You might want to read Ed Yardeni’s post on increasing rents as a possible driver of inflation. The TL;DR version is that people are moving but restrictions being placed on builders especially those related to COVID-19 has cut the inventory of homes on the market which predisposes people to rent which in turn pushes up rents. Or, said another way, it’s our old friends supply and demand.

Meanwhile in their normal counter-productive way politicians are calling for rent and mortgage jubilees while state and local governments are raising property taxes. Here in Illinois a lot of that is to pay the pensions of retired public workers and keep paying present public workers not work. It’s a short life but a merry one.

At The Hill Nick Sargen reminds us of what happened the last time the federal government began implementing plans as ambitious as those of the Biden Administration:

For some observers, this predicament is similar to what occurred in the mid-late 1960s when President Lyndon B. Johnson proclaimed the “Great Society” while the Vietnam War was being ramped up. The initiatives included a “War on Poverty,” creation of Medicare and Medicaid, the launch of the Head Start program, urban renewal and passage of the Motor Vehicle Air and Pollution Control Act.

When these programs were unveiled in the mid-1960s, the federal budget was close to balance and interest rates and inflation were low. Thereafter, federal spending rose by 50 percent in the second half of the decade owing to the expansion in social programs and costs incurred in fighting the Vietnam War. Because tax rates then were substantially higher than today (with the top marginal tax rate for households at 70 percent) the increase in the federal budget deficit did not rise above 3 percent of GDP.

Nonetheless, consumer price inflation, which was only 1 percent at the beginning of the 1960s, rose steadily in the second half and approached 6 percent in 1970. The principal reason was the Fed was slow to raise interest rates and inflation expectations increased. The situation culminated with the first U.S. dollar devaluation in December 1971 that was the precursor of the breakdown of the Bretton Woods system of fixed exchange rates.

and

The main cost incurred by the “Great Society”— added healthcare expenses associated with Medicare and Medicaid — did not show up immediately but grew exponentially over time. For example, U.S. spending on healthcare was only 5 percent of GDP when these programs were launched as compared with 18 percent today and federal programs now account for nearly one third of the total.

I share Mr. Sargen’s confidence in the ability of the Fed to manage that. There are some major differences between now and 50 years ago among them that in 1970 imports were only 5% of GDP and now they’re three times that. If Americans do, indeed, spend more as a consequence of the ARPA of 2021, we’ll be subsidizing the recovery of the rest of the world while, if bond rates rise as predicted, income inequality will be exacerbated.

As I’ve said previously I’m less concerned about consumer inflation than I am about stunting our economy’s ability to grow in the future or of catastrophic loss of confidence in U. S. credit.

James McWhorter has another characteristically excellent post in which he examines the firing of a law professor on grounds of racism:

Systemic racism does affect how well all but a very few black students are prepared to excel in top-ranked law schools. Why would it not, given black people’s history in this country? Not to mention racist white teachers, in the wake of desegregation of public schools, alienating black students in the 1960s to the point that in synergy with the new Black Power ideology, a new element was introduced into black culture of seeing nerdiness – i.e. what you need to do well in law school – as “white.” The effects of this could be subtle – an invaluable study showed black fifth graders more likely to say homework was for the teacher while white ones were more likely to say it was for their parents – but powerful.

However, our culture of racial preferences requires that top law schools admit most black students under different standards of grades and LSAT scores, out of quest for a proper amount of diversity in the school. Some will insist that this isn’t true, but it has been resoundingly proven time and again, such as in the Grutter v. Bollinger decision where it was allowed that the University of Michigan law school admit black students according to “holistic” evaluation that included a point bonus for skin color.

pointing out an uncomfortable truth:

Richard Sander argued in 2004 that when black law students were instead admitted to schools where all students had the same general level of dossier, they perform at a higher level, were much more likely to graduate, and were 50% less likely to fail the bar exam. In such schools, comments like Sellers’ and Wax’s are vastly less likely.

This study was later paralleled by studies such as that by Duke economist Peter Arcidiacono, with Esteban Ausejo and Joseph Hotz, showing that the “mismatch” of black students to schools actually decreased the number of black students who chose and stuck with majors in STEM subjects.

I want to make two observations. The first is that the attack on the law prof wasn’t about racism or equity or justice or reason or producing the best lawyers or more black lawyers graduating. It was about power. Those leveling the attacks wanted the power they perceived law professors as having to wield it themselves.

Second, focus only on the practice of law. There is a class system in the practice of law. Incomes in the practice of law occur in a bimodal distribution. I’ve posted on this before. A “bimodal distribution” is sort of like a Bactrian camel’s humps—like two Gaussian distributions jammed together. Graduates of top law schools are in the right hand side higher income hump while all other law school grads are in the left hand side, lower income hump. Talking about median or average incomes among lawyers is meaningless noise because there are actually two average and two medians. IIRC the left hand hump median income is around $35,000 a year while the median income in the right hand hump is around $200,000.

There is a similar class system among MBAs but not among med school graduates or, to the best of my knowledge, among engineers.

Consequently, law schools present a special problem. If the objective is to become rich as a lawyer, while not impossible it will be very, very difficult to achieve unless you attend and graduate from a top law school. Many of the individuals who attend law schools that aren’t in that right hand hump find it difficult to pay off the loans they took out to go to law school. All of this by way of saying that suggesting that black students attend schools other than the top 15 or 20 is no solution to a graver problem in the practice of law.

True to their word the editors of the Washington Post want to raise income taxes:

For the sake of both fiscal responsibility and equity, Mr. Biden and Democrats in Congress must start work on a post-Trump tax reform agenda. Rather than revenue-neutrality, the goal should be to eliminate further loopholes that favor the wealthy, then apply somewhat higher marginal rates to that expanded base.

Why support policies that will slow economic growth, won’t raise additional revenue, but will expand the power of the Congress? Granting favors and exemptions to taxes is how the Congress expands its power and influence not to mention how it shakes down contributors.

I don’t know where to start in pointing out the wrong-headedness in Josh Rogin’s plea in his latest Washington Post column for the U. S. to step up its efforts to overthrow the Assad government. Why not start at the beginning of the column?

In February 2011, speaking at the U.S. Holocaust Memorial Museum, then-Vice President Joe Biden pledged to support people around the world who were being slaughtered by their own governments for demanding basic freedom and dignity. “When a state engages in atrocity, it forfeits its sovereignty,” Biden said. One month later, the people of Syria took to the streets to demand that their government treat them like human beings. In response, the regime of President Bashar al-Assad unleashed the worst systematic atrocities since the Nazis.

The United States has engaged in atrocities, not just in Syria but elsewhere, and so have the forces that the U. S. supports in Syria. Does that mean the U. S. has forfeited its sovereignty? Obviously not. That’s a nonsensical statement and I don’t care who made it. The only known strategy for promoting peace is a Westphalian order and under a Westphalian order the statement is simply untrue. Furthermore, we are signatories to a treaty which makes it illegal for the U. S. to engage in military action against another country without Security Council sanction which we do not have.

It’s hard to describe how misleading his statement

the people of Syria took to the streets to demand that their government treat them like human beings

is. In 2014 Bashir al-Assad was re-elected president of Syria in an election that international observers certified as free and fair. Since then we have been supporting the losers of that election in their rejection of the results. Why are we endorsing that behavior?

The forces in Syria we have been supporting neither represent the people of Syria nor are they liberal democrats. They are overwhelmingly violent radical Sunni Islamists and they, too, have perpetrated atrocities. You know, like Al Qaeda and DAESH.

The Syrian government presently controls most of Syria except for relatively tiny areas in the north which are held by forces which no one doubts would be defeated if not for the direct involvement of the Turks and an area in the south held by forces that no one doubts would be defeated if not for the direct involvement of the U. S. Our efforts are not ending a civil war. They are prolonging it. Is that itself not an atrocity?

What would happen if the Sunni Islamists we support overthrow the Assad government? Would they not perpetrate atrocities against the Alawite minority that comprises the Assad government?

The condundrum we face in Syria is that there are no good guys there. Neither Assad nor his regime nor the Kurds nor the forces the Turks support nor the forces we’re supporting are good guys. We are intervening illegally in a civil war in which we have the only legitimate interest we have is humanitarian to assist people who don’t have humanitarian interests at heart and to our own detriment.

