A @BudgetModel analysis argues the United States has two decades to undertake structural reforms to keep debt below 200% of GDP, a level which will be associated with a government default.
We estimate that the U.S. debt held by the public cannot exceed about 200% of GDP even under today’s generally favorable market conditions. Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation). Table 1 then shows the impact on the debt-GDP ratio if financial markets start to demand a larger return before unraveling. However, additional rates closer to 50 to 100 b.p. are more reasonable in the short run, as some borrowing rates are already locked in at a weighted average duration of about 6 years. Table 1 shows that between 2040 and 2045---or in about 20 years---the U.S. debt-GDP ratio will hit between 175 and 200 percent under current fiscal policy, depending on the assumed interest rates.
.@paulkrugman argues “high interest rates will almost surely crowd out private investment, hurting our long-term prospects,” but doesn’t see paths for either federal spending reductions or “a tax increase that would make a large dent in the deficit.”
Even if there’s no immediate crisis, high-interest rates will almost surely crowd out private investment, hurting our long-term prospects. I’m especially concerned about the effects of high rates on investments in renewable energy, which are of existential importance. The federal government is essentially an insurance company with an army. Look at spending in fiscal 2023: Social Security, health care and other safety net programs accounted for most government spending. Add military spending and interest payments, and what’s left — NDD, for “nondefense discretionary” spending — is a small slice of the total. Furthermore, NDD has been squeezed by past austerity. So there’s no possibility for major spending cuts unless we slash programs that are extremely popular. The point is that the economics of deficit reduction are straightforward. It can be accomplished either by reducing social benefits or by raising taxes. Given that America has weak social spending compared with other countries, taxes are the most plausible route. But I don’t see any plausible political path to a tax increase that would make a large dent in the deficit.
Ryan Decker and John Haltiwanger argue that the 30% increase in new business formation vs. 2019 implies “significant economic restructuring across industry, geography, and the firm size and age distribution.” @UpdatedPriors @JHaltiwanger_UM
The pandemic sparked rapid, dramatic changes to the composition of consumer demand and to preferences for work and lifestyle, and these patterns have continued to evolve through mid-2023. From the standpoint of potential entrepreneurs, these dramatic changes presented opportunities—both to meet newly formed consumer and business needs and to change the career trajectories of the entrepreneurs themselves. Entrepreneurs made plans and applied to start businesses both early on and through mid-2023; some of these plans have resulted in new firms and establishments that hired workers in large numbers. Entrepreneurial opportunities and the demand for employees at these new firms appear to have played an important role in the “Great Resignation,” as some quitting workers likely flowed toward new businesses (as either entrepreneurs or new hires). Taken together, these patterns imply significant economic restructuring across industry, geography, and the firm size and age distribution.
The dollar share of China’s reserves has been broadly stable since 2015 at 50%. Since 2015 the only evolution has been a rotation into agencies. @Brad_Setser
The best evidence available suggests that the dollar share in China’s reserves has been broadly stable since 2015 (if not a bit before). If a simple adjustment is made for Treasuries held by offshore custodians like Belgium's Euroclear, China’s reported holdings of US assets look to be basically stable at between $1.8 and $1.9 trillion. After netting out China's substantial holdings of U.S. equities, China's holdings of U.S. bonds, after adjusting for China's suspected Euroclear custodial account, have consistently been around 50% of China's reported reserves. Nothing all that surprising.
.@paulkrugman argues that the sharp rise in real interest rates likely represents a market overreaction, but he notes, “That’s what I’d like to believe, so maybe you shouldn’t trust me here.”
What’s causing this interest rate spike? You might be tempted to see rising rates as a sign that investors are worried about inflation. But that’s not the story. We can infer market expectations of inflation from breakeven rates, the spread between interest rates on ordinary bonds and on bonds indexed for changes in consumer prices; these rates show that the market believes that inflation is under control. What we’re seeing instead is a sharp rise in real interest rates — interest rates minus expected inflation. At this point, real interest rates are well above 2%, up from yields usually below 1% before the pandemic. And if these higher rates are the new normal, they have huge and troubling implications. My instinct is to say that the bond market is overreacting to recent data and that high interest rates, like high inflation, will be transitory.
