelter could be adequately (and cheaply) met in many areas all over the country. You aren't entitled to be sheltered wherever you find desirable.
Some non-investment reasons: stability, locking in your cost of living for many years, the ability to remodel your home to make it look the way you want it to, and no risk of being forced to move because the home you live in gets sold and the buyer wants to live in it themselves.
In Japan, houses generally depreciate over time, yet the home ownership rate is still 60% because the other benefits of home ownership are so attractive.
If you know you want to live in a particular area for a long time, and you can afford it, home ownership is usually an attractive move.
You'll never finish paying rent, but you will finish paying your mortgage eventually. Also, your mortgage payment won't increase much while you own your house (just the part for property taxes), while rents will often go up (and sometimes down) with the market. So if you are in it for the long term, a house will provide stability after 10 or so years. And that isn't even considering the fact that it is your place to make for your needs vs. your landlord's.
You’ll never stop paying. Pick rent or property taxes. Obviously property taxes are less than rent in your typical case. But it’s not even an order of magnitude difference
No, it is around...a third where I live maybe? Or maybe a 4th of what rent would be like. But I can always sell/downsize and retire to somewhere with cheaper property taxes, which is something I couldn't do renting. Rents don't do that.
But watch the rent to home price ratio. There is definitely a point where renting just makes more sense, like when I was paying $1000/month on something that the landlord was trying to sell for a $1 million. Ya, buying in that case would be purely for speculation.
This does not even factor in the NIMBY-ism of many progressive cities. People argue that housing is a human right and time and time again refuse to allow permitting changes that build more affordable, multi-family homes in their backyard.
Productivity has risen, but it isn't a tide tide that raises all boats. Look at what has boomed since the 70s, finance and tech. Finance because markets were liberalized and the economy financialized. They are at the junction where capital gets allocated in the economy, so they are able to take rents on all the capital that flows through them. The more money moving around the more they slurp up. Tech is where the lions share of productivity was created. All of the huge tech companies are able to leverage the internet to reach a market way larger than any physical store could before. A software development team is automating the workflow that would have gone to physical store employees running a Sears or whatever, a company manufactures a machine that does the work of 5 people 10 times faster, etc. That is why they get paid so much.
Meanwhile the rest of the economy de-industrialized, manufacturing jobs became more scarce because technology increased productivity, whatever was too labor cost intensive went overseas, and whatever jobs couldn't be offshored, retail and service jobs, aren't capable of having the same productivity gains as what was happening in tech. There are pretty hard limits to what restaurant staff, or retail employees, or other regular jobs can do to become more productive. That is why their wages are stagnant, the only reason those jobs exist is because they can't be exported, in some places they even import foreign workers to do those jobs to keep wages low. This is why unions fell out of favor, labor has no leverage anymore since their jobs can just be exported, or they cant but they are low skill jobs so employers can just churn people or grab import immigrants to do it because employees are nothing more than cogs in a machine that Amazon hasn't figured out how to automate yet.
Keep in mind that this is all by design, capital was liberalized, economies globalized, college loans guaranteed, nimbys limiting development in real estate and energy, these were all policies that people wanted and politicians enacted, whether or not they were fully aware of the second order consequences which are why things feel so messed up now.
What people wanted to send almost all labor intensive jobs like manufacturing overseas? Or sending almost all the production of semiconductors which are the primary building blocks of technology overseas? The corporate ownership? Yes. The vast population of citizens? No.
Do you realize that the United States mainly exports cardboard and oil plus a few car parts for BMW? While we import almost everything else.
Finance and tech remained because they are top-heavy industries that require only a few high paid people to execute the majority of those businesses. Bottom line is that this is not sustainable over the long haul. People will revolt as they fully realize that a basic task like buying their own property for their family is unachievable and other basic expenses like healthcare, rent, transportation, and food take up all or more of their income.
It largely doesn't matter what the vast population of citizens wants, the various interest groups lobbied for their own things that all contributed what is going on. Regular citizens wanted policies that had consequential effects too, like housing, student loans and stimulus for example.
Finance was not a glamorous, high paid profession like Wall Street depicted before liberalization, it has only become what it is now after that, that is the change I am talking about. Most of the things that blew up either massively increased productivity or was adjacent to the financialization of the economy and benefited from the uneven expansion of the money supply via the Cantillion effect.
Finance has been a glorious, high paid profession for much longer than tech. Tech only became glorious in the mid-late 1990’s and has proven to be a continuation of the corporate raider mentality of eviscerating companies into top-heavy laden enterprises. Basically, “productivity” increases is the manifestation or facade if you will of these ideals.
You may think that it doesn’t matter what the vast population wanted, but the slack in the system has been narrowed so far now that even the last bastion of the Fed cannot bail out the top-heavy institutions much longer.
I'm not sure what you are arguing, I'm just saying both Tech and Finance are winners in the current globalized economy.
I am just talking about how policy happens, and finance and big tech will come out of this fine or at least better than the general public, they are hoarding cash right now and retail is left bagholding all the way down like always and will be affected more by inflation and other knock on effects.
> The returns that capital demands (and the government obliges to) are ultimately unsustainable.
That's the start of the top comment, really? We're emerging from the era of unprecedentedly low returns on capital. There are trillions in bonds with negative nominal yield ffs.
Brick kilns in Pakistan (and also Bangladesh and possibly other places) are a form of neoslavery [1]. What happens is that depserate people are forced to take a job but as part of that job they go into debt. The company provides housing? You'll have to pay that back. They provide food too. You'll have to pay that back.
That's the point. For most there is absolutely no escaping that debt so they can't possibly get out of this situation (hence "neoslavery").
This form of coercion is violence and that's the point of having a budget shortfall in your existence: to make you a compliant worker whether you want to be or not.
Another term for this (and what people think we're heading to) is neo-feudalism because we're getting closer and closer to being serfs effectively.
The railway heyday in the US was famous for this, extremely high wages at the time, but company town, company store, and miles and miles from anywhere. Few were able to come out the other end much better off.
You load 16 tons, what do you get?
Another day older and deeper in debt
St. Peter, don't you call me 'cause I can't go
I owe my soul to the company store
Thank you. Most people haven't heard of this (even in KY/WV), which is odd, being one of the few instances where the military was used against citizens, helping illustrate that labor is to remain docile when abused.
There are a handful of regional books detailing the mine wars (Life, Work, and Rebellion in the Coal Fields, The WV Coal Wars/more elementary and Robert Shogan's The Battle of Blair Mountain) that are worth checking out. PBS (American Experience?) also had a 2 hour special a few years back that focused on WV and Mother Jones that was worth watching.
I see. Yeah this is known as "debt peonage." It also exists in the Gulf States of the Middle East in the form of the Kafala System where they use imported servitude from the Subcontinent/South Asia. It's how the World Cup will be able to played in Quatar this year. See:
And if you're not interested in the daylight issues that far north, Tulsa, OK is paying a $10k incentive to attract remote workers. At least two of my coworkers moved there during COVID.
They're drinking the water while choking the river.
If you have to have ever-increasing profits, you have to ALSO have purchasers with ever-increasing purchasing power.
You can slide by for a while by wedging yourself into a currently existing system and tapping some of its resources, but eventually if that drain isn't backfilled with more then it will run dry.
Question for anyone that knows - have healthcare costs eaten away at what possible wage increases could have happened? It seems to me that for the average almost-minimum wage full time worker the insurance cost to their employer is probably a very large portion of their wages.
Norway doesn't produce consumer tech products. Most of Norway's tech exports are oil or shipping related, in particular some state-of-the art offshore machinery.
The only consumer product that is produced in volume, is fish.
Keep in mind that Norway only has a population similar to South Carolina. There is a limit to how diverse the tech sector can be.
Sweden, the closest neighbour, is governed in very similar ways, and has plenty of familiar consumer oriented products.
Designed in Norway, made with low margin electronics and components from Asian supply chains. Either ways, 10 times more IPhones are sold in a quarter than ReMarkable tablets have ever sold in the entire history. This is not a knock against ReMarkeable, but the aggregate value-add of Norway is abysmally small compared to America.
Are you wearing Norwegian made clothes ? Is your house filled Norwegian made appliances ?
You do have a point, though think a comparison to Sweden (only double Norway’s population, but with many worldwide household name businesses) is more fair.
I think wages only can go up with abundant energy.
This time around interest is lagging inflation by atleast 1 year.
In the 70s the rate and salaries increased BEFORE the inflation occured = inflation was rate/salary driven and because debt level was lower.
Today salaries are not increasing 10% per year for most people.
So I actually think the interest rate hike increases the scarcity inflation eventually since energy production need low interest loans to build new sources.
The only sure thing about the hike is that ZERO new companies will be created, for good and for bad.
How is it possibly true that ZERO companies will be created if interest rates go up.
How many businesses are equity funded in the first place?
We did not have capital to start our business.
Most small businesses starting from zero can't get capital in the first place (excluding personal funds, family funds which aren't usually charging interest tied to the Fed benchmark)
Those tech companies that do get tons of capital despite negative value are somewhat unique and for sure interest rates will eventually affect that. Valuations are already starting to come back to at least the Stratosphere ;)
>So I actually think the interest rate hike increases the inflation since energy production need low interest loans to build new sources.
You mean wind, solar and nuclear power? I mean they are capital intensive because the operational costs are dwarfed by the initial investment. With coal and gas, the fuel is an ongoing and high expense compared to the power plant itself.
Yes, all energy requires more energy since EROEI (energy return on energy invested) on dead trees went below 10-to-1 in the past decades (initially around 100-to-1 when coal, oil and gas where initially discovered).
Wind and solar are only interesting in very small solutions (think small sailing boats), nuclear is super energy intense to build! Hydro is the ONLY balanced investment but all good locations are already in use.
You can argue either side to this, and make a good case.
My personal preference is to trigger a recession and reduce inflation. The easy cop-out solution is to say a "big f*ck off" to pensioners, lower middle class, and poor people and let inflation soar, but I believe that long term this would be more destructive to the general economy. Better take the long term view here and not kick the can down the street.
> personal preference is to trigger a recession and reduce inflation
These aren't binary outcomes. Tight money does nothing to ease supply-side bottlenecks. It does little to target demand displaced by rising energy prices. If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation. Stagflation. (To be clear, we're not at tight money yet.)
> If those are the principal drivers of inflation, tightening could depress non-energy demand in a way that causes a recession without alleviating inflation
You don't think the inflation has anything to do with printing $14 trillion out of thin air, or increasing the M1 money supply from ~4tn in march 2020 to over $20tn today?
Thanks for sharing. I never knew that. The post says savings accounts were moved into M1 because they're pretty liquid now. But what was the real rationale or implications? Odd time to do that move (April 24, 2020)
It was because in April 2020 Regulation D was amended to remove the six-transfer-per-month rule. The idea is that COVID may force people to make withdrawals from savings account more often so banks could allow frequent withdrawals from savings accounts, making them more liquid. It's not a coincidence that after the Fed suspended the rule they reclassified savings account as M1.
Why not both? Countries that didn't do significant QE are experiencing inflation, which argues that there is a significant supply side issue. Countries that did do significant QE have more inflation, which argues that QE also contributed. It appears that we're getting roughly 4% from each component.
So hopefully the Fed stops raising interest rates when inflation drops to around 4%.
Money printing to some degree has gone on everywhere but not at the same magnitude. It should not be surprising that countries have different monetary policy. Mexico for example had very little money printing/stimulus and had 7.68% annualized inflation in April.
15 years ago was a different animal because the money largely stayed in the banking sector, as excess reserves. This time, a substantial portion of it was deposited directly into consumer's accounts (stimulus checks) - and that money makes it's way into the real economy, pushing prices up.
No! And in fact most economists consider this to be an extremist fringe theory. A quick counterfactual here is, if the US's inflation is caused by its "money printing" (a term that is used quite loosely here, the vast majority of this money never makes it out to the general economy), then how does one explain the inflation experienced in other nations at the same time where no money was printed?
I don't think the stimulus being one of the drivers of inflation is an 'extremist fringe theory' at all. I thought the consensus was it was one of many factors, and the exact contribution of the different factors (stimulus, supply issues, etc) was up for debate.
US inflation is higher than other wealthy nations and the US also did a larger stimulus. So there is evidence that the additional stimulus may have created greater inflation in the US. Scope this paper here: [0]
As far as the consensus for the cause of inflation being unclear among experts, scope this article in left leaning VOX: [1].
> The UK government has borrowed vast sums of money to fund over £400 billion ($558 billion) in stimulus during the crisis. Total government debt has soared to £2 trillion ($2.8 trillion), or close to 100% of GDP, a level not seen since the 1960s, according to the Office for National Statistics.
That's my fear. In other words, increasing interest rates may not address the cause of the current inflation, so now instead of one problem (inflation) we have two (inflation + recession, aka stagflation).
Ultimately consumer sentiment has a much bigger effect than just about everything else.
The public are worried about inflation, it's the issue of the day. They will cut back spending until inflation is seen to be tackled which will likely bring about a recession anyway.
Given that, the Fed's hand has been forced, if they do not seem to be aggressively trying to deal with inflation the public will become even more scared and reluctant to spend.
The thought process goes: Consumer goods like TV dinners are still based on things further up the supply chain like fertilizer. Normally you get inflation when there is a shortage of say crude oil, but when everything is running into random shortages companies get defensive and start trying to stockpile supplies.
Hypothetical example: If Dell wants another 2 weeks of GPU’s on hand from Random Supplier X, and Random Supplier X wants 2 weeks of chips for their GPU’s on hand from Nvidia, and Nvidia wants 2 weeks of refined silicon on hand from supplier Y, who wants to source 2 weeks of raw materials early that’s 2 + 2 + 2 + 2 = 8 weeks worth of demand of sand from some mine somewhere out of thin air. Which then dramatically bumps prices for sand and that trickles back down the supply chain.
However, higher interest rates should moderate how much each company in that chain stockpiles, which reduces the demand for sand even if the same number of computers are shipped either way.
Through their actions they’re revealing that all of the excuses thus far were a lie. “Chip shortage”, “wood shortage”, “salmon shortage”, were all fake and overblown, and the real problem was too much money the whole time.
