FRIDAY, MAY 21, 2021
BLOGS/OP-EDS
House Prices Are Soaring. Rents Are Flat. What Does It Mean for Inflation? (Matt Klein, Barron’s) ($)
“…The surge in house prices could be a harbinger of accelerating inflation if it’s being driven by savvy investors betting that the cost of renting is poised to rise. Higher house prices could also cause inflation to speed up by putting more spending power in the hands of consumers who could then monetize their extra home equity to pay for goods and services….Paying more for housing today in the form of lower rental yields would make sense if rents are poised to rise sharply. In that scenario, rental yields would normalize without a decline in house prices, and the associated rise in housing costs would be a major inflationary impulse. That would presumably push up mortgage rates, dampening the returns for homeowners, but not by enough to hurt most people. If mortgage rates stay low, however, rents wouldn’t have to rise sharply at all from their current levels. In that case, the national surge in house prices would have turned out to be a one-off re-pricing with no lasting macroeconomic impact….”
Inflation and the Fed (Tyler Cowen, Marginal Revolution)
“…That is yet another sign that our government (treating fiscal and monetary as a consolidated entity) made a mistake in applying too much demand stimulus. Hardly anyone said this at the time except Summers and Blanchard, and since then few have been willing to come out and admit error. There is an ex post attempt to redefine the debate by insisting inflation will not spiral out of control. Quite possibly not, but whatever your view on that question, don’t let it distract you from the actual mistake. Virtually all macroeconomic commentators in the public sphere were wrong for not realizing and stressing that too much demand stimulus was being applied. Furthermore, we ended up spending $1 trillion (!) in ways that were pretty far from optimal….”
Is the United States Relying on Foreign Investors to Finance Its Bigger Budget Deficit? (RBNY)
“…The table above, though, suggests that the most important unknown is whether personal saving will again offset high federal government dissaving. Consider two extreme outcomes. In one case, consumers take the “extra” saving accumulated in 2020 as an increase in their wealth and do not let it affect their spending behavior. As a result, personal saving remains high this year, again boosted by government transfer payments, and there is little effort to spend down this accumulated savings going forward. The other extreme has consumers running down the extra savings when the pandemic eases over the course of the year and spending rises to match income. The flow of personal saving then disappears and the economy’s reliance on foreign financial inflows jumps. A further complicating factor in anticipating how this plays out is that the amount of U.S. borrowing has to be equal to the sum of net lending by the rest of the world. Essentially, any increase in the U.S. saving shortfall has to be matched by a bigger saving surplus elsewhere and the mechanism that makes this identity hold has very unclear implications for exchange rates and global asset prices….”
How Congress Ruined the Endless Frontier Act (Samuel Hammond, Niskanen Center)
“…But at least the NSF is getting a big boost, right? Wrong. The $54.9 billion to the NSF replaces their existing funding rather than being a supplement. That leaves only $12.9 billion in new NSF funding, of which $8.23 billion is tied to promoting STEM education. In short, what was sold as a ~$100 billion boost in federal support for R&D is now less than $40 billion in new spending, of which less than $10 billion is reserved for anything resembling research or development. That’s the literal definition of decimated…”
The Strongest Sign Yet That Inflation Is Transitory (Conor Sen, Bloomberg) ($)
“…And while prices may have risen faster and higher than most participants expected, now the market is starting to behave like this has been a temporary imbalance rather than a structural shift in behavior. Not only are some builders choosing to slow down despite historically low housing inventories, sawmill companies aren’t in a hurry to expand capacity, choosing to rake in what they see as short-term windfall profits rather than invest for future demand that they’re not sure will materialize. It might be that we’re in a new economic environment that really will have structurally higher inflation, but decades of low rates have anchored the psychologies and behaviors of economic actors. If the response to high prices and low inventories throughout the economy is for buyers to pause while they wait for sellers to catch up on production, the result will be a start-and-stop growth environment — but one without the kind of sustained higher inflation that people fear….”
When economic tribes go to war (Gillian Tett, FT) ($)
“…In recent decades, mainstream economic thought has tended to assume that the economy functions like a machine in a lawlike and predictable fashion with a single equilibrium around which activity fluctuates, but to which it ultimately reverts. Summers comes from this mainstream tradition. But the White House trio [Cecilia Rouse, Jared Bernstein and Ernie Tedeschi] view the economy as a complex, evolving system without any single equilibrium. They think the “rules” can be changed by active policy decisions and micro-level qualitative trends….”
NEWS
World-Dominating Superstar Firms Get Bigger, Techier, and More Chinese (Bloomberg) ($)
“…The top 50 companies by value added $4.5 trillion of stock market capitalization in 2020, taking their combined worth to about 28% of global gross domestic product. Three decades ago the equivalent figure was less than 5%… In 1990, there were no Chinese businesses among the top 50 exchange-traded companies; last year there were 8. China’s gains have come largely at the expense of European enterprises, whose presence on the list has shrunk from 15 to 7 over the period….”
Biden’s IRS Plan Would Double Agency Staffing, Target Cryptocurrency (Richard Rubin, WSJ) ($)
“…The Biden administration’s tax enforcement plan would double the number of IRS employees over the next decade and require banks, payment services and cryptocurrency exchanges to provide the government more information about account flows, according to a Treasury Department report released Thursday. Treasury officials project that the plan would generate a net $700 billion over the next 10 years and $1.6 trillion in the decade after that, and the report says those figures are conservative because they underestimate how audits deter tax dodging and don’t count any benefits from improving IRS technology….”
As Amazon, McDonald’s Raise Wages, Small Businesses Struggle to Keep Up (Allison Prang, WSJ)
“…More than two-thirds of small businesses reported having a hard time finding qualified workers, according to a monthly survey of 611 small firms for The Wall Street Journal by Vistage Worldwide Inc. At the same time, they are planning for their workforces to grow. According to the survey results, 75% of small businesses are expecting their head counts to rise over the next year. Businesses with fewer than 20 employees saw employment grow 13.5% last month compared with a year earlier, while businesses with between 20 and 49 employees saw it rise 15.9%, according to data from the ADP National Employment Report. Businesses with 1,000 or more employees saw employment growth of 7.3%….”
U.S. Floats 15% Global Minimum Tax on Corporate Profits (Saleha Mohsin + Laura Davison, Bloomberg) ($)
“..The U.S. called for a global minimum corporate tax of at least 15%, less than the 21% rate it has proposed for the overseas earnings of U.S. businesses — a level that some nations had argued was excessive. The contrast between the new proposal, released by the Treasury Department Thursday, and the higher rate the Biden administration is seeking to be applied to American companies underscores the difficulty of international talks being led by the Organization for Economic Cooperation and Development. Countries including Ireland have used low business taxes as a key economic development strategy. Negotiators are aiming for a deal this summer….”
