4 ms·

Neglecting issues due to the war in Ukraine, a lot of the “supply side issues” are not totally isolated from central bank policy, QE, and stimulus. The use of Q

by lumb63 4y ago

Neglecting issues due to the war in Ukraine, a lot of the “supply side issues” are not totally isolated from central bank policy, QE, and stimulus. The use of QE and stimulus increased demand, while simultaneously, government policy decreased supply. Now, supply is (mostly) recovered, but demand still remains elevated. Supply can’t keep up, because its target is too high. This is why we see talk from the Federal Reserve about how consumers will “feel pain” - the only way to reduce demand is to reduce employment or wages, to a level that the supply chain is capable of keeping up with. The Fed press conferences are really interesting to watch as they make this very clear - we are really looking at an “imbalance between supply and demand” due in part to all of economic, social, and political factors. Also, regarding the CPI not reflecting asset prices: the CPI does not include any measure of equity prices, for instance. Since so many rely on equities to fund their retirement, an increase in equity prices is a meaningful inflation. If the price of the S&P 500 for instance is higher due to an asset bubble, it decreases my ability to purchase shares of it. The increase in equity prices we see is really inflation of equities, but never branded as such. We call it “return on investment”, because the people talking about it are mostly those who already own equities, not those looking to buy them. It’s the same reason as why homeowners dislike seeing home prices increase, while homebuyers enjoy it. I’ll also mention that the CPI has a lot of other bunk practices in it. For instance, “hedonistic adjustment”. A (slightly conspiratorial) site called ShadowStats computes a modified CPI that uses older CPI methodology (before the meaning of inflation was redefined to show lower inflation) that currently sits at 17 or so percent.

pas 4y ago
Just quickly on ShadowStats, and why it's complete bullshit (it's not slightly it's 120% conspiratorial :D) http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-i.html http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-... https://www.thestreet.com/economonitor/emerging-markets/deconstructing-shadowstats-why-is-it-so-loved-by-its-followers-but-scorned-by-economists https://www.thestreet.com/economonitor/emerging-markets/deco... https://www.bls.gov/opub/mlr/2008/08/art1full.pdf https://www.bls.gov/opub/mlr/2008/08/art1full.pdf > If the price of the S&P 500 for instance is higher due to an asset bubble, it decreases my ability to purchase shares of it. BLS says that the CPI doesn't track savings, just day-to-day living expenses. And that's okay, people want these indices to do everything. (And the Fed is not even using the CPI, they are using the PCE ... and there's a bunch more https://www.bea.gov/resources/learning-center/quick-guide-some-popular-bea-price-indexes https://www.bea.gov/resources/learning-center/quick-guide-so... And the PCE is considered too broad, because it has inputs from businesses, nonprofits, etc. But of course it's not like business costs are irrelevant to the economy...) That said, I think the biggest problem is that these general indices are used for things like welfare calculations, but they already don't represent the average welfare recipient. So adding equity would make it even less useful for that. (Which is mostly just an argument for having more indices, each representing a large chunk of society. But of course the cynic in me says that we already have one for the important people, the SP500, and poor people only matter when they are undecided voters in swing states.) > Now, supply is (mostly) recovered, but demand still remains elevated. Mostly, though basic input like oil is still not at the early 2020 levels. Aaand OPEC cut production just yesterday. https://ycharts.com/indicators/world_crude_oil_production https://ycharts.com/indicators/world_crude_oil_production (5Y chart) > we are really looking at an “imbalance between supply and demand” due in part to all of economic, social, and political factors. Yep. And every think tank from the political zoo has their own critique of the actions of the Fed, but monetary policy is simply a blunt tool, and all of the structural problems are ... surprise surprise ... structural conflicts between big powerblocks. (One common laughing stock is the Jones Act. US shipbuilding is basically non-existent, and what's left is useless for "national security" purposes anyway. But it's somehow completely entrenched. Similarly other protectionist policies that serve special interests serve exactly one purpose to enrich members of those special interest groups. It's bad for consumers, it's bad for the economy, it's bad for labor markets, etc.) All in all there's an argument in this about how the US fucked up the transition during globalization. (The big one is using market access as a carrot in WTO, but then not enforcing reciprocity with China and others. And the lack of any real and effective management of wage deflation in the affected areas, like the rust belt, goes without saying.)

by lumb63 4y ago

pas 4y ago

Just quickly on ShadowStats, and why it's complete bullshit (it's not slightly it's 120% conspiratorial :D) http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-i.html http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-... https://www.thestreet.com/economonitor/emerging-markets/deconstructing-shadowstats-why-is-it-so-loved-by-its-followers-but-scorned-by-economists https://www.thestreet.com/economonitor/emerging-markets/deco... https://www.bls.gov/opub/mlr/2008/08/art1full.pdf https://www.bls.gov/opub/mlr/2008/08/art1full.pdf > If the price of the S&P 500 for instance is higher due to an asset bubble, it decreases my ability to purchase shares of it. BLS says that the CPI doesn't track savings, just day-to-day living expenses. And that's okay, people want these indices to do everything. (And the Fed is not even using the CPI, they are using the PCE ... and there's a bunch more https://www.bea.gov/resources/learning-center/quick-guide-some-popular-bea-price-indexes https://www.bea.gov/resources/learning-center/quick-guide-so... And the PCE is considered too broad, because it has inputs from businesses, nonprofits, etc. But of course it's not like business costs are irrelevant to the economy...) That said, I think the biggest problem is that these general indices are used for things like welfare calculations, but they already don't represent the average welfare recipient. So adding equity would make it even less useful for that. (Which is mostly just an argument for having more indices, each representing a large chunk of society. But of course the cynic in me says that we already have one for the important people, the SP500, and poor people only matter when they are undecided voters in swing states.) > Now, supply is (mostly) recovered, but demand still remains elevated. Mostly, though basic input like oil is still not at the early 2020 levels. Aaand OPEC cut production just yesterday. https://ycharts.com/indicators/world_crude_oil_production https://ycharts.com/indicators/world_crude_oil_production (5Y chart) > we are really looking at an “imbalance between supply and demand” due in part to all of economic, social, and political factors. Yep. And every think tank from the political zoo has their own critique of the actions of the Fed, but monetary policy is simply a blunt tool, and all of the structural problems are ... surprise surprise ... structural conflicts between big powerblocks. (One common laughing stock is the Jones Act. US shipbuilding is basically non-existent, and what's left is useless for "national security" purposes anyway. But it's somehow completely entrenched. Similarly other protectionist policies that serve special interests serve exactly one purpose to enrich members of those special interest groups. It's bad for consumers, it's bad for the economy, it's bad for labor markets, etc.) All in all there's an argument in this about how the US fucked up the transition during globalization. (The big one is using market access as a carrot in WTO, but then not enforcing reciprocity with China and others. And the lack of any real and effective management of wage deflation in the affected areas, like the rust belt, goes without saying.)