Is Slow Growth Good?

There are quite a few reactions to the recent dip in the stock markets, some with a tinge of panic. It seems premature to me—for DJIA at least it’s not even a correction yet. This report from Matt Egan at CNN puzzled me a bit:

New York
CNN Business
—
Deutsche Bank raised eyebrows earlier this month by becoming the first major bank to forecast a US recession, albeit a “mild” one.

Now, it’s warning of a deeper downturn caused by the Federal Reserve’s quest to knock down stubbornly high inflation.

“We will get a major recession,” Deutsche Bank economists wrote in a report to clients on Tuesday.

The problem, according to the bank, is that while inflation may be peaking, it will take a “long time” before it gets back down to the Fed’s goal of 2%. That suggests the central bank will raise interest rates so aggressively that it hurts the economy.

“We regard it…as highly likely that the Fed will have to step on the brakes even more firmly, and a deep recession will be needed to bring inflation to heel,” Deutsche Bank economists wrote in its report with the ominous title, “Why the coming recession will be worse than expected.”

This is the part that puzzled me:

Of course, no one knows precisely how this will play out. Although Deutsche Bank is pessimistic – it’s the most bearish among major banks on Wall Street – others contend this gloom-and-doom is overdone.

Goldman Sachs concedes it will be “very challenging” to bring down high inflation and wage growth, but stresses that a recession is “not inevitable.”

“We do not need a recession but probably do need growth to slow to a somewhat below-potential pace, a path that raises recession risk,” Goldman Sachs economists wrote in a report Friday evening.

Can someone explain that thinking to me? I agree that borrowing more to increase demand would aggravate the present situation but I don’t understand how less economic growth is better than more.

4 comments

Neither Democratic Nor Liberal

Here are the outcomes of the post-war presidential elections:

Year  Winner Pct popular vote
1948  Truman 49.6%
1952  Eisenhower 55.2%
1956  Eisenhower 57.4%
1960  Kennedy 49.7%
1964  Johnson 61.1%
1968  Nixon 43.4%
1972  Nixon 60.7%
1976  Carter 50.1%
1980  Reagan 50.7%
1984  Reagan 58.8%
1988  Bush 53.4%
1992  Clinton 43.0%
1996  Clinton 49.2%
2000  Bush 47.9%
2004  Bush 50.7%
2008  Obama 52.9%
2012  Obama 51.1%
2016  Trump 46.1%
2020  Biden 51.3%

This post is an elaboration of sorts on Stephen Taylor’s lament about the undemocratic quality of American presidential politics at Outside the Beltway. During the post-war period there have been 19 presidential elections. Among non-incumbents only Eisenhower, Johnson, Carter, Reagan, Bush I, Obama, and Biden have received majorities of the popular vote. Among non-incumbent parties that is reduced to Eisenhower, Carter, Reagan, Obama, and Biden. Only Clinton was elected twice without ever receiving a majority of the popular vote. Only Eisenhower, Reagan, and Obama have been elected twice, receiving majorities of the popular vote each time. To my eye it appears pretty typical that non-incumbents receive a minority of the popular vote and, if you think that people vote for parties rather than candidates, that is even more pronounced.

A lot depends on definitions. If your definition of “democratic” is based on receiving a majority of the popular vote, the two parties are pretty much the same during post-war period. If your definition of “democratic” is that the candidate received the plurality of the vote, the Democrats look somewhat better. Is that a reasonable definition of “democratic”?

My concern is not just Stephen’s, that our system is undemocratic, but that, increasingly, we’re in Vince Lombardi territory, winning is the only thing, the rules are seen as unfair, and promoting the belief that that the rules are unfair is seen as a legitimate way of winning. Consider the contrast between the elections of 1960 and that of 2020. In 1960 John Kennedy won a very narrow plurality of the popular vote in a election that was not only very close but was strongly suspected to have been unfair. Richard Nixon did the statesmanlike thing and refused to contest the election. Contrast that with Donald Trump’s reaction.

If winning is the only thing, a majority is not necessary to win, and the rules are seen as unfair, we’re neither liberal nor democratic.

15 comments

Thinking the Unthinkable

I’m glad that somebody besides me is thinking of this stuff. At The Hill Robert Manning writes:

The next phase of the war could go on for weeks or months. Despite the demonstrated failures of the Russian military, short of direct U.S. or NATO intervention, it would be difficult for Kyiv to completely drive Russian forces out of all Ukraine’s sovereign territory.

Two other possible scenarios are 1) weeks of bombing by Putin seeking a Ukrainian surrender and 2) Ukrainian military efforts stymying Putin, resulting in a protracted stalemate and a frozen conflict. It is conceivable that under the latter scenario, the damage from economic and financial sanctions to Russian life after a year or so could force Russia to agree to a compromise Kyiv would accept, perhaps some variation of the Minsk 2 deal resulting in a neutral Ukraine.

All wars end. Clearly, the current circumstances are not ripe for diplomacy. The moment for serious negotiations will arrive when the battlefield situation tilts decisively in one direction. Even total victory brings new risks. Will the outcome be a stable peace, or a tenuous, vindictive result, fueling anger and resentment that seeds the next conflict?

offers the following criticism:

Putin’s savagery and false narratives make it difficult to contain moral outrage and the urge to be rid of him. But repeated emotional, off-the-cuff outbursts from President Biden about war crimes, genocide and that Putin “can’t remain in power” are a luxury a major power can’t afford. Such crimes, however apparent, have precise legal definitions to adjudicate. Pushing a rat into a corner, especially one with nuclear weapons, is dangerous.

and proposes this:

In the case of Ukraine, it is not too soon to begin planning for: war crimes tribunals; Ukraine reconstruction (estimates: $220-540 billion); Russian reparations and what actions it must take to lift sanctions; Ukraine defining a Swiss-type armed “neutrality” as well as post-war U.S./NATO – Russian force postures – and post-Putin change in Russia. Biden has been too passive in this regard.

At present practically everything we are hearing about the war in Ukraine is Ukrainian propaganda. While we may hope that it is true, I have no way of knowing whether it is or not. Presumably, nearly everything the Russians are hearing about the war in Ukraine is Russian propaganda. Maybe Vladimir Putin believes it; maybe not. That, too, I have no way of knowing.

IMO it is a reasonable guess that President Putin and the Russian leadership have been taken by surprise by how hard a nut the Ukrainians are to crack, taken in by their own propaganda. I hope we don’t find ourselves in a comparable position.

5 comments

They’re On the Other Side

At the Council for European Policy Analysis Oxana Schmies begins by characterizing German foreign policy as “a mess” before declaiming:

Chancellor Olaf Scholz’s “turn of the times” (Zeitenwende) speech of February 27 called things by their proper names – the war of aggression, the change of epoch, Putin and his sidekicks an “oppressive regime,” seeking to resurrect the Russian empire and fundamentally reorder Europe to the detriment of free peoples and the benefit of corrupt elites.

It named the challenges and Germany’s self-obligations and promised that: “What is needed to secure peace in Europe will be done.” Among other things, Scholz promised to deliver weapons “to defend the country” because “there could be no other answer to Putin’s aggression.”

Sweeping and at times grandiloquent, the speech sounded like the route map towards a new era. Germany was poised to act.

Except that it wasn’t.

She goes on by saying what Germany is doing and what it isn’t doing, using words like “high-minded”, “ambivalent”, and “half-hearted”. I think she’s sugar-coating matters.

The war is taking place as close to Germany as Chicago is to Pittsburgh, Nashville, or Kansas City. The Germans, unwilling to do anything that might hurt Germany, are attempting to straddle the matter but in effect between them Germany and China are financing the Russians’ war against Ukraine.

0 comments

If Demography Is Destiny…


The graph above is sampled from a post by Bill McBride cited in my previous post. When I saw it I was immediately struck by a few things, far afield from Bill’s topic which is the relationship between demographics and the housing market. I’m going to list some of the thoughts that graph evoked in my in a nearly stream of consciousness fashion.

The first thing that occurred to me was the relationship between that graph and this one of homicides in Chicago:

right down to the “bump” in 2016.

The second thing that occurred to me was the connection between that graph and the observed decline in college enrollments.

The second thing was the lengthy almost flat part of the graph, starting for 24-year-olds in two years and echoed, naturally, by 34-year-olds ten years later, persisting for twenty years. That is unprecedented in U. S. and probably world history and has serious implications for most aspects of our society including the economy, education (particularly higher education), housing, and on and on. If the relationship is more than just a coincidence institutions of tertiary education should fasten their seatbelts—the decline is permanent, at least for the foreseeable future. And maybe the declines in homicide rates have less to do with policies and more to do with demographics.

I then wondered about that change. Could it be related to the sharply lower rate of marriage and family formation among millennials compared with previous cohorts? It’s almost certainly related to much notably smaller family sizes than in previous cohorts.

Finally, I wondered about the interrelationship of the trends shown in the graphs with immigration. As should not be surprising immigrants, particularly illegal immigrants are overwhelmingly between 20 and 40. It would seem to me that has implications not just on the veracity of the projections but on issues like expectations of rent vs. buy and willingness to pay.

The aphorism “demography is destiny” is attributed by some to the French philosopher of science Auguste Comte. Whoever said it, it might be better to consider some of these things now rather than being surprised by events later.

