Im-Politic: The Court’s New Abortion Decision is Egregiously Wrong Itself

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The Supreme Court has finally decided to overturn the 1973 Roe v. Wade ruling supporting a Constitutional right to an abortion based on the majority’s vigorously argued position that “Roe was…egregiously wrong and on a collision course with the Constitution from the day it was decided” and that the follow-on 1992 Casey decision “perpetuated its errors.”

Maybe so, but at least based largely on the official summary (the Syllabus) of today’s ruling released by the Court, the six Justices who backed the Dobbs v. Jackson (Mississippi) Women’s Health Organization decision expressed some views themselves about what government can and can’t regulate that look pretty internally contradictory at first glance and that seem – eggregiously – at variance with ideas about Americans’ liberties that – to quote a legal standard they cite – are “deeply rooted in [our] history and tradition” and “essential to this Nation’s ‘scheme of ordered liberty.’”

Perhaps first and foremost, the Dobbs ruling states that “the authority to regulate abortion is returned to the people and their elected representatives.” And at least since a draft of the decision making this point was leaked in May, any number of pro-life supporters have argued that rescinding the right to an abortion by no means amounts to a nation-wide ban on the practice, and that states will remain perfectly free to keep or enact permissive abortion policies.

But in Dobbs, the Court has also called abortion a “critical moral question” because it “destroys what Roe termed ‘potential life’ and what the law challenged in this case calls an ‘unborn human being.’” Today’s Dobbs decision emphasizes this point in order to insist that their judgement poses no intrinsic challenge to other rights concerning highly personal behaviors, like the availability of birth control or gay marriage – which presumably don’t rise to abortion’s level.

All of which raises the question: If abortion is in a morality class by itself because of its devastating effects on the unborn, why do the six Justices supporting the Dobbs decision believe that states should have the any authority to regulate it? What satisfactory definition of morality could permit such a uniquely heinous practice to be permitted anywhere in the United States? Why, indeed, should it not be banned nationally – with or without whatever exceptions this or future Courts happen to allow.

In fact, contrary to the majority’s views, today’s Dobbs decision leaves in place many of the gravest threats to Americans’ freedom from government’s reach that appeared to receive support in the leaked draft version. Principally, the Court has now affirmed that not only does the Constitution grant no right to an abortion. It also holds that there’s no right to privacy having to do with the freedom to make “intimate and personal choices” that are “central to personal dignity and autonomy.”

To be sure, the six Justices in the majority correctly contend that no Constitutionally granted rights are absolute, observing that this founding document creates a system of “ordered liberty” that “sets limits and defines the boundary between competing interests” – and also, by extension, between competing rights, since many regularly clash with each other in real life.

But if the American system of government and law aren’t distinguished fundamentally by the assumption that a substantial burden of proof lies with government for infringing on the freedom to make “intimate and personal choices” related to “personal dignity and autonomy,” then it’s difficult to imagine fundamentally what it is distinguished by. In other words, if you can’t find something like a “right to privacy” in the Constitution, you’re not looking very hard.

And ironically, just yesterday, the Court supported this kind of argument when it struck down New York State’s “concealed carry” gun control law. That majority argued that this statute unconstitutionally “required law-abiding, responsible citizens to ‘demonstrate a special need for self-protection distinguishable from that of the general community’ to carry arms in public.” That is, an excessive burden of proof was placed on ordinary Americans, when it should belong to government. Why shouldn’t this kind of reasoning apply to abortion?

Finally, how can anyone believe that “a State’s regulation of abortion is not a sex-based classification” that “violates the Constitution’s Equal Protection Clause?” What men does the Dobbs majority believe will be affected by its decision? And how can these Justices reject the – inevitably gender-based — logic of the Casey decision’s statement that

The Roe rule’s limitation on state power could not be repudiated without serious inequity to people who, for two decades of economic and social developments, have organized intimate relationships and made choices that define their views of themselves and their places in society, in reliance on the availability of abortion in the event that contraception should fail. The ability of women to participate equally in the economic and social life of the Nation has been facilitated by their ability to control their reproductive lives”?

One claim made by many Dobbs supporters is true — the practical, on-the-ground effects of the decision will be limited for the time being , mainly because the total numbers of legal U.S. abortions have been falling significantly in the last three decades, and because practically all of these have taken place during a pregnancy’s first trimester. (See here for the data.) Interestingly, that’s after Mississippi’s proposed abortion near-ban would go into effect.

Moreover, some other so-called “trigger laws” will allow abortions early in pregnancies, too. But others (see, e.g., here) will significantly narrow this window (even outlawing the procedure before most women even know they’re carrying), and in some of these and others, the lack of exceptions for instances of rape and incest, for example, are truly abhorrent. And now with Dobbs the law of the land, who knows what other outrages may lie in store?      

At one point the Dobbs ruling, the majority wrote that “In interpreting what is meant by ‘liberty,’ the Court must guard against the natural human tendency to confuse what the Fourteenth Amendment protects with the Court’s own ardent
views about the liberty that Americans should enjoy.”  As far as I’m concerned, that advice about leaving personal beliefs out of judicial decisions is a vitally important rule of thumb across the legal board, and as indicated by the above examples of tortured reasoning in today’s abortion rights decision, it’s one the Dobbs majority just threw under the bus.    

