Looney Tunes is not macroeconomics
Wile E. Coyote is not a serious forecast. It is not how we should think about 2023.
For over a year, I have argued the 1970s are not the correct way to think about our high inflation. Be careful what you wish for. Last week Larry Summers put away his bell bottoms and turned on Saturday morning cartoons.
Wile E. Coyote. That is not a helpful analogy.
Income is at the top; the top drives the economy.
We do not have a recession, especially a severe one, without higher-income families cutting back sharply on their spending.
Moreover, income, not wealth, is the strongest predictor of consumer spending. Let’s look at the wildly unequal distribution of income in the United States:
Again, without income at the top getting hit, there is no recession. Consumer spending is almost 70% of the U.S. economy, and well-off families drive much of that spending. (Note, these same families did not receive stimulus checks and other fiscal relief.) Dwindling savings does not cause a free fall in the economy.
What does? In 2001, it was the dot-com bubble bursting; in 2008, it was a meltdown in mortgage markets; and in 2020, it was a global pandemic. What will cause the bottom to drop out in 2023? It is not the Fed; it is not trying to tank the economy, unlike the Volcker Fed. And it is slowing down. So, what is our Road Runner? Does Larry know about some calamity he is not telling us about?
Savings will not “run out” next year.
And about the savings. The bottom half of families have a financial cushion like never before. Inflation is eating into it, but Americans’ finances are in good shape.
All that progress does not move the need on who has the big bucks. The top 0.1% have $17 trillion in wealth, which is FOUR times the bottom 50%.
The rich are not running out of money anytime soon.
Jobs. Jobs. Jobs.
Finally, THE LABOR MARKET IS STRONG.
Disposable personal income in October was nearly 19 trillion dollars, and over 70% of that was from the compensation of employees. Plus, disposable income, adjusted for inflation, rose briskly in October. Again, income is the best predictor of consumer spending. Good news is good news.
For consumers to “run out of savings,” as Larry Summers predicts, would take a massive hit to the labor market. Again, where is that coming from? For the first time in forever, and no thanks to Larry, we have had a job-full recovery. We are starting from a place of strength. That is essential for next year.
So, tell your story. As I argued this weekend, the burden of proof is on inflation hawks and recession predictors like Larry. The world has changed substantially since the spring of 2021; it’s even changed considerably in recent months. What’s up, Doc?
Looney Tunes is not good enough. Not even close.
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