Many believe that the January increase of the Consumer Price Index portends a revival of the inflation that accelerated in 2021, reached a peak in mid-2022, and followed a downward trend until very recently. The CPI, however, is simply a cost-of-living index based on a typical basket of consumer goods. It catches both the change in the general level of prices and changes in relative prices. A similar problem, due to the nature of price indexes, mars the Personal Consumption Expenditures (PCE) index. Quoting or paraphrasing an economic consultant without quotation marks about the rise in the CPI growth, a Wall Street Journal reporter echoed the general confusion between inflation and relative price changes, and about the nature of price indexes (“Inflation Heated Up in January, Freezing the Fed,” February 12, 2024, update of 9:41 am ET): The bigger-than-expected increase in prices last month largely reflected higher prices for used cars and auto insurance, said Omair Sharif, founder of research firm Inflation Insights. If an acceleration of inflation is really happening, it would not largely reflect the higher used car prices, it would be the other way around: these specific prices would partly reflect the higher inflation. A recorded price change is made of its relative change (relative to other prices) and the impact of inflation. (On that topic, see my post “Does a Price Decrease Fuel Deflation?” as well as my chapter “A Rising Product Price Doesn’t Cause Inflation,” in Ryan Bourne, editor, The War on Prices.) The increase in used car prices could be simply a change in relative prices—the consequence of car buyers realizing that the American tariffs threatened or announced on automobiles manufactured in Mexico and Canada as well as on steel and aluminum will increase the price of new automobiles on the American market. An estimate of a $3,000 increase in the price of the average new car looks realistic, if not on the low side. Consequently, we would expect many buyers to shift to used cars, arbitraging the price difference between the two substitutes. Prices would start changing as soon as the tariffs are expected. The increase in car values would also lead to higher automobile insurance prices because of the higher accident costs. Such price increases would reveal no inflation in the sense of a self-sustained increase in the general price level. (On used car prices, see my 2021 post “No Mystery in the Current Used-Car Market” and my 2022 follow-up “Do Used Car Prices Vindicate Adam Smith?”) Through inflation or relative changes, prices do change. And inflation can happen. How will the state react and what can be the consequences? Here is, under the form of a simple model, a possible scenario—until, in my last paragraph, the fog of the future becomes too opaque and the causal strands too numerous. Imagine a country—call it “Syldavia” if you will—ruled by an ignorant bully. (My model is a wink to behavioral economics, but note that the ignorant bully still behaves rationally given his character and circumstances.) His policies cause a rise in some relative prices that are politically touchy. Unbeknownst to him and hidden by his flattering sycophants, some of his policies such as a series of high customs tariffs can also cause a supply shock, that is, a broad downward shift in the economy’s production possibility frontier. This would cause a one-time jump in the general level of prices and a fear of stagflation. The ruler will be tempted to counter the problem with an increase in the money supply by pushing down interest rates or other interventions to the same effect. (Viktor Orban, the Hungarian ruler, tried that.) Undoubtedly, this will start or increase inflation, a politically self-sustained increase in the general level of all prices. As the incipit of Anthony de Jasay’s The State asks, “What would you do if you were the state?” How will the ruler of Syldavia reacts when inflation and economic stagnation have started? He may try to hide the inconvenient numbers by stealthily ordering the deep state’s statistical agencies to cook the books. (“I have a good intuition of what the numbers are.”) Some high-level statisticians will resign or be fired; under Mussolini, they were quite malleable. The more the chief ruler lies, the more his minions will. The real economic trends will still be reported by private economists and, as long as a free press exists, through “fake news.” Prices on financial markets won’t lie, if these markets remain more or less free. What would do then if you were the ruler of Syldavia? You would impose some price controls, perhaps starting with prices that are visible, politically sensitive, and easier to control. Shortages will soon appear. To quell popular discontent as the situation worsens, you will likely follow by decreeing general wage and price controls. (Richard Nixon could not resist