Can Economics Keep Up? by Kaushik Basu - Project Syndicate

NEW YORK – When the sitar maestro Ravi Shankar and Nobel laureate economist Amartya Sen received the Bharat Ratna, India’s highest civilian award, a journalist is said to have asked them, “Between the two of you, who is the more talented?” Comparing musical and economic talent is in many ways meaningless. But Shankar offered an interesting response: “Teach me economics for a week and ask me to give a lecture; I will manage it without making a fool of myself. Now, teach my friend Amartya to play the sitar for a week and ask him to give a public performance….”

1. The AI Revolution and Strategic Competition with China

   Getty Images Tony Studio

   Eric Schmidt explains why the world’s democracies must come together to maintain leadership in this critical domain.

   0
2. The Evolution of American Capitalism PS OnPoint

   Alfred Gescheidt/Getty Images

   Subscriber Exclusive

   William H. Janeway reviews a major new work of economic history spanning the colonial era to the present.

   4
3. The Stagflation Threat Is Real

   Spencer PlattGetty Images

   Nouriel Roubini

   There is a growing consensus that the US economy’s inflationary pressures and growth challenges are attributable largely to temporary supply bottlenecks that will be alleviated in due course. But there are plenty of reasons to think the optimists will be disappointed.

   warns that the current mix of inflation and slowing growth could persist – and even trigger a debt crisis.

   3

The story is probably apocryphal. Nonetheless, it highlights a distinctive feature of economics. In many academic disciplines, it is difficult for someone who lacks a reasonable command of the subject to give a lecture without embarrassment, even to a lay audience. Not so with economics. Generally speaking, the average layperson cannot easily tell the difference between good and bad economics, owing not least to the discipline’s broad range of content and disparate methodologies.

Economics has the virtue of accommodating those immersed in abstruse mathematics and axiomatic methods (Léon Walras, John Nash, and Kenneth Arrow) alongside those who delve into the world’s problems without recourse to symbols (Adam Smith, Thomas Schelling, and Gunnar Myrdal). But such a vast canvas tends to leave room for erroneous brushstrokes. And in deeply uncertain times like the present, when the world is being convulsed by the COVID-19 pandemic, climate change, and the digital revolution, it is easy to understand why many lay readers would grow exasperated with pronouncements from “economists.” How can the non-expert separate the wheat from the chaff?

This sense of disquiet should prompt introspection within the discipline. Even if the criticism is unjustified, a little self-examination cannot hurt. Indeed, I would argue that many mainstream economists fail to appreciate that apprehending reality and crafting sound policy cannot be purely a matter of data and empiricism. However carefully we collect, organize, and analyze our data, the insights we gain must be used in conjunction with common sense and intuition.

By the same token, someone who views his own forecasts as expressions of pure science is as dangerous as someone who is guided by superstition. There is no way to predict with certainty what will happen tomorrow. When speaking about the future, we have no other choice but to use our intuition to decide when we can extrapolate from past data and when we cannot. We hope that we as a species have evolved an intuition that is at least somewhat reliable.

An additional problem is that the necessary mix of hard science and intuition or judgment tends to differ across economic specialties. In some branches, such as auction design, economics is close to engineering, whereas in the areas of monetary and fiscal policy, it is heavily reliant on perception and judgment. When outsiders extrapolate from one branch’s performance to make inferences about another branch, errors can quickly pile up.

Subscribe to Project Syndicate

Subscribe to Project Syndicate

Enjoy unlimited access to the ideas and opinions of the world’s leading thinkers, including weekly long reads, book reviews, topical collections, and interviews; The Year Ahead annual print magazine; the complete PS archive; and more – for less than $9 a month.

Subscribe Now

Beyond these philosophical matters, economic theory also demands a fresh look. To be sure, the rise of data-based scholarship (through big data or randomized control trials) is hugely important. We need data to help spot hidden patterns if for no other reason than to bolster our intuition. Still, the growing propensity to treat these findings as universally dispositive is worrying.

Economics would not be the valuable and exciting discipline that it is today were it not for big theoretical insights like Smith’s seminal insight that order can emerge organically without the need for direction from prime ministers or the state (Leviathan). “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest,” Smith famously observed.

But a caveat is in order here. While Smith’s seminal observation was that the “invisible hand” can deliver order, the neoliberal view that the invisible hand always does so is a travesty. One does not have to read more theory to understand this; Franz Kafka’s The Trial offers chilling depictions of how evil can be perpetrated without a perpetrator.

Another reason to return to theory now is that the ground is shifting beneath our feet. Mainstream economics has always relied on both explicit and implicit assumptions. For example, textbooks tell us that the efficiency of trade and exchange depends on individual preferences satisfying diminishing marginal utility, technology being convex, and so on. But they do not bother to mention that people also need to be able to communicate. That condition is taken for granted, as are many behavioral norms that are crucial for a market’s proper functioning.

But as technology advances and the environment changes, some implicit norms and assumptions will evolve, sometimes with devastating effects on the economy. In our world of social media and public pronouncements, the meaning of what we say is beginning to change. With globalization, we also have people with different norms operating in the same economy and market. Our theory is ill-equipped to analyze, let alone regulate, such markets. To understand these developments, we need the kind of major theoretical breakthroughs that brought the discipline to where it is today. I am not equating theory with mathematics. Neither Schelling’s prose nor Nobel laureate Elinor Ostrom’s research had much mathematics, but that didn’t stop them from grappling with some of the world’s most fundamental problems.

The risk economists face now is that the ground is shifting faster than our understanding. We must call on economics’ scientific imagination to rise to the challenge and examine not just the state of the world but the state of the discipline.

Adblock test (Why?)

Can Economics Keep Up? by Kaushik Basu - Project Syndicate
Read More

Can economics keep up with the new demands being made of it? - Mint

When the sitar maestro Ravi Shankar and Nobel laureate economist Amartya Sen received the Bharat Ratna, India’s highest civilian award, a journalist is said to have asked them, “Between the two of you, who is the more talented?" Comparing musical and economic talent is in many ways meaningless. But Shankar offered an interesting response: “Teach me economics for a week and ask me to give a lecture; I will manage it without making a fool of myself. Now, teach my friend Amartya to play the sitar for a week and ask him to give a public performance…."

The story is probably apocryphal. Nonetheless, it highlights a distinctive feature of economics. In many academic disciplines, it is difficult for someone who lacks a reasonable command of the subject to give a lecture without embarrassment, even to a lay audience. Not so with economics. Generally speaking, the average layperson cannot easily tell the difference between good and bad economics, owing not least to the discipline’s broad range of content and disparate methodologies.

