The Great Election Theft of 2020 (revised)

I know President Trump says the Democrats stole the election. And Biden did beat Trump in the race for President. But none of the other polling predictions worked out for the Democrats. So it doesn't make sense to say that the Dems stole the election. 

It makes more sense to say the Republicans stole the election. It's the Republicans that created all those fake ballots. That's why the state and local results defy the polling predictions. And that's why it looks like voter turnout was so high.

And the Biden win? 

The Republican thieves didn't make enough fake ballots. They underestimated the hate people have for President Trump. In the race for President, the honest ballots won.

The evidence? It's a tried and true Republican tactic: Point the finger first. Do the dirty deed and be quick to claim it's the other guy doing it.

Edward Sonnino

I googled paul volcker on cost-push inflation. First three results:

1. Paul Volcker took dramatic steps to reign in inflation.

2. Arthur Burns broke it; Paul Volcker fixed it.

3. It's not true that Volcker whipped inflation! by Edward Sonnino.

Wait! What?? 

An excerpt from Sonnino:

The logic behind the belief that Volcker’s extremely tight money brought down the high inflation of the early 1980’s rests on the flawed assumption that there is only one strain of inflation, “demand-pull inflation”. But there is a second, distinct variety of inflation, i.e., “cost-push inflation”, having completely different causes and requiring completely different economic policy responses. “Demand-pull” inflation, the most common variety of inflation, is due to excess aggregate demand, the situation of “too much money chasing too few goods”, corresponding to a booming economy with high capacity utilization and low unemployment. “Cost-push” inflation, a historically rare variety of inflation, is instead due to increased costs of production and distribution having nothing to do with excess aggregate demand. Those increased costs are transmitted by companies to consumer prices in an attempt to protect shrinking profit margins, even when such price increases result in fewer sales.

That's the second paragraph, and it is exactly right. Exactly right, except cost-push inflation is more common than Edward Sonnino says, and demand-pull (with its "booming economy with high capacity utilization and low unemployment") is less common.

//

See also the Anna Schwartz quote in mine of 31 October 2009. 

And by the way, the CPI for October 2009 was 216.509. For September 2020, 260.209. That's a 20% increase in the price level.

Hazlitt 1957: Not "only"

At Mises: Cost-Push Inflation? by Henry Hazlitt, from Newsweek July 22, 1957.

His topic: "Expansion of the money supply is both the necessary and the sufficient cause of inflation."

My favorite part: "Anticipations":

The Conference Board tries to prove that the increase in the money supply cannot be the cause of the price rise in the last two years, because the money supply has not gone up in this period. But this overlooks longer comparisons and mistakenly assumes that changes in money supply must reflect themselves exactly proportionately in prices with neither time lag nor anticipations.

Expansion of the quantity of money is the cause of inflation, Hazlitt says, even if that expansion is only anticipated. The increase in the quantity of money is still responsible for the inflation, he says, even if the money didn't increase.

Maybe he's saying that if the quantity of money increases after the prices go up, then prices don't have to come back down again, and the increased money is therefore ultimately responsible for the inflation. I might agree with that, if he said it that way, but he didn't. 

My read of what he said is that the increased money is the cause of the inflation. Clearly, he disputes the Conference Board view that "increase in the money supply cannot be the cause" of the inflation. Hazlitt thinks it *is* the cause -- "the necessary and the sufficient cause". 

But, the only cause? This, Hazlitt does not say. Yet the idea that there is no other cause of inflation is an unstated premise of his argument. Without that premise, his cause-of-inflation argument falls apart.

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Hazlitt doesn't talk about why prices were trying to go up. Maybe they weren't. But maybe there was an unobserved upward cost pressure squeezing profit and putting upward pressure on prices. And if there was such cost-push pressure, the failure of the Federal Reserve to accommodate would cause economic growth to slow and unemployment to increase. Hazlitt is aware of this:

Expansion of the money supply is both the necessary and the sufficient cause of inflation. Without such expansion, an excessive increase in wage rates would lead merely to unemployment.

What he doesn't say is that any persistent cost increase -- not just wage rates -- can lead "merely" to unemployment and slow growth. The rising cost of oil in the 1970s is often held up as an example. The rising cost of finance is never held up as an example.

