We Just Had the Highest Inflation Rate in 40 Years But Was There Some Good News in the Numbers?

The CPI in Dec. 2021 was 278.802. That means that something that cost $100 in 1982 cost $278.80 in Dec. 2021 (see "Consumer Price Index Data from 1913 to 2022" which is linked on the side a bit lower down).

The CPI was 260.474 in Dec. 2020. So 278.802 is 7% higher than that. The last time inflation was at least that high was in 1981 when it was 8.9%. The next highest since 1981 was 6.1% in 1990. No other year reached even 5% since 1981 until last year. From 1991-2020, only 7 years were 3% or higher and only 1 reached 4%.

The CPI for all of 2021 was 270.970 while for 2020 it was 258.811. That would give us a 4.7% inflation rate (taking the average CPI over all 12 months for both years). Not as bad as 7%, but it is the highest rate by that method since 1991 when it was 5.4%.

The possible good news is that the increase in prices slowed down a bit in the last 3 months of the year. Here are the percentage increases in the CPI for the last 3 months of 2021

Oct) 0.83%   
Nov) 0.49%   
Dec) 0.31%

So the increases are getting smaller, although if you go up 0.31% every month for the whole year the inflation rate is 3.75%, above the target of 2% for the Federal Reserve Board (they actually use the PCE, not the CPI-see a related post How Does The Fed Prefer To Measure Inflation).

The following table shows the monthly inflation rates for the last 3 months of each year from 2010-2021. Hard to see any pattern, but often prices come down (when there is a negative sign) or don't rise much the last 3 months, so it could be that what we saw in 2021 was fairly normal. The CPI is seasonally adjusted. See Consumer Price Index from the Bureau of Labor Statistics.

 

	Oct	Nov	Dec
2010	0.12%	0.04%	0.17%
2011	-0.21%	-0.08%	-0.25%
2012	-0.04%	-0.47%	-0.27%
2013	-0.26%	-0.20%	-0.01%
2014	-0.25%	-0.54%	-0.57%
2015	-0.04%	-0.21%	-0.34%
2016	0.12%	-0.16%	0.03%
2017	-0.06%	0.00%	-0.06%
2018	0.18%	-0.33%	-0.32%
2019	0.23%	-0.05%	-0.09%
2020	0.04%	-0.06%	0.09%
2021	0.83%	0.49%	0.31%

More and more, executives at major corporations belong to the same politcal party and tend to leave their companies if they are in the minority party there

See The political polarization of U.S. firms by Tyler Cowen. 

"Executive teams in U.S. firms are becoming increasingly partisan, leading to a political polarization of corporate America. We establish this new fact using political affiliations from voter registration records for top executives of S&P 1500 firms between 2008 and 2018. The rise in partisanship is explained by both an increasing share of Republican executives and increased sorting by partisan executives into firms with like-minded individuals. Further, we find that within a given firm-year, executives whose political views do not match those of the team’s majority have a higher probability of leaving the firm. The increase in partisanship is taking place despite executive teams becoming more diverse in terms of gender and race.

That is from a new paper by Vyacheslav Fos, Elisabeth Kempf, and Margarita Tsoutsoura."

Related posts: 

Are some blue jeans really Democratic and others Republican? (2019)

People say the president can control gas prices if the president belongs to the other party (2017)

Why Are Americans So Distrustful of Each Other? (2021)

Excerpt from this last one:

"Recent American history bears out that idea. The beginning of our current political polarization is often dated to 1968, when the Republican Party became nationally competitive through Southern realignment. In that year, according to the American National Election Survey, 56% of Americans believed most people can be trusted; in 2018, after a half-century of increasing partisan division, only 31.5% did.

Growing up under polarized political institutions may lead young people to generalize from partisan distrust to social distrust. Americans are sorting themselves into social silos, seldom interacting with unlike-minded others, leading to less moderation and more radicalization. This may be due in part to social media, though recent research on the effect of social media has reached mixed conclusions on this question. But the effect is clear: In 2017, around 70% of Democrats said that Donald Trump voters couldn't be trusted, and around 70% of Republicans said the same of Hillary Clinton voters."

Lawsuit Says 16 Elite Colleges Are Part of Price-Fixing Cartel

The federal lawsuit against Yale, M.I.T. and other colleges is the latest legal action to question admissions practices

By Stephanie Saul and Anemona Hartocollis of The NY Times. Excerpts:

"A lawsuit filed in federal court on Monday accused 16 of the nation’s leading private universities and colleges of conspiring to reduce the financial aid they award to admitted students through a price-fixing cartel."