the temptation in the early 1970s, which did not prevent the stagflation from dominating the rest of the decade.) After all, if the ruler doesn’t like a price, he only has to forbid people to quote it or to pay it, at least on legal markets. The police or the army can take care of that problem (if they are not part of the corruption). From then on, different scenarios are possible in Syldavia, a country with unlimited democracy. A very detrimental scenario, although not at the extreme of the catastrophe spectrum, is the Argentinization of Syldavia. Perhaps, in a century or so, after many Peron-like rulers, a Javier Milei will appear to restore the old-time prosperity. But perhaps not. ****************************** “The Baby King Breaks His Subjects’ Toys,” by DALL-E inspired by your humble blogger (0 COMMENTS)

Economic theories are generally symmetrical. If more of X causes more of Y, then less of X causes less of Y. Thus I was confused by a recent story in Bloomberg: Trump has gravitated toward the reciprocal tariff plan as a key part of his push to raise US levies overall. Trump has said it would apply to nations who generally have a higher average tariff rate than the US, which would raise its own tariff to match them.“If they charge us, we charge them,” he said Sunday while speaking with reporters and confirming he planned to announce this week. I am skeptical of the idea that reciprocal tariffs are a good idea in general.  But if they are, I cannot imagine why they would be a good idea for trade with countries that have higher tariffs than the US, but not for trade with countries with lower tariffs than the US.   Can someone explain this to me? Let’s say I’m wrong and that reciprocal tariffs are a good idea.  The argument would presumably be that this tool would encourage our trading partners to reduce their tariff rates on US exports.   But if so, that argument is equally applicable to countries with lower tariffs than the US.  Indeed if the policy were 100% effective, it could encourage countries to reduce their tariffs on US exports to zero, but only if induced to do so by the expectation that the US would follow suit. On a related note, Elon Musk recently met with Indian Prime Minister Modi, and it was reported that he pressed India to reduce tariffs on Teslas and provide a license to Skylink.  Trump was asked if Musk was acting as a US government official or as a private businessman.  Trump indicated the latter. Do you believe that Modi was likely to have assumed that the world’s richest man, who happens to be the second most powerful person in the Trump administration, was acting in a purely private capacity?  If you were Modi, would that have been your assumption? There has never been a complete separation of business and government in the US.  But it’s also true that the two have never before been so deeply interrelated. (0 COMMENTS)

A few months ago, I was in a convenience store and was struck by a customer’s conversation.  Surveying the rows of chips, candy bars, ice cream, and soft drinks, she said to her friend, “I can literally buy anything I want in here with my EBT card, except for hot things, like the coffee or the takeaway chicken.”    Low-income families and individuals can qualify for the Electronic Benefits Card (EBT), which is issued by the federal government and comes from the  Supplemental Nutrition Assistance Program (SNAP), formerly known as the Federal Food Stamp Program.  The EBT card looks and functions like a bank debit card, and monthly benefits for individuals average around $200. About 12.6% or about 1 in 8  Americans get benefits from an EBT card, according to USDA estimates. That’s about 42 million people.  Upon receiving their EBT card, SNAP recipients are eligible to buy any fresh or frozen food in grocery stores, but also are free to purchase candy, ice cream, soft drinks, donuts, chips, and even birthday cakes. If it’s a consumable food or drink item and non-alcoholic, it’s fine to put it in the grocery cart. Amazon even has EBT-eligible gift baskets overflowing with luscious chocolates, fine nuts, and toffees.    Yet these same families can’t use their  EBT card to purchase a freshly roasted rotisserie chicken, hot soups, steamed vegetables, warm pasta, or other prepared foods that are  available for convenient takeaway at grocery stores.  All these items  are banned since the early 1970s.  Any prepared hot food or drink, no matter how nutritious, is literally off the dining room table. This stems from a rosy  idea in the 1964 legislation that families should come home from work and prepare a nutritious dinner. Banning hot food would encourage people to learn how to cook  That idealistic vision may have been easier to fulfill a half-century ago when many families had a stay-at-home spouse with the time to shop for raw meats and fresh vegetables and prepare home-cooked meals. But the program strayed away from that idea of nutrition when SNAP benefits widened in scope to include all processed foods, from pork rinds to Pop-Tarts. Today’s EBT-eligible frozen and pre-cooked foods such as frozen lasagna, fish sticks, and breaded chicken nuggets have far less nutritional value than what’s being sold hot in the grocery store.  