The debate over inflation.
Plus, a question about the state of the media.
I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum — then “my take.” You can read Tangle for free or subscribe for Friday editions, and you can reach me anytime by replying to this email. If someone sent you this email, they’re asking you to sign up. You can do that by clicking here.
Today’s read: 11 minutes.
Is inflation here? Plus, a question about the state of the media and the Fairness Doctrine.
Friday editions.
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Quick hits.
Gas shortages in the Southeast, caused by the hack of the Colonial Pipeline, are turning into a major political issue for the Biden administration. (The Washington Post, subscription)
Rocket exchanges between Israel and militants in the Gaza strip continue to escalate, with officials warning that an all-out war is on the horizon. (The Associated Press)
Weekly U.S. jobless claims hit another pandemic-low, with 473,000 people applying for unemployment last week. (The Wall Street Journal, subscription)
The White House has proposed changes to Democrats’ D.C. statehood bill, proposing an idea to admit the residential and commercial areas of the District of Columbia as a new state and leave behind a federal enclave encompassing the seats of government, including the Capitol, White House, Supreme Court, and other federal buildings and monuments. (The New York Times, subscription)
Sen. Mitch McConnell (R-KY) said there is a “great chance” for a bipartisan infrastructure bill under the Biden administration. The Republican Senate leader met with the president and his team this week. (The Washington Examiner)
What D.C. is talking about.
Inflation. For weeks, economists have been debating whether the round of government stimulus was going to set off inflation across the U.S. Inflation is defined as the decline of purchasing power of a currency over a period of time, which is most often measured by the rise in prices of goods. In April, Tangle interviewed two economists and asked them about the risks of so much government spending and debt. Each pointed to inflation as the number one concern — as it could set off hyperinflation, which would destroy the U.S. economy.
Yesterday, the Consumer Price Index (CPI), which measures a basket of goods as well as energy and housing costs, indicated that inflation had risen by 4.2 percent in April, the fastest rise since 2008. The CPI rose partially because it is measured over the same month from the previous year, and April of 2020 saw very low inflation because of the beginning of the coronavirus. As a result, Federal Reserve policy makers and many economists are saying the numbers are transitory, and expect inflation to settle into the 2 percent range predicted by the central bank.
Along with the CPI, the Producer Price Index — the price companies pay producers for everything from meat to steel — also shot up 6.2 percent, the largest monthly jump since the Bureau of Labor Statistics started tracking the data.
Below, we’ll take a look at some of the reactions from the right and left to this new data.
What the right is saying.
The right says this report, along with the latest jobs report, is a sign that Biden’s economic plan is falling apart and the federal government needs to course-correct.
The Wall Street Journal editorial board said inflation is here — just as they expected.
“The surge in prices won’t surprise most Americans, who have been paying more everywhere from the grocery store to cars to the housing market,” the board said. “The benign explanation for the April price surge is that it’s ‘transitory,’ as Mr. Powell likes to say. The April surge compares to a price decline last spring at the height of the pandemic lockdowns, and the comparisons will look less ugly in coming months. Oil prices were also hitting lows last spring as demand plunged. Remove those factors and the CPI increase looks barely above 2%.
“Yet inflation is always and everywhere a monetary phenomenon, as Milton Friedman put it,” the board added. “For more than a year the Fed has been pursuing an expansionary policy for the ages. It has been keeping rates near zero and expanding its balance sheet to record levels with bond purchases in an economy that has been growing fast for more than nine months… The danger is that expectations for higher inflation will rise and become embedded in business and consumer decisions. Transitory then becomes longer and the Fed might have no choice but to end the party, perhaps more abruptly than it wants.”
In The New York Post, Eddie Scarry argued that Biden’s presidency is falling apart on the economy.
“April just saw the highest rate of inflation in 13 years, according to the Department of Labor,” he wrote. “Prices for everything, including food and gasoline, immediately skyrocketed after Biden’s $2 trillion welfare scheme (sometimes referred to as a “stimulus package”) went into effect and flooded the economy with more money than anyone knows what to do with. Biden’s preoccupation? Spending even more.
“The unemployment rate actually went up from March to April, even as Biden bragged that he’s the one responsible for mass vaccinations that are, at least in theory, supposed to be moving people back into the workforce,” he said. “But no, his extension of the obscene amount of federal unemployment benefits has would-be workers choosing to sit pretty at home cashing government checks. Those benefits don’t end for another four months, assuming they aren’t extended again (you can never assume anything with Nancy Pelosi in charge).”
In Hot Air, Ed Morrissey wrote that while surging demand and supply bottlenecks can explain some of the rising prices, it’s not the whole story.
“However, all of the helicopter cash being dumped into the economy explains that, and more,” he wrote. “The federal government and its continued stimulus spending and bailout programs have induced a ‘sugar high’ of consumption. Even under normal circumstances, that would put upward pressure on prices as demand rises. Doing so while experiencing supply bottlenecks amplifies that effect. And the mass printing of money — as Congress essentially has asked the Federal Reserve to do with these unfunded multi-trillion-dollar packages — has its own inflationary impacts.
“This is why some economists warned about the passage of a third massive relief/stimulus bill in March without seeing how the second package played out,” he wrote. “The late December bill’s spending hadn’t yet fully rolled out before Congress and Joe Biden demanded an additional two trillion off-the-books dollars. The risk of inflation eating at the recovery was obvious, but the politics of the giveaway was just too attractive in the short term to resist, even among some Republicans.”
What the left is saying.
The left is urging caution, saying more data are needed and there are still signs that we can continue to safely borrow money for Biden’s expansive plans.
The Washington Post editorial board said the economic recovery is not a bust — yet.
“A reasonable case can be made — eminent economists such as Lawrence H. Summers have made it — that President Biden’s $1.9 trillion American Rescue Plan was too large and too late, putting an already recovering economy at risk of overheating,” the board wrote. “But the new inflation numbers don’t yet prove it. First, the price increases they reflect are relative to an anomalously low baseline: April 2020, when the U.S. economy was essentially paralyzed. Second, the headline consumer price index includes volatile sectors such as food and energy. Without those, the rise in ‘core’ inflation was tamer.
“As for the labor market, in which the number of job openings, 8.2 million, now roughly equals the job shortfall relative to pre-pandemic times, some workers are clearly staying on the sidelines because $300 federal unemployment insurance supplements deter them from seeking service-sector positions,” they wrote. “Mr. Biden was wrong to dismiss that concern in remarks Tuesday; yet he was surely right to note that other issues, such as a lack of child care and lingering fear of contracting the coronavirus, are also depressing labor supply.”
In Bloomberg, Nir Kaissar and Timothy O’Brien pushed Biden to continue borrowing in order to pay for this infrastructure plan.
“Let’s start with inflation. Economists and policy makers are haunted by the 1970s, a decade in which persistently rising inflation bedeviled the economy, topping out at around 15% in mid-1980,” they wrote. “No one wants a repeat of that episode, but the experience also showed that inflation can be tamed. After Paul Volcker, the chairman of the Federal Reserve at the time, decided to raise short-term interest rates meaningfully higher than the inflation rate -- a level that lifted nominal rates to as high as 20% and inflation-adjusted rates to 10% in 1981 -- inflation dropped to around 2.5% by 1983…
“On Wednesday, the Labor Department reported that year-over-year inflation grew by 4.2% in April, the most since 2008 and well above the Fed’s long-term inflation target of 2%,” they wrote. “Fed officials expected a temporary spike in inflation as the economy recovers from the pandemic. That data is also noisy, with some of the biggest jumps in Covid-battered sectors such as transportation and hotels. Fed Chair Jerome Powell has repeatedly said he believes that core inflation growth is still manageable. If inflation continues to rise, the Fed can move quickly to raise real rates to fend off a replay of the 1970s.”
In The Los Angeles Times, J. Bradford DeLong wrote that inflation shouldn’t be a concern in this economy.
“The question is not whether there will be some inflation this year, but whether it will represent ‘overheating’ of the economy as a whole,” DeLong said. “Most likely, it will not. The outlook for 2021 and beyond is that inflation will hover around the Fed’s target, rather than consistently falling short, as it has for the last 13 years.
