Streetwise Professor

Once upon a time Janet Yellen was a respected and respectable economist. That time is long past. She is now the lead singer for a Say Anything cover band. It’s sad to witness.

Janet is currently saying anything–and everything–to justify the monstrosity that is the Biden “reconciliation package,” AKA Build Back Better. Perhaps I should call it the Incredible Shrinking Reconciliation Package, because apparently it has shriveled from $3.5 trillion to a mere $1.75 trillion. But even at half the size, it is a monstrosity.

One indefensible thing that Yellen defended that has subsequently been modified, and may disappear, is the requirement that banks report to the IRS the gross annual flows on bank accounts when those flows exceed $600/annum. Yellen said oh no no no no–this is NOT aimed at the little guy. It’s to prevent billionaires from cheating on their taxes:

“There’s a lot of tax fraud and cheating that’s going on.” Treasury @SecYellen tells @NorahODonnell the proposed $600 IRS reporting requirement for banks is “absolutely not” a way for the government to peek into American’s pocketbooks but to hold billionaires accountable. pic.twitter.com/M3VKOhdtSu

— CBS Evening News (@CBSEveningNews) October 12, 2021

This is so patently ludicrous it requires little comment. Indeed, it is an insult to everyone’s intelligence because it so so outrageously and transparently false: everyone with a few functioning synapses understands reporting on the account of everybody with a bank account (and surely, a $600 filter would catch virtually every account holder) will do F-all to prevent billionaires from cheating on their taxes.

Yellen’s latest outrage is her claim that no no no no a massive increase in government spending will NOT add to the mounting inflationary pressures. Indeed, it will reduce these pressures. Yes, you read this right: she said that the reconciliation bill will reduce inflation, despite its size.

Why? Well, according to Yellen, it will shift out the aggregate supply curve. Why? The one specific thing that she said is that the child care subsidy in the bill will free up women to work. Well, even granting that–what about the rest of the huge bill?

Casey Mulligan has taken one for the team, and tortured himself by reading the entire bill. (God bless you, Casey.) He finds it chock full of disincentives to work. Here’s one of this posts that focuses on that, but I recommend that you scroll through all of Casey’s recent posts to get the full effect.

In a nutshell, as in most welfare and subsidy programs, there are huge implicit marginal tax rates embedded in “Build Back Better.” Your benefits go away, or are reduced substantially, if you earn too much. That is a disincentive to work.

These various features shift back the supply curve, thereby exacerbating the inflationary effects of an increase in spending.

And as Mulligan notes, even the vaunted child care provisions are an economic nightmare, with many disincentives to work, and burdens on those who do work in childcare. This is a classic example of the government simultaneously stepping on the gas (subsidizing child care) and slamming the brakes (imposing mandates that dramatically increase the cost of child care). Among the costs are wage floors for child care workers and requirements that said workers obtain particular college degrees. Yeah, those are really great ways to juice productivity, right Janet?

There’s also how the bill is to be paid for, mainly with explicit or implicit taxes on capital. Those will–duh–discourage investment and capital accumulation, further reducing productivity growth. Another adverse shift in the supply curve.

But Yellen claims that the “investments” in Build Back Better will enhance productivity. Say Anything, indeed.

Yellen even defended the utterly insane idea to tax unrealized capital gains, something the desperate Dems seized on to replace the capital and wealth taxes that Krysten Sinema rejected. There aren’t enough hours in my day to explain all the ways in which this idea is insane, unworkable, inefficient, and a threat to freedom.

I’ll just say one thing: if you believe that this tax, if implemented, would be limited to billionaires in perpetuity, you have not been paying attention to the history of federal taxation since the passage of the 16th Amendment in 1913.

In sum, Yellen has not just defended, but advocated every bad idea in BBB. Shamelessly.

In 2009, Yellen was one of the Obama administration’s main justifiers of the stimulus bill. She did so on strictly Keynesian multiplier grounds. I disagreed with her on that, but that was a serious intellectual disagreement: I’m an anti-Keynesian, and she argued on traditional Keynesian grounds. At least there was a serious intellectual foundation for her view, although no doubt she was carrying administration water in advancing it.

Now, however, she is just spouting absolute garbage that has no foundation in any solid economic theory, and which is indeed contrary to good economics, but which happens to be propaganda for administration policy. She is as bad, or worse, than Jen Psaki. A flack and a hack.

I met Janet Yellen once, when I gave a presentation on clearing to the Board of Governors of the Fed when she was Vice Chair. She sat right next to me. She was very nice to me. She is quite small, and at this meeting she was dressed in a green velvet outfit with red trim. I couldn’t help thinking that she looked like an extra from Elf.

But alas, Janet Yellen is no longer an elf. She has become a clown, honking a horn to promote the clown show that is Biden administration economic policy.

As someone might say: Sad!

Coda. The subject of childcare reminded me of some work done by the late, great Sherwin Rosen on child care subsidies in Sweden. He drolly asked: ” If Swedish women take care of each other’s parents in exchange for taking care of each other’s children, how much additional real output comes of it?” More substantively, he said:

The most important finding is that the welfare state encourages excessive production of household goods and discourages production of material goods. Too many people provide paid household (family) services for other
people in the subsidized state sector and not enough are employed in the production of material goods.

Doesn’t sound like a shift out in the supply curve to me–especially for goods and non-household services.

The United States is currently in the midst of a colossal game of chicken. The administration, state and local governments, and their CEO pilot fish at major corporations and hospitals are insisting on vaccinating all employees. Large numbers of nurses, pilots, flight attendants, ground crew, police, firemen, and other working stiffs are resisting. Notably, many in the military are resisting–including most notably special operators.

Who will blink? If neither side blinks, the crack up will be epic. There will be a severe loss of public protection services, and crime will spike. Ironically, given that the supposed justification for all of the various anti-COVID measures has been to protect the health care system, the loss of nurses will lead to a substantial overload on these systems: some hospitals are already cutting down on care, including emergency care. The already strained transportation will crack. Perhaps most ominously, the United States military will be seriously degraded, as the personnel loss is likely to be concentrated among the most highly trained, and disproportionately impact combat units.

Southwest Airlines was red pilled by what transpired over the Columbus Day weekend, and has relented on mandates. Alas, it is the exception, not the rule. (Delta is another exception. American and United are adamantly not.) Virtually all other mandate maniacs have their foot pushed to the floor.

It is beyond doubting that those resisting mandates are in the right, and those insisting are them are in the wrong.

I repeat: beyond doubt.

Even the administration’s politicized scientists at the CDC have acknowledged that vaccines do nothing–nothing–to prevent transmission. There is therefore no externality that can rationalize coercion. (And as I’ve noted before, even if such an externality existed, it does not necessarily support mandates: it is a necessary but not sufficient condition for them.)

Further, the efficacy of the vaccines is becoming more dubious by the day. The clinical trial results represent an extreme upper bound on efficacy, and real world experience is proving them far less robust than promised.

Moreover, although there is much controversy about this issue, the vaccines may have severe negative externalities: that is, they may supercharge the mutation process and lead to the the accelerated evolution of more virulent strains resistant to the existing vaccines. (Cynics will say that from the perspective of the vaccine makers, this is a feature, not a bug.) Here the science is not settled, but that in itself is reason not to proceed full speed with mandates.

Therefore, like virtually all government policy (and not just in the US), coercive vaccination is all pain, no gain.

Yet governments and their CEO collaborators proceed apace, undeterred by reality.

The administration blames everything–everything–currently ailing the country on the unvaccinated. They are the epitome of evil and the scapegoats for everything currently ailing America (the economy especially).

Example: Supply chain problems? THE UNVACCINATED!!! BLAME THEM!!!

And vaccinating everyone will fix everything, according to the “authorities.”

This is pure, 100 percent, unadulturated horseshit. Patent medicine barkers in the 19th century would be embarrassed at the abject dishonesty here.

So why are we here? Why are we in a situation in which government at all levels–with a mendacious administration in the lead–persisting hell bent on such a destructive and apparently irrational course?

Because from their perspective it is not irrational. Yes, it is irrational from a perspective of public health, economic health, and personal liberty. It is not irrational if your true objective is oppression for oppression’s sake. Then it makes perfect sense.

All of the non-pharmaceutical and pharmaceutical interventions make perfect sense if the objective is to compel submission to government authority. All of the unremitting attacks on therapeutic mitigation of COVID make sense if the objective is compulsion.

It’s about control, not health. Then the question arises what is the purpose of exerting such control?, but that’s the subject of future posts.

And governments are so obsessed with control that they appear dead set on steamrolling anyone who resists or objects, even though by doing so they will wreak great havoc on lives, and on the economy (which, of course, also impacts lives).

Many of those resisting mandates appear to be quite strong in their convictions. (When a football coach chooses to forego a $3 million payday rather than submit, he is definitely putting money where his mouth is. So are all the others who are jeopardizing careers and pensions with their refusal.) Governments and companies appear similarly committed. Given that neither appears to be likely to swerve or jump, the outcome is therefore likely to be ugly indeed.

Churchill called Russia “a riddle, wrapped in a mystery, inside an enigma.” Those following the natural gas market, particularly in Europe, during the Great Spike of 2021 have no doubt agreed wholeheartedly. What is Russia’s (specifically Gazprom’s) game? Why haven’t they increased sales/output to profit from the spike? Because they can’t due to output constraints? Or because China is outbidding Europe for supplies? Or because they need to build domestic stocks?

Or because they are deliberately withholding output for some strategic purpose, a la 2006?

Yesterday Putin unravelled the riddle/mystery/enigma quite a bit: it’s the latter.

Specifically, Putin said Russia would be more than happy to send Europe more gas. But, only via Nordstream 2, not via currently operating pipelines, through Ukraine in particular. Too expensive to send via Ukraine, you see.

Nordstream 2 was just completed, at the insistence primarily of chief Putin-Versteher, Angela Merkel (whose energy policies have been boneheaded from start to finish), and against the determined efforts of Trump and Congressional Republicans. Biden caved recently on the issue and, waived Trump-imposed sanctions, thereby allowing the completion of the pipeline.

But there are still major disagreements between the European Union and Gazprom regarding the pipeline so gas is not flowing yet. Specifically, the EU has ruled–and EU courts have agreed–that Gazprom must “unbundle.” That is, there must be a separation between control of pipeline capacity and ownership of the gas. Meaning that Gazprom must auction off its capacity on NS2:

The Nord Stream 2 gas pipeline is not exempt from European Union rules that require the owners of pipelines to be different from the suppliers of the gas that flows in them to ensure fair competition, a German court ruled on Wednesday.

