Paul Krugman’s “Goldilocks” economy is likely to prove “transitory”
PPI and CPI preview: why Paul Krugman’s “Goldilocks” economy is likely to prove “transitory”
– by New Deal democrat
Sorry for the lack of posting yesterday. Every now and then, real life intrudes and, well, yesterday was one of those days.
All of the economic data this week is going to be crammed into tomorrow through Friday.
Most importantly for present purposes, I am very interested in dissecting both the producer and consumer price reports.
To give some background, I have taken the position that what has been, indeed, “very different” this time is that the very big – close to 10% – YoY decline in commodity prices has not been due to demand destruction, but rather to the unclogging of the post-pandemic supply pipeline.
Two graphs showed up yesterday in support of that proposition. First, Mike Konczai of the Roosevelt Institute decomposed sectors of the GDP to see whether each showed price declines, and if so, whether there was more or less demand. Less demand would mean demand destruction. More supply would mean an increase in quantity supplied. And here’s the result:
Particularly when it comes to goods, he wrote that 2/3’s of sectors showed increased demand. In short, the main driver of price declines was increased supply, not demand destruction.
Kevin Drum picked up on that with the below graph comparing the 3 month average of core inflation with the Goldman Sachs supply chain pressure index:
As he points out, inflation was already high before the 2021 stimulus ever took effect. And as supply chain pressure turned negative (below 0), the rate of inflation declined.
This is simply very persuasive evidence that a great deal of the improvement in the economy in the past year has been the sharp disinflation due to the end of supply chain pressures (except possibly in the motor vehicle sector, which is its own story).
To return to the inflation reports, I am most interested in whether the producer price report tells us that the big decline in commodity prices is over. There have only been two increases in commodity prices in the past 12 months:
I suspect we’ll get #3 tomorrow. If producer prices have stopped declining, then the tailwind I have described above has ebbed, and maybe ended.
As to consumer prices, I am most interested in the relative weights of decelerating shelter increases (which as I have written many times are well-forecasted by the more current home price indexes and new rent indexes) vs. increasing gas prices (/10 for scale in the graph below):
I suspect that the increase in gas prices is going to outweigh the deceleration in fictitious shelter inflation. If so, that will mean that there is an actual slight increase in a headwind in consumer prices. Put that together with the fact that the effect of most of the Fed’s interest rate hikes have not been fully manifested in the economy yet, and the “immaculate disinflation” or “Goldilocks” economy as described by Paul Krugman in this morning’s NY Times is going to prove to be very, ahem, transitory.
July producer prices: economic tailwind weakens, but still in place, Angry Bear, New Deal democrat
July CPI: almost everything except fictitious shelter costs are getting close to the Fed’s comfort range, Angry Bear, New Deal democrat.
Paul Krugman’s “Goldilocks” economy is likely to prove “transitory”
[ Agreed, unfortunately. ]
How Goldilocks Came to the U.S. Economy
NY Times – Paul Krugman – Sep 11
How Goldilocks Came to the U.S. Economy
Previously in the NY Times
Goldilocks and the Bidenomics Bears July 31, 2023
The Economic Case for Goldilocks January 6, 2022
https://www.nytimes.com/2023/09/12/business/economy/income-poverty-health-insurance.html
September 12, 2023
Poverty Rate Soared in 2022 as Aid Ended and Prices Rose
The increase in poverty reversed two years of large declines. Median income, adjusted for inflation, fell 2.3 percent to $74,580.
By Ben Casselman and Lydia DePillis
Poverty increased sharply last year in the United States, particularly among children, as living costs rose and federal programs that provided aid to families during the pandemic were allowed to expire.
The poverty rate rose to 12.4 percent in 2022 from 7.8 percent in 2021, the largest one-year jump on record, the Census Bureau said Tuesday. Poverty among children more than doubled, to 12.4 percent, from a record low of 5.2 percent the year before. Those figures are according to the Supplemental Poverty Measure, which factors in the impact of government assistance and geographical differences in the cost of living.
