I’ve written about government spending before. But not all spending is the same. Building a bridge, buying a stapler, and taking from Peter to pay Paul are all different types of spending. I want to illustrate that last category. Anytime that the government gives money to someone without purchasing a good or service or making an interest payment, it’s called a ‘transfer’. People get excited about transfers. Social security is a transfer and so is unemployment insurance benefits. Those nice covid checks? Also transfers.
Here I’ll focus on Federal transfers, though the data on all transfers is very similar if you include states in the analysis. Let’s start with the raw numbers. Below is data on GDP, Federal spending, and federal transfers. Suffice it to say that they are bigger than they used to be. They’ve all been growing geometrically and they all exhibit bumps near recessions.
Despite recent increases in prices of food, we should still all be very thankful this Thanksgiving for the abundance of affordable food available in the modern world. Looking back at my past few blog posts, I notice that I have been very food-centric in my choice of topics! And last week I also showed how the Thanksgiving meal this year will be the second cheapest ever (only behind 2019). While it’s absolutely true that food prices are up a lot in the past 2 and 4 years, they probably aren’t up as much as you have heard.
It’s always my preference to take as long-term perspective as possible when thinking about economic progress. So here’s the best way I’ve come up with to show how cheap and abundant food is today: food as a share of household spending fell dramatically in the 20th century.
Most of the data in this chart comes from the BLS Consumer Expenditure Surveys. This survey was done occasionally since 1901, and then annually since 1984. I also use BEA data to estimate personal taxes paid as a percent of spending (the CEX Surveys have some tax data, but it’s not reliable nor consistent). I picked as close to 30-year intervals as I could (with a preference for showing the earliest and latest years available), and I chose spending categories that are 90-100% of total expenditures in most of these years. Keep in mind also that these are consumer expenditures. As a nation, we spend a lot more on healthcare and education than this chart suggests, but most of that spending is not directly from households (of course, it is indirectly). Think of this chart as an average household budget.
I hope the thing that jumps out at you is that the amount money households spend on food has fallen dramatically since 1901, from over 42 percent to under 13 percent of household expenditures. To be clear, this data includes both spending on food at home and at restaurants (after 1984 we can track them separately, and groceries are pretty consistently about 60 percent of food spending). And you may be wondering about very recent trends too, such as before the pandemic. In 2022, household spent slightly less on food than they did in 2019, falling from 13.5 to 12.8%.
You may also notice that taxes have increased, though not much since 1960. Housing cost have been consistently high, and also a bit higher than 1990, going from 27 percent to 33 percent in 2022. And housing is now the single largest budget expenditure category, but for most of the first half of the 20th century, it was food that was the largest. And since people aren’t changing their housing situation more than once a year (if that), it would also have been food that dominated weekly and monthly budget decisions and worry about price fluctuations.
This year there will be lots of complaining about prices around the Thanksgiving table. And much of that is warranted! But let’s also be thankful on this food-intensive holiday for how cheap the food is.
And if some smart-aleck youngster tries to tell you that they learned on TikTok that things were better during the Great Depression (yes, people are really saying this!), have them watch this video by Christopher Clarke. Or show them that in the mid-1930s an average family spent one-third of their budget on food in my chart above, or how much labor it would have taken to buy that turkey in the 1930s (about 40 times as much time spent working as today).
I keep reading and hearing people who are waiting for the shoe to drop on the next recession. They see high interest rates and… well, that’s what they see. Employment is ok and NGDP is chugging along.
One indicator of economic trouble is the delinquency rate on debt. That’s exactly what we would expect if people lose their job or discover that they are financially overextended. They’d fail to meet their debt obligations. But the broad measure of commercial bank loans is quiet. Not only is it quiet, it’s near historic lows in the data at only 1.25% in 2023Q2. Banks can lend with a confidence like never before.
But maybe that overall delinquency rate is obscuring some compositional items. After all, we know that many recessions begin with real-estate slowdowns. Below are the rates for commercial non-farmland loans, farmland loans, and residential mortgages. All are near historical lows, though there are hints that they’re might be on the rise. But one quarter doesn’t a recession make. I won’t show the graph for the sake of space, but all business loan delinquency rates have also been practically flat for the past five years.
The RWI − Leibniz Institute for Economic Research has funding for researchers to replicate papers in development economics:
RWI invites applications for several positions of Replicator on a self-employed basis to conduct a robustness replication of a published microeconomic study in the field of Development Economics. The successful applicant will work with us on the project “Robustness and Replicability in Economics (R2E)”, funded by the German Science Foundation (DFG) Priority Programme “Meta-Rep”….
