It’s almost crunch time! By early next week the new PPI and CPI numbers for July will be out.
I have been warning for months that actual prices are rising much more quickly than you would realize, had you simply relied on the official reports coming out of the BLS. I explained that after last month’s numbers came out (for June-over-May price increases), the grace period is over. Since the BLS has “seasonally adjusted” the actual CPI increases down every month from January through June, now they will have to bump up the actual numbers, when giving the headlines to CNBC.
Because I’m very suspicious of the government, I predicted that they will revise the prior adjustments, in effect shifting some of the price inflation back onto the earlier months of 2009, so that they don’t have to catch up so much in the 3rd and 4th quarters.
It’s not the same thing, but here Jeff Hummel describes a massive revision that the BEA just undertook to the GDP figures going back to 1929. Here’s an excerpt from Hummel:
Using new input-output analysis, the BEA has just completed a comprehensive revision of all the numbers in the National Income and Product Accounts going way back to 1929. Consider the slight difference this can make in the story of the current recession, which the National Bureau of Economic Research (NBER) dates as beginning in December 2007. The old estimates reported that real GDP fell by 0.2 percent in the fourth quarter of 2007, whereas the new estimates report that it rose by 2.1 percent. For the first quarter of 2008, the old estimate is a 0.9 percent rise; the new estimate is 0.7 percent fall.
And to show just how ridiculous these revisions can be, Hummel goes on to explain:
Richard K. Vedder and Lowell E. Gallaway caught probably the most egregious instance in their neglected Out of Work: Unemployment and Government in Twentieth-Century America (1993). The 1960 estimates of real Gross National Product (this was when the preferred aggregate was still GNP rather than GDP), using a 1929 base year, reported that output rose by 30 percent during World War II (1941-1944) and then fell by a modest 5 percent to 1948. In contrast, the 1990 estimates, using 1982 as a base year, had output rising by 50 percent during World War II and then falling by a massive 30 percent from 1944 to 1948.
In other words, the 1990 estimates discovered a massive post-World War II recession in the U.S. that absolutely nobody was aware of at the time and that failed to show up at all in the unemployment numbers. Yet most macro texts over the last decade have graphs that mindlessly depict this imaginary depression by statistical artifact. [Bold in original]
I can’t believe I am actually anxious for a BLS report to come out. And yet here we are.
I am pleased to announce that the Mises Institute has officially given me the green light to start working on an economics course geared for the high school level. The main audience will be for homeschoolers, but the course materials will be “official” enough that any high school teacher with a friendly administration could adopt the course.
This will not be centered on Austrian economics per se, but rather economics in general. I will be guided by the notion that many of the students will get their one course in economics from this material. So I’m certainly not spending time on Average Total Cost curves. (The teacher’s edition will have advanced topics and also sections on mainstream textbook analysis, for the students who plan to take econ in college.)
I will give more updates as the project matures. We are very excited about the whole thing. I have been in consultation with a fellow grad from Hillsdale College, who now teaches history to junior high students. We will work together to ensure that Lessons for the Young Economist is appropriate for the target age.
I’m sure most of you heard President Obama’s ill-advised attempt to defuse critics of the health “reform” plans. Obama was trying to make the point that a public (government) health insurance plan wouldn’t put private insurers out of business, and so he noted that FedEx and UPS were doing fine, whereas the Post Office was the one always in trouble. You can’t see it in the clip above, but on the audio clips I’ve heard it seems that even the very friendly crowd was a bit nonplussed by this line of argument.
Anyway, I had a similar thing happen when I deposited a check at my local bank. I opened the account when I was a professor in Michigan, and now I live in Tennessee. Every once in a while the person at the desk urges me to open a checking account with them, so that everything will be in-state.
I have resisted doing so for two main reasons. First, we have most of our bills on autopay through the account, and I would have to switch everything over. Second, quite frankly the Fifth Third employees in Hillsdale, Michigan (where we opened the account) seem a lot more competent than the ones I’ve dealt with in Nashville, TN. (I’ll just leave it at that. Not saying one group of people is good or bad in an absolute sense, but one group has to be relatively better, and I put my money–literally–on the Michigan people.)