(What’s Left of) Our Economy: You Bet that Mass Immigration Makes America Less Productive

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An archetypical Washington, D.C. swamp denizen thought he caught me with my accuracy pants down the other day. Last Sunday’s post restated a point I’ve made repeatedly – that when countries let in too many immigrants, their economies tend to suffer lasting damage because businesses lose their incentives to improve their productivity – the best recipe for raising living standards on a sustainable, and not bubble-ized basis, as well as for boosting employment on net by fostering more business for most existing industries and enabling the creation of entirely new industries.

The reason mass immigration kneecaps productivity growth? Employers never need to respond to rising wages caused by labor shortages by buying labor-saving machinery and technology or otherwise boost their efficiency. Instead, they continue the much easier and cheaper approach of hiring workers whose pay remains meager because immigrants keep swelling the workforce.

It’s a point, as I’ve noted, strongly supported by economic theory and, more important, by evidence. But Todd Schulte, who heads a Washington, D.C.-based lobby group called Forward.us, wasn’t buying it. According to Schulte, whose organization was founded by tech companies like Facebook with strong vested interests in keeping U.S. wages low,the decade of actual [U.S.] productivity increases came directly after the 1986 legalization AND 1990 legal immigration expansion!”

He continued on Twitter, “giving people legal status and… expanding legal immigration absolutely has not harmed productivity in the last few decades in the US.”

So I decided to dive deeper into the official U.S. data, and what I found was that although there are bigger gaps in the productivity numbers than I’d like to see, there’s (1) no evidence that high immigration levels following the 1986 amnesty granted by Washington to illegal immigrants and the resulting immigration increase mentioned by Schulte improved the national productivity picture over the pre-amnesty period; and (2) there’s lots of evidence that subsequent strong inflows of illegal immigrants (who Schulte and his bosses would like to see amnestied) have dragged big-time on productivity growth.

First, let’s examine the productivity of the pre-1986 amnesty decades, which provides the crucial context that Schulte’s claim overlooks.

According to U.S. Bureau of Labor Statistics figures, during the 1950s, a very low immigration decade (as shown by the chart below), labor productivity grew by an average of 2.63 percent annually. Significantly, this timespan includes two recessions, when productivity normally falls or grows unusually slowly.

Figure 1. Size and Share of the Foreign-Born Population in the United States, 1850-2019

During the 1960s expansion (i.e., a period with no recessions), when immigration levels were also low, the rate of labor productivity growth sped up to an annual average of 3.26 percent.

The 1970s were another low immigration decade, and average labor productivity growth sank to 1.87 percent. But as I and many other readers are old enough to remember, the 1970s were a terrible economic decade, plagued overall by stagflation. So it’s tough to connect its poor productivity performance with its immigration levels.

Now we come to the 1980s. Its expansion (and as known by RealityChek regulars, comparing economic performance during like periods in a business cycle produces the most valid results), lasted from December, 1982 to July, 1990, and saw average annual labor productivity growth bounce back to 2.24 percent.

As noted by Schulte, immigration policy changed dramatically in 1986, and as the above chart makes clear, the actual immigant population took off.

But did labor productivity growth take off, too? As that used car commercial would put it, “Not exactly.” From the expansion’s start in the first quarter of 1982 to the fourth quarter of 1986 (the amnesty bill became law in November), labor productivity growth totalled 10.96 percent. But from the first quarter of 1987 to the third quarter of 1990 (the expansion’s end), the total labor productivity increase had slowed – to 5.76 percent.

The 1980s are important for two other reasons as well. Nineteen eighty-seven is when the Bureau of Labor Statistics began collecting labor productivity data for many U.S. industries, and when it began tracking productivity according to a broader measure – total factor productivity, which tries to measure efficiency gains resulting from a wide range of inputs other than hours put in by workers.

There’s no labor productivity data kept for construction (an illegal immigrant-heavy sector whose poor productivity performance is admitted by the sector itself). But these figures do exist for another broad sector heavily reliant on illegals: accommodation and food services. And from 1987 to 1990 (only annual results are available), labor productivity in these businesses increased by a total of 3.45 percent – worse than the increase for the economy as a whole.

On the total factor productivity front, between 1987 and 1990 (again, quarterly numbers aren’t available), it rose by 1.23 percent for the entire economy, for the construction industry it fell by 1.37 percent, for the accommodation sector, it fell by 2.30 percent, and for food and drinking places, it increased by 2.26 percent. So only limited evidence here that amnesty and a bigger immigrant labor pool did much for U.S. productivity.

As Schulte pointed out, the 1990s, dominated by a long expansion, were a good productivity decade for the United States, with labor productivity reaching 2.58 percent average annual growth and total factor productivity rising by 10.87 percent overall. But when it comes to labor productivity, the nineties still fell short of the 1950s (even with its two recessions) and by a wider margin of the 1960s.

But did robust immigration help? Certainly not in terms of labor productivity. In accommodation and food services, it advanced by just 0.84 percent per year on average.

Nor as measured by total factor productivity. For construction, it actually dropped overall by 4.94 percent. And although it climbed in two other big illegal immigrant-using industries, the growth was slower than for the economy as a whole (7.17 percent for accommodation and 5.17 percent for restaurants and bars).

Following an eight month recession, the economy engineered another recovery at the end of 2001 that lasted until the end of 2007. This period was marked by such high legal and illegal immigration levels that the latter felt confident enough to stage large protests (which included their supporters in the legal immigrant and immigration activist communities) demanding a series of new rights and a reduction in U.S. immigration deportation and other control policies.

Average annual labor productivity during this expansion grew somewhat faster than during its 1990s predecessor – 2.69 percent. But annual average labor productivity growth for the accommodation and food services sectors slowed to 1.19 percent, overall total factor productivity growth fell to 1.19 percent, and average annual total factor productivity changes in accommodations, restaurants, and construcion dropped as well – to 6.36 percent, 2.67 percent, and -9.08 percent, respectively.

Needless to say, productivity grows or shrinks for many different reasons. But nothing in the data show that immigration has bolstered either form of productivity, especially when.pre- and post-amnesty results are compared. In fact, since the 1990s, the greater the total immigrant population, the more both kinds of productivity growth deteriorated for industries relying heavily on illegals. And all the available figures make clear that these sectors have been serious productivity laggards to begin with.

And don’t forget the abundant indirect evidence linking productivity trends to automation – specifically, all the examples I’ve cited in last Sunday’s post and elsewhere of illegal immigrant-reliant industries automating operations ever faster — and precisely to offset the pace-setting wage increases enjoyed by the lowest income workers at least partly because former President Trump’s restrictive policies curbed immigration inflows so effectively. 

In other words, in the real world, changes in supply and demand profoundly affect prices and productivity levels – whatever hokum on the subject is concocted by special interest mouthpieces who work the Swamp World like Todd Schulte.

(What’s Left of) Our Economy: Will Inflation and a Hawkish Fed Finally Undermine U.S. Manufacturing?

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The new (May) U.S. manufacturing production report from the Federal Reserve doesn’t mainly indicate that industry may be facing a crossroads because the sector’s inflation-adjusted output dropped on month for the first time since January.

Instead, it signals that a significant slowdown may lie ahead for U.S.-based manufacturers because its downbeat results dovetail with the latest humdrum manufacturing jobs report (also for May), with results of some of the latest sentiment surveys conducted by regional branches of the Fed (e.g., here), and with evidence of a rollover in spending on machinery and equipment by the entire economy (which fuels much manufacturing output and typically reflects optimism about future business prospects).

Domestic industry shrank slightly (by 0.07 percent) in real output terms month-to-month in May. On the bright side, the strong results of recent months stayed basically unrevised, and April’s very good advance was upgraded from 0.75 percent to 0.77 percent.

Still, the May results mean that real U.S. manufacturing production is now up 4.94 percent since just before the CCP Virus began roiling and distorting the American economy (February, 2020), rather than the 5.07 percent calculable from last month’s report.

May’s biggest manufacturing growth winners were:

>Petroleum and coal products, where after-inflation jumped by 2.53 percent sequentially in May. The improvement was the fourth straight, and the increase the best since February’s 2.68 percent. As a result, constant dollar production in these sectors is now 1.21 percent higher than in immediately pre-pandemic-y February, 2020;

>Non-metallic mineral products, whose 1.78 percent sequential growth in May followed an April fall-off that was revised way down from -0.67 percent to -1.72 percent. March’s 0.76 percent decrease was downgraded to a 1.29 percent retreat, but February’s sequential pop was revised down just slightly to a still outstanding 4.37 percent surge. All told, the sector has grown by 2.58 percent after inflation since February, 2020 – exactly the same result calculable from last month’s Fed release; and

>Furniture and related products, whose 1.23 percent May inflation-adjusted output rise was its first such increase since February’s, and its best since that month’s 4.96 percent surge. Moreover, the May advance comes off an April performance that was revised up from a -0.60 percent sequential dip to one of -0.12. In all, these results were enough to move real furniture production above its Februay, 2020 level – by 0.08 percent.

May’s biggest manufacturing production losers were:

>wood products, whose 2.56 percent real monthly output decline was its first decrease since January and its worst since February. 2021’s 3.65 percent. Moreover, April’s previously reported 1.13 percent advance is now estimated to have been just 0.97 percent – all of which means that constant dollar production by these companies is now 5.24 percent higher than just before the pandemic arrived, not the 7.85 percent calculable last month;

>machinery, whose May inflation-adjusted output sank by 2.14 percent – the biggest such setback since February, 2021’s 2.59 percent. As known by RealityChek readers, machinery production is one of those aforementioned indicators of capital spending because it’s sold to customers not just in manufacturing but throughout the economy.

It’s true that machinery’s revisions were mixed. April’s after-inflation production increase was upgraded all the way fom 0.85 percent to 1.69 percent – its best such performance since last July’s 2.85 percent. But March’s performance was revised down from 0.36 percent to one percent shrinkage, and February’s increase was revised up again, but only from 1.17 percent to 1.22 percent. Consequently, whereas as of last month, machinery production was 8.31 percent higher in real terms than in February, 2020, this growth is now down to 6.29 percent.

