Dr. Alan Blinder urges us to remain unconcerned about inflation in a Wall Street Journal op-ed:

Much of this year’s inflationary surge can be traced to two transitory factors: bounceback from the anomalous negative inflation readings of early 2020 and bottlenecks as the economy reopens unevenly.

One simple way to assess the importance of special factors is to consult the trimmed mean inflation series maintained by two of the Federal Reserve banks. These measures ignore the prices with the highest and lowest inflation rates and focus on the rest.

It turns out that the Dallas Fed’s trimmed mean PCE inflation rate over the past 12 months is 1.9%, and the Cleveland Fed’s trimmed mean CPI inflation rate is 2.6%. Not very scary. The high-inflation outliers—such as prices for used cars and energy—aren’t illusions, but they won’t persist.

A second inflation worry is that the U.S. economy, powered by pent-up consumer demand and huge government expenditures, will soon soar into the inflationary zone. Could be. But there are three counterarguments.

First, this worry reflects Phillips curve thinking, which hypothesizes that low unemployment rates make the inflation rate rise. But inflation wasn’t rising before the pandemic despite a 3.5% unemployment rate.

Second, the bond market isn’t buying the argument. Inflation forecasts embedded in bond yields remain consistent with the Fed’s low target.

Third, much of the extreme fiscal stimulus that has been driving spending is transitory. Most pandemic relief spending will be ending soon, and I don’t think Congress will approve much more spending this year that isn’t paid for.

The big question is how pent-up consumer demand will play out. American households socked away about $2 trillion in bank accounts as the pandemic raged. If that money gushes out, we’re likely in for some classic demand-side inflation. But if it gets spent gradually, American businesses will meet demand easily.

The third inflation worry is more subtle. Most of the supply-side bottlenecks, such as the shortage of computer chips, are global. Yet inflation is running higher in the U.S. than in other advanced economies. Is this evidence that we’ve used up the slack and are already “running hot”?

Milton Friedman famously remarked that “inflation is always and everywhere a monetary phenomenon” and I don’t think the astonishing increase in the money supply over the last year should be ignored. A question that Dr. Blinder does not address: does he think that the additional fiscal stimulus that the Biden Administration advocates is called for? No one can seriously maintain that it will not require creating additional money. And even advocates of Modern Monetary Theory do not argue that production can be extended beyond potential production using borrowed money. What if the additional potential short term production is zero?

David Ignatius expresses delight with President Biden’s “back-door actions” in his Washington Post column:

These under-the-radar initiatives were outlined recently by White House officials familiar with the details. Most of the initiatives address basic economic problems stemming from the pandemic and global warming. The idea is to use the executive powers of the presidency to advance the White House agenda without legislation, just as President Donald Trump did in his first year.

The authority for these programs is an executive order Biden issued in February, directing federal agencies “to strengthen the resilience of America’s supply chains.” In Biden’s definition, that covers a lot of ground, from pharmaceuticals to electric vehicles to semiconductors and a thousand other things needed to build what the executive order describes as “a world-class American manufacturing base and workforce.”

Take pharmaceuticals, whose importance was so viscerally obvious during the pandemic. It turns out that as much as 90 percent of America’s supply of “active pharmaceutical ingredients,” the drugs that keep us healthy, is manufactured abroad. This offshoring exposed a vulnerability, not only in terms of supply but also of quality, during covid times.

So the Department of Health and Human Services is deciding which drugs the United States needs to produce at home. When that list is complete, the administration will consider how to encourage production in the United States — through government purchases, stockpiles or other incentives. The best strategy, obviously, would be a version of what happened with the coronavirus vaccines: U.S. companies were so innovative in drug design, testing and production that we didn’t need foreign drugmakers.

The United States’ power supply is vulnerable to disruption, too, as we saw in the freeze that crashed the Texas grid in February and the cyberattack that shut the Colonial Pipeline in May. The key to energy resilience (and also to reducing carbon emissions) is partly better battery technology.

So the Biden Energy Department launched a “National Blueprint for Lithium Batteries” in June, aimed at making the United States a dominant producer of this essential energy-saving tool by 2030. The document proposed public-private partnerships to secure raw materials, research and development and manufacturing capacity for a market that will grow five- to tenfold in this decade.

