Tag Archives: #Economics

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Welfare for the well-to-do Joe Manchin's deal will have his West Virginia constituents helping to pay for electric vehicle purchases by Rhode Islanders!

Remember “Cash for clunkers”? From Investopedia:

Cash for Clunkers

By Julia Kagan | Reviewed by Lea D Uradu | Fact checked by Kirsten Rohrs Schmitt | September 30, 2021

Cash for Clunkers was a U.S. government program that provided financial incentives to car owners to trade in their old, less fuel-efficient vehicles and buy more fuel-efficient vehicles. The purpose of the program was primarily to act as an economic stimulus during the Great Recession by providing the population with monetary incentives to buy new cars, thereby increasing automobile sales, while at the same time reducing carbon emissions by replacing old vehicles with new, fuel-efficient ones.

The program, passed by a Congress controlled by Democrats and signed into law by President Barack Hussein Obama, the plan ran from June 2009 through August 24, 2009, when it ran out of money.

At the time, I called it welfare for the well-to-do, and I was right. Running during the so-called “great recession”, the only people who could afford to buy a new car were the ones whose jobs had survived the cuts, knew that their jobs were secure, and had good enough credit to qualify for a new car loan. In other words, they were the people during the “great recession” who didn’t need help from the government. Only 49% of the new vehicles sold through the cash for clunkers program were manufactured in the United States.

Now we have the ‘deal’ between Senator Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) on electric vehicles. From Reuters:

U.S. Senate Democratic deal would expand EV tax credits

By David Shepardson | July 27, 2022 | 11:00 PM EDT

WASHINGTON, July 27 (Reuters) – A Senate Democratic deal includes a new $4,000 tax credit for used electric vehicles and other new tax credits and grants for automakers to retool factories to build greener cars.

The deal struck between Senate Majority Leader Chuck Schumer and Democratic Senator Joe Manchin also includes an expansion of the existing $7,500 EV tax credit as well as a new $10 billion investment tax credit to build clean-technology manufacturing facilities, according to a summary from Schumer’s office.

The bill that Schumer and Manchin agreed to also includes $2 billion in cash grants to retool existing auto manufacturing facilities “to manufacture clean vehicles, ensuring that auto manufacturing jobs stay in the communities that depend on them.”

If it becomes law, it will further provide up to $20 billion in loans to build new clean vehicle manufacturing facilities and $30 billion for additional production tax credits “to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing.”

Schumer said the Senate was expected to vote on the proposed legislation next week and it would next go to the Democratic-controlled House of Representatives.

President Joe Biden last year proposed boosting EV tax credits to up to $12,500 per vehicle — including $4,500 for union-made vehicles — and lifting a cap of 200,000 vehicles per manufacturer on the $7,500 credit. Automakers including General Motors (GM.N) and Tesla (TSLA.O) have hit the cap and are no longer eligible for the existing EV tax credit.

Toyota Motor Corp (7203.T) said this month it had hit the sales cap, which means its $7,500 credit will phase out over the next year.

Automakers have heavily lobbied for an extension of the EV tax credit, warning they cannot meet aggressive goals to cut emissions without tax incentives that make electric vehicles more cost competitive.

Also see: William Teach: NY Times: Democrats “Inflation” Plan May Lower Costs Sometime In The Future

In other words, plug-in electric vehicles cost more than gasoline engine vehicles. But tax credits only come after you have purchased the vehicle, which means that buyers will have to pay the full (negotiated) price for them, including whatever interest payments accrue. If you couldn’t afford the car without the tax credit, you still won’t be able to afford the car with the tax credit!

The new EV tax credits would be limited to trucks, vans and SUVs with a suggested retail price of no more than $80,000 and to cars priced at no more than $55,000. They would be limited to families with adjusted gross incomes of up to $300,000 annually.

This is kind of laughable. How many people, and, for Mr Manchin, how many West Virginians, can afford to buy an $80,000 truck or a $55,000 new car? Once again, this is welfare for the well-to-do!

Limited to families with an AGI of less than $300,000? Median household income was $67,521 in 2020, down 2.9% from the 2019 median of $69,560, thanks to the idiotic COVID restrictions. Guesstimates of current median family income vary, but this estimate of $76,563 seems at least somewhat realistic.

Of course, the median household income for Senator Manchin’s constituents is just $51,615. They could really use that $7,500 tax credit, but how many outside of Charleston or Morgantown will be able to afford to buy a Tesla? In reality, Mr Manchin’s constituents will be taxed to subsidize new car purchases for federal employees in Maryland and executives in New York and Connecticut. 🙂

I found nothing stating that the bill would require, as the old cash for clunkers bill did, that the cars the well-to-do traded in for a new electric vehicle be destroyed, so while the bill, theoretically reducing carbon emissions from new cars, wouldn’t take their older, gasoline-engines off the road, but hey, if the goal is to reduce emissions, then it should. Take the newer used cars — we assume here that the people who can afford to buy a new vehicle have the newest existing cars — off the road, and that not only reduces the total emissions, but makes the used car market relatively older, meaning that those gasoline-powered vehicles will wear out sooner. In 2021, there were 43.1 million used cars purchased, versus only 15.3 million new vehicles, meaning that roughly 73.8% of all car sales were of used, not new vehicles. And the poorer the state, the higher percentage of used cars bought, simply because fewer residents can afford new.[1]Full disclosure: when we bought Mrs Pico’s 2021 Toyota Camry in June, it had been a dealer demonstrator with just 6,000 miles on it. This was the second car we bought with just dealer demo … Continue reading

As always, this act will not do what it is purported to do. It was put together by Democrats, who have virtually no understanding of economics; if they actually did understand economics, they wouldn’t be Democrats! The only question is: just how badly will it fail?

