Data

Price Level: Noise vs Signal

Zachary Bartsch1 Comment

My university recently hosted a guest speaker. Among their content, they included some nominal macroeconomic values from pre-2020, back in the era when inflation was very low. That roughly includes the years 2012-2019. Truly, inflation stayed below 2% through February of 2021, but I think that we can all agree that the economy was different in a few ways beginning in 2020.

I asked the speaker why not express the nominal values in real terms. They were emphatic that the low rates of inflation at the time implied that the signal-to-noise ratio was too low. Therefore, the ‘real’ inflation adjusted values would not be more precise because excessive noise would be introduced into the series during a period when not much deflating was necessary in the first place.

My answer to this is a firm ‘maybe’. It makes sense and it’s plausible (Jeremy has written about error and revisions in the past). We can think about the noise in price indices in a few ways.

1) It may be information is incomplete and becomes more complete as time passes. This sort of noise only exists in the short-run and is resolved as more information becomes available later in time. Revisions tend to happen each month for prior months, as well as each year for prior years. There are also big revisions after methodological, consumption weight, and data source changes.

2) Another type of noise is due to incomplete information that is never resolved. After all, the government statisticians can’t see literally all of the transactions. Those unobserved transactions will never make it into the official inflation measures and we’ll never get a perfect picture.  

3) Methodological artifacts may also include known biases. This type of noise doesn’t get corrected except after major changes to the series. If those changes never happen, then we just sort of live with imprecision. Luckily, so long as the bias is consistent, then percent change in the price indices will approximate the underlying true levels. However, if there are non-random biases in the percent change, then it can cause some trouble.

One way to get an idea for the amount of noise in the data is to observe the magnitude or revisions. Of course, this only helps us with the first type of noise above that eventually gets resolved with more information. It’s much harder to get a handle on the imprecision that is not identifiable. The Philadelphia Federal Reserve Bank provides an easy-to-use database that puts all of the archival and revised numbers for many macro series in a single place: the Real-Time Data Set (RTDS). It includes every historical PCE price index value for each publication month. Let’s limit our sample to the 21st century.

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Are Americans Thriving Under Trump? No, According to the Cost of Thriving Index

Jeremy HorpedahlLeave a comment

The Cost of Thriving Index from Oren Cass’s American Compass is an attempt to calculate how well US families are doing financially, but without using traditional inflation adjustments to income. Instead, Cass and crew have chosen 5 categories of goods and services, and tracked those over time relative to median earnings for men ages 25 and older (in the baseline model — it can also be applied to different categories of workers).

Scott Winship and I wrote a detailed critique of the COTI, which I summarized in a previous blog post. Our critique comes from several angles, including correcting several major errors in COTI, as well as arguing that standard inflation adjustments to median income are superior to this new approach.

Based on our critique, I don’t think COTI is a very good measure of how well US families are doing financially. But the COT Index still has many fans. And Cass seems to think Trump is in large part pursuing many policies that should help out US workers and families, such as Trump’s tariff policies. Thus, it will be useful to see if Trump’s policies are leading to American workers “thriving” in the first year of Trump’s presidency.

Unfortunately, even using Cass’s preferred approach, Americans don’t appear to be thriving under Trump.

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The United States Has A Progressive Tax System

Jeremy Horpedahl5 Comments

For Tax Day 2026, here are some estimates of how progressive the US tax system is, drawing primarily from published academic work. While there is disagreement about exactly how progressive the tax system is (and should be), these papers all agree that as income rises, average tax rates rise. These estimates attempt to include, as best as possible, all federal, state, and local taxes, and to take account of tax incidence.

