Lone Candle
Champion of Truth
“Spiking inflation is helping push up taxes on a group that lawmakers are loath to cross: the elderly.
While Social Security benefits increase along with rising prices, and seniors just received a fat cost-of-living adjustment, the threshold at which they can begin to owe taxes on that money is not adjusted for inflation — and hasn’t been changed since the Reagan administration.”
“And that’s the catch. In an era of strong wage growth, surging inflation, and record demand for workers, we’re still seeing an unexpectedly slow rate of workers returning to the labor market. The best and fastest solution to the problem would be to rapidly expand immigration opportunities, which have been severely curtailed by pandemic-era policies.
During the pandemic, pundits put forth three main arguments on why people weren’t returning to work: aversion to being exposed to COVID-19, insufficient child care, and overly generous relief programs. These considerations should be in the rearview mirror by now. With readily available vaccines and boosters, the risk of COVID-19 infection for the typical worker has been minimized. Most schools resumed in-person classes by last fall, primary school children have had access to vaccines since November 2021, and schooling interruptions from COVID-19 variants have faded away. Meanwhile, nearly all pandemic relief programs that would reduce a worker’s need for a paycheck have expired.
But there’s still a marginal case for each of these explanations. Around 2.7 percent of the U.S. population (up to 7 million potential workers) is immunocompromised. Because they face a higher risk of severe illness from contracting COVID-19, that threat may still inhibit them (or their household members) from reentering the workforce. Similarly, children under the age of 4 still can’t receive COVID-19 vaccines—causing some parents to keep their children away from group child care services. It’s quite possible that there is a bit of a chicken-and-egg problem, where the reduced supply of workers limits the amount of child care a nursery school can provide, thus making it harder for parents to take on a job.
And some pandemic relief programs remain in effect, which may, at the very least, be indirectly reducing the labor supply. The federal Emergency Rental Assistance (ERA) program still has almost $20 billion out of an initial $46.5 billion to spend. Applicants can receive up to 18 months of rental assistance, including payments for previous and future housing costs. Recipients can also reapply for additional assistance. March data from the Treasury Department show that the program distributed $2.2 billion to anywhere from 305,000 to 514,000 households. Assuming that no household was double dipping in the two rounds of the ERA program, this averages out to a $4,200 payment per household.
Similarly, the number of borrowers seeking loan repayment relief has significantly increased since the onset of the pandemic: The proportion of federal student loan borrowers opting for loan forbearance grew from under 10 percent to over 50 percent in 2020 and has remained there since.
Both rental assistance and loan forbearance would diminish the pressure a worker would feel to return to work, but there hasn’t yet been an estimate of these programs’ effect on labor supply. Perhaps in response to such concerns, the governors of Nebraska and Arkansas have declined most future ERA funding.
However, the larger contributors to the dramatically reduced labor supply are likely the increase in people retiring and the decrease in immigration.”
“Rep. Peter DeFazio (D-Ore.), chair of the Transportation Committee, blasted the idea in a statement: “Suspending the federal gas tax will not provide meaningful relief at the pump for American families, but it will blow a multi-billion-dollar hole in the highway trust fund, putting funding for future infrastructure projects at risk.”
…
Democrats argue any help for families dealing with high gas prices could be worth it, but suspending the federal gas tax may not make much of an impact. The Penn Wharton Budget Model estimated savings would be an average of between $16 to $47 total per capita under a ten-month suspension. Others argue there’s no guarantee the oil companies would pass along all the savings to consumers. And all that to potentially hamstring the fund responsible for funding infrastructure projects.”
“When California passed a massive boost in its minimum wage six years ago so that it would eventually reach $15 an hour, the law included a component that tied the minimum to inflation levels. If inflation starts getting too high, the law forces a mandatory increase in the minimum wage.
This week, Gov. Gavin Newsom’s budget director, Keely Martin Bosler, announced that the massive inflation America is seeing is going to force the minimum wage in the state to automatically increase to $15.50 next January. The law requires this automatic adjustment if the inflation rate grows past 7 percent. The Los Angeles Times reports that it’s possible that the minimum wage might rise by another 50 cents if inflation continues.
Bosler, of course, sees only the positive here, saying it will help poor families pay for the higher food prices we’re all enduring: “They have a huge impact to those families that are living off of those lower wages and their ability to cover the cost of goods.””
…
“ising wages during this time frame is natural, but it’s also worth noting that California’s unemployment rate continues to be higher than the national average, sitting at 4.9 percent. Just four states and Washington, D.C., have a higher unemployment rate. According to data from California’s Employment Development Department, almost every county in California has higher unemployment rates than the average, and some are running more than twice the national average. Two counties—Colusa and Imperial—have double-digit unemployment rates.