Now here’s what’s funny: I know full well that there must be some sort of drive to get people to sign up with new checking Fifth Third checking accounts; they even have promotional gimmicks like you get an extra $25 in your account (with an initial minimum deposit). So today the branch manager comes up to me and urges me to switch, for the same reason they always give. But this time he added a little drama to it, saying something like, “We’d like to be able to say that nothing could go wrong, with your account being based out of Michigan, but in truth the Fifth Third computer network doesn’t always work the way we wish it did. So just to spare you heartache down the road, you should really think about setting up an account here in Tennessee. You can at least just open one, and then over time move your activities over to it.”
I didn’t say this, but my internal reaction was, “Well, if you’re telling me to open up a new checking account in Nashville because the Fifth Third system is unreliable, I would do it with another bank. What kind of sales pitch is that?”
* More lecturing for CA, this time in the Manhattan Institute’s City Journal.
That’s not the exact spin that CNBC gave to the story:
The Federal Reserve said Wednesday it will extend the duration but not the dollar amount of a program to buy long-term government securities, and said the economy was showing signs of leveling out after 20 months of recession.
The Fed, the US central bank, also kept its benchmark short-term interest rate steady near zero and said it would likely stay there for an extended period.
The Fed said it would gradually slow the pace of its program to buy $300 billion worth of Treasury securities so that it will shut down at the end of October, a month later than previously scheduled. It has bought $253 billion of the securities so far.
The program is aimed at lowering rates on mortgages and other consumer debt, a move to spur Americans to spend more. But its effectiveness has been questioned by some on Wall Street and on Capitol Hill who worry that the program makes it look like the Fed is printing money to pay for Uncle Sam’s exploding deficits.
A fairly weak auction of $23 billion in 10-year notes sent a clear signal that investors were waiting to see what the Fed had to say at the before making any big moves. The 10-year auction’s bid-to-cover ratio, a measure of demand, was 2.49 percent, down sharply from 3.28 percent at a similar auction in July. Indirect bids, an indication of foreign buying, were lower than at recent auctions.
US Treasury prices tumbled after the Fed statement in apparent disappointment that the Fed did not increase the amount of debt that it plans to buy.
Although consumer spending has stabilized, job losses, sluggish income growth, hits to wealth from tanking home values and still hard to get credit could make Americans cautious in the months ahead, the Fed said.
The Fed expressed confidence that its low rates and other aggressive actions so far will gradually help bolster the economy. Even so, economic activity probably will “remain weak for a time,” the Fed warned.
Against that backdrop, the Fed said inflation is likely to stay “subdued.” Fed policymakers predicted that idle factories and the weak employment market will make it hard for companies to jack up prices.
While unemployment dipped to 9.4 percent in July, the Fed says it’s likely to top 10 percent this year because companies won’t be in a rush to hire.
The Fed didn’t make any changes to another program that aims to push down mortgage rates.
In that venture, the Fed is on track to buy $1.25 trillion worth of securities issued by mortgage finance companies Fannie Mae and Freddie Mac by the end of the year. The central bank’s recent purchases have totaled about $542.8 billion. [Bold by RPM]
Folks, I am waiting for Mario Rizzo to slip up and post something dumb, just so I can pounce on him and prove I’m independent. But alas, he keeps knocking it out of the park:
The over-all theme of [Krugman's] article is that big government is our salvation. “[U]tter catastrophe no longer seems likely…Big Government, run by people who understand its virtues, is the reason why.”
Post hoc ergo propter hoc?
How do we know that fiscal stimulus played a non-trivial or any helpful role in the apparent easing of the rate of decline in economic activity? I think we need a theory and evidence.
Now, of course, there is no dearth of Keynesian theories – all leading to [the] same policy conclusion. If recession, then more (government) spending. But what is the mechanism by which about $70 billion in extra spending (this is the amount of the total stimulus package now spent) reduces the rate of increase in unemployment and reduces the rate of decrease in output in a $14 trillion economy? If my advanced arithmetic is correct this is ½ of 1 percent of the GDP. What kind of Super Multiplier is that?
