Matt Yglesias on Twitter:
What I do think is true, though, is that:
— Under any tactics, Biden would have ended up agreeing to meaningful cuts in discretionary spending.
— The case *on the merits* for austerity budgeting is a much stronger today than it was in 2011
— Matthew Yglesias (@mattyglesias) May 22, 2023
Generally speaking, Matt's point is that today's economy is stronger than it was in 2011 and we're already spending more money, so there's more scope for cutbacks.
This is fair enough but for a few things. First, we're barrelling headlong into the Fed's huge rate increases from last year, which are going to strangle the economy starting sometime very soon. I know a lot of people don't want to believe this because it all seems sort of invisible and theoretical, but it's neither. Rate increases slowing an economy with a lag time of about a year are about as close to a universal consequence of standard macroeconomics as we have. The tsunami is coming.
Second, high interest rates are already strangling the housing market and will continue to do so. This has obvious ripple effects.
Third, accumulated savings from the pandemic rescue bills is gone outside of the upper middle class—where it does little good anyway. With real income flat/down, this means real spending will drop too. This is already starting to happen.
Finally, there's China as a wild card. Their economy is stumbling, and this will certainly have no good effect on the rest of the world.
Set against all this is the fact that the labor market remains strong. This is indeed a bit mysterious, but I wouldn't put too much stock in it. It can turn around on a dime when other factors suddenly surprise people. It's a thin reed to lean on.
Bottom line: the macroeconomy is stronger right now than it was during the first debt crisis, but it's in a very tenuous state. It's on the edge of recession, and the last thing we need is some stupid default brinkmanship to give it a final nudge over the edge.
I started following Matt when he blogged as an undergrad philosophy student at Harvard. He had interesting things to say then and for a number of years after, but gradually has become assimilated into the neoconservative borg. By the time he moved to Substack, I decided I could do without him. Thanks for this post, which confirms the wisdom of that decision.
It was pretty funny when he got cancel culture'd at mastodon or bluesky or whatever it was. Also it was never gradual he was always an elite neolib.
I too used to read his stuff years ago. He was a thoughful blogger then. Now I occasionally read his stuff on Bloomberg. Mostly a waste of my time.
Yglesias acts the part of the liberal contrarian. Let me take this part of what liberals are saying and I'll show you where they're wrong. Why anyone puts him on the liberal side is a mystery. Everything he does is to drive the liberal argument to the right.
His track record is piss-poor, starting with his support for the Iraq War. He gets a lot of basic things wrong. He thinks he's above it all but a lot of his writing comes out of petty grievances, as far as I can tell, and he writes like he's still trying to impress his professors. His Substack pieces that I've read are long and meandering and would benefit by being two-thirds shorter. His spelling has improved. I'll grant him that.
Anyway, this tweet should not be taken at face value (though Kevin dismantles the argument pretty well). It's a sly way to say, Hey, the Republicans have a point! Laundering right-wing nonsense, including hostage-taking, is something no one should do. But Yglesias and his kind know one thing: it's lucrative. A guy's got to make a living.
Arguing about the economic pros and cons of slashing government spending is the last thing Democrats ought to be doing. Except for a few scare memes, the GOP isn't doing it seriously anyway.
The debt-ceiling crisis has nothing to do with any of the following:
1. debt
2. deficits
3. government spending
4. the economy
5. the American people
It's about a radical group of renegades who've taken over one of the country's major political parties, who are now engineering a path to take over complete power of our government. It's January 6th, by other means. In their plan, the takeover will be either by victory in, or nullification of, next year's election. What they need this year: maximum chaos.
The debt-ceiling crisis is about the only method they have to achieve that. Pushing (bad) takes that supports the insurgents' argument is wrong in more ways than you can count. At the very least, it's diverts attention from what is really happening. Which is not an error for just Yglesias. It's the same for most of the major media covering the story, and sadly, for some important Dems in DC.
Commenting on a Yglesias tweet? Really?
The man's a soulless contrarian idiot soliciting right-dollars with a wink and a nudge.
> Rate increases slowing an economy with a lag time of about a year are about as close to a universal consequence of standard macroeconomics as we have. The tsunami is coming.
