inflation

$16 Muffins a Hoax?

by Ryan Young on September 23, 2011

in Economy, Zeitgeist

Post image for $16 Muffins a Hoax?

The Justice Department’s auditors have been getting a lot of press lately. They found that the department paid $16 each for muffins at a recent event in Washington. At another event in San Francisco, the department spent $76 per person on lunch.

According to the Hilton hotel chain, which hosted the D.C. muffin event, the auditors didn’t read the invoice very carefully:

Hilton Worldwide, which manages and franchises hotels including the Capital Hilton where the conference took place, says the price included not only breakfast baked goods but also fresh fruit, coffee, tea, soft drinks, tax and tips. It says the report misinterpreted its invoices, which often use shorthand and don’t reflect the full menu provided.

So it appears that part of the story has been exaggerated. The $76-per-person lunch in San Francisco, also held at a Hilton, included “slow-cooked Berkshire pork carnitas, hearts-of-romaine salad — and coffee at $8.24 a cup.” That one still looks dodgy. A bit fancy for a government conference. But the muffins do seem to have been blown out of proportion.

In related news, after an assistant told Federal Reserve Chairman Ben Bernanke that the muffins didn’t actually cost $16, he was reportedly overheard muttering to himself, “soon…”

It Gets Better: Sears Catalog Edition

by Ryan Young on September 22, 2011 · 1 comment

in Economy, Video, Zeitgeist

I forget who I’m paraphrasing here, but the two iron laws of modernity are 1) things are getting better, and 2) people think they’re getting worse. The short video at the bottom of this post is one way to prove the first law to victims of the second law. It’s a rough cut adapted from a recent talk Don Boudreaux gave; I eagerly await the full version.

When I took macroeconomics in graduate school, the professor circulated a Sears catalog from 1900 or so around the classroom. Most of the prices were given in cents, not dollars. Now imagine that you could buy anything you wanted from that catalog today at those low prices. They’re still too expensive. Take these vacuum cleaners pictured below:

[click to continue…]

Ethanol and the Egyptian Riots

by Hans Bader on February 2, 2011 · 2 comments

in Agriculture, Energy, Environment, Ethanol, International

Ethanol subsidies helped cause the Egyptian riots, contributing to the “skyrocketing food prices” that triggered “the massive unrest now occurring in Egypt,” argues economist and syndicated columnist Larry Kudlow, in “Bernanke and Ethanol Sink Egypt.” “In 2001, only 7 percent of U.S. corn went to ethanol. By 2010, the ethanol share was 39 percent. So instead of growing wheat, our farmers are growing corn in order to cash in on ethanol subsidies.” That harmed Egypt, a major wheat importer. Another factor was the Federal Reserve’s inflationary monetary policy, whose effects have already been felt overseas: “In dollar terms, the price of wheat has soared 114 percent over the past year. Corn has surged 88 percent.” (The Fed is even printing money so that the government can buy its own bonds to facilitate record deficit spending.)

Commentators across the political spectrum worry about the effect of ethanol subsidies.  The environmentalist Jeremy Bloom has an article titled “Egypt’s Ethanol Revolution: Bad U.S.  Policy Driving Up Worldwide Food Price.” Rob Port asks, “Are Ethanol Subsidies the Root Cause of Egyptian Protests?”

As I previously noted, the rise in food prices in Egypt seems to have strengthened the anti-American Muslim Brotherhood, rather than the small pro-western reform movements in Egypt, by radicalizing the slums of Cairo, whose residents sometimes rely on relief provided by the Muslim Brotherhood (the only Egyptian political movement that provides non-governmental charitable services), and who have little connection to the Westernized middle class.

Maryland Legislators Seek to Jack Up Child Support Levels, Based on Bogus Inflation Rationale

by Hans Bader on January 28, 2010 · 5 comments

in Legal, Nanny State, Personal Liberty, Politics as Usual, Regulation, Sanctimony

A bill, SB 252, was just introduced in Maryland to increase child support obligations for households at most income levels–a massive increase of nearly 30 percent for a couple with one child making $3,400 a month!  Maryland residents, already burdened by recent state tax increases, now face additional burdens.