.@FedGuy12 projects, “Real money managers will continue to increase the level of their Treasury holdings from asset inflows, but at a pace far slower than Treasury issuance.”
Each month life insurers receive insurance premium payments and pension funds receive employee contributions that they invest. These inflows are then filtered through investment policies and then allocated into a range of assets, including Treasuries. Over the past few years, this has translated into Treasury purchases at an annual rate of around $100b. This does not come close to meeting the trillions in coupons that will be issued each year for the foreseeable future. Real money managers will not be the marginal buyer of Treasuries that the market is looking for.
A @GoldmanSachs analysis notes that the rise in real interest expense as a percentage of US GDP requires primary (ex-interest) deficit reduction comparable to the 1993 fiscal adjustment to stabilize the debt-to-GDP ratio.
The greater challenge facing US fiscal policy is not new: the US is running a primary (ex-interest) deficit much larger than has been the case historically, and it is happening at a point in the business cycle when the deficit would normally be smaller than usual. When interest expense rose sharply in the 1980s, fiscal policymakers reacted by shrinking the primary (ex-interest) deficit. The largest fiscal adjustment from that period, enacted in 1993, would be sufficient if enacted now to offset the additional interest expense we project (relative to 2021) after 5 years. The average interest rate on federal debt is likely to remain at or below the rate of nominal GDP growth for the next decade, and this relationship is likely to be more benign than the historical average over the next five years.
60% of outstanding US debt was issued when ten-year Treasury rates were below 3% according to a @BudgetHawks analysis. As the Treasury refinances this debt at rates between 4.5% and 5.6%, interest payments will soon exceed defense spending.
Most of the exploding interest costs resulted from borrowing when interest rates were low. We estimate that nearly 60% of our debt originated when the average interest rate on ten-year Treasury notes was less than 3%, while 75% of current debt originated when three-month Treasuries paid less than 3%. That debt, borrowed at low rates, is now being rolled over into Treasuries paying interest rates between 4.5 and 5.6%. Though borrowing seemed cheap during those periods, policymakers failed to account for rollover risk, and we are now facing the cost.
Torsten Sløk @apolloglobal notes that Treasury auction sizes in 2024 will increase 23% on average across the yield curve.
Treasury auction sizes will increase on average 23% in 2024 across the yield curve. This forecast comes from the Treasury Borrowing Advisory Committee’s neutral issuance scenario. The 37% increase in issuance of 3-year notes and the 28% increase in issuance of 5-year notes will in 2024 stress-test demand for Treasuries in the belly of the curve. This dramatic growth in the supply of the risk-free asset is “pulling dollars away” from other fixed-income assets, including investment grade credit, as investors substitute away from spread products toward Treasuries. The bottom line is that the world only saves a limited amount of dollars every year, and the significant growth in the size of the Treasury market is at risk in 2024 of crowding out demand for other types of fixed income.
.@paulkrugman notes a TFP surge between 1995-2005 that left US productivity 12% above its 1973-95 trend and suggests that AI may increase productivity by 15% over the next decade, driving GDP growth above the Fed’s estimate of 1.8% per year.
Here’s a view of the 1995-2005 boom, in which I show the natural log of productivity — so that a straight line corresponds to steady growth — and plot a continuation of the growth rate from 1973 to 1995 (the red line), so that you can see how actual growth compared. By the time the productivity surge tapered off, productivity was about 12% higher than the previous trend would have led you to expect it would be. Since A.I. is arguably an even more profound innovation than the technologies that drove the 1995-2005 boom, 15% isn’t at all unreasonable. If optimistic estimates of the boost from the technology are at all right, growth will be much higher than conventional estimates of the economy’s long-run sustainable growth rate, like those of the Federal Reserve, which put it at around 1.8% over the next decade. [If that’s the case] debt won’t be a big concern after all — especially because faster growth will boost revenue and reduce the budget deficit.
