Is the stimulus to blame for high inflation?

“The American Rescue Plan, intended to stimulate the economy from the effects of the pandemic, was a massive spending package that passed in March 2021. The legislation included $1,400 checks for individuals, expansions to unemployment insurance and child tax credit benefits, and hundreds of billions in aid to state and local governments.

For months, economists have debated the American Rescue Plan’s impact on inflation. While many economists agree that the stimulus law did worsen inflation by giving people more money to spend, they continue to disagree about the extent. The debate is, in part, about what else might be to blame in the United States and globally. Inflation started shooting up in early 2021 after the package passed and has remained stubbornly high since. But even without the stimulus, inflation would have increased. The coronavirus led to factory shutdowns around the world, shipping backlogs, and labor shortages, all of which have strained supply chains and pushed prices higher.

The disagreement essentially boils down to economists’ views on how pandemic-related factors independent of the stimulus, such as a shift to working from home, have contributed to inflation and how unique inflation has been in the United States compared to other countries.”

“Increased housing costs have been a big driver of inflation — shelter is the largest component of the Consumer Price Index and makes up about 30 percent of overall inflation as measured by the index. Dean Baker, a senior economist and co-founder of the liberal-leaning Center for Economic and Policy Research, argued that new research on housing inflation helped support the idea that price gains were mostly driven by a mass shift to remote work and not the stimulus package. As people shifted to remote work, housing prices went up, and those prices in turn pushed overall inflation higher.
An analysis published by the Federal Reserve Bank of San Francisco on September 26 examined the rapid rise in housing prices and whether remote work, or other factors like fiscal stimulus, led to the increase. The authors — Augustus Kmetz, John Mondragon, and Johannes Wieland — wrote that as more people started working remotely, they sought out additional space at home. That resulted in a spike in housing demand and helped lead to a surge in prices.

The researchers estimated that remote work resulted in house prices rising by about 15 percent from November 2019 to November 2021, which accounts for more than 60 percent of the overall increase in house prices.

“It means we can’t blame the stimulus. Clearly that added to it,” Baker said. “But the main story there is this big switch to working from home.””

“Holtz-Eakin said it was clear that the package significantly drove up inflation and pointed to research from the Federal Reserve Bank of San Francisco, which published an analysis in March that found that “fiscal support measures designed to counteract the severity of the pandemic’s economic effect” could have “contributed to about 3 percentage points of the rise in U.S. inflation through the end of 2021.”

The analysis — which was written by Òscar Jordà, Celeste Liu, Fernanda Nechio, and Fabián Rivera-Reyes — found that the United States’ “core” inflation, which strips out volatile food and energy prices, rose more quickly in 2021 compared to the average rate of core inflation of other wealthy countries. Compared to the other countries — Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden, and the United Kingdom — the United States injected more fiscal stimulus into its economy.

“The difference is really the stimulus in the US,” Holtz-Eakin said.

But Josh Bivens, the director of research at the left-leaning Economic Policy Institute, said that inflation has been ubiquitous “across every advanced economy” since the pandemic began and he didn’t believe the American Rescue Plan was a major contributor to inflation. An analysis published in August by Bivens, Asha Banerjee, and Mariia Dzholos examined the United States’ core inflation from December 2020 to May 2022 and compared it to core inflation in other Organization for Economic Cooperation and Development (OECD) countries. To calculate the rate of acceleration in each country, the researchers took the difference between the “post-pandemic” core inflation and the “pre-pandemic” core inflation using data from 2018 and 2019.

The researchers found that the acceleration in the United States’ core inflation was “on the higher side” but was “far from the top” and not that far above the average for all other OECD countries. All but one OECD country saw an acceleration in core inflation, the researchers found. For example, Canada’s core inflation grew at a slightly slower rate compared to the United States, but Portugal’s sped up faster, according to the analysis.”

“Bivens also pointed to the Federal Reserve Bank of San Francisco’s research on housing inflation and said that price gains in the United States were mostly driven by pandemic-related events that would have occurred without the stimulus — like supply chain disruptions and increased demand for housing. And although he said he believed the American Rescue Plan had inflationary impacts, the trade-off was necessary to stave off higher unemployment numbers.”

