To save you the trouble of looking it up, “scapulimancy” is the art of reading the future from scapulae, shoulder bones. Today commenters are engaging in something like that to interpret Fed Chairman Jerome Powell’s statement of yesterday. It is widely being interpreted as a modest declaration of victory over inflation and the Fed’s pivoting away from increasing interest rates aggressively towards cutting interest rates. The editors of the Wall Street Journal remark:
Mr. Powell is right that he has made anti-inflation progress, but his performance Wednesday will go far to easing the tighter monetary conditions that have produced this progress. The FOMC didn’t change policy this week, and it can always postpone its rate-cutting for longer. But it would be a shame to declare victory too soon.
I think a couple of warnings are necessary. First, the decline of the rate of inflation to 3.1% is still higher than the Fed’s long-held target. That would seem to imply that either the Fed is abandoning that target or that interest rates are not likely to decline as quickly as markets seem to indicate.
More importantly the rate of inflation declining does not mean that prices are declining. Quite to the contrary as Jim Grant put it in an interview with Business Insider:
“Inflation is not transitory,” Grant told the network. “It is permanent in that you never regain the purchasing power you have lost to inflation.”
My salary doesn’t increase with the CPI which I believe is the case for most people. The only people whose pay goes up every year that I know of these day work for the government.
Another risk is that it appears to me that federal spending in excess of the increase in aggregate product was a key component of the rush of inflation the Fed has been fighting. An election year increase in disbursement could see a repeat performance, just in time for the presidential election in November.
Dave Schuler: The only people whose pay goes up every year that I know of these day work for the government.
Social Security benefits have a cost-of-living adjuster. The new United Auto Workers contract has a cost-of-living adjuster (as well as a 25% raise spread over four years).
And, of course, Social Security retirement income is completely unrelated to the government.
At my prior employer I knew people who’d worked there for a decade or more without a raise. I worked there for seven years without a raise. I think that’s pretty normal these days. The way you get a raise is by changing jobs.
And I know groups that have had huge raises. Whether your wages go up or down is largely determined by the value of your work and market rates. If the labor market is loose you might never see a raise regardless of what inflation does. Pay may even decrease. This argument should be more data based. Anyway, this is dumb.
“you never regain the purchasing power you have lost to inflation.â€
He just ignores wages. Now you can define purchasing power as how much you can buy per unit of currency. So a dollar does buy less. However, that’s just a number without context. What we want to know is how much do we have to work to pay for what we want. If wages go up more than prices then a basket of goods that required 20 hours of work may only take 18 hours. You can use that extra 2 hours of wages to buy crack and hookers or whatever.
Steve
Not in government handmaiden industries like healthcare and education. Plus, as we’ve discussed, there is no market in healthcare. That’s why I always roll my eyes when people talk about “market-based solutions” in healthcare. The reforms necessary to create a market in healthcare are substantial and IMO the adverse effects would be intolerable. Think “barriers to entry”.
@steve, Dave posted the change in real house income in swing states a couple of weeks ago. Pennsylvania households have seen their incomes drop 10% from where they were before the pandemic.
http://theglitteringeye.com/unemployment-rates-in-swing-states/#comments
I think there is a lot of deceptive statistic going on. It’s hard to know the truth because government data is time-lagged, imprecise, and people often conflate “wages” and “income” and other things.
And then there is all the variability hidden by averages and medians. There are also compositional effects. One example is that, ironically, average and median incomes went way up in 2020 due to two factors – a lot of people at the low end of the wage scale getting laid off, and the injections of money by various government programs. This is on top of the substantial increase in wages in 2019 to a new high.
Accounting for those it looks to me like incomes have not kept up with inflation.
For example, the median income in late 2019 was about $68k. In late 2023 it’s about $77k, an increase of about 13%. But in that same period, CPI has increased ~19% overall. Over the last year, wages have been increasing faster than inflation but they have not caught up to previous year’s inflation and have mostly been seen at lower incomes.
Anyway, I have low confidence in what I just wrote, but I have high confidence in my long-standing assessment that the economy is and has been weird, that we – collectively – do not understand it as well as we thing we do, that experts are therefore overconfident in their estimates one way or the other (and let’s face the fact that economists suck at prediction).
In short, we have a set of economic conditions and circumstances we haven’t seen before. I’m skeptical of anyone who claims with great confidence that they know what is going on, where things are headed, and where we’ll end up.
To misquote Mr Dooley, the Federal Reserve “anticipates” election returns. Its independence isn’t protected by the constitution like the judiciary; its independence is secured by keeping the political branches happy, or at least not unhappy.
To continue your observation with the Federal Reserve easing while CPI is at 3.1% and core CPI is at 4.0%. It suggests that the actual target policy is 2% inflation as the floor, not the stated target policy of 2% inflation as an average, and not the previous target policy of 2% inflation as a ceiling.
To conclude with a misquote of Keynes, when the Fed changes its mind, I change my allocation.
“Plus, as we’ve discussed, there is no market in healthcare.”
There is very much a market for health workers. When the labor market is tight for any given kind of worker wages rise. When the market is not tight and we have lots of workers people dont get raises.
Steve
The labor market for healthcare workers is artificially tight because there is no market for healthcare.
I don’t support a market for healthcare but no market has implications.
So when the market was loose a few years ago it was also because there is no market. Ordinary laws of supply and demand dont apply?
Steve
For there truly to be a market in healthcare we would need to return to the situation that prevailed in 1900. I don’t support that. It would include:
– all pharmaceuticals available over the counter
– no licensing or certifications
– no certificates of need
– no Medicare, Medicaid, or other government healthcare programs
just to name a few. When there is as much interference in the operations of a market to the degree there is in the healthcare sector you can no longer appeal to the operation of the market for variations in the supply of labor in that sector but must turn to other explanations, primarily misregulation.