The Year in Review, 2013: Fantastical Pseudo Economics

The Shoveling Must Continue

Bill Beach has retired, and the Heritage Foundation no longer “scores” budget plans. Yet there is still so much … stuff … out there to debunk. Without further ado, here are my top ten examples of delusion in 2013.

1. January. Governor Walker compares Wisconsin to Minnesota, apparently without checking the data (who needs that anyway!). From Dispatches XXIV: Please Proceed Governor (Walker):

There has been something of a dispute between Governor Walker and Governor Dayton of Minnesota. From Minnesota Public Radio, Governor Walker’s tweet, in response to Governor Dayton’s speech:

“In ’11, IL raised taxes on income by 66% & businesses by 46%. Now MN Gov is proposing a $2 bil tax increase. WI is Open for Business.”

We can examine the relative performance of Minnesota and Wisconsin under the differing taxation and spending regimes by reference to the Philadelphia Fed’s coincident indices.

WIvsMN.gif
Figure 1: Log coincident indices for WI (blue), MN (red) and US (black), normalized to 2007M12=0. NBER defined recession dates shaded gray. Source: Philadelphia Fed, NBER, and author’s calculations.One of these is not like the others.

More recent data here on economic activity and employment. The story does not change: Wisconsin continues to lag.

In order to achieve Governor Walker’s target of 250,000 new jobs by January 2015, the Wisconsin economy will need to generate approximately 11,143 new jobs per month, December 2013 onward. Mean job creation over the 1990-2013 sample period is 1,718, with a standard deviation of 5,765. The requisite path is shown in Figure 2.

winovpix3.jpg
Figure 2: Private nonfarm payroll employment for Wisconsin, seasonally adjusted (blue), July 2013 Wisconsin Economic Outlook forecast, interpolated from annual data using quadratic match (red), Walker’s promised path for private NFP (black), and path from November 2013 required to hit January 2015 target (bold light blue). Source: BLS, Wisconsin Economic Outlook, and author’s calculations.2. The Heritage Foundation channels Jean-Baptiste Say. From Heritage Still at the Cutting Edge:

From J.D. Foster, Ph.D., “Budget Cuts Would Not Harm the Economy” (February 14, 2013):

The [basic Keynesian] theory fails because it relies on the unstated fantasy government can magically create demand out of thin air. In fact, government must borrow to finance deficits, and all borrowing subtracts from the funds that would otherwise be available and used in the private sector for private investment or private consumption. …

…While budget deficits most certainly increase demand, the borrowing necessary to finance those deficits must dollar-for-dollar reduce demand. The net effect is more government debt but not more total demand and certainly not more jobs.

Those seeking to sustain the theory sometimes point to the possibility of importing more saving from abroad, thus avoiding the reduction in domestic private demand that must otherwise follow from the increase in government borrowing. To be sure, a net increase in imports of foreign saving likely financed some of the recent increase in budget deficits. However, it is also true the balance of payments must balance everywhere and always. As government borrowing rises and net inflows of foreign savings rise, so too must the net trade deficit—either U.S. exports must decline or U.S. imports must rise. In either event, once again total demand is unaffected though the composition of demand changes.

Recently, the Heritage Foundation has criticized me for caricaturizing their methodology, and insisting that they use modern, intertemporal approaches. This may very well be true, but thus far, I have not seen much evidence of this modern, intertemporal, approach in Heritage analyses.

3. March: In what reality are we in a recession? From ECRI’s Lakshman Achuthan: U.S. recession began around the middle of last year:

I’m dubious, but I will not “pull a Lazear”. Or a Don Luskin for that matter.