The increases followed two years of historically large declines in poverty, driven primarily by safety net programs that were created or expanded during the pandemic. Those included a series of direct payments to households in 2020 and 2021, enhanced unemployment and nutrition benefits, increased rental assistance and an expanded child tax credit, which briefly provided a guaranteed income to families with children.
Nearly all of those programs had expired by last year, however, leaving many families struggling to stay ahead of rising prices despite a strong job market and improving economy.
One pandemic program that did not expire was a temporary freeze in Medicaid terminations, a move that allowed the program to cover more Americans than ever. Because of that program, the share of Americans without health insurance matched a record low last year of 7.9 percent. But states are unwinding that temporary coverage, and the uninsured rate has probably increased in recent months.
The increasing cost of living added to the challenge last year. The poverty threshold, which is based on the cost of essential items like food and housing, rose sharply: A family of four living in a rental home was considered poor under the supplemental measure if the family’s income was less than $34,518 in 2022, up from $31,453 in 2021….
it seems that the auto industry has changed a lot, with OEMs mostly only scheduling production for higher priced products, and dealers adding lots of fees and additional charges (the infamous market adjustment), leading to much higher prices for vehicles. which at some point will lead to lots of dealerships going under, and maybe major issues for OEMS. and they seem to be comfortable just making fewer vehicles, and not really trying to compete any more for customers business. about the only the domestics have in their favor (so far) is they have more dealerships than foreign competitors have, for now any way
d w:
You got it right on the money for end product. They had additional lot space filled with vehicles while they waited for semiconductors which they cause the shortage of by not maintaining orders. They had leverage due to no finished product.
Let me give you real world numbers for margins in the telecommunication industry. Pre-COVID, fiber and connectivity products were being resold to carriers in the sub-10% GM range. Lead times were 4-8 weeks. During COVID, lead times went to over a year for many items and margins went up to 20-25 points. Carriers would pay anything to get product. Suppliers ramped up production but still could not meet demand. Today, supplies are abundant, inventories full and margins are down in the single digits again.
Whata surprise!!! So that supply chain stuff works harder when companies over order. Just like 2008.
The thrust and point to Paul Krugman’s writing now “seems” to be only to wholly support whatever Democratic policy happens to be. I wish there was less political advocacy in lieu of analysis, but obviously Krugman considers the time serious enough for advocacy that is barely tempered with analysis:
https://www.nytimes.com/2023/09/12/opinion/crime-inflation-polls-economy.html
September 13, 2023
Why people think things are worse when they’re really getting better
Crime, Inflation and Public Perceptions
By Paul Krugman
Paywalled.
Sometimes I post most of a Krugman op-ed. Not this time, but here’s the gist of it. (Miami, of course is Ron DeSantis country.)
Radical Democrats Are Pretty Reasonable
NY Times – Paul Krugman – July 3, 2018
Dave Brat (GOP-VA) served in the House from November 12, 2014 – January 3, 2019. Was defeated by Abigail Spanberger (Dem-VA). She won reelection in 2020 and 2022.
http://www.pnhp.org/news/2018/july/krugman-redefines-medicare-for-all-but-gets-it-wrong
July 5, 2018
Krugman redefines ‘Medicare for all,’ but gets it wrong
July 3, 2018
Radical Democrats Are Pretty Reasonable
By Paul Krugman
Alexandria Ocasio-Cortez’s upset primary victory has produced a huge amount of punditry about the supposed radicalization of the Democratic party, how it’s going to hurt the party because her positions won’t sell in the Midwest (and how well would Steve King’s positions sell in the Bronx?), etc., etc.. But I haven’t seen much about the substance of the policies she advocates, which on economics are mainly Medicare for All and a federal job guarantee.
So here’s what you should know: the policy ideas are definitely bold, and you can make some substantive arguments against them. But they aren’t crazy. By contrast, the ideas of Tea Party Republicans are crazy; in fact, Ocasio-Cortez’s policy positions are a lot more sensible than those of the Republican mainstream, let alone the GOP’s more radical members.
