This week, I had the privilege to do interviews on CNBC, Yahoo Finance, and Fox Business. Today’s post shares clips from each and some highlights. There are some common themes, though each covers different angles. Bottom line: 2023 is worth celebrating. Massive disinflation with a full employment economy was supposed to be impossible, or at least that’s what we were told. No, it was always possible, and it happened. Now it’s the Fed’s turn to get out of the way.
The bottom line is to me you don't have to fully agree with Claudia Sahm or even MMT for that matter but both are right about one thing is that outdated macro took a backseat and the economy didn't need a recession. I agree that who knows what 2024 might bring us and obviously its an election year but as far as 2023 is concerned, people like Claudia along with the MMT community were right. Hope everyone has a nice and safe 2024.
Maybe more economists need to come from producing parts of the country. Then they might understand what it takes to resolve supply disruptions. Claudia's background has lived this.
If one misses a planting season or harvesting period or ..., then it takes a full cycle (which might be a year) to resolve. With just-in-time inventory systems, then 'catching up' is even harder as this is a fragile system (i.e., minimal supply inventory). Means excess production to make up. Can one say "inflation causing"? But is it permanent? Not likely but transitory might be longer than is yet understood.
I value your insights on macroeconomic issues like this. You remind me of Simon Rosenberg, with your attention to facts/data over conventional thinking and intellectual rigidity. (I mean that as a compliment, btw.) Thank you, and best wishes for 2024.
MMTers had it absolutely correct to demonstrate the need for the rescue plan. A bigger one would have greatly benefited everyone so much better and stimulated an enhanced swathe of Americans. Biden has it right, republicans and Joe M should have gotten out of the way! Fiat currency could rule the day if only we had a confident political environment and a better informed electorate.
Keep up the great work! It’s nice to see Krugman cites you as much or more as Summers in his NYTimes column. My subscription to Stay-at-Home Macro is the best money I’ve spent on reading material in 2023.
You have led this conversation and I am glad you are correct. I was team transitory but really thought the rate hikes were too aggressive. Glad I was wrong. Thanks for leading this perspective and congrats on getting the recognition you deserve.
Love reading and following you. You make it easy for non economists to understand economics. I wish you well in 2024, with much success , happiness, and prosperity. Now let’s tackle affordable housing. We know we can make it happen if there is political will.
Unprecedented weather events in TX/Louisiana beginning in August 2020 also exacerbated inflation. So you can see it on the energy supply side and it shows up in the price of natural gas in Feb and Sept 2021 after Uri and another hurricane hit Louisiana.
The Phillips Curve is junk economics! It's just made-up Chicago Schools garbage. The Fed's target was, and continues to be wages, not inflation. It's a pretty good deal for businesses when you can increase markups by 21% over 3 years and get away with a 10% increase in wages over that same time period resulting in a net loss in real wages.
Thank you, Claudia, for all you do out there in this sea of disinformation.
Some things worth pondering. How do you see Business cycle in present dynamics? Are we at the peak or is it coming? Some people are saying that present economic times is not a typical business cycle scenario (of peak & trough) as US is undergoing a significant structural shift in policy making. The big fiscal, IRA, Chips & Science, industrial policy etc is about transforming US economy into something different altogether. So its too soon to package present growth trend into typical business cycle theory.
So how do you see present growth dynamics?
Also something about financial crisis factors in Business cycle. Do you think Central Banks with myriad of tools of intervention & rescuing financial system at slightest hint of instability has now defeated the risk factors of financial crisis altogether? Whenever a risk of instability emerges (SVB, First Republic etc), vigilant Fed will rescue troubled institutions (at cost of moral hazard) & restore stability, and tools like unlimited QEs and credit lines of Fed (once again at cost of moral hazard) can tackle any financial crisis when it emerges.
I am waiting for the Feds to subtly walk back from their 2% target and accept that inflation of about 3% is now the new baseline...the new acceptable target...
Japan & China had 2 to 3% inflation during Covid AND they also had supply side disruptions.
The West's 9% or higher inflation was obviously due to CORPORATE GREED.
