Alan Blinder Again

 

Alan Blinder (Princeton economics)* never gives up. He used to be a moderate -- that is, while he might have tended to the liberal side of macroeconomics, he was a good economist. One with a more conservative macro bent might disagree with Blinder, but finding the holes in his arguments was never easy. It was always very challenging to disagree with him.

But now, Blinder has crossed over to the far left side of the river and he makes it too easy to dismiss his articles. Since he is a famous Princeton economist, his words are published by the best periodicals. This time it was his nemesis the Wall Street Journal that published him. Why would they publish him? The New York Times yes. But the Wall Street Journal. Why? 

He is supposed to be an intelligent economist, yet he continues to spread the big lie that it will cost nothing to pass the latest liberal spending and taxation bonanza. You would think that he is on the Democratic Party payroll. Or maybe he is running for office with Biden. I have no idea why he writes this stuff. 

Since when do economists say that things cost nothing? One of the biggest increases in spending ever yes, but he says it will cost nothing. How can you say that? Trillions of dollars of spending will appear out of a hat? Of course it will cost something. 

Since when are higher taxes neutral to the economy? He admits that corporations and the rich will pay for all those trillions in extra spending. Okay, he doesn't like those folks and loves to add to their tax bills. But are those people so dumb that they will send the extra trillions to the government and not change any of their behaviors? Will firms continue to hire? Will they continue to expand their spending on equipment and other capital? Will they give the workforce a big pay increase? Or will they maybe find clever ways to not pay this huge tax bill? 

What macro course does Blinder teach at Princeton where he tells the students that you can raise taxes by trillions of dollars to afford that much more spending and it will have no impacts? In what economics course does he teach students that extra spending is free? I never taught those ideas but then I am not a rich and famous economist from the Ivy League. 

Okay put aside the free idea. What about his total acceptance that the extra government spending will be done wisely and will result in society's ills being addressed and solved? Sure it's a lot of money he admits, but in a few years from now we will have solved poverty, invested in a huge defense buildup to scare Russia and China, solved the puzzle of productivity, increased employment while reducing inflation, and basically solved all of our problems. 

If you believe all that, I have a very nice 2014 Hyundai Santa Fe I am willing to sell you. Those and other problems have been persistently stubborn over the decades. Have we really figured out how to solve problems associated with income inequality? Trust Alan Blinder -- this time, if you give Washington DC enough money, they will finally put all these negative trends to rest. Hurrah Alan. 

I hate to sound so mean and small. But this guy is whistling his way to the bank. I hate to spend our precious time even bringing up these points. But you gotta do what you gotta do. Folks, it has always made sense to watch your spending and debt. Nothing has changed. 

Read his article if you think I am exaggerating.  

* https://www.wsj.com/articles/look-at-build-back-betters-benefits-not-price-tag-federal-budget-bbb-reconciliation-debt-cbo-11638718325?mod=opinion_major_pos4

Fedspeak and Gobbledygook

Two scenarios. In each scenario, Pete told Charlie not to mess with his golf bag. Charlie then messed with Pete's bag.

    Scenario 1: Pete slugs Charlie

    Scenario 2: Pete tells Charlie that he is thinking about someday maybe retaliating in some way against Charlie. 

These scenarios remind me of the Fed and its current plans to retaliate against the hated onslaught of inflation. Keep in mind that inflation has already picked up. The rise in inflation is not probable nor off in the future. It is here and now. 

The Fed reminds me of the parent who threatens and threatens his child but never follows through. The Fed shows it true colors with gobbledygook. The Fed does NOT want to do anything about inflation until it is forced into it kicking and screaming. Meanwhile it resorts to gooledygook.

Below -- in italics below are quotes from an article* published in the WSJ on December 15. Following each quote I comment. The bottom line for all this nonsense is that the Fed cannot be trusted to do one damn thing about inflation. 

The Federal Reserve set the stage for a series of interest rate increases beginning next spring, completing a major policy pivot that showed much greater concern about the potential for inflation to stay high.

     Setting the stage for a future pivot is not an action, is not a date, and shows nothing about concern. A major policy pivot is a glittering generality and not a specific policy action.

The Fed penciled in at least three quarter-percentage-point rate increases next year. 

   Penciled in is not a decision. Notice that the policy changes are indicated for next year. Inflation is a problem now and they are talking about a policy "sometime next year". Are they going to let inflation get rolling for a few months and then get serious about it?

For months, Fed leaders had stuck to a view that higher price pressures this year were caused primarily by supply-chain bottlenecks and would ease on their own. But Fed Chairman Jerome Powell had in recent weeks signaled much less conviction about that forecast, and the projections Wednesday suggest most of his colleagues share his concern.

     Notice this speaks of projections at the meeting. Projections are not a policy or a policy change. Inflation is here and now. Projections underlie real policy changes when? His colleagues are concerned. What does that mean? I'm concerned about global warming but I don't do anything about it. 

They approved plans that will more quickly scale back their Covid-19 pandemic stimulus efforts, ending a program of asset purchases by March instead of June. That opens the door for them to start raising rates at their second scheduled meeting next year, in mid-March.

     Opens the door? Scaling back? This is like you saying that the doctor ordered you to lose weight to prevent a heart attack, so you have decided to schedule a gain of only 10 pounds next month instead of 15. In the old days, the policy would not have planned to scale back purchases. It would have instigated asset sales. That would be a real policy to fight inflation. 

“There’s a real risk now, I believe, that inflation may be more persistent and…the risk of higher inflation becoming entrenched has increased,” said Mr. Powell at a news conference Wednesday afternoon. “That’s part of the reason behind our move today, is to put ourselves in a position to be able to deal with that risk.”

     He clearly says there is a real inflation risk now. The risk is not next March. The risk is right now. Does he deal with it now? No. He wants to put himself in a position. Wow. Now that's action. Putting himself in a position. 

Fed officials in early November agreed to reduce their then-$120 billion-a-month in bond purchases by $15 billion a month, to $90 billion this month. On Wednesday, officials said they would accelerate that wind-down beginning next month, reducing purchases by $30 billion a month. As a result, they will purchase $60 billion in Treasury and mortgage securities in January, putting the program on track to end by March.

      Now Powell is getting specific. But note. The math says that monetary policy is going to keep injecting money. They should be removing money. There are mountains of money out there. Yet he is clear he wants even more.....by $90 million more this month and finally turning off the money hose in March of 2022. March! That's three months from now. If inflation is a real risk today, why does it take so long to get back into neutral? 

For the first time since the Fed slashed rates to near zero when the pandemic hit the U.S. in March 2020, Mr. Powell said nothing to dispel expectations that officials could be contemplating rate rises in the next few months.

“We’ll be in a position to raise interest rates as and when we think it’s appropriate,” he said. 

“And we will, to the extent that’s appropriate.”

      Those above three quotes are about the Fed's policy to raise interest rates. The first one says Powell said nothing to dispel rate rise expectations. Dispel? Why not say it? We are going to raise rates. The second two quotes add words -- "we will be in a position". What does that mean? Is he going to move from outfield to infield? What does "when appropriate" mean? 

