It’s pretty easy to summarize Megan McArdle’s most recent Washington Post column—the go-to economic policies of both political parties are obsolete:

If the president wants to spare himself further such embarrassments, and his constituents further price hikes, he needs to stop fire hosing money into the economy. That won’t be easy, because both Democrats and Republicans think of deficit spending as free money with which to pursue their goals and reward their voters.

Politically, deficit spending is a hard habit to kick. Democrats, in particular, have devoted the past 15 years to arguing that deficit spending isn’t just politically expedient (all politicians love spending borrowed money) but is a positive boon to the economy.
Some of those arguments were sound. I supported deficit-financed relief during both the Great Recession and the covid-19 pandemic, and not just because I wanted to mitigate the misery of people who lost jobs and businesses. Rapid economic contractions can feed on themselves, as panicked consumers hoard money against possible financial hardship and thereby trigger further waves of layoffs and business failures. Strategic injections of government deficit spending can theoretically slow, or even reverse, that downward spiral.

But those injections only cure the patient if there’s spare economic capacity waiting to be put back into service as soon as demand recovers. That’s no good to us now, because unemployment is below 4 percent, core inflation is above 6 percent and demand has already recovered. So, when the government (as it has under Biden) comes in with even more borrowed money, all that money can do is bid up the price of existing goods and services further.
Unfortunately, a lot of Democrats, including our president, are stuck in the economic mind-set of days past, when there was always economic slack that could theoretically be stimulated away, so that deficit spending of any amount seemed to be all upside. They have yet to adjust to the new reality of an economy where the problems are all on the supply side.

The Republicans’ problem is easier to summarize: they believe in tax cuts. Full stop. Even Reagan didn’t reduce the size or scope of government. The key problem with relying solely on tax cuts is that we were on a different part of the Laffer Curve 40 years ago than we are now.

As I have been saying some time we need to produce more. More energy. More food. More houses. More stuff that people want to buy.

The alternatives are have fewer people and want less. For the last couple of years the U. S. population (births – deaths + immigration) has been about 3 million people. It should be obvious that increases aggregate demand. Regulating immigration is a lot more humane and politically possible than reducing births or increasing deaths.

That’s my assessment of what’s going on in the war in Ukraine right now. The Russians are overstating their preparedness for the Ukrainians’ counteroffensive and the casualties that the Ukrainians have taken in the operation. The Russians are understating their own casualties both in terms of lives and equipment as well as the significance of the territory from which they’ve been forced to withdraw. They may also be overstating the involvement of Western forces in the intelligence, planning, and execution of the operation.

However, the Russians aren’t the only ones overstating and understating. The Ukrainians are overstating Russian casualties and the significance of the operation and understating their own casualties.

Even if the Ukrainians continue to receive material support from NATO, a war of attrition probably favors the Russians.

The Phillips Curve is the observed stable and inverse relationship between inflation and unemployment. When I took my economics courses, lo! those many years ago, it was taught as Holy Writ. It came into disrepute a decade or so ago when the relationship appeared to have broken down.

Now, impelled presumably by the higher rate of inflation, the discussion over the Phillips Curve has heated up. Is there a relationship between inflation and unemployment? A. W. Phillips, Paul Samuelson, and Milton Friedman all said “yes”. John Tamny says “no” in this piece at Forbes:

Back to reality, inflation has nothing to do with unemployment. Think about it. Consider Lebanon at present, Argentina for decades, and perhaps Mexico in decades past. Inflation is a decline in the unit of account. Put more plainly, inflation is a currency devaluation. More on actual inflation in a bit, but for now it’s useful to remind readers that a focus on unemployment when contemplating inflation is a sign of the mind wandering, or a thought non sequitur.

In a working paper at the National Bureau of Economic Research (PDF) David Ratner and Christopher Sims say that labor market policies resulting in less bargaining power for workers has “eroded” the validity of the Phillips Curve:

In particular, we build a theoretical model in which workers’ bargaining power determines the slope of the Phillips curve. We argue that the “missing inflation” puzzle is due to a collapse of workers’ bargaining power that has in turn left the slope of the Phillips curve nearly flat.