.@MichaelRStrain Glenn Hubbard and @HolzerHarry find that in states that terminated pandemic-era UI benefits early, the flow of unemployed workers into employment increased by around 12-14pp following early termination. @AEIecon
We provide estimates of the impacts of the early termination of pandemic-era UI benefits in several states in 2021 that had expanded their generosity (FPUC) and the groups of workers eligible for benefits (PUA), relative to those that did not terminate those benefits early. Using CPS data, we present difference-in-difference estimates that the flow of unemployed workers into employment increased by around 12-14pp following early termination. Among prime-age workers, the effect is about two-thirds the size of the unemployed-to-employed flow among control states during the February–June 2021 period. We show that state-level unemployment rates fell following early exit from FPUC and PUA. Finally, we present evidence that early termination reduced the share of households that had no difficulty meeting expenses. The welfare implications of the early termination of FPUC and PUA are therefore ambiguous.
Recent revisions @BEA_News show US GDP is 1.7% higher than prior estimates. Real fixed investment was revised up 6.4%, increasing cumulative growth since 2019 from 5.8% to 8.7%. @JosephPolitano
A large chunk of the upward revisions to GDP data came from increases in real fixed investment, which was raised by more than 6.4% and saw its cumulative growth since early 2019 increase from 5.8% to 8.7%. That means the investment and construction boom we’ve seen over the last few years has actually been stronger than first reported—with manufacturing, housing, software, and power investments all being revised upward. The revisions to software data and methodologies, which included updates that now treat a portion of labor from an expanded pool of workers in various tech occupations as in-house investments, raised real private fixed software investment by 12%. This also spilled over into higher estimates of public-sector software investments, both inside and outside of the defense sector, and upward revisions to the real output of the US information industry.
Americans and Britons have shifted from believing “wealth can grow so there’s enough for everyone” to “people can only get rich at the expense of others.” Democrats who voted for Trump in 2016 scored very high on zero-sum beliefs. @jburnmurdoch
Every five to 10 years, the World Values Survey asks people in dozens of countries where they would place themselves on a scale from the zero-sum belief that “people can only get rich at the expense of others”, to the positive-sum view that “wealth can grow so there’s enough for everyone”. The average response among those in high-income countries has become 20% more zero-sum over the last century. Moreover, two distinct rises in the prevalence of zero-sum attitudes have coincided with two slowdowns in gross domestic product growth, one in the 1970s and another in the past two decades. The same pattern holds within individual countries. Britons and Americans have become significantly more likely to believe that success is a matter of luck rather than effort precisely as income growth has slowed.
Zero-sum thinking in terms of political and policy views is strongly associated with lower levels of intergenerational upward mobility. @S_Stantcheva @DrNathanNunn
Zero-sum thinking is associated with more preference for liberal economic policies in general and with stronger political alignment with the Democratic Party and weaker alignment with the Republican Party. We also find that zero-sum thinking is linked empirically to important political crises experienced in the United States. Specifically, we find that individuals who view the world in zero-sum terms are more likely to believe that the conspiracy theory QAnon holds some truth for U.S. politics. We also find that zero-sum thinking is linked with empathy and understanding for the January 6, 2021 attack on the U.S. Capitol Building, an act that is more justifiable and seen as being less harmful if one presumes the world is zero-sum (rather than positive/negative sum).
After accounting for Chinese inputs into industrial imports from other countries, US exposure to China in 2018 was 4x the headline level. @BaldwinRE @freeman_reb @Angel__Theo
US exposure to foreign supply chains is much bigger than it appears at face value, but it is not that big on the macro level. By any measure, the US buys at least 80% of all industrial inputs from domestic sources. Thus, at an aggregate level, its foreign exposure is hardly alarming. However, while this may be reassuring, it is important to note that supply chain disruptions rarely occur at the macro level. The 80% figure was not relevant when the US auto sector shuttered factories due to a lack of semiconductors, or when buying home office electronics became problematic due to a demand surge and logistic snarls. Taking account of the Chinese inputs into all the inputs that American manufacturers buy from other foreign suppliers – what we call look through exposure – we see that US exposure to China is almost four times larger than it appears to be at face value.