Video here. Some text here. I thought it of use, then, to plot seven of the ten series the NBER Business Cycle Dating Committee (BCDC) uses to date peaks and troughs (these are the ones available to me).

recessionreally1.gif
Figure 1: Log personal income excluding transfers (Ch.05$) (blue), log manufacturing and trade sales (Ch.05$) (red), log industrial production (purple), and log nonfarm payroll employment (green), all normalized to 2009M06=0. Dashed line at 2012M06. Gray shaded area denotes NBER recession dates. Sources: BEA (income, sales), Federal Reserve Board (industrial production), BLS (employment), NBER, and author’s calculations.

recessionreally1a.gif
Figure 2: Log nonfarm payroll employment (green), log aggregate weekly hours (dark blue), and log civilian employment (violet), all normalized to 2009M06=0. Dashed line at 2012M06. Gray shaded area denotes NBER recession dates. Sources: BLS, NBER, and author’s calculations.For comparison, I include the latest GDP estimates from BEA (2nd release), as well as from Macroeconomic Advisers (used by NBER BCDC) and e-forecasting.

recessionreally2.gif
Figure 3: GDP in Ch.05$, SAAR, from BEA (blue bars), from e-forecasting (2/26 release) (red line), and from Macroeconomic Advisers (2/14 release) (green line). Dashed line at 2012M06. Gray shaded area denotes NBER recession dates. Sources: BEA, e-forecasting, Macroeconomic Advisers, and NBER.Obviously, all of these series will be revised [1] [2] [3], so one wouldn’t want to state definitively we are not in a recession – therein lies the path to embarrassment. But the case still has to be made for recession.

I’ve not heard of a retraction by ECRI on their recession call. Since March US GDP has continued to plug along. From Reason for Optimism:

nov13fig0.jpg
Figure 1: Log GDP, December release (bold blue), October release (dark blue), Macroeconomics Advisers forecast of December 23 (bold red), and forecast of October 30 (pink), all in billions Ch.09$, SAAR. NBER defined recession dates shaded gray. Source: BEA 2013Q3 advance and 3rd release, NBER, and Macroeconomic Advisers.
 

4. March: Representative Ryan tries to go legit in explaining the economics of his newest plan (no more scoring from Heritage as in here. From Assessing the Economics of the Ryan Plan:

 

The new House budget proposal has just been released. [0] In the section discussing economic effects, I read the following:

CBO finds that reducing budget deficits, thereby bending the curve on debt levels, is a net positive for economic growth. CBO finds a dichotomy, however, between the short-term and longer-term impacts of deficit reduction. For instance, CBO’s short-term economic models are driven mainly by demand-side factors. According to these short-term models, deficit reduction that lowers government spending leads to a temporary reduction in economic output due to the assumed reduction in consumption as a result of lower government transfers. These models assume government spending has a “fiscal multiplier” in excess of 1, meaning that its reduction leads to an outsized reduction in overall economic output. Of course, every dollar the government spends must be taxed or borrowed from the private sector.

Although CBO believes that deficit reduction may lead to lower economic growth over the short term, some economists offer a contrasting view. They argue that a country’s debt build-up can be so large that longer-term fiscal concerns essentially start to bleed into the present, affecting short-term economic activity. The extreme example is a sudden, full-blown debt crisis like the one that fiscally troubled countries in Europe have experienced. But there is also a less-noticeable, slowly evolving type of crisis that can grip a debt-burdened economy—the crisis of uncertainty and waning confidence in the will of policymakers to deal with the government’s unsustainable fiscal trajectory. Investors and businesses make decisions on a forward-looking basis. They know that today’s large debt levels are simply tomorrow’s tax hikes, interest-rate increases, or inflation—and they act accordingly. It is this House Budget debt overhang, and the uncertainty it generates, that can weigh on growth, investment, and job creation.

