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In real terms (using CPI less Shelter), the National index is 4.6% below the recent peak, and the Composite 20 index is 6.4% below the recent peak in 2022. In real terms, national house prices are still above the bubble peak levels. There is an upward slope to real house prices, and it has been about 17 years since the previous peak, but real prices are historically high. Affordability was essentially unchanged in February as a slight increase in prices was offset by a slight decrease in mortgage rates. In October 2022, houses were the least “affordable” since 1982 when 30-year mortgage rates were over 14%.
Throughout the mid-twentieth century and as recently as the 1970s and 1980s, presidential candidates received fairly equivalent support from rural and urban dwellers, nationwide. Since the 1990s, however, the rural-urban political cleavage has grown steadily as shown in Figure 1. Although the rural-urban political divide in presidential voting has increased the most in the South, by 27 points between 1976 and 2020, it has widened in all regions over the same period, by seven points in the Northeast, 18 points in the West, and a striking 20 points in the Midwest. Urban areas captured a full 97% of all employment growth between 2001 and 2016. As the economic conditions in rural and urban areas diverged, the rural-urban political divide emerged.
TFP is the main factor accounting for differences in labor productivity growth across countries and over time. Since the mid-2000s, TFP growth has been lackluster across the large economies we analyze here. At the level of the market economy, productivity slowed because the productivity frontier (the U.S.) slowed, with similar slowdowns elsewhere. At a more disaggregated level, the frontier economy is sometimes different, but the pattern of slow TFP growth since the mid-2000s is evident in both manufacturing and market services. Qualitatively as well as statistically, the evidence suggests that, following that mid-1990s pickup, U.S. TFP growth slowed before the Great Recession.
For many years, a stylized fact floating in the economic policy ether (on both the left and the right) has been the now widely accepted notion that deindustrialization has driven down post-war LFPRs for American men. The figure above squarely challenges that assumption. Less ephemerally, careful studies by David Autor of the Massachusetts Institute of Technology and his colleagues have detailed the devastating impact of the "China shock" — the shift in worldwide trade patterns that followed China's accession into the World Trade Organization in 2001 — on the U.S. manufacturing sector. That immediate shock was, alas, very real, but our chart suggests it was also temporary. This figure, we believe, should be taken as an invitation to reexamine a matter many scholars and policymakers consider settled.
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Deficit-financed fiscal transfers generate excess savings. One person’s spending is another person’s income. As we show, taking this fact into account implies that excess savings from debt-financed transfers have much longer-lasting effects than a naive calculation would suggest. In a closed economy, unless the government pays down the debt used to finance the transfers, excess savings do not go away as households spend them down. Instead, the effect of excess savings on aggregate demand slowly dissipates as they “trickle up” the wealth distribution to agents with lower MPCs. Tight monetary policy speeds up this process, but this effect is likely to be quantitatively modest. The partial equilibrium scenario summarizes the conventional wisdom according to which the effect of excess savings will dissipate in a few quarters. By contrast, our benchmark scenario suggests that these effects will stick around for roughly 5 years.
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