The U.S. economy's big problem? People forgot what 'normal' looks like (2023)(washingtonpost.com)
washingtonpost.com
The U.S. economy's big problem? People forgot what 'normal' looks like (2023)
https://www.washingtonpost.com/opinions/2023/12/02/us-economy-2024-recovery-normal/
43 comments
Can the federal government build millions of housing units overnight [1]? No. Can they force insurers to not squeeze auto insurance consumers as hard [2]? No. Can they force automakers to reduce their vehicle prices? No (although they are cooling naturally due to the benchmark rate->auto loans->loan payments being unsustainable). Services remain inflated because of reduced labor force participation, and while immigrants and migrants have helped cushion the blow with regards to service inflation from a labor component perspective, appetite for mass deportation of undocumented folks remains high [3] [4].
Some of these problems are years, decades even in the making, structural even [5]. They will not be fixed overnight, nor was this administration the culprit. Some of these problems can’t be fixed because the electorate is…unsophisticated, to be polite.
[1] https://www.fanniemae.com/research-and-insights/perspectives...
[2] https://www.vox.com/2024/2/21/24078362/inflation-car-insuran...
[3] https://www.axios.com/2024/04/25/trump-biden-americans-illeg...
[4] https://www.bloomberg.com/news/articles/2024-03-05/us-immigr... | https://archive.today/eDWSt
[5] https://www.axios.com/2023/05/08/us-labor-shortage-older-wor...
Some of these problems are years, decades even in the making, structural even [5]. They will not be fixed overnight, nor was this administration the culprit. Some of these problems can’t be fixed because the electorate is…unsophisticated, to be polite.
[1] https://www.fanniemae.com/research-and-insights/perspectives...
[2] https://www.vox.com/2024/2/21/24078362/inflation-car-insuran...
[3] https://www.axios.com/2024/04/25/trump-biden-americans-illeg...
[4] https://www.bloomberg.com/news/articles/2024-03-05/us-immigr... | https://archive.today/eDWSt
[5] https://www.axios.com/2023/05/08/us-labor-shortage-older-wor...
I think the proximate cause of the problems is the trillions of dollars we printed in the year or two preceding the onset of the inflation: https://fred.stlouisfed.org/series/M1SL. Massive inflation happened right after a government intervention that economics theory would have predicted would cause massive inflation. I’m not sure you could identify a clearer real-world fact pattern for a government policy having an economic effect than what we have here. Calling the problem “structural” seems like a way to avoid acknowledging the obvious.
I think rather than denying that Biden was the “culprit,” it would be fairer to point out that Trump started it. He was the one that printed trillions to send out Trump-bucks with his signature on them. It would behoove Biden to acknowledge this and turn it back around on Trump, instead of trying to gaslight people into thinking the economy is great. But the structural problem he faces is that his coalition is people who want the government to give them free stuff, and a critical mass of affluent people who only want higher taxes on people richer than them. It’s a coalition that cannot be maintained without deficit spending.
I think rather than denying that Biden was the “culprit,” it would be fairer to point out that Trump started it. He was the one that printed trillions to send out Trump-bucks with his signature on them. It would behoove Biden to acknowledge this and turn it back around on Trump, instead of trying to gaslight people into thinking the economy is great. But the structural problem he faces is that his coalition is people who want the government to give them free stuff, and a critical mass of affluent people who only want higher taxes on people richer than them. It’s a coalition that cannot be maintained without deficit spending.
Why do you think the longer running money printing program, quantitative easing, didn’t increase inflation?
I mean look at the chart I linked. That's why. QE probably did cause inflation, in asset values, etc. We papered over many of the negative effects through importing cheap Chinese goods and cheap immigrant labor, which was a temporary bandaid that caused other problems.
With regards to real estate price inflation, I agree with you. Homeowners originated mortgages at 2-3%, allowing real estate prices to run wild at those cheap money rates. It will take years for sellers to make peace with forward looking asset prices at the current benchmark rate (some real estate prices can be supported by cash buyers, but investor demand will be low with the risk free rate where it is at, and incomes that can support mortgage payments cannot support current price levels). But there is no way to dig ourselves out of this real estate inflation mess besides building as much housing as possible, as fast as possible, if you want to reduce housing inflation (unless you want to start forcing people with low rate mortgages to sell their homes, or take action that destroys demand for housing).
