It's finally happened. The PCE measure of price inflation has breached the 2 percent barrier:

Over at the Wall Street Journal, Eric Morath comments: "That is a healthy signal for the economy, showing excess capacity and high unemployment that long held inflation near historically low levels have finally abated. Firmer inflation could give Fed policy makers leeway to consider additional interest-rate increases this year."

That's a refreshing change from the usual reaction of "ZOMG! Inflation is nearing 2 percent!" Nonetheless, like a broken record, I'll point out that (a) core inflation is still under 2 percent and barely increasing at all, and (b) 2 percent is not a "target." Not in the sense of something you should never exceed, anyway. It's a target for average inflation, and the average since the end of the Great Recession has been 1.5 percent. More recently, the average over the past two years has been 0.8 percent. It's going to be a while before we make up for so many years of too-low inflation.

Of course, it's also true that the Fed's target probably should be 3-4 percent, but that's a post for another day.

Sarah Kliff reports on the latest from House conservatives:

The House Freedom Caucus laid out two demands on Thursday for a health care bill its members would support: ending Obamacare’s essential health benefits and its “community rating” provisions.

Good for them! I'm serious. The key starting point for any kind of comprehensive health care plan is a ban on turning down customers with pre-existing conditions. But once you do that, you have to control the price insurers can charge (aka "community rating"), or else they'll simply jack up premiums for people with expensive conditions to a million dollars per year, which accomplishes the same thing as turning them down. But if insurers are required to cover anyone who applies, they also need plenty of healthy people to balance out their risk pool. So you end up with an individual mandate. But if you have a mandate, you have to have subsidies for poor people. You can hardly expect to legally require insurance for people who don't have the money to buy it, after all.

At that point, you have the entire edifice of Obamacare. There's no way around it. That's why Paul Ryan's plan looked an awful lot like Obamacare lite.

So if you're a conservative who flatly doesn't want an expensive, comprehensive, government-funded health care program, there's only one way to get there: ditch the pre-existing conditions ban by calling for an end to community rating. This is hugely unpopular, so it takes some guts to tell the truth and propose getting rid of it.

It's also cruel and meanspirited, but that goes with the ultraconservative territory. But at least they're being honest. Compare this to Paul Ryan, who kept the pre-existing conditions ban (via his "continuous coverage" provision), which then forced him to accept all the bells and whistles of Obamacare. His solution was to wave his hands and then keep the funding so low that his program essentially did no good at all. He didn't have the stones to simply admit that what he really wanted to do was repeal Obamacare and then do nothing at all to replace it.

Now, it so happens that Obamacare's pre-existing conditions ban has no direct effect on the federal budget, and therefore can't be repealed via reconciliation. It can only be repealed under regular order, which requires 60 votes in the Senate. So the Freedom Caucus folks are out of luck. But at least they're displaying a bit of honesty.

Peter Holley has this story up today:

The final straw was a little girl using an iPad with the volume on high, a device her parents refused to turn down despite repeated requests from the staff at Caruso’s, an upscale Italian restaurant in Mooresville, N.C....“Finally, we had to ask them to leave,” Nunez told The Washington Post.

“That was the incident that triggered the entire thing.” “The entire thing,” as Nunez puts it, is the restaurant’s strict ban on children under the age of 5. It went into effect in January, drawing passionate applause from some diners online and angry condemnation from others.

So what does everyone think about banning small kids from an upscale restaurant? I am informally forbidden from commenting on stuff like this because I have no children and am therefore assumed to have no understanding of the vast stresses involved in raising kids.1 Fair enough. I'll keep my mouth shut.

Except for this. Thirty years ago, this wouldn't have been an issue. There were places that were appropriate for small children and places that weren't. McDonald's? Appropriate. Denny's? Appropriate. That little Italian place on the corner? Maybe. How well behaved are your kids? Morton's Steakhouse? Inappropriate. It's a grownup place.

This distinction seems to have died out, and I'm not sure why. A lot of people think it has to do with this:

As the number of small children has declined, they all become precious snowflakes who deserve constant attention and only the best things in life. For what it's worth, I don't buy this. I don't have any particular reason. It just doesn't seem right.

And yet, the distinction between places that are appropriate for small children and those that aren't sure seems to have gotten bolloxed up. At the same time that lots of parents take their toddlers to upscale restaurants and R-rated movies, older children are all but banned from walking alone to a nearby park lest some busybody call the cops to report this obviously reckless parental neglect.