Covid-19 Disrupts Years of Health Progress in U.S. (John Kamp + Brianna Abbott, WSJ) ($)
“…The age-adjusted mortality rate measures deaths in the U.S. per 100,000 people while taking into account the age distribution of the population. On a yearly basis, 2020’s death-rate surge was the biggest since the 1920s, when disease outbreaks often caused fluctuations, and the devastating 1918 flu pandemic before then…”
NEW ECON RESEARCH
Cyclical Worker Flows: Cleansing vs. Sullying (Haltiwanger, Hyatt, McEntarfer, + Staiger, NBER) ($)
“…Do recessions speed up or impede productivity-enhancing reallocation? To investigate this question, we use U.S. linked employer-employee data to examine how worker flows contribute to productivity growth over the business cycle. We find that in expansions high-productivity firms grow faster primarily by hiring workers away from lower-productivity firms. The rate at which job-to-job flows move workers up the productivity ladder is highly procyclical. Productivity growth slows during recessions when this job ladder collapses. In contrast, flows into nonemployment from low productivity firms disproportionately increase in recessions, which leads to an increase in productivity growth. We thus find evidence of both sullying and cleansing effects of recessions, but the timing of these effects differs. The cleansing effect dominates early in downturns but the sullying effect lingers well into the economic recovery…”
Estimating Spillovers from Publicly Funded R&D: Evidence from the US Department of Energy (Kyle Myers + Lauren Lanahan)
“…In this paper, we quantify the magnitude of R&D spillovers created by grants to small firms from the US Department of Energy. Our empirical strategy leverages variation due to state-specific matching policies, and we develop a new approach to measuring both geographic and technological spillovers that does not rely on an observable paper trail. Our estimates suggest that for every patent produced by grant recipients, three more are produced by others who benefit from spillovers. Sixty percent of these spillovers occur within the US, and many of them occur in technological areas substantially different from those targeted by the grants….”
The Economics of Customer Businesses (Michael Mauboussin + Dan Callahan, Morgan Stanley)
“…Exhibit 6 shows that the rate of diffusion for a number of important technologies has been speeding up. For example, the household penetration the telephone achieved in 50 years took the smartphone only 5. The rise of social networks has been even more rapid. The social media site TikTok needed only 2.5 years to reach 1 billion monthly average users, versus 6 years for WeChat, 7 years for WhatsApp, and 8 years for Facebook…”
UI Generosity and Job Acceptance: Effects of the 2020 CARES Act (Petrosky-Nadeau + Vall0etta, FRBSF )
“To provide relief to the U.S. labor market following the onset of the COVID-19 pandemic, the CARES Act granted an extra $600 per week in UI benefit payments from late March through July 2020. This unprecedented increase in UI generosity raised concern that UI recipients would be largely unwilling to accept job offers, slowing the labor market recovery. Job acceptance decisions weigh the value of a job against remaining unemployed. A reservation level of benefit payments exists in this dynamic decision problem at which an individual is indifferent between accepting and refusing an offer. This reservation benefit is a simple statistic summarizing the decision problem conditional on the perceived state of the labor market and the weeks of Unemployment Insurance (UI) compensation remaining. Estimating the reservation benefit for a wide range of US workers suggests few would turn down an offer to return to work at the previous wage under the CARES Act expanded UI payments. Direct empirical analysis of labor force transitions using matched Current Population Survey (CPS) data, linked to annual earning records from the CPS income supplement to form UI replacement rates, shows moderate disincentive effects of $600 supplemental payments on job finding rates; this empirical framework also suggests small effects of the $300 weekly UI supplement available during 2021.”
NEW NUMBERS
EV Pickups Take The Stage (George Pearkes, Bespoke Investment Group) ($)
COOL SCIENCE
Physicists Identify the Engine Powering Black Hole Energy Beams (Natalie Wolchover, Quanta Magazine)
“…Now, through the work of Issaoun and her colleagues on the black hole-observing Event Horizon Telescope (EHT) team, the mystery has started to unravel. Several weeks ago, the EHT released its second photo of a black hole — another view of the same fiery ring pitted by darkness seen in 2019. Both images show the glowing plasma around the supermassive black hole at the center of the galaxy M87, whose giant jet rises outside the frame. Unlike in the first photo, the ring in the new image has stripes, indicating that the light is strongly polarized. Experts say the spiral pattern of the stripes results from a strong, orderly magnetic field around the M87 black hole, and that this represents the first significant empirical evidence in favor of a popular 44-year-old theory of jet launching, known as the Blandford-Znajek process….”
Galaxy-Size Bubbles Discovered Towering Over the Milky Way (Charlie Wood, Quanta Magazine)
“…But the meaning of eROSITA’s mushroom clouds is clear: Something went bang in the center of the Milky Way around 15 million to 20 million years ago, around the same time hyenas and weasels were emerging on Earth….What exploded? Based on the energy required to make the clouds so big and so hot, there are two plausible sources. One possibility is that a wave of tens of thousands of stars popped into being and promptly blew up, behavior familiar from so-called starburst galaxies. But the bubbles appear rather pure, lacking the heavy atomic shrapnel that a cohort of exploding stars should have peppered them with. “The metal abundance is very small, so I don’t believe that the starburst activity happened,” Kataoka said. The alternative culprit is the supermassive black hole that sits at the galaxy’s heart. The 4-million-solar-mass leviathan is relatively quiet today. But if a large cloud of gas once strayed too close, the black hole could have switched on like a spotlight. While feasting on the hapless passerby, the black hole would have gobbled down half the cloud while energy from the other half sprayed out above and below the disk, inflating the X-ray bubbles and perhaps the Fermi bubbles too (although the two pairs could also represent separate episodes of activity, Predehl noted). Astronomers have long observed other galaxies that shoot out jets above and below their disks, and they’ve wondered what makes the central supermassive black holes in those galaxies churn so much more violently than ours does. The Fermi bubbles, and now the eROSITA bubbles, suggest that the main difference may simply be the passage of time….”
IN OUR AIRPODS
Scott Winship: Don’t Believe Horror Stories About Fertility Rates, Income Inequality, and Economic Mobility (Reason Podcast)
THURSDAY, MAY 20, 2021
BLOGS/OP-EDS
Do higher minimum wages induce more job search? (Tyler Cowen, Marginal Revolution)“…If the minimum wage is hiked, the higher nominal wage will indeed induce more search, because the pecuniary gain from a good match is higher….That uncertainty in fact raises the costs of job search and makes the results of that search less certain. In this regard, you can think of a higher minimum wage as a tax on job search. If you think job search is mainly about the posted wage, you won’t be very worried about this affect. Alternatively, if you think job search is mainly about finding a good match along the non-pecuniary dimensions, you might be very worried about it indeed. And it will make it harder for minimum wage hikes to boost employment by inducing more labor search…”
Weighing the Role of Supply Bottlenecks in Core PCE Inflation (Adam Hale Shapiro, FRBSF)“..There is some risk that the effects of supply bottlenecks could eventually reach the service sector. For example, rising lumber prices raise the cost of construction, which could eventually be passed on to consumers in the form of higher rental prices. However, empirical evidence suggests that increases in input prices tend to pass through more when they are closer to the final product….This means that most of the price changes due to supply bottlenecks are likely to be absorbed before they ever reach services. While some pandemic-related supply bottlenecks have pushed up prices for consumer goods, their smaller share in the PCE price index mitigates the degree of overall inflation risk. As social-distancing restrictions are pulled back and the economy normalizes, people are likely to shift their spending back to services. This may push down goods prices and push up prices for some services closer to trend, such as airlines and hotels, reversing some of the recent transitory inflation trends…”
Consumer Credit Demand, Supply, and Unmet Need during the Pandemic ( Jessica Lu + Wilbert van der Klaauw , FRBNY)
In this post, we used new data from the SCE Credit Access Survey to study the evolution of consumer credit demand and supply during the COVID-19 recession. We find that credit demand dropped sharply during most of 2020, especially for credit cards, with a modest rebound observed by February 2021. We also observe a modest increase in credit rejection rates during 2020, especially for credit cards. Despite this credit tightening and increased unemployment, we see no meaningful increase in discouraged borrowing and unmet credit need. Mortgage refinancing is the main exception to this general pattern, showing a steep increase in demand and some increase in unmet need, especially for those with lower credit scores. These overall results likely evince the impact of large fiscal interventions, including stimulus checks and expanded unemployment insurance benefits, which have enabled many households to pay down debt, especially credit card debt, and increase their saving. Even among those with low credit scores, while unmet credit needs remain formidable, instead of an increase in expected unmet need we actually see a decline for the group for which unmet need is typically high. The only clear evidence of an increase in unmet credit needs is found for mortgage refinancing, where lower credit score mortgagors have been less able to take advantage of the low-rate environment….”
