Although I avoid critiquing elected officials I can’t vote for or against, the editors of the Wall Street Journal do not observe such a restraint themselves. Their views on Chicago Mayor Brandon Johnson are summed up pretty well in the first paragraph of a recent editorial:

There are bad ideas, really bad ideas, and then there is whatever Chicago Mayor Brandon Johnson is proposing next. His latest desire is a head tax on job creation in the city.

Even Gov. Pritzker opposes the tax:

The idea is so destructive that even Illinois Gov. JB Pritzker opposes it. He told the Economic Club of Chicago that the tax “penalizes the very thing that we want, which is we want more employment in the City of Chicago.” He added that the tax “makes it very hard to attract companies from outside of Chicago and harder for companies that are in Chicago to stay.”

Chicago doesn’t need less employment and it doesn’t need fewer big companies. What it could use fewer of is fewer independently taxing entities. It’s hard to give an exact number, a telling statement of itself, but I would estimate that the number of independently taxing entities levying taxes on Chicagoans is around 2,200.

As is my custom I’m not going to remark on the upcoming mayoral election in New York City. Suffice it to say that I think that New Yorkers can vote for whomever they like.

The one point I do want to make is that regardless of what happens on Tuesday New York City should not be eligible for any federal bailouts whether loans, grants, or other. New York City is the State of New York’s problem.

I should add that the City of Chicago shouldn’t be considered for any bailouts, either. Or the State of Illinois for that matter. If Chicagoans are intent on driving “rich people” or employers out of the city, they can’t say they weren’t warned.

Mayor Johnson is just following the orders of his bosses—the Chicago Teachers Union. I have no idea how anyone could have expected anything different. Given that his present approval rating is 31% (up a few points from this summer and considerably higher than his nadir) I would speculate that some of his erstwhile supporters are unhappy.

I am quite confused by the editors’ of the Washington Post’s most recent editorial, titled “What the SNAP fight is really about”. Ostensibly, the editorial argues in support the SNAP program (we used to call it “food stamps”) but it does a darned good job of arguing that the program is so fatally flawed it should not be sustained in its present form. Here are the opening paragraphs:

SNAP is a safety net, not a jobs program. The Supplemental Nutrition Assistance Program is supposed to keep people from going hungry in the world’s richest country. It’s not designed for stimulating the economy or propping up stores, truckers or farmers. Nor should it be a bargaining chip for ending a government shutdown.

Every reasonable person agrees that no one in the United States should starve, which is why it’s a genuine problem that SNAP funding is scheduled to lapse on Saturday, prompting stopgap measures by a bipartisan mix of governors and a lawsuit brought by Democrats to force the Trump administration to tap emergency funds.

As you can see, the self-contradictions have already begun. They become even more apparent in the succeeding paragraph:

At the same time, there are legitimate debates about the best ways to feed the needy, how many should qualify and how much they should get. In the 1970s, 1 in 50 Americans received food stamps. Now, 1 in 8 do. On average, these households get $322 a month. Are 42 million Americans really in such danger of suffering malnutrition that the federal government should spend about $100 billion every year to help them feed themselves?

What I suspect this reflects is an argument among the editors. Some of them want SNAP subsidies to be restored as quickly as possible; others recognize that the program itself is deeply troubled and needs work. They resolved the internal conflict with this editorial.

I completely support programs to aid the truly poor. Most of the truly poor either live on Native American reservations or are black people living in the rural South. According to the USDA SNAP recipients have the following demographics composition: 35% white, 25% black, 15% Hispanic, 4% Asian, 1% Native American, and 17% unknown. Of black SNAP recipients 84% live in major metropolitan areas. The truly poor don’t receive the attention they need because they don’t have enough votes.

I should add that one major reform to SNAP that should be made immediately is that SNAP benefits should not pay for the purchase of soda pop or candy as is the case at present. Every time I see a kid hawking candy and pop on a street corner I can’t help but wonder if their merchandise was purchased using SNAP benefits.

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.