The Duesseldorf Higher Regional Court rejected a challenge brought last year by the operators of the Gazprom-backed (GAZP.MM) project to carry gas from Russia to Germany under the Baltic Sea. They had argued the rules were discriminatory.

.

“Russia’s Gazprom will be forced to auction pipeline capacity, which could delay deliveries further,” said Refinitiv gas analyst Xun Peng.

EU rules require the companies that produce, transport and distribute gas within the bloc to be separate, or “unbundled”. They aim to ensure fair competition in the market and to prevent companies from possibly obstructing competitors’ access to infrastructure.

This means that the company transporting the gas must auction its capacity to third parties.

Gazputin no likey!

And now he has a desperate gas short, winter-dreading Europe by the balls.

Did you really think he would pass on an opportunity to squeeze?

So he’s squeezing. Hard. The threat is clear: if you want more gas, cave to me on unbundling.

“Nice little continent you have here. Shame if something happened to it. Like, you know, freeze.”

In other words, Putin is not the Riddler, or a mystery, or an enigma after all. He is just playing to type. Where type includes adding sanctimonious snark to sugarcoat his threat.

Putin hasn’t changed a bit. The circumstances have changed, and Putin, in his oft-proven opportunistic fashion, is playing the scorpion in Aesop’s fable the Frog and the Scorpion. “I couldn’t help it. It’s in my nature.” Gazputin is back, baby.

For precisely this reason the Europeans–and Merkel in particular–have no one to blame but themselves. They are the ones who put the scorpion on their backs. One would think this sting would be a lesson. But given how many times they’ve been stung in the past, and continued in their course, that will almost certainly not happen. So I for one am shedding no tears.

*The title is an homage to Chicago Bears great Gale Sayers, and his commercials for Cheker Gas stations, in which the closing line was always: “That Cheker, it’s a gas.”

Back oh-so-long ago, during the California electricity crisis and its aftermath, I would say that California wanted to deregulate its power market in the worst way, and succeeded. (Wanting to keep up my ESG score, I recycled this line to describe Gibbering Joe’s Afghanistan exit.)

The main design failure of California’s restructuring (a more accurate description than deregulation) of its power market was that it capped retail prices for the two largest utilities in the state (SoCal Edison and PG&E) while requiring them to acquire power at market-determined wholesale spot prices. (San Diego Gas and Electric had met criteria to allow it to enter into long term forward purchase contracts and as I recall was not subject to the same retail price cap.). Thus, SCE and PG&E were massively short wholesale (spot) power. When those prices spiked, due mainly to fundamental factors, the utilities hemorrhaged cash and hurtled towards bankruptcy. Their financial distress led to further dislocations in the California market (and the western US power markets generally).

The world is currently undergoing what is being called an “energy crisis,” focused on power markets, and their inputs, mainly natural gas and coal. There are two parts to this “crisis,” one fundamentally driven, the other driven by ill-conceived regulatory and political factors redolent of California circa 1999-2001.

The most pronounced indicator of the fundamental-driven stress is the price of liquified natural gas (LNG), which has reached dizzying heights.

That price spike is in early “shoulder” months, boys and girls. Lord knows what the peak demand months have in store.

And that’s the nub of the problem: storage.

Historically, natural gas has been a “spikey” commodity. The shale boom mitigated spikeness in US natural gas prices, but periodic price spikes are an inherent feature of storable commodities. The truly motivated can read about it in my book, but the CliffsNotes version is this. It is optimal for inventories to run out periodically: if inventories were never exhausted, some of the commodity would never be consumed, which makes no sense. So “stockouts” will occur periodically. When they do, it is impossible to accommodate demand increases or supply declines by drawing down on inventory. Instead, prices bear the entire burden of adjusting to a demand shock (for example). Thus, periodically stocks will be tight, and when they are, a demand increase causes prices to rise dramatically (because inventories can’t cushion the blow).

The cover illustration in my book, based on a purely theoretical model of a storable commodity market, illustrates the point. Note the periodic spikes.

That is, price spikes are inherent in storable commodities.

The magnitude of the price spikes is amplified by the nature of natural gas production and consumption. Both demand and supply are extremely inelastic. The inelasticity effects optimal storage decisions, but when natty inventory constraints bind, inelasticity means that price impacts of shocks are extreme.

This is why going short natural gas (or shorting the calendar spread especially in the winter) is referred to as a “widow maker” trade.

There are lots of widows out there today. In essence, a hard winter of 2020/2021 depleted stocks. The 2020 COVID demand collapse and subsequent price crash (JKM traded at $2.20/mmBTU in May 2020) cratered drilling, constraining current supply (as wells drilled then would have been producing now) making it difficult to build stocks. Warm summer weather in 2021 drained stocks and impeded stock build. Outages in Norwegian production, and a wind drought in the UK (which required greater utilization of gas generation) stoked demand. Stocks are now at historically low levels, setting the stage for even bigger spikes this winter.

The gas market–due to LNG–is now international, meaning that shocks in any region impact prices around the world. Asia (especially China) and Europe are now playing tug of war for gas, and prices are spiking in both places.

Since gas and coal are substitutes, the price spike in gas is resulting in a price spike in coal:

Oil can also be used to generate power, although this has become relatively rare in recent years. However, the spikes in gas and coal are making fuel switching to oil more attractive, and additional gas/coal price spikes in the winter will likely result in more use of oil in electricity generation, which will put upward pressure on oil prices too.