Lawler: Is the “Owners’ Equivalent Rent” Index Set to Accelerate Sharply? (Bill McBride, Calculated Risk)
“…The YOY gain in the OERPR in April was just 2.04%, about the same as in the previous three months. The OERPR index attempts to measure what property owners would receive if they were to rent their home. While the “Rent of primary residence” index mainly (though not solely) reflects rents on multifamily properties, the OERPR index mainly (though not solely) reflects “imputed” rents on single-family homes. There are many issues with how the OERPR in calculated (there is an extensive literature on the subject), and many feel that that it is a lagging indicator of trends. However, it would appear as if (1) the OERPR is understating this measure of housing costs; and (2) the measure is likely to accelerate, probably significantly, during the remainder of the year. The OERPR represents a little over 23% of the overall CPI and a little underx. 14% of the PCE price index. CR Note: This will be something to watch…”
The return to public capital spending (Deitrich Vollrath, Grow the Econ Blog)
“…What I want to ask is “What is the net present value (NPV) of the additional GDP – in dollars – you get over time for one dollar of public capital spending today?”…The question of interest to me is whether it is worth allocating real resources – labor, existing capital – to produce public capital goods versus allocating them to produce …. something else like consumption goods or private capital goods. That idea of the opportunity cost of public capital is going to be important when we get to figuring out how to discount the flow of GDP back to today…. But now set the discount rate to 0.06, which is roughly the long-run return on equity, as a rough gauge of the opportunity cost of public capital…Still a big return, but not quite as big as before. In general, I think the basic structure here is going to deliver an NPV bigger than one under a reasonable set of parameter choices. The return to public capital appears large relative to the alternatives….”
Can telemedicine finally boost health care productivity? (Bret Swanson, AEI)
“…With billions of people locked in their homes, doctor visits finally went virtual. And most everyone — patients and doctors, especially — found that in many circumstances, virtual visits are in fact a superior solution. Older patients don’t have to contend with icy roads and sidewalks. Doctors can see far more patients, with greater flexibility. The examples of convenience and cost savings are endless, but doctor visits are just the tip of the digital health iceberg. In the near future, telehealth might not only save everyone billions of hours of time each year, but also transform health care into an information industry….”
NEWS
Real-Estate Frenzy Overwhelms Small-Town America: ‘I Came Home Crying’ (Candace Taylor, WSJ) ($)
“…With the exception of a few urban markets, including Manhattan and San Francisco, the U.S. is seeing “a chronic shortage of inventory, heavy sales volume and prices rising at levels wildly ahead of income growth,” said Jonathan Miller of New York-based Miller Samuel Real Estate Appraisers and Consultants. The Case-Shiller U.S. National Home Price NSA Index reported a 12% annual gain in February, a figure seen only a few times in the history of the index, said Craig Lazzara, a managing director at S&P DJI….Local buyers bid against one another as well as against investors who now comprise about a fifth of annual home sales nationally. Online platforms such as BiggerPockets and Fundrise make it easier for out-of-town investors to buy real estate in smaller cities across the U.S., said John Burns of California-based John Burns Real Estate Consulting. Often, Mr. Burns said, “the cash flows are better in the Tulsas and Allentowns of the world” for those seeking to rent out properties. In the fourth quarter of 2020, nearly a fifth of homes sold in the Allentown area were bought by investors, according to Mr. Burns’s data….”
Cisco says shortages will disrupt supply chains for rest of year (Richard Waters, FT) ($)
“…The supply chain squeeze being felt across many parts of the manufacturing sector is set to hit profit margins at Cisco Systems in the current quarter, the US networking equipment maker said on Wednesday….Cisco has largely chosen to absorb the higher costs rather than raise prices, according to Chuck Robbins, chief executive. However, he said the company would “look at strategic price increases if we have to” if it begins to look like the higher costs will stick….”
Sperm counts are falling precipitously across the rich world (The Economist) ($)
“…The data, from 185 previously published studies, suggest that sperm counts fell by about 25% between 1973 and 2011 (see chart). But the academics performed a regression analysis that controlled for variation in the studies’ sampling technique, their potential sample bias, the age of men and their level of abstinence before a sample was taken. They found that sperm counts had in fact fallen by about 50% in Western countries over the period. Although the data were less plentiful, similar trends were observed in developing countries, too….The most likely culprit, she argues, is the proliferation of harmful chemicals such as bisphenol A (BPA)—which is most commonly found in household plastic goods. Humans’ endocrine systems, which produce hormones including testosterone and oestrogen, can be adversely affected by these chemicals. In some cases they reduce fertility among both men and women. One study, conducted in Boston, looked at nearly 500 young men who hoped to donate sperm. It found that the share of applicants who were sufficiently fertile to donate had fallen from 69% to 44% in the ten years to 2013…”
India’s Covid-19 Daily Death Toll Hits World’s High (Vibhuti Agarwal + Krishna Pokharel, WSJ) ($)
“…On Wednesday, India reported 4,529 deaths in the past 24 hours, topping the previous high set by the U.S. on Jan. 12, when it recorded 4,475 deaths. It was the ninth time this month that India has recorded more than 4,000 deaths in a single day….”
