IT’S IMPOSSIBLE TO OVERSTATE DEFLATIONARY PRESSURE…:

Has the Great Upshift arrived?: Another strong quarter for US productivity growth is far from conclusive. But it’s also a super encouraging sign. Let’s enjoy it. (JAMES PETHOKOUKIS, FEB 1, 2024, Faster, Please)

[T]he US Bureau of Labor Statistics today released the 2023 fourth-quarter result for nonfarm business sector productivity, and it was pretty good — again. Productivity rose by a better-than-expected 3.2 percent during the final quarter of last year and was up by 2.7 percent on a year-ago basis. Even better, productivity growth has now increased at a rapid pace for three straight quarters, including 4.9 percent in Q3 and 3.6 percent in Q2.

Given both the advances in artificial intelligence/machine learning, which emerged before ChatGPT in 2022, and similarly strong productivity numbers in 2019, the last pre-pandemic year, it’s certainly worth contemplating whether we’re seeing the start of a (hopefully sustained) period of elevated productivity growth. Which would be totally awesome for several reasons.

For starters — and this is the thing that’s top of mind for most people, including Wall Street — strong productivity growth has contributed to a “Goldilocks” scenario where inflation has declined even as the economy has continued to grow.

…as labor and energy costs trend towards zero.

IT’S ACTUALLY PROOF THAT MANAGEMENT IS POINTLESS:

There’s More Proof That Return to Office Is Pointless (Maxwell Zeff, 1/30/24, Gizmodo)

“Using a sample of S&P 500 firms, we examine determinants and consequences of U.S. firms’ return-to-office (RTO) mandates,” said researchers from the Katz Graduate School of Business at the University of Pittsburgh. The study found that managers use RTO mandates “to reassert control over employees and blame employees as a scapegoat,” and concluded that “we do not find significant changes in firm performance in terms of profitability and stock market valuation after the RTO mandates.”

IF I CAN’T SEE HIM, HE CAN’T SEE ME…IF I CAN”T….

Biden-era economic growth leaves Republicans literally speechless (Steve Benen, 1/26/24, MSNBC)

Americans learned this week that economic growth in the final three months of 2023 easily outpaced modest expectations, and GDP growth across the entire year was quite good — despite overwhelming chatter a year ago about a looming recession.

The New York Times’ Paul Krugman, taking stock of the data, concluded that President Joe Biden “couldn’t have asked for better numbers.” Diane Swonk, chief economist at KPMG, told the Times the economic news was “stunning and spectacular.”

Naturally, I was curious how Republicans would respond to the news. A few options came to mind.

Maybe leading GOP officials would make the case that the robust economic recovery is nice, but President Joe Biden doesn’t deserve any credit. Perhaps they’d argue that it’s too soon to applaud good news since there’s still plenty of economic work to do. Maybe they’d argue that the United States economy is a massive beast, and it’s unrealistic to think a White House agenda is uniquely responsible for year-to-year shifts.

But as it turns out, Republicans went with the same approach they use in response to robust job growth: They simply ignored the good news, as if it hadn’t happened.

SOFTLY, SOFTLY:

Is Inflation Dead? (Cullen Roche|January 26th, 2024, Discipline Funds)

What really happened here is that plane was flying too fast in 2021. Then we hit a rough patch of air and the Fed kept flying us right through it. When they finally recognized the danger in 2022 they lifted the nose (interest rates) which caused the plane to slow and avert some of the turbulence. As of today the turbulence has moderated quite a lot, but the Fed still has the nose pitched at a suboptimal angle. They would like to bring the nose back down so we can continue along at the altitude and rate of speed we were traveling before this mess started.

This analogy is better because it highlights what success will actually entail here. Avoiding the turbulence isn’t “mission accomplished”. We want to bring the plane back to a more sustainable altitude and speed. And the only way we’ll know that that’s been accomplished is when the Fed brings the nose back down to its normal position. For the Fed that would mean bringing interest rates back down to a more sustainable level. I’ve been saying that a sustainable overnight rate is probably something in the 3-4% range. So, with the rate at 5.5% we’re still quite a ways from being able to say that the mission has been accomplished.

Don’t get me wrong. The pilots here are doing a good job. Better than I expected them to do. But we don’t want to be complacent here and declare victory when we’re still flying low and slow through a turbulent environment.

YEAH, BUT THE GOAL ISN’T PRODUCTIVITY…:

No, office mandates don’t help companies make more money, study finds (Danielle Abril, January 24, 2024, Washington Post)

“We will not get back to the time when as many people will be happy working from the office the way they were before the pandemic,” said Mark Ma, co-author of the study and associate professor at the Katz Graduate School of Business. Additionally, mandates make workers less happy, therefore less productive and more likely to look for a new job, he said.

The study analyzed a sample of Standard & Poor’s 500 firms to explore the effects of office mandates, including average change in quarterly results and company stock price. Those results were compared with changes at companies without office mandates. The outcome showed the mandates made no difference. Firms with mandates did not experience financial boosts compared with those without. The sample covered 457 firms and 4,455 quarterly observations between June 2019 and January 2023.