If the cost pressure exists, then it is the source of downward pressure on economic growth, which the Fed would want to fight by increasing the quantity of money. This Fed action will convert the cost pressure from downward pressure on growth to upward pressure on prices, and result in inflation. But you leave out a lot, including the driving force (the cost pressure) if you reduce this analysis to "Expansion of the money supply is both the necessary and the sufficient cause of inflation."

The increase in money is necessary and sufficient but it is not the only cause of inflation. Oh, and an inexplicable long-term slowing of economic growth is evidence that cost-push pressure exists.

The trouble with Hazlitt's view is that it brings evaluation of the cost problem to a halt. It tells us we don't have to look for the cost pressure that may be the real, underlying cause of inflation. It tells us not to bother looking. 

And almost no one bothers to look.

My other favorite part is where Hazlitt quotes from a study by the Conference Board: 

Since prices have continued to rise, the clear lesson of 1956 is that money and its rate of use are not the sole determinants of price.

Two reasons I like it. First, they're talking 1956. Samuelson and Solow in 1960 found that inflation troubling: They describe "the rather puzzling phenomenon of the 1955-58 upward creep of prices". I keep bringing this up to emphasize that the cost-push problem goes back at least to the 1950s.

The second reason, far more important, is that "money and its rate of use are not the sole determinants of price." This should be obvious. If you find a less expensive way to make your product, you may decide to reduce the price you charge for it. Or, going the other way, oil in the 1970s. Such cost pressures do not exist only in the imagination.

Hazlitt, however, completely ignores the point that money and its rate of use are not the sole determinants of price. That's funny, you know, because Volcker did not address that point either when, as head of the Fed, he severely restricted the quantity of money to fight inflation, and expressed no concern that the cost pressures might find some other outlet for their release.

Heavy debt burdens (already in 1975)

Excerpted from Capitalism and irony

The textbook I used when I took Econ 101 (McConnell Economics, 1975) says

Although the size and growth of public debt are looked upon with awe and alarm, private debt has grown much faster. Private and public debt were of about equal size in 1947. But private debt has grown much faster and is now over three times as large -- about $1,350 billion, compared with $470 billion -- as the public debt.

And that's from the 1975 edition. McConnell adds:

If you insist upon worrying about debt, you will do well to concern yourself with private rather than public indebtedness.

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McConnell's debt numbers may seem laughable now. Nobody was laughing in 1975.

Finance is bigger than you think.

"Heavy debt burdens" (already in 1980)

Finance is bigger than you think

FRED offers "corporate" data and "corporate business" data. The two categories are not the same. Today we look only at corporate business data.

FRED's corporate business data is divided in two parts: Financial Corporate Business (FCB), and Nonfinancial Corporate Business (NCB). Together, the two make up corporate business.

FRED offers data on the profits and assets of corporate business, such as

• Corporate business: Profits
• Nonfinancial corporate business: Profits
• Nonfinancial corporate business; Total Assets
• Nonfinancial corporate business; Total Financial Assets

Other components like "Financial corporate business profits" and "Nonfinancial corporate business; Total Nonfinancial Assets" can be calculated from the given components.

Oh, by the way: "Nonfinancial" business activity makes and services things. "Financial" business activity makes and services money.

Nonfinancial corporate business profit as a percent of Total corporate business profit:

Graph #1: NCB Share of CB Profit, showing Gradual Decline

During the seven decades shown, the profit of Nonfinancial corporate business declined from above 90% to about 75% of Total (Financial plus Nonfinancial) corporate business profit. We can subtract those numbers from 100% and figure that the profit of Financial corporate business increased from 10% to 25% during that same period.

The split was 90/10 in the early years. It has been 75/25 in recent years. This change is something of a concern, because profit share has fallen for Nonfinancial business, the businesses that make and service the things we buy. 

Yet perhaps it is not much of a concern, as Nonfinancial corporate business profit remains much larger than Financial corporate business profit. It doesn't seem that the relatively small decline in the profit of Nonfinancial business could bear much of the blame for the relatively large economic problems in this new millennium of ours. 

But no.

I have to take another look at Nonfinancial corporate business.

There has been only a small change in the Nonfinancial share of Corporate business profits. Funny thing, though: There has been a large change in the assets of Nonfinancial corporate business:

Graph #2: Financial Share of NCB Assets, showing Massive Increase

The Financial assets of Nonfinancial corporate business rose from about 22% of Total NCB assets in the 1950s, to 45% or more by the late 1990s. The Financial assets of Nonfinancial corporate business doubled as a share of Total NCB assets.

