Christopher Matthews

Why consumers think inflation is higher than the official data

lt will come as a surprise to many Americans that the Federal Reserve has considered disinflation, or the absence of rising prices, to be one of the most pressing problems facing the U.S. economy.

Despite inflation averaging less than the Fed's target rate of 2% per year since the financial crisis, surveys of consumers routinely show them perceiving inflation as closer to 10%:

Data: Federal Reserve Bank of St. Louis, Bureau of Labor Statistics; Chart: Andrew Witherspoon / Axios

Jill Milsinksy, Research Director with Advisor Perspectives, recently broke down official inflation data to show how inflation rates differ greatly for different kind of spending, lending insight into why we think inflation is higher than it is, and why people feel economically insecure even in these days of plentiful employment.

"Households vary dramatically in the impact that inflation has upon them. When gasoline prices skyrocket, a two-earner suburban family with long car commutes suffers far more than the metro family with short subway commutes or retirees with no commute," she writes. "And the pain is even more extreme for low-income households whose grocery money shrinks when gas prices rise."

Furthermore, the divergence in inflation rates between product groups shows that even as price growth overall has been tame, prices for the goods that are most important in life—namely healthcare, housing, and education—are rising much faster.

Why it matters: Rising prices in healthcare, housing, and education have dominated the political discourse in national races and local constituencies across the country. The Federal Reserve doesn't have the tools or authority to target industry-specific inflation, but voters across the country are demanding that somebody does stop the relentless rise in prices for the most important things we buy.


Mark Cuban: Tagging data is the low-skilled job of tomorrow

Evan Vucci / AP

The spread of artificial intelligence technology will create great demand for workers to "tag and label data," Mark Cuban argued at an event staged by VC firm Lerer Hippeau in New York Tuesday. "In order for machine learning, deep learning ... to be effective and work the most quickly, the more data that is tagged and defined and labeled correctly the quicker everything goes," he told Axios' Dan Primack.

Prepare yourself for the future: Cuban is a big believer in the power of AI, and its power to disturb labor markets. "There's going to be more disruption sooner than people have expected over the next 4 or 5 years," he said. According to Cuban, we all should be preparing for a workplace dominated by this new technology. The important question, he argues, is not how many jobs it will destroy, "The real question is how is it going to disrupt your job."

What jobs will go? Cuban argued that we're already seeing the evidence of the application of new labor-saving technology, pointing to the example of Ford's plans to cut 10% of its workforce even as revenues are near record highs. He listed non-trial corporate lawyers, accountants and book keepers, insurance adjusters, and doctors as key jobs that will be partially eliminated or greatly changed by machine learning and AI.


Mark Cuban: Trump hasn't ruined America's love of businessmen

Brandon Dill / AP

Mark Cuban says that despite the high-profile failures of the Trump Administration, the American public still yearns for a disruptive outsider with a background in business as President. During an event staged by VC firm Lerer Hippeau in New York Tuesday, Cuban argued that Trump's missteps will be blamed on Trump's incompetence, rather than his business background. He told Axios' Dan Primack:

There's nobody like Donald Trump. He's just an idiot. —Mark Cuban

President Cuban? The Shark Tank investor didn't rebut rumors that he will run for office in 2020, though he did predict that if he were to run it would be against a President Pence rather than President Trump.

Why it matters: Cuban isn't the only businessman who is rumored to be considering a run for POTUS — Disney CEO Bob Iger is a name that has also been floated as a potential Trump rival in three years.


Better jobs won't lead to more marriage

John Locher / AP

The decline in marriage rates among less-educated Americans has been a trend of concern for both the left and the right in recent years. Progressives have generally seen these data as the result of a lack of economic opportunity, while conservative thinkers have argued the reverse: that economic inequality is being driven by a decline in cultural affinity for the institution of marriage.

A new study published Monday by the National Bureau of Economic Research argues against the first interpretation, showing that between 1997 and 2012, areas that experienced fracking booms — and therefore increased wages and economic opportunity for the less-educated — experienced a spike in birth but not marriage rates.

Why it matters: Though there is some evidence that falling working-class marriage rates were in part caused by shrinking economic opportunity, these results poke a hole in notion that better job opportunities will lead to more marriage.


How "superstar firms" contribute to rising inequality

Paul Sakuma / AP

The global marketplace has made it possible for superstars in music, sports, and even business administration to earn more money than ever before in what economists have labeled a "winner-take-all economy," whereby the best earn outsized rewards while the rest struggle.

New research from economists David Autor and Lawrence Katz suggests that this dynamic is also present in competition between corporations. They write that the rise of "superstar firms" is one cause of the recent decline in the share of corporate profits going to workers rather than shareholders.

