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Economists’ projections of interest rates and unemployment have proved too high

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Re: Economists’ projections of interest rates and unemployment have proved too high

#91

Post by thu2111 »

nathan_compton wrote: post #66
Excel_Wizard wrote: post #63

Earlier quoted context omitted.

There is more money saved up than there are good productive investments available for it, in comparison to the past. This correlates with a few things: - Inflation of the value of investment assets (high P/E ratios) - Low interest rates on bonds - Secular stagnation

That I can believe, but it seems a bit double-speaky to call it a savings glut, right? My untutored intuition tells me that its a glut of savings in a small number of people's hands. People who don't have a glut of savings, or even significant debt, which is a lot of people, can probably think of a lot of good uses for that money. Assuming this sketch is accurate, the problem is too much money in the hands of too few…

Can they though? What do you have in mind when you say they can think of good uses for the money?

The savings we are talking about here are really "funds looking for yield", in fact must be because Western monetary policy punishes cash saving through inflation. And finding great investments at scale is definitely hard. I doubt you know lots of people who can do it.

Bear in mind by this definition houses and corporate balances count as "savings".

Re: Economists’ projections of interest rates and unemployment have proved too high

#92

Post by ambernightcruse »

aazaa wrote: post #87

> Economists have been casting around for the answer, a theory to explain their inability to peer accurately in the months ahead, let alone the years. ... No mention of "quantitative easing" anywhere. QE ran in various forms from 2008-2013. Short term rates were held at zero in the US from 2008-2015. Several industrialized areas now have negative nominal rates. The Fed has started QE back up again to prop up the fail…

There's no mention about QE because QE is only about lowering the cost for the private sector to borrow money. The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. The repo purchases are operating as intended, with new liquidity requirements for banks from Basel 3 reforms.

Also you complain about negative nominal rates, which make banks less likely to lend; then you speculate on malinvestments and market distortions. So which way do you want it, is money too tight or too loose?

Re: Economists’ projections of interest rates and unemployment have proved too high

#93

Post by ambernightcruse »

harryh wrote: post #68
DubiousPusher wrote: post #30

I'm not a subscriber so I can't read the article but I have a personal hypothesis about this. Developed economies have begun to enter a post scarcity state. Daily goods like food and household items are not responding to inflation because they are no longer scarce. The combination of economies of scale, automation and cheap foreign labor have brought many goods to this point. Meanwhile, things which are still governe…

Inflation has nothing to do with the scarcity of goods. It has to do with the scarcity of money.

The first sentence is incorrect, inflation is about too many dollars for the amount of goods available for purchase. You're thinking of deflation, which is the relatively small amount dollars for real goods in the economy.

Re: Economists’ projections of interest rates and unemployment have proved too high

#94

Post by hash872 »

It's fascinating to me that even august publications like the Wall Street Journal continue to use 'unemployment rate' as any kind of reliable metric, and says stuff like 'the unemployment rate is at a 50 year low now'. Unemployment just measures those who are actively looking for full-time employment but are unable to find it (and yes there is a separate underemployment metric, which seems a little more accurate).

The reason we have 'slack' in the labor market is because the adult prime-age participation rate in the economy was quite low for a long time after 2008, and even now is only getting back to early 2000s numbers. This just seems like a much better metric to understand the health of the labor market & perceived slack. Disability has exploded over the last 20-30 years, and someone collecting a disability check- especially if they are simply milking the system- doesn't show up as 'unemployed' because they're not actively looking for work. It's actually pretty concerning for the US how low the adult participation rate has fallen. There's pretty good evidence that this decade of low interest rates has started to slowly bring in people off the sidelines who weren't looking for work, had given up, were in the informal sector and weren't counted, etc. That's a massively good thing for society.

I don't think you can understand labor market slack or the point at which wages will start to rise until you ditch the somewhat gimmicky 'unemployment rate' and start looking at adult participation in the economy period

Re: Economists’ projections of interest rates and unemployment have proved too high

#95

Post by AnimalMuppet »

gonational wrote: post #51
sideshowb wrote: post #38

Earlier quoted context omitted.

> TBH, why do we even care what “economists” think at all, given the above? Economists are no better, from an objective value perspective, then tarot readers Because the people with data to prove this are themselves economists. Yes, economics has had a lot of failures (I often find myself informing people of these) but anything you replace it with is ultimately going to be another form of economics. For every success…

I think it’s pretty core to my thesis that economics is a practice/study that provides little to no value to anyone, so why would it need to be replaced?

Because someone is going to make policy decisions. On what basis would you have them do so? Economics, which (as you say) fails many times in making predictions? A good guess? Gut feel? Wishful thinking?

For all its flaws, economics is actually better than the alternatives.

Re: Economists’ projections of interest rates and unemployment have proved too high

#96

Post by AnimalMuppet »

dv_dt wrote: post #50
gonational wrote: post #25

If you can find me economists that have predicted economic activities/results with any level of accuracy (e.g., greater than 50% even), then I will find you ~10 times as many prominent economists who have predicted the opposite. Economists probably predict things accurately at a rate lower than throwing a 20 sided die into the air and guessing which number will be facing up when it lands. Does that matter? Well, if t…

Businesses only become profitable in a almost completely artificial human made financial landscape. There is really no reason to believe much more than a successful businessman is someone who was smart, sure, but also lucky at some very particular niche. And as bad as economists are, they're the few which are studying how that landscape's construction affects how businesses and people grow within them. That isn't to…

> Businesses only become profitable in a almost completely artificial human made financial landscape.

Baloney. Some may; many good ones are profitable anyway.

Re: Economists’ projections of interest rates and unemployment have proved too high

#97

Post by acd »

But that there are economic expansion without inflation depends on globalization. We are importing goods from low wage countries. In other words we are importing low inflation until trade barriers stop that.

Ie central banks try to operate like they control wage inflation. But wage inflation is a global market nowadays.

Re: Economists’ projections of interest rates and unemployment have proved too high

#98

Post by Mikeb85 »

nathan_compton wrote: post #56
Excel_Wizard wrote: post #21

a savings glut is the thing that Krugman has suggested, and is the thing which makes sense to me. Which stinks because I hate Krugman.

Can you elaborate? Intuitively, no one I know has a "savings glut." If anything, people in my generation are saddled with debt.

The rich, banks and corporations have too much cash on hand and not enough to invest in.

Re: Economists’ projections of interest rates and unemployment have proved too high

#99

Post by AnimalMuppet »

joshuaellinger wrote: post #2

Except for the MMT people. They mostly got it right but they don't count as 'real' economists to the WSJ.

The problem with MMT is this: It might work if you spend the money on infrastructure. But who's going to be making the spending decisions? Congress is. Do you trust Congress to spend the way MMT says they should? I don't, not by a long shot. Congress will say "Free money? Great! Ponies for everybody!" or something equally wasteful.

MMT might work (though I doubt it). MMT being run by Congress terrifies me.

Re: Economists’ projections of interest rates and unemployment have proved too high

#100

Post by bhupy »

hash872 wrote: post #94

It's fascinating to me that even august publications like the Wall Street Journal continue to use 'unemployment rate' as any kind of reliable metric, and says stuff like 'the unemployment rate is at a 50 year low now'. Unemployment just measures those who are actively looking for full-time employment but are unable to find it (and yes there is a separate underemployment metric, which seems a little more accurate). Th…

The U6 rate is also at historic lows, and that's the broadest definition of "unemployment", which includes discouraged workers.

https://fred.stlouisfed.org/series/u6rate

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