Neil Irwin writes about the fabulous Trump economy:

The stock market reached yet another new high on Wednesday, the latest development to make a mockery of what savvy economic commentators thought they knew about the world.

Consider how things looked one year ago. The world economy seemed hopelessly trapped in a cycle of low growth and inflation. Markets recoiled at the mere possibility that the Federal Reserve would raise interest rates. Populist political insurgencies seemed to threaten yet more financial market chaos.

Now, interest rates and inflation forecasts have risen substantially from last winter’s lows; financial markets are shrugging off — or even rallying at the possibility of — imminent Fed rate increases; and it is all taking place during Donald J. Trump’s presidency.

Why do we keep hearing this? Once again, here's the S&P 500 since the end of the Great Recession. I've even adjusted it for inflation just to be super fair:

There nothing there. The stock market is growing at precisely the same rate as it has for the past eight years. If you zoom in and take look at the S&P 500 just since Election Day, you see the same thing: it's been bouncing tightly around a trend line the entire time. There has been no rally at the possibility of interest rate increases from the Fed.

As for inflation, I've already dealt with that today. It's been closely following a trendline too, and literally nothing new has happened since the election. However, it is true that inflationary expectations started rising last June—though a little context helps here:

If you start your chart in mid-2016, you can make it look like inflationary expectations are taking off like a rocket. But in reality, we're still nowhere close to where we were five years after the end of the Great Recession, and expectations have flattened out in the past couple of months.

Finally, economic growth. You can talk about animal spirits all you want, but GDP growth in the US has been running steadily between 1 percent and 3 percent since 2010. Last quarter it was 1.9 percent, and there's no particular reason to think it's about to take a sustained jump. As for the rest of the world, the IMF doesn't seem especially optimistic:

US growth might be a little sluggish, but it's still a lot better than China and Europe, which are projected to decline in 2017 and 2018. The rest of the world will do a little better, but only a little.

However, there is one part of the economy that has unquestionably been booming since Trump was elected: big Wall Street banks.

Wall Street has been kicking major ass since November 8. And why not? The economy may or may not be booming, but they're pretty sure that Trump is going to lower their taxes and ease up on all those pesky regulations that Obama tried to force on them. If I were a big bank, I'd be pretty excited too.

I'm not especially trying to badmouth the economy here. It's doing fine, if not great. Growth is decent, wages are showing signs of life, we're getting close to full employment, and inflation is under control. As labor markets tighten, we might even see some real improvement in wages and living standards. That's not bad, especially compared to the rest of the world. But there's really not much evidence that we've been in any kind of boom times since November. Growth is steady, the stock market is steady, employment is steady, and inflation is steady. Just because Wall Street is excited doesn't mean they know something we don't.

And now here comes the Washington Post on contacts between the Trump team and Russia:

Then-Sen. Jeff Sessions (R-Ala.) spoke twice last year with Russia’s ambassador to the United States, Justice Department officials said, encounters he did not disclose when asked about possible contacts between members of President Trump’s campaign and representatives of Moscow during Sessions’s confirmation hearing to become attorney general.

One of the meetings was a private conversation between Sessions and Russian Ambassador Sergey Kislyak that took place in September in the senator’s office, at the height of what U.S. intelligence officials say was a Russian cyber campaign to upend the U.S. presidential race.

....Officials said Sessions did not consider the conversations relevant to the lawmakers’ questions and did not remember in detail what he discussed with Kislyak.

That was Mike Flynn's initial answer too, wasn't it? That he "didn't remember" the details of a conversation from less than half a year ago. I wonder how long Sessions' version will hold up?

Can we all now agree that maybe Sessions really does need to recuse himself from the FBI's investigation of Trump's ties to Russia?

The New York Times reports today on new revelations about contacts between the Trump team and Russia during the last month of the Obama administration:

American allies, including the British and the Dutch, had provided information describing meetings in European cities between Russian officials — and others close to Russia’s president, Vladimir V. Putin — and associates of President-elect Trump, according to three former American officials who requested anonymity in discussing classified intelligence. Separately, American intelligence agencies had intercepted communications of Russian officials, some of them within the Kremlin, discussing contacts with Mr. Trump’s associates.

Some of this is coming to light as a result of deliberate efforts by outgoing Obama officials:

Mr. Trump has accused the Obama administration of hyping the Russia story line as a way to discredit his new administration. At the Obama White House, Mr. Trump’s statements stoked fears among some that intelligence could be covered up or destroyed — or its sources exposed — once power changed hands. What followed was a push to preserve the intelligence that underscored the deep anxiety with which the White House and American intelligence agencies had come to view the threat from Moscow.

....Some officials began asking specific questions at intelligence briefings, knowing the answers would be archived and could be easily unearthed by investigators....At intelligence agencies, there was a push to process as much raw intelligence as possible into analyses, and to keep the reports at a relatively low level of classification to ensure as wide a readership as possible across the government....There was also an effort to pass reports and other sensitive materials to Congress.

