Shirts in the Revolution Were Costly

 Reading Alan Taylor's "American Revolutions".  As usual he's quite readable, though there's not much new for me so far.  One trivia bit jumped out to me though:

In 1780 women in several of the states organized in support of the troops, soliciting donations*, and raised some $340,000, which they sent to Martha Washington to give to her husband to be distributed to the troops.  As Washington George figured, probably likely, the cash would be wasted on drink and frivolity he asked for shirts instead.  So they bought fabric with the money and made shirts, 2,200 of them.

So each shirt cost $154, and that's just for the fabric.

Note the date--1780.  By then Continental paper money wasn't worth a continental.

Inflation and Greed

 Newshour is doing a program on corporate profits now.

There was a piece in the news today that mentioned the "rockets and feathers" effect, at least with respect to oil and gas. Crude oil prices can soar--the rocket effect--because the markets for crude are pricing the future.  Gas stations are slower to raise prices because of slack in the supply chain--current inventories were bought at lower prices.  

But while crude prices can fall quickly gas stations are likely to be slower to drop prices.

The wikipedia article also used crude/gas in the example.   I wonder about whether the effect applies much more widely.

Thoughts on Inflation--Money as Grease

 Having lived through the inflation of the 1970s and 80s, I've been more skeptical of the promises last year that any inflation would be only temporary.  

While unions are less important now than then, and they were often blamed for inflation, we also have more things indexed for inflation now (like Social Security).

But my own theory about inflation is this:

Before the pandemic the economy was operating smoothly following its usual routines.  Because of the pandemic lots of routines were disrupted.  Whenever there's change or disruption, the resulting friction gets handled by grease, grease known as money.  Don't have enough workers, give bonuses and hike salaries.  Don't trust going to restaurants, rely on delivery and increase the tips.  Etc. Etc. 

That means to me the inflation won't be temporary but will last until we establish new routines, which will take a while.

Inflation Strikes Pizza

 My wife and I order the occasional pizza from Dominos.  For years our usual order was about $17 plus tip.  These days it's up to $31.  Part of that is the inclusion of a delivery charge, part is a more generous tip.  I suspect not only are the ingredients a bit more costly, but salaries for the help are up and management has been scared by the ups and downs of operating through the pandemic, thus becoming more cautious.  And the reality is that demand likely has stayed strong because of the pandemic. 

Rational Consumers and Personal Histories

 Anthony Downs died recently--he was an economist who argued that people assess their choices rationally, particularly their political choices, which often leads to them not voting. 

A recent paper here argues for the importance of personal experience in shaping choices.  A recent article on inflation in the Post got a number of comments--I was struck by the number who recounted their history, or their parents history, with high mortgage rates back in the 1980s.  As for myself, when I bought in 1976, I ended up buying from Gulf Reston, choosing a new townhouse, although one of the last remaining in a 220 unit townhouse development.  Part of the factor for my choice was the 8 percent rate for the mortgage, as Gulf still had access to financing at that rate, although the going rate was IIRC closer to 9.  Rates cited in the comments on the Post piece were double digits.

That personal history makes me more sensitive to the dangers of inflation returning than most of my fellow liberals, who seem these days to believe it can't happen again. 

This isn't inconsistent with Downs theory, but it does fit the NBER paper.

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Inflation and Women's Lib

 From yesterday's conversation with my cousin--some idle speculation on the interrelated threads of suburbanization, car ownership, feminism, women working and inflation:

• after WWII we had a lot of people moving to the suburbs, the Levittowns, or the Manassas Parks where my in-laws moved to.
• if the household owned one car, then the wife was stuck at home (see yesterday's post on food trucks), or dependent on clubs/associations where one woman could provide transportation.
• there was, I think, more inflation in the economy than we've become used to in the last couple decades.  Inflation around the Korean War, worries about inflation in the 50's and early 60's, actual inflation beginning late 60's.
• inflation made it harder and harder for the one-wage earner family to manage, particularly as the boomer generation was exploding, increasing the pressure for women to go to work.
• the return to work would increase the returns from a second car, which would in turn liberate women a bit more.
• all of which undermined some of the women's associations, like the League of Women Voters and the AAUW. But the experience of the workplace and the paycheck would empower women.

I've not done any research for statistics to back up these threads, but they fit my general impressions.

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Second Thoughts on Inflation

 I blogged previously worrying about the impact of inflation, if it occurs, on people on fixed incomes.

I've a second thought--it may be true that since the inflation of the 1970s that use of inflation-indexing has increased.  IIRC it once was true that Congress would pass legislation increasing social security payments (also reducing income tax rates) to compensate for inflation. These days both are indexed, so the impact on the elderly may be less.

