On February 17, 2021, economist David Beckworth and columnist Ramesh Ponnuru, in an op/ed titled “Stop Worrying about Inflation,” wrote: Hence the new round of inflation hand-wringing. The Harvard economist Lawrence Summers raises the prospect of “inflationary pressures we have not seen in a generation, with consequences for the value of the dollar and financial stability.” Olivier Blanchard, the former chief economist for the International Monetary Fund, warns that we risk not just “overheating” the economy but “starting a fire.” They should relax. The evidence that high inflation is on the way is weak. It’s too weak, actually: An economy on the verge of a robust recovery would be showing more signs of rising inflation. Right now, inflation appears more likely to stay below its optimal level than above. And what, in their view, was the optimal level of inflation? They don’t say, but it appears from context that they think it’s 2 percent annually. On May 20, 2021, I wrote: I would put an 80 percent probability on the prediction that before the end of 2022, there will be at least one twelve-month period in which the CPI has risen by at least 5 percent. I would also estimate less than a 20 percent probability that in the same time period, there will be a twelve-month period in which the inflation rate hits Carter-era 10 percent. Between May 2021 and January 2022, the Consumer Price Index, seasonally adjusted, rose from 268.6 to 281.9, an increase of 4.9 percent.  So my 80 percent bet is virtually certain to be correct. I also don’t think there will be a 12-month period before December 2022 in which inflation hits 10 percent. How about the Beckworth/Ponnuru prediction? Way off. Now, to be sure, a better measure of inflation, as I’ve always pointed out, is the Personal Consumption Expenditure index. Beckworth and Ponnuru point out that it tends to grow more slowly than the CPI. So let’s look at that number. Between May 2021 and December 2021, it rose from 114.8 to 118.7, an increase of 3.4 percent. So, while I had in mind the CPI for my prediction rather than the PCE, I think my prediction of 5 percent will come about for the PCE by the end of the year also. (0 COMMENTS)

When the clientèle seems to have become more monolithic, less diversified, we can understand that some companies—and producers in general, to use the economic jargon—would mimic the hierographical hang-ups of their customers. Sometimes, it verges on the pathetic, as we can see in yesterday’s Wall Street Journal (“The Hidden Ways Companies Raise Prices,” February 12, 2022), but competition can still limit the damage: Some of Marriott International Inc.’s Autograph Collection hotels had been charging a “sustainability fee” of about $5 a night. The company that manages the properties, Innkeeper Hospitality Services LLC, says it covered things like more-efficient HVAC systems. They stopped charging the fee several weeks ago, “because we understand that while we believe in environmentally responsible stewardship, not everyone cares about our planet’s health,” IHS CEO Amrit Gill said. He said Marriott had asked the company to stop charging the fee. Marriott declined to comment. Marriott International has presumably realized that some customers are not willing to pay any price to save their,  or others’, environmental souls. (0 COMMENTS)

Many people are surprised by my claim that monetary policy is gradually getting more expansionary, even as interest rates start to rise and QE is being scaled back. But these instrument settings don’t tell us much about the stance of monetary policy. Instead, we need to look at the goal variables. The 5-year TIPS spread has been fairly stable over the past 10 months, at a relatively high level: If the Fed were an inflation targeting central bank, then this would suggest little change in the stance of monetary policy over the past 10 months.  But the Fed is not an inflation targeting central bank; it’s an average inflation targeting central bank.  And the expected average inflation rate during the 2020s has been rising in recent months. The actual PCE inflation rate over the past year is 5.8%, far above the Fed’s 2% target.  To make this high inflation “transitory”, inflation must average roughly 1.6% during the other 9 years of the decade.  Inflation was quite low in 2020 (1.3%), so we need about 1.7% per year for the rest of the decade.  This means that the gap between expected PCE inflation (about 2.6%, equivalent to 2.85% for the CPI) and the appropriate target (about 1.7% PCE inflation) has been widening over the past 10 months. Unfortunately, Fed chair Powell has recently seemed to waver on the Fed’s average inflation targeting commitment, suggesting that they have no intention of balancing years of above 2% inflation with periods of below 2% inflation.  This could lead to a dangerous loss of credibility in Fed policy.   This is not to suggest that inflation averaging 2% for the rest of the decade would be a policy disaster; that would still be a better outcome than most previous decades.  But the longer the Fed waits to get inflation under control, the more painful will be the adjustment process.  Policy credibility is the Fed’s most powerful policy tool.  Without it things get much more difficult. (0 COMMENTS)