Electric vehicles are a big part of any rational attempt to lower carbon emissions. So in Biden’s first week in office, he issued a “Buy American” order with a provision to purchase “clean electric vehicles.” And in a subsequent order, he directed his National Climate Task Force to replace the federal fleet of more than 600,000 cars and trucks with zero-emission electric vehicles.

The White House also identified a potential shortage of critical materials used in high-tech products. The Defense Department is using grants, loan guarantees and other powers to ensure supplies. And working with Congress, the administration is drafting aggressive plans to keep innovation and production of advanced semiconductors at home.

but lurches uncontrollably in to one of the flies in that ointment:

Government intervention in the economy is a slippery slope. Policies that protect U.S. jobs at a cost of featherbedding and inefficiency are a mistake.

It’s not the only problem. Let’s consider a few, starting with electric vehicles. It is beyond the president’s authority to command the replacement of all 600,000 GSA vehicles. I believe he could direct that all replacement or new vehicles be electric vehicles. That would affect at most 20,000 vehicles per year, a far cry from 600,000. There are issues with that, too, since the president can block purchasing anything but electric vehicles but he can’t mandate the budget for doing so. That is solely within the Congress’s purview. If it were otherwise, we’d have a gigantic wall on our southern border alreaedy.

The average cost of an EV in the U. S. is about 50% higher than what is being spent for a car with an internal combustion engine. At the pace at which the GSA replaces vehicles, the job will be done in 2054 and will cost about $33 billion. That’s doable but it will require an act of Congress.

But wait! There’s more. A relatively small number of the batteries used in EVs are made in the U. S. Most are made in Japan and South Korea, as this document avers and there’s even more to it than that. The components used in building those batteries wherever they’re made frequently originate in China. Consequently, unless the entire supply chain from raw materials to off-the-assembly-line vehicle is mandated as well as the country of origin sticker the mandate will amount to a back-door subsidy to Japan, South Korea, and China which is presumably not the intention. How much more will that cost and how long? No one knows.

There’s a very similar situation with the active ingredients in pharmaceuticals. As much as 90% of them originate in either China or India. I advocate relocating all of that production to the U. S. That’s what I mean when I write about “basic production”. But it will take more than executive orders to do it including both time and money. Keep in mind that no one is going to invest in building a plant in the U. S. if they expect the executive order will be rescinded by the next president.

And I haven’t even gotten to the ghastly track record of public-private hybrid companies, e.g. Fannie Mae, Freddie Mac, etc. They’re great ways to provide cushy jobs to political cronies but they’re also constantly in need of bail-outs.

I’ve told this anecdote before but in the very first economics course I ever took the prof said “We don’t know how to create economic growth but we do know how to produce shortages”. That would be a good way to start answering P. J. O’Rourke’s question in his amusing post at American Consequences:

I had one fundamental question about economics: Why do some places prosper and thrive while others just suck?

He doesn’t offer an answer but let’s start formulating one ourselves, shall we?

There are countries with very few natural resources that have become rich (Japan) and countries with vast natural resources that are terribly poor (the Democratic Republic of Congo). If you look at history the countries that became richest earliest (U. K., Netherlands, the U. S.) had a few things in common: finance, a market system, limited government, and the absolute nuclear family. Starting with that base I think we can identify some of the factors that enabled countries to become wealthy:

• Good government including a functioning legal system
• Resources
• A solid financial system
• A market system
• Social structures

They all work together, sometimes in ways that aren’t obvious. No one of them is enough. China, despite enormous resources both human and natural, was horrifically poor due to bad government until about 1979. After 1979 it didn’t have good government but it had better government.

I’m skeptical that the U. S. can have terrible government, undermine the market system, the dollar, and the absolute nuclear family but remain a wealthy country. However, as Adam Smith observed there is a great deal of ruin in a nation.

This is the best passage I have read today. From Jared Marcel Pollen at Quillette:

If the culture were a book, as Mallarmé thought, it would be a postmodern novel in which the characters, conscious of the author’s operations, have conspired against them and hijacked the story.

He is, of course, Canadian.

Me auld mither used to say that no celebration was complete unless something happened that made her cry. This July 4 post by C. Bradley Thompson made me cry. Here’s its conclusion:

American Revolutionaries were rebels with a cause. Despite the vicissitudes that befell them—the hardships of war, the blood and toil, the starvation, the imprisonment and torture, the destruction of home and property, the loss of family and loved ones, and finally death itself—American Revolutionaries refused to compromise, or to surrender their lives, their fortunes, or their sacred honor.

The moral universe they inhabited might seem like a foreign place to 21st-century Americans, but we forget its moral lessons at our peril. Their revolution is surely one of history’s greatest monuments to human virtue. It is ours to remember, celebrate, and restore.

Read the whole thing.

Do you think that critical race theory should be taught to elementary school students in the public schools? Are state legislatures right or wrong to ban it?

Footnote:

The title of this post is derived from the all-time greatest English language instruction book in the history of such book: English As She Is Spoke, written IIRC by a native speaker of Portuguese with little knowledge of English and without even an English-Portuguese dictionary. He did have, however, a Portuguese-French dictionary and an English-French dictionary which he used in his instruction book by dragging definitions first from Portuguese into French and then from French into English. My point is that calling something “critical race theory” does not necessarily mean that is what is being taught.

Tim Congdon, writing at the Wall Street Journal, is concerned that the Fed, paying little attention to fundamentals, is underestimating the prospect of inflation:

The Fed has been dismissive of concern, describing the upturn in inflation as “transitory.” But it can’t deny that the forecasts it made in the spring and summer of 2020 missed the mark by a wide margin. Its main concern then, according to FOMC minutes, was that the Covid-19 pandemic would result in a long period of disinflation lasting “many years,” which would have to be countered by “accommodative” financial policies. In fact, the sequel to the pandemic is an inflationary boom.

Research at the Fed is dominated by the New Keynesian school. According to the New Keynesians, actual inflation is heavily influenced by inflation expectations, with some role for excess demand and supply (measured by the so-called output gap). New Keynesians—such as Richard Clarida, the Fed’s vice chairman—pay little attention to the quantity of money. Over the past remarkable 15 months or so of highly accommodative policies, the FOMC minutes haven’t once referred to any concept of the quantity of money.

The omission is all the more remarkable because June 2019 to June 2020 saw the highest increase in the M3 money aggregate since 1943, at 26%. (The M3 aggregate is no longer estimated by the Fed. The figure given here comes from the Shadow Government Statistics consulting firm, using information still made available by the Fed.) Avant-garde New Keynesians might pooh-pooh the comparison as irrelevant to the 21st century. Maybe so, but it can’t be overlooked that in the year leading to March 1947 consumer prices climbed by more than 20%.

The Fed was wrong a year ago, but forecasting errors are a defining feature of modern economics. Today, a case can be made that the Fed is underestimating the inflation risks in the balance of 2021. The FOMC’s latest verdict on inflation relies on inflationary pressures being markedly weaker in the last seven months of the year than they were in its first five months. That seems debatable. Perhaps the Fed has made a less forgivable analytical mistake.

Meanwhile, Paul Krugman is convinced it’s just right. I don’t know whether inflation will continue at the present or an increasing rate or whether it is, indeed, transitory as the Fed governors maintain. I do know that the increase in the money supply is unprecedented in my lifetime. And, as Al Jolson used to say, you ain’t seen nothing yet.

I also know that the pressure of inflation will fall hardest on the poor and those on fixed incomes, groups to whom it is hard to say “no” and inflation can’t be stemmed by spending more.

I found Carly Olson’s piece in the LA Times a study in conflicts. While I agree with her that not enough good jobs are being created by the U. S. economy:

A labor shortage implies there aren’t enough available workers to fill open jobs, but this is not the case nationally, or in California. National unemployment in June was 5.9%, up from 5.8% in May, in part because the number of people looking for jobs grew, according to data from the Labor Department on Friday. California’s unemployment is tracking higher, at 7.9% in May.

Millions of Americans are seeking work, and the Labor Department is reporting the highest number of advertised job openings in 20 years of data. Friday’s jobs report indicated the hiring crunch might be starting to ease: U.S. employers added 850,000 jobs in June, the biggest gain in 10 months.

Economists say it’s only a matter of time before open roles are filled, and the least desirable jobs with the lowest pay and benefits will be the last to go. They don’t see the job market as a sign of shifting economic forces unleashed by the pandemic, or of a workforce made comfortable or lazy by stimulus payments.