> The Fed resumed purchasing massive amounts of debt securities, a key tool it employed during the Great Recession. Responding to the acute dysfunction of the Treasury and mortgage-backed securities (MBS) markets after the outbreak of COVID-19, the Fed’s actions initially aimed to restore smooth functioning to these markets, which play a critical role in the flow of credit to the broader economy as benchmarks and sources of liquidity. On March 15, 2020, the Fed shifted the objective of QE to supporting the economy. It said that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities over “the coming months.” On March 23, 2020, it made the purchases open-ended, saying it would buy securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions,” expanding the stated purpose of the bond buying to include bolstering the economy. In June 2020, the Fed set its rate of purchases to at least $80 billion a month in Treasuries and $40 billion in residential and commercial mortgage-backed securities until further notice. The Fed updated its guidance in December 2020 to indicate it would slow these purchases once the economy had made “substantial further progress” toward the Fed’s goals of maximum employment and price stability. In November 2021, judging that test had been met, the Fed began tapering its pace of asset purchases by $10 billion in Treasuries and $5 billion in MBS each month. At the subsequent FOMC meeting in December 2021, the Fed doubled its speed of tapering, reducing its bond purchases by $20 billion in Treasuries and $10 billion in MBS each month.
https://www.brookings.edu/articles/fed-response-to-covid19/
https://www.axios.com/2023/12/09/mortage-rates-housing-marke...
> The Fed resumed purchasing massive amounts of debt securities, a key tool it employed during the Great Recession. Responding to the acute dysfunction of the Treasury and mortgage-backed securities (MBS) markets after the outbreak of COVID-19, the Fed’s actions initially aimed to restore smooth functioning to these markets, which play a critical role in the flow of credit to the broader economy as benchmarks and sources of liquidity. On March 15, 2020, the Fed shifted the objective of QE to supporting the economy. It said that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities over “the coming months.” On March 23, 2020, it made the purchases open-ended, saying it would buy securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions,” expanding the stated purpose of the bond buying to include bolstering the economy. In June 2020, the Fed set its rate of purchases to at least $80 billion a month in Treasuries and $40 billion in residential and commercial mortgage-backed securities until further notice. The Fed updated its guidance in December 2020 to indicate it would slow these purchases once the economy had made “substantial further progress” toward the Fed’s goals of maximum employment and price stability. In November 2021, judging that test had been met, the Fed began tapering its pace of asset purchases by $10 billion in Treasuries and $5 billion in MBS each month. At the subsequent FOMC meeting in December 2021, the Fed doubled its speed of tapering, reducing its bond purchases by $20 billion in Treasuries and $10 billion in MBS each month.
https://www.brookings.edu/articles/fed-response-to-covid19/
https://www.axios.com/2023/12/09/mortage-rates-housing-marke...
Lack of supply is the cause in some popular metro areas. But that’s not the whole story. Prices are exploding even in places that are experiencing virtually no population growth. Or where growth is below historic trends. The price of my house has doubled, in a country where population growth has been like 1% annually (and it’s a red county with lots of farmland where building housing is relatively cheap and easy). That’s not because all the yuppies want to move to exurban Maryland.
I don’t understand the resistance to acknowledging that inflation is the predictable effect of money printing. The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation. It’s a textbook outcome from easily identifiable policy choices.
I don’t understand the resistance to acknowledging that inflation is the predictable effect of money printing. The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation. It’s a textbook outcome from easily identifiable policy choices.
> I don’t understand the resistance to acknowledging that inflation is the predictable effect of money printing.
Because it only tells a fraction of the story, if any. Again: why didn’t inflation explode between 2008 and the pandemic when way, way more money was being printed into the economy by quantitative easing?
You hand waived it away as due to cheap labor/imports/whatever. Pandemic induced supply chain collapses, not money printing, had a massive amount to do with inflation going through the roof. Businesses realizing they can gouge consumers who have no real recourse did, too.
Why only point at the stimulus while ignoring other money printing activities and downplaying all the other contributors to inflation?
Because it only tells a fraction of the story, if any. Again: why didn’t inflation explode between 2008 and the pandemic when way, way more money was being printed into the economy by quantitative easing?
You hand waived it away as due to cheap labor/imports/whatever. Pandemic induced supply chain collapses, not money printing, had a massive amount to do with inflation going through the roof. Businesses realizing they can gouge consumers who have no real recourse did, too.
Why only point at the stimulus while ignoring other money printing activities and downplaying all the other contributors to inflation?
> between 2008 and the pandemic when way, way more money was being printed into the economy by quantitative easing?
