In response to my request for suggestions on lowering prices a regular commented proposed

Raise taxes, cut government spending, and raise interest rates.

The question remains how? I’ve already made my remarks on interest rates which I believe the Fed governors are moving in the wrong direction.

The pie chart at the top of the page illustrates the personal consumption expenditures by income quintile. As you can see the topmost quintile is responsible for a disproportional amount of that. “The rich” are responsible for nearly half of all retail sales. Taxing their income means they will buy and invest less.. Since our economy is overly dependent on consumption (more than any but the poorest countries), it will have the perverse effects of increasing unemployment and reducing production.

Furthermore, “the rich” already pay a higher proportion of their income in taxes than those in lower quintiles. There is also the risk that there is some degree of effective taxation that will impel the ultra-rich to leave the United States, possibly taking their companies with them.

If taxes are increased on corporate income it will have much the same effects.

The Trump Administration’s “Department of Government Efficiency” experiment has illustrated how difficult it is to cut spending. By some accounts despite all the hoopla and agonizing (depending on your political beliefs) the actual results that DOGE produced were pretty limited—a spit in the ocean compared to what’s needed.

The reality of the federal government is that most of the federal budget is devoted to interest on the debt, Social Security retirement benefits, defense spending, and healthcare spending.

Defaulting on our loans (not paying interest on the debt) will have serious adverse consequences so that’s off the table. We are in the process of increasing our defense spending rather than decreasing it. The effect of trimming SSRI will be disastrous to those dependent on it and they vote. That’s off the table, too.

That leaves healthcare.

I wanted to comment on the Federal Reserve’s most recent interest rate adjustment. Danielle Kaye reports at the BBC:

The US Federal Reserve pushed forward with an interest rate cut as inflation fears continue to take a backseat to concerns about a stalling labour market.

It came despite the US government shutdown, nearing its one-month mark, which delayed official data and left central bankers “flying blind” about the job market, economists said.

The US central bank said on Wednesday it was lowering the target for its key lending rate by 0.25 percentage points, putting it in a range of 3.75% to 4%.

The Fed last month cut interest rates for the first time since last December. Economists expected the move to jump-start further reductions, but the data drought means the trajectory for future cuts looks murky.

The move was completely predictable for several reasons:

• It’s what the market wanted
• It’s what President Trump wanted
• Unemployment is likely to be rising

I think it’s a mistake for several reasons.

As I have pointed out in the past the Fed governors remain wed to the Phillips Curve despite the curve having been obsolete for thirty years (at least). Since (at least IMO) rising unemployment will be considerably less affected by interest rates than they seem to assume, lowering interest rates won’t be effective. Managers, with visions of reducing overhead in favor of oversold LLM AI dancing in their heads, will reduce payrolls. As I’ll show in a later post that will have a disproportionate effects on retail sales.

Importantly, the move violates what the Taylor Rule would suggest.

The move will be inflationary and higher inflation is the very last thing we need right now. Interest rates should be increased not decreased. Contrary to what they might believe the Fed does not “run the economy” and that is not their already massively difficult dual mandate which does not include ensuring that the DJIA rises.

As my fellow “Show Me” State native Sam Clemens once said, “Everybody talks about it but nobody does anything about it.” In his case it was the weather; in mine high prices. A lot of people are complaining about how high prices have become and that President Trump ran on lowering prices but in many cases has accomplished the opposite.

So I’m going to put the question on the floor: how do you bring down prices? Or at least stabilize them? This is something of a digression but allowing prices to rise by 2%, 3%, 5%, or 10% a years is not in the charter of the Federal Reserve. Its empowering legislation gives it a dual mandate: stabilize prices and maintain low unemployment. I recognize that under the circumstances it’s a lot easier to allow prices to rise slowly (however you define “slowly”) but that’s not the Fed’s mandate. The Fed has succeeded nicely in controlling the rate of increase in prices (until the Biden Administration) but has failed miserably at stabilizing prices.

