48 Comments
Feb 9, 2023Liked by Noah Smith

Fine article.

I think the daily press have been suckers for economics which get both current price increases and future prospects wrong.

As your article says, Covid and Ukraine are salient right now, so we have a price bump and some stringencies. We are not facing Armageddon because the price of a loaf of bread just went up a quarter.

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It's because in the U.S. food costs are a relatively low proportion of income -- housing and transportation are more salient. If it were higher, like in the developing world, you would see widespread social instability.

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Very good review.

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SOTU speeches are a series of lies about the current situation bookended by promises that will never be kept and troublesome things avoided.

From the low expectations one has for Joe Biden, he met the form and did not disappoint.

Inflation is not low. It was 1.4% when Biden came into office and a number of egregious campaign promise actions later skyrocketed to more than 5X.

That inflation is baked into the cake and will never be diminished. Only the RATE OF INFLATION will dampen and that has not yet happened from a substantive perspective.

We are in four wars --

1. The War on Energy - Biden started this one and we are losing it

2. The War at the Border - Biden started this one and we are really losing it

3. The Cold War with China - Biden has done nothing to diminish this one, hasn't even recognized it

4. Ukraine - Biden is probably the reason the Russians pulled the trigger literally. I give Biden fair marks for how he has responded.

None of the above were mentioned in accordance with their importance, instead we got a lecture on insulin and paying your fair share which will also not happen.

Biden continues to be the problem in the US today.

We have such low expectations for this President that we breathe a sigh of relief when he gets most of the names right and does not fall asleep.

JLM

www.themusingsofthebigredcar.com

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Did you just promote your own Substack in this comment section? That’s funny.

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No, it's my blog The Musings of the Big Red Car.

Go have a look.

JLM

www.themusingsofthebigredcar.com

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I liked your recent piece on Ukraine/Russia

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The one on the Russian offensive from today?

JLM

www.themusingsofthebigredcar.com

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What stuff do you write about? And what are your qualifications?

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Haha, go read the blog.

VC, institutional quality commercial real estate, military, policy, politics, leadership, company building.

My primary qualification is the speed of my typing.

JLM

www.themusingsofthebigredcar.com

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This is hilariously conspiratorial.

Please stop advertising your random blog here.

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Haha, "hilariously conspiratorial" -- that's the kind of smart, clever dialogue and repartee that brings me to the 'Net. Those BIG ideas.

Well played.

JLM

www.themusingsofthebigredcar.com

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founding

https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation#:~:text=Inflation%20is%20the%20rate%20of,of%20living%20in%20a%20country.

"Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country."

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How is it possible that increasing unionization won’t increase inflation? All unions do is restrict supply and raise costs, and do it by repugnant hostage-taking. The delicious irony of unionization causing more pain for its members rather than less is difficult to pass up, but I think I’d still rather just skip it. Modern unions also just another vector for DEI and often as not support management against employees when racial or sexual issues are implicated.

Unions used to be illegal conspiracies. We have to go back. Bust them all. We can even start with the police unions.

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As a 16-year-old kid in the 1960s, I got a job with a double breasted construction company -- half non-union, half union.

I was forced to go to Thursday night classes at the cement finishers and plasterers union. I quickly learned how to finish concrete.

Once upon a time unions were craft guilds and a great place to learn.

I went from a guy pounding forms, to a guy with a trowel, to a guy who could run the bull float, to a guy who could run a single headed machine, to a guy who could run the 3-headed hydra progressing from $1.65/hr to $4/hr and getting as much OT as I could handle.

I made straight time for 8, 1.5X for the next 4, and 2X for the next 4.

The union was a good place to learn and the business agent was a solid guy who I used to see in church.

Then, the bosses got their hands on the money.

JLM

www.themusingsofthebigredcar.com

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BUSINESS OWNER: *doing business in a peaceful and prosperous manner.*

UNION MAN: Nice business ya got there. Be a shame if...something happened to it.

That is unionization. How else do unions extract concessions except by the threat of work stoppages or sabotage? What do those amount to? Restriction of supply and increases in cost. What do those cause? Inflation! (among other negative consequences). More than that, and from a purely moral standpoint, free and equal people should not tolerate organizations whose raison d'etre is the making of threats and interference with others' rights of property and association.

Literally the best case for unionization is that the unionized businesses go under and will be out-competed by non-unionized businesses. Of course, the public sector can't go out of business. And wouldn't you know, public sector unions are the most entrenched.

Bust them all.

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Then enlighten me. You ding me for "evidence-free" claims, and you hit me with vague platitudes? I describe precisely the way unions work, the only way they CAN work, and this is what I get? No refutation of a single one of my points, just non-sequiturs? I suppose I should be satisfied that we apparently agree on these points.

Expansion of the franchise? To whom? To all adult males? To women? To racial minorities? I see no evidence that trade unionism played any significant role in those. I know there were a handful of primarily rail unions that were or became mostly black, but I've never heard they were a major driver.

I know the AFL was involved in advocacy relating to child labor, but I also hear from commies that the AFL represented the "aristocracy of labor," so I'm not sure you want to hang your hat there. On the other hand, it seems that the turn against child labor represented a broad-based cultural shift that had much more to do with (for example) advances in photography and photojournalism than unions.

I await further nonsense and low-effort responses.

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founding

I am a YIMBY, but we mostly focus on housing, with some consensus locally that transit and bikes are good too. But we need a broader nationwide movement that is pro-building things, especially renewable energy and transit. I would say I am pessimistic, but the rapid growth and increasing political influence of the YIMBY movement in SF and even now nationwide gives me hope.

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As to the efficacy of both building and services, the key discriminator is density.

If a city approves high density then it has a smaller footprint in which to provide services and the services are more cost effective.

Density also makes public transport work.

As to energy, the only real issue is base line loading. Renewables are no good for the base which leads to "How about some nuclear power, y'all?"

The last two nukes in were Tennessee Bar Unit 1 - 1996 and Unit 2 - 2016.

Unit 2 was really permitted back in 1996, but built and on line in 2016.

The NRC approves nukes for 40 years at a time.

JLM

www.themusingsofthebigredcar.com

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The DOE is working with multiple entries to develop micro nuclear reactors that can be scaled to nearly the same output as those reactors being decommissioned. And set in the same land area with the utility hook-up.

Bigger issues are discussed in the Princeton Net Zero study - electric transmission and distribution rework is 1/2 or less (given aging existing lines) of what it needs to be for 2030 or 2050.

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The DOE microreactor programs are in the "small" range below 300MW and as small as 20MW and the medium range below 800MW.

It is a fairly recent and clever development to consider siting these nukes at former coal/brownfield plant sites which are typically in the 200MW range size wise.

Your comment re the distribution network is where the real problem exists. We will have to 3-5X the distribution when we all own EVs.

Microreactors -- small enough to fit on the back of a standard 53' truck -- can alleviate this problem by being sited downstream closer to the demand which minimizes the distribution requirement.

The US Navy has operated hundreds of small reactors that move about with no real problems. That is the size I think we should focus on.

Microreactors have an incredible future if we would just get off the regulatory hump and conduct a few experiments.

JLM

www.themusingsofthebigredcar.com

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"Inflation Reduction Act of 2022"

"The law, as passed, will raise $738 billion and authorize $391 billion in spending on energy and climate change, $238 billion in deficit reduction, three years of Affordable Care Act subsidies, prescription drug reform to lower prices, and tax reform.[2][4] The law represents the largest investment into addressing climate change in United States history.[5] It also includes a large expansion and modernization effort for the Internal Revenue Service (IRS).[6] According to several independent analyses, the law is projected to reduce 2030 U.S. greenhouse gas emissions to 40% below 2005 levels.[7] The projected impact of the bill on inflation is disputed."

I like how that last line is in there...

See https://en.wikipedia.org/wiki/Inflation_Reduction_Act_of_2022

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author

Yes, it's not going to decrease inflation.

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[Ron Howard narrator voice]: It was a spending bill.

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Unfortunately, just because inflation is coming down at the moment doesn't mean it's anywhere near low enough. From Scott Sumner (https://www.themoneyillusion.com/john-roberts-on-monetary-reform/#:~:text=PPPS.%20New%20new,loose%20in%202022.):

> PPPS. New new NGDP figures show 7.3% growth over the past four quarters, which is far too high. I warned you all back in early 2022 not to assume that just because the Fed had embarked on a series of rate increases they were tightening monetary policy. Interest rates are not monetary policy. Money was extremely loose in 2022.

For reference, Scott Sumner sees 4% NGDP as a good target - that allows 2% real GDP growth and 2% inflation. In Q4 2022, on the other hand, we're only 1% higher in real GDP than a year ago (https://fred.stlouisfed.org/graph/?g=ZS1O), and 1.2% annualized growth in real GDP from Q3 to Q4 (https://fred.stlouisfed.org/graph/?g=ZS1Ohttps://fred.stlouisfed.org/graph/?g=ZS1L), so inflation appears like it will remain quite high for the foreseeable future.

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founding
Feb 10, 2023·edited Feb 10, 2023

The bond market sure doesn't agree. MoM inflation is down to 0.3%, or 3.6% yearly and appears to be on a downward slope.

The wildcard here is The Feds Qualitative Tightening (reverse QE) where they are selling the bonds they bought during QE and thereby decreasing the money supply.

A good graph of this is here:

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

I still don't see why 3% isn't "low enough" and I think we can be there by year's end. I don't think that The Fed will think that this is low enough though and will continue tight monetary policy until it returns to 2%. They can control policy through more than just interest rates though.

I don't see your logic that monetary policy was extremely loose in 2022. Rates went up, The Fed sold bonds, what was loose?

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Other than the fact you cannot simply annualize the MoM inflation rate, there is not much to disagree with in what you say. Bravo and well played!

3% is certainly low enough -- in fact, 5% is low enough if things are at equilibrium. The problem with 5% inflation is the upward pressure from wages which is in and of itself inflationary.

We had GDP growth, full employment, plenty of liquidity, low interest rates, and low inflation - plus real wage growth, energy independence and cheap energy plus PEACE.

Oh, yeah, immigration at the southern border was stable.

Real wage growth was only possible because of record low inflation.

This was the best economy since the American Revolution and the predictive nature of the stock market applauded from the sidelines.

Week One of the new POTUS immediately dismantled a few of these things and they then went into this drug induced trance insisting the resulting inflation was "transitory" -- a view so wrong as to be the Anti-Christ.

Then they went on the record spending spree in the history of the US which they assured everyone with a sub 60 IQ would not be inflationary.

They trotted out a platoon of economic morons - cousins of the 51 intel experts - to swear inflation was transitory including the husband of the Sec Treas who was an expert in citrus pricing and markets.

Inflation turned out not to be transitory and was purely policy driven -- primarily bad fiscal policy (White House and Congress) rather than monetary policy (Fed).

You cannot assess inflation without looking at the other KPIs noted above and having a sense of the policy stance of the fiscal policy folks. If the WH/Congress has a hard on for energy, then you cannot expect energy to participate in the dance.

Record spending will beget record inflation. Boom!

Most of what is going on is bad policy on trade, taxes, energy, spending, and war. Plus profligate spending that is not investment. It is just pissing money into the wind.

We will have 6%+ YoY inflation until the end of 2024 and continue to act surprised and blame monetary policy when it's fiscal policy.

JLM

www.themusingsofthebigredcar.com

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Your little flourishes, such as “Bravo and well played!”, and sentence end tags, such as calling readers folks, comes across as smug and condescending. I for one would be more open to considering your arguments if you treated readers with a little more respect.

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Haha, you pompous ass. I don't give a FF what you think or how it strikes you, you little nancy boy.

You did, however, make my day knowing the sensitivity ballerina social media gestapo are on the job.

Grow up, cupcake.

JLM

www.themusingsofthebigredcar.com

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Oh, I should add that you calling me a gay Nazi made me chuckle. You hit Godwin’s law awfully fast. I imagine you’d be quite powerful at dominating at Six Degrees if Kevin Bacon.

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I love you too, buttercup! You obviously do care a little about what I think or you wouldn’t have responded.

You might also note that I “hearted” an earlier comment you made about nuclear energy. Just because some of your tone rubs me the wrong way doesn’t mean I can’t still absorb and even endorse some of how you see the world.

I should have known better than to follow my baser instincts and comment about my personal reactions rather than a rebuttal of your logic, facts, or interpretation thereof.

I rarely write comments anywhere on the internet. Now I am reminded why. It only ever helps to correct a bully when in physical proximity.