For instance, Stanford economists John Cogan and John Taylor recently studied fiscal-consolidation strategies that use a so-called “Neo-Keynesian” economic model to take into account how consumers and businesses might react to a country’s future fiscal trajectory. For example, forward-looking consumers and businesses may expect future tax hikes, and plan accordingly, if a country continues to build up large amounts of debt that will ultimately need to be paid off. In this study, Cogan, Taylor, and their fellow authors find that “even in the short-run, the consolidation of government finances is found to boost economic activity in the private sector sufficiently to overcome the reduction in government spending.”66

Some observations:

  • No reference to Heritage CDA analysis of the plan, as opposed to the version two years ago. For entertainment, see [1] [2] [3] [4]
  • Reference to a “Neo Keynesian” model. Not sure what that is, although this is what Wikipedia says. I think Representative Ryan means to refer to a “New Keynesian” model.
  • Footnote 66 refers to the “Fiscal Consolidation Strategy”. The authors use a New Keynesian DSGE to simulate out the implications of fiscal consolidation cited in the plan. I can’t claim to have carefully read the entire paper, but I can’t figure out what is assumed for monetary policy – which is somewhat important if one is considering the short run impact as well as the long run effect (see this paper).
  • The model has immediate effects from fiscal consolidation. That’s because in the long run, the model is Ricardian, despite the short run rigidities introduced by sticky prices and rule-of-thumb consumers. As I’ve noted here, not all NK DSGE’s have this characteristic.
  • A small point. CBO does not assume all fiscal multipliers are greater than one, as documented in innumerable reports (what’s the point of full disclosure if nobody reads!). As I’ve observed (e.g., [5]) some transfers multipliers are less than unity (as theory suggests they should).
  • On a lighter note, I particularly liked the sentence: “Although CBO believes that deficit reduction may lead to lower economic growth over the short term, some economists offer a contrasting view.” It reminded me of the TV show “Ancient Aliens” where the narrator observes that some people believe “X” (Nazca lines are signs to folks from Orion, etc.). While I’m sure that there are some serious economists who do believe in the contrasting view (e.g., Taylor, Wieland), it would’ve been more honest to note where the preponderance of views in the economics profession lies.

5. April: For some people, gold prices rising means policies are bad; and gold prices falling means policies are bad. I suspect gold prices trending sideways also means … policies are bad. From Gold Prices Falling:

…it is remarkable how rapidly gold prices shot up during a period of irresponsible fiscal policies, with big tax cuts and rampant government spending, denoted by the gray shaded area.

gold1.gif
Figure 1: Price of gold bullion in dollars per troy ounce, London market, 10:30am, monthly average. Source: St. Louis Fed FRED.Well, actually, the graph depicts the price of gold over the 1970M01-2008M12 period. That is, the sample predates the implementation of quantitative easing in the US, the UK and the euro area. The gray shading applies to the 2001M01-2008M12 period. Figure 2 depicts the log price of gold, over the 1970M01-2013M03 sample.

gold2.gif
Figure 2: Log price of gold bullion in dollars per troy ounce, London market, 10:30am, monthly average, 1970M01-2013M03. Linear trend estimated over 2001M01-2011M08. Gray shading applies to 2001M01-2008M12. Source: St. Louis Fed FRED, and author’s calculations.Notice that the slope of the price line is pretty straight over the 2001M01-2011M08 period. Since this is the logged price, this means that trend growth rate is pretty constant, at roughly 17.2%.

Another perspective can be seen by reference to the year-on-year growth rate of gold prices.

gold3.gif
Figure 3: 12 month growth rate of the price of gold bullion, in dollars per troy ounce, London market, 10:30am, monthly average, 1970M01-2013M03. Linear trend rate estimated over 2001M01-2011M08 (red line). Dashed lines at QE1, QE2, QE3 start dates. Source: St. Louis Fed FRED, and author’s calculations.Figure 3 highlights the lack of correlation of various bouts of quantitative easing and acceleration in gold price inflation. This is not surprising to informed observers of recent unconventional monetary policy measures, who are aware that increases in money base have not translated to corresponding increases in money supply (c.f., [1]). On the other hand, some movements are probably ascribable to movements in the policy rate, as Jim describes.

So why the recent drop in prices? One possibility is that expected inflation has declined from previous highs (despite the fact that expected inflation from surveys and from market based indicators have barely budged [2]). Don’t forget predictions of this nature (this one entitled subtly Hyperinflation and Gold: Losing Faith in the Dollar):

… most dangerously, through the mechanism of quantitative easing — buying government debt (Treasury bonds) in order to keep interest rates low and expand liquidity — the Fed inflates Treasury bond prices. If this Treasury debt bubble bursts, the result will be a further rush to commodities in a hyperinflationary attempt to dump dollars.