References

References
↑1 Full disclosure: when we bought Mrs Pico’s 2021 Toyota Camry in June, it had been a dealer demonstrator with just 6,000 miles on it. This was the second car we bought with just dealer demo miles. If we had bought new, well, we probably wouldn’t even have the car yet, due to supply issues.
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Recession! The Biden Administration won’t admit it, but people know it

To absolutely no one’s surprise, second quarter Gross Domestic Product figures came in showing real economic contraction. From The Wall Street Journal:

U.S. GDP Fell at 0.9% Annual Rate in Second Quarter

The economy contracted after shrinking earlier in the year, held back by rising inflation and interest rates—marking a recession in many eyes

by Harriet Torry | Thursday, July 28, 2022 | 8:47 AM EDT

The U.S. economy shrank for a second quarter in a row—a common definition of recession—as businesses trimmed their inventories, the housing market buckled under rising interest rates, and high inflation took steam out of consumer spending.

Gross domestic product, a broad measure of the goods and services produced across the economy, fell at an inflation and seasonally adjusted annual rate of 0.9% in the second quarter, the Commerce Department said Thursday. That marked a deterioration from the 1.6% rate of contraction recorded in the first three months of 2022.

The report indicated the economy met a commonly used definition of recession—two straight quarters of declining economic output.

The official arbiter of recessions in the U.S. is the National Bureau of Economic Research, which defines one as a significant decline in economic activity, spread across the economy for more than a few months. Its Business Cycle Dating Committee considers factors including employment, output, retail sales, and household income — and it usually doesn’t make a recession determination until long after the fact.

The GDP report offered some discouraging signs, and underscored the challenges facing U.S. businesses, consumers and policy makers—including high inflation, weakening consumer sentiment and supply-chain volatility.

Emphasis mine.

So, the Biden Administration, eager as it is to use a subjective rather than objective measure of inflation, gets some political cover from the National Bureau of Economic Research, a private organization headquartered in — drum roll, please! — Cambridge, Massachusetts.

From Wikipedia:

In September 2010, after a conference call with its Business Cycle Dating Committee, the NBER declared that the Great Recession in the United States had officially ended in 2009 and lasted from December 2007 to June 2009. In response, a number of newspapers wrote that the majority of Americans did not believe the recession was over, mainly because they were still struggling and because the country still faced high unemployment. However, the NBER release had noted that “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle.”

So, the eight economists who decide if the U.S. is in a recession using these markers declared that the 2007-2009 “Great Recession” ended 15 months after they saw the signs that it did. That’s the political cover the Biden Administration believe will take them through November 8th, election day.

But it won’t work. With a 9.1% annualized inflation rate in June, Americans don’t need dry statistics to tell them when we’re in a recession; they can feel it, in their wallets, and in their bones.

The Federal Reserve’s Board of Governors raised their base interest rates another 0.75% just yesterday, in an attempt to fight the high inflation rate, and signaled that another rate hike would probably occur.

The very low unemployment rate is what is giving the Democrats hope that this isn’t a ‘real’ recession.

GDP is measured in dollars, and spending increased across the board, as it does almost every quarter. That’s why inflation is calculated in, to keep spending numbers from obscuring actual economic growth. Yes, inflation completely wiped out the growth in spending, but there’s more to it than just that: while inflation was 9.1% in June, wage growth was much smaller, 5.1%. Consumers spent more, but their wages did not keep up with what they had to spend; the average American is poorer, in real terms, than he was a year ago.

Bidenomics has been a disaster for Americans, but, not to worry, at least he’s not sending out any mean tweets!

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Economics writer Eduardo Porter wants gasoline to rise back to $5.00 per gallon It's for our own good, don't you know?

A bit hard to read, due to the glare from the sun, but this was the price at the station closest to my home, on Wednesday, July 20, 2022, $3.999 per gallon. It has been as high as $4.699 per gallon.

Just because you are having difficulty paying your bills doesn’t mean you shouldn’t have to pay more for gasoline!

Eduardo Porter is a Bloomberg Opinion columnist covering Latin America, US economic policy and immigration. He is the author of “American Poison: How Racial Hostility Destroyed Our Promise” and “The Price of Everything: Finding Method in the Madness of What Things Cost.” A prolific writer on economic matters, I have, sadly, been unable to find a link to his net worth, but it’s obvious that he’s reasonably well-to-do, with gigs with Bloomberg, The New York Times, and The Washington Post. It’s also obvious that he doesn’t really care about how people earning less than he does live.

