Maybe We’ll Reach a Tipping Point

The Republican majority on the Supreme Court (three of whom were appointed by the worst president of modern times) decided that the Occupational Health and Safety Administration didn’t have the authority to impose a vaccine/testing mandate on employees at large companies because people who don’t work at large companies also get Covid-19. (People also die from carbon monoxide poisoning when they’re not at work, so OSHA probably shouldn’t protect employees from that either).

Later, the Supreme Court majority let stand a law in Texas that gives anybody in the state the right to sue someone who receives or administers an abortion after the woman has been pregnant for six weeks, contrary to previous Supreme Court decisions. Other states with Republican legislatures immediately began enacting similar laws. There’s now a strong possibility that the Republican majority will overturn the Roe v. Wade decision this year, allowing states to make abortion illegal again.

A three-judge appeals court ruled that Georgia’s new congressional map was a clear violation of the Voting Rights Act. Two of the judges who said the map was illegal were Republicans appointed by the same worst president, yet the Supreme Court majority allowed the map to stay in effect through the upcoming elections.

Meanwhile, in Canada, a mob of truck drivers decided to block the streets of the nation’s capital, causing the city’s mayor to declare an emergency. Another group, for the most part not driving big trucks, decided to block bridges between Canada and the US, disrupting trade and travel in both countries, in particular, the delivery of goods by both Canadian and American truck drivers. Yet right-wing figures in the US are supporting the Canadian blockades and discussing similar actions in the US.

If the Supreme Court majority overturns Roe v. Wade, if trade and travel are further disrupted by right-wing agitators, maybe there will be a tipping point. A majority of voters will understand that Republican politicians do not have their interests in mind and will vote accordingly.

(I forgot to mention the movement among right-wingers across the country to ban certain books and to eliminate history lessons that make white kids “uncomfortable”. It’s another example of Republicans going too far.)

Professor Krugman Says This Isn’t Ordinary Inflation

Paul Krugman is Distinguished Professor of Economics at the Graduate Center of the City University of New York and a columnist for The New York Times. He knows what he’s talking about but admits mistakes (this is from his Times newsletter):

Back in 2010 a group of conservative academics, economists and money managers signed an open letter warning that the efforts of the Federal Reserve to support the economy would be dangerously inflationary. But the inflation never came. So four years later, Bloomberg reached out to as many of the signatories as it could, to ask what happened.

Not one was willing to admit having been wrong.

I don’t want to be like those guys. So 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 it 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 [American Rescue Plan] would have a low “multiplier” [The multiplier effect measures the impact that a change in investment will have on final economic output, so that a low multiplier means less inflation.]

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 pre-pandemic trend.

Here, for example, is real gross domestic product:

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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):

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We’ve seen a strong recovery in employment, but we’re still significantly below pre-pandemic 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 level.

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 pre-pandemic era, the red dots the era since early 2020:

[Krugman has a diagram that I totally fail to understand, so you’ll have to imagine it.]

You can see [or imagine] the close relationship between the two measures [the prime-age employment rate and quit rate] before 2020. Since then, however, the relationship seems to have shifted, so 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. . . . 

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 pre-pandemic projections suggests that we can’t rely on those projections to assess the economy’s productive capacity. For whatever reason or reasons — presumably linked to Covid-19 — the U.S. economy apparently can’t sustainably produce as much as we expected [and scarcity means rising prices].

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, it doesn’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 because of Covid-19, we can’t assess where we are simply by comparing our situation with the pre-pandemic trend [i.e. the normal state of affairs]. . . . 

Unquote.

In other words, inflation, a global phenomenon, not one restricted to the US, is principally an effect of economies adjusting to a fading pandemic, another global phenomenon, which is not business (or economics) as usual. 

Behind the Screaming Headlines About Inflation

Any commentary on inflation that doesn’t take into account the pandemic is worthless. With the Delta variant and now Omicron, the economy isn’t functioning normally. The virus is limiting the supply of goods and services, while Americans have more disposable income than before the pandemic. Reduced supply and increased demand means inflation. What will happen with inflation after Omicron peaks, sometime in the near future? Nobody knows, but perhaps inflation hysteria isn’t justified? 

What the Bureau of Labor Statistics reported today:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in December on a seasonally adjusted basis after rising 0.8 percent in November . . .  Over the last 12 months, the all items index increased 7.0 percent before seasonal adjustment. The energy index rose 29.3 percent over the last year and the food index increased 6.3 percent.

Increases in the indexes for shelter and for used cars and trucks were the largest contributors to the seasonally adjusted all items increase. The food index also contributed, although it increased less than in recent months, rising 0.5 percent in December. The energy index declined in December, ending a long series of increases; it fell 0.4 percent as the indexes for gasoline and natural gas both decreased. . . . 

