Steve Rattner has an op-ed in the New York Times, cautioning against irrational exuberance on the part of Democratic lawmakers in their support of spending plans:
The prices of many commodities are surging — copper and lumber because of a jump in home building. Global steel demand has pushed up iron ore prices. Even tin, heavily used in electronics, has soared as suppliers rush to meet consumer demand for new gadgets.
Inflation expectations are also on the rise among traders. Interest rates on long-term Treasury bonds — a reliable inflation indicator — remain historically low, but have been marching upward. That, in turn, has shaken financial markets, which rightfully view climbing interest rates as the enemy of their investments.
It is against this backdrop that Congress is on the verge of injecting an additional $1.9 trillion into an economy that has already received more than $4 trillion in boosts from Washington. According to several estimates, the measure’s spending far exceeds the extent of the shortfall in economic output caused by the pandemic.
And let’s not forget the effects of easy money from our central bank. The Federal Reserve, which has driven short-term interest rates to near zero, has also injected more money into the economy in the past year than it did fighting the Great Recession in 2008.
advising:
The $422 billion in stimulus checks that will put money in the pockets of millions of Americans financially unaffected by the crisis should be replaced by much more targeted (and less expensive) efforts around those who have been directly hit with economic losses.
Policymakers should explore, for instance, income replacement programs that would help Americans who still have jobs but have had their earnings cut significantly by the pandemic — relying on changes in adjusted gross income from 2019 to 2020, as derived from tax returns.
The $510 billion in aid to states and localities (including for education) should also be dramatically reduced; the Committee for a Responsible Federal Budget recently explained how Moody’s Analytics estimates only “an additional $86 billion of aid is needed to cover revenue losses.â€
That assistance should also be more concentrated on where the need exists. According to Bloomberg, California’s revenues for this fiscal year are roughly 10 percent greater than expected (partly a result of soaring technology company valuations), while general-fund revenue in New York is estimated to be 11.7 percent lower than prepandemic forecasts.
I have a number of quibbles with his piece. How in the heck did Steve Rattner get to be an economic adviser? His general economic ignorance is on full display in the piece. He jumbles up multiple different things (price increases due to increased demand and inflation) and worries about the wrong things. The Federal Reserve has actually become pretty good over the last 40 years of dealing with ordinary inflation. He is entirely too self-exonerating:
It’s true that, with the benefit of hindsight, we did too little to address that recession. But we are in serious danger of overreacting to this one.
Let me provide an alternative interpretation. Those of us who, correctly, foresaw that the Obama Administration had taken its collective eye off the recession ball and turned its attention to other bright, shiny objects, had foresight. If the Obama Administration had actually believed its proposed measures were necessary and effective, less money would have been spent on politically motivated boondoggles and more would have been spent in recovering from the recession. Maybe funding the politically motivated boondoggles were the point, a motivation Mr. Rattner doesn’t even consider in the present administration’s support for the funds in the “COVID-19 relief” bill to give handouts to people a multiple of the median income, bailouts to state and local governments whose revenues haven’t declined, additional funding for the NEA and NEH, and multiple other provisions.
My concerns are different from his including:
- Economic distortion and deadweight loss
- Reduction in economic growth
- Increased debt overhang
- Risk of loss of confidence in the dollar
“…ordinary inflation…”
You have used that terminology a couple times the last couple weeks. What is “ordinary inflation?”
And before you say goods and services vs assets (if you were going to say that), remember that a number of assets have value components comprised of “ordinary” goods and service.
An excellent example of this right now is residential real estate. Because of the costs of labor, copper, lumber, cement etc it is now often cheaper to buy an existing property than build a new one. This has rarely been so in NC, SC and FL with which I’m very familiar.
When I say “ordinary” inflation I’m referring to expansion of the money supply. Price increases due to higher demand and inflation are two different things. When all prices rise at the same time, it’s a sign of inflation. When the price of corn rises while other prices remain the same (or decrease), it’s just plain old supply and demand. Macroeconomy vs. microeconomy.
Companies today with orders but supply chain delays will use that to raise prices. Insurance automatically goes up 10% a year. Cities are using the tight housing market to raise valuations and property taxes.
Yes, inflation is baked in.
It depends. My insurance has actually gone down.
I prefer to have long term relations with insurance agents. Plumbers, doctors, wives, etc.
But maybe that is automatically taken advantage of by insurers. Might be time to shop.
I’m still dealing with the same insurance agent I’ve had for more than 40 years. I’m also still on my first wife. In fact I sometimes introduce her that way, “This is my first wife”.
We have had the same Auto/homeowners agent since I left the military. Very professional. However, I think that too many life insurance people are too much like Ned from Groundhog Day. Sleaze factor is high.
Steve