Summary: Obfuscation. Gobbledygook. Stop inflation now before it is too late. 

https://www.wsj.com/articles/fed-officials-project-three-rate-rises-next-year-and-accelerate-wind-down-of-stimulus-11639594785?mod=hp_lead_pos1

Worst Inflation Ever?

The November 2021 CPI announcement created quite a stir. But as usual, the press had to shriek rather than analyze. What I witnessed was a press screaming that inflation in November reached a number so high that even Snoop Dog has never been that high. The press swooned that inflation had not been so high in decades and decades. 

The actual number for CPI inflation in November amounted to a change of 6.81% from November of 2020 to November of 2021. For those of you who remember or who have read about the 1970s, we would have appreciated a rate of 6.81% but that was then and this is now. 6.81% in November of 2021 is not what we want. 

What most of us don't know and we are still discussing is whether or not that number is temporary and fleeting or whether it is a bell weather of what is to come. My crystal ball is at the dry cleaners now so I won't be able to tell you which is which. I will take a guess below. 

But I can request that we back up a bit and examine what is really going on with the numbers. Should we be hysterical about this 6.81%? If you returned from a vacation to another planet recently you might be surprised by the increases in debt by our government and the extent to which the Fed has monetized all that debt. Inflation would not surprise you after all that. And then when you learned about the supply constraints caused by Mr. Covid, you would appreciate why inflation might be rising faster than Elon Musk in his newest rocket ship. 

The CPI is a number that represents the average price of the things we buy -- both goods and services. The BLS sends out a bunch of munchkins every month and they figure out how much all that crap costs in that month. Everything from lettuce to Lexus is counted. Pretty big task, eh. But they do it every month and they publish a number for that month. We call that the CPI value. We now have one for November of 2021.

Inflation is a word that defines how much that CPI level changes over time. We can calculate the percentage change of the CPI from October to November of 2021. That would represent inflation over the period of one month. We can also take the percentage change from November of 2020 to November of 2021. We call that the annual inflation rate. That is what came in at 6.81%. Wow. That's pretty impressive and the press is right to say that 6.81% for a whole year was a real zinger. 

But hold on. This way of calculating an inflation rate from November of one year to November of the next year only uses two months in the calculation. What about the other months? Don't they matter too? And doesn't this method emphasize those two months too much? 

Yep. that's very true. Luckily we have another way to calculate an ANNUAL inflation rate. If we average the one month rates for all 12 months between December of one year and November of the next one, we get an annual average that reflects all those months -- not just two months! If you do it this way., you find that the annual rate was about 4.5%. 

What can we compare that 4.5% to? You could compare it to the average over 2012 to 2019. That pre-Covid inflation rate amounted to about 1.6% per year. During those 8 years the annual inflation rate was as low as zero percent in 2015 and was mostly lingering around 2% in most years. 

What do you think about the average inflation rate of 4.5% over the past year? It is definitely higher than the Pre-Covid inflation rate of 1.6% and it is definitely higher than the 2% we saw in a lot of years recently. It is clearly not the 6.8% the press is swooning about. 

I suspect that given monetary and fiscal policy and given somewhat lingering supply shortages, inflation is not going to improve very much very soon. The supply shortages should dissipate but if our government does not remove the stimulus from their policies soon, 4.5% might herald a return to the 1970s. But today the 4.5% is more a warning than it is a tragedy. 

The Myth of Scarce Workers

Note: after publishing this post I found that the numbers I quoted were in error. I was lazy and got the numbers from a third-party data source I thought was reliable. While US employment is rising, it has not returned to levels reached before Covid. Before Covid employment was about 152 million. As of this November, the number was approximately 149 million or 3 million below the previous peak. 

I wanted to write something about productivity in the USA. Productivity -- or labor productivity -- is calculated using two national figures -- employment and output. Dividing output by employment tells you how much output we can get from a given amount of labor input. When that division increases, we interpret it to mean that a given amount of employment can now produce more output -- ie, we conclude that labor productivity has increased. 

But on the way to productivity I started looking harder at the employment numbers. They seemed to be  screaming at me for attention. So for now, I a going to focus on employment at the national level in USA. I acknowledge that Florida or New York or Port Townsend might deviate from the national figures. But today we focus only on the whole country. 

Why was the data screaming? Because, as often happens, the press or the politicians so misread the situation that it screams for myth correction. Watching your TV or the Internet you might think that firms cannot find workers. They fabricate this picture of firm after firm not being able to find workers. You will, therefore, have to wait in line a long time for your pizza or semi-conductor order to arrive. Covid-induced supply bottlenecks are often blamed but story after weepy story proclaims we have an enormous employment problem. 

Maybe the Bureau of Labor Statistics hates the press or maybe they are mistaken, but if you go to bls.com and download national employment numbers you will be blown away. It is true that employment was dragged down by Covid and interplanetary visitors in 2020, but we are almost to 2022 and we need to focus on post-Covid numbers.

In October of 2020, US payroll employment was 149.7 million jobs. In October of 2021, a year later,  the employment number increased by 4.4 million jobs to a total of 154 million people employed according to payroll statistics for the business sector. That was an increase of 2.9%. Hmm....it seems that firms were finding new employees. Hmm...maybe some firms were not finding employees but if you look at the nation, that's a lot of workers finding jobs. 

It is true that employment bottomed out in 2020 at 142.2 million jobs. But that was then. How does the current figure of 154 million compare to history?

Interesting, the 154 million figure for October of 2021 is the highest on record. It represents a snapback from the recession but it also represents the highest employment level on record for the USA.

2019  150.9 million

2009  131.3 million

1999  129.2 million

Should I go on? 

How is it possible that today's handwringers can know this data and still say the things they say and write the things they write about employment? 

My answer? They don't care about the data. They care about stories. They care about stories that make you want to cry and open your pocketbook or your rich friend's pocketbook to help solve a problem that doesn't really exist. 

Are some people unemployed? Are some companies not finding workers? Of course. Those people always exist. Is this problem huge or huger? I will let you convince me otherwise. But please, don't tell me about one grocery store that you personally know that can't find people to bag your groceries. 

Maybe next week I will turn to national productivity. 

Inflation Rolls On

Inflation continues to worry us. As usual, the press contributes to misinformation and paranoia. I guess you can't sell newspapers unless there is a crisis. One misleading practice is for the press to write lists of price changes. How could that be misleading? The reason is that they produce a very long list of things rising whose prices are rising fast. Food is a good example. Food is just one part of the price index. But if you list 20 different food items it is going to look like "everything" is rising. Yes, food prices are rising and that is impacting people. But as I wrote last week, the price of Medical Care was rising much slower. Why doesn't the press identify all the parts of Medical Care too? Not so much fun for them. 

I love the way the politicians are talking about this now. Geez -- Biden and his buddies have finally discovered inflation. As they walked and whistled and raised spending by amounts that would certainly cause much higher inflation, now they are riveted on solving the inflation problem. Of course, they still won't accept blame for causing it, finding it much easier to blame a guy named Covid. 

Yes, mom I was drinking and driving at an unsafe speed but Joey turned on the radio and that's why I drove into that Safeway fruit department. I am kinda bummed now that I can't buy bananas. Damn Safeway. They never have enough bananas. 