Economics has the virtue of accommodating those immersed in abstruse mathematics and axiomatic methods (Léon Walras, John Nash, and Kenneth Arrow) alongside those who delve into the world’s problems without recourse to symbols (Adam Smith, Thomas Schelling, and Gunnar Myrdal). But such a vast canvas tends to leave room for erroneous brush strokes. And in deeply uncertain times like the present, when the world is being convulsed by the covid pandemic, climate change and the digital revolution, it is easy to understand why many lay readers would grow exasperated with pronouncements from ‘economists’. How can the non-expert separate the wheat from the chaff?

This sense of disquiet should prompt some introspection within the discipline. Even if the criticism is unjustified, a little self-examination cannot hurt. Indeed, I would argue that many mainstream economists fail to appreciate that apprehending reality and crafting sound policy cannot be purely a matter of data and empiricism. However carefully we collect, organize, and analyse our data, the insights we gain must be used in conjunction with common sense and intuition.

By the same token, someone who views his own forecasts as expressions of pure science is as dangerous as someone who is guided by superstition. There is no way to predict with certainty what will happen tomorrow. When speaking about the future, we have no other choice but to use our intuition to decide when we can extrapolate from past data and when we cannot. We hope that we as a species have evolved an intuition that is at least somewhat reliable.

An additional problem is that the necessary mix of hard science and intuition or judgement tends to differ across economic specialties. In some branches, such as auction design, economics is close to engineering, whereas in the areas of monetary and fiscal policy, it is heavily reliant on perception and judgement. When outsiders extrapolate from one branch’s performance to make inferences about another branch, errors can quickly pile up.

Beyond these philosophical matters, economic theory also demands a fresh look. To be sure, the rise of data-based scholarship (through big data or randomized control trials) is hugely important. We need data to help spot hidden patterns if for no other reason than to bolster our intuition. Still, the growing propensity to treat these findings as universally dispositive is worrying.

Economics would not be the valuable and exciting discipline that it is today were it not for big theoretical insights like Smith’s seminal insight that order can emerge organically without the need for direction from prime ministers or the state (Leviathan). “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest," Smith famously observed.

But a caveat is in order here. While Smith’s seminal observation was that the ‘invisible hand’ can deliver order, the neoliberal view that the invisible hand always does so is a travesty. One does not have to read more theory to understand this. Franz Kafka’s The Trial, for example, offers chilling depictions of how evil can be perpetrated without a perpetrator.

Another reason to return to theory now is that the ground is shifting beneath our feet. Mainstream economics has always relied on both explicit and implicit assumptions. For example, textbooks tell us that the efficiency of trade and exchange depends on individual preferences satisfying diminishing marginal utility, technology being convex, and so on. But they do not bother to mention that people also need to be able to communicate. That condition is taken for granted, as are many behavioural norms that are crucial for a market’s proper functioning.

But as technology advances and the environment changes, some implicit norms and assumptions will evolve, sometimes with devastating effects on the economy. In our world of social media and public pronouncements, the meaning of what we say is beginning to change. With globalization, we also have people with different norms operating in the same economy and market. Our theory is ill-equipped to analyse, let alone regulate, such markets. To understand these developments, we need the kind of major theoretical breakthroughs that brought the discipline to where it is today. I am not equating theory with mathematics. Neither Schelling’s prose nor Nobel laureate Elinor Ostrom’s research had much mathematics, but that didn’t stop them from grappling with some of the world’s most fundamental problems.

The risk now is that the ground is shifting faster than economists’ understanding. We must call on economics’ scientific imagination to rise to the challenge and examine not just the state of the world but also of the discipline. ©2021/Project Syndicate

Kaushik Basu is former chief economist of the World Bank and chief economic adviser to the Government of India, and presently professor of economics at Cornell University

Subscribe to Mint Newsletters

* Enter a valid email

* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Adblock test (Why?)

Can economics keep up with the new demands being made of it? - Mint
Read More

Why Mainstream Economists Miss Digital Innovation - Forbes

Economists often perform wonders in making sense of complex topics, but in some areas, there is still work to be done, particularly in the issue of innovation. It is telling that the word “innovation” doesn’t appear even once in the Wikipedia’s 50-page article on the subject of “economics.“ To learn anything about the economics of innovation, one has to go to a separate subject in Wikipedia, “Innovation economics” where one learns that it is “only in recent years that the innovation economy has become a mainstream concept.” It may need to become even more mainstream than it has been so far, as the Age of Digital arrives.

The Mainstream Economics Of Scarcity

According to the Wikipedia article on the subject of ‘economics’, it states that “the most commonly accepted current definition of the subject of economics” was that developed by Lionel Robbins in 1932: “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” Robbins wrote that economics focuses on “a particular aspect of behavior, the form imposed by the influence of scarcity."

Thus, the assumption underlying mainstream economics is that means and resources are scarce. That was largely true of the industrial era which mainly concerned the production of physical products. In that era, resources, time, and cost were all constrained.

Our current era—the digital age—is dominated by the abundance generated from exponential digital technologies. For instance, while users’ time remains scarce, the resources to which that time may be deployed are now abundant, almost infinite, and available to anyone on the planet with access to the Internet, often for free, or almost free. Thus, we have access to the entire world’s information; we can listen to almost all the world’s music, view every piece of art, take and share unlimited photographs, stream videos globally, look at the map of any place on the planet, text with friends, all at zero, or near-zero, cost, in real time. Moreover, services are almost infinitely scalable. As a result, the economics of the digital age are increasingly concerned with the monetizable deployment of abundance, not scarcity.

The Problem Of Services

Even before the onset of the digital age, similar issues were emerging with the economics of services. Thus in 1987, Nobel-Prize-winning economist Robert Solow struggled to understand the possibility of an economy in which services were becoming steadily more important. Thus, Solow wrote in a famous New York Times article that the notion that digital services might one day have independent economic existence was a fantasy spread by people who “tell war stories and go in for heavy breathing. (Revolutions and Transformations come thick and fast).” The ‘real economy’ was about physical products.

It was thus unthinkable to one of the world’s top economists in 1987 that the largest firms in the world would soon be those delivering primarily digital services. Even more unimaginable was that just five of those firms would be worth some $9 trillion—equivalent to around 40% of the U.S. Gross Domestic Product.

The Arrival Of ‘Big Tech’

The financial world was awakened to the emergence of the digital age on August 20, 2011. with Marc Andreessen’s article in the Wall Street Journal, “Why Software Is Eating The World.” Andreessen argued that strange looking firms. like Facebook, Skype, Twitter, and Foursquare, coming out of Silicon Valley that made money without any “real physical products” were building real, high-growth, high-margin, highly defensible businesses, that were significantly undervalued at the time. Wall Street soon agreed, and the valuations of some tech firms began to soar.

Mainstream economists were slower to grasp what was happening. They often sought to reconcile themselves with the apparent economic anomalies by referring to these companies as existing in a separate world known as ‘Big Tech.’ Big Tech was different, they conceded, with mysterious things like cloud storage, machine learning, algorithmic decision making, artificial reality, blockchain, data as an asset, and quantum computing. But Big Tech was a world of its own, not part of the “the real economy.” The thought that all companies would soon need to be using these technologies was still far away.

How Economists Miss Innovation

A quintessential exponent of mainstream economic thinking is Robert J. Gordon, the Stanley G. Harris Professor of the Social Sciences at Northwestern University. His magisterial work, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton, 2015) has been widely cited, and in 2016 he was named as one of Bloomberg’s “top 50 most influential people in the world.”

For Gordon, the great innovations occurred before 1970, when things like household electricity, appliances, air-conditioning, and flushing toilets made their appearance in everyone’s home. “The special century was special,” wrote Gordon, “not only because everyday life changed completely, but also because it changed in so many dimensions”.

By contrast after 1970, according to Gordon, innovation slowed. “Progress after 1970 continued but focused more narrowly on entertainment, communication, and information technology… By 1970, the kitchen was fully equipped with large and small electric appliances, and the microwave oven was the only post-1970 home appliance to have a significant impact.”

Gordon records the arrival of the iPhone as a minor event in entertainment and communications. He does not mention that it obliterated not only most of the existing telephones but also a vast array of products in many different sectors. Nor does he mention that digital technology has transformed how we work, how we communicate, how we get about, how we shop, how we play and watch games, how we deliver health care and education, how we raise our children, how we entertain ourselves, how we read, how we listen to music, how we watch theater and movies, how we worship, in short, how we live.

It is happening more slowly in some sectors than others, but it is only a matter of time before all are affected, given that individual technologies are not only evolving exponentially but also interacting with each other. Everything is becoming easier, simpler, quicker, cheaper, and different.

Stasis In Retailing?

For instance, Gordon saw “stasis in retailing,” For Gordon, “Since the development of ‘big-box’ retailers in the 1980s and 1990s, and the conversion of checkout aisles to barcode scanners, little has changed in the retail sector…. the share of e-commerce in all retail sales in 2014 was still only 6.4 percent, a fraction too small for e-commerce to have a major impact on productivity growth in the overall retail sector.”

What Gordon’s book missed was that e-commerce has been growing exponentially. It has now doubled to to reach 14% of all retail sales in 2021. But even more significantly, a 2019 study showed that 57% of respondents had used a mobile retail app to look for more information about a product or a service. In effect, digital has already transformed the dynamic of retail, even where the product is purchased in person.

The Neglect Of Innovation By Mainstream Economics

Mainstream economists can thus miss that digital innovation has changed almost every aspect of human life. This may reflect the fact that mainstream economics and innovation economics are proceeding in parallel universes. Given the predominant role that innovation is now playing in the real world, it could be time for mainstream economics to recognize the centrality of innovation.

And read also:

How To Become A Winner At Exponential Innovation

Curt Carlson’s NABC: Innovation For Impact

Adblock test (Why?)

Why Mainstream Economists Miss Digital Innovation - Forbes
Read More

Difference Maker Award: Economics Arkansas gives teachers resources to bring economics to the classroom - KARK

[unable to retrieve full-text content]

Difference Maker Award: Economics Arkansas gives teachers resources to bring economics to the classroom  KARK
Difference Maker Award: Economics Arkansas gives teachers resources to bring economics to the classroom - KARK
Read More

Indegene acquires US-based Medical Marketing Economics for $10 million - Economic Times

Technology-led healthcare solutions provider Indegene has acquired US-based Medical Marketing Economics (MME) for $10 million, a senior company executive said.

MME is a pricing, reimbursement and market access services provider.

“We expect MME to add muscle to making Indegene one of the largest commercial first digitisation platforms,” Manish Gupta, cofounder and CEO of Indegene, told ET.

Indegene raised $200 million from investment firms Carlyle and Brighton Park Capital in February and is looking at more acquisitions in the regulatory, safety, patient-side space.

“We have a strong inorganic growth pipeline, and you will see that playing out over the next 6-24 months,” Gupta said.

Indegene’s revenue in the ongoing fiscal year is expected to be 50% higher than the $130 million it achieved in FY21.

ALSO READ TECH NEWSLETTER OF THE DAY

Ola has chosen three banks — Kotak Investment Banking, Citigroup and Morgan Stanley — to manage its $1-billion IPO. PhonePe has received an insurance broking licence from the industry regulator.

Read Now

“We are well on track to earn 50% growth and this acquisition is expected to be integrated over the next 6-18 months,” Gupta added.

Life sciences organizations, especially emerging biotech companies offering solutions in rare diseases, are struggling to determine and communicate the optimal market value of their innovations.

MME offers pricing and reimbursement, contracting strategy and tactics, and custom payer market research to address these challenges, Gupta said.

MME has experience in rare diseases, oncology, orphan drugs, biosimilars and newer technologies like gene therapy and CAR-T (Chimeric Antigen Receptor T-cell therapy).

“This partnership gives us access to a larger customer base, a global operations infrastructure, and significant opportunities for growth through adjacent services,” said Jack M. Mycka, Global President and CEO, MME. “Alongside Indegene’s clinical, medical and commercial solutions, we can further help clients identify, frame, communicate and capture the value of their medical innovations.”

Emerging biotech organizations contribute about 75% of the products in the pipeline today and this is only expected to grow.

Biotech originators are creating over $251 billion in innovation value.

These organizations are often unable to capitalize on the value that they create, since more than half of them have zero to limited commercialization capability.

Indegene and MME’s disruptive model helps them to not just build the right strategy, but also execute it all the way through commercialization, the company said.

Adblock test (Why?)

Indegene acquires US-based Medical Marketing Economics for $10 million - Economic Times
Read More

Behavioral economics doesn't have to be a total loss - Lewiston Sun Journal

Behavioral economics is facing a reckoning.

For a few decades, the idea of applying human psychology to economics made a dry subject hip and relatable. Before, the field seemed out of touch, full of abstract models that started with the assumption that people would act rationally based on a universal desire to make widgets and get more stuff.

