5 min read

What's really happening to inflation?

What's really happening to inflation?

1—What's really happening to inflation?

Writing in the NYT, economist Paul Krugman trawled through the components of the US consumer price index to conclude:

"...that official measures of inflation, while well designed for their original purpose — measuring the cost of living — are ill suited to the policy question of the moment, which is how much the Fed needs to raise interest rates".

Krugman's takeaway was that while he's "reasonably sure that the economy is indeed running too hot", he's "much less clear about whether the Fed needs to keep raising rates".

Another prominent economist, Larry Summers, took issue to that analysis:

"Paul Krugman would be more convincing if he had focused on the housing distortion when it was holding overall inflation down in 2021. He would be more credible if he acknowledged that new rental price inflation of his cited measure (Zillow) is still running at 6 percent.

He would also be more credible if he pointed out that lags apart there was a large gap between the level of residential prices measured by the private sector and government. These have historically moved together, and I’d guess the official indices will catch up.
Paul focuses on average hourly earnings in the employment survey. He neglects to point out that it is badly flawed by composition effects. Nor does he observe that better indices like the Wage Growth Tracker and the ECI suggest a much less benign picture of wage inflation.

Having stressed the distinction between new and continuing prices in the context of housing where it works to allay inflation concerns, Paul neglects it in the context of wage inflation."

Lies, damned lies, and statistics. Summers concludes that he doesn't understand how Krugman can believe inflation will come down "without a meaningful recession". Make up your own mind by reading Krugman's NYT article here (~5 minute read) and Summers' response here (~4 minute read).

2—Marketing fluff

Meta's share price is down 65% from its peak last year, which was shortly before it changed its name from Facebook "to signal that the company was branching out and was linked to more than one product".

That may not have been the best move:

"Mark Zuckerberg's foray into the metaverse has exhibited a growing number of warning signs in recent weeks.

Zuckerberg should pause, reflect, and ask himself one important question: When is enough, enough?

The Meta CEO said last year, when he changed the company's name from Facebook, that the metaverse would be "mainstream" in five to 10 years. But the future of his company is being put to the test right here and now, while costly initiatives appear to be generating a resounding "meh" from the public."

That's from Travis Clark who goes on to highlight the "severe roadblocks" Meta has hit "in a fairly short amount of time". Its flagship Horizon Worlds, powered by the expensive Quest 2 VR headset with a battery life of just 2-3 hours, continues to miss targets:

  • Horizon has 200,000 monthly active users, below the 280,000 Meta intended by the end of the year (and this was after the company lowered its projection from 500,000).
  • 9% of the worlds built on the platform are only ever visited by 50 users. Most don't get any visitors at all.
  • Most users abandon the platform in the first month, and over half of headsets are out of use within six months.

Development is slow despite $15 billion in funding:

"Meta paused rolling out new features for Horizon last month, WSJ reported, due to user complaints, such as lack of others to interact with and harassment.
Even buzzy announcements like Mark Zuckerberg's new virtual legs turned out to be marketing fluff showing what the company wants to make, and not an actual working feature."

You can read Clark's full article here (~3 minute read), which concludes:

"How many more warning signs does Zuckerberg need to see? How long is too long to keep pouring money into an endeavour that has few tangible results so far?

And lastly, at what point do you re-evaluate the mission?"

3—A sign of the times

File this one under "bad for humanity".

4—Mad scientists

The pandemic might be over but that hasn't stopped scientists trying to create another one:

"We generated chimeric recombinant SARS-CoV-2 encoding the S gene of Omicron in the backbone of an ancestral SARS-CoV-2 isolate and compared this virus with the naturally circulating Omicron variant... while Omicron causes mild, non-fatal infection, the Omicron S-carrying virus inflicts severe disease with a mortality rate of 80%."

That's from a new Boston University study, where researchers performed so-called 'gain of function' experiments on the Omicron variant to allow it to completely bypass vaccines and become much more deadly.

According to Alex Tabarrok, the researchers – working with a US government grant – didn't even have to pass a review that's supposed to be required for any work on 'a credible source of a potential future human pandemic'.

The next pandemic, coming soon from a lab near you. You can read Tabarrok's full summary of the "irresponsible" work here (~2 minute read).

5—Further reading...

🏡 "In the medium run, fewer trips [due to work from home] lead to the choice of less fuel-efficient vehicles. In the long run, lower annual driving costs to the city centre additionally lead households to change their location toward longer commuting trips, but cheaper housing, implying an adjustment in the real-estate market. These changes in vehicle choice and the urban form largely eliminate the initial environmental benefits."

🕵️‍♀️ The FBI raided the home of Emmy-winning producer James Gordon Meek in April and he hasn't been seen since.

💉 The Oxford team that created the AstraZeneca COVID-19 vaccine is "just a year or two away" from releasing a malaria vaccine "which has shown an efficacy of up to 80 percent in clinical trials".

📉 "A demographic reckoning has arrived for Russia, its economy starved of young employees and now at risk of stagnation or worse long after the war is over. Bloomberg Economics now estimates Russia’s potential growth rate at 0.5%, down two percentage points from before the war — with demographics accounting for about a quarter of the downgrade."

💸 The RBA made the same mistake and will also need to be recapitalised: "The UK Treasury is set to transfer more than £11 billion to the Bank of England to cover projected losses in its bond-buying program."

♟️ "Chess grandmaster Hans Niemann filed a $100 million lawsuit against world champion Magnus Carlsen and others for claims that Niemann cheated in competition."

🚪 "Liz Truss has resigned as prime minister after 45 days in office marked by turmoil, triggering the second Tory leadership election in four months."