A funny thing about "labor shortages" is that with the end of pandemic UI we just had a very powerful experiment on the effect of changes in work incentives on employment, and yet no one seems to be drawing any broader lessons from it.
If ending pandemic UI did not raise employment, that is not just a fact about pandemic UI. It is very informative about how important labor supply is to employment in general.
A nice example of the refusal to learn from this is the beltway journalist who admits that non-effect of expiring UI on employment is surprising, but then just goes on with his but-this-one-goes-to-11 insistence that employment problems are all about labor supply, not demand.
If you're asking whether weak demand is holding back employment (i.e. whether economy is under- or over-stimulated) the non-effect of UI expiration is a very important data point. People pointing this out are not "taking victory laps", they are trying to learn from reality.
Lots of people replying "but there are also other things happening." Of course there are always other things happening.
But come on. You're paying people $1,200 a month not to work, then you stop doing that. If work incentives matter for employment, that's got to have an effect.
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The only way you could see today's rising prices as the beginning of a 1970s-style inflation is if you knew literally nothing about either period except that measured inflation was high.
A sustained period of strong demand-led growth has nothing in common with a sudden, exogenous interruption in production. To see them as equivalent requires a deliberate effort to ignore everything we know about what was happening in the world.
Between 2019 and 2020, worldwide auto production fell from 92 to 78 million vehicles. What is the scenario in which this *doesn't* cause an increase in auto prices? And why should we think this is at all informative about production capacity in 2022 or 2023?
This piece on inflation by @BuddyYakov gets it exactly right: the problem we need to be addressing - in both the short term and long term - is not excessive growth in demand, but sluggish growth in supply. noemamag.com/how-to-put-the…
In retrospect it's strange that "supply side economics" has been associated with conservatives - in general, raising the economy's productive capacity is going to require a bigger public sector, not a smaller one.
The idea that there is a direct link between labor supply and employment needs full debunking elsewhere. But I'm just following textbook economics when I say: Demand determines employment, then labor supply conditions determine the wage at that employment level.
Over on the right, you see how home purchases went up, and then when prices rose, purchases went down and construction went up? It's almost like there's a market or something. theovershoot.co/p/us-housing-n
No who knows anything about me would describe me as a great believer in markets. But I'm always struck by the extreme pessimism about market adjustment shown by inflation hawks.
In the world of inflation hawks, prices carry no information. When input prices rise, producers never find substitutes; they just pass it on. When output prices rise, no one finds ways to produce more of it. When goods prices rise, it never means we should consume something else.
Here is a very sharp piece by @andrewelrod arguing that what has cost Democrats elections historically isn't inflation itself, but interest rate hikes, austerity and wage restraint policies in response to it. bostonreview.net/class-inequali…
Among other things, he notes that it was early dropping of price controls that hurt Democrats in the 1940s, and when Truman pulled off his surprise victory in 1948 he was campaigning on re-imposing them.
Conversely during the Korean War, despite a huge expansion in public spending, price controls - including the brief nationalization of the steel industry - quickly brought inflation under control.
The entire story of core inflation, in one picture.
h/t @Claudia_Sahm, who pointed this out in her Stay-at-Home Macro substack/newsletter thing, to which you all should subscribe.
Anyone who says that today's high headline inflation numbers are a sign of economy-wide overheating simply hasn't looked at the numbers. Or if they have, they are not arguing in good faith.
I fully endorse this piece by my colleague @rortybomb. Powell has overseen a dramatic shift in macroeconomic thinking at the Fed. It's far from certain it would have happened without him, or would be sustained under someone else. rooseveltinstitute.org/2021/08/16/pri…
It was Powell who decisively abandoned the "stars" - the so-called natural rate of unemployment and neutral interest rate - that had constrained thinking at the Fed for a generation. Maybe Yellen would have gotten there too - we'll never know. But it was Powell who actually did.
Powell has also been the first Fed chair in a generation, if not ever, to recognize the importance of demand conditions to income distribution, and the Fed's responsibility to take that into account. rooseveltinstitute.org/wp-content/upl…