On the Chicago Booth Initiative on Global Markets last month is the following statement: Price controls as deployed in the 1970s could successfully reduce US inflation over the next 12 months. The 43 economists polled, all of them at prestigious colleges, are asked to disagree, strongly disagree, state that they are uncertain, agree, or agree strongly. They also have the option of having no opinion or not answering. 0 people strongly agreed, 10 agreed, 5 were uncertain, 21 disagreed, 4 strongly disagreed, 1 had no opinion, and 2 did not answer. So 25 out of 43 disagreed or disagreed strongly. Why wasn’t it 43 out of 43, which I would have expected given both basic economic reasoning about price controls and our bad experience in the 1970s? One reason is that some of the economists polled read the question more carefully than I did. I took the statement to mean the actual cost of getting goods of a given quality. We know that price controls reduce quality and also raise the time cost of getting goods. But the statement didn’t make clear that those things ought to be included. My guess is that the ones who expressed disagreement had in mind something like what I had  in mind. Some of them, such as Robert Shimer of the University of Chicago, expressed that. And many of those who stated agreement pointed out that the reported inflation number could fall but that there would be huge problems. Here are the comments from the 9 of the 10 agreers who bothered to give their reasons: Daron Acemoglu, MIT. Effective price controls, by definition, would reduce price increases, but they would most probably create other huge distortions. David Auto, MIT. Price controls can of course control prices–but they’re a terrible idea! Darrell Duffie, Stanford. Barring illegal price setting, this seems to be mechanically true. A more interesting question is whether price controls are a good idea. Aaron Edlin, Berkeley. Price controls could temporarily reduce inflation at a cost of shortages and possibly later inflation. Oliver Hart, Harvard. They could reduce inflation but the consequence would be shortages and rationing. Kenneth Judd, Stanford. Yes, it could reduce inflation over the short run–but only temporally–just as the 1971 controls did. Too much money creation. Eric Maskin, Harvard. I imagine that price controls could restrain inflation–but that doesn’t mean such controls are a good idea. Jose Scheinkman, Columbia University. Could lower measured inflation but would generate inefficiencies and cause even higher inflation when controls are lifted (see US 1974) Richard Schmalensee, MIT. Over 12 months, probably, but with significant costs. Notice that all 9 are essentially saying that price controls are a bad idea. The only agreer who didn’t give her reasons was Amy Finkelstein of MIT.   4 of the 5 who answered “uncertain” pointed to the problems that those who critique price controls typically point to: Robert Hall, Stanford. Some observers think that high inflation in 1974 was the result of earlier controls, which would suggest some control effects. William Nordhaus, Yale. Perhaps could reduce inflation in the short run as 1970s. Would only cause more shortages and a terrible idea. Carl Shapiro, Berkeley. What does “successfully” mean? Price increases could be controlled to some degree but the underlying supply problems would be made worse. James Stock, Harvard. There might be some ephemeral success because of the way inflation is measured, but longer-run, price controls would be ineffective. So 9 of the 10 who agreed think they’re a bad idea and 4 of the 5 who expressed uncertainty think they’re a bad idea. Add those 9 and 4 to the 21 and 5 who disagreed or strongly disagreed, and you get 39 out of 43 who are explicitly critical of price controls. Not a single one said that price controls are a good idea.   By the way, although I don’t often say positive things about Austan, I loved the University of Chicago’s Austan Goolsbee’s justification for his Strongly Disagree answer: Just stop. Seriously.   (0 COMMENTS)

