Monday Night Links

• There are three ways the banking system can get rid of unwanted money: 1) Borrowers can pay off their bank loans (since bank lending is the fount of all money supply growth), 2) the Fed can drain reserves from the banking system by selling some of the bonds it bought (thus reducing excess bank reserves and banks' ability to increase lending), and 3) inflation can increase the price level and the level of incomes by enough to return people's desired cash balances (e.g., the ratio M2 to annual incomes) to reasonable levels. I think #3 is going to be the dominant factor. What we have seen in the past 16 months is unique in the monetary history of the US: a massive and sudden expansion of M2 that far exceeds anything we've seen before. To me, it's no surprise that inflation is surging. [Scott Grannis]
• Here's a huge and very under-appreciated fact: an unexpected and significant rise in inflation is a boon to federal finances. Why? Because it creates an "inflation tax." Anyone who owns a Treasury security these days is effectively receiving a negative rate of interest that could be as high as 10% per year. The average yield on Treasuries today is somewhere in the neighborhood of 1 - 1.5%. So at the current rate of CPI inflation (almost 10% annualized), Treasury debt is "costing" the government -8.5 to -9% per year. That is, the real value of the debt is declining by that amount. With debt owed to the public now just over $22 trillion, that's like a gift of roughly $2 trillion per year to the federal government! In the 12 months ending June '21, the federal deficit was $2.6 trillion. This year's inflation tax will pay for about 75% of that. In other words, inflation this year will take about $2 trillion out of the pockets of those owning Treasuries and give it to the federal government. Why bother with raising taxes? (Did I mention that this is the way the Argentine government finances itself?) [Scott Grannis]
• I think the Fed is making a big mistake by pegging short-term interest rates at a level that is far below the current rate of inflation. Holding cash or cash equivalents (e.g., bank savings deposits, checking accounts, T-bills, money market funds) pays virtually zero interest, just as holding actual cash does. But holding cash in your pocket or at the bank means you are losing money—you are effectively paying an inflation tax which amounts to as much as 8% per year (the CPI rose at an 8.45% annualized rate in the three months ending in May). Let that sink in. Your money balances are costing you 8% per year. Cash is not a safe asset these days. It's a very expensive asset, in fact. Better to get rid of cash by spending it on almost anything else, right? Buy land, buy powdered milk, buy stocks, buy commodities, fix up your home, buy a car, invest in new plant and equipment ... the list goes on, and not surprisingly, the prices of all those things are rising. It's Argentina deja vu all over again. Oh, and in addition to shedding unwanted cash, you might also consider borrowing money in order to buy things, since the cost of borrowing is less than the rate of increase in the prices of those things. [Scott Grannis]
• [A] Volcker-style high interest rate, recession-inducing strategy coming after the last two years of economic pain would be deeply opposed by virtually every American. The only way to avoid a disastrous level of inflation that destroys the American standard of living without creating a deep recession that puts millions out of work is to cut government spending dramatically [Newt Gingrich]
  
• The White House is shifting the way it talks about inflation, as polls show increasing voter concern and Republicans try to use rising prices to kill off President Joe Biden’s sweeping plans to spend trillions of dollars on social programs and infrastructure projects. Out: wonky words like “transitory” and complicated statistical explanations for price indicators. [Bloomberg] 
• The divide is most clearly visible with respect to energy. This is Texas’s largest economic sector and a non-trivial part of California’s economy, yet the two states see the sector very differently. California’s history is intertwined with energy: the oil industry in a sense built Los Angeles, Kern County is still home to some of the most productive oilfields in the nation, and Chevron, founded in San Francisco in 1879, remains the state’s third-largest company by revenue. But California is embarrassed by this legacy and prefers to emphasize various “green” technologies that, as yet, don’t generate much beyond hype. Texas by contrast is proud of its oilmen and seeks to maximize the benefits from its booming energy sector to the state’s economy, workforce, and treasury. If Texas and California could simply each go its own way—“drill, baby, drill” versus yet another solar panel—peaceful coexistence might be possible. That’s the way Texans see things. If those left-coast fruitcakes want to pay $5.00 per gallon and suffer rolling blackouts, fine with us and enjoy. [Claremont]
• The WASPs were not obsessed with “birthright.” The quality they valued most highly was character, as anyone would know who had read Louis Auchincloss, or for that matter Owen Johnson’s early 20th-century novel Stover at Yale. E. Digby Baltzell demonstrated in The Protestant Establishment (1964) that the WASP elite always integrated new blood with every generation, scholarship boys from the Midwest and bright Jewish immigrants from the East Coast. If there was a limit on the number of aspirants admitted each year, it was only because the successful acculturation of newcomers, and the maintenance of existing WASP norms, depended on a critical mass of the old elite staying in place. Manners, too, are the very opposite of what Currid-Halkett says they are. She claims that they are nothing more than a way of signaling that one is rich enough to have the leisure time to study etiquette. In fact, good manners used to be prized by all classes, possibly even more by the lowest than the highest. “Good manners cost nothing,” as my grandmother used to say. I thought everyone’s grandmother did. [Claremont]
  
