• Your Smartphone Is the Latest Excuse for Low Inflation

    Here’s the latest bizarre excuse for low inflation:

    Holiday shoppers with smartphones can retrieve instant price comparisons that make bargain hunting easier—and the Federal Reserve’s job tougher….Most Fed policy makers agree they should keep gradually raising short-term rates in the months ahead to prevent the buoyant U.S. economy from overheating. But some are hesitant because inflation remains puzzlingly weak, running below 2% for most of this year. Moving too quickly could stall growth.

    ….In a nod to the growing practice, Ms. Yellen said in September that increased competition created by online retailers “may have reduced price margins and restrained the ability of firms to raise prices in response to rising demand.” She said in October that online shopping “could be helping to hold down inflation in a persistent way in many countries.”

    For most of the 20th century, inflation was low. Then, starting in the late 60s, it climbed steeply for about 15 years, peaking around 1980. Then it spent the next 15 years declining to its old rate. Here’s what it’s looked like since then:

    Core inflation—the Fed’s preferred bellwether—has been dead flat for 20 years. It hasn’t been very noisy, either, staying tightly within a band of 1-2.5 percent. It’s maintained this level through recessions and expansions, through war and peace, and even during the tight labor market of the late 90s. For a while, it was globalization that was supposedly to blame. But even after the China shock had mostly passed, inflation stayed low. So then it was because of retiring boomers. Or maybe the Great Crash of 2008. Then came the subsequent expansion, and inflation still remained quiet. So then it was because even though unemployment was low, the labor market was too loose. But now the labor market is starting to genuinely tighten, and inflation is going nowhere. So we’re adding web-based comparison shopping to the list.

    Come on. If web shopping has constrained the ability of companies to raise prices, you’d expect corporate profit margins to be down. But they aren’t:

    Granted, this shows profit margins for all corporations, and web shopping only affects a subset of consumer products. Still, you’d expect to see something. Instead, starting around the time smartphones took off, what we see is higher margins. They’re now at their highest point in 50 years.

    I’m not smart enough to know what’s going on. But when inflation has stayed flat so widely and for so long, it’s hardly credible that it’s the result of a bunch of factors that have coincidentally followed one after the other. There’s something more fundamental going on. And this something has been at work for at least 20 years, and probably more like 30.

    I’ll toss out one possibility that I think gets too little attention in general. The late 60s and 70s, when the world truly left the gold standard and opened up financial markets, represented a massive financial sea change that neither governments nor central banks were prepared to deal with. Add in a couple of oil shocks and the global economy became unmoored. It took years for financial rules to adapt and for the major central banks to learn from experience what they had known only academically before. But then they learned. They’re nowhere near perfect, but ever since the late 80s they’ve been surprisingly good at dealing with recessions and expansions—and just generally keeping the economy on an even keel. The result is that inflation is roughly as quiet as it was for most of the 20th century until the mid-60s.

    Feel free to leave your own guesses in comments.

  • Another Look at Donald Trump’s Job Approval Rating

    Via Gallup, here’s the latest look at approval levels of Donald Trump and three other recent presidents¹ during their first year in office:

    It’s worth noting that Trump’s decline is pretty normal. On average, the other three presidents declined from 58.7 percent approval to 50 percent approval by this time in their first term. That’s a drop of 8.7 percentage points.

    Trump has declined from 45 percent approval to 36 percent approval. That’s 9 percentage points.

    Despite everything, Trump’s performance has been completely average. The big difference is that he started office with an historically low approval rate. Since then, nothing unusual has happened.

    ¹You can’t use George W. Bush in this kind of comparison because his job approval spiked massively after 9/11. Nor can you use George H.W. Bush since his first term was essentially the ninth year of the Reagan/Bush administration. So I used Reagan instead.

  • Lunchtime Photo

    Ireland is famous for its donkeys, though for reasons not entirely clear to me. We didn’t see many donkeys on our travels around Kerry, but we did see a few on a farm a few miles north of where we stayed. Mostly they just stood around and looked at us, but as you can see, one of them was pretty friendly. Perhaps he was hoping for an apple or something?

  • Europe Doesn’t Like the Republican Tax Bill

    It’s not just Americans who are getting screwed by the Republican tax bill:

    Europe’s five largest economies on Monday warned the U.S. its planned corporate tax reform could breach world trade rules and violate double-taxation treaties the U.S. has signed….“It is important that the U.S. government’s rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed up,” the ministers wrote in the letter.

    ….A provision of the House bill for a 20% excise tax on payments to foreign-affiliated companies, the Europeans warned, would discriminate against non-U.S. businesses operating in the country, contravene World Trade Organization rules and breach double-taxation agreements.

