Why So Much Inflation?

 Popular Economics Weekly

“For far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS). Through soft and pathetically weak Trade agreements, the American Economy has delivered growth and prosperity to the World, while taxing ourselves. It is time for that to change. I am today announcing that I will create the EXTERNAL REVENUE SERVICE to collect our Tariffs, Duties, and all Revenue that come from Foreign sources.” @realDonaldTrump (cited by Paul Krugman)

This is just another insane fantasy Trump seems to believe—or is practicing his politics of diversion—to mask the fact that tariffs are a tax that we pay on what is imported, just as foreign citizens pay taxes on what enters their countries, which boosts the prices of those products.

Trump collected more than $400 billion in tariffs during his first term, some of which he had to pay out to subsidize American farmers who had lost their soybean and wheat exports when China retaliated in kind.

But such a fantasy can reassure his loyal supporters that there is a way to escape their overriding fear of inflation. And the latest inflation news was good news for the financial markets as well.

FREDcpi

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis in December, after rising 0.3 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.

Stock and bond investors were so hungry for good inflation news when the Consumer Price Index surprised on the downside that financial markets rallied. Core inflation without food and energy prices factored in rose just 0.2 percent, which was below expectations.

The DOW immediately rallied +744 points, the S&P Index +140 pts., in the first 10 minutes of trading. They are now betting that the Fed will continue to ease credit by lowering interest rates further this year.

It’s a relief rally because Consumer Price Index (CPI) inflation of retail goods and services has been increasing since it went slightly negative in June of last year (see graph). This raised fears that the Fed might not cut interest rates further this year at all.

The next day’s wholesale Producer Price Index report was also good news. U.S. producer prices (PPI) that are the major part of retail costs rose less than expected in December, as the higher costs for goods were partially offset by stable services prices, suggesting inflation remained on a downward course.

Trump, of course, would like to abolish income taxes as do most Oligarchs. Wouldn’t it be nice to return America to the pre-income tax, Gilded Age of President William McKinley and the Robber Barons! Americans didn’t tolerate the Robber Barons taking so much of their wealth for long, however, which was the reason for creating the personal income tax with the 16th Amendment.

Trump’s misinformation is just one propaganda diversion that Trump will use to hide the fact that tariffs on imports, like all taxes, will be inflationary. As every successful investor knows, it’s better to focus on facts instead of the fiction that we can avoid paying taxes on what we buy, if we want a government that works for the many rather than the few.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

No Art of the Deal

 Answering Kennedy’s Call

'Insanity is doing the same thing over and over again and expecting different results,’ Einstein?

Huffington Post

Insane behavior could describe the actions that President-elect Trump is promising to implement after January 20. He has said he wants to deport millions of immigrants, impose higher tariffs on many countries (especially China), cut taxes, expand cryptocurrency, reduce wind powered energy, and “Drill baby Drill” for more fossil fuels.

These policies would damage economic growth at the least, maybe even cause a recession, with no change in the outcome, as happened in his first term. Trump has nominated his cabinet picks on the basis of extreme loyalty to him rather than their abilities, which added to Trump’s own limited intelligence will not be able to implement his goals. 

Wanting to restrict wind and solar power investment will increase global warming, for starters, which has caused the LA fires.

So why do he and his supporters keep expecting different results? Because it would enhance his wealth and that of his main financial supporters led by Elon Musk, the world’s wealthiest Oligarch.

And, even partially implemented would keep red states from receiving the benefits blue states receive, such as higher minimum wages, better healthcare, laws protecting labor unions and collective bargaining by reducing regulations and cutting taxes that benefit their ruling elites.

His supporters still believe in a win-lose world that ceased to exist when the industrial revolution and new technologies began to produce more than could be consumed. It took the progressive movement that culminated in Roosevelt’s New Deal to prove that there were enough resources to benefit working Americans as well as the holders of the wealth created by workers.

