I was completely mislead by the headline of Tom Friedman’s latest New York Times column, “Biden’s Big, Bold, Surprising Plan for a Green Transition (I Hope)”. It turns out that the column consists of an interview with Ryan Lance, CEO of ConocoPhillips, and the “I hope” relates to Mr. Friedman’s hope that the Biden Administration will adopt something that resembles what they’re discussing.

I feel comfortable in predicting that the Biden Administration will do nothing of the sort, particularly before the midterms.

What the column describes is Mr. Friedman’s hopes for a “Green Transition” plan.

I think I need to file this under “I’m surprised that he’s surprised”. At CNN Chris Cilizza has realized to his amazement that winning elections is of transcendent importance to Democrats, so important that it takes priority over any other objective:

Democrats have spent months insisting that the aftermath of the 2020 election – and January 6 in particular – amounted to a fundamental threat to American democracy and was, therefore, above petty partisan politics.

Which is true!

But, the actions of Democratic campaigns and committees – meddling in Republican primaries to try to ensure election deniers wind up as the party’s nominee so they can run against supposedly weaker candidates – suggests that all of those pledges about democracy are mere words, not borne out by action.

In fairness I believe that’s true of Republicans holding elective office as well. The only Republicans on the January 6 House committee surely know they’re not going to be re-elected.

The New York Times has an interesting feature. They put together a focus group that consisted of seven Trump voters and six Biden voters and invited them to discuss various political issues.

They were all middle aged to elderly (38-65). Their incomes are not actually mentioned in the article but, based on the claimed jobs, they were all employed and may have been in the middle of income earners. They are fairly representative of the registered voters from the standpoint of race and ethnicity. They were apparently pre-screened by agreeing with the proposition that they were “mad as hell and not going to take it any more”. At times the conversation seems to have become quite heated. They actually agreed on a number of things.

The one thing about which there was the most agreement is that only one person wanted Joe Biden to run again in 2024 and that individual thought he wouldn’t.

Another issue on which there was substantial agreement is that they think that “America is broken”.

Both of the black participants think that America is a racist country. One of them thinks that America needs to be “torn down from the ground up” and started over.

When it hasn’t been determined to be a recession by the NBER, of course. Jeff Cox of CNBC reports the latest news on gross domestic product:

The U.S. economy contracted for the second straight quarter from April to June, hitting a widely accepted rule of thumb for a recession, the Bureau of Economic Analysis reported Thursday.

Gross domestic product fell 0.9% at an annualized pace for the period, according to the advance estimate. That follows a 1.6% decline in the first quarter and was worse than the Dow Jones estimate for a gain of 0.3%.

Officially, the National Bureau of Economic Research declares recessions and expansions, and likely won’t make a judgment on the period in question for months if not longer.

But a second straight negative GDP reading meets a long-held basic view of recession, despite the unusual circumstances of the decline and regardless of what the NBER decides. GDP is the broadest measure of the economy and encompasses the total level of goods and services produced during the period.

“We’re not in recession, but it’s clear the economy’s growth is slowing,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy is close to stall speed, moving forward but barely.”

There are several points that need to be considered here. First, the analyses of the National Bureau of Economic Research (NBER) are retrospective not prospective. You can’t tell which way the economy is going from the NBER—only where it’s been.

Second, what happened in 2020 probably shouldn’t be called a recession. We don’t actually have a word for it at this point because it has never happened before. What happened is that governments shut down a big chunk of the economy for several quarters and as the shutdowns ended the economy bounced back.

Third, during a period of high inflation like the present the economy can grow nominally but actually decline. That the economy is actually shrinking is not particularly good news but it’s not surprising given the actions of the Federal Reserve.

My own opinion is that we’re probably already experiencing a mild recession and that the NBER will pronounce it in due course (probably during the 4th quarter with a start date in the second or third quarter). I’m sure there will be plenty of catastrophizing about it and, realistically, for some people is will, indeed, be a catastrophe. Blame Congress. It’s practically always Congress’s fault.

“The Sahel” is the term used to describe the area immediately south of the Sahara that extends from Senegal in the west to Sudan in the east, six countries in all. When I was a kid most the Sahel was a French colony referred to as “French Equatorial Africa”. If someone were to ask you where the most terrorism in the world was you probably wouldn’t answer “in Africa south of the Sahara” but you’d be wrong. Nearly half of all of the world’s terrorism is there an DAESH has affiliates throughout the region. France has had an operation there fighting terrorism for the last eight years. It began to withdraw its forces from Mali earlier this year.