According to @lee_ohanian @AEIecon, labor market conflict explains half of the decline in the Rust Belt’s share of total manufacturing employment between 1950 and 2000.
This paper hypothesizes that the decline of the Rust Belt was due in large part to the persistent labor market conflict that was prevalent throughout the region’s main industries. [Labor conflict] results in lower investment and productivity growth, which causes employment to move from the Rust Belt to the rest of the country. The model also features rising foreign competition as an alternative source of the Rust Belt’s decline. Quantitatively, labor conflict accounts for around half of the decline in the Rust Belt’s share of manufacturing employment. Consistent with the data, the model predicts that the Rust Belt’s employment share stabilizes by the mid 1980s, once labor conflict subsides. Rising foreign competition plays a more modest role quantitatively, and its effects are concentrated in the 1980s and 1990s, after most of the Rust Belt’s decline had already occurred.
A @federalreserve analysis from last year finds the manufacturing wage premium has disappeared for most manufacturing jobs as of April 2018. The decline in unionization is responsible for “more than 70% of the drop in the manufacturing wage premium.”
As measured in the CES data, manufacturing average hourly wages for all employees were 3% above wages in the private sector in 2006, a difference commonly known as the manufacturing wage premium. Since then, manufacturing wages have averaged gains of 2.3% per year, while wages in the private sector have risen 2.6% per year. While manufacturing workers used to receive a premium relative to workers in other sectors, that premium has disappeared in recent years for most manufacturing jobs. Our results indicate that the decline in unionization rates is responsible for more than 70% of the drop in the manufacturing wage premium. Notably, the unionization effect remains significant even after accounting for a large set of worker and sectoral characteristics.
US net investment has declined from its 1950-80 average of 10% of GDP to 5%. @TimothyTTaylor argues that the cause is increased investment in information technology that depreciates more quickly than plant and equipment.
Gross investment has typically been 20-25% of GDP over time, although in recent years it’s been closer to the lower end of that range. From the 1950s up into the 1980s, net investment was (very roughly) 10% of GDP. Thus, it was plausible to say that in a typical year, a little more than half of gross investment went to replace capital that was wearing out, and a little less than half of gross investment was actually new, net investment growing the capital stock. But in the last decade or so, gross investment has been about 20% of GDP, and net investment has fallen to about 5% of GDP. In other words, gross investment as a share of GDP has fallen a bit, but not too much. The real change is that about three-quarters of investment is now going to replace capital that has worn out, so net investment is much lower.
.@FedGuy12 writes that the Treasury market is likely to be volatile going forward. He speculates that rates are likely to go higher, as major recent buyers of Treasuries all seem to have exhausted their capacity to take on more Treasuries.
The Treasury market may be entering a period of volatility as leveraged investors have stalled in their purchases and the next marginal buyer has not yet arrived. When the Fed and commercial banks stepped away from the Treasury market, hedge funds stepped in and bought cash Treasuries in size as part of a cash futures basis trade. The financing for that trade is sourced through dealer repo, which grew rapidly and then stalled. While dealers themselves have access to virtually unlimited financing from the Fed, the size of their activity is constrained by balance sheet costs. If the leveraged buyers are reaching financing limits, then a new marginal Treasury buyer must emerge to absorb the sizable upcoming issuance.
Over the past four quarters, inflows from official investors covered half of the US’s current account deficit. @Brad_Setser
Rather quietly, inflows from official investors came close to generating about half of the net inflows needed to sustain the United States' current account deficit (over the last 4qs of data, q3 23 may be different). A lot of the inflow over the last 4qs (q3 22 to q2 23) has gone into equities and bank deposits so it doesn't get the attention of Treasury flows. But q2 23 Treasury inflows were substantial as well. Total foreign demand for LT US bonds (official and private, including private demand for corporate bonds) exceeded the US current account deficit in q1 2023. The fall in reported foreign holdings last year though got a lot more attention. The IMF's data for global reserves isn't available (yet) for q2, but central banks added to their dollar holdings in q1 (and likely q2). They are getting a lot of coupon payments on their existing stock-- and reinvesting I assume.
A Bloomberg analysis found that, for 88 S&P 100 companies, 94% of job growth in 2021 went to non-white workers.
The US Equal Employment Opportunity Commission requires companies with 100 or more employees to report their workforce demographics every year. Bloomberg obtained 2020 and 2021 data for 88 S&P 100 companies and calculated overall US job growth at those firms. In total, they increased their US workforces by 323,094 people in 2021, the first year after the Black Lives Matter protests — and the most recent year for which this data exists. The overall job growth included 20,524 White workers. The other 302,570 jobs — or 94% of the headcount increase — went to people of color. Many people just starting out in their career are from growing Black, Hispanic, and Asian populations, who are entering the workforce just as more tenured White employees retire. That, however, can’t fully account for changes, particularly at the top of the corporate ladder.
In a study of nearly 10,000 US schools, @CEDR_US, @emily_r_morton, and @ajmceachin find that remote instruction during the pandemic was a primary driver of widening math achievement gaps in high-poverty districts. @HarvardCEPR
Using testing data from over two million students in nearly 10,000 schools in 49 states (plus the District of Columbia), we investigate the role of remote and hybrid instruction in widening gaps in achievement by race and school poverty. We find that remote instruction was a primary driver of the widening gaps. Math gaps did not widen in areas that remained in person (although reading gaps did). We estimate that high-poverty districts that went remote in 2020–2021 will need to spend nearly all of their federal aid on helping students recover from pandemic-related academic achievement losses.
Looking at postwar data, researchers at @sffed find that there was a regime shift around 1999 towards well-anchored inflation expectations that were not sensitive to incoming CPI data.
Figure 1 shows that the median forecast of professional economists for one-year-ahead consumer price index (CPI) inflation has become less sensitive to actual CPI inflation. The figure shows the results of regressions measuring the strength of the relationship between one-year-ahead expected CPI inflation (vertical axis) and the contemporaneous four-quarter CPI inflation rate (horizontal axis). For the period from 1949 through the end of 1998, the blue line indicates a strong relationship with a slope of 0.71, implying that the median inflation forecast adjusts nearly one-for-one with actual inflation. The regression yields a much smaller slope of 0.18 for the period from 1999 through the second quarter of 2023 (red line), implying very little forecast adjustment in response to actual inflation.
Revised @BEA_News numbers show Americans saved $1.1T less over the last six years than previous estimates.
US households saved some $1.1 trillion less than previously thought over the past six years, according to revised government data released Thursday. The Bureau of Economic Analysis now calculates that Americans stashed away an average 8.3% of their disposable income annually from 2017 through 2022, down from a previously estimated 9.4%. The reduction stems from an accounting adjustment that lowered personal income from mutual funds and real estate investment trusts.
Since 2017, commercial real estate insurance costs have grown at 7.6% per year. Developers report that new projects are sometimes seeing no insurance bids.
Commercial real-estate insurance costs have risen 7.6% annually on average since 2017, according to Moody’s Analytics. Costs to insure rental-apartment buildings rose 14.4% annually on average in Dallas, 13% in Los Angeles and 12.6% in Houston. Some owners struggle to find anyone willing to insure their buildings, Moody’s said. Intensifying natural disasters are a big reason for the increase, particularly in cities vulnerable to wildfires, floods or storms. The cost of reinsurance has also increased, trickling down to higher property insurance rates. Meanwhile, inflation has pushed up the cost of repairing or rebuilding damaged properties.
.@PatrickRuffini finds the 5.3pp shift in Georgia towards the Democratic presidential candidate from 2016 to 2020 was driven by vote switching from third party or Trump to Biden by 3.1pp, and demographic change worth 2.2pp.
