Economics

Few developments have more cheered progressive activists than the perceived resurgence of labor unions. This has been sparked by largely symbolic efforts to unionize in places such as Starbucks and Amazon, as well as more sizable wins by the Writers Guild of America and the Screen Actors Guild and United Auto Workers, the country’s most important private labor union. In 2022 strike activity more than doubled from the previous year. Yet ultimately these wins may turn out to be largely Pyrrhic.

The Dodd-Frank law, enacted in 2010 following the financial crisis of 2007-08, was named for two of its chief architects, Senator Chris Dodd, Democrat of Connecticut, and Representative Barney Frank, Democrat of Massachusetts. It's ironic that both had been involved, politically or personally, in exactly what had caused the financial crisis in the first place. In the 1930s, only about 10 percent of American non-farm families owned their own homes. But that began to change with the New Deal. The Federal Housing Administration was established in 1934 to guarantee mortgages, making banks much more willing to initiate them.

Election aftermaths are always an opportunity for taking stock. Since the 2022 midterms, we’ve heard prominent Republicans stressing the need to revisit questions ranging from electoral strategy to how to engage the culture wars. What desperately needs discussion on the American right, however, is conservatism’s approach to economic policy. Since 2015, American conservatives have been deeply divided over economics. Conservative skepticism about markets predates Donald Trump, but there’s little question that Trump shattered the favorable views of free markets that had prevailed since Ronald Reagan’s presidency.

It’s been a great year for those of us who didn’t have the nerve to invest in crypto. The value of Bitcoin, Ethereum and Luna crashed in May. Now, crypto giant FTX has gone bankrupt amid serious allegations of criminal misconduct. At last! For years, we kicked ourselves for not investing in Bitcoin, ETH, et cetera, when we had the chance. We heard tales of people who went from bums to millionaires, while we grinded in our offices and fretted about debts. Suddenly, we can reframe our risk aversion as foresight! Of course we knew that this would happen! Of course we did! Really, I shouldn’t joke about this crypto craziness. A lot of people have lost a lot of money. People will lose businesses, homes, and families. Some might even commit suicide.

Inflation is about far more than rising prices. In this excerpt adapted from Inflation: What It Is, Why It’s Bad — and How to Fix It, the book’s authors explain how the debasement of money ultimately corrupts society. The scenario is fairly standard: central banks devalue money; prices shoot up. Governments look for ways to tamp down inflation by keeping people from spending. They also respond with price controls, capital controls, higher taxes. Governments grow larger and often impose more constraints. People lose their freedom, and worse.

Since its postwar rise, the American conservative movement has staked its reputation on defending the free market as an abiding principle. Conservatives pointed to the liftoff in the American economy caused by the Reagan tax revolution and the deregulation of heavily controlled parts of the economy. Less government and less regulation were better for the American economy. The left disagreed with this fundamental axiom of conservative wisdom. Now, surprisingly, many on the right have joined them. Something obviously changed in the post-Cold War period. China’s entry to the World Trade Organization in 2001 resulted in the so-called China Shock, or the loss of 15 to 20 percent of manufacturing jobs in America.

On the American right today, economics trumps all else. While conservatism has always been bedeviled by the tension between economic science and traditional, family-focused values, the last four decades have witnessed a decided shift toward embracing economics as the sole indicator of a successful society. Those who create wealth, in theory and in practice, are accorded the closest thing to nobility an egalitarian society will tolerate. And indeed the American free market remains the most powerful lever the world has to erase class, poverty, and privilege in the equal pursuit of opportunity.

The Federal Reserve raised interest rates by 0.25 percent last week, the first increase since December 2018. Back then, Donald Trump had been very vocal in his criticisms of the Fed and its chair Jerome Powell, demanding no more rate increases. There was no resistance from the White House this time with press secretary Jen Psaki saying that the Biden administration respected the Fed’s independence. Powell called the rate increase necessary due to inflation coupled with rising prices. “As we emphasize in our policy statement, with appropriate firming in the stance of monetary policy, we expect inflation to return to 2 percent while the labor market remains strong,” said Powell, before warning that it will take longer than expected for inflation to sink.

The Labor Department reported this week that the December inflation rate hit 7 percent on an annualized basis, the highest since 1982. That was when the country was just beginning to recover from the inflation of the 1970s, the highest peacetime inflation in the nation’s history. The inflation rate for the last three months of 2021 was 9.1 percent. The price of gasoline is up almost 50 percent over a year ago, used cars are up 37 percent and furniture is up 17 percent. Shortages cause by supply-chain disruptions are partly responsible for the upsurge (supermarket shelves have been notably empty in recent days). As grocery and food workers return to work after the latest surge of Covid, those prices should begin to drop.

Joe Biden cheerfully told Americans that most of them are too thick to understand what a “supply chain” is. Naturally, he understands it thoroughly. You can see with your very own eyes how well he has handled it. Since, as Joe said, you must be wondering why so many shelves are empty, I’m here to explain. Following the president’s wise advice, I will use small words and a simple story. Let’s begin in the good ol’ days, not too long ago, when the shelves were magically full. The story begins in a land ever so far away, where happy people worked and worked to make Christmas toys for children in Kansas. When they finished making the toys, they placed each one in a little box and then placed lots of them in a great big box.

The most important macroeconomic development of the last three decades has been the extraordinary growth of the Chinese economy. In 1990, it was largely a subsistence peasant economy with a negligible footprint in world trade. China now provides the largest share of world exports, and by some standards has already become the world’s largest economy. In 1990, the wage of an average Chinese worker was perhaps 1/40th of that of an American worker. By 2020, it was just about a quarter: a tenfold gain in just 30 years. Before the 18th century, all societies were basically subsistence peasant agricultural societies with a small upper layer of landowning nobles and clerics. Then the Industrial Revolution began.

Many are familiar with the old aphorism that in real estate the three most important determinants of value are location, location, location. Things are a bit different in making economic forecasts and predictions, where two variables matter most: accuracy, of course, but also timing. Regarding accuracy: a lengthy list of economists — some quite eminent — have ended up with egg on their faces because of inaccurate predictions and forecasts. In this regard, there’s the observation by the distinguished economist Irving Fisher, 92 years ago today on October 16, 1929, that stock prices had reached 'what looks like a permanently high plateau’. Since the Great Crash occurred two weeks later, Fisher’s timing wasn’t so great either.