The very helpful correction in a sibling comment notes that the majority of the change ($11 trillion) was from an accounting change.
But even then, M1 money supply increased from $1.6 trillion to $4 trillion gradually from 2008 to 2020. It then increased from $4 trillion to (20-11.4 = 8.6 trillion) from February 2020 to June 2022. So that’s $2.4 trillion over 12 years due to QE, and $4.6 trillion over two years due to the pandemic response. How is that still not the obvious cause of the inflation?
The very helpful correction in a sibling comment notes that the majority of the change ($11 trillion) was from an accounting change.
But even then, M1 money supply increased from $1.6 trillion to $4 trillion gradually from 2008 to 2020. It then increased from $4 trillion to (20-11.4 = 8.6 trillion) from February 2020 to June 2022. So that’s $2.4 trillion over 12 years due to QE, and $4.6 trillion over two years due to the pandemic response. How is that still not the obvious cause of the inflation?
> It’s a textbook outcome from easily identifiable policy choices.
There's no wide agreement that either MMT or Fiat currency is that predictable.
The case for MMT and "printing money" (right or wrong) is made in popular books such as Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...
and explored in documentaries such as Finding the Money (https://www.imdb.com/title/tt27513787/) and PIIGS (https://en.wikipedia.org/wiki/Piigs)
These may or may not convince you, but they might assist in understanding the opposing viewpoint.
There's no wide agreement that either MMT or Fiat currency is that predictable.
The case for MMT and "printing money" (right or wrong) is made in popular books such as Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...
and explored in documentaries such as Finding the Money (https://www.imdb.com/title/tt27513787/) and PIIGS (https://en.wikipedia.org/wiki/Piigs)
These may or may not convince you, but they might assist in understanding the opposing viewpoint.
I’m actually persuaded that MMT is basically correct. But MMT doesn’t say that money printing doesn’t cause inflation. It says that it won’t cause inflation if there’s slack in the economy, or money is taken out of the economy through higher taxes. The key point of MMT, as I understand it, is that central government budgets don’t need to balance for the sake of it. But taxation is the primary lever for controlling inflation.
What we’re seeing is what MMT would predict. We had essentially full employment in February 2020. Then we more than doubled the money supply, and didn’t raise taxes. We would expect to see massive inflation even under MMT.
We are all de facto MMT believers now, insofar as nobody is willing and able to balance the budget. That shows the policy failure of this administration. MMT would say that we need to raise taxes to take money out of the economy. We especially need to raise taxes on the upper middle class, who are responsible for the lion’s share of consumer spending. But Biden has stuck to this ridiculous $400,000 floor for raising taxes.
What we’re seeing is what MMT would predict. We had essentially full employment in February 2020. Then we more than doubled the money supply, and didn’t raise taxes. We would expect to see massive inflation even under MMT.
We are all de facto MMT believers now, insofar as nobody is willing and able to balance the budget. That shows the policy failure of this administration. MMT would say that we need to raise taxes to take money out of the economy. We especially need to raise taxes on the upper middle class, who are responsible for the lion’s share of consumer spending. But Biden has stuck to this ridiculous $400,000 floor for raising taxes.
I'm not in or from the US so that's a strong "What do you mean 'we', Ke-mo sah-bee?"
> But Biden has stuck to
My impression of the US system is there's an excess of players able to throw sticks in bicycle wheels and unbalance most plans and Biden (regardless of his age, cognitive slips, and US left or right party affiliation) appears to be one of the rare few who can manage to steer some bicycles through the chaos ..
I don't know enough of the gory details you have going on there, my first thought would be that he's not aiming higher as his political gut might be telling him it would never get anywhere if it did.
> But Biden has stuck to
My impression of the US system is there's an excess of players able to throw sticks in bicycle wheels and unbalance most plans and Biden (regardless of his age, cognitive slips, and US left or right party affiliation) appears to be one of the rare few who can manage to steer some bicycles through the chaos ..
I don't know enough of the gory details you have going on there, my first thought would be that he's not aiming higher as his political gut might be telling him it would never get anywhere if it did.
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because it isn't that simple. details matter and the way PPP loans were implemented is why there was such bad inflation, and it's not just the printing of money itself. we want the world to be explainable by tidy neat rules but unfortunately reality is a lot more complicated and we can't go back in time and run an experiment with a different 2022 so we're left trying to reason about things and with a system as complex as the US economy, the simple answer doesn't account for all the variables that went into the system to cause inflation. Which is to say, I believe that a different president, with a different implementation of PPP loans would not have resulted in the same inflation. The amount of fraud and graft that happened soaked the system leading to inflation that didn't have to happen.