So, about Ocasio-Cortez’s positions: Medicare for all is a deliberately ambiguous phrase, but in practice probably wouldn’t mean pushing everyone into a single-payer system. Instead, it would mean allowing individuals and employers to buy into Medicare – basically a big public option. That’s really not radical at all.
https://www.nytimes.com/2018/07/03/opinion/radical-democrats-are-pretty-reasonable.html
***
“Medicare for all…would mean allowing individuals and employers to buy into Medicare – basically a big public option.” Who says? Well Paul Krugman and many others. This is not simply a debate about labels. This is a debate about fundamental policy. Are we going to accept the status quo with the tweak of a public option, or are we going to address the fundamental defects in our system that have driven up costs, perpetuated mediocrity, and left tens of millions vulnerable with impaired access to health care with all of its consequences and often with intolerable financial hardship?
This is similar to the debate that took place within the Democratic Party just before Hillary Clinton and Barack Obama began jockeying for the 2008 presidential nomination. The Democratic Party machine was in complete control of the policy debate on health care reform. The neoliberal party elite had decided that we were going to “build on what works” – employer-sponsored and union-supported plans – and reject single payer based on their concepts of what was politically feasible. Those of us advocating for the expanded and improved Medicare for all single payer approach were ejected from the conversations (often rudely so – they were in charge!).
Similarly, with the contest for the 2016 Democratic presidential nomination, the debate at the platform committee confirmed that the battle had not changed. The neoliberal leadership, represented by Neera Tanden, was successful in rejecting the single payer Medicare for all plank.
Tanden, of the Center of American Progress, has continued the fight for control of the policy debate by releasing their new proposal, “Medicare Extra For All.” Although some of the tweaks proposed seem beneficial, it basically continues the current dysfunctional, fragmented financing system, but with one important political change. They have stolen the “Medicare for all” label! This has contributed to the ubiquitous deception that the public option is Medicare for all. When the current candidates campaign on Medicare for all but behind the scenes are supporting an option to buy into Medicare while accepting campaign funds from the insurance and pharmaceutical industries, we need to call them on their deception.
It is no wonder the public is confused, even if they do not realize it. When Nobel laureate Paul Krugman jumps in and says Medicare for all is allowing individuals and employers to buy into Medicare as a public option, then we know that the political campaigns are corrupted with deceptions. How can we get the public to understand that a well designed, single payer national health program – a bona fide Improved Medicare for All – is the reform that they crave?
— Don McCanne, M.D.
The PNHP post was dated:
http://www.pnhp.org/news/2018/july/krugman-redefines-medicare-for-all-but-gets-it-wrong
July 5, 2018
Krugman redefines ‘Medicare for all,’ but gets it wrong
https://www.nytimes.com/2023/09/12/opinion/crime-inflation-polls-economy.html
September 13, 2023
Why people think things are worse when they’re really getting better
Crime, Inflation and Public Perceptions
By Paul Krugman
Remember “American carnage?” Donald Trump’s 2017 inaugural address was peculiar in many ways, but one of the most striking oddities was his obsession with a problem — urban crime — that had greatly diminished over the past generation. For reasons we still don’t fully understand, violent crime in America fell rapidly from around 1990 to the mid-2010s:
https://static01.nyt.com/images/2023/09/12/opinion/krugman120923_1/krugman120923_1-jumbo.png
True, there was a crime surge after the pandemic, which now seems to be ebbing. But that lay in the future. Trump talked as if crime was running rampant as he spoke.
Yet if Trump had false beliefs about trends in crime, he had plenty of company. Gallup polls Americans about crime every year, and all through the great decline in violent crime a majority of Americans said that crime was increasing:
https://static01.nyt.com/images/2023/09/12/opinion/krugman120923_2/krugman120923_2-jumbo.png
Were the crime statistics misleading? Homicide numbers are pretty solid. And people behaved as if crime were falling; notably, there was a wave of gentrification as affluent Americans moved into newly safe central cities. But all the same, people told pollsters that they believed crime was rising.
Why am I talking about public perceptions of crime? Well, last week, I wrote * about the gap between public perceptions of a terrible economy and the reality of an economy that is doing very well by normal standards. I also noted that Americans seem relatively upbeat about their own financial circumstances; they just think that bad things are happening to other people.
Not surprisingly, I got a lot of pushback….