Streetwise Professor

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.

Joe Biden and the Congressional Democrats are scrambling madly to pass a $1.5 trillion “infrastructure” bill, and a $3.5 trillion “Build Back Better” monstrosity. Both are execrable, but the latter is beyond grotesque.

Do you know what’s in them? No? Well, then you are almost certainly as informed as most of those who are supposed to vote on them.

These bills are being sold with lies, starting with the Liar in Chief, who claims that his build back bullshit (BBB) costs nothing, zero, zip, nada. How can a $3.5 trillion spending bill cost nothing? Because it includes $3.5 trillion in taxes, silly!

This line is being regurgitated ad nauseum by assorted Congressional idiots (e.g., Nancy Palsy, I mean Pelosi), the White House, and assorted journalistic slugs like the WaPo’s Glenn Kessler.

I should actually write this lie is being regurgitated ad nauseum because it is outrageously false as a matter of economics. The cost of something is the value of the resources used to produce it. In the present instance, the resources used to produce it are extracted by taxes. The cost is real, and the taxpayers bear the cost.

Put differently, the entire administration propaganda effort is asserting that the No Free Lunch Fallacy is in fact no longer operative. Free lunches for all!

Much of the bill consists of massive transfer payments that have resource allocation implications, e.g., a gargantuan expansion of child care tax credit, two years of free community college. The additional resources used to provide child care and community college are real costs. The same can be said of virtually everything in the bill.

There is no free lunch, but the entire ruling class is attempting to gaslight you that there is in order to gain your support, or at least your acquiesance.

But that doesn’t end the gaslighting. The administration and Democrats in Congress claim that you won’t be paying higher taxes. It will be corporations and billionaires. Nobody earning under $400K will pay higher taxes!

Yeah, right.

First, taxes on capital (including corporate taxes, capital gains taxes, inheritance taxes, which are the main sources of revenue in BBB) are borne predominately by wage earners. Reduce after tax returns on capital means less investment means a lower capital stock means lower wages. A reasonable estimate is that virtually all taxes on capital are paid by labor, not capital. So if you look at tax incidence, working schmucks will pay the bulk of the cost. But the incidence of the cost is concealed from those who bear it, which represents yet another lie being used to smuggle these bills to passage.

Second, a billion is 3 orders of magnitude smaller than a trillion. It would be necessary to expropriate around 70 percent of the the entire wealth of billionaires in order to cover $3.5 trillion: their entire wealth would not pay for the two bills together.

And as if that could be accomplished anyways.

There are also stealth features of the bill that are very disturbing. There is a “pilot program” to study mileage taxes. That camel’s nose is therefore under the tent, and any such tax will be highly regressive and impact people who live in rural areas particularly hard. (But they’re Republicans, so fuck ’em, right?) There is also a provision to require the reporting of the IRS all–all–transactions over a certain dollar amount. Biden (or, more accurately, his puppeteers) proposed a $600 floor. $600. Which would mean pretty much every mortgage payment, a lot of credit card payments, etc. This has apparently been raised to $10,000, but don’t be surprised if that gets lowered to a level that will impact millions of Americans.

Most Americans do not really experience the tender mercies of the IRS (because most income tax revenue is generated from high earners who draw the greatest IRS attention). They really don’t understand how draconian (and Kafkaesque) it is. Subjecting American’s ordinary banking transactions to IRS scrutiny will be a shock.

BBB also increases IRS funding by $80 billion, and would double-yes, double-the staffing of the IRS. Doubling the size of the most oppressive part of the US government is another leap and bound down the road to serfdom.

I could go on. But you get the idea. These bills are a monstrosity.

The Democrats are hell bent on getting these bills done, and are therefore resorting to exceptional procedural measures, namely reconciliation, to pass BBB. They are also trying to condition passage of the infrastructure bill on passage of BBB, because the former is more palatable to the mushy middle, e.g, Manchin and many Senate Republicans.

They are doing so precisely because they feel that they have a very short window to implement their agenda, most of which is embodied in BBB. Their margin in Congress is razor thin–and basically non-existent in the Senate. Further, they realize that it is very likely to disappear altogether in the aftermath of next November’s election: ironically, the less popular Biden is, the more crazed the Democrats are in their pursuit of the bill. It’s now or never.

Such massive endeavors should never be passed on a purely partisan basis, especially when the legislature and the country are so closely divided. Doing so only exacerbates division and political conflict. But progressives are in a hurry precisely because they see their window of opportunity closing. So expect the lies to get even more grotesque, and the political strong arming to become even more thuggish.

If these bills fail, the Republic may have a chance. If they pass, they are likely to seal its doom, for they represent a point of fiscal no return.

