Friday, July 22, 2022

More Economy Reality: Earnings by Sex, Bogus Stagflation, Rockets and Feathers, Retirement Delays, and Inflation versus Unemployment

Aside from interest rates, inflation rates, and the chance of a rather peculiar recession, what’s been happening with the American economy?

I’ve written several times over the years about pay differences between men and women, and the case for widespread, long-illegal discrimination is so thin that now in general there are “Young women making more money than young men in nearly 2 dozen US cities:  Study” (Talia Kaplan, Fox Business, April 10th).  Per a Pew Research Center survey, “in 22 of 250 U.S. metropolitan areas, including New York, Washington, D.C. and Los Angeles, women under the age of 30 earn the same amount or more than men.”  A professor who wrote her dissertation on “gender differences and perceptions of pay” called that unsurprising, and credited better information available to job seekers, but did not mention one of the largest factors, the declining birth rate, especially among younger people, which causes much of something else she mentioned, “how long they are going to be working in a particular job.”  As for the chance of reverse discrimination, though, fair is fair, and with men’s and women's hormones not being identical, maturity and suitability for high-quality positions at low ages may not be either.

If predictions of anything like a normal recession were misguided and imperceptive, forecasts of “stagflation” were ridiculous.  Paul Krugman worked to put that non-possibility to rest in “That Was the Stagflation That Was,” in the July 7th New York Times.  He asked, “what are the odds that falling gas prices will get even a small fraction of the media coverage devoted to rising prices?,” which has been debatable in the 15 days since, and “markets are now more or less sounding the all-clear on persistent inflation,” which is almost certain to decline from June’s 9.1% reading with the next report.  It’s a simple matter of being willing to react to changing circumstances. 

Another Krugman piece had the effect of confirming something often believed but factually questionable.  In “Wonking Out:  Rockets, Feathers and Prices at the Pump” (The New York Times, July 8th), he pointed out that President Joe Biden’s exhortation to gas stations to lower prices had more truth than those either on the left or the right first thought.  The reason was that the idea of gasoline prices rising immediately when oil goes up but drifting down only slowly when it falls was substantiated by St. Louis Federal Reserve economists, who confirmed that it actually happens.  Understanding its cause, though, is not yet complete, but one “relatively old paper” attributed it to “when oil prices shoot up, owners of gas stations feel empowered not just to pass on the cost but also to raise their markups, because consumers can’t easily tell whether they’re being gouged when prices are going up everywhere… and gas stations may hang on to these extra markups for a while even when oil prices fall.”  This pattern “seems to be strongest in areas where individual gas stations face relatively little competition.”  I add that relatively steady oil prices, which have not been the case, are the best for price wars, small but steady decreases, and using fuel as a loss leader to push up convenience-store sales.  So this complaint is for real, but has no reasonable solution, other than stations choosing to react to this newly legitimized knowledge by bringing prices down.

The decision of when to leave one’s main job permanently has shifted around for many workers, the most recent trend documented in “Economic worries further older Americans’ pandemic-era plans to delay retirement, survey finds” (Andrew Osterland, CNBC, July 9th).  It’s a dramatic short-term change, as in July 2021, “about one-third of older Americans surveyed by Edward Jones and Age Wave said they planned to delay retirement,” but the number by “early 2022” was 59%.  Complicating the matter, as quoted eminent futurist Ken Dychtwald put it, “retirement is going through a period of transformation,” and not all agree on what that means, choosing between thinking “it began at a specific age,” with some “when they left their main job or began collecting their pension,” and “still others… when they achieved financial independence.”  Dychtwald also said that “people are terrified about running out of money in retirement, and this year has taken a lot of money out of nest eggs.”  Some also got “a taste of what retirement might be like,” by working remotely during Covid gusts.  Expect plenty of change with all aspects of this major life change in the rest of this decade alone.

For a few months there, it seemed to me like more people were upset about higher prices than were elated about almost nobody needing to go without work.  Which is more meaningful?  Peter Coy, in the July 20th New York Times, opined that “Inflation is bad, but unemployment is far worse.”  It’s critical that the Federal Reserve governors take a view on this comparison, as their interest rate hikes or the lack of same will influence both in different directions.  The author maintained that “higher unemployment is worse than higher inflation if you go by the feelings of real people rather than the theories or economists,” as shown by one paper finding that “people are nine to 13 times as likely to report sadness or physical pain in the short term when there’s been a one-percentage-point increase in the unemployment rate as when there’s been a one-percentage-point increase in the inflation rate,” and another placing unemployment rises as “about six times as potent as an increase in inflation in lowering people’s self-assessments” about their lives, something which a previous study found to be five times.  Something for the Fed to think about – and us if we are trying to be objective.  The same goes for the rest of this post.

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