And you might then see people pushing wheelbarrows of dollar bills through the streets. …

Another (related) possibility is the expected value of the utility of gold in the post-apocalypse world has declined (because the probability ascribed to the collapse of civilization has declined). From the NYT again:

“Gold has had all the reason in the world to be moving higher — but it hasn’t been able to do it,” said Matt Zeman, a metals trader at Kingsview Financial. “The situation has not deteriorated the way that a lot of people thought it could.”

I guess in both of these interpretations, I’m assuming non-rational behavior.

Or it could be a conspiracy.

Real side interpretations focus on the fact that demand for gold has declined as there has been a downward revision in expected income growth in China, a country that has been a support to gold demand in the past.

gold4.jpg
Figure 4: London gold price, daily, 10:30am. Source: St. Louis Fed FRED.Finally, the price decline could be the collapse of a rational stochastic bubble(something hard to verify).

6. May: Heritage Foundation assumes the Postal Service is not part of the US government in its tabulation of … government employment. From Heritage Assesses the Ever-Expanding Ever-Centralizing Federal Government Sector:

In a graphically interesting discussion of the April employment situation release, James Sherk and Salim Furth write:

State and local governments avoided the massive job losses of 2008 and 2009 that affected the private sector—these governments even grew slightly during the recession. But they have been gradually downsizing ever since. The federal government, by contrast, has expanded rapidly since the recession began. Federal employment, excluding the U.S. Postal Service,[2] peaked in 2011 at 13 percent above 2008 levels. At the same time, the private sector was still mired in the slow recovery, 5.5 percent below 2008 levels. Since 2011, federal expansion has stopped, and a fifth of the recession-era expansion has been reversed.

However, most of the federal employment expansion that took place from 2008 to 2011 remains in place. Despite protestations that the additional employment associated with the stimulus would be temporary, federal employment remains as high as it was three years ago and 10 percent higher than it was before the recession. By contrast, private, state, and local employment are 2 percent to 3 percent below pre-recession levels.

The authors use the below figure to illustrate these points.

ib3927_chart2_600.gifHere I provide two other ways of examining the data. Figure 1 below depicts employment levels normalized to 2007M12 levels.

funky2.gif
Figure 1: Private employment (blue), Federal ex.-postal service (red), and state and local employment (orange), in 000’s relative to 2007M12. Federal series excludes temporary Census workers. Source: April 2013 employment release.Now, it is interesting to observe that should one not exclude postal workers (after all, many other Federal workers are distributed throughout the nation, just like postal workers), then the picture changes somewhat, as shown in Figure 2.

funky3.gif
Figure 2: Private employment (blue), Federal (red), and state and local employment (orange), in 000’s relative to 2007M12. Federal series excludes temporary Census workers. Source: April 2013 employment release.In other words, Federal employment is essentially back to levels of 2007M12. I think these two graphs cast in a slightly different light the authors’ main contention, viz.:

…The expansion of the federal government has ultimately come to some degree at the expense of states and localities. As the federal government seeks to command more of the economy—most notably the health care sector—this troubling trend is likely to continue to move employment and power to the least transparent and accountable level of government

I guess it is an expansion of the center if the non-center shrinks. (Music side note: I almost expected the Darth Vader theme!)

Finally, I find it interesting that Sherk and Furth do not mention how little government employment grew relative to previous episodes.

funky4.gif
Figure 3: Log government employment (ex.-census workers) relative to 2007M12 peak (blue), relative to 2001M03 peak (red), and relative to 1990M08 peak (green). Source: BLS, and author’s calculations.As I recall, George W. Bush was President during the 2001M01-2008M12, when government employment surged. I do not recall a similar concern about centralization of power on the part of Heritage Foundation economists at the time.

