the everything bubble: political-economic outlook … · what does remi say? sm fundamentals drive...
TRANSCRIPT
what does REMI say? smwhat does REMI say? sm
THE EVERYTHING BUBBLE: POLITICAL-ECONOMIC OUTLOOK
2020*
*AND BEYOND
what does REMI say? sm
Current economy is driven by easy money, that is, liquidity (and fiscal stimulus)
Longer-term economic growth needs to be supported by increase in productivity
Policy analysis in the Age of Populism Federal, state, and local policies are fundamental
to productivity Case study policy analysis
what does REMI say? sm
What is “The Everything Bubble”
Asset prices are high across every category (real estate, bonds, equities, some commodities)
Examples: U.S. 30-year near zero real bond yield (high bond price); stock market capitalization to GDP is 153%, an all-time high; S&P/Case-Shiller U.S. National Home Price Index well-exceeds “housing bubble” highs.
Hedge fund billionaire David Tepper: “I love riding a horse that’s running.”
what does REMI say? sm
Emerging Bubble?
what does REMI say? sm
Fed Balance vs S&P 500
2500
2600
2700
2800
2900
3000
3100
3200
3300
3400
3500000
3600000
3700000
3800000
3900000
4000000
4100000
4200000
4300000
8/1/2019 9/1/2019 10/1/2019 11/1/2019 12/1/2019 1/1/2020
S&P
500
Pric
e
Fed
Bala
nce
(Mill
ions
of D
olla
rs)
Fed Balance vs S&P 500 Price
Fed Balance S&P 500
what does REMI say? sm
What’s the Potential Problem?
Asset Values Increase without Productivity Gain For example, Manhattan or San Francisco home value
increases, but level of production (1 unit) stays constant over 10-50-100 years
Monopoly power, rather than innovation. Taxicab medallion. Is big tech innovator or monopoly?
“Minsky moment:” Assets valued for appreciation rather than fundamentals: in the long run greater fool or Ponzi game can end in tears.
what does REMI say? sm
Fundamentals drive long-term economic growth Growth = Labor Force Growth * Productivity (GDP/Worker)
Growth Labor force growth is about 0.5% annually, productivity
needs to grow at 1.5% to increase GDP by 2%. Labor productivity growth comes from 3 sources:
Capital deepening (the amount of capital per worker) Labor composition (the education and experience of the
workforce) Total factor productivity (overall efficiency of using labor
and capital inputs)
what does REMI say? sm
Consumption vs. Investment
what does REMI say? sm
% Change in Baseline National Labor Force
Years % Change2020-2030 4.8%2030-2040 3.8%2040-2050 3.7%2050-2060 2.5%
Year-by-Year Change
10-Year Change
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 20300.56% 0.58% 0.54% 0.54% 0.54% 0.51% 0.54% 0.35% 0.37% 0.37% 0.34%
2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 20400.34% 0.37% 0.36% 0.37% 0.36% 0.33% 0.37% 0.39% 0.41% 0.41% 0.37%
2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 20500.37% 0.39% 0.38% 0.40% 0.39% 0.34% 0.37% 0.35% 0.35% 0.35% 0.29%
2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 20600.29% 0.29% 0.28% 0.27% 0.26% 0.22% 0.23% 0.23% 0.23% 0.22% 0.19%
what does REMI say? sm
Government Investment and GDP
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1947
-01-
0119
48-1
2-01
1950
-11-
0119
52-1
0-01
1954
-09-
0119
56-0
8-01
1958
-07-
0119
60-0
6-01
1962
-05-
0119
64-0
4-01
1966
-03-
0119
68-0
2-01
1970
-01-
0119
71-1
2-01
1973
-11-
0119
75-1
0-01
1977
-09-
0119
79-0
8-01
1981
-07-
0119
83-0
6-01
1985
-05-
0119
87-0
4-01
1989
-03-
0119
91-0
2-01
1993
-01-
0119
94-1
2-01
1996
-11-
0119
98-1
0-01
2000
-09-
0120
02-0
8-01
2004
-07-
0120
06-0
6-01
2008
-05-
0120
10-0
4-01
2012
-03-
0120
14-0
2-01
2016
-01-
0120
17-1
2-01
Perc
enta
ge o
f GDP
Total Government Investment as a Percentage of GDP
what does REMI say? sm
Private Investment and GDP
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
1947
-01-
0119
48-1
0-01
1950
-07-
0119
52-0
4-01
1954
-01-
0119
55-1
0-01
1957
-07-
0119
59-0
4-01
1961
-01-
0119
62-1
0-01
1964
-07-
0119
66-0
4-01
1968
-01-
0119
69-1
0-01
1971
-07-
0119
73-0
4-01
1975
-01-
0119
76-1
0-01
1978
-07-
0119
80-0
4-01
1982
-01-
0119
83-1
0-01
1985
-07-
0119
87-0
4-01
1989
-01-
0119
90-1
0-01
1992
-07-
0119
94-0
4-01
1996
-01-
0119
97-1
0-01
1999
-07-
0120
01-0
4-01
2003
-01-
0120
04-1
0-01
2006
-07-
0120
08-0
4-01
2010
-01-
0120
11-1
0-01
2013
-07-
0120
15-0
4-01
2017
-01-
0120
18-1
0-01
Perc
enta
ge o
f GDP
Private Nonresidential Fixed Investment as a Percentage of GDP
what does REMI say? sm
Productivity
Capital Deepening (capital per worker)
Labor Composition (education and experience)
Total Factor Productivity (efficient use of inputs)
what does REMI say? sm
What can be done for capital deepening? (the amount of capital per worker)
Tax structure to encourage business investment (e.g. research and development tax credit, low corporate tax rates); generate revenue from tax on consumption (e.g. housing, carbon tax, VAT)
Economic development policy to encourage business investment (business-friendly regulations, incentives for economic base industries)
Public investment in transportation and infrastructure
what does REMI say? sm
What can be done for labor composition? (education and experience of the workforce)
Investment in education and training at all ages
Encouraging business investment in labor force development
Immigration based on employment and skills (now less than 10%)
what does REMI say? sm
What can be done for total factor productivity?
Government investment in basic research and development
Regulations that allow for highly productive use of resources—Air BnB, Ridesharing
Reducing economic distortions: for example, land use controls.
More efficient system of health care, public safety, higher education: lots of resources, with mixed results as best (for example, health care about 3.5 trillion/year)
what does REMI say? sm
Policy Analysis in the Age of Populism
Growth the Pie vs. Split the Pie Positive Sum Game vs. Zero Sum Game
Loss of consensus on immigration reform (2 failed efforts in the 2000’s), trade (TPP is out), infrastructure spending (traditionally bipartisan)
Why: economic gains not realized broadly
what does REMI say? sm
Economic Gains Uneven
Source: FRED
17
22
27
32
37
20
30
40
50
60
70
80
90
100
110
Thou
sand
s 20
18 D
olla
rs
Real
Out
put P
er H
our
Output/Hour and Median Personal Income
Real Output Per Hour Real Median Personal Income US
what does REMI say? sm
Deaths of Despair (Suicide, Alcohol-Related, and Drugs)
what does REMI say? sm
Deaths of Despair by State
what does REMI say? sm
Pragmatist vs. Populist
Pragmatist: Analyzes the demographics of likely voters, crafts
message to appeal to these voters. Rational arguments on electability, feasibility of plans. Positive-Sum Game: we can all be better off
Populist: Appeals to the gut, and the “unlikely” voter Emotional arguments Zero-Sum Game: competition for limited resources
what does REMI say? sm
State and City Policies
Rational Solutions Still Work
Most Governors and Mayors have Common Sense *need to balance a budget *represent many diverse interests *need to compete against other cities and states
what does REMI say? sm
Success Stories
Denver, Colorado: Ongoing investment in Mile-high stadium, airport, rail system, Lower Downtown redevelopment
Dallas, Texas: pro-business policies, Dallas-Ft. Worth Airport, 4 Major League sports, pro-development policy provides relatively affordable housing for a city of this size
California: long-standing support of higher education Research Triangle, North Carolina: Federal, state,
