Poetry

I read the online version of Writer's Almanac every day. It's full of poetry. It makes me want to be a poet. Poetry isn't what it used to be. I thought to be a good poem the words had to rhyme. Apparently that's "old school" and thankfully so. Rhyming is hard. But eliminating rhyming doesn't make poetry easy. A poem has to say something. It has to say something important. And it has to say something in a beautiful or impactful way. 

The following words were written in the poem, Sea Fever in 1902. "I must go down to the sea again to the lonely sea and the sky. And all I ask is tall ship and a star to steer her by." Wow. How cool!

I am not sure how to differentiate a poem from the words of a song. "You've lost that loving feeling -- oh oh that loving feeling. You've lost that loving feeling and now its gone gone gone." The Righteous Brothers sang those words in 1965.

A few years ago I tried to write some poetry. The only poems that I finished were about aging. "Prostate Blues" and "I Found Myself in my Garage" were comical but they say a lot about getting old.  They are silly but real and heartfelt. Since writing those two poems/songs I have pretty much run dry. Which says to me that I am not cut out to be a poet or songwriter. Or maybe it says that I said whatever needed to be said and nothing else seems important enough for me to write about. Or it might say that I prefer writing prose over poetry. Whatever the motivation, here I sit at my laptop trying to write something that seems important to me. I like the idea that I might write a poem or a song, But nothing is coming today. 

I linger over the end of the last paragraph and wonder what I should write next. The white space is intimidating. When I finish one of my typical blog posts it is usually twice as long as the above. Is it possible that I have nothing more to say on this topic? Maybe this is enough. 

But maybe I need to give it a little more time. I should save this draft and come back to it later. Maybe there is more to say about why I prefer to write prose over poetry.  Maybe not. Let's see. 

Okay, let's finish this with a little about my location. My laptop sits on a desk in front of a sliding glass door in my apartment. I spend a lot of time looking out the window. Across the street is a fairly big apartment building so there is always movement over there. People come and go. Delivery people tap on phones to get them into the lobby so they can leave packages. Its a fairly busy street between me and the apartment building and I see a lot of cars and trucks go by. This street, 70th, more or less feeds into the street that goes around Green Lake. So it is busy most of the time. A young woman with her two daughters just stopped to pick up grandma. Looks like they might be going to the airport. 

That doesn't have much to do with poetry but I am sure a good poet could take the above paragraph and turn it into something. 

Otis Redding wrote something like --- sittin on the dock of the bay watching the tide roll away. I guess I could write something like -- sittin in front of a sliding glass door, watching the people roll away. Or maybe not. :-) 

Cheers.

Bobby Dodd

Most of you have no idea who Bobby Dodd was. I decided that the world would keep spinning if I took another week off from macroeconomics and had some fun sharing my past with you. 

My high school football team played for the state championship of Florida in 1963. It was a close game and we were behind the Tampa Robinson High School football team with only seconds left. Coach Kotys could have put in Larry Rentz at quarterback and tried a hail Mary but instead he looked at me and said, "son, get in there and kick a field goal." I had kicked a few field goals that year and it seemed logical enough until I realized that I might have pooped my pants before running on the field. Larry Rentz held the ball and I kicked it and the Gods shined on us as the ball somehow found that sweet spot between those goal posts.  

As an 18 year old virgin I was pretty sure that kick would get me laid, but it didn't turn out that way. But I was a home town hero for a little while and that was enough to get me a scholarship to play for the legendary college football coach at Georgia Tech, Bobby Dodd. Back then, Georgia Tech football must have been very rich because I was probably one of about 50 freshmen arriving at Tech that summer on full scholarship. Anyway, one of the highlights of my life was the honor of going to such a fine school. No, I didn't  play very much on the team but Coach Dodd let me sit on the bench until I graduated.  

And that seems to be the story of my life. I kinda luck into things. I was called a B+ student in high school -- more interested in sports and girls than studying. Football got me to a school well above my pay grade. Tech was hard. As Jim Kiltie, my Tech roommate and dear friend today is fond of saying -- I spent a lot of time in our room in Smith Dorm studying. I did not want to flunk out and as I said, I wasn't the brightest bulb in the package. Somehow God smiled on me and by the time I left Tech I was a pretty decent student. 

Then luck came along again. In this case, it was mostly bad luck that turned into good luck. The Vietnam War draft came along and my draft board was nice enough to let me finish college and start a MS degree at Tech before I had to enlist. Would I have gone to graduate school without the draft -- hell no. Anyway I got a taste of grad school before the Air Force and then with no other plans after I left the Air Force, I finished that MS at Tech and then went to the University of North Carolina for a PhD in economics. 

I was a pretty good student by then and it turns out that the Business Economics Department at Indiana University wanted to hire someone like me in 1976. They offered me a job but it was contingent on my finishing my doctoral dissertation in one year. Yikes. My topic was the Nixon Wage and Price Controls. I did finish it in a year and concluded that the controls were a failure. No, they didn't control wages or prices. The process colored my approach to research all these years -- taking a skeptical eye toward many government policies. No, I am not very impressed by President Joe's policies. 

So what? If anything, the words above remind me that life is a crap shoot. None of it could have been predictable. I feel so fortunate to be 76 years old, to have friends & family, and a lot of wonderful memories. It is very much the time to be thankful and compassionate. 

Thanks for listening. 

PS While the above might be long and boring it omits many people who helped me through life. I intend no ill will towards the friends, family, teachers, and colleagues who were a big part of my life. I hope to embarrass them in subsequent posts. 

Silver Linings: Lower Inflation and Greener Energy?

I get access to a free online version of the Economist Magazine. Unfortunately the free version is not complete. You can't read a whole article. One of the article summaries on 7/27 was titled "The Silver Linings of a Recession: Lower Inflation and Greener Energy are worth the price of a Short Recession."

So my comments here are based on the title without me reading the actual article. 

The title suggests it might be a good thing if policy was aimed at lowering inflation and reducing pollution from oil and gas. It implies that if such a policy were to cause a recession it would be worth it to attain lower inflation and greener energy. 

Interesting. We now have recessions that are not worth it and recessions that are worth it. I thought that recessions were bad but now we have a major policy periodical saying that some recessions are good. I wonder if they talked to the people who will be unemployed or otherwise adversely affected by the recession in coming to this conclusion. 