A New $260 Million Park Floats on the Hudson. It’s a Charmer. (Michael Kimmelman, NYT) ($)
“…Rising from the Hudson River, Little Island preens atop a bouquet of tulip-shaped columns, begging to be posted on Instagram. Outside, it’s eye candy. Inside, a charmer, with killer views.Mega-mogul Barry Diller’s $260 million, 2.4-acre pet project and civic mitzvah, near 13th Street in Hudson River Park, is the architectural equivalent of a kitchen sink sundae, with a little bit of everything. Who knows what it will feel like when crowds arrive this weekend. I suspect they will be enormous…
NEW ECON RESEARCH
Household Debt Overhang Did Hardly Cause a Larger Spending Fall during the Financial Crisis in the UK (Lar Svensson, NBER)
“The “debt-overhang hypothesis” – that households cut back more on their spending in a crisis when they have higher levels of outstanding mortgage debt (Dynan, 2012) – seems to be taken for granted by macroprudential authorities in several countries in their policy decisions, as well as by the international organizations that evaluate and comment on countries’ macroprudential policy. Results are presented for UK microdata that reject the debt-overhang hypothesis. The results instead support the “spending-normalization hypothesis” of Andersen, Duus, and Jensen (2016a), what can also be called the “debt-financed overspending” hypothesis – that the correlation between high pre-crisis household indebtedness and subsequent spending cuts during the crisis reflects high debt-financed spending pre-crisis and a return to normal spending during the crisis. As discussed in Svensson (2019, 2020), this is consistent with the correlation reflecting debt-financed overspending through what Muellbauer (2012) calls the “housing-collateral household demand” and Mian and Sufi (2018) the “debt-driven household demand” channel. The correlation is thus spurious and an example of omitted-variable bias. A simple model shows that consumption and debt changes are directly and strongly positively correlated, whereas consumption and debt levels are quite weakly negatively correlated. Importantly, and in contrast, examples show that there is no systematic relation between consumption cuts and levels of or changes in LTV ratios. The lack of a robust relation between consumption cuts and levels of or changes in LTV ratios implies that tests of these hypotheses should generally not be done by regressions of consumption cuts on levels of or changes in LTV ratios.”
NEW NUMBERS
Top Retail Ecommerce Retailers (Billions) via Paul Kedrosky Blog
COOL SCIENCE
How I Learned to Stop Worrying And Love the Lab-Leak Theory* (Donald McNeil, Jr.)
“…But the Occam’s Razor argument — what’s the likeliest explanation, animal or lab? — keeps shifting in the direction of the latter….”
Sleep Evolved Before Brains. Hydras Are Living Proof. (Veronique Greenwood, Quanta)
“…What, then, does sleep do in the absence of a brain? Raizen suspects that at least for some animals, sleep has a primarily metabolic function, allowing certain biochemical reactions to take place that can’t happen during waking hours. It may divert the energy that would be used by alertness and movement into other processes, ones that are too costly to take place while the animal is awake. For example, C. elegans seems to use sleep to enable the growth of its body and support the repair of its tissues. In sleep-deprived hydras, the cell divisions that are part of everyday life are paused. Something similar has been seen in the brains of sleep-deprived rats and in fruit flies. Managing the flow of energy may be a central role for sleep…”
IN OUR AIRPODS
The murky world of export restrictions for COVID-19 vaccines (Trade Talks Podcast)
WEDNESDAY, MAY 19, 2021
BLOGS/OP-EDS
Inflation Surveys and Market Pricing Are Consistent With What Fed Wants, So Far (Matt Klein, Barron’s) ($)
“…At the same time, traders aren’t yet worried about inflation coming in too hot. Caps and floors imply there’s a 40% chance that the CPI rises by more than 3% a year for the next five years on average, but that’s no different from what people thought in the first few months of 2011. It’s also consistent with the belief that the Fed is just as likely to overshoot as undershoot its current objective….”
The question about secular stagnation that always has bugged me (Tyler Cowen, Marginal Revolution)
“…If the demand to investment is so low, why don’t the prices of investment goods fall, thereby increasing the marginal return to new investment? (I do get why the zero lower bound may limit the ability of interest rates to fall). That would then equilibrate planned savings and planned investment once again and eliminate the savings overhand. Of course price stickiness may prevent this from happening in the short run, but secular stagnation is a longer run theory….”
The New Productivity Revolution (Eli Dourado, City Journal)
“..Perhaps geothermal energy’s biggest plus is that it would unleash energy abundance. As J. Storrs Hall notes in his lament of stagnation, Where Is My Flying Car?, from the early 1800s, American energy use per capita increased by about 2 percent yearly. In the 1970s (ironically, about the time the Department of Energy was created, Hall notes), this trend reversed. We have been doing more with less—15 percent less per-capita energy consumption than the late 1970s peak, to be exact. While energy efficiency is a wonderful thing, we have forgotten the virtues of doing more with more. With clean, dirt-cheap energy, we can stop economizing and start thriving. We can use cheap power economically to pull CO2 from the atmosphere, desalinate water, deploy formerly exotic materials, and travel faster around the globe…”
Learning to Live With Low Fertility (Paul Krugman, NYT) ($)
“…There is, however, a different issue with low population growth. To maintain full employment, a market economy must persuade businesses to invest all the money households want to save. Yet a lot of investment demand is driven by population growth, as new families need newly built houses, new workers require the construction of new office buildings and factories, and so on. So low population growth can cause persistent spending weakness, a phenomenon diagnosed in 1938 by the economist Alvin Hansen, who awkwardly dubbed it “secular stagnation.” The term and concept have been revived recently by Larry Summers, and on this issue I think he’s right….”
Glenn Hubbard: The economy needs more than neoliberal medicine (Gillian Tett, Financial Times) ($)
“..One can never be completely confident, but I think if the Fed had a clearer policy story I could be confident that commodity price increases are transitory. What worries me is the Fed thinking it can lean against structural changes in the labour market with monetary policy. One might worry a bit about inflation risks in the long-term — some of the structural headwinds against inflation to do with demography and growth in the emerging world, particularly in China, are going away….”
How much have childcare challenges slowed the US jobs market recovery? (Furman, Kearney, Powell III, PIIE)
“…Our examination of data on employment declines among parents with young children and others over the course of the pandemic suggests that overall, parents of young children did not leave the workforce substantially more than other comparable individuals. We constructed counterfactual estimates of what employment declines would have been if mothers and fathers with young children experienced the same change in employment as comparable people without young children. These estimates indicate that a negligible share of the overall decline in employment can be attributed to challenges specific to parents with young children. While school closures and ongoing childcare challenges have substantially burdened parents and children alike, they do not appear to be a meaningful driver of the slow employment recovery. This means that the factors responsible for the slow employment recovery and depressed labor supply are issues that are not exclusively related to the struggles of working parents, such as the continued concern about the threat of getting COVID-19 at work or expanded unemployment insurance benefits and eligibility….”
The strange death of American modesty (Paul Krugman, NYT)
“…But I also suspect that we’ve seen an erosion of egalitarian norms throughout American society, simply because we’ve become a lot less egalitarian. It’s a lot harder for top executives even to play-act at being regular guys now that they’re paid almost 300 times as much as the average worker, up from “just” 20 times in the 1960s. True, there was always a strong element of hypocrisy in those democratic norms, but hypocrisy is the tribute vice pays to virtue, and there were some good aspects to the society we used to be. And I miss it….”