His supporters have been willing to give up such benefits in return for cultural values they still believe in such as banning new immigrants and most abortions, as well as censoring libraries in red states so that their followers only have access to propaganda instead of facts.

President-Elect Trump and Republicans’ singular success in his first term has been another tax cut that has continued the transfer of wealth from working Americans to the wealthiest since the Reagan administration.

He may fail in implementing most of his agenda, but we can be sure he will be as vindictive in seeking revenge in Trump 2.0 for his perceived slights as in his first term, now that he is a convicted felon.

“Fortune Magazine reported in 2016 on candidate Trump’s negotiating tactics: “The legal actions provide clues to the leadership style the billionaire businessman would bring to bear as commander in chief. He sometimes responds to even small disputes with overwhelming legal force. He doesn’t hesitate to deploy his wealth and legal firepower against adversaries with limited resources, such as homeowners. He sometimes refuses to pay real estate brokers, lawyers and other vendors.”

And what about reducing the size of government that Republicans promise will reduce graft and waste? Who does it really help?

"Pretty much the whole Republican Party--and, if we're going to be honest, too many Democrats--talked about the evils of 'big government' and called for deregulation," Senator Elizabeth Warren said in 2016 at a AFL-CIO National Summit on Raising Wages. "It sounded good, but it was really about tying the hands of regulators and turning loose big banks and giant international corporations to do whatever they wanted to do."

"These families are working harder than ever, but they can't get ahead. Opportunity is slipping away. Many feel like the game is rigged against them--and they are right," Warren said. "The game is rigged against them.... The world has changed beneath the feet of America's working families."

Many did listen to this warning and elected President Biden because of it. But the message was lost because many Americans thought Democrats were no longer up to the task of protecting them.

Yet we already know who Republicans intend to protect.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Americans Still Fully Employed!

 Popular Economics Weekly

Total nonfarm payroll employment increased by 256,000 in December, and the unemployment rate changed little at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment trended up in health care, government, and social assistance. Retail trade added jobs in December, following a job loss in November.

FREDunemployment

It was a tremendous employment report. Then why did stock and bond values tank on Friday? December’s unemployment report was certainly good for workers. Employment is maxed out, with employers unable to hire new workers other than replacements for those retiring or changing jobs. The Labor Department’s JOLTS report showed that employers reported 8.1 million open job positions in December.

The strong employment report has reignited fears that the Fed will halt their rates reductions because of inflation fears. Almost everyone is currently predicting strong fourth quarter economic growth and continued full employment that has prevailed since January 2022.

The inflation ‘culprit’ (f you want to call it that) is strong government spending for all the construction and climate change projects being funded from the various Bidenomics’ bills.

In fact, it is Bidonomics, the $5 trillion plus investments in the US economy over this decade, that is keeping Americans fully employed. And it is boosting employee wages, as well, which is why inflation is proving so difficult to tame.

We are joined in the age-old battle of workers vs. owners, employees vs. employers, over how to divide our national wealth. Wall Street investors want lower inflation because it doesn’t dilute their wealth, while workers want full employment because it increases their wages.

So who is really complaining about our fully employed economy? Elon Musk, the world’s wealthiest Oligarch, for one. It is those that don’t like any inflation because it dilutes the value of their assets. Therefore the so-called efficiency experts led by Elon Musk want to shrink government spending without admitting it is the only thing keeping Americans fully employed.

Renown economist Mohamed El-Erian recently stated on CNBC’s After the Bell that the U.S. economy’s spectacular growth is the only thing keeping the world’s economies afloat, so why should we worry too much about higher inflation at this stage?

Well, it is triggering consumer worries about rising prices and has provided the propaganda tools that re-elected the party of oligarchs wanting to slash government programs that benefit wage earners most.

Expectations in the University of Michigan sentiment survey for inflation over the next year jumped to 3.3% in January from 2.8% in the prior month. It is the highest rate since May. Expectations for inflation over the next five years surged to 3.3% this month from 3% in December. That’s the highest since June 2008.