The Earth Wants Biden to Keep Gas Prices High

There’s one bold move President Biden could make to curb climate change: Find a way to put a $5-a-gallon floor on gasoline prices.

by Eduardo Porter | Wednesday, July 20, 2022 | 10:10 AM EDT | Updated: July 20, 2022 | 11:34 AM EDT

When President Joe Biden visits the decommissioned coal-fired Brayton Point power plant in Somerset, Massachusetts, on Wednesday afternoon to lay out his planned executive actions on climate, his allies will be looking for bold initiatives. As Oregon’s Senator Jeff Merkley put it to the Washington Post, the impasse in the Senate created by Senator Joe Manchin’s blocking of his environmental agenda “unchains the president from waiting for Congress to act.”

Continue reading →

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An economics lesson in The Philadelphia Inquirer I suspect it was unintentional

One of my concerns when naming The First Street Journal was that I wanted to concentrate more heavily on economics, and, to be honest, The Main Street Journal name had already been taken, actually by more than one site. Mrs Pico suggested The Center Street Journal, which I considered, but, at the time we actually lived on Center Street, in Jim Thorpe, so even though I use my real name, I thought that unwise.

More, Center Street could be interpreted as implying that I am a political centrist, and I most certainly am not.

Sadly, I’ve spent so much time on politics, that I’ve neglected economics.

Philly renters should probably expect new leases to include higher rent to account for new tax assessments

Increases in rent because of landlords’ higher property tax bills will hit low-income renters the hardest.

by Michaelle Bond | Friday, July 15, 2022 | 6:00 AM EDT

Anthony Krupincza, who owns five rental units in North and West Philadelphia, usually pays his tenants’ water bills. But now that some of his property tax bills will nearly triple because of the city’s new assessments, he’s telling new tenants they have to pay. And he’s raising rents for tenants who move in or renew.

“I have to explain to them it’s not like I’m making more money. It’s not like the extra money is going in my pocket,” he said. “The difference is to pay the tax bill. And if you really do the numbers, it doesn’t fully pay for the tax bill.”

That The Philadelphia Inquirer printed this is a bit amazing, because it teaches a lesson — at least for anyone willing to read and learn — that has been known for a long time, but wholly ignored by many: when the expenses of a business are increased, the prices the business must charge must also increase, or the business fails. The left think that we ought to tax those evil ol’ corporations more, but all that corporations do is pass on their costs of doing business, and taxes are very much a cost of doing business, on to their customers. The final consumer of their products, the individual, must pay all of the taxes heaped upon businesses throughout the production chain.

Rent increases due to higher property taxes demonstrates only a single level, but it’s something on which to learn for the multi-level.

Think about the price of a gallon of milk, which like everything else these days, is experiencing significant inflation. Included in the price of a gallon of milk are:

Photo by Dana R. Pico, © July 15, 2022. Free use is granted, with appropriate credit. Click to enlarge.

  • The taxes imposed on the dairy farmer for the fuel used around the farm;
  • The fuel, business, and income taxes paid by the trucker who takes the raw milk to the dairy processing plant;
  • The fuel, business, and income taxes paid by the producer who manufactures the packages for milk;
  • The fuel, business, and income taxes paid by the trucker who transports those packages to the dairy;
  • The fuel, business, and income taxes paid by the dairy which processes and packages the milk;
  • The fuel, business, and income taxes paid by the trucker who hauls the packaged milk to the grocery store; and
  • The fuel, business, and income taxes paid by the grocery store.

All of those expenses are bundled into the price you have to pay for that gallon of milk. If everyone up the production and delivery chain doesn’t have all of his expenses paid, he goes out of business! How hard is that to understand? And if any elements in that supply chain fail, the consumer doesn’t get to buy milk.

We noted here that the gallon of 1% milk at the Kroger on Eastern Bypass Road in Richmond, Kentucky was 99¢ when Donald Trump was President, rose to $1.79 on January 4, 2022, and was up to $2.19 by February 23rd.

It’s too soon to say the extent to which rents across the city might rise as a result of the city’s first property reassessment in three years, which increased Philadelphia’s total property value by 31%. Tax bills based on the new values will be mailed in December and are due March 31.

But landlords in the business of operating rental properties aren’t eligible for the city’s tax relief programs that were adjusted to soften the impact of the reassessment. So they will most likely pass on at least some of the extra costs in taxes — in addition to the operating costs inflation has driven up — to new and returning tenants, who already have faced historically high rent growth.

Of course, landlords in America are frequently thought of as Snidely Whiplash, tying Sweet Nell to the railroad tracks, so naturally Philadelphia wouldn’t make them eligible for programs to soften the impact of the reassessment. 52.8% of Philly’s housing units are owner occupied, according to the Census Bureau, a lower rate than the 64.4% nationwide, which means that 47.2% of Philadelphians rent their homes, and 47.2% of Philadelphians are not going to see any relief from programs to soften the impact of property value reassessments. After all, giving landlords relief would be welfare for the well-to-do, so who cares about them? But the lesson ought to be obvious: increasing expenses on landlords,[1]Full disclosure: My wife and I own rental property, and are technically landlords, but we are not running that business for a profit. We bought a house last December, to rent to Mrs Pico’s … Continue reading increasing expenses on any business, means increasing prices downstream. Politicians, Democrat and Republican alike. don’t want you to know, and hope that you are too stupid to figure it out, so that they can raise taxes on businesses, and the public will remain serenely unaware that they actually raised taxes on individuals.

