"Bidenflation"
- Thread starter dukkha
- Start date
Indeed!
To be clear, it's not jut Biden supporters who are refusing to panic on command about inflation. Those putting their money where their mouths are also are taking it in stride. You can see that in the TIPS spread. In case you're unfamiliar with it the relatively simple concept there, here it is in a nutshell:
The Treasury sell two kinds of treasuries of equal length. One pays out at a fixed rate, and one pays out at a rate that gets adjusted by inflation. If you can buy a 5-year Treasury that will pay 5% interest annually, or you can buy one that pays 1% plus inflation, annually, then you'd go with the latter if you thought inflation would average well over 4%, right? If, on the other hand, you thought inflation would average under 4%, then you'd go with the one that isn't indexed for inflation. Since both those yields float based on demand, the gap between the two tells you what people who put their money where their mouths are think inflation will average.
Right now, that 5-year breakeven inflation rate is 3.05%. That's what the smart money thinks inflation will average over the next five years.
That's actually below average! Since 1947 (when the Fed data starts), we've been averaging about 3.5% inflation per year. So the smart money is betting that over the next five years we'll see inflation rates that are below normal.
Could they be wrong? Sure. They're usually really close to right, but maybe this time is different. But it's still worth keeping that in mind when you're hearing political propagandists trying to convince people the current inflation rates are going to be a persistent problem caused by money oversupply, rather than a transitory issue caused by supply chain glitches. Those willing to actually invest based on their convictions don't believe it's going to be a lasting issue.
That's a wildly misleading indicator, since hourly wages tend to soar when there are mass layoffs, then fall when there are rapid job gains. That sound paradoxical, but if you take a step back and think it through, it's obvious why that would be the case. Most businesses unofficially observe a "last in, first out" tendency. When tough times hit and they need to downsize, they start with recent hires, and more junior people, so they're not going to lose a lot of experience and institutional knowledge. And when it comes to unionized workforces, that's often an official part of the collective bargaining agreement. So, when tough times hit, you drop the lowest-paid workers, and the average for the remainder rise. Sometimes you'll also wind up pushing more overtime for the remainder, as they try to make up for the missing workers, which further drives up hourly pay averages. Then, when the economy recovers, that process reverses, junior people are hired, and average wages decline.
That is not remotely a controversial concept, either. For example, in February 2020, right before the pandemic hit, the average hourly earnings of all employees was $28.56. In April 2020, at the height of the pandemic layoffs, with 14.7% unemployment, average hourly earnings were $30.01. That's a 5% increase in just two months.... an annualized growth rate of 34%! Of course, once rehiring started, incomes plunged, and by June, average incomes were down to $29.36.
That's not some weird pandemic thing, either. Average real hourly earnings soared between July 2008 and December 2008, as well, while the economy was melting down.... then declined in later months as the economy recovered. You see something similar with median usual weekly real earnings. Those rose during each of the last five recessions, and typically declined for a while after the economy started recovering.
Here's a simple way to picture it. Say you have a household with three wage earners: a primary earner making $50k per year, a part-time home-maker making $30k per year, and a kid working after school and making $10k per year. The average wage for that household is $30k. Now, what happens if the economy hits rough patch, and the bottom two earners lose their jobs? Well, the average wage rises to $50k. The household's total income will fall, and the family will struggle, thanks to that rising unemployment, but the average worker pay went up. And how about if they regain their jobs after that recession? Well, then, average wages will fall, even as household income rises.
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But, but, but...Biden told us it was transitory.