But consumers know how to adapt, especially with wages that are keeping ahead of inflation. They tend to look for more bargains when they see rising prices. So, shouldn’t our government main job be to keep workers fully employed and healthy rather than benefiting Elon Musk’s efficiency experts and Wall Street financiers?

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Greater Threats = Slower Growth

 Answering Kennedy’s Call

“Fostering a culture of fear and ignorance is not the way to run a political party, or country, if it would ever come to that.” Popular Economics

Reuters/January 6

I said in 2014 when writing in Huffington Post “Not all Republicans are bullies, and not all Democrats enlightened progressives, of course. But the bully mentality of House Speaker John Boehner’s “no compromise” tactics, or Senator Mitch McConnell’s filibustering of even the most innocuous Obama administration appointments have been the reason recovery from the Great Recession hasn’t been stronger.”

Fear and intimidation seem to be the main negotiating tools in the second Trump administration to achieve their goals, as well. President-elect Trump seems to believe that by threatening tariffs, he can force Denmark to give up Greenland and Panama the Panama Canal to strengthen our national security.

It didn’t work in his first term when shutting down government and mismanaging the COVID-19 pandemic created such a backlash that Nancy Pelosi and Democrats took back the House in 2018.

Why are tariffs an inflationary tax on imports? In the words of Nobel Laureate Paul Krugman: “What the tariffs would do is shrink our economy. They would cause us to sell less of the goods we currently export — that is, stuff we’re relatively good at producing — and more stuff we aren’t that good at producing. The effect would be to make the economy less efficient and poorer.”

FREDpce

And the level of inflation will determine what kind of growth we will see this year. Several Fed Governors have spoken about what inflation might do to the prospect of further rate cuts. Fed Governor Michelle Bowman and Kansas City Fed President Jeff Schmid both said the 100 basis points in rate cuts since September has brought the Fed’s benchmark rate down to “neutral,” where it neither dampens or boosts demand, according to MarketWatch’s Greg Robb.

Whereas Federal Reserve governor Christopher Waller said Wednesday that he supported more interest-rate cuts this year and didn’t think that proposed import tariffs from the incoming Trump administration will lead to upward pressure on inflation, also per MarketWatch.

We won’t know until higher tariffs are enacted, and which countries will be affected. But we know that the tactics of fear and intimidation haven’t worked in the past without damaging our economy as well as those countries targeted.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Bidenomics Works--Part II

 Financial FAQs

A large fraction of voters do suffer from economic illiteracy. Indeed, it is fair to say that an ample majority do not understand the basics of how markets work. They are especially confused about labor and international markets. Voters also have severe misconceptions about how government spends their tax dollars, and are extraordinarily pessimistic about long-run economic conditions.” Professor Bryan Caplan of George Mason University, citing a recent Washington Post/ Henry J. Kaiser Family Foundation/ Harvard University Survey Project.

CalculatedRisk

“Job openings in the U.S. rose to a six-month high of 8.1 million in November from 7.8 million in the prior month, helped in part by a rebound in employment after two major hurricanes and the start of the holiday shopping season,” Jeffry Bartash, MarketWatch

Surveys such as the US Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) report as portrayed in the above graph are saying that consumers’ jobs are still safe. Then why so much angst that things might get worse? Polls seem to be buffeted by the latest political winds, especially with Trump’s repeated assertions that our economy is in terrible shape.

“Our Country is a disaster, a laughing stock all over the World!” he declared on social media last week, per NYTimes Peter Baker.

Yet we know that President Biden’s Bidenomics legislation has made us the fastest growing developed country in the world after the COVID-19 pandemic. We have been fully employed for more than two years, and inflation is back down to the 2 percent range.

Peter Baker added, “New data reported in the past few days indicate that murders are way down, illegal immigration at the southern border has fallen even below where it was when Mr. Trump left office and roaring stock markets finished their best two years in a quarter-century.