I don’t live in Maryland, and I’m not divorced, so I won’t be affected by the bill.  But as a lawyer who has studied most states’ child support guidelines, I find the economic ignorance behind the bill infuriating.

The bill is based on the bogus rationale that child support awards must go up, because inflation has increased child-rearing costs over the years.  But under Maryland’s existing child support guidelines, child support awards and obligations are based on income–the more you make, the more you pay!  So when incomes and prices rise due to inflation, so, too, do child support payments.  The guidelines thus contain a built-in inflation adjustment.

Yet some Maryland authorities apparently do not grasp basic economics, arguing that “today’s child support levels” are too low because they “are based on the economic realities of 1988, when a gallon of gas cost $1.08 and a first-class stamp was 22 cents.”

Wrong.  Child support levels are based on what payors earn now, not what they earned in 1988 – when incomes in dollars were much lower.  As Murray Steinberg, a former member of Virginia’s child-support review panel, noted, wages have gone up faster than inflation since 1988, meaning that child support levels have risen along with inflation, rather than being eroded by it.  (Steinberg cited publicly-available wage and inflation data from the Bureau of Labor Statistics proving this. See, e.g., Bureau of Labor Statistics, Employment Cost Index, Constant Dollar, June 1989=100 (April 29, 2005).) (Available at http://www.bls.gov/web/ecconst.pdf.  I used to work at the BLS producing federal labor cost and living cost data.)

The same false argument was unsuccessfully made in Virginia.  But its legislature wisely saw rejected it, and voted down a failed rewrite of Virginia’s guidelines based on this theory in 2006, rejecting a child support increase bill known as HB733.

Moreover, some child-rearing costs that rise the fastest with inflation – like “health insurance expenses” and “extraordinary medical expenses” – are awarded as statutory “add ons” on top of  the “basic child support” award, preventing their inflation from eroding the sufficiency of child support levels.  See Bureau of Labor Statistics, “Table 1A, Consumer Price Index for All Urban Consumers” (available at http://www.bls.gov/cpi/cpid04av.pdf) (medical inflation outstrips inflation in general). This offsets the fact that payments under the “basic child support obligation” schedule rise at a diminishing rate relative to income at the upper portions of the child support schedule.

Maryland’s guidelines are not inadequate.  They greatly exceed the true cost of raising children, and amount actually spent on raising children, for the vast majority of households making above $30,000 a year (and also for those households making less than $30,000 a year in which there are substantial court-ordered daycare payments awarded pursuant to Md. Code Section 12-204(g)).  Indeed, Maryland’s guidelines were historically above average for the nation, although that edge may have dissipated in recent years as some other states have jacked up their guidelines based on similar bogus inflation rationales.  (See, e.g., Ronald K. Henry, “Child Support At A Crossroads: When the Real World Intrudes Upon Academics and Advocates,” 33 Family Law Quarterly 235, 241 fn. 20 (1999) (lawyer notes that Maryland child support levels are above the national average, citing the example of a child support obligor with an income of $1000 per month).)

The bill would increase child support obligations so much that working-class fathers would end up paying more in child support than much wealthier families actually spend on their children.  I am a lawyer, and my wife is an accountant by occupation.  But we spend less on our daughter than the proposed child support guidelines would require many working-class non-custodial parents with much lower incomes to spend.  Households with a monthly income of $3400 have a higher “basic child support” obligation under the bill–not counting statutory add-ons–than I and my wife actually spend on our daughter, who has plenty of toys, games, food, and clothing.  (And that’s true even if our child-care costs are estimated at the maximum reasonable amount, such as by attributing to our daughter a per capita share of the amortized cost of our cars.)

