Some of My Big 2023 Questions

Will there be a recession? Will people unretire? What about Big Tech?

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The Hapag-Lloyd Ain Snan Express container ship is unloaded at the GCT container terminal on October 29, 2022, in Bayonne, New Jersey. (Photo by Gary Hershorn/Getty Images.)

Dear Capitolisters,

I hope you all had a nice [winter holiday of your choosing]. Instead of doing a 2022 retrospective like I did last year, the first Capitolism of 2023 will look forward to some of the biggest (IMO) unanswered questions for U.S. economic policy in the year ahead. 

Will the U.S. See a Real Recession?

As we discussed back in August, mid-2022’s “recession” was more a statistical quirk than a real recession, and the rest of the year reinforced the point, with U.S. labor market, gross domestic product, and other figures consistently beating expectations through the fall (much to the dismay of the inflation-fighting Federal Reserve). This year could be different: As of now, a significant majority of economists expect the Fed’s current tightening cycle to tip the economy into a recession within the next 12 months: 

As the figure above indicates, however, several forecasters—including the folks at Goldman Sachs (GS) who made the chart—remain unconvinced that a recession is likely.  They instead believe that the Fed can achieve its much-desired “soft landing”: hiking interest rates just enough to temper demand and inflation without a major spike in unemployment and related decline in economic activity. The most recent inflation data (for November) came in cooler than expected, boosting the Goldman/optimist view:

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  1. Mike Dixon

    Scott...any thoughts on the new Congress perhaps getting around to reauthorizing GSP at some point?
    For so many companies like mine...the expiration of GSP and its impact on net costs has been difficult. But less talked about has been the pace with which CBP has been "reclassifying" products under new HTS codes that has - in some cases - put duties at 7X (or more) longstanding historical measure. The double-whammy is hitting an awful lot of small and mid sized businesses hard as the pandemic-fueled demand ebbs and inbound inventories soar...

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    Ben Connelly

    Scott, thoughts on 4-day work week implications for labor market dynamics?

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    Cantorz

    I think it was always a mistake to read “Washington’s big tech hysteria” at face value when it came to antitrust regulation. As much as Democrats accuse the (especially MAGA) right of carrying out a vindictive brand of politics in which punishing your perceived enemies Trumps (with a capital ‘T’) all other possible agendas, the left was just as guilty when it came to big tech skepticism.

    The antitrust balderdash from the left was always about punishing big tech for its role in getting Trump elected. And because big tech skepticism is, a its heart, consistent with the Republican party brand, it gained bipartisan momentum. That momentum accelerated when tech’s moderation of false statements from the extreme right turned into a culture war issue that turned into a billionaire laughably lighting billions on fire (at least he got some good Tweets out of it).

    But, importantly, monopoly power isn’t actually at the heart of any of these shenanigans. If it were, the brightest spotlight would’ve been on Apple, not Google or Facebook by any other name.

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    Earl King

    Scott, one of the nagging issues for America is the cost of illegal drugs, human smuggling, crime. Criminal organizations that control our border.
    When I first moved to NYC, it was often said that every concrete contract in NYC contained $1 million for organized crime. I am certain that the cartels payoff government officials. There may be a hidden tax on trade.

    Our trade with Mexico is about 3/4’s of a Trillion dollars. I can’t find the amount of money cartels make from drug trade. I find some 2011 numbers and some guesses. I’m wondering if putting more manufacturing in to Mexico would eventually give the government more ability to crush the cartels? We did a pretty good job on the Mafia in the states and saved lots of money by doing so.

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    Bel

    Regarding early retirement, a friend recently retired at 58. When my spouse and I discussed how he pulled it off (How?!), Spouse suggested that the youngest Boomers/oldest Gen Xers built more wealth from the dot.com boom then we did. We are 50.

    But the generational wealth chart suggests he is wrong?

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      CynthiaW

      I don't think the generalization holds up. Maybe your friend just choose a good career, worked hard, lived thriftily, and made prudent investments.

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        Bel

        Yes on career choice and likely investment savvy, but also had a very expensive divorce, hence the surprise

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          CynthiaW

          I see! Maybe the person made a lucky bet in the stock market.

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            Bel

            Maybe. I should ask if he invests in individual stocks. Seems like an index fund kind of guy. Not a gambler, unless you count the marriage.

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  6. Mary Stine

    Well, here's an option: convert empty commercial real estate to house immigrants waiting for processing.
    Make these buildings multi-use: small businesses like cafe's, barber shops, small grocers and convenience stores on the first level; schools, daycares , chapels, and offices on the second level and apartments on the higher levels.
    Most commercial real estate already has plumbing, electricity and restrooms. Some would require more work than others, but even if families had to share a couple of restrooms on the same floor, it'd be better than being outdoors in the worst cold or heat. and safer.
    Right now several schools in our area have been converted to apartments. Some have also been converted to commercial use. But the most successful have been office buildings or department stores now converted to
    multi- use with retail businesses, services and cafes on the first level, offices on the second with the top two devoted to apartments.
    The flailing public transit might be revived by this, especially if big employers like Amazon contracted with the multi-use building management to provide reliable and flexible work transport, or signed on to help fill out current government busing.
    Best case scenario would be private and public money jump-starting a self-sustaining business model.
    I think this is doable if enough NGO's, private businesses and government agencies can agree on the model.

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    BikerChick

    My daughter and her fiance recently left the NYC area to buy a house in the Midwest. They are both remote workers (NYC based) and knew their dream of home ownership would never happen out there. They will just travel to the office when needed, which is maybe once or twice a year.

