COMPARING THE US AND CHINESE GDPs

 A PRIMER ON INTERNATIONAL MACROECONOMICS

Mere parsimony is not economy. Great expense may be an essential part of true economy. ~ Edmund Burke 

The United States (US) and the People’s Republic of China earnestly began dancing around each other on the world’s economic stage as long ago as the early 1980s, when Deng Xiaoping was China’s paramount leader. This dance continues… 

 The US gross domestic product (GDP) became the world’s largest around 1890, besting the British, according to paleo-economists. By then, the US economy was more than twice as productive as Britain’s. The Chinese GDP became the 2nd largest in 2010. Both nations’ GDPs remain in the top 2 since these dates. 

I travelled to Beijing during February 1980 on a UN project to teach Chinese planners about empirically-based macroeconomic forecasting models (no abacuses allowed). It was a memorable experience in many ways, including my learning that the sole Beijing hotel that westerners could stay in provided no heat in the dead of winter to its guests like me. None = BIG Brrrr. The hotel’s archaic Russian-built system did not work. Average Beijing high/low temperatures during February are 39°F/19°F; it felt a lot colder especially during the all too plentiful, freezingly-harsh winds blowing through Beijing from the Gobi desert. I attempted to keep warm by frequently drinking copious amounts of very hot tea when I was awake. This partial solution was definitely second-best. I needed functioning, hot radiators in my hotel room. 

Fortunately my stash of Aggregate Supply and Demand curves and least-squares estimators needed for my lectures survived the cold. Aside from a frigid hotel room, it was an extraordinary trip. Ah, foreign travel. 

Both the US and China have come a long way since then. In 2024, the US and China once again have the 2 largest GDPs on Earth. A nation’s GDP represents a key indicator measuring a country’s general macroeconomic health. The concept of GDP was created in the US in 1934, during the Great Depression. By the end of WWII, many nations used GDP to measure their economic status. The real (price-adjusted) 2024 US GDP is 24x as large as our 1934 GDP. 

This analysis offers my interpretation of the 2024 US GDP relative to China’s. Several highlights of this comparison include: 

• The US nominal GDP – the world’s largest – currently is nearly 60% greater than China’s,

• Our GDP per capita is over 3 ½ times greater than China’s,

• Despite having 2 very dissimilar economic systems, the shares of GDP expenditures financed by the US's and China’s governments differ by less than 1% of each other. 

My macroeconomic assessment of the US and Chinese economies is based on information shown in the table below. In addition to nominal GDP, this table considers 7 different factors that influence both macroeconomies. 

As mentioned above, the US  $29.17 trillion GDP, is the largest of any nation and has been since the mid-1890s. Historically, the US became the world's largest maker of manufactured goods and steel by the latter 1880s when it surpassed imperial England’s production. 

Our 2024 annual inflation rate, now 2.6%, has declined steadily since 2021 principally due to the Federal Reserve Bank’s tighter monetary policy efforts. The Fed’s “target” inflation rate is 2%. The Fed began raising its Federal Funds Rate (FFR) in March 2022 to quell inflation. At long last, in September the Fed decided that inflation was close enough to its target, so it began lowering the FFR, its principal interest rate. At its November meeting the Fed again reduced its rate – to 4.58% - hopefully ensuring our macroeconomy will not slip into a partial recession. 

In 2021, at the peak of the Covid pandemic’s economic disruption, our inflation rate was an excessive 7.0%. Although the 2.6% rate is less than half what it was just 3 years ago, current lower macro price increases have not engendered praise by consumers, much to the dismay of Democrats. This is especially true for grocery store items like eggs, whose price notably increased almost 30%, mostly due to avian flu not Joe Biden. Housing prices are up nearly 25% since 2020. Surveys indicate a strong majority of people want no price increases at all. Fat chance of that happening, especially with taller tariffs on the horizon. 

China’s annual inflation rate is a diminutive 0.3%, a level that often typifies an impending macroeconomic slump. China’s low inflation exemplifies the significant economic challenges the nation currently faces. Such challenges include a very distraught property/real-estate market, fragile consumer confidence and increased belligerence from China’s major international trading partners, which directly involves the US especially after January 20. 

Chinese authorities have recently expanded monetary policies to speed up their economy. These efforts include reducing the main interest rate, reducing the Chinese Central Bank’s required reserves, cutting citizens’ minimum down payment for 2nd homes and providing financial support for the principal stock market. 

China’s 2024 GDP growth rate is far stronger at 4.8%, over 70% higher than the 2.8% US growth rate. Nevertheless, the Chinese government is concerned about GDP growth because it has shrunk from 8.4% in 2021. 

Having 1.416 trillion people, China is the world’s second most-populated nation, after India. China’s population is problematically the most rapidly aging on the planet. The US population is the third largest, accounting for only 24% of China’s. This striking difference accounts in part for the impressive disparity in GDP per capita; at $82,715 the US is almost 4x as large as China’s. The US is 9th highest; tiny Luxembourg has the world’s highest GDP/capita, a stratospheric $151,150. 

GDP by Sector.  The table also shows significant differences between how our and China’s GDP is split by our economies’ 3 major sectors; Agriculture, Industry and Services. The US macroeconomy is dominated by the labor-intensive services sector that accounts for over 80% of total expenditures. In contrast, China’s services sector characterizes a meager majority - 54.6% - of its economic activity. China’s Industry and Agriculture sectors each represent far more endeavor than in the US economy. 

GDP by Component.  Finally, compare China’s and the US economy’s GDPs with respect to their 4 major expenditure components, the most common way of measuring GDP: Consumption (C: blue), Investment (I: grey), Government (G: orange) and Net Exports (X-M: yellow). The pie charts below illustrate several distinct differences in each nation’s GDP composition. 

 

Start with the biggest component, personal consumption expenditures. In the US, consumption represents over two-thirds of our 2024 GDP, 67.9%. This dominance exemplifies that our economy is driven by consumers including you and me. Although China’s consumption expenditures have risen, they now represent just 39.2% of their economy, less than 60% of the much larger US consumption share. Next, investment expenditures for the US are17.5% of our GDP; China’s are much larger, 41.4%. For at least 3 decades the Chinese government has prioritized economic growth via investment, not through personal consumption as in the US. This markedly different, notable prioritization is illustrated in the charts. 