>electrical equipment, appliances and components, where real output sagged for the second consecutive month, and by a 1.83 percent that was its worst such monthly performance since February, 2021’s 2.34 percent decrease. Revisions were modest and mixed, with April’s previously reported 0.60 percent sequential drop upgraded to -0.42 percent, March’s downgraded 0.04 percent dip upgraded to a 0.19 percent gain, and February’s real output revised up again – from 2.03 percent to 2.08 percent. These moves put real growth in the sector post-February, 2020 at 2.19 percent, less than half the 5.55 percent calculable last month.

By contrast, industries that consistently have made headlines during the pandemic delivered solid May performances.

Aircraft- and aircraft parts-makers pushed their real production up 0.33 percent on month in May, achieving their fifth straight month of growth. Moreover, April’s excellent 1.67 percent sequential production increase was upgraded to 2.90 percent (the sector’s best such result since last July’s 3.44 percent), March’s estimate inched up from a hugely downgraded 0.47 percent to 0.50 percent, and the February results were upgraded again – from 1.34 percent to 1.49 percent. This good production news boosted these companies’ real output gain since immediately pre-pandemic-y 16.37 percent to 19.08 percent.

The big pharmaceuticals and medicines industry performed well in May, too, as after-inflation production increased by 0.42 percent. Revisions were overall negative but small. April’s initially reported 0.20 percent real output slip is now judged to be a0.15 percent gain, but March’s upwardly revised 1.23 percent increase is now pegged at only 0.32 percent, and February’s downwardly revised 0.96 percent constant dollar output drop revised up to -0.86 percent. All told, inflation-adjusted growth in the pharmaceuticals and medicines sector is now up 14.78 percent since February, 2020, as opposed to the 14.64 percent increase calculable last month.

Medical equipment and supplies firms fared even better, as their 1.44 percent monthly real output growth in May (their fifth straight advance) was their best such result since February, 2021’s 1.53 percent. Revisions were positive, too. April’s previously recorded 0.06 percent dip is now estimated as a 0.51 percent increase, March’s downgraded 1.28 percent figure was upgraded to 1.41 percent, and February’s 1.46 percent improvement now stands at 1.53 percent. These sectors are now 11.51 percent bigger in terms of constant dollar output than they were just before the CCP Virus arrived in force – a nice improvement from the 8.92 percent figure calculable last month.

May also saw a production bounceback in the shortage-plagued semiconductor industry. Its inflation-adjusted production climbed 0.52 percent on month, but April’s previously reported 1.85 percent drop – its worst such performance since last June’s 1.62 percent – is now judged to be a 2.25 percent decline. At least the March and February results received small upgrades – the former’s improving from a previously downgraded 1.83 percent rise to 1.92 percent, and February’s upgraded growth of 2.91 percent now estimated at 2.96 percent. The post-February, 2020 bottom line: After-inflation semiconductor production is now 23.82 percent higher, not the 23.38 pecent increase calculable last month.

And since the automotive industry’s ups and downs have been so crucial to domestic manufacturing’s ups and downs during the pandemic era, it’s worth noting its 0.70 percent monthly price-adjusted output growth in May.

Revisions overall were negative. April’s previously reported 3.92 percent constant dollar production growth was revised down to 3.34 percent, March’s 8.28 percent burst was upgraded to 8.99 percent (the best such result since last October’s 10.64 percent jump), and February’s previously upgraded 3.86 percent inflation-adjusted production decrease was downgraded to a 4.24 percent plunge.

But given that motor vehicle- and parts-makers are still dealing with the aforementioned semiconductor shortage, these numbers look impressive, and real automotive output is now 1.17 percent greater than in pre-pandemic-y February, 2020, as opposed to the 0.77 percent increase calculable last month.

Domestic manufacturing has overcome so many obstacles since the CCP Virus’ arrival that counting it out in growth terms could still be premature. But an obstacle that it hasn’t faced since the pandemic-induced downturn have s looming again — a major economy-wide slowdown and possible recession that could result from monetary tightening announced by the Federal Reserve to fight torrid inflation.  And with the world economy likely to stay sluggish as well and limit export opportunities (see, e.g., here), the possibility that industry’s winning streak finally ends can’t be dismissed out of hand.  

(What’s Left of) Our Economy: Will Americans Need “That Seventies Show” to Tame Inflation?

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I haven’t commented much in detail on dccisions by the Federal Reserve to fight inflation, mainly because they’re so thooughly covered in the press. But yesterday’s announcement by the central bank that it would raise the short-term interest rate it controls by an amount not matched in nearly thirty years could loom especially large over the nation’s economic future, and some of its ramifications deserve more attention than they’ve received.

First, as widely noted, the Fed could be tightening monetary policy – in an effort to slow and eventually reverse price increases by slowing economic activity – even though a recession sooner rather than later looks likely. In fact, the timing of yesterday’s interest rate hike and seemingly solid assurances that increases will continue for the foreseeable future may be even stranger, because the recession may already be here.

Some important signs:  Yesterday also saw the release of a Census Bureau report indicating that U.S. retail sales dipped on a monthly basis in May.  If this result holds (and we’ll find out on July 15), that would mark the first such decrease since December, and the news would be ominous given the dominant role played by personal spending in the American economy. 