The ultimate goal is to contribute to the ongoing debate about replicability and replication rates in eco- nomics. We collaborate closely with the Institute for Replication (I4R). All robustness replications will contribute to a meta-paper summarizing the collective findings. We plan to publish this meta-paper by the end of 2024, and all replication fellows will be co-authors….
The position starts as soon as possible and is limited to six months. The work can be done fully remotely. The applicant will receive compensation of 2,500 € gross in total, possible distributed in installments based upon predetermined deliverables. Additionally, replication fellows will be listed as co-authors on the meta-paper. At the conclusion of the project, it is foreseen to gather all fellows for a final workshop at RWI in Essen, Germany.
I don’t know the team here but I’m alwayshappy to see more attempts to make economic research more reliable. The funding and the planned publication make this potentially a good deal for applied microeconomists, especially grad students. Full details are here (warning: PDF).
Last week I gave some advice on how to save money on food. Food prices are up a lot in the past 4 years, but especially since the beginning of 2021. Over the 32 months since January 2021, grocery prices (according to the CPI) are up 20 percent (keep that number in mind). To give you an idea of how unusual that is, in the 32 months before the pandemic (up to January 2020), grocery prices only rose 2 percent. Perhaps even more astonishingly, if we look at October 2019 grocery prices, they were slightly lower on average than 4 years earlier in October 2015. From a flat 4 years to a 25 percent increase over the next 4 years. That’s a huge change for consumers.
But we also shouldn’t overstate the price increases. As you might guess, the best place for overstatements is social media. You can find plenty of them. For example, this very viral video claims that her family’s grocery prices doubled (in fact, almost exactly doubled, to the penny, which is suspicious) in just one single year, from August 2021 to August 2022. According to the CPI data, grocery prices were up 13.5 percent over that period — which, don’t get me wrong, is a lot! But it’s not 100 percent. I’ll focus on this one example, but I’m sure you will believe me that you can find dozens of examples like this on social media every single day (for example, yesterday someone claimed bread prices had tripled since 2019).
Let’s leave aside for a moment that in that viral video she claims to spend $1,500 per month on groceries. This would be a massive outlier for 2022. A family in the middle income quintile spent $460 per month on groceries in 2022, and $713 on all food including restaurants. So even if this family eats every single meal at home, they are still spending twice as much as a middle income family. Even a family with 5 or more people (the largest bucket BLS uses in that report) spent $755 per month on groceries ($1,232 on all food). According to the Consumer Expenditure survey, the middle quintile grocery spending went up 16%, and the five-person household went up 19% from 2021 to 2022. Big increases, no doubt! But not 100%.
So who are we to believe? Have prices roughly doubled since 2021? Or are they up about 20 percent? People are sometimes skeptical of the consumer price index, so let’s look at the actual price data that goes into the index. BLS has data on hundreds of individual food items, but here’s a summary chart with eight common food items. Here’s the change in the prices of those items since January 2021:
It’s the time of the year when we share ideas for things to buy, possibly as Christmas or other holiday gifts. But I’m going to share with you not a specific thing to buy, but instead a method for buying things. And probably not the kind of thing you might think of sticking in a wrapped present: food.
We’ve all heard about and felt inflation lately. But food prices have been especially noticeable to consumer, and not just because it’s a product you frequently buy and probably know the price of many food items. Food prices, both at home and restaurants, have increased much more than the average price levels.
On average, prices are up about 20 percent in the US over the past 4 years. But food prices are up about 25 percent, on average.
Wages (the purple line) actually have increase faster than the general price level over the past 4 years — that may shock you given what we constantly hear in the traditional and social media about “price increases outpacing wage gains” — but it is true when we are talking about food. Your dollar doesn’t go quite as far as it used to for food.
In some sense these costs are hard to avoid: food is a necessity. But there are ways to reduce your costs, and you probably know the general tips. Eat less at restaurants. Buy generic. Buy in bulk. Etc. These are good tips, but they all involve some sacrifice or annoyance. Is there anything else a consumer can do?
Yes. Here’s a few tips that can save you money, without the sacrifice. There is some thought involved, and perhaps a slight annoyance, but I’ve found that once you get in these habits, the mental and time cost is pretty low.
1. RESTAURANT APPS
You should always be ordering your food through restaurant apps when possible, especially for fast food. I try to track limited good deals on Twitter, but most restaurants offer on-going good deals. For example, McDonalds usually has a 20% off coupon, just for using the app. Taco Bell has a $6 box you can build, which would cost around $10 to order as a combo or à la carte at the restaurant. That’s a 40% discount for using the app.
