What Are They Waiting For?

The editors of the Wall Street Journal articulate the problem the Fed is facing:

The Federal Open Market Committee (FOMC) is meeting this week, and its members were greeted Tuesday with the rude welcome of surging wholesale prices. This is more evidence that Chairman Jerome Powell and the Federal Reserve have made a historic mistake that they now have to fix without sending the economy into recession.

Prices for final goods increased 9.6% year-on-year in November, up from 8.8% in October. The nearby chart shows how wholesale prices have risen every month but one this year on an annual basis, and across most major goods and services. Producer prices tend to flow into consumer prices, which were up 6.8% year-on-year in November.

along with the risks of waiting longer:

Mr. Powell no doubt hopes that inflation will ease next year, and that he can then raise rates more slowly. But the longer he waits before he acts, the more he runs the risk that he’ll have to slam on the brakes even harder. This is what happens when the Fed takes its eye off its inflation mandate and prices take off.

Said another way, the longer they delay the more likely they will need to throw the economy into recession to solve the problem they’ve created. And it won’t be a recession like any of the Fed governors and relatively few members of Congress will recall. The “pump-priming” which is their reflex will actually aggravate the situation.

I think the underlying problem is that none of the present Fed governors have adult memories of the late 1970s and early 80s. Mr. Powell was barely out of law school at that point. All they’ve ever known is low inflation.

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Ending the Pandemic

Leanna Wen has her proposal for ending the COVID-19 pandemic in her latest Washington Post column. It consists of the following:

  1. Have vaccines available for young children
  2. Have oral, out-patient treatments for COVID-19
  3. Have free, readily available rapid tests

I want to focus on the last of those. Here’s what she says:

Imagine if every family was given twice-weekly, at-home tests to take before kids go to school and parents head to work. Imagine, too, if it becomes the norm for friends and family to take rapid tests before getting together for weddings, birthday parties, and even casual dinners and happy hours. When implemented together with vaccine requirements, regular testing can replace the need for masking and distancing in schools, offices and social settings.

Let’s do a little back-of-the-envelope calculation. Assuming a population of 330 million testing every person daily would mean 330 million X 365 = 120,450,000,000 tests per year. At $7/test that would be a cost of just under a $1 trillion/year or about 5% of GDP. I have no idea of how much in the way of materials would be required for that enormous number of tests.

It’s clear to me that 5% of GDP is far too much; even if the cost could be cut to $1/test it would still be a considerable sum. I honestly have no idea of the practicality of that. Add increased waste disposal on top of that.

I’m also a little curious as to how she thinks we’ll convince illegal immigrants and people wanted for various crimes to participate in all of this testing. Said another way could the participation rate of such a program ever become high enough to be effective?

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The Worst Economic Decision

In my opinion the very worst economic decision of the post-war period was Nixon’s wage and price controls, imposed in 1970 to combat inflation. They had an incredibly distortive effect and that was the first step on the road to American deindustrialization on which we are still embarked to this day. Keep that in mind in coming days. Biden’s imposing wage and price controls would be just as bad if not worse.

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Have Republicans Passed a “Tipping Point”?

In his most recent New York Times column Thomas Edsall expresses his worries for the state of American democracy:

Democracy — meaning equal representation of all citizens and, crucially, majority rule — has, in fact, become the enemy of the contemporary Republican Party. As The Washington Post noted on Jan. 24, “The last two Republicans to win a majority of the popular vote in a presidential contest were father and son: George H.W. Bush in 1988 and George W. Bush in 2004.” In the four elections since 2004, the Republican nominee has consistently lost the popular vote to the Democratic candidate, including Donald Trump in 2016 and 2020.

The widely publicized efforts by Republican-controlled state legislatures to politicize election administration and to disenfranchise Democrats through gerrymandering and restrictive voting laws testify to the determination of Republicans — especially the 66 percent who say they believe that the 2020 election was stolen — to wrest control of election machinery. On Sept. 2, ProPublica documented a national movement to take over the Republican Party at the grass roots level in “Election Deniers Organize to Seize Control of the G.O.P. — and Reshape America’s Elections.”

These developments, taken together, are amplifying alarms about the viability of contemporary democracy in America.

“The nonlinear feedback dynamics of asymmetric political polarization,” a Dec. 14 paper by Naomi Ehrich Leonard and Anastasia Bizyaeva, both at Princeton, Keena Lipsitz at Queens College, Alessio Franci at the Universidad Nacional Autónoma de México and Yphtach Lelkes at the University of Pennsylvania, argues that in the case of polarization, there are:

critical thresholds or moments when processes become difficult if not impossible to reverse. Our model suggests that this threshold has been crossed by Republicans in Congress and may very soon be breached by Democrats.

