Claudia Sahm, former Federal Reserve economist and founder of Sahm Consulting, discusses the implications of the Sahm Rule, data challenges for economists, the prospect of recession, and dealing with online commenters. The importance of early indicators and preemptive measures in predicting recessions is emphasized, along with the impact of the COVID-19 recovery on different income groups in the US. The chapter also addresses savings post-COVID and the importance of diversity in economics.
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Quick takeaways
The Sahm Rule, developed by Claudia Sahm, is an early indicator of recession, providing policymakers with insights to proactively address economic contraction.
Understanding the nuances of economic data, such as wealth disparities and income inequality, can inform effective policy decisions for addressing economic challenges.
Deep dives
Pop Culture and Sensationalism
Pop culture is a phenomenon that captivates people's leisure time and enjoyment, particularly when it involves famous personalities, entertainment, and technology. However, there is often a tendency to sensationalize these aspects. The podcast episode discusses the importance of understanding and explaining how the things people love are created and how individuals profit from them. The speaker, Lucas Shaw, who covers the business of pop culture for Bloomberg, emphasizes the significance of providing context and shedding light on the changing landscape of entertainment to help listeners comprehend its implications.
The Psalm Rule as a Recessions Indicator
The podcast episode delves into the concept of the Psalm rule, developed by Claudia Som, a former Fed economist. The Psalm rule is an early indicator of recession, offering policymakers the opportunity to take proactive measures against economic contraction. By comparing the monthly unemployment rate to the lowest point over the previous 12 months, an increase of half a percentage point or more could signal the early months of a recession. The rule has consistently predicted recessions since the 1970s and provides an important tool for understanding and managing the economic landscape. While the current unemployment rate has been rising, the threshold for triggering the Psalm rule has not yet been met, suggesting that the economy is not yet in a recessionary state.
Data Interpretation and Economic Inequality
The podcast episode underscores the significance of understanding the nuances behind economic data and their implications for society. Discussion centers around the observation that aggregate economic figures may not fully capture the distribution of various elements and the divergent experiences of different segments of the population. Economic indicators such as GDP, inflation, and consumer spending do not account for the fact that individuals' contributions to these figures are not equal. Greater attention is being given to the distributional aspect of data analysis, with an emphasis on wealth disparities, income inequality, and the impact on different socioeconomic groups. Recognizing and analyzing these nuances in economic data can provide a better understanding of the post-COVID economy and inform sound policy decisions for addressing economic challenges.
This week on Lots More, we speak with Claudia Sahm, the former Federal Reserve economist and founder of Sahm Consulting, about the recent uptick in the US unemployment rate. We discuss the implications for the Sahm Rule, the early recession indicator she discovered and which has been a hot topic since the most recent Nonfarm Payrolls report. We also talk about data challenges for economists, the prospect of recession, and dealing with online commenters.