Saturday, December 31, 2022

When Beer is Safer than Water: Beer Availability and Mortality from Waterborne Illnesses in 18th Century England

Yesterday's post was also historical ("MONKS, GENTS AND INDUSTRIALISTS: THE LONG-RUN IMPACT OF THE DISSOLUTION OF THE ENGLISH MONASTERIES"). That post had links to about a dozen other historical posts, including one about how tea drinking saved lives.

By Francisca Antman and James Flynn.


We investigate the impact of beer on mortality during the Industrial Revolution. Due to the brewing process, beer represented an improvement over available water sources during this period prior to the widespread understanding of the link between water quality and human health. Using a wide range of identification strategies to derive measures of beer scarcity driven by tax increases, weather events, and soil quality, we show that beer scarcity was associated with higher mortality, especially in the summer months where mortality was more likely to be driven by water-borne illnesses. We also leverage variation in inherent water quality across parishes using two proxies for water quality to show that beer scarcity resulted in greater deaths in areas with worse water quality. Together, the evidence supports the hypothesis that beer had a major impact on human health during this important period in economic development."

Friday, December 30, 2022


By Leander Heldring, James A. Robinson & Sebastian Vollmer.


We examine the long-run economic impact of the Dissolution of the English monasteries in 1535, which is plausibly linked to the commercialization of agriculture and the location of the Industrial Revolution. Using monastic income at the parish level as our explanatory variable, we show that parishes which the Dissolution impacted more had more textile mills and employed a greater share of population outside agriculture, had more gentry and agricultural patent holders, and were more likely to be enclosed. Our results extend Tawney’s famous ‘rise of the gentry’ thesis by linking social change to the Industrial Revolution."


In this paper we conducted what to our knowledge is the first empirical investigation of the long-run eco- nomic impact of the Dissolution of the monasteries in England between 1536 and 1540. Tawney (1941a,b) first proposed that the Dissolution and subsequent sell off of church land, representing around 25-30% of land in England, created a huge shock to the social structure. In particular, he argued that it precipitated the rise of the gentry, a new commercially oriented class of farmers who played a leading role in the political conflicts of 17th century England. Though historians now do not believe that the evidence which Tawney presented supports his original arguments about the connections between the gentry and the Civil War or Glorious Revolution, we argued that nevertheless both theory and case study evidence leads one to hypothesize that there might be a reduced form relationship between the Dissolution, the rise of the gentry and the location of the Industrial Revolution. 

The bulk of this paper investigates precisely this. To measure the impact of the Dissolution at the parish level we digitized the Valor Ecclesiasticus, the survey of church incomes that Henry VIII commissioned just prior to the Dissolution. We showed that the greater was monastic income according to the Valor, the more industrialization there was in 1838 in terms of the presence and number of textile mills and the number of mill employees. We also showed that greater levels of monastic income in 1535 were associated with a smaller proportion of the labor force employed in agriculture according to the 1831 Census, and a larger share of the labor force employed in manufacturing and retail. We further argued that there are grounds for believing that these correlations can be interpreted causally. 

In addition to this reduced form evidence we explored some of the likely channels via which the Disso- lution might have impacted industrialization. We showed that parishes which had higher levels of monastic income had more gentry in 1700, consistent with Tawney’s original thesis. We also showed that they were more likely to have land enclosed, consistent with the notion that the gentry influenced policy via their large influence on Parliament. Finally, we also showed that higher levels of monastic income were associ- ated with a greater number of agricultural patents, suggesting that the rise of the gentry was associated with greater agricultural innovation. 

All in all, our findings support Tawney’s hypothesis that the rise of the gentry was associated with the Dissolution of the monasteries and our evidence further suggests that it was also connected to perhaps an even more momentous event, the Industrial Revolution."

Other history related posts:

Did Tea Drinking Cut Mortality Rates in England?

Both numeracy and literacy were invented in the service of finance and commerce

Pre-market societies could sometimes have alot of violence

Was 1800 (approximately) A Pivotal Year In Human History? Robert Fogel, Francis Fukuyama, And Deirdre McCloskey All Seem To Think So

Some History of Insurance

The surprising link between science fiction and economic history

What happened in some earlier U.S. trade Wars?  

Did the industrial revolution cause children to take on adult roles later and later? 

Were The Pilgrims Capitalists Or Socialists? 

Primitive communism: Marx’s idea that societies were naturally egalitarian and communal before farming is widely influential and quite wrong (plus Ruth Benedict on property rights)  

When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923) 

In 1923, Germany printed money to pay workers who were told to stay at home  

The short history of global living conditions and why it matters that we know it

Thursday, December 29, 2022

To meet environmental targets it will cost the shipping industry $3 trillion over the next few decades

Another example of there being no free lunch. See Shipping Industry Balks at Green Energy Transition: Shipowners order greener vessels but are deterred by limited fuel supplies, costs and the long route to emissions targets by Costas Paris of The WSJ. Excerpts:

"Shipowners are split on which fuel should be the new industry standard and how soon they can recoup investments to meet environmental targets established by governments and industry regulators. The price tag on investments needed in new ships, alternative fuel production and other infrastructure has been pegged at $3 trillion over the next few decades, according to shipping-services provider Clarksons. 

Methanol is an early contender to supplant the tar-like heavy fuel oil—known as bunker fuel—that powers much of the world’s 60,000 oceangoing commercial vessels. Ocean shipping accounts for roughly 3% of global greenhouse-gas emissions annually, according to the International Maritime Organization, the industry’s global regulator."

"Since new container ships can cost hundreds of millions of dollars to build, owners have great incentive to avoid the wrong bet."

"Some shipowners are trying to develop the market for greener fuels to make them available at ports worldwide at competitive prices. Green methanol is an umbrella term covering liquid methanol produced using renewable energy such as wind or solar power. Its production is limited and its price, on average, is 50% to 100% higher than bunker fuel"

"Maersk will need about 1 million tons of green methanol annually to operate the new ships but global production is about 30,000 tons"

"Big operators such as Swiss-based Mediterranean Shipping Co., Germany’s Hapag-Lloyd AG and CMA have placed orders for vessels powered by liquefied natural gas, which emits less carbon dioxide than bunker fuel and is available in greater quantities than green methanol. Others, including shipowners in Japan, are looking into ammonia, though the substance is years away from use in commercial operations."

"The International Maritime Organization, the United Nations’ maritime regulator, has set a target for the shipping industry to cut carbon emissions in half by 2050 when compared with 2008 levels." 

"Reaching consensus on carbon-reduction efforts has been difficult. It isn’t clear whether shipowners will embrace investments in new ships without guarantees on a certain amount of business and with fears of higher operating costs."

"Reaching consensus on carbon-reduction efforts has been difficult. It isn’t clear whether shipowners will embrace investments in new ships without guarantees on a certain amount of business and with fears of higher operating costs."

"Developing economies, including Brazil, Argentina, Chile and a host of African nations, have said that aid is needed because a shift toward pricier carbon-neutral fuels would harm their export-driven economies by making food and other commodities more expensive to move.

IMO members have for years discussed putting a levy on carbon emissions as a way to encourage owners to invest in green ships, help to build a global network of alternative fuel stations for vessels and subsidize developing countries. Members have yet to formally agree on how such a levy would work in practice.

The U.S. is working to establish green ocean-shipping corridors with trading partners including the U.K., South Korea and Canada that will give docking priority and other benefits to low-emission vessels. It also allocated $3 billion through the Inflation Reduction Act to electrify port equipment and machinery.

The IMO has required that, starting in January, each ship must be assigned an energy efficiency rating, similar to those used for buildings and household appliances, and a carbon intensity rating."

"Ship operators that use high-carbon-emitting fuels will have to pay higher taxes under the European Union’s Emissions Trading System"

Tuesday, December 27, 2022

Egg Prices Surge to Records as Bird Flu Hits Poultry Flocks

While worst outbreak in U.S. history tightens supplies, grocers avert shortages

By Jaewon Kang and Patrick Thomas of The WSJ. Excerpts:

"Egg prices are hitting records, driven by an avian-influenza outbreak that has killed tens of millions of chickens and turkeys this year across nearly all 50 states. [so this is a supply decrease which raises prices]

Wholesale prices of Midwest large eggs hit a record $5.36 a dozen in December"

"Retail egg prices have increased more than any other supermarket item so far this year, climbing more than 30% from January to early December compared with the same period a year earlier"

"To maintain store traffic, grocers said they have been sacrificing some profits on eggs to keep prices for consumers competitive. Some suppliers are projecting potential relief in price by February or March, but cold weather could hamper production in the near term" [when there is a reduction in supply sellers cannot pass all of the price increase to buyers-see example below about an excise tax-also the cold weather predicted could cause another decrease in supply which raises price]

"“We are trying to keep eggs relatively accessible,” said Dan O’Neill, director of center store and perishables at Angelo Caputo’s Fresh Markets, a chain of eight stores in Illinois.

Angelo Caputo’s bought extra-large eggs for $5.09 a dozen recently, up from $1.30 at the start of the year,"

"Grocery prices have continued to increase this year because of what companies have said are higher costs of labor, ingredients and logistics, helping supermarkets generate higher sales and profits. Those factors have propelled egg prices, too. As eggs get more costly, some supermarkets are selling more organic eggs that are sometimes less expensive than conventional varieties, while suppliers say consumer demand has remained steady despite higher prices." [to say that "consumer demand has remained steady' seems to mean that demand is steep or inelastic so that quantity demanded won't drop much when prices go up-not sure why they say that increased costs helped them generate higher sales-again higher costs reduce supply which means a lower quantity bought and sold]

"the total supply of egg-laying chickens falling more than 5%"

"Despite a tight egg supply and high prices, shortages are still a long way off" [shortage means that price is below where supply and demand intersect-with supply decreasing we get higher prices and a lower quanity-but price may still be where supply and demand increase, so no shortage-a lower quantity being bought and sold this year than last year does not mean that there is a shortage]

"Egg supplies have been more stable this year compared with the previous major U.S. avian-influenza outbreak, in 2015"

"the time it takes for farms to recover from an outbreak has shrunk to roughly three months from six to nine months."

