Harvard Economists Confirm You’re Not Crazy: Inflation Was Really Bad

Plus: Just who are Trump’s January 6th ‘heroes’?

William Kristol

and

Andrew Egger

Mar 26, 2024

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Terrifying video out of Baltimore this morning, where a container ship struck a support pillar of the Francis Scott Key Bridge at around 1 a.m., causing huge portions of the 1.6-mile bridge to collapse. Heavily used during the day, there was comparatively little traffic on the bridge at the time of impact, but at least a few vehicles were present at the moment of collapse, as was a construction crew. Two people have been rescued; officials believe at least five and as many as twenty others are still in the water.

The collapse will have a huge impact on the entire city, crippling commerce into and out of the Port of Baltimore for the foreseeable future. For now, our prayers are with the ongoing search-and-rescue effort. Happy Tuesday.

(Photo by Justin Sullivan/Getty Images.)

Yes, Inflation Was Really Bad

There I was, poring over the most recent studies from the august National Bureau of Economic Research, worrying if some of the regression analyses were quite right and whether some of the factors in the equations had been fully justified…

Just kidding! I’m not a diligent reader of every NBER working paper. But Avik Roy, head of the Foundation for Research on Equal Opportunity, seemingly is; fortunately, he’s also on Twitter. So that’s where I encountered this interesting paper, titled “The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly.”

The paper, written by Marijn Bolhuis of the International Monetary Fund and three Harvard economists, is clearly written and reasonably accessible even to people like us. Here’s Avik on why it’s worth our attention:

Rising interest rates are as much a part of inflation as the rising price of ordinary goods. “Concerns over borrowing costs, which have historically tracked the cost of money, are at their highest levels” since the early 1980s. “Alternative measures of inflation that include borrowing costs” account for most of the gap between the experts’ rosy pictures and Americans’ skeptical assessment.
In 1983 the BLS eliminated interest costs from its calculations of consumer price inflation . . . This change had a huge impact on the calculation of CPI, because they removed housing prices and financing costs from the official CPI formula, even though everyday Americans still experienced those costs in the real world . . .
“Measurements of the cost of living that exclude financing costs,” Bolhuis et al. argue, “will understate the pressure under which consumers, who rely on credit for many purchases, have found themselves.”
Bolhuis et al. then went on to see if they could recalculate the official CPI numbers using a pre-1983-like formula that incorporated the cost of mortgage interest, auto loan interest, and credit card interest on the cost of living. They found . . . that the pre-1983-like formula led to a dramatically different estimate of inflation in 2022 and 2023, peaking at 18 percent in November 2022.
[And] they found that consumer sentiment correlated much more strongly with the pre-1983 CPI formula than it did with the modern one that excludes interest costs.

Got it? The American people weren’t being idiots when they felt inflation was really high in 2022, and when they continue to feel it’s higher than the government says today.

Here’s the report itself making the point:

Unemployment is low and inflation is falling, but consumer sentiment remains depressed. This has confounded economists . . . We propose that borrowing costs, which have grown at rates they had not reached in decades, do much to explain this gap. The cost of money is not currently included in traditional price indexes, indicating a disconnect between the measures favored by economists and the effective costs borne by consumers.
Consumers, unlike modern economists, consider the cost of money part of their cost of living. Interest rates have reached 20-year highs in the wake of the pandemic. With higher rates, mortgage payments, car payments, and other credit payments required to finance everyday purchases have risen as well . . . These increases in the cost of living do not make it into economists’ measures of inflation, however.

In other words, the rather technical adjustment of the Consumer Price Index in 1983—and there were some good reasons for those adjustments—has helped obscure the reasons Americans have been so unhappy about inflation. The American public isn’t crazy to be unnerved by price inflation and high interest rates. And (though the paper doesn’t go into this) younger Americans, who until recently only had experienced a very low inflation and interest rate environment, might well be especially unnerved.

To me, the paper suggests two political conclusions:

First, the Biden Administration should avoid lecturing Americans on why they’re really better off than they think, a lecturing that can easily slide into the unwelcome appearance of chastising them for not being grateful for all their government has been doing.

Second, President Biden should do his best to get the Fed to cut interest rates.

And, if I were a political guy in the Biden White House, I’d want the president to be seen as pushing for lower interest rates, and the sooner the better.

If Biden started talking about the need for lower interest rates, it would show a president in touch with what Americans are experiencing. If he were criticized for populist pandering, he’d just have to wave around this NBER working paper in his defense. And lower interest rates is a cause that would appeal to everyone from the pro-low-interest-rate and anti-Fed Democratic Left to centrist Democrats and the middle- and upper-middle class suburban voters they represent, as well as to young house buyers, unhappy about housing and mortgage costs.

And then, when the Fed does (finally!) cut rates in a couple of months, Biden can take credit.

What’s not to like?

—William Kristol

Don’t Look Away

Amid Donald Trump’s ongoing bald attempts to retcon the January 6th convicts as American heroes, it’s easy—even for those who deplore what happened on that day—to slip into accepting his framing of “the J6ers” as an abstract, undifferentiated mass. Which is what makes pieces like this one by Bill Lueders, up at the site today, so important: “Who are these ‘unbelievable patriots’ Trump is vowing to put back on the streets?” he wonders. “Here is a small sampling of people who have thus far been not only charged and convicted, but sentenced for January 6th–related crimes.”

