In an article at the Washington Post Brit econ writer Sebastian Mallaby warns the Federal Reserve that they’ve got to stop screwing up. He opens by noting that the FOMC made one forgivable error:

The forgivable error began in the summer of 2021. By then, the Trump administration’s stimulus had been amplified by a far larger Biden package; in the second quarter, core inflation came in at 6.1 percent, way above the Fed’s target. But the Fed dismissed this surge as a “transitory.” A semiconductor shortage was causing a temporary spike in car prices, the central bank argued. Workers’ fear of covid-19 was delaying the return to work and causing temporary bottlenecks.

and another much more serious error:

The less forgivable mistake came at the start of this year. It was not a forecasting error, it was a failure of courage and a triumph of inertia. The Fed acknowledged inflation. But, anxious about upsetting financial markets and reluctant to grapple with the full implications of its error, it refused to rise to the challenge.

At the close of the Fed’s policy meeting in January, Chair Jerome H. Powell described inflation as “elevated.” But he declined to raise the interest rate. At the next meeting, in mid-March, Powell confessed that inflation was “well above” the Fed’s target. Yet still he raised interest rates by only a quarter of a percentage point.

Powell embraced this gradualism, moreover, even though the Ukraine war and the associated sanctions were driving commodity prices skyward. The earlier, forgivable error had been compounded by a huge stroke of bad luck. But rather than scramble to get on top of the problem, the Fed played tortoise.

concluding:

Three decades ago, when the Fed was less committee-driven and more under the sway of an imperial chairman, it was willing to hike rates with less warning and more aggression. In the tightening cycle of 1994, it raised by three-quarters of a percent at a single meeting. Wall Street screamed murder, but Main Street came out fine. Inflation fell, and there was no recession.

Today’s Fed should ponder this. To preserve its credibility as an inflation fighter — and hence its ability to react swiftly to growth shocks — the Fed must react equally swiftly when prices accelerate upward. Sometimes it’s okay to upset Wall Street, and sometimes the best course is the monetary equivalent of a hand-brake turn. Once upon a time, the Fed knew this.

I disagree with the motives to which he attributes the Fed’s reluctance. I think the Federal Reserve is attempting to maintain its independence. avoid criticism that they’re trying to scuttle the Biden Administration, and that Jerome Powell is attempting to hold onto the job of Federal Reserve Chairman for a while longer. The three are intertwined but in trying to avoid appearing politicized they’re behaving in a very politicized way. That is called “cutting off your nose to spite your face”. Those incentives will become stronger as November nears. Consequently, I expect the FOMC to take actions that aren’t nearly as strong as they should be later than they should take them and for inflation to rise higher and continue longer.

I don’t believe that Sebastian Mallaby is some sort of crypto-Republican. I think he’s looking at the Fed’s actions, looking at the rate of inflation, and reaching reasonable conclusions.

My own view is that I wish that Ben Bernanke, Mr. Powell’s predecessor, hadn’t done as much quantitative easing as he did and I wish that Janet Yellen had raised interest rates, if only to demonstrate that the Fed still had the stones to do so. Mr. Powell is now in the position of having done too little too late, not just for the U. S. economy but for the global economy.

Confronted by higher inflation for the first time in his life Matt Yglesias engages in what I think is wishful thinking in a piece at Bloomberg:

Beyond the green-eyeshade aspect of it, the difficulty is that the U.S. economy is now constrained by real resources. Policies such as student-loan relief, which could have been useful stimulus a few years ago, have become inflationary. Even tax cuts, unless offset by spending cuts that take money out of someone’s pocket, would fuel inflation.

By the same token, new spending on social benefits that puts cash in pockets will be inflationary unless it’s taxed away from somewhere else. While a few years ago Biden could have argued that his tough “Buy America” provisions for infrastructure projects were necessary to create jobs, today there is an excess of job openings.

and

This administration, whatever its other shortcomings, has cured a chronic demand shortfall that has plagued the U.S. for decades. Now it needs to pivot from progressive dreamscapes and toward a universe of hard tradeoffs. Deficit spending and protectionist regulations can no longer be justified as stimulus — and it’s not practical to fund programs by taxing the wealth or unrealized capital gains of billionaires.

In other words: Spending more in one area will require spending less in another. That can be done with taxation to reduce private spending — it can even be done with taxing the rich — but the base would need to be larger than the tiny groups targeted by these kinds of ideas.

Leaving aside his remark about a “chronic dmand shortfall”, something for which I see little evidence (consider this list—the U. S. realizes the highest percentage of its GDP of any major economy), I think he’s making a very bad assumption: that political leaders will be responsible and do things they haven’t done in their political lives. To my eye Republicans only know how to cut taxes—it is their panacea. Similarly, Democrats only know how to increase consumer spending. If MY is only experiencing inflation now, think of poor Joe Biden and Nancy Pelosi. They’ve never faced a situation in which fiscal restraint is necessary.

I would welcome Democratic proposals to tax “the rich” but I doubt they will be forthcoming. What they are more likely to propose is to tax some of the rich but not others, maximizing political leverage in the process. Similarly, I would welcome Republican proposals to reduce spending but I don’t believe those will be forthcoming, either. They never have been including while Ronald Reagan was president, indeed, especially when Ronald Reagan was president.

No, they’ll stick with the ones that brung ’em regardless of consequences.

I am seeing a resurgence in posts, articles, op-eds, and editorials on how the Russian-Ukraine War might end, occasioned, presumably, by the changes in Russian strategy and, possibly, in Russian objectives. I am not privy to the inner workings of the Kremlin so I have no idea what Russia’s actual objectives are.

Three scenarios which appear conspicuously are:

• Russia consolidates its holdings in eastern and southern Ukraine which in combination with the effects of the sanctions on Russia’s economy leads Russia and Ukraine to negotiate a resolution. I think this is the most likely.
• Russia begins to lose outright in Ukraine which impels the Russians to escalate their efforts, potentially by using tactical nuclear weapons. In addition to being horrifically damaging to the Ukrainians it puts the West in a pickle.
• Russia begins to win outright in Ukraine which impels the West to take more strenuous actions, potentially including direct involvement.

We are presently being deluged with propaganda of all varieties at the most prodigious rate I can recall. It seems clear to me that the Russians’ propaganda led them to underestimate the Ukrainians. I hope that our propaganda does not lead us to overestimate them.

Here are Robert Farley’s observations from 1945:

The West (which in the context of this crisis has come to mean NATO, Japan, and other democratic countries in Europe and elsewhere) holds an enormous amount of leverage over the course of this conflict. NATO countries are underwriting the Ukrainian military, to the extent that Kyiv may enjoy greater capabilities in key areas than Moscow.

NATO countries are also deeply involved in the economic isolation of Russia, an isolation that in the long term will have devastating effects on the Russian economy. But to say that the West should use its influence in order to stop the fighting necessarily demands the question “what kind of peace?”

Forcing Ukraine to surrender to Russian demands serves no relevant principles or judgment nor any kind of long-term anti-war position. Similarly, unconditional support of Ukraine poses dangers that may not be immediately apparent but that are readily noticeable on the horizon. \

The West should heed B.H. Liddell Hart’s injunction that “the purpose of war is to make a better peace.” We can only understand “a better peace” in reference to our values; the preservation of Ukraine and its democratic institutions, the re-opening of Ukrainian trade, the security of minority groups within Ukraine in both its occupied and unoccupied regions, the stabilization of Ukraine’s relationship with Russia, and probably a pathway to Russia’s reintegration into global society.

The West has enormous leverage and has much at stake; it should use that leverage judiciously produce the “better peace” that it desires.

Today is the first warm Saturday we’ve had so far this year in Chicago. As is typical we whipsaw between unseasonably cold and unseasonably hot. We’ve had unseasonably cold weather for the last several weeks and now we’re having unseasonably warm weather. Not extremely so—it’s in the high 70s right now and may go as high as the low 80s. Typically, we’d expect the mid to upper 60s.

As is also typical of Chicago on the first warm weekend of the year, people are out in force. Home Depot was busy with people buying gardening and lawn supplies, experiencing sticker shock at the price of fertilizer. Some were wearing facemasks; most were not. I have not worn a facemask when out-of-doors throughout the pandemic and I was entirely out-of-doors today.

So far today I have done some lawn prep and planted some lettuce in peat pots small enough to bring indoors easily when the weather turns cold again as it undoubtedly will.

