The good news is that prices increased by only 0.2% in August, but even that amount of inflation represents an annual rate of 2.4%, which is 20% higher than the Federal Reserve’s target inflation rate of 2%. Even the good news isn’t all that good.

Inflation tends to run higher in the first half of the year (which is one reason data are often seasonally adjusted). In August of 2020 prices increased by only 1.3%, so inflation this August was 50% higher in August of 2021 than in August of 2020. Again, the good news is not all that good.

Inflation over the past year, from August 2020 to August 2021, has been 5.2%, so we are headed for uncomfortably high inflation for the full calendar year. Prices have already increased by 5% since the beginning of the year, so even if prices do not increase at all for the rest of the year, we will end the year with 5% inflation.

The fact that policymakers at the Federal Reserve, and more generally, in the federal government, are not troubled by rising inflation is in itself troubling. We saw in the 1970s that once inflation is underway, stopping it is difficult and painful. Perhaps experiences from half a century ago don’t have much influence today.

People who actually buy things have told me that the prices they pay have gone up much more than the government’s official data. That may be, but I’m looking at the numbers the federal government is reporting, and I don’t see good news there on the inflation front.

The post August Inflation Lower than Expected: Look at the Numbers appeared first on The Beacon.

Some economies are more entrepreneurial than others.

Entrepreneurial economies have low tax rates and minimal government regulations that interfere with entrepreneurs who want to introduce innovations into the economy. They protect property rights and establish rule of law, so that everyone is treated the same under the law. These institutions assure entrepreneurial innovators that if they introduce products or production processes that add value to the economy, they will be able to profit from doing so.

Entrepreneurial economies create an environment that fosters more entrepreneurship, for several reasons. One is that aspiring entrepreneurs can look at successful entrepreneurs as examples that show them how to succeed. When people see that others can succeed as entrepreneurs, that encourages others to follow their lead.

Another reason entrepreneurial economies foster entrepreneurship is that when innovations are introduced into the economy, that opens the opportunity for other innovations. One can see that the mass production of automobiles created opportunities for others to establish gas stations and auto repair shops. It also opened the opportunity to develop supermarkets, shopping malls, and suburban living, because people could transport more goods in their cars and did not have to rely on mass transit. Consider, in the twenty-first century, the entrepreneurial opportunities that were created by personal computers, smart phones, and the internet.

Yet another reason entrepreneurial economies foster entrepreneurship is that institutions that support entrepreneurship flourish in entrepreneurial economies. For example, venture capital will be difficult to find in economies that are not entrepreneurial, because there is little use for it. Entrepreneurial economies create opportunities for venture capital and other services that support entrepreneurs.

All of this depends on having economic institutions that support innovation, make it easy to start new businesses, and make it easy to introduce new products into markets. Taxes and regulations that impose costs on innovators stifle entrepreneurship.

One thing innovative entrepreneurs like Henry Ford, Steve Jobs, Elon Musk, and Jeff Bezos have in common is that none of them studied entrepreneurship. Their successes came from understanding the markets they were entering, more than understanding entrepreneurship. Another thing they have in common is that they resided in the world’s most entrepreneurial economy: the United States.

Their successes were facilitated more by working in an entrepreneurial economy than by an academic understanding of entrepreneurship.

We all benefit from living in an entrepreneurial economy, and are inclined to take the economic progress that comes with it for granted. If we want this to continue, and want the US to remain the world’s most innovative economy, the way to do so is to maintain an economic environment in which people can introduce innovations into the economy without being hindered by taxes and regulations, and with the assurance that if their innovations create value for consumers, they can profit from them.

Every economy has individuals in it who are potential entrepreneurs. In some, heavy-handed institutions thwart their attempts to be entrepreneurial; in others, the institutional structure removes barriers to successful innovation, moving out of the way and allowing entrepreneurs to bring forward those innovations that generate economic progress.

Entrepreneurial economies are more the result of institutions that foster entrepreneurship than of the actions of particular individuals. I discuss these ideas further here.