The 5.3 point shift between 2016 and 2020–just enough to tilt the state to Biden—was driven by three factors: 2016 third-party voters switching to Biden in 2020, Black population growth and white population decline, and persuasion, primarily among high-income, high-education voters. The total shift in Georgia due to persuasion is about 3.1 points—and 2.2 points comes from the changes in the composition of the electorate. Georgia as a whole is not demographically favorable to Donald Trump: unlike the upper Midwest, there are fewer white working-class voters left for him to flip, and a lot of cross pressured college-educated white Republicans. If Trump’s path with suburban whites is closed off, Trump has another option: continuing to chip away at Democratic margins among African Americans, as current polls suggest he might. Trump would likely need a bigger breakthrough with Black voters than he’s gotten to date to fully counteract the effect of the state’s Black population growth.
.@FedGuy12 writes that Treasury liquidity is low as dealer balance sheets have not scaled up with Treasury issuance. The average daily volume of Treasuries has increased very slowly over the past decade despite a flood of issuance.
While Treasuries remain the most liquid security in the world, they are structurally becoming less liquid. The average daily cash transactions in Treasuries has not come close to scaling with the overall growth in issuance. Although average daily cash volumes have increased slightly in recent years to $700b, that increase is in part due to the activity of principal trading firms whose strategy is to profit from small intraday fluctuations in price. These firms account for 20% of cash market volumes, but they disappear when volatility picks up so their provision of liquidity is illusory. Excluding their participation, cash market activity would be progressively thinning relative to the steady growth in issuance.
Stabilizing US federal debt at 100% of GDP will require increased tax revenue and non-interest spending cuts of 5% of GDP going forward. @Brian_Riedl suggests that increasing tax rates on the rich could yield at most 2% of GDP and likely less.
Stabilizing the federal debt at 100% of GDP over the long term—which would far exceed the post-1960 average of 45% of GDP—would require non-interest savings beginning at 2% of GDP and ramping up to 5% of GDP over the next three decades. (The resulting interest savings from a smaller debt would provide the rest of the savings.) These figures assume the renewal of the 2017 tax cuts (as there is strong bipartisan support for extending the tax cuts for the bottom-earning 98% of earners) but do not assume any additional spending expansions, tax cuts, or economic crises—all of which would also have to be fully offset to meet this debt target. In short, the non-interest savings required to stabilize the debt will almost surely rise past 5% of GDP when accounting for additional spending and tax-cut legislation. Taxing the rich cannot close more than a small fraction of this gap.
32mm foreign-born workers made up 18% of the American labor force last year, the highest level since the series was initially published in 1996.
This year, average monthly growth in the foreign-born labor force is about 65,000 higher compared with 2022 on a seasonally adjusted basis, a Goldman Sachs analysis found. After plunging at the start of the pandemic, the size of the foreign-born labor force has rebounded, nearing 32 million people in August. Foreign-born workers’ share of the labor force—those working or looking for work—reached 18% in 2022, the highest level on record going back to 1996, according to the Labor Department. It has climbed further this year to an average of 18.5% through August, not adjusted for seasonal variation.
Seven stocks made up 70% of S&P 500 value creation in 2023, but Jesper Rangvid argues that this isn’t without historical precedent. In the Dot.com period, Cisco, Dell, Intel, Lucent, and Microsoft had an even more extreme run-up.
The hype around the “Magnificent 7” stocks [Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla] that have driven the stock market this year is reminiscent of the dot.com era, which ended with a spectacular crash. However, there are two reasons why today’s developments seem less worrying: The rise of hyped stocks was more extreme in the Dot.com era, as was the rise of the rest of the market. While today’s situation is exceptional, with seven stocks accounting for nearly 30% of the total value of the S&P 500, the rule in the past has been that only a few stocks generated most of the value creation of the stock market in the US and internationally.
Hendrik Bessembinder finds that the best-performing 1,526 global firms (2.4% of total) accounted for all of the $75.7T in net global stock market wealth creation between 1990 and 2020.
