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Jason Furman

@jasonfurman

Apr 12

Four roughly true and important propositions about trade. Asserting not explaining here, will explain sometime:

1. The volume of trade depends, inter alia, on the magnitude of domestic and foreign tariffs:

X + M = f (US tariffs , foreign tariffs)

2. The balance of trade depends mostly on U.S. macroeconomic balances, like the budget deficit and level of business investment:

X - M = f(US macro balances)

3. Well being goes up when X + M goes up. This is both because we get the benefits of imports and also the better jobs in areas we specialize in.

4. Well being doesn't have a monotonic relationship to X - M. Too large a deficit or surplus both problems, "ideal" value depends.

Read 8 tweets

Jason Furman

@jasonfurman

Mar 28

Core PCE inflation came in a little above the already high expectations in Feb. The pattern is the opposite of what you want to see--the shorter the window the higher the annualized rate (and still high at 12 months):

1 month: 4.5%
3 months: 3.6%
6 months: 3.1%
12 months: 2.8%

Here are the full set of numbers. They were uniformly ugly in February.

If you're looking for some slivers of reassurance, market-based core (which excludes imputed items like portfolio fees) was only up 2.4% over the last 12 months. And "only" 3.0% annualized over the last three, less than the regular core.

Read 7 tweets

Jason Furman

@jasonfurman

Mar 18

Income taxes are distort trade by reducing purchases of imports. At least they do so as much as VATs do. Which is to say not any more than they reduce purchases of domestic goods.

A hopefully irrelevant thread.

A simple toy example.

Consider a person in Spain with 100€ in income that they use to buy oranges. Absent taxes oranges cost 1€. They must spend all their income this year.

In this case they could buy 100 total oranges--imported plus Spanish.

Now assume there's a 25% VAT.

VAT raises the cost of imported oranges to 1.25€, this is the way it is supposed to be like a tariff.

Of course, also raises the cost of Spanish oranges to 1.25€. This is not a tariff & is trade neutral.

The person can now buy 80 total oranges.

Read 6 tweets

Jason Furman

@jasonfurman

Mar 3

The Atlanta tracker is predicting GDP growth of -2.8% in Q1.

S&P, which I generally trust a lot, is at 1.6%. Goldman is also at 1.6%.

Atlanta likely wrong. And regardless doesn't say what you think it does.

So continue your deep breathing.

To understand what I think is going wrong with Atlanta you need to understand that imports show up twice in the national accounts--cancelling out.

You might know that GDP = C + I + G + X - M

If you import a Japanese car then M goes up. You might think that lowers GDP but...

The imported car also shows up as a + in GDP, cancelling out the - import.

If it is imported for use by a family, business or government then it shows up in C, I or G respectively.

If a business imports it & no one buys it then it is increased inventory, which shows up in I.

Read 12 tweets

Jason Furman

@jasonfurman

Mar 3

Given the renewed interest in national income accounting a brief primer on the role of government spending in GDP.

Short version: (1) critical to include govt for accounting identities but (2) can debate welfare-relevant metric or best forecasting "signal".

A 🧵.

Three identical ways to think about the size of the economy:

1. Final expenditures (including consumers, businesses and government)

2. Incomes (including wages and profits)

3. Production (value added or final production) khanacademy.org/economics-fina…

If a consumer, business or govt buys a US-made car that counts in the expenditure portion of GDP as C, I or G.

The wages of the auto worker or the profits of the auto company show up in the income version.

And the auto companies making a car shows up in the production version.

Read 12 tweets

Jason Furman

@jasonfurman

Feb 28

Core PCE inflation in January, annual averages:

12 months: 2.6%
6 months: 2.6%
3 months: 2.4%
1 month: 3.5%

This was as expected, consistent with a very gradual slowing, and ~2.5% underlying inflation.

Here are the full set of numbers.

On the favorable side of the ledger, market-based core inflation--which is a better predictor of future inflation than regular core--has been somewhat lower. This excludes things like implied price of portfolio management fees.

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