“Moreover, the economy is emerging from the pandemic recession with a fundamentally altered balance among sectors,” he said. “Spending on durable goods currently accounts for an additional 1.7 percentage points of GDP, relative to its 2019 level, and spending on housing construction is running at 0.5 point above its 2019 share. At the same time, business spending on structures and consumer spending on energy are both running at 0.5 point below their 2019 shares, and spending on services (hospitality, recreation and transportation) is 2.2 points below its 2019 share… These shifts will be the most important determinants of inflation this year… But we cannot know how much inflation this reshuffling will cause, because we have not really seen anything like it before. Economists will have a lot to learn this year about this kind of dynamic.”
My take.
One thing I loathe in modern political punditry is people espousing confidence on an issue when they should show some humility. I’m qualified to write this newsletter because I have the reporting and researching skills — along with the sources — on top of experience as a political reporter and a strong understanding of national politics. But one space I don’t feel particularly comfortable operating in — indeed, a space nobody should feel that comfortable in — is economic forecasting. Can you blame me? Even professional economists seem to be wrong more often than they’re right.
On the question of inflation, and whether it’s here, the signs don’t look good. CPI is a reliable indicator and, while the overall number is likely misleading because of the April 2020 baseline comparison, individual sectors are clearly showing signs of inflation. Anecdotally, many Tangle readers — business owners working in supply chains and regular consumers who closely track their spending — have written in about the price jumps they’ve seen in the last few months. I can see it, too, both at the gas pump and in the supermarket. There’s no doubt something is happening, and it doesn’t appear to look good.
Much like last month’s job report, my general feeling is that we need more data. One jobs report, like one Consumer Price Index report, can be a misleading outlier; and forecasting the future of our economy based on it seems premature and irresponsible. But simply waving this away based on the assumption that it might be a blip is an equally irresponsible dismissal.
In my interviews with Noah Smith and Brian Riedl, each painted a frightening picture of where this could go. Here was what Smith said about the threat of spiraling inflation:
At some point, if the Fed buys up all the government bonds in the economy, it has to buy those by issuing money, and some people think that if you issue a ton of new money into the economy, that will cause inflation.
And if you keep doing it, it will cause more and more and more inflation and it'll cause a spiral of inflation as people realize that you're just going to keep doing that forever. Then prices go very, very high and get very, very volatile. And that is hyperinflation.
It's incredibly damaging to our economy, more damaging even than a sovereign default. It's one of the most damaging, horrible things that can happen to an economy. We're talking about blood in the streets, people eating rats. We're talking about absolute collapse and disaster. Plus, the fact that the U.S. is the pillar of the global financial system, and much of the global economy. We're talking about an absolute global disaster that would make the Great Recession in 2008 look like nothing in comparison.
I’d file those words under “not encouraging.” As Smith emphasized, though, the Fed has the tools to respond effectively if it needs to. They just have to continue to consider the off-ramp on this spending — and be willing to openly debate and implement a course correction before it’s too late.
Your questions, answered.
Q: I'm curious to hear your thoughts on the general state of the media landscape. Given it was the impetus for you to start Tangle in the first place (a service which we all appreciate very much), I wonder what you think about the history we have in regulating news outlets and their slant — thinking of the Mayflower/Fairness Doctrines and the skeletal form they have today — and whether or not we're at an inflection point for bringing those kinds of regulations back in a more formalized manner?
— Ren, Boston, Massachusetts
Tangle: At this point, I don’t think there’s any way we see any of those regulations come back. Members of Congress and Americans on the whole seem particularly sensitive about censorship, even as it relates to social media companies. Can you imagine what would happen if this Congress attempted to pass broad government regulations related to news reporting? I think we’d go to DEFCON 4.
As for the state of the news, it seems fundamentally broken to me (hence Tangle, as you say). The challenge is that there is still a lot of great journalism out there. I often tell people that my advice is to avoid watching or listening to your news, at least as a primary source. TV is about entertainment, and talk radio is about emotion. Written news doesn’t always mean reliable (see: everything on Facebook) but professionally, it’s at least a good baseline rule to up the odds of finding something factual that’s been edited and fleshed out.
Obviously, given the premise of this newsletter, the Fairness Doctrine has appealing elements to it (it was an FCC rule, since outdated, that required broadcast networks and radio to air opposing sides of controversial issues). But nothing is or ever was going to overwhelm consumer demand — and right now demand is still highest for partisan news outlets and the reinforcement of the consumer’s own political ideas. On both the right and left, I think far too many people are benefiting financially and politically from the absence of those regulations for them to ever return. That’s a sad reality, but it is the reality.
