Macro Roundup

The aging of the American population has left the US short 1.9M workers relative to 2019. A decline in labor force participation of older workers is responsible for a drop of another 500,000 workers, “…The labor-force participation (LFP) rate of prime-age workers (aged 25-54) and the foreign-born workforce have almost fully recovered. Neither explains the current squeeze. The biggest shortfall comes from Americans getting older and leaving work behind. Since 2019 those aged at least 65 have gone from less than 16% of the population to nearly 17%. Moreover, unlike prime-age workers, many people who retired early as covid-19 struck have not come back to work. LFP among older Americans, which rose from 12.5% in 2000 to 20.7% in early 2020, has dipped to 19.3%, the same as in 2016. The aging of the population accounts for the loss of 1.9m workers (0.7% of people aged at least 16), while the overall drop in LFP, mainly among the old, is responsible for a further 0.5m (0.2%)….”

Elliott Morris and Simon Rabinovitch, “Where have all America’s workers gone?” The Economist, January 24, 2023, https://www.economist.com/graphic-detail/2023/01/24/where-have-all-americas-workers-gone

Where have all America’s workers gone?

For months economists have warned of recession in America, but in one crucial area the economy seems overheated: employers are still struggling to find workers. Why is the labour market so tight?

Companies’ hiring plans suggest that the economy remains robust for now. Total labour supply (people who have or are seeking jobs) is roughly back to pre-pandemic levels. By contrast, labour demand (filled plus open jobs) has increased by 3m positions. The excess demand represents about 3% of all those employed, which has contributed to big nominal wage gains. Slower gdp growth—whether a recession or not—will help restore balance.

The supply picture is more complex. During the pandemic, many workers took time off. Immigration, a key source of labour, also fell. Now, however, the labour-force participation (lfp) rate of prime-age workers (aged 25-54) and the foreign-born workforce have almost fully recovered. Neither explains the current squeeze.

Instead, the biggest shortfall comes from Americans getting older and leaving work behind. Since 2019 those aged at least 65 have gone from less than 16% of the population to nearly 17%. Moreover, unlike prime-age workers, many people who retired early as covid-19 struck have not come back to work. lfp among older Americans, which rose from 12.5% in 2000 to 20.7% in early 2020, has dipped to 19.3%, the same as in 2016. The ageing of the population accounts for the loss of 1.9m workers (0.7% of people aged at least 16), while the overall drop in lfp, mainly among the old, is responsible for a further 0.5m (0.2%).

Some think that a trend among younger people to scale back their working intensity, known as “quiet quitting”, may have caused the labour market to tighten. Recent research by scholars at Washington University in St Louis reveals a clear reduction in hours worked by those in jobs. But most quiet quitters are high-earning workers, whereas the biggest labour shortages have been in basic service jobs. That points to another factor: illness. In 2022 an average of 1.6m Americans missed at least one week of work per month to recuperate—whether from covid, flu or something else—up from 1m before covid.

Little by little, Americans will get back to better health. Unfortunately for employers, baby-boomers are unlikely to come out of retirement.

“…US population growth will be driven entirely by immigration within two decades, according to the latest forecasts by the Congressional Budget Office. The projections, published on Tuesday, show a population of 373 million by 2053 — about 3 million more than the CBO was expecting a year ago. That’s partly due to a sharp increase in the forecast for immigration in 2023 and the following two years, after pandemic travel restrictions eased — adding some 1 million to the population over that period. Much of the growth is projected to come in the so-called prime-age bracket, between 25 and 54, that is the core of the workforce. The CBO expects that cohort to increase by about 1.1 million people, or 0.9%, each year….”

Alexandre Tanzi, “Immigration to Drive All US Population Growth Within Two Decades,” Bloomberg, January 24, 2023, https://www.bloomberg.com/news/articles/2023-01-24/immigration-to-drive-all-us-population-growth-within-two-decades?sref=U3dOGIDF

Immigration to Drive All US Population Growth Within Two Decades

US population growth will be driven entirely by immigration within two decades, according to the latest forecasts by the Congressional Budget Office.