I sent the five authors a series of questions asking them to elaborate on a number of points, and they replied in a jointly written email. My first question was: “Could you explain in terms accessible to the layperson how ‘political processes reinforce themselves’ in ways that can push a political party past a ‘tipping point’ ”?

Their reply:

Political processes, like any other natural dynamical process, in nature, technology, or society, have the capacity to feed themselves and enter an unstable positive, or, self-reinforcing, feedback loop. A classic example is an explosion: when thermal energy is provided to burn a few molecules of a combustible substance, they in turn produce more energy, which burns more molecules, producing more energy in a never-ending loop, at least until combustibles are no longer available.

A similar process can take place in politics, they argue:

For example, elected officials can respond to the signals of extremist donors by becoming more extreme themselves. When these extremist representatives become party leaders, they are then in a position to punish moderates in their party by backing more extreme candidates in primaries. This in turn leads to the election of more extremist candidates and the cycle continues.

In theory, voters

are a potential check on this cascading extremism, but they must be willing to punish ideologically extreme legislators by voting them out of office. As voters have become more concerned about party labels than ideology, they have become less willing to do that, allowing cascading extremism to continue.

What about the Democratic Party, I asked?

The Democrats are indeed still below the tipping point; therefore, their polarization state is still evolving slowly, or, linearly. But looking at the current policy mood trend and projecting our model slightly into the future, the present large left shift in policy mood due to the Trump era could easily cause the Democrats to tune up their ideological self-reinforcing behavior and let them pass their polarizing tipping point.

I presume that the contrast the authors of the study draw between the Republican Party and the Democratic Party in that last section will draw some angry retorts but I want to focus my attention on the opening passage quoted:

Democracy — meaning equal representation of all citizens and, crucially, majority rule…

Being a “ways and means”, empirically-oriented sort of guy I’m going to present a snapshot of the five largest state, containing among them 41% of the U. S. population:

State Population % Democratic % Republican % Other Congressional delegation
California 39,538,223 45 24 31 4211-0
Texas 29,145,505 39 42 19 1323-0
Florida 21,538,187 37 35 28 1016-1
New York 20,201,249 51 22 27 198-0
Pennsylvania 13,002,700 48 38 24 99-0
Illinois 12,812,508 50 34 16 135-0
Total 136,238,372        

Of those Texas is a Red State, Pennsylvania and Florida Purple, and the others Blue States so I think that’s a pretty good sample. My population statistics come from the Census Bureau; my voter registration statistics from Gallup.

To my eye it looks as though Mr. Edsall has a bit of a point: the states with Democratic majorities in their state legislatures are more democratic (in the sense of the quoted passage) than those controlled by Republicans. On the other hand no state whether Red or Blue actually meets his definition for the simple reason that you would expect many more “Others” to be in the states’ Congressional delegations. Frankly, I despair of ever meeting that definition of democratic with “winner take all first past the post” elections.

Just for the record whether because of my Swiss heritage or I see the sense in William F. Buckley’s jibe about the Harvard University faculty, I would have fewer problems with direct democracy than I do with our present system which I think is horrifically unrepresentative if

  1. There were a consensus about the preservation of individual rights and conforming to legal precedents and
  2. There were a commitment to gradualism

but, since there is neither I’m concerned that meeting Mr. Edsall’s definition of democracy would result in the effective equivalent of two wolves and a sheep deciding what’s for lunch.

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Trump Lost

If there should be any reasonable doubt that Trump lost the 2020 election, an Associated Press investigation has found insufficient fraud to have made any difference:

ATLANTA (AP) — An Associated Press review of every potential case of voter fraud in the six battleground states disputed by former President Donald Trump has found fewer than 475 — a number that would have made no difference in the 2020 presidential election.

Democrat Joe Biden won Arizona, Georgia, Michigan, Nevada, Pennsylvania and Wisconsin and their 79 Electoral College votes by a combined 311,257 votes out of 25.5 million ballots cast for president. The disputed ballots represent just 0.15% of his victory margin in those states.

The cases could not throw the outcome into question even if all the potentially fraudulent votes were for Biden, which they were not, and even if those ballots were actually counted, which in most cases they were not.

The review also showed no collusion intended to rig the voting. Virtually every case was based on an individual acting alone to cast additional ballots.

which you will also note comports pretty closely with what I have been saying. Vote fraud isn’t a myth, it’s actually pretty common, but its scale is not sufficient to have made a difference in the 2020 presidential election. And Conan Doyle’s advice remains a good rule of thumb. Once you have eliminated the impossible, what remains however improbably is the truth.

At this point I think that people of good will should all believe that Trump lost the election. And I think that Mr. Trump should be dissuaded to whatever degree possible by his supporters from any claims to the contrary.