The 3rd component, government expenditures, are unexpectedly quite comparable between the 2 countries. US G expenditures are 17.3% of total GDP; China’s G is 16.5%, less than 1% different. For me this is unanticipated because the US is a democratically-founded, diverse private market-based economy. In marked contrast, China’s economy is communist-founded and run by the Chinese Communist Party. It’s evolved and dramatically grown into a mixed socialist economy with strong central state production and control. 

What can explain this surprising similarity of G expenditures between such different economic systems? Possibly that China’s impressive Investment expenditures include a significant amount of unspecified, government-funded investments by its large, state-owned enterprises. In essence, China’s I payments probably include hefty volumes of government investment that’s not included in G expenditures. 

Furthermore, China’s public expenditures for their elderly/retired citizens are much lower than many Western nations’ standards. China’s deeply inequitable pension system provides rural elderly Chinese a publicly-financed pension of $30 per month on average. In sharp distinction, the mean retirement benefit for all US Social Security recipients is $1,784 per month. The US government’s Social Security and Medicare/Medicaid expenditures totaled roughly $3 trillion in 2024, more than 10% of our GDP. 

Net exports (X-M), the 4th and last component of GDP, is the smallest piece. Both nations’ net exports are less than 3% of their GDP in absolute numerical value. But unlike China’s net exports (+2.9%), the US net exports is a negative number (-2.7%), meaning that the dollar value of our imports exceed the dollar value of our exports. 

The yearly US trade deficit (M>X) is not a new thing; it has occurred since the 1970s. Our negative net exports are due to people’s and business’s higher demand for foreign goods and services. This demand leads to greater imports that our domestic industries may not be competitive enough to counter in international markets. 

Last year, the highest-value imports into the US from around the world include crude petroleum, machinery, vehicles and pharmaceuticals. Unlike the US, China is often characterized as an export-driven nation. After it joined the World Trade Organization in 2001, China has consistently recorded trade surpluses with the US and most other nations it trades with. China’s most valuable exports to the US include mechanical devices, electrical and electronic equipment (like iPhones) and textile products. Interestingly, soybeans are the highest-valued export from the US into China by a considerable margin. 

Overall, the US and Chinese GDPs reflect key aspects of the 2 nations’ distinct, differing economic and administrative systems. These systems ultimately are driven by the ever-shifting behavior of US and Chinese people, businesses and government. 

SWEET INFLATION

All the candy corn that was ever made, was made in 1911. ~ Lewis Black   

For a while I’ve seen headlines commenting on how citizens feel about our economy. They are predominantly not at all happy with what’s occurring in their economic lives. They’re upset that prices remain too high and employment opportunities are too restrained. That’s puzzling.

The latest annualized inflation rate in the US was a subdued 3.4%. December unemployment remained at a five-decade low of 3.7%. The US real (inflation-adjusted) GDP increased at a decent 3.3% annual growth rate in the fourth quarter of 2023. Wages grew 5.2%, a healthy clip. December’s retail sales increased 0.6%, flouting expectations. During the past year 2.7 million workers were added to total nonfarm employment. In January the economy unexpectedly added 353,000 jobs, about double what was anticipated. What’s not to like?

From an economic perspective, each of these macroeconomic changes is strictly positive, if not overdue. Especially when compared to the recent past, when inflation was flying twice as high and employment gains were largely declining.

How could people’s individual views be so distinctly different and glum from our macroeconomic performance? Ultimately, it’s because none of us live in the aggregated world of macroeconomic indicators like the Consumer Price Index (CPI) or the national unemployment rate. We live in real towns and cities, none of which exactly characterizes economists’ models of the entire macroeconomy.

The president’s re-election campaign is attempting to sell Joe to voters in terms of his successful efforts to protect liberal democracy from The Donald’s bombastic dark forces, his constructive legislative record and his management of the economy. Unfortunately, America’s likely voters seem far less moved by Joe’s protecting democracy than by improving their lives via quickly reducing their housing and food costs. This is a tall order that’s a hefty political challenge for the current and any future president. 

President Biden impressively has signed into law two beneficial pieces of legislation that authorized federal expenditures totaling a sizable $2.09 trillion. First was the Bipartisan Infrastructure Bill of 2021 and then the Inflation Reduction Act (IRA) of 2022. Many analysts believe these sizeable expenditures actually have contributed a bit to inflation, not reduced it. Despite its broad title, the IRA has begun to lessen rising prices only by capping a small number of prescription drug prices for Medicare recipients. That’s certainly a good thing, but doesn’t have broad impacts. The IRA’s primary goal has been to reduce the threatening effects of climate change.

Instead, inflation reduction has been largely accomplished by the Federal Reserve Bank’s program of raising the Federal Funds (interest) Rate. As mentioned, the inflation rate has lessened thankfully without inducing a recession so far, but folks unhappily keep seeing higher, rising prices. In a recent survey, more than two-thirds of voters said inflation has hit them hardest through higher food prices. That’s 50% greater than any other category of purchased goods.

Economists have suggested an explanation for the political conundrum of improved macroeconomic performance not being appreciated by many people. It’s an interesting and sweet one that involves Snickers candy bars. A friend alerted me to this idea (thanks Robert): we become more aware of goods’ price changes the more frequently we buy them. In addition to groceries, frequently-bought goods include convenience and impulse purchases, like candy and snacks. This helps explain why Snickers bars occupy primo grocery store real estate within easy reach of shoppers as they unload their carts at the checkout line.

Snickers bars for all

 In other words, one of the president’s challenges is there’s a world of difference between the increased price of items on grocery-stores’ aisles and statistical representations of the macroeconomy that he often cites in speeches.

Mars, Inc. domestically produces over 500 million Snickers bars each year. That’s an enormous quantity of chocolate-nougat-caramel-peanut candy that is frequently bought by legions of folks. With reason, Snickers is often cited as the king of the candy aisle. The very first Snickers bar was crafted 94 years ago by Frank C. Mars in Chicago. The Snickers bar, which was named after a favorite horse of the Mars family, originally sold for 5 cents. Unfortunately, there’s no annual time series of Snickers’ prices. Nevertheless the chart below shows the cost of the Snickers bars in various years since its introduction.

The Price of a Snickers bar  

Year	Price
1930	$0.05
1978	$0.25
1981	$0.30
1983	$0.50
2012	$1.00
2024	$1.79

There are two reasons for Snickers most recent, sizeable price increases: higher sugar and higher cocoa prices. First, it’s impossible to separate the price of Snickers bars from the price of sugar, its major ingredient. The US price of sugar increased nearly 9% last year. The domestic prices of sugar and sweets rose more than 2 ½ times higher than the overall CPI. Having a sweet tooth is evermore expensive. It’s no surprise that a majority of surveyed voters indicate that inflationary food prices, including sugar and candy, have hit them hardest.

