Here's a nerdy puzzle for you. See if you can figure out the answer before I tell you.
"Checkable" deposits represent money you can get your hands on quickly—like a checking account—as opposed to things like CDs, which you can access only when they mature. Here are checkable deposits per household:
During the pandemic, what happened? It looks like people transferred lots of money into accounts where they could get to it more readily in case of an emergency. Right? Maybe it would help to show you M1 money supply, which is just checkable deposits plus physical currency in circulation:
Total M1 increased by $11 trillion in a single week! What's going on?
The answer is that this has nothing to do with the pandemic. That's just a weird coincidence. What happened is that on April 24, 2020, the Fed ended its rule that you could withdraw money only six times a month from savings accounts. This made savings accounts effectively checkable, so a few days later the funds in saving accounts got added to M1 all at once. Banks were allowed to redesignate accounts at their own pace, which is why the checkable deposits chart takes several quarters to show the full change.
So the increase in checkable deposits didn't represent anything real. It was just due to a change in definitions. The moral of the story is that it's not enough to look at data and invent plausible stories. Sometimes you need to know the hidden guts of where the data comes from.
The moral of the story is that it's not enough to look at data and invent plausible stories. Sometimes you need to know the hidden guts of where the data comes from.
Eh... you can go pretty far as an economist without knowing anything about the hidden guts of where the data come from: for example.
Ok, so I don’t get every memo, but a six withdrawal limit on a savings account doesn’t pass the sniff test.
"Ok, so I don’t get every memo, but a six withdrawal limit on a savings account doesn’t pass the sniff test."
There was something like this on so called "money market" accounts which at one time long ago paid good interest rates. I was affected by it at least once.
Kevin: "The answer is that this has nothing to do with the pandemic. That's just a weird coincidence."
Compare to the new & enshittified Google search:
Who's right? Kevin is.
But the problems with our information ecosystem are only compounded when AI repeats the b.s. that's out there.
It's like the Woozle Effect, but based on the aggregate conventional wisdom.
This is such a great example of the first rule of logic: *correlation does not equal causation*. This rule is violated so often it's mind-boggling, especially in our political culture. The prime example, which is taken for granted, is that if something bad (or good) happens in the nation at any given time, the blame (or credit) goes to whoever is president. The media and the pollsters that serve them are especially guilty of this, and it's not just a curiosity; it could be fatal to democracy, if it isn't already.
In Kevin's particular example, I'm sure the temptation for commentators to tie any phenomenon to actions taken by the Biden administration is overwhelming, especially when they are forever trying to prove that they are not suffused with "liberal bias." So it MUST have been excessive spending on COVID relief that caused this, because that serves their interest.
Just like the blight of a "post-truth" society, the embrace of a "post-logic" society is a far bigger threat than most of us realize. It also feeds into the "anti-elite" vibe that has taken hold in the Trump era. And the mainstream media is just going along for the ride.
God help us.
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