Over the decades we have lived in this neighborhood we have gone from nearly everyone tending their own lawns to nearly everyone having a lawn service. We are among the hardy few who do not employ a lawn service. I have no intention of doing so until I am a doddering ancient which is still a few years off yet.

This afternoon I plan to mow the lawn. Then I’ll put weed and feed on the front lawn and seed and fertilize the backyard. With our conventional city lot that shouldn’t take an hour from start to finish.

In an article at the Chicago Sun-Times staff reporter Andy Grimm says it will take $1 billion in additional spending to reduce crime in Chicago:

A report by the privately funded anti-violence program Chicago CRED estimates the city would have to spend $405 million per year for five years — in addition to what it currently spends — to reduce crime to the levels of big city peers New York or Los Angeles.

In a speech to the City Club of Chicago last month, University of Chicago Crime Lab Director Jens Ludwig suggested an even higher number: $1 billion per year for violence prevention spending and increased policing, to reduce crime in Chicago by 50%.

I guess I’m missing something. Chicago already has more police officers relative to the population than either New York or Los Angeles and spends more for them on average. What’s the difference between Chicago and either Los Angeles or New York?

What I can think of are location, demographics, patterns of residence, political corruption, and history and spending more money won’t do anything about any of them. The studies of which I’m aware do not show a direct causal relationship between increases in policing and reducing crime.

In a piece at Foreign Policy Alex Bolfrass pretty much puts his finger on my gripes with Germany’s security policy:

Germany is also hindered by its commitment to a supposedly values-based foreign policy, in which Berlin prioritizes trade and diplomacy over the military elements of statecraft. Some believe that that was part of an honest reckoning with the nation’s crimes in World War II, but, in fact, the West German state under NATO had a robust military. It was only after unification that Germany, no longer facing any imminent threats, turned to pacifist statecraft, deemed defense expenditures unnecessary, and began expressing its post-militarism as grating moral superiority toward its allies. Although unified Germany’s military has participated in multilateral missions, it has done so under the banner of humanitarian assistance and peacekeeping, and it has played a cautious, subordinate role.

observing:

The problem isn’t just one of idealism. The German government is simply not organized for integrated statecraft. Policies lumber through their siloed ministries and committees, making it difficult for the chancellor to steer the government’s strategy. In its coalition agreement, the new government failed to implement an obvious reform: the establishment of a national security council, which has long been debated and could provide a central strategic organizing mechanism across ministries and the chancellery.

but I don’t think he connects the dots completely correctly. Reunification cost Germany about 2 trillion euro. Coincidentally, German military spending as a percentage of GDP plummeted.

As should be obvious money is fungible. It isn’t too much to say that the Germans took the money they had been spending on defense and used it for reunification, cloaking that pragmatic decision as a moral one. No doubt the collapse of the Soviet Union helped in that decision but Germany’s defense cuts preceded that collapse and coincided with reunification.

Which brings us to the present day. The Germans are now making an equally practical decision to oppose Russia’s war against Ukraine verbally while supporting it financially through continued purchases of oil and gas. The defense is that they have no choice. They did have a choice. They chose to be dependent on Russian oil and gas.

In a statement at The Hill worthy of Marshall Foch^*, Democratic pollster Brad Bannon urges the Democrats to act boldly:

Democrats have accomplished much, but voters expect and deserve more. The Biden administration has created millions of jobs and reduced the threat of the COVID-19 pandemic. But most Americans still believe the nation is headed in the wrong direction and the president’s job approval rating reflects this harsh reality.

Democrats should tell Americans that the party is tough enough to surmount obstacles, with the help of voters in 2022, to fight for better paying jobs, defend democracy against tyranny at home and abroad and overcome Republican obstruction. That means taking strong stands that will highlight the roadblocks that Republicans throw up to obstruct economic relief, the right to vote and right to abortion access.

I’m honestly not quite sure what he means by the first. For the last 30 years the orthodox view has been that higher education and unionization will produce “better paying jobs”. That has certainly been true for university presidents and union organizers but has it been true for most Americans? My own view is that a tighter labor market, incentives for onshoring and reshoring, and more domestic production will result in better paying jobs. His reference to “greedy corporations” suggests he has something in mind. What is it?