You speak with the same assurance that you did when you said inflation would blow over. Not saying you’re wrong, but I guess I’ll believe it when I see it. Seeing as it didn’t even give hints of tamping down inflation yet, I’m skeptical
Maybe do another blog post on why exactly we can expect this with 100% certainty? You did once but the evidence wasn’t exactly overwhelming
Fundamentally Drum is repeating a misunderstanding (again and again) based on a superficial reading / understanding of the broad rule of thumb relative to central bank reference rate increases time to **fully** feed through an economy.
As like inflation and his continuous error, it comes from a superficial understanding (and rather evidently a strong line of both tendency to monocausal thinking and regrettably "motivated reasoning" to justify his own conclusion).
Inflation of course has not blown over anywhere in the world ... nor does central bank rate increases operate in the fashion he simplistically (and erroneously if honest superificality in his error) presents.
However rather more impacting the economy than the Central Bank increases are the recent feed through effects of the banking panic in USA hitting the Regional Banks which are large lenders to small businesses (relative to size) and commercial property
And deposit flight or movement from banks to higher paying money market accounts (which then pulls back bank lending resources at the mon & pop level), which of course is an effect ongoing from rising overall rate environment.
I'm glad somebody else here gets it about the rate increases. It's not that they take a year to do anything, it's that they're a cumulative thing that is fully done working its way through in about a year. Or maybe longer. Or maybe a little shorter. But they definitely start having an effect right away.
As always, there can be a series of unfortunate events.
If we were just coming out of Covid, then things would have played out more or less as expected.
Avian flu meant large jump in grocery prices. I just bought a dozen large eggs at Trade Joe's for $2. So that is finally passing.
Drought in western US. Rains/snow this past season helped, at least in the short term, though flooding may now cause other problems. But that did cause prices for vegetables (and dairy) to jump a lot recently--though prices are starting to get back to "normal" now--that said, I'm not sure what's going on with celery.
Russia's invasion of Ukraine disrupted a lot of markets which made inflation worse. Oil (fossil fuel), oil (food, seed oil), grains, minerals, etc., all disrupted.
Bollocks.
Secondary pass thorugh effects of inflationary pressures have been something evident since the days when Drum was overconfidently and simplistically forecasting. One off excuses - series of them - are nothing more than hand-waiving to excuse a fundamentally simplistic misunderstanding of the subjects (and entirely unmerited disparagement of the US Central Bank people by Drum when they and not him have proven right on the broad problem of emergeant stickiness of inflation).
And he should have revised himself.
A good analytical approach would have - see Krugman (no right wing person, but a good analytical mind in economics, of course he's a top level economist for a reason).
Lounsbury, if you are going to fault Kevin Drum for being simplistic, and hand-waving, maybe you should think a lot harder before writing about vague “inflationary pressures”.
Here is a careful analysis of price increases, with copious data, discussing the contribution of various supply disruptions (not “one-off excuses”) as well as ‘underlying inflation’: https://www.bis.org/publ/bisbull54.pdf
Why would Lounsbury read anything? Much easier just to shit all over everything, especially if you're on a diet of nothing but Fox News.
It apparently is even easier to be a knee-jerking innumerate Lefty and put down to "Fox News" and a diet of the same, any deviation from whatever superificial ideological position you may have on hand.
Not that I have ever willingly watched one minute of Fox News in my life, and the only times ever watched is when trapped when travelling in USA land and its been put on in some hotel lobby or the like.
But thanks for the illustration of empty minded knee jerking
Mind you, anyone reading for comprehension and with a modicum of sense would note that a "Fox News" viewer is vanishingly unlikely to cite and praise the persicpacity and economic expertise of Krugman, who is Keynesian and anathemae of the Fox News types.
WordPress comments are not the place for useful financial econometric discussion.
I am more than aware of the Bank of International Settlements (BIS) thanks. They were part of my old professional circuit a decade ago.
Although in opening the PDF, it is a nice BIS document, and analysis as i would expect from BIS econometricians, which ... in no way is some kind of impact on my comment, so rather puzzles me you post it as if it were.
Because you were responding to golack’s ticking off of a number of exogenous events that drove up prices for specific classes of commodities, which I understood you as dismissing as ‘one-off excuses’ for the rise in price indices. Was that a misinterpretation of what you were trying to say?
Yeah. I love Kevin and have read him since CalPundit. But I would think / hope that having been 100% wrong about inflation for literally years would create a little humility when it comes to prognosticating.