Figure 1 juxtaposes the work stoppage index for the United States (blue solid line, the left axis), one potential measure of workers’ bargaining power, and the core PCE price inflation rate (red dashed line, the right axis). The figure suggests that the bargaining power of workers may be an important driver of the inflation dynamics during 1960s and 1970s. Both the bargaining power of workers and the inflation rate suddenly collapsed around the mid-1980s. Correlation is, of course, not causation and another interpretation is possible: monetary policy tightening under Paul Volcker led to the disinflation shown in the figure, which in turn may have made striking for cost of living adjustment less urgent as the inflation rate has been stabilized.

Mario Seccareccia and Guillermo Matamoros Romero expand on that in a piece at the Institute for New Economic Thinking:

The US Fed as well as many other central banks internationally seem now to be united in favor of a steep hike in the Fed’s policy rate, as we witnessed with the most recent 0.75 percent jump on June 15. We are told, moreover, that there are many more increases to come since the Fed rate is, supposedly, still much below its “neutral” level. For a very recent plea in support of what may have been the “mother” of rate hikes in the United States, namely another “Volcker shock”, one has only to peruse the recent paper by Bolhuis, Cramer and Summers (2022) in which they suggest that, to get the current inflation rate down to align with the US Fed’s 2 percent inflation target, it would now “require nearly the same amount of disinflation as achieved under Chairman Volcker.” (2022, p. 1).

Given the nature of the current supply shocks affecting our weak Covid-battered economies, orchestrating another Volcker-style scenario by creating yet another deep recession is chilling. Besides, it would appear to be somewhat in conflict with the above assessment of former US Fed Chair Janet Yellen in 2019 as well as with the research of these two US Fed economists, Ratner and Sim, who suggest that the slope of the Phillips Curve is actually relatively flat and it has remained so for decades, for reasons that have little to do directly with the Volcker shock of the early 1980s.

I have only a few observations to add to the pieces linked. First, the Phillips Curve has always been primarily an empirical observation rather than a philosophical assertion. The statistical evidence is quite strong or, at least, it was until a decade or so ago.

Second, note that no one explains what is meant by a “loss of worker bargaining power”. It can have all sorts of causes including importing workers (legal or illegal) rapidly, overseas competition, workers without the training or experience desired, labor unions with goals that take priority over the things measured by Mssrs. Ratner and Sims which they use as a proxy for a loss of bargaining power, or workers that don’t have the skills, training, or experience that employers want.

Finally, none of the writers seems to understand the U. S. law that requires the Federal Reserve to underwrite Treasury Department debt. We don’t devalue our currency or, at least, such events are rare. The Congress appropriates money. If tax revenues are insufficient to cover the amounts appropriated the Treasury borrows. Period. Of which parts of that process does Mr. Tamny disapprove?

I presume it’s the appropriations. Would raising taxes to cover the appropriations cause fewer people to lose their jobs than raising interest rates? Note, too, that those injured by high interest rates are generally the same as those harmed by decreasing employment. It’s a judgment call and under present circumstances it looks to me as though decreasing employment is a risk less than that of increased inflation.

Please keep in mind that I would prefer that we had neither. I would also prefer that American workers had less competition from workers overseas or from rising numbers of imported workers. But as somebody or other said you can’t always get what you want. I almost never can. Didn’t the same guys write a song about that, too?

In an op-ed in the Washington Post Jennifer Finney Boylan argues that the states that are moving to bar Medicaid from paying for hormone supplementation or other forms of “gender affirming” care:

Many years ago at a wedding reception, a transgender woman showed me a scan of the human brain. One section — the bed nucleus of the stria terminalis, in fact — was highlighted. “You see?” she said. “It’s not my fault!”

The thing that was not her fault (she said) was being trans. Research at the time suggested that this particular brain structure in trans women was much more like that of cisgender women, rather than cis men, lending some support to the idea that transness is a neurological condition, not so different from cerebral palsy or epilepsy.

As opposed to, say, simply being someone who’s obsessed with stilettos and sponge cake.

When I came out in 2000, I remember trying to explain my situation by using some of this same language. I begged people for understanding and kindness. My voice was more than a little apologetic. Please, I said to those I loved. I’m hard-wired this way! It’s not my fault!

Twenty-two years later, the idea that trans people need to explain themselves to others feels a little weird. Being trans is no longer something we believe we need to apologize for. It is, at least in some circles, a thing to celebrate.

Here is the specific object of the author’s ire:

Last month, Florida became at least the ninth state to bar trans people from using Medicaid to help pay for gender-affirming care.

The reason? Transition care is not, the state has determined, a medical necessity.

In a report issued in June, the state went against decades of medical opinion. “Florida Medicaid has determined that the research supporting sex reassignment treatment is insufficient to demonstrate efficacy and safety,” said the report, which is signed by Gov. Ron DeSantis (R).

As a result, many people who have been on hormones for years, and in some cases decades, will be forced to de-transition if they cannot find other coverage, or if they are unable to pay for health care themselves.

The problem with the author’s analysis is that brain scans may not be as dispositive as the author thinks. For one thing it is known that behavior can alter physical brain structure, cf. this study from the National Institute of Health’s library—TL;DR version is that behavior can change brain structure.

Additionally, it is known that the use of pharmaceuticals may change the actual physical structure of the brain and, although it is as you may expect, controversial that supplementation with exogenous hormones may actually change the physical structure of the brain.

My own view is that we should be focusing more on what is clinically appropriate and less on claims of rights to specific kinds of care. That is the direction in which other countries, e.g. United Kingdom, Sweden, Finland, have been moving. There are much less likely to prescribe “gender affirming care” than they used to be.

The editors of the Washington Post call for a more restricted ruling on a “special master” to review the materials seized by the FBI from President Trump’s Mar-A-Lago residence. I have a problem with this section of their editorial:

And if a piddling portion of materials are covered by attorney-client privilege, there’s no need to halt the investigation as a whole to identify them.

That’s exactly the reason a special master may be necessary. The FBI can’t be allowed to go on a fishing expedition in materials that are protected by attorney-client privilege. It doesn’t make any difference whether only .01% of the documents are subject to that privilege. Which .01%?

However, I don’t see anything wrong with their proposal with one proviso:

The much-preferred alternative is for Judge Cannon to approve prosecutors’ proposal to alter her ruling: The FBI would be permitted to keep reviewing only the more than 100 classified documents it seized, and the special master, in turn, would be barred from examining them.

The proviso is this. As they say on Jeopardy I’ll put it in the form of a question. Is it possible for a document to be simultaneously classified and subject to attorney-client privilege? If so the ruling could be change to allow the special master to review the classified documents first while prohibiting the FBI from reviewing the non-classified documents.

An additional complication would arise if a) a document were classified AND subject to attorney-client privilege and b) the FBI had already reviewed it or c) the FBI had already reviewed some unclassified documents. That would suggest that the ruling be altered to cover first the classified documents, then those already reviewed by the FBI whether classified or not, then the balance. The risk is that anything the FBI has already reviewed or materials derived from them might be barred from being used in a future prosecution.

In reaction to a piece on which I’d posted earlier, Matthew Yglesias makes a good point—focusing on reading and mathematics in particular is fundamental to teaching kids to be good citizens:

The piece kind of rubbed me the wrong way, even though I wholeheartedly agree that partisan politicians should not censor which aspects of American history teachers are allowed to talk about. But I couldn’t quite put my finger on what was bothering me until I saw a later Ray tweet on a separate subject, learning loss during the pandemic.

Dying also causes "learning loss" and is much harder to reverse.