This is all fundamentals driven, and exactly what occurs periodically in storable commodities. There’s nothing really that can be done about it, policy wise. But that won’t stop governments from trying.

You’ve no doubt read of energy “shortages” in recent days and weeks. Well, low supplies and high prices are not a “shortage” per se. A true shortage is a failure for a market to clear, resulting in queueing for the good. That is, a shortage occurs when the price is kept to low, leading to a gap between the quantity demanded and the quantity supplied.

Think gasoline lines in the US in the 1970s.

That’s where regulation comes in. Various regulations, adopted for political economy reasons, create shortages and the other dysfunctions currently observed in world energy markets.

Take China. The authorities have implemented power rationing. The reason commonly given is a “coal shortage.” Yes, coal prices are high in China (and the world), but that doesn’t create a true shortage. What has? Power prices are capped. The big increase in input costs (both coal and LNG) mean that Chinese generators can’t sell profitably, so they restrict output, leading to a true shortage.

What this means is that the shadow price of power–the price that market participants would be willing to pay for an additional megawatt–is (a) above the regulated price, and (b) above the market clearing price. Consumption would be higher in the absence of the price cap.

High coal prices do not reflect a “shortage”, properly defined. Yes, they represent constrained supplies, but that is not a shortage.

And do not forget that China’s coal supply constraints (and high prices) are in large part a result of their brilliant central planners. China imposed quotas on coal production some years back. The reason was–wait for it–coal prices were too low. Now the government is winking at the quotas in order to encourage production–because prices are too high.

India is another country where the Californiaesque capped power price/uncapped input price problem is rearing its ugly head.

France is going to cap gas and power retail prices, but make suppliers whole (though how it will do so remains unstated as of now). Compensating suppliers (effectively having the government pay the difference between marginal cost and the capped price) will prevent true shortages, but will have the perverse effect of exacerbating the spikes in gas and coal prices because at the capped price consumers will not internalize the true scarcity of fuel, and will overconsume.

The UK is experiencing another echo of California. Several of its retail gas suppliers have imploded because they are required to sell at a capped price and chose to cover their sales commitments by purchasing wholesale spot. The price cap made no sense: competition among retail suppliers would have kept prices in line. Adding the price cap just put the competitive retailers at risk of bankruptcy. (Admittedly, such can occur when retail prices are not capped if retailers offer fixed prices to consumers and don’t hedge, as occurred in Texas this last winter. But price caps make that outcome more likely.)

The UK is also suffering a true shortage of gasoline–excuse me, petrol–a la the US in the 1970s. A true shortage, because there are lines:

Man heads to the petrol station with his horse to 'stir up' some laughs pic.twitter.com/NsPiW8Ijcg

— The Sun (@TheSun) September 29, 2021

Scarcity of truck drivers to distribute fuel is at the root of the problem. But that can’t lead to a true shortage–lower supplies and higher prices yes, but not a shortage with people waiting in line. So what gives?

Apparently there was an information cascade about impending shortages, which led to a panicked run for gas stations. This evidently started with a leak (probably politically motivated) of cabinet deliberations.

A sudden demand increase of this magnitude can lead to true shortages–queueing–if prices do not rise to clear the market. This raises the question of why petrol sellers didn’t increase prices. I’m not aware of formal caps, but I surmise that fear of allegations of “gouging” led retailers to choose to allow customers to pay the high price implicitly (through the time cost of sitting in line) rather than raise price to reflect the sudden (and perhaps contrived) scarcity.

For storable commodities like natural gas, coal, and refined petroleum products, price spikes can last for some time. That’s what we are experiencing today: it’s just one of those spikes like on the cover of my book that happen in commodity markets. Given that we are going into a peak demand season with constrained supplies, the prospect for a continuing spike–and indeed, a higher spike–is very real indeed.

Governments can’t change this fundamental reality. Market prices are sending a signal about underlying conditions. Governments don’t like the message the prices are sending, and will try to do something about it. Alas, their knee-jerk response–to shoot the messenger by capping prices–will make things worse, not better. But because governments can’t help themselves, look for many 1970s energy market flashbacks in the coming months.

Howdy. Miss me?

My absence was due to a long deferred vacation (a week spent in Paris) and my annual teaching gig at the University of Geneva (which fortunately returned to in person instruction after a year online).

I was originally supposed to go to the Netherlands first, to give a talk at the Erasmus University Leadership in commodity trade & supply networks program (which I also teach in). However, due to the US being, er, “promoted” to being an Orange country (though no longer a Bad Orange Man country!), doing so would have required 10 days quarantine. So I did the talk online, and went to Paris instead.

Given the news accounts of anti-Pass Sanitaire demonstrations and a first hand description of the nightmarish application of that system in the provinces, I had my reservations about how that would go.

Fortunately, however, in Paris anyways the PS BS was rather lightly applied. I started to rate restaurants and other businesses on a GAF scale. Roughly half gave zero fucks. They didn’t even check. A few gave half a fuck, or maybe one fuck, and subjected my awesome CDC card to a cursory glance and did not bother to check whether the name on it matched my passport. One place, near Luxembourg Gardens, required me to show it to 3 different waiters, including apparently the head waiter.

