THE DEBT CEILING CIRCUS COMPROMISE

Politics has no relation to morals. ~ Nicolo Machiavelli 

You and I have read accounts of the president’s, Rep. McCarthy’s and Sen. Schumer’s AIP (Agreement in Principle) for resolving this year’s federal budget ceiling circus. Since 1960, Congress has either raised, extended or revised the US debt ceiling 78 times. These changes have allowed the federal government to pay for expenditures that Congress has already approved in prior legislation. As I mentioned in my last blog, their AIP seems to conform with the most feasible of the suboptimal solutions for the June 5, 2023 ceiling deadline.  

US Capitol

The best solution would be to annul the entire debt ceiling requirement, so politicians couldn’t advocate fringy proposals – like relying on the 14th Amendment – to surmount the ceiling. But that first-best solution will not happen for two reasons.

First, the ceiling has become politically institutionalized with Congress at the center of it. Congress’ collective ego is very pleased with this. Because Congress has allowed its annual budgetary process to become DBA (Dead Before Arrival) for quite a while, its members will never agree to withdrawing the periodic debt ceiling circus since it’s the only mechanism that affords both pollical parties several weeks of budgetary spotlighting. Unfortunately, this illumination can focus on the vainly desired solutions of both radical liberals and conservatives, the wildest animals in this circus. The real decisions are made behind tightly sealed doors.

Second, it once again allows the media to spend weeks resurrecting updates of stories talking-heads used in the last ceiling circus that propose a plethora of resolutions by this year’s experts. Every media personality has her/his opinion about the ceiling, both within and outside of our borders, and we get to hear from all them if we want. Occasionally, the media reminds us about how appallingly destructive for everyone an actual default would be. One question that has been raised during this year’s debt ceiling cliff-hanger is: why didn’t the Dems pass a ceiling extension in 2022 when they controlled both houses of Congress and the presidency? Was it too early to tango away from the fiscal cliff? Retrospectively, it seems like a sizeable strategic mistake on the Dems’ part.

The path to Congressional ratification of the new ceiling deal now being written as legislation based on the AIP will be bumpily rocky, as always. This will require Joe, Kevin and Chuck, to climb into their politically-directed 4x4s. Joe in his Hummer EV, Kevin in his Jeep Wrangler Rubicon Hemi V8, Chuck in his Chevy Bolt EUV will attempt to smooth the road a bit for eventual success via cajoling, commiserating and hand-holding. This will require overcoming their respective radicals’ upsets about the compromise agreement, as well as convincing their members to expand their perspective for a day or so, beyond the unwarranted discontent of just a sliver of their members.

What does the AIP offer? Repubs get some minor, temporary reductions in government expenditures – including a near-freeze in FY2023 real (inflation-adjusted) funding for many discretionary programs and slimming down the large-ish $80B in additional support that everyone’s most fav federal agency -the IRS- was expecting spend over 10 years to “catch bad-ass, tax-cheating rich guys.” These IRS cuts will be somewhere between $10-20B, almost a pocket-change change across a decade. But oh my, the symbolism of cutting the IRS’s budget and $4 will buy you a cup of coffee on Capitol Hill.

The Dems get an extended, post-2024 election time limit for the next debt ceiling follies and a relatively slim extension of welfare recipients’ work requirements. Both the Dems’ Progs and the Repubs’ Freedom Caucus have started howling that this deal is inexcusably terrible, positing they’ll not vote for it. The deal is not terrible. Especially when you compare this compromise, where by design not all Congress-people are happy, to having no deal at all and default actually happens for the first time.

President Biden, Speaker McCarthy and Majority Leader Schumer have their work cut out for themselves. I think on balance, the Dems are batting .550 with the compromise, the Repubs .450. It may be futile, but let’s hope rads on both sides of the political firmament begin recognizing the GIANT costs that will be borne by 100% of everyone – including themselves – if they don’t agree with this proposed legislation.

Out from center field, this agreement also will likely contain rules to expedite the permitting of new energy-related facilities that mitigate global warming, including a gas pipeline through West Virginia to placate Sen. Manchin. This revised permitting regime hopefully will include facilitating and advancing much-needed electric grid improvements.

For all our sakes, here’s hoping the President, Speaker McCarthy and Majority Leader Schumer are successful in getting Congress to approve number 79.  

 

 

 

DARK ENERGY, FAR AND NEAR

The past and the future are fiction; they only exist in the imaginations of the present. ~ Archibald Wheeler  

People consider many distinct time periods during their lives. Many persons focus on what’s going to happen to them during the next day or next week. Some young folks wonder how they’ll survive their teenage lives. California truckers pay attention to the next 12 hours, the maximum duty period many of them can drive during any single time interval between rest stops. Unsurprisingly, elected federal politicians focus on the next 2, 4 or 6 years depending on what political office they want to retain. I hope at least a few of them, especially the president and Rep. McCarthy, are also now concentrating on the time between now and June 1st to avoid a national debt default.

Economists distinguish different analytical time periods as either short run or long run. The economic short run is a time period where at least one productive input is fixed or unchangeable. Classic productive inputs are land, labor and capital. More recently, entrepreneurship has been added. The long run is a time period where all productive inputs can vary; for example, rental rates (the price of land) and wage rates (the price of labor) can change. Notice that economists often do not usually state how much actual clock time the short run or long run is. That degree of specificity apparently depends on case-study specifics. I believe the range of a short run period is from 3 months to a full year. The long run heads off from there into multi-year eras.

Almost a century ago, archeologists devised a means of classifying ancient societies called the three-age system. This system, beginning with the oldest period called the Stone Age, measures human development. The Stone Age lasted more than 3 million years ending between 4000 BCE and 2000 BCE, with the advent of metalworking. The Bronze Age lasted through 1200 BCE. The last and most recent period was the Iron Age, when the production of iron and then steel was mastered. The Iron Age ended during the 5th century BCE, after written records like Samarian tablets were first produced by human accountants and royal writers.

Cosmologists, like the late Professor Wheeler, quoted above and who popularized the concept of black holes, have adopted an entirely different, truly expansive time perspective. Astrophysicists have no professional trepidations about next month’s consumer price index or an up-coming prophesized recession. Their long run heads not just for a decade or even a century. No, cosmologists’ attention squarely aimed at the firmament could span 100 billion (10^10) earth years.

This very looong run period – give or take a few billions years – is cosmologists’ current guestimate for when the entire universe will end. No personal worries for any of us or our grandkids’ grandkids. But if you’re the worrying sort, cosmologists also expect our dear sun – currently a yellow dwarf star – will flame out in a mere 5 billion years. Oh, my.

