Macro Roundup: Tuesday, February 23, 2021

Monday, February 22, 2021

Science Needs Criticism, Not Cheerleading

J. Peder Zane Wall Street Journal

Date Posted:: February 22, 2021
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Science is the search for truth, which is often elusive. When we lower our standards to pretend we know what we don’t know, we diminish the work and misinform society.

The integrity of science is compromised when standards are lowered to feign certainty, leading to misinformation and public distrust. This is evident in the politicization of scientific fields, where cultural imperatives often overshadow empirical evidence. For instance, changes in psychiatric diagnoses reflect societal shifts rather than scientific breakthroughs. Similarly, the economic implications of smoking have been misrepresented; despite claims, smoking does not burden public finances as smokers incur fewer long-term healthcare costs. Such misrepresentations highlight the need for rigorous scientific inquiry to ensure that policy decisions are data-driven and not swayed by prevailing cultural narratives.

Takeaways by Macro Roundup^® AI

Lowering scientific standards to feign certainty produces misinformation and erodes public trust in science, an argument that science needs criticism rather than cheerleading.
Changes in psychiatric diagnoses reflect societal shifts rather than scientific breakthroughs, an example of cultural imperatives overshadowing empirical evidence in politicized fields.
Claims that smoking burdens public finances are misrepresented, as smokers incur fewer long-term healthcare costs, supporting the case for data-driven policy over prevailing cultural narratives.

The case for science, "...When Prof. John Staddon read the “Statement to the Community Regarding Anti-Racism” sent out by Duke University’s president this summer, he was alarmed. The president, Vincent Price, promised to require “anti-racism and anti-bias training for every member of our faculty, student body, and staff.” To Mr. Staddon, that sounded more like indoctrination than academic inquiry. He responded in an open letter.....Mr. Staddon is especially troubled by the concept of “implicit bias,” which holds that unconsciously held beliefs about social groups perpetuate racism, so that “basically, we are racist no matter what we do or even think.”......In a forthcoming book, “Fact vs. Passion: Science in the Age of Unreason,” he writes that “many social scientists have difficulty separating facts from faith, reality from the way they would like things to be.....The politicization of science, he says, isn’t limited to race. Not long ago, Mr. Staddon notes, “homosexuality and gender dysphoria were regarded as symptoms of mental illness. Not that I disapprove, the change just shows how supposedly scientific psychiatric diagnoses are often subordinate to cultural imperatives.”.....My personal tipping point” regarding the uses and misuse of science occurred some two decades later, “when I found out that despite massive publicity to the contrary, smoking has no public cost.” His 2014 book, “Unlucky Strike: Private Health and the Science, Law and Politics of Smoking,” argued that smoking saves society money on balance because the old need more resources than the young and smokers die more quickly and cheaply than nonsmokers. Smoking “puts individual smokers at risk. It does not put the public purse at risk......the corruption of science comes with its own costs: “Many people know these things. Those who don’t are made unnecessarily fearful, and those who do come to distrust medical science. Until we can identify the exact physiological and biochemical causes of these afflictions, until we know who is at risk and who is not, the medico-political establishment should stay quiet, or at least rein in its nanny instincts.” Mr. Staddon says they are, in the best sense of the word: “Science is the search for truth, which is often elusive. When we lower our standards to pretend we know what we don’t know, we diminish the work and misinform society.”..."

J. Peder Zane, "Science Needs Criticism, Not Cheerleading,"Wall Street Journal, February 19, 2021, https://www.wsj.com/articles/science-needs-criticism-not-cheerleading-11613772365

Tuesday, February 23, 2021

Minimum Wage Increases and Individual Employment Trajectories

Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, Hilary Wething National Bureau of Economic Research

Date Posted:: February 23, 2021
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The Congressional Budget Office (CBO) acknowledges that increases in the minimum wage disproportionately affect marginal workers, reducing their employment opportunities at three times the rate of adults generally.

