Corporate profits as a percentage of GDP are at an all-time high. Commodities prices have decreased over the last two years, while price inflation remains mostly flat.
Economic study has taught me, and logic confirms, that consumer prices should be a function of labor costs, raw material costs, and profit margins. Labor costs may outweigh commodity inputs for many businesses, but it stands to reason that a change in any underlying cost could affect prices.
Stephen Colbert coined “truthiness” to convey weakness in the veracity of some assertions. We at AIER have coined the term “moneyness” meant to describe the potency that money exerts as it flows through the economy. Moneyness is a concept that helps us understand the ability of money to fuel the economy.
Headline inflation figures remained flat for November. But price pressures lurk underneath, awaiting a trigger.
The headline data again suggest next to no change in prices. November actually saw declines across several measures of inflation. A strengthening economy coupled with a sustained influx of money from the Fed has economists shrugging their shoulders and squawking, “Where’s the inflation?”
The towns and cities of the College Destinations Index return to pre-recession strengths.
As cities and towns recover from the recession, changes in economic activity have had an impact on their rankings in AIER’s 2013 College Destinations Index. Charlottesville, Va., for example, rose four spots among college towns, from 13th to ninth in its category. Albany, N.Y. jumped nine spots among small cities, from 21st to 12th. Los Angeles, surged from 15th in the rankings for major metros, to score the seventh spot on this year’s list. In contrast, Oklahoma City didn’t fare so well. It dropped nine places, from third to 12th, in the mid-size metro category.
Increased output, rising demand from a recovering economy, and the continued expansion of the money supply keep prices rising higher.
According to the official Bureau of Labor Statistics news release, the Consumer Prices Index (CPI) rose 0.2 percent in September (seasonally adjusted). What the report did not say is that while overall price levels rose 1.2 percent over the last 12 months, all of that increase was in the last five months. An increase of 1.2 percent in five months is very different from 1.2 percent in 12 months.
A slow inflationary trajectory emerges as the world economy revives, production ramps up, and confidence grows.
Over the last year or so, headline price numbers have been held in check by a weak U.S. economy, slower growth in China, and recession in Europe. However, we can no longer count on a worldwide weakness to limit inflationary pressures.
Transitory factors, such as the sputtering economy in late 2012, helped contain inflation. Now, GDP is back on track, setting the stage for more normal price increases.
July’s 0.2 percent increase in the Consumer Price Index for All Urban Consumers (CPI) reflects the continued healing of the United States economy following the tough economic challenges of the last nine months.
With an increase of 1.8 percent year-to-year, the U.S. Bureau of Labor Statistics’ most recent Consumer Price Index paints a picture of tame inflation. But that is more about where we’ve been than where we are going.
Prices are showing a lot of volatility, with a high variance across goods and wild period-to-period swings in the broad indices. (See chart below.) This is signaling a change in the inflationary environment.
When economics is living up to its promise as a science, economists collect data, run equations and come up with answers about what people in societies do with their real and financial resources. Based on these dispassionate findings, individuals make decisions, businesses develop plans, and governments form policies that effect millions of lives. But economics hasn’t always been so data-driven, and some economists have a different agenda. They cling to an older, nonscientific approach, driven by value-laden inquiries into what is best for society.
Using monetary policy to boost growth and employment worked. Then people caught on.
According to scientist and futurist Isaac Asimov, the most important thing that separates humans from other animals is not speech or the use of tools. It is that we are willing to play with fire. We are willing to take something that can cause us great pain, even death, and attempt to harness it.
All actors share the fault for the subprime lending crisis.
Kathleen C. Engel is the associate dean for intellectual life and professor of law at Suffolk University Law School in Boston. She is a national authority on mortgage finance and regulation, subprime and predatory lending, and housing discrimination. She also is the co-author of The Subprime Virus: Reckless Credit, Regulatory Failure and Next Steps, published by Oxford University Press in 2011.
This article is adapted for print from a talk Engel gave at AIER on June 21 as part of the Summer Fellowship Program. The presentation was moderated by Alan Chartock, president and CEO of WAMC Northeast Public Radio. It aired on the radio station, which broadcasts to seven states in the Northeast, at 90.3 FM and on the web at wamc.org.
Since 1935, AIER has spotted flaws in the program. A quick look at 77 years of commentary.