We don’t create entrepreneurial economies by teaching people how to be entrepreneurial, but by creating an environment in which people who are entrepreneurial can profit by adding value to the economy.

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Powell’s view rests heavily on interruptions in the supply chain that have caused temporary shortages leading to price spikes. Powell recognizes that declines in demand in 2020 led to low inflation that year, and says that the 2021 inflation spike is only offsetting unusually low inflation from 2020.

There are arguments leaning in the other direction, however—most significantly, the effect of inflationary expectations. Sellers are reluctant to raise prices when inflation is low, so it takes a while for inflationary monetary policies to result in actual inflation. Once people expect inflation, they are quicker to raise prices to keep up with the general rise in prices. As the 1970s showed, inflation, once started, can be difficult to stop.

Let’s set aside those various arguments and look at the official numbers from the Bureau of Labor Statistics. The most highly-publicized number is the year-over-year inflation rate (from June 2020 to June 2021), which is 5.4%. The Consumer Price Index rose by 0.9% in June alone. Those numbers reveal the spike that Powell says is temporary.

At the end of the linked article, John Williams, President of the Federal Reserve Bank of New York, says he expects inflation to be around 3% this year, dropping to 2% in 2022. That is unlikely.

Inflation in the first six months of 2021 (December 2020 to June 2021) has been 4.3%. That would be the year-end 2021 inflation rate if prices do not rise at all for the remainder of the year. That won’t happen. Williams’ projection of 3% inflation this year is wishful thinking.

Powell conjectured that the current spike in inflation is a result of prices catching up from unusually low inflation in 2020. That conjecture is questionable. For one thing, inflation in 2020 was not exceptionally low. It was 1.4% over the whole year, which is not too far from the Fed’s stated 2% target inflation rate. Going back to June of 2019, prices have risen 6.1% over the past two years, so even with a low inflation rate in 2020, the average annual inflation rate over the past two years is a bit over 3%. Even if Powell’s conjecture is correct, inflation over the past two years has been 50% higher than what the Fed says it is targeting.

People I talk with who actually buy things tell me the prices they pay are rising much faster than the official numbers. Maybe. But I’m looking at the government’s own inflation numbers and there’s not much in them to suggest that the current inflation spike is transitory.

John Williams, the New York Fed President, is expecting 3% inflation this year. I’m expecting inflation in 2021 to be above 5%. In six months, we’ll be able to look at the actual numbers and see whose estimate was closer.

The post Is Our Current Inflation Temporary? Look at the Numbers appeared first on The Beacon.

That background confirms Druckenmiller as someone who gained both understanding and experience in handling very large sums of money in the real world. As such, he has a clear understanding of the impact the proposed $3.5 trillion “infrastructure” spending bill will have on Americans if it passes.

He has been making the rounds on Capitol Hill to warn politicians about the astronomically large spending bill. He warns they will guarantee “dire consequences” that harms low and middle-class Americans if they pass it. On July 23, 2021, he spoke with MSNBC’s Stephanie Ruhle on that topic, telling her what he’s been telling lawmakers.

What Druckenmiller Fears from Biden’s Infrastructure Bill

Here is the video of the segment:

To be sure, many people will focus on Druckenmiller’s comments describing how Darth Vader would destroy the U.S. economy by unleashing inflation through excessive spending. But he describes the real risk he sees from the infrastructure bill’s excessive spending near the end of the clip:

It’s going to cause a financial crisis. It’s going to cause inflation and nothing is going to hurt the poor more than that. And by the way, if it does, every dollar we’re spending now, that in my opinion we don’t desperately need, is not going to be available in a future crisis, whether it’s another pandemic or economic decline that’s hurting the poor or middle class.

That’s the consequence of the Biden-Harris administration’s unsustainable fiscal path. Achieving true fiscal sustainability requires treating the national debt like an emergency reservoir. Now that the crisis is past, spending growth needs to be restrained and the economy needs to grow to replenish the reservoir. Doing so will make it possible to weather the next crisis much more easily.

If there is one thing to be learned from history, it is that there is always a next crisis.

