Month: December 2021

A New Vision

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December 26, 2021

by Stephen Stofka

The launch of the James Webb telescope on Christmas morning promises a new glimpse into the early history of the universe. If the complex folding telescope performs as planned, it will capture the light from galaxies that first erupted into being after the birth of the universe. Events in our lives are less cosmic but help shape our outlook for many years. A 30-year old born in the early 1990s was old enough to fully grasp the horror of the attack on the World Trade Center. The financial crisis interrupted the life plans of this age cohort. As families lost their jobs and homes, many high school graduates felt they had to pursue further education to prepare for a tough job market. A decade later came the Covid pandemic. The Millennial generation has been seasoned by repeated shocks.

Adapting to this turbulence is especially difficult for immigrants, many of whom fled harrowing circumstances in the country of their birth. In 2020, the U.N. estimated 280 million immigrants, a 27% increase in the past decade. For fifty years, America has been the top destination of immigrants. 50 million people, about 15% of the U.S. population, is foreign-born (Armstrong & Richter, 2021).

Almost 20% of Germany’s 83 million people are immigrants. Other destination countries were Saudi Arabia, Russia and the U.K. Russia has the distinction of being both a destination and origin country for immigrants. Availability of work and proximity to overpopulated countries draws migrant workers to these destination countries. Saudi Arabia and the United Arab Emirates are top destinations for Indian and Pakistani migrant workers.

In 2020, migrant workers around the world sent back more than $500 billion in remittances to their home country (World Bank, 2021). That is about the size of Sweden’s GDP and it is a lucrative trade for the international banking community which charges more than 6% in fees.

Americans are a resilient bunch and have withstood a major economic shock every decade. Is that resilience wearing thin? Public health measures and medical advances have increased life expectancy at birth by ten years in the past sixty years. In 2014, life expectancy plateaued at almost 79 years (FRED, 2021). Preliminary 2020 data from the CDC indicates that the pandemic has reduced that expectancy by 1.5 years to 77.3 years (CDC, 2021). A recent study of growing obesity rates in middle aged adults estimated a 4 – 7 year reduction in lifespan (Hruby & Hu, 2015).

Higher suicide rates and gun violence are important contributors to a rising rate of premature death, defined by the CDC as deaths before age 75. In Los Angeles, the premature death rate has risen to the same level as twenty years ago. The trend is not isolated to heavily populated urban areas. By 2019, the premature death rate of sparsely populated Riley County, Kansas had risen to its 2001 peak. In 2021, its violent crime increased by almost 50%, an indication of the stress the pandemic has had on communities throughout the country (KHI, 2021)

The eldest of the Millennial generation touched 40 this year. They will gradually assume the reins of policymaking from earlier generations that took too much for granted. A life expectancy that is flat or declining indicates structural socioeconomic problems that will require clarity, focus and commitment to steer in another direction.

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Photo by SpaceX on Unsplash

Armstrong, M., & Richter, F. (2021, December 17). Infographic: Migration Destinations and origins. Statista Infographics. Retrieved December 25, 2021, from https://www.statista.com/chart/26424/top-destination-and-origin-countries-of-international-migrants/

CDC. (2021, July). Vital Statistics Rapid Release . Centers for Disease Control. Retrieved December 25, 2021, from https://www.cdc.gov/nchs/data/vsrr/vsrr015-508.pdf

FRED (Federal Reserve). (2020, November 4). Life Expectancy at Birth, Total for the United States. Retrieved December 25, 2021, from https://fred.stlouisfed.org/series/ SPDYNLE00INUSA. Los Angeles County Premature Deaths: CDC20N2U006037. Riley County, Kansas Premature Deaths: CDC20N2U020161.

Hruby, A., & Hu, F. B. (2015, July). The epidemiology of obesity: A big picture. PharmacoEconomics. Retrieved December 25, 2021, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4859313/

KHI – Kansas Health Institute. (2021). Riley County. Kansas Health Institute. Retrieved December 25, 2021, from https://www.khi.org/assets/uploads/news/15162/riley_county_2021.pdf. World Bank. (2021, May 12). Defying predictions, remittance flows remain strong during covid-19 crisis. World Bank. Retrieved December 25, 2021, from https://www.worldbank.org/en/news/press-release/2021/05/12/defying-predictions-remittance-flows-remain-strong-during-covid-19-crisis