The Housing Market Has a Bottleneck That’s Even Bigger Than Lumber (Joe Wiesenthal, Bloombgerg) ($)
“…As Ali explained, as far as the firm’s been tracking it, she’s never seen inventory this low for ready-to-build lots. Here’s a chart from Zonda that shows more about what’s going on. As Ali explained to me in a follow-up: “A value of 100, represents perfect equilibrium, while a value of 125 and above equals “Significantly Oversupplied”, 115-125 – “Slightly Oversupplied”, 85-115 – “Appropriately Supply”, 75-85 – “Slightly Undersupplied”, and 75 and below – “Significantly Undersupplied.” Basically every market is considered “significantly undersupplied” today, including the national figure.”…”
Did the Trump tax cuts work? The answer may not be what you think. ( Jim Pethokoukis, AEI)
“…as AEI economist Kyle Pomerleau puts it: “Trump decided to run two experiments at the same time: A tax cut and a trade war. And those are somewhat offsetting. CBO thinks they’re almost entirely offsetting in some years. So just looking at the economy, it looks like nothing happened, so it is hard to come to any conclusion from just observing.” One reason the trade wars may have undercut the tax cuts was because of the massive business uncertainty they created……the conclusion that the Trump tax cuts failed should not be offered with anywhere near the level of certainty that it frequently is. Indeed, that the Biden administration is not proposing a complete rollback suggests even it sees some value in them….”
NEWS
‘This Sucker’s Quick’: Biden Takes Spin in Ford’s Electric F-150 (Mario Parker, Bloomberg) ($)
“…Biden said in conversation with an unidentified Ford official that the new truck, dubbed the “Lightning,” accelerates from 0 to 60 miles per hour in 4.3 or 4.4 seconds — a figure that the official said hasn’t yet been revealed….Ford will publicly debut the truck on Wednesday. Biden visited the company’s new Rogue Electric Vehicle Center in Dearborn, Michigan, to promote his infrastructure plan, which would put billions of dollars into U.S. electric car development….”
Specter of 1960s Inflation Takeoff Haunts U.S. Economy Today (Rich Miller, Bloomberg) ($)
“…If we do not have a recession that exerts disinflation, the odds are better-than-even that inflation will exceed 3% over the next five years,” former Treasury Secretary and paid Bloomberg contributor Lawrence Summers said. “They’re one in four that we will have at least a year of inflation above 5%.”….While he doesn’t see anything like the economic overheating Summers fears, Blinder said he wouldn’t be surprised if inflation rises too high for the Fed’s liking sometime in the next few years. That could prompt a reaction from the central bank that inadvertently tips the economy into what is a “hopefully mild” recession. “The Summers view — which you can summarize as saying there is a hell of a lot of aggregate demand pushing on less aggregate supply — is not completely wrong,” he said. “There is a point there…”
Bank of America to Raise U.S. Minimum Hourly Wage to $25 by 2025 ( Colin Kellaher + Ben Eisen, WSJ) ($)
“…Bank of America Corp. on Tuesday said it plans to raise its hourly minimum wage to $25 by 2025, putting it on track to surpass its big-bank peers during a time of worker shortages across the country….”
Shipments Delayed: Ocean Carrier Shipping Times Surge in Supply-Chain Crunch (Costas Paris, WSJ) ($)
“…Only about 40% of container ships globally were on time arriving at ports in March, according to an analysis by Denmark-based Sea-Intelligence ApS, with average delays stretching to more than six days. The slowdowns improved from February, but remained far behind reliability levels of the previous two years, when more than 70% of ships arrived on time….”
How a New York City Restaurant Loses Money on a $14 Sandwich (Corey Mintz, Eater)
“…Until then, if you call in your order and pick it up yourself, Dirt Candy only loses 80 cents on the croque-monsieur. Placed through Grubhub, it costs the restaurant $2.92, and with DoorDash, $2.48…..”
NEW ECON RESEARCH
Forced Entrepreneurs (Isaac Hacamo + Kristoph Kleiner, SSRN)
“Conventional wisdom suggests labor market distress drives workers into temporary self-employment, lowering entrepreneurial quality. Analyzing employment histories for 640,000 U.S. workers, we document graduating college during a period of high unemployment does increase entry to entrepreneurship. However, compared to voluntary entrepreneurs, firms founded by forced entrepreneurs are more likely to survive, innovate, and receive venture-backing. Explaining these results, we confirm labor shocks disproportionately impact high-earners and these same workers start more successful firms. Overall, we document untapped entrepreneurial potential across the top of the income distribution and demonstrate the role of recessions in reversing this missing entrepreneurship.”
What Can Developing Cities Today Learn From the Urban Past? (Ed Glaeser, NBER) ($)
“The downsides of density, including traffic congestion, contagious disease and crime, were common in Victorian London and classical Rome, just as they are today in Sao Paulo and Lagos. Our urban past provides lessons for developing world cities today. The first lesson, that I highlight, is that political power, not commerce, has long driven the growth of the world’s largest cities, and that fact remains true for many developing world mega-cities today. The second lesson is that while market access fundamentally shaped the cities of the past, the power of transport to determine urban fortunes has declined. Transportation infrastructure no longer transforms cities unless it is accompanied by complementary investments, such as education. The third lesson is that infrastructure, such as sewers and roads, functions best when combined with incentives, which can ensure the adoption of sewers and discourage the abuse of highways. The fourth lesson is that the development of many western cities relied on a nexus of property rights for landowners, including the right to build, buy, alienate, mortgage and rent, that are far more limited in many developing world cities. The fifth lesson is that there is a menu of institutions for managing infrastructure, including direct public control, independent public authorities and public private partnerships. Local conditions, especially the level of public capacity, will determine the best choice among those institutions.”
The Value of a Slender Spouse: Couples Agree that Keeping the Wife Svelte is more Valuable than Keeping the Husband Fit (Baldursdottir, McNamee, Norton, Asgeirsdóttir, NBER) ($)
“According to the World Health Organization, obesity is one of the greatest public-health challenges of the 21st century. Body weight is also known to affect individuals’ self-esteem and interpersonal relationships, including romantic ones. We estimate “utility-maximizing” Body Mass Index (BMI) and calculate the implied monetary value of changes in both individual and spousal BMI, using the compensating income variation method and data from the Swiss Household Panel. Two-stage least squares models are estimated for women and men separately, with mother’s education as an instrument to account for the potential endogeneity in income. Results suggest that the optimal own BMI is 27.4 and 22.7 for men and women, respectively. The annual value of reaching optimal weight ranges from $3,235 for underweight women to $32,378 for obese women and from $19,088 for underweight men to $43,175 for obese men. Women on average value changes in their own BMI about three times higher than changes in their spouse’s BMI. Men, on the other hand, value a reduction in their spouse’s BMI almost twice as much compared to a reduction in their own BMI. Married couples therefore agree on one thing, that keeping the wife svelte is even more valuable than keeping the husband fit.”
