Macro Roundup

Just a factoid, new Corrado (now at the Fed) finds that "consumer digital access services" so internet, mobile, streaming and cable TV accounted for 2% of American consumption in 2018. Paper finds the dramatic drop in the cost of CDAS btw 1988-2018 isn’t captured by official price indexes.

She constructed price indexes for that consumption".....using direct measures of volume (data transmitted, talk time, and hours of programming). Our price index fell 12 percent per year from 1988 to 2018 while official prices moved up modestly. Using our digital services index,we estimate total personal consumption expenditure (PCE) prices have risen nearly 1/2 percentage point slower than the official index since 2008. Importantly, the spread between alternative and official PCE price inflation has increased noticeably over time...That is, the sharp declines we find in digital service prices, augmented by the rising share of these services in the overall basket, magnify the marked reported slowdown in the PCE inflation rate since 1997 by nearly ½ percentage point (figure 4)....The most basic implication of our finding that PCE prices have risen more slowly than reported in recent years isthat real incomes and real expenditures have grown faster than indicated in official measures, perhaps indicating greater average welfare gains....”

In terms of consumer welfare that means, “…. All told, we estimate that the consumer surplus associated with consumer digital goods and services amounted to about $30,000 per user from 2004 to 2017 (2017 dollars) and conclude that existing GDP misses consequential growth in output and income associated with content delivered to consumers via their use of digital platforms. The additional moves required to capture digital services consumer surplus in GDP are discussed in the appendix to this paper; note these moves do not affect measured output per hour in the business sector even though they are driven by correlates of the factors driving growth in paid-for, business produced digital access services previously discussed. Owing to the misstatement of real paid-for digital access services (alone), labor productivity growth appears to have been somewhat faster than official statistics indicate. Fernald (2015) identifies 2004 as a structural break in U.S. productivity growth, with a markedly slower rate since then: The most recent data indicates productivity has risen 1.1 percent per year on average from 2005 forward, down from 2.3 percent for 1995-2004. Employing our price series for consumer digital services, labor productivity has risen 1.4 percent per year since 2005 and 2.4 percent in the previous period. In short, the productivity slowdown has been on the order of 1 percentage point, rather than 1-¼ percentage point.... "

"...the financial crisis of 2007-09 prompted Americans to pull back on spending and pay down debts. The share of disposable income squirrelled away rose from 3% in 2005 to 8% in 2010-12. These days the economy is much stronger. The unemployment rate, at 3.6%, is at a five-decade low, while consumer confidence is high. As other countries have recovered from the crisis, their personal-saving rates have tumbled. But America’s remains high, and has risen in recent years. Goldman Sachs, a bank, says that the personal-saving rate is four percentage points higher than it “should” be, given the strength of the economy...."

, “…taxes actually paid, as a percentage of income earned and received in transfer payments, rise steadily from 5.1% in the bottom quintile of households to 39.6% in the top 1%. While it’s too small to show on the graph, the top 0.1% of earners, which included 127,586 households in 2017, had an average gross income of $2,892,434 and paid $1,304,769, or 45.1%, in federal, state and local taxes….”

Phil Gramm and John Early, "Wealthy Americans Already Pay Their Share," Wall Street Journal, February 25, 2020, https://www.wsj.com/articles/wealthy-americans-already-pay-their-share-11582676377

New working paper from Sarin (frequent Summer's collaborator) incorporates Social Security into estimates of wealth inequality and finds that, "... Wealth inequality has not increased in the last three decades when Social Security is accounted for. When discounted at the risk-free rate, real Social Security wealth increased substantially from $5.6 trillion in 1989 to just over $42.0 trillion in 2016. When we adjust for systematic risk coming from the covariance of Social Security returns with the market portfolio, this increase remains sizable, growing from over $4.6 trillion in 1989 to $34.0 trillion in 2016. Consequently, by 2016, Social Security wealth represented 58% of the wealth of the bottom 90% of the wealth distribution. Redistribution through programs like Social Security increases the progressivity of the economy, and it is important that our estimates of wealth concentration reflect this...."

"...We find that wealth inequality has not increased once the old age retirement program is accounted for....We document that Social Security wealth has risen: In 1989, Social Security represents 17.2% of the wealth held by the bottom 90% of the wealth distribution. By 2016, this share had grown to 63.4%. Even after adjusting for systematic risk, Social Security rose from only 14.2% of the total wealth of the bottom 90%to 57.7%....This fact is well-illustrated by a simple back-of-the-envelope exercise. Piketty et al. (2018) report household wealth, excluding Social Security, totaled $79 trillion1 in 2016. The Social Security Administration (SSA) estimates that aggregate Social Security wealth was $33 trillion in the same year. We can naively assume that the top 1% receives a disproportionate share (10%) of total Social Security wealth. Social Security is progressive so this assumption vastly overstates the share of Social Security wealth at the top. Even so, including Social Security decreases the top 1% wealth share in 2016 by 9 percentage points relative to prior estimates.... Our most conservative estimates suggest that between 1989 and 2016 the top 10% share declined by 3.0 percentage points and the top 1% share increased only slightly by 1.2 percentage points. This differs drastically from recent work that excludes Social Security and finds the top 10% and 1% shares rose by over 10 percentage points over this period.The inequality estimates in this paper are still overstated, because we exclude programs like disability insurance and Medicare, which constitute a larger share of the wealth of the bottom of the distribution than the top. Overall, this paper makes the point that public transfer programs like Social Security make the U.S. economy more progressive, and it is important for inequality estimates to reflect this. Much more work is needed to arrive at a fuller understanding of wealth concentration in America.....".