Good Friday Morning, and a very happy Memorial Day weekend to you and yours. I hope you have a long and pleasant weekend with friends and family, with some time away from work. Always reminiscent that the weekend is for the memory of those soldiers who gave their lives for the country. The first lines of Alan Seeger’s poem, “Ode in Memory of the American Volunteers Fallen for France, (To have been read before the statue of Lafayette and Washington in Paris, on Decoration Day, May 30, 1916)” captures the mood well:
Ay, it is fitting on this holiday,
Commemorative of our soldier dead,
When—with sweet flowers of our New England May
Hiding the lichened stones by fifty years made gray—
Their graves in every town are garlanded,
That pious tribute should be given too
To our intrepid few
Obscurely fallen here beyond the seas.
Those to preserve their country’s greatness died;
But by the death of these
Something that we can look upon with pride
Has been achieved, nor wholly unreplied
Can sneerers triumph in the charge they make
That from a war where Freedom was at stake
America withheld and, daunted, stood aside.
I can’t add to that. This week, I’m covering one of the latest shifts on the inflation story, this time from prominant Democrats. Links to follow.
Where you can find me this week
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Supreme Court takes up a generational abortion case – The Conservative Institute.
Biden and Democrats’ short-term planning on inflation could lead to long-term headaches – The Conservative Institute.
Inflation is here and even Democrats know it.
There’s an old Clickhole article (a subsidiary of the Onion parody site) headlined: “Heartbreaking: The Worst Person You Know Just Made A Great Point.” Now, I’m not saying the Larry Summers is the worst person I know. Far from it. But I am saying that if I go all the way back to college, I’m not sure I’ve ever been on the same side of a debate as Larry Summers. Maybe he made an occasional side point I liked, but we’ve never fully agreed on an issue or what to do in policy.
For those who don’t know, Lawrence Summers is one of the preeminent economic minds in the Democratic Party. He worked in the Treasury Department under Clinton, was the National Economic Council director for President Obama, and is a regular short-lister for heading up the Federal Reserve. And those are just some of the highlights of his resume. He’s economic royalty on the left (except for the cultural left, which is a separate issue).
Summers wrote an op-ed in the Washington Post with the headline: “The inflation risk is real.” And I agreed with essentially every sentence. Summers is writing as a liberal warning his side not to underestimate the issue of inflation. He has one paragraph, in particular, that’s meant to sound all the alarm bells:
How much does it matter whether inflation accelerates? In general, increases in inflation disproportionately hurt the poor and are associated with reductions in trust in government. Progressives might consider the role that inflation played in electing Richard M. Nixon in 1968 and Ronald Reagan in 1980.
Summers makes a similar point to a recent column of mine, where I pointed out that high inflation correlates to high political instability. The extreme cases are easy to see: places like Venezuela where bad governance and inflation resulted in a humanitarian disaster.
The Crime Spike
In developed countries like the United States, the impact is different. Developed countries get crime increases, higher political tensions, and more class anxiety as the poor feel their incomes get eaten away by higher prices (see all the unsettling issues of the 1970s). We have many of those symptoms now, though the pandemic is accelerating them.
There are increases in crime in major cities across the country. Conservative commentators connect this rise in crime to the post-George Floyd era, with police forces in some cities pulling back. There’s some truth to that, but it’s not the entire explanation. For instance, a friend of mine has sent me multiple articles about car thieves stealing parts from cars at night, stripping them down for precious metals. A similar dynamic has appeared around lumber.
Inflation increases prices and encourages crime. It’s not just conservatives pointing this out. The increase is so stark that progressives are sitting up and noticing. The former founder of Vox, Ezra Klein, perhaps the leader of all progressive technocratic eggheads, looks upon this trend with increasing alarm. He tweeted the following:
Violent crime is spiking. Homicides in cities were up by 25-40 percent in 2020, the largest single-year increase since 1960. And 2021 isn’t looking any better.
This is a crisis on its own terms. But it’s also a crisis for the broader liberal project in two downstream ways.
First, violent crimes supercharges inequality. Families who can flee, do. Business close or never open. Banks won’t make loans. Property values plummet. Children are traumatized, with lifelong impacts on stress and cognition.