Polls have shown that this is because it’s easier to blame than understand what is happening to ordinary people’s financial circumstances. PEW Research has shown that although voters like their own situation, many believe the overall US economy is in the dumps; some even believing we are in a recession.

There are plenty of horror stories to encourage such a view, such as our national debt has ballooned to 121 percent of GDP, and we may soon lose our last Aaa bond rating.

But the latest economic facts are that both the service sector and manufacturing sectors of our economy are doing very well. Consumers are still powering travel, leisure activities, healthcare, and construction industries per the most recent Institute for Supply Management Service Sector survey. It’s headlines touted:

• Sharpest growth of output and new orders since March 2022
• Employment increases for first time in five months
• Business confidence at 18-month high

The ISM manufacturing survey showed similar but slower growth. “The overall economy continued in expansion for the 56th month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.)

Because Americans get most of their news from public media that doesn’t make much of an effort to differentiate facts from fiction, truth from lies, it requires an effort to ferret out the difference. Propagandists know this as well, hence their nonstop efforts to repeat the fictions.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Record Inequality = Record Debt

 Answering Kennedy’s Call

“Never spend money before you have earned it.” Thomas Jefferson

Thomas Jefferson may not be the best person to quote on the dangers of debt—His slaves weren’t freed upon his death because his estate owed too many debts. And my Italian economics history professor lectured on the cause of the fall of the Roman Empire. Its empire collapsed when it was bankrupted because its armies had run out of territories to invade and loot.

Might our American empire might end up in a similar situation? We have transferred as much of our national wealth as possible to the top 10 percent of American households by lowering their taxes. The other 90 percent of American households are tapped out, having accumulated massive debts as household incomes have stagnated since the 1970s.

FREDdebt/gdp

The FRED graph dating from 1980 shows when our debt-to-gdp ratio began to bulge—in 1980 from 31% to 51% of GDP creating the first $400 billion national debt total.

Our national debt has now ballooned to 121 percent of GDP since because we can’t agree on how to pay for it. We may soon lose our last Aaa rating from Moody’s Investors Services who has already warned it is in danger because “Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” as quoted by Barron’s Randall Forsyth.

Graph: Last Tech Age

But the real debt culprit is what the political polarization has led to—our record income inequality, worst in the developed world and many of the developing countries. It is mainly because majority Republican congresses have managed to push through successive tax cuts without the means to pay for them.

The U.S. was in 106th place of the 149 countries in income inequality as ranked by the CIA’s World Factbook with a Gini inequality index of developing countries like Peru and Cameroon when I first wrote about it. Whereas Finland and the Scandinavian countries are at the top of equality rankings, Germany and France are 12th and 20th, respectively. The higher the index, the greater the gap between wealthy and poorer citizens of a country’s population.

Is our bankruptcy immanent? It is becoming increasingly difficult to pay our bills with increasing deficits, since much of the deficit is funded by other countries investing in U.S. Treasuries because the US Dollar is a world currency. But it will become increasingly expensive as foreign investors in US Treasuries will demand higher bond yields for the increased risk of default, as Moody’s Investor Services has warned.

Defaults happened in 1932, when national markets collapsed causing the Great Depression. Americans had borrowed too much and in the words of Roosevelt’s Federal Reserve Chairman Marriner Eccles, “The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.”

Part of the solution would be to restore the tax rates for the highest income earners that prevailed before President Reagan cut them to downsize government and enrich his Big Business supporters. The first tax cut (Economic Recovery Tax Act of 1981), cut the highest personal income tax rate from 70% to 50% and in the second tax cut (Tax Reform Act of 1986) to 38.5% among other things, per Wikipedia.

But most of the taxes would have to be paid by those he enriched, maybe even a tax on the wealth they had accumulated, i.e., the wealthiest 10 percent that benefited from all those tax cuts since 1980. Is that possible when the incoming administration wants even more tax cuts?

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Who Wants to Know?

