Making Sense Of The Economics Misinformation I Read In The Newspapers

The corporate media “gatekeepers,” i.e., the New York Times and the Washington Post, are really failing the American people with their both-siderism model of editorial opinions, what Fox News used to laughably advertise itself as “fair and balanced.”

There is right and wrong. How about we try that for a change?

The Washington Post employs a longtime Republican strategist/propagandist who spent most of his career working for billionaire-funded right-wing think tanks, Henry Olsen, who writes today Expectations about inflation are settling in. That’s a big problem. The lede:

Inflation continued its ugly rise last month, with January’s consumer price index 7.5 percent higher than a year before — the largest annual increase since early 1982. Worse, there’s increasing evidence that inflationary expectations are starting to settle in among both consumers and businesses. That means inflation will continue into the future — perhaps even at higher rates — unless President Biden and the Federal Reserve take decisive action now.

I read this just after checking in with Paul Krugman, the Nobel Prize winning economist who actually knows what the hell he is talking about, who posted the actual research which shows that this Henry Olsen is full-o’-shit and is just another GQP progagandist hack trying to sow inflation panic as part of the current RNC (“Republican National Conspiracy”) talking points. Boom! Krugman destroys Olsen’s premise.

Not just about predictive accuracy. Inflation only gets entrenched if wage- and price-setters believe it will be sustained. Surveys say ordinary people don't — they expect one hot year then return to normal. Suggests that we won't need a recession to cool things down. https://t.co/7FbY0VoReU

— Paul Krugman (@paulkrugman) February 15, 2022

Space cowboy Jeff Bezos’ Washington Post also editorilaized today, The time for ‘gradual’ moves on inflation is over:

The U.S. economy has an inflation problem the likes of which haven’t been seen in 40 years, and the main policymakers in charge of keeping it in check — at the Federal Reserve — have been far too slow to even admit there is a problem, let alone to start addressing it. It is time for the Fed to get aggressive.

Its next scheduled policy announcement is March 16. Speculation centers on whether the board, under the leadership of Chair Jerome H. Powell, will raise interest rates from the current level, which is basically zero, to 0.25 percent or 0.5 percent.

The truth is the nation is already prepared for interest-rate hikes. Markets have priced in a larger, more aggressive rate hike to 0.5 percent, and major news outlets have been running stories for weeks preparing consumers for the fact that when the Fed lifts interest rates, mortgages, auto loans, credit card rates and other borrowing costs get more expensive.

This is not a moment for the Fed to fret about how the public and markets will react. This first rate hike must send a clear signal to Americans — and the world — that the Fed is ready to get serious about inflation.

Well, actually, there is a reason to fret: moving too aggressively can cause the economic recovery to stall, and even cause a recession with high unemployment. This will not affect Jeff Bezos one whit. He will still be a billionaire. If millions of Americans have to suffer unemployment to protect his wealth from being devalued by inflation, so be it. What an asshole.

Then the New York Times today, where Krugman works, published this opinion by Steven Rather, a New York investment asset manager and chairman and chief executive officer of Willett Advisors LLC, the private investment firm that manages billionaire former New York mayor Michael Bloomberg’s personal and philanthropic assets. He is also an economic analyst for MSNBC’s Morning Joe, and a contributing opinion writer for The New York Times op-ed page.

In recent months, Investment bank forecasts about unemployment have been spectacularly wrong, so keep this in mind.

Rattner writes, Biden Keeps Blaming the Supply Chain for Inflation. That’s Dishonest. (Subscriber content). His premise: Our supply problems are the product of an overstimulated economy, not the cause of it.

This “overstimulated economy” talking point has been widely making the rounds in publications aimed at the investor class.  All they care about is their wealth, which is being devalued by inflation.

So we should not have passed the Covid economic rescue plans under both President Trump and President Biden to rescue businesses and Americans suddenly thrown out of work by a global pandemic which shut down the world’s economy and – wait for it – disrupted global supply chains which have yet to fully recover?

This do-nothing alternative would have resulted in massive business failures, massive unemployment, and another Great Depression. Your misery right now would be unimaginable.