What is so ludicrous is that Biden and Buddies claim they are now focused on how to reduce inflation. Now they are riveted! They are going to save they day. He will ride in on his turtle and slay the inflation dragon. The last article I read said that he is going to resolve all those supply issues. That Covid thing caused a bunch of supply issues so he is going after Covid and Calvin or somebody. 

What does he or his band of budgetary bandits know about resolving supply issues? I recall so well when Ricardo Nixon was similarly befuddled by inflation and he created something called the Nixon Wage and Price Controls. As you might remember, his policies neither controlled wages nor prices but he did get into the history books through his folly. Recall that thanks to his brilliant leadership we endured several recessions in the 1970s. Go team Nixon. 

The government cannot even select a proper amount of money and spending for the economy -- and now we are supposed to believe they can use their unlimited powers to micro manage each sector of the economy? Only Bill Murray could be funnier than this. Biden is turning our country into a rerun of Caddy Shack! Biden has no control over Covid and he definitely cannot control individual prices and outputs. He does seem to be pretty good at staring into the camera with his mask on giving a moving if not tearful sermon. Maybe he should try preaching. 

Is there a lesson in this? Do I have any better ideas? I do. It's called learn from your mistakes. Don't play Superman if you don't have a cape. Don't replace common sense with wishful thinking. Elect politicians who don't smile so much and who don't wear perfect ties. That's a start. Do you have any good ideas? 

Happy Thanksgiving!

 Hope you enjoy your week off! 

Inflation on the Rise?

We seem preoccupied with inflation again. I am not convinced we should be. 

Maybe you remember or heard about the 1960s and 1970s. Inflation built from just about zero in 1960 to 5.7% is 1970. And then in the 1970s it jumped even more -- to 11.3% in 1979 and then rising to 13.5% in 1980. If you take two decades, we went from near zero to almost 14% per year. 

That's quite a change. No wonder we worry. From October of 2020 to October of 2021 inflation rose by 6.2%. When you compare that to the near 14% of 1980, the 6.2% looks small in comparison. But that's not the best comparison.

If you calculate the average inflation rate between 2011 and 2020 -- a ten year period -- the average rate was 1.8% per year. During those 10 years the inflation rate never got higher than 3.2%. It came in at 0.1% in 2015. 

If you compare the rate of 6.2% over the past year to any of the 10 years before it, the 6.2% looks pretty high. How did we get from 10 years of 1.8% per year to 6.2%? The highest rate in the past 5 years was the 2.4% in 2018. It was 1.2% in 2020.

What is going on here? Are we headed back to the 1970s? Or is the 6.2% over the last year going to go out as quickly as it came in. 

If you read the newspapers, you know there are several reasons why the inflation rate might have increased in the past year. The economy has strengthened and the unemployment rate is lower. Covid induced supply shortages could be the culprit. Or maybe it is the result of the Fed's excessive monetary stimulus or the government's incredibly large deficits. 

Or maybe it is none of those things. I took a look at the last year and wondered if the inflation was general or specific. I found some strange changes. Prices of energy services rose by 59%. Prices of energy commodities rose by 30%. Used cars were going for 26% more. Yet medical care rose by only 1.7% and transportation services were up 5%. Food prices up 5% and shelter up only 4%. 

To me that sounds less like general inflation and much more like specific pockets of shortages. If we were suffering through a typical macroeconomic or demand induced  inflation, wouldn't the prices of transportation, food, and shelter be rising faster? 

Putting 2 and 2 together -- this seems like a strange time. The abrupt transition from many years of low inflation to one year of higher inflation plus the absence of real inflation coming from basic needs seems to argue for something both unusual and not structural or lasting. 

Nevertheless, caution might suggest that the Fed and the government rethink their massive stimulus programs as we wait and watch to see how specific sectors recover from what ought to be short-term supply bottlenecks.  Over-regulation in energy and transportation might also be re-thought. 

Unemployment and Government Deficits

 In October of this year the unemployment rate got down to 4.6%. It had been below 6% since 2015 until Covid helped cause the rate to go back up to 8.1% for the year. So I started thinking about the unemployment rate. 

Before I start blabbing about the numbers let's admit one thing. The unemployment rate is a wild and crazy animal. I printed out the average annual unemployment rate for each year between 1961 and 2020. Those of you counting on your fingers and toes, that's close to 60 years. 

It is a wild and crazy number because its construction brings a lot into factors into the number. It is a rate because it takes the number for the labor force (employed people and those looking for work), subtracts the number of people who are employed, and then expresses that number of unemployed people as a percent of the labor force. Lots of things can cause that number to move around and it does. 

For example, the unemployment rate was 4.6% in 2006 and then by 2010 it had risen to to 9.6%. By 2017 it was back to 4.4%. Bouncy bouncy. 

Falling asleep yet? 

The unemployment rate catches a lot of attention. Perhaps it is the bad-boy (or girl) of the Bureau of Labor Statistics. When it rises, we get anxious or downright unhappy. A higher unemployment rate is taken to be a sign of weakness in the economy. When the unemployment rate rises enough, our government ears perk up and we wonder when and by how much we should stimulate the economy. The government often wants to spend more and tax less as a way to goose the economy along. Get it rolling. Thus we find that unemployment changes trigger changes in the government budget deficit. 

We see causality in the way of unemployment increases causing increases in government deficits. Of course, it isn't that simple because sometimes the causality is the opposite. For example there are times when a rise in government deficits are successful -- a rise in the government deficit causes a reduction in the unemployment rate. So we are left with two possibilities when we look at the data. 

A. Increases (decreases) in the unemployment rate cause increases (decreases) in the government deficit

B. Increases (decreases) in government deficits cause decreases in the unemployment rate.

Which is it? Do the two variables move together or do they move opposite to one another? 

The answer is -- BOTH are true. 

That's why I wanted to look at the numbers. 

From 1961 to 1969 the unemployment rate fell from 6.7% to 3.5%. How low can you go? The government deficit* bounced around but showed no real trend during those years. 

The unemployment rate did not stay at 3.5% for long. It kept rising from 3.5% in 1969,  peaking at 9.7% in 1982. You would think that the government would call in the fire trucks and they did. The government deficit which had been at less than $3 billion per year rose to $48 billion by 1983. The government was clearly using its financial tools to bring down the unemployment rate. 

It took a while to percolate. From 1983 to 2000 the unemployment rate behaved and kept falling until it bottomed at 4% in 2000. By around 1997 the government deficits began to fall as the government perceived less of a need to stimulate an economy that was doing better.** In 1998 we had a government surplus and that continued until 2002 when the government went back into the red. 

In 2002 the unemployment rate jumped to 5.8%, stayed high, peaked at 9.6% in 2010 until it returned to about 5.3% by 2015. As the unemployment rate was rising, the government jumped into action again. From a surplus of $24 billion in 2000, they moved us to a $100 billion deficit in in 2004 and by 2011 they had the deficit up to $313 billion. The deficit stayed in the hundreds of billions.

All that stimulus worked for a while -- the unemployment rate declined to 3.7% by 2019. 

Where are we now? Covid and resulting economic imbalances left us with an unemployment rate of 8.1% in 2020 but as of October of 2021 it had fallen to 4.6%. Records show that the government deficit was $837 billion in 2020.The largest previous deficit was $318 billion in 2010.  The government seems quite willing to continue the stimulus despite the dramatic improvement in the unemployment rate in 2021. 

