It's time to talk about labor market utilization indicators.

Domash and Summers wrote that U3 was the better measure of labor market slack than prime age employment rate, and thus wage growth was going to remain high bc labor markets were very tight... They wrote "the unemployment rate is more important than the prime-age employment ratio in predicting wage inflation". And they argued labor supply is unlikely to come back. Thus there was reason to be pessimistic wage growth would be reduced except by demand reduction alone...

I honestly don't think its very mysterious why the public isnt' thrilled with the economy yet. Pandemic economy was a chaotic high inflation mess & people haven't moved on yet. Please tell me the economic rule that says as soon as the problem is fading people must be thrilled Its very hard to find a house, and prices haven't actually fallen except for a handful of things. The world feels more expensive. And by the way, people can tell that stimulus played a role. Just give it time and hope we keep making further progress, which we should.

Inflation & wage growth are unequivocally coming down despite the theory that this could not happen without significant increase in unemployment.

Its important to revisit this claim not for some intellectual victory lap, but to look at which assumptions need revising... Summers outlined the assumptions clearly to @JHWeissmann in this post: slate.com/business/2022/…

Folks like @balajis seem to imagine that to make methodological criticisms of the BLS necessitates the absurd claim of fraud, and that there is some deference issue causing blindness. I wrote a 100+ page dissertation criticizing BLS methods. scholarshare.temple.edu/handle/20.500.… Institutions can be corrupt but it’s helpful to have basic institutional awareness before lobbing such accusations. If you think the BLS is corrupt by the fed, for example, you literally don’t understand how they function

So the big gap between payroll and household is that self employment declined by 369k. Wage and salary employment in the household survey went up 129k. Since Feb '23, self-employment unincorporated is down 607k. So we're seeing a lot of return to payrolls from self-employment. Now thats a small sample, so caveat emptor, but if so that is less aggregate labor impact than the payrolls would otherwise suggest.

What useful libertarianism looks like and why we need it, nice post from @Noahpinion open.substack.com/pub/noahpinion… I'll add a few thoughts... @Noahpinion I do agree that in some circles the importance of regulation was down-weighted by empirical results from RegData showing little relationship between regulation and outcomes. But I think this too needs updating...

Here is a very simple story to keep in mind. Low skilled labor supply is temporarily reduced and aggregate demand is high and also tilted towards goods production, both also temporarily... Low skilled labor markets don't clear because firms know the labor shortages are temporary and are uncertain how much of the demand conditions are temporary...

*New post*: Whats happening to house prices across the country? As prices fall, the donut effect is strengthening. Remote work's impact on economic geography isn't done yet folks.

eig.org/remote-work-ge… I use zillow zipcode level data to look at the evolving changes in house since the pandemic onset, and how they relate to pre-pandemic house price. We see the "donut effect" from @I_Am_NickBloom and @arjun_ramani3 a lot, but its nature varies by region and time.

This is changes in zillow zipcode house prices form 8/22 to 4/23, basically starting from when their US index peaked. Recent price patterns showing strong donut effects @I_Am_NickBloom @arjun_ramani3 @I_Am_NickBloom @arjun_ramani3 Zipcode is sparse for CA, so lets look at the distribution of county level price changes from 8/22 to 4/23... Uh oh

You know Elon’s not making good decisions because he keeps 1) reversing them or not doing what’s he’s promised and 2) lying about why he’s doing them. For 2) consider the idea banning substack links was to stop them from scraping data (huh?)… … and then when he claimed paid for badges were needed to stop bots, when existing verified badges (where the signal value comes from btw!) we’re already verified non bots but would nevertheless be deprecated

Nice discussion of the CHIPs act: bloomberg.com/news/articles/… I'd add a few things... It's great to hear the folks from Commerce say that proof of plans to invest can be sufficient evidence in lieu of a commitment to not do buybacks, and that that was just meant as an example.

*New research* If remote work caused population loss in big expensive cities, why did their rents and house prices go up? My new paper with @ecarl_economics suggests one answer: household formation! eig.org/wp-content/upl… @ecarl_economics This builds on work from Stanton and Tiwari and others that show an increase in housing demand by focusing on a few things:
1) Actual individual level WFH
2) Housing market level aggregate effects
3) Instrumental variable approaches
4) Household formation

People who focus on "well its factually correct NPR is government funded" are being naive. The existence of the label contains far more content than simply stating a fact. It is meant to imply that this fact is CONSEQUENTIAL for how you interpret the news they are reporting. Very frustrating to see people who very much know better either defend or imply they are defending the label because "well its accurate". Extremely blinkered and naive, lets at least have a debate with our eyes open please.

Noah digs into why some services have gotten more expensive while others haven’t. I have a few more factors I’d add… open.substack.com/pub/noahpinion… One is that these are prices, not average spending, so the luxury theory doesn’t really get you all the way there. We’re richer and spend more on pet health, but why did price go up too? Need to say something about the long run supply curve

Look folks Harvard has a long way to go before it’s no longer a place to meet high income people. They can end legacies and still have plenty of rich kids nytimes.com/interactive/20…

Pushback on the attempts to regulate profit for CHIPS subsidy recipients. Imagine the R&D stuff works and we really set off an innovative boom in US chips hubs. We want to regulate away profits? ft.com/content/c285a4… How will we determine excess profits due to innovation or increased demand versus simply profiting “too much” from the incentives?

Let me say some good things about the CHIPs implementation so far, because I am trying to be a helpful critic here and bc while there is stuff to improve, there is stuff to like. A thread... In their top cross cutting themes, they put both “engaging with U.S. partners and allies” and “reduce time to build”. How these play out in practice matters, but having them as top priorities is a very positive sign.
nist.gov/system/files/d…

Yesterday in the NYT I warned that the regulations and constraints imposed on CHIPs applicants risk undermining the program goals. Let me add some more to that... If the government wants to build a highway, it can build the highway even if costs skyrocket. We end up with an expensive highway, and probably long-run fewer highways. But the highway will get built. Industrial policy is not like this.

I don't think good industrial policy is impossible. I think it is unlikely unless we start to build out more political capital to prioritize efficiency and cost effectiveness. We lack that but have intense political pressures for waste and protectionism. This has to start with media and pundits and think tankers and academics. There's been a lot of hoping and wishing for more industrial policy without enough thinking about why its likely to go wrong. As a result, politicians believed (rightly) there'd be less publicly pushback..

What should we expect the time series impact of rate hikes to be? IMO what we saw was excess demand ride up an unusually inelastic supply curve. So we should get more deflationary bang for the buck for each pp, and bigger impacts sooner than normal. If you think what we saw was entirely demand, sure you'd expect the normal lags. But we got a lot of inflation without real output going that much above normal, inelastic supply at the very least is extremely plausible in my view.

Breaking news. Authors of the BLS/Fed paper that computed market rents from CPI sample have shared this table. Total increase in market rents is 14.3%, compared to 10.4% for the CPI rents, a 3.9pp gap

This is WAY better gap than the 14pp gap between CPI and private market rents

https://twitter.com/ModeledBehavior/status/1580550725590872064

This suggests that the biases I worried about in this thread are substantial. The gap in levels between the market CPI data and the actual CPI for rents still suggests substantial inflation pressures, but nothing near what private market rent levels imply.