The Congressional Budget Office (CBO) acknowledges that increases in the minimum wage disproportionately affect marginal workers, reducing their employment opportunities at three times the rate of adults generally. For instance, a $15 minimum wage could result in 1.3m job losses, with teenagers and part-time workers without a high school diploma being most affected. The CBO estimates that 50% of newly jobless workers would be teenagers, highlighting the adverse impact on new labor market entrants. Additionally, research indicates that employers tend to substitute less experienced workers with more experienced ones when minimum wages rise, further limiting entry-level opportunities. This shift results in significant employment reductions among the least experienced workers, potentially hindering their long-term career prospects. Overall, while minimum wage hikes may increase earnings for some, they also exacerbate unemployment among low-skilled and young workers.

Takeaways by Macro Roundup^® AI

CBO estimates a $15 minimum wage would result in 1.3m job losses, with teenagers and part-time workers without a high school diploma most affected.
CBO finds minimum wage increases reduce employment opportunities for marginal workers at three times the rate of adults generally, and estimates 50% of the newly jobless would be teenagers.
Research indicates employers substitute more experienced workers for less experienced ones when minimum wages rise, limiting entry-level opportunities and potentially hindering the least experienced workers' long-term career prospects.

Steve Note, “Research used to prep for remarks given to The Gunnery School in February 2021”

“…..For my speech on Thursday, broadly which welfare payments are included as income in determining poverty and which are excluded? Can you relate that to our $1.3 T without too much detailed work? Generally, cash payments are included while in-kind payment like Medicare are excluded. Are SNAP payments included? What about child care or section 8 (whatever) housing?I'm guessing not. My sense is that the Census is clever about only counting enough benefits, and setting poverty threshold high enough so most welfare recipients don't cross the ($25,000 a year) threshold. Then they can confuse the public by giving welfare recipients substantially more than the threshold but continuing to say they are poor….”

So the Census uses “Real Median Household Income” as their income measure for their annul “Income and Poverty in the United States” based on ACS data whichcounts 8 types of income, Wage or salary income, Self-employment income, Interest, dividends, net rental income, royalty income, or income from estates and trusts, Social Security or Railroad Retirement income, Supplemental Security Income (SSI), Public assistance income, Retirement, survivor, or disability income and All other income. So under public assistance income they are capturing the following, “…Public assistance income includes general assistance and Temporary Assistance to Needy Families (TANF). Separate payments received for hospital or other medical care (vendor payments) are excluded. This does not include Supplemental Security Income (SSI) or noncash benefits such as Food Stamps. The terms “public assistance income” and “cash public assistance” are used interchangeably in the 2019 ACS data products….”

Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, Hilary Wething, "Minimum Wage Increases and Individual Employment Trajectories," National Bureau of Economic Research, October 2018, https://www.nber.org/papers/w25182

Ed Comment, “This seems like it. seems I have somewhat misremembered it. this raises an interesting point about worker who don’t have jobs so wont lose their job but they wont get a job in the future. Does the new cbo report speak to this issue? My guess is lots of them don’t have jobs now too.”

You did write twoblog postson it at the time reporting on their estimates of employment impacts (this language is from the second one) on marginal workers, “…The most damning aspect is the report’s implicit acknowledgment that raising the minimum wage hurts marginal workers by reducing their chances for employment. The report estimates that raising the minimum wage will imposed three times as many job losses on marginal workers as adults generally. Nevertheless, the report concludes that overall job losses suffered by marginal workers are likely to be low because few marginal workers currently have jobs. Twenty-three percent of African-American workers between the ages of 20 and 24 years old, for example, are unemployed. For the least skilled among those workers, the unemployment rate is even higher. Those workers are unable to produce $7.25 of value in an hour of work—the amount of the minimum wage—that customers are willing to buy, and so remain unemployed. Raising the minimum wage to $10.10 per hour will make it that much harder for those workers to find economically viable work. So in addition to the 500,000 workers who can produce $7.25 of value in an hour but not $10.10—individuals who the CBO expects will lose their jobs outright—there are many currently unemployed workers who will find it even harder to find work, especially low-skilled entry-level work that serves as a gateway to a lifetime of employment….”