From Auten and Splinter in the Journal of Political Economy:

Piketty, Saez, and Zucman in the Quarterly Journal of Economics (Figure IX):

And here is a chart that I created, which comes from the appendix data for PSZ (2018), which is roughly comparable to the Auten-Splinter chart above. Note that it isn’t perfectly comparable: the income groups on the x-axis aren’t exactly the same, and the latest year in PSZ is 2014 rather than 2019 (they do have estimates for later years in updates to the work, but I am trying to stick with the published academic work). But they are roughly comparable:

Auerbach, Kotlikoff, and Koehler in the Journal of Political Economy take the additional step of computing lifetime average tax rates, rather than for a single year, showing the US tax system is even more progressive when considered this way. Note: they also include the value of transfers, which makes these results not directly comparable to the papers above:

Finally, here are two estimates from think tanks that work on tax policy. Even though the Tax Foundation is considered more right-leaning and ITEP is considered more left-leaning, both agree that the overall US tax code is progressive.

A Canticle for Aadam Jacobs

mdmakowsky2 Comments

For the talk of the future of generating art, let’s not forget the task of remembering the art we’ve already made. Behold: more than 10,000 cassette recorded concerts, from as far back as 1984, recorded in community centers, church basements, taverns, all-ages clubs, and hundreds of other unsung “venue” owners who let then (and often always) unknown bands play shows for a a couple dozen attendees, all in the hopes that door money and beverages might keep the owner out of the red on a random weeknight while.

I have a couple bootlegs from concerts I attended, but it never occurred to me that I might get to listen to a 1995 Blonde Redhead show at The Empty Bottle or The Blow Pops playing 1991 show at a Milwaukee spot I’ve never heard of. These shows have always had an ephemeral quality to them, existing far more in the stories of those who claimed to be there that night than the actual direct artistic footprint.

But maybe not. Maybe the internet can and does, in fact, remember. Because while there is a lot to be absorbed from the finished product, but there is often so much more learn from the imperfect and unpolished early stages. A band before they slowed down or ventured beyond their first 3 chords, a writer still stuck in the first person, a disseratation chapter still haunted by the writing of the insecure graduate student we all were. The awkard phases when an artist (or artists) are still finding their voice. Perhaps, more than ever, we need to remember the importance of not skipping over the embarassing, exhausting, and, yes, often futile work at the beginning and middle. There are more shortcuts than ever to making a thing, but no shortcut to becoming the version of yourself that can make the thing that only you can make.

Hungary is A Free Trading Nation Relative to the US

Jeremy HorpedahlLeave a comment

Vice President Vance’s recent trip to Hungary to stump for Viktor Orban was interesting for a number of reasons, but is not totally surprising. In many ways Orban’s “illiberal democracy” (his self-applied term) has many overlaps with MAGA Republican policy. Johan Norberg recently wrote a very good critique of Orban’s policies, and why the US should not follow further down the path or Orbanism.

I agree completely with Norberg’s analysis completely, though his focus is mostly on the decline in democracy, the rule of law, and personal freedoms in Hungary under Orban. Norberg does have several criticisms of Orban’s economic policies, but on the whole economic policy under Orban has been relatively unchanged: in the Human Freedom Index report Norberg cites, the “personal freedom” portion of the index declined 1.5 points on a 10-point scale under Orban, while the “economic freedom” portion only declined by 0.3 points.

What’s really interesting is that within the Economic Freedom of the World Index, Hungary’s highest scoring area of the five areas is “freedom to trade internationally,” where they ranked the 25th best country in the world in 2023. While MAGA Republicans might like the US to copy many of Hungary’s policies, they clearly do not in this case, as trade restrictions one of the signature economic policies of Trump (possibly his most important economic policy).

To be clear, the high ranking on free trade in Hungary is not due to any conscious policy choice of Orban’s administration. Instead, it is because Hungary is a member of the European Union, and therefore is part of the single market (meaning they have free trade with most of their trading partners) and part of the customs union (meaning they can’t set their own external trade policy). Indeed, it appears if Orban had his way, they would have much less free trade, as he is trying to hold up the EU-Mercosur trade agreement. Nonetheless, Orban’s hands are largely tied on trade policy.

