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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

#131

Post by refurb »

rayiner wrote: post #112
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…

Labor market participation rate is not a great measure. Look at the breakdown of changes in labor market participation by age: https://www.bls.gov/emp/tables/civilian-labor-force-particip... From 1998 to 2018 participation dropped just 2 points for those age 25-54. That is projected to stay stable through 2028. It went up for those 55+. The only place it dropped significantly was 16-24. I.e. our society is richer and…

This is a great example of why you should dig into the numbers behind a statistic.

Everyone claims labor participation is still low and throws around their pet theories as to why, yet if you simple dig into the numbers like rayiner did, you’d realize most of those pet theories are wrong.

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

#132

Post by esoterica »

roenxi wrote: post #124
ambernightcruse wrote: post #92

Earlier quoted context omitted.

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 y…

> The main threat to QE is inflation, which is hovering around 2% If I lent money at 6% interest from 2007 to today, I would have performed about the same as the capital gains from owning an equivalent amount of everyone's Favourite Shiny Rock, gold. Not including the recent price jump from QE4. Owning a rock should not be generating a real return. In reality, it probably isn't. Real inflation is likely different fro…

Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same period?

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

#133

Post by esoterica »

tenpies wrote: post #115
ambernightcruse wrote: post #92

Earlier quoted context omitted.

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 y…

> The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. Obligatory comment that the measure of inflation used by the Fed - core inflation - intentionally under presents inflation. It literally takes a basket of all goods, sorts by least volatile, and picks the least volatile items possible.

Discarding the most volatile categories is not the same as throwing out the ones that increase the most. Energy prices fluctuate both up and down, so throwing out energy will frequently increase, not decrease the measure of core inflation.

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

#134

Post by [deleted] »

aishvar wrote: post #34
tuberelay wrote: post #23

The official US inflation measure is garbage. It doesn't include enough of the big 3 costs in people's lives : housing, education and healthcare. It includes whacky stuff like "oh your cellphone is faster now than 5 years ago, we're going to say that you're getting 10x the phone for roughly the same price and use that to disprove inflation". It ignores asset inflation (stocks, real estate, venture capital, everything…

That's just flat false. Look at the latest CPI report: https://www.bls.gov/news.release/pdf/cpi.pdf It includes the list of items, weightings, and price changes. All 3 of those (shelter, medical care, and education) are on there.

[deleted]

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

#135

Post by throwaway34241 »

nathan_compton wrote: post #82
twic wrote: post #78

Earlier quoted context omitted.

The thing that's glutted is the savings themselves - the number of dollar bills that have been scanned in and put in spreadsheets. That the spreadsheets are in the name of a small fraction of the population doesn't change the fact that there is a glut of the dollars.

Pretty sure it does - if you split that "glut" up evenly across the population of, say, earth, I'm pretty sure they would find more than "marginal returns" on its expenditure - perhaps not in the form of literal investments in monetary instruments, though. When its concentrated in the hands of a few, its marginal value is very small. The very wealthy aren't looking to spend that money on like actually useful things l…

A lot of the things you are talking about are spending. I think the savings glut theory is specifically about the demand for saving and loaning money for investments vs spending and borrowing money to invest, and there being a relatively high demand in dollars for the former. If you’re proposing decreasing saving via tax policy (on people with a high propensity to save) and increasing spending via fiscal policy, I think that fits right in.

Aside from wealth inequality increasing net saving (since wealthy people save a higher percent of their income), the trade deficit may also be a factor, since it means overall foreign countries are saving dollars (if they were spending the dollars we pay them on US goods there would be no trade deficit).

Low interest rates are a traditional way to discourage saving and encourage borrowing but interest rates are already quite low (real negative rates are a possibility with some inflation, but it’s questionable if investments that only make sense under negative rates are actually good investments).

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

#136

Post by throwaway743 »

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…

What you'll never hear is how the bottoming of unemployment has preceded the last 9 or so market crashes. So it's quite the opposite in terms of being an indication of the market's good health.

