Thursday, June 10, 2021

The end of "the end of inflation"

This spring's spurt of inflation clearly already means one thing: The end of "the end of inflation." 

For 25 years inflation has seemed stuck on a downward trend. Those of us who worry about it seemed like end-of-the-world sign-holders that couldn't leave the 1970s behind. It's hard to buck the trend. A famous economist advised me to give up studying inflation -- inflation is 2%, he said, that's all you need to know. Apparently a new constant of nature. 

Well, apparently not. Inflation can happen, and there is an economics of inflation. Right now it's pretty obvious -- supply constraints both natural and artificial, coupled with rampant demand. 

Nobody is really sure where it will go. See the IGM survey for a good indication of how wide sensible consensus is on the issue. Maybe these are just temporary shocks, supply bottlenecks, a one-time price level rise from stimulus. Maybe it is the beginning of the 1970s, when exactly the same excuses were offered. 

I'll summarize my bottom line in thinking about this issue. 

1) The dynamics of inflation are roughly     

    inflation = expected inflation + inflation pressure   (*)

If people expect higher inflation next year, then sellers will be quicker to raise prices, and buyers quicker to pay higher prices.  The right measure of inflation pressure is more contentious. The unemployment rate or GDP gap (you will recognize a Phillips curve here) has been a pretty terrible measure. Take your pick of too-low interest rates set by the Fed, too much money, or too much debt and deficit. Whichever it is, if expected inflation remains "anchored," inflation comes back quickly once the pressure is off. If not, we're  in trouble as we have to bottle the expected inflation genie. 

The Fed seems to think that "anchoring" expectations comes from soothing speeches about how anchored expectations are. At worst they may say they have "the tools" to contain inflation should it break out, but they seldom say just what those tools are. I believe that expectations come from expected actions, not speeches, and better from robust institutional rules and commitments that force necessary but unpleasant actions when needed. At least, people must believe that the Fed is willing to repeat 1980 if it comes to that.  And raising interest rates will be much harder now, with a) 100% debt / GDP not 25%, so higher interest rates immediately hurt the budget b) huge reserves so the Fed will be seen to pay a windfall to big banks not to lend out money c) the too-big-to-fail banks will all lose a bundle if interest rates rise d) the current emphasis on inequality, as a recession will hurt the most vulnerable the most. 

2) In today's economy, in the end, inflation comes when people do not believe the government will repay debt. Beyond interest rates, the Fed changes the composition of government debt -- reserves vs. treasurys -- but not the amount of debt. Whether we hold treasurys via the world's largest money market fund (that's what the Fed is) or directly really does not matter. 

Inflation does not come from debt alone, but from debt relative to a credible plan and expectation that debt will be repaid. Expected inflation is anchored by the belief that  if inflation gets out of control our government will promptly put its fiscal as well as monetary house in order. Moreover, since our government has tragically borrowed short term, inflation comes when people believe that other people will lose this faith. Putting the fiscal house in order is not hard as a matter of economics -- a straightforward pro-growth reform of the tax code and entitlements. But our government has kicked that can down the road for nearly 40 years, and absolutely nobody wants to do it. It may have to come after the crisis, which will be much harder. 

None of this is very useful as a short-term forecast, which I do not offer. Both fiscal and monetary policy expectations, in this "regime-switching" moment, are volatile, not well anchored by decades of experience with a "regime," in the rational expectations tradition. I can offer then a summary of the forces at work, but those forces only emphasize how hard forecasting will be. If anyone could tell you for sure we would have inflation next year, we would already have inflation today. The logic of (*) is like the logic of a bank run or a stock market crash. That nobody can predict inflation well is proof of the theory. 

This spurt may pass, and expected inflation, reflecting faith in the ultimate sanity of US fiscal and monetary policy, remain anchored. This spurt may lead to a quick undermining of that faith. 

But at least the question is alive again, and a matter of useful economic analysis and debate. This for sure: The end of "the end of inflation" is at hand. 




40 comments:

  1. "Whether we hold treasurys via the world's largest money market fund (that's what the Fed is) or directly really does not matter.