....Throughout the summer...European allies were starting to pass along information about people close to Mr. Trump meeting with Russians in the Netherlands, Britain and other countries....But it wasn’t until after the election, and after more intelligence had come in, that the administration began to grasp the scope of the suspected tampering and concluded that one goal of the campaign was to help tip the election in Mr. Trump’s favor. In early December, Mr. Obama ordered the intelligence community to conduct a full assessment of the Russian campaign.

As the story acknowledges, it's still unclear what all these meetings were about, but "the Russians, it appeared, were arguing about how far to go in interfering in the presidential election."

This has the feel of a scandal that will pass into urban legend without anyone ever knowing for sure what actually happened. It's pretty obvious at this point that something happened, but with every new disclosure it seems as if the truth drifts a little farther out of reach. Unless someone has a smoking gun tape somewhere, it's not clear if this story will ever get resolved.

Yesterday President Trump invited a bunch of network anchors to lunch and told them he was open to a comprehensive immigration bill that included a path to legal status—but not citizenship—for undocumented immigrants. The anchors were permitted only to source this to a "senior administration official," and they did. This fed a round of positive news coverage in the hours leading up to Trump's address to Congress.

Today, however, CNN reports that Trump was deliberately lying to them. Mediaite has the story:

CNN reported Wednesday on a senior administration official admitting that the White House intentionally misled reporters ahead of President Donald Trump‘s congressional address in order to get generate positive press coverage as part of a “misdirection play.”

....Host John King wondered why reporters should even trust the White House going forward. “It does make you wonder; so we’re not supposed to believe what the senior-most official at the lunch says — who then they allowed it to be the president’s name says — we’re not supposed to believe what they say?” he asked. “Maybe we shouldn’t believe what they say.”

What are reporters supposed to do the next time Trump tells them something on background? Or any other White House official? Given their track record, can reporters believe anything they say?

Here is today's mystery map. Can you guess what it is?

This map comes from a team of researchers writing in Seismological Research Letters, and it shows the 2017 earthquake risk in various parts of the country. You probably aren't surprised to see either California or Seattle in dark orange. If you're familiar with the New Madrid fault, you're not surprised by the blotch on the border of Arkansas and Tennessee. But Oklahoma City?

Yep. It's all because of fracking:

Most of the induced earthquake activity in the central and eastern United States (CEUS) is caused by deep wastewater disposal. Injected wastewater causes pressure changes that can weaken (unclamp) a fault and therefore bring it closer to failure. Seismicity rates in Oklahoma increased exponentially beginning in 2009.

....In Oklahoma, during 2016, a 13 February [magnitude] 5.1 earthquake near Fairview, a 3 September magnitude 5.8 earthquake near Pawnee, and a 7 November magnitude 5.0 earthquake near Cushing caused damaging ground shaking. These damaging events are thought to be the result of  wastewater injection, and the potential for future large earthquakes causes concern to officials responsible for public safety and welfare.

That magnitude 5.8 earthquake in Pawnee is the largest ever recorded in Oklahoma. However, thanks partly to reduced demand for oil and partly to new regulations, the earthquake risk in Oklahoma has decreased a bit in the past year. For now, though, it's still pretty high. I knew all about the seismic danger from fracking before I read this, but I didn't realize that, for now anyway, Oklahoma City is literally as earthquake prone as San Francisco.

This is just a short post to highlight something I've already mentioned. Here it is:

Donald Trump says he wants to increase the defense budget by $54 billion. He can't. That would bust through the sequester caps in the Budget Control Act of 2011, and can only be done if the BCA caps are increased. This, in turn, can't be done via reconciliation. It has to be done normally, which means it will require at least eight Democrats to join all the Republicans in order to get 60 votes in the Senate. There's zero chance of this happening if Republicans are also planning to slash every domestic program that Democrats care about.

That's all. I keep reading stories about how Trump is going to find "offsetting" cuts of $54 billion, but that's not how it works. The sequester caps apply separately to domestic and defense spending. Republicans can offset all they want, but they still can't bulldoze the defense cap unless they get a bunch of Democratic votes to help them.

Earlier today I noted that core PCE inflation—the measure used by the Fed—has been rising very, very slowly over the past two years. "At that rate, it should hit 2 percent by about 2019 or so," I snarked.

But that got me curious. How fast is core PCE rising? So naturally I put it into a chart:

It turns out that by 2019 it would actually hit 2.2 percent at its current rate. This is still not something we should be very worried about.1

Of course, inflation isn't just a trend independent of everything else. If the Fed changes interest rates, or President Trump balloons the deficit, or the dollar weakens and imports get a lot more expensive, then that will affect the inflation rate. But none of those things have happened yet, and until they do we still don't really have anything to be worried about.

1In fact, it would probably be helpful to see inflation rise to 3 percent for a year or two. If it rises above that, then it's might be time for the Fed to act.

This comes as no surprise to anybody, but here is Kaiser's analysis of tax subsidies under Obamacare vs. the discussion draft of the Republican health care plan that was leaked last week:

The difference is pretty obvious. Obamacare provides subsidies to those who need it most. The Republican plan provides subsidies to everyone, even if they're already well off.

