Two headlines that make me wish more people studied the principles of economics

 

The Wisdom of Referees

 From the New York Times:

One peer reviewer suggested that Darwin drop all the evolution stuff and expand the chapter on raising pigeons. (“Everybody is interested in pigeons,” the reviewer explained.) 

Six Beliefs I Have About Inflation

I was recently a panelist at an NBER conference, organized by Larry Ball and Yuriy Gorodnichenko, on inflation. You can read my remarks here.

Why do people feel bad about the economy?

A question that many pundits have been asking is: Why does the general public seem to feel bad about the current economy, when many traditional indictors suggest it is doing okay? Here is a hypothesis: People are comparing things to 2021, the first year of the Biden administration, when things looked much better for them.

Consider real disposable income per capita. In the latest reading, for May 2024, it was $50,491. For the year 2021, the figure was $51,567. That is, average income is down about 2 percent over this period. By contrast, average income grew by more than 3 percent per year from 2017 to 2021.

Similarly, consider credit card debt. From 2017 to 2021, it was up a mere 4 percent (in nominal terms). From its trough in April 2021 until now, it is up 44 percent.

To be sure, one might say that 2021 was an unusual year. Disposable income was goosed by numerous, temporary fiscal policies aimed to ease the pain of the pandemic. Covid also reduced consumers' ability to spend, so they used more of their incomes to pay off their debts. No economist expected these unusual conditions to persist. 

That is all true. But do most people take this fact into account? Maybe they think, "A few years ago, my income was higher, and my debts were lower. So, yes, I am glad the pandemic is over, but my finances are worse."

A Biography of Milton Friedman

I just finished reading the biography of Milton Friedman by Jennifer Burns, which came out last year. It is great. The reader is taken through not only the life of one of the great economists of the 20th century, but also the economic and political events that surrounded and motivated him. If you are looking for a nerdy economist beach read, I highly recommend it.

Ghostlight

I just saw a great movie at the Nantucket Film Festival called Ghostlight. It is now opening at theaters nationwide. Strongly recommended. For more information, click here.

Macro 12e

 The 12th edition of my intermediate macroeconomics textbook is now available. For more information, click here.

Happy 40th Anniversary, to the love of my life

 

Biden takes a wrong step

I was sorry to see President Biden threaten steel tariffs on antidumping grounds. For my views on this topic, see this old piece I wrote with Phill Swagel, who is now CBO director.

It's all about shelter

 
Click on image to enlarge.

This figure shows that the PPI for final demand tracks the CPI less shelter very closely. By both measures, inflation is now very much under control. The problem is that the CPI for shelter is up 5.6 percent, so the overall CPI looks quite hot.

Some would argue that leaving out shelter is misleading because shelter is such a large fraction of the typical household budget. On the other hand, the CPI for shelter is well known to be a lagging indicator of rents by virtue of how it is constructed, and other more current series show no recent inflation in rents. This latter argument puts me in the optimistic camp on inflation.

By the way, I recently made a bet with my friend Larry Ball that the overall CPI from February 2024 to February 2025 will rise by less than 2.5 percent. I am writing the bet here as a sort of contract. We will check back next year.

The bet is for $5. That is in nominal terms. So, in real terms, I get more if I win than Larry gets if he wins.

A Romantic Comedy for the Pigou Club

My friend Yoram Bauman, the stand-up economist (who I first met because of his parody of my ten principles), says he’s working on a play... and that it’s a romantic comedy about carbon tax ballot measures! Details on his Kickstarterpage and his blog.

Summer Camp for Economic Theorists and Computer Scientists

 Run by my colleague Eric Maskin.

Memo to Fed: Stop the News Conferences

In watching part of Jay Powell's news conference yesterday, I realized that what he is doing to just the opposite of good economics communication. When I write an article, give a lecture, or draft a textbook chapter, my goal is to convey maximum information in the fewest words possible. But when the Fed chair answers reporters' questions, he seems to be conveying the least possible information in the most words possible. 

Every answer the Fed chair gives is, more or less, a new paraphrasing of what the FOMC has already said in their statement or the chair has said many times before.  From the Fed's perspective, the ideal news conference contains no news and is mainly repetition and platitudes. "Our decisions are data-dependent....The future is uncertain....Blah blah blah...."

It is almost as if the news conference should come with a disclaimer: "I do not intend to say anything interesting. If you think I have said something interesting, please ignore because I misspoke."

Here is my recommendation: Stop giving news conferences. The Fed's policy decision and statement should stand by themselves. The Supreme Court does not give news conferences after announcing decisions. They explain their judgment once in writing and then let that stand. The Fed should do the same.

History of Economics Summer Camp

Grad students with an interest in the history of economic thought should click here.

Life after Ec 10

Did you know that Kendall Roy (of Succession fame) graduated from the Harvard economics department? You can bid on his diploma here. He must have been in ec 10, though I don't recall him.

Click on image to enlarge.