Inflation & Empire Links

• OK, @elonmusk is definitely the most powerful American oligarch. The superstar firm dilemma is especially pronounced wrt his empire: he controls the central global social media platform; Tesla is the only viable competitor of BYD; SpaceX has a virtual monopoly on satellites; and Starshield may be the only solution to the military problem posed by Chinese ASAT capabilities. What an extraordinary concentration of power! [Policy Tensor]
  
• Rather than inflation due to a shortage of labor, what we are seeing today is inflation mostly due to an acute shortage of physical capacity. US consumption and inflation are tightly linked to the constraints stemming from plant and equipment, which are often primarily located or manufactured overseas and subject to their own logistics constraints. If either of these become impaired, there is little ability to meet demand by redirecting production to domestic capacity. However, this shortage of physical capacity is not wholly the product of mistaken actors. Instead, the decision to run down physical capacity was often an understandable and locally rational response to persistent demand shortfalls. We walk through three industries—all of which are disproportionately responsible for current inflationary pressure and representative of real production constraints—to show how price and production crashes led to a situation of long-run underinvestment in productive capacity. Such crashes inadvertently created the conditions that currently constrain production and thereby explain the bulk of realized inflation. [Employ America]
• An alternative policy path, of course, with less inflation taxation, would be for the government to decide to reduce fiscal deficits and thereby avoid the need for rising inflation and its adverse consequences for the banking system. This may be a hard policy to enact, however, given that the main contributors to future deficits are large Medicare and Social Security entitlement payments. Also, defense spending seems likely to rise as the result of increasing geopolitical risks related to China. Increased income taxation is another alternative, but this too may be unlikely, not only because of the lack of political consensus about taxation but also because it would reduce growth in income, which would partly offset any deficit reduction coming from projected increases in the ratio of taxes to income. Ultimately, it seems likely that the US will either have to decide to rein in entitlements or risk a future of significantly higher inflation and financial backwardness. [Federal Reserve Bank of St. Louis]
• A fiscal point of view isn’t encouraging about the future, however. Inflation is easing but remains high. The U.S. is running a scandalous $1.5 trillion deficit with unemployment at 3.6% and no temporary crisis justifying such huge borrowing. Unfunded entitlements loom over any plan for sustainable government finances. The Congressional Budget Office projects constantly growing deficits, and even its warnings assume nothing bad happens to drive another bout of borrowing. Do people believe that the U.S. now can raise future taxes over spending by $1.5 trillion a year to finance new debt without more inflation? When the next crisis comes and Washington wants to borrow, say, $10 trillion for more bailouts, stimulus, transfers and perhaps a real war, will markets have faith that the U.S. can repay that additional debt? If not, another cycle of inflation will surely erupt, no matter what the Fed does with interest rates. [WSJ]
• A defeated army and a broken one are two different things. An army merely defeated in battle can often make successful withdrawals, reform itself, and reconstitute its strength—as Rome did after its humiliation at Cannae, eventually destroying its great rival, Carthage. But when whole armies break, when they lose their will to fight, the whole nation can likewise break. That is what happened to the great empires in World War I. It is also the fate awaiting the Ukrainian army. [Compact]
• Consider the hapless Liz Truss, who served as Britain’s foreign secretary before her ill-fated stint as prime minister. In her role as top diplomat, Truss traveled to Russia just weeks before the invasion of Ukraine to inform the Kremlin that the West found its prior and prospective territorial conquests unacceptable. This and this piece of land was rightful Ukrainian territory, she stressed, and the world would never accept it as Russian. Truss’s Russian counterpart Sergei Lavrov, perhaps as a joke, asked whether several indisputably Russian territories “belonged to Russia.” No, Truss replied, we will never recognize Voronezh and Rostov as Russian. This is not merely a story of incompetence or ignorance. Those factors are real, but Truss’s gaffe also reflects the priorities of the West’s contemporary leaders, in which moral grandstanding takes precedence over all other factors. [Compact]
• Many South American nations welcomed China’s first steps into the vacuum left by the US in the early 2030s. Beijing did not demand what the South American nations often saw as the US’s hypocritical political and human rights standards. Nor did it attempt to force them to adhere to Washington Consensus neoliberal economic policies, to which many of the governments of the late 2020s, swept to power in the Second Pink Wave of Latin America, were fundamentally opposed. Instead, Chinese trade deals came with substantial baggage-free inward investment, which helped improve infrastructure and pay for social programmes (and, of course, enrich elites). Yet there was another aspect. After the Cold War -- during which the US had ruthlessly enforced the Monroe Doctrine at the merest hint of a potential transgression -- US foreign policy in Central and South America had been an unattractive combination of neglect, pious hectoring and political meddling backed by overweening economic and military power. Latin American elites were keen to use the opportunity of US weakness to make sure it remained at arms length permanently. [Bournbrook]
• Here's why they're having a hard time articulating the reason why vaccines cause myo/pericarditis. It's a catch 22. If they blame it on the spike protein, as Paul Offit recently did, then the question of lab leak becomes incredibly important. We need to understand why the spike is how it is and whether its origin was related to any bioweapons programs or similar. If they blame it on the LNP or other core components of the mRNA platform, they're throwing their cash cow under the bus and are risking untold billions in future revenue. So they're claiming they have no idea about the mechanism by which the vaccines are causing heart damage. Which, in any sane world, would act as rock-solid evidence that the manufacturer has no idea what its product is doing in the human body and trigger an instant recall. Sadly, in this world, it's just generating awkward clips, so it's the least bad option. If they have to choose, I guess they will blame the spike, and oh boy will that be fun after they've been claiming it's DEFINITELY not cytotoxic for years. [link]