Here's the one number that proves that inflation isn't "really" 10 percent.
British celebrity historian and Harvard professor Niall Ferguson thinks inflation is "really" much higher than its official number. So does celebrity politician and self-styled Austrian economist Ron Paul. And then there's John Williams of Shadow Stats. He too warns of double-digit inflation -- but curiously takes payments for his newsletter in dollars. Even more curiously, he hasn't increased its price in years.
There's just one problem with the inflation monster. It's not real.
The U.S. economy has added 1.9 million jobs over the past 12 months. That number is the best indicator that inflation isn't 10 percent. Here's why.
A country's nominal GDP (NGDP) refers to the total size of its economy. In other words, it's the dollar size of our economy, including both inflation and real growth. Here's why it's interesting: If we work backwards from NGDP and inflation, we can infer how much real GDP grew in the past year. And we can infer from real GDP how many jobs we would expect the economy to add.
The below chart shows much NGDP has grown year-over-year since the Great Recession hit. (Note: 2008 was the first time NGDP hit negative territory since 1960).
In 2011, NGDP grew just a hair under 4 percent. That's not good in normal times, let alone after a deep slump. Trend NGDP growth is around 5 percent, so we would hope to grow substantially faster than that to catch-up to where we should be. It's why the Fed should adopt a more aggressive target now. And it also tells us that inflation is certainly not far higher than its reported figure.
Let's try a thought experiment. If inflation really is 10 percent, that implies that real GDP fell around 6 percent last year. How bad is that? That's roughly where the economy was in the first quarter of 2009. Basically, complete free-fall. And thanks to Okun's Law -- which relates real GDP and unemployment -- we can guesstimate what that would mean for jobs. A back-of-the-envelope estimate says that unemployment should have risen between 3 and 4 percent in that scenario. Instead, we added 1.899 million jobs in the last year.
And no, this wasn't about government hiring distorting things. Government has been the only sector cutting jobs the past year, due to austerity at the state and local level. There's only one logical conclusion. Real GDP was positive, if disappointing, and inflation was in fact low.
The conspiracy theory that inflation is being wildly under-reported doesn't withstand more than 30 seconds of scrutiny. So why the persistent belief that we're reliving the stagflationary nightmare of the 1970s when the deflationary nightmare of the 1930s is much more relevant? It's mostly frequency bias. The things people buy the most often -- gas and groceries -- have gone up the most the past few years. The things people buy the least often -- gadgets and other goods -- have not. It's an understandable mistake. But still a mistake.
Of course, none of this is new. The same fears of increasing prices paralyzed policymakers and the public alike during the 1930s -- despite precipitous falls in prices. British economist Ralph George Hawtrey likened it to "cry[ing] 'Fire! Fire!' in Noah's flood." Ben Bernanke and other central bankers have thankfully managed to prevent outright deflation this time around, but high inflation is still our economic Godot. It's not here, and it's not coming anytime soon.
Update:Ramesh Ponnuru of National Review made very much the same argument in response to Niall Ferguson back in 2011.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
I spent a year in Tromsø, Norway, where the “Polar Night” lasts all winter—and where rates of seasonal depression are remarkably low. Here’s what I learned about happiness and the wintertime blues.
Located over 200 miles north of the Arctic Circle, Tromsø, Norway, is home to extreme light variation between seasons. During the Polar Night, which lasts from November to January, the sun doesn’t rise at all. Then the days get progressively longer until the Midnight Sun period, from May to July, when it never sets. After the midnight sun, the days get shorter and shorter again until the Polar Night, and the yearly cycle repeats.
So, perhaps understandably, many people had a hard time relating when I told them I was moving there.
“I could never live there,” was the most common response I heard. “That winter would make me so depressed,” many added, or “I just get so tired when it’s dark out.”
But the Polar Night was what drew me to Tromsø in the first place.
It wasn’t that bad. But it did help me understand why it made people so angry.
From the Gray Lady, a Modest Dip Proposal. On Microblogging Platform, a Furor. For Peas, a New Use. There are times when The Times out-Timeses itself, and then there was Wednesday. The country's largest newspaper smugly tweeted a link to a recipe for guacamole. One made with peas. "Trust us," it read.
Former Senator Jim Webb is the fifth Democrat to enter the race—and by far the most conservative one.
In a different era’s Democratic Party, Jim Webb might be a serious contender for the presidential nomination. He’s a war hero and former Navy secretary, but he has been an outspoken opponent of recent military interventions. He’s a former senator from Virginia, a purple state. He has a strong populist streak, could appeal to working-class white voters, and might even have crossover appeal from his days as a member of the Reagan administration.
In today’s leftward drifting Democratic Party, however, it’s hard to see Webb—who declared his candidacy Thursday—getting very far. As surprising as Bernie Sanders’s rise in the polls has been, he looks more like the Democratic base than Webb does. The Virginian is progressive on a few major issues, including the military and campaign spending, but he’s far to the center or even right on others: He's against affirmative action, supports gun rights, and is a defender of coal. During the George W. Bush administration, Democrats loved to have him as a foil to the White House. It’s hard to imagine the national electorate will cotton to him in the same way. Webb’s statement essentially saying he had no problem with the Confederate battle flag flying in places like the grounds of the South Carolina capitol may have been the final straw. (At 69, he’s also older than Hillary Clinton, whose age has been a topic of debate, though still younger than Bernie Sanders or Joe Biden.)
On Wednesday, the United States and Cuba announced that they would reopen embassies in each other’s capitals, thus restoring diplomatic relations for the first time since 1961. The agreement doesn’t mean that Washington-Havana ties will go back to where they were before Fidel Castro’s revolution: Congress still maintains an economic embargo on the island, a policy that’s unlikely to change anytime soon. But the re-establishment of embassies, scheduled to occur on July 20, is nonetheless a major breakthrough in the long-acrimonious relationship between the two countries.
According to The New York Times, the overture to Cuba leaves just three countries with which the United States has no diplomatic relations. Two of these are easy enough to guess: Iran and North Korea. Washington severed ties with Tehran in 1980, months after Iranian students seized the U.S. embassy there and took 52 Americans hostage. U.S. ties with North Korea, meanwhile, have been fraught throughout the latter country’s existence, and have only grown worse since Kim Jong Un assumed control of the country in 2011.
The social network learns more about its users than they might realize.
Facebook, you may have noticed, turned into a rainbow-drenched spectacle following the Supreme Court’s decision Friday that same-sex marriage is a Constitutional right.
By overlaying their profile photos with a rainbow filter, Facebook users began celebrating in a way we haven't seen since March 2013, when 3 million peoplechanged their profile images to a red equals sign—the logo of the Human Rights Campaign—as a way to support marriage equality. This time, Facebook provided a simple way to turn profile photos rainbow-colored. More than 1 million people changed their profile in the first few hours, according to the Facebook spokesperson William Nevius, and the number continues to grow.
“This is probably a Facebook experiment!” joked the MIT network scientist Cesar Hidalgo on Facebook yesterday. “This is one Facebook study I want to be included in!” wrote Stacy Blasiola, a communications Ph.D. candidate at the University of Illinois, when she changed her profile.
The Republican hopeful’s comments about Hispanics have been disastrous for his brand and reputation, which he values at an outlandish $3.3 billion.
Donald Trump’s run for the presidency is premised on one fact above all: He’s a fabulously successful businessman. And yet, paradoxically, running for president may be the most disastrous business decision he’s made—or, at the very least, his worst in a while.
The trouble started with Trump’s rambling announcement speech on June 16. “When Mexico sends its people, they’re not sending the best,” Trump said of immigrants to the United States. “They’re sending people that have lots of problems and they’re bringing those problems. They’re bringing drugs, they’re bringing crime. They’re rapists and some, I assume, are good people, but I speak to border guards and they’re telling us what we’re getting.”
The untold story of the improbable campaign that finally tipped the U.S. Supreme Court.
On May 18, 1970, Jack Baker and Michael McConnell walked into a courthouse in Minneapolis, paid $10, and applied for a marriage license. The county clerk, Gerald Nelson, refused to give it to them. Obviously, he told them, marriage was for people of the opposite sex; it was silly to think otherwise.
Baker, a law student, didn’t agree. He and McConnell, a librarian, had met at a Halloween party in Oklahoma in 1966, shortly after Baker was pushed out of the Air Force for his sexuality. From the beginning, the men were committed to one another. In 1967, Baker proposed that they move in together. McConnell replied that he wanted to get married—really, legally married. The idea struck even Baker as odd at first, but he promised to find a way and decided to go to law school to figure it out.
Reader requested images, including playful raccoons, Soviet armies leaving Lithuania in the 1990s, Donald Trump’s hair, a Fennec fox, and much more.
Continuing an ongoing experiment, I solicited reader requests for news photos, asking people on Twitter, Facebook and email, "Would you like to see a good photo of a particular subject? A high-res version of a photo you've already seen somewhere else? A photo from a particular photographer or event? If I have access and can find it, I'll try to post it." The subject matter this time was just as varied as before, and the task of finding the images and composing the entry was great fun. Requests this time ranged from a grumpy Judge Scalia to the Soviet army leaving Lithuania in 1990s, guacamole recipes to Donald trump’s hair, and from urban farms in Detroit to playful raccoons. Be sure to see previous Reader Request entries.