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Goldman Sachs year in review

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Rapacious corporations sometimes put out interesting infographics. I wonder what it takes to get a job like this in one of these corporations, where I assume most jobs are not like this. Anyway, this entry from Goldman Sachs has some interesting ones. I’ve screenshotted a few interesting graphics – this is fair use and I am steering people to your publicly posted info, please don’t sue me guys!

What the heck are stablecoins?

https://www.goldmansachs.com/pdfs/insights/goldman-sachs-research/2025-4-themes-in-charts/2025-summary.pdf p. 18

So basically, a bank or bank-like entity is allowed to take a dollar and issue you a digital currency that you can spend just like a dollar. Crucially, it appears that they have to keep your dollar as a dollar or invest it in U.S. Treasury bonds while they are holding it. So they can make interest on your dollar and you cannot, but they can’t actually create new money by issuing more stablecoins than people give them dollars.

U.S. government debt interest payments are historically high

https://www.goldmansachs.com/pdfs/insights/goldman-sachs-research/2025-4-themes-in-charts/2025-summary.pdf, p. 23

We often hear “debt is X percent of GDP”. But this is comparing a stock and a flow, so there is no reason 100% has any meaning as a benchmark and it certainly does not mean the entire economy is being spent to service the debt. This measure is really a proxy for interest payments as a percent of GDP. This is really the “hangover” from past spending – what we are spending on interest can’t be spent on anything else, and we can’t really control it in the short term. What is really concerning here is that the high interest payments of the 1980s might be explained by high interest rates, but the debt payment level never came down as interest rates came down during the historically low interest rate period since then. Now interest rates are spiking, and this is directly sucking dollars away from real priorities. So clearly, we have to either “grow our way out”, reduce spending, and/or increase taxes (and/or tariffs) if we want to reduce this number. But reducing spending, increasing taxes, and putting up trade barriers all tend to decrease growth in the near term so this is the conundrum. The government can just create money of course, but this tends to be inflationary and at the moment, we appear to be in the midst of a spiral of inflationary expectations that is not going to go away soon. Thanks Biden…but really thanks Obama, Trump and Biden administrations for making the necessary hard choices to stimulate the economy and head off panic during the financial and Covid-19 crises. This has left less slack to deal with the next crisis though – the current number may be sustainable absent an external shock, but of course external shocks happen. The only good thing about external shocks is they sometimes tend to reduce interest rates. By the way, this section of the publication concludes by showing that government debt is not a uniquely U.S. problem.

The Federal Reserve has a Geopolitical Risk Index

https://www.goldmansachs.com/pdfs/insights/goldman-sachs-research/2025-4-themes-in-charts/2025-summary.pdf, p. 40

Basically, it is just counting the number of newspaper articles mentioning geopolitical conflict in a specified number of “papers of record”. I suppose it provides a somewhat objective measure to ground discussions on interest rates for them. But it could be useful for the rest of us to gauge whether our impressions of geopolitical instability are matching the evidence.

going to college is still a lot better than not going to college

I hear people “questioning the value of a college degree” in the media. Sure, education is getting more and more expensive at a time when wages seem to be stagnating and there is some uncertainty whether career prospects for today’s graduates will be similar to those of past generations. But the numbers say (paying to study and not work for four years and) getting a degree is still a much better investment than not getting a degree and going right to work after high school. Sure, you could borrow the cost of four years of college and bet it on cryptocurrency or the Super Bowl, and you might come out ahead, but you might also come out living a short life under a bridge somewhere. You could also train as, say, an electrician and probably have a decent income and successful career, but you would still probably do better in the long run as an electrical engineer.

Anyway, this is from the Financial Times, which I still seem to have residual access to from my own recent student career.

To determine whether recent graduates are having an especially tough time in 2025’s low-hiring environment, the comparison we should make instead is with others who recently entered the labour market for the first time, regardless of age. A newly job-seeking graduate might be in their mid-twenties, but someone entering the world of work straight from high school will be several years younger.

Once we do this, it turns out that those without a degree are actually having a much harder time of it. In the US, unemployment among recent college graduates is up 1.3 percentage points from its mid-2022 low, but by almost double that among recent labour market entrants without a degree, who have seen a 2.4 point rise. This is very different to the much more modest 0.7 point rise among the frequently — but inappropriately — cited group of non-grads in their mid-twenties who are sheltered from today’s harsh hiring conditions.