Nor did I see any evidence that the authorities were monitoring compliance. The main evidence of police presence was convoys of cops in tactical gear on motorcycles or in paddy wagons (Pierre wagons?) racing around the boulevards on Saturday (protest day! yay!) sirens wailing.

More than a week prior to departure, I applied online for “Demande de conversion d’un certificat de vaccination étranger en passe sanitaire français (étrangers).” Didn’t hear anything until 2 days after my return, when the French government (a) acknowledged receipt of my “dossier”, and (b) in a separate email, told me that my dossier had been rejected . . . since I had departed France.

We’re in the best of hands, non?

What France did GAF about during my visit was the Australia-UK-US defense deal, which shtupped the French out of a $90 billion contract to build conventional submarines for Australia, and replaced it with a deal to provide nuclear subs and nuclear technology to Australia. The French were incandescent with rage, and it was the lead subject on most news programs for almost my entire trip. (Energy prices were #2 on the hit parade–I’ll post on that in due course.)

Given France’s history of defense unilateralism (de Gaulle, anyone?) the outrage is a bit hard to take. Moreover, as is often the case with such contracts, France’s performance on deadlines and costs was poor, angering the Australians. (Maybe their dilatory response to requests for a PS is representative of their general attitude to timely performance.) Further, from a capability and geopolitical perspective, nuclear boats are far more suitable to contribute to collective defense in the Asia-Pacific, and against China in particular–which is why China was also incandescent with rage. (A good sign! Though they freak out about everything so it’s not that meaningful an indicator.) (Although the extended timeline for delivery means that any real contribution will benefit any college-aged readers I have.)

That said, the way that the deal and announcement were handled was appalling. It was a public humiliation for France, and indeed, almost seems like a deliberate humiliation. Given the antagonism between Macron and BoJo that can’t be ruled out. This puts paid to Biden’s “rebuilding alliances” BS. Right now the French are pining for mean tweets. Sticks and stones may break my contracts, but tweets will never hurt me.

The Geneva portion of my trip was excellent. I always enjoy teaching in the master of commodity trading program at UNIGE, and the students this year were a particularly good group. Not surprisingly, the Swiss were a little more manic about COVID documentation than the French, but there were many restaurants there that achieved the precious Give Zero Fucks rating. The one exception being a place that had never heard of J&J or its vaccine, or that it was one dose, or that it was approved in Switzerland.

Getting tested to return was something of a hassle, with few appointments on offer. But Swiss physicians apparently collect a little swag on the side (paid in cash!) by giving tests, so I had a new experience–my first ever appointment with a gynecologist, who blessedly only looked up my nose.

Hopefully the pace of posting will pick up over the next few days. The rest of today is a loss, but there’s much to comment about so I’ll leave you waiting in breathless anticipation.

Apparently not wanting to risk Joe Biden breaking his own record for Worst Presidential Speech on as solemn an occasion as the 20th anniversary of 911, his handlers decided that he would not give formal live remarks in New York, the Pentagon, or Pennsylvania. Instead, they decided to unleash the allegedly avuncular Gabby Biden, who responded to some questions in Shanksville.

The question that started this verbal train wreck, this word succotash, was the most dangerous that Biden could have faced:

Q    Mr. President, what is going through your mind today, sir?

Dear God in heaven, anything but that.

Biden responded by saying exactly what was going through his mind. Which is to say, he unleashed a stream of dementia (I would never say consciousness) that veered between something that had at least some connection to 911 (though that (a) ended up being all about him, and (b) sounded like Fractured Fairy Tales as written by Hunter on crack), to his alleged attempts to unite the country, including a foray into his domestic agenda–“human infrastructure”–to a defense of his decision to withdraw from Afghanistan, to (amazingly) a defense of how we got out of Afghanistan (there was no other way to get out), to a slap at Trump (who apparently lives in his head, granted there is a lot of empty room).

The man said “anyway” SEVEN TIMES. This is a common verbal tick of someone (usually elderly) whose mind wanders, and subconsciously knows his/her mind has wandered. Like Grandpa Simpson:

“You see, back in those days, rich men would ride around in zeppelins, dropping coins on people. And one day, I seen J. D. Rockefeller flyin’ by– so I run out of the house with a big washtub, and—Anyway, about my washtub. I just used it that morning to wash my turkey, which in those days was known as a “walking bird”. We’d always have walking bird on Thanksgiving with all the trimmings: cranberries, Injun eyes, yams stuffed with gunpowder. Then we’d all watch football, which in those days was called “baseball.”

So, anyway, I’m going to do my thing.    

That last was Joe Biden, not Grandpa Simpson. And Judas Priest. “I’m going to do my thing.” That’s exactly what we’re petrified about. We’ve seen the thing. And we’re afraid. Very afraid.

Really. You have to read the whole thing to get the full effect.

Apparently Gabby’s puppeteers have never heard the aphorism: “Better to remain silent and be thought an idiot, rather than to speak and remove all doubt.”

If you had any doubt, you shouldn’t now. And if you do, I have no doubts about your mental state.

Not only was this Journey Into Joe’s Mind disturbingly revealing about his lack of a functioning mind, it was wildly inappropriate for an extremely somber occasion like yesterday’s remembrance of a shattering episode in American history. It had nothing to do with him, his political agenda, or his performance as president. But this makes it plain: narcissism will win out. Always.

Why do I call him Gabby? Reading his remarks reminded me of Blazing Saddles, and Gabby Johnson’s genuine frontier gibberish.