Yes since CalPundit have read him and he's normally very good analtically, but here on this subject (inflation and interest rates) the combination of analytical flows (rather blind to his own tendency to monocausal reasoning [either/or reasoning]) and weak financial economics understanding....
Well no one is perfect.
@xi-willikers
"Seeing as it didn’t even give hints of tamping down inflation yet, I’m skeptical."
The annual inflation rate is under 5% now. In another month, it'll be under 4%. This is exactly what inflation being tamped down is supposed to look like. I don't know what you were expecting.
I guess hitting the target they expected to? No matter which way I look at the month over month, it seems far higher than 2%
I’ll admit I was tapping the zeitgeist more than referencing hard data. I don’t look at economic data often
But even by your account, sitting at 5% and hoping for 4% aren’t the results I think most were looking for, since we expected the obviously short term COVID stuff like backed-up ports would go away and leave just some amount of persistent inflation to deal with
Are you arguing we’re definitely on our way to hitting our real inflation targets? I think that’s hard to back up, trend looks flat to me
Biden has cut the deficit a lot, and wants to do so some more. The best way to do that is to go after tax avoidance schemes and give-aways to the wealthy.
Some cuts in spending are needed too....but we'll see...
For a true austerity budget, then every dollar raised in new taxes would require a dollar cut in spending.
"some cuts in spending"
Well, let's name a few, just to get started.
1. Every weapon system that the military does NOT want.
2. Oil & gas subsidies.
3. The corn ethanol subsidy.
4. The "carried interest" tax exemption.
Sorry, no; I don't know how much these would net in savings. It's a purely ideological list, with what I think are Democratic priorities. It's a given that Republican priorities are anti-American these days. If "Empty" Greene wants it, it's bad.
I forget the name of the ship class but they were designed for drug interdiction and under 100' in length. The navy doesn't want it but the politics of it, and the jobs it provides to keep it running, made it untouchable.
It's the problem with spending cuts and tax increases, they're good as long as they affect "not me, but the guy behind the tree".
For the record, anyone who talks about balancing the budget isn't honest if they aren't talking about cuts and tax increases in my opinion.
I'd like to see the mortgage interest deduction chopped as well. It could be phased out over decades, so as not to wreck people who bought their homes expecting it, but phased out it should be.
There are no realistic cuts available to speak of - at least, none that would be more than a rounding error in the budget.
Does decommissioning already-made weapons systems save much money? Given the shitty deals we get to have the things made, I’d think shutting them would not get us much
What’s the balance between up-front and upkeep cost? You’d think you’d save more by nipping stupid stuff in the bud than looking back and cleaning up messes
Source: nothing, I’m just hypothesizing from an armchair like the rest of us 🙂
The operating cost of any ship is high, and the operating costs of warships are even higher. There is real money to be saved by mothballing or scrapping unneeded warships. Of course, you're right that there's even more money to be saved by not buying the unneeded warships in the first place.
This here is not true: "First, we're barrelling headlong into the Fed's huge rate increases from last year, which are going to strangle the economy starting sometime very soon."
Drum fundamentally is misunderstanding in an undergrad Econ101 sort of reading of literature.
The US Fed rate increases have already had effect - the misunderstood observation he is applying is that it is estimated to take a year for a reference rate change to fully feed through (depending on velocity of money, degree of adjustment in market of baseline rates to changes in reference rate partially dependent on prevalence of floating versus variable rates in contracts both consumer but more so
It is a fundamental naive misunderstanding to think that 1 year on, that's when effect occurs.
As already seen with the SVB situation etc. such effect start to feed through absolutely immediately on benchmarks and immediately into floating rates. The feed-through is slower on contract rates that only update on either roll-over of debt or based on periodic schedules (as often the case with consumer debt but also short-term corporate revolving lines that may update on quarterly or yearly basis).
Just to be clear, Drum didn't say that there has been no effect so far, nor did he say that the effect only starts at the 1 year mark. These are straw men.
But carry on.
https://jabberwocking.com/how-long-does-it-take-interest-rates-to-affect-inflation-about-a-year-or-so/
thanks so indeed, not a straw man, his actual (mis) understanding.
They are not in the least straw men, his ongoing commentary while fuzzily and not economically clear continously implies that the real impact kicks in one year.