Second, fear of violence undermines liberal politics. Just look at America post-9/11. Or after the crime surges of the 70s and 80s and 90s — strongmen politicians win, punitive responses like mass incarceration and warrior policing rise, social trust collapses.
The politics of this could really tip, and not just in cities — if these numbers keep getting worse, then as with Nixon and Reagan in the 70s and 80s, it could bring “law and order” conservatives (including Trump) back to power in 2024.
When the progressive technocrats are alarmed by the crime spike, you know the issue is real. Recall back to the 2020 election after House Democrats shockingly lost seats, they singularly blamed “Defund the Police.” They blasted the far-left for making it difficult to run as a moderate Democrat. Moderate Democratic politicians already know this point. The progressive technocrats are waking up to it. But the issue has only just arrived, and inflation can drive it even further.
Inflation in Housing
We’re going to return to the Summers piece here because I agree with it. But I want to highlight one other set of data that Republicans need to hammer as we go into the midterms: housing prices. Redfin CEO Glenn Kelman tweeted some astonishing data about the housing market that made my jaw drop. Here’s what he said:
It has been hard to convey, through anecdotes or data, how bizarre the U.S. housing market has become. For example, a Bethesda, Maryland homebuyer working with @Redfin included in her written offer a pledge to name her first-born child after the seller. She lost.
There are now more Realtors than listings.
Inventory is down 37% year over year to a record low. The typical home sells in 17 days, a record low. Home prices are up a record amount, 24% year over year, to a record high. And still homes sell on average for 1.7% higher than the asking price, another record.
But in two of America’s largest cities, inventory has increased, in New York by 28%, in San Francisco by 77%. San Francisco hasn’t had an inventory increase this large since 2008. And still in both markets, prices are increasing.
In 2020, new-construction permits were *down* 13% in DC and New York, 40% in LA, 48% in Chicago, 50% in Seattle, 79% in San Francisco. Permits were *up* 25% in Miami, 56% in Vegas, 96% in Greenville, 122% in Detroit, 246% in Knoxville.
Lumber prices are up 300%.
In Redfin’s annual survey of nearly 2,000 homebuyers, 63% reported having bid on a home they hadn’t seen in person.
In an April survey of 600 Redfin.com users who had relocated in the past year, about two thirds of the people who moved got a house the same size or bigger, but about the same proportion, two thirds, spent the same or *less* on housing.
Even though most of the people who moved got a bigger home, 78% reported having the same or more disposable income after their move. Idaho home prices could triple and still seem affordable to a Californian.
For low-tax states, 4 people move in for every 1 who leaves. For Texas, this ratio is 5:1; for Florida, 7:1. Cites & states have no leverage to raise taxes, after many promised new money for social justice; the federal government will have to fund long-term investments.
This migration to lower-cost areas may lead to lower workforce participation. For many families @Redfin has relocated, the money saved on housing costs lets one parent stop working. A wave of Redfin customers are retiring early.
Lenders are calling employers to confirm that the homebuyer will have permission to work remotely when the pandemic ends. Rates are lower for loans on primary residences, and the lender also wants to make sure the borrower actually plans to work after getting the loan.
The average housing budget for out-of-towners moving to Nashville was $720K, ~50% higher than locals’ $485K budget. It used to be coastal elites who worried that every adult in the family had to win a career lottery, just to afford a home. Now that feeling may spread.
It’s not just income that’s k-shaped, but mobility. 90% of people earning $100,000+ per year expect to be able to work virtually, compared to 10% of those earning $40,000 or less per year. The folks who need low-cost housing the most have the least flexibility to move.
An investor recently said, with an ancient touch of awe but also greed, that one source of America’s miraculous economic recovery was the bounty of “the land itself.” We have more room to grow than we ever imagined. We just have to make sure that benefits everyone.
These kinds of housing prices are just flat unaffordable. When the market eventually relaxes, people will be underwater on house values. That doesn’t mean we’ll redo 2008. But it does mean we’re in the middle of a ridiculous bubble, unlike anything we’ve seen in a long time.
What to do about inflation?
Inflation has arrived. It’s not a theory; it’s not down the road. It is here right now, and the US government has to reorient itself from a pandemic footing to handling inflation. There are some aspects to these inflationary pressures which are probably temporary. The pandemic mucks up a lot of the data because consumer and business behavior got dramatically impacted.
Summers puts it this way, “Inflationary pressures are mounting from the boost in demand created by the $2 trillion-plus in savings that Americans have accumulated during the pandemic; from large-scale Federal Reserve debt purchases, along with Fed forecasts of essentially zero interest rates into 2024; from roughly $3 trillion in fiscal stimulus passed by Congress; and from soaring stock and real estate prices.”
And the more dangerous thing about all this: Biden and Democrats want to pour $6 trillion more in spending on top of all of this. That is categorically insane. Don’t believe me? Take some Democrats word for it in the Summers op-ed:
Jason Furman, chairman of President Barack Obama’s Council of Economic Advisers, recently said that the American Rescue Plan is definitely “too big for the moment,” stating: “I don’t know of any economist that was recommending something the size of what was done.” Excessive stimulus driven by political considerations was a consequential policy error that would be tragically compounded if valid concerns about the economy overheating prevented Congress from making the types of necessary public investments that are the focus of President Biden’s Jobs and Families Plans.
Summers makes three recommendations:
- First, starting at the Fed, policymakers need to help contain inflation expectations and reduce the risk of a major contractionary shock by explicitly recognizing that overheating, and not excessive slack, is the predominant near-term risk for the economy. Tightening is likely to be necessary, and it is critical to set the stage for that delicate process.
- Second, policies toward workers should be aimed at the labor shortage that is our current reality. Unemployment benefits enabling workers to earn more by not working than working should surely be allowed to run out in September; in some parts of the country they should end sooner.
- Third, it is essential to make long-term public investments to increase productivity and enable more people to work. It would be a grave error to cut back excessively on public-investment ambitions out of inflation concerns. That is not because of the immediate jobs they create, but because of the long-term increases they generate in productive potential, sustainability, and inclusivity. But where possible, infrastructure investments should be financed by reprogramming of Rescue Plan funds, such as those now being used by some states to finance tax cuts. Additionally, current spending financed by future taxes might further stimulate an already overheated economy. The opposite — revenue increases ahead of spending, or at least parallel to spending — can ensure more sustainable growth.
The ironic part of Summers supporting more infrastructure spending is that he does it as an olive brand to Democrats while saying it should be done with COVID-19 relief funding — not new spending. That should tell you a little bit of where he’s coming from on this: he’s declaring no new spending but trying to make it palatable for Democrats.
Will Biden take any of this advice? That’s to be determined. Democrats want a big infrastructure bill this year. They’ve been seeking ways to get a big bill on this front through the reconciliation process and talking with the Senate Parliamentarian on constructing the legislation. It looks like they may shove it through on a party-line vote, just like their COVID-19 relief bill. They’re doing so, at a unique moment, when all the alarms are sounding off that increasing spending is a bad idea.
One thing that’s very clear when you read studies about 1970s inflation: they point to situations where the government engaged in unnecessarily spending and cheap money policies that exacerbated inflation. Biden seems determined to follow that path even as people like Summers are warning against it.
And it’s a decision process happening as inflation is here. It’s not a myth. It’s here. All data supports this. But we also know Biden has convinced himself he can be another FDR. That’s a dangerous mindset when we’ve got Carter-like inflation on the table, not the Great Depression or even a Recession. Don’t take my word for it. Take Larry Summers’s word for it.
Links of the week
The Social Media Pogrom: Twitter will not free Palestine, but it will certainly make the world a more antisemitic place – Eve Barlow, Tablet Magazine
The 60-Year-Old Scientific Screwup That Helped Covid Kill – Megan Molteni, Wired
Homeschooling Is Up Thanks to COVID, But Will the Increase Last? – Nicholas Zill, Institute for Family Studies
[NYT reports on these stories a week later] U.S. Faces Outbreak of Anti-Semitic Threats and Violence: In the wake of clashes in Israel and Gaza, synagogues have been vandalized and Jews have been threatened and attacked. – NYT
Now’s Not the Time to Go Wobbly, Brett: Kavanaugh’s jurisprudence is still being revealed. But wherever he ends up, it should be for principled reasons rather than out of concern for ‘legitimacy.’ – Ilya Shapiro, National Review
Twitter Thread(s) of the week
Satire of the week
CNN Hires Trump As News Anchor To Recover Lost Viewers – Babylon Bee
Thanks for reading!