In a piece at Bloomberg Mohamed El-Erian warns that the Federal Reserve is taking substantial risks:

The other notable development this week came in Fed Chair Jerome Powell’s semiannual testimony to Congress on Wednesday, when he acknowledged that inflation has been coming in above the central bank’s expectations and lasted longer. Yet when it came to policy implications, he immediately reverted to the often-repeated “transitory” mantra to support no change to the policy stance. New York Federal Reserve President John Williams delivered a similar message on Monday, confirming that two of the three most influential Fed officials — and the ones that markets listen to most closely — remain fixated on maintaining ultra-stimulative policies notwithstanding the repeated underestimation of both growth and inflation.

The longer this configuration persists, the greater the risk of a monetary policy mistake. This is particularly true now that Fed policy is governed by a policy framework that has shifted the trigger for action from forecasts to outcomes. Indeed, having resisted pressure to be specific with two key policy influencers — the length of time for assessing transitory inflation and the quantitative definition of “flexible average inflation targeting” — the Fed can continue on this path for a while. And it will probably do so given the Fed’s other conviction, which a growing number of economists also worry about: that the central has the policy tools to react quickly and effectively if need be and, importantly, without causing economic and financial disruptions.

The facts on the ground, as well as the Fed’s traditional emphasis on risk management and building up policy insurance, call for the world’s most powerful central bank to start easing its foot off the stimulus accelerator.

He proposes that they start by cutting a relatively small portion of the monthly purchase of financial assets. What he doesn’t say is what the reaction to that would be. Spoiler alert: it wouldn’t be good.

That’s supported by this observation of his:

The longer the economy-policy disconnect continues, the greater the risk-taking by a marketplace that has been conditioned to expect and profit from ample and predicable Fed liquidity injections and the greater the risk of market accidents. There have already been three near accidents this year. Should generalized market disruptions not be avoided next time around, the Fed would face even greater policy challenges given the adverse spillbacks to the real economy.

It could range from a relatively minor correction to a panickked sell-off.

He’s too discreet and cautious to say they’re screwing up but I believe that’s what he’s thinking.

It sounds to me like the Fed governors need to have more skin in the than they do at present.

The editors of the Wall Street Journal are less impressed by the plan:

Don’t believe the spin that this is a compromise from the $6 trillion that Mr. Sanders floated some weeks ago. That was a feint to make the final number appear more moderate. This would be the largest spending increase in U.S. history, and a huge increase in the size and scope of government. It would lift federal spending as a share of GDP to more than 25% from the modern norm of 20% to 21% or so. Democrats are going for broke—literally.

“Every major program that President Biden has asked us for is funded in a robust way. And we are making some additions to that,” crowed Majority Leader Chuck Schumer, standing next to Mr. Sanders. “Most important, something that Senator Sanders has led, and convinced America is so important, which is a robust expansion of Medicare, including money for dental, vision and hearing.”

Mr. Schumer didn’t mention the cost of this new Medicare fillip: about $300 billion. And for a Medicare entitlement that the Trustees in their annual report say will already start to run out of money as early as 2024.

The details of the budget resolution will be filled out by Congressional committees, but that word “entitlement” is the key. The Sanders-Pelosi strategy—Mr. Biden is along for the ride—is to create several new programs that will expand automatically without an annual appropriation by Congress.

Any American who qualifies will get the cash for universal pre-K, paid family leave, a new federal child-care program, free community college, and more. Democrats will start these programs small, but they will grow inexorably into huge claims on the Treasury and they will be politically impossible to reform or repeal.

The resolution will also underwrite a vast climate agenda, including green-energy subsidies running into the hundreds of billions. Democrats plan more money as well for permanently higher ObamaCare subsidies, teachers unions, affordable housing, home healthcare, food subsidies and welfare programs.

All of this will be “paid for” with a combination of tax increases and phony accounting. Mr. Biden’s spending proposals made this appear to work by offsetting eight years of spending with 15 years of tax increases. Democrats will try something similar to get around the rules of budget reconciliation. Remember how they made ObamaCare look budget neutral in 2010 by claiming a government takeover of student loans was a money raiser? Student debt is now heading to be a trillion-dollar loser.

Raising marginal rates is one thing; raising revenue is another. How much additional revenue will the federal government actually be able to generate just by taxing the 1%? And what effect will that have on the private economy?

The editors of the Washington Post approve of the incipient deal being worked out among Senate Democrats:

The plan represents less than the $6 trillion progressive champion Bernie Sanders (I-Vt.), who chairs the committee, initially called for. Still, it would expand government as ambitiously as the Great Society of the 1960s, which is why Mr. Sanders expressed enthusiastic support.