So I looked at the2014 CBOreport on “The Effects of A Minimum-Wage Increase On Employment And Family Income” we had read.

Neumark also makes this point, “.. Second, labor-labor substitution may be important, with employers substituting away from the lowest-skilled workers and toward other workers when the minimum wage increases….”

"... Essentially all of the earnings increases accrue to the more experienced half of the low-wage workforce. The less experienced half saw larger proportionate decreases in hours worked, which we estimate to have fully offset their gain in wages, leaving no significant change in earnings. More experienced workers were also more likely to supplement their Seattle income by adding hours outside the city. Finally, conditional on being employed, both less and more experienced workers were more likely to remain employed by their baseline Seattle employer, implying an 8% reduction in labor turnover rates....Using administrative employment data from the state of Washington, we use short-duration longitudinal panels to study the impact of Seattle’s minimum wage ordinance on individuals employed in low-wage jobs immediately before a wage increase. We draw counterfactual observations using nearest-neighbor matching and derive effect estimates by comparing the “treated” cohort to a placebo cohort drawn from earlier data. We attribute significant hourly wage increases and hours reductions to the policy. On net, the minimum wage increase from $9.47 to as much as $13 per hour raised earnings by an average of $8-$12 per week. The entirety of these gains accrued to workers with above-median experience at baseline; less-experienced workers saw no significant change to weekly pay. Approximately one-quarter of the earnings gains can be attributed to experienced workers making up for lost hours in Seattle with work outside the city limits. We associate the minimum wage ordinance with an 8% reduction in job turnover rates as well as a significant reduction in the rate of new entries into the workforce... Overall, evidence suggests that employers responded to higher minimum wages by shifting their workforce toward more experienced workers..Seattle’s minimum wage increase appears to have successfully increased the labor market income of the most experienced workers in low-wage jobs, arguably those for whom low-wage work most resembles the “dead end” archetype. The losses in employment opportunities appear to have been concentrated among the least experienced workers, or those attempting their first entry into the labor market. While this may suggest that the low-wage labor market has lost some of its capacity to serve as an “avenue of advancement,” younger workers may be better able to compensate for this loss through education, training, or other mechanisms that allow them to bypass the low wage labor market entirely.

Bottom line, “…Overall, evidence suggests that employers responded to higher minimum wages by shifting their workforce toward more experienced workers..Seattle’s minimum wage increase appears to have successfully increased the labor market income of the most experienced workers in low-wage jobs, arguably those for whom low-wage work most resembles the “dead end” archetype. The losses in employment opportunities appear to have been concentrated among the least experienced workers, or those attempting their first entry into the labor market….”

Will work on finding the CBO report you mention. However this more recent 2018 (Jardim) study makes your point about the compositional impact of minimum wage hikes (using evidence from the Seattle study) very effectively that would work very well. Let me know if this is what you are thinking of? Do you still need that older CBO report?

“…..I also remember anold CBO report saying something about 3:1 low skilled job losses in the footnotesthat I mentioned on Betty Liu the day after my first IQ 2 debate on inequality. So the 1.4 million job loss is really a much larger number of low skilled losing their jobs offset by more skillful part time housewives and students getting hired to (partially) take their place. I recall a study of San Fran workers making this point. A reference to it might be in one of the blog entries. Please look for it…”

