1. “At the moment that Timur entered his enclosure, Amur was lonelier than he was hungry.” That said, “…there’s “an 80-85 percent chance” that Amur will end up eating his new friend.”
2. Star Wars oranges markets in everything.
3. Good piece on the mystery of missing inflation.
4. 52 links.
5. An attempt to answer where there are so many mattress stores.
6. Toward a pain-free existence? (speculative)
#3 doesn’t work
Possibly this at the WSJ. Google it instead though, to bypass the paywall.
The Mystery of Missing Inflation Weighs on Fed Rate Move
Wow, that is much in line with my previous comments that central banks are less in control than many believe.
Thanks
The article’s a mess. There’s a straight-forward explanation for tepid inflation: loose employment markets. The prime-age ratio shows many missing workers, unless stay-at-home parenting or getting three Phd’s really became much more popular since 2008. Even if everybody out of the labor force truly couldn’t be reemployed, an unemployment rate of 5% would not be grounds for tightening if interest rates were at 4%. With the same current inflation level and unemployment, rates would not be raised at 4%.
Of course the only reason for a rate change now is significant pressure to increase rates, or the drum beat of “normal interest rate” environment. But if the role of the Fed is not to control inflation and unemployment, then what exactly is the role of the Fed? Trying to use interest rates to increase real interest rates will not work for most investors. Basically, the Fed trying to dictate real interest rates amounts to the government dictating minimum wages. Just because wage is set at a level doesn’t mean employers will pay it.
“There’s a straight-forward explanation for tepid inflation: loose employment markets.
OK .. but this article is one of the few that addresses tepid inflation and low government bond rates as a global trend. When you say “the labor force,” are you thinking globally?
Global monetary policy has been similar for 160 years. It has been sharply similar for the last 20.
BTW, I think the role of the central banks is to provide confidence, an important role, which they achieve by pushing rates from 0 to 0.25 or something.
They have little power to break from the pack, to step far from international rates, but that might be OK if extremes are avoided and confidence is maintained.
They can set whatever trend rate of NGDP they want
That article is all about how they can’t.
Wondering that that’s part of the charm of #3….missing article about missing inflation?
Does this article ever explain why it’s a mystery that inflation is low? Is it some sort of Phillips curve argument? The article seems to be saying ‘inflation is low and we don’t know why,’ but if you take seriously the notion that central banks control inflation it seems straightforward that it’s just low because the central banks have tightened and if they loosen they can increase it, as has happened in Japan. If the central bank is controlling the indicator, why would it be a mystery that inflation is low?
Reading between the lines, the question seems to really be, why can inflation be low if interest rates are low? To which I’d simply join Scott Sumner in quoting Milton Friedman:
“Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.
…
After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.
”
— http://www.hoover.org/research/reviving-japan
…or am I missing something more?
Reading further it seems like part of the surprise is that the Phillips Curve seems out of whack… I thought the Phillips curve was widely understood to be unstable long ago, so it seems strange that economists would be so surprised by that.
#5. Mattress stores, bank branches and mobile phone stores. Every strip mall that opens seems to immediately fill up with these wastes of space. I assumed they were effectively 3-D, walk-in billboards. They are effectively just a form of advertising at this point.
Think about what all three of those industries have in common: They’re all heavily supported by credit.
Any business that can entrench their core business in a credit scheme can use what is effectively “subscription income” to sustain the business through the troughs to the next peak. When business is slow, customers are still paying their monthly payments so the industry doesn’t really feel a shock. But someone is always buying a mattress (or a mobile phone, or a car, or a mortgage, or etc…) so there is always new subscription revenue coming down the pipeline.
Business is great in the credit economy – that’s why every business has its own proprietary credit card and everything is a rental scheme these days. But when the customer pipeline gets soft, suddenly it’s more than just a dip in the demand for mattresses, it’s an “OH SH–” moment for the whole economy.
Well, that’s a dumb, two-penny theory for it, anyway.
It’s an intuitively appealing theory, but it violates Modigliani-Miller. Not that it means its necessarily wrong, but to convince me you’d have to justify why MM doesn’t hold.
That’s an insightful comment, Doug, thanks a lot. I’ll have to think about that. I hadn’t considered that set of implications.
The businesses themselves aren’t credit dependant, but the customers are. MM doesn’t apply.
So my idea of calling the stretch of Ventura Blvd. near my house “the Mattress District” would just confuse everybody with all the other Mattress Districts?
My wife cheerfully assumes that they are somehow connected to the drug trade.
I assume the bank branch is quid pro quo for the bank that lent them the money to build the strip mall. Besides, BoA’s entire strategy is to have a branch in the way of getting to a better bank. To big to fail baby!
Bank branches tend to show up because when you have retail stores, you have retailers desperate to get rid of the cash that people gave them. Having bank branches close to hand is a primary means of serving the small level commercial banking market.
3. An annual inflation rate of 2% is the macro version of the Goldilocks fairy tale. That an odd-looking woman with a bad hair problem and her underlings will attempt to manipulate interest rates and money enpixelation to achieve a specified level of unemployment and inflation is exactly what can be expected when ivory tower academics b.s. their way into positions of power.
Exactly. And the chaos that usually results
Oy. Good gravy.
According to Sumner, the Japanese central banks has actually succeeded in hitting that:
http://www.themoneyillusion.com/?p=31355
Not that I disagree with your thesis, but making fun of Yellen’s appearance is crass and irrelevant.
The complaint was supported by “bad hair” and “ivory tower academics b.s.” and not much else.
What is there to agree with?
Evidently it’s OK to make fun of someone’s ideas or beliefs but not their appearance. Why is that? Does it depend on their position? There’s been a lot of mention of Trump’s comb-over but no criticism of that mention that I’ve heard. Maybe there’s a gender thing involved, it’s fine to mention that men are unattractive but taboo to give women the same treatment. Well, if women are going to wear big pants they’re going to have to put up with some sartorial criticism or go to a better hairdresser.
Really? Obviously with Trump it’s because he’s the biggest insult comic out there, he dishes it out more than any ‘presidential candidate’ ever. Anything you want to say about him is fair game. If he had some class then maybe his hair wouldn’t get as much derision. But you knew that you are just playing contrarian as always.
2. One of the twitter comments is simply “Greed.” So…are they greedy for selling them or are consumers greedy for buying them?
52 links was fun, and fairly behavioral
I’m glad you enjoyed it; I found Tyler’s description of it more honest than the author’s.
The 2014 list had a good one I had not heard:
“By writing emotionally involving stories about random trinkets, researchers were able to sell $129 worth of tat on eBay for $3,612. [Dan Ariely]”
1. There’s another lesson here: the tiger does not see the goat as prey because the goat does not see himself as prey.
Yep, that’s just a bad ass goat.
#4. There was actually a big expose on this a few years back. The markup on matresses is huge. If you’re interested in getting a more reasonably priced mattress, try “Tuft & Needle”. They make high quality, low cost memory foam mattresses and bypass the retailers by selling them online.
I was going to write something similar: Tuft & Needle, Caspar, and Leesa are all being mentioned in this thread. I take that as a good sign for people who need mattresses and a bad sign for the existing mattress sellers.
Also (this one involves more work): befriend a hotel employee. A lot of them will allow friends and family to purchase mattresses directly from the company’s supplier at a big discount.
My wife wouldn’t accept trying one. She demanded extra firm, and thus the store was the place to go…they did have a ton of options and can be located in out of the way strip malls. Rent is low for a high dollar tag product.
If you look up the mattress on Kijiji, probably there is a mattress store in your vicinity advertising much lower prices than they post in store.
Costco
Maybe people prefer to buy a mattress locally because the store will haul away the old one. Observers in Houston are calling peak mattress, though not for the first time, after discovering two independent mattress stores, same franchise, located not across the street but actually adjacent to one another:
http://swamplot.com/how-it-came-to-be-that-2-separate-mattress-stores-with-the-same-name-are-now-open-next-door-to-each-other-on-westheimer/2015-12-02/#comment-4186985
5. They always seem to go in cycles. I remember back in the early 90s downturn when my hometown’s downtown was gutted with stores going out of business, that for some reason every last “kitsch store,” dedicated to selling tchotchkes to clutter up a housewife’s kitchen, remained in business. That never made sense to me.
Regarding mattresses, though, having traveled back and forth between Europe and America, it’s clear that the American mattresses, although bulkier and with the expectation of a box spring as well, are much more comfortable than European mattresses, which feel more like glorified foam sheets. We might move to Europe in future years, but my wife, originally from Germany, has already stated that she wants an American bed over there.
On #1 – back in 2006 there was a story from the Tokyo zoo of a rat snake that befriended a hamster given to it as food for at least a few months. I tried to search the story but couldn’t find out if the snake eventually ate the hamster or not. Does anyone know?
Snake knew that gerbil had a better purpose.
ewww.
Buy a mattress on Ebay.
That’s a good way to get bedbugs.
A better way is to buy one on craigslist.
…even better: pick one up for free on the sidewalk.
From #4, “The Media Doesn’t Understand the World”:
“The media focus on only the bad things in life, even when those bad elements represent a tiny part of a much more positive reality.”
This is asking too much of the media, whose mission it is to shine a light on problems they believe get little or no attention. But PROBLEMS it will always be, because as the aphorism goes, “no news is good news.” Conversely, good news is no news.
Journalists are motivated by the notion of speaking truth to power, and are eager to help the perceived underdog. You can see how this meshes quite well with another aphorism, “if it bleeds it leads.”
You can’t believe a word put out by the media. For 97% of media, news is that (distortion, exaggeration, fabrication, omission, propaganda) which advances the progressive agenda; for the remaining 3% whatever advances the right-wing agenda.
The same is true for post-modern academics.
Casper and Leesa are two online mattress dealers that have been undertaking advertising blitzes in young, hipsterish markets (think podcasts). They’re both memory foam mattress companies, as those are much, much cheaper to ship (because you can basically crush them into a box the size of a mini-fridge) than traditional spring mattresses.
The inflation isn’t missing — it was never meant to be there:
http://informationtransfereconomics.blogspot.com/2015/12/who-has-two-thumbs-and-isnt-stumped.html
It’s really difficult to administer/central plan economies and markets. There are far too many behaviors, motives, players, variables, etc.
The powers that be couldn’t get more money chasing fewer goods and services despite, what, $3 trillion in Fed QE and zero rates, etc; what, $9 trillion in Federal deficit spending; Dodd-Frank; the Affordable Care Act; etc.
Where did all the money go?
Commodities prices are depressed, but is that due to deflation, disinflation, or supply/demand issues?
The relationship between low unemployment and rising inflation began to break down in the 1980s. Let’s see, what began to rise in the 1980s and has continued to trend upward since? Skirts? Fox News? The oceans?
3. Paging Scott Sumner. Scott Sumner to the inflation desk.
Does he ever leave the inflation desk?
Marginal Revolution: The “National Enquirer” of Economics Blogs
Let’s see: the Fed started paying IOR in October 2008 because it worried that the growth of its balance sheet (and stock of high-powered money) might otherwise lead to a below-target fed funds rate (which it equated with excessively easy monetary policy) and unwanted inflation. This was at a time when spending (NGDP) was collapsing.
That went well.
Now it wants to raise the rate of IOR, because it worries that if it doesn’t do so, in conjunction with other policy moves it is contemplating, inflation will rise above target.
Hang on to your hats.
If you’re going to measure inflation against employment, why would the top line unemployment rate be the right measure? Wouldn’t U-6 more accurately show situation with respect to employment’s effect on the inflation rate?
For that matter, it seems like the elephant in the room is the labor participation rate. That’s going to capture all the reasons people are not working and earning an income or who are not improving their standards of living and buying a lot of things. And labor force participation rate has been on a downward trend since 2009.
The unemployment rate, as computed, is a terrible way to measure employment. The use of poorly designed tools rarely results in a well-built project.
I said inflation rather than NGDP to streamline the argument. If NGDP was doing fine and inflation was at 0% because of real economic gains, of course that’s fine. That’s not what the case has been for US/Europe/Japan’s 0% inflation though. The 0-1% inflation is due to loose employment markets.
Generally, 90% of inflation relates to demand, especially over a few years as commodities’ volatility evens out.
In theory, there would be no such thing as “loose” or “tight” markets. There would be markets where prices increase or prices decrease, but buyers would always equal sellers.
In reality, prices in a falling market can stay high, thereby creating a surplus of sellers. In housing markets, many sellers are reluctant to reduce their price. But the surplus of sellers in housing markets is nothing compared to the surplus of sellers when unemployment was 10%.
NGDP is basically the sum of all the revenues of companies selling final goods (well that plus direct government spending). At a revenue level, a revenue decrease of 10% at most companies does not reduce wages by 10%. Hours get reduced by 10%. So a decline in NGDP of 10% may actually result in deflation of maybe 3% and massive unemployment. The deflation would simply be 10% if there was not nominal wage downward rigidity. Going back to the company example, the company’s manager cannot reduce their unit prices very much because wages are the same, and labor is generally the most significant cost for companies.
The flip side is the eventual recovery in NGDP will not lead to as much inflation as one would expect. The company sees an increase in revenue towards the original levels, but their current workers still can’t demand raises. With a surplus of workers, why would a company strongly bid for an employee? If NGDP (very roughly) equals (# of employees)*(average wage) + profits, the # of employees term increases rather than average wage. So you get a tepid increase in inflation despite stronger increases in NGDP.
If the economic recovery were really here, then you would see more labor markets where increases in demand lead directly to increases in wages. That’s happening in many markets, but nominal wage growth is still mostly stagnant as one would expect with loose labor markets.
I think the article is about doubting the unemployment inflation ratio because inflation has now been low for a wide range of unemployment levels.
What does “still slack” mean? Is it a number, or as the article asks, do we look aider afield to things like demographics?