Cosmologists concern themselves with the life cycle of stars and galaxies that comprise our universe. The picture below illustrates fragments of Cassiopeia A, a massive red supergiant star that met its fate when it became a supernova. The light from this star’s detonation probably reached the Earth in the early 1680s, about 80 years after the telescope was invented. Perhaps Edmond Halley, a pioneering astronomer during that time, saw Cassiopeia A explode through his eye piece. Halley’s fame rests with his comet, whose periodicity he accurately computed to be 75-76 years. Halley’s comet will next be seen here on Earth in 2062, perhaps by our kids and grandkids.  

Remnants of Cassiopeia A

Source: NASA, ESA, CSA via the New York Times

 

It was a mere 13.8 billion years ago that our current universe was created in some sort of singularly impressive, fiery burst of energy. It has been growing ever since. Astrophysicists have debated for decades if our universe will continue to expand forever or collapse in some sort of gigantic contraction. In fact, 25 years ago astronomers realized that the cosmic enlargement was not contracting but speeding up, attributed to a supremely strange force called dark energy.

If the universe’s dark energy continues to reign unabated, distant galaxies will be speeding away ever-faster from our miniscule neighborhood in the Milky Way. Which means eventually we won’t be able to see them anymore. As the celestial clock continues to tick, the less we’ll know about our universe. That represents a worrying prospect for cosmologists, given their very elongated analytical time period.

But dark energy isn’t just a celestial force influencing the heavens. I’d posit that we Americans also are once again suffering from a dark energy force in Washington, DC. I’m referring to the Republicans’ efforts to use our nation’s artificially-imposed federal debt ceiling (created in 1917 and legislatively modified in 1939) to now forcibly implement their own detrimental policies. Our debt ceiling concerns the fiscal requirements associated with paying for already-implemented legislation, not future legislation.

The US debt ceiling has been raised or revised 78 times since 1960, including 49 times under Repub presidents and 29 times under Dem presidents. The debt ceiling was increased 3 times with trifling trauma under President Trump without any associated conditions. Each of these 78 rounds of debt ceiling revisions has involved considerable political posturing and much media attention. Each time the same issues are raised but never resolved; they’re simply pushed off for the next round to deal with once again.

Last week, the president wisely retreated from his pointless no negotiation stance. The initial “negotiations” began at the White House, with President Biden and congressional leaders including Rep. McCarthy and Sen. Schumer. Each side regurgitated their already-known positions. Dems want a clean debt ceiling increase passed by Congress – meaning debt enlargement with no spending cuts. The Repubs offered a temporary $1.5 trillion (T) debt increase only if the Biden Administration agrees to remove sizeable existing renewable energy tax credits, add more work requirements for food stamp and government aid recipients and stop the president’s student debt-forgiveness plans. Predictably, neither side gave a proverbial fiscal inch to the other.

The best debt ceiling resolution would be to annul the Second Liberty Bond Act of 1917 that authorized Congress to establish an aggregate ceiling on the total amount of new bonds – Liberty Bonds – that the government could issue (for World War I expenditures). Neither Repubs nor Dems want such an annulment to happen because it would significantly diminish congressional budgetary authority. I expect the ultimate resolution for this round of debt ceiling negotiations, like others before it, will be another unclean agreement that includes budget cuts that aren’t as large as Repubs want, but are greater than what Dems want, tied to a substantial increase in the debt limit. Dems and Repubs are no doubt now discussing such terms behind very tightly sealed doors.

Real negotiations will not start until the debt ceiling clock ticks to within 10 seconds of when current federal expenditures officially reach the existing debt limit of $31.4 T. On May 1st Treasury Secretary Janet Yellen warned that the US may exhaust its established “extraordinary measures” by June 1st (the so-called “X-date”) to pay its existing debt obligations. Until then, we will suffer from the Repubs’ self-righteous brinkmanship.

    Is this any way to operate a political economy? No. Besides the US only Denmark has a national debt ceiling that is an absolute amount of money. But while Dems occupy the White House and at least one side of Congress is controlled by the Repubs, that’s when dark energy may force our fiscal cookie to crumble with severely damaging consequences for everyone. It’s time for Rep. McCarthy to remove the dark energy cloud surrounding him and other Repubs and pass an almost-clean, significant public debt increase without delay or obstruction. 

FRACTIONS AND FACTIONS

Life is hardly more than a fraction of a second. Such a little time to prepare oneself for eternity. ~ Paul Gauguin 

Fractionalization surrounds us. We have been witnessing prominent and all too public splintering of socio-political viewpoints on our phones, our computers, our radios, our TVs and at our brew pub eight days a week. Some virtuosos insist that until we can gain more tolerance of each other we cannot conquer or at least live with our encompassing socio-political fractionalization. In an age of global warming surrounded by polarized factions of public zealots, tolerance remains a fitfully-distributed skill to counter this fractionalization.

Fractionalization is based on the Latin word fractus, meaning breaking into parts. About 3000 years ago, ancient Egyptian hieroglyphs contained fraction notations. They used the Eye of Horus to represent different unit fractions, illustrated below in two figures.

 

Figure 1: Fractions in the Eye of Horus

 

 

Figure 2: Other fractions at the Eye of Horus

Horus’ Eye itself symbolically represented prosperity, protection and health. Horus was characterized as a falcon, often as a peregrine falcon, or as a human with a falcon head. The first figure shows the specific series of fractions, a geometric sequence of 2, that the Eye of Horus itself represented.

The second figure illustrates how Egyptian hieroglyphists represented other fractions with the Eye, here for the fraction 1/5. The Egyptians’ means of falcon fractionalizing was far older and more straightforward than the Romans, who used a duodecimal rather than a decimal system for fractions.

Moving east, in 100 BCE the Chinese not only developed a way to use fractions for comparisons, but how to make calculations using them. The Chinese also created a notation of fractions that is analogous to how we report fractions. These fractional procedures were presented in the Nine Chapters on the Mathematical Art. There’s a concept, mathematical art.

Leonardo Fibonacci was the first European to use the fraction bar in the early 13th century, coincident with his discovery of what later became called the Fibonacci sequence (aka, Fibonacci ratio). The first recorded use of the word fraction in the West was in the mid-14th century. Decimal fractions were introduced by an Islamic scholar in 952. European numeric intellectuals re-invented decimals in the late 16th century. Afterwards, more than mathematicians realized that writing fractions as decimals made arithmetic far easier.