Biden’s New Industrial Policy Will Fail, Just Like Industrial Policy Always Fails

“When it was passed, the law provided subsidies for the construction of a domestic shipping industry, while imposing various employment rules and other shipping regulations. It has been amended in the century since, but it continues to prohibit foreign-flagged ships from traveling between U.S. ports, and many of its wage and labor regulations are still in effect, making it beloved, almost obsessively, by unions.
In at least one way, the Jones Act has served at least part of its intended purpose: It has benefited the domestic shipping industry by shielding it from foreign competition. But it has done so at considerable expense to everyone else.

By restricting and regulating shipping at America’s ports, the Jones Act considerably raises the costs of transporting goods, which in turn raises prices on everything from food to electronics to textiles. In good economic times, the Jones Act is a cost borne by the majority to bolster the fortunes of a few. In periods of global economic instability and high inflation, the Jones Act makes supply chain problems worse and drives prices even higher. On a daily basis, it is a force for impoverishment. ”

“Just about any time one finds a politician taking credit for specific business decisions by specific companies, one ought to be skeptical, worried, or both. In this case, the proximate cause of much of Biden’s factory-jobs campaigning is the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, a $52 billion package of industry subsidies Biden signed into law in August. Manufacturers who stand to benefit from these subsidies have played along, with Micron’s leadership saying that its facility is “the first of Micron’s multiple planned U.S. investments following the passage of the CHIPS and Science Act.” Micron, however, was publicly teasing the possibility of new manufacturing facilities as early as October 2021, long before the CHIPS Act became law.”

“Just as the Jones Act ends up distorting the shipping industry, shaping it in ways that make it less flexible and less responsive to genuine consumer demand, we should expect the CHIPS Act to push the semiconductor industry into labor and production decisions intended to satisfy politically determined subsidy requirements rather than genuine market needs. Subsidies are more likely to incentivize inefficiency and dysfunction than genuinely useful production, inflating prices in the process. When subsidies are driving decisions, that means subsidy programs, not end users, are the true customer. “

Markets Aren’t Perfect, but Government Is Worse

“The free market’s price system, along with competition by sellers for customers and by consumers for good deals, play an essential role in gathering and processing the information about our economy that is dispersed among millions of buyers and sellers. The resulting prices are a measurement of how much people value goods and services.

In a well-functioning competitive market, this argument continues, these critical price “reports” tell us the most advantageous ways to use finished goods and services, intermediate goods, raw materials, and—importantly—human time and talent, and lead entrepreneurs to produce what we want most intensely as efficiently as possible. In economics terms, prices convey information about scarcities and about wealth-creating incremental substitutions.

It’s a mind-blowing system where, as French political scientist Frederic Bastiat reminded us decades ago, although no one plans it, “Paris gets fed daily.”

Enter Samuel Gregg and his wonderful new book, The Next American Economy. Gregg’s case for the free market goes beyond the classic economic argument.

He writes that “the case for free markets involves rooting such an economy in what some of its most influential Founders thought should be America’s political destiny; that is, a modern commercial republic.” He adds that “politically, this ideal embodies the idea of a self-governing state in which the governed are regularly consulted; in which the use of the state power is limited by strong commitments to constitutionalism, the rule of law, and private property rights; and those citizens consciously embrace the specific habits and disciplines needed to sustain such a republic.”

Yes! I like to believe I’m a great advocate for markets, but whenever I omit these last points, I sabotage my own case. For one thing, terms like “competitive markets” give the impression of a heartless process. But the most important aspect of this competitive process is cooperation.”

“No serious free marketer believes that markets are perfect. We aren’t utopians. Unfortunately, perfect markets and perfect competition are often the starting point of economic textbooks. This rosy starting point leads many to conclude that when conditions are less than perfect, the best course of action for a correction is government intervention. It’s wrong.

