LOL, "I became an economist and public intellectual to get back at all the rednecks who bullied me as a kid"

 

Noah Smith embraces the Trump narrative: "There’s no doubt that the U.S. economy is in a boom"

Here for Bloomberg.

After examining several indicators, which, however, are not unequivocal for their interpretation despite saying "no doubt", Noah Smith comes down on the side of improved sentiment as the cause of the current "boom".

On that we agree. There's a boom in sentiment.

The problem is, too many people are importing that improved sentiment into their reading of the data, and into their choice of the data.

For example, Smith focuses on job openings to unemployed, which is a tiny measure (6.66 million in June) of what's really going on in the labor market. But the broadest measures of unemployment still show 15.9 million unemployed, underemployed, and no longer counted in the labor force. There is still huge slack in the labor market, which is one reason why wages for the vast majority of workers are not rising like they would in a real economic boom (2.7% y/y in July vs. in the 4s in 2006/7).

Similarly Smith discusses the percent of population employed aged 25-54, but clearly misses that it's most definitely not "back to 2006 levels" as he claims (H1 2018 is at 79.2%, still below the 2006 average of 79.8% and also below the average of either half of 2006). The broadest measure of the percent employed, on the other hand, still shows a huge gap between now and the pre-Great Recession average when over 6 million more were employed than are at present (60.5% now vs. 62.9% then, on average).

The case is similar with domestic investment.

Smith chooses to highlight "Shares of gross domestic product: Gross private domestic investment: Fixed investment: Nonresidential (A008RE1Q156NBEA)" to show that "investment as a percentage of the economy is at about the level of the mid-2000s boom". But the current level in H1 2018 at 13.7% is also identical to H2 2014. Was that indicative of a boom? Did we blink and miss it? How about in H1 2008 when it was again at 13.7%? Was that indicative of a boom? If so, why did the economy then promptly crash in H2 2008?

A broader measure of domestic investment, however, "Shares of gross domestic product: Gross private domestic investment (A006RE1Q156NBEA)", shows us well off the 2006 peak and even the more recent 2015 level. Whatever we call what we have right now, the current 17.7% is still far below the 19.8% level of H1 2006, which itself failed to equal the boom level of the year 2000 (19.9%).

With all that cash unleashed by the tax reforms and sloshing around in the economy, one would think things would look a lot better than this, which simply shows that most of that money indeed went elsewhere.

GDP has been temporarily goosed by the tax reforms in concert with a fresh gusher of federal deficit spending. But those are one-offs. They will not, and cannot, be repeated over and over again in short succession.

We know what comes next.

Slow wage growth remains a mystery to economist Noah Smith

Here.

And they call economics a science.

It's not a mystery if you question your presuppositions, for example that the economy is strong, and that the unemployment rate tells you something meaningful. But that might be too much to ask of an economist.

Strong growth is relative. Economic growth in the post-war began with a big bang and has been cooling off ever since. Compared to the beginning, we're half as robust today. So the economy is not strong, just operating in concert with inertia.

The unemployment rate is very low, but only because so many people have dropped out of the labor force at the same time that the slowest jobs recovery in the post-war has occurred. The low unemployment rate is an artifact of this concurrence.

Presently there are over 16 million people unemployed, underemployed, and not in the labor force who want to work. That's why wages aren't growing. We're still flush with labor, and business knows it.

You can be replaced.

New study says trade with China caused severe permanent harm to American workers

From Noah Smith in "Free Trade With China Wasn't Such a Great Idea for the U.S." for BloombergView, who says the public has been exactly right about the consequences of trade with China:

The study shows that increased trade with China caused severe and permanent harm to many American workers:

Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition...but offsetting employment gains in other industries have yet to materialize.

... [T]he public might have been wrong about free trade in the 1980s and 1990s, but things have changed. Popular opinion seems to be exactly right about the effect of trade with China -- it has killed jobs and damaged the lives of many, many Americans. Economists may blithely declare that free trade is wonderful, but our best researchers have now shown that public misgivings about these smooth assurances have been completely justified.

Sorry Noah Smith: There isn't just one way to boost GDP growth

Smith says we need more immigration to solve our low growth problem. There is an alternative. Have more children of our own.

Noah Smith, here:

"Gross domestic product is simply the product of output per person and the number of people. The more people in your country, the higher the output. That's why China, whose output per person is only about a quarter of the U.S.'s, is now the largest economy on the planet. It just has more bodies."

The open borders libertarians

Noah Smith for Bloomberg, here:

"Exactly this sort of open borders immigration policy has received enthusiastic support from a dedicated core of libertarian economists, notably Bryan Caplan of George Mason University. These economists believe in relaxed immigration rules not because they want higher GDP growth, but because of principle -- they view national borders themselves as an unacceptable form of government intervention in the economy. The open borders crusaders are so zealous that moderate supporters of increased immigration, such as tech entrepreneur Vivek Wadhwa, are often the targets of their ire. University of Chicago economist John Cochrane has also voiced support for the open borders idea." 

Free-trade has hollowed out the middle class

So reports Noah Smith, here:

"[T]here is a growing body of research showing that globalization -- and, in particular, the rise of China -- has been the biggest factor hollowing out the American middle class." 

Why Would Anyone Tell You Their Secrets To Financial Success On A Blog?

For the same reason a guy on the radio who says he even wrote a book about how his trading secrets made him $1.9 million in just a few short years wants you to sign up for his advice now.

Good stuff from Noah Smith, here:

If the writers of Zero Hedge really knew some information that could allow them to beat the market, why in God's name would they tell it to you? If they had half a brain, they'd just keep the info to themselves, trade on it, and make a profit! Maybe then, after they had made their profit, they'd release the news to the public (and collect ad revenue), but by then the news would be worthless. Financial news sites, you should realize, are not in the business of giving you insider tips out of the goodness of their hearts.