“Nothing about this is going to be permanent,” said Heidi Shierholz, a senior economist at the left-leaning Economic Policy Institute.

Yet some trends are emerging clearly. The struggle to fill jobs is hitting smaller businesses disproportionately. Workers may be in a prime position to secure better conditions and pay, but without changes at the federal level, economists said the gains will be short-lived — and white-collar workers may gain the most, entrenching inequality.

Nearly all the jobs she mentions are in the hospitality sector. How does she expect jobs with practically no qualifications and zero cost of entry to be “good jobs”?

I think there’s a kernel of truth in the “skills mismatch” hypothesis and I think it’s even more true that the the jobs on offer aren’t necessarily where the workers are. There’s enormous variance across the country in unemployment—well into double digits in some places in California while in the low single digits in Utah, Idaho, and elsewhere.

But the fast food jobs she cites have a special problem. The entire sector grew up in response to an enormous spike in the number of entry-level workers entering the market in the 1960s and it’s been dependent on entry-level workers ever since. 60 years ago those entry-level workers were Baby Boomers who had just entered their teens. Now they are largely immigrants.

At The Week Joel Mathis writes about ending judicial review:

Forget packing the court. What if the U.S. Supreme Court was neutered, instead?

It’s a possibility. A presidential commission considering reforms to the court last Wednesday heard from Nikolas Bowie, an associate professor at Harvard Law School. He argued that it is time to end the high court’s power of “judicial review,” which gives it the authority to declare a law unconstitutional and thus usually gives SCOTUS the last word in battles with the legislative and executive branches.

The Supreme Court’s “relationship to Congress is not that of an umpire overseeing a batter, but of a rider overseeing a horse,” Bowie told the commission in his written testimony. “Most of the time, the court gives Congress free rein to act as it pleases. But the court remains in the saddle, ready to pull on the reins when Congress moves to disrupt hierarchies of wealth or status.”

When President Biden appointed the commission in April, public and media attention focused mostly on progressive hopes to pack the court with additional justices — the new seats to be occupied by Democratic appointees, of course — and reverse the court’s conservative tilt. As Bowie’s testimony indicates, the commission is actually considering a much wider array of possible changes to the judicial branch.

And the conversation involves more than mere technical changes, like court size or term limits for justices. Instead, it strikes at the very heart of the Supreme Court’s role in American governance, politics, and culture. Without judicial review, can the court be the court?

Judicial review, of course, is mentioned nowhere explicitly in the Constitution — the court claimed that authority for itself in Marbury v. Madison in 1803. “It is emphatically the duty of the Judicial Department to say what the law is,” Chief Justice John Marshall wrote in the ruling. The precedent has stood for more than 200 years.

There is a bit of trial lawyers’ wisdom, at least a century old, to the effect that when the law supports you argue the law; when the facts support you argue the facts; but when neither the law nor the facts support you pound on the table. For the last 65 years liberals and then progressives were very effective in getting the courts, the least democratic of our institutions, to further their social agenda for them. Now neither the Congress nor the courts are promoting their goals fast enough to suit them. Be prepared for more pounding on the table.

Actually, I support limiting the appellate jurisdiction of the Supreme Court—more to the point than eliminating judicial review entirely and eminently doable. It’s one of the Congress’s enumerated powers. From Article III, Section 2 of the Constitution:

The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made, or which shall be made, under their authority;–to all cases affecting ambassadors, other public ministers and consuls;–to all cases of admiralty and maritime jurisdiction;–to controversies to which the United States shall be a party;–to controversies between two or more states;–between a state and citizens of another state;–between citizens of different states;–between citizens of the same state claiming lands under grants of different states, and between a state, or the citizens thereof, and foreign states, citizens or subjects.

In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be party, the Supreme Court shall have original jurisdiction. In all the other cases before mentioned, the Supreme Court shall have appellate jurisdiction, both as to law and fact, with such exceptions, and under such regulations as the Congress shall make.

The emphasis is mine. If the argument is that’s more than can expected of a do-nothing Congress, I agree. But that doesn’t mean that it’s impossible. IMO it should have been done back in the late 60s.