All of this and more are described in Walter Pincus’s piece at The Cipher Brief, “The Problem With the Sahel”. Here’s a relevant snippet:

The US dilemma when dealing with the Sahel countries was illustrated by an exchange between Committee Chairman Robert Menendez and Blyden over what to do with Chad’s Transitional Military Council. The Military Council seized power unconstitutionally in April 2021, when Chad’s former President, Idriss Deby Itno was killed while fighting rebels.

The former President ruled Chad with an iron fist but at the same time, worked with the French and Americans in the fight against terrorists operating within the Sahel region.

Complicating today’s situation is that the Military Council then installed the former president’s 38-year-old son, Gen. Mahamat Idriss Deby Itno, as head of government.

The Military Council suspended the country’s constitution, postponed negotiations for new elections, harshly put down demonstrators, and then ended security cooperation with the US. Promised elections have been put off until a future time.

Menendez asked Blyden, “Are you suggesting we engage in business as usual with the [Chad] military junta? How would doing so reflect US values in your view and what message would that send in that region and for that matter, throughout the world?”

Blyden responded, “I would not suggest that we support a junta. I would say in our pulling back and not engaging regularly with the military – and many in the [Chad] government – we are absent. And our ability to be able to provide influence, whether it be at the government sector or training where we emphasize human rights values, where we emphasize a democratic approach has eliminated our ability to have access.”

She continued, “While I don’t necessarily propose that we should continue to work with juntas, I do think having an ability to be able to work and talk to them is thus able to support our influence.”

Menendez responded, “Our engagement with the military entities that are not under civilian control ultimately continues and perpetuates them. That’s a problem.”

The reality is that it’s been a practical US problem for decades and will remain so in regions such as the Sahel.

I understand why the French were interested and why they spent eight futile years trying to reduce terrorist activities in Mali, Niger, and Chad.

What I don’t understand is why the United States should be interested. There is a strained argument that, since some of the biggest troublemakers in Mali are mercenaries formerly in the employ of the late Moammar Qaddaffi and we were complicit if not proximallyo responsible for his overthrow, that we bear some responsibility for the situation.

Wasn’t the lesson we spent 20 years learning in Afghanistan that there isn’t much we can do short of genocide to put down terrorism if the countries involved are committed to promoting it?

It is being widely reported that the federal Reserve Open Markets Committee has increased interest rates by three-quarters of a percentage point. Nick Timiraos reports at the Wall Street Journal:

WASHINGTON—The Federal Reserve continued a sprint to reverse its easy-money policies by approving another unusually large interest rate increase and signaling more rises were likely coming to combat inflation that is running at a 40-year high.

Officials agreed Wednesday to a 0.75-percentage-point rate rise, which will lift their benchmark federal-funds rate to a range between 2.25% and 2.5%. The rate increase won unanimous backing from the 12-member rate-setting committee.

In a policy statement after the conclusion of their two-day meeting, officials acknowledged signs of slower economic activity since they met last month. “Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months,” the statement said.

The statement repeated language from previous meetings that said officials anticipate additional rate increases will be appropriate. Fed Chairman Jerome Powell is set to speak at a news conference at 2:30 p.m. Eastern time.

I will update this post with anything pertinent from Chairman Powell’s remarks when they become available.

The Fed Funds rate is presently at the highest rate in 20 years and has been increased at the fastest pace in 40 years.

At Anthropocene Mark Harris makes a good observation. Some people view climate change as a population problem while others view it as a poverty problem. He continues by making the case for each concluding:

Dozens of countries have managed to break the historic link between carbon emissions and economic growth. Most of these to date have been richer countries—another argument, perhaps, for prioritizing development.

Frankly, I’m skeptical. The data in his link seems to illustrate practically the opposite of what he suggests. Countries “decoupling” carbon emissions from growth are largely doing so by offshoring heavy manufacturing and the emissions of the countries to which they are offshoring are increasing faster. When you combine offshoring of heavy industry and dubious schemes like carbon offsets it accounts for practically all of the reductions except in the United States. Much of the reduction in the United States is a consequence of substituting natural gas for coal in producing electricity.

Meanwhile, I’ll only observe that reducing carbon production is analogous to dieting. A good weight loss diet is

1. One that actually works. In this case that means it actually measurably reduces carbon production. Not just your carbon production. Total carbon production.
2. One you can stick to. In this case that means, for example, that it doesn’t work by depriving your people.

“Give up meat, don’t drive a car, turn off your air conditioner, and keep your thermostat set to 40°F in the winter” might work but you won’t stay with it.

There’s a lot of analysis, speculation, and pontification going on about what the Federal Reserve’s Open Market Committee will decide tomorrow. The smart money (and by that I mean the prediction markets) seem to believe that the FOMC will decide to raise interest rates by half to three quarters of a basis point although some believe that interest rates will be raised by as much as a full point. At the Wall Street Journal Judy Shelton remarks:

The public may not be aware that when the Fed raises rates, it does so primarily by raising what it pays to commercial banks and other depository institutions on the reserves they hold at the Fed—which are interchangeable with cash and effectively serve as checking accounts. These funds currently total $3.3 trillion. Since December 2008, they reflect accumulated purchases by the Fed of Treasury debt obligations and mortgage-backed securities. The Fed paid for its purchases by crediting the reserve accounts of the sellers.

Another $2.5 trillion in cash is held at the Fed through reverse repurchase agreements that the Fed conducts with a broad set of eligible counterparties, including money market-mutual funds and government-sponsored enterprises as well as commercial banks.

When the Fed announces a higher target range for the federal-funds rate (currently 1.5% to 1.75%), it implements its decision by raising what it pays both on reserve balances (currently 1.65%) and on reverse repurchase agreements (currently 1.55%). Money to pay for these interest expenses comes out of the Fed’s interest earnings on its own portfolio.

and trouble for the Fed may be right on the horizon:

The tricky situation the Fed now faces is that its own net interest income—$116.8 billion in 2021, of which 93% was remitted to the Treasury—will soon be exhausted by the higher interest rates it intends to pay on those combined cash funds. A target federal-funds range of 3.25% to 3.5% by year-end would have the Fed shelling out more than $195 billion annually to maintain both reserves and reverse repurchase agreements at current levels. The Treasury will have to advance funds to cover the gap.

which might well prove counter-productive.

Meanwhile, also at the Wall Street Journal Donald Luskin notes rather tartly that Milton Friedman is actually still “running the game”:

Yet the relationship between money-supply growth, as measured by M2 (currency in circulation plus liquid bank and money-market fund balances) and subsequent inflation has been statistically near-perfect in the pandemic era, with a 13-month lag. Year-over-year M2 growth began to accelerate during the pandemic recession in April 2020, and core inflation started to accelerate 13 months later, in May 2021. M2 growth peaked at a history-making, off-the-charts 27% in February 2021, and core CPI peaked 13 months later, in March 2022. Both M2 growth and core CPI have been falling every month since their respective peaks.

Experience is proving, 40 years after Friedman taught Volcker, that inflation is still a monetary phenomenon. But that tells us only what caused the present inflation, not what caused the money supply to grow so rapidly.

Also, Dr. Doom himself, Nouriel Roubini weighs in at Bloomberg via Yahoo! Finance in an interview by Isabelle Lee:

(Bloomberg) — Economist Nouriel Roubini said the US is facing a deep recession as interest rates rise and the economy is burdened by high debt loads, calling those expecting a shallow downturn “delusional.”

“There are many reasons why we are going to have a severe recession and a severe debt and financial crisis,” the chairman and chief executive officer of Roubini Macro Associates said on Bloomberg TV Monday. “The idea that this is going to be short and shallow is totally delusional.”

Among the reasons he cites are historically high debt ratios in major economies.

I would hope that the lesson learned would that quantitative easing was a bad idea to start with and continuing to run as bad a balance sheet as it has for as long as it has was a mistake by the Federal Reserve. I don’t believe that will be the lesson but one can always hope, can’t one?

I found exactly one section of interest in the editors’ of the Wall Street Journal’s characterization of, as they put it, “the mess we’re in”—their prescription for the U. S. economy:

Take all tax increases and more government entitlements off the table. Put a moratorium on new regulations and declare an end to the White House war on fossil fuels. Reduce tariffs and cut trade deals with Britain, Japan and others in the Asia-Pacific that want the U.S. as a trading alternative to China.

Then make permanent the tax cuts in the 2017 reform that expire as early as 2025. Democrats won’t do any of this now, but if they lose in November the GOP will have a chance to press a growth strategy. If the economy is in recession, or if there’s stagflation, Democrats may have to listen.

As should be needless to say I don’t agree with all of that but I do agree with some of it. I think we should be cutting bilateral trade deals with Britain, Japan, etc. I think that the economy needs stability. That means a moratorium on new regulations among other things. While I agree that the administration needs to ignore the more progressive members of its caucus and its its “war on fossil fuels”, it might still pursue a greener future by ensuring that other alternatives are cheaper than fossil fuels. Don’t raise the bridge; lower the river. I recognize that’s hard to do in the near term.

I think that the Trump tax cuts should have been much more targeted than they ended up being and it’s still not too late for that. Unfortunately, neither Democrats nor Republicans appear to be interested in more effective, targeted taxes.