Not Sure This Is Correct

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James MacIntosh, writing for The Wall Street Journal, is worried about the Fed worrying too much about its last mistake regarding inflation, when it was too slow to respond to rising prices. For instance,

But there’s a fundamental difference between the new oil shock and the postpandemic boom. Inflation today, already visible in rising prices at the pumps, is driven by restricted supply as Iran cuts off oil and other shipping through the Strait of Hormuz. The 2021-22 inflation was driven by soaring demand as stimulus-rich consumers emerged from enforced hibernation during Covid lockdowns.
Central banks know how to deal with too much demand. They should have raised rates much earlier than their eventual 2022 rises to hold back borrowing and spending. Today, they can’t do anything about the hit to supply, because, as the saying goes, you can’t print oil.

The problem with this, though, is in the relationship between inflation—rising prices—and rising—”too much”—demand. Rising prices occurs because demand is rising faster than supply can rise to satisfy it; it does not occur simply from rising demand. If we want more stuff—here oil—and the production of oil exists to satisfy that rising demand, prices don’t rise; there is no inflation.

Inflation is always and only in the relationship between demand and supply; it is never in demand alone or in supply alone. The only way there can be too much demand if there’s too little supply (the other side of this is true, too: the only way there can be too little demand is if there’s too much supply, which results in falling prices—deflation). More demand than supply can satisfy and less supply than can satisfy demand are the same thing.

So, what can/should the Fed do about today’s too little supply of oil relative to the demand for it and the consequent rise in prices? Its mandate, aside from full employment, is price stability: no change in price level, or via its goal, keeping price increases to 2% inflation. The Fed’s tool for this interest rates, which is to say here, reducing demand by raising the cost of the money that is that demand. Thus: raise interest rates when that inflation gets out of hand/rises too far above that 2% in a sustained upward trend. This is wholly independent of both supply and demand individually and responsive only to the relationship between the two.

The problem here is that “out of hand,” “too far above,” and “sustained” are each individually only hazily defined criteria. My own opinion is that with employment, which is a consequence of stable prices as well as its own economic condition, close to full and stable and currently rising prices not yet out of hand or too far above 2% or on a sustained upward trend, the Fed should do nothing more than keep a watchful eye. Trying to time the market with enough precision to preempt inflation without cutting off growth is as much a fool’s errand as an individual investor’s timing with a view to precise top or bottom picking.

This also is consistent with my view that current interest rates are consistent with (if a bit lower than) interest rates that historically are associated with 2%± inflation, so there’s nothing generally that the Fed needs to do.

ACLU Exposes Its Intrinsic Racism

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Janai Nelson, ACLU President, made the organization’s, and her own, racism plain in her Sunday letter to The Wall Street Journal‘s Letters section, a letter in which she accused DoJ’s Assistant AG of its Civil Rights Division, Harmeet Dhillon of

undermin[ing] the rights she was appointed to protect. In a case before the Supreme Court, the department under her leadership filed an amicus brief arguing that Louisiana’s intentional creation of a second majority-minority congressional district violates the Constitution. Her position on this issue would limit voting rights for black Americans by making it incredibly difficult for black voters to elect their candidates of choice.

Nelson is ignoring her BFF’s and favorite Progressive-Democrat ex-President. then-Illinois State Senator, Barack Obama’s statement at Party’s 2004 Convention:

[T]here’s not a liberal America and a conservative America; there’s the United States of America. There’s not a black America and white America and Latino America and Asian America; there’s the United States of America.

Especially that last: There’s not a black America and white America and Latino America and Asian America; there’s the United States of America. Race doesn’t matter in this nation, for all that bigotry (hold up a mirror facing you, Ms Nelson) still exists here. There are only citizens of the United States.

I repeat the relevant clause of the 14th Amendment to our Constitution, even though that’s lost on an entity and its chief for whom our Constitution has no meaning:

No State shall…deny to any person within its jurisdiction the equal protection of the laws.

There’s not a black voter and white voter and Latino voter and Asian voter; there’s the United States of America voters. Gerrymandering by race is racist at its core.

Nelson would have a stronger case were she to argue that that same 14th Amendment clause makes gerrymandering on the basis of political party unconstitutional. It’s instructive, though, that she chose race as the core of her special-treatment-by-gerrymandering argument.