    Inflation does not come from debt alone, but from debt relative to a credible plan and expectation that debt will be repaid."---JC

    This is what I don't understand.

    If a national central bank, such as the Bank of Japan or the Federal Reserve, has purchased back a large fraction of the national debt, then do not investors expect the remaining sovereign bonds to be easier to pay off?

    After all, interest on the bonds the Federal Reserve has purchased flow back into the Treasury.

    I understand that in the US the Federal Reserve creates and then pays interest on reserves at commercial banks when it buys Treasuries, but that is a legal construct.

    The Fed buys Treasuries through the 21 primary dealers but that is a law, not a law of physics. The Fed could set up its own desk and buy Treasuries directly from the public.

    The interest on excess reserves has always struck me as a little bit of an industry sop.

    The Federal Reserve Bank at Dallas once issued a paper to this effect, that when a central bank buys sovereign debt it actually strengthens that nation's currency. I will try to find a cite.

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    1. Ben,

      "If a national central bank, such as the Bank of Japan or the Federal Reserve, has purchased back a large fraction of the national debt, then do not investors expect the remaining sovereign bonds to be easier to pay off?"

      Only if the actual quantity of bonds is falling.

      If the central bank is buying 5% of outstanding debt issuance, but new debt issuance is growing by 25%, then how does this assure investors?

      "The Fed buys Treasuries through the 21 primary dealers but that is a law, not a law of physics. The Fed could set up its own desk and buy Treasuries directly from the public."

      And the public could refuse to sell Treasuries to the Fed.
      Despite being just a law, property rights are still very important for a functioning economy. Most (all?) primary dealers also have access to the Fed's discount window, so it is a mutually beneficial arrangement for the dealers to maintain that access while also being coerced into buying government bonds at auction and then selling them back to the central bank.

      "I understand that in the US the Federal Reserve creates and then pays interest on reserves at commercial banks when it buys Treasuries, but that is a legal construct."

      No, the Federal Reserve does not CREATE the interest on the reserves. They either take the interest they receive on the government bonds they hold and send those interest payments to banks holding reserves or they remit those interest payments back to the Treasury. The Federal Reserve cannot legally pay more in interest on reserves than it receives from the Treasuries and other obligations than it holds.

      The very fact that they (the Central Bank) remits those payments back (rather than Treasury just saying - we aren't going to pay interest on bonds held by the central bank) should tell you all you need to know.

      Before the Fed and remit payments made by the Treasury, they must first receive them (putting the horse before the cart).

      Despite the bonds being held by the central bank, property and contract laws are still binding even in a pseudo-consolidated Fed / Treasury world.

      Something else that you need to know - there is a very carefully worded phrase in Section 14 of the Federal Reserve Act:

      https://www.federalreserve.gov/aboutthefed/section14.htm

      "Every Federal reserve bank shall have power

      Notwithstanding any other provision of this chapter, any bonds, notes, or other obligations which are direct obligations of the United States or which are FULLY GUARANTEED by the United States as to the PRINCIPAL AND INTEREST may be bought and sold without regard to maturities but only in the open market."

      That guarantee is achieved through tax or other government revenue and there is no getting around it. Without tax revenue a government cannot guarantee repayment of interest and principal on the bonds that it sells (even when the Fed is the buyer of those bonds).

      Delete
    2. Ben,

      "The Fed buys Treasuries through the 21 primary dealers but that is a law, not a law of physics."

      Law against theft, murder, rape, and extortion are law of physics either. That does not make them any less important.

      Delete
  2. Add on (sorry):

    Much of the rise in the May CPI was from global oil prices (think OPEC and production caps) and used car prices.

    Housing is going bananas in the US due to property zoning and building restrictions.

    The story of the US and global economy always strikes me as 50% explained by the theoretical, and 50% by grubby structural impediments. And from time to time, the grubby structural impediments wrestle the theoretical to the ground.

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  3. The CPI at an annual rate is 5% yet the better underlying measures are 2.6 and 2.1% which would indicate there is something going on here which might be transitory.
    For those of us that lived through the 70s it was Unions reacting to inflation by seeking larger wage increases which compensated for this.
    Unless this is going to occur inflation should be transitory.
    On the positive side if real wages fall it should mean better employment outcomes

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  4. Add on (sorry): If the US does in fact go through, say, four years of general inflation at 5%, will that mean (ceteris paribus)that the national debt has been effectively reduced by ~21.5%?

    Would bondholders ponder that?

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    1. Ben,

      "If the US does in fact go through, say, four years of general inflation at 5%, will that mean (ceteris paribus)that the national debt has been effectively reduced by ~21.5%? "

      Not if real GDP falls at 5% as well (does no one remember the stagflation of the 1970's-1980's, high inflation but negative real GDP growth)? And not if federal debt rises by 20% per year over those same four years.

      Delete
    2. It depends on bond-holder. An insurance company that has liabilities denominated in nominal dollars would be indifferent to inflation if the insurance company matches the term maturity of its investment assets and its liabilities to policy holders. In that situation, $1 of principal equals $1 of policy payout at maturity.

      An investor, with severe medical conditions, saving for retirement to compensate for a low fixed income after retirement and high expected unsubsidized medical and living expenses in retirement, would not likely invest in U.S. government debt unless the interest rate on the debt and the reinvestment rate on interest income provide sufficient margin to assure coverage of anticipated medical and living expenses. In such a case, higher expected inflation or the expectation that inflation will exceed current expectations (JC's "inflation pressures" term), the investor will curtail current consumption in favor of building up current savings. In periods of high economic uncertainty and personal risk of losing current employment, rate of saving jumps higher and the rate of current consumption drops lower, as was seen during 2020.

      The proper policy for the central bank is to set an inflation target of -1 to +1 percent per annum and hold inflation in that range. But since the date that the Bank of New Zealand seized on 2% as its target rate for inflation, the western central banks seem fixated on 2% as its targets for their inflation rate.

      The FOMC has recently announced that this is not sufficent (not 'good enough')--it must target a specific path for the price index, P(t) such that P(t) = P(0)·exp(π*·t) and nothing less will do (π* being the current inflation rate target, and t being the elapsed time from a fixed calendar datum not specified). This new criterion is not a simple ramp function in which the argument is a linear function proportional to elapsed time. It is an exponential function of time. No one seems clear about what this means for future Fed Funds rate. Until the FOMC comes clean with an explanation, uncertainty will govern the bond market and steepen the yield curve.

      Delete
    3. Old Eagle Eye,

      "It depends on bond-holder. An insurance company that has liabilities denominated in nominal dollars would be indifferent to inflation if the insurance company matches the term maturity of its investment assets and its liabilities to policy holders. In that situation, $1 of principal equals $1 of policy payout at maturity."

      Really?? And what fantasy land insurance company is this that operates as a non-profit and doesn't pay it's employees?

      Delete
    4. Old Eagle Eye,

      "It depends on bond-holder. An insurance company that has liabilities denominated in nominal dollars would be indifferent to inflation if the insurance company matches the term maturity of its investment assets and its liabilities to policy holders. In that situation, $1 of principal equals $1 of policy payout at maturity."

      Really?? And what fantasy land insurance company is this that operates as a non-profit and doesn't pay it's employees?

      Delete
    5. FRestly,
      "Investment assets = policy liabilities" doesn't preclude earning a surplus. Note the stmt: "$1 of principal (at maturity) = $1 policy payout at maturity".
      Investment income - op.cost - policy.holder.dividends = ...
      ... retained.surplus = "equity.cushion".

      The example is greatly simplified. But, I'm sure that the point is reasonably clear with this explanation.

      Delete
    6. Old Eagle Eye,

      The point I was taking issue with "was would be indifferent to inflation".

      Would the employees who work for the insurance company be indifferent to inflation watching their real wages fall? Would the shareholders in the insurance company be indifferent to inflation watching their real returns fall?

      And it goes further than that. Insurance companies look at replacement cost for a lot of goods that they insure (vehicles, homes, etc.). Suppose replacement cost doubled through inflation while premiums remain unchanged. Would this not send shivers down the spine of every insurer out there?

      Delete
  5. Is it possible that pushing for inflation has become "rational," in some way? Consumption relative to wealth must be at a record low, on average. If you believe 1) inflation is good for equity and house prices and 2) the Fed won't let bond prices fall too far, then perhaps paying more for your expenditures is a small price to pay for the asset gains. (I doubt these assumptions will actually hold, but I do think they are widely believed).

    Of course, this equation is terrible for those at the bottom of the wealth distribution. But despite a lot of virtue signaling, I don't think anyone in the upper-half actually cares very much.

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  6. Some of the igm comments said some inflation is a good thing. I am curious why they think this way. My guess is they think there is a savings glut and higher inflation will lead to more consumption and increases in demand and thus a better economy?

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    1. James,

      Inflation is an effect (demand in excess of supply), not a cause.

      "My guess is they think there is a savings glut and higher inflation will lead to more consumption and increases in demand and thus a better economy?"

      Not if the shortages in supply are the result of non-monetary factors (political upheaval / strife is the usual culprit). And not if people hold onto existing goods expecting price appreciation rather than replacing them with new goods (have you seen used car prices?). Why hasn't everyone sold their existing car into the market and opted for taxi / Uber / public transport rides?

      In the extreme, no amount of money is going to magically create flying cars (like John mentions) or the wireless transmission of electricity (see Tesla's wireless transmission system).

      https://en.wikipedia.org/wiki/World_Wireless_System

      Instead what is required is time, effort, and trial and error.

      If you were around in the late 1970's and early 1980's, what broke the back of inflation wasn't anything the Fed did. It was opening Prudhoe Bay to oil exploration and changing the housing component in the CPI to owner's equivalent rent.

      Delete
    2. Isn't the better economy just make believe? Thanks to the massive deficits, we've got over a trillion dollars per year of demand that is nothing more than the consumption of future demand. At least that's how I see it.

      Delete
    3. @Frank

      I agree with your points in general. I am just wondering what is motviating their answers for why inflation would be a good thing. Note, they didn't say more inflation woulde a sign of good things. They said higher inflation would be a good thing; implying they are reversing the mechanism.

      Delete
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    5. James,

      "I am just wondering what is motivating their answers for why inflation would be a good thing."

      To give the central bank something to worry about?
      It sounds cynical, but I am reminded of an episode of the Big Bang Theory (television show) where Bernadette claims:

      "Last month my company both invented and cured restless eye syndrome."

      Delete
  7. Looks like 1965, just before the Nixon Shock.

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  8. OK, here is a paper from the Dallas Fed, of all places.

    https://www.dallasfed.org/~/media/documents/research/eclett/2014/el1406.pdf

    It advocates a fiscal theory of the price level (!) and goes on to say that when the Fed buys mortgage-backed bonds or US Treasuries that tends to stabilize prices. They cite German hyperinflation (that signal events in all history) and it being halted by the Rentenmark, a mark created out of thin air but which was used to buy real-estate assets.

    "The theory implies that the quantitative easing programs, which created money to purchase mortgage-backed securities from the public, preserved price stability because that money is backed by the returns from real estate investments. Similarly, Germany restored price stability after its interwar hyperinflation with its real-estate-backed
    currency. Likewise, any money created to purchase government debt from the public at market prices is backed by the same primary surpluses that the public already expected would service that debt."

    ---30---

    This makes sense to me. When the Fed buys back Treasuries...the burden to pay off the national debt is reduced. Bondholders have already been paid off. The IOER is a policy choice, not a law of nature.




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    1. Ben,

      "This makes sense to me. When the Fed buys back Treasuries...the burden to pay off the national debt is reduced. Bondholders have already been paid off. The IOER is a policy choice, not a law of nature"

      No it doesn't. Imagine if a government instituted a 10% flat income tax and then turned around and sent your tax payment right back to you (no redistribution, no other government expenditure).

      Do you still have a tax liability that must be paid? The answer is yes, irrespective of the fact that the government sends your tax payment right back to you.

      That is what is meant when someone says that a government taxes to create a demand for it's currency - essentially what was done to create demand for the German Rentenmark.

      Delete
    2. Ben,

      The history of the German Rentenmark can be found here:

      https://en.wikipedia.org/wiki/German_Rentenmark

      "The Act creating the Rentenmark backed the currency by means of twice yearly (tax) payments on property, due in April and October, payable for five years. Although the Rentenmark was not initially legal tender, it was accepted by the population and its value was relatively stable."

      Notice also,

      "The Act prohibited the recently privatised Reichsbank from continuing to discount bills and the inflation of the Papiermark immediately stopped."

      https://www.myforexeye.com/what-is-bill-discounting

      "Likewise, any money created to purchase government debt from the public at market prices is backed by the same primary surpluses that the public already expected would service that debt."

      Do you see primary surpluses in the US federal budget? I sure don't. Read what I said above:

      You said:
      "If a national central bank, such as the Bank of Japan or the Federal Reserve, has purchased back a large fraction of the national debt, then do not investors expect the remaining sovereign bonds to be easier to pay off?"

      I said:
      "Only if the actual quantity of bonds is falling."

      But again, you have already made up your mind and are searching for anything to justify your position.

      Delete
  9. FRestly:

    Not sure I follow.

    The government sends $1k to me and I send it back. No sweat. Anyway I am just a wag. Read the Dallas paper written by real economists hired by a central bank.

    I suspect the present situation may be even more forgiving for the Fed. Today we have globalized capital markets, many central banks operating, gigantic trade and capital flows. One estimate is that bond, stock and property markets globally are worth $500 billion.

    So the Fed buys $10 trillion in Treasuries. So what?

    It puts marginal pressure on global capital markets, hardly does anything for the US economy.

    But it does reassure bondholders that US debts can be repaid. That's my wag-take.

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    3. Ben,

      "One estimate is that bond, stock and property markets globally are worth $500 billion."

      I believe that you mean $500 trillion (not billion).

      "So the Fed buys $10 trillion in Treasuries. So what?"

      So now the Treasury is obligated to make the payments on the debt to the Fed. The Fed is NOT obligated to remit those payments back to Treasury.

      "But it does reassure bondholders that US debts can be repaid."

      It assures bondholders other than the Fed that someone else is willing to buy any Treasuries. It does NOT assure that the payments will or can be made from Treasury to the Fed.

      If all that you suppose is true then there would be no reason to raise taxes ever.

      But again, you have already made up your mind, so there is no point in further discussing this.

      Delete
  10. Inflation is only a monetary effect. Just because prices of a commodity rise, that is not a measure of "inflation" because in the free market consumers and producers will adjust to the new prices, buying less, producing more, and choosing substitutes for their consumpition or inputs.

    Prices may be increasing for products in which there is a shortage, and that is certainly happening.

    But what is also happening is that with all of the money created by the economic responses to covid pandemic, there is a lot of cash balances chasing fewer goods in the marketplace.

    Some of this will resolve as production and inventories catch up to their previous levels of output. But, what is creating the higher levels of inflation expectations are the actions of the Biden Administration, including extending unemployment benefits which will slow down the produciton recovery, trillions of spending for nonsense like Green New Deal and infrastructure that is not infrastrucute.

    We coould be entering a new era of huge economic expansion. But the left wing Democrats threatent that.

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  11. FRestly--

    The Fed may not be legally obligated to send interest earned on Treasury bonds back to the Treasury...but do you think they have much of a choice?

    In fact, as I recall, the Congress recently "swiped" $90 billion or so from the Fed.

    The Fed is also not legally obligated to pay IOER.

    Thanks for the fix on trillions v. billions. I was off by a factor of 1000. I told you I was just a wag.

    Do you or Dr Cochrane have any reaction to the Dallas paper I reference?

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    1. Ben,

      "The Fed may not be legally obligated to send interest earned on Treasury bonds back to the Treasury...but do you think they have much of a choice?"

      That's a question I wish I had a good answer to.
      I don't work for the federal government or for the Fed and so
      I don't know what kind of back room arm twisting goes on
      behind closed doors.

      I did see this article which should help clarify the legal status
      of the central bank:

      https://www.jdsupra.com/legalnews/are-federal-reserve-banks-people-too-77083/

      "The Federal Circuit’s decision analyzed in detail the differences between traditional government entities and the Federal Reserve banks. The panel concluded that Federal Reserve banks could qualify as a person under the AIA because, unlike the USPS, the Federal Reserve bank enabling statutes do not establish the banks as part of an executive agency; rather, each bank is a body corporate.”

      And so I hope that puts to rest any notion of a consolidated Treasury / Fed in terms of legal status. The Fed is separate and distinct from the rest of the federal government and can in fact file lawsuits of it's own accord.

      "Do you or Dr Cochrane have any reaction to the Dallas paper I reference?"

      I posted my comments above regarding the Rentenmark indicating that it's stability was a result of the taxes on property that were payable in Rentenmark and collected by the German government.

      I have read the entire Dallas paper if that is what you are asking.

      Delete
    2. Ben,

      Slightly off topic. I am not a trained economist, so like you I am basically a wag (though I try to educate myself as I go along). But a big problem that I see in the economics profession from reading blogs like this, Paul Krugman, David Glassner, Nick Rowe, and others is the dismissive attitude toward the legal system.

      In fact if you look at Stanford's course load for a bachelor's degree in economics, you won't find a single course dealing with Constitutional Law, contract and property rights, or patent and trademark law - see:

      https://economics.stanford.edu/undergraduate/major

      How is this even possible? Without property rights and legally binding contracts, everything else taught in economics is baseless.

      When I was going to college many decades ago (as an undergraduate engineer), I took elective courses in both Constitutional Law (focused on the civil rights amendments) as well as criminal law. Introductory economics was required course work for obtaining an engineering degree.

      Delete
  12. FRestly: When I was in college, and thumbing through Fortran cards, the fields of law, politics and economics were separate.

    In days of yore (even before I was born) I understand economics was taught as "politico-economics." That is probably more accurate.

    I disagree with you that the Fed is not part of the federal government.

    Yes, I understand the legal fiction of the "independent" central bank. I also understand the Fed remits interest earned on Treasuries back to the US Treasury.

    Add on:

    "For the second time in less than three years, Congress has raided the Federal Reserve’s capital surplus account, this time for $2.5 billion.

    The move was buried in a budget deal passed early Friday morning in the U.S. House of Representatives and signed within hours by President Donald Trump to end a brief government shutdown."

    ---30---

    Well, given that the Congress can seize Fed money when they want to....


    BTW, speaking of constitutional law, did you know that the Supreme Court ruled by split vote in favor of property zoning in 1926?

    And one of judges ruling in favor said he did so as he did not like apartment buildings showing up in single-family detached neighborhoods.

    So this huge structural impediment was born.



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    1. Ben,

      "The move was buried in a budget deal passed early Friday morning in the U.S. House of Representatives and signed within hours by President Donald Trump to end a brief government shutdown."

      Which doesn't mean it was the proper thing to do.

      So politics and economic policy has devolved into a petulant juvenile, tit for tat - "Whatever you can do, I can do worse?"

      Here is a legal question for you - in your instance above, can the a federal reserve bank sue the federal government for damages when it is forced / coerced to return interest payments on the Treasury securities that it holds?

      Judging by the recent (2020) decision of the Federal Circuit in Atlanta, I would say that any of the Federal Reserve Banks can indeed sue the federal government for damages.

      Delete
  13. Ben,

    "BTW, speaking of constitutional law, did you know that the Supreme Court ruled by split vote in favor of property zoning in 1926?"

    The vote was 6-3 in favor of property zoning.

    https://www.mtsu.edu/first-amendment/article/28/zoning-laws

    "For example, a community may wish to zone some areas for residential homes and others for manufacturing to prevent a factory from being built in the middle of an area full of homes."

    Does this not seem reasonable? Would you want a steel mill, slaughterhouse, or a waste water treatment plant built right next to your home?