The post “Dire Consequences” for Most Americans from $3.5T Infrastructure Bill appeared first on The Beacon.

With even fast-food chains offering more than minimum wage and a series of new perks to anyone who can fill in the vacancies, it is no wonder that gig economy firms like Uber and Lyft are also taking a beating.

Without enough people signing up to drive, the limited number of rides available leads to an increase in the end cost to customers. But as Uber and Lyft users are forced to deal with the long wait times and higher prices, drivers complain they are not seeing any boost in their pay.

With only red states terminating the federal jobless benefits early and many women leaving the workforce altogether, rideshare firms may continue to struggle to fill in driver vacancies. Could this spell trouble for the future of the gig economy giants?

Wrong Incentives

With lockdowns in place in 2020, people stopped traveling. Lack of in-depth information regarding how dangerous the virus was also prompted drivers to fear leaving their homes. With fewer drivers willing to take on the risks, many chose to stay home or switch to food delivery. But once America reopened and people started moving again, many drivers preferred to stick with food delivery. Others were comfortable with what unemployment benefits offered.

According to Uber, which provided free rides to vaccine spots up until July 4, most drivers are planning on coming back to work once they are vaccinated. But according to Harry Campbell, who runs The Rideshare Guy blog, drivers who moved on to food delivery are not going to return to ridesharing for a series of reasons.

“In times of Covid, there’s a lot less customer interaction with food delivery vs transporting a passenger in your backseat,” he told CNBC. “You also put less miles on your car as a delivery driver since people order from nearby restaurants vs a full-time ride-hail driver that can easily do 1,000 miles per week or more. A lot of ride-hail drivers just get tired of dealing with people too.”

By September, he added, we will know if the drivers who chose not to come back did so because of the unemployment benefits alone. It will also become clear if rideshare firms will see their female drivers come back.

As pointed out by CBSNews, the number of women who signed up for food delivery apps such as UberEats doubled between April 2020 and January 2021. And prior to the pandemic, women made up 40% of Uber’s workforce. Following the pandemic, things changed dramatically as millions of American women decided to slash their working hours or stay home full time.

Fewer Women in the Workforce: Can it Impact Rideshare Firms?

Since the beginning of the pandemic, more than 2.3 million women have left the workforce in the United States. As women continue to leave the workforce in droves well into 2021, President Joe Biden and Vice President Kamala Harris framed the issue as a national emergency.

Despite their best efforts, a growing number of female workers are now considering slowing things down.

According to a Lean In and McKinsey & Co. survey, 1 in 4 women is thinking about leaving the workforce or downshifting their careers. While covid was mentioned as the main reason why, some of the biggest challenges faced by female employees were anxiety over layoffs or furloughs, burnout, mental health, and childcare and/or homeschooling responsibilities.

If this trend continues, the rideshare industry may suffer a major blow as a greater number of women could choose to forego working outside the home.

Focusing on Driver Satisfaction is Not Enough

In order to address the shortage, both Lyft and Uber have been prioritizing their driver base.

After launching a $250 million incentive program to boost driver earnings in an effort to encourage drivers to come back, Uber CEO Dara Khosrowshahi said this is the best time for someone to earn top dollar as a rideshare driver.

“With demand currently outstripping supply,” he said, “driver earnings are at historically elevated levels.”

Lyft’s CEO Logan Green also stated that the company is doing all it can to boost drivers and their earnings, adding they expect to see an increase in their driver numbers later in the year.

“We think that in [the third quarter] and beyond, we’ll start to see some ... trends that should give us real tailwinds on the driver side,” he explained in early May.

But if drivers choose to not work with passengers any longer, they can always stick with food delivery.

Since the beginning of the pandemic, Uber Eats became Uber’s bread and butter, making up about two-thirds of the company’s gross earnings by early 2021. In the first quarter of 2019, rides were the firm’s top earner, making up about 80% of the business.

As we see new reports of covid variants hitting major US cities, rideshare giants might soon be experiencing more driver shortages.