In absolute terms, the change in government employment is 1.6 and 1.5 million lower in the current episode relative to the 2001M03 and 1990M08 episodes, respectively. …

 

7. July. For some people, high inflation is always around the corner. From What Were They Thinking?:

As the Fed sets in place the road map to withdrawing monetary stimulus, I wonder how it is that so many believed the Fed’s implementation of unconventional monetary policy would lead to surging high inflation. Examples include House Budget Committee Chair Paul Ryan, who stated in November 2010:

I think it’s going to give us a big inflation problem down the road.

The source for the above statement, Reuters, also quotes Sarah Palin and Ron Paul.

Time to look back. Here are some graphs depicting inflation and inflation expectations as they evolved.

nutter2_1.png
Figure 1: Annualized three month inflation for CPI (blue), personal consumption expenditure (red), core CPI (bold dark blue), and core PCE (bold dark red), in percent. Source: BLS, BEA via FRED, and author’s calculations. 

nutter2_2.png
Figure 2:Expected inflation calculated from difference between 10 year constant maturity Treasuries and TIPS (dark blue), from 5 year (purple), and mean expected 10 year CPI inflation from Survey of Professional Forecasters (green +), in percent. Source: BLS, BEA via FRED, and SPF from Philadelphia Fed, and author’s calculations.The obvious point is that there has been little evidence of inflation “getting out of control”, even as several bouts of quantitative easing were undertaken. In fact, inflation and inflation expectations have been remarkably quiescent. Why were these people so mistaken? There are at least two competing explanations, consistent with the statements that were made, and the observations we have:

  • The observers were ignorant of economics.
  • The observers wished to whip up hysteria in order to prevent the Fed from undertaking expansionary policies.

Both are plausible. The second possibility is more interesting to me (the first possibility is examined here). Why would these people wish interest rates to remain high? Perhaps they hoped that high interest rates would force a reduced level of government spending –- i.e., it would have “starved the beast”. In other words, instead of just cutting food stamps (SNAP) as the House is trying to do now (although not ag production subsidies[0]), even more swaths of the government could’ve been cut had monetary policy been less accommodative. Of course, the “starve the beast” hypothesis has had little empirical basis, as Jeff Frankel has pointed out (as well as Bruce Bartlett). But empirical evidence has not usually been marshalled on that side of the argument anyway.

A third argument, that Fed unconventional monetary policies were ineffective, and hence should not been undertaken, seems to run counter to recent empirical evidence indicating that the imminent cessation of QE has led to higher real interest rates (after all, if QE couldn’t push rates down, why should the mention of ending it pull rates up?). The increase in real rates since the Chairman’s June speech is depicted below in Figure 3:

nutter2_3.png
Figure 3: Ten year TIPS yields (dark blue), and five year TIPS yields (dark red), in percent. Source: FRED.As Brad Delong observes, this is not good news, given that 2013Q2 GDP growth seems pretty poor. [1] Macroeconomic Advisers puts second quarter growth at 0.6% (SAAR).

A final graph depicts money base and gold prices, for those who believe gold prices are a summary statistic for all things under heaven.

nutter2_4.png
Figure 4: US money base, in millions of dollars (blue, left scale), and price of gold in London, 10:30AM, dollars per Troy ounce. Source: FRED.Statements surrounding this graph I do think are more akin to the pure “tin-foil cap” sort (money base increase equals debasement; see this post).

I think Paul Krugman provides the perfect postscript for the attempts to avoid accountability for voicing these fears in his post Year of the Weasel.

8. September: Ed Lazear claims for Team Bush Mission Accomplished on ending the financial crisis of 2008. From The Absolute Funniest Thing I Have Read This Year:

 

From Ed (We Are Not in a Recession) Lazear and Keith Hennessey, “Bush ended financial crisis before Obama took office — three important truths about 2008”, FoxNews (9/16):

The financial crisis was caused principally by unprecedented capital flows into the United States (and other developed economies).