    "In Buchanan v. Warley (1917), the Court struck down a city law segregating neighborhoods by race as a violation of the Fourteenth Amendment, effectively making it unconstitutional to use zoning for racially discriminatory purposes."

    Again, this seems pretty reasonable to me.

    The decision you are referring to: "However, in Eucid v. Ambler Reality (1926) the U.S. Supreme Court upheld zoning as a valid use of a state or local government’s police power."

    Ambler Reality's contention was that the new zoning laws adversely affected the value of the undeveloped land that they possessed, since they were hoping to building factories on the land but the new zoning laws precluded them from doing so.

    And the Court's response was that the loss of speculated future value on the land does not constitute realized damages sustained by Ambler Reality.

    It would have been a totally different story if Ambler had already built factories on the land and then been told by the Village of Euclid to tear them down based upon new zoning restrictions.

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    1. Ben,

      I will say that it is a bit disingenuous for our legal system to allow individuals to file personal injury claims for future (speculated) lost wages courtesy of:

      https://en.wikipedia.org/wiki/Section_504_of_the_Rehabilitation_Act

      ...but not allow property owners to file injury claims for future (speculated) lost income / gains. This would apply to not only zoning laws but also instances where the government claims eminent domain.

      I am not an attorney but I suspect that to win a personal injury claim against an employer, the plaintiff must demonstrate that he / she was the victim of malice or foreseeable negligence and so perhaps that is the guiding difference.

      Delete
  14. FRrestly---I do not believe in property zoning. Property owners should develop their properties as they see fit.

    You can buy first rights of refusal if you want to control development on nearby properties.

    Or build walls, and use interior courtyards for refuge.

    But property owners do not have the right to pollute other properties...an interesting snarl for libertarians.

    For that matter, building roads, pipelines and powerlines without eminent domain is impossible.

    In the end, some problems do not have solutions.

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    1. Ben,

      "For that matter, building roads, pipelines and powerlines without eminent domain is impossible."

      Yes, but under eminent domain, the owner of said property is only compensated for the present market value of that property that was taken, not what the future may hold for that property.

      Ambler Realty (in the Supreme Court case) made the argument that the new zoning restrictions put in place by the Village of Euclid reduced their projected future income derived from owning the property. The Supreme Court in their decision rejected that argument.

      So, under eminent domain claims, should the owner of the property get both current market and projected future gains from the ownership of the property?
      Ambler Realty would say yes.

      Delete
  15. Ben,

    "Or build walls, and use interior courtyards for refuge."
    "But property owners do not have the right to pollute other properties...an interesting snarl for libertarians."

    Walls do not stop odors from traveling from one property to another (for instance my slaughterhouse and waster water treatment plant examples) nor are they very effective sound barriers (my steel mill example).

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  16. Waiting for hyperinflation: https://mmt-inbulletpoints.blogspot.com/2017/10/blog-post.html

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  17. Oh my gosh. The problem with having a faulty model of how the fiscal/monetary system works is that you continue to put out nonsense like this. Grump, we went off Bretton Woods in 1971. The Federal Debt and for that matter the actual amount of the deficit are pretty irrelevant. As a wise Dog once said:

    “The US government debt is not a problem in any way shape or form. In fact, it can be repaid tomorrow without a negative repercussion. That would simply involve replacing government bonds with deposits at the Federal Reserve Bank with similar interest and maturities. The similar or even better risk/reward terms assure no change in investor savings/spending preference or desire to hold dollars. Not recommending this course of action, just pointing out that it is possible."

    The restraint is the productive capacity of the economy as measured by inflation. When we run out of resources (people and dirt) THEN we worry about inflation. (Let me know when we run out of people.)

    Inflation is easily managed in these circumstances. For example, the Job Gty/Green New Deal law should include AUTOMATIC across-the-board tax increases that kick in when certain monthly wage inflation target are hit-say for 6 months in a row. These can include:
    a) Income Taxes,
    b) Sales/VAT Taxes
    c) Asset Value (or Wealth) Taxes
    That'll cool things off pronto.

    ReplyDelete

Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.