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U.S. economy shrank at a 1.4% annual rate in the first quarter

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Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#281

Post by _aizw »

sublatio wrote: post #268
adventured wrote: post #258

Earlier quoted context omitted.

It's an excellent measure of the typical societal well-being in fact. On average there is a strong correlation between the two globally and there has been during the entire post WW2 era at the least. It is the rare outlier that doesn't see a correlation between societal well-being and GDP per capita. Shall we stroll down the list of high GDP nations? Surely it's unnecessary, as we all know the names. Oh ok let's do i…

> There are no great societal paradises where the GDP per capita is ~$500-$5,000. Ok, not paradise, but a counterpoint I can think of might be Bhutan at around $3,200.

How is Bhutan a good counterpoint?

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#282

Post by reducesuffering »

dragonwriter wrote: post #275
MichaelBurge wrote: post #244

Earlier quoted context omitted.

"They consume medical care" sounds a lot like the broken window fallacy: If you smash a bunch of windows, you're increasing GDP and creating jobs when they get repaired. To a ruthless cold-blooded optimizer, deleting the elderly should be good for the economy because you save on their maintenance costs and their resources get redistributed to more active investors. This might decrease GDP, but that only reflects on G…

> To a ruthless cold-blooded optimizer, deleting the elderly should be good for the economy because you save on their maintenance costs and their resources get redistributed to more active investors. This might decrease GDP Right, and the upthread discussion was about GDP, not some abstract unspecified quality of the economy.

GDP per capita would be up, the actual best metric for quality of life (mostly, ignoring military defense and informal trade more likely in developing countries)

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#283

Post by taylodl »

adolph wrote: post #277
taylodl wrote: post #125

Earlier quoted context omitted.

Inflation should take care of demand. A constrained supply is going to move the demand curve to higher prices - which we're seeing. The higher prices will bring demand in alignment with supply. Traditionally, to deal with the problem of constrained supply you would lower rates to make more capital available in order to create more supply-producing assets. I don't think the Fed should lower rates in this situation bec…

> Inflation should take care of demand. Indeed, may as well buy now (if you can) since you'll get less for the same money in the future. > The higher prices will bring demand in alignment with supply. Unless the stimulus cash injection policy allows people to continue to buy now (see above).

With everything opening back up and experiencing a labor shortage it would be very difficult to justify any further stimulus monies. I don't think we have to worry about that.

Economists expected a rise in inflation due to stimulus spending in 2020 - that had already been factored in to their forecasts. What has surprised them is the rate of inflation is higher than expected. I'm arguing the reason they're surprised is they were only considering financial policy and not also including the effects of constrained supply - which is also why they also missed forecasting a shrinking economy.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#284

Post by anamax »

MuffinFlavored wrote: post #273
HFguy wrote: post #153

Earlier quoted context omitted.

It is a common mistake, but stocks don't have a positive return because GDP increases over time. They have a positive expected return over time because they have a risk premium. That is, to invest and take on risk, an investor will demand a return above and beyond the expected value of the cash flows the business generates. Whatever path of GDP and/or population is expected to be is already factored into the discount…

> You have an expected return because you are taking on risk. I have a dumb question. Most publicly traded companies rarely issue new shares. Why does a company care about its share price? If we are being rewarded for buying and holding their shares based on the growth a company makes quarterly, how does the company benefit from their share price going up? They don't commonly take loans against their shares or issue…

> I have a dumb question. Most publicly traded companies rarely issue new shares. Why does a company care about its share price?

If a company doesn't care about share price, the shareholders will elect a board of directors who will install a management team that does care about share price.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#285

Post by jfengel »

MuffinFlavored wrote: post #273
HFguy wrote: post #153

Earlier quoted context omitted.

It is a common mistake, but stocks don't have a positive return because GDP increases over time. They have a positive expected return over time because they have a risk premium. That is, to invest and take on risk, an investor will demand a return above and beyond the expected value of the cash flows the business generates. Whatever path of GDP and/or population is expected to be is already factored into the discount…

> You have an expected return because you are taking on risk. I have a dumb question. Most publicly traded companies rarely issue new shares. Why does a company care about its share price? If we are being rewarded for buying and holding their shares based on the growth a company makes quarterly, how does the company benefit from their share price going up? They don't commonly take loans against their shares or issue…

The company's board is appointed by its shareholders. The shareholders care, so the board cares. And the board hires the executives, so the executives care.

You don't actually need a separate "fiduciary duty". It comes from the shareholders themselves. If the shareholders are happy with a company has motivations other than maximizing profit, they can.

There's even a legal category for that: Public Benefit Corporation. Some of them are publicly traded -- like Warby Parker. Public Benefit Corporations are somewhat protected from shareholders forcing them to pursue profits, which will hurt the stock price, but investors can value the stock based on the benefit they perceive the company to be doing. (Like Warby Parker giving away free glasses to poor people.)

For regular companies, the executives try to make the line go up because if they don't, they'll lose their jobs.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#286

Post by mediaman »

There's a lot of talk about high inflation rates, and what the Fed has to do to combat them, including causing a recession.