He has indeed made the statements essentially to this effect, while harranging and calling the Fed stupid for rate rises end 2022 etc.
Drum has repeatedly and boneheadedly stated that the rates don't have any effect for a significant amount of time. Sometimes he says 6 months or more, or 9 months or more, and lots of times he says about a year. Sometimes he says 12 to 15 months.
It's really old and I wish he'd just acknowledge that there's an immediate impact and then smaller cumulative impacts that peter out over the course of, roughly, a year. Lounsbury is spot on.
Yeah. Maybe Kevin doesn't actually believe this, but he writes as if he thinks the effects of monetary tightening are zero percent for the first 11 months and 3 weeks. And then once we hit twelve months the effects are at 100%.
Or maybe he thinks we don't even start to feel the effects for a full 12 months?
Either theory seems badly off.
I think that a year is about when peak effect occurs. Metaphorically, you can think of interest rate effects as waves. Small effects of an interest rate change are seen almost immediately; the effects build to a peak about a year out and then taper off. Of course, when you have multiple waves launched considerably less than two years apart it gets complex because the various waves reinforce one another in unpredictable ways.
It is pretty clear to me that Biden considers these "negotiations" to be about spending and the budget, and not about the debt ceiling. Courtesy of Heather Cox Richardson and her substack site, here is what Biden said about spending yesterday:
"For all the talk of House speaker Kevin McCarthy (R-CA) negotiating over a budget that Republicans will then approve before they are willing to raise the debt ceiling, he has never had the votes of the extremists that he needs to make that happen. They are demanding that the Democrats dismantle the government programs that protect ordinary Americans in exchange for agreeing not to blow up the world economy.
And so, the battle over democracy has come down to the debt ceiling.
Today, Biden told reporters that he would not agree to the extremists’ demands. “We put forward a proposal that cuts spending by more than a trillion dollars, and on top of the nearly $3 trillion in deficit reduction that I previously proposed through the combination of spending cuts and new revenues,” he said.
“Let me be clear,” he said. “I’m not going to agree to a deal that protects, for example, a $30 billion tax break for the oil industry, which made $200 billion last year—they don’t need an incentive of another $30 billion—while putting healthcare of 21 million Americans at risk by going after Medicaid.
“I’m not going to agree to a deal that protects $200 billion in excess payments for pharmaceutical industries and refusing to count that while cutting over 100,000 schoolteachers and…assistants’ jobs, 30,000 law enforcement officers’ jobs cut across…the entire United States of America.
“And I’m not going to agree to a deal that protects wealthy tax cheats and crypto traders while putting food assistance at risk for nearly… 1 million Americans.
“And it’s time for Republicans to accept that there is no bipartisan deal to be made solely—solely—on their partisan terms. They have to move as well.
“All four congressional leaders agree with me that…default is not—let me say it again—default is not an option. And I expect each of…these leaders…to live up to that commitment.
“America has never defaulted—never defaulted on our debt, and it never will.”"
Spoiler: It did.
Explain. Don't hide your "superior" intelligence under a barrel. When did we default? I want to know. People want to know.
The US government has never defaulted. There have been times when budget talks failed and the government shut down for short periods of time. But, these are not the same thing.
Spoiler: you don't know what you're talking about.
Speaking about the future. It's a rif on the "it didnt" meme. Biden says we won't default, cut to 10 days later and the narrator says "they did."
IANAL, but another commenter mentioned Quia Timet Injunctions (wikipedia definition below) and I'm curious if anyone with relevant expertise could verify if Biden could use this to pre-default test the 14th amendment theory.
Quia timet injunctions refer to a type of injunction in English law obtained where a wrong is anticipated. Quia timet literally means "because he fears".
According to Graigola Merthyr Co Ltd v Swansea Corpn to obtain a quia timet injunction there must be an immediate threat to do something.[3] Moffat's Trusts Law states that a quia timet injunction can both prohibit something or mandate something to occur.[3]
Your inputs are bad. Rate increases don't go from 0 to 100 on day 366.
I think they should have already stopped raising rates and that most inflation is driven by climate change, flu, war and Xi's fucking up his economy but we are not about to fall off any cliff but the debt ceiling.
