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Is overheating of the US economy, is it relevant to the calculation of inflation in 2021 by the structure of last year’s consumption, what price growth rate takes into account “inflation bonds” and why the number of patents is not an indicator of innovation: the main thing in the blogs of economists.

The article was first published on the ECCON website

Many are afraid of overheating of the US economy-but it is more reasonable not to repeat the “error-2009”, when the incentives were insufficient and untimely, tightening the restoration, Writes Jeffrey Frankel, Harvard Professor and former member of the Council of Economic Consultants of the US President in the administration of Bill Clinton, in the guest post of the EconbrowSer blog. In the II quarter of 2020, due to the pandemic decline, the US economy was 10% lower its potential, but by the end of the II quarter of 2021 can achieve The dopandemic level and by 2022 will exceed its potential: such a strong decline and rapid recovery to such high levels - the situation is extremely unusual. Demand is now growing rapidly for several reasons, Frankel lists: the deferred demand of households that has saved about $ 1.5 trillion received during the pandemic transfers is being implemented; The monetary conditions are ultramm, and the Fed promises to leave them for several years; In December, Donald Trump’s stimulating measures was adopted $ 0.9 trillion, and in early March - Joe Biden package $ 1.9 trillion. Only the last figure is about 9% of the American economy, compares Frankel: if the state -owned exploration multiplier is 1, then one Biden package will increase it by 9%, from 3% lower than the potential at the end of 2020 to 6% higher than it to the end of 2021, and even if the multiplier is 0.5, the incentives are still raised above the potential level. It is not surprising that some economists warn of overheating and inflationary threat. But there are also counterarguments, says Frankel.

In 2018–2019, when unemployment decreased below the natural level, inflation increased only slightly - and before that in 2010-2015, when unemployment was high, inflation did not fall. Both facts can explain the fact that the Phillips curve, reflecting the connection between inflation and unemployment, has become relatively flat. Therefore, the US economy is likely to really grow above the potential this year, but inflation is unlikely to grow excessly, Frankel believes. Of course, such large -scale incentives have other shortcomings, he indicates: a large public debt limits future expenses; The infusion of money at low rates leads to the emergence of bubbles and an increase in inequality; A trade deficit is growing, since part of the expenses falls on imports. But the Biden administration is clearly trying not to repeat the “error-2009” of Barack Obama, when a package of stimuli of $ 0.8 trillion, also huge by historical standards, turned out to be insufficient-and restoration after a great recession stretched for years. The country then made a mistake, reducing the size and duration of fiscal expansion - on the part of Biden it is reasonable to make sure that this mistake will not happen again in 2021–2022, Frankel believes.

Bond markets ignore fears about inflation - but what they know what the economists do not know, They ask a question Researchers of the Peterson Institute - Joseph Ganyon, former economist of the Administrative Council of the Fed and the Ministry of Finance of the United States, and Madi Sarsenbaev. The markets are concerned about inflation no more than the Fed that does not see such a threat: “compensation for inflation” in 10-year-old state bondes jumped at 0.25 percentage points. Since January 14, when Bayden’s “salvation plan” was first announced, but this value is fully fed at the inflation target just higher than 2%, which the Fed after the last year was slightly lower. However, you should not be consoled by indicators of the bond market: history shows that it I could not The authors write to predict any noticeable changes in inflation in developed countries since the Second World War.

In bonds indexed by inflation, the profitability is recorded either in real terms or in the face value indexed to inflation. Thus, if you subtract from the profitability of bonds tied to inflation, the profitability of ordinary bonds with the same maturity, you can get the value of “compensation for inflation”, which the market is counting on. It is assumed that a 10-year bond will reflect inflation on a 10-year horizon. However, in a retrospect, it is not clear that this value serves as a leading indicator of inflation, the authors write: in particular, such bonds did not predict a steady decrease in inflation in the UK and Australia. An increase in the average over the previous 10 years of inflation by 1 pp. Increases “compensation for inflation” of the US 10-year papers by 0.26 pp, while the predictive force, that is, the connection with future inflation, this indicator was zero, the authors calculated. So, before the first inflationary episode in the United States in the late 1960s, profitability remained unchanged, then began to grow parallel to inflation and almost simultaneously reached the peak; In the same way, it took place in subsequent periods of acceleration of inflation. It is not worth judging by the future inflation of the bond market, the authors conclude.

What kind of inflation in the country is possible-perhaps even state-owned ones are not available: the Covid-19 significantly complicated its measurement, worried Researchers Bruegel Gregori Kleis and Lionel Getta-Granineno. In February, the Eurostat published a new composition of the consumer basket, through which in 2021 it will measure the consumer price index: the correction of the basket occurs annually, reflecting changes in the consumption that occurred over the previous year, that is, the actual inflation is measured according to the structure of the consumer expenses of the previous year (more precisely, the first three quarters of the previous one, in this case, 2020, and the last The quarter to him the previous year, in this case, 2019). Given the fact that consumption models change slowly, the review of the basket once a year is quite justified. However, inflation-2021 will be measured according to the structure of the costs of the pandemic 2020, and the pandemic has significantly distorted this structure.