[It] "takes aim at a decades-old antitrust exemption granted to these universities for financial aid decisions and claims that the colleges have overcharged an estimated 170,000 students who were eligible for financial aid over nearly two decades.

The universities accused of wrongdoing are Brown, the California Institute of Technology, the University of Chicago, Columbia, Cornell, Dartmouth, Duke, Emory, Georgetown, the Massachusetts Institute of Technology, Northwestern, Notre Dame, the University of Pennsylvania, Rice, Vanderbilt and Yale.

The allegations hinge on a methodology for calculating financial need. The 16 schools collaborate in an organization called the 568 Presidents Group that uses a consensus approach to evaluating a student’s ability to pay, according to the lawsuit.

Under federal antitrust law, these universities are permitted to collaborate on financial aid formulas if they do not consider a student’s ability to pay in the admissions process, a status called “need blind.” The group’s name is derived from a section of federal law permitting such collaborations: Section 568 of the Higher Education Act.

The suit claims that nine of the schools are not actually need blind because for many years, they have found ways to consider some applicants’ ability to pay.

The University of Pennsylvania and Vanderbilt, for example, have considered the financial needs of wait-listed applicants, the lawsuit says. Other schools, the lawsuit says, award “special treatment to the children of wealthy” donors, which, given the limited number of spots, hurts students needing financial aid.

The lawsuit claims that the actions of these nine schools — Columbia, Dartmouth, Duke, Georgetown, M.I.T., Northwestern, Notre Dame, the University of Pennsylvania and Vanderbilt — render the actions of all 16 universities unlawful, turning it into what the suit calls “the 568 Cartel.”

“Privileging the wealthy and disadvantaging the financially needy are inextricably linked,” the suit said. “They are two sides of the same coin.”"

Related post

Threat of anti-trust investigation leads colleges to compete more for students (2019)

Joseph Schumpeter, Capitalism and Intellectuals

 See Socialists, Knowledge of History and Agency. These are letters to the editor of The WSJ in response to an article about socialism by Joseph Epstein. The one below reminded me of a 1992 article by Robert Samuelson in Newsweek.

"Joseph Epstein’s “Socialists Don’t Know History” (op-ed, May 30) on the abysmal historical knowledge of young people brings to mind the prophesy of the keenest of economists, Joseph Schumpeter, in 1942 when he said that capitalism would destroy itself by breeding a “new class: bureaucrats, intellectuals, professors, lawyers, journalists, all of them beneficiaries and, in fact, parasitical on them and yet, all of them opposed to the ethos of wealth production, of saving and of allocating resources to economic productivity.” The 77 years since then has proven Schumpeter a major prophet.

Larry W. White
Dallas"

See also Schumpeter: The Prophet by Robert Samuelson. Excerpts:

"He is best known for his evocative phrase "creative destruction." Schumpeter saw capitalism as a system that produces material progress-rising living standards, more creature comforts-through the turmoil of new technologies and business methods. The "entrepreneur," a man of great vision and energy (in his day, there were few women in business), was the driving force of change. Sam Walton and Wal-Mart fit his theory perfectly."

"It is precisely because the "gale" (his term) of creative destruction seems so ferocious that Schumpeter has enjoyed a revival. But he had a second stunning insight that also is relevant. He argued that capitalism's vast economic success generates popular dissatisfaction with capitalism. As prosperity increases, progress is taken for granted. Capitalism's remaining shortcomings-including the disruption caused by creative destruction-become increasingly intolerable. Finally,, prosperity expands the class of intellectuals who are contemptuous of capitalism."

""[C]apitalism ... creates, educates and subsidizes a vested interest in social unrest," Schumpeter wrote. Popular discontent and intellectual hostility would, he thought, doom capitalism and lead to socialism."

"capitalist economic success, because it is incomplete and interrupted, breeds its own backlash. The sour public reaction to the present slow economic recovery only highlights a longstanding trend. The growth of Big Government-here, in Europe and in most advanced market societies-has aimed to placate popular discontent without undermining capitalism's ability to raise living standards."

"Its [his book Capitalism, Socialism and Democracy] genius is to explain why capitalism succeeds as Adam Smith imagined, even though modern economies lack Smith's perfect competition with hordes of tiny companies. In today's industries, big firms often dominate and enjoy monopoly profits. But most monopolies are temporary, Schumpeter argued. Their high profits, far from stifling competition, inspire more innovation from entrepreneurs and big companies alike. Cable TV assaults the networks; fax machines replace mail; McDonald's invents fast food.