There were other awful moments from yesterday. Like Biden giving a shoutout to someone at Ground Zero–while Obama looked on in horror.

Getty captures Joe Biden pulling down his mask to shout out at someone in the crowd at the 9/11 ceremony pic.twitter.com/am8SeGK4rI

— Charlie Spiering (@charliespiering) September 11, 2021

Insert “WTF Joe” word bubble over Obama’s head.

Or when Biden geriatrically shuffled over to someone pointed out to him by security, and the crowd heckled him–including saying “don’t sniff ’em”–a reference to Creepy Joe’s predilection for inappropriate gropes and sniffs of underaged girls (though not just girls)

Coward in Chief was booed & jeered by the crowd

????? ????? ???? ?? ????? ??????? ?? ??????? ?? ??

??? ??? ???? ??????? ?? ????????? ??????? ???!

??? ???? ?? ??? ???? ?? ??????? ? ?????? ???? ???? ???? ?? ?? ???? ??!

pic.twitter.com/5wCbzsuUmj

— Baharak (@Baharak_Irani) September 12, 2021

This on a day where raucous college football crowds around the country (for the second consecutive weekend) erupted into “Fuck Joe Biden” chants:

FUCK JOE BIDEN CHANT IN DEATH VALLEY ? @OldRowLSU pic.twitter.com/wS1yzbl7Yq

— Old Row Sports (@OldRowSports) September 12, 2021

This is not sustainable. The problem is that the alternatives are as bad or worse. Look at the line of succession. Kamala. Pelosi. Leahy.

We are truly putting Adam Smith to the test. Yes, there is much ruin in a country. But not infinite ruin.

In my next-to-last post I said Joe Biden gave the worse speech by any president in my lifetime. In his relentless pursuit of perfection, Biden excelled himself and gave an even worse speech yesterday.

Afghanistan last week, COVID yesterday.

As with the Afghanistan speech, the COVID speech was wretched both in terms of atmospherics and substance. The speech dripped with condescension and disdain for large numbers of Americans, notably those who are not vaccinated. (Implicit in most attacks on the unvaccinated is that they are white MAGA Neanderthals: in fact, Biden’s and the Democrats’ most important constituency, low income blacks, are disproportionately represented: why aren’t Biden and his party tarred as racists?)

One line in particular was disgusting: “We’ve been patient, but our patience is wearing thin.” Our patience? Our patience? Who are you? Just who the fuck are you that your patience matters fuck all?

And who is this we/our? You royalty now Joe? Or are you speaking on behalf of those actually pulling the strings.

Biden made two main arguments: it’s hard to decide which is more idiotic and insulting.

The first is that the unvaccinated pose a threat to the vaccinated: “We’re going to protect vaccinated workers from unvaccinated co-workers.”

Well, it looks like Dumb and Dumber have a new partner–Dumbest:

The externality argument for mandated vaccinations has always been extremely weak. (Not surprisingly, alas, many economists have pushed this lazy argument because too many economists thinking about externalities is lazy in general.) As Coase pointed out long ago, it takes at least two to have an externality, and it is neither obvious nor relevant who “causes” it. The optimal assignment of a property right (and in the case of vaccination policy, what is involved is property rights in one’s person) depends on who is the least cost avoider.

With vaccines, if you are at high risk of COVID, and/or petrified of it, and/or think that the risk of vaccine is low, you can avoid COVID by becoming vaccinated yourself at lower cost than requiring someone who, for example, perceives the vaccine risk to be higher or incurs some other cost to take it (e.g., a religious objection) to be vaccinated. You can protect yourself at low cost: why force someone else to protect you at high cost?

So vaccinate yourself, and don’t force anyone else to do it–or demand the government force anyone else to do it.

But that argument is really moot now. Biden’s mandate is driven by the Delta variant, and Biden’s own CDC–you know, the experts whom we are supposed to defer to–says that vaccination doesn’t reduce the risk of transmission (though it does reduce the risk of serious illness–supposedly, although experience in Israel and elsewhere is casting doubt on that).

(One aside. This speech and the policies expressed were cast specifically as being a response to Delta. If you follow the data, you will see Delta has crested and is declining rapidly: even the NYT admits as such. As well as representing an unwarranted and unjust exercise of power, this policy is cynical: the administration will take credit for the decline in Delta even though it will have nothing to do with it.)

Further, there is the issue which has been raised by very esteemed (or at least once-esteemed) scientists (e.g., Nobel winner Luc Montagnier, but not just him) that the vaccines have spillover effects. Namely, it is hypothesized, and there is some evidence to support, that the vaccines accelerate mutation and in particular mutations that evade the vaccines. Meaning that there could be negative externality not from avoiding vaccination, but from being vaccinated.

As for the other costs that Biden mentions, namely the higher risk of serious illness and death among the unvaccinated, well that’s internalized: people willingly run the risk, and pay the consequences.

Biden’s other argument was “keeping our children safe and our schools open.” “For the children” is the last refuge of the modern (leftist) scoundrel. There is massive evidence–far more definitive than just about anything related to COVID–that children are at extremely low risk of either contracting or communicating COVID.

So hey, teacher, leave those kids alone.

It is particularly disgusting to see children used as Trojan horses for oppressive government policies given the massive harm that has been inflicted on them by governments at every level, most notably by denying them more than a year of education, as well as isolating them socially.