The history of unemployment and government deficits suggests that the government is probably not finished yet. There is also the unpredictability of Covid and its impacts. I am guessing they are not done with large deficits. Large deficits with falling unemployment could spell higher inflation.

Perhaps I will try to being inflation into this discussion next week. 

*The government budget numbers quoted here are from the Bureau of Labor Statistics. They are nominal figures meaning that the effects of inflation have not been purged. There is some worry that relating nominal deficit figures with real unemployment figures is not the optimal approach. But I am not sure that deflating the government budget figures would produce a different result. 

** As the unemployment rate rises it may cause a policy response. As the unemployment rate rises, it may affect the deficit without legislation since it means less employment, less income, and less tax revenue. In either case a rise in the unemployment rate causes an increased government deficit. I don't split this hair in the text. 

 

The Sky is Falling

Judging from the trillions our leaders want to spend to revive our national economy, one would think that the sky has fallen. Covid was no slouch but a brief look at some data might suggest a different result. 

In 2018 and 2019 the economy* grew at a rate of about 2.3% per year. In 2020 the annual rate of change was -3.4%. Clearly Covid had a major effect. We don’t have full year data for 2021. But we do have three quarters and in those quarters the economy grew at an average of 5%.

Looking at those yearly figures makes one wonder why government is so worried about the economy.

Let’s look a little further. The downturn in 2020 was much more extreme than the annual figures show. In the first two quarters of 2020 the quarterly growth rates were -5.1% and -31.2%. That -31.2% figure is eye popping. It would worry anyone. But guess what? 2020 wasn’t over in the second quarter. The growth rate in the third quarter was 33.8%. What goes down must come up. Right? I don’t know but we had a two quarter swing downward and then a reversal the next two quarters. 2020 ended with growth at 4.5% in the fourth quarter. And so far in 2021 we are averaging 5% growth.

The patterns I discussed above for national output are also prevalent in the subcategories of output. The four columns in the table below are for the four quarters of 2020. Notice how we get similar down/up patterns in the outputs as the year progresses.

                                                 Table Real GDP

                                                        2020

                                              Q1       Q2    Q3    Q4

Consumer durables            -12.0     -1.5    89.0    1.1

Consumer services             -10.0  -42.4    37.5    5.3

Business equipment            -21.3  -36.2   55.9  26.4

Exports                                -16.3  -59.9   54.5  22.5

Residential Construction        3.8  -10.6     8.1   10.2

The exception to these down/up patterns was found in Business Structures. Business Structures did not return to growth in 2020 and remained in negative territory in 2021. 

                                            -0.9    -46.8   -15.3   -8.2

Joe and his government friends are today trying to decide how much stimulus to add to the economy. The amounts of stimulus are unprecedented.  Why? The figures I quoted above do not support the idea that the economy is struggling. The figures show a dip and then a return.

Or maybe the trillions of additional government spending being proposed represent an opportunity to install programs Biden and friends have been lusting after for decades. Nothing like an apparent emergency to sneak in lots of change. The nice thing is that it won't cost us a penny. I think I read that somewhere. 

*When I speak of the economy I am using figures for real Gross Domestic Product. Real means that inflation has been removed from the numbers – so changes represent changes in the underlying quantities of goods and services produced. These are official figures that come from bea.gov

All Bets Are Off

All bets are off (ABAO). What does that mean? It means that we don't know what is going to happen next and we often entertain extreme policies to deal with the unknowable. 

An extreme form of ABAO is what happens during wars. We turn society upside down when confronted by a war. 

World War II drafted our young people and sent them to be killed across both oceans. Japanese people who wanted to live in America were treated as enemies and imprisoned. In the Vietnam War, I had to register for the draft as soon as I finished high school and eventually volunteered for the Air Force rather than be drafted upon graduation from college. Nevertheless I got some lovely green fatigues to wear and an all-expenses paid trip to Saigon in 1972. 

Crazy times for sure. 

As crazy as any parts of the above, is how it turned most of us into liars. Kids, their parents, their coaches, and their teachers were part of this conspiracy of the young. What did we lie about? We lied about anything that had to do with deferments from military service. Some pretended to be in college to escape the draft for a while. I asked a doctor if he thought my feet were flat enough to make me unfit for soldiering. He said no. Psychologists said many of us had mental issues. If there was a deferment or exclusion, we knew about it. 

Local areas had draft boards who decided who got chosen for the draft. Some draft boards had big quotas; others did not. We all heard the rumors about which ones were the most active. Some draft boards included family friends. Not mine!

A giant sense of unfairness lay over the land. That's what we talked about. Who was getting out? Who was getting in? How many of our friends had already died in Vietnam. 

So what? I write about all this because War is a time when ABAO. We become amoral if not immoral. We get very selfish and do and say things we would never normally do. 

I write this because Covid is like a war. The line to get a Covid shot is like the line at the draft office. Deferments in 1968 were like vaccine eligibility in 2021. Who gets the shots? There is a nice list of priorities. Those with morbidities. Then who? Old people. Healthcare providers. Teachers and so on. How many stories have you heard about people trying to falsify or exaggerate their status in one of these priority lists?  

And it is not just people trying to get permission to take the shots. How many ways has Covid and the War on Covid changed work and life? How many of you don't wear a mask or don't distance? How many are tired of the boring life of Covid and go to Florida for spring break? Or how many go to a local bar that clearly lets too many people inside? How many "work" at home and misrepresent what we are doing during the workday?

You can add to the list. The point is that Covid is like another war and like another war, ABAO. We do the best we can for ourselves and that best is often not reflective of a lifetime of moral lessons. Each of us has to decide his own behavior. But make no mistake, when war is upon us, we are challenged and Covid is no exception.

Inflation

 At the bottom of this post is a table with monthly and annual inflation rates from February of 2011 to September of this year. Pretty boring. But there might be a story there. 

I get sick and tired of the press. We all know that Walter Cronkite is gone and with him is gone a rational and unemotional summary of the news. Recent studies say the press exaggerates every thing and mostly they prefer to report bad news. 

Whether the topic is Covid or inflation we get a lot of scary reports. The title of an article in the Wall Street Journal this week reads "Supply-Chain Bottlenecks, Elevated Inflation to Last Well into Next Year, Survey Finds." That's just one of many reports that claim we are stuck with an inflation problem.

I am not going to argue with that possibility but I will say that given today's environment, nobody knows squat about future inflation. Between Covid induced supply-chain disruptions, huge government deficits, and  a new waterfall of money from the Fed, we are in uncharted waters. 

So I decided I would spend a few minutes looking at the inflation numbers. I chose the Consumer Price Index. I downloaded the numbers from the Bureau of Labor Statistics, the government organization that creates and reports these numbers on a month basis. bls.org   I took the raw monthly numbers and created monthly and annual averages. I also took percentage changes so we could view inflation rates rather than CPI levels. The monthly numbers are annualized by applying a factor of 12 to any month's percentage change. 