The full effects of interest rate increases in the past take about a year, however, that’s not to say they haven’t had an effect, they have. The exact number of the impact is based on suppositions so I imagine I good place to start is the middle- meaning that if the economy was growing at 2.5% a year ago and we are at at half of that now after about 6 mos of almost full impact, the economy should be flat at GDP in November all things being equal. As to inflation, it has been at 3-4% close to a year so yes, the higher inflation number were indeed temporary. As to the current inflation rate, let’s just say that US had an unusual sub 2% inflation rate close to 20 years, so if there is a inverted pattern, a 2%+ may well be the norm for the foreseeable future. Profit tightening in the past due to technological advances allowing soft barrier to entry have shifted to profit taking because of maturer markets (about half of the over-expected inflation rate is due to increase profit margins). The bottom line is that rates are already too high but still in touch with market realities so not over constrictive (let’s say just constrictive). There are various undetermined variables out there (e.g., a national debt resolution) so for the time being, is best for all economic actors, including the Fed, to be passive.
The case that is stronger than ever is the one for more progressive taxation. This is the first thing to do if you're worried about deficits. But Republicans aren't really concerned with deficits and apparently neither is Iglesias.
Yglesias (note the correct spelling) would certainly prefer progressive tax increases. His tweet does not indicate otherwise.
He says that Biden would have agreed to significant cuts in discretionary spending (because Republicans control the House), and that the case for austerity budgeting is stronger today than in 2011.
First off, this is obviously true. April 2011 Unemployment rate: 9.1%. April 2023 Unemployment rate: 3.4%. Whatever case you can make for stimulative fiscal policy now, I can't imagine you'd say that the case is as strong as it was in 2011.
But also, austerity budgeting, as I understand it, means running surpluses (or at least smaller deficits). You can run surpluses (or smaller deficits) by raising taxes as well as cutting spending. Progressive taxation (that increases tax revenue) is austerity budgeting.
Yglesias is not advocating for cuts. He's saying that (a) Biden was never going to get a budget through this House without spending cuts and (b) as a matter of basic economic reality, austerity budgeting made much less sense in 2011 than it does today. What about those statements do you find objectionable?
"First off, this is obviously true. April 2011 Unemployment rate: 9.1%. April 2023 Unemployment rate: 3.4%. Whatever case you can make for stimulative fiscal policy now, I can't imagine you'd say that the case is as strong as it was in 2011."
Arguing that this means that this is a better time for austerity budgeting is a bit like arguing that burning down your house to keep warm makes more sense in January than it does in August. Sure, it's technically true, but in both cases it's a terrible idea--just marginally less so now.
Great point.
We can reject the framing devices used by Yglesias and the rest of the talking heads who are always eager for cuts.
Sure, it's technically true, but in both cases it's a terrible idea--just marginally less so now.
It's certainly not a terrible idea to stabilize the debt/GDP ratio (and then engineer a gentle, gradual drop) given the current macro picture (full employment, rising prices and crimped real wages). That's all that "austerity" means. You don't even need to balance the budget ro accomplish this. You merely have to hold annual federal borrowing to a value less than the nominal increase in GDP (which still lets you run quite large deficits).
I personally would prefer nearly all of that austerity occur via in the form of tax increases.
Running a surplus is a good way to cause the economy to contract, if that’s what you want. Why anyone would want that, I can’t fathom.
If it is overheating in an inflationary cycle one would so desire - although the assertion "a good way to cause the economy to contract" is an assertion far too broad. A fiscal surpus will certainly not be expansionary however if the non-government segment of the economy is in expansion and investment mode (as e.g. juiced by significant tax incentives, see IRA), the ultimate effect is neutral.
Well, true, but the moderately high inflation we have lately been experiencing could possibly have been restrained just by shrinking the deficit — if we chose to counter inflation with fiscal rather than monetary policy.
Yes, that would have been nice. The politics haven't been right for it.
Are you thinking something (more) along the lines of California’s structure?
Every part of this is driving me bonkers. Austerity budgeting to what end? Matt has tons of faults, but he's never been a deficit hawk. We know the GOP has never really cared about deficits, they just like to use them as a cudgel to get Democrats to pass their wildly unpopular agenda. So what is it exactly that Biden gets out of any "negotiation" over the debt ceiling? He can cut back popular programs under duress from the GOP who will turn around and blame the Dems for those cuts -- all to try avoid a manufactured crisis that the real leaders of the House are itching to precipitate?