— Victor Ray (@victorerikray) September 1, 2022

It is, obviously, true that it is bad when children die. At the same time, we know that very, very few children have died from Covid-19. I don’t want to re-run the whole argument about school closures, just to observe that I think these two Ray takes are coming from the same place of underrating the importance of basic “three Rs” education. Citizenship is important, and it is one of the functions of the school system, but the best (and most realistic) way for K-12 schools to foster effective citizenship is to teach kids foundational literacy and math skills. Incorporating works about history or politics into the curriculum is a great idea insofar as it helps keep students engaged, but it’s best to make those core skills the North Star and try to avoid hubris and tons of polarized fights about tangential issues.

He goes on to support his case pretty well.

I do think I need to repeat the point I’ve made before. I’m a skeptic about “engaging” students in the manner he suggests. When I was in college it was known as “relevancy”. Acculturation is foundational, literally, for the public school system and that has never been truer than now. The U. S. population is presently about 16% Hispanic, mostly Mexican-Americans and, due to patterns of residence and the way our public schools are organized, if most of a school’s population is Mexican-American, should the school therefore be teaching Mexican history?

I would say “no”. It should be teaching English. It should be teaching American and English history. Those subjects should be taught in the interest of acculturation which would better prepare these young people for success in the broader society rather than to take their places in a ghetto.

You can only cover so much territory in a school day which means you must make choices. Therefore, although as enrichment materials adding things not directly related to English language and literacy and American and English history is fine but they cannot become the focus of education. That’s how we’ve gotten into the mess we’re in and why Asian-American students do so well. Their families insist that they maintain focus.

Do you remember that feature that used to appear in newspapers and magazines? Can you spot what’s wrong with this picture?

Median individual incomes are from the Census Bureau. Starting teacher salaries are for bachelors only, no experience and are taken from the sites of each school district.

These figures dramatize a couple of things. First, there’s pretty obviously a national market for entry level teachers. Second, teachers aren’t paid enough in San Francisco. And third, if you’re wondering why people are moving to Texas from California and Illinois, this should give you a pretty good idea. I suspect you can buy a pretty decent home in Houston on a salaray of $61,500.

When my mom started teaching in St. Louis in 1940, teachers were required to be unmarried women. When my mom and dad married my mom when to work for the St. Louis County school system which didn’t require teachers to be unmarried. When teachers were unmarried women low wages may not have been just but they were certainly a possibility. Times have changed. Teachers must be paid a living wage and that will vary from place to place in the country.

Boy, here’s one I really agree with. The U. S. federal income tax system needs a major overhaul. Sheldon H. Jacobson writes at The Hill:

President Biden committed $80 billion over the next decade to support the Internal Revenue Service (IRS) and provide help for IRS agents to get their job done. Republicans are crying foul, suggesting that every American will be targeted for unnecessary and unwelcomed harassment, especially small business owners. Like any partisan response, the truth typically falls somewhere in the middle.

Perhaps instead of throwing money at a tax code and taxation system that is designed, as some argue, to leave “billions on the table,” the time is ripe to revamp the tax code, which has almost 10,000 sections and has been amended over 4,000 times just over the past decade.

There are so many problems with our present federal income tax system it’s hard to know where to start. The code is so voluminous and convoluted no one can know for sure how much they owe. So many people are breaking the law, most inadvertently, that enforcement is inevitably capricious and arbitrary. The computer tax prep industry shouldn’t exist at all—there should be a freely available online system provided by the federal government which is the only acceptable way of filing.

My preference would be to abolish the present federal income tax, replacing it with something like the “Fair Tax”, a sort of value-added tax prebated to ensure progressivity. We’re so wed to the income tax I can’t imagine something that sensible being adopted.

James E. Campbell has a very worthwhile post at Larry Sabato’s Crystal Ball on projections for the midterm elections based on a “seats in trouble” analysis. Here’s the summary:

— This article updates and applies the seats-in-trouble congressional election forecasting equations to the 2022 midterm elections.

— The goal is to use micro level (congressional district and state) competitiveness assessments in combination with their electoral history to statistically generate an accurate prediction of the election’s national outcome.

— The seats-in-trouble forecasts for the 2022 midterms are losses for the Democrats of 42 seats in the House of Representatives and 1 seat in the Senate.

That’s not good news for the Democrats but it isn’t apocalyptic, either.