If you just gaze at the whole table you come away with a notion that these monthly inflation rates look like a hare running from a hungry German Shepherd. For example, inflation was 11.7% on an annualized basis in March of 2011. In June, there was deflation of 1.3%. Wow, that's quite a change. Inflation one month; deflation a couple months later. Don't stare at the table too much or you might get dizzy. 

Covid is believed to have started getting serious in the second quarter of 2020.  Between March and August the inflation rate dives down and then swings up. The average for the full year of 2020 is, however, only 1.4%. It is not until 2021 that we see the inflation getting much higher, with rates between 5.1% and 11.1%. Clearly the chart has changed in 2021. 

But notice that the numbers are still a little higher than average but clearly lower by August and September, 2.5% and 3.3%. The average for 2020 is 1.4%, lower than the previous 4 years. Notice too that the average for 9 months of 2021 is 6.9%. That's much higher than any of the years before. 

We don't have October numbers yet but we shouldn't be too crazy about one month. Look at the table. The numbers swing all over the place. October won't prove a thing. But clearly, if October comes in at around 4%, that number will be lower than most of the months of 2021. 

We should expect a gradual decline anyway. We won't just automatically pop back to 2%. Why? First, thanks to a very loud press screaming and crying about rising inflation, this could easily cause inflationary expectations to rise. Already wages are heading upward. So are some interest rates. Expectations can be self-fulfilling. We expect more inflation and then we get it. 

The other reason why inflation might not drop back down to 2% quickly is government policy. Government is piling stimulus upon stimulus. Soon they will start to reverse engines. But until they do, its hard to imagine inflation coming down very quickly. Notice that now that some supply bottlenecks are easing, retail sales are starting to jump. With interest rates near zero and lots of government income subsidies, it's hard to imagine inflation falling very fast. 

Where is inflation heading? Probably to more of the same jack rabbit ups and downs. Will it get much worse. I don't know. It depends a lot on household expectations and future government policies. If you can forecast those things then you will be the expert. Good luck with that. 

Table. Consumer Price Index annualized monthly and yearly percentage changes.

Death and Taxes

Alan Blinder wants to solve the nation's deficit/debt issues by taxing the rich. It is interesting that in his Wall Street Journal article of September 26, 2021, he says nothing about raising the income tax rate on the rich but prefers to raise revenues with something called carried interest and constructive realization of capital gains at death. I will hold off on carried interest. Today is about capital gains at death. 

Apparently Blinder read something about the inevitability of death and taxes. More specifically he wants to tax rich people on unrealized capital gains but only after they die. It is common in economic models to make no distinction between family members. A family is often assumed to act like a single person. In such models, so long as there are heirs, there is no change in tax liability. It makes sense, your parents earned the money and now you get to enjoy the benefits after they croak. 

Blinder wants to change that. If they had sold assets before death, they would have had to pay a capital gain. Lots of us do that. But if they didn't sell, then they must have had a good reason not to sell. But Blinder does not care about that reason. To Blinder dying is tantamount to selling. You gave your assets to one of your brats. There was never a sale. So there is no capital gain. There is no tax. Blinder is envious. He wants some of the action on your money that you saved and left for your family. 

Maybe you don't agree. Y0u believe those rich devils should share their wealth. You might believe those bratty kids never did anything to deserve all those tax-free benefits. But it doesn't make sense. Blinder wants to tax a transaction that never existed. He looks at the price Daddy paid in 1946 and compares that to the assets' prices upon death. Sounds pretty cool until you realize that the asset was not sold upon death and never generated a penny for the brats. Not a penny. The heirs have some paper financial assets but nothing else. Of course, if they earn interest and dividends or they sell, they will pay taxes on that. 

Just for fun let's suppose the asset cost $100.00 in 1946, $1,000.00 at death, and then $99.00 a week after the death. Hmmm. If the child held the asset for one week, the asset would be worth $99.00 and would generate a capital loss. Why would you want to pay a huge capital gain at death when the value of the asset produced a loss? That doesn't seem correct or fair. True, a contrived example. But also true that death does not create a transaction and death distorts what the heir should pay. 

Why didn't Blinder require that the heirs sell the asset? In that way, we would have a real economic value for the capital gain/loss. In that way, the heir would actually have a capital gain/loss and the tax would make sense. Blinder must be assuming that the heir has a right to do as he/she pleases with inherited assets. He doesn't want to interfere with the heir's right to use the asset but he does want to take a capital gains tax on a fictional gain number. 

Which is it Mr Blinder? Does the heir own the asset or do you? 

Powell Must Be Jealous

As the government debt/debt ceiling issue gets all the headlines, poor Jerome Powell, the head of the Federal Reserve, must have been feeling left out. The Fed has nothing to do directly with national debt so Congress and the President are getting all the attention. Sort of like you getting jealous when your brother gets a spanking. 

Powell and his monetary genius friends told us last week that they can save the day. Reminds me of Micky Mouse flying in to save Minnie in the nick of time. Except in the case of these famous mice, it usually works. Mickey really is the Mouse!

Powell is no Micky Mouse. But he thinks he is. This may take a bit of explaining so please pour another gin & tonic.  Don't forget the lime. When the government has a deficit it means it has to borrow by printing up brand new shiny government bonds. Okay, they aren't shiny but they are new. 

This borrowing process usually works until the times when the government's debt gets so large that people lose trust in the government's ability to stand behind the bonds. That is, you get a nice new bond and a promise of two things -- each year you will get an interest check and when the bond matures you get the principal back. But what happens when you lose faith in the government's ability to pay back?

You wouldn't loan money to Uncle Charlie if you were pretty sure he was not going to pay you back. The same goes for loans to Uncle Sam. All this razzamatazz with government debt and debt ceilings calls into question the government's ability to pay us back. So, of course, we would be reluctant to buy government bonds. 

How do we get to the Fed and Jerome Powell from all this? The answer is that the Fed has a "money printing press." Wouldn't you love to have your own dollar printing press? Well, Powell has one. And that means he can play Micky Mouse saves the day. How?

Suppose none of us want to buy the government's bonds. We think they stink like seaweed. We think we won't get our money back. Well, guess what? If you had a printing press, you wouldn't care about being paid back. So the Fed and Mr Powell will crank the money machine a bit and buy some of those stinky government bonds. Mr Powell will go to Pelosi and say....are you having a nice day dear? How much money do you need? Just say the word and we will buy trillions of dollars of those nice new bonds you are cranking out. Don't worry about selling them to the suspicious and cranky private sector. Old Jerome will buy them all. No questions asked. 

Wow. That sounds really cool. The government incurs a debt and we don't have to worry a bit about it. Pelosi + Powell. Go team. 

What could go wrong? For one thing, it is pretty much illegal. The Fed is supposed to be an independent institution. It is not supposed to have financial handshakes with Congress. Of course, Jerome and friends are pretty sneaky and they can make it look innocent and legal. 

What else could go wrong? Let's think about the incentives created. Mom, I gambled away my allowance last night. Oh, don't worry honey, here's more money. Please don't gamble again. Okay mom, sure. Thanks. Right! If the Fed steps in and buys those government bonds this time -- what about next time? What's to stop the process?