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  8. Kwinter

    The wealth chart by generations is no surprise. It reflects the incentives from the reduction in defined benefit pension plans. Employees don't want to be tied to employers.

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      CynthiaW

      Employers don't want to be tied to employees, either. That's why many of them overpromised and underfunded the pensions and then shrugged when they couldn't pay, leaving the employees to take whatever the PBGC offered. Pretty much only government employees are offered defined benefit pensions now, because it is imagined that the taxpayers can be forced to pay up.

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      1. Kwinter

        Yes it is nice when both side of the market agree. Governments can underfund pensions without going bankrupt. It will be interesting to see the outcome of the massive underfunding of pensions in some states and localities.

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          CynthiaW

          There was once a fairly strong expectation of loyalty for both employers and employees. Now there is pretty much no such expectation on either side. I don't see any ethical problem with this as a concept. Employees agree to do a job for the agreed wage/salary for as long as they think it's the best option for them. Employers agree to pay the employee the agreed amount for as long as they think it's the best option for them. There are elaborations such as contracts with an agreed time period or contracts that have tradeoffs such as, "We will pay for your degree, and then you will work at the agreed price for three years."

          Because the expectations have changed, other things need to change, including the historical linkage of pensions and health insurance to the employer. The pension link is largely gone, replaced by 401K contributions by one or both parties. The health insurance link is still there, and it's a disaster.

          Regarding pension underfunding, it will be interesting. The states or other entities may not be able to generate the revenue needed when it's time to make the payments. They can raise tax rates, but residents can leave the state/locality.

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          1. Kwinter

            Yes, the health insurance link for employees and employers is a disaster. The solution is easy one sense but really impractical in terms of the politics. Governments should tax fringe benefits including health insurance.

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    CynthiaW

    "Can developers and policymakers figure out how to surmount the economic and regulatory hurdles limiting the conversion of less-needed commercial real estate to much-needed residential offerings?"

    No.

    "Will Congress do anything constructive on immigration?"

    No.

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      Bel

      Don't forget, "As remote work remains popular and prevalent, will policymakers finally get around to fixing these problems? "

      Also, No

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        CynthiaW

        Some of the parties, such as "developers" and "workers," and others such as "property owners" and "immigrants," have the incentives to figure out issues like "getting a place to live" or "getting some paying tenants in this building." Others, such as "policymakers," have no incentive to facilitate or allow the solutions for the other parties.

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  10. Montbrn

    There is a big labor force issue I don't see here, and I wonder why! Men 24-54 are on the sidelines. Some are notable for dying from drugs and suicide at high rates. Many spend many hours watching TV. Many are on government disability, unemployment, food stamps, and housing support but not doing work to support families and having children. This trend is not new, but no doubt gets a push from Covid bailout programs.

    This age group has many on the sidelines when they should be the core of the labor force. They need to be active. They should be building families.

    But here, you have written about other ills of the labor force and left this one out? Why? Perhaps you are saving it for a deep dive? Why are more working? Will we depend on automation, robots, and retirees returning to the workforce? Here we have millions of jobs and working-age males not in the labor force. How can this persist? Or do you expect the solutions covered here to rebuild a vibrant economy? How can you ignore idle men in the millions and wonder how to fill a similar number of jobs and ignore this labor pool, many already supported in part by government programs? Is it that you think that the socialism cake is so settled that we can afford to ignore and support these idle men?

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      Bel

      If I remember correctly there is a deep dive on that topic in the archives

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    2. Mary Stine

      You are describing a problem that has plagued populations around the world for eons. Tibeten men in the early part of the century left nearly all hard work to the womenfolk. This is also true in much of the Middle East, where physical labor by native born men is considered uncouth.
      Our problem seems somewhat different: we have too many boys not raised to be responsible adult men, some of whom also have subtle learning and mental disabilities that make holding a good job nearly impossible. We have few avenues for apprenticeship in crafts or trades and not enough fathers in those to train sons. Autism and ADHD disproportionately affect boys, with little effort made by either the medical or educational communities to actually help these young victims. Both public and private schooling favor the quieter, more mental study habits of females, leaving the more physical males to feel
      hopeless. It's no wonder women outnumber men in college now.
      With traditional male paths of employment in farming, trades and crafts greatly diminished, it is no surprise that many men choose not to work. Not everyone is suited to a desk job.
      If we want to avert an even greater crisis we will need more mentors to young men, not necessarily only other men and we will need better, more affordable real trade schools. We need to go back to having crafts, cooking and shop classes from 6 th grade on. On of the most successful trade schools here is a culinary arts school that has now graduated students who went on to be James Beard contenders and restaurant owner.

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      1. Montbrn

        Thank you for the thoughtful response.

        Fathers need to be in the home with the child to model behavior. Our culture now seems to be geared toward women without husbands. Part of this may be the male drop phenomenon. One part seems to be the social response to substitute support programs for this lifestyle. All of the apprentice comments are right on. It was the need for affirmative action programs that the father-son (daughter also??)gave way to racial quotas, which interfered with the historical model.

        There are many models of small farms and businesses where apprenticeship works, although the lure of other fields creates a lure for talented young people who know how to work because the family business requires it. Again, the point you make on the absence of preparation to engage in work is against the child with no role model or family business. The one-spouse family has one big advantage, some, perhaps most, children learn to work through necessity.

        It is a puzzle now neglected.

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