The Business of City Hall (Ken Ahern, NBER) ($)
“Compared to the federal government, the average citizen in the U.S. has far greater interaction with city governments, including policing, health services, zoning laws, utilities, schooling, and transportation. At the regional level, it is city governments that provide the infrastructure and services that facilitate agglomeration economies in urban areas. However, there is relatively little empirical evidence on the operations of city governments as economic entities. To overcome deficiencies in traditional datasets, this paper amasses a novel, hand-collected dataset on city government finances to describe the functions, expenses, and revenues of the largest 39 cities in the United States from 2003 to 2018. First, city governments are large, with average revenues equivalent to the 78th percentile of U.S. publicly traded firms. Second, cities collect an increasingly large fraction of revenues through direct user fees, rather than taxes. By 2018, total charges for services equal tax revenue in the median city. Third, controlling for city fixed effects, population, and personal income, large city governments shrunk by 15% between 2009 and 2018. Finally, the growth rate of city expenses is more sensitive to population growth, while the growth rate of city revenues is more sensitive to income. These sensitivities lead smaller, poorer cities’ expenses to grow faster than their revenues.”
NEW NUMBERS
First-Generation College Graduates Lag Behind Their Peers on Key Economic Outcomes (Richard Fry, PEW)
“…For adults who do complete a bachelor’s degree, financial outcomes are strongly linked to parental educational attainment. The median household income for households headed by a first-generation college graduate ($99,600) is substantially lower than the income for households headed by a second-generation graduate ($135,800). The median wealth of households headed by a first-generation college graduate ($152,000) also substantially trails that of households headed by a second-generation college graduate ($244,500). The higher household income of the latter facilitates saving and wealth accumulation. The gap also reflects differences in how individuals finance their education. Second-generation college graduates tend to come from more affluent families. First-generation college graduates are more likely to incur education debt than those with a college-educated parent. They also have greater amounts of outstanding education debt. The benefits of having a college-educated parent don’t necessarily extend to those who don’t graduate from college themselves. Among adults who have not graduated from college, there is no substantial economic boost associated with having a parent with at least a bachelor’s degree…”
Economic Well-Being of U.S. Households in 2020 (Board of Govs, Federal Reserve)
“…Nearly one-fourth of adults were worse off financially compared to 12 months earlier, up from 14 percent in 2019. This increase occurred broadly across the population, and likely reflects economic distress resulting from the pandemic…..Despite the increase in the share doing worse off financially, most still said they were at least doing okay overall. Seventy-five percent of adults were either doing okay or living comfortably financially in November, which was unchanged from 2019 after having fluctuated through the year…..Adults with at least a bachelor’s degree were much more likely to report doing at least okay financially (89 percent) than those with less than a high school degree (45 percent). This gap increased from 34 percentage points in 2019 to 44 percentage points in 2020….Less than two-thirds of Black and Hispanic adults were doing at least okay financially, compared with 80 percent of White adults and 84 percent of Asian adults. The gap in financial well-being between White adults and Black and Hispanic adults grew by 4 percentage points since 2017….Forty-three percent of adults rated their local economic conditions as “good” or “excellent” in 2020, markedly lower than the 63 percent of adults who had a positive assessment of their local economic conditions in 2019….”
COOL SCIENCE
Mathematicians Answer Old Question About Odd Graphs (Kevin Hartnett, Quanta)
“…Ferber and Krivelevich established that these many small, dense subgraphs can be joined together to create a larger subgraph in which all vertices have odd degree. Now they’d covered all the possibilities — sparse graphs, dense graphs and graphs in between — and showed that they all necessarily contain odd subgraphs of a certain minimum size….”
IN OUR AIRPODS
Container shipping costs are through the roof. Who’s paying? (Trade Talks)
TUESDAY, MAY 18, 2021
BLOGS/OP-EDS
From the Department of Underappreciated Facts (Tyler Cowen, Marginal Revolution)
“…”Career earnings growth in the U.S. more than doubled between 1960 and 2017, and the age of peak earnings increased from the late 30s to the mid-50s. I show that a substantial share of this shift is explained by increased employment in decision-intensive occupations, which have longer and more gradual periods of earnings growth…Experience takes longer to accumulate in high variance, non-routine jobs.” That is from a new working paper by David J. Deming. One implication is that AI leads to lots of angry, frustrated, left-wing young people, and a cementing in of the gerontocracy….”
Household Distress during the COVID-19 Pandemic (FRBSL)
“…To create their household distress index, the authors combined 13 variables to capture a broad measure of household well-being. They noted that the variables provide information on households’ employment, income, housing wealth, spending and ability to make debt payments. The figure shows that the index rose in response to the three most recent economic downturns. For example, the index increased dramatically during the Great Recession, peaked at 2.46 in September 2009 and slowly declined from 2011 through early 2020, the authors pointed out.In contrast, the index spiked during the early months of the pandemic but dropped sharply during the latter half of 2020. It peaked at 1.29 in April 2020 and was -0.33 in December 2020, close to pre-pandemic values, the authors noted….”
Britain’s Labour Party just collapsed in blue-collar England. Democrats should consider themselves warned. (Henry Olsen, WaPo) ($)
“…Political trends in the United States and Britain have mirrored one another for decades, so the Labour Party’s stunning collapse across blue-collar England in last Thursday’s local elections is a clear warning sign for President Biden and Democrats. A full analysis gives Democrats signs of hope but also shows how difficult it will be to build a durable Democratic coalition…”
The Best Macro Indicator (Dan Rasmussen + Igor Vasilachi, Verdad WR)
“…If US investors could only use one macro indicator to inform their investment decisions, we feel that indicator should be the high-yield spread. It is a compound measure that combines both the pricing of risky assets (i.e., corporate debt), which is sensitive to risk appetite, and “risk-free” assets (i.e., Treasurys), which are sensitive to expected growth. So a declining spread can reflect more appetite for risky assets, rising growth expectations, or both, and vice versa. In our view, this makes the high-yield spread such a robust indicator of the business cycle. A signal based on the level and direction of the high-yield spread could be useful to estimate business cycle progression and, in turn, inform asset allocation decisions. A strategy based on high-yield signals would have outperformed the 60/40 portfolio and an “all equity” approach by a significant margin over the last 50 years….”
NAHB: Builder Confidence Unchanged at 83 in May (Bill McBride, Calculated Risk)
“…The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 83, unchanged from 83 in April. Any number above 50 indicates that more builders view sales conditions as good than poor….”
How Does U.S. Monetary Policy Affect Emerging Market Economies? (, FRBNY)
“…In sum, we present a model where the effects of a U.S. monetary policy shock on EMEs are amplified due to UIP premia that are correlated with domestic lending spreads, consistent with the evidence. Our research provides theoretical foundations for the Global Financial Cycle that shows monetary contractions in the United States lead to tightening of foreign financial conditions, and for more recent findings that show these effects are larger in EMEs than in advanced economies….”
Western Lands (Gregor MacDonald, The Gregor Letter) ($)
“…Solid-state battery research has seen a flowering of human effort, but manufacturing actual units remains the key hurdle. Every week brings fresh news of research and science teams making progress—nay, breakthroughs—on solid state technology. But as battery experts will tell you, the sector is historically beset by high expectations and low follow-through because batteries are just plain hard. The challenge is finding the balance between competing constraints, because the nature of batteries is that solving one aspect of their development can actually make solving other key aspects more difficult. We might analogize battery breakthroughs to pushing on a squishy object: great, you got your finger in one side! Oh no, look what’s just happened to the other! When Quantumscape went public the company did a very good job assembling battery tech engineers and professors for a presentation (opens to YouTube) that quite nicely elucidates these problems….What’s more useful to say is that with so much development activity around solid-state, we are probably zooming quickly towards a solution. But critically, the word solution is also slippery, and must be tied to manufacturing. Right now, the biggest commercial bet on solid-state is very likely the Volkswagen investment in Quantumscape. And it’s also worth following, because VW deals from the platform of Germany’s industrial manufacturing base and expertise—which itself is an edge when we think about solid-state entering actual production. But there’s still no guarantee that particular partnership will monopolize the technology. Rather, based on current activity, The Gregor Letter lightly forecasts that solid-state technology development will experience a kind of convergence. We are likely therefore to see solid-state get close to scalable manufacturing—from disparate teams all currently working on the problem— around the same time.”
