Kevin Drum

Why Are We All So Obsessed With Inflation?

| Mon Apr. 7, 2014 8:36 AM PDT

Paul Krugman brings up a familiar trope this weekend: why is it that everyone is so obsessed with ultra-low inflation, even in the middle of a sluggish economy that would almost certainly benefit from a few years of 4 percent price growth? His answer: rich people are uniquely vulnerable to high inflation, and therefore fear it. And since rich people have tremendous influence on policy—especially economic policy—we've consistently implemented policies dedicated first and foremost to restraining inflation. Tyler Cowen dissents:

We all know that inflation is extremely unpopular with voters.  We also observe that inflation remains extremely unpopular in a variety of northern European economies, which typically have more egalitarian distributions of income (though not always wealth) than does the United States.  In any case the top 0.1 percent in those countries has less wealth per capita than in the U.S. and, at least according to progressives, less political influence too.

....People that wealthy can put their money into hedge funds, private equity, private capital pools, and the like....The very wealthy also have the greatest ability to hedge against inflation using derivatives and commodities, if they do desire....I am not suggesting that the very wealthy are out there pushing for higher inflation. But they are much more protected against such inflation than Krugman’s analysis suggests, and the middle class in protected service sector jobs is more vulnerable than is usually recognized.  There is a reason why 4-6% price inflation has become the new third rail of American politics.

I chalk this up to something a little different: inertia. Practically speaking, I don't think protected service sector workers have a lot to fear from moderately high inflation. They're mostly unionized, and their contracts often include COLA hikes. But I agree that rich people don't have a lot to fear either. Given modern portfolio management, it's not hard to hedge against inflation, especially if you're wealthy enough to pay a good money manager. The elderly are often brought up in this context too, and they probably really do have a certain amount of vulnerability to inflation. But not that much. Social Security benefits are indexed to inflation, and even most middle-class investments (in 401(k)s, etc.) tend to be inflation-resistant, if not inflation-proof.

So what's going on? My take has long been fairy simple: it's mostly due to septaphobia, or fear of the 70s. It's not actually true that the middle class was decimated by the 70s, but a lot of middle-class workers felt hard done by, especially since the price we all paid for the 70s was the traumatic Volcker recession of 1980-81. As for rich people, they really did suffer losses during the 70s as we made our rocky transition from an era of financial repression and fixed returns to our current era of global finance and variable returns. Central bankers belong in this story too: during the 70s, they developed a deep fear of their own inability to control wage-price spirals once inflation got above 2 percent or so. This fear is badly misguided, however: the economy has evolved enormously since the 70s and modern central banks have plenty of tools to fight inflation before it gets out of control. Basically, the 70s are to modern publics what Weimar hyperinflation was to a generation of Germans: a scarring experience that forged a deep and broadly-held fear of inflation of any kind.

There's so much inflation indexing in our modern economy—sometimes explicit, sometimes not—that inflation poses only a moderate threat to the rich. In fact, if I had to choose a class of people who probably should be threatened by inflation, it's the broad working and middle classes. After all, why do so many economists think a higher inflation rate would be good for the economy? Partly because it produces lower real interest rates, and thus stimulates investment. However, it's also because it allows a faster downward adjustment of real wages, since employers can simply let inflation erode wage rates instead of angering workers with deep nominal cuts. And who does that affect? Not Bill Gates.

That said, I don't disagree that, in reality, elite opinion drives much of the inflation fear in the United States and Europe. It's irrational, since the rich benefit from lower middle-class wages and a faster-growing economy, but that doesn't mean it's not real. Phobias are hard to cure.

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Russia Demands Lease Refund After Invading Crimea

| Sat Apr. 5, 2014 12:10 PM PDT

Russia is threatening to nearly double the price of natural gas that it sells to Ukraine:

Russia's natural gas monopoly Gazprom's Chief Executive Alexei Miller said Saturday in a televised interview the company has raised the cost of gas to Ukraine to $485.50 from $268.50 for 1,000 cubic meters from April 1. Moscow says the price change is due to Kiev's failure to pay its bills.

....Mr. Miller said Ukraine owes Gazprom $2.2 billion for March deliveries, and another $11.4 billion the country saved as part of a discount agreement that Moscow recently scrapped....Mr. Miller the discount was a prepayment for the Russian Navy's use of Ukraine's Black Sea port of Sevastopol through 2017, but as that port had been annexed by Moscow, along with the rest of Crimea, Ukraine should repay $11.4 billion it saved, Mr. Miller said, following similar statements by Russian Prime Minister Dmitry Medvedev.