> The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation.
M1 didn't include savings accounts in December 2019 and it does now, that's the majority of M1 diff...
That makes me think your conclusions are based off talking-head points instead of first principles, as when your conclusion hinges on M1 changes, you'd think you'd do a few minutes searching what is M1...
M1 didn't include savings accounts in December 2019 and it does now, that's the majority of M1 diff...
That makes me think your conclusions are based off talking-head points instead of first principles, as when your conclusion hinges on M1 changes, you'd think you'd do a few minutes searching what is M1...
Thank you, I wasn’t aware of that change. I’m trying to make sense of what’s going on, and it’s hard to do since everyone seems to be in the can for one political faction or the other, and money printing is something both parties did so people aren’t talking about it.
According to that source the accounting change is responsible for $11.4 trillion of the change. That means M1 really only went up from $4 trillion to $8.6 trillion in two years from February 2020 to June 2022. So we printed more money in two years of pandemic than in the previous twelve years of quantitative easing. How’s that still not the obvious culprit?
According to that source the accounting change is responsible for $11.4 trillion of the change. That means M1 really only went up from $4 trillion to $8.6 trillion in two years from February 2020 to June 2022. So we printed more money in two years of pandemic than in the previous twelve years of quantitative easing. How’s that still not the obvious culprit?
It's probably some of the culprit. But we've had 20% CPI since 2020, so it doesn't wholly explain everything in a "double the money, double the inflation" way. And a higher money supply doesn't mean that quality of life is worse either, since I'm sure you wouldn't want to go back to the 1930 US economy with vastly less money supply. If we could 2x the money supply again and get 1.1x goods & services for it, we should. Ultimately, I'm still not saying that recent inflation / money supply was good, just that you can't simply conclude that "because money supply went up, it's worse for people now."
Nobody is saying that money supply itself is what’s bad. The problem is that increasing it too quickly caused inflation that’s pissing people off.
https://collabfund.com/blog/the-fed-isnt-printing-as-much-mo...
Yep it was an accounting change.
Though the additional wave of stimmy checks plus continued buying of MBS during 2021 was definitely not good for inflation.
Yep it was an accounting change.
Though the additional wave of stimmy checks plus continued buying of MBS during 2021 was definitely not good for inflation.
It wasn’t just an accounting change. The money supply still more than doubled over just two years.
OK, but the fact that the definition of M1 changed right around the time Biden took office makes me wonder what Biden policies the change might have been intended to obscure.
(I know the Fed is not under the direct control of the White House, but the change might've been made by decision-makers at the Fed whose sympathy with Biden overrode their commitment to impartially reporting monetary information to the public.)
(I know the Fed is not under the direct control of the White House, but the change might've been made by decision-makers at the Fed whose sympathy with Biden overrode their commitment to impartially reporting monetary information to the public.)
The sibling comment's linked article answers this.
"If you put money in a checking account, regulators make banks set aside a cushion as reserves in case they get into trouble. But if you put money into a savings account, regulators tell banks they don’t have to reserve anything. The catch is that it’s only considered a savings account if the consumer is allowed to make no more than six withdrawals per month.
It’s worked that way for years.
But then Covid hit, and regulators realized that having trillions of dollars in savings accounts with limited withdrawals was a burden as 22 million people lost their jobs.
So last April the Fed changed the rules and eliminated the six-withdrawal limit on savings accounts. It wrote:
But it changed the relationship between M1 and M2.
Savings accounts are measured in M2 and left out of M1. But once the six-withdrawal rule was removed, every savings account suddenly became, in the eyes of regulators and people who make these charts, a checking account.
So M1 exploded higher. Not because the Fed printed a bunch of money, but because trillions of dollars in savings accounts were reclassified as checking accounts."
https://collabfund.com/blog/the-fed-isnt-printing-as-much-mo...
"If you put money in a checking account, regulators make banks set aside a cushion as reserves in case they get into trouble. But if you put money into a savings account, regulators tell banks they don’t have to reserve anything. The catch is that it’s only considered a savings account if the consumer is allowed to make no more than six withdrawals per month.
It’s worked that way for years.
But then Covid hit, and regulators realized that having trillions of dollars in savings accounts with limited withdrawals was a burden as 22 million people lost their jobs.