In addition, on top of the economy’s shrinkage during the first quarter of this year, a well regarded source of forecasts on the path of the gross domestic product (GDP – economist’s main measure of the economy’s size and how it changes) is predicting no growth whatever in the second quarter. That result would enable the nation to skirt a recession according to one popular definition of the term holding that such slumps only occur when GDP adjusted for inflation falls for two consecutive quarters.

At the same time, a flat-line real GDP for the second quarter would mean that, on a cumulative basis, the economy has contracted over a two-quarter stretch. That sounds like a pretty good approximation of a recession to me. In fact, this cumulative shrinkage could still take place even if after-inflation GDP eaks out a small gain between April and June. (We’ll get the first official read on the subject on July 28.)

And maybe more important, when it comes to the lives of most Americans, what’s the difference between a recession (especially if it’s modest) and very slow growth? Indeed, for the record, the Fed itself yesterday lowered its own projection for real U.S. growth for this entire year from 2.8 percent to 1.7 percent.

Second, examining the Fed’s inflation-fighting record during the late-1970s – which it’s also been widely noted bears some strong resemblances to the present – raises immense questions regarding the central bank’s chances of making major inflation progress without triggering a recession that would be anything but modest.

In case you’re not old enough to remember that historical episode, inflation was actually higher during the late-1970s, and also stemmed partly a combination of oil price shocks generated by overseas events plus a development that’s too often ignored nowadays – a substantial deterioration in the nation’s international financial position. Though this current account deficit back then was tiny by today’s standards, it had just become a noteworthy shortfall as a share of GDP after years of small surplus or balance, and was broadly interpreted as a sign that Americans’s spending was spinning out of control (You’ll find a great account of this period here.)

As current Fed Chair Jerome Powell is fond of recalling, that towering late-1970s inflation was broken mainly by the steadfastness of that period’s Chair, Paul A. Volcker – who raised interest rates to levels that were as astronomical as they were wholly unprecedented. But although Volcker took the helm of the Fed when inflation (as measured by the headline Consumer Price Index, or CPI) wasn’t that much higher than today’s rates, it took a near-doubling of these rates from levels that also were much higher than today’s to bring price increases down to acceptable levels, and even this effort took three and a half years and dragged the economy into not just one, but two recessions – and severe ones at that. (My sources for the interest rate infomation is here. For the inflation and growth data, I’ve relied on the official government data tables I always use.)

Specifically, on Volcker’s first day as Fed Chair (in August, 1979), the federal funds rate it controls stood at 11 percent – versus the 1.75 percent ceiling to which the Powell Fed just approved. The annual inflation rate was 11.84 percent – versus the 8.52 percent recorded last month. And the economy was growing by three percent annually – versus the current rate of probably one percent at best.

Volcker engineered rate hikes to the 20 percent neighborhood – three times! (as depicted in the chart below) – and recessions that produced real GDP nosedives of eight and 6.1 percent (in the second quarter of 1980 and the first quarter of 1982), but the CPI didn’t retreat back into the single digits until May, 1981, and it took until the end of 1982 for a read of 3.8 percent to be recorded.

United States Fed Funds Rate

 

That history doesn’t seem to warrant much optimism that the Powell Fed can cut headline inflation to 5.2 percent by year end while increasing rates only to 3.4 percent (as it’s now expecting).

Third, at his press conference following the rate hike announcement, Powell echoed the conventional wisdom: that although the Fed can cut excessive levels of economic demand enough to tame inflation, it can’t address inflation by affecting economy’s ability to create enough supply to meet that demand, and thereby restore a satisfactory inflationary balance between the two.

But supply and demand are actuallly very closely connected. As I’ve discussed when posting about possible tariff cuts on imports from China, when consumer demand is strong enough, companies can pass along increases in their prices because their customers literally are willing to pay. When consumers are cautious, however, such price hikes become much more difficult.

To be sure, these rules don’t always hold. The big exceptions are products on which consumers will cut spending only as a last resort – like food and energy. They’re (rightly) seen as so important that demand for them is called “inelastic” by economists.

Since food and energy prices have been so central to today’s inflation, it’s easy to see why the conventional wisdom on the Fed and the economy’s supply side is generally accepted. But it’s also true that if consumers become stressed enough (for example, by interest rate increases high enough to slash growth, employment, and income levels), they’ll cut their overall spending even if they keep paying higher prices for those staples. Further, they can in principle reduce their purchases on non-staples enough to bring demand down substantially, and with it, inflationary pressures.

No one could reasonably relish this kind of outcome. But if the 1970s experience teaches any lessons for today, it’s that serious hardship for much of the population can’t be avoided if the inflation war is to be won. In my view, Powell has rightly stated that this victory is essential for America’s long-term prosperity. And President Biden deserves credit for endorsing such priorities. But will the Fed Chair actually take the Volcker-like steps needed to beat down inflation? Will a U.S. President still declaring he wants to be reelected remain a fan if he does? Because I can’t yet bring myself to believe either proposition, I can’t yet bring myself to be optimistic that inflation will drop significantly any time soon.

Following Up: Back on National Radio Tonight & Podcast On-Line of Yesterday’s Appearance

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I’m pleased to announce that the podcast is now on-line of my interview late last night on the nationally syndicated “Market Wrap with Moe Ansari.” Click here to and scroll down a bit till you see my name for a timely discussion about the Federal Reserve’s latest inflation-fighting moves, the odds that its tighter monetary policies will trigger a U.S. recession, and where President Biden’s trade policies toward China and the rest of the world may be heading.

In addition, as mentioned yesterday, I’m scheduled to return to the nationally syndicated “CBS Eye on the World with John Batchelor” to update the U.S. China policy story. The exact time for the segment hasn’t yet been set, but the show is broadcast weeknights between 9 PM and 1 AM EST, and is always worth tuning in.

If you can’t listen live on-line at websites like this one, as always, I’ll post a link to the podcast as soon as one’s available.

And keep checking in with RealityChek for news of upcoming media appearances and other developments

Making News: Back on National Radio Tonight on Economic and Foreign Policy Crises…& More!

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I’m pleased to announce that I’m scheduled to return tonight on the nationally syndicated “Market Wrap with Moe Ansari” to discuss many of the main (and often closely related) economic and foreign policy challenges facing the United States and the world at large. “Market Wrap” airs weeknights between 8 and 9 PM EST, these segments usually begin midway through the show, and you can listen live on-line here.

As usual, if you can’t tune in, I’ll post a link to the podcast of the inteview as soon as it’s available.

In addition, it was great to see Gordon G. Chang quote me yesterday in his latest blog post for the Gatestone Institute – on the Biden administration’s wrongheaded decision to suspend tariffs on imports of solar panels from Chinese-linked factories in Southeast Asia. Click here to read.

Also, last week, Jeremy Beck of the immigration realist organization NumbersUSA focused his latest blog post on my own take on some little known Open Borders-friendly provisions in the version of the big China and tech competitiveness bill passed by the House of Representatives. Here’s the link.

And I just found out that tomorrow night I’m slated to return to the nationally syndicated “CBS Eye on the World with John Batchelor” to analyze the latest twists and turns in increasingly tense U.S.-China relations. I’ll provide more details here tomorrow – which is a neat segue into my usual reminder tokeep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: More Consumer Price Pain Signalled by Hot New U.S. Wholesale Inflation Numbers

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Today’s official government report on U.S. wholesale prices (for May) is a perfect example of why it’s impossible to understand inflation without taking into account the baseline effect – the distortions that can result especially in year-on-year figures from wildly different points of comparison.

Specifically, if one set of annual results for any data series is abnormal (either unusually high or unusually low) that deviation is bound to influence the rate of change for the following year, and produce readings that are easy to misinterpret.

That’s why it’s not particularly important that, on an annual basis, the rate of overall (“headine”) wholesale inflation (as measured by the Producer Price Index, or PPI) has actually slowed slightly since March, or that such slowing has been seen since last November in the core PPI rate. (As with the core Consumer Price Index, or CPI, the core PPI strips out food and energy prices – along with trade services – because they’re volatile for reasons supposedly unrelated to the economy’s underlying inflation “prone-ness”). 

In fact, given the baseline effect plus the fact that both PPIs are seen as strong indications of consumer inflation rates to come — because they measure how much businesses charge each other for the goods and services they turn into final products offered to households and individuals — today’s report almost certainly means that the cost of living will keep soaring for the foreseeable future. For the baseline effect, which for much of last year could be used as an excuse for the robust consumer and producer inflation already being seen then, has been gone for months.

After all, the latest months’ worth of annual wholesale price increases represent comparisons with their results for a stretch in 2021 when these PPIs were already growing worrisomely fast. The increases in preceding months were coming off a comparison period during which these prices were still rising unsually slowly. They were still experiencing the hangover from the brief but sharp 2020 recession induced by the CCP Virus and related lockdowns and voluntary behavior curbs. In other words, a catch-up effect had been at work.

The tables below should make these points clear, starting with the headline annual PPI results by month starting with January, 2021. The right-hand column represents the baseline figure for the left – in other words, the results that month for the previous year. So, for example, the baseline for January, 2021’s 1.60 percent headline annual PPI increase was the 1.97 percent wholesale inflation recorded between January, 2019 and January, 2020. And the baseline figures for the 2021-22 results are the corresponding figures for 2020-21.

Jan 2021: 1.59 percent                  1.97 percent

Feb 2021: 2.95 percent                 1.11 percent

March 2021: 4.06 percent             0.34 percent

April 2021: 6.43 percent              -1.44 percent

May 2021: 6.91 percent               -1.01 percent

June 2021: 7.56 percent               -0.59 percent

July 2021: 7.96 percent                -0.17 percent

Aug 2021: 8.65 percent               -0.17 percent

Sept 2021: 8.78 percent                0.34 percent

Oct 2021: 8.87 percent                 0.59 percent

Nov 2021: 9.88 percent                0.76 percent

Dec 2021: 10.18 percent              0.76 percent

Jan 2022: 10.18 percent               1.59 percent

Feb 2022: 10.52 percent              2.95 percent

March 2022: 11.55 percent          4.06 percent

April, 2022: 10.89 percent           6.43 percent

May, 2022 10.66 percent             6.91 percent

As should be clear, although the annual pace of last month’s PPI inflation (10.66 percent) was a little lower than either April’s 10.89 percent or March’s 11.55 percent, the baseline figure during that period has jumped from 4.06 percent (which historically speaking was already lofty) to 6.91 percent. So there’s obviously explaining the latest figures with the catch up effect. Indeed, using historical standards, the catch up effect ended in February.