The projections, published on Tuesday, show a population of 373 million by 2053 — about 3 million more than the CBO was expecting a year ago. That’s partly due to a sharp increase in the forecast for immigration in 2023 and the following two years, after pandemic travel restrictions eased — adding some 1 million to the population over that period.

At a time when many analysts have focused on demographics as a potential drag on the US economy, the higher forecast offers some encouragement. Much of the growth is projected to come in the so-called prime-age bracket, between 25 and 54, that is the core of the workforce. The CBO expects that cohort to increase by about 1.1 million people, or 0.9%, each year.

Still, by 2042 deaths in the existing population are expected to exceed births, meaning only immigration will expand the population.

The CBO’s population estimates are used for calculating Social Security payroll taxes and benefit increases.

“…In 2016, Ron Johnson rode Trump’s coattails and the Republican trail blazed by the former governor Scott Walker to a 3.4 point (50.2 to 46.8) victory and swept into office, in large part by running up huge margins in Milwaukee’s predominantly white suburbs. That changed in 2022. Craig Gilbert, a fellow at Marquette Law School conducted a detailed analysis of Wisconsin voting patterns and found that Johnson, “performed much worse in the red and blue suburbs of Milwaukee than he did six years earlier in 2016. So again, how did Johnson win? The simple answer: white rural Wisconsin. As recently as 17 years ago, rural Wisconsin was a battleground. In 2006, Jim Doyle, the Democratic candidate for governor, won rural Wisconsin, about 30 percent of the electorate, by 5.5 points. “Then came the rural red wave,” Gilbert writes. “Walker carried Wisconsin’s towns by 23 points in 2010 and by 25 points in 2014.” In 2016, Johnson won the rural vote by 25 points, but in 2022, he pushed his margin there to 29 points….”

Thomas Edsall, “The Resentment Fueling the Republican Party Is Not Coming From the Suburbs,” New York Times, January 25, 2023, https://www.nytimes.com/2023/01/25/opinion/rural-voters-republican-realignment.html

The Resentment Fueling the Republican Party Is Not Coming From the Suburbs

Rural America has become the Republican Party’s life preserver.

Less densely settled regions of the country, crucial to the creation of congressional and legislative districts favorable to conservatives, are a pillar of the party’s strength in the House and the Senate and a decisive factor in the rightward tilt of the Electoral College. Republican gains in such sparsely populated areas are compensating for setbacks in increasingly diverse suburbs where growing numbers of well-educated voters have renounced a party led by Donald Trump and his loyalists.

The anger and resentment felt by rural voters toward the Democratic Party are driving a regional realignment similar to the upheaval in the white South after Democrats, led by President Lyndon Johnson, won approval of the Civil Rights Act of 1964.

Even so, Republicans are grasping at a weak reed. In a 2022 article, “Rural America Lost Population Over the Past Decade for the First Time in History,” Kenneth Johnson, the senior demographer at the Carsey School of Public Policy and a professor of sociology at the University of New Hampshire, notes: “Between 2010 and 2020, rural America lost population for the first time in history as economic turbulence had a significant demographic impact. The rural population loss was due to fewer births, more deaths and more people leaving than moving in.”

The shift to the right in rural counties is one side of a two-part geographic transformation of the electorate, according to “The Increase in Partisan Segregation in the United States,” a 2022 paper by Jacob R. Brown of Princeton, Enrico Cantoni of the University of Bologna, Ryan D. Enos of Harvard, Vincent Pons of Harvard Business School and Emilie Sartre of Brown.

In an email, Brown described one of the central findings of the study: “In terms of major factors driving the urban-rural split, our analysis shows that rural Republican areas are becoming more Republican predominantly due to voters in these places switching their partisanship to Republican. This is in contrast to urban areas becoming increasingly more Democratic largely due to the high levels of Democratic partisanship in these areas among new voters entering the electorate. These new voters include young voters registering once they become eligible and other new voters registering for the first time.”