That’s why City Councilmember Kenyatta Johnson said his “Save Our Homes” tax relief plan included $15 million in rental assistance in the fiscal year 2023 budget “to support those individuals who will be significantly impacted in seeing an increase in their rents” because of increases in tax assessments. Black and Latino neighborhoods face the highest increases in their tax bills due to the new assessments.

“We wanted to make sure not only homeowners were protected but also renters as well,” Johnson said.

Well, of course the Inquirer had to let readers know that black and Hispanic citizens would be hurt worst, because that “anti-racist news organization” always has to come up with a racial angle, but there are plenty of working-class whites living in the City of Brotherly Love as well, and their rents are going to rise as well. One wonders if Kenyatta Johnson care about that!

Economics, on the other hand, definitely does not care: there are no different principles of economics based on a person’s race or ethnicity. The Inky managed to eke out an economic lesson for its falling readership, but it might not be a lesson the editors actually wanted their readers to learn.

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↑1 Full disclosure: My wife and I own rental property, and are technically landlords, but we are not running that business for a profit. We bought a house last December, to rent to Mrs Pico’s sister, and we are simply hoping to break even. When we go to our eternal rewards, the house will be inherited jointly by our two daughters and my sister-in-law’s son.

From September of 2014 through June of 2017, we were also landlords, renting out our current home while we marked time until I retired and we moved back to Kentucky. We made a very slight profit, roughly $2,200 a year, doing that, but it wasn’t the kind of experience that makes me want to be a landlord for real profit.
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Bidenflation!

We need Gerald Ford’s “Whip Inflation Now” buttons!

On May 10th, we noted in Forbes telling us that the high inflation rate might not drop as quickly as some had forecast:

Inflation May Fall Slower Than Expected

by Chuck Jones | Monday, May 9, 2022 | 8:45 AM EDT

The rapid rise in inflation is causing the Federal Reserve to aggressively raise interest rates along with deleveraging its $8.9 trillion balance sheet. This has thrown stocks into correction territory or bear markets. Two of the major reasons for the increase in inflation have been the upsurge in demand coming out of the pandemic and supply chain issues.

April’s CPI estimate will be announced Wednesday before the stock markets open. Expectations are for the all items rate to drop from 8.5% to 8.1%. To hit 8.1% the month-to-month inflation rate will have to fall from 2.3% in January, 2.6% in February and 3.8% in March to no more than 1.25% to hit the expected number.

“Expectations,” were not met. Not only did the May inflation rate not drop to 8.1%, not only did it not even remain steady, but the rate rose slightly, to 8.6%.

Energy prices rose 32% on an annualized basis in March. In April Gasoline and Diesel prices were fairly flat, which will help lead to a lower inflation increase since they comprise about 4% of the inflation CPI Index and were up 48.2% year-over-year in March. However, natural gas prices increased in April, which will somewhat offset gasoline’s impact.

Well, guess what actually happened. From The Wall Street Journal:

U.S. Inflation Hits New Four-Decade High of 9.1%

Prices up broadly across the economy, with gasoline far outpacing other categories

by Gabriel T Rubin | Wednesday, July 13, 2022 | 12:08 PM EDT

U.S. consumer inflation rose last month from the year before at the highest rate in more than four decades, as prices climbed throughout the economy.

The consumer-price index rose 9.1% in the 12 months ended in June, the fastest pace since November 1981, the Labor Department said on Wednesday. The June increase also eclipsed May’s 8.6% rate, which led Federal Reserve officials to shift to a faster pace of benchmark interest-rate increases in its campaign to bring down inflation.

The report likely keeps the Fed on track to raise its benchmark interest rate by 0.75 percentage point at its meeting later this month. Stocks dropped and bond yields jumped following the inflation report.

Core prices, which exclude volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain, the Labor Department said.

There’s more at the original, but as I’ve asked before: why are “volatile food and energy components” excluded from the core inflation rate. Food and energy, in the form of gasoline and utility bills, have to be purchased every month, often several times a month. You see it when you fill your gasoline tank, and you see it when you go to the grocery store, and you see it when you get your electric and natural gas bills. Economics reporter for The New York Times noted that:

Gas prices rose 11.2% in June alone, and are up nearly 60% from a year earlier. Grocery prices were up 1% in June (a bit slower than in May) and were up 12.2% from a year earlier.

And:

One big reason “core” inflation accelerated in June: Rents rose 0.8% in June, the fastest one-month gain since 1986. “Owner’s equivalent rent,” the BLS’s (confusing) way of accounting for owner-occupied housing, is also picking up. Over the past three months, rents have risen at an annual rate of 8.2%. (Owner’s equivalent rent rising at 7.3% rate.) That’s especially worrying because rents don’t tend to turn around quickly.

You know what has happened? Virtually every single projection of the economic “experts,” or at least the great majority of them, has been wrong.

Back to the Journal:

Despite June’s inflation reading, economists point to recent developments that could subdue price pressures in the coming months.

Investor expectations of slowing economic growth world-wide have led to a decline in commodity prices in recent weeks, including for oil, copper, wheat and corn, after those prices rose sharply following the Russian invasion of Ukraine. Retailers have warned of the need to discount goods, especially apparel and home goods, that are out of sync with customer preferences as spending shifts to services and away from goods, and consumers spend down elevated savings.