But the drawn-out nature of this process makes capitalism hard to defend politically, Schumpeter said. The argument for it "must rest on long-run considerations." The "unemployed [worker] of today [has] to forget his personal fate and the politician of today his personal ambition." This was not likely."

The percentage of 25-54 year-olds employed rose in December

See 'Hiring is being held back': Economy added just 199K jobs in December as worker shortages persisted and omicron began spreading in U.S. by Paul Davidson of USA Today.

But the labor looks better to me since the percentage of 25-54 year-olds employed rose.

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates many college age people who might not be looking for work).

The percentage of 25-54 year olds employed was 79.0% in Dec. It was 78.8% in November. It was 80.5% in Jan. 2020 and 69.6% in April 2020.  Click here to see the BLS data. The unemployment rate was 3.9% in Dec. Click here to go to that data. The % of those 16 and older employed went from 59.3% up to 59.5%.

Here is a good graph from the St. Louis Fed. It shows that there are 126,165,000 people in the 25-54 year old group. So since we are 1.5 percentage points below the 80.5% of Jan. 2020 (the high point since the previous recession), that is still 1,892,475 fewer jobs (Hat tip: Vance Ginn of the Texas Public Policy Foundation). 

Also, we are up 9.4 percentage points since April 2020 (79.0 - 69.6). That is 86.2% of what we lost from Jan. 2020 to April 2020 (10.9 percentage points or 80.5 - 69.6). Then 9.4/10.9 = 86.2%. So we have gotten about 86% of the jobs back. Good, but a significant amount of ground has still has to be made up.  

Here is the timeline graph of the percentage of 25-54 year olds employed since 2011. 

 Now since 1948

 

New Profession Of "Wedding Hashtag Helper" Might Be An Example Of Creative Destruction At Work

See As If Getting Married Weren’t Hard Enough, Try Coming Up With a Wedding Hashtag: Newlyweds-to-be are flooding social media with so many of the tags—those things starting with ‘#’—that some are hiring pros to make sure their nuptial codes stand apart by Alex Janin of The WSJ. Excerpts:

"Brainstorming a wedding hashtag? Good luck finding one that hasn’t #beendone.

More than a decade of wedding hashtags have flooded social-media sites to help couples curate guests’ photos on their special day. But soon-to-be-newlyweds are finding it harder to identify a clever, distinctive phrase. 

An overused hashtag—#HappilyEverAfter, say, or #WorthTheWait—could leave them scrolling through wedding photos on social media that aren’t theirs."

"Wedding hashtags have historically often combined a couple’s names and wedding year or date, says Marielle Wakim, Ms. Wakim, founder of hashtag-writing service Happily Ever #Hashtagged.

“It’s so beyond #JimandPamWedding2016 at this point,” she says.

Ms. Wakim launched her Los Angeles-based business in 2016 as the wedding-hashtag trend was booming. Her prices range from one hashtag for $50 to five for $125. Some couples prefer having options or multiple hashtags for different events, such as a bachelorette party and wedding ceremony.

Clients want personalized, tailored, creative hashtags, she says. Some have had specific requests, like Disney -themed hashtags or ones that incorporate specific Chance the Rapper lyrics.

“Some people might look at a hashtag and be like, $50 for a hashtag?” she says. “They’re not really paying for the hashtag. They’re paying for my brain.”

Jalissa Carter, 32, a wedding planner and author in Springdale, Ark., started selling her hashtag skills in 2020 on Fiverr, a network connecting customers with freelancers.

She had helped come up with ideas on Facebook groups free of charge, she says, and “I was like, ‘Oh, wow, I’m really good at this.’ ” She started offering one hashtag and letting brides know they could negotiate prices if they wanted more.

It worked. Mrs. Carter found clients in brides with long or complex names that aren’t easy to pronounce or rhyme with other words, she says. Like many others offering hashtag services, she asks potential clients how to pronounce their names, whether they are looking for a punny or sophisticated hashtag, and a little about themselves."

"Hashtags are becoming more advanced as brides opt to keep their last names, says Caryn Sandoval, who leads a team of 11 hashtag writers at Wedding Hashers, a service based in San Diego. More customers are asking for hashtags that include both names, she says, or shared interests."

Yes, machines like computers might destroy jobs but they can also create new ones like "Wedding Hashtag Helper". 

See Creative Destruction by Richard Alm and W. Michael Cox. Excerpt:

"Joseph Schumpeter
(1883–1950) coined the seemingly paradoxical term “creative destruction,” and generations of economists have adopted it as a shorthand description of the free market’s messy way of delivering progress. In Capitalism, Socialism, and Democracy (1942), the Austrian economist wrote:

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. (p. 83)

Although Schumpeter devoted a mere six-page chapter to “The Process of Creative Destruction,” in which he described capitalism as “the perennial gale of creative destruction,” it has become the centerpiece for modern thinking on how economies evolve."

