Cats, charts, and politics
Here's more good news on the inflation front:
Consumer spending was down slightly in February, which keeps it right on the pre-pandemic trendline. It's yet another indication that consumer demand isn't spiraling ever upward. On the contrary, it remains well anchored.
Mortgage interest rates are up again this week:
When you account for both home prices and interest rates, monthly payments are up nearly 30% over the past half year. Unsurprisingly, sales of both new and existing homes have dropped over the past few months and average sales prices have been flat. I expect this trend to continue, perhaps even with declines in home prices. There's only so much money you can squeeze out of households that have seen their incomes drop about 2% over the past year.
Midday on Balboa Island, presented without comment.
For the past few weeks the most extreme members of the anti-gay right have been busily trying to resurrect panic over the idea that gay people try to "groom" kids into becoming gay. This is an ancient fear that was popular in the '70s and '80s but had mostly subsided since then. So how is it doing now?
According to a quick-and-dirty look at Google Trends, interest in dog grooming has become steadily stronger over the past few years. However, interest in gay grooming has barely increased at all. More recently, interest spiked last week but has already fallen by half this week.
The whole "gay grooming" thing is stupid and repulsive. Luckily, it also appears to have no legs. With any luck it will go away soon.
Normally, the inflation rate of goods and services are roughly similar. But no longer:
The inflation rate of durable goods has skyrocketed, and instead of being a few points below the inflation rate of services it's now 14 points above the inflation rate of services.
One way to think about this is that the inflation rate of services is sort of a baseline rate for overall inflation because it's not strongly affected by supply chain issues. If that's the case, the underlying rate of inflation in the economy is around 4-5%, with the rest caused by temporary shortages of goods.
If this is the case, then the current inflation rate can be broken down approximately like this:
If this is a good model, inflation will subside when the fiscal impetus of the rescue bill fades and will then subside further when the supply of goods catches up to demand. The "transitory inflation" crowd believes this should happen before the end of the year. The "crisis" crowd believes it will take longer than that and will eventually produce a wage-price cycle that could last for years.
President Biden plans to release a million barrels of oil daily from the Strategic Oil Reserve in order to bring down the price of crude oil and, eventually, gasoline. Regardless of whether this is a good use of the SPR, the first question to ask is whether it's even likely to work. Here's the price of oil following the three previous times the SPR was tapped in an emergency:
In 1991, the price of oil had already come down by the time President Bush 41 opened the SPR. Nothing much seemed to happen subsequently.
In 2005, when President Bush 43 opened the SPR following Hurricane Katrina, the price of oil declined by a few dollars for a month or two and then started rising again. At most, opening the SPR produced a tiny blip in a four-year trend of rising prices.
President Obama opened the SPR during the Libya war, and once again prices went down a few dollars for a short while and then began to rise.
In all three of these cases, the amount released was in the ballpark of a million barrels per day, although that's hard to judge precisely since the oil was typically auctioned off at a single time and then delivered over an indeterminate time period.
Bottom line: It's impossible to say for sure what effect the SPR has. Maybe prices would have skyrocketed if the SPR hadn't been tapped. Maybe the SPR "calmed markets," as they like to say. But the far more likely conclusion from previous experience is that opening the SPR during an emergency has, at most, a tiny impact on the price of crude oil. I expect that if we do this again it will act more as a way of soothing the public than as a way of actually affecting the price of gasoline very much.
These are cypress trees growing in the Atchafalaya swamp in Louisiana. The swamp used to be covered in cypress trees, but they were prized for their wood and were mostly fully logged by the end of the 19th century. The ones you see here are relatively new, planted long after the old growth trees were gone.
James Medlock happened to post this chart today, so I might as well post it too. It shows what happens when the increased Obamacare subsidies go away and we return to the original subsidy structure:
In its original form, Obamacare subsidies were available only for people with incomes under 400% of the poverty level. For a single person that's about $55,000. For a family of three it's around $90,000. Above that income your premiums suddenly spike from 10% of your income to about 30% of your income.
We could fix this by making the increased subsidies permanent, and President Biden wanted to do it. Unfortunately, Joe Manchin didn't. Once again, we've passed up a chance to help the middle class, an unfortunately common problem for Democrats.
Ezra Klein's podcast with Larry Summers wasn't just about inflation. Ezra also asked Summers to name three books that had influenced him:
Third, a book that will come out in the next several months, Brad DeLong’s “Slouching Towards Utopia,” which is, I think, a really remarkable and powerful placing of all of economic history in perspective, that gives a sense that at some level I had known but never appreciated of how profoundly different the 20th century was than all other centuries and points towards the combined power of science and markets to change the world profoundly, and sometimes, in some ways,
for good, and sometimes, in some ways, for ill. I think anybody who wants to propound about economic policy should read that book.
Now I want to read Brad's book too! I remember giving some remarks a few years ago that touched on the most important events and developments of past and future centuries. I opined that the 19th century was the century of technology: steam engines, germ theory, evolution, electricity, and continent-spanning railroads. The 20th century was the century of market economics: Kuznets and Keynes, active central banking and the end of gold, the decline of tariffs, frictionless international banking, and flows of capital around the globe that would make the old doges weep. Now we're in the 21st century, which will be the century of artificial intelligence.
So yes, we are living today in the aftermath of the Industrial Revolution and the Economic Revolution, which makes the world profoundly different from any previous era. And now, having barely mastered basic science and economics, we're barreling toward the Digital Revolution with hardly a thought about how that will change the world just as profoundly. Mass unemployment will prompt revolts that make the Luddites look like monks and will likely kill off liberal democracy. With luck, we'll avoid being too stupid and greedy about this transition and both liberal democracy and market economics 1.0 will be replaced with something better and far more rewarding for future generations. But there are no guarantees. It's usually not a good idea to bet against greed and stupidity whenever the overclocked apes h. sapiens are involved.
This is an African spoonbill in a picture taken at the San Diego Zoo. As I recall, the spoonbill was not very cooperative but it eventually showed its entire self.