Who gets negatively affected by a recession? Laid off workers come to mind. What about all those bright and optimistic young people or other people who are new to the job market? Moving in with mom and dad after graduation might not be that great. Stockholders often see declines in their savings during a recession. Companies have to adjust to a recession. Some quit buying new plant and equipment. That hurts plant and equipment providers. Some find their own markets collapsing. They have to figure out how to adjust to that. What do they do with all those unsold goods? 

Recessions never have been and never will be fun. Even if they are short. Of course the article doesn't say how short short is. 

What about the silver lining -- apparently the article believes that a recession will have some really cool impacts. A short recession will reduce the inflation rate and it will somehow make energy greener. 

Will a short recession really do those two wonderful things? Where is the evidence? Maybe the authors have never heard of stagflation. It is quite possible that a recession will come with higher, not lower, inflation. Think about the theory. A recession means unemployed resources. Those unemployed resources quit buying as much. After enough time, the lack of demand finally sends a clear signal to producers that they better lower prices or nobody is going to buy their stuff. 

In today's economic and inflationary environment, how long do you think it will take before producers decide inflation's back has been broken and it's okay for them to start lowering their own prices? How deep or how long a recession will be required to get people to think the worse is over and they can go back to buying? 

My hands are cramping after discussing inflation. The green energy part of this story seems even more ludicrous than the inflation part. So I will leave it to you, my precious readers, to let me know how a quick recession is going to reduce inflation and move the green energy agenda ahead. 

Teaching Pigs How to Fly

The Editorial Board of the Wall Street Journal on 7/26/22 wrote about the "Economic Mess We Are In."

It is about time the WSJ awakened to the well known tradeoff between inflation and output. The economic mess is simple. The Fed and the Congress tried to stimulate the economy and now that they have a little growth going on they realize that they created a firestorm of inflation. Why this is a surprise to our learned friends at the WSJ is quite puzzling.  I am old as dirt and I remember teaching this simple truth in the 1970s. 

Anyway, what interests and amuses me is what the WSJ thinks we should be doing about the confluence of economic weakness and high and rising inflation.  They seem to have learned or relearned the simple lesson -- if you fight inflation, then you might get a recession. Since they don't want to cause a recession it is beyond funny to see what policymakers are now talking about -- please whisper this -- supply-side economics. 

No, they didn't actually say the four-letter word supply-side but they are basically proposing what amounts to what we used to call supply-side policy. They advocate using tight money to squeeze out the inflation. But to offset the impacts of the decline in aggregate demand, they recommend "economic growth" policies to stimulate supply. If that isn't resurrecting old fashioned supply-side economics, then I don't know what else they have in mind. 

When I was teaching I would use chalk on a blackboard. This kind of policy was popular in the 1970s and it was shown by a downward shift in aggregate demand coupled with an outward shift of aggregate supply. The diagrammatic result was a new equilibrium with higher output and lower inflation. Economic Nirvana! 

Sophisticated economists and journalists laughed at this kind of macroeconomics. I always thought it made sense but then I also thought Bevis and Butthead were funny. 

That's all history. Today the reality is that some people want to see tight money coupled with a fiscal policy inducing economic growth. The words are a little different but it all amounts to a leftward shift in Aggregate Demand and a rightward shift in Aggregate Supply. 

Will it work? Maybe. It depends on a couple of things. First, the Fed has to tighten money enough to reduce the growth of aggregate demand and inflation.  Second, Congress has to use taxation and spending in such a way as to promote more output directly without increasing aggregate demand. 

Maybe? I say maybe because neither the current Fed nor Congress has much experience with either of these policy actions. What are the odds that they know how to do this and are willing to try? Not very high. Kinda like teaching pigs how to fly. 

What's It all About Alfie?

That title is misleading but those words came to mind as I was thinking of a title. It was a good movie and a great song. 

Maybe a simpler title would be What's It All About? More specifically, I was born in 1946 and I was wondering what I should have learned during all those years between then and now. 

I will admit that one personal issue is memory. What I learned is not necessarily what I remember. But that's another issue that we can leave aside today. 

Being born in 1946 means that World War II had passed and is only a story that my parents told me. I read about it in school too. But WWII was not really my thing. It was before me. I am not trying to diminish WWII as I know it had big impacts on many of you who are still alive. It just wasn't my thing. My Dad came back from the war and life went on. 

Hopefully wars and similar one-time events do not define us nor tell us what it is all about. I went to Vietnam in an Air Force uniform but I lived and I don't think it defines me in any particular way. Luckily I spent most of my time there in an office and was not involved with with fighting. So I don't think Vietnam defined me. It did cause me to have an international experience and to meet and get to know some really special Vietnamese people. 

There is always religion. For many people accepting Christ or otherwise following spiritual paths is what its all about. In college I was mesmerized by a Christian evangelist but that didn't last very long.  I like to think I am a good person even though I am pretty much an agnostic. I doubt that tells me what its all about. 

It could be all about fame and riches. I doubt either one of those dimensions defines me. I am pretty much in the middle of the road on either of those scores. Some friends would acknowledge that I am famous but only in my own mind. :-)

Another value might relate to being a good family member. Maybe that's the toughest one of all. Divorces are on my permanent record and I doubt I have been the model father or grandfather. I'd like to think I have tried but some would say I didn't try hard enough. 

What it is all about might be finding a way to make use of the precious time we have to live life in a way that let's us sleep at night. Few of us will get it right the first time. But hopefully we converge on something good. 

As in baseball, we come to bat and strike out. We try to learn from out mistakes so next time we get a walk or a hit. Unless we do something really terrible most of us get a second or third chance. 

Seems to me -- that's what is is all about. We get a chance to bat and we try to learn from our mistakes and failures. So long as we keep trying, that seems to me to be the best we can do.  

Biden and Inflation Policy

President Biden recently gave a speech in which he outlined his plans to combat rising inflation. Below are the major elements in his plan.  

The interesting common denominator among these items is that Biden assumes absolutely no blame for inflation. He is going to ride in on his dragon and save the damsel in distress.

 

The other thing to note is his preference for an approach that makes no economic sense. There are remedies that make more sense.  