Why it matters: Since the 1980s, industry concentration has risen across the developed world, and the growing power of corporations that are dominating their respective industries has enabled them to suppress wages.

Why concentration has risen: One example of a beneficiary of the winner-take-all economy is Google, which enjoys a market share of 63% in the United States and 90% in Europe. The nature of the search-engine business leaves little incentive for customers to choose the second-best option, and there is no room for runners up to differentiate themselves based on price, as search engines, like many new-economy products, are provided freely. But this is not the only explanation for rising industry concentration. The authors also find evidence for other causes, like:

  • Lax enforcement of monopoly laws;
  • The increased reliance on patents to reduce competition;
  • The "fissuring" of the workplace, whereby highly profitable firms are increasingly outsourcing tasks like janitorial or clerical work, and thus excluding them from the benefits of working for superstar corporations.

Economists stumped by slow American wage growth

Economists continue to ponder slow-growing wages for American workers, even as the unemployment rate falls to to historically low levels. In a note to clients this week, Bank of America economist Michelle Meyer points out that:

  • The unemployment rate is 4.4%;
  • Companies have the most job openings available since 2001;
  • Workers are quitting at the fastest rate since 2007.

"All else equal, this seems like an equation for"normal" pace of wage growth of 3.5-4.0%," she writes. Yet we're only seeing worker pay rise by roughly 2.5% per year.

What gives? One theory is that due to increasing specialization and demand for higher education levels, it's become difficult for workers to switch jobs or careers to those that pay more. Evidence shows that such "job-to-job" transitions are happening at a lower rate today, relative to unemployment levels, than in the past.

Minimum wages, union activity: A primary driver of higher worker pay in recent years has been states and localities raising their minimum wages. Meyer points out that at an industry-specific level, retail and hospital workers have seen their wages rise faster than average, as many of these industries have been forced by local laws to raise pay. In addition, BofA analysts predict high wage increases in the airline industry as the result of new union contracts.

Location matters: Torsten Slok, Chief International Economist with Deutsche Bank Securities argues that the Federal Reserve might just have to be patient and tolerate a much lower unemployment rate than normal before it sees faster wage growth. " The unemployment rate in Maine and New Hampshire is around 3%, well below the national average of 4.4%," he emails. "And in those two states we have recently seen wage growth at 4% - 5%, well above the national average."


Lessons from 20th anniversary of AI's most stunning victory

On May 11th, 1997, the IBM supercomputer, Deep Blue, became the first-ever machine to beat a reigning chess world champion when it defeated Garry Kasparov in a six-game match. Kasparov didn't take the loss well, and accused IBM of cheating. But today he is championing artificial intelligence as a tool that will elevate humanity, rather than destroy it, as pessimists like Stephen Hawking fear.

The human advantage: Kasparov tells economist Tyler Cowen in a podcast interview Wednesday that despite the fact that computers long ago surpassed humans in chess-playing ability, collaboration between the two will always be most powerful. He says that in a game of chess, even a weak human player in conjunction with a well designed machine and superior interface can defeat even the most powerful computer on its own.


How AI will supercharge early-childhood education

Marcio Jose Sanchez / AP

The job of teaching is often cited as one that won't be replaced by artificial intelligence. But according to Joseph Qualls, an AI researcher at the University of Idaho, education, especially the early-childhood variety, is ripe for transformation through AI.

The money quote: "I see people starting to interact with AI when they're very young. It could be in the form of a teddy bear that begins to build a profile of you, and that profile can help guide how you learn throughout your life," he tells Smithsonian Magazine. "From the profile, the AI could help build a better educational experience. That's really where I think this is going to go over the next 10 to 20 years."

Ethical concerns: Qualls says that we should be careful about implementing AI in the education system, so that students aren't pigeonholed. For instance, "[the AI program] tells me my child has a tendency to be very mathematically oriented, but she also shows an aptitude for drawing," Qualls says. "Based on the data it has, the machine applies a weight to certain things about this person. And, we really can't explain why it does what it does. That's why I'm always telling people that we have to build this system in a way that it doesn't box a person in."

The role of the teacher: Qualls says that in the future, teachers will serve as monitors of AI systems that develop personalized curricula. "They'll become more data scientists who understand the AI and can evaluate the data about how students are learning," he says. " You're going to need someone who's an expert watching the data and watching the student. There will need to be a human in the loop for some time, maybe for at least 20 years."