And that leads us to the third problem with the Fed's bailing out the Congress. It means you get a double whammy of stimulus. You get the government spending stimulus and then you get a huge monetary stimulus. Wow. Wave after wave of stimulus when the economy already seems to be healing. That cannot spell anything good for inflation, interest rates, and whatever policy has to be enacted to offset all that.

Powell is not Micky Mouse. His rescue is fake. His rescue will make us all worse. We don't need Micky Mouse. What we need are leaders in Congress and at the Fed who understand economics. Perennial huge debt doesn't work for you, me, or our government.  Instead try reasonable debt. No debt ceilings. No monetizing the debt. No roller coaster economy. Simple. 

The Inmates are Running the Prison

You have all heard this comment -- the inmates are running the prison. It makes you shake your head. No, the inmates don't run the prisons. That doesn't make sense. If they ran the prison they could open the doors and let everyone out. We have prisons for a reason. If you do hear that statement it means something is wrong. 

Well, here goes. How is it possible that the same people -- the people in Congress -- set the value of both the government debt AND they decide on a debt ceiling? How is that possible? What a strange assumption about behavior. The people who create unsustainable debt would then be asked to create a debt ceiling. Would they not let the prisoners out....err I mean would they not raise the ceiling whenever the debt needs to increase again?

It mystifies me that so much press attention goes to this supposed political issue of the debt ceiling. Of course, after enough pontificating they will increase the debt ceiling. Okay maybe they will wait until they get everyone really mad, but what else are they going to do? We have a huge debt in this country and every month the government runs another budget deficit the government has to borrow. It has to sell bonds. Those bonds are the signature of the debt increase. 

Note. The government deficit in 2020 alone was $3.13 trillion. In the first eight months of 2021 it was $2.06 trillion. Those are basically one-year figures. They show how much new borrowing the government had to do to keep its activities running. Even though we took in a pile of tax revenues, we were short that much. 

Of course, we have been running such deficits each year for quite a while (since Jimmy Kiltie was knee-high to a grasshopper). The total stock of debt we have accumulated is now over $28 trillion. If you can add on your fingers or toes, they means that the debt number will increase by the sum of those recent deficits -- rising by another $5 trillion to the neighborhood of $33 trillion. Wowee. What a ride. 

Given that bit of historical background, we return to the issue of debt ceiling. If they don't increase the debt ceiling above, say $28 trillion, then the theory says the government cannot issue that extra $5 trillion of  debt. If they cannot increase the total amount of debt above $28 trillion then they have no means to pay for those annual deficits of about $5 trillion. Then what? If they can't have those annual deficits, then they either have to reduce government spending or raise taxes to erase that $5 billion debt. 

So you see why Congress would never do that to itself.  Congress cannot reduce spending nor raise taxes and still get re-elected. 

So what will they do? Of course they will extend the debt ceiling. And move our debt to $33 trillion. And they will blame Putin, Covid19, or little green people from Pandora. Each party will blame the other and Joe will blame his neurologist. 

To raise the question again. Why does Congress decide the debt and its ceiling? Why don't we have an impartial non-political institution set the ceiling? If they want I would volunteer to set the limit. Any of you want to volunteer? 

I am just hoping that none of this gets settled before next Tuesday so I can post this on my blog as news. Shoot. I will probably post it anyway. 

Moving Along

Note to the reader. This post is about death and dying. While I try to take a positive approach to this very personal and sensitive topic, it probably isn't for anyone. Take the week off if you think this might bother you. 

I am 75 now. It's no surprise. It came in bits and pieces one year at a time.

But I have to admit, it’s pretty different now and in some ways overwhelming.

We have always known that the day would come when the lights went out. When you were 14, it meant almost nothing to you. Getting a hit in your next Little League game meant a lot more.

And then life goes by. Education, love, marriage, career, fun, and so much more comes at you.  What a whirl. Some people you know die and you take a moment to process it, but it doesn’t have much to do with you. You learn to smell the roses and to take the good with the bad. You take one day at a time, but you don’t have the time or the interest to wonder about your own eventual demise and mortality.

The demise process is almost as daunting as the end. The lights going out seems scary enough. But lately I have been dwelling on the demise part. Getting run over by an Amazon delivery truck might be the way to go. It's quick and maybe your heirs can collect. You might not even know what hit you. Bam. So long.

But we all can’t be that lucky. I don’t know about you, but I must have a dozen little things that might get me in the end. When you are 75, there is one thing that is very true. Your body is 75 years old! No kidding. Your brain might think like a teen on steroids, but your body is 75 years old.

That means your skin and your organs and your glands and your bones and your teeth and all that stuff are 75 years old. It was probably meant to last 50 years but there it is – 75 years old. Sure, you can work out and you can apply creams and do a lot of things to slow the process down, but we don’t kid ourselves. These remedies apply only a bit of friction against the eventual decline of our many body parts.

My eyes started declining when I was 30. Today I can barely hear a freight train and don’t get me started on my prostate. What about all those brown aging spots? Dudes, it is all going and there is little we can do.

Luckily, a lot of these things are manageable. We can take some drugs and have surgery. I used the word demise above. We are demising for sure but the thing that sometimes keeps me awake at night is the actual process. The Amazon truck is one thing – it’s fast. But what about the slow alternatives? We all want a slow alternative that is not painful and wherein we have some brain functions left as we decline. But we have very little control over the last chapter. It might be painful. It might be perplexing and confusing. Not exactly the way we want it to end.

Some of you notice that I have ignored religion and afterlife. For many of you, there is much comfort in knowing that you will be moving along to heaven. The above is not, therefore, of much interest to you. I hope you are right, and I wish you bon voyage.

I am not sure what is left to say. I am not writing this because I have been diagnosed with something terminal. I hope to live a lot longer. I am writing this because this is a topic that no one wants to discuss. It is probably the best-kept secret out there. People who are very ill don’t want to scare everyone else. People who are worried they will soon be diminishing would rather talk about happier topics like Covid or Donald Trump.

I feel better having put my spin on Moving Along. I’d love for you to share your thoughts too.

One more point. This piece is not meant to be morbid. I don't know how you will react to it. My take is that we should enjoy that last chapter. Some people will want to fight to the very last gasp. Others will go more gently into that good night. Whichever it is, I want to be aware and I want to make the most of every moment. It might be a last chapter but it might also be a really good one. The alternative is that it will be the last chapter and a very bad one. I'd rather not go in that direction. 

Is the Fed Redundant?

Reading the newspaper lately makes me wonder if the Fed is redundant. I looked up redundant -- it means no longer needed or useful; superfluous. 

Don't get me wrong, they do provide a lot of cheap entertainment. But that's about it.

We didn't always have a Fed. It was created around 1914 by the Congress. Congress felt it was not up to the task of supervising banks and regulating the economy. Sort of like Beavis deciding to create Butt-head.  

We have other institutions that regulate banks. The Comptroller of the Currency and the Securities & Exchange Commission regulate banks and could easily take over the Fed's role of bank supervision.

And then there is the supposed role of maintaining maximum employment with stable and low inflation. The Fed was given the unique role of creating and controlling the money supply to attain economic stability. But clearly, the Congress and the President are capable of doing those things. I say that because the Fed and Congress and the President don't really care about inflation -- they essentially have taken the employment drug and and do a great impression of the Three Stooges in that regard. I cannot imagine the Congress making a bigger mess of things than the Fed does.