So Russia gave Ukraine $11.4 billion as a payment for its lease of naval facilities in Crimea through 2017. But now that they've invaded and conquered Crimea, they figure they deserve a refund. The mind boggles.

Friday Cat Blogging - 4 April 2014

| Fri Apr. 4, 2014 11:36 AM PDT

Well, I managed to make it through the morning. In case you're curious about what's going on with me, I'm having difficulty breathing. It came on rather suddenly a couple of weeks ago, and since then I've undergone loads of tests. The results are simple: my heart is fine, my lungs are fine, my O2 saturation is fine, and my ribs aren't cracked. A CT scan showed no inflammation or blood clots. A pulmonary specialist prescribed an inhaler just to see if it would work—I'm guessing it's an extract of pure unobtanium considering how much it cost—and it might be helping a little bit. But probably not. Sometimes I'm OK, other times I feel like I just ran a marathon. Yesterday I laid on the couch and watched movies all day. Today I'm better, but hardly breathing easily.

It's frustrating as hell. Can I blame Obamacare? In any case, the only catblogging pictures I have are a few I took earlier this week when I was feeling better. So here you go, Domino sunning herself in the front yard on Tuesday. Enjoy.

Can We Please Ditch the Splaining Meme?

| Fri Apr. 4, 2014 10:26 AM PDT

Hey there. Is there any chance that we could deep six the splaining meme? You know, mansplaining, straightsplaining, whitesplaining, and all their myriad offshoots. I get that it's a useful term, but it's gotten out of hand. Obviously we should all be careful when we talk about things outside our personal experience, and nobody gets a pass when they say something stupid. Still, we should all be allowed to talk about sensitive subjects as best we can without instantly being shot down as unfit to even hold an opinion.

The splaining meme is quickly becoming the go-to ad hominem of the 2010s, basically just a snarky version of STFU that combines pseudosophisticated mockery and derision without any substance to back it up. Maybe it's time to give it a rest and engage instead with a little less smugness and narcissism.

Here's a Second Look at Obamacare and the Uninsured

| Fri Apr. 4, 2014 9:49 AM PDT

Here's a quick follow-up on my guess earlier this week that Obamacare will reduce the ranks of the uninsured by about 10 million when we finally close out 2014. The Urban Institute has released its latest survey results and concludes that Obamacare insured about 5.4 million people through early March. This is a comparison with Fall 2013, so it doesn't include the sub-26ers who have been covered by their parents' policies since 2010. It also doesn't include the March signup surge. If you add those in, we're probably somewhere in the neighborhood of 8 million right now, which I think is consistent with a guess of 10 million by the end of the year.

There's still a lot of guesswork in these numbers, but this is about the best we have right now. It's less than the 13 million the CBO projected, but it's a pretty healthy number nonetheless.

UPDATE: It turns out that the CBO uses pro-rated years. If you sign up for coverage on April 1, you count as three-quarters of a year. If you sign up on July 1, you count as half a year. I didn't know that, and it changes my guess. By normal human terms, I think about 10 million of the previously uninsured will have Obamacare coverage by the end of 2014. By CBO terms, that might come to 9 million or so.

Yep, Most of Paul Ryan's Budget Cuts Come Out of Programs for the Poor

| Fri Apr. 4, 2014 7:56 AM PDT

A few days ago I guessed that 80+ percent of the cuts in Paul Ryan's latest budget blueprint came from programs for the poor. Today, CBPP dives a little deeper and puts the number at 69 percent. The cuts come in five categories: health care; food assistance; college grants; other mandatory programs such as SSI, school lunches, and EITC; and miscellaneous discretionary cuts. However, CBPP warns that its 69 percent number is very likely conservative:

In cases where the Ryan budget cuts funding in a budget category but doesn’t distribute that cut among specific programs — such as its cuts in non-defense discretionary programs and its unspecified cuts in mandatory programs — we assume that all programs in that category, including programs not designed to assist low-income households, will be cut by the same percentage.

That's definitely a risky assumption. In real life, two-thirds of those cuts would almost certainly end up coming out of programs for the poor. We'll never know for sure because Ryan never has the guts to specify where his cuts would go, but I'm willing to bet that if Republicans were forced to provide line items for all of Ryan's broad categories, we'd end up back at 80 percent of the cuts hitting those with low incomes.

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Chart of the Day: Net New Jobs in March

| Fri Apr. 4, 2014 7:27 AM PDT

The American economy added 192,000 new jobs in March, but about 90,000 of those jobs were needed just to keep up with population growth, so net job growth clocked in at 102,000. The headline unemployment rate was unchanged at 6.7 percent.