Not only are vaccine mandates a policy monstrosity, the means by which Biden is attempting to implement them are constitutionally monstrous. He has issued an executive order instructing OSHA to issue an emergency rule requiring all those firms employing more than 100 to make employment conditional on vaccination. As an emergency rule, this will be rushed through without the normal procedural safeguards the can sometimes prevent the promulgation of misguided and destructive policies. Moreover, doing this at the federal level by executive–something Biden said during the campaign he would not do and which his execrable flack Psaki said he could not do as recently as 23 July–runs roughshod over the Constitution and federalism.

But that was then. This is now. The even more execrable White House Chief of Staff, Ron Klain, called the OSHA gambit “the ultimate work-around.” Funny I remember the oath of office being about protecting and defending the Constitution, not “working around” it.

Why do we even have a Congress? That’s a serious question. Why do we have states? Another serious question.

Many parts of the country are strongly opposed to his. Many governors in states in those parts of the country have vowed to fight. To which Biden said: “If they will not help, if those governors won’t help us beat the pandemic, I’ll use my power as president to get them out of the way.”

What powers would those be? Just how, pray tell, can the president get governors “out of the way”? A drone strike? (You know, like the one that killed an Afghan who had helped Americans and his children?)

I’ve said before, and I will say it again: we are hurtling towards a constitutional crisis. Vaccine mandates are bad on the merits, and even worse when rammed down our throats while throwing constitutional and federal principles to the winds.

Not only has Biden given the worst presidential speeches of my lifetime, he has cemented his place as the worst, most destructive president of my lifetime, supplanting–by a mile–the loathsome LBJ. Alas, LBJ’s deficiencies became acute when he was entering the last year of his first full term (and his fifth year in office). Biden’s are manifest mere months after his inauguration. And his abject failings, and stubborn, disdainful refusal to brook any objection, are fanning the flames of civil conflict that could make the Vietnam protests look tame by comparison.

I have considered whether we have reached a stage where “the worse, the better” is a reasonable position. If one does indeed believe that, these are the times for you, and Joe Biden is the president for you.

The basic lesson of Milton Friedman and Anna Schwartz’s majestic Monetary History of the United States is that most major economic disruptions in the history of the US have monetary origins. Since 1913, and the creation of the Federal Reserve, the Fed has been responsible for these monetary shocks. Which is why Friedman advocated rules over discretion, to reduce the degrees of freedom available to the Fed to fuck things up.

For this, with a few exceptions, Fed board members and chairs have hated Friedman, and attempted to devise alternative histories that blame others for Fed f-ups. Current Fed chair Jerome Powell has joined that crew of ankle biters.

The price level has spurt upwards lately, leading to fears of a resumption of 1970s-style inflation. Not wanting to admit that the current price level increases could be harbingers of true inflation (a sustained rate of increase of the price level), Powell is attempting to argue that these recent increases are due to idiosyncratic factors (e.g., COVID-related supply chain shocks) that will not persist. In an attempt to make this case, Powell has engaged in a revisionist history of 1970s inflation.

In a nutshell: it was your fault. Or your parents’/grandparents’ fault. So if inflation happens again, it’s your fault.

The basic story is this. There were supply shocks in the 1970s (e.g., OPEC) that caused price level increases. These caused people to believe (mistakenly, per Powell) that there was true inflation. These inflationary expectations were self-fulfilling: these expectations decreased the demand to hold nominal balances, which increased the velocity of money, which per the PY=MV equation led to an increasing price level, which confirmed inflationary expectations, which kept velocity high, etc., etc., etc.

There is a core of truth to this: expectations matter in inflation. But monetary growth matters too, and money growth in the 1970s was clearly as much of a driver of inflation as a shift in expectations. Indeed, the money growth was likely a cause of the shift in expectations.

Inflation peaked and subsided when the Fed (under Volcker) put the brakes to monetary growth.

Why does this ancient history matter? Because Powell is using it to justify standing pat on monetary policy despite the recent price spurts. Sort of like someone Powell should NOT want to imitate–Arthur Burns, who made very similar arguments in the 1970s. It was exactly the same don’t worry, be happy complacency that Powell expresses today that led Burns–and the country–down the path of inflationary perdition.

Indeed, Powell’s mistaken-inflationary-expectations argument is all the more reason to take aggressive action today to prevent a shift in inflationary expectations. If he really believes we’re all idiots who will confuse one-time price level shocks with true inflation, he should take aggressive action to show credibly that the Fed will not let inflation take hold. Using it to rationalize inaction which will likely exacerbate a shift in expectations is frankly idiotic.

And also like the 1970s, we are seeing a Democratic administration attempt to rationalize and blame. Case in point, Director of the National Economic Council Brian Deese. This oh-so-typical DC cockroach (who scuttled to Black Rock after the end of the Obama administration only to scuttle back to Washington with the ascension of a Democratic administration) was at pains to educate you idiots that what you are experiencing at the grocery story is a figment of your imagination, except when you pass the meat counter:

https://twitter.com/Breaking911/status/1435679846307405830?s=20

So I guess vegans should be happy!

This is transparently bullshit on many levels.

First, Deese is literally cherry picking by focusing on fruits and vegetables.

Second, if you look at other ag prices–notably corn, soybeans, and wheat–they have spiked in the last year (although they peaked in the summer and have turned down slightly). The increase in food prices is not limited to meat and poultry.