I dunno. I'm not a parent, and my cats don't do a damn thing I tell them. What's going on?

1I also have no experience with the vast stresses of running a restaurant, but no one ever seems to care about that.

Over at the Financial Times, Robin Wigglesworth has an interesting chart to show us. It's a little hard to decipher, though, and takes some explaining. First, here's the chart:

The pink line is "hard" economic data: employment rates, GDP growth, etc. The purple line represents "soft" data: things like consumer sentiment, purchasing manager optimism, etc. Roughly speaking, pink is how things are and purple is how people feel.

The fist thing to notice is that the hard data doesn't bounce around very much. It mostly stays in a band between -0.5 and +0.5. (I have no idea what those numbers represent. Some kind of overall index, I imagine.) The animal spirits data, however, is like a kid's yo-yo: it routinely shoots up and down from -1.5 to +2.0.

The second thing to notice is that these indexes mostly move in tandem. When the hard data goes up, the soft data goes way up. When the hard data goes down, the soft data goes way down. People react very strongly to even modest changes in the economy.

And then there's 2016-17. After a modest slump, the hard data has been ambling along at zero for the past year. But starting around the election, the soft data suddenly went sky high. There's nothing in the economic data to support this, but the Trump election seems to have filled the investor class with overwhelming optimism.

So what happens when reality sets in? There's no special reason to think the economy is going to take off anytime soon, and Trump's obvious bumbling will eventually sink in to everyone. At that point, the animal spirits are set to come crashing down.

What will that do to the actual economy? Maybe nothing. Maybe the actual economy really does respond solely to macro phenomena and animal spirits have nothing to do with it. That's certainly been the case as animal spirits have skyrocketed. Then again, maybe the economy does react to animal spirits plummeting. This is not a real-life experiment I'm especially eager to see play out.

Now there are three people involved in revealing classified information to Rep. Devin Nunes:

One of those involved in procuring the documents cited by Nunes has close ties to former national security adviser Michael Flynn. The official, Ezra Cohen, survived a recent attempt to oust him from his White House job by appealing to Trump advisers Jared Kushner and Stephen K. Bannon, the officials said....After assembling reports that showed that Trump campaign officials were mentioned or inadvertently monitored by U.S. spy agencies targeting foreign individuals, Cohen took the matter to the top lawyer for the National Security Council, John Eisenberg.

The third White House official involved was identified as Michael Ellis, a lawyer who previously worked with Nunes on the House Intelligence Committee but joined the Trump administration as an attorney who reports to Eisenberg.

This is an amazingly far-reaching conspiracy considering that the documents don't actually seem to have contained anything very interesting. You'd think that at some point one of these guys would have the common sense to call off this Keystone Cops affair.

And as long as we've mentioned Michael Flynn, here's the latest on him:

Michael T. Flynn, the former national security adviser, has offered to be interviewed by House and Senate investigators who are examining the Trump campaign’s ties to Russia in exchange for immunity from prosecution, according to his lawyer and a congressional official.

I didn't bother mentioning this yesterday because, frankly, I sort of figured that Flynn was hoping for immunity and then wouldn't say anything very interesting. Last night Josh Marshall opined that "you only get immunity if you deliver someone else higher up the ladder," but this morning he seems to have changed his mind:

Flynn's lawyer states rather grandly that his client "has a story to tell and ... very much wants to tell it." But Alex Whiting of Harvard Law School argues pretty convincingly that what we learned last night likely means either that Flynn doesn't have a story prosecutors are willing to barter for or isn't yet willing to tell it.

So probably Flynn doesn't have much to say after all. Which gets us back to the clowns in the White House. What were they doing trawling through highly classified reports anyway? Barton Gellman says this is the key unanswered question so far, and it's related to the allegation that some of the names in the reports had been unmasked, something that happens only if a "customer" asks for it:

If Nunes saw reports that named Trump or his associates, as he said, the initiative for naming names did not come from the originating intelligence agency. That is not how the process works. The names could only have been unmasked if the customers—who seem in this case to have been Trump’s White House appointees—made that request themselves. If anyone breached the president’s privacy, the perpetrators were working down the hall from him. (Okay, probably in the Eisenhower Executive Office Building next door.) It is of course hypocritical, even deceptive, for Nunes to lay that blame at the feet of intelligence officials, but that is not the central concern either.

If events took place as just described, then what exactly were Trump’s appointees doing? I am not talking only about the political chore of ginning up (ostensible) support for the president’s baseless claims about illegal surveillance by President Obama. I mean this: why would a White House lawyer and the top White House intelligence adviser be requesting copies of these surveillance reports in the first place? Why would they go on to ask that the names be unmasked? There is no chance that the FBI would brief them about the substance or progress of its investigation into the Trump campaign’s connections to the Russian government. Were the president’s men using the surveillance assets of the U.S. government to track the FBI investigation from the outside?

That reference at the end to "the president's men" is no coincidence. This whole thing looks more Watergate-ish by the day. Maybe it's time to start calling it Russiagate.

When Paul Ryan says he wants "tax reform," what he means is that he wants to cut taxes on the rich. That means top marginal rates, capital gains rates, dividend rates, and estate tax rates. Primarily this is because Republicans have few economic goals left on earth except cutting income taxes on corporations and the rich. Here's one reason why:

Basically, there's no income tax to cut anymore until you get to household incomes in the six figures. Even at $200,000, the federal income tax rate is pretty modest. So if you're going to cut income taxes, it's pretty hard to cut them very much for anyone but the rich.

Of course, households with lower incomes still pay a lot in payroll taxes, state sales taxes, and other flat or regressive taxes. The federal income tax is the main bulwark that makes the overall tax system progressive, so it's easy to see why Republicans hate it.

Daniel Gross has some advice for the free-market titans in the homebuilding industry who are facing a shortage of willing American workers:

What’s mystifying here is the fact that capitalist homebuilders and their cheerleaders at the Journal are, well, mystified over why Americans don’t seem to want to work construction. There’s a simple reason why Americans aren’t filling construction jobs—and the construction industry appears to be missing it.

Free-market types will tell you that there’s no such thing as a shortage of a commodity—of energy, of food, and, theoretically, of labor. Rather, there is only a shortage of the proper incentives, people willing to pay the appropriate prices or to send the signals that a commercial endeavor is worth undertaking....And yet the market sharpies collectively are throwing up their hands over the construction labor shortage instead of homing in on the obvious solution: Pay people more—a lot more if need be.

Let's roll the tape. Has the construction industry tried this novel approach?

Starting in 2014, construction wages did indeed go up after falling for four years. But by the end of 2016, having barely made up the earlier decline, homebuilders gave up on this exercise in experimental economics. Wages have dropped 2 percent since October even though the construction industry is apparently still facing a labor shortage. They're now paying wages lower than they did in 2010.

Paying more isn't always an option. In the agriculture industry, for example, there's a point at which paying higher wages to field workers makes your produce uncompetitive. It can't compete with lower-priced fruits and vegetables from Chile and Mexico. It's not clear where that point is, but it's somewhere.

But homebuilding is a nontradeable sector. You don't have to worry about foreign competition. At some point, it's true, your costs might go up so much that your homes are too expensive and people won't buy them, but that's a long way off. A few dollars-per-hour in labor costs doesn't add enough to the price of a house to make a noticeable difference. Besides, if there's a shortage of labor, then there's a shortage of new houses, and you can price your houses higher.

So don't give up, homebuilders! Your experiment would have worked if only you'd kept at it. Start paying your workers $28 or $29 per hour and they'll come flocking.

Lunchtime Photo

Yesterday Thersites demanded a picture of sunset to go along with Wednesday's picture of sunrise. I live to serve.

Here is last night's sun setting over the old Marine Corps Air Station in Tustin, which was shuttered as part of the 1994 base closings. Its two World War II blimp hangars were left intact, and so was the old control tower. I guess blimps need control towers too. In the end, I narrowed down all the photos to two, but then I couldn't make up my mind between them. I like the composition of the bottom one better, but the colors of the top one are exquisite. So today you get both.

The Hawaii judge who halted enforcement of President Trump's executive order on immigration has now gone a step further, turning his temporary restraining order into a preliminary injunction. Dara Lind explains:

A temporary restraining order is only supposed to last a couple of weeks. It’s supposed to grant enough time for the judge to do another round of briefs and hearings, and then issue a more considered decision about whether to keep the provision on hold indefinitely while the case works its way through the courts. That indefinite hold is called a preliminary injunction, and a judge in the Western District of Maryland (part of the Fourth Circuit) has already issued one against part of the executive order.