A brief summary from Catherine Rampell of The Washington Post:

Since Covid began, consumer spending has risen a ton — especially for goods and especially for durable goods. Services up a little since February 2020, but not much.
At exactly the same time goods are in much higher demand, supply chains for goods have snarled. Hence, price spikes.

[Today’s report shows] once again, durable goods (cars, TVs, computers, appliances) in the lead for inflation, at 16.8% year-over-year, not seasonably adjusted.

Nondurables (food, clothing) in 2nd place at 10.2%. Services (travel, healthcare, education) with the least price growth at 4%, in part because so many services remain high risk.

Durables are by definition durable—we don’t need to buy/replace them often. Many expected that demand for durables (and therefore price pressures) would eventually run out of steam; how many fridges can people buy? Durable spending has slowed recently but is still way up compared to pre-Covid.

Maybe the demand for durables fades, supply chains unsnarl, price pressures recede. That would be good. Then the question becomes – what happens to services? Services inflation has generally been lower than goods inflation…but rents (a service) have been rising, and those are “sticky”.

Anther reason to worry that inflation might persist for a while yet, even as supply chains untangle themselves, is inflation expectations. Expectations of higher prices can become self-fulfilling.

An overview and the political context from Rep. Tom Malinowski (Democrat-NJ):

Virtually everyone agrees on the cause of the harmful inflation we’re experiencing: people have more money to spend, but that demand is chasing too little supply. But who we blame and how we propose to solve it reveals a lot about our political divide.

It’s an incredible fact that despite one of the worst economic crashes in our history, average Americans (not just the super rich) have more household wealth to spend today than they did before the pandemic. 

Government spending — bailing out small businesses and state & local governments, helping people who lost jobs, stimulus checks & the child tax cut — worked to rescue our economy and left Americans with the extra cash we are now trying to spend (i.e., higher demand).

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Had the government not done those things, it’s absolutely true that there would [be less] inflation now. 

But we also wouldn’t have amazing economic growth with historically low unemployment [and higher wages across the country]. Millions of Americans would be destitute.

So when you hear people blame “Biden spending” for inflation, what they’re saying is that you should have less money to spend . . . that your wages should be lower; that your taxes should be higher; that the government should have let your employer or municipality go bankrupt.

What most Democrats are saying is that increased demand (more people with more money to spend) is a good thing!  And that the way to beat inflation is to help the supply of goods and services in the economy to catch up to healthy consumer demand.

We’re focused on improving efficiency of our ports and delivery systems, which helped greatly during the holiday season. Some good news: The port of New York/New Jersey is moving 20%+ more goods than before the pandemic without delays. . . . As Omicron passes in the US, our labor disruptions will ease. But we must also get more people vaccinated in countries where COVID has shut down factories critical to our supply chains.

Crushing COVID is obviously critical to fighting inflation. As Omicron passes in the US, our labor disruptions will ease. But we must also get more people vaccinated in the US and in countries where COVID has shut down factories critical to our supply chains.

If you’re concerned about inflation, you should also support letting employers legally hire people already in the US who desperately want to work the jobs now being unfilled — and back politicians who would rather fix the economy than demonize immigrants.

To sum up: The solution to inflation is not to squeeze middle class Americans as Republicans are suggesting, so that we have less to spend on cars, food, and travel. The solution is to build back supply chains resilient enough to meet American consumers’ post-pandemic needs.

Finally, from The Washington Monthly, how lack of competition (and missing anti-trust enforcement) has made the supply chain so vulnerable:

In recent weeks, senior Biden administration officials have been arguing that monopolization explains at least some of the inflation that is eroding the otherwise impressive wage gains average Americans are experiencing. The case they make is that firms in concentrated industries are using their excessive market power to raise prices and fatten their bottom lines at the expense of consumers. They point specifically to industries like oil and gas and meat processing, where corporate profits are skyrocketing.

. . . In the meat industry, thanks to lax antitrust enforcement, four companies now control 55 to 85 percent of the markets for beef, pork, and poultry. Since the fall of 2020, the price of beef has risen by more than 20 percent, far higher than the inflation rate. At the same time, the profits of the meat-packing industry are up more than 300 percent. Consolidation is hardly limited to the meat industry. It is rampant throughout the economy. So too are recent corporate profit rates . . .

But for argument’s sake, let’s say that . . . predatory pricing by oligopolistic firms isn’t driving the current inflation, but rather, “supply chain hiccups” brought on by pandemic induced labor shortages and high demand. The question is, why were the supply chains so fragile in the first place?