For these SNAP-assisted families who often work two jobs and have poor access to public transportation, the reality is that time to prepare meals is scarce. It’s not surprising that many look for convenience with boxed and frozen precooked meals, perhaps overlooking the small print that indicates added corn syrup, fats and chemical preservatives.  Yet while SNAP benefits undoubtedly  help many low-income families augment their food expenditures, in an era of growing obesity taxpayers also have a right to question why the number one item purchased by SNAP households is soft drinks, at 5.4% of yearly grocery expenditures (as compared to 4.0% for non-SNAP households), according to 2016 USDA figures. Taxpayers spent $358 million alone on this category, which hugely benefited large soft-drink companies. It’s not surprising, given the stakes, that Coke and Pepsi have hired lobbyists to make sure their drinks stay SNAP-eligible.    Bagged snacks, such as chips and pretzels, were 4th on the list for SNAP households, with taxpayers spending almost $200 million on those items yearly. And as the highlighted items show, 17.5 percent of overall SNAP household expenditures went to items of dubious or zero nutritional value (my subjective take), costing $1.15 billion annually.  But that is a very conservative figure, since there are an additional 213 food categories on the USDA list. Many items, such as fresh meats, cheese, and vegetables are included, but the bottom line is that the federal government subsidizes many items that promote unhealthy living. Some argue that this is playing nanny-state by not letting people have the freedom to eat whatever they like, no matter how unhealthy. Yet that’s a different question when someone else, namely taxpayers, are footing the bill to ostensibly improve nutrition for low-income families.    The aim here is not to point a finger at low-income households’ buying choices as a sign of poor decision-making. In fact, in many areas where these families live, there are few options for healthy foods. Their neighborhoods are often dominated by convenience stores. Still, many such places offer hot prepared foods such as freshly fried fish, casseroles, or homemade pizza that are superior, health-wise, to many processed food items.  Letting SNAP recipients buy freshly prepared hot food at local stores would not only open some healthier food options, but it would also funnel dollars into local neighborhood businesses. Changing the way we spend taxpayer dollars on food is vital for our nation’s health in order to arrest and reverse our long-term and alarming trends in obesity that have spiked health insurance costs. Participation in SNAP was associated with nearly double the obesity rates of non-SNAP participants, according to a 2016 medical study.    The “N” in the SNAP program stands for  “nutrition.”  Allowing the freedom for SNAP recipients to purchase items such as rotisserie chickens, home-cooked soups and other freshly made foods would be an excellent start that would complement a revised focus on improving U.S. citizens’ overall health status.      Craig Richardson is the BB&T Distinguished Professor of Economics and Finance at Winston-Salem State University. (0 COMMENTS)

Here’s the Financial Times: Donald Trump has ordered the Department of Justice to halt the enforcement of a US anti-corruption law that bars Americans from bribing foreign government officials to win business. In the past, I did several posts arguing that the US should ban corporations from paying money to those who engage in “ransomware”, with long prison terms for violators.  I argued that this sort of regulation would actually help business, by making them a less lucrative target for extortionists.  In the comment sections, there were many objections to my argument—claims that it would not work.  But no one provided any good reasons why I was wrong, just unsubstantiated assertions. You would not normally assume that corporations would favor regulations that restricted the way they could act.  But the FT article provides one piece of evidence that I was correct: The decision drew criticism from anti-corruption experts who said that stopping enforcement of the law would hurt US companies operating abroad. “Most [US] companies appreciate the fact that the FCPA allows them to be firm in refusing bribes because most private sector companies — sensibly — see bribery as an unproductive cost,” Richard Nephew, a former anti-corruption co-ordinator at the State Department, posted on X. The same argument applies to ransomware attacks.  