Macroeconomic policy could be better discussed, understood, and presumably better executed if we had better data. There are at least three key pieces of data that we lack.
Short term Inflation Expectations.
The Treasury issues “Treasury Inflation Protected Securities (TIPS) at 5- and 10- year tenors. These pay no “interest” but instead pay the accumulated percentage increase in the Consumer Pirce Index. These are paired with securities of the same tenor and other characteristic that pay interest. Both are traded and by comparing the prices of the two securities one can deduce how much inflation the buyer of a TIPS expects for them to have bought I rather than an interest-bearing security. In this way we can know what traders expect for inflation over a 5- or 10-year period.
Treasury should issue TIPS at 1-, 2-, and three-year tenors so we could see expectations over these shorter terms.
Wages
Economic news and analysis often refer to changes in wages, especially in the context of inflation. Is wage growth incompatible with the Fed’s inflation target? Has inflation reduced real wages? Have wages of low wage workers increased more than high-wage workers? These are all interesting questions. Unfortunately, none can be answered because the Bureau of Labor Statistics does not produce and wage indexes! The Bureau produces wage income unit value indices, but as is well known (but seldom mentioned) the two are not the same.
No matter how narrowly defined the group under examination, a unit value index suffers from defects of composition compared to a price index. This was especially bad during the pandemic. Initially many low=wage workers like restaurant serving staff lost their jobs because of lockdowns but few higher-paid office workers did. The labor income unit value index rose sharply although no one’s wages increased.
Bureau of Labor Statistics should develop and publish wage indexes based on comparison from one period to the next of wages paid for the same task.[1]
Real GDP Expectations
One of the most important pieces of information a firm can have for making an investment decision or a household can have about making a long-term consumption decision (like buying a house) is what the economy will be like in the future. Yet there is no market in which GDP futures are bought and sold.[2] Treasury could create a close analog of such a market by issuing securities that pay a given percent of GDP (a “Trillionth”) at various tenors. As these securities would be tradable, their varying prices would reflect market sentiment about where the economy is going. [The stock market reflects this to some degree but it is a particular slice of the economy and is more speculative.] It would be helpful if these securities were offered at the same tenors as TIPS so observers could form expectation for both real and nominal growth of GDP [3].
Treasury should issue “Trillionths” securities of varying tenors paying the indicated percentage of GDP.
[1] Creating a wage index is not as easy as a price index as many prices but few wages are public knowledge. But it can be done.
[2] Scott Sumner who advocates for the Fed to use Nonanal GDP targeting rather than Flexible Average Inflation Targeting suggests that the Fed could use sales and purchases in an NGDP futures market as an instrument of macroeconomic management.
[3] The CPI used for the GDP deflator is not the same as the CPI used for the TIPS, but the comparison would still be useful just as TIPS is useful even though it is not the same as the Fed’s preferred indicator of inflation, the Personal Consumer Expenditures.
[Standard bleg: Although my style is know-it-all-ism, I do sometime entertain the thought that, here and there, I might be mistaken on some minor detail. I would welcome comments on these views.]