But along came a generation of economists and psychologists with tales of how crazy we all are and how bad we are at understanding risk. The seductive implication was that wise technocrats could use this knowledge to shepherd the irrational masses into better, or at least commercially viable, behavior.

Now that thinking is looking overrated, as is the idea people can or should be tricked into making better decisions when confronted with risk. Behavioral economics went too far, was oversold, misused and abused. But it’s not irredeemable. Among many other lessons, the pandemic has made it clear that instead of goading people into certain behavior, we’re better off using the same insights to help people make better choices for themselves.

Economists are often reminded by well-meaning friends and strangers that economics is flawed for assuming people are rational when they’re not. It’s not always clear what these skeptics mean by rational – often it’s a propensity for making bad decisions. And there’s truth in that. People struggle to make sense of probabilities, especially in the midst of uncertainty. Just look at the difficulty most people have had understanding the effectiveness of COVID-19 vaccines.

We humans also tend to exaggerate remote risks and ignore more likely events. Even when we accurately assess risk, sometimes we procrastinate doing what’s in our best interest or make snap decisions we regret later.

In economics, “rational” means people are consistent in their behavior. And they’re not. The behavioral economics literature has produced lots of evidence that when people are faced with a choice in a risky situation, their decision may depend on how the data is presented or what they have to lose. We’ve seen many examples in the last year when our friends went to great lengths to avoid any remote risk related to the pandemic, but undertook other risky behavior, such as driving fast. This sort of behavior lead many economists to rethink their models. The government and companies searched for ways to exploit biases to induce certain conduct. Having a behavioral economist on staff became trendy at many corporations. The British government even created a Nudge Unit.

Now we may have reached peak nudge. It was recently revealed that famous behavioralist Dan Ariely used what appears to be faked data and retracted one of his most famous studies about how to encourage honesty when the results couldn’t be replicated. Even before that scandal, there were several instances where well-known biases couldn’t be replicated and evidence was weak that all the nudging could make a difference.

The environment is primed for a backlash after more than a year of many people feeling the government hasn’t been straight with them when it came to pandemic risk taking (though behavioral economics is not to blame for that). Jason Hreha, the former Global Head of Behavioral Science at Walmart, this year declared behavioral economics dead.

Cass Sunstein, an early proponent and co-author of the book Nudge, has defended the approach. He argues nudges should be used to help people make better decisions, rather than manipulate them. He also points out nudges are less intrusive than mandates and other restrictions.

To be fair, behavioral economics is a large, new field and there are no clear standards on who can call themselves an expert. Some abuses were inevitable. The field has also had some victories: Automatically signing up people for retirement accounts increased saving; automatically signing children up for free school meals reduced hunger.

But generally, the idea we could nudge people to make better choices by exploiting their behavioral biases was always oversold. It’s hard to persuade people to do something they don’t want to do, especially when you don’t fully understand their unique motives. And if data isn’t presented clearly and honestly, attempts to nudge people can be self-defeating when they don’t trust you.

There is scope to do better. Rather than nudge people to take or avoid certain risks, the goal of policymakers, the media and corporations should be to find ways to communicate risk in ways that are more likely to make sense to people. Probabilities are a relatively modern invention. But humans have been dealing with risks for thousands of years. Psychologists like Gerd Gigerenzer argue that the experts should and can find ways to communicate risky choices in a way people connect with and is natural for them. One simple example is talking about frequencies instead of probabilities, since 1 out of 100 is more intuitive than a 1% chance.

The behavioral economics backlash should prompt a rethinking of how the discipline’s insights can be used to communicate risk in ways that are clear and understandable. And then trust people to make the right choices for themselves.

---

Invalid username/password.

Please check your email to confirm and complete your registration.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.

Related Stories

Latest Articles

• 
• 

Adblock test (Why?)

Behavioral economics doesn't have to be a total loss - Lewiston Sun Journal
Read More

Real World Economics: Pricing disclosure is necessary key health reform - TwinCities.com-Pioneer Press

Amid all the Afghanistan news, a key medical-cost report out last week is getting little attention. It deserves greater dissemination and discussion. Congress must hold hearings and then act concretely. Our country’s entire pricing system for medical treatments not only affects millions of families, but is a dead weight on our economy.

Edward Lotterman

The report, “Hospitals and Insurers Didn’t Want You to See These Prices. Here’s Why,” ran in the Aug. 24 issue of the New York Times. It presents examples of data tabulated by researchers at the University of Maryland-Baltimore in collaboration with Times staffers. A follow-up report can be found here. Be aware that the links to New York Times articles may require a subscription or registration to create an account. The data come from prices for medical procedures grudgingly posted by hospitals and other providers. It includes info on how to look up prices yourself and a way to submit your own experiences to the researchers.

These disclosures stem from a federal Centers for Medicare and Medicaid Services Trump administration mandate and strongly supported by Biden’s. But it has been like drawing teeth from a hippo. Hospital associations fought in court and lost. Hundreds simply have not complied. Many of the prices posted are posted so opaque that only experienced researchers can tease out correct details. The agency has sent out some 170 letters to recalcitrant firms with small results. There is a penalty for noncompliance, but this is tiny relative to hospitals’ revenues.

Once tabulated, available information shows wide ranges of prices hospitals charged between different insurers and to the uninsured. There is no apparent rhyme or reason; insurers that pay lowest rates to one hospital may pay the highest rates at others.

Furthermore, the entities that buy services from the big insurers — companies, labor unions, state and local governments — have not been able to get access to hospital-specific rates paid through coverage they buy. Non-disclosure agreements between providers and insurers often ban this.

The economics here is pretty simple and extremely important. Markets, while not perfect, are a vital mechanism to provide incentives for producing goods and services that people need and want. No country with high living standards exists in the world in which market forces don’t play key roles in economic activity.

At the same time, for markets to function well, several conditions are needed. There have to be many buyers and many sellers. No individual on either side can have any price-setting, or monopoly power. All buyers and sellers need very good information about all the prices, quantities and qualities offered or bid for by everyone else.

The products must be uniform, such as 87-octane unleaded gas or A-37 structural steel. There can’t be “barriers to entry or exit.” It needs to be easy to set up a hospital or insurance company from scratch. There can’t be external effects where an action by either a buyer or a seller harms or helps a third party with no say.

Obviously these conditions never are fully true for any product or service. Nevertheless, markets frequently are the best option or the least-bad one. Moreover, government can act to remedy many faults.

