The View from Right Field

Inflation – Or Not

Both the Federal Reserve and the Biden administration, Jerome Powell and Janet Yellin, among others, respectively, want more inflation.  The Fed has changed its inflation target from a top of 2% to an average, over a period of time, of 2%.  Also, the Fed has indicated that, instead of reacting in advance of inflation exceeding 2%, it will now wait to act until after inflation has exceeded its 2% target.

For 40 years, inflation has not been a big deal.¹  The question is whether that will continue to be true in the future.  It may be that inflation is gone.  Or it may be, now that we have forgotten how bad inflation can be, that we won’t be careful about keeping inflation under control in the future, and that it will come back – good and hard.

Spending Lots; Doing a Little Good

Nancy Pelosi famously¹ said of Obamacare that you had to pass it to see what was in it.  It appears that was true of Joe Biden’s first big Covid relief bill, too.  In January, I said this about President Biden’s proposed plan in a post entitled “Covid-19 Relief Ought to Be More Than Just Throwing Money Around Randomly”:

“A properly-targeted pandemic relief program wouldn’t waste money by giving it to people who don’t need help.  If we target the help where it is needed, there will be more money for the people who actually need help.  It’s not a matter of cutting costs; it’s a matter of having enough money to help those who really need it.”

Models, Calculators, and Certainty

Last weekend, The Wall Street Journal had an interview with Steven Koonin, who was chief scientist for the Energy Department under Barack Obama.  In the course of the interview, Dr. Koonin said some things about models and how they are used that resonated with me (probably because I have some of the same concerns.

Dr. Koonin said, of younger scientists today: “They have grown up with the models.  They don’t have the kind of mathematical or physical intuition you get when you have to do things by pencil and paper.”

The US Economy Is On a Path To Do Fine – As Long As

Per an article in yesterday’s Financial Times¹:

“Most advanced countries will emerge from the coronavirus crisis with little lasting damage, thanks to relatively rapid rollout of vaccines and a willingness to increase sharply spending and borrowing, according to the I[nternational] M[onetary] [F]und. …

The fund was bullish about prospects of a rapid US recovery without inflationary pressures.  [IMF chief economist Gita] Gopinath said: ‘The US is really the only large economy whose {economic output} for 2022 is projected to exceed what it would have been in the absence of this pandemic.’”

The Return of Earmarks. Sigh.

It was sad last week to see Republicans in the House of Representatives giving up one of the real accomplishments on the last Republican House: the ban on earmarks.  In 2011, House Republicans passed a ban on earmarks, and since they wouldn’t approve earmarks, Congress couldn’t pass them and the President couldn’t sign them.  The entire Congress ultimately went along with the House Republicans, and in 2014, President Obama even said he would veto any bill containing earmarks.

The problems with earmarks were obvious.  Representatives and Senators were putting in specific appropriations for things they wanted done, not necessarily what needed to be done.  The more powerful a representative or senator was, the more money a district or state would get.  One of the most infamous earmarks was the $233 million “bridge to nowhere” in Alaska.¹

Should Illinois Should Be Proud That Washington Is Following in Its Footsteps?

Being from Illinois it’s sometimes hard to proud of our government.  Illinois has the worst state credit rating in the nation and the highest unfunded pension liability, things you do not want to be number one in.

Still, Illinois may be serving as a model for the federal government.  In Thursday’s Wall Street Journal, Greg Ip asked:

“How is it possible for presidents to keep cutting most Americans’ taxes while expanding the safety net?  In great part, by borrowing.”

A New Merle Hazard!

Well, it's not a new Merle Hazard.  It's the same old Merle Hazard.  But it is a new Merle Hazard song:

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.