Free Markets, Free People
Today’s release of the Producer Price Index raises some interesting and scary questions. The core PPI was up only 0.1%, but a 1.2% increase in good prices and a 0.5% increase in energy prices brought the overall PPI up by 0.4%.
Now, the reason that food and energy are excluded from the core PPI and CPI is that they often show a lot of monthly volatility. Those prices simply rise and fall quickly, so, on a month-to-month basis, they may not mean much. Ultimately, however, a trend of price increases in, say, energy will trend to raise prices across the board, as that increases the cost of production.
The traditional Keynesian argument about inflation is that it tends to decrease when the economy is struggling, as aggregate demand is stifled. Sadly, in the 1970′s we learned that simply wasn’t true, and the existence of stagflation sent the Keynesians back to the drawing board for about 15 years to reformulate a Neo-Keynesian economic model. Essentially what happened in the late 60′s and early 70′s was that the Fed pursued a very accomodative monetary policy. Ultimately, even a slow economy couldn’t prevent that monetary expansion from showing up as inflation.
It should, because the housing boom was kicked off by a similar policy, and since the collapse, the Fed has pursued a policy of “quantitative easing”, i.e., buying $1.2 trillion of securities with hastily printed money. Overall, the monetary base has more than doubled over the past two years, also, as the Fed has kept short-term interest rates at 0%.
So, I guess the question is whether today’s PPI is just a monthly outlier due to the volatile sectors, or whether it’s a sign that monetary expansion is beginning to kick off an inflationary spike that will soon begin to show up in the CPI as real, noticeable inflation.
Greg Mankiw produces a story from 2003 which makes a statement Barney Frank made during a recent debate with Sean Bielat an absolute lie.
During the debate, Bielat, the Republican challenger for Frank’s seat, said this:
“He has long been an advocate for extending homeownership, even to those who couldn’t afford it, regardless of the cost to the American people,’’
“Low-income home ownership has been a mistake, and I have been a consistent critic of it,’’ said Frank, 70. Republicans, he said, were principally responsible for failing to reform Fannie Mae and Freddie Mac, the mortgage giants the government seized in September 2008.
“I was always against it and it’s the GOP’s fault”.
Two things implied by this statement. First Frank is obviously admitting that “low-income ownership” was a mistake. Secondly, he’s admitting that Fannie and Freddie were integral to the financial problems we’re enduring.
Now, to the record. First the “it’s the GOP’s fault”:
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry….
All opposed? Say "aye":
Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
But there’s even more evidence than just that. How about a letter to President Bush in 2004 signed by Frank, Pelosi and 74 other Congressional Democrats?
"We urge you to reconsider your Administration’s criticisms of the housing-related government sponsored enterprises (the GSEs) and instead work with Congress to strengthen the mission and oversight of the GSEs. We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing.
We have been concerned that the Administration’s legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness. While the GSEs’ affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing.
We also ask you to support our efforts to push the GSEs to do more affordable housing. Specifically, join us in advocating for more innovative loan products and programs for people who desire to buy manufactured housing, similar products to preserve as affordable and rehabilitate aging affordable housing, and more meaningful GSE affordable housing goals from HUD."
But, you know, Frank has always been a critic of low-income housing and it’s the GOP who prevented reform.
Again, a lie designed to influence and placate the low-information voter who will, unfortunately, accept it at face value.
Another in a long line of reasons to give Frank the opportunity to apply for unemployment benefits.
Leave it to Joe Biden to provide the answer to the question everyone is asking: if the Democrats did so well, why aren’t they running on their record?
Democrats aren’t running on the administration’s accomplishments like health-care and financial-regulatory overhaul and the stimulus because “it’s just too hard to explain,” Biden said. “It sort of a branding, I mean you know they kind of want the branding more at the front end.”
Or maybe it’s not like “branding” at all. Maybe it’s more like assuming that those in flyover land are too freakin’ dumb to understand the positive nuance of spending 1.4 trillion dollars we don’t have or nationalizing car companies or socializing health care.
Or maybe it’s because they know admitting to those things would kill them if they actually did run on them. After all it’s hard to explain, among other things, why “health care reform” requires 16,000 new IRS agents, isn’t it?