Farming, for example, nears “perfect competition:” There are many sellers, and often several buyers. Products, like No. 2 corn or 3.2 percent butterfat milk are standardized. And while good information to both sides often isn’t uniformly available, the U.S. Department of Agriculture publishes crop and livestock prices from myriad locations daily or weekly.

Similarly for Wall Street, the Securities and Exchange Commission requires exchanges to post current prices of trades. Regulators make banks release their current financial positions.

And yes, the controlling monopoly is as crucial and hot a political issue today as it was a century ago. But antitrust has scarcely been enforced for 40 years. This also is hugely important in health care, but is a separate topic.

So for health care, what’s behind all the different prices, hundreds of thousands of ones negotiated by insurers with hospitals? One factor is “price discrimination” — an action by which two different buyers, with differing “demands,” can be sold exactly the same product at two different costs. This increases profits for the seller but also can promote economic inefficiency. The practice is omnipresent in many markets — think senior citizen discounts at restaurants, lower air travel prices with restricted tickets and haggling over auto prices.

There’s much haggling between health insurers and providers at great administrative cost for both. It is also something that does not occur in this sector in any other high-income economy, whether Singapore or Switzerland. But unlike the sale-purchase of hog bellies in Chicago, there long was no requirement to disclose prices to anyone.

The result is such a devil’s brew of arcanely-defined medical procedures that no one can get an overall understanding of the actual fees. A single hospital knows the ranges and averages of its fees, but not necessarily those of other providers. A single insurer similarly can tabulate what it is paying but does not know exactly what competitors are.

Yes, Cigna, Aetna, UnitedHealth and the Big Blues have a pretty good idea of the overall situation. So do hospital providers Allina, Healthpartners, Sanford, Mayo and so on. Yet to use a Biblical term, they still “look through a glass, darkly.” Price information is not transparent.

Nevertheless, situations of big players on both sides are orders of magnitude greater than the needs of individuals or households that lack coverage or face large deductibles or encounter many uncovered procedures. As aged, retired member of the military, I have Rolls-Royce coverage, but I spent months trying to get my clinic to say what it would cost to get a mole removed, cosmetic surgery not being covered by either Medicare or Tricare.

The upshot is that this lack of information is an important source of the enormous inefficiencies in U.S. health care, and one that causes injustices. It is a millstone we tied around our own necks.

Congress needs to act. Minimally, it should put teeth into the price disclosure mandate and appropriate funds for enforcement. Information must be made readily available on the internet or at the reception desk of any hospital. The next step would be to sharply curb, if not eliminate, variations in pricing by both providers and insurers. Then much more can be done over time. But sharp improvements in the details and clarity of current price reports is a necessary first step.

St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.

Adblock test (Why?)

Real World Economics: Pricing disclosure is necessary key health reform - TwinCities.com-Pioneer Press
Read More

The Fed is about to wind down its emergency economic stimulus, Jerome Powell hints - CNN

New York (CNN Business)Federal Reserve Chairman Jerome Powell said Friday that the economic recovery is continuing apace, high inflation is just temporary, and the Fed will soon wind down the emergency economic stimulus program.

But, in his highly anticipated speech at the virtual Jackson Hole Symposium, Powell tempered his optimism with some words of caution: The Delta variant remains a looming threat to the US economy.

The speech didn't provide an exact timeframe for the Fed's stimulus rollback of its monthly asset purchases, known to Wall Street investors as "tapering."

Balancing the threat of Covid with the ongoing economic recovery, Powell suggested the Fed, which has been buying $120 billion worth of Treasury and mortgage-backed securities every month since the height of the pandemic to support the economy, will start pumping the brakes on those buys before the end of the year.

That was in line with last week's July meeting minutes, which had caused a brief stir in the market.

The right conditions to taper

At Jackson Hole, Powell pointed at the progress the economy has made since last year's recession.

The Fed, which is tasked with holding prices stable and achieving maximum employment, was looking for more progress on both those fronts in the past months before changing its policy.

But on Friday, Powell said that the test for inflation has now been met and that "has also been clear progress toward maximum employment."

"The pace of total hiring is faster than at any time in the recorded data before the pandemic," Powell said. "These favorable conditions for job seekers should help the economy cover the considerable remaining ground to reach maximum employment."

Between June and July, the US economy added nearly 1.9 million jobs. And next week's August jobs report is also expected to be strong.

Earlier Friday, the Fed's preferred measure of inflation -- the PCE price index -- hit a 30-year high, well above the bank's target around 2%. Powell has long said that the inflation spike will only be temporary and dissipate as pandemic conditions ease. He reiterated this in his speech.

But even so this doesn't mean the money taps will be turned off right away.

"For now, I believe that policy is well positioned," Powell said. He also stressed that a reduction to the monthly shopping spree wouldn't be a direct signal to raise interest rates.

The minutes from the Fed's July meeting showed most central bank officials believed that the monthly asset purchases could be rolled back later this year if the economy keeps going at its current pace.

If tapering were imminent, "then surely Powell would have dropped a heavier hint today rather than just repeating what was in the July minutes," said Paul Ashworth, chief US economist at Capital Economics.

Plus, the recovery has its own problems: "The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant," Powell said.

Rising Covid-19 cases on the back of the more infectious Delta variant have been weighing on some economic indicators recently.

As Powell spoke Friday morning, the final August reading of the University of Michigan's consumer sentiment index showed "no lessening ... in the extent of the collapse in consumer sentiment recorded in the first half of the month."

The indicator had fallen to a its worst level since December 2011 in a preliminary release earlier this month.

No taper tantrum

Financial markets shrugged off Powell's foreshadowing of a tapering.

Wall Street was in the green, with all three major stock indexes adding to modest gains following Powell's address.

The yield on the 10-year Treasury bond edged lower, down 0.02% at 1.32%.

Investors remain somewhat on edge about the eventual tapering announcement: The last time the Fed rolled back its monthly purchases in 2013, the market fell into a so-called "taper tantrum", characterized by a steep rise in bond yields in just a matter of months.

Prior to the Jackson Hole speech, investors broadly agreed that the Fed wouldn't officially announce a reduction of its monthly buys until the fall or winter meetings.

Adblock test (Why?)

The Fed is about to wind down its emergency economic stimulus, Jerome Powell hints - CNN
Read More

White House Projects Rise in Inflation and Economic Growth - The New York Times

The Biden administration on Friday said it expected economic growth and inflation to both reach their highest levels this year since the early 1980s, revising earlier forecasts to match the reality of the continued stimulus-fueled recovery from the recession.