So last April the Fed changed the rules and eliminated the six-withdrawal limit on savings accounts. It wrote:
The interim final rule allows depository institutions immediately to suspend enforcement of the six transfer limit and to allow their customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits at a time when financial events associated with the coronavirus pandemic have made such access more urgent.
But it changed the relationship between M1 and M2.
Savings accounts are measured in M2 and left out of M1. But once the six-withdrawal rule was removed, every savings account suddenly became, in the eyes of regulators and people who make these charts, a checking account.
So M1 exploded higher. Not because the Fed printed a bunch of money, but because trillions of dollars in savings accounts were reclassified as checking accounts."
https://collabfund.com/blog/the-fed-isnt-printing-as-much-mo...
Thanks. Here is the graph for M2: https://fred.stlouisfed.org/series/M2SL
But M1 did explode “because the Fed printed a bunch of money.” Even excluding the accounting change the Fed more than doubled the M1 money supply, printing more money in two years than in the previous 12 years.
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Additional citation:
https://news.ycombinator.com/item?id=40250226 ("HN: An Oil Price-Fixing Conspiracy Caused 27% of All Inflation in 2021")
https://www.thebignewsletter.com/p/an-oil-price-fixing-consp... ("BIG by Matt Stoller: An Oil Price-Fixing Conspiracy Caused 27% of All Inflation Increases in 2021")
https://news.ycombinator.com/item?id=40250226 ("HN: An Oil Price-Fixing Conspiracy Caused 27% of All Inflation in 2021")
https://www.thebignewsletter.com/p/an-oil-price-fixing-consp... ("BIG by Matt Stoller: An Oil Price-Fixing Conspiracy Caused 27% of All Inflation Increases in 2021")
It was hilarious to me that they described it as easy to get a job, as I’ve recently watched several friends and my partner struggle to get minimum wage jobs. I refuse to believe that the numbers aren’t carefully chosen to save face.
Yeah, it’s not easy to get a job. At all. Maybe I’m insulated in a white-collar bubble, but it seems like there’s a pervasive sense of ‘quiet desperation’ across all industries.
WaPo is using data that government published. Your annedoctal observations are insignificant to what Joe instructed the bureau to write the data even if it is "inaccurate". I foresee WaPo will do a surprise pikachu face sometime in Q3.
As a UK resident who visits the US from time to time I was shocked by the cost of everything. In the past it's usually been cheaper than the UK. Now something basic like a mediocre sandwich bought in a shop is like twice as much as London. And when I bought my $8.50 sandwich in a shop in Austin and tried eating it I was followed down the street by a woman saying she was hungry would I give her some so I did and she really was hungry. In London we have beggars saying "I'm hungry" but they all just want money and are not interested in food. Something's not quite right.
>the loss in purchasing power is understated by CPI, because it has hit areas where people have little flexibility to reduce spending without reducing standard of living: food, transportation, etc.
"The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it". —Jeff Bezos <https://sports.yahoo.com/amazon-ceo-jeff-bezos-explains-2123...>
"The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right. There's something wrong with the way you are measuring it". —Jeff Bezos <https://sports.yahoo.com/amazon-ceo-jeff-bezos-explains-2123...>
Don't forget that the Washington Post is owned by Amazon, of course they're not to be trusted.
They should just stop writing about the employment and labour markets, it's embarrassing for them
They should just stop writing about the employment and labour markets, it's embarrassing for them
It is an interesting phenomenon, depending on what numbers you chose to look, things can paint a different picture. For example, labor force participation percentages would tell you all those jobs that are being added, are probably going to the same people, as they get to work more than one job to support themselves.
https://fred.stlouisfed.org/series/CIVPART
https://fred.stlouisfed.org/series/CIVPART
Seems like an aging population explains most or all of the post-2000 downturn, no? We're currently at a 20 year high of the 25-54 age group's employment: https://fred.stlouisfed.org/series/LNS11300060
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Or perhaps we refuse to accept what was normal-all the horrible shit mentioned here, unremedied, unmentioned in the editorial. Fuck off WaPo.
No one forgot. The ruling class doesn’t care and they’re dunking on plebs every day.
"Peasants! Stop complaining! It's as good as it will get for you!"
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I'm pretty sure this oped actually means Joe Biden's big problem.
The U.S. economy is for people? Now that would be a really big problem.
According to Redfin, the house we live in (purchased during the 2016 election) could no longer be purchased using an FHA loan, because the limits haven’t kept up with inflation. And even if you could swing the down payment, your monthly payments would be about triple what we pay now.
But yes, WaPo, the problem is that the economy is too good.