The first three items (below see Major Elements of Biden's Plan) focus on his government working with other governments to intercede into petroleum and gas markets. It’s as if the people who manage those commodities suddenly decided to gouge the world.

There is little understanding of the economics of those markets by Biden and he doesn’t explain to us what will happen when the government waddles into something it really doesn’t understand.  

In his speech he says nothing – nada – about what factors are part of the supply chains of the items he intends to control. Does he really know enough to not screw up those supply chains?Does he explain whose ox is going to get gored as the heavy hand of government intercedes in complicated markets?  

As for “giving the Fed more room to fight inflation,” that is the biggest piece of misinformation (malarky) in the speech.

The Fed gets more room to fight inflation when the government takes its foot off the pedal. When the government instead spends huge amounts – that puts pressure on the Fed to monetize that debt. Monetary policy is much affected by government fiscal policy. If the Fed puts on the monetary brakes while Biden’s friends slam down the spending accelerator – it is not going to be a pretty picture.  

That's about it. It might sound good to Biden to point his boney finger of blame at providers of oil, gas, healthcare and a few other sectors. But the country would do better if he would look in the mirror and ask himself why he is unable to put a lid on government spending.

 

Major Elements of Biden's Plan to Reduce Inflation

Release more oil from reserve 

Put cap on the price of Russian Oil 

Translate lower oil prices into lower gas prices 

Work with Congress to reduce everyday expenses for drugs, utilities, and health insurance 

Stop Republicans from reducing Social Security and Medicare – and from raising taxes generally. 

Give the Fed the room it needs to combat inflation. 

 

Da Market

Da Market is discussed a lot. I guess those two words can mean a lot of things. 

In the old days when there weren't giant super stores near our neighborhoods, we went to an outdoor market and bought things. That was before my time. Then grocery chains opened up large stores that constituted our idea of Da Market. Nowadays, groovy parts of our towns and cities have something more like the old fashioned outdoor markets. It's fun to hang out in those places and you can buy just about everything there. You can also buy fresh foods that a local farmer brought to the market that day.  Local musicians provide entertainment at some markets and you might even be entertained by a local magician. Call it community. How nice. 

When I hear the words Da Market it often brings to mind stock markets. Most of us don't physically go to a stock market. Most of us call our broker or we can make trades -- sales or purchases -- sitting on a chair in our living room typing on our Internet-connected computers. Some of us have very short-term goals. We try to buy low and then sell high. In that way we hope to make capital gains. Unfortunately, that's a tough call and might even be impossible for most of us. I seem to be very good at buying high and selling low. If only I could predict the future.

Most of us stay away from the lure of capital gains. Instead we SAVE. Saving means that we don't spend all the money we earn. What fun is that? Why not just spend it all right now? Maybe we need it for the proverbial "rainy day". Maybe we will need money after we retire. Saving helps us spend when our incomes are low. 

Saving can take on many forms. We can save money by leaving it in a bank account.  We can save by buying a bond or a stock. We could save by buying a durable good -- any good that lasts a while that we could later sell. So long as you can find a way to sell any of these items when you need some cash down the road, we can call that saving. 

That's a lot of boring background to get to the idea of Da Market. Most of us use those words to describe the stock market. Many of us are invested in the stock market and the main characteristic of the stock market is that it unpredictably goes up and down. Imagine being on a roller coaster with a blindfold on. Crazy. But another truth of the roller coaster is that if you just leave your mask on and if you wait long enough, the coaster will stop and you can get off.

The stock market is the same way. You can get bowled over by all its twists and turns or you can instead put your money in some nice stocks and go back to your knitting. Its called the "buy and hold". Put a little bit of money away each month, wait until retirement, and then take your money out. For most long periods of time, you would have been blessed by a nice gain. 

Which gets us to right now. I spent my life doing the buy and hold thing. When I retired I had a nice nest egg. But in the last couple of years I saw a lot of my money disappear. Wam bam thank you Larry. Gone. 

What to do now? Luckily I have enough income off what's left to keep me going. Luckily I understand that panicking is not good. Panic means I might look at declining values and sell my remaining stocks at ridiculously low prices. I don't want to do that! So I guess I will hold a while longer!

Investment

Today's topic is investment.

Investment is one of those words that means many things to many people. A popular meaning of investment relates to buying financial assets like bonds and stocks.  Today's regurgitation is not about buying financial assets. Instead, what I delve into is investment as it refers to the buying of productive assets by firms and new houses by households.. If you took a macro course you might remember the equation: 

Y = C+I+G+NX

That equation says that the output of a nation is composed of goods (and services) purchased for consumption (C), for investment (I), by the government (G), and purchased by the foreign sector (NX). 

That I is the I that I am writing about today. As the table below shows you, investment can be either residential or nonresidential. The later is what we think of as investment spending by firms as it includes their purchases of structures, equipment, and intellectual property. The former includes purchases of houses, apartment buildings, and other residences.

As I was thinking of choosing a topic for today's blog I wondered what was going on with respect to investment in the USA. As we all know we have been through some rough times in the economy of late. The news media is very focused on topics like consumer spending, overall output, and inflation. I wondered about what has been happening to investment. Investment must have bit someone on the hand lately because it gets very little attention. 

One reason for focusing on investment is that it is the key to the future. You buy a new plant today or add on to an existing one makes it possible to increase output in the future. The new plant might also be composed of the latest equipment, technology,  and productive methods thereby allowing for an increase in national productivity. Higher productivity not only allows for more output per employee but it also can lead to higher wages without higher inflation. 

Below is a table I created using data from the US Bureau of Economic Analysis https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey

What does the table say?

In 2021 investment was $3.6 trillion. The table also shows you that 10 years before, in 2011 it was $2.4 trillion. The fourth column calculates the percentage change over those 10 years to be 54%.  That's a pretty healthy increase. Consumer spending grew by 25% over those 10 years. Export sales by only 8%. Overall real GDP increased 22%. Investment's faster growth took it from 15% of real GDP to almost $20%. 

Equipment was the largest category in investment at $1.3 trillion in 2021. It rose by 47% over the decade. New housing or residential investment grew even faster at 85%.  