In its mid-session review of the administration’s initial budget forecasts, the Office of Management and Budget said it expected inflation-adjusted growth to hit 7.1 percent for the year. That’s an increase from the 5.2 percent officials projected earlier this year, before Mr. Biden’s $1.9 trillion American Rescue Plan began to increase consumer spending by delivering direct payments to households, expanded safety net benefits and aid for state and local governments.

The administration also revised up its forecasts for the Consumer Price Index inflation rate, which officials now estimate will hit 4.8 percent for the year. That is more than double the administration’s initial forecast of 2.1 percent for the year.

Administration officials continue to insist that the surge of inflation this year is the product of pandemic-induced crimps in supply chains and will fade quickly, with the rate dropping to 2.5 percent in 2022. But their new forecast is an admission of sorts that prices have jumped higher and that the increase has lingered longer than they initially anticipated.

Jerome H. Powell, the Federal Reserve chairman, on Friday, struck a similar note in a Friday speech, suggesting that the Fed and the White House remain unified in their belief that high inflation will prove to be temporary — despite its unanticipated persistence this year.

The administration’s increase in its growth forecast mirrors a rise in private forecasters’ expectations for the year after Mr. Biden steered his stimulus bill through Congress, though many forecasters have begun to mark down those forecasts in recent weeks as the Delta variant of the coronavirus looms over the recovery. Still, administration officials cast the growth projection, which would be the highest since the first term of President Ronald Reagan, as vindication for Mr. Biden’s policies.

“Under the President’s leadership — and thanks to the grit and resilience of the American people — our economy is getting back on track,” Shalanda Young, the acting head of the budget office, wrote in a blog post.

Officials also said they expected stronger growth for the rest of the decade than they initially forecast, assuming Congress passes an infrastructure bill and a larger spending bill meant to overhaul the federal government’s role in the economy. The White House now sees growth averaging 2.2 percent over the decade starting in 2022, up from 2 percent earlier this year. That is significantly faster growth than other forecasters, including the Congressional Budget Office, expect.

As a result of those policies and the uptick in growth this year, they estimate the federal debt will grow by $1.2 trillion less than initially forecast over the next 11 years.

Adblock test (Why?)

White House Projects Rise in Inflation and Economic Growth - The New York Times
Read More

Powell Signals Fed Could Start Removing Economic Support - The New York Times

The Fed chair warned that the Delta variant remained a risk and suggested that a rate increase was not on the table for some time.

Speaking virtually at an annual conference, Jerome H. Powell, the Federal Reserve chair, said that the economy had made significant gains and that the Fed had made sufficient progress in forestalling inflation.Kevin Lamarque/Reuters

Eighteen months into the pandemic, Jerome H. Powell, the Federal Reserve chair, has offered the strongest sign yet that the Fed is prepared to soon withdraw one leg of the support it has been providing to the economy as conditions strengthen.

At the same time, Mr. Powell made clear on Friday that interest rate increases remained far away, and that the central bank was monitoring risks posed by the Delta variant of the coronavirus.

The Fed has been trying to bolster economic activity by buying $120 billion in government-backed bonds each month and by leaving its policy interest rate at rock bottom. Officials have been debating when to begin slowing their bond buying, the first step in moving toward a more normal policy setting. They have said they would like to make “substantial further progress” toward stable inflation and full employment before doing so.

Mr. Powell, speaking at a closely watched conference that the Kansas City Fed holds each year, used his remarks to explain that he thinks the Fed has met that test when it comes to inflation and is making “clear progress toward maximum employment.”

As of the Fed’s last meeting, in July, “I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” he said.

But the Fed is navigating a difficult set of economic conditions. Growth has picked up and inflation is rising as consumers, flush with stimulus money, look to spend and companies struggle to meet that demand amid pandemic-related supply disruptions. Yet there are nearly six million fewer jobs than before the pandemic. And the Delta variant could cause consumers and businesses to pull back as it foils return-to-office plans and threatens to shut down schools and child care centers. That could lead to a slower jobs rebound.

Mr. Powell made clear that the Fed wants to avoid overreacting to a recent burst in inflation that it believes will most likely prove temporary, because doing so could leave workers on the sidelines and weaken growth prematurely. While the Fed could start to remove one piece of its support, he emphasized that slowing bond purchases did not indicate that the Fed was prepared to raise rates.

“We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis,” he said in his address to the conference, which was held online instead of its usual venue — Jackson Hole in Wyoming — because of the latest coronavirus wave.

The distinction he drew — between bond buying, which keeps financial markets chugging along, and rates, which are the Fed’s more traditional and arguably more powerful tool to keep money cheap and demand strong — sent an important signal that the Fed is going to be careful to let the economy heal more fully before really putting away its monetary tools, economists said.

“He’s trying to reassure, in a time of extraordinary uncertainty,” said Diane Swonk, chief economist at the accounting firm Grant Thornton. “The takeaway is: We’re not going to snuff out a recovery. We’re not going to snuff it out too early.”

Stocks rose on Friday, with gains picking up steam after Mr. Powell’s comments were released and investors realized that a rate increase was not in sight.

Richard H. Clarida, the Fed’s vice chair, agreed with Mr. Powell’s approach, saying in an interview with CNBC that if the labor market continued to strengthen, “I would also support commencing a reduction in the pace of our purchases later this year.”

Some Fed policymakers have called for the central bank to slow its purchases soon, and move swiftly toward ending them completely.

Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, told CNBC on Friday that he supported winding down the purchases “as quickly as possible.”

“Let’s start the taper, and let’s do it quickly,” he said. “Let’s not have this linger.”

James Bullard, the president of the Federal Reserve Bank of St. Louis, said on Friday that the central bank should finish tapering by the end of the first quarter next year. If inflation starts to moderate then, the country will be in “great shape,” Mr. Bullard told Fox Business.

“If it doesn’t moderate, then I think the Fed is going to have to be more aggressive in 2022,” he said.

Central bankers are trying avoid the mistakes of the last expansion, when they raised interest rates as unemployment dropped to fend off inflation — only to have price gains stagnate at uncomfortably low levels, suggesting that they had pulled back support too early. Mr. Powell ushered in a new policy framework at last year’s Jackson Hole gathering that dictates a more patient approach, one that might guard against a similar overreaction.

But as Mr. Bullard’s comments reflected, officials may have their patience tested as inflation climbs.

The Fed’s preferred price gauge, the personal consumption expenditures index, rose 4.2 percent last month from a year earlier, according to Commerce Department data released on Friday. The increase was higher than the 4.1 percent jump that economists in a Bloomberg survey had projected, and the fastest pace since 1991. That is far above the central bank’s 2 percent target, which it tries to hit on average over time.