So all the electronics manufacturers and lumber suppliers are just engaging in some vast conspiracy? All the laptops and access points and microcontrollers and such that are hard to buy are just being hidden in hastily constructed wooden castles somewhere?
takes guts to do this and it was needed. Problem is that it will expose that most of the US economy is a sham that needed 0% interest rates to even fake growth. our "leaders" have been kicking the can down the road for a long time. US economy used to grow even with very high interest rates, now even a slight increase puts us into a recession.
There is a counter view that the US economy experienced a variation of dutch disease by being the world's reserve currency. In this view, being the world's reserve currency forced the US to "export" dollars and "import" goods. Making goods manufactured from USD jurisdictions irrationally non-competitive.
The reason "dutch disease" is a problem for resource producing countries is that manufacturing productivity growth is much stronger compared to commodity production. It's better to be a manufacturing powerhouse than it is to be a commodity powerhouse.
It's entirely plausible that services are the same way, it's better to make things for other people than to do things for other people.
All progress so far has been related to scientific instruments in some way, shape, or form. We required the industrial revolution to get to where we are because our bodies can't do it.
So, yeah, anything but an industrial, or post-industrial computer driven line, is setting your country up for long term failure. There is lots of societal enrichment that comes not just from the direct production of these things and their sale but also from how they facilitate the ad-hoc understanding of reality.
I think it's harder to distill qualitative improvement into a GDP number.
Take TV for example. Today you can watch Squid Games on your 65" 4k TV. 30 years ago you got to watch whatever was on cable on your 27" CRT. But where does that improvement get captured? We don't manufacture more TVs. In fact, we make fewer. We don't spend more money on Netflix than Cable. We actually spend less.
There's a lot of things like that where the quality has improved but that's hard to put an actual GDP number on.
I thinks most becouse real growth only happens in Asian countries last decades, and usa and europe companies fake growth by overlabredge debt becouse of the lower inters rate, not productivity
Oh come on. Asia didn't invent the iPhone. They're not leading the self driving car race. The internet runs on AWS/Azure/GCloud not any Asian provider.
Asia is making incremental improvements on products invented in the West. They're not the ones inventing classes of devices or breaking new ground.
and even more so the fact that 2008 resulted in no real punishment of this system like a real free market should have caused. The response to 2008 will be seen as a historic gaffe
I strongly suspect it is related to (if not entirely caused by) the very wealthy taking nearly all the gains due to productivity over the last ~40 years.
I see it as a combination of demographics (less millennials than boomers to drive consumption) and a lack of investment 20 to 30 years ago into next generation infrastructure and institutions (energy, transport, healthcare, education, etc) that would have given us more productivity growth outside of software and the internet.
Why do people assume that an economy will grow forever. If that were the case, how come the Roman empire failed to conquer the galaxy? 3% over 2000 years is a lot of growth, a lot, I can't stress how unimaginably large that amount of growth is.
People assume the economy will grow forever because they don't want the future to look like feudal Europe where economic stagnation led to a millennium of toil and suffering.
I don't think it's that simple. Lower middle class and poor people have debt, and inflation is good for making debt less valuable in real dollars. Pensioners, maybe, but social security is indexed to inflation if I'm not mistaken? I wouldn't be surprised if many public and private pensions are as well.
This is much more a move in favor of the rich that are owed money by the poor imo.
The concept of "inflating debt away" is an assumption that wages match inflation while debt stays static. This is a fair assumption in low inflation times, but is showing some cracks these days.
One might then ask, do higher-class wages match/exceed inflation more than lower-class wages? This is debatable. But here's some interesting data from the Atlanta FED, where you can track wages by quintile, education, "skill", hourly vs. non-hourly, etc. Make your own conclusions.
They have debt, but they also have work contracts with out of date wages. But even in our sector, with the leverage that we as programmers have, companies don’t bother to match inflation. You have to make some risky or uncomfortable move to renegotiate your wage or find a new job. For many people it can be worse. So, everyone is under additional financial stress.
Inflation forces people to seek new jobs every few years. That is not necessarily a bad thing. The alternative is to have your boss decide for you when he wants to fire you.
> The alternative is to have your boss decide for you when he wants to fire you
Just for fun, I thought I’d do the math on deflationary economics:
#!/usr/bin/env raku
use v6;
multi sub deflate($n, $r, $y)
{
my $m = $n;
loop (my $i = 0; $i < $y; $i++)
{
$m = deflate($m, $r);
}
$m;
}
multi sub deflate($n, $r)
{
$n * (1 + $r);
}
sub MAIN(:$rate = 0.0225, :$years = 10)
{
my $purchasing-power = 1;
my $deflate = deflate($purchasing-power, $rate, $years);
my $output = qq:to/EOF/.trim;
After $years years of deflation at a rate of {$rate * 100}% per year,
purchasing power is {$deflate * 100}% of what it was initially.
EOF
$output.say;
}
Without inflation, your personal wealth would grow by the average inflation rate target plus GDP growth, compounding each year.
Assuming an average inflation rate target of 2% per year (per the Fed) and an average GDP growth rate of 0.25% per year, your real purchasing power would grow by about 25% per decade.
Under this scenario, you could mimic a universal basic income of $1000 per month upon saving a total of $480,307.
Bonus: your monthly “UBI” could never be shut off by your government.
Cool, but I couldn't resist rakufying your "deflate" subroutine:
sub deflate($power is copy, $rate, $years) {
$power *= 1 + $rate for ^$years;
$power * 100
}
sub MAIN(:$rate = 0.0225, :$years = 10)
{
print qq:to/EOF/;
After $years years of deflation at a rate of {$rate * 100}% per year,
purchasing power is &deflate(1,$rate,$years)% of what it was initially.
EOF
}
The innumerable dark-seeming corners of the language is part of what makes Raku so very, distinctly “Perl”. Little traits and single character sigils that change everything. I find the black magic of Perl моѕt all∪ring ∮.
Same, very surprising. I was tracking the project for a while with great interest but they lost a lot of things that made Perl actually good at its niche. I'm amazed they made Perl look worse.
Nobody is talking about typical inflation. I just found a new job with a significant increase in pay and the improvement has nearly completely evaporated in months. I am nearly open to another move. With adequate inflation, your pay is wrong in weeks or days. But surely you know all this?
Everywhere I look I see the unexamined assumption that inflation is necessarily bad for everyone. I haven't be enable to find a straight answer on who it actually benefits and who it hurts in the long run. I've found economics studies arguing contradictory conclusions. Wages, costs, debt, cash, stocks, and rent all react differently, and your experience of inflation depends hugely on what balance of these things you have.
Inflation and responses to it affect the distribution of wealth. When I hear an automatic response from "responsible" policymakers explain that some sacrifices will be needed to tame it (mostly not by them, of course), then I strongly suspect that we're headed for yet more accumulation of wealth at the top.
> This is much more a move in favor of the rich that are owed money by the poor imo.
Inflation affects the poor much more than it does the rich, which is why it's considered a "regressive tax". The Fed making a historically large rate hike is a direct attempt at fighting inflation, preferentially so over preventing a recession.
And since we're already very near to full employment, the risk that inflation poses to the poor is greater than that of unemployement, hence why it is better for the poor that inflation is brought in check even at the risk of recession.
yes I don't think it's the case that inflation doesn't hurt the lower half of earners at all, but this entire post is filled with people assuming that inflation hurts poor people the most. I don't know where that assumption comes from but it doesn't make sense to me.
Someone who could just manage to feed their family on a paycheck-to-paycheck salary before now cannot. That hurts in a way that is .. difficult to compare to when your belly is always full.
The mistake is that, most poor peoples largest expense is housing, and most poor people rent. Those who own have mortgages. Sure their $30K student loans (already on income based repayments) may benefit from inflation, but housing prices certainly not.
Still waiting for inflation to hit my effing salary.
I know it won't, because we're entering stagflation territory and unemployment is going to go up. COVID was a massive wealth transfer from the lower and (esp) middle class to the oligarchs.
People at my company have, in all-hands meetings. Is the company going to raise our salaries to compensate from the widely acknowledged inflation that's going on, given the company nets billions a year? No comment.
Stop thinking of yourself as a employee and start thinking yourself as a services vendor. They aren't going to raise your rates of their own accord, you need to go out and generate leads for that to happen.
In a high inflation environment you may find yourself in a position where you have to shift more resources to sales rather than operations. Your current situation with it's pre-inflation salary might just not meet your business goals. Just like they may choose to spend additional income from inflation adjustments on things other than your salary, you can choose how much time you devote to things that are important to you depending on how they reward you.
Moving to a union environment has left me working fewer hours, getting better benefits, and more than doubling my salary. I'm glad things worked out for you [presumably in what is currently one of the hottest occupations], but a union has been a boon to my total compensation.
The whole point is this isn't about you. This is about all of us.
We live in a society, and we damn well need to start acting like it again, rather than the proverbial crabs in a bucket, desperately stepping on each other to try to get ourselves higher.
Companies rarely increase wages of existing employees commensurate with inflation. You get the appropriate inflation-adjusted increase only when you switch jobs. It is the one bit of leverage you have as an employee - I would suggest using it. Complaining to management feels good but gets you nowhere.
My parent made a living working for the same employer. My SO's parent made a living working for the same employer. Somehow, not canning the entire staff every two years worked for their generation.
Meanwhile, I work for tech companies where hardly anyone knows anything because nobody has any experience because the entire workforce has to turn over every two years just to try to recoup what inflation has devalued their salary to?
Companies aren't going to do sweeping COL raises voluntarily. You should directly ask your manager, they most likely have the flexibility to make it happen.
...and the lower classes hold a lot of debt, which under high inflation would start to vaporize. It would effectively transfer a lot of wealth from those who hold a lot of cash to those who don't.
Middle/upper class hold a higher nominal value. Lower class tends to hold a higher debt level to their income, and it tends to be in high interest revolvers such as credit cards which are almost impossible to pay off if all you can afford is to make the bare minimum monthly payment.
The upper/middle classes hold more debt overall, but it's debt that's much easier to shed - mortgages. You can just walk away from that mortgage at any time. The lower classes are saddled with medical debt, credit card debt, and student loans which aren't dischargeable in bankruptcy.
> The highest-income 40 percent of households (those with incomes above $74,000) owe almost 60 percent of the outstanding education debt and make almost three-quarters of the payments. The lowest-income 40 percent of households hold just under 20 percent of the outstanding debt and make only 10 percent of the payments.
Also, medical and credit card debt can generally be discharged in bankruptcy. Student loan debt can't, but consider this from the same link:
> What may be more surprising, however, is the difference in payment burdens. A growing share of borrowers participate in income-driven repayment (IDR) plans, which do not require any payments from those whose incomes are too low and limit payments to an affordable share of income for others. And some borrowers are in forbearance or deferment because of financial hardships. As a result, out-of-pocket loan payments are concentrated among high-income households; few low-income households enrolled in IDR are required to make payments.
If you look at it by state, you can draw a north south line from the western boundary of Texas to the western boundary of North Dakota. West of that line is debt; east of that line (until you hit the coast) its better.
Running it from 1999 to present is also kind of interesting.
> With respect to the long-term rise in household debt: This is a monetary phe- nomenon. Fundamentally, it is the result of higher interest rates and lower real income growth and inflation. On the other side of the equation, increasing income inequality has simply led to an increase in private consumption inequality. To the extent that consumption demand has been stronger than would be predicted by a Keynesian story of consumption propensities declining with income, the ex- planations appear to be a mix of increased luxury consumption by high-income households and and increased social spending classified as household consumption in the national accounts. Income inequality may indeed have contributed to weaker aggregate demand. But so may a number of other factors affecting desired consump- tion and investment, including: the progressive satiation of consumption demand; slowing population growth; increasing monopoly power; the shift from manufac- turing to less capital-intensive services; changes in the fraction of profits retained in the business sector; the trade deficit; and increased longevity of capital goods. The possible influences of all these factors, along with countervailing forces tending to raise aggregate demand, need to be investigated systematically we should not immediately focus on one possible story to the exclusion of the others.
Page 28 appears to have the line item you're after:
> Household debt is concentrated near the top of the income distribution; very little is owed by lower-income households.
I don’t know anyone who has had their salaries keep pace with inflation. And I presume the lack of pay rises is the cause for all the industrial action I keep hearing about.
That's a straightforward, non-cynical thing to say just like 'what comes up must come down.' People don't seem to think so.
Anyone with $1,000 has the resources to stop any (or several) of a large number of unfortunate circumstances that they may encounter. $10,000 even more so. $100,000 should be years of runway along the same lines. So it makes sense that when everyone is riding an economy downward, the people with the least cushion get hurt the worst.
Frankly the poor are always going to get hurt no matter what you do. Being poor isn’t a position of strength in the first place. When you’re living hand to mouth you are very sensitive to any changes in the environment.
I think unemployment hurts the poor the most because bosses fire the least productive people (untrained workers), even when those people spend a bigger portion of their salary on consumption and thereby generate demand for products to sell. A lot of the more "productive" people already have what they want and spend their money on acquiring capital which is kind of pointless if nobody is there to buy your products.
Unfortunately it really depends on which side of inflation one is in. Wage increases still help in an inflationary environment if one has existing debt (i.e. a mortgage).
Furthermore, a lot of inflation is in housing itself, so if one already is a homeowner, then a significant amount of inflation is bypassed.
Inflation is largely being driven by import problems and oil prices, therefore, it is unclear if a recession is a golden key to lower inflation. Keep in mind that oil is internationally expensive, and even a reduction in the US may not bring down prices significantly.
So we could see recession AND inflation at the same time. Then tack on higher interest rates, and everything goes squish.
High gas prices are mostly a function of insufficient refining capacity, short of the government building more, I dont see a policy fix here. The market is responding to the probability of an electric future.
Mandate work from home capability for anyone who can work from home; prioritize oil consumption for non discretionary use cases where you have no choice but to move atoms vs bits. Agree with your thesis otherwise, no way to juice output in the short term, only shims until electrification ramps faster (which, I argue, should carry the same gravity and speed as a wartime effort, but alas I am not a politician).
Edit: Normally I’d suggest a carbon tax and rebate to low income folks, but that would directly work against Fed FFR increasing efforts and Congress is so pathetic as to not be able to get it done.
Mind you, I think the electric future s 15-30 years away, not 8-15 - but the lifetime of a refinery is 40-50 years. Thats the issue, it wont pay for itself on a conventional amortization schedule.