By the way, the investor class complaining about inflation devaluing their wealth is the one group that benefitted the most from these government rescue plans. The Institute for Policy Studies reported, U.S. Billionaires Got 62 percent Richer During Pandemic. They’re Now Up $1.8 Trillion. (August 2021):

U.S. billionaires have seen their wealth surge $1.8 trillion during the pandemic, their collective fortune skyrocketing by nearly two-thirds (62 percent) from just short of $3 trillion at the start of the COVID crisis on March 18, 2020, to $4.8 trillion on August 17, 2021, according to a report from Americans for Tax Fairness (ATF) and the Institute for Policy Studies Program on Inequality (IPS). A table of the top 15 billionaires is below and the full data set is here.

Not only did the wealth of billionaires grow, but so did their numbers: in March of last year, there were 614 Americans with 10-figure bank accounts; this August, there are 708.

So billionaires like Bloomberg and Bezos whining about inflation devaluing their wealth (as Bezos takes joy rides into space on his rocket, and sails around the globe on his super-yacht) can fuck off.

The reason why the American economy is enjoying a “Biden Boom” in GDP growth and an employment recovery from the deep Coronavirus recession – the fastest growth since the 1980s – is because of the Covid rescue packages that Congress enacted.

Paul Krugman recently explained in a column (refuting Rattner’s premise), Wonking Out: Honey, I Shrank the Economy’s Capacity (excerpt):

[I’m] currently spending a fair bit of time trying to understand why my relaxed view of inflation early last year has been refuted by events. What I want to do today is share where I am now on that topic, and what my current take says about future policy.

Last spring the debate was focused on the American Rescue Plan, the Biden administration’s large spending package. A number of economists, including Larry Summers, Olivier Blanchard, and Jason Furman, warned that this package would overstimulate the economy — that output and employment would soar to levels that would create a lot of inflationary pressure.

Those of us on the other side argued that the risks of excess spending were much less than they warned — that large parts of the Biden package, like aid to state and local governments, would end up being disbursed gradually over time and therefore not have that much of an inflationary impact. To use the jargon, I argued that the A.R.P. would have a low “multiplier.”

So here’s the funny thing: The multiplier does indeed seem to have been low. The economy has expanded fast, but it started in a deep hole, and at this point is still if anything a bit below its prepandemic trend.

Here, for example, is real gross domestic product:

The Congressional Budget Office regularly publishes projections of “potential” G.D.P. — the level of output consistent with stable inflation. So far the official numbers through the third quarter of 2021, extended by private estimates of growth in the fourth quarter, still put us slightly below what we thought the economy’s potential was going to be.

Here’s another number, the employment rate of prime-age adults, which has generally been a good indicator of the state of the labor market (probably better than the unemployment rate):

We’ve seen a strong recovery in employment, but we’re still significantly below prepandemic levels.

The point is that if you had told me a year ago that this is what current output and employment numbers would be, I wouldn’t have predicted soaring inflation. To put it another way, my expectations of a relatively muted effect of government outlays on demand were more or less vindicated. But of course my expectations of moderate inflation weren’t. So what happened?

Part of the answer lies in supply-chain issues. Overall demand hasn’t grown all that fast, but fear of face-to-face interactions has skewed demand away from services toward goods, overstraining shipping and in some cases manufacturing capacity. These issues account for a lot of recent inflation, but in a way they don’t worry me too much: The private sector has huge incentives to get stuff moving, so sooner or later supply-chain issues will fade away.

However, it’s not just the supply chain; it’s obvious that we’re now experiencing widespread labor shortages even though employment is still below its prepandemic trend.

Much of this labor shortage could be solved by immigration. You’re not going to solve it with more babies (it takes 18 years). Address the labor shortage through immigration reforms.

I mentioned that the employed percentage of prime age adults has generally been a good indicator of the state of the labor market. Another good indicator is the rate at which workers are quitting their jobs: Quits are high when people believe that new jobs are easy to find. Normally these two measures move in tandem; but something has changed.

Here’s a scatter plot of the prime-age employment rate against the quit rate since 2001; the blue dots represent the prepandemic era, the red dots the era since early 2020:

You can see the close relationship between the two measures before 2020. Since then, however, the relationship seems to have shifted, so that a labor market that seems only OK judging by the employment rate looks extremely tight judging by the number of people who are quitting. And wages are rising rapidly, which suggests that quits are telling the real story.

What we’re seeing, of course, is the Great Resignation — which is also, to an important extent, a Great Retirement. A recent blog post from the International Monetary Fund shows that there has been a surge in the number of older Americans (and Britons) choosing not to be in the labor force. (Memo to the IMF: That’s a rather unfortunate acronym you’ve chosen there.)

Now, a labor market in which jobs are easy to find and workers can bargain for higher wages is a good thing. But the fact that labor markets are so tight even though employment and real G.D.P. are below prepandemic projections suggests that we can’t rely on those projections to assess the economy’s productive capacity. For whatever reason or reasons — presumably reasons linked to Covid — the U.S. economy apparently can’t sustainably produce as much as we expected.

And that in turn tells us that it’s time for policymakers to pivot away from stimulus — in particular, that the Federal Reserve is right to be planning to raise interest rates in the months ahead. As I read the data, they don’t call for drastic action: the Fed should be taking its foot off the gas pedal, not slamming on the brakes. But that’s a story for another day.

For now, the moral is that Covid-19 means that we can’t assess where we are simply by comparing our situation to the prepandemic trend. That trend, at least, no longer appears to be our friend.

The “stimulus” Krugman is referring to is monetary stimulus – the easy credit policy of the FED – that businesses and the investor class have enjoyed since the Great Recession of 2008. He is not talking about the Covid rescue plans’ economic “stimulus” to average Americans who desperately needed it, and in many cases, still do.

Much of this “overstimulated economy” talking point is aimed at Democrats’ Build Back Better plan which, the last time I checked, was dead in the water because of prima donna Democratic divas Sens. Joe Manchin and Kyrsten Sinema. Something which has not been enacted into law obviously cannot be the cause of inflation we are experiencing today.

Inflation is largely due to global supply chain disruptions which have not yet fully recovered from the Coronavirus pandemic, not the rescue packages enacted in 2020 and early 2021.

There is also price gouging by businesses taking advantage of this supply chain disruption. As Robert Kuttner recently wrote, Inflation and Price-Gouging:

COVID has been a grotesque bonanza for America’s most concentrated industries. The long-term cure for the supply crunch is drastic re-regulation of the global logistics system, as well as rebuilding domestic manufacturing and supply. The Biden administration’s antitrust crackdown will also help reduce pricing power.

The Biden administration is addressing this issue. Justice Dept. to take on exploitation of supply chain issues:

The Justice Department is launching a new initiative aimed at identifying companies that exploit supply chain disruptions in the U.S. to make increased profits in violation of federal antitrust laws.

The program, being unveiled Thursday by the Justice Department’s antitrust division and the FBI, comes amid ongoing supply chain struggles and labor shortages in the U.S. that have plagued retailers since the coronavirus pandemic began.

Justice Department lawyers worry that companies may “seek to exploit supply chain disruptions for their own illicit gain,” the department said. And, if that’s the case, the Justice Department and the FBI will prosecute antitrust violations they uncover, the department says.

Those violations could include agreements between individuals and businesses to fix prices or wages or to rig bids, prosecutors say.

The U.S. government also has formed a working group focused on supply chain collusion — meant to share intelligence and detect global schemes — with officials in several other countries, including the United Kingdom, Australia, New Zealand and Canada.

“Temporary supply chain disruptions should not be allowed to conceal illegal conduct,” said Assistant Attorney General Jonathan Kanter, who runs the Justice Department’s antitrust division. “The Antitrust Division will not allow companies to collude in order to overcharge consumers under the guise of supply chain disruptions.”la

It’s days like this that I really miss the late, great Irving R. Levine. He would cut through all the bullshit that gets published in the papers these days and give you the straight up facts.