So this is the part where Yglesias and every other lefty technocrat can't help themselves but think we're actually having a negotiation over budget priorities. Yay, this is what we live for!!!
Sigh, everyone please write this on your bathroom mirror and repeat it every morning:
THE REPUBLICANS' ONLY GOAL IS TO SINK THE ECONOMY. THAT HELPS THEM IN 2024. THEY DON'T ACTUALLY CARE ABOUT THE DEFICIT. THEY AREN'T TRYING TO GOVERN WITH YOU. SO STOP IT!
Exactly. Thank you for that.
They call it a hostage-taking, which is what it is, but no one should think they're taking the hostage in order to control government spending, then they let the hostage go. Stop acting like that's what it's about. Ideally, the hostage dies, in their plan. They know the president will get the blame for not saving the hostage. EVEN IF THEY ARE PULLING THE TRIGGER. Because that's how DUMB our politics is.
Bingo!
And Biden and the Democrats in Congress should do what then?
Pretty much what Biden is likely doing right now. Make a good show of "negotiating" in order to ensure it's clear to centrists that the MAGA nuts are the extremists (since the DC press is working overtime to hide that fact), and then finally pull the 14th Amendment ripcord and tell the Republicans to suck it.
What specifically is the 14th Amendment supposed to allow the Executive branch to do? Initiate spending without a backing Congressional appropriation?
No, the 14th Amendment wouldn't be "invoked" to do anything. The administration would just ignore the debt ceiling and keep paying our bills, and then wait for the inevitable lawsuit.
The idea is that the debt ceiling legislation being weaponized at the moment, which refuses to outlay money that's already been appropriated by Congress, would finally be tested and found to be cartoonishly unconstitutional (because of the 14th Amendment).
So continue spending based on existing appropriations which were made presumably ignoring their effect on the debt ceiling.
Assuming that is “successful” doesn’t that just squeeze the balloon? The same people in Congress will simply hold up the next round(s) of appropriations no?
Oh I'm sure they're already planning to shut down the government this fall over the next budget, which good luck to them politically if they do. But at least we'd have this debt ceiling extortion nonsense out of our lives forever.
Anyway, what do you have in mind exactly for what Biden and the Democrats in Congress should do?
You do know Republicans just passed a bill unwinding the entirety of Bidens first two years? You think it should now be standard practice for Dems to unwind anything they do whenever Repubs take half of congress, under threat of tanking the economy?
If I had an idea on what to do, I’d either run for office or yank on the old school tie.
The Exec does not need "the 14th" to initiate spending. There is already Congressional appropriations to spend the money. The problem is that the Exec will not have the money to spend that Congress mandated it spend when the appropriations became law.
(A) To not spend the money that's been appropriated puts the Exec in violation of the Constitution.
(B) To raise money by issuing debt, without explicit authorization of the Congress (i.e., raising the debt ceiling), is also a violation of the Constitution.
(C) To fail to make payments on debt (default) is another violation of the Constitution (the 14th Amendment).
(D) To make payments on debt with what money is available while failing to pay other bills and obligations (prioritizing payments) is essentially the Exec using line-item authority, which is (you guessed it) also a violation of the Constitution, per the Supreme Court.
A, B, C, D. Those are the options that Congress (the GOP House) is forcing the Exec (Biden) to pick from. All are unconstitutional. What the hell is Biden supposed to do?
Needless to say, that's not the way our federal government is designed to work. Congress is NOT allowed to pass laws, or fail to pass laws, that force anyone, especially a coequal branch of government, to take illegal and unconstitutional action. Congress, in doing so, is engaging in an unconstitutional act itself.
Biden is engaging in negotiations right now, and I would imagine for largely political reasons. It's highly likely the two sides will not come to an agreement (remember, it would need support from both GOPers in the House and Dems in the Senate). The question is, Then what?
At some point soon, in early June, Biden will be forced to take unilateral action. He should act with clarity and courage. I would hope that he will do what's best for the American people, knowing the position he's in is unconstitutional and in fulfilling his constitutional duties he is acting for the greater good.
To "invoke the 14th" is perhaps not the best term to describe the solution to the dilemma. Clearly, other parts of the Constitution are also at play, and I would expect them to be cited as well for his legal justification for his actions.