Disagree. We’re already past peak combustion vehicle sales per Bloomberg NEF, and the rate of EV sales will only increase based on operating costs versus combustion vehicles.
Lots of folks interested in EVs when fuel is $5-6/gallon, which will remain for some time. Gotta scale up faster, build the machine that builds the machine and whatnot.
Disagree. Those combustion vehicles are sticking around longer. Getting 15+ years out of a combustion vehicle is a piece of cake. They also have to be replaced. There is not going to be any where enough production capacity to replace all of those for a while. The early EVs will have shorter lives for one reason or another so the used market for those will suck for at least a decade. There is also going to be grid issues which will either out right prevent electric vehicle adoption or slow it. Sure, you might get to the point where few new vehicles are combustion in say 10 years, but the used market will be quite a different story.
Don't get me wrong. I WANT an EV, but there isn't one out there I would buy. No way am I getting a 1st, 2nd, or 3rd year EV. I'm not going to be a beta tester. No way am I getting an EV with just touch screens. No way am I getting an EV which is a pain to maintain or repair.
I think you're underestimating the long tail, the average age of a vehicle is 12.2 years old, we're probably 15-20 years from where 50% of vehicles on the road are electric. I'm 39, and I do not see a point in my expected lifetime (around another 35 years) where gasoline and diesel fuel will not be common and available.
Unleaded gas was introduced in the 1970s in the US - and leaded gas was still made and sold until the 1990s. And it's still available if you know where to look in every city in the US as 100LL Avgas, or with additives.
I'm expecting retail gas stations to be common for the next 20-40 years, with some density reduction towards the middle of that period is what I'm saying more or less.
To say leaded fuel is still available is a little bit of a misnomer, in the states anyhow, its not legally available as a road fuel, nor is a TEL additive - there are lead substitutes, but they're potassium I think, largely to prevent valve seat wear.
As far as I know, low octane unleaded fuel has always been available, you could always get a 'regular' grade gas without TEL, and premium fuel was marketed as with TEL.
Yeah, was just showing that it takes time for things to change, even given that most cars sold in the 70s worked fine on unleaded, there were still leaded cars out there.
And cars didn't last nearly as long as they did before.
> I think the electric future s 15-30 years away, not 8-15
This definitely varies on the definition of "the electric future" is. Are we in the electric future when the number of total passenger miles driven increases or stays the same while the gallons of gas combusted for passenger car travel decreases? Is it when >50% of cars on the road are electric? 100% of passenger cars?
50% of the cars on the road, is the metric I use, I'm 39, and I do not see a point in my expected lifetime (around another 35 years) where gasoline and diesel fuel will not be common and available.
The federal government is one of the largest employers in the country, if the President signed an executive order moving most jobs that could be done remotely to remote, it would have a positive impact on oil demand.
That could happen tomorrow. It could be challenged in court, but the internal running of federal departments hasn't traditionally been successfully been upheld unless they have some novel legal theory as to why this is unconstitutional.
Where is all this new demand for gasoline coming from? I know a lot of people are back to in-person work and school, but a substantial number of people are now full or part-time WFH where they weren't before 2020. On top of that we've "unexpectedly" lost over a million people in that same time frame. Shouldn't demand for gasoline be lower than it was before the pandemic?
- reduce speed limits, like in the 70s. Actually enforce with speed cameras everywhere (bonus, fewer people will die).
- mpg mandates for new vehicles, like Obama, but now also include light trucks. (bonus, fewer people will die).
The fact that they are not even being discussed by policymakers in this context of high gas prices tells you that driving fast with large vehicles is fetishized.
It's true that economic policy is structured such that Congress has effective control over the non-monetary levers.
The problem is that Congress is functionally ineffective at responding to popular demand, intentionally. The Senate is structurally allowed to act anti-democratically against the will of the populace: two representatives for fifty arbitrarily defined land areas are allowed to override proportionally elected representatives, and the filibuster allows only a third of them to block any action.
We are at a political impasse. Things will get worse because it does not look good to the minority party for the majority party to enact real economic wins.
If only the majority party were willing to wrestle a tiny speck of that anti-democratic power away from the Senate by overriding extreme rules like the filibuster...
>If only the majority party were willing to wrestle a tiny speck of that anti-democratic power away from the Senate by overriding extreme rules like the filibuster...
Or reverting back (pre-1970s) to the "Talking Filibuster,"[0] where you could only stop a vote by continuing to "debate" on the floor of the Senate.
That won't solve the problem, but it would be a step in the right direction: Talk until you can't and in the meantime, try to negotiate with the majority.
A huge component of American and British inflation is endogenous (stimulus checks, loose monetary policy, etc…). Both the central bank and the government can and should do something about it.
Core inflation in the UK is 6.2%, in the US is 6%, more than half the inflation rate. This is not the same in countries more affected by the energy shock, such as the eurozone.
Exactly, the best time to raise rates was 6 years ago when the economy was humming along well. Instead the fed kept them too low creating huge bubbles, which it's now in the process of popping. These next few years are going to be a lot rougher than they needed to be.
This isn't just hindsight bias either. Plenty of people have been warning about exactly this problem for years.
They DID raise rates 6 years ago: from 0% in 2015 to 2.45% in 2019. It should have been done much earlier. And there was no need to push equity markets 50% up from pre-pandemic levels. That was the time for a soft-landing.
Why should they have raised interest rates? Standard economic dogma has it that below target inflation like the last 15 years needed low interest rates to get it back up. Or could it be that standard economic dogma is a steaming pile of horse shit?
Sure inflation was low for buying food or milk or whatever, but was much higher than 2% in some massive areas of the economy, like stocks and housing. Keeping rates so low created huge pressure to invest in high risk speculative assets. Crypto is basically the poster child for how absurd things have been in recent years.
I think you would need monarchy (or something more tyrannical) to get that. Democracies seem reliably short-sighted. The personal responsibility of taking on debt is so thoroughly attenuated in a democracy that piling on ($90k per citizen and counting, in the US) debt is the expedient thing to do, and it's seemingly impossible to overcome the electoral price paid for trying to reject that expedient option.
We had someone who was attempting something like tyrannical rule between 2016 - 2020 when the economy was going gangbusters. In his infinite wisdom he passed a ginormous tax cut, and then publicly lambasted the fed chair for modestly raising interest rates.
Not that administration is solely to blame for our predicament. The failure goes back even before the previous administration who had a mandate to make radical changes after the 2008 election cycle, and instead continued business as usual.
Wow, he passed a ginormous tax cut all on his own? Without the House and Senate both passing it first and sending it to him to sign?? That's extremely tyrannical! I can't believe I never heard about this, do you have any more info I can look at???
You should pay more attention. They planned to start hiking rates in ‘21 when inflation broke 2% but in their infinite wisdom they deemed it “transitory” and kept rates low and now look where we are.
Covid and the issues that caused should have been that long awaited wake up call to slowly ramp the money printer down.
Instead, they ramped it up and now we're here. The war is not the main cause of this, but was the monkey wrench thrown in the money printer, bringing down this house of cards.
This issue was years in the making, but they were just kicking the can down the road hoping the bubble wouldn't burst on their watch.
I think you're assuming some backstory to my comment that's not there.
But, for what it's worth, the rate hikes needed to start years before that, probably between 2013 and 2015. 2010-2020 was the window to make up for big spending.
AFAIK it was how Keynesian economics was supposed to work. Also AFAIK the only country that did intentionally tighten at the top always Israel as they were worried that an economic crisis would leave them vulnerable to attack from their neighbors *
* source is from a bar talk with an economist, I didn’t do my own research here…
Long-term prudence is how every system is supposed to work, but motive can't be considered in a system as diffuse as a government of 330million people. The US is Keynesian in bad times, and a giant tax cut celebration in the good times.
Unlike socialism, capitalism actually seems to fare better when under a siege mentality. The 50s to 70s was a period of strong growth and right-wing support for worker-friendly policies which made the lives of the ordinary person better, not least because of fear that poor working class conditions would lead to communist uprisings in Western Europe.
No monarch could ever have a sufficiently split personality to even mimic all the different ways things get pulled in a government where hundreds of people battle to make decisions. The US had (and has) no coherent vision but operates on a scale where that is not a viable option.
> You can argue either side to this, and make a good case.
Here is an argument. Fed is a thief. First it recklessly bailed out all the toxic banks and derivatives in 2008, then kept the interest rates low for too long propping up the asset prices, then basically printed money as if there is no tomorrow, and then the moment middle class started to see wage growth they gave the asset owning class opportunity exit with big margin as they retired and then started raising the rates. End the Fed.
Every central bank in the world is caught between a rock and a hard place. A recession would be bad for the long-term economy, likely reducing aggregate productivity. But if they don't manage to get inflation under control, we'll see a wage/price spiral as high inflation expectations become entrenched among companies and workers.
The Fed missed the chance to act quickly in November/December and now it has to show commitment to bring inflation down before it spirals out of control. In the US and the UK, the current burst in inflation is more endogenous than it is in the eurozone (see core inflation), so it can and should be put under control by the central bank and by the government, the former with interest rates and the latter cutting stimulus checks and the like.
We’ll see what the BoE and the UK government do, but I’m not an optimist. I don’t see Johnson stop using public money to directly buy votes and I’m very doubtful of the competence of a central banker that goes on TV asking people to not demand pay rises.
Actually higher inflation may help the poor and the middle class. If the inflation is caused by higher wages it is of great advantage of the poor and middle class. As well as a lot of the upper class (i.e., those of them that work for a living).
The present inflation is a bit of a mixed bag. It is partially caused by higher wages, but it is mostly caused by high oil prices, disturbances in grain and fertilizer sales caused by the war in ukraine and various covid related supply chain screwups.
I think the solution is to continue to address the things that can be addressed, like the covid supply chain screwups, low refining capacity, etc. Triggering a recession on purpose is really dumb.
What's the good play here? Cause a recession or price those lower middle class out of being able to afford the cost of living? Typically they aren't the ones with the best negotiating power.
Cost of taxes just gets passed on to the consumer.
Or as Traders say...
>It's priced in.
Tax does not do anything to extract money in the end from anyone but the consumer; or at least not any tax that I've bothered to actually sit down and trace in the rare accounting mood.
> Cost of taxes just gets passed on to the consumer
> It's priced in.
That's just not true. It can only be true if you assume all sellers collude not to lower prices.
In a free market, one seller might eat the tax, undercut the rest, and net more money at a lower profit margin by attracting business from competitors. That risk generally prevents taxes from being fully priced in.
$4 to make the thing, get it to you, and pay all taxes inherent to all the jurisdictions involved in producing and selling the thing to you. Let's even assume I'm the most amazing business man, and I've trimmed the process down to the absolute minimum possible cost per unit by nailing every optimization under the sun.
and $1 profit to come out ahead.
Now. That $1 profit is totally open to get undercut by a competitor.
We've pinned that $4 as the minimum possible cost to make that widget based on the laws of physics and business. Even if my competitors are all as amazing as me, they too hit $4 spend to produce 1 widget.
The next day, a tax is imposed. Not on the consumer, but on the businesses; this increases the floor cost per widget produced from $4 to $4.50 cents.
I priced things at $5 a widget. I'm still in the black with no adjustment. I have two choices: increase cost to keep making the same relative profit (if the market will bear it) in terms of cash, or convert some of that cash profit to "Goodwill" by basically taking a haircut and eating the tax. This could get me brand recognition or attract a certain type of investor.
My competitor, Sudden But Inevitable Undercut Inc. Priced their widget at $4.50 previously only pocketing 50 cents.
Unfortunately, they have no wiggle room any further. They drop out of the market, as to them the thought of increasing the price is unthinkable.
Any other competitors are left with the same choice as I had:
A) increase price to get same relative profit
B) cash in on Goodwill
But as more companies choose B, the value of B plummets. No one cares if you ate the tax if everyone does it, and in fact not doing it when everyone else does attracts an equally large set of particularly minded investors
The consumer still ends up ultimately eating it because supply just shrunk, demand stayed the same, (price goes up) because a supplier was just priced out of the market in a poof of non-profitability.
BUT! The ones who dropped out liquidated their stuff! Who'll buy it? Probably suppliers still making widgets. Who has the most to throw around? Me, of course. I could grab all those assets to prevent my competitors from being able to utilize them to scale, or to bolster my own production to be able to service more demand! I can do this, because growth can only be bought with money now. I have money now! Yay, greed!
So now, you're left resolving that Goodwill spread across your supplier population. In my experience, there is a far smaller set of Stakeholder value centric companies than Shareholder centric value companies.
Let's say it's 50/50 though, lets assume the market bears my elevated cost for buying the widget without much complaint. What does next quarter look like?
The ones who readjust up for the same relative profit may be able to capture fulfillment for a higher fraction of the finite demand. At first, this may seem advantageous to those who took a haircut, because that essentially turns into a bump in supply, pushing prices down; but as long as the higher priced widget sellers keep improving faster than the competitors that took the haircut, over time they (the less altruistic bunch) may be able to drive more benevolent competitors out of profitability, recapturing their (the more altruistic, but slower growing suppliers) now unprofitably serviced chunk of demand.
Boo! I say as the highest price supplier, I didn't make as much as I wanted in end consumer sales, but hey, wholesale is better than no sale, right? And I can still play the ole M&A card to acquire other suppliers to increase the shadow I cast in terms of effect on price.
If the market doesn't bear the higher cost, it can go the other way of course, and if one makes the dangerous assumption of rational homo economicus, the more benevolent actors may hold out, but they still won't won't grow as fast as their less altruistic competitor, (growth requires cash now, not goodwill).
So say our more altruistic company charges less most of the time, they're still going to have to price in the difference in response to the proportion of increased demand by consumers drawn by their normally lower prices, the max demand they can in house satisfy with their own production, and the elevated cost of sourcing more expensive supply from a less popular supplier due to their higher price to keep customers happy. Their prices are still pegged high, and they are vulnerable vulnerable to shakedowns by their upstream supplier if they want to keep that goodwill flowing.
A final equilibrium is reached only when there is no more room allowed by regulators for M&A until there is a breakthrough or change in the laws and physics of business, to bump that floor price down.