I hold no truck for the Assad government or Syria or Russia or any country other than the U. S.

It’s a bitter pill to swallow but, rather than stepping up our efforts to oust Assad, we should just butt out and let the Assad government and their Russian allies mop up the remaining rebels. That will bring the Syrian civil war to an end.

You might be interested in these observations from Wi Sung-lac at Korea JoongAn Daily on the foreign policy decisions South Korea should make:

First of all, the Moon administration must draw up a comprehensive plan, including a fixing of our position between China and the U.S., to facilitate consultations with Washington. What counts most here is that the United States is our ally while China is a partner. South Korea also shares more values with the United States than with China.

South Korea has made one of the most outstanding accomplishments over the past decades by upholding democracy and a market economy system. China took a different path. If we were to veer closer to China, we would have to compromise such precious and fundamental values as freedom, democracy and sovereignty. Therefore, we should fix our future direction closer to the United States. At the same time, the government needs to be discreet in dealing with China given its geographical proximity and our economic interdependence.

Second, it would be better for the government to devise effective ways to stabilize its relations with Japan. Washington would welcome that. Unless the government demonstrates flexibility on sensitive issues, including the wartime forced labor and sexual slavery hot potatoes, it can hardly expect a positive reaction from Tokyo. The longer such disputes drag on, the more disadvantageous for South Korea.

Third, the government should reactivate the suspended peace process after determining ways to respond to China and Japan and consulting with Washington over the North Korea issue.

I’m a bit concerned that his advice doesn’t touch on some major roadblocks. For example, South Koreans need to give up on the idea of reunification for the foreseeable future. And North Korea is only predictable in the sense that we should be confident that North Korea won’t allow itself to be ignored.

Anita Kumar is on the cusp of making a sharp observation in her piece at Politico about the Biden Administration’s immigration conundrum:

Biden campaigned on overhauling Trump policies and creating a system where immigrants — from refugees to high-skilled workers — are more welcomed. He has introduced a massive immigration package and put in place a series of executive orders to achieve that end. But, elsewhere, he’s been hampered by the byzantine and often-conflicting immigration laws and policies currently in place. After he was sworn into office, he pleaded with immigrants to not come to the U.S. because the programs needed to handle the influx were not ready yet. Still, they’re coming.

and here’s her conclusion:

Trump-allied officials used the opening of such shelters to accuse the Biden administration of both hypocrisy and naivete on immigration policy, much as they did in 2014 when Obama faced a surge in migrant children at the border as well. But, in a reflection of the tug and pull he now faces, immigration advocates are worried that the current plans don’t go far enough in protecting unaccompanied minors.

“We would much rather see children in smaller facilities or foster care families for the short time they need to be government custody,” said Leah Chavla, a senior policy adviser in the Migrant Rights and Justice program at the Women’s Refugee Commission. “We’d really like to see them reform the system and really focus on smaller better places for kids and improving the process overall.”

Now here’s the point I think should have been made. The Obama Administration erred in making pronouncements which whatever their intentions were interpreted by people in Mexico and Central America as a “Get Out of Jail Free” card for families with children or unaccompanied minors. What I believe they did not take into account is that illegal immigration itself is a business and they were, in effect, doing the smugglers’ and child traffickers’ marketing for them. The Trump Administration erred in trying to reverse that by separating families without the ability either to determine whether they were in fact families or to put them back together if they were.

Our present method for preventing illegal immigration along our southern border is targeted at preventing entry by single adults. Separating children from their law-breaking parents is not unusual in the United States. Today across the U. S. there are presently nearly a half million kids in foster care, many of them the children of parents who’ve broken the law in one way or another. The number of unaccompanied minors the federal government is trying to cope with is approaching that number, adding nearly another 50,000 per year.

As I have been contending for decades we need to start addressing the problems we have rather than the problems we had or those we wish we had.

Meanwhile, the Biden Administration is in a pickle. No matter what they do they’ll make somebody bitterly unhappy. Whatever they decide I hope they’ll consider Adam Smith’s advice: kindness to the guilty is cruelty to the innocent.