Then what? That might be all. But if Congress doesn't like it, it can impeach him. If courts somehow get engaged, we'll see what happens. In any sane outcome, Scotus would find Congress is in violation of the Constitution, not the Exec, and it's Congress's duty to act to be in compliance with the Constitution. No one knows for sure the Court would rule that way, but it would be dangerous to assume that Biden would lose and instead pay ransom now to the hostage takers. Force the Court to decide if economic Armageddon is worth the price to rule against the administration. I'd bet, they don't. The Court doesn't run for reelection and it is closely allied with GOP big money, not the MAGAs.
Very good summary. You didn’t mention the discharge petition, though — what do you think of its chances? It is a legal, Constitutional path to avoiding default. Of course, it has to be a very-last-minute move, to force a handful of Republicans to accept a bad outcome and thereby avoid a worse one.
Wow! We’ve got some pretty smart people in this group. Or at least they seem that way to me. I’ll stick to commenting on cat blogging and photographs. Glad Kevin must be feeling better
Yglesias is one of the dumbest major pundits out there and he should be ignored as often as possible.
I keep pointing out that the Phillips Curve and the Beveridge Curve have been curiously vertical for over a year.
I have a potential answer for you on why this is and why you might be getting the macro signals wrong (or more accurately, why you're ignoring their signals at your own peril). I could be wrong, but here goes.
There are three key changes that have caused Phillips and Beveridge to go vertical for this long:
(1) Demographic shift, forced by COVID, into earlier retirements of a large portion of the Baby Boomer generation, which in turn resulted in lower consumption, particularly with high inflation. This in turn has reset salaries from the most experienced to the least experienced, which in aggregate, appears to be a very small increase or flat.
(2) Over 1M COVID-related deaths, weighted towards older, experienced workers, has contributed towards the above-described demographic shift and the resulting lower consumption (panic-induced hording, notwithstanding).
(3) The continued acceptance of Work From Home (WFH) has allowed a flattening of salaries of those who would have otherwise demanded higher wages for the cost of living increase due to commuting.
All of this is meant to argue that the reason why you haven't seen economic apocalypse -- yet -- is that there have been structural shifts in the demographics that have prolonged the expansion period of the business cycle.
If you were forced to implement austerity, right now wouldn't be the worst time to do it.
I’m confused. If consumption is decreasing (your points 1 & 2), how is the expansion prolonged?
Let's say you're a retiree. Your spending is determined by SS increases adjusted for inflation.
In 2020 your weekly grocery budget is $25. The next year, SS is adjusted upward so your weekly budget is now $27, but your food bill is higher because inflation is making it impossible, no matter how much you cut back, that you spent $35.
From the seller's point, you're spending more now -- $35 instead of $25 -- but you're consuming less.
In aggregate, GDP is adjusted upwards, but a lot of people are consuming less.
Kevin may be just a bit too pessimistic about the effect of interest rate hikes. I accept that interest rate hikes damp the economy, resulting in less growth that there would have been without the interest rare hike. However, it the damping is applied to what would otherwise be a vigorous boom, the result may be slowed but not negative growth. It looks to me like that is where we are. The economy WAS booming, producing unsustainably high growth rates and the inflation pressure that tends to result. Interest rate hikes have slowed the growth rate to a sustainable level but haven't pushed into the negative range.
However, now is NOT the time for austerity. Now is the time for large tax hikes and new or revised programs to patch the gaping holes in the social safety net.
This is probably the key to Matty's point:
2011 average unemployment rate: 8.9%
2011 annual core CPI increase: 2.3%
2011 median wage/salary change: -1.8%
2023 (12 month) average unemployment rate: 3.55%
2023 (12 month) core CPI increase: 4.8%
2023 (12 month) median wage/salary change: +0.3%
Forgot to include:
2011 (Q4) natural rate of unemployment: 4.8%
2023 (Q4 2022) natural rate of unemployment: 4.2%
I don't think the federal funds effective rate has risen all that far, considering that it only managed to catch up to the inflation rate a couple of months ago. The federal runds rate is barely above zero in real terms.
Kevin, you like to account for inflation. Try it here.
It sure looks like it has risen pretty far.
https://fred.stlouisfed.org/graph/?g=15lhx
But has it risen above the rate of inflation?
https://fred.stlouisfed.org/graph/?g=15lqU
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