Believing In Answers

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December 19, 2021

by Stephen Stofka

Over the next twenty-five years most of the Boomer generation, 1946-64, will pass into history, the last generation of the Age of Modernity that began four hundred years ago. Boomer children were taught by the Silent generation, 1928-45, that had endured the Depression of the inter-war period and World War 2. The Silents had emphasized a mechanical approach to learning, drilling Boomers in multiplication, diagramming sentences and the Pythagorean theorem. Boomers learned to salute the flag in recognition of the American values of democracy, freedom of speech, religion and markets. On the other side of the world were the Communists who were against these freedoms. The Boomers were taught that there were right and wrong answers, but the 1960s would challenge that Modernist mechanical view.

As the vanguard of the Boomer generation turned 65 in 2016, those of the Silent Generation voted for Donald Trump by a 19+ margin. He was the deal maker who offered a black and white version of a complicated world. Build a wall. Free markets. More oil, more coal. Make stuff again and Make America Great, a refrain from Ronald Reagan’s 1980 election. Mr. Trump appealed to people who had learned to fit answers to questions like folding a carton or assembling a piece of furniture from Ikea. In a striking difference of opinion, only 50% of Boomers voted for Trump’s black and white vision.

This was the last election in which the Silent and Boomer generations had the dominant voice, falling to 44% of voters in the 2020 elections (Igielnik et al, 2021). More recent generations, the GenXers and Millennials were more tolerant of differing perspectives. In 1965, Congress revamped the restrictive immigration rules of the previous four decades to allow more immigrants from around the world. Educators taught the process of finding answers as well as the answers. Children learned that there might be more than one solution to a problem.

Although they grew up in an analog world, the GenXers and Xenials were the first generation to come of age in the digital world of the late 1980s and early 1990s (Wolfe, 2020). As earlier generations learned French or Spanish, some Millennial children learned a programming language so they could converse with a computer. A growing pluralism characterized this widening world and marked a transition from the modern to what is now called the post-modern. Later scholars may call this post-war period the beginning of the Age of Pluralism, marked by conflicting authorities, answers and solutions. Many people raised in a monoculture of similar assumptions are uncomfortable with more open perspective. Like all transitions, there is a political struggle to control the discourse.

We have put aside few of our past controversies. Despite a growing condemnation of slavery since the 19th century, the 2020 US Conference of Catholic Bishops estimated that there are still 40 million slaves in the world (2020, 4). Americans are still bound by a Constitution written in an age when people espoused equal rights in principle but believed in a natural supremacy of some races. Our laws and judicial precedents are imprinted with the beliefs and contradictions of that founding generation.

Shortly after the ratification of the Constitution, Jean Baptiste Lamarck (Famous Scientists, n.d.) formalized the evolutionary theory of acquired traits. A giraffe had a long neck because successive generations had stretched skyward to reach tree leaves and had passed this characteristic onto their offspring. For the same reason, some groups of people had evolved more even temperaments and better reasoning skills. To the founding generation, it was eminently reasonable that only men who owned property and demonstrated responsibility could vote.

In the Wealth of Nations, Adam Smith (2009) wrote “by nature the philosopher is not in genius and disposition half so different from a street porter as a mastiff is from a greyhound.” This observation recognized the commonality of our species as human beings but distinguished people by breed or race. When Smith refers to segments of the British population as a “race of laborers” he does not distinguish race by color as we do today but by capability. Like different breeds of dogs, some races were better suited for certain tasks.

Each generation leaves a legacy of their aspirations, their beliefs and fallacies codified into the institutions that govern successive generations. In the next decade, most of the Silent Generation will have passed into history but their thirst for clear and simple answers will persist in our politics. The Boomers sit on the fence between the mechanical viewpoint of the modern and the fluid perspective of the post-modern. Although their influence will decline at the polls, they will continue to control a lot of the country’s wealth so politicians will court their favor.

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Photo by Nathan Dumlao on Unsplash

Igielnik, R., Keeter, S., & Hartig, H. (2021, September 30). Behind Biden’s 2020 victory. Pew Research Center – U.S. Politics & Policy. Retrieved December 18, 2021, from https://www.pewresearch.org/politics/2021/06/30/behind-bidens-2020-victory/

Famous Scientists. (n.d.). Jean Baptiste Lamarck. Famous Scientists. Retrieved December 18, 2021, from https://www.famousscientists.org/jean-baptiste-lamarck/

Smith, A. (2009). Wealth of Nations. New York: Classic House Books. (Book 1, Chapter 2).

USCCB. (2020). Anti-trafficking toolkit 2020 – USCCB. U.S. Conference of Catholic Bishops. Retrieved December 18, 2021, from https://www.usccb.org/about/anti-trafficking-program/upload/Anti-Trafficking-Toolkit-2020.pdf

Wolfe, H. (2020, July 22). Millennials, baby boomers, gen X and gen Z: The cutoff years for each generation. Considerable. Retrieved December 18, 2021, from https://www.considerable.com/life/people/generation-names/

Long-Term Inflation Trends

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December 12, 2021

by Stephen Stofka

This past week the government’s estimate of inflation in November was a whopping 6.9% increase over last year’s prices. A comparison to November 2019 prices shows an annual increase of 4.1%. From June through September of this year, the year-over-year increase in prices flattened out at 5.4%. This plateau supported the view that higher inflation readings were a temporary effect. With the availability of vaccines, Americans were resuming their lives. Supply bottlenecks at western ports were contributing to higher demand. Since September inflation has steadily increased. That wasn’t in the script.

Each month the Bureau of Labor Statistics (BLS) surveys thousands of establishments and records the prices of many goods to compute the inflation estimate. We don’t need to know the mechanics of constructing a price index to get a sense of personal inflation. Many of us conduct a smaller survey of our friends, family and fellow workers. Our basket of goods contains a few important items like food, fuel, utilities and other housing costs. From that we build an inflation base that anchors our expectations of future price changes – until it doesn’t.

If there are a series of surprises to our expectations, we modify our individual behavior in anticipation of further surprises. That behavior can aggravate inflationary pressures so that we contribute to the very condition we anticipate. In its setting of interest rates, the Federal Reserve is mindful of this effect and earlier this year two economists at the Kansas City Fed worried that inflation expectations were anchored too low (Bundick & Smith, 2021). Fed policy and a decade of low inflation had lulled people into expecting minimum disruptions in price. People might have strong reactions to price changes, small or large.

Our base of inflationary expectations is formed over several years. In the chart below is the 5 year average of annual inflation in the Consumer Price Index, the most popular measure of price change.

The mountain of inflation during the 1970s has provoked much thought by economists and policy analysts. One hundred years after World War 1, historians continue to debate the causes of that war. In 2070, economists will debate the causes and effects of that inflation mountain. The peak of the 5-year mountain shown above was more than 9% but the annual rate in 1980 was 14%. Still, our big brains make us very adaptable. It is the surprises to those long-term trends that catch our attention.

In the chart below are two 18-year periods, from 1967-1985 when we climbed the inflation mountain, and the most recent period when we have become used to sluggish growth and declining inflation expectations. The earlier period is in orange, the recent period in blue. The year labels are the most recent period. 2003 and 1967 are Year 1 in the series.

 The graph illustrates the stark difference between the 1970s (orange bars) and the most recent two decades (blue bars). Between 2003 and 2020, Americans came to expect only minor change in the long-term inflation trend. The 2021 blue bar on the right is greater than the highest change post-war inflation which occurred in 1974. It’s even more dramatic because we have become accustomed to slight changes in many prices.

The discourse in this country was already aggravated and people are quick to take offense. Social media is built on people gaining attention by alerting others to offensive remarks or behavior. Politicians try to calm the narrative but inflation surprises disrupt the political conversation. Each person responds to their personal sense of inflation and whatever media voice, mainstream and radical, they prefer. Inflation surprises get people’s attention and the media’s business model is built on that attention. Even as inflation decelerates, the nightly news will continue to feature stories that heighten people’s inflation worries because worried people pay attention.

The political waters have been turbulent this past decade but price changes have been exceptionally placid. Like a rock thrown in calm waters, big surprises make big waves that take some time to dissipate. The task of the Federal Reserve’s rate setting policy is to dampen those waves – a series of small rate increases – without sending the economy into a recession.

