Month: December 2022

The is the Place de la Phallus in Paris. It is more widely known as the Place de la Concorde, but I think this picture speaks for itself.

POSTSCRIPT: La Phallus? There's no use asking for logical explanations when it comes to the gender of words in languages that use gender. Phallus is a masculine noun in French. So is vagina. And penis is . . . well, you can probably guess.

French president Emmanuel Macron is visiting President Biden today, but before the visit he gave a speech at the French embassy. The Washington Post reports that he is not entirely satisfied with American foreign policy:

The impact of the Inflation Reduction Act in Europe has proven to be a major point of tension. Macron’s sharp warning of an economic split captures a broader sentiment in European capitals that the IRA, which includes $369 billion in aid to U.S. manufacturers, is a nationalistic measure that will hurt their economies.

....Macron in his comments Wednesday also took aim at the multibillion dollar Chips Act, which seeks to boost the U.S. semiconductor industry. The danger, he said, is that the United States looks first to itself, “then looks at its rivalry with China — and that Europe, and therefore France, becomes a sort of adjustment variable.”

The Wall Street Journal confirms that Macron's concerns over our climate subsidies are widely shared:

The European Union, South Korea, Japan and the U.K. have all criticized the subsidies, arguing they discriminate against their companies and violate World Trade Agreement rules.

National subsidies are always a point of contention, and I imagine that these will be litigated at the WTO as usual.

As for the CHIPS Act, it sounds like Macron may be thinking less about semiconductor subsidies here and more about a different issue: Biden's ban on exporting advanced chip technology to China. Last month I was curious about how our allies felt about this, since Biden's order also forbids other countries from exporting cutting-edge chips to China if they incorporate any US technology in their products. At the time I hadn't heard of any European pushback, but it sounds like Macron and the EU have more concerns than I knew about. The problem, apparently, is not that Macron opposes the goal of Biden's export ban, just that he's afraid the US is so economically powerful that it can impose unilateral trade sanctions that other countries are then forced to go along with. This is hardly a brand new concern, however, and we'll have to wait to see how it works out.

Another interesting tidbit was Macron's comment about the Ukraine War, namely that  “the cost of the war is not the same in Europe and in the U.S.,” given Europe’s proximity to Russia and its reliance on Russian oil and natural gas.

That's true! Americans complain about gasoline prices and food inflation, but Europe is facing both of these problems as well as big fuel shortages and scarcities of certain foods. Macron didn't suggest there was anything unfair about this—it's just a natural consequence of geography—but did seem to think that perhaps the US ought to complain a little less about both the cost of its assistance and the occasional reluctance of European leaders to piss off their voters even more given the sacrifices they were already making.

Income and spending data were released today along with the inflation figures. Here's the latest:

Adjusted for inflation and population, month-over-month disposable personal income went up 4.2% (on an annualized basis) while personal spending went up 5.8%. On a dollar basis, that's an income increase of +$2,400 and a spending increase of +$3,100.

On a year-over-year basis things are even worse: income was down -$1,900 while spending was up +$800. On a household basis, the difference is more dramatic yet: real income is down -$6,000 while real spending has gone up +$1,100. That's a change in the household balance sheet since a year ago of -$7,100.¹ This obviously isn't sustainable, and when savings run out it will hit a brick wall. Regardless of anything the Fed has or hasn't done, consumer spending will pull back and the economy will slow down. Toss in the Fed's rate increases, which will start to have an effect next year, and the economy will go into a ditch.

¹A big part of the decrease in disposable personal income is due to the end of the Child Tax Credit in January, as well as some COVID-related items. BEA is a little vague about this because they don't know for sure what accounted for the big December-January decrease.

POSTSCRIPT: If these numbers look a little high to you, it's because they're means, not medians, so they're skewed upward by the income and expenditures of all the gazillionaires. Normally I'd give you medians instead, but the BEA doesn't report them that way.

The core PCE inflation rate plummeted again in October:

Core PCE checked in at 2.7% in October and the headline rate came in at 4.1%. Both are lower than last month, but core in particular has now had two consecutive huge declines.

I am, as usual, highlighting the core rate (inflation excluding food and energy) because that's the figure that allegedly drives the Fed's decisionmaking. It matches a big drop in core inflation reported for the euro area yesterday.

However, unlike the Fed I focus on the month-over-month figure since it shows us what's happening to inflation right now, but then I draw a trendline over the curve in order to reduce the noise. This makes it a better indicator of actual inflationary pressure in the economy. The trend core rate in October was down to 4.0% and the trend headline rate was down to 3.7%.

NOTE: The more normally reported year-over year figures, which you'll see in most newspaper headlines, came in at 6.0% for headline inflation (i.e., all items) and 5.0% for core inflation (all items minus food and energy. But after all this time we know better than to rely on annual changes that already have 11 months of data baked in. Right? It's better to look at monthly changes that show how inflation is doing right now, and then draw a trendline to see the longer-term change.)