Saturday, July 26, 2014

Is the Fed Contributing to a Stock Market Bubble?

Former student PA brought this article from The Motley Fool to my attention: “Is the Federal Reserve Fueling the Greatest Stock Market Bubble In History?

The conclusion of the article is that no it isn’t, mainly because the author doesn’t consider us to be in a bubble. I’d agree with that.

But, here’s some thoughts about the rest of the article:

  1. The chart stinks: the data a) isn’t logged or b) the vertical axis isn't log scale, or c) reported as growth rates. A stock index can reasonably be expected to grow through compounding. I would be immediately suspicious of anyone presenting a position that doesn't do that (although I will cut people some slack because many people aren't aware they should do that).
  2. Other issues with the chart: a) the S&P has been around for a long time — what position is being pushed by focusing on only its recent behavior, b) the vertical scale does not have a zero even though the S&P is ratio data, c) red explosion graphics — spare me, d) compared to what — why is this bad, is it worse than some other investment?
  3. Do bubbles happen? Yes. Should we worry about them? Yes. Can anyone predict them? Not really ... if you check their records.
  4. Can the Fed cause bubbles through monetary policy? Hmmm. The jury is still out on that, and we've done a lot of research on this over the last 40 years. Does the Fed get blamed anyway? Yes.
  5. The whole part about low interest rates leading to rational price inflation rather than an irrational bubbles is spot on.

In sum, I think the presentation of the article is overwrought, but the conclusion is OK.

Saturday, July 12, 2014

GDPNow

GDPNow is the new thing from the economic forecasters at the Federal Reserve Bank of Atlanta. It’s a real time forecast of real GDP that’s continuously updated (well, as continuously as new data announcements … so pretty much daily).

This gives it a big lead time over — several weeks — over the federal government, whose preliminary estimate comes out 4 weeks after the end of the quarter.

Here’s the forecast for 2014 II as of July 10:

Evolution of Atlanta Fed GDPNow Real GDP Forecast

It’s still 3 weeks until the official number comes out.

Baby Boom Population Cohorts

This is somewhat different than some of my other posts about demographics and labor force participation. This merely shows the population of people with the same age.

But … you can distinctly see that the baby boomers … the generation that started being the major support for the economy in the 70’s is starting peaked out half-way through the Bush administration.

Friday, July 11, 2014

Fascinating Infographic for Students (Not Required)

The possibilities from this are astounding.

The infographic on this site (it’s interactive so you must click through) allows you to:

  • Select a state (or the whole country).

What shows up is a rectangle, divided into smaller rectangles, divided into even smaller rectangles. The area of the rectangles corresponds to the proportion of people working in a particular job description in that state.

Then you can:

  • Choose a point on the income slider

The graphic then shades only the rectangles of those professions where median income is higher than what you selected.

Then:

  • Mouseover any rectangle to get the both the median salary for that profession, and the number of people working in that profession in the state.

Most of you are young enough to have a good deal of control of where you end up. Dovetail this with the recent publication indicating that the current income required for “The American Dream” is about $130K per year. The number of professions in Utah that make that possible on one income is very small; the number of professions that can get you half of that (so your spouse can pick up the other half) is still pretty small.

Thursday, July 10, 2014

Economics of the Undead

On sale, starting tomorrow:

Chapter 6, entitled “What Happens Next? Endgames of a Zombie Apocalypse” is by myself, my wife Mary Jo Tufte, and SUU’s internationally known pop culture expert Kyle Bishop. Click here for an excerpt.

The book also has a website with a course guide and blog.

Wednesday, July 9, 2014

Three Variations on Quotes About Micro and Macro

  • From the LSE’s orientation video: “Macroeconomics has all the interesting questions, but no real answers. Microeconomics has all the answers but no interesting questions.”
  • Zach Weiner: “Microeconomics successfully describes situations that never occur. Macroeconomics unsuccessfully describes situations that occur constantly.”
  • Kevin Grier: “Micro has right answers to the wrong questions, while Macro has wrong answers to the right questions.”

Thinking About Graduate School?

FYI: The Complete Guide to Getting Into an Economics Ph.D. Program (or Finance for that matter).