Used car prices have increased by 40.5% in the twelve months to January, to the point where the average new car purchased one or two years ago is now worth more on the used-car market than its original purchase price. (See Nora Eckert, “Why Your Car Might Be Worth More Today Than When You Bought It,”  Wall Street Journal, February 11, 2022.) Some people seem surprised: “You see nutty things. Cars that were $25,000 new three years ago are $25,000 today,” said Adam Lee, chairman of Lee Auto Malls in Maine. “It doesn’t make any sense.” For those who have studied some economics, it makes total sense. It is a direct theoretical result of assuming that an individual is rational and maximizes his utility (or something similar) given his own circumstances. New car prices increased because of lower supply and rebounding demand after the worst of the pandemic. Used cars, who are substitutes (albeit not perfect ones) for new cars, became more desirable for more consumers. Thus, demand for used cars increased (the demand curve shifted up) and so their prices too. It is the same reason why famous paintings that were often worth close to nothing when first sold by their creators are now worth fortunes. In the case of cars, the agents on the demand side are not sophisticated art collectors, but ordinary individuals who have a good intuition of the market (having been in business helps). If, for example, one’s car lease expires and one realizes that his car is worth more than the its buyout price, one will buy off one’s own used car, which has actually been happening. Enlightenment thinkers and classical liberals thought that all human individuals were natural equals and naturally capable of learning. In this perspective, Adam Smith famously wrote that there is probably no difference between the natural capacities of the street porter and the philosopher: The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. When they came into the world, and for the first six or eight years of their existence, they were, perhaps, very much alike, and neither their parents nor playfellows could perceive any remarkable difference. One may think that this is a slight exaggeration from an empirical point of view, and one might be right. (My forthcoming Regulation review of James Buchanan’s Why I, Too, Am Not a Conservative [Edward Elgar, 2015] will have a bit more to say on this topic; sorry for the unbearable suspense!) Yet, the increase in used car prices suggests that Adam Smith was at least partly right, and the more as more individuals are equally free–like on a free market. Ordinary car buyers seem to understand as much about the car market as the chairman of Adam Lee Auto Malls. (0 COMMENTS)

According to the latest findings, adult children are cutting ties with their elderly parents. Even television shows have depicted this phenomenon: on the murder mystery show Endeavor, the daughter of detective Thursday is barely speaking to her father. Relatives of all types and varieties- cousins, aunts, uncles, nephews, nieces, grandparents- are giving the cold shoulder to one another to a greater degree than ever before. What is causing all this cutting of familial ties? One of the “usual suspects” is the greater political polarization of recent vintage. Democrats and Republicans are at each other’s throats. The same for liberal progressives and conservative libertarians. Throw Oath Keepers, Proud Boys, Antifa, and Black Lives Matter into the mix, and the result is divisive pandemonium. The English are still hotly debating Brexit, and all the world over people are disagreeing with each other about COVID- vaccinations, masking, and all the rest. There is no reason why all this should not impact relatives as well as the general public. So part of the explanation is the present general political malaise. It used to be that people could disagree with each other and still remain friends, good friends. Nowadays, all too often, this is a relic of the past. Then there is the issue of mental illness, perhaps evidenced most powerfully by rising suicide rates. Lock people up, even in their own homes; do not allow kids to go to school for months and even years on end; something has got to burst, and one of the products of this phenomenon is undoubtedly psychological debilitation. Isolation and “social distancing” over the long haul cannot be expected to have good results for mental health.  This, in turn, may lead many people into truculence, lessened ability to see the other side; road rage, here we come. All of this flows into family and friendship breakups. “Bump my shoulder, will you? Here’s a punch in the mouth for the likes of you,” is all too often the reaction, whereas in times past there would have been mutual apologies. The “argument” more likely would have been “It’s my fault, sorry.” “No, I apologize, it’s my fault.” Students whining about professors using “offensive” micro-aggressive language plays into this phenomenon as well. Sometimes, if you really want to get to the cause of social phenomena, asking qui bono cuts to the kernel of the matter. So, who benefits from the breaking of family ties? There are three main institutions that vie for the “hearts and minds” of the populace. They are the family, religious institutions, and the government. Given the weakening of the former, do churches and synagogues benefit in any way? It is difficult to see how this would be the case. For one thing, these organizations have as their goal the strengthening of the family, not its dissolution. For another attendance has been falling, not rising, which does not at all support this contention. There have been religious leaders thrown in jail for rejecting requirements to disband services, or limited to holding them electronically. What about government? Its power has increased, dramatically, during COVID; that is a no-brainer. Perhaps the strongest indictment against the state in this regard took place in the USSR, when children were rewarded for tattling on their parents. The U.S. too, weakens family ties. Before the advent of Social Security, and the burgeoning of the welfare program in 1965 under LBJ’s “Great Society,” adult children felt more responsible for elderly parents than they do today. This cannot fully account for severed family ties in the modern era since these programs are of long duration. But they undoubtedly weakened such connections, and in that state these other considerations could play a more powerful role.   Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of An Austro-Libertarian Critique of Public Choice (with Thomas DiLorenzo). (0 COMMENTS)

Is there any sense of irony left? The Canadian truckers who engaged in an heroic long march (drive?) from Vancouver to Ottawa made reasonably clear at the start that they were protesting, as they should have, vaccine mandates, especially mandates that required truckers to be vaccinated in order to return to Canada from the United States. They were, in short, opposing government restrictions on freedom of movement. And so what have they done? Imposed their own restrictions on freedom of movement. They have effectively blocked the Ambassador Bridge that goes south from Detroit to Windsor. Their blockage of the bridge is far more hostile to freedom of movement than the hostile restrictions of freedom of movement of Prime Minister Justin Trudeau. The truckers have a worthy cause, which is why I was so in favor more than a week ago when they were en route. But not all actions taken to achieve worthy causes are legitimate. It should be obvious to anyone that actions that violate the very cause they champion are illegitimate. Traditionally it has been protesters on the left who block streets and freeways and take over campus buildings so that people can’t have classes. Sometimes their causes are worthy. Their methods are not. Now this tactic has spread beyond the left. I hate it when people who protest make other people around them simply means to their ends. They are like Adam Smith’s infamous man of system. The man of system, wrote Smith in The Theory of Moral Sentiments: seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess–board. He does not consider that the pieces upon the chess–board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess–board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. Smith was talking about the legislature. But his point applies to many of the protestors also. They should just stop. (0 COMMENTS)

I recently ran across an interesting table showing population change in the major cities (core city only, not suburbs), as well as the change in the African-American population since 1990: A few patterns stand out: 1.  Some of the older rust belt cities have seen major declines in both overall population and African-American population. 2. Many cities located near a coast have seen their overall population rise even as the black population declined sharply.  Many of these cities have very expensive real estate. 3.  Booming cities that are far from the coasts often have a fast-growing black population and moderate real estate prices. I find these patterns to be interesting, as the coastal cities are often governed by progressives that are sympathetic to the Black Lives Matter movement. So why are blacks leaving those areas? There could be numerous reasons, but one factor is surely NIMBY housing regulations.  These cities tend to have much more regulated housing markets than places such as Houston. And this goes beyond zoning; there are often very strict environmental rules that force builders to jump through numerous hoops to get a project approved.  These long delays are very costly to developers, and they actually hurt the environment.  More density means less sprawl. The black population is declining especially rapidly in a number of cities in California.  Older readers may recognize the title of this post as a nod to a classic rap album from the 1980s, which itself referenced a black area in south central Los Angeles.  Take a look at a recent Zillow screenshot of Compton: If a small ranch house in a high crime neighborhood costs roughly 1/2 million dollars, is it any wonder that working class blacks are moving straight out of Compton and toward more affordable metro areas?  Progressives in places like LA need to understand that it does no good to place a politically correct sign in your front yard if your housing policies are implicitly sending the message that “black lives matter . . . somewhere else”. PS.  Be aware that overall metro area migration patterns may differ from the table above, especially for places (such as Atlanta) where the core city has only a small share of the metro population.  In many areas there’s been significant migration of blacks to the suburbs.  But at least in the case of California, even at the statewide level the share of blacks has fallen significantly since 1990. PPS.  Don’t think in terms of whether poor and working class blacks could afford new construction in west LA.  That’s not the point.  Think about how a boom in new construction would reduce pressure to gentrify marginal neighborhoods such as Compton.  Many of LA’s expensive little ranch houses are teardowns, which will be replaced with new construction. (0 COMMENTS)

