The View from Right Field

Got That Wrong: Inflation

As you saw last Friday, I am starting a new feature: “Got That Wrong.”  I have been blogging a long time.  It’s time to go back and fess up on things where I “got that wrong.”¹ 

Today, inflation.  I have really gotten that wrong over the years.  I have written about inflation many times.  And I have been wrong pretty much all of them.  At one point, I wrote about an increase in the money supply that did not result in an increase in inflation.  I thought it might have been because there was a drop in the velocity of money.  I don’t know.  For whatever reason, inflation didn’t come.  Which I think is good.  Others, such as the Federal Reserve here and the European Central Bank there, don’t.  They have been trying, and pretty much failing, to get the inflation rate up for quite a while.  

Are Joe Biden’s Problems Greater Than Franklin Roosevelt’s?

In Monday’s Financial Times, Rana Foroohar, in defending Joe Biden’s tightening of “Buy American” rules for federal government purchasing, said “the political challenges facing the Biden administration … are arguably greater than Franklin Roosevelt faced in the 1930s.”¹

While I understand President Biden faces challenges, to compare today’s problems with the 1930s is to not appreciate the situation then.  The unemployment rate in 1933 was 24.9%.  With no nationwide unemployment insurance system, no job meant no money.  When thousands of banks failed in 1933, people’s money was gone because there was no national deposit insurance scheme.  While these might be called economic problems (as opposed to political problems), if they were not dealt with to at least some extent, they would have resulted in real political problems.

Covid-19 Relief Ought to Be More Than Just Throwing Money Around Randomly

President-Elect Biden is proposing a big Covid-19 stimulus program: $1.9 trillion.¹  The plan includes an additional $1400 per person payment (to bring the total up to the $2,000 Donald Trump proposed in late December), additional unemployment payments of $400 per week (up from $300 in the bill signed in early January), and much more.

The $1400 payment (plus the $600 already approved), is a follow-up on the $1200 per person payment in the first Covid-19 program last spring.  Back then, the idea of giving everybody a lump-sum payment made some sense because (i) we didn’t know what was going to happen and (ii) we needed to get money to people as quickly as possible and we didn’t have time to come up with a more carefully targeted program. 

Inflation, Deflation, and the Pandemic

Let me use an article in the Financial Times a couple of weeks ago¹ as a basis to comment on inflation, inflation rates, and inflation indices during the pandemic.  I’ll quote sections from the article (they will be in italics and indented) and then comment on them.

The cost [i.e., price] of many goods and services that have become popular with eurozone consumers during the pandemic is rising far faster than the bloc’s overall depressed level of inflation, an analysis of official data by the Financial Times has found.

Milton Friedman On the Role of the Corporation and Its Management

Over the past week, the Financial Times Letters column has been having a debate on Martin Wolf’s article last Wednesday, “Friedman was wrong on the corporation.”  There were letters on Thursday and Friday.  On Monday, Paul Collier, Professor of Economics and Public Policy, Blavatnik School of Government, University of Oxford, and John Kay, Visiting Professor of Economics at the London School of Economics and Fellow of St. John’s College, University of Oxford, wrote a letter, titled “Capitalism needs jobs that make workers proud,’ largely agreeing with Mr. Wolf.

Here is my response to Messrs. Collier and Kay’s letter, which was published in the Financial Times today:

Nothing Is Better Than Too Much; Nothing Is Better Than Too Little

That is the essence of the dispute in Congress on a coronavirus relief bill.  Senate Majority Leader Mitch McConnell and Senate Republicans say that the plan proposed by the Democrats is too big and they won’t approve it.  Speaker Nancy Pelosi and House Democrats say that the plan proposed by the Senate Republicans is too small and they won’t approve it.  In other words, both of them are saying that doing nothing is better than passing the bill the other side wants.  And so, nothing is done.

Which sounds familiar to those of us in Illinois who remember the Governor Bruce Rauner/Speaker Michael Madigan disputes in 2015-17.¹
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¹ See here and here.

Bridging the Divide

In today’s Financial Times, former Senator Heidi Heitkamp (D, ND) says that “an effective [virus] containment strategy and [economic] recovery plan requires votes from both sides of the political divide.”¹  She is absolutely right on that,  However, she is wrong in how to get such a plan.  She says “[w]hat we need is a series of open meetings” with “[a]ll stakeholders invited” and everything “should be transparent.”

While that sounds good, it won’t work.  As we have seen so often in Washington, public hearings mean public posturing.  Senators, representatives, etc., focus on sound bites and what they can put on Twitter and Facebook, pandering to their base, instead of trying to actually reach an agreement.

When Your Party Leaves You and You Have No Place to Go

Ronald Reagan famously said that he didn’t leave the Democratic Party, it left him.  With what is happening in the Republican Party these days, I think I am beginning to know how he felt.  The only difference is that, when the Democratic Party left President Reagan, he had some place else to go.  I don’t.  

During the GOP’s virtual convention, The Wall Street Journal¹ wrote about Donald Trump’s takeover of the Republican Party:

“President Trump is accepting the nomination for a second term before a party that has largely united behind him, embracing his America-first foreign and economic policies and unorthodox, sometimes chaotic style.

A “V”-Shaped Recovery – Or a Gentle Upward Slope?

So where is the economy going?  The stock market would have you believe it is coming back – and quickly.¹  That would be a so-called “V” recession.  Quickly down and just as quickly back up.  Given it was a government-ordered shutdown that caused the sudden down, maybe a removal of the shutdown will allow things to rebound suddenly.  And that could be the way things go – as long as the confidence we had before the pandemic comes back, too.  If the confidence is back, maybe the economy will be back.

That is the question, isn’t it?  Because even if the government discontinues its shutdown, are we going to discontinue our shutdown?  If there was a vaccine, it might happen – subject to the effect of all those businesses and jobs that got lost during the shutdown.

Coronavirus Emergency Legislation: Fixing “Bugs” and Keeping “Features”

I said in my post of March 23, which is currently pinned to the top of this blog:

“As we get thru this, we must all remember that mistakes will be made. Things will be done that shouldn’t have been. Things will be left undone that should have been done. But helping each other is more important than blaming each other.”

Which means, among other things, that we shouldn’t blame Congress for mistakes or the unintended consequences in the bills that were passed in March and April to deal with the economic fallout of COVID-19.  However, the fact that we shouldn’t blame Congress for provisions that have not turned out as we expected, doesn’t mean that we shouldn’t change or fix provisions that aren’t working as we thought they would or that have consequences we didn’t intend.