1 comment

McBride On Demographics and Housing

I want to encourage you strongly to look at Bill McBride’s excellent post relating trends in the demand for housing to demographics. Here’s a snippet. After displaying a very interesting graph of U. S. demographics by age cohort he observes:

We can see the surge in the 20 to 29 age group last decade (red). Once this group exceeded the peak in earlier periods, there was an increase in apartment construction. This age group peaked in 2018 / 2019 (until the 2040s), and the 25 to 34 age group (orange, dashed) will peak around 2023 / 2024.

For home buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior). The population in this age group is increasing and will increase further over this decade.

The current demographics are now very favorable for home buying – and will remain somewhat positive for most of the decade, although most of the increase is now behind us.

I’ll have more on the demographic issues that Bill raises in a later post but please take a look at what he has to say.

1 comment

Missing the Lede

Have you noticed that in all of the brouhaha over social media, brought to the boil over Elon Musk’s acquisition of Twitter, very little is said of the use of social media tools to facilitate crime? It’s a recurring theme. The looting of stores which still continues in many cities, the Capitol riots, the riots in Washington and Portland, terrorist attacks, all have been facilitated by social media tools. To my eye the First Amendment and hate speech issues which get all of the attention are sideshows—the main event is the facilitation of criminal activity.

My favored approach—hold the platforms responsible in strict liability—would be the death knell for the platforms. I don’t have any other suggestions.

2 comments

Divided By a Common Language

In the past I’ve explained how news media manage the new. There are multiple ways including the stories they choose to cover, how they choose to cover them, and the stories they choose not to cover. When the news media manage the news rather than reporting it, it’s propaganda. I hasten to point out that not all propaganda is promoted by the news media but they’re promoting an extraordinary amount of it.

There are multiple forms of propaganda, too. For example, propaganda can be either good or bad. My standard would be that propaganda that unites us is good while propaganda that puts each other at daggers drawn is bad. Others might have other standards. I think that intentions are a lousy way to determine whether something is good or bad because not only are they unknowable but they are rarely pure.

I’ve been thinking about starting a recurring feature, “Propaganda of the Day/Week”. It’s everywhere these days. Just about every subject is filled to the brim with propaganda and IMO most of it is bad.

I’m accepting nominations for biggest propaganda topics. One of the things that interests me about the subject is that frequently the same subject has conflicting propaganda. That’s true of COVID-19, both political parties, the president, and the Russia-Ukraine War.

A couple of last points. For something to be false it must be a) falsifiable and b) proven false. And something need not be false to be propaganda but it helps.

3 comments

Time to Panic?

At the China Law Blog Dan Harris says that now would be a very good time to panic about supply chain disruption:

Per the Fortune Magazine article, one in five container ships is now stuck at ports worldwide, with 30% of this backlog “coming from China.” And here’s the kicker: we have not seen the half of it yet, as “the full impact of China’s policies will only begin to reveal itself over the coming weeks.” The article then notes that even if China lifts its strict lockdowns (which has about a 2 percent chance of actually happening, pent-up cargo created by reopened Chinese factories and will cause “higher freight rates . . . and worsen congestion at ports worldwide. The next effect will likely be felt in the U.S. West Coast’s ports of Los Angeles and Long Beach as the pent-up demand reaches them”:

He then goes on to describe how unprepared China is for the COVID-19 omicron variant:

In a December 31 post, we wrote on this blog that Omicron, coupled with China’s lack of preparedness for it and its Zero-COVID policy would crush China supply chains. That article delved into the science of COVID/Omicron to explain why the facts compelled this conclusion…

The facts as he see them are that 1) the Chinese vaccine is not as effective against the omicron variant as the Pfizer, Moderna, or J&H and 2) the tests they use don’t detect it. Add to that the large number of asymptomatic cases and nothing short of widespread and highly enforced lockdowns will reduce its spread in China and that will have a dramatic effect on production.

I don’t know what his prescription for dealing with the supply chain crunch is but IMO if companies have not been looking for alternative sources they haven’t done due diligence. Heads should roll; they probably won’t which will just encourage future feckless decision-making.

13 comments

Tomorrow’s Talking Point Today


If this New England Journal of Medicine article on juvenile mortality hasn’t already received some attention, I expect it to soon. The TL;DR version is illustrated by the graph at the top of this post: the firearm-related mortality rate for children and adolescents exceeded that of motor vehicle accidents for the first time in 2020. The more detailed analysis:

tells us that, although there were increases for all demographic groups other than Asians and Pacific Islanders and types of firearm-related mortality, the greater part of the increase was due to a sharp increase in homicides of black and Hispanic children and adolescents. I would further speculate that gang activity is a contributing factor.

I would welcome proposals for reducing the firearm-related mortality among black and Hispanic children and adolescents but, sadly, I suspect much of the attention will be focused on suicides and accidental death.

2 comments