Rx for Retiree and Consumer Finances: Spending More on Government Healthcare (Matt Klein, Barron’s) ($)
“…The U.S. government spends more on healthcare as a share of national income than any country except France. That money doesn’t do much for Americans’ physical well-being, but new research shows that it does wonders for many Americans’ financial health: getting onto Medicaid or Medicare leads to fewer unpaid bills and less debt in collection….Shifting even more healthcare financing from the private sector to the public sector—as some Democrats are pushing for—might not improve access to care, lower costs, or make Americans healthier, but it could still help many Americans by making it easier to stay out of debt and stay on top of bills. While the government might have to run a larger deficit to make it happen, consumers would have less need to borrow and greater ability to save, keeping total debt flat. It’s just what the personal finance doctor ordered….”
The Economy Is Humming. The Chip Shortage Is a Wild Card. These 6 Charts Show It. (Matt Klein, Barron’s) ($)
“…Sooner or later, something will have to give, likely leading to higher prices on new vehicles to help cover the rising cost of microprocessors and moderate consumption, as well as slowdowns in delivery times and reduced selections for consumers. That hasn’t happened yet, but if it does, it shouldn’t be understood as a harbinger for shortages or inflation in the rest of the economy…”
NEWS
Natural Gas, America’s No. 1 Power Source, Already Has a New Challenger: Batteries (Katherine Blunt, WSJ) ($)
“…Like many power companies, Vistra doesn’t expect gas plants to be immediately displaced. Mr. Morgan, who has closed a number of Vistra’s coal-fired and gas-fired plants since becoming CEO in 2016, said he anticipates most of the company’s remaining gas plants to operate for the next 20 years. After 2030, he expects they’ll be used far less frequently as batteries augment the electricity supplied by wind and solar farms. Vistra is developing what is expected to be the world’s largest power-storage project at Moss Landing, just north of Monterey, Calif. The batteries are situated where turbines once sat inside a retired natural-gas plant spanning the length of nearly three football fields. Once complete, the batteries will supply 400 megawatts of power for four hours, enough for more than 225,000 homes….”
China census reveals depth of demographic challenge (FT) ($)
“..The NBS pointed to the fact that China’s population estimate last year was 1.4bn for 2019, with the official figure for 2020 an increase of 11.7m. The Financial Times reported last month that the government was poised to report its first year-on-year population decline in 60 years. According to people briefed on the census research, initial estimates suggested the 2020 population figure would fall to at least 1.37bn, but was revised upwards. Ernan Cui, an analyst at Gavekal Dragonomics, the research company, said there were “some obvious inconsistencies” in the official data. “It’s even possible the actual population peaked in 2020, a decade ahead of schedule,” she said….The country’s fertility rate, the average number of children a woman typically has, stands at just 1.3, lower than the US at 1.7 and even Japan at 1.4, where population decline is a reality…”
The World Economy Is Suddenly Running Low on Everything (Murray, Curran, + Chipman, Bloomberg) ($)
“…“It’s gotten out of control, especially in the past month,” said Wolkin, vice president of operations at Atlanta-based Colgate Mattress, a 35-employee company that sells products at Target stores and independent retailers. “We’ve never seen anything like this.” Though polyurethane foam is 50% more expensive than it was before the Covid-19 pandemic, Wolkin would buy twice the amount he needs and look for warehouse space rather than reject orders from new customers. “Every company like us is going to overbuy,” he said….”
China’s Home Market ‘Out of Control’ as Prices Climb Further (Bloomberg News) ($)
“…New home prices in 70 cities, excluding state-subsidized housing, rose 0.48% last month from March, when they gained 0.41%, National Bureau of Statistics figures showed Monday. Values in the secondary market, which faces less government intervention, climbed 0.4%, the same pace as a month earlier….”
Rich Americans Likelier to Move House, Reversing Pre-Covid Data (Alexandre Tanzi, Bloomberg) ($)
“…The biggest jump in residential migration has come among workers earning more than $150,000, according to analysis by Apartmentlist.com based on Census Bureau surveys. About 16% of that group relocated in the past year, up from 11.5% in 2019….Meanwhile younger people, who typically earn less, lack the flexibility to move — except back home. More Americans aged 18-35 are living with their parents than at any time since at least the 1960s, according to Census Bureau data from April. They’re also more likely to delay major life events like getting married and having children….”
Retailers Try to Solve Labor Imbalances by Retraining Staff (Suzanne Kapner, WSJ) ($)
“…A tight labor market has made it harder for many chains to attract hourly staffers, while rising demand for computer scientists and engineers is leading to a shortage of workers with that expertise, executives said. “It’s not like there is a large pool of talent out there working in this space,” said Mike Fogarty, chief executive of Choice Market, a Denver-based convenience store chain. “We want to upskill our employees from within.” When Choice Market launched checkout-free shopping in April, allowing shoppers to leave the store without going to a cashier, it had to retrain employees at its four stores, including cashiers such as America Cardoza. Ms. Cardoza, 21 years old, is now an e-commerce analyst in charge of data entry for the 2,500 products Choice Market sells. Instead of staffing a cash register, she uses a computer to create detailed drawings of the store layout so the system knows where products sit on shelves and monitors what is selling. She also runs the platform that integrates Choice’s third-party delivery systems with Uber Eats and GrubHub Inc. She learned her new skills from the company’s e-commerce manager. “I’d never done anything like this before,” Ms. Cardoza said. “It’s very out of my range.”
Despite Lumber Boom, Few New Sawmills Coming (Ryan Dezember, WSJ) ($)
“…North America’s sawmills can’t keep up with demand, which has sent wood prices on a meteoric rise. Don’t expect new mills to start popping up though. Executives in the cyclical business of sawing logs into lumber said they are content to rake in cash while lumber prices are sky-high and aren’t racing out to build new mills, which can cost hundreds of millions dollars and take two years to build from the ground up….”