“There’s a pretty serious recession fear affecting a broad range of asset prices,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.

Retailers’ ability to shed unwanted inventory could test whether pricing is returning to prepandemic patterns, Ms. Rosner-Warburton said. Some retailers, such as Target, have already said they are planning big discounts. Others with robust warehouse capacity, such as Walmart Inc., could be more likely to hold on to their excess inventory, analysts say.

The first guesstimate of second quarter Gross Domestic Product figures is scheduled to be released on Thursday, July 28th, with a second, supposedly more refined guesstimate on THursday, August 25th. GDP decreased by 1.6% in the first quarter — the initial guesstimate was -1.4% — so if the figures show any negative reading at all, we will officially be in a recession. The second quarter already being over, there’s no time to change things.

I’m old enough to remember the last heavy inflation cycle, 1974-1982, and, after years of President Ford’s Whip Inflation Now buttons, and President Carter’s “malaise,” inflation was tamed the old-fashioned way: with a deep recession.

This isn’t 1982: inflation is not (yet) being accompanied by serious unemployment, but that’s in part due to people who should be working or looking for jobs still being paid, with phony money, not to work.

I’m not some fancy economics professional, and don’t have a PhD to my name. BUt it seems to me that things are going to get worse before they get better. The fer-mongers are attempting to scare us with dire warnings about the BA.5 Omicron sub-variant, and while those warnings are not being taken too seriously by the public in general, there’s at least the possibility that the warnings will be reasonably accurate. The Fed has been raising interest rates in an attempt to depress consumer demand, to fight inflation, but if they foul that up, such interest rate hikes could hasten a recession. Ukraine, the breadbasket of Europe, has seen its wheat crop and exports devastated by the war, and the economic restrictions put on Russian gas and oil, though they haven’t hurt Russia yet, could really mess things up in Europe, especially when winter arrives.

My wife is more worried about the economy than I am, and she’s pretty smart — smart enough to have married me, anyway! — but I am concerned enough. Perhaps it’s unfair to place all of the blame on President Biden, but hey, you know that he’ll take the credit for any good news; we might as well lay the responsibility for bad news at his stinky feet.

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The West are about out of non-military actions to take against Russia Economic sanctions are hurting democracies as much as Russia

The recent Supreme Court decisions in New York State Rifle & Pistol Association v Bruen and Dobbs v Jackson Women’s Health Organization have pushed almost all discussion of other issues off the front pages, but there is still that nasty little war going on in Ukraine. I have made my position clear: Russia’s invasion of Ukraine was very wrong, and almost everyone wants to see Ukraine win against the Russians. But I, at least, do not think it is worth risking what Major Kong called “nuclear combat, toe to toe with the Russkies.”

President Joe Biden and the leaders of the NATO nations have all said that Russia’s invasion is wrong, wrong, wrong, and that something ought to be done, but reality has a way of biting people in the gluteus maximus, and as the G-7 leaders meet in Berlin to decide just what to do, that reality is staring them dead in the eye. From The Wall Street Journal:

G-7 Summit Exposes West’s Challenges in Tackling Russia

Economic fallout is hampering further sanctions against Moscow as Ukraine demands more weapons to halt the Russian advance

By Bojan Pancevski | Tuesday, June 28, 2022 | 9:31 AM EDT

The original picture caption is: “G-7 leaders displayed some unity during their summit as they pledged their unwavering support to Ukraine.
Photo: Jonathan Ernst/Reuters.” Click to enlarge.

BERLIN—The Group of Seven rich democracies ended their summit with an agreement to discuss a batch of new sanctions against Russia, but the gathering underlined the limits of using economic tools to punish Russia four months after its invasion of Ukraine.

While weapons deliveries have made an immediate difference on the battlefield and Ukraine has been clamoring for more equipment to repel Moscow’s forces, sanctions have proven slow to take effect, some of them have backfired against the West, and new ones have so far been too complex to deploy quickly.

G-7 leaders displayed some unity during their three-day summit in the German Alps as they pledged their unwavering support to Ukraine, with no sign of dissent on public display. Yet Kyiv and some Western experts said the Russian advance could only be halted in the short term with more heavy weapons.

The unprecedented sanctions against Russia implemented by the G-7 and other nations—targeting Moscow’s economy, energy exports and central-bank reserves—have caused global market volatility and raised energy costs.

Now high inflation, slowing growth, and the specter of energy shortages in Europe this winter are damping the West’s appetite for tougher sanctions against Moscow.

The photo caption originally said that the G-7 leaders “pledged their unwavering support to Ukraine,” but, of course, that support is wavering, because the sanctions imposed so far are hurting their own people. The only thing I see in the photo is further evidence that British Prime Minister Boris Johnson still doesn’t know how to brush his hair. Continue reading →

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An economist actually admits that he was wrong It's not as though we didn't know this already

“I was wrong” is not something you expect to hear from an economist. When they are wrong, economists are far more likely to push the reason for them being wrong onto things totally unforeseeable, or Donald Trump, or bad data coming from outside sources. Well, last Thursday, an economist admitted that he, and others, got things way, way wrong!