There are few, if any, better case studies of rural realignment and the role it plays in elections than the 2022 Senate race in Wisconsin. The basic question there is how Ron Johnson — a Trump acolyte who derided climate change with an epithet, who described the Jan. 6 insurrectionists as “people that love this country, that truly respect law enforcement” and who proposed turning Social Security and Medicare into discretionary programs subject to annual congressional budget cutting — got re-elected in Wisconsin.

In 2016, Johnson rode Trump’s coattails and the Republican trail blazed by the former governor Scott Walker to a 3.4 point (50.2 to 46.8) victory and swept into office, in large part by running up huge margins in Milwaukee’s predominantly white suburbs. That changed in 2022.

Craig Gilbert, a fellow at Marquette Law School and a former Washington bureau chief of The Milwaukee Journal Sentinel, conducted a detailed analysis of Wisconsin voting patterns and found that Johnson “performed much worse in the red and blue suburbs of Milwaukee than he did six years earlier in 2016. Johnson lost Wauwatosa by 7 points in 2016, then by 37 points in 2022. He won Mequon in Ozaukee County by 28 points in 2016 but only by 6 in 2022. His victory margin in Menomonee Falls in Waukesha County declined from 32 points six years ago to 14 points.”

So again, how did Johnson win? The simple answer: white rural Wisconsin.

As recently as 17 years ago, rural Wisconsin was a battleground. In 2006, Jim Doyle, the Democratic candidate for governor, won rural Wisconsin, about 30 percent of the electorate, by 5.5 points. “Then came the rural red wave,” Gilbert writes. “Walker carried Wisconsin’s towns by 23 points in 2010 and by 25 points in 2014.” In 2016, Johnson won the rural vote by 25 points, but in 2022, he pushed his margin there to 29 points.

In her groundbreaking study of Wisconsin voters, “The Politics of Resentment: Rural Consciousness in Wisconsin and the Rise of Scott Walker,” Katherine Cramer, a political scientist at the University of Wisconsin-Madison, prompted a surge of interest in this declining segment of the electorate. She summed up the basis for the discontent among these voters, saying, “It had three elements: (1) a belief that rural areas are ignored by decision makers, including policymakers, (2) a perception that rural areas do not get their fair share of resources and (3) a sense that rural folks have fundamentally distinct values and lifestyles, which are misunderstood and disrespected by city folks.”

David Hopkins, a political scientist at Boston College, described how the urban-rural partisan divide was driven by a conflation of cultural and racial controversies starting in the late 1980s and accelerating into the 1990s in his book “Red Fighting Blue: How Geography and Electoral Rules Polarize American Politics.”

These controversies included two Supreme Court abortion decisions, Webster v. Reproductive Health Services (in 1989) and Planned Parenthood of Southeastern Pennsylvania v. Casey (in 1992); the 1989 appointment of Ralph Reed as executive director of the Christian Coalition; the fire-breathing speeches of Pat Robertson and Pat Buchanan at the 1992 Republican Convention (Buchanan: “There is a religious war going on in this country. It is a cultural war for the soul of America”); and the 1993 debate about gays in the military, to name just a few.

“The 1992 election represented a milestone,” Hopkins writes, adding: “For the first time in the history of the Democratic Party, its strongest electoral territory was located exclusively outside the South, including Massachusetts, New York, New Jersey and Maryland in the Northeast; Illinois in the metropolitan Midwest; and the Pacific Coast states of Washington, Oregon and California — all of which have supported the Democratic candidate in every subsequent presidential election.”

In retrospect it is clear, Hopkins goes on to say, that “the 1992 presidential election began to signal the emerging configuration of ‘red’ and ‘blue’ geographic coalitions that came to define contemporary partisan competition.”

Hopkins compares voter trends in large metro areas, small metro areas and rural areas. Through the three elections from 1980 to 1988, the urban, suburban and rural regions differed in their vote by a relatively modest five points. That begins to change in 1992, when the urban-rural difference grows to roughly 8 percentage points and then keeps growing to reach nearly 24 points in 2016.

“For the first time in American history, the Democratic Party now draws most of its popular support from the suburbs,” Hopkins writes in a 2019 paper, “The Suburbanization of the Democratic Party, 1992-2018.” Democratic suburban growth, he continues, “has been especially concentrated in the nation’s largest metropolitan areas, reflecting the combined presence of both relatively liberal whites (across education levels) and substantial minority populations, but suburbs elsewhere remain decidedly, even increasingly, Republican in their collective partisan alignment.”

The same process took place in House elections, Hopkins observes: “The proportion of House Democrats representing suburban districts rose from 41 percent after the 1992 election to 60 percent after 2018, while the share of Democratic-held seats located in urban areas remained fairly stable over time (varying between 33 percent and 41 percent of all party seats) and the share of rural districts declined from 24 percent to 5 percent of all Democratic seats.”

Hopkins pointedly notes that “the expanded presence of suburban voters and representatives in the Democratic Party since the 1980s was accompanied by a dramatic contraction of Democratic strength in rural areas.”

Justin Gest, a political scientist at George Mason University whose research — presented in “The White Working Class” and “Majority Minority” — focuses on cultural and class tensions, has a different but complementary take, writing by email that the rising salience of cultural conflicts “was accelerated when the Clinton administration embraced corporate neoliberalism, free trade and moved Democrats toward the economic center. Many differences persisted, but the so-called third way made it harder to distinguish between the economic approaches of Democrats and Republicans.”

The diminution of partisan economic differences resulted in the accentuation of “the very cultural differences that Gingrich-era Republicans sought to emphasize — on issues like homosexuality, immigration, public religion, gun rights and minority politics. These issues are more galvanizing to the Upper Midwest regions adjacent to the South (West Virginia, Ohio and Indiana) — which are trending more conservative.”

The Upper Midwest, Gest continued, is “a region unto itself — defined by manufacturing, unions and social conservatism. As the manufacturing industry has moved offshore, union power declined, and one of the richest, most stable parts of America became uniquely precarious inside a single generation. It is now subject to severe depopulation and aging, as younger people who have upskilled are more likely to move to cities like Chicago or New York. They have total whiplash. And Trump’s nostalgic populism has resonated with the white population that remains.”

Gest is outspoken in his criticism of the Democratic Party’s dealings with rural communities: “Democrats have effectively redlined rural America. In some corners of the Democratic Party, activists don’t even want rural and white working-class people in their coalition; they may even deride them. Rural and white working-class Americans sense this.”

One of the dangers for Democrats, Gest continued, is that “Republicans are now beginning to attract socioeconomically ascendant and white-adjacent members of ethnic minorities who find their nostalgic, populist, nationalist politics appealing (or think Democrats are growing too extreme).”

Nicholas Jacobs and Kal Munis, political scientists at Colby College and Utah Valley University, argue that mounting rural resentment over marginalization from the mainstream and urban disparagement are driving forces in the growing strength of the Republican Party in sparsely populated regions of America.

In their 2022 paper “Place-Based Resentment in Contemporary U.S. Elections: The Individual Sources of America’s Urban-Rural Divide,” Jacobs and Munis contend that an analysis of voting in 2018 and 2020 shows that while “place-based resentment” can be found in cities, suburbs and rural communities, it “was only consistently predictive of vote choice for rural voters.”

In this respect, conditions in rural areas have worsened, with an exodus of jobs and educated young people, which in turn increases the vulnerability of the communities to adverse, negative resentment.