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Boring. Yawn.

Listen, princess, nobody bullied you. In your hyper sensitive state you felt compelled to pick a fight where none existed. You had no particular right to critique my wordsmithing. That's on you.

You felt hurt and that, amigo, is a personal problem. I am not responsible for your feelings. Sorry.

You are not correcting any bullies in words or in person, chump. Trust me on this.

Don't stick your nose into things and you won't get your dainty feelings hurt. The world will be just fine if you hide your brilliant candle under a bushel basket.

Take an aspirin and do not call me in the morning.

JLM

www.themusingsofthebigredcar.com

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Sure but we're going in the right direction now and I don't think its a disaster if inflation runs above 5% for a couple years.

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Permitting reform seems to have evaporated. And fossil fuel needed for a decade? That'll drive investment...

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“All these policies are great” 🤣 “inflation reduction act” that increased inflation. “Buy American” rules that discourage investment and raise inflation. Tell petroleum producers they only have a decade left and drain the strategic petroleum reserve and not yet start to refill it. Restrict oil and gas exploration helping to raise prices then belatedly undoing the changes and claiming he brought gas prices down. CHIPS act but no increase in H1A visas or even restart interviews. Pour more money into solar and wind even though the costs have come way down and require an updated grid blocked mainly by NEPA. Refuse to end the Covid emergency so that more money and regulations can stay in effect even though Joe said “Covid is over”. Trump sucks but Joe’s policies are no better.

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Thank you for the informative article.

Given the stable investment levels amidst rising tax rates, could this be evidence of Biden's policies starting to stimulate investment, with the effects perhaps being counterbalanced by the tax increases? Could there be a methodology to separately assess the impacts of these policy changes and the tax increases on investment levels?

Your insights would be greatly appreciated.

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What amazing advances in solar and wind energy components have been made in 2022 to decrease the price? All utilities and wind farms have been citing increased component costs...

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Feb 16, 2023·edited Feb 16, 2023

This is a great analysis (as always!) but there's one blind spot that I haven't seen anyone really address: the positive job creation benefits of extra/excess regulation at all levels of government. After all, there must be good reasons why permitting reform wasn't passed - in spite of tremendous impetus (including from the Joe Manchins of the world) to do so - and I have to believe that the entrenched lobbies that surely includes unions and other core Democratic constituencies is part of the answer/problem here. Has anyone done a real cost/benefit to removing these regulations? Does it turn into a benefit when netted against the positive investment/projects that could move forward? Intuitively, I feel like the answer is yes but fear much of the benefit extends far into the future with diffuse impact, and so is perfectly designed to result in little to no political will to push through, but defer to the experts on what has been written or said on the subject.

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I don't agree at all, but haven't the time to correct every oversight. Labor Force participation rate is at a 45yr low https://fred.stlouisfed.org/graph/fredgraph.png?g=ZVzC

GDP growth was negative Q1&2'22, and net real growth in 2022 was quite low. This some disinflation, but certainly no boom.

Much of the remainder ignores that Biden created the problems that are slowly improving, based on his 'centrally planned' economic thoughts. Noah seems t think that more central planning is the cure for bad central planning.

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I thought that was a clear analysis of where we stand, now, in 2023. Would have liked to see more discussion on how Biden's actions created many of the problems he was being given credit for solving. I am particularly disappointed in the credit given to Biden for bringing energy prices down when it was mostly his policies that pushed them up in the first place. The biggest driver in bringing them down right now is that the traditional energy companies see that there is a fast buck to be made today without the necessity of investing in infrastructure for the long term which is inadvisable due to regulatory uncertainty. That short term profit opportunity exists due to Russia's war rather than Biden's policies as he is creating more problems and failing to solve existing problems along the way.

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The lack of a physical work ethic in American people has essentially disestablished the desire to build a new and innovative infrastructure. Unions protect workers and make physical jobs more attractive. OSHA can protect the workers to make physical occupations safe and desirable. We really don't need any more Kings with slaves.

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Why not propose a law that requires a minimum of 20% of dividends be paid as special bonus to workers? There should be broad voter support for it and it will go a long way towards increasing the share of the pie going to labor. And frankly more actionable politically than hoping for a comeback of union power.

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