Here’s corn, for example:

Third, even looking only at meat and poultry Deese’s economics are idiotic and indeed represents another acid flashback to the 1970s.

For one thing, the consolidation in the meat sector occurred years ago, and cannot explain the increase in prices now. Furthermore, firms with market power raise prices above the competitive level, but that is different from causing an upward trend in prices (which is what inflation is). In attempts to deny the true cause of inflation in the 1970s, it was common for liberal politicians and liberal economists to blame “monopolies”: again, this is transparent bushwa, because although monopolies can raise price levels that’s different than causing an increase in the rate of change in the price level.

Indeed, ceteris paribus greater consolidation in the meat sector would tend to reduce input costs (e.g., corn and soy prices): greater monopsony power tends to decrease not increase input prices. That has obviously not happened in the last year. As noted above, corn, soy, and wheat prices have all spurted.

So there’s something else driving food price increases. Deese’s attempt to explain away what your lyin’ eyes see when checking out at the grocery store is pathetically and obviously wrong.

There may be a reason why this is a one time shock rather than a true inflationary trend. But Deese doesn’t provide any such reason, and his risible attempt to provide one seriously undermines his credibility.

And that ultimately is the problem. In the 1970s, the Fed’s and the Carter administration’s attempts to cast blame for price level increases undermined their credibility and contributed to the expectations spiral that Powell laments today. The 70s flashback of just such denial we are experiencing before our very eyes is the strongest indicator that real inflation will return. And with a vengeance, given the far weaker fiscal position of the US government (cf. the fiscal theory of the price level).

Bowe has been the shy and retiring type since his exchange for five Taliban leaders seven years ago. So where’s Bowe?: Bowe knows! but not me. Said Taliban have been anything but retiring, however. When they were released Obama said they would never return to the battlefield again: TRUE! There was no battle to speak of in Afghanistan, but these guys sure enough showed up for the victory parade–as part of the Taliban leadership.

I questioned at the time trading multiple Taliban leaders for one American loser/deserter. The exchange rate comes to mind given that the Taliban now have their hands on many Americans who did not desert, but were abandoned by the US. Do you seriously think the Taliban–or even less savory elements in Afghanistan–will not extract an even higher price for them?

This thought is intensified by observation of a brisk and strange traffic in recent days. If you’ve followed flight tracking services, you may have noticed many unidentified Boeing 767 flights between various US-related origins (e.g., DC, Rammstein) and Sofia, Bulgaria, and Sofia, Bulgaria and Doha, Qatar. That is, flights without call signs or aircraft IDs. Qatar, moreover, is facilitating the reopening of the Kabul airport. Connect the dots.

What is on those flights? Guns? Money? Not likely lawyers (too bad!), but perhaps human cargo approved by lawyers? Apparently just as United hubs out of Houston, the CIA runs a hub out of Sofia. Why? For what purpose?

Afghanistan’s current overlords have substantial leverage over the US. No doubt they are exploiting it to the hilt. If we gave up so much for Bowe Bergdahl, consider what we would–and likely have–given up for Taliban forbearance during our withdrawal, and will give up for continued forbearance and future human exchanges.

Once upon a time “millions [update to ‘trillions’] for defense, not one cent for tribute” was an American battle cry. Once upon a time. No more. We are almost certainly paying massive tribute to entities far more sinister than the Bey of Algiers or the revolutionary government of France. In secret–secret from the citizens of the US, that is.

The humiliation continues and will continue.

Apparently the Biden administration is betting that the American people will indeed embrace it:

President Joe Biden is brushing off criticism of his administration’s chaotic Afghanistan withdrawal because he and his aides believe the political fallout at home will be limited, according to White House allies and administration officials.

Biden and his top aides argue they are managing an evacuation mission as well as could be expected given the faster-than-anticipated takeover of the country by Taliban insurgents, and are seeking to draw attention back to the choice to get U.S. troops out of the country.

The strategy is based on internal and public polling that shows the Afghanistan withdrawal had been by far the most popular decision Biden has made, even though the issue was not central for most voters.

The condescension here is palpable: Howdy Doody Biden and his various Charlie McCarthys believe that you are too stupid to be able to distinguish between a reasonable decision to exit and a catastrophically bundled way of doing it, or too apathetic to care.

This is so Soviet. Pretty much the same PR strategy the Soviets employed during Chernobyl and other assorted disasters: lie, deny, suppress, and depend on an apathetic populace to acquiesce meekly to the barrage of lies.

Speaking of the Soviets, during a “press conference” today, Biden did a great late-70s Brezhnev impersonation. He needs to put on some weight to give the full effect, but in terms of senescent befuddlement and denial of reality, he’s got it down pat. Among his most pathetic denials: no American is having problems getting to HKIA. Apparently their Uber apps are working great! He also blew off reports that diplomats on the ground had sent warnings about an impending disaster. His reply: Hey, I get cables all the time. I went with the consensus view. The consensus isn’t always wrong, but it usually is, especially in bureaucracies built on groupthink and ass kissing.

We can also expect to see a ramping up of Soviet-like distraction operations. Most notably: look for a barrage of COVID hysteria–directed at Republican governors in particular–and a focus on various domestic issues, notably voting legislation and massive stimulus bills (aka turning the US into an economic Afghanistan, except that we won’t grow our own opium.)