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:

WATCH: Biden's National Economic Council Brian Deese says if you don't count beef, pork and poultry, grocery price increases "are more in line with historical norms." pic.twitter.com/U9NJuEqdcp

— Breaking911 (@Breaking911) September 8, 2021

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).

Last Tuesday Joe Biden delivered the worst speech I have heard from any president going back to the mid-1970s, including Jimmy Carter’s “malaise” speech (in which he did not actually use that word, by the way). It was horrible both in terms of the delivery and the content.

In terms of delivery, Ranty Joe appeared in lieu of his alter ego Sleepy Joe. He shouted out his remarks, shrilly and defensively.

Note to Joe: saying something louder and more shrilly does not bolster your case. To the contrary. It makes it clear that you have no case to make.

Biden clearly came off as an extreme narcissist enraged by criticism of his conduct in Afghanistan. He could not acknowledge that the criticism he has received over Afghanistan had the slightest justification–that would be too much for his fragile narcissistic ego to handle. So he responded with rage and bitterness. He bristled with defiance, not against American enemies (a la say Churchill in 1940), but against Americans he deems to be his enemies because they dare question his judgment.

Very revealing.

The speech only accentuated the shock of many at Biden’s recent behavior, most notably at the arrival of 13 dead Americans at Dover, and his meeting with the parents of the dead. At the ceremony he acted disrespectfully (checking his watch repeatedly) and–wait for it–narcissistically by going on and on AGAIN about his dead son Beau, who has nothing in common with combat Marines shredded by a suicide bomber in Afghanistan except for the fact he is dead. Biden’s narcissistic ego was also evidently incensed at the anger directed towards him by the bereaved parents, in one case rolling his eyes at a mother of a fallen Marine and angrily saying over his shoulder as a Parthian shot at her that he understood her loss in response to her claim to the contrary.

It’s not about you, Joe. The fact that you can’t believe anything isn’t about you speaks volumes.

Amazingly many are astounded that Biden is not an empathetic healer in these trying times, as they assured us he would be in contrast to the boor Trump. Just what planet these people inhabit is unknown to me. Joe Biden has always–always–been a narcissistic, arrogant, asshole. Believe me: I’ve witnessed this for about 35 years. Anyone who thought otherwise is delusional.

And as I always remind my children, mark well my faults–they will become more pronounced as I age, so prepare to deal with them. This is true for most everyone: one’s least appealing traits almost always become more accentuated with age. Joe Biden is living (supposedly) proof of this: he is becoming a more narcissistic, arrogant asshole by the day. Moreover, his panic at the realization that he is in over his head is causing him to double down on obnoxiousness and rage.

That is, the problems with his obvious mental and physical decline are not that he’s “lost a step.” It’s that they have made his more repulsive traits (which are legion) more pronounced. He’s added a step to his arrogant repulsiveness.

One more point about affect. The extreme variance between Sleepy Joe (literally at times, as with his nap while meeting with the Israeli Prime Minister) and Ranty Joe is striking. This could again be symptomatic of senescence. But it also strikes me that it could be chemically induced, or exaggerated. Do they juice up Joe before they let him give a speech of such importance? It’s not the first time he’s appeared cranked during a speech in decided contrast to his dazed and confused mumbling during other public appearances.

Insofar as “substance” is concerned, the speech was an incoherent farrago. Getting out of Afghanistan was the right thing to do. But that’s not the point–the issue is how it was done, which Biden ignored. Biden wanted to get out of Afghanistan in the worst way–and he succeeded.

Bizarrely, moreover, Biden portrayed the exit as a great success. I am reminded of Pyrrhus of Epirus: “One more such victory and Pyrrhus is undone.” One more such success like Afghanistan and America is undone.

Moreover, even though Trump also said that getting out was the proper course, he didn’t give Trump props. Instead, per Biden, Trump caused the fiasco we have witnessed by tying his hands with a May 1 exit deadline. Except Trump obviously didn’t, because Biden moved the exit to 9/11 (swift move, dude), and then back to 8/31. This was not a date written in stone. And if Trump is so horrible–as Biden repeatedly has said–why would he feel bound to follow his plans? He hasn’t on anything else.

This is gaslighting on an epic scale. Every sentient being (I understand Biden may fail to qualify) recognizes this for the catastrophe it is. But Biden insists it is a great, great triumph. Who you gonna believe? Joe or your lyin’ eyes? Joe insists that you believe Joe.

Spare me more such successes. I can’t handle them.

We are learning more about the events that led up to the fiasco. Most notably, the Afghan president, Ghani, begged Biden for continued air support. Biden promised it–if Ghani could provide a plan, as if Ghani (rather than the US military on which his government and army were utterly reliant) was independently capable of conceiving such a thing. No air support was forthcoming. The inevitable happened.