Using apps also means you are using the restaurant’s rewards programs. Valuations vary, but McDonald’s rewards are roughly worth 10% cash back.
2. CHASE THE SALES AT GROCERY STORES
Clipping coupons is the classic way of saving money at the grocery store (we even have reality shows about it), but in the modern world grocery stores have expanded the ways to effectively save the same amount of money. The clearest example is, once again, the rise of apps. Stores will often have “digital only” coupons that you need to access through their app (which is also tied to your rewards account, just like restaurants).
While I’m a strong advocate of coupon clipping (and the virtual equivalent), it can be time consuming. Another strategy that can save you is thinking ahead about seasonal and other cyclical prices. For example, my kids like M&M’s. We usually buy a bulk 62-ounce container at Sam’s Club (already a savings), but today I took the additional saving step of buying the Halloween-themed bulk container. It was 36 percent less than the identical Christmas-themed M&M’s container right next to it. And I was replacing the Easter-themed bulk container that we purchased back in April, and they just finished.
Of course, I had to be planning ahead and know that November 1st was a great day to buy M&M’s. That takes some mental effort, sure. And you might think these kinds of deals are fairly limited in nature. But holidays aren’t the only kind of seasonal deals. For example, even though most fruit is generally available year-round now, there are still predictable price cycles of when things are “in season” and when they have to be imported from expensive locations. Even if you are only able to find these cyclical deals for 10 percent of your purchases, saving 30-50% on cyclical goods will shave another 3-5% off your grocery bill — bringing it closer in line to the average increase in prices (and wages).
3. CASH BACK CREDIT CARDS
I could write an entire post about credit card rewards. But let me focus here on credit cards that are especially good for buying food. At a minimum you should be getting 2 percent back on all of your purchases, as there are several no-annual-fee cards that give you 2 percent: the Citi Double Cash and Wells Fargo Active Cash are good examples.
But on food purchases, you should be able to beat 2 percent. For example, the Citi Custom Cash card gives you 5 percent back on your top spending category each month, up to $500 of spending. This can be on either groceries or restaurants. And since a family in the median quintile spends $250 at restaurants and $460 on groceries per month, you should be getting 5 percent back on basically all of your purchases in one of these two categories. (Personally I stick to restaurants for this card, because I buy most of my groceries at Walmart and Sams Club, which don’t count towards the grocery cash back.) Or if you want a simple card that gives you 3 percent back on both groceries and restaurants, check out the Capital One SavorOne card (again, no annual fee).
There are also several cards that have rotating 5 percent cash back categories each quarter, and they often include either restaurants or groceries. How do I keep track of which card to use for what kind of purchase? Simple: put a strip of masking tape on the card with a label. This will get some chuckles from your friends or the server at the restaurant, but that’s just an opportunity to tell them how to save money too!
Is There Really a Free Lunch?
Some of my economist friends are probably skeptical at this point. Aren’t I say there is a free lunch here? Isn’t the extra hassle of the steps I suggested going to outweigh any discount you get?
The answer is No. And while economists are quick to bring up the concept of opportunity cost, I find that most people tend to overestimate their opportunity cost. But even if you don’t overestimate your opportunity cost, you can bring in another useful economic concept: price discrimination.
Restaurants are very much in the business of price discrimination, and always have been. Tuesday Night specials, happy hours, etc. Every consumer has a different willingness to pay, and since it’s hard to resell a restaurant meal, restaurants can potentially use this technique to their advantage (and yours, if you are willing to look for discrimination). Grocery stores don’t have as much of an opportunity to discriminate, but they still find ways.
Don’t be afraid of price discrimination: use it to your advantage!
Money and interest rates have been in the news because the Fed wants to slow the rate of inflation, maintain financial stability, and avoid a recession. Let’s break it down. First, some broad context. The M1 and M2 were all chugging along prior to 2020. M2 was growing along with NGDP and, after raising interest rates, the Fed had begun lowering them again. Then Covid, the stimuli, and the redefinition of M1 happened. Now, we’re trying to get back to something that looks like normal. See the graphs below.
But these aggregates gloss over some relevant compositional changes. Let’s go one-by-one.