“Rural America,” Jacobs and Munis write, “continues to grow older, poorer and sicker — urban America wealthier and more diverse. These stark material divisions have contributed to partisan schisms, as individuals increasingly live in places that are politically homogeneous. A consequence of this is that, as Bill Bishop concludes, Americans “have become so ideologically inbred that we don’t know, can’t understand and can barely conceive of ‘those people’ who live just a few miles away.””

In their 2022 paper “Symbolic Versus Material Concerns of Rural Consciousness in the United States,” Kristin Lunz Trujillo, a postdoctoral research fellow at Harvard’s Kennedy School, and Zack Crowley, a Ph.D. candidate in political science at the University of Minnesota, sought to determine the key factor driving rural voters to the Republican Party: anger at perceived unfair distribution of resources by government, a sense of being ignored by decision makers or the belief that rural communities have a distinct set of values that are denigrated by urban dwellers.

Trujillo and Crowley conclude that “culture differences play a far stronger role in determining the vote than discontent over the distribution of economic resources.” Stands on what they call symbolic issues “positively predict Trump support and ideology while the more material subdimension negatively predicts these outcomes, if at all.”

While rural America has moved to the right, Trujillo and Crowley point out that there is considerable variation: “poorer and/or farming-dependent communities voted more conservative, while amenity- or recreation-based rural economies voted more liberal in 2012 and 2016,” and the “local economies of Republican-leaning districts are declining in terms of income and gross domestic product, while Democratic-leaning districts are improving.”

The Trujillo-Crowley analysis suggests that Democratic efforts to regain support in rural communities face the task of somehow ameliorating conflicts over values, religion and family structure, which is far more difficult than lessening economic tensions that can be addressed through legislation.

The hurdle facing Democrats is reflected in a comment James Gimpel, a political scientist at the University of Maryland, emailed to me, describing the roots of rural discontent with Democratic urban America: “The disrespect is felt most acutely by the fact that dominant cultural institutions, including mass media, are predominantly urban in location and orientation. Smaller towns and outlying areas see themselves as misunderstood and mischaracterized by these media, as well as dismissed as out of touch and retrograde by urban populations. There is a considerable amount of truth in their perceptions.”

A May 2018 Pew Research Center report, “What Unites and Divides Urban, Suburban and Rural Communities,” found large differences in the views and partisanship in these three constituencies. Urban voters, according to Pew, were, for example, 62 percent Democratic and 31 percent Republican — the opposite of rural voters, 54 percent Republican and 38 percent Democratic. Fifty-three percent of those living in urban areas said rural residents have “different values,” and 58 percent of those living in rural communities said urban residents do not share their values. Sixty-one percent of those living in rural communities said they have “a neighbor they would trust with a set of keys to their home” compared with 48 percent in urban areas.

I asked Maria Kefalas, a sociologist at Saint Joseph’s University who wrote “Hollowing Out the Middle: The Rural Brain Drain and What It Means for America” with her husband, Patrick J. Carr, who died in 2020, to describe the state of mind in rural America. She wrote back by email: “My best guess would be that it comes down to brain drain and college-educated voters. It has always been about the mobility of the college educated and the folks getting left behind without that college diploma. Not one high school dropout we encountered back when we wrote about Iowa managed to leave the county (unless they got sent to prison), and the kids with degrees were leaving in droves.”

Those whom Kefalas and Carr defined as “stayers” shaped “the political landscape in Ohio, Iowa, etc. (states where the public university is just exporting its professional class).” The result: “You see a striking concentration/segregation of folks on both sides who are just immersed in MAGA world or not,” Kefalas wrote, noting that “people who live in rural America are surrounded by folks who play along with a particular worldview, yet my friends from Brooklyn and Boston will tell you they don’t know anyone who supports Trump or won’t get vaccinated. It’s not open warfare. It’s more like apartheid.”

Urban-rural “apartheid” further reinforces ideological and affective polarization. The geographic separation of Republicans and Democrats makes partisan crosscutting experiences at work, in friendships, in community gatherings, at school or in local government — all key to reducing polarization — increasingly unlikely to occur.