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

#137

Post by danans »

rayiner wrote: post #64
tuberelay wrote: post #23

The official US inflation measure is garbage. It doesn't include enough of the big 3 costs in people's lives : housing, education and healthcare. It includes whacky stuff like "oh your cellphone is faster now than 5 years ago, we're going to say that you're getting 10x the phone for roughly the same price and use that to disprove inflation". It ignores asset inflation (stocks, real estate, venture capital, everything…

Most inflation measures include housing, education, and healthcare. The perception that the national inflation measure isn’t accurate is rooted in the fact that a small but very vocal segment of the population (yuppies in coastal metro areas) are facing very high housing and educational costs. But that’s not true of most people. Housing prices aren’t skyrocketing in the Kansas City suburbs. Most people aren’t in coll…

> Housing prices aren’t skyrocketing in the Kansas City suburbs.

True, but neither are employment opportunities, so it's not a great comparison. They have plenty of housing supply relative to the demand.

https://www.bls.gov/regions/mountain-plains/news-release/are...

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

#138

Post by hash872 »

rayiner wrote: post #112
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…

Labor market participation rate is not a great measure. Look at the breakdown of changes in labor market participation by age: https://www.bls.gov/emp/tables/civilian-labor-force-particip... From 1998 to 2018 participation dropped just 2 points for those age 25-54. That is projected to stay stable through 2028. It went up for those 55+. The only place it dropped significantly was 16-24. I.e. our society is richer and…

FRED seems to have some different results https://fred.stlouisfed.org/series/CIVPART. These are huge numbers in a country the size of the US. Anyways, 'projected' is meaningless.

It's pretty widely acknowledged that disability is abused, it seems to be a mix of people with real problems and those without. The very high disability rates in a few counties I think shows that it's not always legitimate usage

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

#139

Post by edoceo »

esoterica wrote: post #132
roenxi wrote: post #124

Earlier quoted context omitted.

> The main threat to QE is inflation, which is hovering around 2% If I lent money at 6% interest from 2007 to today, I would have performed about the same as the capital gains from owning an equivalent amount of everyone's Favourite Shiny Rock, gold. Not including the recent price jump from QE4. Owning a rock should not be generating a real return. In reality, it probably isn't. Real inflation is likely different fro…

Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same period?

It didn't https://www.usinflationcalculator.com/inflation/consumer-pri...

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

#140

Post by roenxi »

esoterica wrote: post #132
roenxi wrote: post #124

Earlier quoted context omitted.

> The main threat to QE is inflation, which is hovering around 2% If I lent money at 6% interest from 2007 to today, I would have performed about the same as the capital gains from owning an equivalent amount of everyone's Favourite Shiny Rock, gold. Not including the recent price jump from QE4. Owning a rock should not be generating a real return. In reality, it probably isn't. Real inflation is likely different fro…

Gold is fairly volatile and you are cherry picking dates. The spot price of gold fell 45% from 2010 to 2015, do you think consumer prices fell 45% over the same period?

No, I specifically said the gold price change suggested the consumer price inflation rate wasn't measuring real inflation; so obviously I don't think changes in the gold price are having an immediate reflection in consumer prices. And I think in the timeframe you indicate they stopped QE and people noticed the gold price had risen much faster than new money had been created so scaled back.

Picking 2010-2015 is cherry picking the date substantially more than 2007-early 2019 when we're talking about QE spurred inflation. If I were cherry picking I'd go 2000 to late 2019 and get 19%. I'm just going a little pre-QE and then the lowest rate of return post-QE so people can't accuse me of cherry picking in favour of my argument. If you pick practically any pre-financial crisis to basically any post-crisis date it looks like a real rate of return.

4-5% real inflation lines up pretty well with what we'd expect inflation to be if we assumed doubling the money supply halved the value for money. So if asset inflation is a little high and consumer price inflation is a little low the theory seems reasonable.

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