I also saved a comment you made on a Washington Post Op-Ed (attached) on trade offs related to minimum wage, Ed Comment: Lots of misleading stuff here. Politicians often allow min wage to rise when market wages rise (more) and employment is low, so any simple correlation between min wages and employment is misleading. And raising the min wage when it's below the market, should have little if any effect--on wages or employment. Further, market wages have risen over time. What matters is whether you can raise min wages above the market and have it increase wages. If it could, why not raise the wage to $100,000 per year? Let's raise it all over the world and eliminate poverty. You/we know the truth. More importantly, a portion of the essential truth about minimum wages is revealed in the article. Productivity rises when min wages rise. Why? When employers are forced to pay higher wages, they substitute more productivity workers--part time students and mothers, older workers, etc. All workers are paid the wage required to get one more worker of a given skill level to join the workforce, if/when the value that worker can add to a customer is greater than the wage required to get another worker to work (economics calls this the marginal product of labor). In addition, the market pays a very low-skilled worker who requires a lot of supervision the wage of a low-skilled worker who requires less supervision less the cost of the extra supervision to make the very low-skilled worker as productive as the low-skilled worker. So if you raise the wage of a very low skilled worker by fiat (i.e. by raising the min wage), more workers at (all) higher skill levels will join the workforce. Employment won't necessarily go down, and wages of workers will go up (because more higher skilled workers will join the force), so will productivity (because more productive workers join), but so will the unemployment of the least skilled workers, which has been increasingly documented as data has become more avaible

CBO also has an analysis of the current proposal (largely based off their previous report) and continue to find strong employment effects. -1.4mm workers (.9%) at the same time the number of people in poverty would be reduced by almost 1mm (.9mm). Note this is stronger than their last analysis which estimated employment would fall by 1.3mm workers (that change was driven by a decision to use mean as opposed to median) Key takeaway on employment effects, "....Taking those factors into account, CBO projects that, on net, the Raise the Wage Act of 2021 would reduce employment by increasing amounts over the 2021-2025 period. In 2025, when the minimum wage reached $15 per hour, employment would be reduced by 1.4 million workers (or 0.9 percent), according to CBO’s average estimate. In 2021, most workers who would not have a job because of the higher minimum wage would still be looking for work and hence be categorized as unemployed; by 2025, however, half of the 1.4 million people who would be jobless because of the bill would have dropped out of the labor force, CBO estimates. Young, less educated people would account for a disproportionate share of those reductions in employment...."

Second and third I’ve include two recent CBO analysis, one is their reoccurring analyst of the impact of the minimum wage from summer 2019. CBO found, "...In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well. But 1.3 million other workers would become jobless, according to CBO’s median estimate. There is a two thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million....."You commented"... What stuck me is Dems want high min wages because it will hurt employment in red states. Unemployment increases support for Dems..."

Ed, we have a bunch of stuff on the minimum wage, I curated a few of the more recent one (all attached). First Neumark’s recent paper summarizing all the research might be most useful his core takeaway from the existing studies, "... First, there is a clear preponderance of negative estimates in the literature. In our data, 79.3% of the estimated employment elasticities are negative, 55.4% are negative and significant at the 10% level or better, and 47.9% are negative and significant at the 5% level or better…. In its totality, this body of evidence and its conclusions point strongly toward negative effects of minimum wages on employment of less-skilled workers, especially for the types of studies that would be expected to reveal these negative employment effects most clearly..."

“….Plz look up all our prior blog entries on the min wage ( I think there are 3) and send the links to me. I think I commented on the 3:1….”

Steve Comment, “So they don’t carve out a specific estimate of non-workers who would otherwise be working but for the higher wage specifically. “…Under the first option ($15 an hour), according to CBO’s median estimate, about 1.3 million workerswho would otherwise be employed would be joblessin an average week in 2025. That decrease would account for 0.8 percent of all workers and 7 percent of directly affected workers who would otherwise earn less than $15 per hour…The $15 option would alter employment more for some groups than for others. Almost 50 percent of the newly jobless workers in a given week—600,000 of 1.3 million—would be teenagers (some of whom would live in families with income well above the poverty threshold). Employment would also fall disproportionately among part-time workers and adults without a high school diploma….”In the appendix they define affected workers, this definition doesn’t seem to capture those who don’t gain entry into the labor force in the first place, though perhaps the “newly jobless workers” # above given teenagers are new labor market entries might be a proxy?“…For each option, CBO estimated the number of workers whocould be affected. Directly affected workers are those whose hourly wage, in the absence of the change in the minimum wage, would range from just below the old minimum to the new, higher minimum and who therefore would either receive a higher wage or become jobless if the new federal minimum were adopted. Potentially affected workers are those whose wages would otherwise be slightly above the new federal minimum in 2025; their wages would also be affected by a higher minimum.CBO projects that such workers’ employment would not be affected by their newly higher wages, though it might be affected by changes in overall demand induced by the options….”