Second, Snickers bars are covered in chocolate and have a fair amount of additional cocoa inside as well. The global price of cocoa rose a stratospheric 73% during the past year. Poor growing conditions in West Africa, where much of the world’s cocoa beans are grown, have shrunk cocoa powder production, hence prices have rocketed.

The domestically-produced sugar you may put into your morning coffee or taste in a Snickers bar is likely one of the most regulated of any consumer item, but not to consumers’ advantage. For over 50 years, domestic sugar producers have benefited from generous government policies. These economic policies include US import restrictions like high tariffs and strict quotas, as well as robust US production subsidies. Domestic sugarcane and sugar beet producers are well protected from cheaper imported sugar. These federal policies effectively restrict sugar imports to about 15% of the US market, which is a sizeable $13 billion. The relatively few, large domestic sugar producers act as a high-priced cartel buoyed by full government support.

Consequently, the price of American sugar towers well above the world price. In December the US price was 27% higher than the world sugar price. Domestic sugar producers taste sweet success. Sugar consumers and confectioners like Mars taste only bitterness. Accordingly, the cost of making sugar-intensive Snickers bars in Texas and other locations is considerably higher because of federal policy, with consumers picking up the added tab. That tastes expensive. Such increased prices easily make consumers feel that they remain too elevated. If such feelings endure, they will not help the president come November.

 

 

GROWING, GROWING GONE?

Growth is never by mere chance; it is the result of forces working together. ~ James Cash Penny   

Economic growth – the expansion in a nation’s real (inflation-adjusted) gross domestic product (GDP) or its real GDP per capita – has long been one of many nations’ principal macroeconomic goals. There are many paths for achieving greater growth that politicians, economists and citizens often quarrel about.  

Economic Growth 

Such bickering is happening now, with less than 2 weeks before the midterm elections. Should tax cuts be provided to the wealthy or to the middle-class; should government expenditures be increased or decreased? Do such policies actually make a difference; and if so, how long does it take for them to take effect?

Adam Smith’s renowned Wealth of Nations (1776) emphasized that the “division of labor” is at the heart of rising wealth and prosperity. Such division referred to workers specializing in various productive tasks, rather than each worker making the entire product. Early on, the book provides a description of how ten (10) workers in a pin factory can make 48,000 pin a day if they specialize, but perhaps only one pin per worker every day if each produces the pin completely by himself.

The Industrial Revolution in large part was founded on Smith’s concept of labor specialization, along with its accompanying technological progress, rising education levels and more productive capital stock. After centuries of Malthusian economic stasis, many people’s lives were economically improved beginning in the latter 19th century.

In the intervening centuries numerous routes for economic growth have been tried. Some are not viable. The most recent example is the shellacking received by Liz Truss, then Britain’s still wet-behind-the-ears prime minister (PM). Her plan to abolish England’s highest tax rate on top-earning Brits in the name of stronger growth without compensatory government funding proved economically treacherous and politically expensive. She was forced to publicly abandon it within 10 days of its conception.

Her attempt proposed creating a 2022 version of “trickle-down” macroeconomic growth – famously undertaken twice by President Reagan. As has happened previously, trickle-down upset too many folks and more importantly, proved ineffective in practice. Like many things, the Repubs have never accepted the empirically-proven result that trickle-down has never delivered broad economic growth.

The stress on PM Truss grew overwhelming. She did not survive. Her tenure lasted a mere 45 days (or by other accounts 44 days, take your pick). Her opening economic policy missteps put her government in a deep, inescapable hole. Ms. Truss’s trickle-down will no longer dribble. The brand new PM, Rishi Sunak, will be Britain’s third in just seven weeks. He is expected to offer more mainstream macroeconomic policies to combat high inflation and other economic challenges. He’ll need considerable luck.

Last year, our real GDP grew impressively at 5.67%, the highest annual growth since 1984. That will not be repeated this year; through June 2022 real GDP dropped 0.3%, which is never a good sign for the incumbent party.

The Biden administration has offered several large, multi-faceted programs to prolong US economic growth, such as an expanded $1.0 trillion (T) for infrastructure, $400 billion for cancelling students’ college debt as well as limiting the price of insulin. These efforts may be worthy, but the president’s timing is dreadful. Why? Because in September, the consumer price index rose at a rarified 8.2% annual rate.

Pleasing voters before this election can be politically beneficial, but economically exorbitant. In fact, the economic legislation that our current Congress has passed accounted for $1.45T of new spending. Interestingly, these massive outlays represent only 33% of what the president initially requested in his 2022 budget. Given their size and breadth, let’s hope some growth endures through these expenditures without strengthening inflation.

Unfortunately, such expanded fiscal policy expenditures now are clearly at odds both with the Federal Reserve’s significant tightening of monetary policy and with taming our enduring high inflation. Such increases in government spending likely will stimulate demand for more goods and services, resulting in higher prices.

How long will it take for the Fed’s anti-inflation increases in interest rates to reduce our damnably relentless inflation? No one knows, except too long. Which means the Federal Open Market Committee (FOMC) will assuredly increase the interest rate at its upcoming November 1-2 meeting. It’s very unlikely but the FOMC could reduce the interest rate rise by a sliver under the 0.75% increases its effected at the past 3 meetings. Such a minor change might please the markets, if that means anything to the Fed.  

Despite the Dems’ considerable efforts to focus on the Repubs’ horrendous abortion policies and extremism, potential voters have listed inflation as the number one issue they are facing. Understandably, folks want prices to stop rising for items they buy in every grocery store isle (11.2% annual price increase) as well as energy (19.8%) and virtually all other goods and services.

The simultaneous combination of lackadaisical growth with inflation is termed stagflation by economists. Stagflation is the worst of both issues. Macroeconomic policies to resolve a lack of growth – such as increasing government expenditures – can result in more inflation. Policies to ameliorate inflation – cutting expenditures or raising interest rates – can produce less growth and raise unemployment. In effect when facing stagflation, policy makers have to choose which quandary, inflation or lack of growth, is most important to remedy first. That’s a choice no one wants to make.

