Dehomogenizing deflation

From Selgin, Lastrapes, and White:

The postwar eradication of deflation would count among the Fed’s achievements were deflation always a bad thing. But is it? Many economists appear to assume so. But a contrasting view, supported by a number of recent studies, holds that deflation may be either harmful or benign depending on its underlying cause. Harmful deflation—the sort that goes hand-in-hand with depression—results from a contraction in overall spending or aggregate demand for goods in a world of sticky prices. As people try to rebuild their money balances they spend less of their income on goods. Slack demand gives rise to unsold inventories, discouraging production as it depresses equilibrium prices. Benign deflation, by contrast, is driven by improvements in aggregate supply—that is, by general reductions in unit production costs—which allow more goods to be produced from any given quantity of factors and which are therefore much more likely to be quickly and fully reflected in corresponding adjustments to actual (and not just equilibrium) prices.

Historically, benign deflation has been the far more common type.

In other words, not all falls in the price level are bad. When prices fall because of improvements in productive technologies, for example, that’s good. That’s the point of growth. That is growth.

Falling LFPR isn’t a huge deal

LFPR is low. That’s all over the news these days. Mostly just conservative pundits trying to downplay the economic recovery.

Now, there are good reasons to downplay the recovery. Zero percent interest rates for 80+ months with no end in sight—that’s a much better reason.

But that aside, the low (and even falling) LFPR alone just isn’t evidence of poor recovery. LFPR, as I’ve explained before, is sensitive to demographic shifts that don’t necessarily correlate with any economic trends in particular. Theoretically, a low LFPR is a long-term economic goal—more wealth means fewer people (especially 18-24 and 55+ year olds) need to work in order to maintain a certain quality of life. Stay in school longer, retire earlier, go fishing, chill-out, etc.

For example, the percentage of 16-24 year olds as part of the workforce has fallen since 1990, as college becomes attainable for more people. That’s good. The LFPR also fell dramatically over the past several hundred years, as capital accumulation made it possible for people to actually quit working when they get old, or to put off work until adulthood. Again, that’s good.

Also, LFPR fell almost every year from 1956 to 1964, during which time GDP grew by more than 50 percent. That’s really good.

So don’t worry too much about LFPR—at least not in the way pundits want you to worry. Vox has a good, well-balanced perspective.

In general, one index or metric never tells the whole story. Look for trends and patterns. Ignore the hiccups. Be generally optimistic.

Faithful presence (anti-“culture war”)

From James Davison Hunter:

Christians need to abandon talk about ‘redeeming the culture’, ‘advancing the kingdom’, and ‘changing the world’. Such talk carries too much weight, implying conquest and domination. If there is a possibility for human flourishing in our world, it does not begin when we win the culture wars but when God’s word of love becomes flesh in us, reaching every sphere of social life. When faithful presence existed in church history, it manifested itself in the creation of hospitals and the flourishing of art, the best scholarship, the most profound and world-changing kind of service and care – again, not only for the household of faith but for everyone. Faithful presence isn’t new; it’s just something we need to recover.

Is this why we’re fat?

The Atlantic today on why it was easier to be skinny in the 1980s:

They found a very surprising correlation: A given person, in 2006, eating the same amount of calories, taking in the same quantities of macronutrients like protein and fat, and exercising the same amount as a person of the same age did in 1988 would have a BMI that was about 2.3 points higher. In other words, people today are about 10 percent heavier than people were in the 1980s, even if they follow the exact same diet and exercise plans.

The piece goes on to explore three possible reasons for this: chemical exposure and its effect on hormonal processes, use of prescription drugs tied to weight gain, and excessive meat consumption that alters “gut bacteria” in ways that add up slowly over time.