"Wholesale egg prices have been rising for nine consecutive weeks"

"Strong demand has driven prices higher in recent months as people bake more and eat warmer breakfasts during cooler weather" [if higher demand is raising the price that is what could increase profits]

"There aren’t many substitutes for eggs" [if the demand is steep or inelastic, this could be a reason why since most textbooks say that the number of substitutes is one of the determinants of price elasticity of demand]

"Specialty eggs, such as organic eggs that are sold to retailers and distributors on a fixed-price basis, can be about $1 cheaper a dozen, but there are only so many available brands of eggs for operators to secure"

Below is something that I did in class that explains why price does not rise as much as the tax (or rise as much as an increase in production or wholesale costs0.

Here we will look at an excise tax or a per unit tax. Every time a unit of a good is sold, the seller must give the government a flat amount, like $1 (not a percentage). If the government enacts an excise tax, the supply curve must shift up by the amount of the tax.

In the graph below, suppose that an excise tax of $1 is enacted. There is a new supply curve. Every point on the new supply line is exactly $1 above the old supply line.

Notice that every point on S2 is exactly $1 above S1. This because the firms in this market now need $1 more dollar for each quantity supplied. Before the tax was enacted, the market needed $1 to supply 1 unit. But now, because of the tax, they need an extra dollar or $2 to supply 1 unit.

The price has gone from $5.50 to $6.00. This means that buyers must pay 50 cents more (or $.50 more). So they are paying $.50 of the $1.00 excise tax. That means that the seller also pays $.50 of the $1.00 excise tax.

When you buy the product, you give the seller $6.00. But they must give $1.00 to the government. Before the tax, you gave the seller $5.50. So now they get $.50 less.

In this case, buyers and sellers evenly split the cost of the tax. But if the slopes of the supply and demand curves were different, the buyers or sellers could pay more than half the tax.

Monday, December 26, 2022

People with disagreeable personalities (selfish, combative, and manipulative) do not have an advantage in pursuing power at work

By Cameron Anderson, Daron L. Sharps, Christopher J. Soto and Oliver P. John

"Does being disagreeable—that is, behaving in aggressive, selfish, and manipulative ways—help people attain power? This question has long captivated philosophers, scholars, and laypeople alike, and yet prior empirical findings have been inconclusive. In the current research, we conducted two preregistered prospective longitudinal studies in which we measured participants’ disagreeableness prior to entering the labor market and then assessed the power they attained in the context of their work organization ∼14 y later when their professional careers had unfolded. Both studies found disagreeable individuals did not attain higher power as opposed to extraverted individuals who did gain higher power in their organizations. Furthermore, the null relationship between disagreeableness and power was not moderated by individual differences, such as gender or ethnicity, or by contextual variables, such as organizational culture. What can account for this null relationship? A close examination of behavior patterns in the workplace found that disagreeable individuals engaged in two distinct patterns of behavior that offset each other’s effects on power attainment: They engaged in more dominant-aggressive behavior, which positively predicted attaining higher power, but also engaged in less communal and generous behavior, which predicted attaining less power. These two effects, when combined, appeared to cancel each other out and led to a null correlation between disagreeableness and power."

Related post:

Do you have to be selfish to make more money? 

    -Selfish people earn less money than generous people

    -"Want to be happy and successful? Try compassion."  

    -"Practicing compassion — recognizing someone else is suffering and wanting to help relieve that         suffering — just might be as important for health as exercise or a healthful diet, some scientists             believe. 

    -includes comparisons of Adam Smith and the Dalai Lama

Friday, December 23, 2022

Conflicting opinions from economists on the value of giving gifts

The battle seems to be over inefficiency (spending money on items others might not want) vs. the idea that if you spent money on someone it is a believable signal that they care about you or having a relationship with you. A program on PBS recently stated that one of the more common gifts that King Henry the VIII got at Christmas was money.

See Holiday shopping? Consider the most economically efficient gift of all: cash, and avoid the deadweight loss of Christmas by Mark J. Perry. Excerpt:

"2. In a 1993 American Economic Review article “The Deadweight Loss of Christmas,” Yale economist Joel Waldfogel concluded that holiday gift-giving destroys a significant portion of the retail value of the gifts given. Reason? The best outcome that gift-givers can achieve is to duplicate the choices that the gift-recipient would have made on his or her own with the cash-equivalent of the gift. In reality, it’s highly certain that many gifts given will not perfectly match the recipient’s own personal tastes and preferences, or it might be the wrong size, color, or style.  

