Celebrating Russsian Novelist Fyodor Dostoevsky

Yesterday (Nov. 11) was his birthday. One of his famous books is Crime and Punishment.

Below are some passages that relate to economics and one sounds like the invisible hand.  All of the passages can be found at https://www.bartleby.com/lit-hub/crime-and-punishment/.

From Part I, Chapter 2:

"But Mr. Lebeziatnikov who keeps up with modern ideas explained the other day that compassion is forbidden nowadays by science itself, and that that's what is done now in England, where there is political economy." (economics used to be called political economy)"

From Part II, Chapter 5:

"if I were told, 'love thy neighbour,' what came of it?" Pyotr Petrovitch went on, perhaps with excessive haste. "It came to my tearing my coat in half to share with my neighbour and we both were left half naked. As a Russian proverb has it, 'Catch several hares and you won't catch one.' Science now tells us, love yourself before all men, for everything in the world rests on self-interest. You love yourself and manage your own affairs properly and your coat remains whole. Economic truth adds that the better private affairs are organised in society--the more whole coats, so to say—the firmer are its foundations and the better is the common welfare organised too. Therefore, in acquiring wealth solely and exclusively for myself, I am acquiring, so to speak, for all, and helping to bring to pass my neighbour's getting a little more than a torn coat; and that not from private, personal liberality, but as a consequence of the general advance." The idea is simple, but unhappily it has been a long time reaching us, being hindered by idealism and sentimentality. And yet it would seem to want very little wit to perceive it."

From Part III, Chapter 5:

"“Not quite, that’s true,” Razumihin agreed at once, getting warm and hurried as usual. “Listen, Rodion, and tell us your opinion, I want to hear it. I was fighting tooth and nail with them and wanted you to help me. I told them you were coming.… It began with the socialist doctrine. You know their doctrine; crime is a protest against the abnormality of the social organisation and nothing more, and nothing more; no other causes admitted!…”

“You are wrong there,” cried Porfiry Petrovitch; he was noticeably animated and kept laughing as he looked at Razumihin, which made him more excited than ever.

“Nothing is admitted,” Razumihin interrupted with heat. “I am not wrong. I’ll show you their pamphlets. Everything with them is ‘the influence of environment,’ and nothing else. Their favourite phrase! From which it follows that, if society is normally organised, all crime will cease at once, since there will be nothing to protest against and all men will become righteous in one instant. Human nature is not taken into account, it is excluded, it’s not supposed to exist! They don’t recognise that humanity, developing by a historical living process, will become at last a normal society, but they believe that a social system that has come out of some mathematical brain is going to organise all humanity at once and make it just and sinless in an instant, quicker than any living process! That’s why they instinctively dislike history, ‘nothing but ugliness and stupidity in it,’ and they explain it all as stupidity! That’s why they so dislike the living process of life; they don’t and a living soul! The living soul demands life, the soul won’t obey the rules of mechanics, the soul is an object of suspicion, the soul is retrograde! But what they want though it smells of death and can be made of india-rubber, at least is not alive, has no will, is servile and won’t revolt! And it comes in the end to their reducing everything to the building of walls and the planning of rooms and passages in a phalanstery! The phalanstery is ready, indeed, but your human nature is not ready for the phalanstery—it wants life, it hasn’t completed its vital process, it’s too soon for the graveyard! You can’t skip over nature by logic. Logic presupposes three possibilities, but there are millions! Cut away a million, and reduce it all to the question of comfort! That’s the easiest solution of the problem! It’s seductively clear and you mustn’t think about it. That’s the great thing, you mustn’t think! The whole secret of life in two pages of print!”

“Now he is off, beating the drum! Catch hold of him, do!” laughed Porfiry. “Can you imagine,” he turned to Raskolnikov, “six people holding forth like that last night, in one room, with punch as a preliminary! No, brother, you are wrong, environment accounts for a great deal in crime; I can assure you of that.”

“Oh, I know it does, but just tell me: a man of forty violates a child of ten; was it environment drove him to it?”

“Well, strictly speaking, it did,” Porfiry observed with noteworthy gravity; “a crime of that nature may be very well ascribed to the influence of environment.”"

To see what phalanstery is go to Phalanstère at Wikipedia. Excerpt:

"A phalanstère (or phalanstery) was a type of building designed for a self-contained utopian community, ideally consisting of 500–2,000 people working together for mutual benefit, and developed in the early 19th century by Charles Fourier. Fourier chose the name by combining the French word phalange (phalanx, an emblematic military unit in ancient Greece), with the word monastère (monastery)."

Michael Cameron reviews the book How Big Things Get Done

Michael Cameron is a Professor of Economics at the University of Waikato in New Zealand. 

See Book review: How Big Things Get Done. Excerpts:

"There are certain books that shouldn't need to be written. Inevitably, those are the books that, in reality, most need to be written. That is certainly the case for How Big Things Get Done, by Bent Flyvbjerg and Dan Gardner. This is a book about big projects, and importantly, how those projects succeed or, as is often the case, how they fail."

"The book draws on decades of Flyvbjerg's academic research on big projects, as well as his experience both consulting on, and being directly involved in, big projects. Through this work, Flyvbjerg has developed a massive database of projects, their cost and benefit estimates at the time the project began, and the cost over-runs and benefit shortfalls that so often resulted. The numbers do not make for easy reading, and the examples that Flyvbjerg uses range from transport infrastructure to It projects to nuclear power stations to the Olympic Games."

"I really enjoyed this book, even though it does seem quite depressing at times, just how badly big projects are at delivering on their promises (both in terms of costs, and in terms of benefits)."

I think this is a very important lesson. Economic rationality says that the benefits of projects should be greater than the cost. But it looks like very often it is the reverse.

Related posts: 

Does It Pay to Host the Olympics? (2009)

Economic benefits from mega-events like the Olympics are often overstated (2021)

Would you give up some income in order to get a job at a firm whose workers share your political opinions?

See Political Sorting in the U.S. Labor Market from Marginal Revolution.

"That is the central topic of the job market paper of Sahil Chinoy from Harvard University.  Here is the abstract:

We study political sorting in the labor market and examine its sources. Merging voter file data and online résumés to create a panel of 34.5 million people, we show that Democrats and Republicans choose distinctive career paths and employers. This leads to marked segregation at the workplace: a Democrat or Republican’s coworker is 10% more likely to share their party than expected. Then, we ask whether segregation arises because jobs shape workers’ politics or because workers’ politics shape their job choices. To study the first, we use a quasi-experimental design leveraging the timing of job transitions. We find that uncommitted workers do adopt the politics of their workplace, but not workers who were already registered Democrats or Republicans. The average effect is too small to generate the segregation we document. To study the second, we measure the intensity of workers’ preferences for politically compatible jobs using two survey experiments motivated by the observational data. Here, we find that the median Democrat or Republican would trade off 3% in annual wages for an ideologically congruent version of a similar job. These preferences are strong enough to generate segregation similar to the observed levels.

Co-authored with Martin Koenen, also a job market candidate from Harvard."

Related posts:

People gave up a chance to win money in order to avoid hearing from those with opposing political views (2017) 

People say the president can control gas prices if the president belongs to the other party (2017)

Are some blue jeans really Democratic and others Republican? (2019)

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions)  (2023)

Why Tribalism Took Over Our Politics: Social science gives an uncomfortable explanation: Our brains were made for conflict (2023) 

Democrats and Republicans say economy is improving, but mostly only when someone from their party is president (2024) 

Did Fracking in Pennsylvania Turn Democrats Into Republicans and Republicans Into Democrats? (2024)

Are fewer Democrats buying Teslas because of Elon Musk's political views? (2024)

Partisanship deeply colors how Americans think about trade policy, especially tariffs (2024)

See also Americans start caring more about deficits and the national debt when the party they oppose runs them up by John V. Kane of New York University and Ian G. Anson of The University of Maryland. Excerpt:

"In the past two decades, US budget deficits have skyrocketed, and the national debt is now over $22 trillion. But do Americans care about the size of deficits and the national debt? In new research, John V. Kane and Ian G. Anson find that people tend to care more about the deficits and debts when they are increased by presidents from the party that they oppose. Both Republicans and Democrats, they write, become less concerned about governments running deficits when their President is in charge."

Economics and the election

Excerpts from two recent articles.

See How Trump Won the Economy-Is-Everything Election: Voters expressed anger over prices and frustration about their ambitions feeling out of reach; ‘our daily grind has been so hard’ by Rachel Louise Ensign, Rachel Wolfe and Justin Lahart of The WSJ.

"The experts said the economy was doing great. Everyday Americans disagreed. 

Roughly 40% of voters said the economy was their top issue, far outstripping any other issue, and those voters favored Donald Trump by 60% to 38%. Many weren’t thinking about the streak of robust economic growth or the Federal Reserve’s potential soft landing when they voted, but their grocery bills and out-of-reach ambitions. 

Americans are still feeling sticker shock from higher prices on everything from cleaning supplies to a cup of coffee that followed the pandemic. Their anger about the economy extended beyond prices to encompass wider discontent and anxiety over the future. Many Americans are frustrated that they can’t afford to buy a home or start a family. Fewer believe that the American dream is achievable." 

"While Democrats touted the economy’s strength, many voters said the economy as they knew it was broken.

“This happy talk doesn’t resonate with most Americans,” Mark Zandi, chief economist at Moody’s Analytics, said of the political messaging. “They’re still paying higher prices for many things they need to buy.”"

"Trump put the cost of living front and center in his pitch, claiming in his nomination acceptance speech that “inflation will vanish completely” under his watch. Harris, too, said that families were struggling, and that policy proposals like an expanded child tax credit would help. 

Trump’s message has long appealed to voters in places where the decline of domestic manufacturing eliminated good blue-collar jobs. It also has resonated with working-class voters who once thought they could count on a college degree as a ticket into the middle class, but have started to question its value.

The run of high inflation that followed the Covid pandemic made the economy a concern for a range of voters. Inflation shot up during the Biden presidency, and although it has cooled lately, prices remain far higher than they were when Trump left office. The Labor Department’s measure of consumer prices was nearly 20% higher this September than in January 2021—the largest increase for a single presidential term since Ronald Reagan’s first four years in office. 

Anger over inflation persisted despite a labor market that steadily added jobs while boosting wages. Even though Labor Department data indicate that median wages outpaced inflation, that wasn’t true for a significant number of people. 

A whopping 96% of voters said “high prices for gas, groceries and other goods” were a factor in their vote, according to AP VoteCast."

"Many Americans also feel pinched by high interest rates. Federal Reserve data show that just before the central bank began raising rates in 2022 in its bid to cool inflation, the average rate on credit card plans was 14.6%. As of August, just before the Fed cut rates for the first time, it was 21.8%. 

Many Americans also feel pinched by high interest rates. Federal Reserve data show that just before the central bank began raising rates in 2022 in its bid to cool inflation, the average rate on credit card plans was 14.6%. As of August, just before the Fed cut rates for the first time, it was 21.8%. 

Interest rates rose on car loans and mortgages. The average rate on a 30-year fixed mortgage climbed from less than 3% when Biden came into office to 7.8% last year, a multidecade high, according to Freddie Mac. It has since fallen to 6.7%.

Home prices also shot up, making it harder and harder for many families to buy their first home. The National Association of Realtors’ housing affordability index, which incorporates median single-family existing-home prices, mortgage rates and median family incomes, shows homes are at their least affordable level since the early 1980s.

A July Wall Street Journal/NORC poll of 1,502 U.S. adults found that 89% of respondents said owning a home is either essential or important to their vision of the future, while only 10% said homeownership is easy or somewhat easy to achieve."

See also What Trump’s Win Means for the Economy: President-elect plans tariffs and tax cuts, as in his first term. There are risks with both, but also lots of caveats by Greg Ip of The WSJ.

"The consensus of economists and investors is that tariffs will put upward pressure on inflation while tax cuts could spur growth and add to deficits, together tending to nudge interest rates higher. And indeed, long-term Treasury bond yields had risen recently on strong economic data and Trump’s improved polling, and shot up early Wednesday, along with stock-index futures, as Trump’s victory became apparent.

The first years of Trump’s first term were better for the economy than many expected on election night in 2016, and expectations could be similarly miscalibrated now. For one thing, he inherits a relatively benign outlook. Growth has been surprisingly strong while inflation has fallen substantially from its peaks, although prices are still high. The Federal Reserve is set to trim interest rates Thursday for the second time this year. This should keep recession risks to a minimum.

As for Trump’s own plans, he may not raise tariffs as much as threatened, opting for negotiations over trade war. Congress may water down his tax plans. Finally, presidents are seldom the main driver of economic performance. Trump’s policies may have less to do with how the economy performs over the next four years than larger forces and unexpected events, such as a crisis, a war or a boom driven by new technology."

"Trump’s first-term tariffs had no noticeable effect on inflation because they were relatively modest, and globally subdued demand and investment and slack labor markets were pushing in the opposite direction. On the eve of his election, wages were rising just 2.4% a year. Bond investors expected future inflation to average 1.8%, below the Fed’s 2% target.

This time Trump has proposed much higher tariffs—at least 60% on China, and 10% to 20% on everyone else. Such a combination would lift U.S. tariff rates to their highest since the 1930s. And it would come when demand is brisk, supply chains are vulnerable to geopolitical conflict, and memories of inflation are fresh. Wages are growing 3.8% a year, and bonds see future inflation at 2.3%."

"Morgan Stanley estimates Trump’s 60% and 10% plan would raise U.S. consumer prices 0.9%. That’s a one-off effect: Eventually, inflation should fall back to its underlying trend."

"Portions of the tax law that Trump and congressional Republicans passed in 2017, such as for lower rates for individuals and businesses who pay their taxes on their individual returns, expire at the end of 2025 and they have given priority to extending the law. That would cost about $5 trillion over 10 years, the Committee for a Responsible Federal Budget estimates."

"Trump’s other proposals . . . which have at times included lower corporate tax rates; exempting tips, Social Security benefits and overtime pay from taxes; and deductions for car loan interest and state and local taxes. These proposals would, the CRFB estimates, add about $4 trillion to the deficit over 10 years.

Tariff revenue would reduce that cost somewhat as would spending cuts, though Trump also plans some spending increases." 

"Deutsche Bank estimates that a unified Republican government would boost growth by 0.5 percentage point in 2025 and 0.4 in 2026 without higher tariffs."

"Trump has proposed lighter regulation, for example of mergers and of the oil-and-gas industry. These ought to boost growth and business confidence and hold down inflation. But economists think the effects are too difficult to identify in the broader economy. For example, U.S. oil production and gasoline prices are driven mostly by global prices, which are in turn heavily influenced by OPEC, sanctions, Middle East conflict and Chinese economic growth."

Vampires and economics

The PBS series Secrets of the Dead just had an episode titled Field of Vampires. The summary is below followed by an excerpt from the transcript. There is a part there about a woman who was accused of being a vampire. A king owed her money. Once she was convicted he no longer had to pay the debt. So he had an incentive to order the investigation in the first place. That part is highlighted in red.

"In 2022, a terrifying discovery: a female skeleton dating from 1650, buried with a sickle across her neck and giant padlock on her toe—double protection to keep her from rising from the dead. All the evidence points to her being buried as a vampire... and she’s not alone, with more than 50 deviant burials around her. Who was she and what did these burial rituals mean?"

"High above the village of Cachtice, in what is now Slovakia, is Cachtice Castle.

 Just before the woman in Grave 75 was born, in the early 17th century, this castle was home to a woman later dubbed "Countess Dracula."

 Local historian Marian Imriska has lived in the castle's shadow his entire life.

He knows its dark past better than anyone.

-This is the home of Elizabeth Bathory, otherwise known as the blood countess.

-Stories of Bathory's alleged crimes have been passed down through generations.

-The legend is saying that Elizabeth tortured over 650 young girls, and she killed them.

And she was drinking the blood to gain the power of the young girls.

-But before any accusations were made, Elizabeth had been one of the most loved and respected members of the community.

-She was a really inspiring woman because she was really educated.

She was meeting with all kinds of people here on the castle, with teachers, with philosophs, or with alchemists.

So, for my opinion, she was a one of the most impressive women in the whole world.

-Things began to change after her husband, Count Ferenc Nadasdy, died in 1604.

Rumors soon began to spread about the widow Bathory, living alone in her castle.

-People started to tell stories about vampires and about that Elizabeth is actually a vampire, and she's leaving the castle to frighten the people from the village.

And the priests started to tell these crazy stories about Elizabeth.

-Encouraged by Bathory's enemies, it wasn't long before these horrific stories took on a life of their own.

According to some accounts, Countess Bathory even bathed in the blood of her young victims.

 Few people ever visit this place.

It's in these very tunnels that Elizabeth is said to have tortured and killed hundreds.

But can these lurid tales be trusted?

Behind much of the "evidence" was a man who had a lot to gain from denouncing the so-called "blood countess."

In 1610, King Matthias of Hungary ordered a secret investigation into the stories about Elizabeth.

He also happened to owe Bathory a huge amount of money.

-Investigators came to these tunnels and discovered all about torturing the girls.

The investigators were asking the servants what they did to the young girls.

-The servants were arrested, tortured, and then put on trial.

All were found guilty.

Three were burnt alive and another beheaded, then burnt.

Elizabeth Bathory was condemned to house arrest.

-She was imprisoned in the castle.

She could walk around the castle but never leave the castle at all.

 -The countess died in this room on August the 21st, 1614.

 But today, some historians have suggested that Elizabeth Bathory was less a vampire and more a victim of malicious gossip.

-Elizabeth was one of the most powerful women in that time, and, for sure, the people or the other counts were frightened of this power.

-She was female at a time of rampant misogyny.

She was intelligent, she was clever, and perhaps, most importantly of all, she had powerful enemies, including the King of Hungary, who owed her money.

And those things combined made her a very viable target for a political attack, which, in this case, was obviously accusations of the most scandalous and shocking and violent sort.

 -Once she was convicted of the crimes, King Matthias's debt was conveniently written off.

Elizabeth Bathory shows how fear and the suggestion of vampirism could be powerful weapons that could bring down anyone in the 17 century and feed a hysteria across Europe about the threat of the undead."

More risk-averse and less entrepreneurial people grew up listening to stories wherein competitions and challenges are more likely to be harmful than beneficial

See Folklore by Stelios Michalopoulos & Melanie Meng Xue. From The Quarterly Journal of Economics, Volume 136, Issue 4, November 2021. Excerpts:

"Abstract

Folklore is the collection of traditional beliefs, customs, and stories of a community passed through the generations by word of mouth. We introduce to economics a unique catalog of oral traditions spanning approximately 1,000 societies. After validating the catalog’s content by showing that the groups’ motifs reflect known geographic and social attributes, we present two sets of applications. First, we illustrate how to fill in the gaps and expand upon a group’s ethnographic record, focusing on political complexity, high gods, and trade. Second, we discuss how machine learning and human classification methods can help shed light on cultural traits, using gender roles, attitudes toward risk, and trust as examples. Societies with tales portraying men as dominant and women as submissive tend to relegate their women to subordinate positions in their communities, both historically and today. More risk-averse and less entrepreneurial people grew up listening to stories wherein competitions and challenges are more likely to be harmful than beneficial. Communities with low tolerance toward antisocial behavior, captured by the prevalence of tricksters being punished, are more trusting and prosperous today. These patterns hold across groups, countries, and second-generation immigrants. Overall, the results highlight the significance of folklore in cultural economics, calling for additional applications."

"Two broad observations motivate our study. First, narratives are central building blocks of our societies. We think in stories and explain the world by telling stories. Harari (2015), for example, identifies in the myths present in people’s collective imagination the roots of their successes and failures. Despite their central role in connecting actions to values and needs, economists have only recently turned to the study of narratives (e.g., Akerlof and Snower 2016; Shiller 2017).¹

Second, during the past two decades, a burgeoning body of work exploring the cultural, historical, and institutional roots of comparative development highlights the significance of ethnic, linguistic, and religious groups (Michalopoulos and Papaioannou 2017; Nunn 2020). Much of this research, however, relies on valuable but incomplete ethnographic sources including the widely used Ethnographic Atlas (EA). Furthermore, the absence of proxies of historical norms renders inquiries into how attitudes change and why they persist intractable.² Other weaknesses of the EA, the celebrated compilation of George Peter Murdock (1967), concern the uneven coverage of groups and attributes and measurement error."

"In this study, we leverage a group’s oral tradition to shed light on its cultural heritage and past social and economic structures. According to the Oxford Dictionary, folklore consists of the traditional beliefs, customs, and stories of a community, passed through the generations by word of mouth. This corpus is the subject of the discipline of folklore. We do three things to reveal the potential of integrating traditional narratives in the toolset of economists and political scientists interested in the origins of comparative development, gender norms, morality, psychology, and culture.

First, we introduce to economics a catalog of folklore that codes the distribution of thousands of motifs across 958 world societies. This database is the lifetime work of eminent anthropologist and folklorist Yuri Berezkin. A motif, according to the author, is an episode or an image found in the set of narratives recorded in an ethnolinguistic community. We validate the catalog’s content by establishing that images and episodes in a group’s oral tradition reflect salient features of its physical environment. For example, groups closer to earthquake-prone regions have a higher incidence of earthquake-related motifs, groups on fertile land have more crop-related images, and groups living close to rivers (or in colder climates) have more episodes reflecting their respective landscapes. Then we link the groups in Berezkin’s collection to the EA and show that the folklore-based measures of political complexity, family structure, and subsistence mode robustly correspond to EA’s analogous traits.

Second, we illustrate how to use a group’s oral tradition to fill in gaps in the ethnographic record, focusing on the degree of political complexity and the presence of high gods. In addition, we show how one can use folklore to quantify the extent of the preindustrial market economy, a key economic aspect that the EA does not cover.

Third, we present a method to uncover a group’s cultural heritage that involves reading and classifying motifs by multiple individuals.³ We focus on trust, risk-taking, and gender norms to illustrate our approach. To capture trust, we look at how tricksters (a common archetype in oral traditions) are depicted in the motifs, distinguishing between cases where their deceiving behavior is successful or punished. Regarding risk-taking, we look at how challenges and competitions are portrayed, differentiating between tragedies and victories. To measure gender norms, we classify the various stereotypical roles males and females play in the motifs.

These folklore-based measures of historical attitudes are robust predictors of contemporary values and economic choices. Folks who grew up listening to stories where tricksters often fail to deceive their victims are more trusting and prosperous today. Groups with oral traditions rich with heroes who successfully tackle challenging situations tend to display more appetite for risk and appear more entrepreneurial. Societies whose folklore portrays women as less dominant, more submissive, and more likely to engage in domestic affairs than men tend to relegate their women to inferior roles in their communities, both historically and today. These patterns hold across countries, second-generation immigrants, and ethnic groups, suggesting that folklore may be one of the vehicles by which norms are intergenerationally transmitted."

Also see my blog called Dollars and Dragons: A look at the intersection of economics and mythology. It has many posts on economics and storytelling.

Related posts: 

London School of Economics Professor Mary Morgan says storytelling continues to play a key role in economic analysis today (2023)

Is good business as much about storytelling as the stock market? (2023)

Is Storytelling Important For The Economy?  (2021)

Economists Love Fables And Parables (Or, The Essence Of Economic Analysis)

The Next President Inherits a Remarkable Economy

The high quality of recent economic growth should put a wind at the back of the White House’s next occupant

By Greg Ip of The WSJ. 

There is some good economic news out there. A related post was one from two weeks ago was A comparison of the inflation rates, unemployment rates and poverty rates from 1975-83 with the current rates. All three of those rates are much lower now. 

Another one was Oct. 28. U.S. Economy Again Leads the World, IMF Says: International Monetary Fund upgrades U.S. growth outlook as strong investment boosts productivity.

Excerpts from The WSJ article:

"Through the second quarter, the U.S. grew 3%; none of the world’s next six largest advanced economies grew more than 1%."

"inflation has fallen in the past year, to 2.7% in the third quarter, using the Fed’s preferred underlying measure. That’s still above the Fed’s 2% target, but the progress was sufficient for the Fed to cut rates in September and pencil in more cuts"

"productivity—i.e., output per hour—probably rose around 2% or more, annualized, in the third quarter, after rising 2.7% in the prior four quarters, above the 1.5% average annual rate from 2007 to 2019."

"thanks to higher productivity, the U.S.’s potential growth—what it can sustain over the long run—might be higher than the 1.8% that many forecasters like the Fed have long assumed. 

Satyam Panday, an economist at S&P Global Ratings, thinks the potential might be 2% to 2.3%, citing booming investment in artificial intelligence, data centers, and renewable energy."

"no other country has witnessed it [Productivity trend]."

"from the end of 2019 to the end of 2023, total output rose 7.9% in the U.S., of which 1.2% came from more hours worked and 6.7% from productivity—more output per hour. In the eurozone, output was up 3% in the same period, entirely due to more hours."

"European Union companies still pay two to three times more for electricity and four to five times more for natural gas than their U.S. counterparts"

"No EU company worth more than 100 billion euros, equivalent to $108 billion, “has been set up from scratch in the last 50 years,” while all six U.S. companies worth more than $1.08 trillion were created in this period"

"America’s companies are also faster to adopt technology such as artificial intelligence, which explains much higher productivity in professional services, finance, insurance, and information technology services."

"These differences are mostly the product of the intrinsic dynamism of American capitalism"

"Average wages since mid-2023 have outpaced inflation as the latter fell." 

Inflation Has Cooled, but Americans Are Still Seething Over Prices

Many people—though not all—saw wage increases that kept pace with the pandemic’s rapid price hikes, but the psychological toll remains

By Jon Kamp, Joe Pinsker and Aaron Zitner of The WSJ. 

I have done several posts on how people have been dealing with the inflation of the last few years as well as how they have been affected. Those are listed after some excerpts from the article.

"Americans are grappling with dramatic price hikes that, for most, are unprecedented. In the latest surge, inflation peaked in mid-2022, with prices up more than 9% from a year earlier. In the years prior to the pandemic, inflation was unusually cool, and the last time it was a real problem was the 1970s and early ’80s."

"Inflation has slowed dramatically in the past two years, and it was down to 2.4% in September"

"At the same time, employment and consumer spending have stayed strong, and wages have on average grown faster than prices."

"people continue to face painfully high and sometimes rising prices for big-ticket items, including housing, cars, child care and insurance, which contributes to their sense of unease."

"a Fed report Wednesday noted some signs of Americans shifting toward cheaper purchases."

"Others are simply irritated by having to pay much more for groceries, a deli sandwich or their morning coffee—even if their own pay hikes have made such items even more affordable than they were before the pandemic. Some in this camp feel the higher prices have devalued raises they worked hard to get."

"The latest Wall Street Journal national survey, released Wednesday, shows about three-quarters of respondents believe costs for everyday goods and services outpaced household income in the past year."

"38% of voters said the cost of living was still rising and creating major financial strains for their families."

"if there were five stages of inflation grief, Americans have yet to reach acceptance."

"The University of Michigan’s Surveys of Consumers from late September and early October show Americans have significantly lowered their expectations for continued inflation. At the same time, 44% of those surveyed said high prices were worsening their personal finances. This is near the 47% who said the same thing just after the 2022 inflation peak."

"Survey data show consumer sentiment has improved from its mid-2022 trough, but it remains well under where it was before the pandemic took off."

"Ulrike Malmendier, an economics and finance professor at the University of California, Berkeley’s Haas School of Business, has studied the way living through inflation and other economic turbulence affects people long afterward. This is even true for members of the Federal Reserve, whose views on inflation often appear linked to the times they lived through.  

Most models say that once problems like high inflation subside, people are expected to resume their prior behavior, Malmendier said. But her research shows people actually carry scars that can long influence how they spend and save."

"A key question is how long those scars last, and there are limited examples to draw on for answers. During the 1970s and early ’80s bout, as Volcker described, people became somewhat conditioned to high inflation because it went on for so many years. The phase also ended with the U.S. plunging into a recession that led to high unemployment.

This time, high inflation was intense but relatively brief, and came under control much faster than many people expected, Malmendier said. But the calm that preceded it meant the sudden surge upended peoples’ expectations.

“There was this long period of stability before, people were totally anchored on that,” she said. “Their world was shaken.”"

"what many voters seem to want is prices to go back to where they were. That is deflation, the opposite of inflation, and economists say it generally only happens when the economy is deeply depressed."

"Peoples’ sour views of inflation are fed in part by a belief that their wages aren’t keeping pace, according to Stefanie Stantcheva, an economics professor at Harvard University. She surveyed people early this year to explore the public’s inflation views.

She also found that even when people receive wage increases during times of inflation, they tend to peg increases to their job performance or career advancement, and not a cost-of-living increase. “This contributes to the dislike of inflation and the feeling that it erodes your living standards,” Stantcheva said."

"Inflation also raises feelings of inequity, Stantcheva has found, due to a perception that high-income people see faster wage increases to offset the high prices. Since the start of the pandemic, wages for lower-income earners have actually tended to grow faster, and are outpacing inflation by more than wages for higher-income earners, economic analyses of Labor Department employment data have found.

Stantcheva emphasized these findings don’t mean people’s feelings are off base, and she said inflation is measured in a broad way that can miss many subtleties. Different people buy different things, exposing them to different price changes. Her survey work shows news reports of inflation are especially likely to set off despair, stress or fear among low-income people.

Her surveys also found people estimated inflation in the prior 12 months to be higher than it actually was, while also finding people predicted higher inflation than the U.S. has seen this year." 

This graph shows the annual percentage change in the Consumer Price Index from 1960-2023. It shows how much the monthly average of the CPI increased year over year. It is from Federal Reserve Bank of St. Louis. 

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When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923) 

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