If you sum investment in structures, equipment, and intellectual property, you get a measure of the kinds of spending that increase business and national productivity. In 2021 those three parts of investment totaled $2.9 trillion, up from $1.9 trillion in 2011. That extra trillion dollars -- or 50% increase -- gave firms more and better capital to work with. 

There is a lot more that can be said about the table. But today's topic is investment. Investment in the USA is a good story. We need to figure out how to make the next decade as good or better! Clearly, business optimism helps. If only our government could figure out how not to damage that fragile forward thinking. 

Productivity Pay for Mr Powell and the Congress

I had a few blog posts ready to go. But my heart was not really into it until today. I was reading an article that was lamenting that for sure we are headed for a recession in the USA and mostly because we waited much too long to pay attention to rising inflation. By "we" I mean our national economic policymakers. Any remedies for inflation for today will surely hurt the economy and will have proportional impacts on the stock market. 

Simple translation -- we have idiots in charge of national economic policy and most of us will pay for it. That seems right on one hand -- we voted for those morons. We should pay.  But let's not take all the blame. It was hard to see in advance how stupid our leaders would be about national economic policy. They are obviously very good at wearing nice suits and making lofty speeches -- not so good at actually doing anything. 

As I said, in this state of mind I was reluctant to bore you with another negative post. How do we have fun instead? And then it occurred to me that even if we cannot make the below solution happen, it is at least fun to talk about it and who knows, maybe the idea will catch on.  

If you screw up at work, your boss might penalize you by making you work more hours. She might even reduce your pay. Same thing at home. If you forget to take out the trash on Friday night, your spouse might cancel that evening's frivolity. You drop that pass, coach takes you out of the game.  If you are a professional athlete you might not get your bonus. You are getting the picture. In life, failure has consequences -- sometimes severe consequences.

Failure in life often hurts your wallet. 

Why not apply this idea to the Fed and to Congress? Why not directly tie their income to their failures? Why does that sound so outlandish? If the Fed let's inflation rage on, how many people are hurt by that? We measure that hurt in billions of dollars. If the Fed or Congress react to rising inflation by causing a recession, do they not do incredible harm? How many people lose their jobs? How many people lose income? How many people cannot make their dollars stretch to buy the necessities of life?

So it seems fair to me -- if Mr. Powell or members of Congress cause us all economic pain, then they should share in the misery.  How much money does Powell need anyway? Powell only makes about $200k per year as head of the Fed but somehow this uncharismatic individual has accumulated more than $50 million in wealth over his lifetime. Before adding benefits, Congressmen make a salary of around $200,000 per year. Wink wink. 

These people aren't super rich from their salaries but we all know the perks are pretty good. They do wear nice suits, right?

Anyway, they certainly are not poor so why not let them share in the people's misery. For example, we could gear their incomes to changes in the unemployment rate. If the unemployment rate goes up this year, then let's have a formula -- or a people's committee -- or some mechanism  that will lower their pay. I can imagine an interesting formula that is something like the below:

Income = $200,000 

                - .5* the increase in the unemployment rate 

                -.5* the increase in the inflation rate 

                -.5* the increase in the real interest rate

                -.5* the increase in the national debt

                -.5 * whatever else you believe is a proper goal of the Fed and the government

There might be some lower bound to their pay. Maybe we say it is okay if they earn the minimum wage as a floor to their salaries. At about $15 per hour that's about $600 per week or about $30,000 per year (50 weeks). Hopefully if Senator X made $30,000 per year for a while, we would vote him out of office. Or maybe he would quit. 

The thought that these goofballs might get paid according to their productivity might get their attention. If you guys mess up our economy, then we mess you up too. No, it doesn't matter that you tried. If you failed -- you are treated just like any other member of the labor force.  Seems fair to me. 

Janet Yellen: Dishonest or Ignorant?

Janet Yellen is probably the most powerful policymaker in the US today. She leads the Joe Biden team policy efforts. And yet, she is either incredibly dishonest or just plain ignorant. 

She was quoted* recently as saying that inflation in the USA is getting worse and that it has nothing to do with the policies of the Biden administration. When she was asked point blank if the historically high government deficits and loose monetary policy were the causes of higher inflation, she said No. It could not be US policy generating these increases in US inflation.

Why not, asked the reporter? Secretary Yellen replied that it could not be US policies causing US inflation because this inflation phenomenon is worldwide. Wow. Despite the fact that loose money and huge government deficits are known to cause inflation in a country, if these twin monsters occur at the same time as similar policies in other countries, then we must look elsewhere for causes? 

The logic is horribly inverse. Let's suppose for a moment that the EU also has inflationary policies. Would it be proper to blame the EU for US inflation? Surely EU inflation might influence US inflation. Surely. But would you argue that the EU policies are more important for US inflation than are US policies? Or maybe you want to argue that the EU somehow caused the US policy? Really?

Reminds me of kids and parents. Charles, you just punched your sister. I did that Mommy. But Jimmy punched her too. Nice going Ms. Yellen. The US can skate by with its horrible policies because the EU has similar horrible policies. Really? Where do we find these "leaders"?

She didn't say it but maybe she REALLY meant to blame the inflation increases on Covid and other supply-chain issues. That line of thinking is wrong, but at least it is more popular. It is wrong because it totally avoids the difference between very short-term changes in the price level and an ongoing process of rising inflation. But surely the supply shock excuse does not work when monetary and fiscal policies are so inflationary.  I am old but I cannot remember a time in my life when monetary and fiscal policies were so expansionary. And yet, according to madam secretary, they have nothing to do with high US inflation. Wow. 

*https://www.wsj.com/video/watch-yellen-expects-inflation-to-remain-elevated/471F8909-AAE7-4248-A534-4D4752C8F02F.html

Alan Blinder -- Inflation Not Transitory and Not Permanent -- What?

Alan Blinder was cute with his words, but he wrote one of the best pieces I have seen about inflation. It is good writing because it is very clear about defining inflation and discussing its causes. My only rub with his June 1 Wall Street Journal article* is his conclusion.

His title is cutesy. He says inflation is not transitory but is is also not permanent. If not transitory and not permanent, then what is it? I guess it is is something in between. Inflation will hang around for a little while. Maybe that's what he is saying. He didn't say how long it will remain elevated but let's not get too picky.