private investment that transformed this region
what does REMI say? sm
Policies to encourage economic/productivity growth could result in increasing inequality
Need policies to grow the economy, all share in the growth
Examples: Earned income tax credit is more effective way to support
lower income households than minimum income Public investment in infrastructure, if done right, can yield
broad benefits and new tax revenues that pay for the investment. (For example, tunnel between New York and New Jersey)
what does REMI say? sm
Policies to encourage economic/productivity growth could result in increasing inequality
HOWEVER, well-structured policies can provide growth with wide economic benefits
Requires careful analysis, quantification, and communication of benefits across stakeholders
what does REMI say? sm
Case Study: Amazon HQ 2.0
Queens, New York City one of 2 locations selected
Tax Incentives Part of the Deal
Populist Backlash, Amazon pulls out
Yet…
HQ 2.0 Tax Expenditures and Infrastructure Investment in Productivity (and economic base)
Additional Tax Revenues Provide for Support of Basic Public Services
what does REMI say? sm
Inputs
what does REMI say? sm
Direct and Dynamic Employment Impacts
0
20
40
60
80
100
120
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Thou
sand
s of J
obs
Direct and Dynamic Employment Impacts
Total Employment Direct Employment
what does REMI say? sm
Employment by Occupation
Sales and related, office and administrative support
occupations25%
Management, business, and financial occupations
22%
Computer, mathematical, architecture, and engineering
occupations9%
Construction and extraction occupations
8%
Building and grounds cleaning and maintenance,personal
care and service occupations6%
Healthcare occupations5%
Food preparation and serving related occupations
5%
Transportation and material moving occupations
4%
Installation, maintenance, and repair occupations
4%
Education, training, and library occupations
3%
Production occupations2%
Arts, design, entertainment, sports, and media occupations
2% Other5%
what does REMI say? sm
Personal Income
0
2
4
6
8
10
12
14
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Billi
ons o
f Fix
ed (2
016)
Dol
lars
Personal Income
Disposable Personal Income Personal Income
what does REMI say? sm
GDP Impact
0
2
4
6
8
10
12
14
16
18
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Billi
ons o
f Fix
ed (2
016)
Dol
lars
Gross Domestic Product
what does REMI say? sm
Revenue Change by Tax Categories
what does REMI say? sm
Change in Tax Revenue
0
100
200
300
400
500
600
700
800
FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031
Mill
ions
of F
ixed
(201
6) D
olla
rs
Total Revenues
The total increase in tax revenue from FY2019 to FY2031 was estimated to be $4.00 billion;incentive from state 1.8 billion.
what does REMI say? sm
Conclusion
Policy-makers need to deliver productivity gains that have wide benefits to the general public
While loose monetary policy may sustain economic growth in the near term, longer-term economic growth occurs with fundamental gains in labor force productivity
Policies can accomplish the goal of increasing productivity with widespread gains
These policies need rigorous, quantitative analysis
what does REMI say? sm
November 2019 State Coincident Indexes: Three Month Change
Coincident Indexes combine 4 indicators: Nonfarm payroll
employment Average hours
worked in manufacturing by production workers
The unemployment rate
Wage and salary disbursements deflated by the consumer price index (US city average)
what does REMI say? sm
% Change in Baseline National Labor Force
Years % Change2020-2030 4.8%2030-2040 3.8%2040-2050 3.7%2050-2060 2.5%