This

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The subheadline and the lede:

Diplomacy failed to stop Pyongyang from getting the bomb. Trump didn’t make the same mistake.

And

President Trump decided to use military force to stop Iran from getting a nuclear weapon after diplomacy failed. This was a choice, as critics are quick to note, and a risky one. But the strangely forgotten US experience with North Korea suggests the alternatives were even riskier.

Nothing more to add; it’s hard to get any clearer.

Any Excuse To Not Participate

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On the matter of reopening the Strait of Hormuz, we get this from Europe’s government men and women:

Naval escorts for tankers through such a narrow waterway in a war zone would be nearly impossible, say allied officials and military experts. Reopening the strait would more likely come after a cease-fire and through international pressure on Iran, they say.

France’s President Emmanuel Macron made the claim explicit:

“It would take forever and would expose all those crossing the strait to risks” of Iranian attack[.]

Never mind the far greater risks to Europe’s (and Asia’s) economies from letting Iran keep the Strait closed while the chattering classes of politicians yap and arf with Iran’s surviving mullahs.

UK Foreign Secretary Yvette Cooper:

Iran is trying to hold the global economy hostage in the Strait of Hormuz[.]

NSS. But, international pressure? Who will feel that the most? The short answer is Europe and Asia. Iran has already named its terms: pay us a toll and stop supporting the US in any way, and your ships may pass. Tribute by any name….

Stalin’s question regarding the Pope has relevance today, rephrased by me: how many ships do Europe’s navies have? Embarrassingly for those nations’ governing men and women, the answer is virtually none. Farzin Nadimi, Washington Institute Senior Fellow, on the matter of dealing with Iran’s small fast attack boats blocking the Strait:

Such vessels can largely be deterred by the US dominant air power, but “European powers will not be able, and probably not willing, to replace that capability[.]”

This sort of…shortfall…both in physical capability and mental toughness is the result of those governments’ conscious decisions, through generations of governments, to not bother with their own defense establishments and instead to freeload off rely on American defenses, blood, and treasure.

Now they’re hiding from that simple fact and bleating that military action won’t open the Strait. Which of course is true enough absent American participation. Those nations don’t have any military establishment worthy of the name, much less one capable of the task of reopening and holding open the Strait so the oil and natural gas they need far more than we do can flow freely and without humiliating tribute paid Iran.

On Trump’s Budget Proposal

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President Donald Trump (R) has submitted his budget proposal for the next year to Congress, and on its surface, it does little to address the current large budget deficit and its attendant borrowing on top of the current national debt. It does, though, seriously plus up defense spending, with its request for $1.5 trillion for the Departments of Defense and Homeland Security.

There are a couple of ways to think about that. One is to deal with the threat to our economy, and so to our national security, of that burgeoning debt resulting from the continuing large deficit by raising taxes (as Progressive-Democratic Party politicians demand to do, especially on those Americans of whom they so vociferously disapprove) or by cutting spending (as budget hawks in the Republican Party demand to do).

Raising taxes, though, hurts all of us, not just those Evil Rich. Taking money away from the folks who make it and put it to gainful use reduces private economy investment and innovation—things us citizens do far better than even the most well-meaning government ever can—and that drop negatively impacts business competitiveness, expansion, and jobs, each of which hurts all Americans who are not part of the Evil Rich cohort.

Cutting government spending, on the other hand, always is a very good way to help our economy since it takes government competition for resources and more direct inputs to production out of the competition among businesses for those same factors, which puts downward pressure on prices that both businesses and consumers face. The cuts do, though, reallocate lots of jobs away from politicians’ districts and toward more efficient locations for the work, with efficiency defined by the businesses themselves rather than government politicians.

The other way to think about the budget with its deficit and attendant borrowing is articulated quite clearly by Trump:

We have to take care of one thing: military protection. We have to guard the country.

Indeed. We can’t protect our economy and its health, much less reduce deficits and borrowings, if we can’t defend our nation and instead have our futures dictated to us by our enemies—as the People’s Republic of China President Xi Jinping has committed himself to doing.

The answer writes itself, as anyone to the right of the Progressive-Democratic Party can see: plus up our defense spending, cut Federal spending everywhere else, and either cut taxes further or at least leave them alone.