Economist Brad Delong believes that the US economy is in the midst of a soft landing, and that the Federal Reserve should have started cutting interest rates in January. Delong fears that the Federal Reserve “might upend America’s soft economic landing” if it doesn’t begin cutting interest rates soon.DeLong points out that core CPI (omitting food and energy prices) has fallen recently; it’s lower than it was a year ago. There are several problems with DeLong’s reasoning. First, the Federal Reserve doesn’t base its’ policy on the core CPI measure of inflation. The Fed pays close attention to the PCE measure of inflation. Why? The CPI tracks prices for a fixed set of goods. PCE inflation rates adjust for changes in what we buy- people tend to substitute cheaper goods for

The Secretary of the Treasury and the Chair of the Council of Economic Advisers are the two principal economic advisors for any president. President Biden chose Janet Yellen as Secretary of the Treasury and Jared Bernstein as the Chair of his Council of Economic Advisers.Stephanie Kelton asked Bernstein a basic question about Biden’s monetary and fiscal policies. Bernstein responded with a shocking statement.“The US government can’t go bankrupt because we can print our own money”The idea that the government can print its way out of any fiscal deficit is a path to the dark side of hyperinflation. Bernstein apparently embraces Modern Monetary Theory, a crackpot theory that no serious economist embraces. Kelton then asked Bernstein to explain why any government would borrow in a currency that

Last week I posted something on how business confidence affects capital investment. Many factors may affect business confidence. The psychological mindset of business owners might change on its own. Public policies may affect business confidence too. Scholars at the University of Chicago developed an economic policy uncertainty index, which estimates our felt ambiguity regarding public policies1. The next graph depicts lagged effects of year over year changes in policy uncertainty on year on year changes in gross private domestic investment.As one might expect, higher levels of policy uncertainty correlate with lower levels of private investment (by 27%). Economic theory posits that fiscal and monetary policies work best when the public doesn’t know what to expect next.

The news media has been reporting steady job growth in the US economy since the Covid 19 crisis. Employment has grown steadily. However, data on employment represents progress in the number of jobs filled. The total number of jobs in business plans is the sum of all filled and unfilled jobs, total employees plus total job openings (see the red line in the top-left graph below).The total number of jobs in the US economy increased rapidly up to March 2022. Total filled and unfilled jobs have fluctuated since March 2022, with little increase. Why have businesses been planning for relatively few new jobs? It appears that low businesses confidence has put a damper on business plans to create additional jobs. Growth of fixed nonresidential fixed investment peaked in the second

California raised its minimum wage rate for the fast food industry to 20$ today. US Politicians haven’t targeted specific industries with minimum wage increases since the Great Depression. There are already signs that some fast food places in California are cutting back on employment. The specific effects of this fast food minimum wage will become clear during the rest of this year. For the time being, we should recall the general effects of minimum wages.Minimum wage laws reduce employer demand and increase labor supply; this causes higher unemployment rates. Minimum wage laws affect teen workers more than adult workers because teens are less skilled, less educated, and less reliable. The below left graph depicts the relationship between minimum wages and overall

The Metropolitan Transportation Authority in New York (MTA) has announced a set of tolls for vehicles on streets south of Central Park.Passenger vehicles: $15Small trucks: $24Large trucks: $36Motorcycles: $7.50Taxi drivers: $1.25 per rideUber, Lyft, other ride-shares: $2.50 per rideThe economic reasoning for charging tolls in Manhattan is simple; open access to the roads of Manhattan leads to a Tragedy of the Commons. The ability of everyone to use streets at zero money price leads to overuse and under-maintenance of these roads. Overuse of city roads causes traffic congestion, wastes gas and time, and increases pollution. In other words, open access roads are similar to public goods- once built roads are free to everyone and the use of any road by one person deprives no

Many economists think the Federal Reserve can use Phillips Curve tradeoffs between inflation and unemployment to guide Fed macro stabilization policy. Inflationary Fed policies may act as a monetary stimulus, to regulate unemployment. Data from 1948 to 1985 indicates that the Phillips Curve doesn’t actually exist. Does the data since 1985 reveal stable Phillips Curve tradeoffs- estimates of the effects of inflation on unemployment that may guide future policies?Monthly inflation data from 1985 to 1992 correlates with unemployment concurrently at a rate of 20% (see figure 7 below). Year over year inflation data from 1985 to 1992 correlates with unemployment at a rate of 52% (see figure 8). The estimate in figure 8 assumes that unemployment rates lead by three months- but the

The Federal Reserve Board is responsible for formulating macro stabilization policy. More specifically, the Federal Reserve Board seeks tradeoffs between inflation and unemployment rates. Fed officials need meaningful data to formulate useful policies.