We are living the first job-full recovery in twenty years. Consumers are buying more, even after adjusting for high inflation. Families who have never had money in the bank, have some. That's good!
Dr. Sahm: I may be biased from my work on Jay Forrester’s National Economic model (in the late ‘70s), but it seems to me that the culprit here is the assumption of cost-push efficacy in creating inflation. Try as we might, we could not create inflation via a wage-price spiral. Demand *always* slackened, hitting profits and subsequent wages.
The wage-price spiral is a just-so story, like so many macro models that have mathematical elegance but lack empirical support.
It’s just as likely that sticky services inflation will lead to goods disinflation. Thank you for fighting the fight. We need to get the FOMC back into the real world.
Steve Keene is doing a series on his podcast (Debunking Economics) where he talks about economists who influenced him.
He did an episode on Bill Phillips.
He claimed that not only is the Phillips Curve wrong, what we call the Phillips Curve is not even what Bill Phillips wrote about in the paper in which he introduced the Phillips Curve.
He challenged us listeners to read it, as it's only 17 pages.
So I did.
And sure enough, the Phillips Curve is not a relationship between unemployment and inflation.
It's a relationship between unemployment and three variables.
The rate of wages, changes to the rate of wages, and the percentage of aggregate consumption provided by imports.
The only way the Phillips Curve, as it is used today, can possibly make sense is if the ONLY cause of inflation is wages.
it blows my mind how the Fed and even more so my macro peers completely disregard the dual mandate is the law. Since its passage, macroeconomists have defined the best we can do for workers in stable prices. That was NOT the intent of the law and to anyone else is an absurd interpretation.
In a Blanchardian world, someone has to pay for the economic output appropriated from the economy by the financial sector and by monopolists. Regretfully, the Fed seems to have become their enforcer.
My mother's parents homesteaded a section of land out west (Nebraska, I believe). In 1918 they sold the land for $100,000 (1918 dollars). My grandfather promptly put the money into a herd of hogs. They promptly caught swine flu, and died. I feel your heritage. Keep up the great work, and your morale. Illegitimi non carborundum!
Excuse us for a good jobs report. http://wtop.com/world/2023/01/asia-shares-up-as-sentiments-boosted-by-fed-minutes-us-jobs/ NEW YORK (AP) — "Stocks fell broadly on Wall Street Thursday and Treasury yields rose after another hot reading on the job market raised worries that the Federal Reserve will need to continue inflicting pain on the economy in order to fight inflation."
Fwiw when I think of Jay Powell I’ll always think “PE guy who bailed out his buddies by authorizing the Fed to use the public’s credit to buy junk bonds in 2020”
I don’t doubt Jay Powell is a good guy with good intentions. I think it’s a big ask for someone who has a background in PE to suddenly care about workers (they are usually viewed as a line item on a spreadsheet to be slashed). More of a problem with the institution of Wall St/finance (of which I am a part of) than Powell himself. The question is what can we do about it? I get in arguments with people at work who lament strong jobs numbers bc of how they think the Fed will react. It’s horrifying and anti-American to cry boo at strong jobs numbers.
There’s a four-letter word for the economist who mocked the language skills of workers: Snob. Two things stand out: 1) he’s not embarrassed to make a remark like that in mixed company, 2) apparently he’s unfamiliar with the millions of U.S. immigrants who didn’t speak a word of English yet built railroads
I’m not a fan of Big Af, either. My relatives no longer farm in Nebraska. Big Ag is making the same mistake of centuries of civilizations (“Dirt: The Erosion of Civilizations,” David Montgomery; “The Dawn of Everything,” David Graeber and David Wengrow). In my reading, the only civilization that had a sustainable culture was the American Indian. Big Ag is hastening the centuries-old desertification of soils.
I always cringe when I read quotes from Jay Powell emphasizing the Fed’s “credibility” or read reports about how he’s worried about his “legacy” and doesn’t want to “end up like Arthur Burns.” Maybe he should focus less on his legacy and more on serving the American public he took an oath to serve. Then his legacy will take care of itself.
I agree the obsession with the Fed's credibility over American workers is outrageous. it's like they think the dual mandate is stable prices and Fed cred.
I am going to make a shirt and the only thing it’s going to say is
“I grew up on a four-generation hog farm in Indiana, shoveling hog shit and holding pigs while my mom castrated them.”
I should wear it to the NBER SI macro program meeting. Or my next Bloomberg interview.
Dr. Sahm: I may be biased from my work on Jay Forrester’s National Economic model (in the late ‘70s), but it seems to me that the culprit here is the assumption of cost-push efficacy in creating inflation. Try as we might, we could not create inflation via a wage-price spiral. Demand *always* slackened, hitting profits and subsequent wages.
The wage-price spiral is a just-so story, like so many macro models that have mathematical elegance but lack empirical support.