CBO Staff, "The Effects on Employment and Family Income of Increasing the Federal Minimum Wage," Congressional Budget Office, July 2019, https://www.cbo.gov/system/files/2019-07/CBO-55410-MinimumWage2019.pdf

They provide a box on the interplay btw the EITC/Minimum wage but you are correctthey don’t quantify it(2019) nor do they update their 2007 analysis.

Here is the CBO from 2019on $10 impact“…It would raise wages for 1.5 million workers who would otherwise earn less than $10 per hour. Another 2 million workers who would otherwise earn slightly more than $10 per hour might see their wages rise as well. The option would have little effect on employment in an average week in 2025. There is a two-thirds chance that the change in employment would be between about zero and a decrease of 0.1 million workers. This option would have negligible effects on the number of people in poverty…”

Here is how we used thesecond CBO reportinUpside

I went back and looked at CBO’s2014 analysis(that we cited inUpside,attached) that looked at the impact of a $10.10 minimum wage. In a footnote they reference a 2007 CBO report (also cited inUpside) that looked at the EITC versus minimum wage and found the cost to employers of minimum wage was more than the cost of the EITC to the feds (this was in response to $7 minimum wage)“CBO compared the cost to employers of a change in the minimum wage that increased the income of poor families by a given amount to the cost to the federal government of a change in the EITC that increased the income of poor families by roughly the same amount. The cost to employers of the change in the minimum wage was much larger than the cost to the federal government of the change in the EITC. See Congressional Budget Office, Response to a Request by Senator Grassley About the Effects of Increasing the Federal Minimum Wage Versus Expanding the Earned Income Tax Credit…”

“….So the BS in min wage, is that because many welfare recipients are just under the carefully manipulated threshold, if you raise their wage, they cross the threshold and can no longer considered "in poverty". So 1.4mm are out of a job, for much less of a true reduction in poverty, than the CBO claims (because they weren't really below the threshold if you had counted all their benefits. I'm sure someone is going to ask my about (why I don't support an increase in) the min wage, and I need to be able to explain my/this answer. I recall in a prior CBO min wage report (on $10 an hour min wage) the CBO said something like with the job losses it cost the economy $3 to give someone a $1 wage hike whereas giving them the EITC costs closer to $1. (It might have related to obamacare.) Plz find that old report and see what they say in their latest report in comparison. My quick read of the latest report was that it was left unmentioned….”

So your guess is correct SNAP and health care are excluded. They don’t have an itemized list of programs they are summing to line up against the CRS road map we used to calculated the 1.3T #. I will need to spend some time on that aspect given the apple/orange nature.

People Aren’t Worried About Inflation. Really.

Matthew Klein Barron's

Date Posted:: February 23, 2021
Is Database:: Database

Derivative markets, gold markets, and consumer surveys show a lack of significant worry about rising inflation, with expectations returning to 2018 levels.

Despite concerns about potential inflation due to pandemic-related shortages and fiscal policies, derivative markets, gold markets, and consumer surveys indicate a lack of significant worry about rising inflation. Commodity prices like oil and copper have increased, but this is seen as a correction after a decade-long slump rather than a sign of imminent inflation. Derivative markets, including Treasury Inflation-Protected Securities and inflation swaps, show that sophisticated investors remain calm about inflation risks, with expectations returning to 2018 levels. Consumer surveys, such as the University of Michigan's and the Federal Reserve Bank of New York's, reveal stable long-term inflation expectations, with only slight upticks that have since dissipated. Surveys of market professionals also suggest a slightly slower inflation outlook over the next five years compared to pre-pandemic expectations. Overall, the data reflects a consensus that inflation concerns are not currently pressing.