The editors of the Washington Post are getting queasy about the trajectory of the Biden Administration’s spending plans:

THERE ARE two assertions we can confidently make about the level of federal debt the United States can sustain. First, it is higher than many commentators — ourselves included — commonly supposed until recently. Second, it is not infinite. Congress needs to take both of those points into account, as it considers what to do now that President Biden’s $1.9 trillion covid relief package has passed — with a proposal for another $2 trillion or more in infrastructure spending on the way.

They follow that with a paraphrase of Augustine’s wisecrack (“Lord, grant me chastity—but not yet”):

The right answer is not to pivot to deficit reduction immediately. We had reservations about the size of the newly approved bill; the $350 billion allocated to state, local and tribal governments and U.S. territories, in particular, seems excessive given their strong recent tax revenue recovery. Nevertheless, there is a case for borrowing to meet a crisis as great as the one the pandemic imposed on public health and the U.S. economy.

Their solution to the conundrum, as you might expect, is to raise taxes:

As Mr. Biden and the Democratic Congress move to infrastructure, however, they should plan to offset some or all of the cost, through higher revenues, reduced spending on lower-priority items or a mix of the two. The latest Congressional Budget Office projections show the federal debt on course for exponential growth after this decade, reaching twice the size of the economy by 2051 — whereafter it continues to rise. This estimate does not include the covid bill, which had not yet passed when the CBO produced its report on March 4.

Increasing marginal tax rates is one thing; increasing revenues is another. The former is within the power of the Congress but the latter may prove elusive.

There is one proven way for the federal government to increase revenues: economic growth. However, the present state of knowledge tells us that the larger the public debt relative to GDP, the more difficult growth becomes.

As I have tried to make clear in the past I am not a deficit hawk in the sense that I believe that we can spend 2-3% more than we take in with impunity indefinitely as long as aggregate product is growing by at least 2-3% per year. That’s not the case now. As noted in the editorial we’re spending 10% of GDP more than we take in per year. And as I have repeatedly pointed out not all spending results in an increase in aggregate product. Sometimes it just disappears. That’s the nature of deadweight loss.

I’ll conclude with just four observations:

• For goodness sake don’t build any more interstates. At this point that’s just money thrown away.
• Don’t expect to be able to tax your way to solvency.
• The more we owe the less we’ll grow.
• I’m less worried about inflation than I am about a catastrophic loss of confidence in the dollar. Such an event is not within the control of the Fed. They can induce it but they don’t have the tools to stop it.

It takes Joseph C. Sternberg quite a while to get to the point in his Wall Street Journal column remarking on the Chinese leadership’s turn to considering the issue of old age pensions in China but he does, ultimately, get around to it:

No one knows if China’s debt-laden economy can survive a rotation out of the property investments that boost the prices of real estate, which in turn serves as collateral for so much corporate and personal borrowing. It’s a near-certainty the Communist Party state economy as it currently exists would not survive the introduction of the rule of law and private-sector corporate governance required to make financial markets viable destinations for retirement savings, either from the perspective of returns or investor security.

Note how improvements in rule of law and corporate governance, required and instigated by pension reforms, could also stimulate the productivity growth that will be the other indispensable part of a solution to China’s aging problem, if a solution is possible at this late date. The debate over pensions will tell us a lot about where China’s economy is headed.

The graphic at the top of this post is a population pyramid for China in 2030. Chinese demographics is something I first posted about here nearly 20 years ago when there was actually something the Chinese authorities could do about it. Now it’s far too late. In theory they could increase the number of working age Chinese people in 2040 but it’s too late to change China’s dependency ratio in 2030 other than by further decreasing the Chinese birth rate or by executing a lot of old people or letting them starve to death.

There’s a lot going on in that graphic which I’ll try to elucidate. A lot of people know about China’s “One Child Policy” which began in 1979 but fewer are aware that it was preceded by a “Two Child Policy” which in turn was preceded by an enormous jump in the Chinese birth rate during the “Great Leap Forward”. More recently the authorities have restored the “Two Child Policy” but that’s been met with mixed success. You can see all of those changes in the population pyramid.

IMO Mr. Sternberg errs in viewing China’s situation with a Western eye. China’s ruling elite are not American or even European politicians. There is an enormous gap between China’s rulers and the ordinary people and the overwhelming priority of those rulers is to retain power. I don’t know what’s going to happen in China but I doubt it will be pleasant.