    Likewise, the proposed “base erosion and anti-abuse tax provision” contained in the Senate bill could harm international banking and insurance businesses because it would treat cross-border financial transactions between a company and a subsidiary as nondeductible, subjecting it to a 10% tax, the ministers warned.

    The finance chiefs also said a proposed preferential regime for some types of foreign incomes, another provision of the Senate bill, could be seen as an export subsidy banned under international trade rules.

    This is no surprise. The Republican Party’s enemies these days are liberals and foreigners. The tax bill goes after liberals with a chain saw, and it’s hardly surprising that they’re going after foreigners too.

    Sure, foreigners have “treaties” that liberals don’t, but the new regime has made it crystal clear that it cares nothing for past promises except those made to the most extreme elements of the Republican base. Everyone else is on their own.

  • Pentagon Obeys Court Order, Will Allow Transgender Enlistments


    I wonder what I’m missing here? I’m all for this, of course, but doesn’t the commander-in-chief get to set rules like this? Did Trump tweet about it but forget to ever send the military an official order? I’ll be interested in hearing some more details about this.

    UPDATE: It turns out the missing piece is something I’ve forgotten and the AP failed to mention: a court enjoined Trump’s ban. So the Pentagon is merely obeying a court order that requires transgender enlistment starting on January 1. I’ve rewritten the headline to reflect this.

  • The Grad Student Tuition Fee Waiver, Explained

    The tuition waiver provision of the tax bill was aimed at folks like this. Sorry about that, STEM.Paul Rodriguez/The Orange County Register via ZUMA

    One of the provisions of the Republican tax bill would force graduate students to pay taxes on waived tuition fees. So if annual tuition is, say, $50,000, and that cost is waived, the student would have to pay taxes on $50,000 of income. Jeremy Berg, the editor-in-chief of Science, is perplexed:

    It is not clear what the objective is, as the new policy would disproportionately affect students without additional resources to support their educations and would likely decrease economic viability and competitiveness as talent is lost from the science, technology, engineering, and mathematics (STEM) enterprise.

    Well, here’s the thing: I’m afraid STEM is just collateral damage in a war against economics, sociology, women’s studies, education, history, and so forth. These are all areas that produce lots of lefties who write mean things about conservatives, and the objective of the tuition waiver is to make life hard for them. Unfortunately, the tax writers couldn’t think of a way of making this provision apply only to “fields that harbor lots of liberals,” so STEM got hit too. Sorry about that.

    On another note, I attended a math summer camp with Jeremy in 1975. We were not great friends or anything, but we all knew each other and this means he is now in the running for most famous person that I used to know when I was young. None of my friends from the 70s has won a Nobel Prize or become a show runner for HBO, so editor-in-chief of Science might well be the current top dog in my personal universe.

  • The Missing Treasury Analysis of the Republican Tax Plan Has Finally Been Released

    Good news! Treasury Secretary Steve Mnuchin has promised repeatedly that the Republican tax plan would pay for itself and that he has hundreds of analysts “working around the clock on running scenarios for us.” Naysayers scoffed, wondering where this analysis was. Well scoff no more. He released it today. Here’s the first page:

    Wait. Did I say “first page”? What I meant was “whole thing.” That’s right: it’s seven paragraphs long and contains no original analysis at all. It basically says two things:

    • The analysis from the Joint Committee on Taxation is correct.
    • Tax revenue will rise if we assume 2.9 percent economic growth.

    Seriously. That’s it. I included the entire plan above so you could check to make sure I’m not exaggerating. There’s literally no analysis at all. The Treasury Inspector General has already promised an investigation into the missing report that hundreds of people were supposedly working on, and after seeing this I really, really want to see what the IG comes up with. The only plausible scenarios are either (a) nobody was ever doing any serious analysis, or (b) they did a serious analysis and the results were too catastrophic to be released.  So instead we got a one-page report cribbing from JCT and explaining that tax revenues will rise if economic growth skyrockets. A tenth grader could have written this.

    Welcome to the Trump era, folks.

  • Republicans Really, Really Hate the Press

    Here are a couple of interesting tidbits from the 2017 Poynter Media Trust Survey. We all know that trust in the press has been on a long downward slide, especially among Republicans, but the results from 2017 are a bit surprising:

    Among Republicans, trust took a nosedive in 2016 while Donald Trump was campaigning, but, surprisingly, hasn’t dropped any further in 2017. In fact, it might be up a little. If I had to guess, I’d attribute this to the fact that trust is now so low among Republicans that it really can’t fall much further.