It's true that inflation is high, but the data shows us that most of this is being caused by factors not related to high economic demand: it's energy and food.

Core CPI also increased, but it's tempered considerably: the annualized rate of the latest month over month core CPI change is now under 4% (3.9%), having fallen from an annualized m/m rate of change of 6.5-7.5% a few months ago. 3.9% is a little higher than our target of 2%, but not as alarming as the headline rate of total CPI.

Everyone made fun of the claims of "transitory" inflation from late last year, but it's looking like -- except for energy and food, which are being driven by international events -- the drivers of base inflation really were one-off events, and are not continuing at the same rate. For example, international freight increased dramatically, from around $3,500 for a 40HC from Ningbo to LA to $18-20k, but it has since stabilized to around $15k - and inflation is a rate of change, so in that area we are not seeing a continued paced increase in cost. It's just stayed expensive.

Of course, energy and food matter, a lot. Food prices matter more than the price of, say, imported lawn chairs. But it's useful to ask why inflation is happening. Is it because our demand is too high and there's competition for resources? Then we need to slow down the economy to reduce competition for resources. That's the Fed's job. Or is it because there's a sudden reduction in available global oil and grain supply? Then it's not clear that causing a hard recession is going to fix it. In that case, we need to fix the decrease in supply. And in our current case, that's not easy: much of this increase is being driven by a misinformed dictator of a nuclear superpower hell-bent on escalating a regional war, and this type of problem is not one the Fed is well equipped to deal with.

What we're really seeing is supply-side driven inflation. The Fed should continue to drive core inflation back down to its target level of 2-2.5%, but we are already seeing success here. The real question is what we do about energy and food, and it's not clear the Fed's actions are going to solve that problem.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#287

Post by jbay808 »

colinmhayes wrote: post #269
adam_arthur wrote: post #248

Earlier quoted context omitted.

Housing units per capita is at an all time high. Housing units per working age person is at an all time high, by far. Housing units per household is at year 2000 levels and in line with history. Check the data, it's all on FRED What you're repeating is common conversational talking points spread as fact. It is true that building slowed in the 2010s, but housing was overbuilt in the 2000s too which neutralizes that. A…

Japanese property values are reasonable because their zoning is decided at the national level and local residents have next to 0 power to stop people from building things in properly zoned areas.

Japan also had a colossal real estate bubble pop in the early 90s, which created lasting lessons for Japanese real estate speculators.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#288

Post by mensetmanusman »

snake_doc wrote: post #276
mensetmanusman wrote: post #140

It’s always good to remind people that: GDP ~= Population * Productivity If your population growth flat-lines (which it did last year), productivity has to compensate. Can productivity compensate if the average age is getting older (people tend to be less productive after a certain median age)? One reason investing in index funds makes sense is the underlying assumption that global population growth keeps increasing…

GDP ~= Capital * Productivity * Labor Population You’re missing an critical component from the Solow model. https://economics.mit.edu/files/7181

I wrapped capital up in productivity since machines/software/tools are a facet of how the labor population manifests productive use of time (and to simplify the discussion:) )

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#289

Post by adam_arthur »

Wowfunhappy wrote: post #210
mensetmanusman wrote: post #140

It’s always good to remind people that: GDP ~= Population * Productivity If your population growth flat-lines (which it did last year), productivity has to compensate. Can productivity compensate if the average age is getting older (people tend to be less productive after a certain median age)? One reason investing in index funds makes sense is the underlying assumption that global population growth keeps increasing…

If there are fewer people to consume the fruits of productivity, does GDP decline matter?

It only matters to the extent that many existing systems are built on the assumption that the economy grows over time... e.g. taking on a 30y mortgage. If environment becomes deflationary, then it becomes a deathtrap.

I think nominal GDP targeting is pretty bad policy though. Deflation can be a great thing for people, if its focused in the right areas.

e.g. imagine population is cut in half overnight... suddenly housing becomes very cheap and affordable, even in previously desirable areas. Of course, need to deal with all the ramifications and second order effects of that (lots of financial instruments would implode as their inflationary baseline assumptions unravel).

Debt instruments of all kind become problematic with deflation. At least in their current form.

Fortunately the US could toggle on population growth on a whim through changes in immigration policy

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#290

Post by blueblisters »

free wrote: post #119
taylodl wrote: post #55

The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production is on lockdown and just about every product made, regardless of where it's made, is relying on part(s) coming from China. Supply is constrained and therefore prices are rising. Likewise, supp…

That's one thing that India got right in response to Covid. The primary focus of the stimulus to alleviate the supply side constraints[1][2]. Many were questioning the approach of focusing on supply side, making small changes, observing and reacting instead of a big mega stimulus the likes of USA did. Good to see some merit in India. [1] https://economictimes.indiatimes.com/news/economy/policy/wai... [2] https://twit…

I think India’s position was much more fiscally constrained to even consider a demand-side stimulus. I think a means-tested demand-side stimulus was still warranted given the number of people and industries who lost their livelihood because of multiple shutdowns.
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