For example. In the paper today I read that even though the Fed has exceeded the goal inflation rate of 2%, they have made up at least a hundred excuses as to why an inflation rate of 5.4% is not higher than 2%. It is very funny. How could Congress do anything more stupid than that? At what point do they decide that 5.4% is higher than 2%? Maybe when it hits 54%?

Of course, that whole discussion is misleading. The real problem with the Fed these days is the same problem as with Congress. These people are not motivated primarily by economics -- it is all politics. One does not have to be a Trumper to see that Biden/Powell are two liberal peas in a pod. Neither Biden nor Powell would do what is necessary to control escalating inflation because it might have negative short-term impacts on employment. There might be a news headline that says -- Biden/Powell cause interest rates to rise and that hurts the housing market. Gold-forbid such a headline. 

Which brings me to one more point about the Fed. That is this fiction about Fed bond purchases and interest rates. Powell keeps saying that they are going to taper and then they are going to end bond purchases which pump money into the system. He somehow separates that tapering from the role of interest rate management. That is nuts. If the Fed reverses its activities and stops providing trillions of dollars to money markets, surely interest rates are going to rise. That is what they should be doing. But how can they do that when they see tapering as separate from interest rates? That is really weird. Where do they come up with this stuff?

They would prefer to look the camera in the eye and explain that 5.4% is not higher than 2%. If the Congress already prefers liberal/progressive economic policies, why do we need the Fed too?  Abbott and Costello for sure. Enjoy the entertainment. 

Okay. I have pontificated enough. Am I recommending that we get rid of the Fed? Of course not. They might not have anything useful to add to economic stability and bank regulation, but they sure provide a lot of entertainment. 

Taxing the Rich and National Saving

 The latest public discussions concern taxing the rich. The context is usually very narrow -- with a focus on inequality. The logic is simple. The rich, for whatever reason, have a lot more income and wealth than it takes to live. The poor don't have nearly enough. Any simple sense of fairness would argue for a redistribution. Taxing the rich, including corporations, seems to be the preferred vehicle to make things more fair in America. 

Those who argue against this logic typically get caught in the bind of one dimension -- fairness. I remember professor Adler at Georgia Tech teaching us the the idea that every policy has both direct intuitive effects AND not so obvious ones. The discussion about higher taxes on the rich and corporations must therefore widen the argument. What could go wrong if we try to do what is right? 

One thing that will clearly be affected by a policy to increase taxes on the rich is how those taxes affect national saving. National Saving? Really? It's true. This is critical. Why? Because national saving is what shows up in banks and other financial institutions and makes it possible for us to borrow. Imagine an extreme world where there were no savings sitting around in banks? When you went in for a car loan or a company went in to borrow money for a new plant, the banker would shrug and say sorry. We have no savings here and have nothing we can lend you for the plant that will employ workers or the store/plant that will sell/produce a car for you. 

Why do I single out saving? Because here is a very clear case of rich versus poor. As you might imagine, the rich do most of the saving in the US. The richest Americans who are about 1% of the population account for at least 40% of all saving. Poor people account for almost zero of it. If we decide to tax the rich a lot more, then the rich will respond by spending and saving less. The drop in spending reduces demand in the economy. The drop in saving means less money in financial institutions and less borrowing for spending and projects. 

This illustration with saving is meant to get at Prof. Adler's idea that you have to look at the obvious and the less obvious when analyzing any policy change. 

A second point concerns the efficacy. If we tax the rich more, will that really reduce income and wealth inequality? Will that tax money really be used to significantly and permanently change the condition of those with lower incomes? We have had a progressive income tax and growing entitlement programs for decades, yet this has not dented poverty and has not resulted in more equal incomes. What do we do ten years from now after we have significantly raised taxes on the rich and income inequality remains skewed? 

Does this mean there is nothing we can do? I don't think so. Maybe we are barking up the wrong tree? It might be easy for politicians to raise taxes on the rich. They can go home and sleep better. Maybe they simply are not up for the work of attacking what's really the problem?

Put on the Feed Bag

Mr. Sow-L (rhymes with Powell) is Chairman of the FEED (Feed Everyone Every Day). All the remarks below were taken from a recent barnyard speech he made in Washington D.C. 

Mr. Sow-L wanted to reaffirm that the FEED will not back away from its plan to require us to eat less each week. He overfed us for quite a while and he admitted it was time to remove the feed bag. While SOW-L indicated that we would definitely start us on a new and healthy diet, he was reluctant to begin it right now preferring to pin down the actual start date as sometime before Hell freezes over. 

Until then, he promised to keep force-feeding us another $120 billion ears of corn per month because he noted that many of us show acute signs of hunger, especially while watching reruns of the Little Rascals  on late night TV. 

He admitted that sticking with the $120 billion per month figure has been causing dramatic weight gain among the sow and pig population, but he believes that the weight gain has been the result of global warming and the Georgia Tech football team's record. It makes no sense to Sow-L to begin to reduce the number of corn ears in such an uncertain environment, especially since the Delta Delta Delta fraternity at Georgia Tech is going into Pledge Week.

His plan, therefore, is to hold numerous meetings over numerous months with his FEED Board over sumptuous salads and Twinkies to ascertain whether or not it is prudent to reduce the figure of $120 billion of ears to something more reasonable like $119 billion additional ears of corn. 

He admitted that adding so many ears of corn to the hog and pig population might cause even fatter results, but then reiterated that if the Tri-Delt thing kept up, it could spread to the GDI population. And then we would all be in real trouble. 

Nancy Pigosy and President Ride-M supported Mr. Sow-L's points and each promised to do what they could do separately to help the situation by using their debt powers to support infinite dollar outlays for feed, not only for pigs, hogs, and sows, but also for horses, cattle, sheep, and small dinosaurs. 

The FEED's next meeting is September 21-22 where they plan to assess the animal feed/weight issue again. Should the herds be growing in waist size, they will ponder the possibility of slowing growth to an extra $119 billion but they warned that such an extreme change could be unsettling to the gilt population.

One reporter pointed out that even a reduction to $119 billion was still a gigantic increase in corn and he wondered out loud when the FEED would begin to actually remove some of those gigantic piles of maize. Sadly he was stripped and whipped and relieved of his FEED badge.  Everyone knows that an actual reduction in corn piles could lead to mass starvation and possibly herpes. 

Inflation Madness

There are lots of people writing about inflation now. I guess it is cool now that inflation is higher. 

I don't mean to be a macro snob but I think inflation is one of the hardest things to understand and to write about. 

It seems simple on the surface. You go to the store one day and an apple costs a dollar. You go the next day and it costs two dollars. You didn't get a raise in your salary so if you buy the inflated apple, you now have a dollar less to spend on JD and artichoke hearts. 

Simple. Now extend the apple example to a basket of goods and services people usually buy each month and you can do the same kind of comparison. If it costs more to buy that bundle of goods and services this month, then we say there was inflation. If the cost of those goods was to fall this month we could call that deflation. 

What else? While we know inflation means we can buy less for a given income, what happens if your income is changing too?  That's were it starts to get more interesting. That's where we start saying more about the impact of inflation. Suppose inflation is 5% this year and you got a 6% raise? Hmmm. That means you can buy more goods and services -- not less. 

So what do we have to consider to know the impact of inflation? We need to know all the sources of income --- wages, salaries, benefits, dividend income, interest income, gambling profits, housing appreciation....please stop me. Clearly this means several things.

First, it means that inflation will likely have different impacts on different people. Kiltie might be doing great because he is a great investor while Gibson is suffering because of the decline in his rentals of surf boards. 

Second, if we can somehow add together all the various income sources of all the people, then we can talk about the macro impact of inflation. If price change is greater than income change, then we can say we have a national impact of higher inflation. 

Third, it is important to think about temporary versus more permanent changes in the impact of inflation. Economic data jumps around each month. There is a lot of noise in most economic time series. Like your weight. It goes up some one day; down some another day. What matters most to your belt is the trend. Is it getting looser or getting tighter?

That may be the hardest thing when it comes to understanding the impact of inflation. Let's suppose prices in June go up a bunch. It might be a one month thing. Maybe it is caused by weather in June. So you see that the inflation rate in June was high -- maybe 10%. A reasonable thing is to ask how much inflation has gone up over the last year, ending in June. Despite taking a longer term perspective in June, that big increase might calculate to a large increase in inflation over the past year. Was it a one-month thing or was it a 12 months thing?

That's what happened this year. Inflation went up by 5.4% in June compared to the previous June. A one year increase of 5.4%. That was worrisome. But really, it was mostly all happening in a few months. So we have to wait and see.

I looked at CPI data since 2011. Yes, inflation from July 2020 to July 2021 was 5.4%. In the previous three years (2018 to 2020) inflation averaged about 1.8% over each year.  How do you get from 1.8% per year to 5.4%?

Mostly because you had Covid and that caused negative inflation from February 2020 to to June of 2020. Almost half a year where the CPI never got above its value in February of that year. It was not until February of 2021 that the CPI began rising again. It rose a bunch between February and July of 2021. 

What's the point? The point is that the rise of inflation to 5.4% is almost meaningless. It is covid induced and reflects prices falling and then rising. 

It is difficult to make any forecast of the future from this information. Its like steering your boat in a storm. You cannot make rational forecasts during a storm. Inflation has been tossed around in a storm. When the storm is clearly gone, then maybe we will have something to say.

When the storm clears, maybe the impacts of excessive money creation or government deficits will be more recognizable. Maybe all the experts should wait and give a chance for the clouds to clear. 

Bernie Sanders Wants Bold Action

Below I cut and pasted words from an article published in the Wall Street Journal by Bernie Sanders. I promise that while I didn't want to take all his words, I did not misrepresent his meaning. I took enough words so you could see what this guy wants to do to our country. 

Looking at each individual item, you might say he sounds reasonable. There is a lot in the USA that should be fixed. 

But pay attention to his last line where he concludes by saying "it is time for bold action."

Make no mistake, he wants to do it all at once within the scope of a $3.5 trillion Reconciliation Package. 

I don't need to say much else. I just ask you to read his words and then wonder if we can handle bold action. He is not the least bit shy here. And he shows absolutely no worry that we can make significant progress on so many fronts. You might say that if you don't wish big you won't ever reach your dreams. I could also say that if you wish too big then maybe you are in the wrong profession. Is he a politician or a preacher? 

It reminds me of you or me declaring that we are going to get really smart. It is time to act and so we are going to become really smart with respect to biology, economics, physics, astronomy, leg pain, cooking, habits of crows, and a few other things. 

It sounds good, right? But really, how do you quickly become an expert in all those areas? Bernie has no worry about doing a lot of things boldly at once. His actual words are below my summary of his list. What do you think? 

My summary: Make rich people pay their fair share of taxes, reduce the greed of pharmaceutical companies, reduce child poverty by extending tax credits, reduce our dysfunctional child care system by capping childcare expenses, expand higher education and job training by making community colleges free, guarantee paid family and medical leave to all, expand Medicare for seniors by making hearing aids and glasses free, provide healthcare to all uninsured people, provide enough doctors, dentists, and nurses in underserved areas, help seniors and others with disabilities to get care without leaving their homes, make unprecedented investments in affordable housing, provide pathways for citizenship for undocumented persons, move our transportation, electrical generation, buildings and agriculture towards clean energy,  and hire hundreds of thousands of young people to protect our natural resources and guard against global warming. 

That's all he wants to do. All we need is bold action. Below is much of the article he wrote. 

Bernie Sanders: Why We Need the $3.5 Trillion Reconciliation Package

• August 3, 2021

By: Bernie Sanders; Wall Street Journal

THE AMERICAN RESCUE PLAN BOOSTED THE ECONOMY DURING THE PANDEMIC. BUT IT DIDN’T GO FAR ENOUGH.

The bad news is that the American Rescue Plan didn’t address the long-neglected structural crises that many U.S. families face.

 We need structural reforms to improve the lives of U.S. families. If Democrats can’t get Republican support for these reforms, then we have to do it alone through the reconciliation process.

But we will use it (the reconciliation process) to support the middle class and struggling families and, in the process, create millions of good-paying jobs.

Here is some of what is in the $3.5 trillion reconciliation package that the Senate Budget Committee agreed to:

We are going to end the days of billionaires not paying their fair share of taxes by closing loopholes, while also raising the individual tax rate on the wealthiest Americans and the corporate tax rate for the most profitable companies in our country.

We will take on the greed of the pharmaceutical industry, which charges U.S. residents the highest prices in the world by far for prescription drugs. Under our proposal, Medicare will finally be allowed to negotiate prescription drug prices with the industry.

We will end the absurdity of the U.S. having the highest levels of childhood poverty of almost any major nation by extending the Child Tax Credit so families continue to receive monthly direct payments of up to $300 a child.

We will radically improve our dysfunctional child-care system so that no working family pays more than 7% of its pretax income on child care, and we will provide universal pre-K to every 3- and 4-year-old.

We will expand higher education and job-training opportunities for students by making community college tuition-free for all Americans.

We will end the international disgrace of the U.S. being the only industrialized country not to guarantee paid family and medical leave. Women shouldn’t have to return to work a week after giving birth because they have no paid leave and can’t afford to stop working.

We will expand Medicare for seniors to cover dental needs as well as hearing aids and glasses. We will also make sure that we have enough doctors, nurses and dentists in underserved areas, while expanding Medicaid to provide healthcare to the uninsured.

We will give hundreds of thousands of seniors and people with disabilities the ability to get the care they need in their own homes instead of in expensive nursing facilities.

We will also address homelessness and the national housing crisis by making an unprecedented investment in affordable housing.

Further, we will provide undocumented people living in the U.S. with a pathway to citizenship, including Dreamers and the essential workers who courageously kept our economy running in the middle of a deadly pandemic.

Perhaps most important, we will begin the process of shifting our energy system away from fossil fuels and toward sustainable energy to combat the existential threat of climate change. This effort will include a nationwide clean-energy standard that moves our transportation system, electrical generation, buildings and agriculture toward clean energy. We will also create a Civilian Climate Corps, which will hire hundreds of thousands of young people to protect our natural resources and fight against climate change.

Now is the time for bold action.