Blinder does an excellent job of explaining why higher inflation isn't going to last a long time -- Covid and food and energy price impacts are expected to diminish.  And he argues that inflation isn't here forever because, if anything, monetary policy is now aimed at reducing inflation --- not increasing it. 

He is very clear about the analytics. He teaches us about the difference between temporary shocks to the price level that can be caused by many things -- and how monetary policy is the sole cause of longer term or sustainable changes in the rate of inflation. Blinder should get a "best teacher award" for his clarity about causes of inflation. I am not being sarcastic. This is a really good piece of writing and should be required in all macro courses. 

My issue with his article has to do with his policy conclusion. Let's be clear. Like most macro liberals, Blinder has a bias toward fixing output and unemployment. Inflation might catch his attention now and then but he is driven by fixing economic weaknesses. So I don't think he really means it when he concludes that inflation increases are not permanent. By this he implies that shocks will dissipate but even more importantly, monetary policy will not contribute to higher inflation.

And that last point is where I think he is being disingenuous. Should the Fed's anti-inflationary policy succeed, it will do so by causing economic growth to slow and by increasing the unemployment rate. If Blinder is true to his guns, he will not tolerate that. He will turn in an instant and fire his six shooters at the evils of recession and unemployment. Blinder wants to join the crowd and ask Mr Powell to stop inflation. But it really isn't in him. Once the unemployment rate starts to tick up he will get ticked off. 

*https://www.wsj.com/articles/inflation-isnt-transitory-but-it-isnt-permanent-either-federal-reserve-interest-rates-oil-energy-costs-prices-11654113873?cx_testId=3&cx_testVariant=cx_4&cx_artPos=1&mod=WTRN#cxrecs_s

Changing Course?

Is it possible that I might have nothing to say? 

Here's my dilemma. This blog is mostly about the economy -- the US economy. That's my thing. I studied macroeconomics and I taught macroeconomics. That's where my economic interests have been and that's what I love to write about. My mother's influence on me was to be optimistic. And that's my dilemma. Aside from the 1970s when we coined the term stagflation, I could always find a silver lining in the economy. 

But now, the macro-skies seem dark. It seems impossible to think about the usual macro topics without getting sad or angry. Inflation is roaring out of control. And while we are not in a technical recession yet, there is a realistic probability that a recession is around the corner. And those yahoos in the federal government are reacting to all this as if today was a Three Stooges episode. 

I just read an article that said that federal tax revenues are reaching a peak never seen before. And yet despite taking gobs of money from us for taxes, they promise to bring us historically high government spending, deficits, and debt. Why? Because they are not satisfied with spending the increased tax revenues. They want to spend much more than that. 

It doesn't much matter what they want to use the extra cash for. What matters is their total lack of courage when it comes to financial management. Hey mom, I just got a raise. Great honey. Mom, can I borrow a thousand dollars? But honey I thought you just got a big raise? I did, but I really want a new sailboat and a motorcycle. 

What makes matters worse is that no one seems to care. Maybe its that we still don't understand what a trillion means. We see the word so often now. Like mass shootings. Our reaction today is more like, well, how many  kids got killed this time? Mass shootings, like trillions of dollars of deficits, gets spoken so often that they don't really register anymore. That's the effect of frequency. But frequency does not mean unimportance. We can and should do something about politicians who whistle their way to the bank -- with our money and our economy at stake. 

The above is meant to be a last time. I am tired of writing bad news. There is so much going on around us that impacts us more than macroeconomics. Good health is a big one that we ignore until we lose it.  If you are my age, you have your share of health concerns. But if you are reading this, you are alive and so am I. My parents checked out at much younger ages. Wow. I just got another day. How sweet. 

And what about family and friends? How great is that! Okay, relationships are not always perfect. But would you rather have no relationships? I won't bore you with how lucky I am to have people in my life every day. 

Back to my main point. With little fun writing about macroeconomics these days, I need to find better topics to write about. Since that is new to me, I will need your help. Aside from health and friends, what should we be yacking about? 

Is it Happy Hour yet? 

8.3 Million New Jobs

The below quote by President Biden about national employment in the US vividly shows you how easy it is to look at a bunch of data and make it say what you want it to say. 

Joe Biden quote taken from the Wall Street Journal on May 31*. 

     In January 2021, when I took office, the recovery had stalled and Covid was out of control. In less than a year and a half, my administration’s economic and vaccination plans helped achieve the most robust recovery in modern history. The job market is the strongest since the post-World War II era, with 8.3 million new jobs, the fastest decline in unemployment on record, and millions of Americans getting jobs with better pay.

"8.3 million new jobs". What I ask is a new job? The data** is clear -- payroll employment increased by around 8 million jobs between January of 2021 and April of 2022. But what he fails to make clear is that it decreased by about 9 million jobs between January 2020 and January 2021. As of the latest figures, employment in April of 2022 remains lower than in January of 2020. New jobs? I don't think so. Old jobs recycled perhaps.

Worse yet, if you compare the recent "high" number of 151.314 million jobs in April 2022, it is lower than the high of 151.337  million jobs in October of 2019.   Good work Joe. Your employment number is no higher than it was in 2019. Pat yourself on the back again. 

You might complain to me that I am being unfair. Covid not only infected many of our bodies, but it also sickened our economy. Agreed. What I quibble with are the words used by a politician. These are not new jobs. In fact, whatever incredibly aggressive policies he and the Fed used, our national economy remains below par. Employment typically grows by at least 2 million jobs per year in the US. Employment has not grown at all in the US for more than 2 years. That puts us about 4 million below what would have happened in typical times. The strongest job market since World War II? Please Joe. Remember the story of Pinocchio? 

What should Joe say? He should not say things are good (because of him). He should say that we have not yet figured out how to get back to normal. 

But even that admission wouldn't satisfy me because I know Joe's preferences. He will pile on even more demand stimulus and cause inflation to rise even more. That would be disastrous. The economy suffered a huge blow. Policy administered some smelling salts and we are back on our feet -- wobbly but back up on our feet. Administering a heap of pain pills now might just make things worse. Doctor Joe, sit back and take a big breath.   

*https://www.wsj.com/articles/my-plan-for-fighting-inflation-joe-biden-gas-prices-economy-unemployment-jobs-covid-11653940654?mod=hp_opin_pos_3#cxrecs_s

**https://data.bls.gov/cgi-bin/surveymost

Life in Seattle in 2022

Its been around three years since I left Bloomington and came to Seattle. 