Not only was Hungary ranked quite high on free trade in 2023, they were ranked higher than the US, as they have been for most of the past decade:

While the EFW data is generally only available with a significant lag, and therefore only through 2023 in the chart above, they did provide a special update for the US in mid-2025, given the radical changes in trade policies by the second Trump administration. That’s the blue dot you see floating down below with a score of 7.4. While that isn’t the final ranking for 2025 (they still don’t have the scores for 2024!), it gives an indication of roughly where the US will land in 2025, making it much less free trading than Hungary.

The EFW Area 4 score includes not just tariff rates, but also non-tariff barriers to trade, as well as capital controls and labor movement. What if we only focus on the tariff sub-score, since this is the part of trade policy Trump has altered the most?

On tariff policy alone, there wasn’t much difference between the US and Hungary in 2023 (indeed, if we look solely at tariff rates, the US was slightly better, with an average rate of 3.3% compared with 5.0% in Hungary). But with the radical change in rates in 2025, Fraser estimates that the US will drop significantly, giving it one of the highest average tariff rates in the world. This would be a massive difference between Hungary and the US on trade policy. We’ll have to wait for the complete data before making a final judgement, and indeed given that average tariff rates have changed more than 50 times under the second Trump administration already, it’s not even clear what our score will be for 2025. But it will almost certainly be worse than Hungary.

An Expensive Easter

Zachary Bartsch2 Comments

Americans like their food. Holidays are often known by the dishes that we serve. Thanksgiving is a bit unique in that most of us converge on turkey, though diversity obviously exists. What about Easter? There’s not really the same focus on a single food like there is for Thanksgiving. My impression is that people eat daytime or lunch foods that include ham, lamb, or just about anything. My family tends to make tacos.

What am I saying?! We eat candy! Solid or hollow chocolate bunnies, jellybeans, peeps, and on and on. We fill Easter eggs and keep candy around the office. We literally have baskets full of candy.

A Chocolate Bunny? In this economy?

Have you seen the price of chocolate? Yeesh! The latest figures are from February and the prices for chocolate and cocoa bean products are down 11.7%  year-over-year. That’s nice, you may think, our budgets can fit a bit more chocolate into our consumer – I mean Easter – baskets. Great news. The news seems a little less great when you realize that February’s price of chocolate was 90% higher than it was four years earlier in 2022. 90% higher is a lot like 100%, and 100% is double! In fact, the price had peaked at 142% higher by September of 2025, and now prices are quickly falling. See the chocolate-colored line in the graph below.

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How Much To Trust Research Papers? My Rules Of Thumb

James Bailey1 Comment
  1. Trust literatures over single papers
  2. Common sense and Bayes’ Rule agree: extraordinary claims require extraordinary evidence
  3. Trust more when papers publicly share their data and code
  4. Trust higher-ranked journals more up to the level of top subfields (e.g. Journal of Health Economics, Journal of Labor Economics), but top general-interest journals can be prone to relaxing standards for sensationalist or ideologically favored claims (e.g. The Lancet, PNAS, Science/Nature when covering social science)
  5. More recent is better for empirical papers, data and methods have tended to improve with time
  6. Overall effects are more trustworthy than interaction or subgroup effects, the latter two are easier to p-hack and necessarily have lower statistical power
  7. Trust large experiments most, then quasi-experiments, then small experiments, then traditional regression (add some controls and hope for the best)
  8. The real effect size is half what the paper claims

That last is inspired by a special issue of Nature out today on the replicability of social science research. An exception to rule #4, this is an excellent project I will write more about soon.

Real Wages Today are Much Higher Than 1894, But Are Workers Still Getting Squeezed by Rent?

Jeremy Horpedahl4 Comments

A recent viral Tweet shares a political cartoon from 1894, which shows a worker being squeezed by high rents and low wages. The Tweet claims “the problem has only gotten worse.”