We are optimistic about the proposal, too — but cautiously. The highlight is an extension of the expanded child tax credit that was enacted on a one-year basis in the $1.9 trillion coronavirus relief plan earlier this year. Delivered at a maximum rate of $3,600 per year for kids under 6 and $3,000 for kids between 6 and 17, the credit has the potential, if permanent, to cut the child poverty rate, 14.4 percent in 2019, by half. The package also contains other major elements of President Biden’s American Families Plan — tuition-free community college, family and medical leave, universal pre-K, increased tax credits for Obamacare and investments to fight climate change. Mr. Sanders won a new dental, vision and hearing benefit under Medicare, a potential life-changer for millions of seniors who now pay for these items out of pocket — or don’t get them at all.

They continue with some cautionary notes—about the appropriations would be allocated among the various priorities, about the pledge not to increase taxes on anyone earning less than $400,000 per year, and about the likelihood of the cap on the deductibility of state and local taxes which is basically a tax break for the upper middle class and the wealthy.

Those aren’t my reservations which are:

• It’s an abuse of the reconciliation process.
• When you enact major changes in policy on the basis of 50%+1 votes, you have relinquished any standing for complaining about your political opponents doing the same thing should they gain a majority. It’s not good government.
• A lot of the additional revenue the bill would require is waved into existence by unlikely assumptions about economic growth. That’s a venerable tradition but we haven’t seen an expansion of the money supply like the one presently being conducted in living memory.

In an op-ed by Phil Gramm and Mike Solon in the Wall Street Journal the authors argue that without the deregulation of the 1970s the U. S. economy would be a lot smaller. I won’t even bother to excerpt it. Read it if you care to. My reaction was who cares?

Just a dozen or so people account for more than $1 trillion in wealth and the experience during the pandemic is that the ultra-rich have become ultra-richer. If you want people to be concerned about the things Sen. Gramm and Mr. Solon are writing about they need to have a much greater stake in the economy than they do. I honestly don’t care if Jeff Bezos’s income goes down.

I found this piece in the Wall Street Journal by Heather Haddon, Te-Ping Chen and Lauren Weber about an aspect of the post-pandemic recovery that has been too little considered. One side of the story is that erstwhile workers are being discouraged from seeking new jobs by generous federal, state, and local benefits. Another side of the story is that hirers are unable to find workers. The authors of this piece have an entirely different take—workers are “moving on”. They’ve left low wage deadend jobs in favor of brighter prospects:

After Covid-19 forced restaurants, hotels and bars to shut last year, thousands of workers didn’t just get pushed to the employment sidelines. Many, like Ms. Roshitsh, moved onto new careers in digital sales, shipping, mortgage-financing and other businesses that thrived in the pandemic, in what some economists say could mark a lasting shift in the labor market for hospitality staff.

That exodus, they say, could spell labor challenges for the sector that persist well beyond September, when the enhanced federal unemployment benefits that have helped keep some low-wage workers from returning to jobs are set to expire.

To try to lure workers back, many restaurant operators and other hospitality businesses are raising wages, offering signing perks and rethinking scheduling practices to make the work more flexible and, in some cases, less grueling.

While the new job-market dynamics have left such employers scrambling to find enough workers, they are helping many longtime cooks, servers, hotel staff and other hospitality workers break into new lines of work, often with more predictable schedules and better pay and benefits than their previous jobs.

At this point in the pandemic, says Brad Hershbein, senior economist at the W.E. Upjohn Institute for Employment Research, many such workers have “found employment somewhere else, possibly at a higher wage.”

I wish the authors quantified things a bit more. All of those things could be happening at the same time to one degree or another. Whether what the authors point out is just incidental is anybody’s guess but the same could be said of the claim that workers aren’t seeking jobs because of generous government benefits. Stats from the NFIB support the claim that many businesses are finding it hard to find people.

Yet another factor that may not have been considered: how many people working here “without papers” returned home? Or went to Canada or somewhere else?

I continue to think that there are quite a number of business models including fast food and casual dining that are highly dependent on a constant supply of workers willing to work for minimum wage whose profit margins are just too narrow to pay higher wages. The measures mentioned by the authors (higher wages, signing benefits, etc.) call that into question. Again, I wish some of this stuff were quantified.

I don’t think we should exerting ourselves excessive to preserve the business models of niche businesses that are dependent on circumstances that are really not in the national interest if they are to survive.

When you add all of this up, it certainly looks as though the post-pandemic economy is going to be quite a bit different than the pre-pandemic one. The challenge is ensuring that the change is for the better. If a significant number of people are able to find better jobs with higher pay and brighter prospects, it may well be.

One of the more sensible pieces I’ve read on ending the recent surge in homicide at Yahoo News by Benjamin van Rooij and Adam Fine:

Research shows that police do have an important role to play in reducing homicides. Studies consistently find that there is less violent crime when the chances of being caught and punished are high. Unfortunately, as Jill Leovy’s book “Ghettoside” has shown, all too often the quality of homicide investigation is highly uneven and correlates with the victims’ race and neighborhood. It is unsurprising, then, that some people of color argue that their communities need more and better policing. In fact, a recent Gallup poll found that 81% of Black Americans want police to spend the same amount or even more time in their area.