Year-by-Year Change
10-Year Change
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 20300.56% 0.58% 0.54% 0.54% 0.54% 0.51% 0.54% 0.35% 0.37% 0.37% 0.34%
2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 20400.34% 0.37% 0.36% 0.37% 0.36% 0.33% 0.37% 0.39% 0.41% 0.41% 0.37%
2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 20500.37% 0.39% 0.38% 0.40% 0.39% 0.34% 0.37% 0.35% 0.35% 0.35% 0.29%
2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 20600.29% 0.29% 0.28% 0.27% 0.26% 0.22% 0.23% 0.23% 0.23% 0.22% 0.19%
what does REMI say? sm
Government Investment and GDP
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1947
-01-
0119
48-1
2-01
1950
-11-
0119
52-1
0-01
1954
-09-
0119
56-0
8-01
1958
-07-
0119
60-0
6-01
1962
-05-
0119
64-0
4-01
1966
-03-
0119
68-0
2-01
1970
-01-
0119
71-1
2-01
1973
-11-
0119
75-1
0-01
1977
-09-
0119
79-0
8-01
1981
-07-
0119
83-0
6-01
1985
-05-
0119
87-0
4-01
1989
-03-
0119
91-0
2-01
1993
-01-
0119
94-1
2-01
1996
-11-
0119
98-1
0-01
2000
-09-
0120
02-0
8-01
2004
-07-
0120
06-0
6-01
2008
-05-
0120
10-0
4-01
2012
-03-
0120
14-0
2-01
2016
-01-
0120
17-1
2-01
Perc
enta
ge o
f GDP
Total Government Investment as a Percentage of GDP
what does REMI say? sm
Private Investment and GDP
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
1947
-01-
0119
48-1
0-01
1950
-07-
0119
52-0
4-01
1954
-01-
0119
55-1
0-01
1957
-07-
0119
59-0
4-01
1961
-01-
0119
62-1
0-01
1964
-07-
0119
66-0
4-01
1968
-01-
0119
69-1
0-01
1971
-07-
0119
73-0
4-01
1975
-01-
0119
76-1
0-01
1978
-07-
0119
80-0
4-01
1982
-01-
0119
83-1
0-01
1985
-07-
0119
87-0
4-01
1989
-01-
0119
90-1
0-01
1992
-07-
0119
94-0
4-01
1996
-01-
0119
97-1
0-01
1999
-07-
0120
01-0
4-01
2003
-01-
0120
04-1
0-01
2006
-07-
0120
08-0
4-01
2010
-01-
0120
11-1
0-01
2013
-07-
0120
15-0
4-01
2017
-01-
0120
18-1
0-01
Perc
enta
ge o
f GDP
Private Nonresidential Fixed Investment as a Percentage of GDP
what does REMI say? sm
what does REMI say? sm
Percentage of Labor Force with Bachelor’s Degree and Older than 25 Years
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
1992
-01-
0119
92-0
9-01
1993
-05-
0119
94-0
1-01
1994
-09-
0119
95-0
5-01
1996
-01-
0119
96-0
9-01
1997
-05-
0119
98-0
1-01
1998
-09-
0119
99-0
5-01
2000
-01-
0120
00-0
9-01
2001
-05-
0120
02-0
1-01
2002
-09-
0120
03-0
5-01
2004
-01-
0120
04-0
9-01
2005
-05-
0120
06-0
1-01
2006
-09-
0120
07-0
5-01
2008
-01-
0120
08-0
9-01
2009
-05-
0120
10-0
1-01
2010
-09-
0120
11-0
5-01
2012
-01-
0120
12-0
9-01
2013
-05-
0120
14-0
1-01
2014
-09-
0120
15-0
5-01
2016
-01-
0120
16-0
9-01
2017
-05-
0120
18-0
1-01
2018
-09-
0120
19-0
5-01
Perc
enta
ge
Percentage of Civilian Labor Force with Bachelor's Degree and Higher and 25 Years or Over
what does REMI say? sm
Deaths of Despair (Suicide, Alcohol-Related, and Drugs)
what does REMI say? sm
what does REMI say? sm
“The Everything Bubble” drives the economy
Consumption keeps the economy growing
Cheap and available loans drive consumption; wealth effect drives consumption
All groups: wage earners, salaried professionals, ownership class see gains over the last 2 years; Trump with 55% approve/39.7% disapprove on economy (RCP)
what does REMI say? sm
“The Everything Bubble” drives the economy
Consumption keeps the economy growing (in Q2019, Personal Consumption Expenditures up by 3.2%; Gross private domestic investment down by 1% [nonresidential down by 2.3%, residential up by 4.5%]; Government consumption and investment up by 1.7%].
Cheap and available loans drives consumption; wealth effect drives consumption
(For example, U.S. stock market valuation increased by about 25% or 7.5 trillion, source: Wiltshire 500 Total Market Full Cap Index and World Federate of Exchanges Database)