The View from Right Field

COLAs Are Back – Which May Mean Inflation Is Staying

To understand inflation, it helps to be old.  I’m old.  And the COLAs I’m talking about in the title of this post are not Coca-Cola or even RC.¹  They’re “cost of living adjustments.”  And they are back, not just in labor contracts but in commercial contracts, too.

When I was a lawyer working for a corporation (starting in 1978), the contracts I reviewed almost always had inflation adjustment clauses, unless they were for something that was going to be delivered or done really soon.  Sometime in the late ‘80s or maybe early ‘90s, these clauses started to disappear – because they weren’t necessary anymore.  Well, they’re back.

Here’s My Theory Why Self-Driving Cars Are a Long Way Off: Lawsuits

On Monday, the Financial Times had an article noting that driverless cars may create more traffic jams because more people will take cars if they don’t have to drive themselves.  But, the article also noted that “[p]redictions for driverless cars hitting the road en masse have repeatedly been proved wrong.”  The FT published my letter giving my theory why in Friday’s paper.  Here it is (there is no link because it is behind their paywall):

“Lex talks about how driverless cars may result in more cars on the road as people find car travel even easier if they don’t have to drive themselves.  (‘Driverless cars: jam tomorrow’, March 7)  But the article also notes that, ‘[a]fter a decade of hype and hundreds of millions of dollars of investment, you still can’t buy a self-driving car.’  As the article concludes, ‘[t]he future [of driverless cars] may also be further away that investors hope.’

Does ESG Investing Allow a Country to Defend Itself?

A friend was mentioning the other day this great little app she has on her phone that helps her make sure the mutual funds she is investing in don’t own stock in companies that make guns.  Apparently, you put in the names of the mutual funds and it tells you whether they own stock in companies making guns. 

This is part of the ESG investing trend.  “ESG” stands for “Environmental, Social, Governance.”  The idea is to have a set of criteria that socially conscious investors can use to screen their investments.  “Environmental” criteria cover how a company performs with respect to environmental and sustainability standards.  “Social” criteria grade how a company manages its relationships with employees, suppliers, customers, and the communities where it operates, i.e., its stakeholders.  “Governance” looks at things like a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

Fighting Inflation: Biden or the Fed?

In The Wall Street Journal today, William Galston talks about what President Biden needs to do about inflation (“Biden’s Moment to Face the Inflation Music,” Jan. 26):

“If I were president, I would be attacking it head-on, beginning with a major speech explaining what is happening and followed by regular public events highlighting efforts to attack various dimensions of the problem, from reducing the backlog at ports to recruiting and training truckers to making sure grocery shelves are stocked.”

“Build Back Better” and Responsible Governance

Following up on a post from October, I wrote this letter to the editor to the Financial Times, which was published today (because of the FT’s paywall, I am setting it out below¹):

"Ensuring spending lasts is key to Build Back Better

In “Trade-offs are needed to rescue ‘Build Back Better’” (FT View, December 22), you say “the legislation is mostly funded (though ‘temporary’ expenditures often find a way of becoming permanent)”.  Which is exactly the problem.

The High Cost of Johnson. The High Cost of Biden.

In 1966, Richard Nixon crisscrossed the country, campaigning for Republicans and attacking Lyndon Johnson on “the high cost of Johnson.”¹  While we might not see 1966’s 3.0% inflation as no big deal, in 1966, after seven years of inflation between 1.1% and 1.6%, it was a big deal – and an important campaign issue.  The Republicans picked up 47 seats in the House in 1966.

Compare 1966 with today.  The most recent inflation number today is 6.8%.  Democrats are trying to push big spending bills through Congress, bills that could keep inflation high or maybe even push it higher.  “The high cost of Biden” has the potential to be a big campaign issue for Republicans next year.  It ought to give Democrats pause and Republicans hope for 2022, and maybe even 2024. 

Economic Illiteracy At the Top (Still)

It looks like the Biden administration has found a way to cut oil prices: Come up with a new Covid-19 variant.  More seriously, President Biden said, in addition to just about begging OPEC+ for more production (it’s not a good look for a U.S. president to be publicly asking Saudi Arabia and Russia for, in effect, political help¹), and this gets to the point of this post, that the problem of high oil prices was “because oil supply has not kept up with demand as the global economy emerges from the pandemic.”² 

Except that is wrong.  It’s not that supply is lower than demand.  Supply and demand will always meet³; it’s just that some people may not like where they meet.  Supply might not be high enough for supply and demand to meet at a price people want to pay, but that doesn’t mean they won’t meet.

Helping the Rich, Democratic-Style

House Democrats finally passed, 220 to 213, President Biden’s $1.8 trillion¹ “Build Back Better” plan.  You have to be a political geek to know what’s in it, though it doesn’t really matter yet because the Senate hasn’t passed it.  They’re going to make changes in it, and then it will have to go back to the House for another vote.  So, trying to figure out what is in it at this point doesn’t make all that much sense.  The only things we know for sure are that (i) the price tag is totally made up, (ii) the revenue it raises is calculated on bases that won’t actually happen, and (iii) there won’t be any unexpected consequences because if you don’t know what is in the bill, you can’t know what is expected, and if you don’t know what is expected, there can’t be anything unexpected.

Still, one thing we do know about what the Democrats are doing is who is going to benefit.  And that is the upper middle class.  The Biden/Pelosi bill increases the limit on the amount of state and local taxes you can deduct from $10,000 per year to $80,000.  With a standard deduction of about $25,000, this won’t help average people – or even somewhat above average people.  It’s just a tax break for the upper middle class, especially those in states that have high local taxes (i.e., states with Democratic governors and legislatures).

“Shoppers Increase Spending, Despite Inflation”. Huh?

“Shoppers Increase Spending, Despite Inflation” was the headline of a lead article in Wednesday’s print edition of The Wall Street Journal.¹  Except, shoppers aren’t “increasing spending despite inflation”; they are increasing spending because of inflation.  Things cost more, so people have to spend more to get them.  They may be buying the same amount of stuff, but, because of inflation, they have to pay more, i.e., they have to increase their spending, to get them.

The article also said: “J.P. Morgan said it was upgrading its growth expectations, raising its forecast for fourth-quarter U.S. gross domestic product to 5% from 4%.”  That makes sense, too; it just doesn’t necessarily mean what it seems to imply.  If the prices for goods and services are higher, i.e., if we have inflation, and the amount of goods and services is the same, then the total amount paid for those goods and services will be more, because their prices are higher.  That may make it look like the economy is growing, when really we are just paying more for the same amount of stuff.

How Many New Government Programs Do You Want – And How Many Are You Willing to Pay For?

The Wall Street Journal reported last week that polls showed broad support among Democrats for Joe Biden’s big spending proposals.  According to two different polls, 75% of Democrats favored President Biden’s original $3.5 trillion plan.  Of course, we really don’t know how the question was asked.  If it was just: “Do you support spending $3.5 trillion on new social programs and have it paid for by rich people and big corporations?”, of course, Democrats would say yes.  Maybe independents and even Republicans would, too.  After all, most people like something for free.

But I wonder what the response(s) would have been, even among Democrats, if several different formulations of the question would have been asked.  For example: