Inflation watch

Posted on November 2, 2021 by Arnold Kling

Current-dollar GDP increased 7.8 percent at an annual rate, or $432.5 billion, in the third quarter to a level of $23.17 trillion. In the second quarter, GDP increased 13.4 percent, or $702.8 billion

If Scott Sumner has converted you to following nominal GDP, then this is looking inflationary. Indeed, Scott himself says,

My only fear is that we might overshoot. NGDP growth was at an annual rate of 7.8% in the third quarter, which is fine when recovering from a recession. But we wouldn’t want growth to continue at that clip going forward. The Fed needs to bring NGDP growth down to a level of roughly 4%, to insure it can meet its FAIT objectives for the 2020s. The TIPS spreads have me a bit worried.

FAIT stands for flexible average inflation targeting.

Tyler Cowen continues to have faith (even more than Scott!) that the Fed has the will and the means to stop inflation in its tracks. As you know, I take the contrary position.

Another FITs update, number 23

Posted on November 1, 2021 by Arnold Kling

Discussing various forces hostile to liberalism.

Perhaps in the 21st-century media environment you do not need as much structure to have a religion. What would Christianity be like if the early followers of Jesus could have used Facebook? Would it never have occurred to them to institute a custom of praying a church?

Betting on remote work

Posted on October 31, 2021 by Arnold Kling

I wrote,

The coronavirus produced an epidemic of working from home. This has revealed a sharp split, between business leaders who want their workers back in the office, and a workforce that would rather stay home. My bet is that the return to the office that many CEOs anticipate will not take place. Building security firm Kastle Systems’ Workplace Occupancy Barometer probably will not return to 50 percent anytime soon. And I expect to see soft demand for office construction to last for many years.

What does consumer sentiment tell us?

Posted on October 30, 2021 by Arnold Kling

A newspaper story says,

America has already slipped into a recession that could be as bad as the 2008 financial meltdown according to key consumer data, a Dartmouth College professor has warned.

David Blanchflower, of Dartmouth, and Alex Bryson, of University College London, say that every slump since the 1980s has been foreshadowed by 10-point drops in consumer indices from the Conference Board and University of Michigan.

The abstract of the Blanchflower/Bryson working paper says,

We show consumer expectations indices from both the Conference Board and the University of Michigan predict economic downturns up to 18 months in advance in the United States, both at national and at state-level. All the recessions since the 1980s have been predicted by at least 10 and sometimes many more point drops in these expectations indices. A single monthly rise of at least 0.3 percentage points in the unemployment rate also predicts recession, as does two consecutive months of employment rate declines. The economic situation in 2021 is exceptional, however, since unprecedented direct government intervention in the labor market through furlough-type arrangements has enabled employment rates to recover quickly from the huge downturn in 2020. However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now (Autumn 2021) even though employment and wage growth figures suggest otherwise.

When I worked on forecasting, which was at the Fed almost 40 years ago, we thought that those consumer sentiment indices were too volatile to be useful in forecasting. Some possibilities:

1. We were stupid. We just did not understand that you could filter out volatility by looking just at large drops.

2. The consumer sentiment surveys were bad indicators in the 1970s and early 1980s, but they are better indicators now. Perhaps households have gotten better about sensing when firms are getting ready to initiate layoffs, so that their sentiment is now a good leading indicator. Perhaps the survey methods have improved.

3. The relationship that they found is mostly coincidental. Consider that “all the recessions since the 1980s” is not a particularly big sample. Since 1982, we’ve only had four. With so few observations, you cannot confirm that a statistical relationship is reliable.

My money is on (3). I wouldn’t call this work “research.” If you want to verify a statistical relationship that you will arrive at by trial and error, you need two samples of reasonable size. One sample is used to hunt for a relationship. The other sample is used to verify that you did not discover a coincidence. You can’t follow such a procedure with only the recessions since the 1980s to work from.

Blanchflower makes it sound as though their results imply a 100 percent probability that the U.S. economy is entering a recession. I think that the true probability is less than 25 percent.

Winning through intimidation

Posted on October 29, 2021 by Arnold Kling

Peter H. Schuck writes,

Dissident students know that university leaders at the most prestigious schools (with rare but notable exceptions like Robert Zimmer and Geoffrey Stone of the University of Chicago) are prepared to pay a dear price to secure campus peace. And since they and their faculty are overwhelmingly liberal politically—almost 90 percent identify with and often contribute to the Democratic Party—they tend to sympathize with the protesters’ agendas, even when more radical than their own.

There are many other passages in the essay that I was tempted to excerpt.

Winning Through Intimidation is the title of a business book from the 1970s, at the height of the “me generation.” I don’t know what is inside the book, but I suspect it is mediocre pablum. The title, on the other hand, seems to me to describe how the Woke movement succeeds.

Null hypothesis watch

Posted on October 28, 2021 by Arnold Kling

Kevin Mahnken reports,

Thirteen-year-olds saw unprecedented declines in both reading and math between 2012 and 2020, according to scores released this morning from the National Assessment of Educational Progress (NAEP). Consistent with several years of previous data, the results point to a clear and widening cleavage between America’s highest- and lowest-performing students and raise urgent questions about how to reverse prolonged academic stagnation.

…NCES Commissioner Peggy Carr told reporters that 13-year-olds had never before seen declines on the assessment, and the results were so startling that she had her staff double-check the results.

…when average scores for most students were stagnant, scores for the lowest-performing students were down; when scores for most students were down, scores for the lowest-performing plummeted.

Read the whole thing. Pointer from Tyler Cowen, who points out that the results are from before the virus closed schools.

The fact that the United States has much higher health care spending than other countries but no higher life expectancy is frequently talked about in left-wing circles. But the fact that the more we spend on K-12 education the less we get in terms of better test scores is never mentioned. Conventional wisdom is that we need to spend less on (private-sector providers of) health care and more on (government-run) schools. Even the Niskanen Center paper on “cost-disease socialism,” while it has an entire 5-page section decrying the bloated expense of higher education, only mentions K-12 education in a couple of relatively innocuous paragraphs.

Perhaps the strongest indictment of K-12 education is the movement to get rid of SAT scores as a requirement for college applications. Would this idea have gotten anywhere if test scores for minorities were improving rather than getting worse?

The Null Hypothesis says that we cannot get better results by increasing spending. But it also says that we could spend less and get the same results.

Facebook and moral dyad theory

Posted on October 27, 2021 by Arnold Kling

Ari David Blaff writes,

while valid concerns about app-tracking, facial recognition, and police surveillance remain a legitimate topic of political and journalistic interest, the other half of the debate is being neglected. The emergence of new cultural norms has seen citizens broadcast aspects of their personal lives that had hitherto remained out of public view. Missing from the latest eruption of public outrage targeting Big Tech and Mark Zuckerberg is an acknowledgement that we voluntarily agreed to surrender our privacy and that we may never get it back.

I relate this to moral dyad theory. We tend to simplify a complex situation by identifying one participant as having agency and the other participant as helplessly being imposed upon. So we think of Facebook the corporation as the former and the users of Facebook as the latter.

See my review of The Mind Club.

An Extreme Climate Contrarian

Posted on October 26, 2021 by Arnold Kling

David Siegel writes,

Andy May, a retired petrophysicist and data scientist has convinced me that 99.9 percent of the thermal energy coming from the sun (including the greenhouse effect) and stored by the earth’s surface as heat goes into the oceans, not into the land or air. The oceans contain more than 99.9 percent of the thermal energy on the surface of the Earth, and their average temperature is only 4° to 5°C (40°F). On a calorie basis, the land stores essentially no heat, and the atmosphere stores less than 0.1 percent of the heat coming in. Oceans store the rest.

The implication is that if you want to measure “global warming,” surface temperatures and atmospheric temperatures are not the way to do it. Sounds plausible when they say it, but for all I know this is a couple of Internet cranks who could be persuasively debunked by someone knowledgeable.

A latent third party

Posted on October 25, 2021 by Arnold Kling

Jonah Goldberg fantasizes about a third party.

The point is to cause the GOP some pain for its descent into asininity. Giving conservatives turned off by both the Democrats and the Trumpified GOP a way to vote their conscience in the general election would put political pressure on Republican candidates to curtail their Trump sycophancy. It would also serve to remind the GOP that if you abandon conservative principles, conservatives might abandon you.

Thanks to a commenter for the pointer.

But as Stalin reputedly said of the Pope, how many divisions does he have?

I believe that there is a latent third party in the United States, one that is #neverWoke as well as #neverTrump. This latent third party is stifled within the primary system. If it could cross some viability threshold, the latent third party might represent a silent majority, or at least a plurality.

But libertarians and conservatives should not get our hopes up. Even within the latent third party, we are no more than roundoff error.

And contemplate this, from George Hawley:

conservative elitism has a problem: it assumes the existence of conservative elites. As the mainstream media, the bureaucracies, the universities, and even big business move leftward on a host of issues, this assumption is increasingly problematic. Conservative deference to contemporary elites can only lead to more conservative defeats. Conservative success often requires circumventing ordinary representative democracy, winning political victories via initiative and referendum processes at the state level.

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