With or without extended unemployment benefits, one thing is for sure: many are beginning to realize that the current shortage of workers means they now have bargaining privileges. And with so many weary of getting out there due to the virus, many are now confident they do not have to rely on their vehicles to make ends meet.

The post Your Uber Driver May Never Come Back. Here’s Why. appeared first on The Beacon.

Another way to view countries offering lower tax rates is that this is the result of intergovernmental competition. Countries want to attract businesses, and lower tax rates is one way to do this. Ireland’s low corporate tax rate is one of the policies that have produced the nation’s high rate of economic growth.

Normally, economists (and politicians) argue that competition is beneficial because it disciplines companies to provide good products to people at low prices. The exception is government, where they argue that competition is bad. They seem to like it when Wal-Mart offers customers everyday low prices, but when Ireland does the same for its taxpayers, it’s called a race to the bottom.

If low Irish corporate tax rates were harmful, shouldn’t the citizens of Ireland be the ones complaining? They seem to be happy with the results of the intergovernmental competition. Those who are complaining aren’t the Irish, they are Ireland’s competitors. Those competitors are conspiring to prevent other countries from offering taxpayers a better deal.

President Biden and Secretary Yellen are advocating the extension of a cartel of governments to limit intergovernmental competition. Private companies that conspire to limit competition are guilty of antitrust violations and governments take action against them. Meanwhile, governments are doing that exact same thing and claiming it is in the public interest.

Competition among governments is more important than competition among private firms because market transactions are voluntary. Nobody is forced to transact with firms, no matter how much monopoly power they have. We’ve heard people complain about the monopoly power of the tech giants, but people can choose whether to use products from Google, Microsoft, and Facebook.

Governments offer people no choice. They force those within their jurisdictions to pay their taxes and abide by their regulations. The intergovernmental competition offers one of the few avenues of escape from the oppressive coercion of government.

Intergovernmental competition is one of the safeguards of liberty, and that safeguard is under attack by President Biden, Secretary Yellen, and the G-7.

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What can we expect, looking ahead? From March to December of 2020 the CPI was up 1.6%, which means that if the CPI rises 1.6% for the rest of this year, inflation at year-end will be 4.2%. There’s a good chance that inflation for the remainder of the year will be higher than that, in which case even 5% inflation for 2021 would be a conservative estimate.

Looking at the table linked above, you can see that in most years inflation tends to run higher in the first half of the year compared to the last half, which weighs against my inflation prediction in the previous paragraph. But inflation was dampened last year by a reduction in consumer demand due to the COVID pandemic, and is likely to accelerate this year as the pandemic subsides and consumer demand picks up again. That’s what we saw in March. So I’m expecting more inflation.

Then there is the easy money policy of the Federal Reserve (Fed), which may be politically difficult to reverse. Adding to pressure on the Fed is the huge federal budget deficit which is pushing the Fed to buy government bonds, which creates money. In the 1960s and 1970s the Fed was very accommodating with its monetary policy, but shifted gears in the 1980s to focus on reducing inflation. The Fed’s policy has reversed in the twenty-first century, it appears that the negative consequences are starting to appear.

The inflation rate for all of 2020 was 1.4%, but that’s deceiving because of the big drop in prices due to the pandemic. The inflation rate from February 2019 to February 2020 was 2.3%, so at that point inflation was already picking up and was only temporarily delayed by the pandemic economy. I will be surprised if this year’s annual inflation rate is less than 5%. Look for more inflation ahead.

The post Inflation Facts appeared first on The Beacon.

James Buchanan won the Nobel Prize in economics in 1986 for his work that contributed to the development of the subdiscipline of public choice, and is surely the most prominent contributor to what has become known as the Virginia school of political economy. He was an advisor to the Independent Institute, and I like to think that some of his influence continues in the Institute’s work.

I wrote my doctoral dissertation under Buchanan’s direction, and Don was Buchanan’s colleague for many years at George Mason University, so we were both privileged to know him personally in addition to having been influenced by his work and ideas. Rather than describe the contents of our book, I will direct readers to the website where more information is available (including several videos) and where the entire book can be downloaded.

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