Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. Average pay for most workers is rising about 4.5–5% a year, roughly 1.5–2pp faster than the pre-pandemic average, implying an underlying inflation trend about 1–2pp above the pre-pandemic pace absent a surge in productivity or saving. Earlier one-off drops in consumer goods prices held measured inflation below that trend and appear to have ended.

Matt Klein The Overshoot
Date Posted:

Nominal annual wage growth is 4.5-5%, 1.5-2pp faster than pre-pandemic. Absent a surge in productivity and/or the personal saving rate, @M_C_Klein argues that inflation will remain above the Fed’s 2% target.

Does faster pay growth keep underlying inflation above the pre-pandemic trend?

Core argument: Average pay for most workers is rising about 4.5–5% a year, 1.5–2 points faster than the pre-pandemic average, leaving the underlying inflationary trend roughly 1–2 points above its pre-pandemic pace absent faster productivity or a higher saving rate.

[Inflation] is probably still 1-2pp faster than the 2% yearly inflation rate target. Average pay for most workers is still rising about 4.5-5% a year, which is still 1.5-2pp faster than the pre-pandemic average. Absent a surge in productivity and/or the personal saving rate, the underlying inflationary trend therefore remains about 1-2pp faster than before the pandemic. For much of 2023, the CPI rose slower than this implied underlying trend, thanks in large part to big one-off drops in consumer goods prices that seem to have stopped. The recent acceleration in observed inflation may therefore reflect a convergence to its “true”, faster value. If the extra income growth continues to translate into faster spending growth (as opposed to higher saving), inflation will not stabilize at the pre-pandemic rate unless businesses consistently increase their production of goods and services almost 2 percentage points faster than they did in 2018-2019.

Takeaways by Macro Roundup® AI

  1. Average pay for most workers is rising about 4.5–5% a year, 1.5–2 points faster than the pre-pandemic average, leaving the underlying inflationary trend roughly 1–2 points above its pre-pandemic pace absent faster productivity or a higher saving rate.
  2. The CPI rose slower than this implied underlying trend for much of 2023, largely because of big one-off drops in consumer goods prices that appear to have stopped, so the recent acceleration may reflect convergence to inflation's faster "true" value.
  3. If faster income growth keeps feeding into spending rather than saving, inflation will not settle back at the pre-pandemic rate unless businesses consistently expand output of goods and services almost 2 points faster than in 2018–2019.

Related Articles:

  • The Big Picture: Back to the Future — The secular backdrop has shifted from disinflationary to more inflationary, with interest rates no longer near zero and real rates no longer negative. Household balance sheets are as healthy as they have been in 20 years, leaving room to borrow, while the public sector is as indebted as it has ever been.
  • The Price of Money Is Going Up, and It’s Not Only Because of the Fed — A model projects the inflation-adjusted natural interest rate rising about a percentage point from a 1.7% trough to 2.7% by 2050, implying 10-year US Treasury yields of 4.5%–5%. The authors estimate wide fiscal deficits, climate investment, and faster growth could lift the natural rate to 4%, implying roughly 6% yields.
  • The Future Of r* — Long-run equilibrium interest rates are argued to stay low relative to recent decades' historical average but above pre-pandemic lows, implying rates only slightly below current levels, with a nominal neutral rate near 3.5% offered as illustration. Rising government debt, particularly in the US, is identified as the main risk to that view.
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