One of the facts of contemporary life is that Social Security is in crisis. Simply put, there’s not enough money to pay for all the benefits that have been promised. AIER has been there with a critical eye since the program’s inception during the Great Depression. In the pages that follow, we draw from our extensive writings on the subject.
President Franklin Roosevelt specifically argued against Social Security as a welfare system. The plan he described was for social insurance, designed to protect American workers against two specific, identifiable risks—disability and old age. Individuals paid for their own insurance.
The AIER-Beta Portfolio beats the market by minimizing risk and maximizing returns.
Ask the average investor what the perfect stock portfolio would look like, and you will get an answer something like this: In bull markets, the stocks should go up faster than the market. In bear markets, they should fall less than the market, not at all, or even go up in price.
Based on AIER’s study, the perfect portfolio just might be possible. The AIER-Beta Portfolio generated twice as high an annual average total return than the market, with relatively low volatility.
For more than 100 years, a stock trader’s maxim has been “don’t fight the market.” In bull markets most stocks rise, and in bear markets they fall.
Broad swings in the housing market are intrinsic, and cast doubts on the market as the engine of economic expansion.
Today housing is a market with a large number of buyers and sellers, acting on widely available information. People trade relatively frequently, and sometimes own more than one home. This is in contrast to past generations when people tended to buy or build a house and stay in it for the rest of their lives.
The change provides reason to expect that, like the stock market, the housing market would be relatively efficient. Efficiency implies that price changes are random, and that there are no discernible trends. No trends means no run-ups, no extended declines, and no bubbles.
Our new research shows that the housing market is not likely to recover until the unemployment rate improves.
In our study of 20 metropolitan areas for the years 1990-2009, we found that the linkage between the unemployment rate and housing market is more substantial than expected. Our analysis of the data shows that, on average, a decrease of 1 percentage point in the unemployment rate results in an increase of 3.7 percent in house prices. This suggests that the sluggishness of the housing market recovery is directly related to the slow improvement in unemployment.
Technology and globalization have restrained prices on big-ticket items. But they caused fewer price breaks for frequently purchased goods. Toothpaste ain’t so high-tech.
AIER developed the Everyday Price Index (EPI) to address the widespread perception that the Consumer Price Index (CPI) does not reflect the day-to-day experience of Americans. As we continue to study and refine the EPI, we find that the divergence between inflation measured by the CPI and an index that measures direct experience is mostly a product of 21st-century changes in the economy.
Most Americans in 2011 experienced a day-to-day inflation rate of 7.2 percent—more than two times the official estimate released by the Bureau of Labor Statistics.
This preliminary finding based on a price index with static weights comes from the Everyday Price Index (EPI). AIER developed the new proprietary index to measure the actual price experience of ordinary people.
Each summer a group of student fellows apply AIER’s brand of unbiased, independent research to contemporary economic questions.
AIER’s summer fellowship program is a pillar of the organization’s mission to inform and educate the public. Incoming and current graduate students in economics take courses taught by a wide range of respected scholars.
Lessons in sound money, methodology, and property rights reflect the Institute’s core values.
If implemented effectively, this preferential tax policy may help landowners remain in possession of their land.
With the exception of Michigan, every state in the U.S. has some version of a current use tax. This preferential tax policy is designed to allow landowners to maintain tax rates based on the use of the land in its current state, be it for agricultural use or as open space.
Landowners from all states are likely familiar with a property tax code that assesses the value of their land, in part, according to the potential or future value of the land.
Renewable Portfolio Standards require the electric power industry to include renewable sources of energy.
The United States’ dependence on energy imports of fossil fuels has resulted in political and economic insecurity, as well as the depletion of natural resources and increased pollution.
In 2009, fossil fuels accounted for 78.4 percent of the U.S. energy supply. Petroleum constituted 35.3 percent of the energy supply, while natural gas was 23.4 percent and coal was 19.7 percent. By contrast, nuclear power and renewable energy amounted to just 8.3 percent and 7.7 percent of the energy supply, respectively.
A water rights requirement popular in the West is meant to discourage wasteful use. But it doesn’t always work that way.
The water rights of much of the Western United States include a requirement of use it or lose it. Under this requirement, if an existing water right is not put to beneficial use for a period of years, that right will be forfeited and become available to other users (Huffaker 2005).
Use it or lose it is intended to discourage the wasteful use of water. In practice, it might do just the opposite.