I went from 3000+ square feet of housing to around 600. I used to have a cleaning lady but these days I can clean my tiny place with a duster buster. 

I went from a town where I knew people and places to one where I am a stranger. Every name and place is new to me here. 

Seattle is a big city with all the attendant congestion but I live in a neighborhood that is known to be a recreational hub with lots of restaurants, bars, and a beautiful lake. If I get on I5 I can experience plenty of traffic and I can be downtown in 15 minutes. 

Even in my neighborhood parking is at a premium. It is not easy to find a spot. Luckily my unit comes with one parking space in a secure garage. It comes with a huge garage door that grunts and groans. I sit here at my laptop looking out my window overlooking 70th street. I watch people try to park their SUVs in tiny parking spots on the street below. . 

Victor runs the Mexican restaurant that sits within a five minute walk from my place. I love the nights when I sit in his restaurant at a table and he joins me and we talk about changes in Seattle. Sometimes Tequila is involved. I also live near Starbucks and the Green Lake Bar & Grill.

The gym is also a five minute walk. It is a neighborhood gym and now after a few years of living here I feel like I know the staff and many of the customers. Going there is both physical and social. The gym attracts people of all ages but if I go at 11am, I am mostly grunting and groaning with a lot of other old people. It feels safe and friendly. 

Jason and family live close to me too and I am lucky to have them so near. Last Saturday he grilled some amazing ribs for the family.

I read about inflation a lot and there is no question that just about everything costs more than when I first moved here. Luckily I bought my place so I don't have to worry about the landlord raising my rent. If the price of my unit increases, then that means I can sell it for a better price. But I am guessing I won't be doing any selling anytime soon. 

Luckily I live close to most things. I can walk to the grocery store but sometimes I get in the car and drive to the Safeway -- a mile or two down the road. I can drive to Jason's house in 10 minutes. Some friends also live nearby. Even though gas prices are so high, I don't drive enough for the price to impact me very much. 

Aging is challenging. At 76, my joints are less reliable, my hearing is fading, and my memory is challenging. I can remember things from a long time ago -- but sometimes it takes me a moment to remember what I ate for breakfast. Overall I feel pretty good and manage to do a lot of walking and spending time in the gym. 

I will continue to use my blog space to pontificate about macroeconomic trends and issues but some friends encouraged me to reflect and write about a wider pool of topics. I am getting sick of taking a negative slant on macroeconomic policy. I don't see the bad guys disappearing and it is getting boring saying the same negative stuff over and over. I am losing my sense of humor. That's not good. 

So I hope you approve of this kind of message. I am enjoying the change myself.  

Inflation the Scapegoat

Inflation has become the new Frankenstein monster . They tell us it erodes our buying power. Even with large recent increases in incomes, the rise in the cost of goods and services reduces our buying power. What?  I got a big raise this year and even that wasn't enough to overcome that dastardly inflation. Damn that inflation.

Biden says who me? Congress points the finger of shame at Biden. It must be Covid. Supply chains. Greedy corporations.  Putin. Green people from Mars. 

So let's back up and start with a few simple ideas. Inflation is defined as the percentage change in prices -- usually prices of the typical goods and services that people buy. It's a number. It gets calculated every month. Easy enough. But that easy start causes most of the confusion because it doesn't specify time period. 

Time period? Inflation, like many other economic indicators, bounces around from month to month. If February's CPI was 100 and it rises to 150 in March, we say yikes. That's a 50% increase in only one month. While that fits the basic definition of inflation, its only one month. It might fall by 55% the next month if that one month change was a temporary event. 

Point -- technically inflation might be a big number from month to month but it doesn't mean squat for the national economy. One month's price rise does not eat away at our incomes. Yes, it can be called inflation -- but its not INFLATION. I used all caps to distinguish macroeconomic inflation from the month to month reported statistic. 

INFLATION in a macro sense exists when inflation becomes a macro issue. It becomes a macro issue when it lasts a while. Let's arbitrarily say that "a while" is a minimum of 6 months. Like a big wave hitting the beach, macro inflation becomes recognizable when it has a little time to build. If you learn that prices rose by 10% over the last 6 months then that sounds like it could affect buying power long enough to create a macro impact. It also sounds like it night endure even longer. Crap, the first wave hit us and now comes along a second wave. 

Okay -- so a price index might rise or fall for a month, but we get INFLATION when it rises in a sustained way. How do we know the difference?

Here is where cause and effect plays in. If bugs eat the tomatoes in June, we might get a big rise in the price index for a month or two. Fertilizer might solve that problem. But what happens if  inflation rises for 6 or more months? That would be a hell of a lot of bugs. Rather we look elsewhere for the source of the inflation.

I doubt Covid has sustained effects and I doubt supply chain issues do either. I doubt greed has such a history. Which gets us back to the usual suspects. You don't have to be an economic wizard to know that  inflation is usually the result of expansionary monetary and/or fiscal policy -- The Fed and the Congress have the singular powers to use policy to cause large and sustained changes in national spending. The Fed juices up spending by  lowering interest rates and making money easier to find. Congress unleashes spending by its own spending or by motivating us to spend by giving us larger transfer payments and/or lower tax rates. 

Only the Fed and Congress can create Frankenstein and engineer wave after wave of higher spending and higher inflation. All the other talk is nonsense. But like your kid who got caught stealing in your neighborhood candy store -- neither the Fed nor the Congress is admitting that they need remediation. Sadly, they do need it. In the meantime say hello to INFLATION. 

Kicker by Default

Because I was a weird kid, I used to bring my football and my kicking tee to the playground that was across the street from Coconut Grove Elementary School. The walk was no more than one long block from my house at 3180 Oak Avenue. That must have been around 1956. I was 10. 

Back then no one I knew wanted to be a kicker. Yes, there were some famous professional football kickers but no one I knew wanted to be the next Lou Groza. We all wanted to be star Heisman Trophy running backs like Hopalong Cassady of Ohio State and the Detroit Lions. I had no pretense of being a great player so I spent a lot of hours in that playground kicking the ball against the wire fence that protected the windows of the dining hall at the school. Kick -- get the ball -- set it up -- kick again. As I said, I was a weird kid. 

As a result of all that, I became a kicker. The truth is that even with all that practice I was not a really great kicker. Since most kids were not weird and most kids did not want to be a kicker, it fell on my toe by default because I was not worse than the other kids. I was very lucky because I played on a high school team with "There is No Defense for Larry Rentz" and we won all but our last regular season game. That put us into the playoffs and we won the Florida state championship. Yes we won by my last minute field goal but even that kick was not especially long or interesting. Larry Rentz was the holder. 

At 76 years old, it is fun for me to bore you with some of my personal history. It's also fun to think about how different things were a half a century ago. For example, Dwight D. Eisenhower was president in 1956 and Richard Nixon was his VEEP. My parents wore campaign buttons that said "I like Ike'. No one I knew liked Nixon. He was not a very likable character. He goofed up at the Watergate Hotel and was pretty much a disgrace. 

Today we hear endless stories about Covid and Russia. Back then we heard endless stories about Nixon and the Soviet Union. In Miami we were 90 miles from Cuba and we were sure the Soviets were going to use Cuba as a place to attack the US. Some of my richer friends built bomb shelters in their backyards and the rest of us walked around on pins and needles waiting to be blown into smithereens. 

Back then some girls wore poodle skirts. They also wore something called Bobby-socks. We went to events called sock hops where we danced to 1950s rocknroll songs in the school gym. My high school was in the richest part of Miami -- Coral Gables. I did not live there but I could either attend Coral Gables (CGHS) or Miami High. I had the choice. My parents thought CGHS was a better school so that's where I went.  

Going to school with the richest kids in Miami was an eye-opener. They shopped in the best stores and wore the coolest clothing. I wanted to look like them so I spent a lot of my youth earning money mowing yards and painting houses and I spent it all on clothes. One very peculiar thing about our high school was the social life. Those rich kids really liked to party. We even had fraternities and sororities. The coolest kids were in a frat named Ching Tang. I was in something called Wheel Club. Sometimes the boys in those Frats would get in fights. I recall when Larry Rentz decided to join Wheel instead of Ching Tang. The Chinks came to our next Wheel party and we had a sort of gang war. Ouch.

I believe I have hit my limit for childhood boredom. I promise to get back to macroecon next week. 

Monetary Gobbledgook

I have been complaining for weeks about the Fed's inherent bias against fighting against inflation. And they have done it again -- they have waiting so long to work against inflation that they now are between that rock and hard place. Inflation has accelerated and that means that to effectively stop the climb, there will be very negative consequences to economic growth. 

So how does the Fed handle this? Easy, They obfuscate. I just read an article that had an easy title. The title indicated the Fed is proposing to use some tools that will work against inflation. Sounds good. Not. Reading the article was like reading an advanced physics textbook. Instead of blatantly or directly addressing the idea that setting higher interest rates would be used to slow demand and quell inflation, we got a long and complicated thesis about the Fed's buying behavior. 

The Fed is not buying the latest spring fashions. The Fed says it is going to stop buying as many government bonds. When I taught monetary theory, the story was pretty simple. If the Fed stops buying or it begins selling its huge stock of government bonds, it usually has the effect of reducing the market prices of these bonds. As the market price of the bonds falls, the return or market interest rate rises. That rise in interest rates is designed to reduce spending and inflation. Pretty simple. 

But not now. I never saw any of that in the recent articles. Instead we are fed a diet of minutia about passive runoff.  Passive runoff? Is this gardening 101? That sounds like a urinary issue for over-70 guys. But no, passive runoffs appears to be the way the Fed is going to fix our inflation problem. They are not going to aggressively sell some of their infinite stockpile of government bonds. That might be too clear. Maybe too aggressive. Instead, behind the scenes they are not going to replace some of the bonds they hold that mature. Passive. Runoff. Wow. 

Do they ever say why they want to behave passively? I can't find it in anything I see published. I am left to conclude that they want to be clever. Better, they think, to obfuscate than to be clear about the fact that they are fighting inflation. Maybe this way, when the usual negative growth follows a policy to fight inflation, they can blame it on corporate greed. Or blame it on Elvis. If no one understands what they are doing, the Fed can skate. If people do not understand what the Fed is doing on its backdoor, then the negative effects of fighting inflation on economic growth might at first be smaller. But the Fed can't hide its true intent for long. People will figure it out eventually and then all hell is going to break loose as dismal economic expectations take hold. 

What's the alternative? The alternative is honesty. Sorry folks, we waited too long to fight inflation and now we are going to have a recession.  Either way, we are going to have a recession if the Fed fights against rising inflation. They can choose to be honest or instead they can confuse people with strange language. So far we are not getting much honesty. Passive runoff. Really? 

Cancelling Student Debt

Let's start with the obvious. Some politicians want to cancel student debt. Student debt? Are you kidding? It is definitely not about student debt. Imagine all the debts that students have. Many students are bad poker players and have a lot of poker debt. Some have car debt. Some have grocery debt. Some owe their parents for their education but in most cases it is the parents that have the real education debt. Many of these parents are lawyers and other well paid folks. 

This whole political thing is not about student debt.  Apparently it is mostly about money that parents/children borrow to go to college. College? You know, that's the place where students, who were treated as prisoners in high school were finally emancipated and sent to dorm rooms where they could party at night and oversleep in the morning. The amount they spend on one weekend's partying at the frat house dwarfs the actual cost of their required sociology course. 

Boo hoo. Student debt. What is with our liberal progressive politicians that they are turning their backs on people who need real help so they can help EVERYONE who borrows for college? 

Who is getting bailed out here? Yep, parents for sure. But what about the colleges? If students don't have to pay to go to school -- they are writing checks to universities on accounts that have borrowed money which doesn't have to be paid back. Not only are the kids/parents skating but the colleges are being subsidized too. Without these non-repayable loans, how would people pay the colleges for their services? In the usual old way-- out of checks from accounts or from loans they actually have to service. 

Now that's the grabber. If they actually have to use real debt or real money to pay for school, they will be judicious with their money. Maybe junior won't go to the Ivy League where one semester's tuition costs more than a new Lamborghini. Maybe junior won't take a random sampling of courses for years on end before graduating. Maybe junior will think as much about supporting herself as she consumes the latest woke news from her long-haired professors. 