In September 2008 we, on behalf of President Bush, were part of a team that asked Congress to write a $700 billion check on behalf of taxpayers to bail out the failing largest banks. President Bush didn’t want to do this. We didn’t want to do this. Congress didn’t want to do it (and said no the first time). Our reservations were based on the potential cost to taxpayers and the moral hazard created by bailing out failing institutions and some of their creditors. Even today this program is famously unpopular, but the evidence is that it worked.

It was President Bush’s task to stop the financial panic that was occurring in the autumn of 2008. He and his administration succeeded.

All the major financial sector rescue policies were created and implemented during the last five months of the Bush administration.

The Bush team put Fannie Mae and Freddie Mac into conservatorship, proposed, enacted, and implemented the TARP and its main component, the Capital Purchase Program.

Treasury guaranteed money market mutual funds. The FDIC expanded its guarantee of deposit insurance and created new guarantees for small business accounts and interbank loans.

The Fed created new mechanisms for commercial paper and began paying interest on bank reserves. Fed, the Treasury, and FDIC took specific actions (many of which were loans and “bailouts”) for AIG, Citigroup, Goldman Sachs, Morgan Stanley, Washington Mutual, American Express, CIT, General Motors, and Chrysler.

Permit me a few observations.

First, it’s not so clear that by January 2009, the financial system had been saved; consider the three month LIBOR-US Treasury spread (TED spread). There was clearly still a lot of distrust, as shown by the TED spread (recall, it’s likely the TED spread understated the degree of risk, given the distortions in the market). By the end of the Bush Administration, the spread shrank to where it had been in the immediate run-up to Lehman.


Source: Bloomberg via Econbrowser.Second, the article also resurrects the “Blame it on Beijing” view of the origins of the crisis. As if all that capital flowing into America came out of nowhere — that housing boom, deregulation of financial markets, etc. had nothing to do with actual deregulatory actions pushed by the Administration. More on the “Blame it on Beijing” thesis here andhere. (Heck, I got seemingly infinite numbers of offers for credit cards in 2007, but I didn’t take ’em all, borrow to the max, and then default.)

Third, I agree that the measures undertaken in the immediate aftermath of Lehman were extremely important, including the conservatorship of the GSEs, and implementation of TARP. See the discussion by Phill Swagel of crisis management during the height of crisis.

But, Lazear and Hennessey blur the distinction between Fed actions and those of the Administration. To say the Bush Administration ended the crisis overstates the case (to say the least).

Finally, the entire article reminds me of the person who builds a house in the middle of a big area of dry grass, lobbies against putting any regulations that might require tile rooftop, goes on and puts on a wood shingle rooftop, fails to clear away the dry brush surrounding the house, and then — when the house catches on fire — claims victory when one room is saved because a lawn hose was trained on that part of the house.

9. Is there a conspiracy so vast that it has reached all the way up the Oval Office, in order to manipulate … the part-time/full-time employment series? From Data Paranoia Watch:

Reader Anonymous (Oct 25, 7:34AM) cites approvingly a ZeroHedge “analysis” that asserts the BLS tweaked the data to make it look like there was a big shift in employment from part time to full time. Here’s the ZeroHedge graph:
FTjobs_zerohedge.jpg
Figure from ZeroHedge.Is this the smoking gun for a conspiracy so vast that it has penetrated the upper echelons of the BLS, straight from the Oval Office?

In order to answer this question, one has only to go to the BLS data, easily accessible on the FRED website. To convince people how easy it is to get the data, here are the two URLs: Part Time and Full Time employment.

If one plots the series over a longer time span (Figure 1), say 2001M01-2013M09, one sees that in fact the shift is quite unremarkable (the ZeroHedge sample is indicated by the tan portion).

part_full_emp1.jpg
Figure 1: First difference of employment, mostly part time (blue), and full time (red), seasonally adjusted, from CPS. Tan shading denotes sample examined by ZeroHedge. Source: BLS via FRED.Since the civilian employment and the labor force have tended up over time, it makes sense to look at percent changes; here I measure the growth rates as the first difference of log levels.

part_full_emp2.jpg
Figure 2: Log first difference of employment, mostly part time (blue), and full time (red), seasonally adjusted, from CPS. Tan shading denotes sample examined by ZeroHedge. Source: BLS via FRED, and author’s calculations.The September m/m percent decline in part time employment is 1.94 standard deviations from the mean (over the 2001M01-2013M09 period), while the m/m percent increase in full time employment is 1.63 standard deviations from the mean. Given the variability the series, one would not reject the null hypothesis of the September outcome occurring by random chance at the 5% msl, even for the part time series.