Geographic barriers between Republicans and Democrats — of those holding traditional values and those choosing to reject or reinterpret those values — reinforce what scholars now call the calcification of difference. As conflict and hostility become embedded in the structure of where people live, the likelihood increases of seeing adversaries as less than fully human.

“….Starting in 2019, tighter immigration policies under the Trump Administration followed by pandemic disruptions depressed the US foreign-born working-age population. The foreign-born labor force fell 2.8 million below its long-term trend level in April 2020 and remained 1.2 million below trend in March 2022. In Exhibit 1, the left panel shows the foreign-born population has grown 137k per month in the past 18 months, compared to 68k per month from Jan. 2010 to Jan. 2019. The right panel shows the foreign-born labor force has grown 110k per month in the past 18 months, compared to 42k per month during the prior period…..”

Tim Krupa, “The Immigration Rebound,” Goldman Sachs, January 19, 2023, https://idfs.gs.com/as/authorization.oauth2

“…An ageing population, and the dependency it creates, will hamper supply and stoke inflation. Mikael Juselius and Elod Takats of BIS’s core insight: “The young and the old are inflationary, while the working-age cohort is disinflationary.” That is, prime-age workers create more supply than demand, while their elders and juniors do just the opposite….” Ethan Wu, “The forever labour shortage,” Financial Times, January 26, 2023, https://www.ft.com/content/3bbd5d97-47f7-4a51-9614-d7f0eddaa348

The forever labour shortage

Good morning. Ethan here; Rob’s out today. Meta is reinstating Donald Trump on Facebook and Instagram, after Elon Musk’s Twitter did the same in November. So far, though, Trump hasn’t chosen to return to any of the platforms, preferring his own Truth Social. Might this be bullish for DWAC, the financing vehicle trying to take Truth Social public? Its stock closed up 3 per cent yesterday. Email me: ethan.wu@ft.com.

Two views on the post-Covid labour pool If you wanted to make the case that the US labour market was softening, say, four months ago, you had to really know your government data. Take Charles Schwab’s Liz Ann Sonders. In a very nice FT op-ed written in September, she looked at several lower-profile indicators, such as the share of multiple job holders and number of part-time workers, to make the point that “the labour market may be less tight than conventionally believed”. Since then, the case has become easier to make, but only a bit. Marquee data sets like job openings and payrolls have cooled and the NFIB small business survey shows plans to hire falling quickly. From Macquarie:

Take a step back, though, and the story remains as it has been for months: a tight labour market that is only getting a little looser on the margins. The Federal Reserve is worried about this, arguing it will keep services inflation hot. High but falling inflation, a hawkish Fed, resilient employment data, an economic slowdown. This is a cyclical story which Unhedged has rattled on about many times. But the cyclical story can’t be separated from a separate structural story — the ageing US population — and the two exogenous shocks that have worsened it, namely Covid-related early retirements and a sharp drop in migration. All told, the labour force has lost some 3mn workers since 2019, as these charts from Deutsche Bank show:

The fundamental driver is the drip-drip of an ageing population. As Preston Mui of Employ America has argued, about two-thirds of labour force shrinkage has come from predictable demographic effects, though you can see some impact from early retirements in the older age bands below:

These trends are well-known, but what they will ultimately mean is less clear. Here are two views worth considering on where the labour market might go from here.

An ageing population, and the dependency it creates, will hamper supply and stoke inflation.

This one comes from a 2018 Bank for International Settlements paper, sent along by our regular correspondent, Dec Mullarkey of SLC Management. The authors, Mikael Juselius and Elod Takats, examine the impact of demography on inflation from 1870 to 2016. Their core insight: “The young and the old are inflationary, while the working-age cohort is disinflationary.” That is, prime-age workers create more supply than demand, while their elders and juniors do just the opposite.