With two separate courts ruling against the travel ban, the administration’s only hope to get the ban back into effect without Supreme Court intervention was for both of those rulings to be overturned — or for the Maryland injunction to be overturned and Judge Watson to decide not to extend his temporary order into a preliminary injunction.

The first option wasn’t likely. The Ninth Circuit is famously liberal, and it’s the same court that put the first version of the travel ban on hold. So the administration’s last hope was Watson.

On Wednesday night, Watson did exactly what the administration hoped he wouldn’t. He issued a preliminary injunction covering both the section of the travel ban temporarily banning people from particular countries and the part temporarily banning refugees.

This may seem like it's not too big a deal. The immigration order has been on hold for weeks, and now it's going to stay on hold. But it's actually a huge deal. For all practical purposes, it means Trump might as well give up.

As you'll recall, the original immigration order was temporary: it would last about three months, which would give the Trump administration time to put "extreme vetting" procedures into place. That three months is up at the end of May. Presumably, DHS has been working diligently on the new procedures all along, so they should be ready to put them into effect by then.

At some point in May or June, the case becomes legally moot. But that doesn't really matter. More practically, by the end of May the extreme vetting procedures should be in place and Trump no longer needs the travel ban. After all, its only purpose was to provide time to work out the new procedures.

This is only about six weeks away. Maybe eight if they've run into snags. There's no realistic chance that this case is going to get through two levels of lower courts and the Supreme Court in that time. Trump may keep fighting in order to save face, but it's pointless. This case is now dead.

The BBC's Paul Wood writes today about the infamous "dossier" that claims a substantial connection between Russian officials and the Trump campaign team:

The BBC has learned that US officials "verified" a key claim in a report about Kremlin involvement in Donald Trump's election — that a Russian diplomat in Washington was in fact a spy.

....At one point [the dossier says]: "A leading Russian diplomat, Mikhail KULAGIN, had been withdrawn from Washington at short notice because Moscow feared his heavy involvement in the US presidential election operation... would be exposed in the media there."...Sources I know and trust have told me the US government identified Kalugin as a spy while he was still at the embassy.

....I understand — from former officials — that from 2013-16, Steele gave the US government extensive information on Russia and Ukraine....One former senior official who saw these reports told me: "It was found to be of value by the people whose job it was to look at Russia every day"....Another who dealt with this material in government said: "Sometimes he would get spun by somebody. [But] it was always 80% there."...In light of his earlier work, the US intelligence community saw him as "credible" (their highest praise).

....Members of the Obama administration believe, based on analysis they saw from the intelligence community, that the information exchange claimed by Steele continued into the election.

"This is a three-headed operation," said one former official, setting out the case, based on the intelligence: Firstly, hackers steal damaging emails from senior Democrats. Secondly, the stories based on this hacked information appear on Twitter and Facebook, posted by thousands of automated "bots", then on Russia's English-language outlets, RT and Sputnik, then right-wing US "news" sites such as Infowars and Breitbart, then Fox and the mainstream media. Thirdly, Russia downloads the online voter rolls.

The voter rolls are said to fit into this because of "microtargeting". Using email, Facebook and Twitter, political advertising can be tailored very precisely: individual messaging for individual voters....This would take co-operation with the Trump campaign, it is claimed.

Hmmm. Thousands of bots? Apparently so:

On Wednesday the Washington Post published a story about "Source D" in the dossier:

In June, a Belarusan American businessman who goes by the name Sergei Millian shared some tantalizing claims about Donald Trump....The allegations by Millian — whose role was first reported by the Wall Street Journal and has been confirmed by The Washington Post — were central to the dossier compiled by the former spy, Christopher Steele. While the dossier has not been verified and its claims have been denied by Trump, Steele’s document said that Millian’s assertions had been corroborated by other sources, including in the Russian government and former intelligence sources.

The most explosive allegation that the dossier says originally came from Millian is the claim that Trump had hired prostitutes at the Moscow Ritz-Carlton and that the Kremlin has kept evidence of the encounter.

Nobody knows for sure if Millian is genuinely plugged in at high levels, or if he's just a fast-talking huckster. But put all this together and it's easy to see why the Trump-Russia story won't go away. The FBI believes Steele to be credible. In the cases where it's been possible to check out the allegations in the dossier, they've turned out to be true. Other intelligence corroborates much of the alleged Russian activity. And Millian's claims are genuinely explosive.

This isn't going away anytime soon.