 Financial FAQs

“Fewer than a quarter of Americans (23%) currently rate the country’s economic conditions as excellent or good, while 36% say they are poor and about four-in-ten (41%) view conditions as “only fair,” PEW Research

PEWResearch

Why do so many Americans doubt the strength of the American economy that is the fastest growing in the developed world since the COVID-19 pandemic? It depends on their politial leanings, according to the latest PEW Research poll.

PEW Research has been measuring political attitudess for decades. As many as 81 percent of Republicans had positive views of the nation’s economy during Trump’s first presidency, whereas a higher percentage of Democrats were positive during President Biden’s term, per the PEW graph.

It is a condemnation of the lack of economic literacy among American voters, and I maintain largely a reflection of its lack in our educational system.

This is also a reflection of the fact that economic science is still in its infancy. In fact, Adam Smith, who wrote the first treatise on economic theory, The Wealth of Nations, was a Scottish Professor of Moral Philosophy who was the first to show that a successful economy was based on its citizenry guided by an invisible hand to make the right moral choices (honesty, good character).

And economies went awry when those in charge didn’t follow the rules of good character, which have always been autocratic rulers out to serve themselves rather than their citizens, such as in China and Russia. And why is that possible?

A large fraction of voters do suffer from economic illiteracy. Indeed, it is fair to say that an ample majority do not understand the basics of how markets work. They are especially confused about labor and international markets. Voters also have severe misconceptions about how government spends their tax dollars, and are extraordinarily pessimistic about long-run economic conditions,” says Professor Bryan Caplan of George Mason University, citing a recent Washington Post/ Henry J. Kaiser Family Foundation/ Harvard University Survey Project.

Most voters lack even an elementary understanding of economics. When prices change, vague conspiracy theories - not supply-and-demand - are their default explanation, says Professor Caplan.

One survey item that captured the public's anti-market bias is the question asking why the price of gasoline rose back in 1996. Is the reason the "normal law of supply and demand," or is it instead "oil companies trying to increase profits"? An overwhelming majority of economists - 89% - point to supply and demand. An almost equally lopsided fraction of the public - 74% - say the opposite.

Why so much ignorance of financial markets and basic economic conditions that everyone should know to make accurate decisions about their financial future? An economic education was not a high priority for Americans during more prosperous times, a time of a growing middle class after the Great Depression and World War Two.

According to the Council for Economic Education’s latest biennial Survey of the States, a nonpartisan education organisation, just 28 states required K-12 students to take an economics course to graduate, until the COVID-19 pandemic and world-side economic shutdown.

But since the pandemic more than two-thirds of all states are now requiring personal finance classes for high school graduation.

The 2024 Survey found that 35 states now require students to take a course in personal finance to graduate. The new regulations in those dozen states will lead to over 10 million additional K–12 students – 21 percent of current students – gaining guaranteed access to this knowledge, the Survey notes.

The picture isn’t much better in higher education. Only 3.3 percent of colleges required students to take a basic economics course, according to a 2014 study by the American Council of Trustees and Alumni, titled "What Will They Learn?"

ACTA looked at 1,098 colleges and universities. The organization found 3.3 percent require an economics class, 18.3 percent require a U.S. government or history class, and 37 percent make students take a literature course.

There is one additional reason for Americans’ economic illiteracy. It is the well-studied phenomena of herd behavior that was called irrational exuberance by former Fed Chairman Alan Greenspan in an earlier decade.

Nobel Laureate Robert Shiller attributed it to a mental laziness that caused the housing bubble. People tend to listen to hearsay and word of mouth rather than rely on their own judgements to make financial decisions.

“It was, and is, about how errors of human judgment can infect even the smartest people, thanks to overconfidence, lack of attention to details, and excessive trust in the judgments of others, stemming from a failure to understand that others are not making independent judgments but are themselves following still others—the blind leading the blind,” said Dr. Shiller.

It is a sorry picture of our economic illiteracy, and the reason so many citizens are easily fooled by leaders without the requisite character traits, such as good morals and character, that Adam Smith said were required to run a successful economy and government that is for all the people.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen