8.3 Million New Jobs

The below quote by President Biden about national employment in the US vividly shows you how easy it is to look at a bunch of data and make it say what you want it to say. 

Joe Biden quote taken from the Wall Street Journal on May 31*. 

     In January 2021, when I took office, the recovery had stalled and Covid was out of control. In less than a year and a half, my administration’s economic and vaccination plans helped achieve the most robust recovery in modern history. The job market is the strongest since the post-World War II era, with 8.3 million new jobs, the fastest decline in unemployment on record, and millions of Americans getting jobs with better pay.

"8.3 million new jobs". What I ask is a new job? The data** is clear -- payroll employment increased by around 8 million jobs between January of 2021 and April of 2022. But what he fails to make clear is that it decreased by about 9 million jobs between January 2020 and January 2021. As of the latest figures, employment in April of 2022 remains lower than in January of 2020. New jobs? I don't think so. Old jobs recycled perhaps.

Worse yet, if you compare the recent "high" number of 151.314 million jobs in April 2022, it is lower than the high of 151.337  million jobs in October of 2019.   Good work Joe. Your employment number is no higher than it was in 2019. Pat yourself on the back again. 

You might complain to me that I am being unfair. Covid not only infected many of our bodies, but it also sickened our economy. Agreed. What I quibble with are the words used by a politician. These are not new jobs. In fact, whatever incredibly aggressive policies he and the Fed used, our national economy remains below par. Employment typically grows by at least 2 million jobs per year in the US. Employment has not grown at all in the US for more than 2 years. That puts us about 4 million below what would have happened in typical times. The strongest job market since World War II? Please Joe. Remember the story of Pinocchio? 

What should Joe say? He should not say things are good (because of him). He should say that we have not yet figured out how to get back to normal. 

But even that admission wouldn't satisfy me because I know Joe's preferences. He will pile on even more demand stimulus and cause inflation to rise even more. That would be disastrous. The economy suffered a huge blow. Policy administered some smelling salts and we are back on our feet -- wobbly but back up on our feet. Administering a heap of pain pills now might just make things worse. Doctor Joe, sit back and take a big breath.   

*https://www.wsj.com/articles/my-plan-for-fighting-inflation-joe-biden-gas-prices-economy-unemployment-jobs-covid-11653940654?mod=hp_opin_pos_3#cxrecs_s

**https://data.bls.gov/cgi-bin/surveymost

Life in Seattle in 2022

Its been around three years since I left Bloomington and came to Seattle. 

I went from 3000+ square feet of housing to around 600. I used to have a cleaning lady but these days I can clean my tiny place with a duster buster. 

I went from a town where I knew people and places to one where I am a stranger. Every name and place is new to me here. 

Seattle is a big city with all the attendant congestion but I live in a neighborhood that is known to be a recreational hub with lots of restaurants, bars, and a beautiful lake. If I get on I5 I can experience plenty of traffic and I can be downtown in 15 minutes. 

Even in my neighborhood parking is at a premium. It is not easy to find a spot. Luckily my unit comes with one parking space in a secure garage. It comes with a huge garage door that grunts and groans. I sit here at my laptop looking out my window overlooking 70th street. I watch people try to park their SUVs in tiny parking spots on the street below. . 

Victor runs the Mexican restaurant that sits within a five minute walk from my place. I love the nights when I sit in his restaurant at a table and he joins me and we talk about changes in Seattle. Sometimes Tequila is involved. I also live near Starbucks and the Green Lake Bar & Grill.

The gym is also a five minute walk. It is a neighborhood gym and now after a few years of living here I feel like I know the staff and many of the customers. Going there is both physical and social. The gym attracts people of all ages but if I go at 11am, I am mostly grunting and groaning with a lot of other old people. It feels safe and friendly. 

Jason and family live close to me too and I am lucky to have them so near. Last Saturday he grilled some amazing ribs for the family.

I read about inflation a lot and there is no question that just about everything costs more than when I first moved here. Luckily I bought my place so I don't have to worry about the landlord raising my rent. If the price of my unit increases, then that means I can sell it for a better price. But I am guessing I won't be doing any selling anytime soon. 

Luckily I live close to most things. I can walk to the grocery store but sometimes I get in the car and drive to the Safeway -- a mile or two down the road. I can drive to Jason's house in 10 minutes. Some friends also live nearby. Even though gas prices are so high, I don't drive enough for the price to impact me very much. 

Aging is challenging. At 76, my joints are less reliable, my hearing is fading, and my memory is challenging. I can remember things from a long time ago -- but sometimes it takes me a moment to remember what I ate for breakfast. Overall I feel pretty good and manage to do a lot of walking and spending time in the gym. 

I will continue to use my blog space to pontificate about macroeconomic trends and issues but some friends encouraged me to reflect and write about a wider pool of topics. I am getting sick of taking a negative slant on macroeconomic policy. I don't see the bad guys disappearing and it is getting boring saying the same negative stuff over and over. I am losing my sense of humor. That's not good. 

So I hope you approve of this kind of message. I am enjoying the change myself.  

Inflation the Scapegoat

Inflation has become the new Frankenstein monster . They tell us it erodes our buying power. Even with large recent increases in incomes, the rise in the cost of goods and services reduces our buying power. What?  I got a big raise this year and even that wasn't enough to overcome that dastardly inflation. Damn that inflation.

Biden says who me? Congress points the finger of shame at Biden. It must be Covid. Supply chains. Greedy corporations.  Putin. Green people from Mars. 

So let's back up and start with a few simple ideas. Inflation is defined as the percentage change in prices -- usually prices of the typical goods and services that people buy. It's a number. It gets calculated every month. Easy enough. But that easy start causes most of the confusion because it doesn't specify time period. 

Time period? Inflation, like many other economic indicators, bounces around from month to month. If February's CPI was 100 and it rises to 150 in March, we say yikes. That's a 50% increase in only one month. While that fits the basic definition of inflation, its only one month. It might fall by 55% the next month if that one month change was a temporary event. 

Point -- technically inflation might be a big number from month to month but it doesn't mean squat for the national economy. One month's price rise does not eat away at our incomes. Yes, it can be called inflation -- but its not INFLATION. I used all caps to distinguish macroeconomic inflation from the month to month reported statistic. 

INFLATION in a macro sense exists when inflation becomes a macro issue. It becomes a macro issue when it lasts a while. Let's arbitrarily say that "a while" is a minimum of 6 months. Like a big wave hitting the beach, macro inflation becomes recognizable when it has a little time to build. If you learn that prices rose by 10% over the last 6 months then that sounds like it could affect buying power long enough to create a macro impact. It also sounds like it night endure even longer. Crap, the first wave hit us and now comes along a second wave. 

Okay -- so a price index might rise or fall for a month, but we get INFLATION when it rises in a sustained way. How do we know the difference?

Here is where cause and effect plays in. If bugs eat the tomatoes in June, we might get a big rise in the price index for a month or two. Fertilizer might solve that problem. But what happens if  inflation rises for 6 or more months? That would be a hell of a lot of bugs. Rather we look elsewhere for the source of the inflation.

I doubt Covid has sustained effects and I doubt supply chain issues do either. I doubt greed has such a history. Which gets us back to the usual suspects. You don't have to be an economic wizard to know that  inflation is usually the result of expansionary monetary and/or fiscal policy -- The Fed and the Congress have the singular powers to use policy to cause large and sustained changes in national spending. The Fed juices up spending by  lowering interest rates and making money easier to find. Congress unleashes spending by its own spending or by motivating us to spend by giving us larger transfer payments and/or lower tax rates. 

Only the Fed and Congress can create Frankenstein and engineer wave after wave of higher spending and higher inflation. All the other talk is nonsense. But like your kid who got caught stealing in your neighborhood candy store -- neither the Fed nor the Congress is admitting that they need remediation. Sadly, they do need it. In the meantime say hello to INFLATION. 

Kicker by Default

Because I was a weird kid, I used to bring my football and my kicking tee to the playground that was across the street from Coconut Grove Elementary School. The walk was no more than one long block from my house at 3180 Oak Avenue. That must have been around 1956. I was 10. 

Back then no one I knew wanted to be a kicker. Yes, there were some famous professional football kickers but no one I knew wanted to be the next Lou Groza. We all wanted to be star Heisman Trophy running backs like Hopalong Cassady of Ohio State and the Detroit Lions. I had no pretense of being a great player so I spent a lot of hours in that playground kicking the ball against the wire fence that protected the windows of the dining hall at the school. Kick -- get the ball -- set it up -- kick again. As I said, I was a weird kid. 

As a result of all that, I became a kicker. The truth is that even with all that practice I was not a really great kicker. Since most kids were not weird and most kids did not want to be a kicker, it fell on my toe by default because I was not worse than the other kids. I was very lucky because I played on a high school team with "There is No Defense for Larry Rentz" and we won all but our last regular season game. That put us into the playoffs and we won the Florida state championship. Yes we won by my last minute field goal but even that kick was not especially long or interesting. Larry Rentz was the holder. 

At 76 years old, it is fun for me to bore you with some of my personal history. It's also fun to think about how different things were a half a century ago. For example, Dwight D. Eisenhower was president in 1956 and Richard Nixon was his VEEP. My parents wore campaign buttons that said "I like Ike'. No one I knew liked Nixon. He was not a very likable character. He goofed up at the Watergate Hotel and was pretty much a disgrace. 

Today we hear endless stories about Covid and Russia. Back then we heard endless stories about Nixon and the Soviet Union. In Miami we were 90 miles from Cuba and we were sure the Soviets were going to use Cuba as a place to attack the US. Some of my richer friends built bomb shelters in their backyards and the rest of us walked around on pins and needles waiting to be blown into smithereens. 

Back then some girls wore poodle skirts. They also wore something called Bobby-socks. We went to events called sock hops where we danced to 1950s rocknroll songs in the school gym. My high school was in the richest part of Miami -- Coral Gables. I did not live there but I could either attend Coral Gables (CGHS) or Miami High. I had the choice. My parents thought CGHS was a better school so that's where I went.  

Going to school with the richest kids in Miami was an eye-opener. They shopped in the best stores and wore the coolest clothing. I wanted to look like them so I spent a lot of my youth earning money mowing yards and painting houses and I spent it all on clothes. One very peculiar thing about our high school was the social life. Those rich kids really liked to party. We even had fraternities and sororities. The coolest kids were in a frat named Ching Tang. I was in something called Wheel Club. Sometimes the boys in those Frats would get in fights. I recall when Larry Rentz decided to join Wheel instead of Ching Tang. The Chinks came to our next Wheel party and we had a sort of gang war. Ouch.

I believe I have hit my limit for childhood boredom. I promise to get back to macroecon next week. 

Monetary Gobbledgook

I have been complaining for weeks about the Fed's inherent bias against fighting against inflation. And they have done it again -- they have waiting so long to work against inflation that they now are between that rock and hard place. Inflation has accelerated and that means that to effectively stop the climb, there will be very negative consequences to economic growth. 

So how does the Fed handle this? Easy, They obfuscate. I just read an article that had an easy title. The title indicated the Fed is proposing to use some tools that will work against inflation. Sounds good. Not. Reading the article was like reading an advanced physics textbook. Instead of blatantly or directly addressing the idea that setting higher interest rates would be used to slow demand and quell inflation, we got a long and complicated thesis about the Fed's buying behavior. 

The Fed is not buying the latest spring fashions. The Fed says it is going to stop buying as many government bonds. When I taught monetary theory, the story was pretty simple. If the Fed stops buying or it begins selling its huge stock of government bonds, it usually has the effect of reducing the market prices of these bonds. As the market price of the bonds falls, the return or market interest rate rises. That rise in interest rates is designed to reduce spending and inflation. Pretty simple. 

But not now. I never saw any of that in the recent articles. Instead we are fed a diet of minutia about passive runoff.  Passive runoff? Is this gardening 101? That sounds like a urinary issue for over-70 guys. But no, passive runoffs appears to be the way the Fed is going to fix our inflation problem. They are not going to aggressively sell some of their infinite stockpile of government bonds. That might be too clear. Maybe too aggressive. Instead, behind the scenes they are not going to replace some of the bonds they hold that mature. Passive. Runoff. Wow. 

Do they ever say why they want to behave passively? I can't find it in anything I see published. I am left to conclude that they want to be clever. Better, they think, to obfuscate than to be clear about the fact that they are fighting inflation. Maybe this way, when the usual negative growth follows a policy to fight inflation, they can blame it on corporate greed. Or blame it on Elvis. If no one understands what they are doing, the Fed can skate. If people do not understand what the Fed is doing on its backdoor, then the negative effects of fighting inflation on economic growth might at first be smaller. But the Fed can't hide its true intent for long. People will figure it out eventually and then all hell is going to break loose as dismal economic expectations take hold. 

What's the alternative? The alternative is honesty. Sorry folks, we waited too long to fight inflation and now we are going to have a recession.  Either way, we are going to have a recession if the Fed fights against rising inflation. They can choose to be honest or instead they can confuse people with strange language. So far we are not getting much honesty. Passive runoff. Really?