Why it's dangerous to fear the robot revolution

AP Photo / Alastair Grant

Robert Atkinson, president of the Information Technology and Innovation Foundation, co-authored a new report published Monday that contrary to widespread popular opinion, the adoption of new technologies is displacing fewer workers than ever before in American history. The data he presents shows that:

  • Technology always directly kills more jobs than it creates, though it is doing so at a lower rate today than at any point since 1850.
  • The true engine of job creation is that technological displacement of labor makes those who still have a job richer, and therefore creates demand for more already existing occupations. For example, the societal wealth that is created by no longer needing movie projectionists has created the wealth to support many more teachers.
Why it matters: This study could cause policymakers to reevaluate the public fear of coming waves of automation, and instead focus on the threat of overreacting rather than underreacting to these changes. Axios talked with Atkinson to get his take on the implications of his research:

Were you surprised by your results?

Yes, totally. Part of what we wanted to do was just look at the changing nature of the labor market. Were there a lot of blue-collar jobs being destroyed and when, and things like that. When we really started looking at the overall amount of churn and occupation loss, we said, "wow, that's amazing," because the narrative you hear all the time is that the period we're in is this unprecedented period of occupational disruption. I expected today's numbers to be on par with the past, but it's actually a lot lower, and that's a big surprise.

What's the reason for this gap between perception and the evidence?

The labor market is complex and opaque. People tend to think about technology and jobs from their own very direct, personal experiences. The major one they think about nowadays is Uber, and they see taxi drivers losing their jobs. What people forgotten is that if you go back to the 1970s, for example, there was this huge decline in farm workers. 400 or 500 thousands workers lost their jobs, telephone operators lost their jobs. There was this occupation called 'file clerks," that don't exist anymore.

What is your opinion of economist Robert Gordon's thesis that the real danger is that technological innovation is actually on the decline, and that we should prepare for very slow economic growth?

I agree with Gordon that we're currently in a period of low productivity growth, but I don't buy into this notion that we've run out of important innovations. Using the example of autonomous cars, I think the most disrupted job in coming years will be auto-body repairman, as that technology will dramatically reduce the number of accidents. But there are also many, many jobs that won't be destroyed in coming years.

What the techno-optimists would say is that the economy of the future is fundamentally different because we are entering an age in which we are inventing technologies that will actually further their own development. Does this prospect mean we have to rethink our assumptions about technology, or are these people underestimating how transformative previous waves of innovation were?

People really do forget how mind-blowing technologies of the past were. It's easy to be ahistorical and say that the things we're inventing are bigger than those of the first industrial revolution. People also tend to overestimate the reach of the technologies to come. I've talked with a lot of AI scientists, and one thing they all said to me is that it's not as if you are going to create machines that have anything close to human capabilities. It will have better than human capabilities in a lot of areas, but doing things like writing a complex legal brief, it. won't be able to do.

Many of the jobs you argue will be irreplaceable by AI are those in the public sector like teachers, fireman, and police officers. Doesn't this mean that we'll have to become more comfortable with the public sector being a more important source of employment?

We shouldn't set a goal of how much money we want to spend on education or safety. We should have goals in terms of output. And what people forget is that if we automate and become richer as a result—and we're able to distribute those gains equally—then people will have more disposable income and can tolerate higher taxes to pay for public goods.

Is the media overhyping this issue?

A lot of people are. The media is often a reflection of who's giving them stories, and a lot of people feeding stories are snake oil salesman. The more outrageous your prediction, the more likely you are to get quoted, so they put these very inflammatory predictions out there.

What are the dangers of overreacting to this issue?

Bill Gates recently argued that we should tax robots, and [Nobel Prize winning economist] Robert Shiller has argued that automation technology is like alcohol—it has negative externalities and therefore should be taxed. I could see just some guy saying that, but for a respected economist, that is a fundamental change in how economists have historically looked at technology. We've always looked at it as a net positive, and this attitude will be harmful to the economy.


Why the EU is forcing AI to explain its behavior

By May of next year, artificial intelligence algorithms in the EU will be legally required to provide users an explanation "every time it uses [their] personal data to choose a particular recommendation or action," writes AI lawyer John Frank Weaver :

  • For example: Weaver gives us Amazon's usually reliable Alexa, which recently cued up Sir Mix a Lot, to the befuddlement of its owner.
  • Why AI owes an explanation: Weaver says the U.S. should follow suit, in order to promote transparency and greater user control over the technologies that play an increasingly important role in their lives.
  • Why we should tread carefully: Thomas Burri, an assistant professor of international and European law at the University of St. Gallen, told Weaver "If the first thing you need to consider when designing a new program is the explanation, does that stifle innovation and development? . . . Some decisions are hard to explain, even with full access to the algorithm...."