Not only is government itself imperfect, as anyone can plainly see, but the market is a process to find and fix errors. A market imperfection is an opportunity for entrepreneurs to profit. As Arnold Kling recently wrote, “Markets fail. Use markets.” That’s because, Kling adds, “entrepreneurial innovation and creative destruction tends to solve economic problems, including market failures.”

This isn’t to say that the government plays no role aside from protecting property rights. But it means that faith in government intervention should be tempered with an acknowledgment of government’s own flaws, including a tendency to favor one group of people over another and an inability to adapt when policies fail or circumstances change.

The bottom line is that when we talk about the “free market,” it is a shorthand for a combination of institutions that allow people to cooperate, tolerate one another, live in peace, and flourish. As Gregg reminds us, all these elements are a quintessential part of what President George Washington envisioned for the new nation he led and described as “a great, a respectable & a commercial nation.””

Colorado Town Seizing Ski Resort’s Land To Stop It Building Employee Housing

“Following months of increasingly contentious head-butting, officials in the mountain town of Vail, Colorado, are moving to seize a property from a local ski resort to prevent it from constructing new housing for its employees.
The property in question is a 5-acre site abutting a frontage road in the eastern part of the 5,600-person ski town. After nearly five years of rezonings, planning, permitting, and litigation, ski resort operator Vail Resorts is ready to move ahead with the $17 million Booth Heights project that would create 165 beds for its work force.”

“Standing in their way is the town of Vail itself, which filed a petition in Eagle County District Court on Friday to invoke its eminent domain powers to seize the Booth Heights site and hold it as open space”

“Throughout the process, Vail Resorts has maintained that its project would not harm the area’s bighorn sheep. Plack tells Reason the company has committed to paying $100,000 for habitat restoration and would install barriers around its property to prevent residents and pets from interfering with the sheep.

An environmental impact report prepared for the project concluded that it would not harm the area’s sheep. Vail Resorts notes in a lawsuit challenging the emergency ordinance stopping construction of its project that the town has approved several large homes within the bighorn sheep’s range.”

The Government Can’t Fix Social Media Moderation and Should Not Try

“Despite their increasingly bitter differences, Democrats and Republicans generally agree that content moderation by social media companies is haphazard at best. But while Democrats tend to think the main problem is too much speech of the wrong sort, Republicans complain that platforms like Facebook, Twitter, and YouTube are biased against them.
The government cannot resolve this dispute and should not try. Siding with the critics who complain about online “misinformation” poses an obvious threat to free inquiry and open debate. And while attempting to mandate evenhandedness might seem more consistent with those values, it undermines the freedoms guaranteed by the First Amendment in a more subtle but equally troubling way.”

The Inflation Reduction Act, explained

“The policies overall aim to push American consumers and industry away from reliance on fossil fuels. The biggest share of the funding goes to tax credits and rebates for a host of renewable technologies — solar panels, wind turbines, heat pumps, energy efficiency, and electric vehicles. It includes incentives for companies to manufacture more of that technology in the United States. The law will also put funding into energy efficiency at industrial sites that can help lower the sector’s hefty carbon footprint, while dedicating some funds to forest and coastal restoration.
The IRA also breaks new ground on other problematic areas of the climate crisis. It sets the first methane fee that penalizes fossil fuel companies for excess emissions of the especially powerful climate pollutant. Another substantial part of the funding helps disadvantaged communities with monitoring and cleaning up pollution, and builds their resilience to climate impacts.

Beyond cutting climate pollution, the clean energy investments could also make a dent in inflation. According to Robbie Orvis, senior director at Energy Innovation, rising energy prices have driven roughly a third of the 9 percent rise in the overall Consumer Price Index this past year. By helping Americans become less reliant on fossil fuels, the spending helps ease the global oil crunch and cut consumer bills.”

“The agreement also includes a 15 percent minimum tax on corporations with profits over $1 billion. Senate Democrats note that while the current corporate tax rate is 21 percent, dozens of major companies, including AT&T, Amazon, and ExxonMobil, pay much less than that. Originally, the provision was expected to raise $313 billion, though new carveouts were added to win Sen. Kyrsten Sinema’s (D-AZ) vote, which give manufacturers and private equity firms more leeway when it comes to the new minimum tax rate. Those changes are likely to reduce the revenue this measure will bring in.

