Stopping Inflation II

In my last post, I pointed out we weren’t making enough effort to expand supply to curb inflation. Similar to oil, the prospective future product increase will work to lower prices today and into the future. Energy, so essential to the World’s economy, is the starting point, but other building blocks, commonly called commodities, face the same hurdles for expansion.

Blessed with a wealth of minerals and highly productive farms, the U.S. is a commodity powerhouse, or at least it was in the past. Look around and almost everything you see originated in the ground. To expand oil production, you need steel and lots of other stuff. Want clean energy? You have to have everything from rare earths to a mountain of copper. 

The same attitude stifling increased oil production is evident in our ability to increase the supply of other commodities. Instead of maximizing our resources, we depend on others, some unfriendly, for basics. We have set up a world-class obstacle course to open a mine in the U.S.

In the past, I’ve pointed to Arizona’s Resolution deposit’s decades-long, unresolved journey to yielding copper. It’s not as if Arizona is new to copper mining. The state is the nation’s leading producer. The Resolution mine is potentially the largest ever in the state. A combination of environmentalists and Indian tribes have litigated the project to a standstill.

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Yes, Pres. Biden, You Can Stop Inflation

The Biden administration claims it can do little about inflation and leaves it up to the Federal Reserve (Fed) to tame prices. The Fed can bring inflation to heel if it will raise interest above the expected inflation rate. Anything less adds to costs while still encouraging borrowing. For instance, you’re buying a house with a 5% mortgage. It sounds high by recent standards, but if inflation is over 8%, the actual rate is -3 plus the interest tax deduction. This interest rate won’t deter people from buying houses or other capital goods. It just adds to demand and costs. Aso, don’t forget rising interest rates add 100s of billions to what we pay on our national debt, adding to rather than solving the problem.

However, if you drive up the interest rate above today’s 8-9% inflation, the economy probably will fall out of bed as it did in the early 1980s. People forget at the same time Fed. Chair Paul Volker was driving interest rates to 18%; we laid the groundwork for a rapid recovery. 

The Carter Administration deregulated industries such as Airlines, Railroads, and Telecommunications. Pres. Reagan extended this trend by dumping gasoline price controls, among others. He also cut taxes where inflation had pushed people into ever higher brackets. These were all supply-side incentives and turned the early ’80s recession into the excellent expansion that continued through the ’90s. 

It may be too late to avoid a recession, but we can try. Biden needs to emulate Carter and Reagan by expanding goods and services rather than maintaining his current roadblocks. The quicker we increase supply, the less the Fed will need to raise interest rates. 

Energy is essential to everything we do; it’s the place to start. Once again, let me lay out the economics. I’ve said it before, the view our future production doesn’t affect world prices is bogus. Yet, the Washington Post economics writer Charlotte Rampell echoes others by saying our energy production doesn’t affect prices. 

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Deepening the Divide

Nothing illustrates our nation’s division better than the recent primetime January 6th hearing. The mainstream media uniformly promoted the show and then gave it lavish praise. The “never Trump” old Republican establishment joined in approval. How you view the presentation tells what side of the country’s divide you reside.

Like many Americans, I was horrified as people broke into the Capitol. The first thing that crossed my mind was where is the president, and why isn’t he addressing the situation? There is no question Trump’s failure to act immediately was abominable. We all saw his dereliction. The house looking at his actions or lack thereof impeached him.

Not satisfied by the impeachment’s failure, the house set up a select committee to look into the happenings of January 6th. With all the unanswered questions, this is reasonable. If the FBI knew the possibility of violence, why weren’t measures taken? Shouldn’t there have been a significant police presence with a vast crowd? What was everybody doing from the president on down? 

Most significant events involve a broader context. We knew who was responsible for Pearl Harbor, but did all our battleships need to be huddled in the harbor every weekend? What was the intelligence? We have historians and archaeologists to explore the bigger picture. 

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Ezra Klein, Elites, and Industrial Policy

Liberalism and building paired are already in the oxymoron territory, but I am intrigued. The New York Times’ town crier to its highly educated elite audience, Ezra Klein, recently wrote an article headlined, “America needs a Liberalism that Builds.” Klein would have us believe government industrial policies would be superior to markets, say, achieving the lofty goal of overcoming global warming. Adam Smith and all the human progress since “The Wealth of Nations,” be damned, mercantilism, now renamed “Industrial Strategy,” is the way to go. 

Even though markets accompanied by compatible regulation have produced rising living standards wherever tried, Klein is unimpressed. Building things in the U.S. may be difficult due to regulatory and legal roadblocks, but other nations build things such as kilometers of rail much cheaper. The implication is all we need to do is follow how the governments of Germany, Japan, and Spain build railroads. Adapt the methods of their bureaucracies of handling projects to our problems, costs tumble, and we achieve our ends.

I’ll never know why Klein chose railroads to illustrate his theme, but let’s look at it closely if that’s his argument. The grandest government-sponsored h rail project in the U.S. is the California High-Speed Rail (CHSR). Approved in 2008 to connect the important population centers of Los Angeles and San Francisco with a high-speed 520-mile line, the cost has already ballooned from $33 billion to $80 billion. CHSR now says it will complete the 171-mile single-track section between Madera and Bakersfield by 2030. 

The Florida East Coast Railway, a private freight line, started the Brightline high-speed passenger service in 2012 and, by 2018, completed the 70-mile service between Miami and Palm beach. The 170-mile link to Orlando will be in service next year. The entire project will cost about $1.75 billion, raised through private financing. Isn’t the contrast between CHSR and Brightline the better comparison? The private company is outdoing Klein’s government entities.

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