Employment-related economic indicators for January have been coming out and are mixed, but overall generally good.
Edward Lotterman There are concerns.The media tend to emphasize extremes, so, yes, the Consumer Price Index for January, up 7.5 percent over a year earlier, was presented with much gloom and doom.There is much public worry over inflation.Federal Reserve policymakers now promise to tighten the money supply at coming meetings.
Pundits say this all is bad news for Democrats facing a midterm election in nine months.
At the other end, a one-month increase in jobs of 467,000 from December to January was presented as very good news and evidence of an economy surging ahead.
The national unemployment rate, at 4.0 percent, actually ticked up one-tenth of a percentage point from December.
But otherwise it’s continued a long downtrend from the immediate COVID-shock level of 14.7 percent in April 2020.The average over the prior five years, January 2015 to January 2020, was 4.4 percent, so we are back to pre-COVID levels.Yes, this is good for our nation’s households and, I suppose, good for Democrats.
Understand, however, that one swallow does not make a summer and one or two indicators covering a couple of months don’t mean as much as the media often implies or most people think.Moreover, economic problems facing policymakers, including the Fed and Congress, are complex.
Step back and consider a few issues:
In the distinction economists try to make between “structural changes” occurring in an economy versus “cyclical” ones, we face a confusing mixture of the two.
Cyclical forces are the ebb and flow of economic activity that has been observable for centuries.
Structural changes are longer-term factors often stemming from the gradual adoption of new technology, such as steam power or the internet, or permanent adaptation to one-off shocks, such as the rapid growth of the U.S.population from 1946 through 1964, the World Wars, and epidemics as in 1918-1920 and now.
So some of the changes we are seeing now, in employment, output and price levels, relate to the second-worst epidemic in U.S.
history, one that has killed nearly 1 million people.COVID deaths to date near 0.3 percent of the population, while the best estimate for the “Spanish flu,” a century ago, was 0.8 percent of a population that was less than one-third of what it is now.
COVID has caused huge economic disruptions worldwide, including output in most countries and huge disruptions to trade.Airlines, railroads, trucking and ocean shipping initially all laid off workers and cut capacity.
Now they strain to regain that.Re-establishment of production and flows of raw materials and components in manufacturing has been fitful at best.
Employers also dramatically changed the work conditions for many more workers.Very few of these changes — especially in where people work — are ever going to revert exactly to the prior status quo.So here, the dovetailing of the pandemic with the internet’s ease of use for work, makes this change structural indeed.“New normal” is a hackneyed term, but it fits many situations today.
Furthermore, Fed management of available money over cycles of output and employment faces fewer challenges when there is no unsustainable bubble in prices of assets, including financial instruments like corporate stocks and both residential and agricultural real estate.The Fed seems to want to pretend that this is not an issue right now, but it is.
Crypto-currencies are a new ball of wax.
Block chain technology may well be a breakthrough that will rank with development of the internet, but the explosive growth of currencies supposedly using this technology has all the evidence of a mania.Bitcoin, the first of what are now many, was touted for its security and anonymity.It was to be a new currency, serving as a store of value in addition to a means of making payments.
Many initial users reportedly were attracted by its utility in laundering money internationally.It was a way to store and transfer wealth free from the prying eyes of government.
Over the past two years, millions of households have piled into owning cryptocurrencies “minted” by myriad different concerns, not to use a secure new medium of exchange, but rather as a speculative investment.In all practical terms, cryptocurrencies are unregulated, with risks unknown not only to financial regulators and retail punters, but also even to the new companies that have sprung up to create and make them.
Recent news reports indicate that the rogue regime in North Korea managed to steal some $400 million in cryptocurrencies over the last year, using most to purchase material for its nuclear bomb and rocketry efforts.If true, from where and whom did this large sum come? To what component sellers did they go and what was their path after that?
No one can answer these questions definitively.There is little national or international law covering the sector, no cases setting precedents, no agency authorized or able to audit the records of any entity hawking these innovations to the general public.
Cryptocurrencies are not necessarily the major variable facing our economy going forward.But they add another area of uncertainty and risk to the most uncertain situation the world has faced in a half century.
Hope for more good news of output, employment and income going forward.Hope that long-term adjustments triggered by COVID work their way out and become a source of stability.Hope the Federal Reserve is able to reduce the rate of increases in price levels without tipping the economy into a harsh recession.
Hope that the pace and direction of political polarization and radicalization moderate and then reverse.
I wish it were not true, yet I think it is time to follow my mother’s frequent advice to “hope for the best, but expect the worst.”.