This is basically good news. The labor force participation rate increased because 500,000 people entered the labor force, and the raw number of unemployed stayed about the same. The fact that people are returning to the labor force is pretty positive, as is the fact that jobs numbers for January and February were revised upward a bit. Jared Bernstein points out that wage growth has been fairly strong over the past year, which also counts as good news as long as the Fed doesn't use this as an excuse to start tightening monetary policy.

Overall, the economy is still puttering along, perhaps now back in second gear. It's nothing to crow about, but it's better than we've been doing for the past couple of months.

Housekeeping Note

| Thu Apr. 3, 2014 8:17 AM PDT

I'll be off this morning, maybe back this afternoon. Depends on how I feel. Tomorrow for sure, I hope.

The Wall Street Journal Needs to Find Some New Clip Art

| Wed Apr. 2, 2014 7:19 PM PDT

Wait a second. Did the Wall Street Journal editorial page really use the Daily Kos logo to illustrate an op-ed by billionaire arch-conservative Charles Koch? Sure, it's an out-of-date logo, but even so, do they not have any idea that this piece of clip art has long been associated with the Great Orange Satan? Color me amused.

Is it Time to Replace the Cult of Finland With the Cult of New Jersey?

| Wed Apr. 2, 2014 5:04 PM PDT

Vikram Bath takes on the cult of Finland today. What's that? You didn't realize Finland had a cult? Well, it does in the education community, where Finland's consistently high scores on the international PISA test make it the go-to destination for education writers looking for agreeable junkets they can turn into long-form thumbsuckers about how American schools are doing everything wrong.

But Bath points out that Finland isn't actually the world's top performer on the PISA test. Shanghai does better. So does Hong Kong. Now, maybe those are cherry-picked examples that owe their success to government authorities who game the tests, and therefore deserve to be ignored. But Japan does better too. And South Korea. And Taiwan. So why have they fallen out of vogue lately in the popular press? Why do we hear endless tributes to Finland instead? Bath suggests the reason we like Finland is fairly obvious:

“Be like Shanghai” is for the Wall Street Journal crowd. Shanghai is rote memorization and beating your kids and no bathroom breaks and pretending you aren’t numbed by classical music. Finland is culture and castles and liking classical music because you’d be a better person and maybe windmills.

Fine. Asian countries are culturally different. Maybe it makes sense to look instead at countries that are more similar to America. The problem is, Finland isn't really much like America either. It's ethnically pretty homogeneous and has extremely low rates of poverty. Obviously tackling poverty would be great, but facts are facts: we're not likely to reduce our poverty rate to 3 percent anytime soon. So does that mean we're stuck with no place to aspire to at all?

No. There is still a much, much better non-Asian model. It’s Massachusetts.

14% of children in Massachusetts live in relative poverty. That’s still below the US average, but much more American-like than Finland.

Unlike Finland, Massachusetts has already figured out how to deal with all the existing regulations imposed by the US government.

Unlike Finland, Massachusetts has figured out how to cooperate productively with US teachers unions.

Unlike Finland, Massachusetts has demonstrated how to get results from US-trained teachers rather than masters holders from Finnish research schools, of which the world only has so many.

Unlike Finland, Massachusetts has experienced success teaching real American students who go home every day to be subjected to American parenting styles.

I'd add a fairly large caveat to this: When you disaggregate scores, Massachusetts still does well, but not spectacularly well. Judging from the latest NAEP scores for eighth graders, Massachusetts does a great job with its white students, a good job with its black students, and a fairly mediocre job with its Hispanic students. Overall, they perform pretty well, but part of that is due to the fact that Massachusetts has a very high proportion of white students and apparently does a superb job of teaching them.

Nevertheless, Bath's point is well taken. But you might want to choose a different state: New Jersey, which has a high composite score not because it's mostly white (it's about 60 percent white), but because it does an outstanding job of teaching kids of all colors. Judging by NAEP scores, it ranks among the top four states in both math and reading for whites, blacks, and Hispanics.

Of course, New Jersey's poverty rate is pretty low, and we know that poverty is a prime cause of poor educational outcomes. This helps account for New Jersey's high scores, and also acts as an object lesson in not fetishizing particular countries, states, or programs. This stuff is complicated, and there's no point in just substituting one simplistic analysis for another. That said, I'd say Bath is worth listening to. We should take good ideas from wherever we can find them, but there's not much reason to go haring around the world looking for educational lodestars to emulate. We have 51 laboratories of democracy right here at home, all of which are more culturally similar to each other than any foreign country is. And some of them do pretty well, already working within the framework of American culture, American laws, American ethnic makeup, and American parents. Why not study them instead?