What we’re reading (12/19)
“The Next Big Fed Debate: Has The Era Of Very Low Rates Ended” (Wall Street Journal). “Following the 2008 financial crisis, economists and Fed policymakers steadily revised down their estimates of the neutral rate. Superlow interest rates and reservoirs of monetary stimulus didn’t deliver much of an economic boost. Some economists argued that low interest rates were here to stay, thanks to demographic headwinds from an aging workforce and a chronic shortfall of demand for new investment. Some of these same economists think neutral rates have gone up in the past few years, after a barrage of fiscal stimulus shocked the economy into a new equilibrium during the Covid-19 pandemic. The view last decade that borrowing costs would stay low became embedded in bond yields, mortgage rates, equity prices and countless other assets. The prospect of a higher neutral rate suggests mortgage rates, for example, might be stuck above where they were in the 2010s.”
“America Is One Big Casino Now” (Business Insider). “If it feels like everybody's betting nowadays, it's because a whole lot of people are. 2024 was the year companies from sportsbooks to prediction markets to trading apps asked, "Wanna bet?" And Americans responded with a resounding yes.”
“Workers Don’t Understand The Purpose Of Their Jobs Or Companies, And It’s Leading To ‘The Great Detachment’” (CNBC). “Many workers aren’t happy with their jobs, and their limited options to find a new one are contributing to an era Gallup is calling ‘The Great Detachment,’ according to a new report from the workplace advisory firm. The share of Americans watching for or actively seeking a new job has ticked up to 51% today, compared with 45% in 2020.”
“Existing-Home Sales Elevated 4.8% In November; Post Strongest Year-Over-Year Increase Since June 2021” (National Association of Realtors). “Existing-home sales grew in November, according to the National Association of Realtors. Sales advanced in three major U.S. regions and remained steady in the West. Year-over-year, sales climbed in all four regions.”
“The Wealth Of Stagnation: Falling Growth, Rising Valuations” (Jonathan Paron). “Over the last half-century, economic growth stagnated but stock-market wealth boomed. I present evidence that declining innovation productivity reconciles these trends. At the macro level, I document that R&D spending has fallen relative to value, while M&A spending has doubled relative to R&D. At the micro level, most of the increase in aggregate valuation ratios is explained by a reallocation of sales shares toward high-valuation firms. Using a Schumpeterian model of growth and asset prices, I find that declining innovation productivity explains these facts. When innovation productivity falls, R&D falls and M&A rises. This concentrates production into the hands of the most efficient (high-valuation) incumbents, causing aggregate value to boom. Quantitatively, this explains most of the decline in growth and the rise in valuations. It also helps explain other salient trends, including declining firm entry, rising concentration, and falling interest rates. While stock-market wealth boomed, the present value of consumption (consumer welfare) stagnated with output.”