There is also a 1 percent excise tax on corporations’ stock buybacks, which are currently not subject to any taxes at all. That excise tax is estimated to raise roughly $73 billion in revenue.”

The US finally has a law to tackle climate change

“The IRA uses tax credits to incentivize consumers to buy electric cars, electric HVAC systems, and other forms of cleaner technology, leading to less emissions from cars and electricity generation, and includes incentives for companies to manufacture that technology in the United States. It also includes money for a host of other climate priorities, like investing in forest and coastal restoration and in resilient agriculture.
These investments, spread out over the next decade, are likely to cut pollution by around 40 percent below 2005 levels by 2030, according to three separate analyses by economic modelers at Rhodium Group, Energy Innovation, and Princeton University. The legislation helps move the US a little closer to its stated goal of cutting pollution in half within the decade.

The main climate change components of the Inflation Reduction Act look surprisingly similar to the version the House passed last fall, a measure widely celebrated by climate activists — although it’s smaller than the $2 trillion the Biden administration once envisioned. To win Sen. Joe Manchin’s (D-WV) support, Democrats added provisions that clear permitting roadblocks for some fossil fuel projects and force the Department of Interior to hold more offshore oil lease sales.”

“There is plenty the act does that is not about climate change. There’s funding for the Affordable Care Act, the IRS, and prescription drug reform. It also sets a corporate minimum tax — one of the ways the law helps tackle inflation. But this is arguably a climate law, as climate initiatives make up the biggest portion of the act’s investments.

The deal retains most of the key programs of the House’s Build Back Better Act, including consumer tax credits for solar panels and electric vehicles, and funding for domestic clean energy manufacturing.”

Florida medical board moves to block gender affirming treatments for minors

“Florida’s medical board on Friday voted to begin the process of banning gender-affirming medical treatment for youths, a move that comes as Republican Gov. Ron DeSantis has become increasingly vocal in his opposition to such therapies.”

“The board also voted to start that process for requiring adults seeking such care to wait 24 hours before going forward with any medical procedures.”

“The American Academy of Pediatrics and the American Medical Association support gender-affirming care for adults and adolescents. But medical experts said gender-affirming care for children rarely, if ever, includes surgery. Instead, doctors are more likely to recommend counseling, social transitioning and hormone replacement therapy.
The proposed rule is the latest step taken by the DeSantis administration to tighten regulatory controls over gender-affirming care. Florida’s Medicaid regulator is also considering a rule that would block state-subsidized health care from paying for treatments of transgender people.”

The CHIPS Act won’t solve the chip shortage

“On its face, the idea of increasing semiconductor manufacturing in the US seems like it would help address the global supply crunch for computer chips, which has made it harder to buy everything from cars and laptops to sex toys and medical devices during the pandemic. Senate Majority Leader Chuck Schumer (D-NY) has even suggested that the funding package could help fight inflation, presumably by making these goods cheaper.

But while it’s certainly fair to call the legislation a victory for bipartisanship, this plan is primarily focused on keeping up with China’s growing investment in its own domestic chip industry — not solving the present issues with the tech supply chain. The chip factories produced by this package won’t be complete for years, and the bulk of the funding won’t necessarily go toward basic chips, also known as legacy chips, which account for much of the ongoing shortage. And that shortage may be nearing its end anyway.”

How state governments are reimagining American public housing

“Governments have successfully addressed past housing shortages through publicly developed housing in places like Vienna, Finland, and Singapore, but citing these examples often leads to glazed eyes and weary skepticism that such models could ever work in the US, with our more meager welfare systems and our strong cultural attitudes toward private homeownership. America’s 958,000 units of federal public housing have also long suffered from reputation problems both real and exaggerated, with many seen as ugly, dirty, or unsafe. Few understand that many of the woes of American-style public housing have had to do with rules Congress passed nearly 100 years ago that predictably crippled its success and popularity, rules like restricting the housing to only the very poor.”