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.

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...

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…

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.

COVID ripped apart economies around the world. Amazingly most rich countries snapped back almost completely very quickly. By the end of 2021, 12 of 27 advanced OECD economies had unemployment rates below pre-COVID forecasts. The US did not. In fact, it was the fourth worst.

A 🧵 This🧵looks at unemp rates cross countries. I'll do another w/ GDP growth across countries which tells a similar story.

But unemp rates preferable because a cleaner answer speed/fullness of RECOVERIES. Growth differences can be more structural (e.g., productivity & demography).

I have a new piece in @ForeignAffairs titled, "The Post-Neoliberal Delusion and the Tragedy of Bidenomics". They were generous about giving me a lot of words but were less generous with charts--so this long thread partially rectifies that. (And links to the piece at the end.) @ForeignAffairs First let me say some good policy came out of the Biden administration, including on climate and microchips. And more good policy would have come out if it wasn't blocked by unified Republican opposition.

But...

Inflation came in below expectations but still a touch on the high side.

Core CPI annual rate:
1 month: 2.7%
3 months: 3.3%
6 months: 3.2%
12 months: 3.2% Shelter inflation was moderate and the three month moving average continues to basically trend down, albeit slowly.

Tariffs & exchange rates. A short explainer of the simple case of 10% across-the-board tariffs. Let's start with no retaliation.

Brief version: Tariffs will strengthen the U.S. dollar which will reduce impact on consumers but exacerbate it for exporters.

Three cases: 1. No exchange rate effect. In this case imports are 10% more expensive for consumers. Exports are the same (because the exchange rate did not change) and the trade deficit shrinks. The entire tariff is paid by Americans.

Labor market tightness has stabilized over the last several months after a loosening steadily through the summer. Job openings were up and quits down. My favorite metric, job openings per unemployed, was stable. Here are openings and quits. They've been telling a somewhat contradictory story in recent months as openings are up and quits are down.

Inflation came in a touch above expected, with core CPI at an annual rate:

1 month: 3.8%
3 months: 3.7%
6 months: 2.9%
12 months: 3.3%

The last mile is proving very, very stubborn. Here are the full set of numbers.

I believe it is useful to make small contributions to big things (many engaged in doing that now) & also bigger contributions to small things.

On the later, in @BostonGlobe I argue for zoning reform to enable Cambridge to help build more than 1,000 additional housing units.

A🧵 States and localities can resist the likely regressive thrust of federal policymaking while doing what they can to build a more progressive, inclusive and upwardly mobile society.

To do that we need cheaper housing.

And to do that we need more housing.

I know many skeptics of prediction markets. I don't have an ideological faith in them (OK, maybe quasi ideological). But the empirical evidence is they have worked really, really, really well. And did again on Tuesday night.

A short 🧵 about this remarkable picture. Markets gave Trump a 60% chance. How does that prove they know what they're doing? If Harris won could say, "but she had a 40% chance" so wasn't wrong.

That's correct. Can only judge when you've seen them many, many times. Do 60% chance things happen 60% of the time?

The macroeconomy is strong--high growth, low unemployment, falling inflation--the best of any advanced economy.

But there was a reluctance to present/understand how families were still not out of the deep inflation hole. And too much masked by cherrypicking/misleading stats. IF Donald Trump had been President for the last 4 yrs here are some stats you would have heard more from progressives. Relative to 2019:

--Real median household income down 0.7%

--3m more people in poverty (poverty rate up 0.6pp)

--Unemp rate up 0.6pp

--Mortgage rate up 3pp

Another strong GDP report (2.8% in Q3) pushes real GDP even further above the pre-pandemic forecast. The 2.8% (annual rate) was just below the strong expectation. Excluding volatile components, private domestic sales to final purchasers was 3.2%.

Consumption and equipment investment were very strong while structures (both residential and non) subtracted.

I was asked to recommend 5 books on economic policy by @nytimesbooks--ostensibly to help people make up their minds for this election but even if you don't have time to read them before voting the issues will still be relevant in 2028, 2032, etc.

One tweet for each. 1. The Little Book of Economics by @greg_ip

I was looking for a primer on deficits, inflation & other macro issues. I had this on my shelf unread but a colleague suggested it for this purpose--and it fit the bill perfectly.

Except is really The Little Book of MACROeconomics...

Today's monthly core CPI print was 0.31% (or 3.8%) at an annual rate.

The puts it at the 92nd percentile of the monthly prints from 1992 to 2019.

Inflation is down. The inflation risk scenario is much less bad than it was. But we're not all the way there yet. Over different windows:

3 months (3.1% annual rate): 91st percentile
6 months (2.6% annual rate): 76th percentile
12 months (3.3% annual rate): 94th percentile

Inflation came in a touch above expectations--despite a big slowdown in shelter inflation--with core CPI at an annual rate:

1 month: 3.8%
3 months: 3.1%
6 months: 2.6%
12 months: 3.3%

(Note the Fed targets PCE inflation which will come in lower than this.) Here are the full set of numbers. Note the "ex shelter" numbers were much higher in September than the overall. But the reverse was true if you go back further.

Very strong jobs report.

254K jobs in September and upward revisions for July and August.

Unemployment rate fell again, now at 4.1%.

Participation flat, employment rate up, hours down a little, wage growth moderate. Here's the unemployment rolling off its July high.

Overall the jobs report is reassuring. A healthy 142K jobs added, average weekly hours increased, participation stayed the same, and most importantly the unemployment rate fell back to 4.2%.

Pace of job growth (adjusting for benchmark revision) mostly unchanged over last year. Here's the unemployment rate. It is what most people were watching most closely because of difficulties measuring monthly jobs and knowing what numbers for them are hot or cold. It broke from four increases in a row to tick down as the surge in temporary layoffs receded a little.

Hopefully last words on capital gains taxes.

The platonic ideal in standard tax theory is:

1. Do not tax the normal return to capital, instead tax consumption.

2. IF you're taxing capital gains, better to tax a broader base & lower rate with more neutrality, so tax accruals. I come back to this below, the Platonic ideal may not be achievable in practice. And the "standard" theory may be wrong because it leaves out important considerations. But still, worth taking seriously.

Core CPI inflation (which excludes volatile food and energy) was moderate for the third straight month in a row in July. At an annual rate:

1 month: 2.0%
3 months: 1.6%
6 months: 2.8%
12 months: 3.2% Moreover, the relatively little core inflation we've had in the last three months was more than entirely shelter. If you take shelter out then the annual rates are:

1 month: -0.2%
3 months: -0.3%
6 months: 1.5%
12 months: 1.8%