(Ironically, the bill, while increasing child support payments at most income levels, would actually cut them for certain very low-income households, where child support payments actually come closest to matching child-rearing costs.  It increases the guidelines where they are most excessive now, and cuts them where they are least excessive.  “‘We’re reducing at the low end where it’s needed the most,‘ said Del. Benjamin F. Kramer.”  While I do not think that Maryland’s existing child support levels are too low even at the ”low end,” and would not object to a modest reduction there, it is odd to cut them only at the very low end while increasing child support awards everywhere else, even where existing awards grossly exceed the actual amounts actually spent on raising children by typical parents at that income level.)

State child support agencies like to boast of increased child support collections.  There are two ways for them to do that.  The easy way is to increase child support guidelines to jack up the payments imposed on law-abiding people who already pay their child support in full.  The hard way to do it is to make people who don’t pay what they owe now (many of whom are poor and have difficulty paying) finally pay up to support their children.  Maryland officials seem to have chosen the easy way out, at the expense of their citizens, and economic reality.

Previously, I wrote about a bill in Virginia, which will probably die, to sock divorced parents with discriminatory burdens.  Earlier, I discussed how divorce law increasingly harms veterans and small businesses, and the peculiar economics of divorce.

Public Wants Wasteful Stimulus Package Canceled

by Hans Bader on June 10, 2009 · 1 comment

in Bailout Watch, Economy, Employment, International, Labor, Legal, Mobility, Politics as Usual, Regulation, Stimulus to Nowhere, Trade

By a margin of 45% to 36%, the American people want to cancel the $787 billion stimulus package, reports pollster Rasmussen Reports. Economist Lee Ohanian, a professor at UCLA, explains the failure of the stimulus package in “The $787 Billion Mistake.” Economist Kevin Hasset describes how legislation backed by Obama would wipe out more jobs in “Obama Tells American Businesses to Drop Dead.” Economist Arthur Laffer explains today how we face massive tax increases and potentially massive inflation as a result of current government policy.

Unemployment is even higher than the Obama Administration said it would be now if the stimulus package had never been passed. At least 1.5 million jobs have been lost since then.

The stimulus package is harming the economy, both by triggering trade wars that have cost at least 40,000 jobs, and by driving up interest rates for businesses that need to borrow money to expand or create jobs. (The government is keeping down interest rates on its own debt by printing vast sums of money to buy its own bonds, in order to finance the exploding national debt, which will result in massively higher taxes).

The Congressional Budget Office admitted the stimulus package would shrink the economy “in the long run” (contrary to Obama’s claim that it would prevent “irreversible decline“), but argued that it would at least create jobs in the short run.

But the stimulus package turned out to be harmful even in the short run, because it was so badly designed. It poured money into sectors of the economy where no help is needed because unemployment is low, while siphoning money out of sectors where unemployment is high. Moreover, “states hit hardest by the recession are getting the least amount of stimulus spending.”

The stimulus package is just one example of the Obama Administration’s fiscal irresponsibility, which is driving up the national debt at a record rate. The illegal auto bailouts are another. They waste billions to keep unskilled auto workers enjoying wages and benefits that are much better than those enjoyed by the average American (while ripping off pension funds and bondholders).

The stimulus package has directly destroyed tens of thousands of jobs. A provision in the stimulus package that violated NAFTA by blocking a mere 97 Mexican truckers from U.S. roads “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs. A costly trade war with Canada is also brewing.

Obama’s policies echo those of Herbert Hoover, who helped spawn the Great Depression through his protectionism and tax increases. One of Obama’s own advisers admits that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.”

AIG Lies; Bonuses for Fannie & Freddie; Fed Explodes Money Supply, Risks Stagflation

by Hans Bader on March 19, 2009 · 2 comments

in Bailout Watch, Economy, Labor, Politics as Usual, Precaution & Risk, Sanctimony, Stimulus to Nowhere

It’s not just AIG, being bailed out for $170 billion, that’s using taxpayer money to give fat bonuses to its employees. The same thing is happening at Fannie Mae and Freddie Mac, the fraud-ridden “Government-Sponsored Enterprises” that helped spawn the mortgage crisis, and now are being bailed out at a cost of over $200 billion.

Before publicly blasting million-dollar bonuses at AIG, the Obama administration privately signed off on those very bonuses, and included language in the economy-shrinking “stimulus” bill to protect those bonuses. (AIG gave over $100,000 to Obama, and $280,000 to Chris Dodd (D-CT) the head of the Senate Banking Committee, who inserted the language into the bill, and then lied about it). Yet the Administration is trying to deceive the public about when it first became aware of the AIG bonuses, claiming it first learned about them less than a week before they became public. The Washington Times has a story today entitled “White House Cleared Way for AIG Bonuses.”

Yesterday, liberal lawmakers hypocritically blasted the bonuses in front of TV cameras, on the same day that they voted behind closed doors to protect those bonuses. Today, however, lawmakers want to levy a 90 percent tax on bonuses, without limiting them to the AIG bonuses — apparently extending them to healthy banks that took TARP money under federal pressure so that unhealthy banks that sought and received bailout money would not be stigmatized by doing so. Taxing away bonuses at healthy banks would be an economically-destructive mistake.

The Washington Times notes that “The Obama administration and one of its key allies in Congress belatedly acknowledged Wednesday that they were responsible more than a month ago for clearing the way for large bonuses to be paid inside taxpayer-supported companies like AIG, undercutting the White House’s attempts to distance itself from a growing political embarrassment.”

The Federal Reserve is now going to print money to buy up more than a trillion dollars worth of U.S. government debt (which is exploding) and risky mortgage-backed securities (in order to artificially depress mortgage interest rates and bail out irresponsible borrowers). In response, the dollar fell, raising worries about inflation and a return to the “stagflation” of the 1970s.

Meanwhile, the Obama Administration is wasting its time on ideological causes like trying to disarm the nation’s airline pilots, even though Congress, by a broad bipartisan majority, voted in favor of arming pilots to prevent another 9/11.

Enemies of Sound Money

by Ivan Osorio on March 9, 2009 · 1 comment

in Culture, Economy, Zeitgeist

From the blog of the great New Jersey-based independent radio station WFMU comes “Little Paper Airplanes,” a music video by the experimental rock band the Sursiks, that should put a smile on the faces of Murray Rothbard devotees — though it is a tad worrying to see monetary disaster find artistic expression. (Notice: strong language.)

(Thanks to Marc Scribner for the WFMU link.)

$700 billion to worsen economy? — Berlau in American Spectator

by John Berlau on September 29, 2008 · 3 comments

in Bailout Watch

Here are excerpts from my story in today’s American Spectator Online on how the $700 billion bailout could actually make things worse — in terms of resulting inflation and even a further contraction in credit due to the government purchases’ interaction with the mark-to-market accounting rules. To read the piece in its entirety, click here.

“”The government has to do something to keep markets from falling and the economy from getting worse.” How many times have you heard that mantra this past week from President Bush, Treasury Secretary Hank Paulson, Democrat leaders, the news media, and even some ostensibly conservative periodicals?

But what if the bailout, as originally proposed and in its latest incarnation, would spend $700 billion of taxpayers’ money and actually make the economy worse? Believe it or not, there is good evidence this may happen. The inflationary prospects of the bailout price tag may lead to spikes in oil and crop prices that could hit ordinary Americans in their cars and on their kitchen tables. And government purchases of financial assets could ironically further constrain credit through causing write-downs on even the balance sheets of financial firms not participating in the bailout by worsening the effects of mark-to-market accounting rules.

All last week, the stock market’s plunging downward was pointed to as a sign that Washington must step up to the plate — as quickly as possible. Yet ironically last Friday — the day after the bailout talks broke down at the wild White House meeting with the presidential candidates — the Dow Jones industrial average actually went up by 120 points! This doesn’t mean that the market is opposed to the bailout, but it does show that the market volatility is probably as much due to the potential effects of a bailout as it is to a lack of one.”