When you buy most things, you ponder a bit. Do I really want/need this thing? What do I have to do without if I buy this thing? You make reasoned choices. If college education is essentially free, do we handle decisions about it with the same attitude as buying a house or a car? Is this degree really worth the money I am really paying for it? Is there a way to get the full benefits of a college education at the lowest possible cost? 

Nope. Some of our politicians want you to have a free college education. 

Don't get me wrong about one point. I am not saying that government cannot find ways to subsidize people who cannot afford it. We need social policies that help the poor and a university education ought to be part of that. But writing off student debt in general is not the right way to do that. 

The Here and Now

Buddhism has helped to popularize the very useful idea of living in the here and now. On the surface it sounds like the right idea. The past is sewn up so why spend precious time worrying about that? The future isn't here yet so worrying about that seems unproductive. We can proactively plan for the future but that's different from worrying about things that might never happen. 

Sensible advice. Focus on what you can change. Focus on here and now. Right here and right now. 

Then I started thinking more deeply about that and came away confused and unsure. It might have been the gin. I can't be sure. This is not a macroeconomics topic but since it seems to be the cornerstone of a major world religion, I had to pursue this topic and enlighten my faithful followers. 

I started thinking more deeply about the now part of here and now. What is "now" anyway? The second you can utter the word "now" the now has up and gone. Where did it go? It was here a second ago but now its gone -- only to be replaced by another now. Call that now-2. So upon further thought, I am wondering how useful the idea is. We are supposed to focus on something that you can't really nail down. 

Now is here and than wham -- it's gone to be replaced by something else. 

How can I focus on that? It's like that rabbit playing in your yard. It was just there a minute ago. Where did it go? How can I focus on that?

It seems to me that anyone sitting legs crossed and contemplating the here and now should be concerned about this. What in the hell are we supposed to be thinking about? One school says to focus on your breathing. Focus on that instead of the job you just lost or your child who just got kicked out of the second grade for pulling Mary Ann's pigtails. 

But that is a fool's game. Which breath do you focus on? The current one? Certainly not the past one or a future one. But what is the current breath? Is it the one you just exhaled or the one you are about to inhale. I don't think so. What about the current one? Not really. An instant after you have that breath it is gone and is part of the past. How can you focus on that? 

So that's that. I decided to take on an existential* subject today and I have come away with nothing. The here part makes sense to me but the now just makes me wonder if Buddhists have a strange sense of humor and want to torment us Christians and Jews. 

So that's it for today. Maybe next week I will return to less existential topics like inflation and gross private domestic investment. Or maybe not. The future is not part of the now and I really shouldn't be fretting about that. I guess I will have to work on it in the now whenever that is. 

Have a nice day. 

* Existential.  I have noticed lately that everyone from Joe Biden to my local grocery clerk uses that word often and with great confidence. Here is the way Webster defines it: a chiefly 20th century philosophical movement embracing diverse doctrines but centering on analysis of individual existence in an unfathomable universe and the plight of the individual who must assume ultimate responsibility for acts of free will without any certain knowledge of what is right or wrong or good or bad. Wow. 

Inflation and Greed

Inflation has been on our minds lately. Most measures show it rising and we have different opinions about how high it will go and for how long it will last. Some see it as a flash in the pan, rising and then falling. Others worry that the increases will be sustained. It is a legitimate issue with no easy answers. 

And then there is the question of what is causing it to rise. At one extreme are the folks who believe corporate greed is causing higher sustained inflation. At the other end are people who believe higher inflation is the result of macroeconomic policies -- the rapid increase in the money supply engineered by the Fed and the waves of increased fiscal stimulus packages. 

What I find interesting about this discussion is that one's opinions about the causes of inflation come from very different definitions of inflation. The greed folks look at inflation literally. Who actually changes those prices? Neither Nancy Pelosi nor Jerome Powell have ever set any price. That would be well below their dignity and pay grade. The people who set prices every day are the people who manage companies. 

We don't usually see the people changing the price signs, but when we drive down a street with a gas station on the corner, we see that someone at that gas station has changed the price on the sign. In the old days we used to see them climb up on ladders to physically change the price. Whether we see them or not, we understand someone from Shell Oil decided to raise or lower the price that day. We know who did it!

When inflation rises, therefore, it is easy to imagine store managers changing their prices. Often times they increase the price. Usually we are humble enough to know we don't know all of the many things that might cause them to increase price at a given time. Imagine all the things that go into the cost of a gallon of gasoline. Yep, greed or the desire to increase profits is surely one of them. But it could be a lot of other things too. 

My point is that, yes, it is easy to imagine a person or a company responsible for price and inflation. It is easy to imagine that the greed of the person on that day promoted the price increase. But it is also easy to imagine that there might have been some other things causing that manager to raise that price. I am always interested to know what might cause a given company to have more greed today than yesterday. But I never had a course about the causes of greed change so I can only guess. 

Which leads me to my second point -- while we know that some person actually changes the price -- a legitimate question is why she changed it. Yes, greed could be the answer. But it could be a lot of other things. In economics we have something called price theory and without reviewing all the details here, let's just note that price theory says that changes in demand and supply cause changes in price.

No, I am not going to review price theory today (maybe tomorrow?) But I will make note that the demand for goods and services can be very much affected by macroeconomic policy -- by the Fed's monetary policy and the government's fiscal policy. And those of us awake lately, know that these macroeconomic policies have been off the chart. A policy to keep interest rates at zero and highly stimulative fiscal policies have been designed to get us to spend spend spend. Surely those policies put pressure on demand for goods and services and prices to rise. Today with all sorts of factors preventing supply to respond to demand leaves us with much higher inflation. 

Yet, most of us don't want to admit policy is the cause. It seems so theoretical. It involves markets, and demand curves, and supply curves, and theories, and such. That line of thinking seems so fuzzy compared to thinking about a greedy guy sitting in a plush office giggling on the way to the bank as he raises prices. 

Friends, greed might be a factor today. But before I buy that line of thinking, I want to know two things. First, why did greed increase so much lately? Second, relative to greed, how much of what we see in prices is coming from monetary and fiscal policy? Let the greedo-maniacs answer those questions please.