The core PPI inflation figures shown in the table below are lower in absolute terms, but the story they tell is otherwise almost identical. As with the first table, the figure in the right-hand column represents the previous year’s comparison point for the figure in the left-hand column.

Jan 2021: 1.79 percent                  1.64 percent

Feb 2021: 2.33 percent                 1.36 percent

March 2021: 3.15 percent             1.00 percent

April 2021: 4.81 percent              -0.09 percent

May 2021: 5.25 percent               -0.18 percent

June 2021: 5.60 percent                0.09 percent

July 2021: 6.01 percent                 0.27 percent

Aug 2021: 6.19 percent                0.36 percent

Sept 2021: 6.14 percent                0.72 percent

Oct 2021: 6.26 percent                 0.90 percent

Nov 2021: 7.04 percent                0.99 percent

Dec 2021: 7.09 percent                1.17 percent

Jan 2022: 6.90 percent                 1.79 percent

Feb 2022: 6.76 percent                2.33 percent

March 2022: 7.14 percent           3.15 percent

April, 2022: 6.78 percent            4.81 percent

May, 2022: 6.74 percent             5.25 percent 

So sure, May’s 6.74 percent annual core wholesale price rises were the best such results since last October’s 6.26 percent. But that latter number came after a baseline year when there was practically no wholesale inflation (0.90 percent) at all. By contrast, the baseline number for May’s PPI increase was more than five times higher (5.25 percent).

At some point, the business cost pressures shown in the PPI will ease to acceptable rates, and consumer cost pressures will follow. But the longer elevated inflation of both kinds lasts, the likelier that beating back these price surges will require policy moves that depress consumer demand enough to produce a recession — possibly a deep one. And today’s PPI report is the latest sign that there’s still lots of momentum behind current U.S. inflation.   

Our So-Called Foreign Policy: The Ukraine War Has Entered a New Phase. Will U.S. Policy?

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Remember the wonderful opening lines of the first installment of Peter Jackson’s masterful film adaptation of The Lord of the Rings trilogy? In case you’re not a fan of J.R.R. Tolkein’s Middle Earth writings, they went like this: “The world is changed:  I feel it in the water, I feel it in the earth, I smell it in the air.”

They came to mind to me today upon reading some of the big national media headlines on the course of the Ukaine war.

Like this from The New York Times: “As Russia Forges Ahead, Europe Recaluclates.”

And this from The Wall Street Journal: “Ukraine Fears Defeat in East Without Surge in Military Aid.”

And this plea from a Washington Post opinion column: “We can’t let Ukraine lose. It needs a lot more aid, starting with artillery.”

In fact, this theme began appearing even before this morning.

Like the Los Angeles Times’ claim that “Momentum shifts in Ukraine war as Russia advances in the Donbas.”

And then there’s the news that’s been dribbling out from Kyiv on Ukrainian casualties – numbers that had been very closely held. But on May 31, President Volodymyr Zelenskyy stated that his country’s military was losing up to 100 killed and 5oo wounded each day. Just over a week later, Zelenskyy aide Mykhalo Podolyak pegged the daily battlefield deaths at between 100 and 200 – which presumably means a higher wounded count, too.

Don’t get me wrong: None of this means that Ukraine is doomed to defeat at the Russian invaders’ hands. But it sure looks like we’re a long way away from the heady days of just one and two months ago, when

>U.S. Defense Secretary Lloyd Austin was declaring that the Biden administration and most of the rest of the world believed that Ukraine “can win” the struggle;

>when Secretary of State Antony J. Blinken endorsed the goal of ensuring that the Ukraine invasion turned into a “strategic defeat” for Russia; and

>when Defense Department spokesman John Kirby stated that “We want Ukraine to win this fight [with Russia] and we are doing everything we can here, at the Department of Defense, to make sure they have the capabilities to do that.”

And the apparent shift in the war’s momentum, especially in Ukraine’s east, adds urgency to questions that understandably receded in importance when a victory by Kyiv seemed much more plausible.

Principally, President Biden recently stated that his goal was moving “to send Ukraine a significant amount of weaponry and ammunition so it can fight on the battlefield and be in the strongest possible position at the negotiating table.” Yet how will he reconcile the likelihood that the continued heavy combat bound to result from these efforts on the one hand, with the determination he expressed on the other hand — in the same article — to keep the war within Ukraine’s borders and thereby avoid a direct U.S.-Russia military confrontation that could all too easily escalate to the nuclear level?

How will he decide when Ukraine is armed well enough to negotiate successfully? And how does the President’s reference to arming Ukraine to maximize its chances in peace talks dovetail with his position that his “principle throughout this crisis has been ‘Nothing about Ukraine without Ukraine.’ I will not pressure the Ukrainian government — in private or public — to make any territorial concessions. It would be wrong and contrary to well-settled principles to do so”?