At the same time, businesses have also been hit hard by inflation, and those that operate on tight margins (retail stores, restaurants, and pretty much every small business) are going to have new struggles. Combined, inflation and a higher minimum wage will make it difficult for these businesses to take on new employees and keep the ones they already have.”
“The move reinstates the Cuban Family Reunification Parole Program, which from 2007 to 2016 allowed up to 20,000 Cubans per year to come and stay in the U.S. while applying for permanent legal resident status. It also removes the $1,000-per-quarter restriction on how much money Americans can send to family, friends, and private entities across the Florida Straits.”
…
“Lifting government prohibitions on the movement and trade of Americans is a good policy in and of itself, regardless of impact on captive peoples abroad. But is the impact of increased travel and remittances on balance good or bad for Cubans?
Menendez argues that “nothing changed” as a result of Barack Obama’s decision to ease restrictions. By the unreasonable standard of regime change or even significant liberalization, the senator is correct. But by the standard of measurable differences in living conditions and relationship with the government, things indeed changed. As I wrote after visiting the island in 2016 for the first time in 18 years:
“A noticeable segment of the population has gained at least some financial and experiential independence from the police state. They are not, in my observation, spending that extra money on flower arrangements for the Revolution. As Sen. Jeff Flake (R–Arizona) told us during our visit, “You have about 25 percent of Cubans who work fully in the private sector….The big change is the number of Cubans being able to not have to rely on government and therefore can hold their government more accountable.”””
…
“Menendez’s statement nods toward the potential universality of his foreign policy vision: “Today is another reminder that we must ground our policy in that reality, reaffirm our nation’s indiscriminate commitment to fight for democracy from Kyiv to Havana, and make clear we will measure our success in freedom and human rights and not money and commerce.”
That logic, applied evenly, suggests at minimum the dismantling of the World Trade Organization and the imposition of travel restrictions on Americans seeking to visit not just Havana but the more than 60 countries categorized by Freedom House as “not free.” Menendez would never openly advocate such an approach, because that approach would be both politically suicidal and logically insane.
Cuba has long been the crystallization of America’s worst foreign policy instincts. Good on the Biden administration for easing that somewhat.”
“The country’s ongoing shortage of infant formula has been exacerbated and prolonged by a long list of counterproductive government interventions: from tariffs and trade restrictions to price-distorting subsidies and nonsensical labeling requirements.
New York City Mayor Eric Adams has decided to throw one more log on the fire by issuing an emergency order limiting price increases on infant formula.
“The nationwide infant formula shortage has caused unimaginable pain and anxiety for families across New York—and we must act with urgency,” said Adams on Sunday. “This emergency executive order will help us to crack down on any retailer looking to capitalize on this crisis by jacking up prices on this essential good.”
The mayor’s order invokes city rules that prohibit merchants from raising prices more than 10 percent from where they were 30–60 days preceding the emergency. Adams urged people to report potential gouging to the city’s Department of Consumer and Worker Protection.”
…
“sudden price hikes discourage people from engaging in harmful and unproductive hoarding.”
…
“Higher prices make once unprofitable activities suddenly lucrative. For example, it’s usually not profitable to drive 100 miles to sell people bags of ice. That calculation changes when a hurricane drives up the price of ice to $15 a bag.
Conversely, if price gouging laws force a bag of ice to be sold at $1, hurricane or not, a lot fewer potential suppliers are going to be induced to take that trip. The result is more people go without ice.
Adams’s order will similarly deprive New Yorkers of much-needed formula. Out-of-city suppliers who might have incurred higher transportation costs to reap the rewards of higher prices in the Big Apple will instead sell off closer to home. That’ll be particularly true if they’re located in a jurisdiction that hasn’t banned market prices on baby formula.
The federal policies driving the formula shortage—whether that’s prohibitive tariffs on baby formula or labeling rules that keep European products off the market—are outside the control of local officials like Adams, who are nevertheless expected by their constituents to do something.
The least the mayor could do, however, is not make the formula problem worse. His emergency order shows he can’t even clear that bar.”
“The uproar over infant formula shortages is prompting lawmakers to confront how a federal nutrition program may be helping a small handful of formula manufacturers dominate the U.S. market.
The federal government’s widely-used nutrition program for women, infants and children, known as WIC, is by far the largest purchaser of formula in the U.S., with more than half of infant formula in the U.S. going through the program. And just two companies serve close to 90 percent of the infants who receive benefits through the program, in part because of the way WIC awards its contracts.”
…
“The Abbott recall and resulting shortages were especially disruptive for WIC recipients. About half of all babies born in the U.S. qualify for WIC, which serves low-income families. Many of these households don’t have the time or resources to drive around looking for alternative formula brands or scour the internet for available stocks. Even if parents and caregivers could find alternative formulas, their WIC benefits might not have covered the specific brand they could find when the shortages first hit.