However, more police should not mean a return to steep sentences and mass incarceration. There is no evidence that stronger punishment, whether the death penalty or long prison sentences, prevents murder. What works is smart enforcement that combines direct punishment threats to high-risk offenders with community support offering potential aggressors a real alternative to violence. That means providing immediate services to those willing to consider stepping away from violence, including offering cognitive behavioral treatment, bolstering social services, conducting direct outreach through mentoring, and opening employment opportunities and job skills trainings. The idea is to work with the community to tailor the approach directly to what drives each person to engage in crime. When Cincinnati adopted this approach, it saw a 38% decline in gang-related homicides, in just two years. Smart enforcement has reduced violent crime in most cities brave enough to adopt it.

Police reform is equally important. To prevent murder, we need to combat racism and police violence. When communities do not trust law enforcement, they will not cooperate with police and report crime. Moreover, there is clear evidence that unfair policing stimulates more crime. The reality is that whatever the future of policing looks like, police cannot be effective if they do not build trust with the community they are supposed to protect and serve. So when we invest in law enforcement, one priority must be to eradicate the racism and violence that have plagued so many departments. No one should be against this idea, as it not only saves more of us from becoming victims of police misconduct but also is vital for controlling the spiraling murder rate.

There’s one aspect of the problem that’s missed in the piece: aggressive but honest prosecution. “Catch and release” programs actually contribute to the problem.

The key point to make is that all are necessary: energetic enforcement, certainty of prosecution, police reforms, and support services. In combination they are a formula for improvement. Individually they are almost certain to fail.

In his Washington Post column Max Boot expresses chagrin that the U. S. is not stepping up to help Haiti during the increasing disorder there:

No one appears to be in charge of this country of 11 million people. The United States recognizes interim prime minister Claude Joseph as the acting head of state, but that post is also claimed by Ariel Henry, who was due to be appointed prime minister before Moïse died, and by Senate leader Joseph Lambert. Because elections did not take place as scheduled, the upper house of parliament has only 10 of 30 senators, and the lower house is entirely vacant.

Power is exercised by powerful and brutal gangs. Gasoline and food shortages are becoming chronic. Ordinary people in the capital, Port-au-Prince, are either fleeing their homes or staying inside of them, afraid to come out. This is a Hobbesian state of nature — Somalia in the Caribbean — and it could yet lead to another exodus of boat people heading to Florida.

Haiti’s interim government says “We need help” and asks the United States and the United Nations to send troops to stabilize the situation. But President Biden shows no inclination to answer the 911 call from Port-au-Prince. Sorry, Haiti. The world’s policeman is officially off duty. You’re on your own. Good luck. You’ll need it.

Although Mr. Boot does provide a small backgrounder on U. S. interventions in Haiti, he doesn’t go far enough. There are two sad realities.

The first is that Haiti has been a mess since it gained independence from the French more than 200 years ago. There is no heroic or golden age of Haitian independence. There have just been different sorts of misery.

The second is that neither the U. S. nor the United Nations have actually done Haiti much good. Yes, the U. S. (actually the U. S. Marines) occupied Haiti for 20 years during the early 20th century. We did not actually improve the situation for the Haitians but we did introduce racial discrimination there. The United Nations tenure in Haiti didn’t improve conditions much, either. The lax sanitation practices of white hat UN troops did introduce cholera to the country.

At Bloomberg Olivia Rockeman reports that prices increased by 5% in June on a year-on-year basis:

Prices paid by U.S. consumers surged in June by the most since 2008, topping all forecasts and complicating the Federal Reserve’s debate over how soon to unwind ultra-easy monetary support for the economy.

The consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to Labor Department data released Tuesday. Excluding the volatile food and energy components, the so-called core CPI rose 4.5% from June 2020, the largest advance since November 1991.

and in some categories, e.g. for used cars prices increased at the fastest rate on record: 40%. Inflation-adjusted hourly wages fell by 1.7%. Pressure on wages is sure to follow.

Today I’m thinking about Jackson Browne’s “Song for Adam”. Here’s its opening:

Though Adam was a friend of mine, I did not know him well
He was alone into his distance, he was deep into his well
I could guess what he was laughing at, but I couldn’t really tell
Now the story’s told that Adam jumped, but I’ve been thinking that he fell

Together we went traveling, as we received the call
His destination India and I had none at all
Well, I still remember laughing with our backs against the wall
So free of fear, we never thought that one of us might fall

I sit before my only candle
But it’s so little light to find my way
Now this story unfolds before my candle
Which is shorter every hour as it reaches for the day
But I feel just like a candle in the way
I guess I’ll get there, but I wouldn’t say for sure