Lueders walks through 22 of the grisliest offenders out of the more than 1,300 people charged so far with January 6th-related crimes. There was Jeffrey Sabol, who brought zip ties to the Capitol, dragged police officers into the MAGA mob, and later tried to escape to Switzerland. There were Michael and Clifford Mackrell, who assaulted multiple police officers as a father-and-son team. There was Riley Kasper, who, as he later boasted on social media, “pepper-sprayed 3 cops so bad they got undressed and went home.” Kasper also wrote about wielding a baton while screaming in the face of a fallen officer: “I’m pretty sure dude thought he was gonna die that day lol.”

Lueders also spotlights some of those whose voices make up the “J6 Prison Choir”—whose rendition of the Star-Spangled Banner Trump has taken to saluting at his rallies. One is William Chrestman, who threatened officers with an ax handle while encouraging the crowd to breach police barriers: “Hey, if you shoot, I’ll fucking take your ass out.” Another is Jonathan Mellis, who attacked police with a wooden stick, encouraging others to “knock their masks off” as well. Another is Shane Jenkins, who—among other delightful acts—used an ax to smash a Capitol window, stole an officer’s riot shield, and threw a wooden desk drawer at police. Another is Julian Khater, who infamously pepper sprayed three officers, including Brian Sicknick, the officer who died the next day.

Lueders also walks through the sentences received by each, although he adds a caveat: “The stated sentences for the above heroes and patriots, along with hundreds of others, are subject to change. They could all be coming home to communities across the country as soon as January 20, 2025.”

—Andrew Egger

Catching up . . .

Bridge in Baltimore collapses after being hit by ship; rescue effort is underway: New York Times
Trump bond reduced to $175 million as he appeals fine in New York civil fraud case: Bloomberg
UN Security Council passes Gaza ceasefire resolution, U.S. doesn’t veto: Axios
Supreme Court to hear oral arguments on abortion pill case: CNN
DOJ says 20 charged over threats to election officials including Arizona’s Katie Hobbs: Axios
Julian Assange gets temporary reprieve as he fights extradition to U.S.: Politico
R.F.K. Jr. is expected to name Nicole Shanahan as his running mate today: New York Times
‘Give us the damn Patriots’—Ukraine needs air defenses now, minister says: Politico

Quick Hits

1. Biden and Bibi

Although Joe Biden has pushed back sharply against Israel’s plan for a forthcoming ground invasion into Rafah in the southern part of the Gaza strip—the last major city not yet invaded by the Israel Defense Forces, currently holding not only Hamas fighters but more than a million civilian refugees—the White House has continued to insist there is no daylight between the U.S. and Israel in their objective of rooting out Hamas in Gaza, only a dispute over tactics. To support this claim, administration officials spent last week leaning heavily on a scheduled meeting in Washington this week, where a coalition of officials from Bibi Netanyahu’s government were to discuss plans for Rafah with the White House.

But that meeting is off now:

Senior Biden administration officials believed they made clear to their Israeli counterparts in nonstop talks over the weekend the possibility that the United States would abstain from—rather than veto—a U.N. Security Council resolution Monday calling for an immediate cease-fire in Gaza.
But the White House was taken aback by what happened after the abstention vote was cast: Prime Minister Benjamin Netanyahu abruptly canceled a high-level delegation’s trip to Washington, specifically requested by President Biden in a phone call last week, to discuss U.S. concerns about Israel’s plans for a major military operation in the southern Gaza city of Rafah.
In a reaction that understated the administration’s shock, State Department spokesman Matthew Miller called the cancellation “surprising and unfortunate.”
The remarkable turn of events has transformed a widening rift between Biden and Netanyahu into a public chasm. Administration officials hastened to insist there had been no U.S. policy change, that Israeli plans for a Rafah operation were not imminent in any case, that negotiations over the release of hostages would continue, and that they looked forward to future conversations with Netanyahu and his government.

Despite the extensive weekend consultations, and with no effort by the Israeli leader to reach out to Biden directly, Netanyahu alleged in a statement released by his office after the vote that the United States had “abandoned its policy in the U.N. today. ... Regrettably, the United States did not veto the new resolution, which calls for a ceasefire that is not contingent on the release of hostages.” This, the statement said, was “a clear departure from the U.S. position.”

2. Appeals Court Throws Trump a Bone

Also on the site today: Kim Wiehle breaking down Trump’s Monday win at a New York appeals court, which significantly shrunk the bond he will be required to post:

In its ruling on Monday, the appeals court didn’t lift the bond requirement, but cut by over 60 percent the amount of the bond needed to secure a stay of the judgment. Now Trump need find only $175 million. It also gave Trump a (possibly temporary) pass on a bunch of other things the trial court had ordered: (1) his former chief financial officer, Allen Weisselberg, is no longer permanently barred from serving in the financial control function of any New York corporation or similar business entity; (2) Trump and Weisselberg are no longer barred from serving as officers or directors of any New York corporation for three years; (3) Trump is no longer barred from applying for loans from New York financial institutions for three years; and (4) Donald Trump Jr. and Eric Trump are no longer barred from serving as officers or directors of any New York corporation in New York for two years.
These stays, which were granted pending Trump’s appeal, may be lifted at some point. But it must be noted that this is not business as usual in the legal world, and the appeals court didn’t offer any explanation for why it tipped the scales in Trump’s favor. James had already started the process of seizing his assets, filing the judgment with the clerk’s office in Westchester County, where his golf course and Seven Springs private estate are located, earlier this month. The New York statute requiring a bond for the full amount isn’t ambiguous about that requirement, and the appeals court didn’t offer a justification for sidestepping it. Also, Trump’s complaint that the $464 million judgment is “unprecedented, and practically impossible for ANY company” is overblown; large corporations have previously posted appellate bonds of $1 billion or more.

Read the whole thing.