Inflation Worries

 Seeing media stories about the possibility of inflation.  Apparently the Biden administration is not worrying, nor is the Fed.  

I understand the logic--prices may rise for food and gas, but the underlying trend may not be above the Fed's target for long. And the rise in wages for restaurant and food service workers is good; it helps the lowest paid. 

But my cynicism is up today.  I'm worried about people on fixed incomes--the retired--will be disproportionately affected by the inflation that occurs. And worried that people vote more on the basis of what they've lost than what they have gained, meaning Democrats in 2022 will lose more elderly votes than they gain from the wage gainers.

Inflation Ahead?

 I'm seeing media reports of a looming labor shortage--restaurants are reopening but can't find help.

My local supermarket seems to be having staffing problems as well. 

This raises the possibility of inflation coming.  If the labor supply at the low end has been disrupted by the pandemic and possibly the Trump crackdown on immigration, wages will have to rise at the lower end.  Perhaps that will diminish our inequality, or perhaps the better paid among us will try to maintain the wage gap and push for more pay themselves.

We'll see. 

Inflation Worries and the 1970s

 The debate over the proper size of the Covid bill often gets into inflation--will a bigger federal debt cause greater inflation.  I've commented somewhere that while any inflation will take a while to show up, based on our experience in the 1970s it takes a long time for policymakers to react and fight it.  

Expanding on that--we do have the experience of the 70's to guide us, and we know that very high interest rates a la Paul Volcker will stifle inflation albeit at the cost of a recession.  Another factor I'd consider--in the 70's unions had more power than now.  The industrial sector was much more important in the economy, and unions had considerable power in that sector.  I think it's also true that union contracts had been written in a way to cope with inflation, at the cost of adding to inflationary pressures. Globalization has come a long way since the 70s, so presumably it's harder for an economy to go its own way and inflate.  Finally, a big part of the inflation then was the effect of OPEC finding its power, resulting in much higher prices for oil.  Today we don't have any cartel with similar power over a critical factor in the economy, and oil specifically and energy generally are less important economically.

Why I, a Liberal, Worry About the Federal Debt

 Most liberals these days don't worry about the debt.  Even Kevin Drum, whose view I mostly follow, is rather blase about it.  So why do I worry?

One word: history.

I've lived throughabout a third of the life of the nation, which included some big increases in the debt, some severe inflation, and lots of changes.  Lessons I've learned:

• nothing lasts forever--the fact that inflation has been low, contrary to expectations of economists and conservative debt hawks, for many years doesn't mean it will always be low.
• inflation causes problems--it works for those with real assets, like homeowners, but not for people like those receiving aid from the government. 
• rising inflation rates leads to rising interest rates, which can rapidly eat up all flexibility in government budgets.  (See Clinton--whose 1992 program was killed by the bond traders.)

If we go on adding debt, it's like living at the foot of a mountain.  It snows on top of the mountain and the drifts build up.  But everyone says it's okay, it's been years since the last avalanche. So people build more houses at the foot of the mountain, and each time it snows there's no avalanche.  Comes the day when there is an avalanche and all the houses are wiped away.

Bottom line, I remember the 1950's, and 1960's when the Dem economists thought they had things figured and inflation was low enough.  Then Vietnam war heated up, debt increased, and money got tight.  We struggled through years of fighting inflation.  LBJ's Great Society dreams were sacrificed as a result.

Inflation and Rising Interest Rates

After the events of 2008, as Congress passed the stimulus bill and the Obama administration took charge, conservative bloggers such as those at Powerline started to worry about inflation.  Liberals such as Kevin Drum and the liberal economists mocked the concerns.  I have to admit that while I mostly agreed with the liberals, my memory of the inflation of the 1970's caused occasional qualms.

Turns out the liberals, and Bernanke and Yellen were right--we didn't have inflation over the Obama years.  Interest rates remained low.

But, with today's news of the stock market fall, there's more discussion of inflation.  Maybe finally inflation will hit and pass the 2 percent a year benchmark the Fed has used.  I'm no economist and I'm not panicking about the stock market.  But I do want to point out something I've not seen mentioned.

The federal deficit is projected to rise very significantly this year.  Trump's tax cut will hit revenues, and even if he's correct it will stimulate the economy, any increase in revenues will take a while to show up.  But what if it doesn't?  And what if inflation is at the door, and the Fed raises rates faster than expected?  The net result of higher interest rates is greater budgetary pressure and a larger deficit.  (We know that from Clinton's early years.)  That's not a good formula.

(A parenthetical note: I've not seen the Powerline bloggers raise any concerns about the deficit since January 19, 2018.)