Fractionalizing has thus ensued for a very long time; way before we first learned about them in primary school.[1]  Unsurprisingly, even in 2023 not everyone is happy with fractions. Eva Moskovitz, an American education reform leader, stated “Schools can ebb and flow. It can be phenomenal one day, and then you hit fractions and it falls apart.”

Erudite mathematicians have characterized fractions in 9 ways: proper and improper, mixed, like and unlike, terminating and non-terminating, and recurring and non-recurring.

As you may recall from grade-school math – although I didn’t – a proper fraction is one which has its numerator value less than the denominator. For example, ⅔ and ¼ are proper fractions. An improper fraction has its numerator greater than the denominator, such as 5/2 or 9/7. A fraction represented with its quotient and remainder is a mixed fraction; 3 ⅔ is a mixed fraction, where 3 is the quotient, ⅔ is the remainder.

If and when two fractions have the same denominator, they are said to be like fractions; 7/2 and ½ are like fractions, so we can easily perform addition and subtraction operations on them. When two fractions have different denominators, they are said to be unlike fractions. For example, 5/2 and 3/5 are unlike fractions so we need to rationalize their dissimilar denominators before performing proper addition and subtraction. Like many, my now very distant memories of denominator rationalization aren’t exactly exhilarating. So it goes.

To determine whether a fraction (and its equivalent decimal) is terminating or non-terminating you just need to determine the prime factors of the denominator when the fraction is in its simplest form. If these factors are made up of 2s and/or 5s, the decimal will terminate; if not, it will not terminate. The fraction ½ is a terminating fraction; its decimal equivalent is a ceasing 0.500.

Finally in the fraction sweepstakes, there are recurring and non-recurring fractions. A recurring fraction/decimal exists when decimal numbers repeat forever. An example of a recurring and non-terminating fraction is 1/3, which when decimalized becomes 0.33333 forever and ever. A well-known nonrecurring, non-terminating fraction/decimal is pi (π, in Greek notation). Pi is the fraction derived from dividing a circle’s circumference by its diameter; very approximately, 3.14159. To date, the most accurate value of π uses 62,831,853,071,796 digits, which was achieved by University of Applied Sciences of the Grisons in Switzerland two years ago. Their computer system completed this calculation within 108 days. OMG.

There are several political fractions that remain noteworthy. Joe Biden’s electoral college victory margin for the presidency was 26/538 or a significant 4.8%.[2] The Dems’ Senate vote margin – including 3 Independents who vote in their caucus – is a mere 2/100 or 2%. The fully-factional Repubs’ House vote margin is a paltry 9/435 or 2.1%. These slender margins require constant management and cajoling. Senate Majority Leader Schumer has burned much midnight oil. House Speaker McCarthy also has worked like a dog, likely because of his oxymoronic Freedom Caucus. Flexible tolerance for cross-party votes in the Congress remains an endangered action.

What if we consider using these 9 mathematical types of fractions to describe our severe political fractionalization. Could such melding between math and politics somehow allow for greater tolerance and less upset between factions’ fractionalization?

If we are to achieve any success in merging math with politics, we will first need to eliminate improper and proper fractions. No faction will ever consider their position improper; so out go fractions that have their numerators greater than denominators. Those proper ones, the ones with smaller numerators, should not be included either because each and every politician considers their votes always proper, even if it’s quite unseemly. Instead, we’ll need to transform all such improper and proper fractions into mixed ones, which shouldn’t be too hard.

I suspect mixed, like, unlike, non-recurring and non-terminating fractions don’t have the same fraught connotative concerns as improper ones, so they’re worthy of usage in the political realm. This is especially true for terminating ones that need to have nothing to do with 2-, 4- or 6-year tenures of political service.

After all, mixed drinks have become far more popular than they were in the late 1960s through the beginning 1980s when wine and craft beer became liquid royalty. Nevertheless by the mid-2000s cocktail culture rose again. During the last decade there’s been nothing like a Manhattan to ease tensions, even though you’ve never lived there. Perhaps that’s true for mixed political factions as well. For the greater good, let’s have mixed, recurring, non-terminating discussions among many folks that might lead to fading fractionalization.

 

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[1] At California primary schools fractions are first taught in third grade.

[2] In presidential elections the 3 normally non-voting House members from Washington, DC vote in the electoral college. 

 

GROWING, GROWING GONE?

Growth is never by mere chance; it is the result of forces working together. ~ James Cash Penny   

Economic growth – the expansion in a nation’s real (inflation-adjusted) gross domestic product (GDP) or its real GDP per capita – has long been one of many nations’ principal macroeconomic goals. There are many paths for achieving greater growth that politicians, economists and citizens often quarrel about.  

Economic Growth 

Such bickering is happening now, with less than 2 weeks before the midterm elections. Should tax cuts be provided to the wealthy or to the middle-class; should government expenditures be increased or decreased? Do such policies actually make a difference; and if so, how long does it take for them to take effect?

Adam Smith’s renowned Wealth of Nations (1776) emphasized that the “division of labor” is at the heart of rising wealth and prosperity. Such division referred to workers specializing in various productive tasks, rather than each worker making the entire product. Early on, the book provides a description of how ten (10) workers in a pin factory can make 48,000 pin a day if they specialize, but perhaps only one pin per worker every day if each produces the pin completely by himself.

The Industrial Revolution in large part was founded on Smith’s concept of labor specialization, along with its accompanying technological progress, rising education levels and more productive capital stock. After centuries of Malthusian economic stasis, many people’s lives were economically improved beginning in the latter 19th century.

In the intervening centuries numerous routes for economic growth have been tried. Some are not viable. The most recent example is the shellacking received by Liz Truss, then Britain’s still wet-behind-the-ears prime minister (PM). Her plan to abolish England’s highest tax rate on top-earning Brits in the name of stronger growth without compensatory government funding proved economically treacherous and politically expensive. She was forced to publicly abandon it within 10 days of its conception.

Her attempt proposed creating a 2022 version of “trickle-down” macroeconomic growth – famously undertaken twice by President Reagan. As has happened previously, trickle-down upset too many folks and more importantly, proved ineffective in practice. Like many things, the Repubs have never accepted the empirically-proven result that trickle-down has never delivered broad economic growth.

The stress on PM Truss grew overwhelming. She did not survive. Her tenure lasted a mere 45 days (or by other accounts 44 days, take your pick). Her opening economic policy missteps put her government in a deep, inescapable hole. Ms. Truss’s trickle-down will no longer dribble. The brand new PM, Rishi Sunak, will be Britain’s third in just seven weeks. He is expected to offer more mainstream macroeconomic policies to combat high inflation and other economic challenges. He’ll need considerable luck.

Last year, our real GDP grew impressively at 5.67%, the highest annual growth since 1984. That will not be repeated this year; through June 2022 real GDP dropped 0.3%, which is never a good sign for the incumbent party.

The Biden administration has offered several large, multi-faceted programs to prolong US economic growth, such as an expanded $1.0 trillion (T) for infrastructure, $400 billion for cancelling students’ college debt as well as limiting the price of insulin. These efforts may be worthy, but the president’s timing is dreadful. Why? Because in September, the consumer price index rose at a rarified 8.2% annual rate.

Pleasing voters before this election can be politically beneficial, but economically exorbitant. In fact, the economic legislation that our current Congress has passed accounted for $1.45T of new spending. Interestingly, these massive outlays represent only 33% of what the president initially requested in his 2022 budget. Given their size and breadth, let’s hope some growth endures through these expenditures without strengthening inflation.

Unfortunately, such expanded fiscal policy expenditures now are clearly at odds both with the Federal Reserve’s significant tightening of monetary policy and with taming our enduring high inflation. Such increases in government spending likely will stimulate demand for more goods and services, resulting in higher prices.

How long will it take for the Fed’s anti-inflation increases in interest rates to reduce our damnably relentless inflation? No one knows, except too long. Which means the Federal Open Market Committee (FOMC) will assuredly increase the interest rate at its upcoming November 1-2 meeting. It’s very unlikely but the FOMC could reduce the interest rate rise by a sliver under the 0.75% increases its effected at the past 3 meetings. Such a minor change might please the markets, if that means anything to the Fed.  

Despite the Dems’ considerable efforts to focus on the Repubs’ horrendous abortion policies and extremism, potential voters have listed inflation as the number one issue they are facing. Understandably, folks want prices to stop rising for items they buy in every grocery store isle (11.2% annual price increase) as well as energy (19.8%) and virtually all other goods and services.

The simultaneous combination of lackadaisical growth with inflation is termed stagflation by economists. Stagflation is the worst of both issues. Macroeconomic policies to resolve a lack of growth – such as increasing government expenditures – can result in more inflation. Policies to ameliorate inflation – cutting expenditures or raising interest rates – can produce less growth and raise unemployment. In effect when facing stagflation, policy makers have to choose which quandary, inflation or lack of growth, is most important to remedy first. That’s a choice no one wants to make.

Until this past week, the Dems’ midterm election messaging did not directly address how worried and choleric people have become about ever-rising, inflationary prices. Nancy Pelosi seemed to agree, saying “We’ll have to message it better.” David Axelrod, President Obama’s chief political advisor turned pundit, stated it’s a mistake that Dems’ campaigns did not explicitly mention how they would resolve inflation, the nation’s primo economic problem. In his adroit words, this flawed messaging strategy is “sort of like, ‘How was the play otherwise, Mrs. Lincoln?’”

Will this needed although belated change in messaging overturn what pollsters now expect: a “red tide” on Nov. 8? Remembering how flawed election polls can be, I’ll keep every finger crossed that they’re wrong once again.

 

 

 

 

LAGS AND LIVES

It’s not easy to recover from jet lag. ~ Gael Monfils  

I’ve been getting older ever since my first breath, like every other human.[1] Except for Benjamin Button. Our aging hopefully has involved numerous jovial, opportune and exultant times.

Nevertheless, living often includes a fair amount of lagging, even beyond jet lag. You know, waiting for buses, trains and airplanes to arrive, waiting for the server to realize you’ve been seated at one of her/his tables for more than 10 minutes, waiting for the server to actually communicate with your computer, waiting to know if you got that job you want. As ever-speedier technologies allow us to receive and use information more swiftly, we still repeatedly wait for stuff. Even if lags aren’t announced or you’re not flying on a jet, we live with them all the time.

Instantaneousness is a very rare occurrence. Lags – intervals of time – happen all too frequently between what we expect or hope for and what actually occurs. Some of these lags may cause losses of lives as well. I’ll first talk about lags, and follow with how lives can be affected.

Lags.  Some lags are so pervasive that I don’t really think about them as delays. For example, a sidereal day, the length of time it takes our Earth to complete one rotation on its axis is 23 hours, 56 minutes, and 4.09 seconds of solar time. It takes Earth 365 days, 5 hours, 59 minutes and 16 seconds to revolve around the sun, our yearly orbital period. These lags are simply immutable parts of our lives. Do I wish I lived on Mercury whose “year” is a speedy 87.97 Earth days? Heaven forbid, no.

Yet the length of lags that some actions require to start and be completed usually goes unmentioned, perhaps purposefully. Here are several examples of variously lengthy lags that can affect many of us.

11 Month lag.  The Dems deservedly touted the passage of their Inflation Reduction Act (IRA) recently. For once, they cleverly named this legislation as a solution for one of the public’s largest current worries: mammoth inflationary price increases for fuel, food and other goods that people regularly buy. President Biden signed the IRA into law on Aug. 16. That’s 11 months after it was first introduced in the House. That may be quick for Congressional clocks, but it’s not for most folks.

Like much proposed legislation, during these months the IRA had a long, roller-coaster ride through various Congressional committees as well as innumerable transmutations after interactions with the White House and affected parties like energy producers and consumers (for the bill’s climate change regulations) and health care patients and the drug industry (the IRA is also introducing a Drug Price Inflation Cap as well as limiting prices on a few prescription drug 4 years from now).

Will the IRA soon reduce inflation? No, the Congressional Budget Office and others have stated this Act will not significantly affect inflation, despite its title and $777 billion (B) overall price tag. Like all new legislation the IRA will take a fair amount of time to actually have any effect on the citizenry. Bureaucracy’s wheels turn very slowly when creating rules and regulations as I’ll now illustrate.

4 Years.  The Federal Aviation Administration (FAA) issued new rules on Sep. 6 that are designed to guarantee the independence of aviation engineers tasked with performing safety oversight on the government’s behalf. Congress called for the FAA take on this additional responsibility in 2018, when the first of the 737 Max crashes occurred.

These safety engineers are employed by Boeing and other aviation firms because the FAA does not have the resources to place its own staff at airframe manufacturers like Boeing. Such lengthy rules-setting lags, although never focused on, are always present for Federal, State as well as local government operations.

10 Years.  Another major focus of the IRA is providing $380B in subsidies to change the nation’s energy investment and infrastructure to help mitigate climate change. Infrastructure, like building new, much-needed EV charging stations across the US is essential if EVs are ever to be bought and operated by hordes of drivers.

Over the next decade, the IRA will provide $1.7B of tax credits for building EV chargers or other equipment perhaps in lower-income areas. New infrastructure like this never happens quickly. Let’s hope the IRA is a bridge to a better place.

Such incentives will be needed; the average price of an EV sold in the US in July was $66,000. But domestically building more EVs and its key components (like batteries) to satisfy the IRA requirements will take considerable time.

It’s not yet clear how many more EVs can actually be produced using the IRA’s incentives that begin next January because EV demand currently outstrips production capacity. If you’re ordering a Tesla, its order backlog in July was 504,000 vehicles. Hurray Elon! Tesla has already abandoned its past practice of estimating specific delivery months for its EVs. It also increased the price of its cars by up to $10,000 in March. Nasty Elon! 

In a big jump, last year 5.6% of new cars sold in the US were electric. This EV share of new car sales has never been higher. Yet despite EVs’ notable sales growth, they still represent less than 1% of the 250 million cars, SUVs and light-duty trucks on US roadways.

Because of this new demand, the average price of an EV in the US now is 37.4% higher than that of an internal combustion engine (ICE) car and the wait time for actually receiving your EV is measured in multiple months.

Efforts to ramp up domestic EV production in record-quick time to save the environment will need to account for challenging lags and realities. There are several causes for concern regarding production lags for EVs due to potential constraints. First, as a sop to unions’ wishes, the IRA stipulates that federal subsidies will only be provided for EVs and their components that are made in North America, only if the EV is priced below specified caps (e.g., sedans’ cap is $55,000) and only if the individual buyer’s taxable income is less than $150k.

These requirements will reduce the EV subsidies’ applicability and the number of buyers who can qualify. The buyers’ income ceiling is probably less of an issue but the domestic manufacturing restrictions are significant, and troublesome. Such restrictions aim to promote domestic EV production and more equitable EV ownership, at the cost of higher EV MSRPs and fewer sales.

An industry spokesperson said no vehicles will qualify for IRA’s $7,500 EV incentive over the next few years because of the production restrictions. This statement may be exaggerated, but these restrictions will certainly reduce EV sales over the next several years. It’s another case of politics trumping consumer and environmental interests.

Why? Because inconveniently China currently controls over 70% of the world’s component supply chain for EVs, including production of lithium-ion batteries. There is only one lithium mine operating currently in the US. It produced 1,000 tons of lithium content last year, representing an inadequate 1% of world production.

New American mines are being discussed, but it can take over 16 years to initiate actual mine production. These mines require huge amounts of water and space to operate. Water is already a very scarce commodity, especially in the Western US. Indigenous peoples, where several of these potential US lithium mines may be located, are understandably opposed to such development.

In addition, mineral experts say there may not be enough lithium, a vital ingredient for making EV and other batteries, to satisfy the increased consumer EV demand, let alone the expected orders of magnitude surge involved with satisfying California’s new mandate to sell no ICE cars after 2035. Another 14 states and Washington, DC may also adopt California’s EV mandate that requires a specified minimum percentage of ZEVs (zero-emission vehicles) for certain future years that will increase EV demand big time.

EV battery demand is forecast to increase at least 25% per year that will require more than 100 additional giga-sized battery and vehicle factories to be built to keep up with demand during the next 8 years. This will be a giant challenge. EV battery factories can be erected in 5 to 7 years, with consistent support and little litigation. Because a lack of litigation mostly never materializes, construction lags will almost certainly lengthen.

The IRA’s more than $200B of consumer subsidies will hopefully benefit the US and its residents in becoming more productive, greener and thus eventually may check inflation. These federal EV subsidies, like virtually all others, are expected to be periodically renewed and will need to last for more than the IRA’s decade of funding, assuming the Dems are in control. Nevertheless, due to inherent lags for dramatically increasing EV production, and for consumers to step up and buy them, it will take many years for them to be broadly provided.

2 months.  The second coming of (Charlie) Crist may not take nearly as long as producing more EV-bound lithium. In Florida’s primary, Crist recently defeated a progressive Florida Democratic rival. He’ll now be engaged through November 8 in yet another quest to become Florida’s governor by surmounting substantial challenges to de-throne Trumpian Gov. Ron DeSantis. Goooo Charlie.

One week.  Gasoline prices change rapidly. Fuel prices escalated 47.9% during this past year, which is a big deal except for you EV drivers. 

The US nominal retail gasoline price in July was $5.032/gal., the highest since 2008 when it was “only” $4.114/gal. In the SF Bay Area, we can’t count that low. The Bay Area gas price was $6.056/gal. on July 1st, partially due to California’s recently-increased $0.539/gal. gas tax, the nation’s highest.

Overall, the US local prices of gasoline are closely tied to the West Texas Intermediate (WTI) crude price which varies daily, as well as the costs of production and distribution. During the last month the price of WTI crude dropped 11.5%.  

Neighborhood gas stations usually buy their wholesale gasoline once every 3 to 5 days. Many consumers of gasoline are quite aware of local price differences between stations, helped by the giant signs displaying the station’s prices, shown below, and by apps like GasBuddy that has more than 60 million users.

    When gas prices are rising, local stations quickly raise their pump prices, usually within one week. But when crude prices drop, as they have since early summer, pump prices fall slowly. Station operators quickly increase pump prices because after several days of rising crude/wholesale prices, the stations’ profits are evermore slender and losses loom. It takes less than a week for retail pump prices to shoot up. When crude prices fall, operators can attempt to make up for those lower profits by waiting to reduce their pump prices. From June to July retail gas prices have dropped 12.4%.

Gasoline pricing thus is relatively efficient – local retailers quickly modify their prices based on everchanging wholesale crude petroleum prices. But it’s not symmetric. Falling WTI prices offer local stations more business profit possibilities than when the WTI is rising.

Lives.  The Ukrainian War started on Feb. 20, 2022. This war has been turning into a war of attrition for a while.

The US has provided more than $13.5B in security assistance to Ukraine for fighting against Putin’s unprovoked, insidious attack. In addition to this giant financial support, a key element for ensuring Ukraine’s hopeful victory is finding and training available Ukrainians into combat-ready troops.

Military losses have been heavy for both Ukraine and Russia. Rough guestimates for combat deaths are about 9,000 Ukrainians and as many as 25,000 Russians. These deaths require new replacement troops. Training raw recruits to become capable troops takes time.

Dealing with troop training lags is thus an essential component for winning wars and saving fighter’s lives. Winning requires at least adequate basic training as well as additional tactical support. For Ukrainian solders, they need know how to use new, sophisticated military equipment provided by the US and allies. Ukrainian soldiers’ training is being conducted in England and other locations inside and outside Ukraine.

US Army basic training takes about 10 weeks. The Army’s subsequent Advanced Individual Training (AIT) courses can last an additional 4 weeks to 7 months. AIT courses provide skills needed to perform a specific Army job, such as field artillery, engineering or medical proficiencies. US Army Special Forces training for Green Berets and Rangers, its most elite and capable special operations units, can take up to 63 weeks.

Several weeks.  Unsurprisingly, Ukraine and Russia have both shortened their new troop training time. Conscript standards for both nations have also eased considerably. New Ukrainian recruits are on average in their 20s and getting only several weeks of basic training. According to one observer, Russian recruits are “old, broke and out of shape.” Having only a few weeks of training before combat is far shorter than US standards mentioned above. Will such obligatory reductions cause added lost lives for Ukraine’s troops? Here's hoping they keep on breathing through the thick and thin of this war. 

 

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[1] Folks at Dartmouth College estimate that an average human at rest takes slightly more than 8.4 million breaths each year. 

 

GREENERY, ROBOTS and TAXES

That is not a drug; it’s a leaf. ~ Arnold Schwarzenegger 

Aside from offering a slight helping of food for thought, is my first vegan blog. I’ll verbally taste a plateful of two quite dissimilar and sometimes organic green plants that made the news recently. The first one I’ll examine, asparagus, is fairly distinctive but lacks public awareness. It remains an enduring but minor contributor to our overall agricultural output. The second green plant, marijuana, has a polemic history and far more community standing.

Asparagus is also called sparrow grass. Humans have cultivated it for several millennia. Its origins are shrouded in the mists of horticultural history, but include temperate, often maritime climes in most of Europe and western Asia. Some agronomists believe an Egyptian hieroglyph from 3000 BCE shows asparagus being grown. Ancient Greeks ate wild asparagus’ tender shoots. In the West it was the Romans who first began farming asparagus more than 2000 years ago. Cultivators spread this triffid throughout their empire. The Sun King, Louis XIV was a big fan, calling asparagus the king of all vegetables. He had several greenhouses built so he could eat it throughout the year.

Asparagus has been cultivated in America since the late 17th century. Hoping to entice travelers to move to his part of the new world, William Penn advertised that asparagus grew well in Pennsylvania’s climate.

Growing up in Philadelphia, my parents apparently were not enticed by Penn’s ancient advert. They did not ever grow any asparagus in their gardens. But I do remember eating spring asparagus shoots, shown below, on a semi-regular basis at dinnertime. Yum.

 

Young asparagus shoots doing their version of the hula.

I also remember one of asparagus’ signature post-consumption effects, my urine smelled strange. Asparagus contains aptly-named asparagusic acid which during digestion produces sulfur compounds in one’s intestinal tract. Hence the pungent smell. Benjamin Franklin, among many others, characterized this odor as “disagreeable.”

Only four (4) states account for the entire US asparagus production. It is a very minor crop in America, just 37,200 tons most recently, which accounts for a trifling 0.09% of all US vegetables produced. In contrast, China grows about 900 thousand tons of asparagus every year.

Unlike many other veges, California isn’t the largest producer of asparagus. Michigan produces 40% of the total crop, followed by Washington, then California and finally New Jersey. However, asparagus’ growing season in California is the longest of any state, from January (in far southern valleys) through mid-June (on the central coast).

Because of dire shortages of agricultural workers in the US, growers are eagerly hoping that viable, robotic harvesting machines can take up the slack. As the supply of seasonal agricultural labor has withered, crops have been plowed under. The reduced farm worker supply has been caused by multiple reasons. One of which is that exclusions for using temporary, nonimmigrant H-2A workers principally from Mexico have increased. In 2019 there were 442,000 H-2A admissions; in 2021, just 258,000.

First attempts at automating crop harvesting began in the 1950s and 1960s. Abundant challenges have slowed expected progress in making autonomous, robotic harvesters for commercial produce like almonds, apples, grapes, oranges, strawberries and tomatoes. For these crops, robotic harvesting still remains on thin ground.

 

The Sprout asparagus harvester

But asparagus’ distinctive and unusual physical shape may make it a shoe-in for fully-automated harvesting, hence its recent newsworthiness. Asparagus consists of a single stalk without any confusing foliage that can styme robotic harvesters. A single plant can produce up to 20 stalks during its 2-month growing season. It is also fast growing – up to 0.8 inches in an hour – so the robot can return in a couple of days in peak season for another go at the same field, rather than wait for a reappearance next season. One prototype robotic harvester, shown above, is the Sprout, made specifically for asparagus. It’s been successfully tested at several locations in the UK. More US farmers continue to face conditions that lead to giving up and leaving their fields behind. Could the Sprout help asparagus growers provide a more sustainable supply? Let’s hope so.

The second green plant under consideration is marijuana. For at least 2500 years it has been grown for its psychoactive effects. Originally native to Central and South Asia, its use spans recreational, medicinal and spiritual purposes. It is the most commonly used illegal drug in the world, including America.

No matter whether you call it cannabis, kush, bud, herb, dope, reefer, tea, ganja, grass, weed, head, mary jane, doobie, hash, bhang or, if you must, pot, it has a far higher public profile than asparagus. Currently, 19 states have legalized the sale of recreational and medicinal marijuana; 21 states allow only medicinal marijuana to be sold. Eleven hold-out states, you know who you are, do not allow marijuana of any sort to be legally sold or grown.

California voters approved Proposition 64 in 2016 that legalized recreational cannabis; its medicinal use was permitted 2 decades earlier. Legal recreational cannabis sales began in 2018.

 

 This bud’s perhaps for you.

     Prop 64 was heralded at the time as a fine way to shrink the state’s large, illicit, black market weed, and give people harmed by the war on drugs and other historical events a chance to join the licit economy. They could become cannabis growers or distributors. However, local and state politicians soon dismissed any real interest in reducing black market “street” weed when they imposed significant, multi-jurisdiction taxes on legal cannabis.

California’s system of reeferegulation that attempts to control the cultivation, processing and sale of cannabis is exceedingly byzantine and ultimately based on politicians’ fiscal greed. California’s taxes on cannabis may mount to 50% of the retail price for consumers, which can make legal weed a harder sell on the street against some of the world’s best (and illegal) kush from the Emerald Triangle.

A recent guestimate of the total size of California’s cannabis market states that the legal market is merely 35% as large as the black market. Doesn’t sound like California’s legalization has crushed the mature, well-established unlawful market, does it.

The legal framework established by Prop 64, together with California’s flawed implementation, have contributed to continuing problems for legal producers and distributors. One predominant reason for such problems is centered on Prop 64’s requirement that local governments must opt in to allow recreational sales to adults. Sizeable portions of California officialdom have prohibited recreational cannabis sales; 67% of the state’s jurisdictions still block sales.

At last count, there are only 866 licensed cannabis dispensaries in the state or 1.6 per 100,000 residents. This low number puts California far behind other states in terms of dispensaries per capita, one-tenth as many as Oregon. When and where there are no legal dispensaries, black market cannabis rules at far lower prices.

Experts believe the street price of an ounce of weed is 50% lower than the taxed, legal weed. No wonder growers are unhappy, although they’ve known since the very beginning of California’s legalized cannabis that their products cannot compete purely on price with street weed.

But cannabis spot-prices have steadily dropped over the past 3 years and more so in 2022, in part because legal production had increased. Over just the past 2 months, national spot-prices fell 17%. In California, statements of a legal weed “glut” are commonplace.

Nevertheless, legal weed has found a valuable niche in California’s cannabis firmament. We’re not talking penny-ante change here. The state is now the largest legal cannabis market in the world, the biggest Kahuna, raking in $5.2 billion (B) of taxable sales in 2021, a 17.1% increase from 2020. Last year, $1.5B in cannabis-related tax revenues were provided to selected localities and the state. California politicians may be happy. But other actors in the legal market are not and have made their complaints clear in Sacramento.

Governor Newsom and the Legislature’s Democrat leaders finally reached a deal to restructure the state’s oppressive taxes on legal cannabis. He signed the legislation into law on June 30 that will eliminate the growers’ cultivation tax. In addition, the new law provides $150 million from the state’s seemingly huge budget surplus to recipients of this tax’s revenues over the next 3 years as a back-stop for the resulting tax revenue reductions.

Beyond growers, another key group of market participants are dispensary owners, including what’s known in liberal nomenclature as social equity operators (SEOs). SEOs are folks who have received their dispensary licenses through local programs, like in Oakland, San Francisco and LA, intended to diversify the industry with more people of color, formerly incarcerated people and residents of neighborhoods with historically disproportionate marijuana arrest rates. SEOs represent about 23% of all cannabis dispensaries in California.

SEOs have been vociferous in their displeasure with the tax restructuring legislation. After all, issues surrounding the numerous facets of equity have established a prominent place in the hearts and minds of true blue Californians, include legislators. The new law provides SEOs with a $10,000 tax credit and allows them to keep 20% of the excise tax revenue they collect for the next several years.

SEOs dismissed this benefit as “crumbs.” They wanted much more, including a complete elimination of the sizeable excise tax. They thought they would get it, given their cause and the cobalt blueness of much policy-making in Sacramento. They did not.

The retail price of California’s legal weed may be reduced a bit due to the new law, but wholesale cannabis prices have already rebounded from last year’s slump because of increased demand. Meanwhile the price of asparagus has dropped, due to decreased demand and increased supply. A plate of asparagus spears and a pre-roll thus offers mixed fiscal blessings, depending on your taste. What will it be?

 

 

 

A TALE OF TWO elastiCITIES

It was the best of times, the worst of times. ~ Charles Dickens  

Charles Dickens wrote A Tale of Two Cities in 1859 in the later part of his literary career. Dickens was already an admired, well-known author when wrote this book. I read A Tale of Two Cities long ago, together with many other high school-age Boomers. So long ago I hardly remember the book’s plot and characters. Nevertheless, the book still has relevance. 

Dickens’ judgements of Victorian society were represented in his tale. He sympathized with the revolution’s overthrow of France’s imperious aristocracy but disparaged the subsequent reign of terror. Fortunately today we have no broad reign of terror, except perhaps in the divergent eyes of radical leftists and rightists. Views of our aristocracy are similarly conflicted depending on which side of the political spectrum one inhabits.

No matter what your political beliefs are, our continuing excessive inflation has effectively emptied many people’s pockets. Inflation-adjusted weekly earnings for employees decreased 3.9% during the year ending in May. Investors have suffered more; the stock market is now in bear territory. The S&P 500 has dropped 13.3% during the past 12 months and 30.5% since Jan. 3. Pop goes the market.

 

A grizzly bear alarming intrepid investors.

Explaining who and/or what is responsible for our growing macroeconomic predicament is a challenge. President Biden’s attempts to blame Czar (er, Russian President) Vladimir Putin are valid, but not the whole story.

Anyone younger than 40 years old has never lived with inflation as high as it now is at 8.6%[1]. The average yearly inflation rate during the Millennial generation – the oldest of whom are now 41 years – was 4.1%. For Gen Zers –  the oldest are now 25 years – the average inflation rate was 2.4%. Although both these averages are greater than the Fed’s 2% target inflation rate that was officially set a decade ago, they are much lower than today’s inflation rate.

In 1981 we suffered from 10.3% inflation, principally due to the after-effects of the Iranian Revolution and resulting world Oil Shock, too-robust government spending and a swirling wage-price spiral. The Federal Funds Rate (FFR), our key baseline interest rate that the Federal Reserve sets, was 21% in 1981, which is more than 10x higher than the current FFR.

Starting in the early 1980s, this four-decade long period of historically low inflation has both been truly remarkable and uncommon. It has now ended.

Once again, dramatic energy price rises, initiated last month when the 27 European Union nations proclaimed they will be cutting much of their petroleum and natural gas from Russia, have enlarged macroeconomic inflationary pressures facing us consumers, shown in the table below. The giant increases in energy prices are notable. By themselves, gasoline prices have increased an astronomical 48.7%. The price of any kind of vehicle has also risen dramatically.

Consumer Price Index for All Urban Customers (CPI-U)	Annual Price Increase ending May 2022
All Items	8.6%
Food at Home	11.9%
Energy (incl. gasoline, electricity & natural gas)	34.6%
New Vehicles	12.6%
Used Cars & Trucks	16.2%

   The US government’s $5 trillion of covid-induced stimulus checks, business support and funding to state and local governments have increased consumer demand for many goods and services that have been stymied by supply-chain snafus.[2] When overall consumer demand increases relative to available supply, inflation results. Despite being clearly needed and useful, there’s little doubt such government funding has contributed to the economy’s inflationary pressures.

Elasticity is one analysis tool that microeconomists use to judge how much customer demand changes as a consequence of a good’s price changes. If a relatively small percentage increase in a good’s price causes consumers to buy disproportionately much less of that good, its price elasticity of demand (PED) is said to be elastic; numerically the elasticity is greater than 1.0. Conversely, if a good’s price increases by a relatively large percentage but consumers’ demand doesn’t change much, this good’s PED is said to be inelastic, and less than 1.0.

Factors that influence a good’s PED include whether it is a necessity or a luxury; whether it has close substitutes; what proportion of a person’s income is spent on this good; and how much time has passed since the price changed. If a good has no close substitutes, doesn’t account for a large proportion of people’s expenditures and the price change has been recent, then that good’s price elasticity is likely to be numerically low, termed inelastic. A good that has price inelastic demand is not that sensitive to price changes.

Let me tell a tale of two goods’ elasticities that have particular relevance for our existing situation: gasoline and food.

Gasoline’s PED is quite inelastic; calculated to be -0.26, which means if the price of gasoline increases 10%, consumers’ demand for gasoline will decline 2.6%, much less than the price increase. This calculation is unsurprising given that until very recently there have been no substitutes at all for gasoline if you drive a car. Gasoline remains an absolute necessity for the 97% of us car-owners who don’t drive EVs. As I mentioned above, gasoline prices have risen nearly 50% since May 2021, which means that car drivers’ demand for gasoline could drop by only 13%, given its PED. One of several conflicting factors that could lessen this drop includes that it’s now officially summer vacation time when folks who’ve been cooped up for months due to covid want to travel “on the road.”

Gasoline demand’s very low price elasticity also means that President Biden’s request to temporarily eliminate the 18.3¢/gal. federal gas tax won’t have much if any effect. His proposed 3-month gas tax holiday will likely have about as much impact on the US gasoline market as his release of millions of gallons of oil from the Strategic Oil Reserve did several months ago; which is to say minimal. But these actions demonstrate Joe’s at least trying to reduce inflation; perhaps more than his previous, bizarre statement that his bipartisan infrastructure program will diminish inflation. Don’t hold your breath, infrastructure expenditures’ effects move at the tortoise-like speed of concrete.

A gas tax holiday is a strictly performative, smoke and mirrors action that would effect no significant inflationary relief. In addition, it will cut the already-stretched Highway Trust Fund of needed infrastructure money. I expect the impact of a transitory removal of the federal gas will mostly be visual, showing a small price reduction on the giant price signs at gas stations across the nation.[3]

This is especially true if you live in California, as I do. On July 1st, our state’s gas tax, which has a built-in yearly CPI adjustment, will increase to a monumental 53.9¢/gal., the highest in the US. My closest gas station is currently selling regular at $6.39/gal. If only it were a mere $5/gal. like the media constantly reminds everyone.

It’s fortunate that Congress will unlikely go along with the president’s proposed tax holiday, for political not substantive reasons. But if enacted, I and the other 39 million Golden Staters would see only a 2.8% reduction in our gas price that could result in a miniscule 0.8% increase in the demand for gasoline given its inelastic PED. Even this slender price break has been understandably and vociferously opposed by environmentalists and most economists as the wrong way to “get to green,” despite its ephemeral value for the inflation-fighting president. In sum, due to gasoline’s price inelastic demand Joe should not press Congress to add another federal holiday.

Let’s now examine a second good’s price elasticity of demand. Food is in an elite class of items because it is absolutely required by all living creatures to sustain life, like air and water for those of us who live on more or less solid ground. As a necessity, food’s PED is quite inelastic, meaning the amount of food we consume is not much influenced by price changes. And as you’ve already noticed, food prices have risen. The price of food we buy for home consumption at grocery stores has increased 12% during the past year.

There are many different kinds of food, as anyone who walks the isles of a grocery knows. The average grocery store apparently carries an astonishing 40,00 individual items, which means there’s not just a single price elasticity for food. Price elasticities are calculated for specific food types.

Fortunately, thoughtful microeconomists have been busy for decades estimating the price elasticity of demand for many food types. One meta-assessment of food type elasticities reviewed 160 individual studies. Soft drinks, the most-often purchased item in groceries, have an inelastic PED of -0.79. The food item with the greatest price inelasticity (the numerically lowest numeric value) is eggs at -0.27. The PED of milk, the second most purchased food item, is a bit less inelastic than eggs at -0.59; meaning a 10% milk price increase could reduce milk purchases by 5.9%. Our grocery store offers a stultifying choice between 37 different types of “milk:” everything from 7 versions of good ol’ animal milk (in 4 different fat concentrations: whole, 2%, 1% or 0%) and 2 different sources (cows and goats) to 30 versions of plant-based milks (almond, coconut, oat and soy).

This tale of two inelastic elasticities - food and gasoline - has illustrated the president’s weak and limited policy options to reduce inflationary pressures. However, these elasticities have far less direct consequence for the Federal Reserve’s efforts to cut inflation. That’s because Fed anti-inflation policy focuses more narrowly on increasing the price of money (hiking loans’ interest rates) to reduce aggregate demand.

Last week the Fed finally increased the Federal Funds Rate by a whopping three-quarters of a percentage point to 1.75%, the biggest hike since 1994. This increase will raise the cost of consumer and business loans that the Fed hopes will eventually reduce demand for big-ticket items like appliances, cars, homes and business expansions. The Fed’s action, along with its sale of some of the $8.5 trillion corporate bonds it has amassed, will reduce or tighten the US money supply. The risks associated with the Fed’s delayed, aggressive tightening our money supply include eventually pushing the nation into a recession, with higher unemployment and reduced GDP growth.

The Fed chairperson Jerome Powell and his 20,000 employees remain cautiously optimistic that its efforts will reduce inflation to its 2% target without causing a hard-landing recessionary downturn. The Fed’s record in this arena is problematic.

Since 1955 during 7 previous inflationary cycles when the Fed has increased the FFR as fast as it’s now doing, a recession has followed in 6 of them. Six out of 7 means the Fed’s Recessionary Batting Average (RBA) is regrettably an economic Hall of Fame high of .857. Looking even farther in the past, the Fed has managed to reduce inflation without wounding growth only 3 times since 1945.

Will 2022-23 demonstrate a rare, successful economic soft landing for the Fed’s anti-inflation efforts that reduce its all-too high RBA? We can help by embracing the Fed’s efforts by somehow believing in an edited version of Dickens famous book’s incipit, “it is an age of wisdom and a season of light.” The benefits of such an embrace can go far beyond softly taming inflation.

 

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[1] As measured by the Consumer Price Index for all urban consumers (CPI-U).

[2] Snafu is an acronym that stands for situation normal, all fucked up. It was born in the beginning of WWII by Marines as a satirical expression of what they all too often faced on a day to day basis.

[3] Interestingly, these ubiquitous signs are not required by federal or state regulation. Nope, it’s drivers like you and me who in effect require those signs, born from decades of tradition that gas station operators accede to.