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Photo by Daniel Vogel on Unsplash

Bundick, B. & Smith, A. (2021). “Did the Federal Reserve Anchor Inflation Expectations Too Low?” Economic Review, Federal Reserve Bank of Kansas City. Available from https://www.kansascityfed.org/research/economic-review/did-the-federal-reserve-anchor-inflation-expectations-too-low/

The Womb Tax

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December 5, 2021

by Stephen Stofka

This week the Supreme Court heard oral arguments (Oyez, 2021) in a case called Dobbs v. Jackson that involves a Mississippi law banning abortions after 15 weeks. Current practice is about 24 weeks, the point of viability when current medical technology can keep a fetus alive outside the womb. Two Constitutional lawyers discuss the issues on the National Constitution Center’s podcast We the People (2021). Also this week I was reading about an 18th century British property tax that was based on the number of windows in a home. The more windows the higher the tax. What similarities does the Mississippi law have with a tax?

In 1696, King William III enacted a progressive property tax. Poor people usually lived in homes with fewer windows so the tax was based on the number of windows. There was no tax on a house with up to 9 windows. In the 1750s, the tax on the 10th window was $7.47 per window for all the windows, $75 in current dollars (The National Archives, 2021). In the 1770s, Adam Smith (2009) noted that this was the approximate weekly wage for a mason. A house with 15 windows or more was charged $11.22 for each window so that the marginal increase in tax for the 15th window was $63.72. What did people do? They boarded up some of their windows to avoid some or all of the tax. In an age with indoor fires for cooking and heating, this reduced the flow of fresh air in a home and led to disease and death from asphyxiation. In 1851, the tax was repealed.

A tax is a compulsory payment for the support of  government. A state ban on abortion compels a woman to carry a baby to term. Any loss of work income is an economic cost that a woman must bear in support of the state’s interest, using that term in a general sense (Hudson, 2019). The state claims an interest but does not pay a woman for the rental of her womb to perform that service. Is that a violation of the takings clause (Epstein & Peñalver, n.d.) in the 5th Amendment or is a rental of a womb not a permanent taking? When a state leases a building from its owner, the state pays the owner for the use of the building. Is there an implied contract when the state leases a woman’s womb to carry out the state’s interest?

The tiered structure of the British window tax has some similarities to the Mississippi law. The state does not impose a tax on the first 15 weeks of pregnancy. At the 16th week, the marginal effect of the tax is substantial. A woman must leave the state to seek abortion services, seek other intervention or continue with the pregnancy. A woman bears a considerable expense in raising a child. Economists distinguish between the statutory incidence and economic incidence of a tax. The statutory language states which party remits the tax. The economic incidence is who bears the impact of the tax. A tax on cigarettes is remitted by the retailer to the state – that’s the statutory language – but the impact, the payment, of the tax is on the consumer.

Unlike the window tax, the womb tax is selectively applied only to wombs capable of bearing children. Owners of a home in 18th and 19th century Britain could board or brick up some windows to avoid or reduce their property tax. That action could be undone if the owner wanted to pay the tax. A woman can only have her womb removed if she does not want to make it available to the state. If several thousand women were to dump their wombs – or some symbolic semblance thereof – on the steps of the Mississippi statehouse, legislators might understand the impact of this womb tax.

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Photo by chris robert on Unsplash

Epstein, R. A., & Peñalver, E. M. (n.d.). The Fifth Amendment Takings Clause. Retrieved December 04, 2021, from https://constitutioncenter.org/interactive-constitution/interpretation/amendment-v/clauses/634

Hudson, D. L. (2019). Substantial government interest. Retrieved December 04, 2021, from https://www.mtsu.edu/first-amendment/article/1615/substantial-government-interest. Constitutional lawyers distinguish three levels of state interests: legitimate, substantial and compelling.

National Constitution Center. (2021). National Constitution Center. Retrieved December 04, 2021, from https://constitutioncenter.org/

The National Archives. (2021, February 01). Window tax. Retrieved December 04, 2021, from https://www.nationalarchives.gov.uk/education/resources/georgian-britain-age-modernity/window-tax/. Note: the 6d per window tax is £.025. I used the Bank of England CPI calculator (https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator) to convert pounds in 1750 to 2020 pounds. A pound today is worth $1.32. Also, see this blog for some fun facts https://sashwindowspecialist.com/blog/history-of-window-glass/

Oyez. (2021, December 1). Dobbs v. Jackson. Retrieved December 04, 2021, from https://apps.oyez.org/player/#/roberts12/oral_argument_audio/25307

Smith, A. (2009). Wealth of Nations. New York: Classic House Books. Smith discusses wages in Part 1, Chapter 10.