Month: September 2022

The BLS announced the CPI for August today, and the month-over-month figure was nearly as low as it was last month:

On a year-over-year basis, headline inflation came in at 8.2%, down from 8.5% in July.

As always, the trendline is the thing to watch. The trend for headline inflation continues to come down nicely, but core CPI has been relatively flat at around 6% for nearly a year now. That's not good news, and it's odd since the PCE core rate is both lower and dropping faster.

Gasoline was down substantially in August, but food prices continued to be stubbornly high. Food was up 10% on an annualized basis.

On a positive note, blue-collar wages were up 4.4%, and with inflation so low that translates to a 3.9% real increase. As usual, though, what's good for workers is bad for the Fed, since it means now they'll be fretting about growing labor costs.

You may have seen the alarming news today that household net worth dropped $8.7 trillion in the second quarter, a "record" annualized rate of -20.9%.

That's all true, but you might be interested to know that this decline was almost entirely due to the stock market, with a little bit added from inflation. Here is household net worth with stocks excluded:

As you can see, household net worth tends to change very slowly if you exclude paper increases and decreases from stock holdings (both direct holdings and stocks held in mutual funds). Even when GDP took a sharp downward spike at the beginning of the pandemic, household net worth just chugged along.

I don't have any big point to make here except that you shouldn't get too alarmed about our record decline in household net worth. It's basically the same thing as saying that the stock market dropped a lot in Q2, which we already knew.

POSTSCRIPT: Don't forget that Tuesday is inflation day! The fate of the economy apparently hangs on whether it turns out to be 0.3% or 0.5%.

This is a gray hairstreak butterfly in our front garden. We don't see these very often, and I'm not quite sure what attracted this one. In any case, he only stayed a day or two and then fluttered away.

Today in the New York Times, Pamela Paul introduces us to Bo Seo, a two-time world debate champion. He thinks we have a problem:

“We disagree badly: Our arguments are painful and useless.” We spend more time vilifying, undermining and nullifying those we disagree with than opening or changing their minds. If more people took their cues from the world of competitive debate, he argues in a recent book, it would be easier to get people to reconsider their views or at least consider those of others.

You may think I have no standing to disagree with this. Au contraire! It so happens that both my parents were university debate champions back in the day, and I'm quite sure that both of them would disagree with Bo Seo in the strongest possible terms.

(What do you say about that, mom? Give me a call.)

Formal debate is all about introducing facts—as many as possible—and then refuting them. In real life, this is not called debate, it's called the most boring thing in the entire world. It persuades no one. I've been doing it for 20 years and, as far as I can tell, have persuaded virtually no one of anything.

Donald Trump, on the other hand, almost literally doesn't know any facts. Nor can he refute them in any rational way. But he is practically a cult leader.

Sadly, people are not persuaded by facts. They are persuaded by emotions. They are persuaded only when they're listening to someone who shares their worldview. They are persuaded by "arguments" that are beneficial to them—perhaps monetarily, perhaps in conferring status, perhaps in vilifying people they already didn't like. This is how you win in real life.

And don't make the mistake of thinking that you're the exception. Oh, you might be. The odds are a thousand to one against, but there are a few of you. The other 999, however, from PhDs down to ninth-grade dropouts, have no interest in dull facts and have no way of evaluating them anyway. They just want their biases confirmed and their status in the world elevated. Do that, and you too can win the presidency.

Via the New York Times, here's a chart from Child Trends that shows how much the social safety net has reduced child poverty over the past 35 years:

Before 1986 the social safety net was almost nonexistent for children. Altogether, it reduced child poverty by only 1%.

• In 1986, Ronald Reagan's Tax Reform Act increased the Earned Income Tax Credit, and by 1993 the safety net was responsible for a reduction in child poverty of 9%.
• In 1993, Bill Clinton increased the EITC again, and by 1996 the safety net was responsible for a reduction in child poverty of 18%.
• In 1996 Clinton passed welfare reform and by 2017 the safety net was responsible for a reduction in child poverty of 36%.
• In 2017 Donald Trump passed the 2017 Tax Act, which included an expansion of the Child Tax Credit. By 2019 the safety net was responsible for a reduction in child poverty of 44%.

There were other things along the way, some permanent, some not. But the bottom line is simple: today about 11% of children live in poverty. Without the social safety net erected over the past 35 years, that number would be 21%. That's 7.6 million children who no longer live in poverty thanks to federal and state safety net programs.

POSTSCRIPT: The "poverty line" is strictly a cash measure, so it's worth pointing out that tens of millions of children have also been helped by Bill Clinton's Children's Health Insurance Program (CHIP). Free health care doesn't get counted in the poverty calculations, though.