However, things are more disturbing than that. Just a couple (or so) weeks ago President Obama said that not enough of the stimulus had been spent yet and so it was too early to expect results. But mirabile visu! The Almost Recovery has appeared. (It seems more like political opportunism instead.)
Indeed, I think the only real goof Rizzo has made since starting his blog, was apparently giving Gene Callahan unrestricted posting privileges. Rookie mistake.
Today I am pleased to offer a response to Paul Krugman’s arguments that the free market can’t work in health care. The writer is Matthew DiPaola, who was in my high school class. More important, as his bio below indicates, Matthew is an actual MD and thus may actually know more than Krugman, me, and all the other economists put together on this issue. The below essay is a lightly edited version of a comment that originally ran on Jay Parkinson’s blog. Matthew is willing to write future essays on these matters, so put your requests in the comments. –RPM
A Medical Doctor Responds to Paul Krugman on ObamaCare
By Matthew DiPaola
I completely disagree with Krugman and again believe that his NY Times pulpit and Nobel prize in economics inappropriately legitimize a weakly argued, soundbite point.
Krugman claims that health care is distinctive for 2 reasons: 1) no one knows “when or whether” they may need care (health events can be unpredictable) and 2) health care is complicated. He is wrong on both points. In order for his point to ring true, he would have to prove that free markets are incapable of efficiently distributing unpredictable and/or complicated services. Yet free markets efficiently distribute both unpredictable and complicated services all of the time.
Point 1. Free markets operate extremely efficiently to protect against the unpredictable events of death (life insurance), car accidents (automobile insurance) and fires (homeowners insurance). In each case there is a disincentive for the insurance company to pay–not unlike the case of health care. Well managed insurance companies such as Geico, through excellent planning and policy pricing are able to offset claim payouts by prudent float investment and either break even or turn a profit. Such insurance firms provide a solid protective service to countless people daily. Without free markets (and we can argue about how truly “free” some of these markets are) these people would surely be worse off.
Point 2. Free markets efficiently allocate complicated goods and services all of the time. The computer industry is an excellent example. I don’t know how to create a microchip but I can certainly explain to a competent professional the types of activities for which I would use a computer. And in a free market, an honest, trained salesperson can help guide me to the appropriate computer, at a good price for my needs.
The same holds true for medicine. No patient needs to know the nitty gritty distinctions between various stents. They do, however need to be educated and guided appropriately regarding the qualities of that stent that most affect their decisions: “Doctor, how long does stent X last? What are the side effects? What are appropriate alternatives? What quality of life will this provide me?” The professional’s role is to guide the patient through this complicated decision process and is their “value added” to the market interaction.
Krugman fails to delineate why health care is truly distinctive. Health care is distinctive because its practitioners are obligated through professional ethical standards to provide the highest level of care to ALL patients/consumers regardless of age, disease status and ability to pay. Certainly this differs from the flat screen TV market: this would be the equivalent of every TV shopper DESERVING the $5000 48-inch flat screen TV (assuming that the 48-inch was considered the highest quality). And this ethic may indeed raise costs, to the extent that high quality equals high cost. One can argue ad infinitum about what constitutes the “highest level of care.” And I think Jay Parkinson makes good points in his writing that high cost does not ALWAYS equal high quality care.
Krugman’s last point about there being no successful free market systems in health care is utter nonsense. There has been no such thing as a free market in health care in the US since at least 1965 and he woefully ignores any examples prior to this. Government intervention has perverted the free market to the extent that any conclusion about its true workings is impossible to make. This would be like the commissioner of baseball, prior to Jackie Robinson entering Major League baseball, saying “there is no evidence that black players can be successful in the Major Leagues.” Rubbish.
Milton Friedman, a Nobel prize winning economist with a decisively different take on these issue is worth considering. For a look at why free markets in health care must be considered please read Friedman’s 2001 article “How to Cure Health Care.”
Matthew DiPaola holds an MD from Cornell University. His residency was in orthopedics at Thomas Jefferson University in Philadelphia. In September he will begin as Assistant Professor of Orthopedics at Wright State University in Dayton, Ohio. His views expressed here do not necessarily reflect the views of his employer.
I explain the unfortunate demise of Larry Kudlow in this Mises Daily.