But also see this link which suggests that the idea goes back even before Schumpeter to other scholars: Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter by Hugo Reinert and Erik S. Reinert.

"Abstract

This paper argues that the idea of ‘creative destruction’ enters the social sciences by way of Friedrich Nietzsche. The term itself is first used by German economist Werner Sombart, who openly acknowledges the influence of Nietzsche on his own economic theory. The roots of creative destruction are traced back to Indian philosophy, from where the idea entered the German literary and philosophical tradition. Understanding the origins and evolution of this key concept in evolutionary economics helps clarifying the contrasts between today’s standard mainstream economics and the Schumpeterian and evolutionary alternative."

Frank Knight And John Stuart Mill On The Purpose Of Life And Liberty

Frank Knight was an economics professor at The University of Chicago in the first half of the 20th century. John Stuart Mill was a British philosopher and economist in the 19th century.

Here is an interesting quote from Knight followed by a similar one from John Stuart Mill.

"Life is at bottom an exploration in the field of values, an attempt to discover values, rather than on the basis of knowledge of them to produce and enjoy them to the greatest possible extent. We strive to 'know ourselves,' to find our real wants, more than to get what we want"

Source: Knight, Frank H. 1935. "The Limitations of Scientific Method in Economics," in The Ethics of Competition and other Essays. Harper and Row: New York.

See also Frank Knight’s “Risk, Uncertainty and Profit” 100 Years Later: Without Frank Knight, there would not have been a Chicago School of Economics by John Phelan. 

John Stuart Mill said: “The purpose of liberty is not to give us what we want but to help us grow so that we can best understand our wants.”

See The Forgotten Philosopher by Alan Wolfe in The Chronicle of Higher Education.

San Antonio’s volume of orders to vacate, demolish homes is ‘unprecedented’ among big Texas cities

By Madison Iszler of The San Antonio Express-News. Excerpts: 

"San Antonio has used code enforcement measures heavily on the near West and East sides and ordered homes to be vacated and razed at a much higher rate than other large Texas cities, displacing vulnerable people of color, according to a new report.

The city issued 626 orders to vacate and demolish occupied single-family homes between 2015 and 2020, says the study released by the University of Texas at Austin School of Law.

That’s an “unprecedented” level compared with Houston, Dallas, Austin and Fort Worth, which issued no more than 16 orders combined during the same time period.

“I was surprised by the extent that San Antonio was such an outlier, just the sheer volume of these orders,” said Heather Way, the report’s lead author and co-director of the Entrepreneurship and Community Development Clinic at the university.

The authors compared the distribution of orders for homes with the number of owner-occupied homes within each census tract. They found that the highest number of orders were issued on the near West and East sides, which also have been disproportionately targeted for sweeps for code violations such as overgrown yards and abandoned homes, the report states.

In both areas people of color were systematically discriminated against for decades through redlining — the government’s designation of certain areas as risky for investment. Neighborhoods of color were usually outlined in red, restricting residents’ ability to access home loans.

Investment lagged and many homes are old and in poor condition. The near West and East sides have also recently drawn more attention from developers and investors, fueling concerns about long-time residents being priced out of their neighborhoods.

Having to leave their homes “can have really traumatic effects for families,” Way said.

“This is their home, and when the city is issuing notices for families to vacate, they often don’t have any other alternatives — especially not alternatives that are affordable and any safer,” she said."

"The city disagrees with the UT study’s findings and is reviewing them, which is expected to take several weeks, a spokesperson said."

"The city spokesperson said that while the report compares San Antonio to other cities, it also points out the regulatory and operational differences between them. Way said the authors focused on the same question for all of the cities: when and how orders were issued.

The spokesperson also said the authors made “no real attempt to engage with the city staff tasked with implementing policy and procedures,” which Way disputed as well.

San Antonio residents can be removed from their homes if it is deemed dangerous to them, and demolition orders are issued when a home is considered a public safety hazard and cannot readily be repaired, according to the report.

The authors said the city often does not provide residents with a due-process hearing.

San Antonio officials issued 337 orders to vacate between 2015 and 2020 outside of a hearing process with the Building Standards Board, a quasi-judicial panel that hears code violations and appeals. During the same period, none of the state’s other largest cities issued such an order apart from a hearing process."

"The city often does not provide relocation assistance to residents displaced by code enforcement actions — which the report’s authors said in their opinion violates state law."