We calculate net global stock market wealth creation of $US 75.7 trillion btw 1990 and 2020. Wealth creation is highly concentrated. Five firms (0.008% of the total) with the largest wealth creation during the January 1990 to December 2020 period (Apple, Microsoft, Amazon, Alphabet, and Tencent) accounted for 10.3% of global net wealth creation. The best-performing 159 firms (0.25% of total) accounted for half of global net wealth creation. The best-performing 1,526 firms (2.39% of the total) can account for all net global wealth creation. Skewness in compound returns is even stronger outside the U.S. The present sample includes 46,723 non-U.S. stocks. Of these, 42.6% generated buy-and-hold returns measured in U.S. dollars that exceed one-month U.S. Treasury bill returns over matched horizons. By comparison, 44.8% of the 17,776 U.S. stocks in the present sample outperformed Treasury bills.
New @federalreserve research demonstrates elevated corporate profit margins during the pandemic period were a function of government spending and lower interest expenses.
Using a measure of nonfinancial corporate profits from the national income accounts [before tax profits with capital consumption adjustment] we find that nonfinancial corporate profit margins, or profits over gross value added, increased sharply to about 19% in 2021 Q2 and slipped back to 15% in 2022 Q4, compared to about 13% in 2019 Q4. Our analysis shows that much of the increase in aggregate profit margins following the COVID-19 pandemic can be attributed to (i) the unprecedented large and direct government intervention to support U.S. small and medium-sized businesses and (ii) a large reduction in net interest expenses due to accommodative monetary policy. Without the historically outsized government fiscal intervention and accommodative monetary policy, non-financial profit margins during 2020-2021 would have been more in line with past episodes of large economic downturns.
US median household income fell in real terms by 2.1% in 2022 for the third straight year, as inflation outpaced wage gains. Since its pre-pandemic peak, real household income has fallen by almost 5%.
Americans’ inflation-adjusted median household income fell to $74,580 in 2022, declining 2.3% from the 2021 estimate of $76,330, the Census Bureau said Tuesday. The amount has dropped 4.7% since its peak in 2019. Wage growth for the typical worker outstripped inflation starting in December 2022, with inflation-adjusted wages rising about 3% in July, according to data from the Atlanta Fed Wage Tracker and the Labor Department.
.@kearney_melissa argues that the rise of single-parent households is leading to lower social mobility for children raised in those households relative to two-parent households.
The decline in marriage and the rise in the share of children being raised in a one-parent home has happened predominantly outside the college-educated class. Over the past 40 years, while college-educated men and women have experienced rising earnings, they continue to get married, often to one another, and to raise their children in a home with married parents. Meanwhile at the same time, the earnings among adults without a college degree have stagnated or risen only a bit. And these groups have become much less likely to marry and more likely to set up households by themselves.So just mechanically, these divergent trends in marriage and family structure mean that household inequality has widened by more than it would have just from the rise in earnings inequality.
Median family incomes have declined every year since 2019; however, @jmhorp notes that median black household income is now the highest it’s ever been.
The chart shows the % of Black families that are in three income groups, using total money income data. The data is adjusted for inflation. The progress is dramatic. In 1967, the first year available, half of Black families had incomes under $35,000. By 2022 that number had been cut in half to just one quarter of families (the 2022 number is the lowest on record, even beating 2019). Twenty-five percent is still very high, especially when compared to White, Non-Hispanics (it’s about 12 percent), but it’s still massive progress. It’s even a 10-percentage point drop from just 10 years ago. And Black families haven’t just moved up a little bit: the “middle class” group (between $35,000 and $100,000) has been pretty stable in the mid-40 percentages, while the number of rich (over $100,000) Black families has grown dramatically, from just 5% to over 30%.