I never know how seriously to take these things, but for what it's worth here are how the ten biggest countries in the world fared on the latest Economic Freedom ratings from the Fraser Institute:

Here are the 25 biggest countries:

Thanks to the pandemic everybody's scores took a bit of a hit in 2020. But I'm sure that next year we'll find out that after shaking off all the COVID-19 lockdowns the world will once again be a freer place.

A few months ago Donald Trump sued Hillary Clinton in federal court for—

Well, for being mean to him, I guess. This is decidedly not a federal crime, but Trump hoped to get a favorable hearing anyway by filing his suit in a Florida district where the only judge was Aileen Cannon, the Trump appointee who recently ruled for him in his plea for a special master in the Mar-a-Lago case. But through a quirk of scheduling the case ended up instead with a non-Trump judge who was decidedly not amused by Trump's filing. Here are a few of the best lines from Judge Donald Middlebrooks' dismissal of the entire case:

What the Amended Complaint lacks in substance and legal support it seeks to substitute with length, hyperbole, and the settling of scores and grievances.

To say that Plaintiff’s 193-page, 819-paragraph Amended Complaint is excessive in length would be putting things mildly.

Knowledge that Florida is a state in the United States does not equate to knowledge that Defendants’ actions will have consequences in Florida.

It is not simply that I find the Amended Complaint “inadequate in any respect”; it is inadequate in nearly every respect.

At its core, the problem with Plaintiff’s Amended Complaint is that Plaintiff is not attempting to seek redress for any legal harm; instead, he is seeking to flaunt a two-hundred-page political manifesto outlining his grievances against those that have opposed him.

I wonder: Is Aileen Cannon at all embarrassed by the fact that Trump apparently expects her to rule in his favor like an old time machine pol no matter how stupid his case is? Because this was a pretty stupid case indeed.

Even in sad times, you always have to keep a lookout for giant cats. When you least expect them, there they are.

Remember last week that Michigan Republicans were refusing to put an abortion-rights initiative on the ballot because of supposed problems with "formatting and spacing"? This was as ridiculous as it sounds, little more than a fuck you to liberals.

Well, the Michigan Supreme Court has put the initiative on the ballot by a vote of 5-2.

So hooray, right? Sure. But keep in mind that this was practically a party-line vote. The four Democrats all voted to put the initiative on the ballot, and two out of three Republicans voted against. There was one (1) crossover out of seven justices: Elizabeth Clement, a Republican who voted in favor of the initiative. However, Wikipedia reports that "Clement was booed at the Michigan Republican Convention in August 2018," so I have some doubts about how much of a Republican she really is.

Larry Summers makes the case on Twitter that inflation is stubbornly here to stay unless the Fed takes aggressive action. He has six arguments:

1. Inflation expectations may still be anchored, but this is largely based on the belief that we're headed toward a recession.
2. Core inflation is robust and the labor market is tight.
3. The economy is overheated.
4. Historically, it's been impossible to produce a "soft landing."
5. Risk management suggests that inflation is our biggest problem. If anything, we should err on the side of aggressive action to bring it down.
6. Nobody really understands inflation anyway.

Let's take these one by one.

1. Maybe! There aren't very many good recession predictors, but the good ol' inverted yield curve seems to do the best job. Here it is:

The inverted yield curve has correctly predicted the past four recessions, and right now it's predicting another one in the early part of next year.

2. Here is core inflation:

It seems to have peaked at the beginning of 2022 and is now slowly receding.

As for the labor market, the data is inconclusive. Unemployment is at 3.7%, which suggests tightness. On the other hand, the labor force participation rate is still below its pre-pandemic level; weekly hours have been declining; and real wages have been falling for two years. This all suggests a little bit of looseness. Overall, the labor market appears to be close to full employment, but perhaps not quite there.

3. Here is GDP vs. potential GDP:

We have not yet hit potential GDP, let alone crossed it. This suggests the economy isn't overheated. On the other hand, we're pretty close. And inflation is high, which is the other classic sign of an overheated economy.

4. Soft landings are indeed difficult to pull off. On the other hand, it's not clear how hard we've ever tried to engineer one. The Fed tends to respond to inflation and only inflation. That's always likely to produce a hard landing.

5 & 6. Which side we should err on depends a lot on which side of the economic divide you're on. If you're old and rich, then yes, we should kill inflation wherever it appears. But if you're young and in danger of losing your job, maybe you think inflation is not the worst thing in the world.

FINAL SCORE: Really, Summers only made testable statements in 1, 2, and 3. And they're close calls. #1 supports his guess about anchored inflation expectations. #2 doesn't support his statement about core PCE being robust, and is half right about the tight labor market. #3 doesn't yet support his belief that the economy is overheated, but it's close. #4 is hard to argue with, but why not try anyway?

So it looks to me like we're on a knife edge. We probably are headed for a recession, but it's not clear to me that the rest of the data supports the notion that the Fed needs to engineer a deeper recession than we're already going to have anyway. They should pull back a bit and let the economy lose steam on its own.