The answer is monopoly—in particular, the hollowing out of capacity as a result of industry consolidation and Wall Street’s demand for short term profits. Consider the case of semiconductors—crucial components in most of the products we use. As recently as a decade ago, America was producing vast numbers of cutting-edge semiconductors right here on our shores. Since then, . . . the federal government has allowed the biggest domestic manufacturer, Intel, to buy up or drive out most of its U.S. competitors. The firm then offshored or sold off its U.S. manufacturing capacity to reduce costs. That boosted Intel’s stock price and delighted investors. But it left the company with scant domestic capacity to increase supply when COVID-19 shut down Asian semiconductor factories. The falloff in semiconductor supply has led, in turn, to shortages of, and higher prices for, everything from cars to cell phones.

Or consider the cargo ships that haven’t been able to get products into and out of U.S. ports. That, too, is a problem exacerbated by monopoly. Ocean shipping was a highly regulated industry until a quarter century ago . . . That led to three vast carrier alliances, all foreign owned, gaining control of 80 percent of the ocean shipping market. These alliances then built super-sized cargo ships that can only dock in a few ports, like the ones in Los Angeles and Long Beach, which now service 40 percent of all U.S. traffic. This highly consolidated system kept shipping prices, and hence overall inflation, low for years. Now, its brittleness is contributing to inflation.

Once supplies do land in U.S. ports, there are not enough trucks and truck drivers to deliver products to our warehouses and stores. In the recent past, however, many of those goods were delivered by freight rail. Why aren’t those goods now moving on trains? Because . . . the federal government allowed the railroad industry to monopolize. And the Wall Street hedge funds that control those monopolies have more recently demanded that they rip up tracks, mothball rail cars, and lay off seasoned union employees to get costs down and stock prices up. Now our freight rail system doesn’t have the capacity to take up the slack. . . . 

Of course, it took decades, and countless bad decisions in Washington, for our supply chains to become as concentrated, uncompetitive, and breakable as they are now. It will take years of strong antitrust enforcement and other measures to set things right.

Virus Update

First, the bad news:

The United States surpassed its record for covid-19 hospitalizations on Tuesday, with no end in sight to skyrocketing case loads, falling staff levels and the struggles of a medical system trying to provide care amid an unprecedented surge of the coronavirus.

Tuesday’s total of 145,982 people in U.S. hospitals with covid-19 . . . passed the record of 142,273 set on Jan. 14, 2021, during the previous peak of the pandemic in this country.

But the highly transmissible omicron variant threatens to obliterate that benchmark. If models of omicron’s spread prove accurate — even the researchers who produce them admit forecasts are difficult during a pandemic — current numbers may seem small in just a few weeks. Disease modelers are predicting total hospitalizations in the 275,000 to 300,000 range when the peak is reached, probably later this month.

As of Monday, Colorado, Oregon, Louisiana, Maryland and Virginia had declared public health emergencies or authorized crisis standards of care, which allow hospitals and ambulances to restrict treatment when they cannot meet demand [The Washington Post].

In the U.S., 840,000 confirmed deaths and 1,700 every day (almost all of whom are unvaccinated). However:

Scientists are seeing signals that COVID-19′s alarming omicron wave may have peaked in Britain and is about to do the same in the U.S., at which point cases may start dropping off dramatically.

The reason: The variant has proved so wildly contagious that it may already be running out of people to infect, just a month and a half after it was first detected in South Africa.

At the same time, experts warn that much is still uncertain about how the next phase of the pandemic might unfold. . . . And weeks or months of misery still lie ahead for patients and overwhelmed hospitals even if the drop-off comes to pass.

“There are still a lot of people who will get infected as we descend the slope on the backside,” said Lauren Ancel Meyers, director of the University of Texas COVID-19 Modeling Consortium, which predicts that reported cases will peak within the week.

The University of Washington’s own highly influential model projects that the number of daily reported cases in the U.S. will crest at 1.2 million by Jan. 19 and will then fall sharply “simply because everybody who could be infected will be infected,” according to Mokdad [ABC News].

What’s happened in South Africa, with omicron as the latest spike: 

Finally, a note from France [The Washington Post]:

In an interview with France’s Le Parisien newspaper, [French President Emmanuel] Macron shared his thoughts about France’s unvaccinated population. He did not mince his words. “The unvaccinated, I really want to piss them off,” Macron said. “And so, we’re going to continue doing so until the end. That’s the strategy.”

The English translation hardly does the comment justice. In French, the verb he used is “emmerder,” which means, quite literally, to cover in excrement. The ire is difficult to translate, but in French it is crystal clear.

Actually, it’s quite easy to translate using the verb form of a different four-letter word — followed by “on them”.

Our Government In Action, Abominably, 2019-2020

Charles Pierce of Esquire highlights two obscene things the US government did during the previous administration (although, for a change, one of them wasn’t clearly tied to the previous president).