What economists like me got wrong about inflation

Predicting an end to inflation now comes down to three factors: the pandemic, Russia’s war in Ukraine, and decisions by the Federal Reserve.

by Mark Zandi | Thursday, June 23, 2022

If you are like most Americans, your number-one financial problem these days is runaway inflation. You’re desperate to know when inflation will peak, and when it will be back down to a level you can live with.

The economic pain and suffering caused by more than a year of spiking in inflation — which has dramatically raised prices on everyday goods and services — has been tough to bear. The typical family must shell out $460 more a month to buy the same items and services they bought a year ago — a huge bite out of that family’s $70,000 in annual income. For lower-income households living paycheck to paycheck, this is unmanageable.

Prices are up a lot for almost everything, but most disconcerting are the big price increases for basic staples. The nationwide cost of gasoline has soared to a record near $5 per gallon, nearly all items on grocery store shelves have suddenly become much more expensive, and rents are increasing at a double-digit pace.

I’ll admit it: it was so gratifying to see the “We were wrong” subtitle that I just had to screen capture it!

Many of us have never seen this kind of inflation before, making it especially difficult to fathom. The last time inflation was so high was two generations ago when Ronald Reagan was president. And it comes on the heels of more than a decade of inflation so low that the Federal Reserve, whose job it is to manage inflation, worried it was too low for the economy’s own good.

Also irksome is how wrong the Fed, the Biden administration, and economists, including me, were in thinking that the high inflation would quickly recede. It hasn’t.

I’m old enough that I have seen inflation this high, and much higher, from the last year under Gerald Ford, — and yes, I remember President Ford’s “Whip Inflation Now” buttons — all through Jimmy Carter’s abysmal presidency, and into the first year of the Reagan Administration. I also remember what finally did ‘whip’ inflation: a deep recession in 1981 and 1982.

Mr Zandi continued to blame the COVID-19 panicdemic, and he’s right, but he’s also wrong. It was the response by governments, in the United States and around the world, to the virus that fried the economy. He blames workers continuing to stay home, having dropped out of the economy because they are afraid of the virus, but that fear was driven by governments’ messages of panic. Even now the message is being spread, at least by the media, that there are new sub-variants of the Xi Omicron variant, which “appear to escape antibody responses among both people who had previous Covid-19 infection and those who have been fully vaccinated and boosted.” That, coupled with the unprecedented government largess with borrowed money, have worked to keep people who should be working out of the job market. It isn’t as though serious inflation wasn’t predicted due to the government borrowing so much money! Production and supply chain disruptions caused by people not being on the job, and they are not on the job because the government has enabled them to survive without working, has to lead to inflation: they have money to spend, but fewer things on which to spend it, which drives up prices; the laws of supply and demand are not subject to government revision!

Naturally, Vladimir Putin has to be blamed, for invading Ukraine. The European Union decided to stop buying oil from Russia, which meant that they had to buy it elsewhere, putting a large increase in demand on the remaining supply. Despite the pleas of the global warming climate change emergency activists, people need fossil fuels now, to the point where very, very green Germany is going to reopen coal fired power plants to meet electricity demands.

Of course, Europe also needs natural gas, so the energy companies have found a fig leaf of cover to keep buying gas from Vladimir Vladimirovich! Soviet Russian troops in Ukraine is far less important than keeping the lights on in Europe! Remember: we told you that even before the invasion.

Also see: William Teach: Biden Minions To Travel Around Country Telling People What Biden’s Doing On Inflation

Mr Zandi, chief economist of Moody’s Analytics, continues to tell readers who the high prices for oil are so pernicious in the economy, but somehow, some way, he missed the fact that the price of oil is not that high. What really happened is that the price of oil came down pretty dramatically, as oil producers, Russia especially, dumped a lot of oil onto the market, which brought prices down dramatically. This persisted for several years, resulting in the new, lower costs for oil being priced into the market, and when prices shot back up, quickly, it produced a shock in the economy.

In 1980, the average price of 87 octane regular gasoline in the United States was $1.19 per gallon. Using this inflation calculator, gasoline should have cost $3.74 per gallon in 2020, but it was $2.17 per gallon, and had, on April 27, 2020, dipped to $1.77.

The same inflation calculator puts that 1980 price at $4.22 per gallon now, but that includes the inflation caused by oil price increases itself, so is of somewhat limited value. Nevertheless, regular gasoline prices, while somewhat higher than $4.22 per gallon right now, are not extraordinarily higher; they’re still in the $4.00 to $5.00 range, albeit higher in that range. At the station closest to me, regular gasoline id $4.56 per gallon, having come down from $4.80 a couple of weeks ago.

Mr Zandi, having admitted that he, and many others, were wrong, now gives us a new projection:

  1. if the panicdemic pandemic continues to “wind down”; and
  2. if “the worst of its economic fallout” from the invasion of Ukraine is already at hand; and
  3. if the Federal Reserve “successfully calibrate(s) monetary policy”;
  4. then “the odds are good that inflation is peaking and soon will moderate to a level we can be comfortable with.”

So, what does all of that mean? It means that governments have to abandon their idiotic responses to COVID-19, and let us just live with it, which is what most of us in the United States have already done. I did notice that, in the Tour de Suisse bike race, the Swiss had abandoned the face masks that I had seen in the Giro d’Italia. The riders don’t wear masks while competing, of course, but previously everyone was masking up at the celebrations at the ends of each stage.[1]These European bike races are our vicarious vacations, enjoying the scenery even if we can’t be there. The Tour of Norway was particularly spectacular.

It means that, sorry to say it, Russia must carry on and win its war against Ukraine in some acceptable fashion, without the United States and NATO doing something to intervene more thoroughly and prolong, and perhaps intensify, the war. Russian oil and natural gas must come to back to the market and the ‘normal’ order of things be restored.

And it means that the Federal Reserve has to get everything right. Anyone here want to bet €10 on that?

Inflation will be whipped the same way it was in 1982, by a significant recession. The economy already contracted 1.4% in the first quarter of this year; if it contracts again in the second quarter, which ends this month, we will officially be in a recession . . . again.

References

References
↑1 These European bike races are our vicarious vacations, enjoying the scenery even if we can’t be there. The Tour of Norway was particularly spectacular.
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Pennsylvania Democrats always double down on policies that have failed in the past

Jennifer Stefano, from her Commonwealth Foundation biography page. Click to enlarge.

I will admit to some surprise that The Philadelphia Inquirer gave OpEd space to Jennifer Stefano, the executive vice president of the Commonwealth Foundation and a fellow at the Independent Women’s Forum. After all, Miss Stefano and the Commonwealth Foundation support “transforming free-market ideas into actionable public policies, we’re ensuring all people can flourish.”

Good luck taxing the rich when they’re gone

Pennsylvanians are moving to red states in search of smaller government, school choice, and lower taxes, writes Jennifer Stefano.

by Jennifer Stefano | Monday, June 13, 2022

Widespread shortages. Economic tumult. Disappearing businesses. When Ayn Rand released her magnum opus, Atlas Shrugged, in 1957, her critics considered it a work of fiction. She did not.

Her art is now imitating life in Pennsylvania. Fiction or not, Rand was prescient.

She predicted a world where government and “looters” (as she called them) exploited producers. A mysterious man named John Galt gets those business owners and workers to leave and recreate a free and fair society elsewhere.

In Pennsylvania, leaders like Gov. Tom Wolf and Philadelphia Mayor Jim Kenney demonize financially successful individuals, with promises that if the all-powerful government bureaucracy could just take more of their money, our problems would be solved. Wolf, Kenney, and their supporters operate under the misguided belief that bigger government will heal the Earth, defeat racism, and end poverty.

Worthy goals, wrong solutions — and Pennsylvanians know it. While some will wait for November to register their discontent at the ballot box, many are already voting with their feet.

Honestly, I wish I could reproduce the entire thing, but you can read it for yourself if you follow the embedded link. Alas! in my search to see if it had been published elsewhere, I could not find it, and the Inquirer’s articles are hidden behind a paywall; I pay for a subscription so that you don’t have to! However, the inquirer does allow people a few free articles a month, so if you haven’t followed too manty of my links, you might be able to read the whole thing.

Miss Stefano continues to document for us the strong net emigration from the Keystone State, and notes to where Pennsylvanians have been moving, Texas, Arizona and, especially, Florida, all states with lower state taxes and more business-friendly laws and regulations.

It is a familiar story for Philadelphia, where the nearly century-long run of one-party rule and unrealistic policies has sent people fleeing to the suburbs. Now it’s driving them into the waiting arms of Florida Gov. Ron DeSantis — and the rest of Pennsylvania is following.

Miss Stefano’s points are a bit too economic specific, not that they are not valid, but such ignores the rest of Philadelphia’s horrible mismanagement, as made plainly obvious by the city’s homicide rate. As of 11:59 PM EDT on Sunday, June 12th, 227 Philadelphians had been sent untimely to their eternal rewards, and if the South Street shootings made for big headlines, only three of those victims, at least one the criminal who shot the first bullets, actually died. In the week since then, nine more people were butchered in the city’s mean streets.

A poll by the Pew Charitable Trust found that 70% of Philadelphians believe that public safety is the most important issue facing the city, and also noted that in the very diverse overall, but internally highly segregated, black and Hispanic residents felt unsafe at significantly higher rates than whites.

The Inquirer’s Editorial Board was appalled, though seemingly more appalled that whites didn’t feel as unsafe as others:

What does it mean to be a segregated city in a gun violence crisis? According to the Controller’s Office’s gun violence mapping toll, the zip codes of Rittenhouse Square and Chestnut Hill, where about 70% of the population is white, haven’t experienced a fatal shooting since before 2015. Contrast that with nearly 200 fatal shootings in North Philadelphia-Strawberry Mansion, where more than 90% of the population is Black, or nearly 240 in the Kensington-Port Richmond area, with a Hispanic population of 50%.

From The Philadelphia Inquirer, August 12, 2021. Click to enlarge..

Given that white Americans are, in general, wealthier than black and Hispanic citizens, white Philadelphians have the greater ability to head for the Sunshine State. What that means as far as emigration is concerned, because white Philadelphians are simply safer, in general, than black or Hispanic residents, needed to be further explored.

We do know, however, that the white population of the city has dropped precipitously.

It’s easy to see why. Florida lawmakers have spent the last 22 years slashing government spending, zeroing out the income tax, lowering others, creating a vibrant school choice model with state education dollars, and fostering a business-friendly climate. . . . .

The key to righting the ship in Pennsylvania is simple and should be bipartisan. As the Commonwealth Foundation’s poll shows, a majority of voters across parties want what Florida has: low taxes, less government spending, school choice, and jobs and opportunity for themselves and their children.

The solution offered by Wolf and Kenney? Increase property taxes. Let crime run rampant. Stifle any opportunity to foster an education landscape that puts parents in the driver’s seat. Push endlessly for tax hikes against middle-to-upper-income earners.

It’s simple: Philadelphia is ruled by Democrats, has been for three generations, and Governor Wolf’s and Mayor Kenney’s plans fall right in line with standard Democratic Party tropes.

Going after people with money has become the one solution that unites Democrats. It’s a populist cause with devastating results. As Rand foretold, there will always be a Ron DeSantis (or John Galt) creating a place where all people can flourish. When wealthy people leave, those of us without the means or opportunity to follow are left behind. That means fewer tax dollars for government programs, fewer jobs, and less opportunity.

The wealthy should pay taxes just like everyone else. But good luck getting the money when they’re already gone.

One thing has become painfully clear: Democratic policies simply do not work. Conservatives have been telling the left that for decades, but the response of the left has always been to claim that the only problems are that they just didn’t go far enough; Democrats always double down.

I stated that I was surprised that the Inquirer gave Miss Stefano the OpEd space, but, on the front page of the newspaper’s website, at least as of 7:45 PM EDT on Monday, June 13th, immediately below Miss Stefano’s article was another entitled “Too much property tax relief will put city schools at risk“. The Inquirer never misses an opportunity to advocate for the policies which have failed in the past.

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Sanctions against Russia go up in gas

It seems that the Europeans, who are angry, angry, angry! at Vladimir Vladimirovich Putin aren’t angry enough to do without Russian natural gas. From The Washington Post:

Europe accepts Putin’s demands on gas payments to avoid more shut-offs

By Chico Harlan and Stefano Pitrelli | Tuesday, May 24, 2022 | 1:22 PM EDT

ROME — European energy companies appear to have bent to Russian President Vladimir Putin’s demand that they purchase natural gas using an elaborate new payment system, a concession that avoids more gas shut-offs and also gives Putin a public relations victory while continuing to fund his war effort in Ukraine.

The system, which involves the creation of two accounts at Gazprombank, enables Europe to say it is technically paying for natural gas in euros, while Russia can say it is receiving payment in rubles — a requirement Putin imposed on “unfriendly” nations.

Putin’s insistence on rubles may be more about forcing European countries to scramble at his behest than about shoring up his country’s currency, some economists and energy experts suspect. European Union countries have been touchy about the notion they might violate their sanctions on Russia, and questions about the arrangement tested European unity, leading to weeks of chaos and contradictory guidance from Brussels. It also got countries talking about how much they still need Russian gas, even as they debate a Russian oil embargo.

Well, of course they need Russian gas! And they’ll continue to need Russian gas, especially as worsening economic conditions force reductions in investments on alternative energy sources. In the end, Mr Putin has them in a place in which their hearts and minds will follow.

But that also means sending money to Russia even as they condemn the Kremlin-launched war, sanction oligarchs and supply weapons to Ukraine.

Russia had already used strict capital controls and a massive interest rate hike to stabilize the ruble. With Europe now signaling that it will use the payment system as bills come due this week, the currency is strengthening all the more.

The system set up is a face-saving one, but it really doesn’t save a lot of face, not to anyone who has even a remote understanding of what is being done. The Europeans will pay their bills in euros, not the rubles President Putin had demanded, and then a special account at Газпромбанк will take the euros and convert them to rubles.

On February 24, 2022, the White House announced severe sanctions against Russian banks:

Today, the United States, along with Allies and partners, is imposing severe and immediate economic costs on Russia in response to Putin’s war of choice against Ukraine. Today’s actions include sweeping financial sanctions and stringent export controls that will have profound impact on Russia’s economy, financial system, and access to cutting-edge technology. The sanctions measures impose severe costs on Russia’s largest financial institutions and will further isolate Russia from the global financial system. With today’s financial sanctions, we have now targeted all ten of Russia’s largest financial institutions, including the imposition of full blocking and correspondent and payable-through account sanctions, and debt and equity restrictions, on institutions holding nearly 80% of Russian banking sector assets. The unprecedented export control measures will cut off more than half of Russia’s high-tech imports, restricting Russia’s access to vital technological inputs, atrophying its industrial base, and undercutting Russia’s strategic ambitions to exert influence on the world stage. The impact of these measures will be significantly magnified due to historical multilateral cooperation with a wide range of Allies and partners who are mirroring our actions, inhibiting Putin’s ambition to diversify Russia’s brittle, one-dimensional economy. The scale of Putin’s aggression and the threat it poses to the international order require a resolute response, and we will continue imposing severe costs if he does not change course.

It appears, however, that “full blocking and correspondent and payable-through account sanctions” are somehow less important when it comes to Europe’s need for natural gas!