“Defending democracy at home” seems to mean ensure that everyone who cares to can cast a vote. I think there’s more to democracy than voting and abortion rights but that seems to be what he means.

Refocusing the discussion from perseverating on centrist Democrats to pointing out obstructionist Republicans sounds promising but I wish he had elaborated on it a bit more. Isn’t the problem that there isn’t a majority that supports a progressive agenda?

^*“My centre is giving way, my right is retreating, excellent situation, I am attacking.”

The editors of the New York Times get around to asking the question I raised when Russia invaded Ukraine. After lauding the adoption of economic sanctions by the United States and European countries, they point to the historic limitations of economic sanctions:

Sanctions historically have not been particularly effective in changing regimes, and their record at changing dictators’ behavior is mixed at best.

Cuba, Venezuela and North Korea never bowed to American demands. Where there are success stories, they are modest: Crippling sanctions brought Iran to the negotiating table over its nuclear program, but that regime never stopped asserting its right to enrich uranium. The bite of sanctions eventually contributed to the end of the white-majority regime in South Africa, but it was just one of many factors.

Or, to understand the limits of sanctions, Americans might consider our own national experience. When Arab nations imposed an oil embargo on the United States in the 1970s, it caused a lot of pain, but it did not cause the United States to stop supporting Israel.

and ask:

All the more reason that the United States should have a clear plan for how and under what circumstances it would be appropriate to roll back these latest sanctions. Right now, this has been left deliberately vague to allow the Ukrainians to directly negotiate with Russia. It is laudable to give deference to Ukrainians whose lives are on the line in this terrible war. But creating clear goals and communicating benchmarks for sanctions relief is an important factor in successful sanctions. Too often, sanctions are left in place for decades, without evaluation of whether or not they are achieving what they were put in place to do.

or, said another way, what is our objective? At Foreign Affairs Richard Haass asks the same question:

Curiously, Western aims in Ukraine have been far less clear. Almost all the debate over what to do has focused on means: on the quantity and quality of military aid to provide the country, on the wisdom of establishing a no-fly zone over Ukrainian airspace, on the extent of economic sanctions on Russia. Little has been said about what either side would have to concede in order to end the war. Also left unsaid is whether an end to the conflict would need to be formalized in a treaty signed by Russia and Ukraine or simply accepted as a reality.

Answering the question of how this war should end is vital as the struggle with Russia enters a critical moment, with a large battle looming.

I would genuinely like to know what our objectives are with respect to the Russia-Ukraine War. I think it’s obvious we would not be happy with a return to the status quo ante. Do the Western media do not represent the Western diplomatic position at all?

Michael Pettis posts his divergent view on China’s economic growth at Financial Times:

In the first quarter of 2022, China’s total foreign trade grew a little faster than GDP, but this growth wasn’t evenly distributed. Exports grew year on year by 13.4 per cent, more than one and a half times the growth rate of the economy overall. Over that same period, imports grew by 7.5 per cent, more slowly than GDP and much more slowly than exports.

This really isn’t the way trade is supposed to work.

If the revenues generated by rising exports are properly distributed domestically, as they normally are in a well-functioning economy, imports should rise just as quickly as exports.

Instead, China had the highest first-quarter trade surplus in its history, the latest in a line of record-breaking trade surpluses. These surpluses are symptoms neither of manufacturing prowess nor of a culture of thrift, but are instead a consequence of the great difficulty China has had in rebalancing its domestic economy.

And yet for years Beijing has stressed the need to boost domestic demand, so what has gone wrong?

He attributes the mismatch to Beijing’s overreliance on supply-side measures, e.g. business subsidies, export subsidies, investment in infrastructure and logistics, etc. That differs pretty dramatically from the orthodox view in the West.

It’s easy to imagine demand-side measures—they’re what we rely on here, equally too much so in my opinion. The open question is why the Chinese authorities aren’t replacing the web of subsidies that have been used for the last 30 years? I suspect several reasons. First, people tend to continue to do what’s worked for them in the past and that web of subsidies has served them pretty well. Second, those who’ve benefited from the business and export subsidies, etc. want them to continue.

But I also wonder if the authorities aren’t skeptical that adopting consumption subsidies will foster their own power.

As I say, I’m open to suggestions.