In reality, all businesses make these types of decisions all the time. The hard truth remains though: if you tack on higher costs to produce, there is nothing to stop businesses from passing that cost along. Not passing it along can net some goodwill, but rapidly hits diminishing returns as more companies do it, and hamstrings your growth potential if the population of the type of investor your goodwill piques the interest of ever shifts substantially, and in particular, shrinks. I've met far more pragmatic, profitability driven investors than ideal driven, so I'd wager your idealists are way less common than your "lets make lotsa money" investors.
Cash buys you more throughput. Goodwill may get you more demand, but inability to keep up and fulfill that demand means you're delegating business, and customers to a more costly supplier eventually anyway. Which raises the question, if you can't give everyone the lower price now, why not pass on the cost of that tax, reclaim your profit, possibly innovate, and give it to them later? Or why not have it be your hand on the till? I mean you had good intentions. You're just reacting to the market! You'll make it up to the consumer! Just... Later.
Several years later, you get faced with the same decision again and wonder if now is the time... Rinse, repeat.
Greed, in this sense, subverts the "virtuous" cycle.
But lets get back to iteration 1.
The end consumer though... after the tax is imposed is still paying at least $4.51-$5.50 where yesterday, they were paying $4-$5.
So, no... While I think you can cross your fingers and hope a bunch of people famous for being cutthroatly pragmatic will out of the goodness of their heart eat a tax for you...
I've gotten to the point I've thrown in the towel on that, and assume the traders are right
The scenario you present is so oddly specific and contrived I don't really know how to respond to it.
The fact that you mention investment potential as a downside of eating the tax is really amusing to me: is it so hard to imagine a sustainable business that actually makes money? Pumping up the numbers to attract investors is not something that matters to a well established profitable business. Half the economy is small businesses, and the owners tend to be a lot more pragmatic than boardrooms.
> While I think you can cross your fingers and hope a bunch of people famous for being cutthroatly pragmatic will out of the goodness of their heart eat a tax for you...
You've completely missed the point. What I'm pointing out is that, sometimes, cutting prices is the cutthroaty pragmatic choice, because undercutting a competitor may net you more total money at a lower profit.
That moderates the effect of taxes, and prevents them from being fully priced in. Even if nobody actually does it, the risk that somebody might affects the market.
Demand for what you do/sell is what fundamentally limits how much money you make, not profit margin. Increasing demand enough can offset decreasing margin.
Arbitrary example: Walmart can absorb a local tax increase which other small local retailers can't because Walmart's tax burden is spread across many tax localities. They get more business and make more money. It isn't goodwill, it is rational.
Just look at tariffs we've seen in the past few years: did all prices instantly jump by the amount of the tariff? Nope.
I don't see why people think inflation hits the bottom of the wealth distribution the most. If you own your home but make the minimum payments, inflation is good. Your payments stay the same but the dollars are worth less, and hopefully your wages go up (as many people's have been). If you owe student debt, healthcare debt, same thing. Almost every lower middle class person has one of these kinds of debt. Inflation hurts the people that are owed money (banks, corporations, etc).
A huge swath of Americans are living paycheck to paycheck and can't afford a $500 emergency. As inflation increases the cost of goods and services those people have even less wiggle room to handle the unexpected and/or they need to start cutting back on expenses.
That's my struggle with this part, and that was my point with the less bargaining power. Everything else you say is true, but I have concerns about this bit. My wage required a job jump to increase and I'm by no means lower middle class.
Speaking of lower middle class and poor people. Powell recently stated that workers had too much power and were able to demand too much higher wages. He intended to create policy to tip the balance of power away from workers to resolve this. I don't believe the well-being of lower middle class and poor people are a concern of his.
Yup. The last few years have also seen some of the highest wage growth in decades, and highest saving rates across the board. All that pent up demand and broadly distributed spending power is fueling inflation now. But, in the balance of things, labor did really well.
It's capital that being severely punished now, with negative returns (on top of inflation), it will take years to recoup losses. Anybody hoping of becoming a rentier (the FIRE crowd, seniors looking to retire come to mind) has seen their plans evaporate the last year.
While the truly rich probably don't care either way, their balance sheets are all shrinking nonetheless.
Low inflation may bring price stability and sanity to the markets, but it will not particularly benefit lower incomes.
The truly rich scooped up a bunch of cash and cash equivalents while interest rates were low. Now that there's going to be a price crash in places like housing, they will be scooping up assets like mad while Main St. suffers. People were complaining about how many houses BlackRock was buying, just wait till the crash.
This kind of thing really bothers me, and the more I learn about economics the more I understand why public school economics classes are so poor. If people understood this stuff there'd be a revolution.
I think Warren Buffet once said something to the effect of if the average citizen understood how the federal reserve worked there'd be a revolution overnight. I'm sure I got the person or details of the quote wrong, but I'm too lazy to look it up. Regardless, the sentiment stands.
I would say the inflation hurts middle class significantly more -- they at least have some savings/money.
However, if you are poor you would have more debt\less savings. As such a recession would be worse -- especially as it leads to less jobs and lost jobs.
Here's another perspective to this. An induced recession at a time when most people and businesses are recovering from historic losses that came about in the pandemic, is the worst.
In a recession, spending from the top 10% of the population slows down, which in turn stops the trickle down economics, and hits the lower 90% of the society the hardest. And when that happens after a 2 year long period where they were already hit hard, the effects will be even more long lasting.
[Edit]: Since most of you latched on to the argument that "trickle down economics" doesn't work, I'll clarify. Outside the rhetoric of "Billionaires are hoarding all the money", in a healthy economy, trickle down economics is how most of the businesses work. Every time a person earning six figures goes out buys that extra pair of shoes or goes on that extra vacation or orders in food because they were feeling lazy, it's trickle down economics. It works. When the people with higher purchasing power (I said top 10% for a reason and not top 0.1%) feel the pinch, it has a disproportionate impact on people with less money to spare.
I mean the US economy in the 20th century seems like a pretty good example, right? It “worked” by having the wealthiest realize most gains but also making the US the most powerful economy in the world and still has a large sized middle class with houses, pensions, 401ks, etc.
Funny, I seem to remember a certain president running on trickle down economics that coincided with the decline of worker compensation compared to executive and the shrinking of the middle class, but maybe I have history completely backwards
Edit:also look at the economic system practiced in the United States that led up to the introduction of trickle down economics. That happened in the 80’s and there’s 4/5ths of the 20th century that happened prior to that
It's disingenuous to claim claim that trickle down economics worked when the widespread middle class in the 1950s was buoyed by more government spending, much much higher union membership and high taxes on rich people. The US did have widespread beneficial economic growth after the rest of the world was town down in ww2 and we weren't, but that has ended over time as Reagan and others started claiming trickle down was the way to go. We reduced taxes on the top, theoretically making it easier for rich to spend and induce jobs for the others, but the impact of 1970s to now is worse opportunities. In summary the time that trickle down econ. was supposed to help was the time where the non-rich started to lose their share more and more.
An iPhone user in rural India surfing the open internet on $1 / month LTE mobile networks is absolutely an example of Trickle down economics working.
Every single of the thousands of innovation that goes into an iPhone was subsidized by rich venture capitalists and rich early adopters who were willing to plonk large sums of money to a 'gadget' that only showed promises of work.
It wasn't because the Indian Government Taxed the Rich and made a mandate that everyone should have an device-in-their-pocket-that-carries-all-the-worlds-information-and-productivity-tools
No. You can't claim that good things were somehow examples of trickledown. India didn't create cell phones or LTE technologies, but of course individuals from that country worked at companies making these things. It's just silly to claim arbitrary technology improvements are examples of trickle down econ. For example, lots of technology is created by war time scientific advances, pushed by governments.
>Every single of the thousands of innovation that goes into an iPhone was subsidized by rich venture capitalists and rich early adopters
Don't forget the governments which helped fund the basic research used to make such things, the middle and lower classes that pay more in property taxes so companies can be bribed to build factories, and other such things.
Put another way it's a much more complicated picture than just those two.
Wealthy people pay almost all the taxes. the top 10% pay 71% of taxes and the top 25% pay 87%. 75% of the country contributes nearly nothing but complaints.
A much higher percentage of what poor people buy is necessities compared to their salaries. They have much less choice as to buy or not. If a rich person were to buy at the rate a poor person does, it would be almost completely on frivolity. Sales taxes, imo, are especially targeted at the poor.
Those who earn less pay less in income tax and we still had to implement a progressive taxation policy because of how much a flat tax percentage hurts those without disposable income compared to the wealthy.
The poor already spend all their money on necessities. If you go to a flat sales tax it will hurt them more than the current progressive regime and favor the wealthy.
You have to include payroll taxes, all taxes. The top few percent have most of the wealth, too. When you include payroll taxes the tax distribution is much more even.
It is but it isn't surprising. Pareto Principal and all. So naturally, 20% of the people contribute 80% and 80% of the people contribute 20%, or thereabouts.
The bottom 50% contribute nothing and in fact are a net negative contributor when you consider welfare, housing, etc, and other benefits. Of course, this doesn't stop certain scumbag pols like Warren from lying to them that it's the other half that's ripping everyone off.
> when most people and businesses are recovering from historic losses
That's the thing. Most people and businesses did not have historic losses, outside of a few market segments. People and businesses are flush with cash, pumping up demand/inflation.
Selfishly I want inflation to inflate away my debt. But I'm well compensated and able to pursue new opportunities even in pretty lean times. Practically we have to control inflation in order to avoid far worse problems.
Are US pensions not tied to the CPI or some other inflation measure? (In Germany, pensions are, in principle, tied to the development of wages, which are generally assumed to outpace inflation.)
Yes, Social Security is indexed to inflation. You can also buy a certain amount of I-Bonds that are tied to inflation and are paying very nicely nowadays. Tax free too.
Up to $10k/year, and they're currently paying 9.62%. There's no other way to get a guaranteed return anywhere near that, and everyone should buy as much as they can afford to. You're basically saying no to free money if you don't.
It actually may not be, when you enter a recession you can fall into an equity trap where everyone starts hoarding money and it further plummets the economy
Prediction higher interest rates will reverse the following trends:
* Private car leases at near zero interest rate will stop. At one point it was sometime cheaper to lease than to buy a car for cash
* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages.
* Tech bubble. Cheap interest has also funded some startups with non viable long term business ideas
* Electric scooter rental companies. There will be fewer electric scooters since the interest rate to lease them will be higher. Electric scooter rental companies will afford fewer scooters.
* Less investment companies buying up farmland. It will be more expensive to finance these deals
* High leverage tech stocks over schiller p/e 15 rate will deflate.
* There was no exponential startups growing forever. There was however debt growing an exponential rate. The world is still linear.
Linear power production.
* Graphic cards for gaming will be more available for gamers again. Reason crypto currency mining will decrease deflate by higher interest rate not flowing as much into crypto.
* Tech bubble less tech startups will effect cloud vendor footprint. Fewer tech startups less need to rent cloud services.
I generally agree with all of this, though, i think two of the points may see counter-intuitive outcomes:
>* Housing bubble. Near zero central bank/bank interest rates has inflated a housing bubble. Higher interest rates will decrease housing prices since fewer buyers will be able to afford higher interest mortages.
Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory.
>* Less investment companies buying up farmland. It will be more expensive to finance these deals
I would be skeptical of this. There will be fewer financed deals, but there are likely firms out there betting on these rate hikes failing, which still make farmland a safe bet against inflation.
> Ehh... we should expect this, but supply may meet demand, instead of the other way around. We could see an unprecedented ramp down in the already unprecedentedly low inventory.
This seems likely. As a hypothetical homeowner, I would have very little incentive to sell my house for less than I paid for it AND take the hit borrowing more expensive money unless there exists some external factor for me to move.
Why sell your house if it would mean giving up a <3% fixed rate mortgage and require you to pay a lot more interest on a new loan for a different home? Nobody is going to sell that doesn't have to, unless they've already paid off that mortgage and won't be getting one for the next house.
If you've come here for informed commentary on economics, so far it seems the comments section is about par for the course by internet standards. If you're looking for informed professional analysis, I highly recommend the Inside Economics podcast by Moody's Analytics[0].
They post at least once per week and they often discuss recession odds, they break down the causes of inflation, and regularly host industry experts. (One of my favorites was an episode featuring an economist that works for a US car manufacturer and the insight they could give into the economics of new vs used cars and how auto makers are having to adapt to new economics of vehicles.)
Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.
> Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.
Why does nonsense like this get parroted so much? Economics is as much a science as any other social science. Which is to say that it's certainly imperfect and is subject to social problems surrounding science (e.g. the replication crisis), but it's still very much a science. Obviously it's an evolving field with many areas of disagreement among experts, but what science isn't? Plenty of economic principles/models have strong predictive power and broad consensus from economists.
As for your (apparent) critique, economics currently isn't very good at long-term (especially macroeconomic) forecasting. But then science isn't great at predicting weather or earthquakes long term, yet we don't dismiss those fields as lies propagated by the elite. This isn't a defense of Moody's or anything - they may well have ignored the risks of mortgage-backed securities for financial gain, and I can't speak to the accuracy of their podcast.
But your argument seems no different than claims that because pharmaceutical companies have lied and caused harm in the name of profits, the entire field of medicine is nothing but lies and propaganda and we should throw it out and switch to curing cancer with juice cleanses.
Any economic thought a bit further left than left-of-center gets quickly deemed "not economics."
Phrased differently, the field of economics dismisses any economic thought that doesn't serve the interests of capital and the people with the capital.
I don't think people take an issue with economists' predictions as much as their prescriptions. Younger econ doctoral candidates would do well to spend some time hanging out with the political scientists on campus. (They largely are doing this.)
> Any economic thought a bit further left than left-of-center gets quickly deemed "not economics."
I would encourage you to listen to actual economics experts and academics, not right-wing hacks dressed in economic cosplay. Despite their posturing, libertarians and free-market fundamentalists are just as divorced from economic reality as anyone else.
Economists in the US actually skew significantly Democrat[1] and surveys of economists on various topics generally show left-of-center leanings[2]. It's worth noting though that the political leaning of an economist need not indicate the quality of their research and plenty of good results have come from economists with atypical views.
I totally agree with this comment. You put my thoughts into words.
Unfortunately that kind of cheap comments (Economics is the lies told by some middle class assholes with a degree and/or credential that get paid just enough by upper class assholes to trick low class rubes.) are quite common over the internet and mainstream media. Just enough to keep people not thinking about it and everything is a lie by the elite and we can do nothing about it.
It's parroted because it's make sense. Every 'imperfection' of an economists idea has led to further concentration of capital in the hands of incumbents. Many of these incumbents have already failed and only exist by way of heinous regulatory choices, only to be bailed out because economists said its better this way or things will be worse (take hostages much?).
My critique is that the short term is all that matters because accountability and culpability aren't available to institutions and individuals because they are too important. There is seemingly an infinite amount of labor arbitrage to make when you can make horrible medium/long term capital decisions that appear good because of short term market gains, all because the fix (govt bailout) is in.
Does you think capital has product value without the application of technology or labor? Why is the most important aspect of the equation the least valued?
> It's parroted because it's make sense. Every 'imperfection' of an economists idea has led to further concentration of capital in the hands of incumbents.
Has it? Are you talking about actual economics research or conservative politics wrapping itself in free market fundamentalism disguised as economics? It's understandable but endlessly frustrating how politics has convinced the public that economics is a bunch of libertarian nonsense.
The correct analogy would be the Healthcare system as a whole, and it would indeed hold water.
Social sciences is a complete misnomer. It should be social theories, there's zero scientific basis for them.
You can't compare the science of the physics of the universe to gender studies and economics. One studies the laws of the universe, the other simply talks about an irrational thing irrational beings created, and pretends its science.
Predictably, the Fed's quantitative easing combined with stimulus created inflation.
You can make a decent argument that the initial policy was the right thing to do. I mean, if you're going to force people not to work because of a pandemic, you have to give them some money. Whether there was (or is ever) a need to prop up the stock market as well is less obvious.
But where they VERY clearly f'ed up is labeling the inflation as "transitory" and allowing the market to keep running up ridiculous returns (which were detached from underlying value) and now having to clamp down much harder to get a hold on inflation, which will cause significant structural unemployment as those companies that were running red hot and expanding until a few months ago have to do a bunch of layoffs.
A much greater proportion of this inflation is due to supply side shocks, and very little (if any at all) has to do with QE. COVID simultaneously destroyed supply chains while shifting consumer from spending on services to spending on goods which, by the laws of supply and demand, meant prices for goods went up: inflation.
Energy and locomotion are core aspects of the US economy that factor into just about everything including – you guessed it – the price of goods! And just as the impacts of the pandemic were easing in the US, one of the world's largest oil producers started a war and then was subject to sanctions and embargos by the US and Europe. And so, surprise, the price at the pump has skyrocketed! Again, no connection to QE.
The stimulus, on the other hand, I would agree with you; those checks increased the purchasing power of individuals right as supply chain issues cut the supply of goods. I imagine the alternative world where the stimulus hadn't happened might have been more structurally worse, albeit with lower inflation.
I agree with pretty much all of this, but would add that while the stimulus was absolutely necessary, it was applied/distributed so sloppily that lots of people who didn’t need it wound up with tons of free money (I personally know a few) while folks who were really suffering got almost no benefit at all (too little too late).
Once again, the only people who came out ahead are the ones with all the money and power in the first place.
While supply chain problems were real during the pandemic, especially w.r.t. automobiles, QE is by far the driving force of our current economic situation. Here is some data to put your talking point into context.
Look at the recent production some of the items being severely impacted by inflation. Now look up their price charts (you can use February before Putin invaded Ukraine to eliminate another variable).
You could argue that demand for oil was also lower, because of fewer automobiles and, of course, lockdowns. Crude oil prices were at 2018 levels until the very end of 2021 (when inflation was at 7%), so you can't blame inflation on that.
Did Covid affect productivity? Undeniably. A significant portion of the world population was literally locked down for months. Is that lower productivity and resulting supply chain disruptment a contributor to inflation? Probably. Although without any government intervention, prices probably would have depressed similar to the 1930's as the economy contracted and cash became more valuable as paper loans eliminated money generated by the money multiplier.
But these statements suggest a low level misunderstanding: "and very little (if any at all) has to do with QE" and "one of the world's largest oil producers started a war."
QE is a major contributor (hence why it is finally being rolled back to undo the damage...) and the inflation rate was 7.9% in February, BEFORE Putin invaded Ukraine. If I had to guess a significance, I'd say overall economic price increases are a consequence of 70% QE, 20% supply chain, 10% Russia. Another thing... look at the stock market. If the supply chain truly demolished the value of the economy, why did the market go on a historic bull run? Either the supply chain issues were not as bad as you think, or the Fed way over-quantitative-eased and disconnected prices from reality by expanding their balance sheet with literal securities, and of course the historically low interest rates.
You’ve said QE is the cause, but provide no evidence to back up these claims. Considering QE occurred multiple times after the 08 crisis, what makes this time different? Bold claims without much substance.
Perhaps I struggle to articulate this clearly because it seems so obvious.
If there are 3 potential logical causes being discussed (QE, reduction in supply of commodities due to covid, and reduction in supply of fossil fuels from Russia since the invasion of Ukraine), and I provide data that suggests that 2 of them could not be significantly responsible, that leaves only one.
The difference is the magnitude. Never before in US history has the government expanded the M2 money supply by ~20% in a matter of a few weeks. This is the chart that sums it up [0]. That was significantly by direct cash injection/expansion of the Fed's balance sheet. Combined with ultra low interest rates (also the most significant in US history) and the elimination of the reserve requirement, M2 has been growing at an incredible rate ever since. When you have 1 gold bar worth of value in an economy and 100 dollars, a gold bar is worth $100. If you print 20 more dollars, well, that gold bar will soon be worth $120, and not because the inherent value or usefulness of the gold bar changed.
> Predictably, the Fed's quantitative easing combined with stimulus created inflation.
Combined with the removal of the conditions to which the stimulus and easing were responding, largely, the effects of both voluntary and mandatory behavior changes associated with the pandemic. (That's also why this didn't happen with last fiscal/monetary stimulus, because the underlying conditions didn't snap back as fast, allowing stimulus to unwind without overshooting.)
Dang. Well if it's enough to pop the various housing/cryptocurrency/startup bubbles, good. They were already pretty squishy but only for a threat that had to be carried out.
It can always be walked back, and probably will be in year...
Unless the tax brackets are adjusted, inflation with rising wages means more people in higher tax brackets. If corporate earnings go up, there's more for the IRS too though that might be wiped out by the lessening value of each dollar.
You linked to someone who doesn't explain how they do the adjustment calculation. I'm assuming because the person at that substack is a bad faith actor trying to get an emotional response from people.
Let's say inflation is 10%. Let's say I have some money. To just break even, I have to invest it somewhere that returns 10%. So I do. (That's easier to find than it was when inflation was 1.5%.)
Then the IRS says that the 10% is income, and taxes me on that. They make more than they did when I was getting 1.5% on my money.
To get back to 70s prices we should also go back to 70s building codes (less safe, but is something costing 2x, 3x, 5x really justifies the marginal safety improvements?) and 70s house sizes (smaller)
Ridiculous that the Fed doesn't just raise 200bp and be done. They could have done this six months ago (call it 250bp then) if they truly believe that the level of interest rates will have a material effect on the inflation rate.
The piece meal, drip drip increases just raises uncertainty for consumers and businesses while ensuring they are "behind the curve"
Where was this thinking when it came to applying trillions of dollars in monetary policy? We're supposed to cautious with interest rate hikes, yet free with the money printer. Quite the double standard I'd say.
Or rather, it ensures they avoid a one-off under-correction. One big rate hike will be forgotten quickly and worked around. Inflation is a beast that needs long-term trends, not one-off actions.
It could have been worse, that's the point. It is also unknown exactly how much of a total raise is needed, hence the iterative approach to ensure no over-correction. The world economy has many moving parts, you can't panic when trying to manipulate it.
The dot plot indicates they want the funds rate around 3.75% by end of 2023 and over 3% by start of 2023. There is absolutely no reason to do 75 today, 75 next month and 50s the rest of the 2022. That pattern is actually more shocking than just a one and done hike. An analogy would be a bad tasting medicine - I don't know anyone who prefers sipping to just down the hatch.
There is also nothing to say they can't lower the funds rate should conditions warrant, as unlikely as that may be.
Perhaps a reminder to those who are younger - the past 10 years have been an aberration and not the norm when it comes to interest rates. The US and world economies have had long periods of growth with 10 year rates of 6% or higher. The current moves are as much about current inflation as they are cover for a Fed that has been looking for a way to end the mistake of ZIRP without actually saying it was a bad idea.
To avoid reacting too late, maybe the Fed should have a policy of always adjusting funds rate every month, even in a stable economy. Like TCP congestion control, the funds rate would tack up and down around the "optimal" value. This would also reduce the market surprises because people would know the rate will go up or down every month. And with smaller, more frequent changes, people can more easily anticipate which way the rate will tack.
In an ideal world the Fed would not "set" any rates - it would be up to the market. However, the risk is there could be more volatility on the short end without the Fed 'anchor'. A compromise might be to greatly increase the target range from 25bp to funds target rate +/- 200 bp, lower bound 0.00 thus making a bounded floating rate. That might also require a shift in how lenders set rates on very short term debt to some type of period average, ie 3 or 6m average rate.
Not really. Where are the mass layoffs like we had after 2008? Housing prices are still way higher than they were a year ago. This is not what a serious downturn looks like.
I know simple metaphors for complex problems aren’t great, but I’ve always liked this one:
Think of an economics equilibrium as a guitar string. The harder you pluck it (shock) the longer if vibrates back and forth before reaching equilibrium. Plucking it softer but more often, keeps the string closer to equilibrium across the entire time horizon.
This also applies to things like minimum wage increases.
Too many dollars are chasing too few goods because of supply chain issues caused by these governments locking everyone down when they overreacted. You can't reduce inflation this way except by affecting tens of millions of innocent people who now have austerity measures imposed on them from on high courtesy of Janet Yellen and her posse.
They should have avoided the steep lockdowns and given cash directly to households instead of the giant infusion/bailout to failing states and companies that didn't even need the money.
Something I haven’t seen discussed much is the impact of inflation on the existing federal debt.
This is actually a positive for taxpayers as the federal debt will become cheaper. Obviously we’re still spending a ton and are issuing debt at higher rates now, so it’s not some kind of magic cure or anything.
Most of the debt is shorter term and must be continually rolled over. So when first moving from low expectations of inflation to high expectations, there is a temporary one-time gain, but after that the government will need to pay higher interest.
And of course when the expectations return to normal there is a period when the government must pay higher than needed rates.
Good point - that's all true. Another important point is that the principal has also been impacted by inflation and the amount that needs to be rolled is less than the initial bond in real terms.
It's true that we are incrementally getting out of debt commitments by debasing the currency
But as others have pointed out, bonds eventually come to term and then have to be rolled over into the higher prevailing interest rate. With such a high debt burden, that debt service can become a significant portion of all tax receipts, at which point all services are funded from deficit spending.
2021 tax receipts estimate is $3.86trillion [0]. Debt stands at roughly $30.5trillion. Ignoring compounding for simplicity's sake, 12.7% rates would mean 100% of taxes go just to pay for servicing current debt.
When you look into discretionary spending (stuff outside of medicare/medicaid/social security) it's way worse. Subtract that away from the $3.86trillion and you only have $3.86- (1.3+1.1) = $1.46trillion to spend on defense, all services, and debt service from tax receipts. 1.46/30.5 = 4.8%, meaning that no tax receipts cover defense or any discretionary spending (services) if rates hit 4.8% (actually lower because of compounding), and all services are from debt. The most recent White House budget [2] suggests 10-year treasury bills will hit 2.8% by 2028; your faith in that number comprises a major part of your faith in the long-term solvency of the US government.
I don't follow your parallelism. But yeah, you'd probably have to raise taxes to climb out of the hole we've dug. Or you could go for MMT (sticking your head in the hole.)
I would infer from your comment that you don't understand what MMT is. If you do, perhaps you could clarify how it involves sticking your head in a hole?
Sure, I'll clarify. Do you have objections to it as laid out on Wikipedia? If you have something that you think more accurately delineates its tenets, I'll address that instead.
I will give you a full answer once we've agreed on a concise explanation of it that you stand by, but the short version is that it mistakes effect for cause and assumes stability in various factors while undermining the bases for that very stability.
Sure, the 5 principles seem good to me. The job guarantee is given not much prominence, but I can work with that.
Edit: sectoral balances are not very prominent either, which are an important conceptual tool, though not really MMT per se (more an accounting identity that most people ignore).
The job guarantee is pretty well encapsulated in the discussion of inflation, since MMT focuses on NAIBER rather than NAIRU to focus inflation targets.
(Wikipedia) MMT's main tenets are that a government that issues its own fiat money:
1. Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases;
The intended thrust of this principle is that you can spend first and tax later because the monetary system is not about accumulation but about equilibrium, and the equilibrium isn't about total balance but about interest rate and employment. The first part is the assumption: fiat money will be able to pay for goods, services, and financial assets.
This need not be true, and particularly tends not to be true at the beginning and end of fiat currencies. At the beginning of a currency, the issuing entity has to establish faith in the system. And as a currency fails through hyperinflation, it ceases to have any meaningful buying power. The point where you call it failure is obviously a point for debate, but I would suggest that your currency has proceeded past the point of failure if, when transacting for normal daily purchases (food, transportation, small durable goods), money is exchanged not by reading face values but by weighing large quantities of notes or similar (e.g. bread costs two bundles of orange notes.)
2. Cannot be forced to default on debt denominated in its own currency;
The only situation where this ceases is to be true is one where the issuing government does not possess the resources to do the requisite printing or, probably even more unlikely, to declare new money supply digitally. For all intents and purposes, this statement is true, but again it doesn't acknowledge the fact that all lending to a hyperinflationary government will cease when there is no faith in the value of that currency. This drying up of credit has the same effect as default, particularly since the debt was never secured by collateral.
Nonetheless, the effect will be similar to defaulting on secured debts, since so little of an economy would be functioning at this point that the hyperinflationary state would require imports which could only be acquired through selling off of hard assets and land.
3. Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment;
This part is trickier to handle. We can probably agree that inflation means the widespread rise of prices across goods and services (though the measurement is a tricky issue that we should put aside for now.) Full employment is the sticking point, because MMT replaces NAIRU with NAIBER. NAIRU is a point of uncommon humility for economists, because it acknowledges that, if we push for zero unemployment, we get accelerating inflation. NAIBER, on the other hand, pushes to extinguish unemployment through job guarantees in the form of government jobs (the 'rate of unemployment' of NAIRU having been replaced by 'buffer employment ratio' in NAIBER.) So, why wouldn't this be inflationary just like in the other scenario?
Well, the NAIBER principle suggests that you pull people away from the inflationary sectors of the economy into lower-paid government jobs. In this way, there's less inflation because wages aren't being allowed to shoot up in booming sectors of the economy. The methodology for convincing people to make job changes away from their chosen work to something new and lower paid is a question I haven't seen answered anywhere, but I doubt that the changes would be effected peacefully or voluntarily.
In the meantime, all this government payroll for the lower-paid jobs will result in more inflation from the extra government spending required.
4. Recommends strengthening automatic stabilisers to control demand-pull inflation[10] rather than relying upon discretionary tax changes;
This statement just means that there should be a set of policies that can be set long-term which would be preferable to tax changes with the changing political winds. Every other political wind that comes along also agrees with this statement and, like MMT proponents, they think that their ideas are the right one.
This is basically arguing for the rule of law. The devil is in the details, but diving into those would require us coming to a common understanding of those details first. I'll leave off there on this point.
5. Bond issues are a monetary policy device, not a funding device.
This formalizes an underlying assumption of the modern US federal government that we can always borrow more money. That clearly works at present, but it is more prone to failure than MMT proponents acknowledge. If the government doesn't issue bonds to attain funding for (or to counterbalance, per MMT framing) spending, the currency is debased. There comes a time when that accelerates painfully and it becomes worth the world's efforts to disentangle from the USD.
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MMT is a theory that starts with the premise that there will be no catastrophic end times, but working under that premise is the surest way to bring them about more quickly. MMT has a long runway to failure in the US (if it is done slowly) because there is so much financial infrastructure denominated in USD, and there is a lot of underlying value in the US. There are much slower ways for a government to fail, and those are the ones I want. Businesses should have some acceptance of downside risk, because a failed business is only pretty bad. A failed country is a whole different level of catastrophe, and our governments should be accordingly allergic to government-ending levels of downside risk.
Thanks for your considered response. I will be terse in my reply, but link to references that are those that clarified my thinking. Assuming you are discussing in good faith, I would deem those links essential reading to understand the MMT position properly.
I will not quote your responses but try to reply directly.
1. The MMT position is consistent with the chartelist view that fiat currencies are worth something because the state requires payment of taxation in said currency. It's as simple as that. Enforcing of taxation in the state currency is a sufficient condition to imbue it with value. Note that this is not a necessary condition, but it is sufficient. The historical record suggests strongly this is how money evolved and existed historically, contrary to the oft presented view that it evolved from barter using a commodity intermediary.
Moreover, as a simple point of logic, fiat currencies must spend before they can tax. How else can the tax be claimed if the money has not be spent or lent into existence?
2. MMT asserts lending to a government is unnecessary. The balance sheet can just as easily represent cash as a liability as bonds as a liability. The requirement to issue bonds is purely political. This is a factual statement and has been demonstrated in a recent UCL paper for the UK:
https://www.ucl.ac.uk/bartlett/public-purpose/publications/2...
I understand there is a similar paper for the US but I don't have a reference to hand.
Moreover, in Mosler's document above, he argues that the natural rate of interest is zero, making bonds essentially equivalent to reserves (which serve an important role as risk free savings).
3 and 4 I'll discuss together in the context of the job guarantee scheme, since that's the primary automatic stabiliser policy advocated by MMT. The JG sets a pricing anchor, defining the value in currency of a unit of lowest price labour. This is really important - the value of the currency is tied to a specific real resource. I'll be honest that this was the bit I found hardest to grasp, but Warren Mosler has a very elegant justification which made it click (he calls it "employer of last resort" here, but it's the same thing):
http://moslereconomics.com/wp-content/uploads/2019/02/Full-E...
5. As discussed, MMT asserts that there is no need to borrow money. Separately, the bond market appears to be rather more resistant to low interest rates than might be assumed from a mainstream analysis (bond sales with negative real term returns are still oversubscribed). This fits with the understanding that bonds are really just interest bearing reserves, and who wouldn't want to buy something interest bearing when the alternative is no interest (CB reserves).
I'll be honest and say I can't actually contribute more to the discussion until we're talking in terms of those references, and even then I may not be the best person to discuss them. I'm happy to discuss more though if posed in good faith.
The big point about MMT is to have a much better understanding of the system so as to have a better understanding of the available policy space. The main test of MMT would be to implement a JGS and see who turns up.
Raising taxes long predates MMT, and it will keep happening long after people have stopped trying to sell MMT.
MMT takes the interesting twist of claiming that the means, taxation, is actually an end in itself.
I don't disagree that it looks like a decent description of how many countries run, but the assumptions propping up the theory would rapidly fall apart if governments acted on the beliefs that MMT espouses.
The theory rests on the probably correct assertion that you can only voluntarily default in a currency that you print with impunity. But that statement sits atop a tacit assumption that the money is worth the paper it's printed on. In reality, any country pursuing this theory will inflate its currency to the point where the currency can't be used internationally, and the citizens will abandon the currency to the extent that it hasn't been made illegal to do so.
If they can't skip out on the inflationary currency, the people who failed to flee in time will stop working and innovating consistent with the degree to which the hyperinflation means that there is no means of saving for the future.
The hyperinflating government will try a combination of preventing emigration and ownership of stable stores of value (gold, foreign currencies.) The leakiness of the system keeps everything from fully and officially failing, but MMT's guarantee of no default will ring hollow when the government can't afford to feed its political prisoners or even the guards watching them.
Of course, I've used the wrong verb tense, because I'm describing Venezuela.
Well, MMT would be recognizing that debt doesn't fund anything, it's just a promise to take the opposite monetary action in the future to the money creation (net of spending over taxes) you are doing in the present.
You might raise taxes to for current monetary reasons under MMT, but you wouldn't do it because debt service costs were too high for it to be attractive to issue debt in the amount your desired spending exceeded revenue before the tax increase, because you would recognize that there is no need to “borrow” money that you yourself issue. You would spend what you spend and tax what you tax and if you want to undertake future commitments for some stabilizing purpose you do that, to, but none of those things depend on or fund the others when you are working in your own fiat. That's the myth of the fisc, which is produced when a fiat-issuing government acts as if the currency is an external commodity.
Bonds coming to term means it's exchanging low% for high %.
Deficit means that the problem accelerates even faster than that, because the total value of bonds continues to increase.
Related (but different): I'm wondering how much inflation will shift tax payers into higher brackets and increase the overall income for the government from those taxes.
You probably know this already, but I thought I'd pass on a correction to what is a common misconception. If you start making more money and end up in a higher tax bracket, only the amount of income in the new tax bracket is taxed at the higher rate, not the whole income.
For example: Pretend you currently make $75,000/yr and the next tax bracket is at $80,000. And you get a nice raise to make your salary $85,000 this year. Only $5,000 of your new income (the amount "above the next tax bracket") will be charged at the higher rate.
Yes - the caveat here is that if the raise is due to inflation then your real post-tax salary can go down.
(i.e. For an absurd example - suppose inflation is 100%. Last year you made 50K, this year you make 100K, which is the same in real terms (after inflation)). However, you will pay more of that 100K in tax than you would have last year, so your real income will decrease.
This tax drag can also happen for investments. If your investment goes up 100% and inflation is also 100%, you pay tax on the inflated nominal value of your investment even though the real value has not changed. Long term capital gains taxes are one way to reduce the impact of this - but they don't eliminate it altogether.
Tax brackets are usually (but not always) inflation-indexed to avoid this effect.
> You probably know this already, but I thought I'd pass on a correction to what is a common misconception. If you start making more money and end up in a higher tax bracket, only the amount of income in the new tax bracket is taxed at the higher rate, not the whole income.
Oh, for sure. But that money that moves into those brackets will be taxed higher.
You don’t need to change brackets: the incremental money will always be taxed at a higher rate that the average you were paying and the average will go up.
I read something like this actually isn't the panacea it seems like in the long term because inflation reduces real growth long term, or something like that.
Most US Gov debt is fixed rate debt, however the government issues new debt all the time, which is issued at a yield that is set by a Dutch Auction [0]
The Fed has been placed in a tough position here. A huge portion of the inflation from this year comes from temporary supply-side shocks, and the federal funds rate is quite a blunt instrument to counter such a complex dynamic. Were it not for the pandemic and Russia's war with Ukraine, this would probably be a non-news 0.25% rate hike.
But now the Fed has to thread the needle and find that "soft landing", something that they don't have a great track record of doing. But they'd rather trigger a recession then deal with the greater issues that come with persistent 8% inflation, so they have to bite the bullet.
Of course equity markets are all down significantly ("the stock market") but equity prices are actually a quite poor indicator of recession. The ol' saying "the stock market predicted 9 of the last 5 recessions" is very true.
But in addition to the aforementioned supply side shocks, the economy is indeed running quite hot. We're nearly at full employment, open job listings are at record highs. Although real wage growth is still stagnant, nominal wage growth – particularly for the lowest paid workers – is growing; something it has historically been loathe to do.
An otherwise robust economy could deal with a few issues like this, but throw in the shocks to the economy and, indeed, the Fed has to step in with a moderating influence.
> The Fed’s hike Wednesday and its new projections are expected to ripple through the economy, sharply pushing up rates for credit cards, home equity lines of credit and mortgages, among other loans. Fixed, 30-year mortgages already have climbed to 5.23% from 3.22% early this year on the expectation of significant Fed moves.
The notion that the Federal Reserve has this kind of influence over longer rates may not be correct. Have a look at the 10-year rate over many decades (click on "Max" for full range):
Is this the curve you'd expect if the Fed really controlled rates that far out? I'm not so sure. Seems like factors well beyond the Fed's control are running the show, demographics and deindustrialization being the most likely contenders.
That blip out of trend near the end is where we are today. When any chart exits a channel that long-running, it's time to pay attention and consider that the old models are broken. Those rates might be rising for reasons that have nothing to do with the whatever the FOMC thinks it wants.
Do we have a good sense if this will stifle inflation because from all accounts I've seen, it appears we're in the worse possible situation of stagflation (recession + inflation).
The housing bubble really interests me because conditions are so different than 2007/8/9.
Common sense says that prices should be falling with interest rates going up, but...
- Supply is still insanely low and demand is high. Americans want to own single family homes, end of story.
- New home prices are at an all time high because the cost of materials and labor is so high. That, and people just don't want to build small/reasonable new homes any more. Everything needs to be 3000+ sqft and have luxury appliances and finishes.
- So many people are locked into a 30 or 15 year fixed-rate mortgage with only 2.5%-3.5% interest. Even if you didn't move/buy a home in the last two years, virtually every homeowner I know refinanced their mortgage to these historically low rates. Even if they could sell their house and make a nice profit, who is going to want to do that when they're then staring down the prospect of a 7%+ interest rate on their next mortgage? This also keeps supply down and, thus, prices up.
Savings are low. We have supply issues -- just not enough stuff, including food, even if you had all the money in the world.
It is a joke now that people complained about babyfood and government said it will give money; only to get a reply of: no there just isn't any baby food delivered.
Increasing rates will likely have the opposite result. The goal of the Fed is to break the backs of people with low means. I am not sure why I should applaud that instead of the government doing its job and taking steps and establish agreements to stabilize supply of oil and food. Generally establish "world peace for trade" again.
P.S. Yes I know there is a war out there but right now U.S. oil companies are simply not improving supply to even pre pandemic levels.
P.S.2 We opened the economy too early, and by we I mean the government. You need to have the resources to run the economy. We did not.
> right now U.S. oil companies are simply not improving supply to even pre pandemic levels
Supply will continue to decrease in the US, both for raw inputs and refined outputs. It has nothing to do with the pandemic or the war in Ukraine and everything to do with the world moving off of fossil fuels, making any kind of long-term investment foolish. We will continue to exploit our existing infrastructure and…that's it.
The main reason things are going offline earlier than expected is because of supply change issues related to parts (i.e. if things can't be repaired, they go offline earlier than scheduled).
Thank you for the additive comment. We lack serious infrastructure investment in a lot of the developed nations. For some reason we feel that one can just stop infrastructure investment and risk no instability and loss of growth in the long term.
What's worse is that some of the inflation becomes masked because of shortages. So in a simple picture if the government gives money out to buy baby food, but there is no baby food, the price people are willing to pay for baby food would go up since they have money, but not recorded as inflation since they are not making purchases.
The thought that we are going to turn the table and make the slate clean finally is very troubling to me. I mean 1) this is a non-insignificant possibility right now, and 2) just reached mid-age, the worst time to get hit by a depression.
I thought the worst time to get hit by a depression was right before you enter the job market for the first time and/or as you attempt to buy your first house. I guess every stage of life has unique challenges that come along with a depression.
At least one does not need to support a family at that time and has ample time to find a job. But if the whole industry starts to dump people and you are in 40s, good luck...
Actually, I graduated right after the 08/09 crash and had to go into graduate study shortly. After graduation as a Ms.c it still took me a few years to get an IT job (master has nothing to do with IT). But if I'm fired right now, I really have no confidence that I can easily grab an equivalent job. Part of the reason is that during these years I had to hop a few jobs to reach something I really want to do, so my experience in the field is very little (<= 2 years).
remarkable how many people in this thread are assuming the bottom of the income distribution is hurt the most by inflation. Think about who has debt (mortgage, student, medical expenses, car payments) and who that debt is owed to (banks, corporations) and what happens to that debt in real dollars when inflation is happening. The debt becomes less meaningful. Wages rise (they have in fact been rising), and the payments are less of a burden, while the people that are owed money get less value from the payments.
Any change at all from the ideal will disproportionately negatively affect the poor, marginalized, disadvantaged, etc. This is true in any sphere of life, not just economics.
That's why "love your neighbor as yourself" is indispensable. No policy or variable tweaking can take the place of simply caring for others.
You're very right, but I think the trick is that prices rise faster than wages, if they ever fully catch up. That lag between price and wage increase is a super immediate problem for anyone going paycheck-to-paycheck.
A good chunk of the debt (~9 trillion) is owned by the Fed itself. When the bank finances a mortgage for example, because it is a fractional reserve system the bank is lending only a small fraction of its own capital. The bank simply borrows from the fed either directly or indirectly by selling. The bank's profit is that the mortgage interest rate on the mortgage (and risk) is higher than that of the risk free borrow rate.
That could take a long time. Banks are only going to raise the rates when they want/need more deposits. Right now the excess reserves are near all time highs. So banks already have more liquidity than they know what to do with.
And with rising interest rates, more and more will be priced out of the housing market, meaning lending will fall, which is one of the biggest reasons banks need cash in the first place.
The fed is aggressively raising rates as the economy goes into recession. The last time something similar to this happened was in 1980. A very bad unusual situation, but on the other hand, the worst may be over.
I think Google, Microsoft, Facebook, Amazon, and other large cap tech stocks are good buys at these levels and are more immune to macro factors (compared to other sectors ) and can hedge inflation by raising prices.
I have mixed feelings on tech stocks. I feel like the general competence has gone down, and that makes them vulnerable.
Google is a shitshow right now. I don't think they can do B2B. Chrome Extensions. GSuite Free. Google Workspace App security audits. I can list of dozens of other disruptions like that. No one trusts them. At the same time, cost structure is astronomical; employee count has grown exponentially, to match revenues, with little to show for it.
Amazon is a cesspool of knock-offs, scams, and rip-offs.
Facebook's reputation is in the toilet right now and internal incentives are completely misaligned.
Microsoft is, oddly enough, doing the best of the bunch. They recovered from their evil hay day in the nineties, their incompetent '00s, and seem to be doing okay.
I think the move to degooglify will spiral. I think an Aliexpress might take down Amazon within the next decade or two. And Facebook might be Myspaced.
> Amazon is a cesspool of knock-offs, scams, and rip-offs.
I think it's worth pointing out that Amazon is more than it's online retail site - 60% of it's revenue in 2020 came from something other than third party retail. AWS is probably going to take over as their biggest source of revenue soon.
Google and Facebook make insane profits. Advertisers are paying huge $ per click or for YouTube views. Maybe Google management is suboptimal, but the company generates cash like no other.
I agree and own Google stock, but I would be a little cautious:
"After the collapse of the stock market during the recession of 2008, ad spending saw a reduction of over 27% across all channels." [1]
Now that is across all channels so firms might prioritize Web over TV/Print, and that is from 2008 when much more spend was focused on TV, but food for thought.
I can buy stuff much cheaper on Aliexpress. My experience there is no worse than 2022 Amazon, except for lower prices and slower shipping.
Amazon, even as late as 2019, seemed ahead of Aliexpress on service and quality. Something happened with COVID which seems to have permanently broken Amazon. I understand a blip, but after 2 years, Amazon hasn't recovered.
My basic problem is that if I order medicines, I want to know they're not placebo pills. If I order vanilla extract, I want to make sure it's not produced in a chemical factory with random toxins. If I buy something brand-name, I want to make sure it has that level of quality. If I buy an SD card, I want to know it's not a defective product from a manufacturing run with a forged Sandisk label. I can't do that on Amazon anymore.
That leaves fast shipping as the prime selling point, but Amazon seems to miss delivery deadlines a lot since COVID, not to mention broad ranges of products which don't do fast shipping. Fast shipping I can count on is worth a lot. Fast shipping most of the time has negative value. Most of the time I care about fast shipping, it's because I have some deadline.
It equalizes them. And products on AliExpress are cheaper. But that, of course, depends on the US relationship with China which doesn't seem to be getting friendlier.
Apple is getting into health care and thats where I see the growth and value generation over the next decade. I love apple right now, they are worth their premium and Im decking out my parents and grandparents in watches, phones, and computers so that They can stay connected, clear, and access all these new health focused features in their older age. Alot of the work of caretakers is being automated by apple’s platform and people will be able to stay independent longer because of it.
> The fed is aggressively raising rates as the economy goes into recession
The fed raising rates is what is causing fears of a recession in the first place. Cooling off the economy is the entire point, that's how you control inflation.
The fed is trying NOT to cause an actual recession, but still cool the economy enough to reduce inflation.
The rate was like 10% when they started raising in the 80s. The situation now is different, and the 'crisis' at hand is the current economy's addiction to rates of zero for so long. Entirely self-inflicted by the FED.
No, today it's probably an indication to traders that the Fed is taking inflation seriously, since all the risky stocks are sensitive to inflation. A lower raise may have cause a further sell off.
Traders' minds can be tricky. They're also reading the news!
I know this may sound petty and the wording is regularly found even in the best editorial offices, but the engineer in me resists every time: the correct wording should be "by 0.75%-points" instead of "by 0.75%". Am I the only one who is bothered by this?
You are half right. Per the article body, contradicting the headline, the rates increased by 0.75pp, which is equivalent to 75bp. The previous rates ranged from 0.75% to 1% making the 0.75pp hike a 75-100% increase, not the 0.75% increase you and the incorrect headline claim.
Nobody ever talks about rate increases in terms of their ratio to the previous rate (ie. talking about a 75-100% rate increase), this would be insanely confusing and irrelevant. To avoid confusion, people always discuss the absolute additive change in the base rate itself. ie., 75bp or 0.75%, which are equivalent.
> Nobody ever talks about rate increases in terms of their ratio to the previous rate.
Uncommon in finances, but quite common in other domains. The mathematics involved do not change across those domains.
> this would be insanely confusing.
What is confusing about it? Knowing that the rate increased by, in this case, 100% or 0.75pp provides the same information if you know the previous rate. You must know the previous rate in order to determine the new rate either way.
You are quite right that the percentage point (pp), rather than the percent (%), is often the exact information people want to know. It is why the information is provided as a percentage point (pp) and not a percent (%). It may be also be provided as basis points (bp), but that is the same as a percentage points (pp) except multiplied by 100 to make working with fractions of a percentage point (pp) easier.
> 75bp or 0.75%, which are equivalent.
They can be equivalent. An increase from 100% to 100.75% is a 75bp, 0.75pp, and 0.75% increase. However, that is not generally true. A 1% to 1.75% increase is a 75bp, 0.75pp, and 75% increase.
What is certain is that the difference between two numbers does not produce a percentage. That is not how percentages work.
This is a typical overcorrection (the Fed is run by humans after all). US debt is over $23x10^12, so such rates are unsustainable even in the short term (12-24 months).
Algorithmic monetary policy, based on the Taylor rule, would have been many percentage points higher for many months already, this correction is too late.
Why should I believe that algorithms written by some random software engineers will be better stewards? "Algorithmic Monetary Policy" includes things like premining and exponential decay of rewards and causes huge community rifts over things as simple as block size.
Funds pulled to see what would happen, now reallocated back. Is when everyone is screaming something bad is going to happen, something happens and people realize it was OK they can go back into the room.
The interest rate was hike was baked into the price already. Now there's a re-shuffle where people with higher risk tolerances start buying up stocks that are on sale.
What does that mean? Are you "demanding" any returns from your investments? How? Who exactly is "demanding" returns on capital? And who are they demanding it from?
I was watching the Fed Reserve Youtube feed and expected the announcement there, but my phone streamed a Yahoo Finance feed discussing the announced 0.75% rate hike.
Interest rates are not the only government mechanism that can be used to control interest rates.
Stimulus can be done in a way that is highly targeted. When it is not, it has the same effect as rates being too low and can lead to things like overemployment and inflation.
Politically, there has been significant demand for overemployment, that is, unemployment levels that are lower than they should be, or, put another way, an economy where labor is too scarce.
Anyone who has tried to hire tech talent domestically in recent years has faced significant scarcity and can attest to the quality tradeoffs that must often be made such as hiring someone with insufficient experience and hoping it works out, or needing to invest more heavily in training and mentorship than seems reasonable.
In growth areas like tech, this is normal and is the result of growth itself, but recently the US economy has seen this kind of thing in many different kinds of jobs, even retail and food service jobs. It's not uncommon to find a packed restaurant being handled by one or two waitstaff, leading to slower turnaround and overall reduced capacity of the restaurant and less money being made overall.
This is blamed on the pandemic and all kinds of other causes, but the root cause is the infliction of intentional labor shortages on the economy for political reasons.
Similarly, the COVID stimulus in the previous administration was given out with minimal vetting and significant misallocation (payments to businesses that didn't need it), and there has been no retrospective accountability for any of it. It boils down to something that was supposed to be a targeted stimulus (to prevent firms from going out of business or laying off workers) became an untargeted one and spoils were given to firms that misrepresented need and used the money for things other than staying solvent or keeping payroll going.
So of course we are seeing the consequences of this now in the form of both inflation and economic stagnation.
This is not the fault of one political party. Neither has any restraint when it comes to wanting broad stimulus and artificially low unemployment numbers, and there is a lot of finger pointing about the extremely predictable inflation that is occurring.
Raising rates penalizes all the firms that did not seek stimulus inappropriately, as well as the ones who sought it because they needed it.
Chances are rates will go up at least another 1.5 or 2 percent in the next year. This is unfortunate, and the economic correction resulting from it will be significant and will last for many years longer than the brief period of artificial joy we got over the past few years.
The really worrying thing to me is our inability to accept that we (as in humankind) are rather rubbish at running complex systems.
A good analogy is to think of the economy as a still lake. If you throw a rock into it, you know that it will create concentric circles of waves. You throw a second rock and you know that its waves will interfere with the first. But now the waves create oscillating patterns and now they hit the irregular shore and pretty much immediately you have the usual chaotic pattern of waves all over the lake.
It's the same deal with the economy. We can predict the first order, maybe the second order consequences of our actions. But again and again we're faced with a highly dynamic system with an almost infinite set of variables and we seem continuously surprised when things get out of hand.
To me, a federal reserve system that insures banks from bank runs makes sense. This sort of FED that we have now that tries to control the overall economy is - to me - at least as hopeless as centralized 5-year plans under communism.
What's your offered solution? Throw our hands up and just go back to bartering? The federal reserve doesn't micromanage the economy (throwing rocks into the lake, as you put it) they have a few levers at their disposal that I would describe more as environmental variables (like setting the "temperature" of the lake, or limiting the size of rocks people are allowed to throw).
They are also doing everything at a pretty high level where you don't need to be able to predict economic events with 100% accuracy. You can know that throwing a 50lb rock in the lake will likely cause a bigger wave to come up on shore (regardless of other rocks being thrown) without being able to fully characterize and predict the timing of it.
5-year plans from centralized sources seem to struggle to even survive for 5 years, whereas the current system in the US has been generally functioning well for over 100. I'm not convinced they're as similar as you think.
I think that the Fed has significantly extended its scope over time. From a pure backstop for banks towards quantitative easing and even buying of corporate bonds. And that's true for the EZB and other central banks as well. Overall, central banks do indeed seem to have a dampening effect on the economy, preventing some of the more extreme swings of the pre-Fed era, but I would argue that the Feds sustained injection of cash into the markets over the last decade has created a lot of the inflation the Fed is now trying to solve
> with an almost infinite set of variables and we seem continuously surprised when things get out of hand
This was never a matter of an overcomplicated system. The results were obvious (and some believe intentional) from the start of QE. A choice was made to take an economic hit later, rather than sooner, by those in power.
Is the problem the difficulty of running complex systems or the complete resistance to the idea from politicians and voters that reality is massively complicated. People just want “common sense” solutions and politicians who speak plainly but maybe that’s not what we need.
> This sort of FED that we have now that tries to control the overall economy is - to me - at least as hopeless as centralized 5-year plans under communism.
This is a CRAZY comparison. The Fed is barely doing anything, basically trying to keep things stable using two simple tools, and is doing so iteratively and carefully. It is the literal opposite of a Soviet communist 5 year plan that details everything to the n-th degree and damn the consequences.
That is really not correct. The Fed has engaged in four phases of Quantitative Easing (https://en.wikipedia.org/wiki/Quantitative_easing#United_Sta...) since 2008 alone, with the last one in Mid-Summer 2020. This one resulted in an additional two billion of asset purchases with Money that didn't exist before, meaning that in 2020/2021 the Fed's money generation accounts for a total of 10% of US GDP. Having this much more money in a system with stable or declining supply (especially in conjunction to the Covid Relief Packages under Trump and Biden) is to me quite likely to have created the very problem the Fed is now trying to solve.
Seems to me the COVID crash would have been a lot worse without the Fed's intervention. It's always a moving target, because the economy is too complex to nail the perfect intervention, and all interventions are complicated by the reactions of the participants. Under such extreme circumstances (shutting down massive parts of the global economy), there's never going to be the perfect intervention, so there will always be a second order effect to deal with afterwards.
In other words, there will always be something to complain about, even if the net effect is positive.
It seems the Fed is stuck in a state of overreaction. First they overshoot on money printing, then they disregard early signs of inflation, and now they're in a panic in the opposite direction.
Seeing the news this week that Bernanke said that the Fed should be able to pull off a soft-landing now in 2022 gave me an uncomfortable déjà vu -- he said the same in 2006 and 2007, right before he raised rates enough to kick off a global financial crisis.
Inflation hit the stock market a long time ago, inflation is now hitting consumers, the fed rate is now many percent low.
What actually needed to happen is QE needed to end a lot sooner, interest rates needed to be raised moderately months ago.
All of this should have been entirely predictable, but instead of "oh god this is ready to blow" when stock market valuations were way above prepandemic levels everyone was like "this is awesome, I bet it'll keep going!"
There's no free lunch, you can't pump that much money into an economy that isn't doing a lot and not have consequences.
> now they're in a panic in the opposite direction
Powell spoke when he didn't have to. He didn't have to speculate on inflation being transitory. He didn't have to make precise forecasts. But he did. That's left egg on the Fed's face. But calling a 75 bp rate hike panic is hyperbole.
My biggest concern is that the Fed is actually just not in the driver's seat at all right now. Raising rates is definitely the right thing to do and will at least help, but the inflationary pressures don't seem to be monetary at all. There's just no policy answers to the supply issues and if a stock market crash didn't slow down consumer demand, idk how rate cuts are going to do it. The best case is this curtails some of the wage-price spiral which is not entirely positive. Asset deflation has already happened without their help. May as well sink my savings into Luna and hope for a turnaround.
This. Even in today's announcement, they seemed behind again claiming "American companies are in a strong position to weather through" - but we are already seeing mass layoffs and hiring freezes.
Sure, maybe in tech, which had been in an unsustainable bubble for a long time. But unless everything changed in the last few weeks, we haven't seen this in the overall labor market, which remains as hot and labor-friendly as ever. Only interest rate bumps will put a dent into this unprecedentedly strong labor market.
I'd argue that a hiring freeze is an appropriate way of weathering an economic crisis. We have really only seen mass layoffs in a small handful of companies. The most recent one went on a hiring spree without any real plan to execute, e.g. new revenue.
Supply chain prices have been increasing since covid as supply shut down and takes far longer to restore than demand. Just like certain parts of inflation (lumber) shot up in 2020 when demand went through the roof as everyone started working on projects (including things like outside offices for working from home)
Housing prices in my boring-ass nothing of a city were up like 30% over a two year span, before the war started. Asset inflation had been going nuts for years before it happened. Before Covid, even. Practically since the we started to dig out of the '08 crash.
Thanks you, +1. If we don't take responsibility for our own problems, to me that spells trouble.
I don't intend to pile on against President Biden, but his recent speech before the labor union sounded like a kid blaiming the dog for eating his homework, when he never did his homework.
I will probably make a bunch of people here mad at me, but there is so much to blame on both political parties. Putting Wall Street's and the War Industry's interests unapologetically before the American public's interests can only go on for so long before everything crashes.
While I agree with you, my family and friends seem to be divided up between the democrats and republican camps, and mostly think that their bubble/tribe can do no wrong. I find this frustrating.
Agree the Russian invasion doesn't help matters... but this is not the primary cause of inflation. The amount of money that the US has simply created and spent in last couple of years in unprecedented. The amount of money inserted into the US economy dwarfs that of the TARPP and related bailouts of 2008 by a factor of 4. You just cannot create and hand out that much cash in an economy and not expect inflation.
If you think the dollar is worth less then no doubt that's reflected in say gold prices, which were between 1600 and 1900 from July 2011 to April 2013.
They are currently 1800.
If all that extra money had devalued fiat currencies globally (at roughly the same value), why hasn't gold increased?
Look up naked short selling if you want to see how this works. Essentially, futures markets allow trading gold without holding any physical gold so banks can take dollars and use that to short the price of gold. It has gotten to the point where more “paper gold” is bought and sold on futures markets than physical gold that exists in the world.
Lovely. So what comodities would you prefer? Corn's about the same as in 2011, Copper, Soy etc.
US M1 supply has increased 40 fold since 2011. If that's hiding "real" inflation, why are commodities less than 1/10th of the cost they were 10 years ago?
I think that in order to have any chance of actually measuring the value of money, whatever metric is used would have to be something that cannot be sold (because otherwise, when the value of money drops relative to the value of the inflation measure, people will sell the inflation measure to buy money, and vice versa, in order to keep their portfolios balanced). We see it with gold, and with bitcoin, and with stocks, and housing, and the general saying that "during a market crash, everything is correlated".
Of course, that leads to the question of "what would serve as a good proxy for the actual value of currency", and I don't have a good answer to that. CPI is the traditional answer, but I don't think it's a sufficient one because
1. CPI misses out on some of what people care about (e.g. asset prices are actually important in determining what kind of long-term lifestyle people can afford)
2. We want to disentangle "commodities went up because of supply shocks that will resolve themselves" and "commodities went up because money is permanently worth less", to the extent that it is even meaningful to disentangle these things
So yeah, it is entirely possible that the dollar is worth less [relative to what people care about], and also gold is worth less [relative to what people care about], and it is even possible that that is causally downstream of injecting a bunch of dollars into the economy, but I have no idea how one would robustly demonstrate that that was or was not the case. If you have any ideas on that front I'd love to hear them.
Also if you are aware of any assets that are _strongly and reliably anticorrelated_ with most other assets during recessions, I would be interested for much more personal reasons.
Asset prices aren't that important on a day to day basis, what matters more is the cost.
If I have a 300k mortgage over 25 years at 7% that's $2121 a month
If I have a 500k mortgage over 25 years at 2% that's $2120 a month
The "price" doesn't really matter at that scale, it's the monthly payment, which hasn't gone up despite house prices increasing 67%
(More importantly with things constrained by zoning/land availability, the monthly price will be set to take all my spare case, as there's more demand than supply, so prices rise until the demand drops, which means people choosing not to live in that area. In other words the higher the salaries in a given area with fixed supply, the higher the cost of housing - be it mortgage or rent)
On the other hand if my weekly shop goes from $150 to $200, that's a 30% increase, and does make a difference.
Velocity * Money Supply = Price Level (changes in this are inflation) * Economic Output
During early pandemic, velocity tanked because people were spending less so it was not a foregone conclusion that increasing the money supply as much as the Fed did would lead to inflationary changes in the price level.
Now, we are seeing velocity somewhat rebound while output is not increasing as much as we would expect and the Fed is doing little to scale back money supply.
I'm not convinced. I agree that Russia/Ukraine is not the main driver of inflation (certainly isn't helping, though), but I would look more toward supply chain shortages than money-printing. Prices go up when things are hard to find but the demand is still there -- not exactly grad-level econ.
Fixing supply chain shortages? That sounds hard! I’d rather believe there is a big knob somewhere underground that drives the entire economy, and that we can adjust its basepoint to make people richer or poorer!
More seriously, Ukraine is probably not the reason of scarcity, but if you want to solve the supply chain, you’ll hit China very fast: Their growing local population means that one day, they’ll keep everything they produce for themselves. And that’s big enough to be the cause of inflation: Mid-term inflation is probably due to lack of productivity during Covid; long-term inflation is certainly due to the lack of goods produces in the West, while the East starts to keep their production.
Central banks can't produce more crude oil or refine more gasoline by manipulating rates. The only thing they can do here with that switch is tank the broader economy to destroy energy demand.
Anyone honest can agree that most of the increase was return to normal. After a massive anomaly in the market. The sanctions on energy sector might be part of the blame, but most of increase was just return to normal. Just look at 2018 prices.
The years leading up to Covid were an extreme bull market — increasing at a rate that high again is not a return to “normal”, it’s a return to a historically very high growth rate
I was blown away when the president claimed he "has never seen anything like Putin’s tax on both food and gas". When did Putin get the ability to raise taxes in the US??
We reduced our oil production before the invasion. Gas prices were multiplying before the invasion.
Putin did not force the reduction of our own supply. The current administration did.
The invasion may have been the consequence of the reduction of our production and amplified the "price hikes", but it wasn't the cause of the "price hikes", the initial action of reducing production and relying on foreign imports was.
Please point to something that supports your theory that "covid did it" and oil companies are "dragging their feet".
- edit, at my post limit -
@vel0city: Banning new leases two years ago hurt our production output. Banning new subscribers and preventing renewals would hurt your revenue, why would you think it wouldn't apply here?
It seems you're trying to rationalize away the obvious change in policy and its effects because of some reason unknown to me.
Would you support retracting this policy decision since in your mind it has little effect and in my mind it's the leading cause of our loss of net export status?
@deeg: the article says offshore leases may not show declines for 10 years as the leases are longer, but onshore could "conceivably show up faster".
Your point seems to be this policy hasn't hit us fully yet? Are you for it? How confident are you that it didn't cause the loss of our net export status?
First, the title is not the quote, the quote was "Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans".
Second, that has nothing to do with our production capacity, doesn't prove that "covid" caused us to drop our net export status, or that the industry is unwilling to fill production.
It's one misconstrued quote from an exec. He was talking about not collapsing the price when we overproduced for a brief period during our time of net exporting.
@vel0city: the "if" was contingent on the federal ban on new leases, which happened... two years ago.
We are seeing these predictions play out. Tech support using the covid excuse is annoying, but when government leaders use it to hide behind poor policies, it's dangerous.
Your link constantly uses the term "if", as in "if a federal leasing and development ban is enacted". Its not pointing out reality of today, its a projection on if some kind of ban (not exactly specified) were to be enacted.
You're pointing to theoretical projections and acting as if that's the ground truth today. These aren't the results of a current policy but are the theoretical projections of a theoretical policy decision that hasn't been enacted yet.
That is what you requested and that is what I provided. There are other articles if you would like to research them yourself.
The full quote is "“Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans,’’ Pioneer Chief Executive Officer Scott Sheffield said during a Bloomberg Television interview. “If the president wants us to grow, I just don’t think the industry can grow anyway.’’"
>Now that I've addressed your article, would you like to address the above administration policy decision I linked?
"Federal land accounts for about 24 percent of oil and gas production in the United States, mainly in the offshore Gulf of Mexico. But since companies with existing leases will not be affected, the near-term impact on exploration and production as well as royalties to states will be limited. With more than 26 million onshore acres and 12 million offshore acres already under lease, there is a deep inventory of exploration opportunities. "
> But since companies with existing leases will not be affected, the near-term impact on exploration and production as well as royalties to states will be limited.
> A more permanent leasing ban would have a significant impact, although visible offshore production declines may not materialize for up to 10 years, given the typical timeframe for planning, exploration, appraisal, and development.
My source pointing that the current admin's actions haven't significantly changed things today is your own article.
"At the beginning of 2021, 129 refineries were either operating or idle in the United States (excluding U.S. territories), down from 135 operable refineries listed at the beginning of 2020. The additional refinery closures in the 2021 Refinery Capacity Report largely reflect the impact of responses to COVID-19 on the U.S. refining sector."
Claims below that leases reduced production is a canard. It takes years to develop a lease. In 3 or 4 years you could blame Biden, but unless Exxon produces by time machines it has nothing to do with production issues in 2021. Domestic oil producers are sitting on 1000's of leases.
Companies constantly need to lease land, leases expire, new land is needed.
That's like shutting down new user registrations and pausing all subscriptions and saying there will be no revenue impact because people have paid you in the past.
Those existing users can't resubscribe when their cycle runs out and new users can't enroll at all.
I suggest you research how leases work. They cover ranges, not a single well. There are tens of thousands of leases which have volume for additional wells. The industry is sitting on 9000 untapped leases.
Again, this has nothing to do with production today. It has nothing to do with prices today. I've provided links on Covid impacts and 141 oil executives dragging their feet. Am not going to make more effort.
And still do, today. None of those leases has been closed. If you're making some claim that Biden shut down existing leases in production, please provide a citation.
"Executives at 141 oil companies surveyed by the Federal Reserve Bank of Dallas in mid-March offered several reasons that they weren’t pumping more oil. They said they were short of workers and sand, which is used to fracture shale fields to coax oil out of rock. But the most salient reason — the one offered by 60 percent of respondents — was that investors don’t want companies to produce a lot more oil, fearing that it will hasten the end of high oil prices."
Yes, but it's unnecessary rhetoric that is distasteful enough when a political candidate uses it but downright disgusting when an office holder does it. He knows better and instead of being the leader of the country, he's playing political games (to be fair, that's pretty much par for the course for all of the political class). He didn't have to use that word, he chose to use that word, because he, or his speech writers, liked the connotation.
Bidens desperate to reframe the narrative that Dems fucked the economy before the midterms. I dont think this is going to work tho. Voters dont have enough understanding to see the cascade failures that have gotten us here over the last several years.
Inflation isn’t energy. It’s labor shortages, supply shortages and logistics issues. Freight has more than doubled in cost with ship times double of what they were pre pandemic. Labor rates have increased 25% and there is still significant shortages of unskilled labor and skilled labor. I talked to one major company the other day and for their distribution warehouse, 40% of the scheduled workers don’t show up on any given day even after significantly increasing wages. If you try to use automation to mitigate labor issues, lead times are 1.5 to 2 years to get the equipment due to supply shortages.
> inflation was clearly caused by injecting trillions into the economy for "covid"
Yes, that juiced the demand side. At the same time, the supply side was kneecapped by shutdowns and other "mitigation" measures. More money + fewer available goods.
I agree that we can't blame this on Putin (though he's not helping), but I think the obvious reason for much of the inflation is right in front of us: people want to buy many many things, but they just aren't available in large enough quantities. The Fed injecting money into the economy is nothing new; speaking of goldfish brain, have we so easily forgotten 2008?
> does the "putin price hike" talking point really work on anyone?
Unfortunately, yes it does. It works very well for a significant amount of the population. I've found that there is an incredible overlap in the number of people who think Putin is to blame and those still wearing masks in public.
A large fraction? Making $100B the first 100 days of the war, overall, with it slowly decreasing, yet new channels are opening up straight to India and China? People haven't thought this through all the way.
75 BPS is 0.75% of the total or "100%", not of the current value. BPS makes it more clear that the increase each time is linear, so another 75 BPS will be the same absolute percentage as this 75 BPS.
Rising wages? There has been no meaningful real increase in wages in 40 years despite a massive increase in productivity. Profits keep going up and up. The expectations for profits keep going up. The problem here is that the people who make companies possible don't get to share in the proceeds of what they contribute to.
Rising wages and lower profits would actually represent in workers actually getting an actual real increase in wages and getting a greater share in the fruits of their labor. But no, that's unacceptable. We have to raise prices to maintain the profits and effectively erode those wage increases.
The real failure here is the government.
Take rising energy prices. The government could take action to hasten development of existing leases and/or restrict the export of refined petroleum products. Oil hasn't gotten more expensive to produce. Oil and gas companies are simply raking in massive profits.
What we actually need is a system like Norway where we don't simply give away natural resources like this for private investors to profit off. At least in Norway, the government is making a ton of revenue from the increased prices, which it can direct back to people who need it.
Housing? Shelter is or should be a human right. What we're allowing to happen here through investors buying up housing stock (and jacking up the prices), second homes, AirBnB and so on has reached the point of being a human rights violation IMHO. Also those skyrocketing rents do even more to erode the income of particularly lower income people to keep them living paycheck to paycheck.
This is modern serfdom in action. The government acts at the behest of the capital-owning class regardless of party and part of that is having a compliant labor pool. This is turning into the West's version of Pakistan's brick kilns.
After going into massive debt for college, having to pay a huge amount for your car, gas and rent and so on, you're absolutely showing up to work. That's the point.
A budget shortfall is built into your existence.