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Swimming Upstream

The most recent post at Doomberg has a simple thesis: we need to produce a lot more oil. What follows is a simple explanation of something I’ve been pointing out for a long time:

An exercise in simple arithmetic may be sobering to those counting on EV growth to dampen oil demand. The number of vehicles on the road powered by internal combustion engines (ICE) will continue to grow until EVs achieve a near-total share of new vehicles sold. This is because the size of the total ICE passenger vehicle fleet is dictated by flows in and out (i.e., the removal of ICE vehicles from the road). In the first half of 2021, the EVs represented just 2.4% of all new passenger vehicles sold in the US. Modern vehicles have incredible reliability and longevity. New vehicles sold today tend to remain on the road for decades.

Here’s another sobering statistic: it takes about 20 years for a near-complete turnover of the U. S. vehicle fleet which is to say if 100% of the cars sold today were EVs, it would be 2042 before the last car with an internal combustion engine was retired in the normal course of events. And EVs comprised just 2.4% of present new passenger vehicle sales. With that level of adoption how long will it take for a complete transition of the fleet to EVs? Forever.

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Youth Flight

I don’t know why the editors of the Wall Street Journal devote as much space to Illinois as they do. Other than it being an excellent example of a bad example, that is. In their latest critique they point to something that may not be immediately apparent—the young are departing Illinois in substantial numbers:

The Land of Lincoln is one of only three states, including West Virginia and Mississippi, to have lost population since 2010. But its population over age 55 has grown as Baby Boomers have aged. Over the last decade, Illinois’s median age has increased to 38.8 from 36.6, which puts it among the fastest aging states. Florida’s median age ticked up two years to 42.7.

The Land of Lincoln is one of only three states, including West Virginia and Mississippi, to have lost population since 2010. But its population over age 55 has grown as Baby Boomers have aged. Over the last decade, Illinois’s median age has increased to 38.8 from 36.6, which puts it among the fastest aging states. Florida’s median age ticked up two years to 42.7.

They point out several potential explanations but, clearly, their preferred explanation is Illinois’s tax system which tends to fall more heavily on young workers than on the elderly. I note that they don’t point out Illinois’s high sales tax. Chicago’s sales tax is, for example, the highest of any major city.

I think that the tax system is only part of the problem. Over the last several decades Chicago has lost much of its tech sector. We used to have any number of major technology companies here: Teletype, Bell & Howell, U. S. Robotics, Zenith, Motorola, Nuclear Data, I could go on and on. Most of those are either gone or mere shadows of their former selves—much of that activity is now in Taiwan. There have been multiple efforts over the years to attract tech startups to the Chicago area and all have failed.

Jobs more generally are a problem—we’ve lost a lost of our major employers over the years. Illinois, like much of the Midwest, used to be a manufacturing center. My own experience I think is typical. In 1979 nearly all of my customers were small manufacturers. By 1990 none of them were—they had all gone belly-up or been acquired.

I blame a lot of the problem on official corruption, cf. “pay to play”.

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Blame the Fed for Inflation!

In a Wall Street Journal op-ed former Federal Reserve governor Kevin Warsh lays the blame for inflation soundly on the Federal Reserve:

f price stability is squandered, financial stability is put at risk. If financial stability is lost, the economy is imperiled and the social contract is threatened.

During the past several quarters, U.S. inflation has surged—now running about triple the Federal Reserve’s 2% target. The surge in prices is unlikely to reverse on its own. The longer that prices are unstable, the greater the challenge to the conduct of macroeconomic policy. The last thing the country needs is its third major economic upheaval in a decade and a half.

[…]

Inflation is a choice. It’s a choice for which the Fed is chiefly responsible. The risk of an inflationary spiral arises when policy makers first dismiss the problem and then cast blame elsewhere. Inflation becomes embedded in the price-formation process when the central bank acts belatedly or with insufficient conviction. To date, the Fed has acted as an enabler.

The sure sign of a problem: when a president gives voice to the scourge of inflation—and takes executive action—well before the central bank acknowledges the severity of the situation.

“Supply-chain bottlenecks” is the popularized rationalization for the surge in prices. But the supply-chain story sheds more shade than light. Consumer prices are higher because prices are rising at the points of production, assembly and transportation. This is a description of the state of affairs, not its source. The Fed’s inertia in withdrawing extraordinary monetary policy—amid full employment—is the proximate cause of surging prices.

I have some reservations about these assertions:

When monetary policy is too tight, it slows aggregate demand. When monetary policy is too loose, it damages aggregate supply. Extraordinarily aggressive monetary policy, namely quantitative easing, discourages investments in real assets like capital equipment relative to financial assets such as stocks. That’s why nonresidential capital investment in the real economy—things like port modernization—is running 7% below the pre-pandemic trend and 25% below trend since the advent of QE. A more exuberant stock market and a less resilient real economy are both consequences of the Fed’s extant policy regime.