Blindspot report.
Tangle has very few partners because we are very careful about who we work with. And one of them is Ground News, an exceptional app and website that tracks the political bias in news reporting. I feature parts of Ground News’s “Blindspot Report” in Tangle. The Blindspot Report tells you what you were likely to miss based on your political leanings and the news feed bubble you’ve created for yourself.
If you’re on the left, you probably missed a story about Iran releasing a new propaganda video where the U.S. Capitol building is being blown up.
If you’re on the right, you probably missed a story about a pilot program in Baltimore that will send mental health professionals to certain 911 calls.
Want to check out Ground News’s bias ratings, blindspot reports or other news sources? Click here.
A story that matters.
Ohio Gov. Mike DeWine has a novel idea for convincing people to get vaccinated: a lottery. DeWine announced a new program this week, which will enter every single person who gets the shot into a lottery to win $1 million. “The first drawing will occur on May 26, with subsequent drawings occurring each Wednesday for a total of five weeks,” Politico reported. “To win, participants must be 18 or older, an Ohio resident and vaccinated with at least one Covid vaccine dose before the lottery takes place. The five winners will receive $1 million from existing federal coronavirus relief funds,” DeWine said.” Subsequent lottery drawings will also include college scholarship winnings for 12 to 17-year-olds who get vaccinated. The idea, which is drawing a lot of attention, could become a new way for states to overcome vaccine hesitancy. (Politico)
Numbers.
15. The number of states that have now passed laws to allow college students to profit off their likeness and name, after Tennessee passed one this week.
-30%. The drop in daily new coronavirus cases across the U.S. over the last two weeks.
46%. The percentage of U.S. adults who have at least one shot of a coronavirus vaccine.
$14 billion. The amount of earmark funding that Congress will appropriate in 2022, according to a new estimate.
75,000. The estimated number of workers Amazon is planning to hire.
Have a nice day.
Typically, when you hear about two planes colliding in mid-air, the outcome is a tragedy. But after two small planes crashed into each other over Denver, Colorado, yesterday, the story became one of a miracle. Both planes were getting ready to land at a small, regional Denver airport when they collided. One pilot used a parachute to land his plane safely on the ground, while the other managed to land his plane without injury despite it being torn nearly in half. “Every one of these pilots needs to go buy a lottery ticket right now,” Arapahoe County Sheriff’s Deputy John Bartmann said. “I don’t remember anything like this — especially everybody walking away. I mean that’s the amazing part of this.” (Associated Press) Here is a photo of one of the planes:
So one of the biggest concerns that I see, as a moderately well-off family with young kids, is that the options for long-term savings, which we'll need to get kids through college, are beyond hopeless right now. Either I put most of the money into the stock market and pray that it doesn't tank 8-9 years from now, or I put it in savings or CDs, where the anemic interest rate doesn't keep up with inflation. Granted, I am *EXTREMELY* grateful that nearly all of our debt is paid off (the mortgage exists, but it's going away soon), but for those of us who are skeptical because the market is due for a reality check, there are no reasonable ways to save! I'm not asking for the 12% average returns that the market sees, but is it unreasonable to ask for 3-4%? Even, dare I say, 5% if I'm willing to let you use my money for 7 years? This is not a new problem - it's been discussed since the interest rate started hovering around 0 - but it is an ignored problem that is only getting worse.
Isaac, I agree with your take on inflation, except for one thing. If inflation starts to get out of hand, many economists say that it will take more than just the Fed acting. It will also take Congress getting on the same page and cutting deficits. As Noah Smith noted in your interview: "So it seems to me that if we borrow and borrow and borrow, and have the Fed buy up all the bonds, and then this causes inflation, we will get some warning. We will get some lead time, we’ll see inflation start to rise and everyone will freak out and say it's time to cut deficits, it's time to raise interest rates." Does anyone really think Congress has the backbone to cut deficits? Both parties have shown very little fiscal responsibility and no indication that they want to agree on any issue, much less one that could very likely be disfavored by many of their constituents. It's all about getting re-elected.