Takeaways by Macro Roundup^® AI

Inflation expectations priced in derivative markets, including Treasury Inflation-Protected Securities and inflation swaps, have returned to 2018 levels, indicating that sophisticated investors remain calm about inflation risks.
Consumer surveys from the University of Michigan and the Federal Reserve Bank of New York show stable long-term inflation expectations, with only slight upticks that have since dissipated.
Rising oil and copper prices are seen as a correction after a decade-long slump rather than a sign of imminent inflation, and surveys of market professionals point to a slightly slower inflation outlook over the next five years than before the pandemic.

Matt Klein, "People Aren’t Worried About Inflation. Really.," Barrons, February 21, 2021, https://www.barrons.com/articles/people-arent-worried-about-inflation-really-51613779188
People Aren’t Worried About Inflation. Really.

Could pandemic-related shortages, the Federal Reserve’s new thinking, and the Biden administration’s spending plans mean that inflation—which half of all Americans alive today have never really experienced—is finally going to come back? It’s a big question for investors and asset managers. So far, they, along with the overwhelming majority of ordinary Americans, seem to think the answer is no.

There are two basic ways to see this.

First, there are the actual prices of financial and real assets, which reflect the willingness of people with money on the line to bet on different macroeconomic outcomes, including faster inflation. Commodity and currency markets have long been the traditional places to bet on inflation, but the creation of Treasury Inflation-Protected Securities, inflation swaps, and more esoteric derivatives such as caps and floors mean that there are many markets where traders and investors can express views about the outlook for consumer prices.

The advantages of looking at these markets is that they are populated by professionals with skin in the game and they are updated in real time. From this perspective, the recent surge in the prices of oil, copper, corn, and soybeans since Biden won the election could therefore be a signal of inflationary pressures in the pipeline.

People Aren’t Worried About Inflation. Really.: Extended Excerpt Image 1

That would be a serious misinterpretation, however. Most commodities have been in a decade-long slump. Gold has done the best of the lot—and it’s still slightly lower than the all-time high hit in August 2011. The fact that things are finally starting to revert after years of massive losses isn’t a signal of imminent inflation.

People Aren’t Worried About Inflation. Really.: Extended Excerpt Image 2

For comparison, consider how investors traded gold and oil during the 1970s, when inflation really did accelerate in a significant way. After a long period of ranging between $35 and $45 an ounce, the price of gold traded in London soared to nearly $200 an ounce by then end of 1974. It fell briefly during the severe economic downturn of 1975, only to soar to an average of more than $600 an ounce from the end of 1979 through 1980. Meanwhile, the price of a barrel of West Texas Intermediate crude oil similarly went from $3.56 a barrel in 1973 to $39.50 by 1980. Today’s moves are nothing like that.

People Aren’t Worried About Inflation. Really.: Extended Excerpt Image 3

Of course, commodities are affected by idiosyncratic factors having to do with supply and demand that are separate from broader concerns about the inflation outlook. That’s why it’s also useful to look at derivative markets where traders can explicitly buy and sell protection against a wide range of inflation outcomes. Economists at the Federal Reserve Bank of Minneapolis have been calculating these “market-based probabilities” for some time—and have found that the most sophisticated investors are extremely sanguine about the risk of price increases. In fact, traders have generally been betting that inflation will be higher than the recent past for some time. The recent uptick in the median implied expectation for inflation over the next five years represents a return to the healthy levels of 2018 rather than a worrying indicator of unstable prices.

