I’m continually amazed by the work that Max Roser, of Our World in Data, creates. I feel like I know population sizes fairly well, but I still learn something every time that I look at one of these maps. Click the image for the ginormous hi-res image.
While recent posts have myth-busted the narratives that money printing causes inflation and money printing drives up rates, even a quick glance at the same data shows that there is a stronger relationship between inflation and interest rates. The conventional view is that long-term rates move in response to inflation, although it is worth noting that long-term rates are less volatile than the inflation rates that drive them. Thus, the R² (or goodness of fit) is not that high, but there is a visible correlation nonetheless.
We’ll start with the world’s largest economy, the US:
And the Euro Area:
And finally, the UK:
I was recently looking up some UK inflation data and noticed that the Bank of England publishes inflation data going back to 1210!
Since this is a a very short post and the inception of this UK data set slightly predates the life of William Wallace (a resident of the UK’s current borders), I feel compelled to share my favorite Braveheart meme (from the Scottish independence referendum of 2014).
Similar to last week’s post, we’ll be asking if increases in the money supply lead to higher interest rates?
Let’s look at the money supply and 10-year interest rates in the five largest economies. First up: the US.
The verdict: increases in the money supply do not necessarily lead to higher interest rates. In fact, the above data from the five largest economies during a period of unprecedented expansion in the monetary base shows zero evidence that increases in the money supply drives rates higher. Apologies to the self-described bond vigilantes and Tea Partiers for the cognitive dissonance.
Do increases in the money supply cause or accelerate inflation?
Let’s consider the evidence…
First, a chart of the annualized percentage changes in the money supply (M1) and consumer price index (CPI).
We can also look at the same data, but use the absolute value of the money supply. Again, inflation does not seem correlated with increases in the money supply.
Let’s look at other economies and monetary bases. First up: the Eurozone.
A look at China:
A look at Japan:
And finally, the UK:
Verdict: increases in the money supply do not necessarily cause or accelerate inflation. The above charts represent decades of data from the five largest economies during a period of unprecedented increases in the money supply. I understand that there is a logical rationale and belief that printing money leads to inflation, but it is simply not true. I am not sure what more evidence can be provided, yet the myth persists nonetheless.
If a cartoon is worth a thousand words, then the above should suffice for a blog post about sustainable investing.
Following the Trump administration’s decision to separate families, I’ve felt a mix of sadness for the families, anger at those directing & facilitating this policy, and troubled by the stories of neglect and abuse coming out of the childrens’ “shelters.” Like many, I was moved to donate towards family reunification efforts but eventually opted not to. My intention in writing this is not to discourage anyone from donating towards important causes, but to illustrate that some problems cannot be solved by fundraising more donor dollars.
Without getting into the history, details, or politics of immigration policy, a major barrier preventing separated families from reuniting was the detained parents’ lack of money to post bail. If the arrested parents could pay for a bail bond, they could be released and reunited with their children. Immigration bail bonds reportedly cost between $1,500 and 10,000 and several organizations fund bail for detained immigrants.
However, after reading up on immigration bail bonds and reading about the viral fundraising successes, it was clear that more than enough money had been raised by dedicated immigration bail bond funds. If there were only one kid per family (roughly 2,500 kids) and the maximum allowable bail of $10,000 was set in every case, it’d only take $25M to bail out at least one parent from each family. Some organizations raised that amount single-handedly. In short, additional dollars donated would have no impact on the issue of family separations (although the early donors may have had a marginal impact and all donations can hopefully be used to fund bail bonds unrelated to family separations).
The second area I looked into was legal services. It’s difficult for residents of the US to understand the legal system and even harder for a new immigrant (and especially under the duress of being separated from their children)! However, my back-of-the-napkin analysis also indicated that the organizations doing this work had raised more than enough to hire sufficient legal personnel. The primary problem does not seem to be lack of funds or capacity for hiring enough people, but the government has not properly documented all the people that they’ve detained and likely deported many parents without their child(ren). It has and will continue to take time to reunite families and it’s difficult to see how more money will expedite the process at this point.
What I Did Do
While I declined to donate, I did advocate in small ways; posting on social media, mentioning here, joining a local rally with my family and friends, and continuing to advocate and donate to organizations that attack the root problems in Central America. Trump created and enacted the policy and had the power to reverse it, which he eventually did when it’s existence and details became known and deeply unpopular even within his family, party, and among his staunchest supporters. In this case, media attention, public scrutiny and advocacy, and legal action were the influential factors.
Should I donate at all?
The point of this post is not “don’t donate.” I believe in giving and giving generously, but giving money isn’t always helpful (and can sometimes be harmful). I find that my initial reaction to donate is often based on a desire for some sense of agency (“don’t just sit there, do something!”) or driven by my ego (“good job Matt, you’re helping out”), which are not good reasons to donate. I believe that if we ignore false narratives and selfish desires, then we can be more efficient and effective with what we do give. At some point, I should probably post some case studies of instances where I did donate, rather than solely focusing on times that I declined. I believe that we should give, but thoughtfully.
Although the headline numbers on last week’s job report were below expectations and tariffs may create further drag, the labor market remains quite strong. One of the metrics that I have been watching has been the continued decline in unemployment rates among groups with historically higher unemployment. While all jobs and compensation are not equal, low unemployment rates are an encouraging sign.
One way to look at the breadth of the labor market’s health is to look at unemployment rates by education level (see below). As the bottom panel shows, the difference in unemployment rates between those with a bachelor degree and those with a high school diploma is historically low.
Similarly, we can slice the data to view unemployment rates by race. Currently, the gap between black and white unemployment rates is also historically low.
Another metric worth following is the U6 unemployment rate, which includes the official headline U3 unemployment rate plus those who are underemployed (discouraged workers or those marginally attached to the labor force, as well those working part-time for economic reasons).
While low unemployment benefits workers today, it also provides valuable training and experience that will benefit those workers, their future employers, and the overall economy for years to come and beyond the current cycle.
I visited Seattle twice last month and saw the boom that everyone’s been talking about. Seattle is home to both the most competitive neighborhoods and the most construction cranes in the US (see below).
To left of my photo above, Amazon has raised multiple skyscrapers and many more are going up between where I took the photo and the lake. How many cranes can you spot?