From a purely tactical standpoint, if Ukraine continues refusing even to consider compromises on territory or on sovereignty, (which could include the issues of membership in the North Atlantic Treaty Organization or the European Union) then how important — let alone successful — could any negotiations be?

From a broader standpoint, does Mr. Biden really believe that Ukraine should call all the shots related to this crisis once the conflict enters the diplomatic phase? And why would he keep deferring to Ukraine even though he’s implicitly acknowledged that the United States has its own crucial interests – chiefly avoiding a wider war and direct superpower conflict – that aren’t necessarily identical with Ukraine’s goals? 

At the same time, it’s possible that the President doesn’t believe that the war is in a new phase at all.  And he may be right. If that’s the case, though, he’d be well advised to level with the American public, because the kind of lengthy stalemate and lack of an exit strategy this conclusion implies means that there’s no exit strategy for the surging oil and gasoline prices, consequently worsening overall inflation, and higher federal spending brought on by the conflict, either.      

(What’s Left of) Our Economy: Everything You Wanted to Know About Immigration & the Economy — & Less

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Leave it to the zealously pro-Open Borders Washington Post. It chose as the reviewer of a book by two economic historians apparently unaware of the relationship in U.S. history between immigration levels and productivity improvement a business professor seemingly just slightly less clueless about this crucial link either historically and going forward.

Doubt that? Then take a look at this morning’s rave by Harvard business professor Michael Luca about a new study by Ran Abramitzky and Leah Boustan of Stanford and Princeton Universities, respectively, titled Streets of Gold: America’s Untold Story of Immigrant Success.

According to Luca, Streets of Goldreflects an ongoing renaissance in the field of economic history fueled by technological advances — an increase in digitized records, new techniques to analyze them and the launch of platforms such as Ancestry — that are breathing new life into a range of long-standing questions about immigration. Abramitzky and Boustan are masters of this craft, and they creatively leverage the evolving data landscape to deepen our understanding of the past and present.”

And their overall conclusion (which rightly takes into account the non-economic contributions of immigrants to American life) is that (in Abamitzky’s and Boustan’s words): “Immigration contributes to a flourishing American society” – especially if you take “the long view.”

But there’s no indication in Luca’s review that the authors weigh in on a key (especially in the long view) impact of immigration on the U.S. economy – how it’s affected the progress made by the nation in boosting productivity: its best guarantee for raising living standards on a sustainable basis.

As I’ve written repeatedly, mainstream economic theory holds that one major spur to satisfactory productivity growth is the natural tendency of businesses to replace workers with various types of machinery and new technologies when those workers become too expensive. Most economists would add that although jobs may be lost on net in the short-term, they increase further down the road once these productivity advances create new companies, entire industries, and therefore employment opportunities.

By contrast, when businesses know that wages will stay low – for example, because large immigration inflows will keep pumping up the national labor supply much faster than the demand for workers rises – these companies will feel little need to buy new machinery or otherwise incorporate new technologies simply because they won’t have to.

And more important than what the theory says, abundant evidence indicates that businesses have behaved precisely this way in the past (when scarce and thus increasingly expensive labor prompted acquisitions of labor-saving devices that helped turn the United States into an economic and technology powerhouse), into the present (as industries heavily dependent on penny-wage and often illegal immigrant labor have tended to be major productivity laggards).  

Reviewer Luca demonstrates some awareness that this issue matters in the here and now and going forward, writing that “Compared with the rest of the country, businesses in high-immigration areas have access to more workers and hence less incentive to invest in further automation.”

He also points out that “This has implications for today’s immigration debates.”

But his treatment of the current situation is confused at best and perverse at worst (at least if you buy the economic conventional wisdom and evidence concerning the productivity-immigration relationship).

Principally, he claims that “the United States is expected to face a dramatic labor market shortage as baby boomers retire and lower birthrates over time result in fewer young people to replace them.” Let’s assume that’s true – despite all the evidence that more and more employers are filling all the job openings they’ve been claiming by automating. (See, e.g., here, here, and here.)

Why, though , does Luca simply conclude that “Increased immigration is one approach to avoiding the crunch. Notably, the other way to avert this crisis is through further automation, enabled by rapid advances in artificial intelligence. Immigration policy will help shape the extent to which the economy relies on people vs. machines in the decades to come.”

Is he really implying that a low-productivity — and therefore low-innovation — future would be a perfectly fine one for immigration (and other) policymakers to be seeking?

Just as important, although Luca clearly recognizes that these questions have at least some importance nowadays, he provides no indication of where the book’s authors stand.

So let the reader beware. Luca clearly believes, as Post headline writers claim, that Streets of Gold makes clear “What the research really says about American immigration.”  What his review makes clear is that this claim isn’t even close.

   

Following Up: Podcast Now On-Line of TNT Radio Interview

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I’m pleased to announce that the podcast is now on-line of my interview last night on The Hrjove Moric Show” on the internet radio network TNT Radio. Click here for a discussion on headline issues that ranged from the Ukraine war to the U.S. economy’s prospects to China’s future to U.S. immigation and anti-terrorism policies to the January 6th Committee to growing tribalism in American politics.

And keep checking in with RealityChek for news of upcoming media appearances and other developments