Even at the early stage of the pandemic, it was recognized that the weights used to measure inflation are irrelevant when the restaurants and most stores are closed, the consumption of some goods and services has sharply reduced (for example, transport), and others have sharply increased (for example, disinfectants). Analysis of transactions for banking cards for January - April 2020 He showed that “Covid-inflation” exceeds the official one. The changes that occurred in consumption were recorded by the Eurostate in the new basket, the authors write: for example, the weight of food and alcohol increased in it, transport, restaurants, hotels - decreased. The authors counted for 2018–2020. Inflation in the eurozone of the post -fact, using the basket of the next year, that is, inflation in 2018 was counted according to the basket of 2019, reflecting the real structure of expenses for 2018, etc. The analysis showed that until 2020, the post-factor inflation almost completely coincided with the data of the Eurostat. However, as soon as the first restrictions began to be introduced, the post-factum inflation index began to exceed the official by 0.15–0.3 percentage points. The problem of rapidly outdated weights may again occur in 2021, if the economies are completely open and consumer habits return to the dopandemic, the authors conclude: this means, in particular, that central banks for monetary policy should monitor alternative inflation indicators.

In February 2021, the new weights of goods and services in the consumer basket for calculating inflation-2021 also published Rosstat, which also updates this basket once a year as the Eurostat, the international technique, that is, in 2021, it reflects mainly the structure of the pandemic 2020. The weight of food and alcohol in it increased and became the maximum over the past 10 years, and became the maximum 10 years, Non -food goods - has decreased, with the exception of the increased share of electricity (computers, means of communication) and medical products, the total weight of services also decreased, with the exception of housing, utilities, communication services, medical services. The share of public catering in the Russian basket-2021 has become minimal since 2013, for passenger transport-the minimum since 2006, from which the structure of the basket is published, and for pasta and cereals-maximum since 2006, when calculating inflation in 2021 Rosstat for the first time It will begin to use Cash registers data: this will expand the number of observed outlets and a list of tracking goods and services.

Negative interest rates are effective for stimulating the economy, but are risks for the banking sector, The World Bank economists found out in a study on these Eurozone countries, about which They tell On the Blog of the Organization. Since 2012, central banks have reduced bets around the world, in some countries they are below zero - today there are 25% of the global GDP on such countries, and securities in the amount of $ 17 trillion offer negative profitability. In Europe, where the ECB lowered the headquarters below zero one of the first, this led to a decrease in loan rates, however, reducing deposit rates was limited due to fears about the removal of deposits and the transition to cash. As a result, banks with a large share of deposits could experience a significant compression of interest income.

Theoretically, negative rates can affect lending in two different ways: a decrease in margin can undermine capital and limit the possibility of banks to issue loans, or banks can try to maintain their profitability at the expense of loans, including borrowers with higher risk, and by investing in more profitable and more risky assets. The study showed that European banks have chosen the second method: since the ECB in 2014 lowered the deposit rate below zero and He continued to reduce it, banks with a large volume of deposits increase lending and take on greater risk. Thus, with an increase in loans, negative rates can be effective for stimulating the economy, however, this effect should be correlated with risks for the banking system and financial stability, given that the consequences of low rates are heterogeneous for different banks, and in the eurozone they can be distributed and between countries, the authors conclude.

Patent databases - a smoke curtain that hides true nature, problems and dynamics of innovation and creating the illusion that patents can measure this dynamics, They write on the blog Chicago Booth (Bota Business School) University of Chicago Economists Gary Smith and Jeffrey Funk. Innovation is judged by the number of patents - for example, in the United States in 2019 almost 670,000 patent applications were submitted and more than 390,000 patents were issued, both figures were three times more than in 1997. The number of studies in the Google Scholar containing references to patents for a decade and a half by 2014 increased from 10 to 900; In turn, more than 60% of patent applications refer to previous studies - this measures the influence of research on innovation. All these efforts deserve praise, but the first trap of the science of data - the use of incorrect data, quote the authors of the book The 9 Pitfalls of Data Science (“9 traps of data science”), the co -author of which is Smith: data on patents contain too much “noise” to use them as an indicator of innovative activity.

Firstly, Most innovations are not patented: for example, such widely used as matches, computer mice, USB technologies or monoclonal antibodies used in six out of every 10 of the best-selling modern drugs. One of research It showed that about 10% of the innovations available for the sale or licensing of innovations are patented, which the Research and Development magazine defines as breakthrough. Secondly, thousands of patents are issued to such useless innovations as Bird diapers or Dog toy, similar to a stick. There are also “prophetic patents” issued for things that do not exist and may never appear: for example, Amazon patent for a flying warehouse or on an underground tunnel for delivery. Patents have no connection with profit: out of the 10 largest companies in capitalization, only 4 are included in the TOP-100 of the most applications for patents. Between performance and patent activity also practically no No correlation. In order to evaluate the influence of scientific achievements on real products and services, it is necessary not to load databases on patent applications, the authors advise, but detailed studies of intermediate ties (for example, whether new products have appeared due to existing technologies or are something new), financing flows, financing (for example, to what extent state financing of innovations leads to the creation of new products and services, and not academic articles about the articles Innovation).

"Error 2009" or overheating of the US economy-which is more dangerous?