Back to the subject. I can only come up with a handful of ways to stabilize (or even lower) prices. The first and most obvious would be to reduce or eliminate tariffs and/or import quotas. Probably the most effective thing that President Trump (at least says he) is doing is raising the import quota on Argentinian beef. That would, indeed, decrease the price of beef but it’s not a move that will be popular with the struggling ranchers of beef cattle.

The two other things that would have an economy-wide impact would be reducing the prices of healthcare and/or energy.

By my back-of-the-envelope calculation healthcare prices account for something between half and a full percentage point of the present annualized 3% inflation when you reckon on both direct and indirect effects. That’s a sizeable chunk but, unfortunately, stabilizing let alone trimming healthcare prices is a devilishly difficult task. Increasing productivity has been elusive; increasing production of healthcare takes longer and costs more than raising more beef cattle does.

A lot of the emphasis has been on increasing healthcare subsidies—at least that’s what the Senate Democrats have been emphasizing. That only reduces the price of healthcare under certain specific circumstances. Those circumstances include increasing revenue to pay for the increased subsidies, i.e. more taxes, and measures are taken to ensure that consumers capture the effects of those subsidies. Lately none of those have been accomplished. I should mention that increasing taxes for healthcare subsidies only reduces prices if you actually increase effective taxation (not just nominal which is what higher rates does) without reducing employment or investment. Sounds like a tall order to me.

That leaves cheaper energy. That is something that might be accomplished in the relatively short term including by executive order by reducing the regulations that limit frakking, just to cite one example.

So what else? Does anyone have any ideas for reducing prices in the near term that I haven’t mentioned?

I wanted to make a few observations about the editors’ of the Wall Street Journal’s remarks about the Affordable Care Act today. Here’s the meat of the editorial:

Take a recent social-media post from Democratic Sen. Amy Klobuchar of Minnesota. If Republicans don’t extend the turbocharged subsidies, she warned, “early retirees like Bill & Shelly will see their health insurance premiums increase nearly 300%—from $442 to $1,700.”

Wait. Early retirees? This is a tacit admission that ObamaCare encourages Americans to stop working. The Biden subsidies turbocharged that incentive by making subsidies larger and available even to those with incomes above 400% of the poverty line. The couple in Ms. Klobuchar’s example had north of $130,000 of income in 2024, mostly from pensions, according to the media article.

Do taxpayers—many of whom pay for their own coverage at work—want to underwrite baby boomer early retirement? Maybe the politics here aren’t as obvious as Democrats assume.

More fundamentally, Democratic howling about premiums is an indictment of the system their party built. The Paragon Institute offers a helpful chart showing that expiring pandemic subsidies are responsible for about 3% of total 2026 premiums. “The real drivers are the same structural flaws that have plagued ObamaCare since 2014 and rising health care costs,” Paragon notes. The debate isn’t whether premiums are going up, only how much the taxpayer should pay.

Republicans are right to refuse to extend these subsidies—which none of them voted for—as the price of reopening the government. May they all stick to it, especially the wild card who lives in the White House. But the GOP also has an opening to start building lifeboats from ObamaCare.

Table stakes for any ObamaCare negotiation should include codifying association health plans that let small businesses join up to form a larger risk pool to improve the economics of offering insurance. Ditto for continuing to expand plans that can be paired with tax-preferred health-savings accounts.

Republicans could also try to fix some ObamaCare regulations like the medical-loss ratio that obliges insurers to spend 80% of premiums on claims, which in practice is a profit cap that has driven industry consolidation. The GOP goal should be to move as many Americans as possible into better coverage.

Maybe the title of this post should have been “It’s the Incentives, Stupid”. I’m not a fan of the ACA but for almost the opposite reasons the editors dislike it.

The core problem with our healthcare system is that no one has any incentives to control costs and, consequently, the costs continue to increase to and beyond affordability. That didn’t start with the ACA. It was built into the original structure of Medicare.