Japan inflation rate for 2022 was 2.50%, a 2.73% increase from 2021. Japan inflation rate for 2021 was -0.23%, a 0.21% decline from 2020. Japan inflation rate for 2020 was -0.03%, a 0.49% decline from 2019. Japan inflation rate for 2019 was 0.47%, a 0.52% decline from 2018.
China inflation rate for 2022 was 1.97%, a 0.99% increase from 2021. China inflation rate for 2021 was 0.98%, a 1.44% decline from 2020. China inflation rate for 2020 was 2.42%, a 0.48% decline from 2019. China inflation rate for 2019 was 2.90%, a 0.82% increase from 2018.
I have a complementary more than contradictory take on why we did not have a recession and why many economist were wrong in predicting we would. [(100) Why No Recession? - by Thomas L. Hutcheson (substack.com)]
Let me nevertheless highlight the nuances of difference
I think the reason the Fed was able to reduce inflation without unemployment was that wages were not among the relative prices whose adjustment the Fed’s inflation needed to facilitate.
Economists who thought that the tightening of aggregated demand by the dramatic increase in EFFR were working forum and implicit model of one relative price -- one good/ labor input. In that model reducing the (rate of change) of the price of the good (disinflation) raises the relative price of labor to the point that market does not clear = unemployment. To get it right requires a multi-good model so that sectoral shocks not uniform economy wide shocks generate the relative price configurations that the Fed has to deal with.
This does mean – here I agree with Sahm 100% -- the last mile to 2% PCE may be the easiest. Indeed, we may already be there. The time for the Fed to have started cutting the EFFR may have been the December meeting, not January or later. For what it’s worth TIPS inflation expectations after ticking up toward target on the Fed’s December announcement have since fallen back significantly below target. The Fed could still create an (unnecessary) recession yet.
I do not agree that the American Rescue Plan was “worth it” if that means AS macroeconomic management. ARA did not prevent recession and it did not cause inflation. The aggregates were driven by the Fed as always. ARA was worth it (or not) as relief, transfers of consumption from where it would have been of less value to where it was of more value.
The bottom line is to me you don't have to fully agree with Claudia Sahm or even MMT for that matter but both are right about one thing is that outdated macro took a backseat and the economy didn't need a recession. I agree that who knows what 2024 might bring us and obviously its an election year but as far as 2023 is concerned, people like Claudia along with the MMT community were right. Hope everyone has a nice and safe 2024.
Maybe more economists need to come from producing parts of the country. Then they might understand what it takes to resolve supply disruptions. Claudia's background has lived this.
If one misses a planting season or harvesting period or ..., then it takes a full cycle (which might be a year) to resolve. With just-in-time inventory systems, then 'catching up' is even harder as this is a fragile system (i.e., minimal supply inventory). Means excess production to make up. Can one say "inflation causing"? But is it permanent? Not likely but transitory might be longer than is yet understood.
I value your insights on macroeconomic issues like this. You remind me of Simon Rosenberg, with your attention to facts/data over conventional thinking and intellectual rigidity. (I mean that as a compliment, btw.) Thank you, and best wishes for 2024.
MMTers had it absolutely correct to demonstrate the need for the rescue plan. A bigger one would have greatly benefited everyone so much better and stimulated an enhanced swathe of Americans. Biden has it right, republicans and Joe M should have gotten out of the way! Fiat currency could rule the day if only we had a confident political environment and a better informed electorate.
Keep up the great work! It’s nice to see Krugman cites you as much or more as Summers in his NYTimes column. My subscription to Stay-at-Home Macro is the best money I’ve spent on reading material in 2023.
You have led this conversation and I am glad you are correct. I was team transitory but really thought the rate hikes were too aggressive. Glad I was wrong. Thanks for leading this perspective and congrats on getting the recognition you deserve.
Love reading and following you. You make it easy for non economists to understand economics. I wish you well in 2024, with much success , happiness, and prosperity. Now let’s tackle affordable housing. We know we can make it happen if there is political will.
Glad Larry came around to your way of thinking
Awesome work! And, I just sent you an email about a possible speaking engagement.
Unprecedented weather events in TX/Louisiana beginning in August 2020 also exacerbated inflation. So you can see it on the energy supply side and it shows up in the price of natural gas in Feb and Sept 2021 after Uri and another hurricane hit Louisiana.
The Phillips Curve is junk economics! It's just made-up Chicago Schools garbage. The Fed's target was, and continues to be wages, not inflation. It's a pretty good deal for businesses when you can increase markups by 21% over 3 years and get away with a 10% increase in wages over that same time period resulting in a net loss in real wages.
Thank you, Claudia, for all you do out there in this sea of disinformation.
Hello Dr Sahm,
Some things worth pondering. How do you see Business cycle in present dynamics? Are we at the peak or is it coming? Some people are saying that present economic times is not a typical business cycle scenario (of peak & trough) as US is undergoing a significant structural shift in policy making. The big fiscal, IRA, Chips & Science, industrial policy etc is about transforming US economy into something different altogether. So its too soon to package present growth trend into typical business cycle theory.
So how do you see present growth dynamics?
Also something about financial crisis factors in Business cycle. Do you think Central Banks with myriad of tools of intervention & rescuing financial system at slightest hint of instability has now defeated the risk factors of financial crisis altogether? Whenever a risk of instability emerges (SVB, First Republic etc), vigilant Fed will rescue troubled institutions (at cost of moral hazard) & restore stability, and tools like unlimited QEs and credit lines of Fed (once again at cost of moral hazard) can tackle any financial crisis when it emerges.
What's your take on these things?
I am waiting for the Feds to subtly walk back from their 2% target and accept that inflation of about 3% is now the new baseline...the new acceptable target...
Japan & China had 2 to 3% inflation during Covid AND they also had supply side disruptions.
The West's 9% or higher inflation was obviously due to CORPORATE GREED.
Japan inflation rate for 2022 was 2.50%, a 2.73% increase from 2021. Japan inflation rate for 2021 was -0.23%, a 0.21% decline from 2020. Japan inflation rate for 2020 was -0.03%, a 0.49% decline from 2019. Japan inflation rate for 2019 was 0.47%, a 0.52% decline from 2018.
China inflation rate for 2022 was 1.97%, a 0.99% increase from 2021. China inflation rate for 2021 was 0.98%, a 1.44% decline from 2020. China inflation rate for 2020 was 2.42%, a 0.48% decline from 2019. China inflation rate for 2019 was 2.90%, a 0.82% increase from 2018.
https://www.macrotrends.net/countries/JPN/japan/inflation-rate-cpi#:~:text=Japan%20inflation%20rate%20for%202022,a%200.52%25%20decline%20from%202018.
I have a complementary more than contradictory take on why we did not have a recession and why many economist were wrong in predicting we would. [(100) Why No Recession? - by Thomas L. Hutcheson (substack.com)]
Let me nevertheless highlight the nuances of difference
I think the reason the Fed was able to reduce inflation without unemployment was that wages were not among the relative prices whose adjustment the Fed’s inflation needed to facilitate.
Economists who thought that the tightening of aggregated demand by the dramatic increase in EFFR were working forum and implicit model of one relative price -- one good/ labor input. In that model reducing the (rate of change) of the price of the good (disinflation) raises the relative price of labor to the point that market does not clear = unemployment. To get it right requires a multi-good model so that sectoral shocks not uniform economy wide shocks generate the relative price configurations that the Fed has to deal with.
This does mean – here I agree with Sahm 100% -- the last mile to 2% PCE may be the easiest. Indeed, we may already be there. The time for the Fed to have started cutting the EFFR may have been the December meeting, not January or later. For what it’s worth TIPS inflation expectations after ticking up toward target on the Fed’s December announcement have since fallen back significantly below target. The Fed could still create an (unnecessary) recession yet.
I do not agree that the American Rescue Plan was “worth it” if that means AS macroeconomic management. ARA did not prevent recession and it did not cause inflation. The aggregates were driven by the Fed as always. ARA was worth it (or not) as relief, transfers of consumption from where it would have been of less value to where it was of more value.