Can this be true? Are workers today actually worse off than they were in 1894? At first blush, this seems obviously wrong. Here is a chart I created showing real (inflation-adjusted) wages since 1894. They are eight times higher today (I have combined two wage series and two price indices, so don’t take this as being perfect, but roughly accurate).

Figure 1

Whatever concerns we might have about high rents today, there must have been some other major improvements in the cost of living relative to wage increases since 1894, given that one hour of work can purchase about 8 times as many real goods and services today.

But is there a narrower case for the cartoon? What if we only focus on wages? We can do this by using a great new resource from the Philadelphia Fed, which provides some long-run data on housing prices in the US, for both purchasing a home and renters. The data series conveniently goes all the way back to 1890, so we can make the comparison with 1894 using the nominal rent index (it ends in 2006, but we can merge it with the modern CPI for rental housing). What if we compare this rental price series to the same wage series I used in the chart above?

Figure 2

The trend in this second chart is very troubling. Rents have increased much faster than nominal wages. While other goods and services may be more affordable, rents — which consume around 24 percent of household income for renters — are rising relative to wages. Sure, we can talk all day about how the quality has improved — larger apartments, indoor plumbing, modern safety features that didn’t exist in 1894 — yet still, renters can only rent what is available. And today rental housing is much more expensive than on April 1, 1894.

APRIL FOOLS!

The data was all correct, other than the fact that I tricked you by swapping the wage and rent lines. Wages have actually increased much faster than rents since 1894 (though they have increased roughly equal rates in recent decades). Sorry for that little trick, I’m a little surprised no one noticed. Perhaps I am just too well-known for being a straight shooter with data. Here is the real chart:

Average Wealth for Younger Generations Continues To Exceed Past Generations

Jeremy Horpedahl1 Comment

Today I am posting an update to the generational wealth chart that I have posted many times in the past. This update brings the data through the 3rd quarter of 2025 for the youngest cohort, which includes both Millennials and a growing part of Gen Z in the data from the Federal Reserve. I am somehow hesitant to post this chart, as it is starting to be data that is less useful as the younger generations age, for two reasons.

The first problem with the data is that the Fed is lumping everyone from ages 18-43 together as one generation. Given that the youngest Millennials were 29 in 2025, we are now including a significant part of Gen Z, which is OK in itself, but it becomes harder to compare with generations that encompass only 16 or 17 years of birth cohorts. Secondly, the data from the Fed’s Distributional Financial Accounts is only benchmarked every three years with the Fed’s more detailed Survey of Consumer Finances. Currently only the 2022 version of the survey is available, which is now probably a bit out of date. Based on past updates, it is entirely possible that it is underestimating wealth for the youngest cohort. But I think we will have much more certainty about this data once the 2025 SCF is available and used as a benchmark for the DFA data.

With all of those caveats aside, here is the updated chart:

As I am currently working on a book manuscript using the Survey of Consumer Finances, I will be very excited to finally have the 2025 data available. Until then, this is probably the best intergenerational comparison we can do, and it continues to look very positive for the youngest cohorts. With an average of almost $146,000 of wealth for the combined Millennial/Gen Z cohort, they are well ahead of where Gen X was even in their late 30s, and ahead of Boomers at around age 37 as well. All of this bodes well for young people, despite frequent expressions of pessimism, but we should hold off judgement until the 2025 data is fully updated.

What is an AI Skill?

Zachary BartschLeave a comment

If you’ve been on LinkedIn recently, then you may have seen the chatter about teaching your artificial intelligence to have various skills. I saw one post by a guy who claimed to have created several skills, each representing a tech billionaire.

At first, I thought “I am behind the 8-ball. What is this new thing?”. Obviously I know what the word “skill” is and how people use it, but I had not encountered its use in the context of AI having it. What does it mean for an AI to have a skill? I somewhat dreaded the the work of learning the new skill of teaching my AI skills.

Then I had lunch with a computer scientist and I learned that skills are nothing new.

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