“The rapid reopening of the economy has brought a sharp run-up in inflation,” Mr. Powell said.

A shuttered storefront in New York last week. Economists are not sure how much the Delta variant will slow growth, but many are worried that it could cause consumers and businesses to pull back.Gabriela Bhaskar/The New York Times

Policymakers at the Fed are debating how to interpret the current price burst. Because it has come from categories of goods and services that have been affected by the pandemic and supply-chain disruptions, including used cars and airplane tickets, most expect inflation to abate. But some worry that the process will take long enough that consumers’ inflation expectations will move up, prompting workers to demand higher wages and leading to faster price gains in the longer run.

Other officials worry that today’s hot prices are more likely to give way to slower gains once pandemic-related disruptions are resolved — and that long-run trends that have dragged inflation lower for decades, including population aging, will once again bite. They warn that if the Fed overreacts to today’s inflationary burst, it could wind up with permanently weak inflation, much as Japan and Europe have.

White House economists sided with Mr. Powell’s interpretation in a new round of forecasts issued on Friday. In its midsession review of the administration’s budget forecasts, the Office of Management and Budget said it expected the Consumer Price Index inflation rate to hit 4.8 percent for the year. That is more than double the administration’s initial forecast of 2.1 percent.

The forecast was an admission of sorts that prices have jumped higher and that the increase has lingered longer than administration officials initially expected. But they still insist that it will be short-lived and foresee inflation dropping to 2.5 percent in 2022. The White House also revised its forecast of growth for the year, to 7.1 percent from 5.2 percent.

Slow price gains sound like good news to anyone who buys oat milk and eggs, but they can set off a vicious downward cycle. Interest rates include inflation, so when it slows, Fed officials have less room to make money cheap to foster growth during times of trouble. That makes it harder for the economy to recover quickly from downturns, and long periods of weak demand drag prices even lower — creating a cycle of stagnation.

“While the underlying global disinflationary factors are likely to evolve over time, there is little reason to think that they have suddenly reversed or abated,” Mr. Powell said. “It seems more likely that they will continue to weigh on inflation as the pandemic passes into history.”

Mr. Powell offered a detailed explanation of the Fed’s scrutiny of prices, emphasizing that inflation is “so far” coming from a narrow group of goods and services. Officials are keeping an eye on data to make sure prices for durable goods like used cars — which have recently taken off — slow and even fall.

Mr. Powell said the Fed saw “little evidence” of wage increases that might threaten high and lasting inflation. And he pointed out that measures of inflation expectations had not climbed to unwanted levels, but had instead staged a “welcome reversal” of an unhealthy decline.

Still, his remarks carried a tone of watchfulness.

“We would be concerned at signs that inflationary pressures were spreading more broadly through the economy,” he said.

Jim Tankersley contributed reporting.

Adblock test (Why?)

Powell Signals Fed Could Start Removing Economic Support - The New York Times
Read More

Plunge in confidence due to economics, emotions - University of Michigan News

Consumer sentiment fell in August by 13.4% from July, recording the least favorable economic prospects in more than a decade, according to the University of Michigan Surveys of Consumers.

The Sentiment Index has only recorded larger losses in six other monthly surveys since 1978, with the largest losses in how consumers viewed future economic prospects, said U-M economist Richard Curtin, director of the surveys. The losses were widespread across all demographic groups, regions and for all aspects of the economy.

“The August free-fall in confidence was in response to mounting issues, including rising inflation, small wage gains and slower declines in unemployment,” he said. “The falloff also reflected an emotional response to people’s dashed hopes that the pandemic would soon end and lives could get back to normal.

“This is not the first time emotion has partly determined economic behavior. Twenty years ago, the terrorist attacks on 9/11 led to an emotional retrenchment in spending. Although economic expectations improved by year-end, the emotional impact on spending patterns lasted much longer. The same type of persistent impact is now likely to reoccur.”

Negative impact of inflation spreads

One in five households in August cited the negative impact of inflation on their budgets, up from just 1 in 20 at the start of the year. Complaints that rising inflation had lowered their living standards were voiced by 30% of those aged 65 or older, by 24% of those with a high school education or less, and by 23% of households with incomes in the bottom third. Expected income gains among consumers under 45 fell to 3.6% from July’s 4.4%, and income gains expected by those with incomes in the top third fell to 2.4% from 2.8% in July.

Slower growth in economy expected

Consumers also became more pessimistic about further declines in the national unemployment rate, despite the record job openings, Curtin said. Just 38% of consumers anticipated a decline in the jobless rate, down from 52% last month. This likely reflects an anticipated overall slowdown in the pace of economic growth in the year ahead, as just 31% thought the economy would improve, well below last month’s 45% and the 50% in June, he said.

Fewer consumers thought prospects for the economy were good for the year ahead (32%, down from July’s 50%), and the majority (58%) expected a renewed downturn over the longer term.

Consumer Sentiment Index

The Consumer Sentiment Index fell to 70.3 in August 2021, sharply below the 81.2 in July, and just below the low of 71.8 set during the economic shutdown in April 2020. The Expectations Index component posted by far the largest decline, falling to 65.1 in August from 79.0 in July, while the Current Conditions Index posted a more modest decline, falling to 78.5 in August from June’s 84.5.

About the surveys

The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.

Surveys of Consumers
U-M Institute for Social Research

Adblock test (Why?)

Plunge in confidence due to economics, emotions - University of Michigan News
Read More

Why Would an Economist Ever Look on the Bright Side? - The New York Times

America’s dismal scientists can paint even a blue-sky outlook gray.

The country is experiencing the fastest economic rebound in at least a generation, but Wall Street and Washington are hardly taking a victory lap. In any other environment, the 6.3 percent pace of expansion economists have penciled in for the United States this year would represent a victory. They do acknowledge that it is a solid rebound after the shock and slump of 2020. But that doesn’t stop them from fretting about every incoming piece of data, and how quickly it can go from good to terrible.

Is the job market recovery poised to slow? Are we about to slip into a slow-growth, high-inflation stagflation? In the murky, Delta-infused post-pandemic recovery, behind every good economic data point lurks potential disaster.

Neil Dutta, the head of economics at the research firm Renaissance Macro, can see why his colleagues across Wall Street are penciling in good-not-great economic growth for 2022: After years of forecasting robust numbers and finding their projections dashed following the last recession, they have learned not to be too optimistic.

He gets it. He does. He just completely disagrees.