Since by and large healthcare insurance companies bear no actual risks and just take a percentage of billing to do the administration for the companies that are their customers they have no incentive to control costs.

Since employees, i.e. patients don’t realize how much of their total compensation is in the form of healthcare insurance, so little of the actual billing is out-of-pocket, and they get pretty much any are they want, they have no incentives to control costs.

Since those who obtain their healthcare insurance through the ACA are receiving enormous subsidies even when they earn four times the median, i.e. they are in the top 5% of income earners, they have no incentive to control costs.

Medicare beneficiaries don’t have much skin in the game, either, cf. above.

Since healthcare providers raise their rates to capture any subsidies (as I pointed out in a post some time ago), they have no incentive to control costs.

Since companies are saving money by self-insuring their incentives to control costs aren’t worth the grief they would get if they did control costs.

So costs keep rising.

I stated my preference decades ago. The short version is that everyone’s incentives should be aligned to provide the most health at the least cost (rather than the most care as is presently the case). Until that happens no tweaking around the edges will fix our broken system.

I’m surprised this story hasn’t received more attention. Over the weekend a Navy helicopter and jet crashed in the South China Sea. Crews were safe. From Seth Robson at Stars and Stripes:

All five crew members survived separate crashes Sunday of a Navy F/A-18F Super Hornet fighter and an MH-60R Sea Hawk helicopter in the South China Sea, according to the U.S. Pacific Fleet. Both aircraft were operating from the aircraft carrier USS Nimitz, according to the fleet. “At approximately 2:45 p.m. local time, a U.S. Navy MH-60R Sea Hawk helicopter, assigned to the ‘Battle Cats’ of Helicopter Maritime Strike Squadron (HSM) 73 went down in the waters of the South China Sea while conducting routine operations from the aircraft carrier USS Nimitz,” the fleet posted Monday on X. “Search and rescue assets assigned to Carrier Strike Group 11 safely recovered all three crew members. “

The losses have been blamed by some on defects in the fuel which seems far-fetched to me. Lately I’ve been seeing some speculations about Chinese electronic interference.

I recognize that military activity is a risky, chancy business but losing two aircraft over a weekend seems, well, unusual to me. At the very least it’s a lost of $100 million dollars. Whatever the cause I would think it worthy of more thought than the incidents seem to be receiving.

What happened?

I have seen a number of opinion pieces today predicting that Vice President Harris will be the Democrats’ presidential candidate in 2028. IMO that’s one of the worst suggestions I have read in a long time. The vice president is, perhaps, the most inept campaigner we’ve seen in a presidential campaign in my lifetime. It would, however, give her the opportunity to prove she has been correct in her contention that she just didn’t have enough time (she had plenty of time).

I chalk this up as an instance of what Sigmund Freud called “the death wish”. I can think of no stronger evidence that the Democratic leadership actually wants to cede the White House to the Republicans. Please, please, VP Harris, remove your name from contention. I don’t believe she will. The presidency is a disease which, once you have contracted it, seems to be incurable.

Border Patrol chief Greg Bovino appeared before a federal judge in Chicago today to report on immigration enforcement operations in Chicago. From WGN Christine Fernando, Erik Runge, Michael Johnson, and Ben Bradley report:

CHICAGO (AP/WGN) — Seated in a packed courtroom Tuesday and wearing a green Border Patrol street uniform, Border Patrol chief Greg Bovino was at Dirksen Federal Building taking questions about the immigration enforcement operation in the Chicago area, which has produced more than 1,800 arrests and complaints of excessive force.

Tuesday’s hearing comes after U.S. District Judge Sara Ellis earlier this month ordered uniformed immigration agents to wear body cameras, the latest step in a lawsuit by news outlets and protesters who say federal agents have used excessive force, including the use of tear gas, during protests against immigration operations in the Chicago area, called Operation Midway Blitz by the Trump administration.

The most telling section of the piece comes later when Judge Ellis orders Mr. Bovino to wear a body camera and appear before her on a daily basis:

On Tuesday, Ellis asked Bovino directly if he has a body-worn camera.

“I have not yet received a body-worn camera, nor the training,” Bovino answered.

The judge then told Bovino to get one by Friday.

“The camera is your friend,” Ellis said. “If someone is throwing a rock at your head, the camera will catch it.”

The judge ordered Border Patrol to turn over use-of-force reports and video from Sept. 2 through Saturday, Oct. 25, by the end of the week, and all future videos and reports within 24 hours of being finalized.

Ellis then ordered Bovino to show up in person every weekday at 6 p.m. to tell her about the day’s activities. She’s also requiring by Friday lists of all people arrested for non-immigration-related offenses, along with reports and video supporting the arrests.

I agree with those directions but I also acknowledge that there’s a narrow line between appropriate judicial oversight and actually impeding enforcement. We’ll see how this works out.

I also think that Congress needs to appropriate funds for body cameras for all Border Patrol officers along with directions for their use. Assuming, that is, that Congress comes back into session.

Furthermore, I wonder whether the Sun-Times will apologize to Mr. Bovino for suggesting that he would not appear.

I want to commend Yascha Mounk’s most recent Substack to your attention. In it he interviews Dan Wang and they contract the United States as a lawyers’ state with China as engineeers’ state. As just one example consider this. Since 1980 every Democratic Party presidential candidate has been a lawyer. Over the same period every Chinese president has been an engineer.

Here’s another thing to consider. Are the problems that have so greatly delayed and increased the cost of the high-speed rail system in California engineering problems or legal problems?

I don’t agree with everything that both of them say in the piece. Their view of U. S. manufacturing is very much from 50,000 feet. The only thing I have to contribute is that what is happening in the U. S. is very much what I have predicted and said for more than two decades. Production engineering necessarily follows production. Ultimately, design engineering follows production engineering. I also think that Mr. Wang is presenting an overly rosy view of China. Although the percent has declined sharply over the last couple of decades according to the world Bank 22% of China’s workers are farmers. I believe that China and, particularly, the Chinese Communist Party have a large number of engineers. But China is still not a country of engineers. It’s a country that has been run by Soviet-style engineers for several decades.

Read the whole thing (or at least as much as you can).

In an op-ed in the Wall Street Journal Department of Homeland Security Secretary Kristi Noem presents her defense of federal agents’ actions in enforcing immigration law, particularly in Portland and Chicago. Here’s her list of particulars:

Our officers have been shot at and assaulted. They have faced death threats, doxxing and confrontations at their homes. Spotter networks in Chicago linked to street gangs and Mexican cartels track the movements of officers for Customs and Border Protection as well as Immigration and Customs Enforcement, relaying locations and enabling ambushes during routine enforcement operations.

This month a member of the Latin Kings gang was charged with putting a bounty on the life of Border Patrol Commander at Large Gregory Bovino. The illegal alien charged with placing that bounty was arrested, has pleaded not guilty, and will face justice. The incident shows the enormous risk law-enforcement officers face to make our cities safe again.

A self-styled anarchist website in Portland, Ore., encouraged supporters to use high-powered laser pointers to bring down federal helicopters in the area.

In Dallas an anti-ICE terrorist opened fire on an ICE facility intending to kill officers. Instead, he killed two detainees. In Alvarado, Texas, Antifa terrorists ambushed ICE officers at a detention facility, wounding a local police officer in the neck.

I think the law should be enforced but it should be enforced lawfully and scrupulously. I’m not convinced that is the case. Perhaps, as details come out in the upcoming court case more facts will be presented.

I have no idea whether the charges she levies are correct or not. There is pretty good documentation of the last incident she mentions, the murder of two illegal immigrants in Dallas.

I’ve been critical of Illinois’s governor and Chicago’s mayor because I think that they don’t believe that the law should be enforced and their statements have the effect of stoking discontent.