In those cases, the recipient will be worse off with the sub-optimal gift selected by the gift-giver than if the recipient was given cash and allowed to choose his or her own gift. Because many Christmas/holiday gifts are mismatched with the preferences of the recipients, Waldfogel concludes that holiday gift-giving generates a significant economic “deadweight loss” of between one-tenth and one-third of the retail value of the gifts purchased."

See Gift Giving Is Better for Society than Economists Think by Michael Thomas Tony and Anthony Gill. Excerpt:
"A newcomer often is welcomed into a household with a large feast containing more food than can be reasonably consumed. Engagement and wedding rings are expensive signals of a prospective spouse’s fidelity in good times and bad. Clubs, fraternities, and religious organizations often require individuals to go through rigorous rituals to prove their loyalty before gaining the benefits that full membership entails.

So it is with gift giving for holidays and other occasions. Giving gifts, even ones filled with the deadweight loss of mismatched preferences, indicates that one is willing to forego resources in the present in order to maintain a relationship in the future. When times get tough for you, I will assure you that I will be there to sacrifice again. Knowing that I am willing to sacrifice for you makes you more willing to want to continue engaging with me. Your reciprocal sacrifice helps solidify the mutual trust to make a relationship work effectively.

Societies around the world have ritualized these times of “burnt offerings” as a way of communicating trust and a desire to enter into, or remain in, a social network. We learn to gift within our families in the hope that such generosity will translate itself in the broader society.

Gifting: The Gift that Keeps on Giving

Prof. Waldfogel and other economists who rue the inefficiency of holiday gift giving only see the costs and benefits in static terms. The real benefits are dynamic and embedded in the deadweight losses, ironically. By continually showing, through gifts small and large, our willingness to sacrifice for one another we build a cultural fabric of trust and willingness to assist in times of need. Norms of sacrifice, trust, and graciousness are crucial for the functioning of broad-based markets over long periods of time. Our willingness to give and to reciprocate graciously when receiving is what makes us wealthier over time."
Related posts:

Is Christmas Gift Giving Inefficient? (2018)

Are Homemade Gifts Better Or More Special? (2009)

What Anthropologist Melvin Konner Fails To See When He Criticizes Economists And Their Views On Gift Giving (2015)

- Dilbert by Scott Adams


Thursday, December 22, 2022

Why Did Charles Dickens write A Christmas Carol?

Money might have been a big factor.

See The Writer's Almanac with Garrison Keillor. Excerpt:

"It was on this day in 1843 (Dec. 19) that Charles Dickens published A Christmas Carol. Dickens wrote the novel after his first commercial failure. His previous novel, Martin Chuzzlewit (1842) had flopped, and he was suddenly strapped for cash. Martin Chuzzlewit had been satirical and pessimistic, and Dickens thought he might be more successful if he wrote a heartwarming tale with a holiday theme.

He got the idea for the book in late October of 1843, the story of the heartless Ebenezer Scrooge, who has so little Christmas spirit that he wants his assistant Bob Cratchit to work on Christmas Day.

Dickens struggled to finish the book in time for Christmas. He no longer had a publisher so he published the book himself, ordering illustrations, gilt-edged pages and a lavish red bound cover. He priced the book at a mere 5 shillings, in hopes of making it affordable to everyone. It was released within a week of Christmas and was a huge success, selling six thousand copies the first few days, and the demand was so great that it quickly went to second and third editions.

At the time, Christmas was on the decline and not celebrated much. England was in the midst of an Industrial Revolution and most people were incredibly poor, having to work as much as 16 hour days, 6 days a week. Most people couldn't afford to celebrate Christmas, and Puritans believed it was a sin to do so. They felt that celebrating Christmas too extravagantly would be an insult to Christ. The famous American preacher Henry Ward Beecher said that Christmas was a "foreign day" and he wouldn't even recognize it.

When Dickens's novel became a huge bestseller in both the United States and England, A Christmas Carol reminded many people of the old Christmas traditions that had been dying out since the beginning of the Industrial Revolution, of cooking a feast, spending time with family, and spreading warmth and cheer. Dickens helped people return to the old ways of Christmas. He went on to write a Christmas story every year, but none endured as well as A Christmas Carol."

Wednesday, December 21, 2022

Why Hot Wheels are one of the most inflation-proof toys in American history

By Fernando Alfonso III of NPR

I got some Hot Wheels for Christmas back in 1968. Right now they don't cost much more than they did back then. How is this possible?

Excerpts from the article:

"the price of a beloved toy has managed to hover around $1 — for more than 50 years. 