NEW ECON RESEARCH
U.S. Market Concentration and Import Competition (Mary Amiti + Sebastian Heise, FRBNY)
“…A rapidly growing literature has shown that market concentration among domestic firms has increased in the United States over the last three decades. Using confidential census data for the manufacturing sector, we show that typical measures of concentration, once adjusted for sales by foreign exporters, actually stayed constant between 1992 and 2012. We reconcile these findings by linking part of the increase in domestic concentration to import competition. Although concentration among U.S.-based firms rose, the growth of foreign firms, mostly at the bottom of the sales distribution, counteracted this increase. We find that higher import competition caused a decline in the market shares of the top twenty U.S. firms…”
Immigrant Distribution in the United States during the Age of Mass Migration (Ariell Zimran, NERB) ($)
“Immigrant distribution–the geographic dispersion of immigrants in the destination country–was a major issue in the United States in the late Age of Mass Migration. Policy debates were influenced by the widely held view that the new immigrants were generally less geographically mobile within the United States and specifically less likely to leave urban areas than were natives and earlier immigrants. I build new linked census datasets to investigate these claims by studying the rates of, selection into, and sorting of internal migration by US immigrants. I find that contemporary claims regarding immigrant distribution were either false, oversimplified, or the product of broader national trends that applied also to natives. Nonetheless, geographic assimilation–convergence in immigrants’ and natives’ county-of-residence distributions over time in the United States–was almost nonexistent.”
COOL SCIENCE
China has landed its first rover on Mars — here’s what happens next (Smriti Mallapaty, Nature) ($)
“…This is China’s first mission to Mars, and makes the country only the third nation — after Russia and the United States — to have landed a spacecraft on the planet…..”
A rare black fungus is infecting many of India’s COVID-19 patients—why? (Prinyanka Runwal, National Geographic) ($)
“…Public health experts are blaming the indiscriminate use of steroids to treat COVID-19 as the likely cause. Steroids reduce inflammation in the lungs. But overuse of these drugs in COVID-19 patients can result in lowered immunity and raised blood sugar levels. These conditions leave some patients, particularly those with uncontrolled diabetes, susceptible to such infections….”
IN OUR AIRPODS
How the World’s Companies Wound Up in a Deepening Supply Chain Nightmare (Bloomberg Odd Lots)
Monday, May 17, 2021
BLOGS/OP-EDS
From the Department of Underappreciated Facts (Tyler Cowen, Marginal Revolution)
“…”Career earnings growth in the U.S. more than doubled between 1960 and 2017, and the age of peak earnings increased from the late 30s to the mid-50s. I show that a substantial share of this shift is explained by increased employment in decision-intensive occupations, which have longer and more gradual periods of earnings growth…Experience takes longer to accumulate in high variance, non-routine jobs.” That is from a new working paper by David J. Deming. One implication is that AI leads to lots of angry, frustrated, left-wing young people, and a cementing in of the gerontocracy….”
Household Distress during the COVID-19 Pandemic (FRBSL)
“…To create their household distress index, the authors combined 13 variables to capture a broad measure of household well-being. They noted that the variables provide information on households’ employment, income, housing wealth, spending and ability to make debt payments. The figure shows that the index rose in response to the three most recent economic downturns. For example, the index increased dramatically during the Great Recession, peaked at 2.46 in September 2009 and slowly declined from 2011 through early 2020, the authors pointed out.In contrast, the index spiked during the early months of the pandemic but dropped sharply during the latter half of 2020. It peaked at 1.29 in April 2020 and was -0.33 in December 2020, close to pre-pandemic values, the authors noted….”
Britain’s Labour Party just collapsed in blue-collar England. Democrats should consider themselves warned. (Henry Olsen, WaPo) ($)
“…Political trends in the United States and Britain have mirrored one another for decades, so the Labour Party’s stunning collapse across blue-collar England in last Thursday’s local elections is a clear warning sign for President Biden and Democrats. A full analysis gives Democrats signs of hope but also shows how difficult it will be to build a durable Democratic coalition…”
The Best Macro Indicator (Dan Rasmussen + Igor Vasilachi, Verdad WR)
“…If US investors could only use one macro indicator to inform their investment decisions, we feel that indicator should be the high-yield spread. It is a compound measure that combines both the pricing of risky assets (i.e., corporate debt), which is sensitive to risk appetite, and “risk-free” assets (i.e., Treasurys), which are sensitive to expected growth. So a declining spread can reflect more appetite for risky assets, rising growth expectations, or both, and vice versa. In our view, this makes the high-yield spread such a robust indicator of the business cycle. A signal based on the level and direction of the high-yield spread could be useful to estimate business cycle progression and, in turn, inform asset allocation decisions. A strategy based on high-yield signals would have outperformed the 60/40 portfolio and an “all equity” approach by a significant margin over the last 50 years….”
NAHB: Builder Confidence Unchanged at 83 in May (Bill McBride, Calculated Risk)
“…The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 83, unchanged from 83 in April. Any number above 50 indicates that more builders view sales conditions as good than poor….”
How Does U.S. Monetary Policy Affect Emerging Market Economies? (, FRBNY)
“…In sum, we present a model where the effects of a U.S. monetary policy shock on EMEs are amplified due to UIP premia that are correlated with domestic lending spreads, consistent with the evidence. Our research provides theoretical foundations for the Global Financial Cycle that shows monetary contractions in the United States lead to tightening of foreign financial conditions, and for more recent findings that show these effects are larger in EMEs than in advanced economies….”
Western Lands (Gregor MacDonald, The Gregor Letter) ($)
“…Solid-state battery research has seen a flowering of human effort, but manufacturing actual units remains the key hurdle. Every week brings fresh news of research and science teams making progress—nay, breakthroughs—on solid state technology. But as battery experts will tell you, the sector is historically beset by high expectations and low follow-through because batteries are just plain hard. The challenge is finding the balance between competing constraints, because the nature of batteries is that solving one aspect of their development can actually make solving other key aspects more difficult. We might analogize battery breakthroughs to pushing on a squishy object: great, you got your finger in one side! Oh no, look what’s just happened to the other! When Quantumscape went public the company did a very good job assembling battery tech engineers and professors for a presentation (opens to YouTube) that quite nicely elucidates these problems….What’s more useful to say is that with so much development activity around solid-state, we are probably zooming quickly towards a solution. But critically, the word solution is also slippery, and must be tied to manufacturing. Right now, the biggest commercial bet on solid-state is very likely the Volkswagen investment in Quantumscape. And it’s also worth following, because VW deals from the platform of Germany’s industrial manufacturing base and expertise—which itself is an edge when we think about solid-state entering actual production. But there’s still no guarantee that particular partnership will monopolize the technology. Rather, based on current activity, The Gregor Letter lightly forecasts that solid-state technology development will experience a kind of convergence. We are likely therefore to see solid-state get close to scalable manufacturing—from disparate teams all currently working on the problem— around the same time.”
Rx for Retiree and Consumer Finances: Spending More on Government Healthcare (Matt Klein, Barron’s) ($)
“…The U.S. government spends more on healthcare as a share of national income than any country except France. That money doesn’t do much for Americans’ physical well-being, but new research shows that it does wonders for many Americans’ financial health: getting onto Medicaid or Medicare leads to fewer unpaid bills and less debt in collection….Shifting even more healthcare financing from the private sector to the public sector—as some Democrats are pushing for—might not improve access to care, lower costs, or make Americans healthier, but it could still help many Americans by making it easier to stay out of debt and stay on top of bills. While the government might have to run a larger deficit to make it happen, consumers would have less need to borrow and greater ability to save, keeping total debt flat. It’s just what the personal finance doctor ordered….”