Politically, you can see the attractiveness of the Republican plan. One of Obamacare's major failings is that its subsidies phase out too soon. The poor get Medicaid and the near-poor get generally decent subsidies, but the working class gets very little and the middle class is left out entirely. The Republican plan provides bigger subsidies for working and middle-class families, and does it by cutting subsidies for the poor.

In other words, it helps two groups who vote at high rates, and who often vote Republican.1 It hurts a group that doesn't vote much, and votes Democratic when it does. It's immoral on almost every level, but it's political genius. Luckily, thanks to the malignity of the tea party wing of the GOP, which views even this amount of government assistance as unacceptable, it will probably never see the light of day.

1The only downside is the cut in subsidies for older working-class voters, who Republicans very much care about. But I imagine that Paul Ryan can come up with some kind of hack that takes care of that.

Perhaps the most disgusting part of President Trump's speech last night was this:

I have ordered the Department of Homeland Security to create an office to serve American victims. The office is called Voice, Victims of Immigration Crime Engagement....Joining us in the audience tonight are four very brave Americans whose government failed them. Their names are Jamiel Shaw, Susan Oliver, Jenna Oliver and Jessica Davis. Jamiel’s 17-year-old son was viciously murdered by an illegal immigrant gang member who had just been released from prison. Jamiel Shaw Jr. was an incredible young man with unlimited potential who was getting ready to go to college, where he would have excelled as a great college quarterback.

But he never got the chance. His father, who is in the audience tonight, has become a very good friend of mine. Jamiel, thank you. Thank you.

This is pure demagoguery. Let's ask CIS if immigrants are more prone to crime than other groups:

We find that it would be a mistake to assume that immigrants as a group are more prone to crime than other groups, or that they should be viewed with more suspicion than others. Even though immigrant incarceration rates are high in some populations, there is no clear evidence that immigrants commit crimes at higher or lower rates than others.

CIS is the Center for Immigration Studies, one of the leading groups that opposes illegal immigration. If there were clear evidence that immigrants committed more crimes than native-born Americans, they'd be all over it. But in a long report, they conclude that the evidence is hopelessly mixed and simply doesn't support the idea that immigrants commit more crimes than anyone else.1

Unfortunately, the raw data for arrests, convictions, and incarceration doesn't include immigration status. This means you have to try to answer the question indirectly. For example, a BJS report suggests that 0.64 percent of immigrants are currently incarcerated vs. 0.51 percent of native-born Americans. But that doesn't tell you anything about the type of crime. Maybe a lot of those immigrants are in jail solely for immigration violations. Or maybe not. We don't know.

On another note, various studies have tried to correlate immigrant populations in different cities with crime rates. They've pretty consistently found that higher populations of immigrants don't correlate with higher rates of crime. As with any ecological study, though, these conclusions depend a lot on exactly what kind of model you set up, what kind of data you have, and what you control for. They're suggestive, but not conclusive.

All that said, there are lots of crime studies out there, and they come to lots of different conclusions about immigrants. But if you take them all together and look at them fair-mindedly, there's really no good reason for thinking that immigrants commit crimes at higher rates than natives. They might very well commit crimes at lower rates. They certainly have more motivation to be law-abiding than most of us.

But that doesn't mean they commit no crimes. And if you wave around enough bloody shirts, it's pretty easy to whip up hysteria about hardworking American citizens being murdered on the streets by rampaging immigrants. That's what Trump is doing, and it's vile.

1They also say this:

Nevertheless, it also would be a mistake to conclude that immigrant crime is insignificant or that offenders’ immigration status is irrelevant in local policing. The newer information available as a result of better screening of the incarcerated population suggests that, in many parts of the country, immigrants are responsible for a significant share of crime. This indicates that there are legitimate public safety reasons for local law enforcement agencies to determine the immigration status of offenders and to work with federal immigration authorities.

If they could say anything stronger, I'm sure they would. In any case, it's a pretty good report to read if you want to understand all the problems with existing data and existing studies. It's a few years old, but still provides a nice summary of a complex subject.

Inflation hawks are getting excited again!

U.S. inflation is closing in on the Federal Reserve’s long elusive 2% annual target, the latest evidence of firming price pressures that could bolster the case for the central bank to raise short-term interest rates as soon as this month.

....Headline prices are “almost in line with the Fed’s 2% target” and core inflation is “gradually closing in on that target, which partly explains why Fed officials appear to be making the case for a March interest-rate hike,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a note to clients.

Almost! Just keep in mind that the Fed's preferred measure of inflation is core PCE, and "gradually closing in" on 2 percent is an understatement. In January 2015 it was 1.41 percent. In January 2016 it was 1.61 percent. In January 2017 it was 1.74 percent. At that rate, it should hit 2 percent by about 2019 or so.

There is evidence that core inflation is rising a bit, inflationary expectations are up, and wages are showing moderate gains, which means the labor market is finally starting to tighten. That said, inflation is still well controlled, one year of wage increases is hardly cause for panic, and the labor market is probably still about a million workers away from being at full capacity. Let's not get too excited yet.