"Hot Wheels are a retail oddity. They remain one of the most affordable toys in the country at a time when inflation is chipping away at savings accounts and compounding credit card debt for many Americans, experts like James Zahn told NPR."

"Early on, they had what was called Spectraflame paint, which was kind of a glittery paint. It was a very shiny paint," [Kevin] Feeley told NPR. "But the paint they're using now [for most cars] is not a Spectraflame paint, it's not as costly of a paint that they use."

These initial models sold for 69 to 89 cents each (which is about $6 to $7.60 today, accounting for inflation), said Bruce Pascal, an avid Hot Wheels collector and author of Hot Wheels Prototypes which includes the narrative history of the toy."

"Each Hot Wheels made today contains die-cast or metal in them but less than they did in 1968, Wu said. Parts of each car —which are produced in a limited number of colors— are also made of plastic; sometimes that can be the body or the chassis of the car. Investment in high-tech manufacturing capabilities and the introduction of cutting-edge technology have also helped keep costs down"

Tuesday, December 20, 2022

Microsoft Case Poses Crucial Test for FTC’s Fight Against ‘Vertical’ Mergers

Antitrust-enforcement agency seeks to block Activision purchase with arguments similar to those that have failed in the past

By Brent Kendall and Dave Michaels of The WSJ editorial. Here are the three types of mergers: 

Horizontal merger-A merger between companies in the same market. Ford and GM merging would be an example 

Vertical merger-A merger between a company supplying an input and a company buying it. Ford buying U.S. Steel is an example, since steel is an input in making cars. 

Conglomerate merger-A merger between companies in unrelated markets. An example would be if GM merged with Nabisco. 

Excerpts from The WSJ article:

"In challenging Microsoft Corp.’s $75 billion acquisition of Blizzard Inc., the Federal Trade Commission is building its marquee antitrust case of Chair Lina Khan’s tenure on expansive legal theories that haven’t prevailed in other recent cases. 

The lawsuit targets a so-called vertical merger that would combine Microsoft’s software, devices and cloud-computing business with Activision’s library of blockbuster videogames. The FTC argues the deal would give Microsoft the incentive and ability to degrade or withhold Activision’s content on rival systems, principally hurting Sony, its major competitor in gaming consoles and other platforms. 

In the typical antitrust case, the government challenges a horizontal merger, or one involving rivals that compete head-to-head. Such mergers, by removing a competitor from the marketplace, can increase concentration, a factor that can be used to infer harmful future effects such as higher prices.

The government has struggled to win cases on vertical mergers because making claims about the potential future harms posed by such deals is less straightforward and can require complex speculation about how market forces might play out."

"Government agencies have historically policed vertical mergers less forcefully than horizontal ones, under the theory that vertically integrated companies can offer lower prices or better products, including through increased efficiency. Microsoft could, for instance, lower the price for its Xbox gaming console because it profits from selling Activision’s games."

"harms could come if a merged firm deters the rest of the industry from innovating or denies resources needed by rivals. 

Predicting a vertical deal’s effects is tricky, and antitrust authorities don’t have the analytical tools to reliably do it, said Michael Salinger, a professor at Boston University and a former FTC chief economist. 

“The models are not precise enough to nail down which way the effects go,” Dr. Salinger said. “I think they are going to have a tough time in court.”"

Related posts:

Judge says sharp elbows don't violate anti-trust laws (2020)

Tradeoffs and anti-trust policy (2019)

Justice Department okays merger between two clickbait companies (2020)

The Herfindahl-Hirschman Index & The Anheuser-Busch InBev/Grupo Modelo Merger (2013)

Monday, December 19, 2022

Ignore the Scare Stories: Supplies of Christmas Trees Meet Demand

Repeated accounts of shortages each year don’t stand up to scrutiny

By Josh Zumbrun of The WSJ.

In economics, shortage means that the price is lower than the price where supply and demand intersect so that the quantity demanded is greater than the quantity supplied. It is not always used that way in the media or everyday conversation. 

Excerpts from the WSJ article:

"“Shortage to me means, ‘We don’t have enough, we’re going to come up short.’ We never have,” said Marsha Gray, the executive director of the Real Christmas Tree Board, the U.S. Agriculture Department’s research and promotion board for the industry."

"Last year, 87% of consumers found the tree they wanted at the first place they looked,"

"Christmas-tree data isn’t as detailed as for many crops. There are no official annual estimates of sales"

"Growers did cut back in the aftermath of the 2007-09 recession because of several years of weak sales and oversupply. By 2017 the number of Christmas-tree farms was down 3% from 2012 and their total acreage was 4% lower"

"But there is little evidence this translated into trees being unavailable."

"An annual survey from the National Christmas Tree Association, an industry group of growers, found the median price was $74.70 in 2016. In 2017, when stories about the shortage exploded, the price actually fell slightly to $74.30. The median price was $69.50 in 2021."

"Odds are that some of the smaller farms will indeed run out, but that says nothing about the national supply.

“When you talk about undersupply, are you talking about during Covid when you went to buy toilet paper and it was bare shelves? No, that’s not what we’ve ever seen or encountered,” said Jill Sidebottom, a spokeswoman for the NCTA. “Are you talking about some retail lots selling out early? Sure.”"

Related posts:

How Supply and Demand Explain Higher Wages for Teen Babysitters (2022)

Is There A Booze Shortage? (2022)

Car makers face ‘chipageddon’ (2021)  

Does the U.S. have a firefighter shortage (2021) 

Cold Snap Sparks Record Rise in Natural Gas Prices in Asia (2021) 

There is no truck driver shortage in the US (2021) 

Is there a shortage of homes? (2020) 

Why honey prices have climbed about 25% since 2013 (2019-This post is featured in Introduction to Microeconomics by Luís Cabral. He is chair of the economics department at New York University.)

Is there really a shortage of construction workers (2019) 

Was there really a shortage of meatless burgers? (2019)  

What Chocolate Shortage? Cocoa Prices Steady as Record Output Projected (2019)  

Is There A Christmas Tree Shortage? (2017)  

Is There Really A Honey Bee Shortage? (2013)  

Will There Be A Pumpkin Shortage This Year? (2011) 

Introduction to Microeconomics by Luís Cabral

Saturday, December 17, 2022

If commodity prices are falling why aren't grocery bills?

See Food Commodities Are Getting Cheaper—Unlike Grocery Bills: Prices have pulled back, but higher energy costs and production worries are keeping costs for consumers high by Yusuf Khan of The WSJ. Excerpts:

"Global prices for commodities such as wheat and sugar have fallen back to where they were a year ago, but consumers are still likely to feel the pinch at the checkout.

The disconnect is because of extraordinary uncertainty about future production of key foodstuffs such as wheat, and because price pressures elsewhere—including for energy and wages—can have a major impact on grocery bills.

The widely watched Food Price Index, produced by the Food and Agriculture Organization of the United Nations, dropped to 135.7 in November"

"Even in less volatile times, commodity price changes can take three-to-six months to filter through to grocery bills"

"A key reason for elevated checkout prices is that traders aren’t sure how much grain, and of what quality, will be produced next year"

"The war in Ukraine, a major grain exporter, has resulted in something akin to a drought, with little planted for the coming year"

"Supermarkets have more incentive to freeze than to lower prices . . . since that gives them more flexibility if other input costs such as energy rise further in the coming months."

Thursday, December 15, 2022

Adam Smith And Joseph Campbell On The Dangers Of "The Man Of System"

Here is a passage from The Theory of Moral Sentiments by Smith at the Library of Economics and Liberty. Smith emphasizes the arrogance and conceit of those who think they can arrange society any way they want. In a separate passage, Smith writes about how this can be dangerous (that follows this longer excerpt). First, Smith discusses the man of humanity and benevolence, then the man of system for contrast. Then I have some quotes that are similar from Campbell.

"The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.
Some general, and even systematical, idea of the perfection of policy and law, may no doubt be necessary for directing the views of the statesman. But to insist upon establishing, and upon establishing all at once, and in spite of all opposition, every thing which that idea may seem to require, must often be the highest degree of arrogance."
Adam Smith also says in his book The Theory of Moral Sentiments:
"The natural course of things cannot be entirely controlled by the impotent endeavours of man: the current is too rapid and too strong for him to stop it; and though the rules which direct it appear to have been established for the wisest and best purposes, they sometimes produce effects which shock all his natural sentiments."
The "effects which shock all his natural sentiments" are the unintended consequences of man trying to impose his will on society. He can't know all the effects of all the changes he his bringing to a complex system.

Here is what Campbell has to say. This is from the book The Power of Myth (some parts might only be in the video version of the interview Campbell did with Bill Moyers upon which the book was base):

Campbell condemns "the man of system."  He states this clearly while speaking of the character Darth Vader from the Star Wars movie trilogy.  He is critical of him being an "executive of a system" who has no humanity. The man of system is a government planner, a bureaucrat who wishes to impose his own ideals on society.  Campbell mentions what he thinks is a good Oriental idea:  "You don't force your mission down people's throats." (recall that Smith says the man of benevolence respects individuals, and will not attempt to subdue them by force) Also, "Instead of clearing his own heart, the zealot tries to clear the world." (Smith refers to "furious zealots" who have contempt for open minded people)   Both Campbell and Smith fear the planner who will force his system on the rest of us.  Campbell's views on this are best expressed in his comments on Darth Vader, the evil dark lord of the Star Wars movie trilogy.

"Darth Vader has not developed his own humanity.  He's a robot.  He's a bureaucrat living not in terms of himself but in terms of an imposed system.  This is the threat that we all face today.  Is the system going to flatten you out and deny you your humanity, or are you going to be able to make use of the system so that you are not compulsively serving it?  It doesn't help to try to change it to accord with your system of thought.  The momentum of history behind it is too great for anything really significant to evolve from that kind of action" (this is like Smith saying the current is too strong to be stopped by the impotent endeavours of man)

This is all seen much more clearly in an exchange between Campbell and Moyers from the second televised segment of The Power of Myth called "The Message of the Myth": 
Moyers:  Do you see some of the new metaphors emerging in the modern medium for the old universal truths that you've talked about, the old story?
Campbell:  Well, I think that the Star Wars is a valid mythological perspective for the problem of is the machine-and the state is a machine (emphasis added)-is the machine going to crush humanity or serve humanity? 
And humanity comes not from the machine but from the heart. 
[As the unmasking of Darth Vader scene from the movie The Return of the Jedi  is shown, Campbell continues:]
Campbell:  The father (Darth Vader) had been playing one of these machine roles, a state role; he was the uniform, you know?  And the removal of that mask-there was an undeveloped man there.  He was kind of a worm by being the executive of a system.  One is not developing one's humanity.  I think George Lucas did a beautiful thing there.
Moyers:  The idea of machine is the idea that we want the world to be made in our image and what we think the world ought to be.
[Campbell seemed to agree or at least offered no dissent to this statement of Moyers-again, Smith says the man of system wants to impose his own plan on society, very similar to making the world in your own image]
Campbell put this in a slightly different way when he also discussed the movie Star Wars:
"Here the man (George Lucas) understands metaphor.  What I saw was things that had been in my books but rendered in terms of the modern problem, which is man and machine.  Is the machine going to be the servant of human life?  Or is it going to be master and dictate?  And the machine includes the totalitarian state, whether it is Fascist or Communist it's still the same state. And it includes things happening in this country too; the bureaucrat, the machine-man. "What a wonderful power the machine gives you-but is it going to dominate you?  That's the problem of Goethe's Faust.  It's in the last two acts of Faust, Part Two.  His pact is with Mephistopheles, the man who can furnish you the means to do anything you want.  He's the machine manufacturer.  He can manufacture the bombs, but can he give you what the human spirit wants and needs?  He can't.

This statement of what the need and want is must come from you, not from the machine, and not from the government that is teaching you (emphasis added) or not even from the clergy. It has to come from one's own inside, and the minute you let that drop and take what the dictation of the time is instead of your own eternity (recall Smith says "every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it"), you have capitulated to the devil.  And you're in hell.
That's what I think George Lucas brought forward.  I admire what he's done immensely, immensely.  That young man opened a vista and knew how to follow it and it was totally fresh.  It seems to me that he carried that thing through very, very well" (From The Hero's Journey: Joseph Campbell on His Life and Work by Phil Cousineau).
Here is the passage from Adam Smith where he talks about "furious zealots" (also from The Theory of Moral Sentiments):

"The animosity of hostile factions, whether civil or ecclesiastical, is often still more furious than that of hostile nations; and their conduct towards one another is often still more atrocious. What may be called the laws of faction have often been laid down by grave authors with still less regard to the rules of justice than what are called the laws of nations. The most ferocious patriot never stated it as a serious question, Whether faith ought to be kept with public enemies?—Whether faith ought to be kept with rebels? Whether faith ought to be kept with heretics? are questions which have been often furiously agitated by celebrated doctors both civil and ecclesiastical. It is needless to observe, I presume, that both rebels and heretics are those unlucky persons, who, when things have come to a certain degree of violence, have the misfortune to be of the weaker party. In a nation distracted by faction, there are, no doubt, always a few, though commonly but a very few, who preserve their judgment untainted by the general contagion. They seldom amount to more than, here and there, a solitary individual, without any influence, excluded, by his own candour, from the confidence of either party, and who, though he may be one of the wisest, is necessarily, upon that very account, one of the most insignificant men in the society. All such people are held in contempt and derision, frequently in detestation, by the furious zealots of both parties. A true party-man hates and despises candour; and, in reality, there is no vice which could so effectually disqualify him for the trade of a party-man as that single virtue. The real, revered, and impartial spectator, therefore, is, upon no occasion, at a greater distance than amidst the violence and rage of contending parties. To them, it may be said, that such a spectator scarce exists any where in the universe. Even to the great Judge of the universe, they impute all their own prejudices, and often view that Divine Being as animated by all their own vindictive and implacable passions. Of all the corrupters of moral sentiments, therefore, faction and fanaticism have always been by far the greatest."


Wednesday, December 14, 2022

How Housing and Health Insurance Affect The CPI With Lags

The way the BLS uses housing and health insurance in the CPI is done with a lag and only at certain times during the year. If they have not updated the numbers in recent months but, in fact, they might have been falling or stabilizing, they won't affect the CPI (at least not yet). Then the CPI might over state the true rate of inflation. 

It is possible health and housing have been falling or not rising much, so in the near future, when they get updated again, they will both help keep the CPI down. Right now the CPI might be missing some moderation in prices.

Housing Costs, Inflation’s Biggest Component, Are Poised to Ease: New rents are already softening, but that might not show up in official inflation data for months because of measurement delays by Gwynn Guilford of The WSJ. Excerpts:

"Housing is influential because it is the largest component of the CPI: Tenants’ rent made up 7.4% of the CPI in September, and owners’ equivalent rent (OER), which measures homeowners’ costs, made up 24%. Shelter’s share of the core CPI, which strips out volatile energy and food prices, was an even larger 41.7%. As core inflation rose from 4.6% in October 2021 to 6.3% in October 2022, shelter inflation contributed around 1.4 points of the acceleration. 

Shelter inflation tends to be “sticky,” meaning that once moving in any direction, it is slow to change. This has much to do with how it is calculated by the Labor Department’s Bureau of Labor Statistics. OER isn’t based on home prices or mortgage payments because home purchases are an investment, not just a commodity. Instead, the Bureau of Labor Statistics bases OER on what an owner would have to pay to rent her own home, drawn from rents in high-homeownership areas. 

Meanwhile, most tenants’ rents change just once a year, and therefore don’t respond immediately when rents on new units increase. To capture what the typical tenant experiences, the CPI measure of tenant rent includes new and existing leases, and thus will tend to lag behind measures of new leases only.   

“Because they’re looking at the overall pool of rents, and not just new rents, it’s like an oil tanker turning—it just takes time for market dynamics to feed through,” said James Knightley, chief international economist at ING.

The way the Bureau of Labor Statistics calculates the shelter index contributes to the lag, because it surveys each cohort of properties at six-month intervals, then calculates the price change using a six-month moving average. A jump in rent, therefore, takes nearly a year to show up, said Jake Oubina, senior economist at Piper Sandler."

See also Health-Insurance Inflation Is Poised to Drop Sharply: The subindex of the consumer-price index is about to turn from a driver of inflation into a deflationary drag by Gwynn Guilford of The WSJ. Excerpts: 

"Omair Sharif, founder of Inflation Insights LLC, estimated the health-insurance index will decline 38% by September of next year from this past September. That would mean health insurance would go from adding around 0.38 percentage point to the 12-month increase in core inflation as of last month, to subtracting about 0.42 percentage point by next September, Mr. Sharif said. 

The change to the one-month rate that shows up in October will continue at a fairly consistent pace for the next 11 months. “When we establish that new trend, this trend is likely to persist for a full year,” said Ryan Wang, U.S. economist at HSBC. “That’s one of the aspects of this methodological quirk.”

Omair Sharif, founder of Inflation Insights LLC, estimated the health-insurance index will decline 38% by September of next year from this past September. That would mean health insurance would go from adding around 0.38 percentage point to the 12-month increase in core inflation as of last month, to subtracting about 0.42 percentage point by next September, Mr. Sharif said. 

The change to the one-month rate that shows up in October will continue at a fairly consistent pace for the next 11 months. “When we establish that new trend, this trend is likely to persist for a full year,” said Ryan Wang, U.S. economist at HSBC. “That’s one of the aspects of this methodological quirk.”

The Labor Department bases the price of health insurance in large part on health-insurer profits, which are reported with a lag of about 10 months. Thus, data in the October 2022 CPI reflect what happened in 2021. 

This lag is currently amplifying big swings in medical-care spending. In 2020, lockdowns, limited healthcare capacity and consumer reluctance to seek care translated to lower healthcare spending and thus reduced benefits paid by insurers and commensurately increased net premium income. That showed up as skyrocketing health-insurance prices starting in October 2021, when the 2020 data were incorporated.

This year’s updated data are based on 2021, when consumers caught up on preventive care and elective procedures, eating into insurers’ premium income, which should translate to a drop in health-insurance prices in the CPI."

"the methodological quirk only affects the CPI. While that is closely watched by investors, the media and consumers, the Federal Reserve officially bases its 2% inflation target on the Commerce Department’s separate personal-consumption expenditure price index."

"health services have a much bigger weight in the PCE price index than in CPI."

"The lagged nature of the CPI’s health-insurance index means that it may not reflect current underlying price pressures in medical-care services. Those are likely building, thanks largely to labor costs. 

Medicare’s recently negotiated 4.3% reimbursement rate for inpatient hospital services for fiscal 2023 was the biggest increase in around 15 years. A large share of how Medicare calculates those rates is based on employment cost index data for hospital wages" 

"That measure rose at an annual rate of 5.6% in the second quarter, up from 2.3% in the last quarter of 2020. The increase is likely to spill over into negotiations now under way between private insurers and hospital groups"

Related post:

How Does The Fed Prefer To Measure Inflation?