Given the choice, I’d rather overseas bribery be allowed than domestic bribery.  But I’m not sure either type of bribery is in our best interest. On a related note, Ken White reports that President Trump and Elon Musk are using lawsuits against groups that criticize them: Trump, who has long favored bogus litigation as a weapon against his enemies, has been on a censorial bender. In the last year alone he: sued a pollster for bad poll results; CBS for supposedly editing a Kamala Harris interview to make her look better; and ABC and George Stephanopoulos for bungling a description of E. Jean Carroll’s sexual abuse verdict against him. Musk, meanwhile, has sued both Media Matters and the Center for Countering Digital Hate for reporting about hate speech on X. . . .  Trump’s election has led to a cascade of powerful media companies settling dubious Trump lawsuits. Facebook is paying $25 million to settle Trump’s claim that the social media site violated his First Amendment rights by moderating him, another argument widely viewed as nonsense. ABC paid $15 million to settle Trump’s claims. That case had more merit but ABC’s abrupt surrender is troubling. It’s disturbing when media companies yield rather than fight for the First Amendment, but Trump is no ordinary plaintiff—he can wield the power of the state against enemies. These corporate payments are not bribes in a legal sense, but they are clearly made to curry favor with important government policymakers.  White reports that California passed a law to protect people from such frivolous lawsuits: A SLAPP stands for Strategic Lawsuit Against Public Participation and its purpose is not to remedy a genuine wrong, but to suppress expression on a public issue. In the early 1990s, California lawyers noticed that property developers, faced with environmental and neighborhood protests against new developments, were abusing the legal system by suing the protestors. The suits lacked merit, but because of our broken civil justice system, they were a successful deterrent. The California legislature passed the first anti-SLAPP statute—a state law that provides defendants a special remedy when someone sues them over their speech. Under California’s anti-SLAPP law, if a defendant can show the judge that the plaintiff is suing them over potentially protected speech, the plaintiff has to come forward with admissible evidence showing they can possibly win the case. If they can’t, the judge dismisses the case, and the plaintiff must pay the defendant’s attorney fees. It’s a game-changer.   (0 COMMENTS)

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We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can view the previous problem and Cutsinger’s solution here and here. Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!   Question: Uber offers a membership option that entitles members to a percentage reduction in the price of Uber rides. Evaluate the following two statements: 1- Suppose an Uber customer is indifferent between becoming an Uber member or paying the standard Uber ride price. This customer will never spend less, and, in general, will spend more on Uber rides if the customer becomes a member. (Assume that Uber rides are a homogenous good.) 2- Introducing the membership option can never reduce the number of Uber rides this customer takes. (0 COMMENTS)

  California faces a firestorm, not just on fires, but also on energy. The state government continues to push households to electrify while, at the same time, electricity prices skyrocket. The dual impact of increasing dependence on electricity and a 35 to 45% boost in electric bills since 2020 is particularly hard on poor families. Already squeezed, Californians now pay the highest gasoline prices in the country, ranging from 30 to 50% above the national average. Inflicting more pain at the pump is California’s Air Resources Board (CARB). While they may be well-intentioned, the Board’s Low-Carbon Fuel Standards (LCFS) disproportionately hurt poor households because these households spend over 11% of their income (not including some government benefits) on gasoline. CARB’s stated mission is “to promote…public health…through [the] effective reduction of air pollutants…recognizing and considering effects on the economy.” (italics added) As “the lead agency for climate change programs” it’s also responsible for the State’s goal to achieve carbon neutrality by 2045. To achieve these goals the Board wants to speed up the shift to electric vehicles. CARB claims that its restrictive fuel standards will lead to a 90% reduction in carbon intensity of transportation fuels by 2045. It expects these efforts to eliminate over 500 million metric tons of CO2 emissions. That sounds impressive—until you look at data from China. The projected cumulative California emission reductions over this 20-year period amount to only two weeks (less than 5%) of China’s annual emissions. Sadly, California fires in 2020 wiped out all progress on carbon dioxide reduction over the previous 17 years. The current fires will likely wipe out a substantial amount of progress since 2020. This is from David R. Henderson and Francois Melese, “California’s New Fuel Standards Hurt the Poor, with Little Environment Benefit,” Independent Institute, February 12, 2025. (First published in California Globe, February 11, 2025.) Read the whole thing, which is not long. (0 COMMENTS)

In my last post, I described what R. R. Reno believes motivated the banishing of the strong gods, as well as the ideas that made that process happen. In this post, I’ll be reviewing what he sees as the consequences. One of the strong gods to be banished was the idea that communities are a sacred thing, and that individuals have obligations to uphold the well-being of their community and that the community has some claim to the loyalty of an individual living within in. This was acutely criticized by Karl Popper: We are tempted to imagine our collective life as in some sense sacred, giving the community a rightful claim upon our loyalty. Popper regards this as “magical” thinking, a form of “anti-humanitarian propaganda.” Strong notions of truth – not just moral truths, but even factual truths – are also strong gods. Turning to a weaker god of diminished, personal, or provisional “truth” prevents the kind of certitude that breeds fanaticism and motivates atrocities. Strong truths, the kind that are accepted as sacred and are considered unacceptable to question, “command our loyalty rather than being open to critical questioning and empirical falsification.” Because of this, the idea of strong truths needed to be rejected. This rejection of strong truths is more subtle than simply embracing blanket skepticism, even regarding issues of morality. Reno writes: Our moment is not one of thoroughgoing relativism or strict renunciation of moral principles. Instead, it encourages ways of thinking and social norms that are less burdened with pressing truths, giving us more elbow room to formulate our own bespoke views of the meaning of life while draining the demanding passions out of public affairs…It makes us less likely to rally around collective loyalties that fuel an aggressive politics prone to conflict and conducive to oppressive measures. Strong respect for inherited traditions, too, is a strong god in need of banishing: The “never-again” imperative imposes an overriding and unending duty to banish the traditionalists, who are loyal to the strong gods that are thought to have caused so much suffering and death. As the students rioting in Paris in 1968 insisted, “It is forbidden to forbid.” Those who forbid must be censured and silenced – for the sake of an open society. In the modern mind, the goal is not the pursuit of unifying and binding truths, but the discovery of personal meaning. Binding truth is a strong god, and disagreement over such truths can drive division. Personal meaning is a weak god – it puts up no borders between what is or isn’t acceptable. But as a weak god, it also provides no real guidance on how to lead a meaningful life: Just what we were to grow toward remained vague, as it must when metaphysical questions are held at bay…Man is to progress toward “greater meaning,” self-actualization, and autonomy – “liberation enabling each of us to fulfill our capacity so as to be free to create within and around ourselves,” as Hillary Rodman declared to her fellow graduates of Wellesley College in 1969. Lawrence Kohlberg’s theory of moral development culminates in a post-conventional moral code that is at once deeply personal and universal. But precisely because it is post-conventional, one cannot teach young people the content of this code, the pinnacle of moral development – that would make it into a social convention. One can only urge young people in the direction of ever-greater “growth” and “development.” To tell people there is a specific goal they should be growing toward runs the risk of declaring some ways of living to be better or more desirable or more respectable than others – and this is an affront to the weak gods of openness and nonjudgmental acceptance. Reno sees great harm coming from this. In the end, humans beings simply are what we are. There aren’t many ways to live that lead us to thrive, but “the pathways of disenchantment are countless.” The strong gods of inherited cultural traditions helped to guide people through life in a time-tested way that leads to fulfillment and happiness – not perfectly so, but as well as can be expected in an imperfect human existence. Denying the value of this inheritance, declaring there are no truths that we can jointly hold to be self-evident and you must go off and discover meaning for yourself, leaves people adrift and listless about how to live: One conversation stands out. A younger friend, agonizing over the choices he faced in life, asked for advice. I told him I couldn’t help very much. For me, life has been like a train ride. The engine of strong cultural norms pulled me through life’s stages: college, job, marriage, children. In its time, the train will take me to retirement and, of course, death. He replied, “No, no—life’s not like that anymore. Now it’s a sailboat that you pilot first this way and then that in order to make your way to the destination of your own choosing.” It struck me as an exhausting way to live. More frustrating to Reno is the fact that the intellectual and cultural elites who advocate for the weak gods do not themselves live in the way they advocate: They may join in the chorus that condemns traditional norms as authoritarian, but they keep their marriages together, and their families look like traditional ones. In other words, they share the basic human desire to protect one’s children, to secure one’s patrimony, to sustain and transmit a living inheritance. They shelter themselves and those whom they love – a natural and healthy impulse. The problem is that what our most powerful and capable fellow citizens do in private is at odds with what they insist upon in public. But the rule of the weak gods has more implications than its impact on social life. It also has considerable political implications. We’ll look at what Reno has to say about that in the next post. (0 COMMENTS)

Those who read Tyler Cowen’s and Alex Tabarrok’s Marginal Revolution blog regularly, as I do, know that Tyler is a big fan of artificial intelligence (AI). Partly due to his posts and partly due to rave reviews by friends on Facebook, I’m realizing that I need to use it more. Having said that, I want to comment on a recent post by Tyler in which he linked to an analysis, done by OpenAI’s Deep Research tool, of the costs and benefits of USAID. Here’s what Tyler asked it to do: What are the best sources to read on US AID, and its costs and benefits? I want serious analyses, based on evidence, data, and possibly economic models. How does the program fare in cost-benefit terms? Please try to look past the rhetoric on both sides of the debate, pro and con, and arrive at an actual assessment of the agency in net cost-benefit terms. A five to ten page paper should be fine, with full citations, in any style. Notice that Tyler asked it to “look past the rhetoric.” Since rhetoric, as Deirdre McCloskey often reminds us, is the art of effective or persuasive speaking or writing, that is, the art of arguing,” it doesn’t make sense to ask AI to avoid rhetoric. To avoid rhetoric is to avoid making an argument. To assess costs and benefits is to argue. Maybe, though, Tyler expects that AI will have the same mistaken idea about what rhetoric is that most of the public has. So maybe it’s not a problem. Although I think it is; see below. Here’s what I noticed. Deep Research’s answer is an argument. And not only an argument but also one that is somewhat one-sided. Here for instance is how it deals with the idea that there may be downsides to some of USAID’s subsidies and interventions: Democracy and Stability: The absence of USAID’s democracy programs is harder to game out, as changes in governance are path-dependent. In some cases, local forces for democracy might have prevailed even without external help (e.g. Eastern Europe’s desire to join the EU was a strong motivator). However, it is likely that progress would have been slower. Without technical support for elections and civil society, nascent democracies might have faltered or seen more contested processes. In places like Kenya in 2013, for instance, U.S. support to election commissions and peacebuilding helped avoid violence; without that, a repeat of the 2007 post-election violence could have occurred. On the other hand, one could argue that in certain countries, absence of U.S. political aid might have reduced suspicion of foreign influence and could have led to more organic change (a point critics raise, though evidence is scant either way). By and large, the counterfactual suggests that the world would not be more democratic had USAID never engaged – in fact, some gains in freedom and rights would likely be absent. Notice that it doesn’t discuss the idea that USAID might have been used to overthrow governments. I don’t know if it’s true that USAID money was used to help overthrow Bangladesh’s government. This piece in The Times of India says that it might be true. But notice that Deep Research doesn’t even raise the issue. Its dealing with other issues is similar. It takes a charge against USAID, vaguely suggests how it might be true, and then says that things are improving. Also, it literally doesn’t mention some of the misuses of the money that the DOGE people have highlighted. Maybe the direction to avoid rhetoric was taken as a direction to avoid mentioning criticisms for which the critics stated their case passionately. So maybe Tyler shouldn’t have asked it to avoid rhetoric. I’m not saying that the Deep Research approach is totally wrong. I’m simply pointing out the limits and expressing my skepticism. To his credit, Tyler’s mention of other sources means that he is not taking Deep Research as the last word on the subject either. (0 COMMENTS)

Among economists on the other side of the political spectrum, Jason Furman has always been one of my favorites. He has a new article in Foreign Affairs entitled The Post-Neoliberal Delusion, which evaluates the economic policies of the Biden administration. In a number of specific cases, he supports Biden administration policies.  But Furman also raises a number of concerns, including the following points: The new economic philosophy that dominated during the Biden years emphasized demand over supply. It considered concerns over budget constraints overstated and placed its faith in predistribution as a way to change the trajectory of the macroeconomy. It promised policies that could simultaneously transform industries, prioritize marginalized groups in procurement and hiring practices, and serve broad social goals. Ultimately, this post-neoliberal ideology and its adherents did not take tradeoffs seriously enough, laboring under an illusion that previous policymakers were too beholden to economic orthodoxy to make real progress for people. . . . New ideas about these old problems will never yield successful policies, however, if they dismiss budget constraints, cost-benefit analysis, and tradeoffs. It’s fine to question economic orthodoxy. But policymakers should never again ignore the basics in pursuit of fanciful heterodox solutions. Furman also has a very informative twitter thread that includes some graphs that were left out of the article.  This one caught my eye: There are two ways to convert nominal variables into real variables.  One approach is to deflate a nominal variable by an index measuring the overall cost of living, such as the CPI.  Another approach is to deflate nominal spending by changes in the price of the specific variable being considered.  Furman used the latter approach here, which seems appropriate in this case. How do I know that Furman didn’t deflate by the CPI?  Look at the divergence since 2020.  Nominal spending on highways is up roughly 50%, from about $100 billion to $150 billion.  Real spending is down about 10%, from $100 billion to $90 billion.  That roughly 60% divergence is far larger than the increase in the overall price level since 2020, which is closer to 20% or 25%. How can we explain this large divergence?  One possibility is that supply constraints make it difficult for the US to dramatically ramp up highway construction in a short period of time.  If the government then implements a rapid increase in nominal highway spending, the immediate impact is mostly higher construction cost inflation, not more highway output.  It’s like 100 people trying to squeeze through a narrow door at the same time.  Note than this is not just a question of how much highway a construction firm can produce; constraints might also involve getting environmental clearances for new projects, meeting mandates to use union labor, achieving various “diversity” benchmarks, and/or other types of regulations. In my view, the most effective way to get more infrastructure is not to spend vast funds on new federal programs.  Money is spent most efficiently when it is raised at the local level.  Instead, the best way to promote more spending on infrastructure is to reduce regulatory barriers such as environmental impact statements, “Buy America” policies, union mandates, and other impediments to cost efficiency.  If we were to dramatically reduce the cost of building infrastructure, local governments would have an incentive build more, even without federal help.   New York City is many times richer than Chengdu, China.  Yet Chengdu built the world’s third longest subway system over the past 15 years, a time during which which New York spent lots of money on a new subway line and achieved almost nothing.  New York might wish to bring Chengdu construction firms and workers over here to replace their substandard subway system with the sort of modern, clean and efficient system that they have in Chengdu.  This need not involve “immigration”–they could used Singapore-style temporary workers. PS.  I don’t know how much the Chengdu system cost to build, but AI overview suggests that subway construction in China costs roughly $140 million per kilometer.  In that case, Chengdu’s 634km system may have cost roughly $90 billion.  In NYC, subway expansion costs nearly $1.5 billion per kilometer. (0 COMMENTS)