“Thinking about this like post-financial crisis is crazy,” Mr. Dutta said.

He lays out his pitch for faster growth the way someone might tick through cooking instructions, as though the steps are obvious and will produce an inevitable result. Consumers are sitting on a huge pile of savings. They want to spend that money. Businesses are investing in equipment so that they can supply households with the goods and services they will clearly demand in the months and years ahead. It’s a recipe for robust growth.

Mr. Dutta’s estimate that output could still be climbing by as much as 5 percent late next year makes him an outlier. Markets have spent recent months marking down their expectations for future growth, based on bond pricing. Federal Reserve officials expected 3.3 percent growth by the final quarter of next year, as of their last forecasts. Economists in a Bloomberg survey see growth settling down to 3 percent by the end of 2022.

Those would be decent numbers — most people think the economy is capable of something like 2 percent most years, given its demographics — but the forecasts are looking a little glum around the edges when you take into account the litany of possible downsides economists point out. The economy might overheat, with too-high inflation. People might permanently remain out of jobs post-pandemic, lowering the economy’s long-run potential. Parts of financial markets are looking frothy, threatening a boom and bust.

Mohamed A. El-Erian, chief economic adviser at Allianz, says that the Delta variant means there are many reasons to worry in the near-term. And the longer term is risky too, with three main impediments to growth in his view: “higher and more persistent inflation; significant and worsening inequality of income, wealth and opportunity; and climate change.”

Perhaps more of an optimist than this assessment lets on, he said that “well-designed policies” could manage those risks.

“That’s the good news,” he said. “The bad news is the window to do so is closing.”

Such a grim outcome is not evident yet. Consumers are buying goods and services at a rapid clip. They are making big investments, notably in houses, that could lead to knock-on spending on washing machines and lawn care products. Employers are hiring people in numbers that would have been shockingly high in any other environment, and the pace of job gains has picked up in recent months.

But there are reasons for the moment’s angst — and many of them tie back to inflation. Price gains have picked up rapidly, spurring a collective freak-out, causing some Fed officials to fret about their easy-money policy setting. Republicans harp on monthly data reports, convinced that attacking the Biden White House on rapid price gains is a winning political strategy. Economists in the White House itself play down the data.

What often gets lost in the mix is the reality that inflation can be a feature, not a bug, of a rapid rebound. Fed officials spent years of waiting, hoping and wishing for faster price gains that might lift consumer inflation expectations from uncomfortably low levels.

One good sign is that consumers are making big investments, like houses, that could lead to spending on washing machines and lawn care products down the road.Peter DaSilva for The New York Times

Consumers had come to expect things they buy, from toilet paper to babysitting services, to cost only a little bit more each year. Wage growth slowed alongside prices, weighing on spending and making it hard for companies to charge more. The drift lower threatened to turn into a downward spiral of economic stagnation, much like one that has befallen Japan and Europe.

Now, central bankers are getting what they wished for. The pop in prices has helped to nudge longer-run price expectations back to healthier levels, in the neighborhood of where policymakers typically think they need to be to help the Fed hit its inflation target.

It is undeniable that inflation is running hotter than just about anyone anticipated. And few would argue that the current pace, if sustained, would be good news. But then, few would argue that the current pace of inflation will be sustained.

Prices have been pushed higher by temporary data issues and by the consumer demand that government stimulus fueled. Most central bankers and Wall Street economists think today’s increase will fade with time. It is possible that once things settle down, prices will stabilize right around the Fed’s target — instead of under that goal, where they had been for a decade.

There is a risk that excessively fast price gains could last, and there are big reasons to remain alert to that possibility. If inflation jumps out of control, the Fed has to raise rates and plunge the economy back into a recession to cool things off, the nation’s most vulnerable workers will pay.

But it’s also easy to lose sight of the reality that inflation is a symptom, one that has come about because America is experiencing such a rapid snap back.

“It’s a much more upbeat story when you’re listening to earnings calls than our macro narrative tends to be,” said Julia Coronado, a former Fed economist and founder of MacroPolicy Perspectives. She thinks some of that is political, as Republicans try to weaponize inflation. Some of it is the nature of the profession, which is structured to point out risks, not rainbows.

“Economists are not known for looking at the glass half full,” said Ms. Coronado.

(It is an enduring observation about her profession. Thomas Carlyle in the 19th century labeled the entire economics profession “the dismal science,” and given its ring of truth, the dreary title stuck.)

Besides inflation, economists are worrying about possible asset bubbles. Central bank officials including Robert S. Kaplan, head of the Dallas Fed, and James Bullard, head of the St. Louis branch, have warned that policymakers should be keeping a careful eye on rising real estate prices. And as Delta surges, analysts of all stripes are watching closely to ensure that it does not slow shopping, traveling and dining out — while worrying that it will.

The gray cloud that seems to hang over the profession might have a silver lining. It could be the case that by monitoring the risks around high inflation and watching for impending doom, the profession is setting up America for a more sustainable expansion down the road — one where government spending policy is more carefully crafted not to tax overextended industries, and where investors believe the Fed will act if needed, keeping exuberance in check.

Mr. Dutta, an eternal optimist who has a habit of releasing all-caps tirades against his profession’s endemic pessimism, thinks people could be a little bit more excited without overdoing it.

“THIS IS A CONSUMER SLOWDOWN??” he wrote in a recent note, pointing out that credit card spending data is holding up. He celebrated the last employment report, a robust reading, by titling it “JULY FIREWORKS.”

He points out that many people think the economy would be even stronger right now if supply bottlenecks weren’t holding back production and preventing spending. At least some of that spending will presumably eventually take place when those holdups clear, setting up for stronger future growth. Plus, he points out that people are making decisions that they would not if they had a glum future in mind: Families are buying houses, which he calls the “the most irreversible-decision asset.” Businesses are buying equipment.

He talks with an air of exasperation, like someone who has been right before. That is, in part, because he recently has been: Mr. Dutta, who has a bachelor’s from New York University but who lacks the fancy doctorates many of his counterparts claim, correctly argued that the economy would not slump headed into 2020, at a time when some Wall Street economists were looking for flat or even negative growth readings as infections surged.

To be sure, he’s been wrong about other things — for instance, he did not expect inflation to pop this year, brashly and incorrectly declaring in a February note that “inflation won’t surge as Covid subsides.” But he thinks he’s onto something with this one.

“The consensus will be playing a period of catch-up,” he said.

Adblock test (Why?)

Why Would an Economist Ever Look on the Bright Side? - The New York Times
Read More