In the coming decades, the old will increasingly outnumber the working-aged across the developed world, Juselius and Takats project, inverting the steady deflationary pressures of 1970-2010:

The inflationary backdrop could transform central bank policymaking. Inflation targets may have to rise as central banks make concessions to the new reality. It’s an idea the Fed firmly rejects now, but which is already winning converts, like Olivier Blanchard. Mullarkey adds:” While central banks obsess about inflation expectations, they may be better informed by extrapolating the current population mix to determine tipping points that may trigger inflation. For the US in particular, the evolution of the baby boomer cohort seems like a leading indicator. While the research highlights baby boomers helped contain inflation as they swelled the workforce, they will structurally put pressure on inflation as they retire. Japan’s example is constructive as it’s a contrarian case to the idea that ageing drives inflation. Despite an ageing population, they have struggled to spark inflation for decades. But Juselius and Takats address this. They find that Japan’s failure to ignite inflation came from a significant drop in the birth rate that offset the ageing effect. However, as ageing intensifies, Japan’s central bank may get its wish of inflation closer to target.”

Workers’ power will grow relative to employers’, and tighter corporate margins will keep inflation in check.

The above is how William Spriggs, an economics professor at Howard University and chief economist at the AFL-CIO union federation, likes to think about it. He points to a growing literature documenting employers’ lopsided power in labour markets, letting them impose terms on workers. But a sparser labour pool is flipping that balance, and Spriggs argues fiercer competition for workers will make for a more efficient economy.

You can see what he means in, for example, how disabled workers or those with a criminal history have found it easier to get hired in today’s tight labour market. A looser one, where companies felt no pressure to hire aggressively, might leave those workers out in the cold.

Will persistently tight labour markets fuel inflation? Spriggs doubts it. He thinks the current bout of price increases comes down to post-Covid ripple effects and the massive surge in corporate margins. To illustrate, he contrasts two consumer price index components: food at home (8.5 per cent of headline CPI) and food eaten out (5 per cent). Even as restaurant workers were getting some of the biggest percentage wage increases in the US, prices for at-home food have risen faster than restaurant prices:

But he fears that the Fed, on dubious fears of a wage-price spiral, risks killing off an important transition as margins compress: “When you take graduate macroeconomics, you’re supposed to be able to [model] paths from one equilibrium to the next. And clearly there are going to be discontinuities if you’re moving from an inefficient economy dominated by these monopsony labour market practices to a more efficient labour market that is truly responding to market forces . . .  Given that the labour force is smaller, all the more reason you need all [workers] working! Or else we’re going to have a much smaller economy. There’s no reason to not have them working.”

Spriggs does agree that a different monetary policy framework will be needed in the future. The Fed, he says, will have to think more rigorously about how to respond to cost-push inflation from supply-side shocks, like wars or shipping disruptions. If supply shocks become more regular, as Spriggs suspects, the Fed cannot keep resorting to the blunt tool of crushing demand via higher interest rates any time prices go up. What do we think? Big topics like this are hard for a markets column. We can’t proclaim too loudly on them, but we can’t ignore them, either. In the past we’ve been sympathetic to the line from economists Charles Goodhart and Manoj Pradhan that ageing, driving a scarcity of labour, will both worsen inflation and help workers. That is broadly in line with what Juselius and Takats forecast. We agree with Spriggs that recent margin expansion has been extraordinary, but are less sure that tighter margins can do the heavy lifting in bringing down inflation. What brings margins down is customers who stop spending, forcing an end to oversized mark-ups. But until wage growth slows a bit, consumption will probably stay strong. If Juselius and Takats are right, then the zero-rates, low-inflation world of the 2010s probably isn’t coming back. Employers will have little choice but to pay workers more, keeping inflation hotter and rates higher. Of course, plenty could still happen in the meantime: perhaps a supply-expanding productivity bump or a breakthrough in immigration politics. But it is a very different base case than many investors were contemplating just years ago. One good read Hindenburg Research’s big short against the “largest con in corporate history”.