Until this past week, the Dems’ midterm election messaging did not directly address how worried and choleric people have become about ever-rising, inflationary prices. Nancy Pelosi seemed to agree, saying “We’ll have to message it better.” David Axelrod, President Obama’s chief political advisor turned pundit, stated it’s a mistake that Dems’ campaigns did not explicitly mention how they would resolve inflation, the nation’s primo economic problem. In his adroit words, this flawed messaging strategy is “sort of like, ‘How was the play otherwise, Mrs. Lincoln?’”

Will this needed although belated change in messaging overturn what pollsters now expect: a “red tide” on Nov. 8? Remembering how flawed election polls can be, I’ll keep every finger crossed that they’re wrong once again.

 

 

 

 

A TALE OF TWO elastiCITIES

It was the best of times, the worst of times. ~ Charles Dickens  

Charles Dickens wrote A Tale of Two Cities in 1859 in the later part of his literary career. Dickens was already an admired, well-known author when wrote this book. I read A Tale of Two Cities long ago, together with many other high school-age Boomers. So long ago I hardly remember the book’s plot and characters. Nevertheless, the book still has relevance. 

Dickens’ judgements of Victorian society were represented in his tale. He sympathized with the revolution’s overthrow of France’s imperious aristocracy but disparaged the subsequent reign of terror. Fortunately today we have no broad reign of terror, except perhaps in the divergent eyes of radical leftists and rightists. Views of our aristocracy are similarly conflicted depending on which side of the political spectrum one inhabits.

No matter what your political beliefs are, our continuing excessive inflation has effectively emptied many people’s pockets. Inflation-adjusted weekly earnings for employees decreased 3.9% during the year ending in May. Investors have suffered more; the stock market is now in bear territory. The S&P 500 has dropped 13.3% during the past 12 months and 30.5% since Jan. 3. Pop goes the market.

 

A grizzly bear alarming intrepid investors.

Explaining who and/or what is responsible for our growing macroeconomic predicament is a challenge. President Biden’s attempts to blame Czar (er, Russian President) Vladimir Putin are valid, but not the whole story.

Anyone younger than 40 years old has never lived with inflation as high as it now is at 8.6%[1]. The average yearly inflation rate during the Millennial generation – the oldest of whom are now 41 years – was 4.1%. For Gen Zers –  the oldest are now 25 years – the average inflation rate was 2.4%. Although both these averages are greater than the Fed’s 2% target inflation rate that was officially set a decade ago, they are much lower than today’s inflation rate.

In 1981 we suffered from 10.3% inflation, principally due to the after-effects of the Iranian Revolution and resulting world Oil Shock, too-robust government spending and a swirling wage-price spiral. The Federal Funds Rate (FFR), our key baseline interest rate that the Federal Reserve sets, was 21% in 1981, which is more than 10x higher than the current FFR.

Starting in the early 1980s, this four-decade long period of historically low inflation has both been truly remarkable and uncommon. It has now ended.

Once again, dramatic energy price rises, initiated last month when the 27 European Union nations proclaimed they will be cutting much of their petroleum and natural gas from Russia, have enlarged macroeconomic inflationary pressures facing us consumers, shown in the table below. The giant increases in energy prices are notable. By themselves, gasoline prices have increased an astronomical 48.7%. The price of any kind of vehicle has also risen dramatically.

Consumer Price Index for All Urban Customers (CPI-U)	Annual Price Increase ending May 2022
All Items	8.6%
Food at Home	11.9%
Energy (incl. gasoline, electricity & natural gas)	34.6%
New Vehicles	12.6%
Used Cars & Trucks	16.2%

   The US government’s $5 trillion of covid-induced stimulus checks, business support and funding to state and local governments have increased consumer demand for many goods and services that have been stymied by supply-chain snafus.[2] When overall consumer demand increases relative to available supply, inflation results. Despite being clearly needed and useful, there’s little doubt such government funding has contributed to the economy’s inflationary pressures.

Elasticity is one analysis tool that microeconomists use to judge how much customer demand changes as a consequence of a good’s price changes. If a relatively small percentage increase in a good’s price causes consumers to buy disproportionately much less of that good, its price elasticity of demand (PED) is said to be elastic; numerically the elasticity is greater than 1.0. Conversely, if a good’s price increases by a relatively large percentage but consumers’ demand doesn’t change much, this good’s PED is said to be inelastic, and less than 1.0.

Factors that influence a good’s PED include whether it is a necessity or a luxury; whether it has close substitutes; what proportion of a person’s income is spent on this good; and how much time has passed since the price changed. If a good has no close substitutes, doesn’t account for a large proportion of people’s expenditures and the price change has been recent, then that good’s price elasticity is likely to be numerically low, termed inelastic. A good that has price inelastic demand is not that sensitive to price changes.

Let me tell a tale of two goods’ elasticities that have particular relevance for our existing situation: gasoline and food.

Gasoline’s PED is quite inelastic; calculated to be -0.26, which means if the price of gasoline increases 10%, consumers’ demand for gasoline will decline 2.6%, much less than the price increase. This calculation is unsurprising given that until very recently there have been no substitutes at all for gasoline if you drive a car. Gasoline remains an absolute necessity for the 97% of us car-owners who don’t drive EVs. As I mentioned above, gasoline prices have risen nearly 50% since May 2021, which means that car drivers’ demand for gasoline could drop by only 13%, given its PED. One of several conflicting factors that could lessen this drop includes that it’s now officially summer vacation time when folks who’ve been cooped up for months due to covid want to travel “on the road.”

Gasoline demand’s very low price elasticity also means that President Biden’s request to temporarily eliminate the 18.3¢/gal. federal gas tax won’t have much if any effect. His proposed 3-month gas tax holiday will likely have about as much impact on the US gasoline market as his release of millions of gallons of oil from the Strategic Oil Reserve did several months ago; which is to say minimal. But these actions demonstrate Joe’s at least trying to reduce inflation; perhaps more than his previous, bizarre statement that his bipartisan infrastructure program will diminish inflation. Don’t hold your breath, infrastructure expenditures’ effects move at the tortoise-like speed of concrete.

A gas tax holiday is a strictly performative, smoke and mirrors action that would effect no significant inflationary relief. In addition, it will cut the already-stretched Highway Trust Fund of needed infrastructure money. I expect the impact of a transitory removal of the federal gas will mostly be visual, showing a small price reduction on the giant price signs at gas stations across the nation.[3]

This is especially true if you live in California, as I do. On July 1st, our state’s gas tax, which has a built-in yearly CPI adjustment, will increase to a monumental 53.9¢/gal., the highest in the US. My closest gas station is currently selling regular at $6.39/gal. If only it were a mere $5/gal. like the media constantly reminds everyone.

It’s fortunate that Congress will unlikely go along with the president’s proposed tax holiday, for political not substantive reasons. But if enacted, I and the other 39 million Golden Staters would see only a 2.8% reduction in our gas price that could result in a miniscule 0.8% increase in the demand for gasoline given its inelastic PED. Even this slender price break has been understandably and vociferously opposed by environmentalists and most economists as the wrong way to “get to green,” despite its ephemeral value for the inflation-fighting president. In sum, due to gasoline’s price inelastic demand Joe should not press Congress to add another federal holiday.

Let’s now examine a second good’s price elasticity of demand. Food is in an elite class of items because it is absolutely required by all living creatures to sustain life, like air and water for those of us who live on more or less solid ground. As a necessity, food’s PED is quite inelastic, meaning the amount of food we consume is not much influenced by price changes. And as you’ve already noticed, food prices have risen. The price of food we buy for home consumption at grocery stores has increased 12% during the past year.

There are many different kinds of food, as anyone who walks the isles of a grocery knows. The average grocery store apparently carries an astonishing 40,00 individual items, which means there’s not just a single price elasticity for food. Price elasticities are calculated for specific food types.

Fortunately, thoughtful microeconomists have been busy for decades estimating the price elasticity of demand for many food types. One meta-assessment of food type elasticities reviewed 160 individual studies. Soft drinks, the most-often purchased item in groceries, have an inelastic PED of -0.79. The food item with the greatest price inelasticity (the numerically lowest numeric value) is eggs at -0.27. The PED of milk, the second most purchased food item, is a bit less inelastic than eggs at -0.59; meaning a 10% milk price increase could reduce milk purchases by 5.9%. Our grocery store offers a stultifying choice between 37 different types of “milk:” everything from 7 versions of good ol’ animal milk (in 4 different fat concentrations: whole, 2%, 1% or 0%) and 2 different sources (cows and goats) to 30 versions of plant-based milks (almond, coconut, oat and soy).

This tale of two inelastic elasticities - food and gasoline - has illustrated the president’s weak and limited policy options to reduce inflationary pressures. However, these elasticities have far less direct consequence for the Federal Reserve’s efforts to cut inflation. That’s because Fed anti-inflation policy focuses more narrowly on increasing the price of money (hiking loans’ interest rates) to reduce aggregate demand.

Last week the Fed finally increased the Federal Funds Rate by a whopping three-quarters of a percentage point to 1.75%, the biggest hike since 1994. This increase will raise the cost of consumer and business loans that the Fed hopes will eventually reduce demand for big-ticket items like appliances, cars, homes and business expansions. The Fed’s action, along with its sale of some of the $8.5 trillion corporate bonds it has amassed, will reduce or tighten the US money supply. The risks associated with the Fed’s delayed, aggressive tightening our money supply include eventually pushing the nation into a recession, with higher unemployment and reduced GDP growth.

The Fed chairperson Jerome Powell and his 20,000 employees remain cautiously optimistic that its efforts will reduce inflation to its 2% target without causing a hard-landing recessionary downturn. The Fed’s record in this arena is problematic.

Since 1955 during 7 previous inflationary cycles when the Fed has increased the FFR as fast as it’s now doing, a recession has followed in 6 of them. Six out of 7 means the Fed’s Recessionary Batting Average (RBA) is regrettably an economic Hall of Fame high of .857. Looking even farther in the past, the Fed has managed to reduce inflation without wounding growth only 3 times since 1945.

Will 2022-23 demonstrate a rare, successful economic soft landing for the Fed’s anti-inflation efforts that reduce its all-too high RBA? We can help by embracing the Fed’s efforts by somehow believing in an edited version of Dickens famous book’s incipit, “it is an age of wisdom and a season of light.” The benefits of such an embrace can go far beyond softly taming inflation.

 

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[1] As measured by the Consumer Price Index for all urban consumers (CPI-U).

[2] Snafu is an acronym that stands for situation normal, all fucked up. It was born in the beginning of WWII by Marines as a satirical expression of what they all too often faced on a day to day basis.

[3] Interestingly, these ubiquitous signs are not required by federal or state regulation. Nope, it’s drivers like you and me who in effect require those signs, born from decades of tradition that gas station operators accede to. 

PRICE RISES AND TIME SLIPPING

You know the nearer your destination, the more you're slip slidin' away. ~ Paul Simon   

Is it time to travel? Seems so. Many more people have travelled to eat green bean casserole with distant relatives and friends. AAA expected more than 53 million people will travel during this Thanksgiving holiday, the highest single-year increase since 2005. We’re clearly more on the move than last year.

Perhaps high-flying sojourners are attempting to escape increasingly tumultuous, rising prices in their localities. The media and others have been proclaiming inflation as a big, but non-transitory issue facing President Biden.

Indeed, prices facing consumers are elevating. The year-over-year Consumer Price Index (CPI) for October increased 6.2%, the highest in 30 years. Gasoline prices rose 49.6%, the second-highest increase of any CPI item. Meats, poultry, fish, and eggs’ prices increased 11.9%, that you’ve already witnessed at your grocery’s check-out. Amazon’s prices on more than 20,000 popular items increased 7.5% in October from a year ago.

Are these price surges connected with the president’s increasingly dire poll numbers? Maybe, although it’s by no means conclusive. Time may tell.

Unfortunately, every president including Mr. Biden has few direct means of quickly controlling rising prices of final goods and services. President Biden’s statements that his newly-signed $1.2T of infrastructure expenditures will reduce inflation may be true ultimately, but only after all the bridges, highways, power lines and Amtrak have been revitalized eight years from now. Large-scale infrastructure projects take considerable time to start, and a long time to be completed. Needed infrastructure improvements will not reduce inflation between now and the mid-term elections.

We economists maintain, with fingers crossed behind our backs, that prices are simply a consequence of how market supply and market demand are interacting. When consumer demand increases more than supply, as seems to be happening for a while, prices will rise, as they have been. Alas, economic models are far less definitive about the duration of upward price pressures.

Even as the Federal Reserve and the president maintain such price increases are merely “transitory,” monthly consumer price increases have averaged 8% since April. October’s annualized monthly increase is 10.8%. No wonder inflation is becoming a beyond-transitory issue for the administration.

To show that he’s doing something, the president has ordered that 50 million barrels be sold from the US Strategic Petroleum Reserve, to increase the domestic supply of oil products. He also requested that OPEC increase its production. Nice try Joe, but such efforts at best may have some momentary political benefit, but no substantive market effect for lowering gas prices or inflationary pressures. OPEC predictably declined his request. Fifty million barrels represents just 2 ½ days of total US oil consumption; and a mere 8% of the Reserve (that at some point will need to be replaced at likely higher-per-barrel prices).  

Interestingly, although transportation expenditures’ costs rose 4.5% over the past year, airline fares taxied downward at 4.6%. Maybe these declines, in addition to the public’s strong, pent-up desires to share turkey and tofurkey, spurred the rush into cramped airplane seats.

Nevertheless, a small number of travelers aren’t flying or driving. Nope, they’re following time-slips.

If you aren’t familiar with time-slips, they refer to fleeting, temporal anomalies experienced by individuals. A sort of accidental, serendipitous time travel. Such time crossings are not extended adventures such as Mark Twain described in his pioneering 1889 time-travel novel, A Connecticut Yankee in King Arthur’s Court. I enjoyed reading this book last year.

Twain’s popular book portrays Yankee engineer Hank Morgan as he somehow finds himself, after being hit on his head, transported from late 19th-century New England into non-new England during the reign of King Arthur in the 6th-century. The original frontispiece from A Connecticut Yankee in King Arthur’s Court is shown below, where a mounted, armored knight with a lance is charging Mr. Morgan up a tree. It describes the considerable period and many adventures that Mr. Morgan experienced in Camelot. His ventures allowed Mark Twain to comment on then-contemporary American society and as well as parody the idea of chivalry and the legend of King Arthur’s Camelot.

Source: Wikipedia

Time travel didn’t stop in the late 1800s. Modern tales of people who have experienced transitory time-slips (time-slippers?) describe them as short excursions back in time at the spot where the person happens to be right before the slippage. Some time-slippers travel far rearward in history, others not so far.

Buckle up for the several time-slip accounts. In July 1996, Frank, an off-duty policeman, walked down a street in central Liverpool, Merseyside, England to shop at Dillon’s Bookshop. As he walked, he noticed the street was now cobbled. It hadn’t been before he started; pedestrians were now wearing clothes appropriate for 40 or so years prior, not 1996 contemporary. He crossed the cobbled street and noticed instead of Dillon’s was a store named Cripps, selling handbags and women’s shoes. Frank saw a woman dressed in 1990s clothes enter Cripps looking perplexed. Suddenly, the whole scene revered back to 1996 and the cobblestones and Cripps disappeared. Frank asked the woman if she’d seen the same strange, time-warped things; she said yes. Frank later found out that a women’s haberdashery called Cripps operated on the Dillon’s bookstore site in the 1950s.

Another time-slipper vividly saw medieval boats sailing on a British river next to the ancient castle he was visiting in Wales, and then suddenly the boats vanished as he returned to the present-day. Two young women were walking up a densely-wooded local hill in northwest England during the summer on a trail they had hiked on many times before. On this hike they saw for the first time an old-fashioned, rough-stone cottage amid the trees that reminded them of a dwelling “from the Middle Ages.” There was smoke wafting out of the chimney and the door began to open as they came closer. They promptly fled down the hill and haven’t seen the ancient cottage ever again on this trail.

These time-slip recountings offer a however brief alternative to our usual linear sense of time. Also, they perhaps bear the idea that time is more than a one-way throughfare to the hereafter.

Perhaps President Biden would wish to time-slip himself back to 1965, when inflation was a trifling 1.6%. And when the Dems enjoyed impressively formidable control of both the House and Senate after Lyndon Johnson’s giant victory over Barry Goldwater. The Dems margin in the 1965 House was +155 representatives; in the Senate it was a 36-senator, filibuster-proof majority margin. Those were the days, sort of.

Here’s to slipping through time as easily and interestingly as possible.

 

 

IS INFLATION COMING OR GOING?

 To inflate or not to inflate? That is the question. ~ Jerome H. (Hamlet) Powell   

The principal issue in the eccentric world of macroeconomic policy-making focuses on inflation, as my currently-germane alteration of Hamlet’s famous soliloquy states above. Is it rising and staying for a while or is it merely a temporary drive-by event?

Even though a great deal depends on it, no one knows the answer. That’s despite economists’ reviewing decades of data and using their forecasting models day and night. That hasn’t stopped specialists from offering many differing opinions; following the adage, “often wrong, but never in doubt.” Perhaps macroeconomists should add trendspotting algorithms that have become popular in the fashion industry into their models.

For economists, inflation refers to an increase in the overall level of a nation’s prices. More technically, inflation occurs when aggregate prices of consumer goods and services rise due to “excessive” demand or insufficient supply. As prices rise, the purchasing value of money consequently falls.

Aggregate prices is a nebulous macroeconomic concept referring to a measure of prices for all of our nation’s final goods and services– from soap to syringes, and everything in-between, like Buicks, donuts and urologist visits. Our most-often used measure of inflation is the Consumer Price Index (CPI) that is calculated monthly by the Labor Department’s Bureau of Labor Statistics (BLS).

The CPI offers quite a few different “flavors” of prices, like prices for urban consumers, for urban wage earners and for the elderly. The BLS gathers data on consumer prices for each of 211 different categories of consumer items (the “market basket” of goods and services) in 38 different geographical areas throughout the US.

When the BLS released the May CPI information on June 10, the media and others took serious note. During the last 12 months, the CPI increased 5.0%, the largest 12-month increase since August 2008. This annualized increase is over two times as large as the 2% inflation rate that Mr. Powell, Chair of Federal Reserve Bank, hopes to see.

At the Fed’s summer meetings last week, officials stated they would keep interest rates near zero, but explicitly stated they would consider increasing rates, perhaps twice by the end of 2023 if inflation persists. This statement is a direct reaction to the May CPI announcement. 2023 is a year sooner than the Fed has previously stated for considering interest rate changes. The Fed thus has increased inflationary expectations. Unsurprisingly, stock markets took that news poorly, dropping almost one percent and bond yields increased.

The Fed steadfastly maintains that current inflation is “transitory,” never defining what that term means. The last two months have presented higher-than-expected annualized inflation, 4.2% in April, 5.0% in May. If June’s CPI number is 4% or greater. it will be much harder for the Fed to proclaim again it is transitory. We’ll know on July 13.

The Fed’s transitory belief rests on two premises. First, aggregate production will continue to increase steadily as recent parts shortages and supply-chain lags ameliorate, like chip-sets for autos and trucks and lumber for construction. Second, consumers’ demand for goods and services now reflects surging needs that were restricted during the extended covid period; these will taper. Thus, after this temporary phase, markets will get back to “more normal” behavior with more goods and services available and less pent-up demand.

Most importantly, policy-makers need to adopt a more farsighted view of our economic activities, which is vital for producing well-founded economic programs. Monthly CPI data are interesting and instructive, just as weekly unemployment claims requests are. But these very short-term data are inherently quite variable. Their use should not be overemphasized, as they seemed to have become. Most economists are far better at drilling down for detailed information than we are at looking up. Adopting a broader, longer-term perspective will produce stronger, fairer policies.

The media have filled screens, airwaves and newsprint with stories about how May’s unexpectedly large CPI reflected price increases in specific slices of the economy. A Washington Post story mentioned consumers are paying more for an array of products, including bacon and used Buicks, as the economy rebounds strongly from the brief covid-led recession.

Several items whose prices have notably risen include used cars (Buicks and beyond), furniture, gasoline, washing machines and dryers, bicycles, lumber and airfare. Beef and non-Congressional pork prices have also risen.

But not to worry spending-fans. In January, House Dems after a decade-long ban, resurrected personal earmarked projects. These “pork” projects can be specifically-funded by a single Congressperson that circumvent the standard merit-based and competitive allocation process. How can you be upset at this change? There’s a $1.4 trillion per year limit for such projects. The Dems insist these pork-rind earmarks will provide lawmakers new tools to better serve their communities, and bring home the higher-priced bacon. Praise be? Not.

Back to Buicks. The mention of old Buicks immediately recalled my grandfather’s, which looked much like the one shown below. When we visited, he drove us in his sweet midnight-black, side-portholed Buick on fine Sunday rides through Western Massachusetts countryside. They don’t build them like that anymore.

 

 1951 Buick Special sedan

A 1951 Buick Special cost $1,800, which in today’s dollars is $18,637. The 2021 Buick Encore, the lowest-priced model like the Special, costs $26,260. That’s fair amount of auto inflation, to the tune of $7,623 more than the CPI-adjusted Special price. This 41% premium accounts in part for the vast increases in Buicks’ automotive quality and technical improvements gained by GM over the past 70 years.

Our inflation rates have steadily fallen during the last 50 years, as shown in this table. The average

Decade	Average Yearly Inflation Rate
1971-80	7.86%
1981-90	4.74%
1991-2000	2.81%
2001-10	2.38%
2011-20	1.73%
Source: DOL/BLS

 yearly inflation rate during the 1970s was 7.86%. Two international oil crises and subsequent stagflation in the late 1970s – early 1980s caused its loftiness. Stagflation is a truly nasty, worst-of-both-worlds combination of high inflation juxtaposed with elevated unemployment. In January 1981, the interest rate set by the Fed, the Federal Funds Rate (FFR), as a basis for monetary policy was 19.08%, together with 7.5% unemployment and 10.3% inflation. Terrible times for everyone.

After 1982, US annual inflation has never been greater than 5.4%. Thus, any American younger than 40 years old would think high inflation was more than 5%, at worst. Long gone are the nasty macroeconomic mid-1970s and early 1980s, when inflation never got below 5.7%.

The most recent decade’s average inflation rate was 1.73%, thankfully less than one-quarter the 1970s level. The FFR currently remains a rock-bottom 0.06%, unemployment has been steadily dropping since April 2020, now is 5.8%.

Although people remain concerned about inflation, US price increases are far smaller than a several other countries. Venezuela’s citizens have faced the world’s worst inflation for years due to massive government malfeasance. Last years’ inflation in Venezuela was a gigantic 9,568%, down from a stratospheric 1,698,488% in 2018. Venezuela’s cumulative inflation from 2016 to early 2019 was estimated at 53,798,500%. This unfathomable inflation is the reason Venezuela’s official minimum monthly wage is currently worth only $3.20. Zimbabwe, always high in international rankings, has the second-topmost inflation at 767%. Such giant hyperinflation rates are usually caused by the government’s oversized increase in the money supply that cannot be warranted by (absent) economic growth.

Meanwhile back in Washington, Dems in Congress continue wrestling with how to fund the administration’s expansive infrastructure programs. Fearing that their more moderate colleagues’ nascent, bipartisan $1 trillion (T) effort will ignore many of their priorities, progressive Dems’ latest idea is to combine all their sprawling hopes into one single, giant effort, perhaps as large as $6T – a wish-list including most Prog favorites. The combined $7T possible infrastructure spending would represent 33% of our current GDP. No matter how worthy such outlays might be, they would likely unleash intimidating inflationary pressures.

Each of these bills face formidable odds of passing in no small part because they will require every Senate Dem to vote for them. Approving a single, $6T bill for widely-demarcated infrastructure will push way beyond Senate prospects. One other hindrance is Congress’ feeble work schedule. House members plan to toil in Washington only 9 days between now and Labor Day; Senators just 16 days. The House will not be in session at any time in August. Legislative life on Capitol Hill is indeed very different from other workplaces. Does such a schedule justify why we taxpayers provide these “legislators” with a perhaps-inflated $174,000 salary?

 

ROLL OVER BILL PHILLIPS

You gotta hear it again today

The way to crush the bourgeoisie is to grind them between the millstones of inflation and taxation. ~ Vladimir Lenin 

The certified nation-builder, Vladimir Lenin, mentions above that inflation can be the bane of many people, even the bourgeoisie. He’s right. Milton Friedman, a certified Nobel-laureate economist, but not at all a fan of Lenin, stated that inflation is taxation without legislation. He’s right, too. They agreed about nothing political, but do agree about the harsh effects of inflation that reduce the purchasing power of money.

Inflation is a general rise in a nation’s prices. Not just the increasing price of fruit loops, Airbnb rentals or window panes, but all prices in a country. Economists cite woeful, recent examples of unchecked hyperinflation such as Venezuela’s 27,364% inflation in 2018, when prices doubled about every two weeks and Zimbabwe’s 66,000+% inflation in 2009. The “winner” in my national hyperinflation hall of fame is Hungary’s unfathomable 1946 general price increase of 9.63 x 10²⁶ percent (prices doubled in less than every one and a half days). Post-war periods and inflation often coincide. Even here in the good ol’ USofA. Cliometricians estimate that in 1779 the US had an inflation rate of 192%, mostly caused by the Revolutionary War’s substantial costs.

Have you experienced noticeable national inflation? Not unless you’re over 35 years old with virtuous long-term memory. The last time the US core Personal Consumption Expenditure price index (PCE), that our Federal Reserve Bank uses to measure official price changes, reached 5% annual inflation was the third quarter of 1983. The PCE has only been over 2% – the Fed’s target inflation rate – in merely two (2) of the most recent 40 quarters (10 years). Long gone are those economically-stormy, early 1975 days when inflation rose to 10.1%.

Thus, with perceptible inflation thankfully being in a long-term coma it’s hardly surprising that last week Federal Reserve chair Jerome Powell and his colleagues altered the Fed’s policy priorities. Going forward, the Fed will re-emphasize its goal of minimizing unemployment rather than its second goal, controlling macro prices (e.g., inflation). The Fed stated that low unemployment would no longer be a sufficient reason to tighten monetary policy, in an attempt to head off expected inflationary trends. In a remarkably truthful statement, the Fed’s wizard vice-chair, Richard Clarida, stepped in front of the curtain to state that the Fed’s macroeconomic models that have predicted inflation would always rise significantly when maximum employment was reached were wrong.

Apparently, Senate leader Mitch McConnell didn’t get this Fed memo, as he’s staunchly refusing to re-vitalize expansionary fiscal expenditures – such as the former $600 unemployment supplement – to ease the lives of too many people, and reduce unemployment. Mitch dismisses the facts that unemployment is now 10.2% and folks are suffering.

For a long time, both the Fed’s goals were nominally given equal policy priority. This dual prioritization was essentially founded on the Phillips Curve. In case you’ve forgotten this slight theme presented in Econ 101, here’s a recap.

The Phillips Curve is named after Professor William Phillips, my favorite New Zealand economist. He gained my fancy in part because he’s the only economist I know of who was a crocodile-hunter in his youth. After fighting in Southern Asia during WWII, he headed for London and enrolled in the London School of Economics (LSE). At the LSE he became captivated by the then quite radical, newish view of macroeconomics created by John M. Keynes and became an academic economist.

In 1958 Professor Phillips published his seminal paper that described an inverse/indirect relationship between a nation's wage-inflation rate and the unemployment rate using early-20th century United Kingdom data. When either unemployment or inflation is low, the other is high, as illustrated below.

The Phillips Curve 

Source: Forex

When similar patterns of wage-inflation and unemployment were observed in other nations at the time, the Phillips Curve became accepted by both academics and policy-makers. If an economy was growing with lower unemployment (higher employment), the Phillips Curve posited that higher wages/inflation will happen. It displayed the short-run macroeconomic trade-off between a strong economy (lower unemployment) and higher inflation.

This relationship has not held in more recent times despite considerable efforts to defend the Philips Curve and its shape. Some macroeconomists have differentiated short-term versus long-term Phillips Curves, others have added inflationary expectations to no real avail. I’ve believed the Phillips Curve has been a chimera for quite some time. But the Congress and the Fed, as well as other nations’ legislatures and central banks, still use the explicit Phillips Curve’s inflation-unemployment relationship for justifying policy.

When inflation appears set to rise, the Fed has typically tightened the money supply (by increasing interest rates), generating a little more unemployment. When inflation is poised to fall, the Fed has done the opposite. The result is that unemployment edges up before inflation can, and goes down before inflation falls. Monetary policy (and to a much lesser extent fiscal policy) is changed so that inflation will not.

But inflation has appeared to be less sensitive to differing employment levels, as mentioned above. Inflationary pressures have been in a coma. This past February (a lifetime ago) when the macroeconomy was quite strong with very low 3.5% unemployment, the PCE inflation rate was a remarkably quiet 2.1%.

The Philips Curve has apparently flattened over the past decade, so that a given change in unemployment, due to variations in monetary and/or fiscal policy, has had a smaller effect on wages/inflation than previously. This change is the basis for the Fed’s recent prioritization of fighting unemployment with much less concern about eventual inflation.

Oh my, Professor Phillips, your curve has broken down and metamorphosed over time to be far flatter, in spite of some macroeconomists’ best efforts to explain this change and do something about it. The Fed is going to focus now principally on promoting employment, downplaying price-stability.

That’s perfect timing because we’ve been in a significant recession for at least five (5) months. The Fed’s Board of Governors now will “appreciate the benefits of a strong labor market, particularly for many in low- and moderate-income communities.” After this Spring, when the Fed began its sizeable efforts to reduce the pandemic’s recession, will inflation awaken from its long, Ambien-induced torpor? A pro pos of the well-known Niels Bohr quote, predicting inflation is very difficult, especially about the future. But it appears that most economists and market analysts, despite voluminous and contrary opinions, do not think noteworthy inflation is anywhere near imminent.

I think the recent flatness of the Phillips Curve has contributed to the rise and spread of progressively-liberal economists’ Modern Monetary Theory (MMT). A simplified tenant of MMT argues that countries which issue their own currencies, like the US does, can never “run out of money.” The federal government is not financially constrained in its ability to spend. MMT claims that the government can afford to buy anything that is for sale in its currency with minimal concerns of resultant inflation.

Ironically, when Dems come into full federal power on January 20, 2021 with enough of them subscribing to the flatter Phillips Curve and MMT, they could embrace the Repubs own de facto fiscal policy that has exploded the federal budget deficit with their specific, pet fiscal initiatives like giant tax cuts for corporations and for the bluest of the rich as well as ever-increasing defense expenditures, with no discernible rise in inflation.

By brandishing the Phillips Curve’s modern flatness, adopting MMT and pointing a fiscal mirror at #45’s and the Repubs’ massive deficit spending, progressive Dems could justify, with enough backbone, their own expensive, pet fiscal initiatives. Ones like the Green New Deal, government-guaranteed $15/hr jobs and Medicare for All. It could be the Dems’ way of stating, if you Repubs can do and have done it, we can too for far broader benefit.

In my mind, it all started with one clever, crocodile-hunting Kiwi economist.