People Aren’t Worried About Inflation. Really.: Extended Excerpt Image 4

Surveys that explicitly ask people what they think is going to happen to consumer prices over the next few years tell a similar story: No one is really worried about a sustained acceleration in consumer price inflation.

Start with the University of Michigan’s Survey of Consumers, which has been regularly asking ordinary Americans what they think will happen to consumer prices over the next year since 1978 and over the next five years since 1990. While the one-year expectations can be noisy, because many people overestimate the importance of changes in gasoline prices, the average expected inflation rate over the next five years has been stable for decades—and had been trending lower. There was a slight uptick as the pandemic began and Americans began to worry about shortages, but this had already dissipated by the end of 2020.

People Aren’t Worried About Inflation. Really.: Extended Excerpt Image 5

The Federal Reserve Bank of New York has had a similar survey since 2013. While inflation expectations for the next three years have accelerated slightly, they aren’t any higher than in 2018, and are still lower than in 2013 and 2014. Moreover, the uptick is mostly being driven by a small group of people who are expecting a major acceleration in inflation—although even they aren’t as afraid as they were in 2013.

People Aren’t Worried About Inflation. Really.: Extended Excerpt Image 6

The fact that consumers aren’t worried about sudden price increases helps explain why the actual rate of inflation has been so modest. If people were worried, they would want to stock up now before things became too expensive.

Finally, consider two surveys the New York Fed runs of sophisticated market professionals: the survey of primary dealers that trade with the Fed and the survey of market participants, which includes a who’s who of the buy side. Both surveys have asked about the inflation outlook every month for years. Ordinary people might not be paying attention to the ongoing debates about the size of the budget and the potential implications for spending and prices. But the professionals are certainly keeping an eye on things, and their considered view is that inflation will be slightly slower over the next five years compared with what they had been expecting before the pandemic.

People Aren’t Worried About Inflation. Really.: Extended Excerpt Image 7

None of this is to deny the possibility of inflation accelerating in a meaningful way. But nobody seems willing to bet much on it, despite lots of ways of doing so.

Ed Comment:“Could we add this the measures haven’t been keeping? My guess is people just extrapolate from the past. My guess is that we won’t have further large increases in offshore trade (unless we outsource more brain work which is highly plausible), as we have reach the optimal amount of offshoring. Expansion of offshore trade has probably had deflationary effects or at least unconstrained capacity, which makes it hard to set off inflation. That won’t continue. When Biden opens the southern border (I still can’t believe you voted for that) it keep low-skilled workers unconstrained. Profits and wages have been rising for high-skilled workers but I think we call that GDP growth!”

Klein points out that despite skuttlebutt Mr. Market doesn't seem concerned about inflation (might be useful for speech), “…useful to look at derivative markets where traders can explicitly buy and sell protection against a wide range of inflation outcomes. Economists at the Federal Reserve Bank of Minneapolis have been calculating these “market-based probabilities” for some time—and have found that the most sophisticated investors are extremely sanguine about the risk of price increases. In fact, traders have generally been betting that inflation will be higher than the recent past for some time. The recent uptick in the median implied expectation for inflation over the next five years represents a return to the healthy levels of 2018 rather than a worrying indicator of unstable prices…None of this is to deny the possibility of inflation accelerating in a meaningful way. But nobody seems willing to bet much on it, despite lots of ways of doing so….”

Science is the search for truth, which is often elusive. When we lower our standards to pretend we know what we don’t know, we diminish the work and misinform society.

Does lowering scientific standards to project certainty erode public trust?

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The Congressional Budget Office (CBO) acknowledges that increases in the minimum wage disproportionately affect marginal workers, reducing their employment opportunities at three times the rate of adults generally.

Do minimum wage increases reduce job opportunities for inexperienced workers?

Takeaways by Macro Roundup® AI

Derivative markets, gold markets, and consumer surveys show a lack of significant worry about rising inflation, with expectations returning to 2018 levels.

Do markets and consumers expect inflation to rise?

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