Data from the U.S. Bureau of Labor Statistics shows that over the past year, as more companies have debuted or doubled down on mandates, the number of people working from the office hasn’t changed much. About 78 percent of workers ages 16 and older worked entirely on-site in December 2023, down from 81 percent a year earlier. Of course, some professions like tech workers, who often have more flexible work schedules, have much lower averages, with only 34 percent working entirely on-site last month compared with 38 percent last year.

“There are compliance issues universally,” said Prithwiraj Choudhury, a Harvard Business School professor who studies remote work. “Some companies are issuing veiled threats about promotions and salary increases … which is unfortunate because this is your talent pool, your most valuable resource.”

…it’s just to pretend managers matter.

THERE ARE NO PEAKS:

How Malthus Got It Wrong (David R. Henderson, 1/11/24, Defining Ideas)

Simon, in his book The Ultimate Resource, posited that it was precisely the growth in population that had led to the increased supply of resources. How so? Because, argued Simon, with more people, there were more minds, and with more minds, there were more minds solving problems. That’s what led to his book’s title. People, he argued, were the ultimate scarce resource.

In “Natural Resources,” published in David R. Henderson, ed., The Concise Encyclopedia of Economics, Princeton University economists Sue Anne Batey Blackman and William J. Baumol lay out three ways in which “the effective stocks of a natural resource can be increased.” First, a technological innovation can reduce the amount of waste. They give the example of reducing the amount of iron ore lost in mining or smelting. They also note that improvements in technology can help force more oil out of wells that have been abandoned. Second, they write, there is some substitutability over a wide range of resources. They give the example of insulation, which allowed homeowners and tenants to use less oil. This doesn’t mean that oil became more plentiful, of course. But it does mean that the available supply of oil was stretched so that the awful thing people feared—running out of oil—didn’t happen. The final way they note of increasing resources is to recycle. While some products really should not be recycled because the resource costs of doing so exceed the savings, other resources, like aluminum, can be profitably recycled.

In their article, Blackman and Baumol give some striking data on five minerals: tin, copper, iron ore, lead, and zinc. They show world reserves in 1950, world production between 1950 and 2000, and reserves in 2000. If we were running out of those resources, all of the reserves should have been smaller in 2000 than in 1950. In fact, all were larger. The case of iron ore is the most striking. In 1950, there were 19 billion metric tons. Between 1950 and 2000, 37.6 billion metric tons of iron ore were produced, which was more than the number of tons to begin with. By 2000, world reserves were 140 billion metric tons, over seven times as many as in 1950!

Earlier similar data caused Julian Simon to conclude that the real constraint on resource availability was not resources but people.

AMERICAN GENEROSITY:

How Progressive is the U.S. Tax System? (Thomas Coleman & David A. Weisbach, November 20, 2023, University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. #991)

Notwithstanding some headline results to the contrary, all three datasets show that the tax system has become more progressive and more redistributive over the last several decades, with much of that change occurring in recent years. This increase in redistribution is driven primarily by an increase in transfers to households in the bottom half of the income distribution which is missed by a focus on the top 1%.

NO ONE HAS IT HARDER THAN THEIR FATHER DID:

Americans Are Not As Poor As They Think They Are (Thomas R. Wells, 1/08/24, 3Quarks)

The evidence shows that most Americans are richer than ever, and richer than most people in the rich world – that they consume more, live in larger homes, and so on. They are objectively some of the luckiest people in world history. On the one hand all this narcissistic whining about imaginary poverty is mildly annoying for the rest of the world to have to listen to. On the other hand, it reflects shared delusions about individual entitlements and America’s economic decline that are driving a toxic ‘doom politics’ of cynicism and resentment, while also neglecting the needs of actually poor Americans.

Two misunderstandings in particular seem to drive the mistake: that everything is more expensive these days, and that the rich took all the money.

OPEN THE BORDERS:

What Are the Economic Benefits of Trade, American Style (James Pethokoukis, 12/04/24, AEIdeas)

But can we put a number on all that good stuff? The Peterson Institute for International Economics gives it a try in a recent report and comes up with some encouraging data, along with a caveat:

US GDP in 2022 was $25.5 trillion. Without post-World War II engagement in the world economy, our estimates indicate that US GDP in 2022 would have been $22.9 trillion, some $2.6 trillion lower… The $2.6 trillion in gains in 2022 work out, on average, to about $7,800 per person and $19,500 per household. Average gains in 2022 would have been considerably larger but for political headwinds that have slowed trade expansion since the global financial crisis of 2008-09. Indeed, nearly all the gains — expressed as a percent of GDP — accrued before the global financial crisis, although gains expressed in dollar terms have continued to grow at a slow rate.

ALMOST LIKE SUPPLY/DEMAND WORKS:

Welcome to the Neighborhood! Wall Street Designed It (Carol Ryan, Jan. 3, 2024, WSJ)

Your new suburban rental has granite kitchen countertops, built to withstand even the most hard-wearing tenant. The neighbors next door have the exact same laundry machine. Welcome to the community where every detail has been designed to keep costs down for the Wall Street landlord.

Big investors are bullish about America’s family homes. So bullish they are willing to build entire new neighborhoods as it becomes harder to buy houses from the usual channels.