  Omigosh, Oshkosh! “When using federal tax dollars, you want to spend those in the most efficient way,” he said. “And if it’s more efficient, more effective to spend those in other states, I don’t have a real problem with that.” The above is a quote from Ron Johnson, Wisconsin’s Republican member of the U.S. Senate. I’m quoting from “Ron Johnson’s Oshkosh Heresy,” an editorial in this morning’s Wall Street Journal. Johnson is defending the right of a company in Wisconsin to produce vehicles in South Carolina. The Journal states: Wisconsin enacted a right-to-work law in 2015, but Oshkosh’s plants in the state have long been represented by the United Auto Workers. The UAW urged the Environmental Protection Agency to review the Postal Service’s contract for adverse environmental and socioeconomic impact. South Carolina is “hostile to collective bargaining,” the union declared. So presumably the UAW wants the adverse effect on the environment to be on it workers and others in Wisconsin rather than in South Carolina. Hmmm. The picture above is of Johnson. (0 COMMENTS)

According to Richard Hanania, trade sanctions are “ineffective, immoral, and politically convenient”: Sanctions have massive humanitarian costs and are not only ineffective but likely counterproductive. On these points, there is overwhelming agreement in the academic literature. Such policies can reduce the economic performance of the targeted state, degrade public health, and cause tens of thousands of deaths per year under the most crushing sanctions regimes. Moreover, they almost always fail to achieve their goals, particularly when the aim is regime change or significant behavioral changes pertaining to what states consider their fundamental interests. Sanctions can even backfire, making mass killing and repression more likely, while decreasing the probability of democratization. He makes a convincing case, but this gets me thinking.  When countries impose sanctions, they barely even mention consequences.  Instead, they focus on the sheer evil of the targeted regime: When the EU extended sanctions against Syria, they averred: The Council today extended EU restrictive measures against the Syrian regime for one additional year, until 1 June 2022, in light of the continued repression of the civilian population in the country. Similarly, here’s how the Congressional Research Service rationalizes sanctions against Venezuela: For over 15 years,the United States has imposed sanctions in response to activities of the Venezuelan government and Venezuelan individuals. The earliest sanctions imposed related to Venezuela’s lack of cooperation on antidrug and counterterrorism efforts. The Obama Administration imposed targeted sanctions against individuals for human rights abuses, corruption, and antidemocratic actions. The Trump Administration significantly expanded economic sanctions in response to the increasing authoritarianism of President Nicolás Maduro… Observation: If sanctioned regimes are so monstrous, then virtually all of their subjects have a good reason to fear them.  In technical terms, this plausibly amounts to a “well-founded fear of persecution” – the essential legal ingredient for meriting asylum. Which brings me to my modest proposal of the day.  Namely: If a country is bad enough for sanctions, it is bad enough to grant all of its citizens asylum.  For the U.S., this would at minimum include all citizens of Cuba, Iran, North Korea, Syria, and Venezuela. If embraced, this norm would have two main effects, both good. First, governments would be more reluctant to impose sanctions and more eager to end them, to avoid the responsibility to accept large flows of refugees.  Per Hanania, this is a big win.  Sanctions cause immense harm, and the “humanitarian” exceptions for food and medicine do little to mitigate this harm. Second, all citizens of the very worst governments would suddenly have viable exit options.  So even if sanctions make monstrous regimes go from bad to worse, they also almost automatically reduce the number of people who actually live under such regimes.  Total oppression can easily go down as per-capita oppression goes up. I’m not saying that the my modest proposal is going to happen.  I’m saying it should.  If Hanania is right about sanctions, the main reason sanctions persist is that politicians barely care about the well-being of foreigners.  Alas, this also predicts that my modest proposal won’t happen.  Sure, it would allow the world’s most oppressed people to find a better life.  But who cares about them? (0 COMMENTS)