I agree with the first claim (monetary policy that is too tight slows aggregate demand), am uncertain about the second (monetary policy that is too loose slows aggregate product), and agree 100% with the third (QE encourages investment in financial assets at the expense of real assets). For me the question is why is the Fed doing what it is? Or, more precisely, not doing what it is not doing? Overly politicized? Trying rather desperately to preserve Fed independence? Priorities in the wrong place?

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How Partisan Is the Supreme Court?

At Politico law prof Aziz Huq points out an inconsistency in recent Supreme Court decisions:

The conservative justices are quite selective when shuttering cases out of federal court and leaving their resolution to state judges. Take property rights: The court has recently doubted state courts’ historical ability to set the metes and bounds of property rights. And it has rejected the longstanding rule that someone claiming that their property has been “taken” by state law must first go to state court to get a conclusive ruling on what state law allowed.

In religious liberty litigation by Christian groups, the court again shows scant regard for state courts’ views about state law. In recent religious liberty cases, the conservative Justices have ridden roughshod over state law to reach their favored outcomes. Judicial deference to state decisions on public health — with literally tens of thousands of lives in the balance — has also been in vanishingly short supply when it comes to religious liberty claims.

Or consider an opinion that Thomas filed a year ago complaining that gun owners’ rights were being disfavored because the court had refused to review a law that imposed what he described as an “onerous burden” on Second Amendment rights. That would never happen, he grumbled, with abortion rights. Today, of course, he is the sole justice who would completely foreclose all federal court review of S.B. 8. So much for equal-handed justice.

Indeed, it is only disfavored rights now that get relegated to state court. When it comes to criminal procedure rights, the court confines many claimants to state tribunals by refusing to hear either appeals or to allow a collateral challenge in federal court. And its outright hostility to constitutional tort claims against police violence mean state law is often the only remedy for people whose constitutional rights are violated by police.

When it comes to regulating access to federal court, in other words, the present Supreme Court exercises a largely unfettered and ideologically infused kind of discretion. It has used this discretion to favor property owners and religious conservatives, while disfavoring criminal defendants. Abortion providers should have no illusions that they number among the elect of more favored constitutional litigants.

I think he may have a point. In checking out some of the decisions to which Mr. Huq referred although I found some, e.g. Stop the Beach Renourishment v. Florida Department of Environmental Protection which to my eye looked like unanimous decisions by the Court (and hence no partisan or ideological bias), but others, e.g. Knick v. Township of Scott, in which there did appear to be a partisan or ideological side to the decision.

I would greatly prefer a Court that decided based solely on accepted legal principles and precedent but, honestly, it’s unclear to me how that can be achieved. And, as noted above, a Court that oscillates between deciding based on a “conservative” ideology and one deciding based on a “progressive” ideology is even worse.

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Reforming the Supreme Court

The editors of the Washington Post argue in favor of term limits for Supreme Court justices:

For their part, presidents increasingly search for relatively young, ideologically zealous nominees rather than those with the most judicious temperament. This has led to an ideological chasm on the court and provided an incentive for ambitious lower-court judges to adjust their rulings to please partisan activists.

Some Democrats believe the solution is to pack the court with Democratic nominees, expanding its size, while they still have congressional majorities. This would be a historic mistake. It would sap the court’s legitimacy for no long-term benefit; Republicans could re-pack the court the next time they controlled Congress and the White House.

The commission report points out that, while expanding the court is highly controversial, there is much wider and bipartisan agreement on imposing term limits on Supreme Court justices. Terms could be long — perhaps 18 years — and expire in a staggered manner so that an equal number of vacancies come up in every presidential term. This would lower the stakes of the court confirmation process, diminish actuarial tables and luck as factors in which presidents get to decide the court’s composition and guard against justices suffering from mental decline while still on the bench. Presidents would be freer to pick justices from more diverse backgrounds. More people would be able to serve on the court, so the preoccupations and quirks of a handful of lifetime appointees would no longer determine the law of the land.

I’m afraid that term limits would do little to solve the problem. Highly ideological justices lacking in judicial temperate or restraint may be newly appointed or long-serving. All that term limits would do in the absence of judicial restraint is enable continuous churn in the law which would bring the law itself into disrepute and society into chaos.

The underlying problems are the extreme polarization of politics these days which, if not more extreme than in the past is certainly more obvious than in the past, the reliance on the Court to effect social changes which legislators and executives lack the courage to make themselves, and changes in the practice of law over the years. Those won’t be solved by term limits. Imposing term limits just scratches the present itch.

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