Recent studies in the US, Sweden, and Finland demonstrate that new unsubsidized housing construction enhances overall affordability by freeing up housing for people with lower incomes. @jburnmurdoch
Recent studies from the US, Sweden, and Finland all demonstrate that although most people who move directly into new unsubsidised housing may come from the top half of earners, the chain of moves triggered by their purchase frees up housing in the same cities for people on lower incomes. The US study found that building 100 new market-rate dwellings ultimately leads to up to 70 people moving out of below-median income neighbourhoods, and up to 40 moving out of the poorest fifth. Those numbers don’t budge even if the new housing is priced towards the top end of the market. It’s a similar story in the American Midwest, where Minneapolis has been building more housing than any other large city in the region for years, and has abolished zones that limited construction to single-family housing. Adjusted for local earnings, average rents in the city are down more than 20% since 2017, while rising in the five other similarly large and growing cities.
Western countries are facing tradeoffs to finance increased defense spending as the post-Cold War “peace dividend” fades in the face of Chinese and Russian revanchism, with 20 of 31 NATO members still below the 2% of GDP target.
Sweden, which has applied for Nato membership, announced on Monday that it planned to raise defense spending by more than 25% to meet the military alliance’s target of 2% of GDP. Currently, only 11 of 31 members do. Persuading voters of the sacrifices required to make such commitments a reality represents a seismic reordering of the budget and electoral priorities. In Denmark, the government opted to fund its increase in public spending by cancelling a public holiday — to much chagrin from voters. "Leaders have signed up to a generational shift in defence policy. But I do wonder if they fully understand, or have told their finance ministers,” a senior Nato official said.
Researchers at @sffed find that an unexpected 1% rise in short-term interest rates reduces real GDP by 5% after 12 years, but no evidence that loose monetary policy increases potential output. @sanjayrajsingh
Unexpected changes in monetary policy can slow the pace of economic activity much more persistently than is commonly believed. In response to a 1% increase in interest rates, output would be about 5% lower after 12 years than it would otherwise be. To provide some context for these numbers, consider some data for the United States. In response to a similar 1% increase in interest rates, after 12 years TFP would be about 3% lower and capital would be about 4% lower. When we separate our interest rate experiments into those that resulted in rate hikes versus those that resulted in lower interest rates, we see that there is no free lunch. The blue line shows that lower interest rates have mostly temporary effects that vanish after a few years, as traditional theories predict.
According to a @BudgetHawks analysis the US budget deficit will double in 2023 despite economic growth. @jasonfurman notes such deficits typically are associated with a “major crisis” like World War II or the 2008 financial meltdown.
According to the Committee for a Responsible Federal Budget the federal deficit is projected to roughly double this year, as bigger interest payments and lower tax receipts widen the nation’s spending imbalance despite robust overall economic growth. After the government’s record spending in 2020 and 2021 to combat the impact of covid-19, the deficit dropped by the greatest amount ever in 2022, falling from close to $3 trillion to roughly $1 trillion. But rather than continue to fall to its pre-pandemic levels, the deficit then shot upward. Budget experts now project that it will probably rise to about $2 trillion for the fiscal year that ends Sept. 30. Jason Furman said the current jump in the deficit is only surpassed by “major crises,” such as World War II, the 2008 financial meltdown or the coronavirus pandemic.
The growth in Medicare spending per beneficiary leveled off nearly a decade ago. If spending had grown at the prior rate, spending since 2011 would have been at least $3.9 trillion higher.
Spending per Medicare beneficiary has nearly leveled off over more than a decade. The trend can be a little hard to see because, as baby boomers have aged, the number of people using Medicare has grown. The reason for the per-person slowdown is a bit of a mystery. Some of the reductions are easy to explain. The Affordable Care Act in 2010 reduced Medicare’s payments to hospitals and to health insurers that offered private Medicare Advantage plans. Congress also cut Medicare payments as part of a budget deal in 2011. But most of the savings can’t be attributed to any obvious policy shift. Economists at the Congressional Budget Office described the huge reductions in its Medicare forecasts between 2010 and 2020. Most of those reductions came from a category the budget office calls “technical adjustments,” which it uses to describe changes to public health and the practice of medicine itself.