First, the one we already knew something about:

There was only one story worth coverage in our politics as the week began. The story was that, for four years, the United States of America, the world’s oldest democracy, was governed by monsters, and that a substantial portion of the population seems to want some of the monsters back. These were death-dealing scum who dealt death on their own people and then, having dealt death far and wide for their own cheap political purposes, they covered up what they did, also for their own cheap political purposes. I have no illusions about what other American administrations have done. Nobody my age does. But there’s an element of penny-ante nihilism behind the events of 2017-2021 that make the death dealt by that administration* look more casual and, therefore, infinitely more cruel.

Politico looked through emails and documents released by the House Select Committee on the Coronavirus Crisis and found a stunning amount of evidence that arraigns the previous administration* for its moral responsibility in hundreds of thousands of deaths.

The emails and transcripts detail how in the early days of 2020 Trump and his allies in the White House blocked media briefings and interviews with CDC officials, attempted to alter public safety guidance normally cleared by the agency and instructed agency officials to destroy evidence that might be construed as political interference. The documents further underscore how Trump appointees tried to undermine the work of scientists and career staff at the CDC to control the administration’s messaging on the spread of the virus and the dangers of transmission and infection.

The previous administration* gagged its own scientists, buried its own reports, bullied its own agencies, soft-pedaled its own data, and created its own reality to sell to the country, all at a crucial time when the pandemic could have been fought seriously and at least partly arrested. . . . 

One particularly egregious example involves the country’s meatpacking industry, which was slammed by the pandemic early on. The workers in that industry were largely poor, many of them were of questionable immigration status, and those circumstances made them vulnerable to being forced into dangerous conditions by their employers. This made some people curious as to why the Centers for Disease Control were not sending out specific guidance to that specific industry.

In an April 2020 email released by the committee Friday, then-Office of Management and Budget Director Russell Vought emailed Redfield, raising questions about why the CDC was not planning to send public health guidance on meatpacking plants through the White House. At the time, the White House was at odds with CDC about what steps meatpacking plants should take to protect workers from contracting Covid-19. The virus had infected several plants in the Midwest, causing disruptions to workflow.

Also disruptions to some workers’ lifeflows, by making them dead. . . . 

The sheer contempt for active national leadership and the sheer disregard for the public health illustrated by this material has no parallel in American history. For the sake of their own public image—which, ironically, was headed for the storm drain anyway—members of the administration* abandoned even their most rudimentary obligations as public servants. The country was denied the information it desperately needed because some time-servers and coat-holders were trying to avoid a tantrum from the Oval Office. We are lucky we survived this long.

Second, the one we didn’t hear about until now:

The New York Times reported on a special operation in Syria from 2019 in which an American F-15 dropped a 500-pound bomb on a crowd of women and children, despite the fact that there was a drone with eyes on the crowd at the time.

“Who dropped that?” a confused analyst typed on a secure chat system being used by those monitoring the drone, two people who reviewed the chat log recalled. Another responded, “We just dropped on 50 women and children.”

The Baghuz strike was one of the largest civilian casualty incidents of the war against the Islamic State, but it has never been publicly acknowledged by the U.S. military. The details, reported here for the first time, show that the death toll was almost immediately apparent to military officials. A legal officer flagged the strike as a possible war crime that required an investigation. But at nearly every step, the military made moves that concealed the catastrophic strike. The death toll was downplayed. Reports were delayed, sanitized and classified. United States-led coalition forces bulldozed the blast site. And top leaders were not notified.

The magnitude of the cover-up by the military should surprise nobody who was alive during the Vietnam catastrophe, although I admit the fact that CIA personnel were shocked by the bombing campaign’s disregard for civilian casualties, a disregard that reached its peak in the 2019 incident, is an interesting twist in this story. . . . This kind of thing is what happens when you make war in a place. You cannot avoid it. But many people in charge of that effort will move heaven and earth to keep that simple truth from the people paying the bills.

Coalition forces overran the camp that day and defeated the Islamic State a few days later. The years long air war was hailed as a triumph. The commander of the operations center in Qatar authorized all personnel to have four drinks at the base bar, lifting the normal three-drink limit. Civilian observers who came to the area of the strike the next day found piles of dead women and children. The human rights organization Raqqa Is Being Slaughtered Silently posted photos of the bodies, calling it a “terrible massacre.”

Satellite images from four days later show the sheltered bank and area around it, which were in the control of the coalition, appeared to have been bulldozed. David Eubank, a former U.S. Army Special Forces soldier who now runs the humanitarian organization Free Burma Rangers, walked through the area about a week later. “The place had been pulverized by airstrikes,” he said in an interview. “There was a lot of freshly bulldozed earth and the stink of bodies underneath, a lot of bodies.”

Stonewalls went up throughout the military bureaucracy. A non-event was being created out of the bombing and its devastating results. There are some stories about what it does, and the inevitable savagery that is the result, that the military won’t even tell itself.

Unquote.

And “a substantial portion of the population [wants] some of the monsters back”.