    But among Democrats, nothing much happened in 2016, and then trust skyrocketed in 2017. It’s now at its highest point in two decades. What this seems to suggest is two things. First, the horrible overcoverage of Hillary Clinton’s emails in 2016 never became an issue among ordinary voters. It’s a big deal to us political junkies, but not to anyone else. Second, the fact that the press is aggressively covering Donald Trump’s gaffes and the Trump-Russia connection—and that Trump is attacking them back—has made Democrats far more trusting of the press.

    The past week has been a bad one for the press, which has published several badly-sourced stories about Trump that they’ve had to retract. This has sent Trump into a tizzy of FAKE NEWS tweeting, culminating in his insistence that a Washington Post reporter should be fired for mistakenly reporting poor crowds at his Florida rally on Friday. But that was just the latest in a year of virulent anti-media tweeting by Trump, and this is the result:

    I don’t want to make too much of this. Americans are routinely ignorant of basic constitutional rights, and surveys frequently show lots of them favoring restrictions on press freedom, religious freedom, gun ownership, fair trials, and so forth. Still, nearly half of Trump voters think the government should “be able to stop a news media outlet from publishing a story that government officials say is biased or inaccurate.” This is not a national security thing, it’s a flat-out belief that Trump should be able to block the press from saying anything he doesn’t approve of. We don’t have trend data on this, but I have to believe that it’s quite a bit higher than in the past.

    This goes pretty far beyond the usual American constitutional ignorance. An awful lot of Trump voters have apparently been convinced that the press is so rotten that Trump should have complete control over what they’re allowed to say. Yikes.

  • Raw Data: The Prime-Age Labor Force Participation Rate

    Here is the labor force participation rate for prime-age men and women over the past two decades:

    In 20 years, the trend participation rate has dropped 4 percentage points for men and 3 percentage points for women. This is only for people aged 25-54, so it’s not about boomers retiring. It’s been dropping steadily, so it’s not about recessions. It’s not about tax cuts or tax increases. The unemployment rate is currently 4.1 percent, so it’s not about a lack of jobs. Nor is this happening in the rest of the world:

    Whatever the reason, this decline represents about 4 million people who would be working if participation rates had stayed steady. Why aren’t they? Does it represent the 5 million manufacturing workers who have lost jobs since 1997, some of whom have quit working rather than take other jobs? Is it about China? But if so, why is everyone else immune? Is it the rise of disability—or is that effect rather than cause? Or something else? It is a mystery.

  • John Kelly Keeps Donald Trump on a Very Short Leash

    Kevin Dietsch/CNP via ZUMA

    The usual gang at the New York Times has a story today about Donald Trump and his: tweeting, TV viewing habits, lack of knowledge about everything, etc. As usual, it is sourced to “interviews with 60 advisers, associates, friends and members of Congress.” Aren’t they all?

    But this is sort of old news. Instead, I was interested in an anecdote about the way that John Kelly has brought order to the Oval Office as chief of staff. It’s about longtime Trump confidant/bodyguard Keith Schiller:

    In August, Mr. Trump asked Mr. Schiller for a newspaper article he had heard about. After Mr. Trump mentioned the article to Mr. Kelly, the chief of staff dispatched two aides to investigate how it had gotten to the president without being cleared. Mr. Schiller acknowledged providing the contraband newsprint. Mr. Kelly thanked him tersely for coming forward, according to two people Mr. Schiller later told.

    Seriously? Kelly tries to keep people from bringing news to Trump that Trump has specifically asked for? I get the whole idea of “controlling the information flow,” but Trump is the president of the United States. Can’t he have any news he wants? And what’s the point of this, since Trump watches hour after hour of uncontrolled TV anyway? In fact, he seems to watch not just in the morning and the evening, but literally all day:

    During meetings, the 60-inch screen mounted in the dining room may be muted, but Mr. Trump keeps an eye on scrolling headlines….Watching cable, he shares thoughts with anyone in the room, even the household staff he summons via a button for lunch or for one of the dozen Diet Cokes he consumes each day.

    Say what? Even during meetings the TV is on and Trump’s eyes keep flitting to the Fox News crawl? Somehow I’m imagining something like this:

    MATTIS: Well, I have to agree with McMaster.
    KELLY: So we’re split on whether to nuke North Korea. It will be the president’s call.
    [Heads nod.]
    KELLY: Mr. President, should we give the order?
    [Trump turns away from Fox News crawl about Hillary’s emails.]
    TRUMP: The order—oh right, the order. Yes, give the order. Give it very strongly.
    KELLY: Very well, gentlemen. You know what to do.

    The world ends not with a bang, but a Fox News headline.