But evidence for the kind of large-scale AI-driven displacement of early-career knowledge-sector jobs that would explain broad-based graduate malaise remains conspicuous by its absence….When viewed instead as a broader cooling of the labour market, in which inexperienced workers of all stripes bear the brunt (and especially those with the least skills) we don’t need to reach for such exotic explanations. The unwinding of extremely tight post-pandemic labour markets, rising input costs from inflation, tax changes and tariffs, plus the broader economic uncertainty during Donald Trump’s second term, are sufficient to explain what we’re seeing.

AI-related changes to the job market and wider economy are almost certainly coming, in my view, but we may be perceiving a causation between today’s technology and economic/political headlines that is not quite happening in real time.

entropy economics

John Kenneth Galbraith, an economist at the University of Texas, has a new book called Entropy Economics: The Living Basis of Value and Production. The ideas are not really new, as he admits:

As we and others have said before, from a physics perspective, resources are low-entropy materials (Georgescu-Roegen 1971). The entropy law holds that systems tend towards higher entropy states spontaneously. Living systems, as non-equilibrium systems, need to extract low-entropy materials from the environment to compensate for their continuous dissipation.

We are taking concentrated resources from the Earth’s biophysical system, using them to perform useful work, and producing waste products which consist of less concentrated substances and heat which are too diffuse to use for useful work, and in many cases cause harm to the system. Entropy must increase at the scale of the universe, but organized systems like life and human civilization can get away with decreasing it on scales that matter to us short-lived primates, if not to a dark, cold universe that most likely doesn’t care about us (revealing my atheist stripes here, sure if you are religious that helps to solve this existential dread problem, and good for you!) There is a scale where the impact of our human economy becomes large relative to the physical system it is embedded in, and the economic theories we have based critical decisions on have chosen to neglect that to this point. Economists might say, our equations can account for that, we have just chosen to neglect it and we have clearly stated our assumptions. Well, those assumptions no longer hold as we approach or pass the point of no return.

Many others have made these points. In addition to Georgescu-Roegen – a few that come to my mind are Herman Daly, Howard Odum, Brian Czech, Jay Forrester and the authors of World3, to name a few. But these voices have been ignored by mainstream economists because they were from other disciplines, did not have the right credentials, or did not make their arguments at a time when the prevailing body of thought was receptive. So it probably helps to have one more credentialed academic economist make them for the audience of academic and professional economists at this particular point in history. Today’s students will be tomorrow’s professionals. Economists are very, very important. For better or worse, their opinions and choices and advice to policy makers shape our world. Maybe at a time when the public has become less receptive to these ideas even though the crisis has rapidly worsened, the economics profession could be ready to listen. I don’t know, but it’s worth another try.

University of Chicago Press

house sale price premiums by month and city

Zillow has some data on how much above average home prices are by month of the year and by US city. In general, prices are higher by about 1-3% in March-June. I assume this has something to do with the U.S. school year. It may be somewhat of a self fulfilling prophecy though. Last time I was in the home buying market, which was almost exactly 10 years ago, I started looking for listings in January, but there really was nothing to look at until March. So people in my city (Philadelphia) don’t start listing until March, and by the time you go through the process it seems like most closings are going to be in the May-June time frame (precisely when mine was). I wonder if refinancings show up as home sales in this data though, or if they have some way of knowing when the properties actually change hands. That could skew the data because people can refinance any time of year, and they are likely to refinance when interest rates are relatively low and prices therefore relatively high.

total factor productivity

This is mostly a review for yours truly, partly as I am pondering whether there is any economic theory or strategy that could justify the Trump federal budget cuts and tariffs. My verdict: no, I don’t think so, I think they are based on simplistic ideas: linear, short-term, misguided thinking about the national debt and trade deficits. Anyway, here are a few quotes from the IMF:

It’s a measure of an economy’s ability to generate income from inputs—to do more with less. The inputs in question are the economy’s factors of production, primarily the labor supplied by its people (“labor” for short) and its land, machinery, and infrastructure (“capital”). If an economy increases its total income without using more inputs, or if the economy maintains its income level while using fewer inputs, it is said to enjoy higher TFP…

Recent IMF research shows that TFP growth has slowed around the world since the global financial crisis. In low-income developing countries, it has come to a virtual standstill in recent years…

TFP is higher in countries where the average worker has more years of schooling, the quality of education and training is better, and the workforce is healthier. These advantages enable the average hour of work to generate more economic value added—in addition to improving the quality of life more broadly…

So what can advanced economies do? First, they should “do no harm,” by avoiding policy mistakes, such as permitting a decline in market competition, with powerful firms using their monopoly positions to stifle entry and innovation, or reverting to costly trade protectionism. Beyond this, policymakers should craft regulations that tap the possible productivity benefits of recent innovations in green technology, information and communications technology, and artificial intelligence. They should also tackle remaining barriers restricting the opportunity for women and minorities to bring their talents and innovative potential to all sectors of the economy.    

So, a long-term strategy to boost productivity and national wealth could be to invest in childcare and education (the people who will come up with tomorrow’s innovations, and also their parents who can’t come up with today’s innovations because they are too busy), research and development. The current U.S. administration is cutting all these things. Investing in infrastructure and physical capital also helps if you have underinvested in it in the past – there is a diminishing return to these investments, but the U.S. can’t be anywhere near the diminishing return. It also makes sense to invest in a counter-cyclical strategy – more when private sector unemployment is higher and less when it is lower.

 

recession watch

I’ve been worried about Trump causing a recession. First, he firing federal workers willy nilly, and even if we accepted the idea that these people aren’t doing anything useful, they spend their salaries on groceries, household goods, haircuts, restaurant meals, home improvement, etc. Second, he is cutting federal contracts suddenly. A chunk of the private sector and certainly the research sector relies on federal contracts in one form or another, so this uncertainty will tamp down hiring and lead to layoffs. Then there is all the money that flows from the federal government to state and local governments and economies. That won’t just get magically replaced by state and local programs overnight, if ever. Then you have the tariffs and reduction of trade on top of all that. It sounds like a recipe for a recessionary shock to me.

I’m not an economist, but Claudia Sahm is. Here’s what she has to say, backed up by some facts and figures.

Civilian federal employment (including the Post Office) is currently 3 million or less than 2% of the labor force… About 100,000 workers have either taken deferred resignation or been laid off so far. Even if the total reduction doubles by the end of the year, it would still fall far short of a recessionary shock.

In fiscal year 2023, there were about three times as many federal contractors and grant employees as civilian federal employees (including the Post Office). DOGE canceling or modifying federal contracts and grants put that employment at risk. Elon Musk has set a goal of $1 trillion in savings this year, which most budget experts consider unrealistic. Still, these efforts will lead to a reduction in employment in the private and nonprofit sectors.

But even if DOGE reduces federal employment by 200,000 and canceling contracts reduces contact and grant employment (by a proportional) 600,000, the total is below (though close to) a recessionary shock. Moreover, the reality of the net employment reductions from DOGE this year is likely to be considerably smaller.

Urbanomics 2024 wrap-up

I like the Urbanomics blog. It is India-focused but also covers international and U.S. topics. Here are a few things that caught my eye:

  • a chart showing the average global temperature in 2024 surpassed 1.5 degrees C of warming. I don’t know exactly how the IPCC threshold is defined, for example if it is a multi-year average, but nonetheless this ship is setting sail right about now.
  • a chart showing the incredible run for the U.S. stock market this year. As I enter the 10-15 years to retirement window, I can’t help thinking whether this is my last bubble during working years and what the timing means for me personally when it pops or deflates. And given the first bullet, how does the real geophysical overreach bubble we find ourselves in, which it seems might be springing a leak, relate to this financial bubble?
  • a chart showing that China imported the largest share of U.S. goods and services a decade ago but has dropped sharply as the #1 destination for U.S. exports. Canada and Mexico are the other 2 in the top 3. Still, a chart like this tells us only the relative position and doesn’t tell us whether the overall value of U.S. exports has increased in this time, or whether the composition has changed (for example, how much is food and energy vs. high-tech products like electronics or military equipment.) For that matter, when the U.S. governments gives foreign governments aid consisting of cash that they are required to use to buy things from U.S. corporations, does this count as an export? I am thinking it probably does.
  • Embedded in this 2024 roundup is another entire 2024 roundup, the World Bank’s 2024 Key Development Challenges. The trend in extreme poverty around the world is still down, but gains have slowed since the pandemic and are projected to continue to be slow. Huge numbers of people still lack access to modern sanitation, electricity, drinking water, and education. Climate hazards such as floods, heat waves, droughts and tropical storms are a headwind to further gains. Generally, debt burdens have increased and economic growth has slowed in developing countries since the pandemic. As much as we are complaining about inflation in the developed world, it has been much worse in developing countries, where inflation in food prices has been about double that in developed countries. Overall, commodity prices are about 30% higher than before the pandemic.
  • Embedded within the World Bank’s roundup is the “Business Ready 2024” ranking of developing economies based on business environment. This suggests specific policies developing countries (and likely, many developed countries, cities and regions) can take to encourage the private sector. Many of these are relatively straightforward and do not require large amounts of money, which does not mean of course that they are politically or administratively easy to implement.

Belarus

This might seem like a random topic, but Peter Turchin got me interested in Belarus. By his telling, sure, Lukashenko is a thug who has tortured and disappeared his political rivals, but he is a thug who has delivered some economic success and quality of life for his people. He has blocked potential oligarchs and maintained something along the lines of the original vision of Soviet state-owned means of production. In Russia (again by Turchin’s telling), the oligarchs got the upper hand in the 1990s and early 2000s, after which Putin crushed them and at least partially restored economic and political power to the bureaucratic government. In Ukraine, the oligarchs completely got the upper hand after the fall of the Soviet Union, took over the country and the political revolutions and counter-revolutions since then are oligarchs fighting amongst each other.

Numbers below are from the CIA World Fact Book and rounded by me. It’s a little unfair to look at the numbers for Ukraine right now, but we can compare Belarus to Poland, Russia, and Germany. Belarus is the poorest among these, but the distribution of wealth is significantly more equal (similar to a Scandinavian country in fact). Life expectancy is significantly higher than Russia and similar to Poland. So you might say yes, Belarus appears to be the closest thing to a Soviet workers paradise where nobody is rich but people have jobs, put food on the table, and get medical care. Russia is richer but strikingly unequal, and some combination of poor nutrition, poor mental and/or physical health, substance abuse, violence and/or poor health care holds down life expectancy. Germany is wealthy and healthy, although fairly unequal.

BelarusUkraineRussiaPolandGermany
GDP per capita at PPP$20,000$9,000 ($12,000 pre-war)$28,000$35,000$54,000
Ginni Index2427363032
Unemployment Rate5%9%5%3%4%
Average Life Expectancy (years)7570727682
CIA World Fact Book

December 2023 in Review

Most frightening and/or depressing story: Migration pressure and right wing politics create a toxic feedback loop practically everywhere in the world.

Most hopeful story: I mused about ways to create an early warning system that things in the world or a given country are about to go seriously wrong: “an analysis of government budgets, financial markets, and some demographic/migration data to see where various governments’ priorities lie relative to what their priorities probably should be to successfully address long-term challenges, and their likely ability to bounce back from various types and magnitudes of shock. You could probably develop some kind of risk index at the national and global levels based on this.” Not all that hopeful, you say? Well, I say it fits the mood as we end a sour year.

Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both: Did an AI named “Q Star” wake up and become super-intelligent this month?

November 2023 in Review

Most frightening and/or depressing story: An economic model that underlies a lot of climate policy may be too conservative. I don’t think this matters much because the world is doing too little, too late even according to the conservative model. Meanwhile, the ice shelves holding back Greenland are in worse shape than previously thought.

Most hopeful story: Small modular nuclear reactors have been permitted for the first time in the United States, although it looks like the specific project that was permitted will not go through. Meanwhile construction of new nuclear weapons is accelerating (sorry, not hopeful, but I couldn’t help pointing out the contrast…)

Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both: India somehow manages to maintain diplomatic relations with Palestine (which they recognize as a state along with 138 other UN members), Israel, and Iran at the same time.