Moreover, Gaslighter Joe instructed Ghani to gaslight the world, and claim that his army was succeeding when it clearly was not. Perception, not reality, was Biden’s preeminent concern.

This is dereliction of duty of the most egregious sort. A transparently political calculation to buy time and to distance himself from the impending catastrophe. In the end he did not, but the whole sequence of events reveals that Biden had only two objectives: to get out, and not to be blamed for an ultimate Taliban triumph.

Well, you’re batting 500, Joe.

Moreover, although Biden claims that the decision to abandon Bagram was made by the military, and that he merely acceded to it, it is clear that they made this decision due to a constraint that he imposed. Namely, a limit on the number of military personnel in Afghanistan to 650 or so. It was impossible to hold Bagram, the embassy, and the Kabul airport with such a paltry force. So Bagram went, and we were reliant on an utterly indefensible exit point.

This is on Biden, and his crew of idiots–namely the execrable NSC chair Jake Sullivan and Secretary of State Stinkin’ Blinken–and no one else.

In a parliamentary system, Biden and his crew (including latest milk carton “have you seen me?” person Kamala Harris) would have been removed through a vote of no confidence, and a snap election. But under the US system, which provides stability and continuity often lacking in parliamentary ones, we are cursed with them for at least another 40 months. (Life is all about trade-offs.)

If the catastrophes continue–and they well might, both geopolitical and economic–the prospect of continued misrule by a senile narcissist and idiot and assorted other throne sniffing dim bulbs will be unsustainable. In that event, there will be a constitutional crisis. How that will be resolved is unknown, but almost certain to be ugly, divisive, and destructive.

These are the fruits of 2020.

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.)

Those of you not in a memory care facility (so this perhaps does not apply to Joe Biden) remember the hysteria over Trump’s treatment of Nato. Yes, Trump rhetorically bashed Nato nations repeatedly for their utter failure to live up to their commitments on defense spending, and their perpetual free riding on the US. Yeah–I’m looking at you, Germany. How are those broomsticks working? But even though he spoke truth, truth was apparently undiplomatic. And we can’t have that! So one of the “elite’s” key briefs against Trump was his disrespect for our allies: Biden, they assured us, would treat them with respect and that would advance our collective interests.

When Biden won, he went about preening that “America is back” and that he would restore the alliances Trump had allegedly ruptured. The Europeans panted for a Biden presidency, and rejoiced at its arrival.

How’s that working out for you?

When shit got real and the chips were down, Biden totally shtupped Nato allies, whom you might know have suffered over 1,100 KIA in Afghanistan over the years (about 1/2 of US military personnel losses).

He failed to inform Nato allies what he was doing. In particular, the UK–the US’s most reliable and longstanding ally–was completely left out of the loop. When UK PM Boris Johnson frantically attempted to reach Biden, Joe didn’t answer the phone. Maybe he was washing his hair (plugs).

Even now, when coordination on the ground with allies in Afghanistan is paramount, there is precious little of it.

Joe decided to bug out–and not tell anybody about it, most notably the allies that he had so sanctimoniously claimed to have rescued from the clutches of the demon Trump.

How’s that for respect?

Deeds, not words, matter. A western elite that clutched pearls and collapsed on fainting couches over mean tweets that happened to drop truth bombs got exactly what it asked for. A man who mouthed meaningless pieties and cut and ran and left the elite in the lurch when it mattered.

The ranks of the soi disant elite is a target rich environment, but a few stand out. One is alleged conservative Bill Kristol. Search Twitter “@BillKristol trump nato” and you will find numerous tweets by this fat tub of goo armchair warrior excoriating Trump for being a meanie to Nato. This is my favorite:

Weakening NATO, picking fights with allies, refusing to prefer democracies to dictatorships–these aren't idiosyncratic bugs of Trump's foreign policy. These are features of an America First foreign policy, which Trump is increasingly if somewhat chaotically pursuing.

— Bill Kristol (@BillKristol) July 13, 2018

Chaotically. Oh the irony is too much. You had no idea about what true chaos is, you neocon (emphasis on the “con”) knob. We’re seeing it now–because we got what you and so many of your “elite” ilk begged for.

The elite sowed the wind with their hysteria over Trump’s bumptiousness with American allies. They are reaping the whirlwind with their boy Biden’s utter betrayal of selfsame allies.

Actually, all of us are reaping the whirlwind–including those (unlike Bill Kristol et al) who realized that Biden was an incompetent and amoral windbag who would wreak havoc, like some evil version of Mr. Magoo.