It’s just as likely that sticky services inflation will lead to goods disinflation. Thank you for fighting the fight. We need to get the FOMC back into the real world.
agree and thank you.
Outstanding! Lest we forget....there are those who are dedicated to not solving our problems. Rather, they're driving the bus off the cliff!
Steve Keene is doing a series on his podcast (Debunking Economics) where he talks about economists who influenced him.
He did an episode on Bill Phillips.
He claimed that not only is the Phillips Curve wrong, what we call the Phillips Curve is not even what Bill Phillips wrote about in the paper in which he introduced the Phillips Curve.
He challenged us listeners to read it, as it's only 17 pages.
So I did.
And sure enough, the Phillips Curve is not a relationship between unemployment and inflation.
It's a relationship between unemployment and three variables.
The rate of wages, changes to the rate of wages, and the percentage of aggregate consumption provided by imports.
The only way the Phillips Curve, as it is used today, can possibly make sense is if the ONLY cause of inflation is wages.
Which everyone knows is not the case.
Well done.
This is an excellent post, Claudia.
I look at this striking chart @MESandbu @FT and think about why #Fed is seeking #wage cuts.
Does the Employment Act of 1946 no longer apply (… to promote max #employment, production and purchasing power)? https://cutt.ly/m2vfATW
it blows my mind how the Fed and even more so my macro peers completely disregard the dual mandate is the law. Since its passage, macroeconomists have defined the best we can do for workers in stable prices. That was NOT the intent of the law and to anyone else is an absurd interpretation.
In a Blanchardian world, someone has to pay for the economic output appropriated from the economy by the financial sector and by monopolists. Regretfully, the Fed seems to have become their enforcer.
Thank you for your critical analysis and factual support in recognizing the importance of the ongoing job recovery. In addition to reading your insights, I encourage your readers to check out this recent paper on how the Fed's policies are aimed at weakening worker's bargaining power. https://prospect.org/economy/2023-01-05-two-percent-inflation-targeting-harms-growth/#.Y7cuicVMkc0.twitter
Take from an aged retired academic of very little brain, you're great! Keep punching!
thank you ❤️
My mother's parents homesteaded a section of land out west (Nebraska, I believe). In 1918 they sold the land for $100,000 (1918 dollars). My grandfather promptly put the money into a herd of hogs. They promptly caught swine flu, and died. I feel your heritage. Keep up the great work, and your morale. Illegitimi non carborundum!
Excuse us for a good jobs report. http://wtop.com/world/2023/01/asia-shares-up-as-sentiments-boosted-by-fed-minutes-us-jobs/ NEW YORK (AP) — "Stocks fell broadly on Wall Street Thursday and Treasury yields rose after another hot reading on the job market raised worries that the Federal Reserve will need to continue inflicting pain on the economy in order to fight inflation."
🤢
Fwiw when I think of Jay Powell I’ll always think “PE guy who bailed out his buddies by authorizing the Fed to use the public’s credit to buy junk bonds in 2020”
I like Jay. He’s the real deal. The Fed will do the right thing and stop ... better do it soon
I don’t doubt Jay Powell is a good guy with good intentions. I think it’s a big ask for someone who has a background in PE to suddenly care about workers (they are usually viewed as a line item on a spreadsheet to be slashed). More of a problem with the institution of Wall St/finance (of which I am a part of) than Powell himself. The question is what can we do about it? I get in arguments with people at work who lament strong jobs numbers bc of how they think the Fed will react. It’s horrifying and anti-American to cry boo at strong jobs numbers.
There’s a four-letter word for the economist who mocked the language skills of workers: Snob. Two things stand out: 1) he’s not embarrassed to make a remark like that in mixed company, 2) apparently he’s unfamiliar with the millions of U.S. immigrants who didn’t speak a word of English yet built railroads
you're much nicer than me. snob would not be my word choice :-)
I’m not a fan of Big Af, either. My relatives no longer farm in Nebraska. Big Ag is making the same mistake of centuries of civilizations (“Dirt: The Erosion of Civilizations,” David Montgomery; “The Dawn of Everything,” David Graeber and David Wengrow). In my reading, the only civilization that had a sustainable culture was the American Indian. Big Ag is hastening the centuries-old desertification of soils.
Who made the comment about service workers not being able to form sentences?
Not revealing. They said other inappropriate things about me and my qualifications. Welcome to economics ...
I always cringe when I read quotes from Jay Powell emphasizing the Fed’s “credibility” or read reports about how he’s worried about his “legacy” and doesn’t want to “end up like Arthur Burns.” Maybe he should focus less on his legacy and more on serving the American public he took an oath to serve. Then his legacy will take care of itself.
I agree the obsession with the Fed's credibility over American workers is outrageous. it's like they think the dual mandate is stable prices and Fed cred.
It's not just Jay, it's the institution.
and keep Big Ag/corporate farm fields operating. One has to wonder if that economist has ever done any stoop labor.
not a fan of big ag. Our family farm is no more.