For the past three decades, WIC has used what’s called sole-source contracting, which is designed to save the program money by allowing the states to buy formula far below retail prices. The National WIC Association estimates that state rebates save about $1.7 billion in costs each year. When a state contracts with a company, all WIC participants in the state use that same manufacturer. Just three companies have been awarded contracts during this time: Abbott Nutrition; Mead Johnson, which makes Enfamil; and Nestle, which makes Gerber.”
…
““The dirty secret about WIC is these formula companies actually lose money on formula that they sell through WIC,” because the lowest bidder ends up winning the state contracts, explained a former Democratic Senate aide. “But what happens is… if you give birth in a hospital and you request formula, you’re going to get the formula that is whoever has the WIC contract,” allowing the formula makers to reach a massive pool of new customers. Getting a state WIC contract can also mean more favorable shelf space at retailers across the state and more brand loyalty.
Not everyone agrees about the extent to which sole-source contracting has driven consolidation in the formula industry, versus other factors, like overall consolidation across the food sector and high food safety regulatory costs, since infant formula is more highly regulated than most other foods.”
…
” But the USDA’s Economic Research Service in 2011 found that switching a state WIC contract gave the new manufacturer about a 74 percent bump up in market share in the state. Most of that is the result of WIC participants switching — since they make up more than half the market — but the rest is the result of more preferential treatment at the retail level.”
“After a month of intense civilian-led protests over Sri Lanka’s deteriorating economy, President Gotabaya Rajapaksa agreed to appoint a new council on Friday to lead the formation of an interim government. The resolution would create a coalition made up of all parties in Parliament and would remove the grip of the Rajapaksa family dynasty currently ruling the country. At issue is the country’s economic future, which is in shambles after defaulting on payments on its mountain of foreign loans — estimated to be worth $50 billion — for the first time since the country gained independence from the British in 1948.
Signs of Sri Lanka’s impending economic crisis became increasingly apparent over the last two years of the Covid-19 pandemic as food prices soared and power blackouts increased in frequency. Sri Lanka currently has about $7 billion in total debt due this year.
Many attribute Sri Lanka’s economic crisis to the mishandling of its finances by successive governments through mounting foreign debt and continued infrastructure investments. The Rajapaksa administration also implemented sweeping tax cuts in 2019, slashing the value-added tax (VAT) rate — the tax applied to imports and domestic supplies — from 15 percent to 8 percent, which contributed to a decrease in the country’s revenue.”
“The implication of Philippon’s paper is as simple as it is disturbing: We should expect economic growth to slow down in the long run, and the big leaps forward of the last couple centuries may be an aberration.
This conclusion is far from certain, and it goes against decades of assumptions on how to model economic growth. But Philippon brings a lot of data to bear on his thesis, which makes some intuitive sense, and even the possibility of it being true should alarm us.”
…
“What Philippon does is attempt to assess whether TFP actually does, in practice, grow exponentially. He first looks at two datasets covering TFP in the US and finds, instead, linear growth since World War II: TFP does not increase by a set percentage each year, but a set amount (0.0245 points, if you’re curious) each year. It doesn’t compound; it just gradually, steadily grows. You’re getting $2 a year, not 2 percent of an ever-increasing pile.
Extending the data back to 1890, he finds linear growth, but with a break: slower growth from 1890 to 1933, and faster after 1933, but steady and non-exponential in each period. He then extends the analysis to 23 relatively wealthy countries, from Japan to Germany to Spain. A linear model fits better here, too.”
…
“The US and other rich countries have experienced a well-documented decline in productivity growth, especially TFP growth, since 2004 or so. Philippon’s findings could help explain why that is. The slowdown is only there if you assume TFP should be growing exponentially. If you assume mere linear growth, it’s not that things have gotten worse in recent decades. It’s just that they were never that good.
That’s an alarming conclusion, mostly because from the standpoint of human history, the past few centuries have been very good. Before the 17th to 18th century or so, human economies grew extremely slowly. Agriculture showed little productivity growth, meaning there was a fixed population that farming societies could support. Living standards varied mostly based on how many people were around; when the population suddenly shrank (as in the Black Death in Europe) people grew richer on a per capita basis, and when the population swelled the opposite occurred. This is known as the “Malthusian trap.”
“Until about 1800, the vast bulk of people on this planet were poor,” Joel Mokyr, an economic historian at Northwestern, once noted. “And when I say poor, I mean they were on the brink of physical starvation for most of their lives.”
That pattern started to break down in the 17th through 19th centuries, a process sometimes shorthanded as the “Industrial Revolution,” but including a wide variety of cultural, scientific, technological, and economic changes. Long story short: productivity sustainably grew for the first time in human history. And it grew, by historical standards, quite rapidly, such that a far lower share of people alive in 2022 are on the brink of starvation than were in 1800, even though the population needing food has never been greater.”