China's Government Cracks Down On Displays Of Wealth On Social Media

See In China, Bragging About Your Wealth Can Get You Censored: Online posts by users showing off their receipts, over-ordering food or scattering money have been deemed vulgar. Regulators say such content leads young people astray by Vivian Wang and Joy Dong of The New York Times. 

This reminds me of the concept of "conspicuous consumption" from economist Thorstein Veblen (and something Adam Smith said, too-see links to related posts at the end). Excerpts:

"He started by exploring the sauna, built into the palatial bathroom of the hotel’s presidential suite. Then the video blogger moved on to the dining room, where a chef waited with a glistening steak. The next morning, he awoke to a lobster breakfast, which he ate cross-legged in bed.

“Today’s bill: 108,876 kuai,” or more than $17,000, he said after checking out from the hotel in Chengdu, China, waving his receipt at the camera. “I slept away the equivalent of multiple iPhones,” he giggled.

The video was tacky, sure. Ostentatious, definitely. Now, it’s also a violation of Chinese internet regulations.

The Chinese authorities have declared war on content deemed to be “flaunting wealth,” amid sweeping calls by China’s leader, Xi Jinping, to combat inequality. As Mr. Xi positions himself for a third term, he has cast himself as a man of the people, leading a campaign against entrenched interests.

Financial regulators have cracked down on the country’s tech giants, extracting pledges of loyalty and hefty donations. Tycoons have been detained on corruption accusations. And online, the authorities have ordered social media platforms to scrub the hugely popular videos that make clear the gap between the haves and have-nots.

Douyin, the Chinese version of TikTok, by posting videos where he toured expensive hotels and sampled delicacies. But after being singled out by state media, he deleted those videos. His recent posts show him trying convenience store snacks. (He did not respond to requests for comment.)

“We will strengthen our management and increase the power of our crackdown, to make internet platforms feel there is a sword above their heads,” Zhang Yongjun, a senior official at China’s cyberspace administration, said at a news conference this year.

There is no clear definition of what constitutes flaunting or wealth. While officials have laid out a few specific examples, such as showcasing receipts or over-ordering food, they have largely outlined a sort of “I know it when I see it” rule."

"In a viral trend in 2018, Chinese users posted photos of themselves splayed on the ground surrounded by expensive objects. An entire industry exists to help users look richer than they are."

"Douyin and Kuaishou were each fined about $31,000 in October for allowing an advertisement that the authorities said promoted “excessive consumption.”

Xiaohongshu (an Instagram-like lifestyle app) announced last month that it had improved its algorithm for identifying wealth flaunting."

Related posts

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!)

Payless sold its discount shoes for $600 a pair at mock luxury influencer event

Federal Reserve Economists May Have Discovered Another Cause Of Bankruptcy (if a neighbor wins the lottery people start spending more on consumption to keep up)

Returns to education in criminal organizations: Did going to college help Michael Corleone?

By Nadia Campaniello, Rowena Gray & Giovanni Mastrobuoni. 

"Highlights

•           We estimate the returns to education of Italian–American mobsters using the 1940 Census to be close to 8% per year.

•           Such returns are similar to those of white men of similar age living in the same neighborhood and are larger than those of immigrants, of Italian immigrants, and of US residents of Italian descent.

•           We find that mobsters involved in illegal businesses, like racketeering, loan sharking, bookmaking, etc., exhibit the largest returns to education.

 

Abstract

Is there any return to education in criminal activities? This paper is one of the first to investigate whether education has not only a positive impact on legitimate, but also on illegitimate activities. We use as a case study one of the longest running criminal corporations in history: the Italian-American mafia. Its most successful members were capable businessmen, orchestrating crimes that required abilities that might be learned at school: extracting the optimal rent when setting up a racket, weighting interests against default risk when starting a loan sharking business or organizing supply chains, logistics and distribution when setting up a drug dealing system. We address this question by comparing mobsters to a variety of samples drawn from the United States 1940 Population Census, including a sample of their closest (non-mobster) neighbors. We document that mobsters have one year less education than their neighbors on average. We find that mobsters have significant returns to education of 7.5–8.5% , which is only slightly smaller than their neighbors and 2–5 percentage points smaller than for U.S.-born men or male citizens. Mobster returns were consistently about twice as large as a sample of Italian immigrants or immigrants from all origin countries. Within that, those charged with complex crimes including embezzlement and bookmaking have the highest returns. We conclude that private returns to education exist even in the illegal activities characterized by a certain degree of complexity as in the case of organized crime in mid-twentieth century United States."