So, no, no vast conspiracy to distort the data to make the Administration look good.

My question: Why do these right-wing paranoid fantasies persist in an era where everybody has access to a calculator, excel, and the internet? For another excursion into the paranoid delusional world of data-conspiracies, see here. (Actually, another question: why does anybody valuing their brain cells read ZeroHedge?)

10. November: Yet more apocalyptic hyperventilating about hyperinflation. From Apocalyptic Macro: Inflation Edition:

From an opinion piece by Sean Fieler in USAToday:

If easy money delivers what it always has throughout history — growing inflation, growing inequality and growing government — a Republican embrace of sound money will offer America a way back to prosperity and the GOP a way back to a governing majority.

I found the reference to growing inflation of interest. Here are some data of relevance. They indicate low and declining inflation using various measures, CPI, PCE, PPI, core, headline.

infl1.jpg
Figure 1: Quarter-on-quarter annualized inflation measured by CPI (blue), Chained CPI (red), and personal consumption expenditure deflator (green). All, seasonally adjusted, measured using log differences. NBER defined recession dates shaded gray. Source: BLS and BEA via FRED, NBER and author’s calculations.
infl2.jpg
Figure 2: Quarter-on-quarter annualized inflation measured by core CPI (blue), Core Chained CPI (red), and core personal consumption expenditure deflator (green). All, seasonally adjusted, measured using log differences. NBER defined recession dates shaded gray. Source: BLS and BEA via FRED, NBER and author’s calculations.These graphs indicate low and declining headline and core inflation. Low inflation also shows up at the producer stage.

infl3.jpg
Figure 3: Quarter-on-quarter annualized inflation measured by PPI for final goods and services (blue), and core PPI for final goods and services (red). All, seasonally adjusted, measured using log differences. NBER defined recession dates shaded gray. Source: BLS and BEA via FRED, NBER and author’s calculations.At this juncture, I’m certain the usual suspects (and others) will argue that there is a massive conspiracy in place to hide rapid inflation. I therefore appeal to a non-governmental source, namely the Billion Price Project (discussed by Jim here):

infl4.jpg
Figure 4: Month-on-month annualized inflation measured by CPI (blue), Billion Price Project (red). CPI seasonally adjusted. NBER defined recession dates shaded gray. Source: BLS FRED, Billion Price Project, NBER and author’s calculations.Note that the month-on-month inflation measures are similar. Whatever differences exist, they are nothing like the massive differences cited by John Williams at Shadowstats (ably debunked by Jim here).

Finally, it’s of interest to note that inflation expectations have remained fairly stable.infl5.jpg
Figure 5: One month ahead year-on-year inflation using CPI (blue), and PCE (red). NBER defined recession dates shaded gray. Source: Philadelphia Fed Survey of Professional Forecasters.

Oh, and the allegation of growing government — just look at Figure 6.

govshare.jpg
Figure 6: Log real government spending on goods, services, transfers ex-interest payments, all levels ratio to GDP. Government transfers deflated by PCE deflator. NBER defined recession dates shaded gray. Source: BEA, NBER and author’s calculations.

11. Bonus! US Treasury default is good thing! From Movements in Short Term Treasurys:

…Representative Yoho (R-FL) stated:

“I think, personally, [not raising the debt ceiling] would bring stability to the world markets.”

Somehow, I get the feeling we still might get to see this hypothesis tested in 2014. [1]

Thanks for reading. Looking forward to another year, hopefully full of better analysis!

This piece is cross-posted from Econbrowser with permission.