Now, it seems to me that the profit arising from Nonfinancial assets is Nonfinancial profit, and the profit arising from Financial assets is Financial profit. So Graph #2 suggests that since the year 2000, almost half the profit of Nonfinancial corporate business has been Financial profit. But this Financial profit has been counted as part of Nonfinancial corporate business profit.

The discrepancy, or what I see as a discrepancy, arises because profit (as shown in Graph #1) is figured for the nonfinancial business type, while the profit I expect to see is nonfinancial profit arising from nonfinancial economic activity -- from making and servicing things rather than money.

Nonfinancial businesses apparently engage in a lot of Financial activity. I suppose that's the smart thing to do in an economy that exhibits an extremely high reliance on credit, as ours does. But if our excessive reliance on credit creates problems, and if we are troubled by the drift of Nonfinancial business into Financial activity (because it suggests problems in the Nonfinancial sector) then our best options are to reduce our reliance on credit through changes to policy, and to shift our Financial/Nonfinancial profit focus from categorization by business type, to categorization by the type of economic activity that actually generated the profit. Profit from nonfinancial activity is nonfinancial profit, and profit from financial activity is financial profit, no matter what type of business makes the profit. Or so it seems to me.

We might want to take the profit of Nonfinancial corporate business, and figure the part that actually arises from Nonfinancial activity and the part that is attributable to Financial activity. It seems reasonable too, to me, to count the profit arising from the Nonfinancial activity as Nonfinancial profit, but to count the profit arising from the Financial activity of Nonfinancial business (along with the profit of Financial business) as Financial profit. 

Again, we should be categorizing profit by type of profit rather than by type of business. Is that really beyond the pale?

Using the data from Graph #2, we can create a share-of-assets ratio that indicates the percentage of Nonfinancial corporate business profit that arises from Nonfinancial activity.

We can then take the Nonfinancial share of Corporate Business profit from Graph #1, multiply it by our "share of assets" ratio, and find the percentage of total Corporate business profit that arises from the Nonfinancial activity of Nonfinancial corporate business. This is shown on Graph #3:

Graph #3: Nonfinancial Profit of NCB as a percent of Corporate Business profit

The Nonfinancial profit of Nonfinancial corporate business fell from 70% of total corporate business profit in the early 1950s, to 40% now. If Nonfinancial profit is 40% of Corporate business profit, then Financial profit is 60%: more than half of Corporate business profit.

Profit figured by type of business (Graph #1) shows the Nonfinancial share down to 75% of Corporate business profit. Profit figured by type of profit (Graph #3) shows the Nonfinancial share down to 40%. Financial profit is not 25% of Corporate business profit, but 60% -- half again as much as the Nonfinancial share, and more than twice what we thought.

Nonfinancial profit is no longer bigger than Financial profit. It is significantly smaller. And while the decline of "Nonfinancial corporate business profit" may have been relatively small, "Nonfinancial profit" has suffered an uncomfortably large decline -- and "Financial profit" an uncomfortably large increase. 

The increase in Financial profit (which outside of the Financial sector is cost, not profit) together with the decline of Nonfinancial profit could bear much of the responsibility for economic problems in this new millennium of ours. No one should think this is "not much of a concern". The business of producing and servicing things is in worse shape than we have been led to believe. But it is more in line with experience.

Encroachment

Google Search turned up a link to this graph:

Graph #1: Interest Cost as a Percent of Employee Compensation for Domestic Corporate Business

I don't think it's one of mine. This one was https://fred.stlouisfed.org/graph/?g=fFb0 at FRED. But it showed only 1947 to 1965 -- the period before the Great Inflation. Oh, so maybe it is mine. No matter. If it's yours, thanks!

The graph shows interest costs as a percentage of employee compensation, for corporate business. It's another way to see interest costs encroaching on money that might otherwise have been used to meet payroll.

As presented here, the graph shows all the years in the data set. At the start -- in 1946 -- the amount corporate business was paying out for interest was less than 4% of what they were paying as employee compensation. At the end -- in 2019 -- it was more than 20%.

19.81% in 1973, at the end of the "golden age". High points in 1982, 1989, 2000, and then 2007 when the interest cost reached 48.59% of employee compensation. Almost half. And you know what happened after 2007.