The monetary base includes both bank reserves and currency in circulation. We could break it down further, but I’ll save that for another time. What we see is that while currency in circulation did grow faster post-covid, it was nothing compared to the growing reserve balances. From January to May of 2020, currency grew by 7.5% while reserves almost doubled. That means a few things. 1) People weren’t running on banks. Covid was not a financial crises in the sense that people were withdrawing huge sums of cash. 2) Banks were well capitalized, safe, and stable. Further, uncertainty aside, banks were ready to lend. And they did. Not long after the recession, everyone and their brother was re-financing or taking on new debt. More recently, we can see that currency has stabilized and, again, most of the action has been in reserve balances. As of September 2023, reserve balances are down 23% from the high in September 2021.
The thing about the monetary base, however, is that reserves don’t translate into more spending unless the reserves are loaned out. The money supply that people can most easily spend, M1, is composed of currency held outside of banks, deposit balances, and “other liquid deposits” (green line below).* See the graph below. Again, most of the action wasn’t in the physical printing of hard, physical cash. People’s checking account balances ballooned thanks to less spending on in-person services and thanks to the stimulus checks and other relief programs. Deposit balances more than doubled from January to December of 2020. Ultimately, deposit balances were 3.3 *times* higher by August of 2022. Since then, the balances have been on a slow, steady decline of about 5.8% over the course of the year. But even then, it’s those “other” deposits, previously categorized as M2, where most of the action is. The value of those balances have fallen by a whopping 2.5 *trillion* and 19% dollars in the past 18 months. People are drawing down their savings.
Finally, we get to M2, the less liquid measure of the money supply. Besides the M1 components, it also includes small time deposits, such as CD’s, and money market funds (not including those held in IRA and Keogh accounts). Money market funds and small time deposits have *increased* in value since the post stimulus tightening as people chase the allure of higher interest rates on offer. Measured by volume, the declines in the broad money supply have darn near all come from declines in M1 (again, the jump is redefinition). And of that, it’s almost entirely coming out of “other” liquid deposits, as illustrated above. That’s savings balances. It’s true that there is some other-other balances, but it’s mostly savings accounts.
Zooming in on just those “other” balances (below left), people still have higher balances than they did prior to the pandemic. But by now, they’re below the pre-pandemic trend. Savings accounts are depleted. However, since many people don’t use savings account anymore due to the decade plus of low interest rates, it’s appropriate to consider both “other” accounts and demand deposits (below right). By that measure, we still have plenty of post-Covid liquidity at our disposal.
*Other liquid deposits consist of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) balances at depository institutions, share draft accounts at credit unions, demand deposits at thrift institutions, and savings deposits, including money market deposit accounts.
PS. So where is all this above-trend NGDP coming from, if not the money supply? Hmmmm.
Inflation has been constantly in the news over the past 2 years, but it has especially been in the news lately with regards to one country: Argentina. That country has been experiencing triple-digit annual inflation lately, and it has become one of the key issues in the current presidential race.
How bad is inflation in Argentina? Here’s a comparison to some other G20 countries from September 2019 through September 2023 (data from the OECD).
Cumulative consumer price inflation in Argentina over the past 4 years is over 800 percent. That means goods which cost 100 pesos in September 2019 now costs 900 pesos, on average. Well, they did in September. It’s almost November now, so if the recent inflation rates persisted, those goods are around 1,000 pesos now.
Turkey also stands out as a country with very rapid inflation the past 4 years — without Argentina on the chart, Turkey would clearly stand out from the rest. But other than Turkey, all the other countries are bunched at the bottom. Has there not been much difference among them? Not quite.
This next chart removes Argentina and Turkey:
In this second chart we see two standouts on the opposite end of the spectrum: Japan and Switzerland have had extremely low inflation, just 6 and 5 percent cumulatively since late 2019 (and this is not unusual for these two countries in recent history).
For us here in the USA, things don’t look so good. Only Brazil and the EU are higher (and the EU is mostly due to energy price inflation in Eastern Europe), so other than that we are basically tied with the UK for the worst inflation performance among very high income countries during the pandemic. That’s bad news! But perhaps one silver lining is that average wages in the US have outpaced inflation slightly: 23 percent vs 20 percent growth over this time period. That’s not much to celebrate — except relative to most of the rest of the world.
On X.com Matt Yglesias posted a chart that sparked some conversation about child safety:
One thing about the much-lamented rise of more intensively supervised childhood activities is that kids have in fact become a lot less likely to die. pic.twitter.com/MTjR7spLM8
Of course, it was probably more his comment about the “rise of more intensively supervised childhood activities” that generated the feedback and pushback. And I assume his comment was partially tongue-in-cheek, as often happens on Twitter, and designed to generate that very discussion. Still, it is worth thinking about. Exactly why did that decline happen?
I’ve posted on this topic before. In my March 2023 post, I looked at very broad categories of child death. While all death categories have declined, about half of the decrease (depending on the age group, but half is about right) is from a decline in deaths from diseases, as opposed to external causes. And fewer disease death can largely be attributed to improvements in healthcare, broadly defined. Good news!
Of course, that means that about half of the decline is from things other than diseases. What caused those declines? Let’s look into the data. Specifically, let’s look into the data on deaths from car accidents.
This week the Nobel Foundation recognized Claudia Goldin “for having advanced our understanding of women’s labour market outcomes”. If you follow our blog you probably already know that each year Marginal Revolution quickly puts up a great explanation of the work that won the economics Prize. This year they kept things brief with a sort of victory lap pointing to their previous posts on Goldin and the videos and podcast they had recorded with her, along with a pointer to her latest paper. You might also remember our own review of her latest book, Career and Family.
But you may not know that Kevin Bryan at A Fine Theorem does a more thorough, and typically more theory-based explanation of the Nobel work most years; here is his main take from this year’s post on Goldin:
Goldin’s work helps us understand whose wages will rise, will fall, will equalize going forward. Not entirely unfairly, she will be described in much of today’s coverage as an economist who studies the gender gap. This description misses two critical pieces. The question of female wages is a direct implication of her earlier work on the return to different skills as the structure of the economy changes, and that structure is the subject of her earliest work on the development of the American economy. Further, her diagnosis of the gender gap is much more optimistic, and more subtle, than the majority of popular discourse on the topic.
He described my favorite Goldin paper, which calculates gender wage gaps by industry and shows that pharmacists moved from having one of the highest gaps to one of the lowest as one key feature of the job changed:
Alongside Larry Katz, Goldin gives the canonical example of the pharmacist, whose gender gap is smaller than almost every other high-wage profession. Why? Wages are largely “linear in hours”. Today, though not historically, pharmacists generally work in teams at offices where they can substitute for each other. No one is always “on call”. Hence a pharmacist who wants to work late nights while young, then shorter hours with a young kid at home, then a longer worker day when older can do so. If pharmacies were structured as independent contractors working for themselves, as they were historically, the marginal productivity of a worker who wanted this type of flexibility would be lower. The structure of the profession affects marginal productivity, hence wages and the gender gap, particularly given the different demand for steady and shorter hours among women. Now, not all jobs can be turned from ones with convex wages for long and unsteady hours to ones with linear wages, but as Goldin points out, it’s not at all obvious that academia or law or other high-wage professions can’t make this shift. Where these changes can be made, we all benefit from high-skilled women remaining in high-productivity jobs: Goldin calls this “the last chapter” of gender convergence.
There is much more to the post, particularly on economic history; it concludes:
When evaluating her work, I can think of no stronger commendation than that I have no idea what Goldin will show me when I begin reading a paper; rather, she is always thoughtful, follows the data, rectifies what she finds with theory, and feels no compunction about sacrificing some golden goose – again, the legacy of 1970s Chicago rears its head. Especially on a topic as politically loaded as gender, this intellectual honesty is the source of her influence and a delight to the reader trying to understand such an important topic.
This year also saw a great summary from Alice Evans, who to my eyes (admittedly as someone who doesn’t work in the subfield) seems like the next Claudia Goldin, the one taking her work worldwide:
Claudia Goldin has now done it all. With empirical rigor, she has theorised every major change in American women’s lives over the twentieth century. These dynamics are not necessarily true worldwide, but Goldin has provided the foundations.
I’ve seen two lines of criticism for this prize. One is the usual critique, generally from the left, that the Econ Nobel shouldn’t exist (or doesn’t exist), to which I say:
The critique from the right is that Goldin studied unimportant subjects and only got the prize because they were politically fashionable. But labor markets make up most of GDP, and women now make up almost half the labor force; this seems obviously important to me. Goldin has clearly been the dominant researcher on the topic, being recognized as a citation laureate in 2020 (i.e. someone likely to win a Nobel because of their citations). At most politics could explain why this was a solo prize (the first in Econ since Thaler in 2017), but even here this seems about as reasonable as the last few solo prizes. David Henderson writes a longer argument in the Wall Street Journal for why Claudia Goldin Deserves that Nobel Prize.
Best of all, Goldin maintains a page to share datasets she helped create here.
Economist Writing Every Day 