• Corona is dangerous, almost exclusively, to the old, the obese, and the already ill. Almost all deaths and serious cases happen in these very identifiable sub-populations. In children, Corona is less dangerous than influenza. The risk stratification of Corona is so extreme, that most people fail to understand their own risk. Almost everybody under 60 or 70 drastically overestimates the risk Corona poses to them. This is true even among sceptical readers of this essay. [eugyppius]
  
• And so when China’s leaders look at what kind of technologies they want the country’s engineers and entrepreneurs to be spending their effort on, they probably don’t want them spending that effort on stuff that’s just for fun and convenience. They probably took a look at their consumer internet sector and decided that the link between that sector and geopolitical power had simply become too tenuous to keep throwing capital and high-skilled labor at it. And so, in classic CCP fashion, it was time to smash. [link]
• The Toyota Prius hybrid was a milestone in the history of clean cars, attracting millions of buyers worldwide who could do their part for the environment while saving money on gasoline. But in recent months, Toyota, one of the world’s largest automakers, has quietly become the industry’s strongest voice opposing an all-out transition to electric vehicles — which proponents say is critical to fighting climate change. Last month, Chris Reynolds, a senior executive who oversees government affairs for the company, traveled to Washington for closed-door meetings with congressional staff members and outlined Toyota’s opposition to an aggressive transition to all-electric cars. He argued that gas-electric hybrids like the Prius and hydrogen-powered cars should play a bigger role, according to four people familiar with the talks. [NY Times]
• Reading and experience train your model of the world. And even if you forget the experience or what you read, its effect on your model of the world persists. Your mind is like a compiled program you've lost the source of. It works, but you don't know why. [R]eading and experience are usually "compiled" at the time they happen, using the state of your brain at that time. The same book would get compiled differently at different points in your life. Which means it is very much worth reading important books multiple times. I always used to feel some misgivings about rereading books. I unconsciously lumped reading together with work like carpentry, where having to do something again is a sign you did it wrong the first time. Whereas now the phrase "already read" seems almost ill-formed. [paulg]
• No one comes out well in this book: the dealers, the patients, the drug companies, or the drug licensing authorities. The enterprise, efficiency, flexibility, and intelligence of the Xalisco boys would be admirable if directed to some better end. If I had to choose, however, the main villains in Dreamland would be the doctors. Invested with prestige and authority, they acted carelessly, irresponsibly, pusillanimously, and dishonestly. This is a far from glorious page in medical history. [Claremont]
• For the first several decades of its life as an American state, the California that mattered—the only California—constituted the gold fields of the Mother Load, the docks and counting houses (and whorehouses) of San Francisco, and the supply depot and paddle-wheeler river port of Sacramento, chosen as the state capital because it was the mid-point between the other two. Santa Barbara and Monterey were the state's other great metropolises. Los Angeles was a pueblo. Napa was nothing. The first straggling settlers to the Valley farmed prunes and walnuts—staples of Napa's crop until well after Prohibition. A handful of adventurers and immigrants (Germans mostly, at first) planted vines. The wine they made ranged from very bad to indifferent to (in rare cases) almost good. But quality didn't matter much in those days. Only European immigrants and the San Francisco and Monterey nouveau riche—the Palace Hotel and the Del Monte were big customers—drank the stuff, and they had to be satisfied with whatever they could get. The few American-born American oenophiles were all in the East and they imported their wines from Europe. The idea of drinking California plonk never occurred to them, though they unwittingly consumed some anyway, relabeled as French by dishonest merchants. The biggest out-of-state market for Napa wine in those days was ooh-la-la New Orleans, where quantity mattered far more than quality. [Claremont]
• It helped that it was cheap. insanely cheap. Western San Joaquin Valley dirt-farm cheap. This fact has become underappreciated to a point beyond mere forgetfulness but is hard to overemphasize. San Francisco through the third quarter of the 20th century (at least) was a textbook example of a vastly underpriced asset. The office towers, retail spaces, and especially that housing stock—all built for a city of far greater cultural and economic significance—stagnated or even fell in value as that significance declined. But the views, weather, amenities, and quality of life stayed the same or even improved. Hence gettings were good, if you had any reason to get. Conversely, heartbreak would stalk those who got out too soon, either because they didn’t see the future coming or just had other things to do. [Claremont]
• My interaction with the General serves as a microcosm of the American military’s cultural rot. Here we have a two-star General who spends his days on social media hyping a vaccine for an illness that poses minimal risk to his troops. When pressed on why America can’t win wars and why he embraces policies that treat healthy people like biohazards, his first response is to accuse his critics of treachery and then block them from view. This is what $693 billion a year buys you: unbridled arrogance from the leaders of a military that can’t win against third world tribesmen armed with small arms and homemade explosives. A significant portion of our military leaders, like General Donahoe, are totally detached from reality. They face no consequences for losing wars or losing troops to preventable suicides. Many of them don’t really command anything at all. They are so ensconced in layers of bureaucrats, staff, operations and logistics shops, briefs, intelligence reports, public affairs officials, and aides that there is usually no danger of the public uncovering their true character, lack of leadership, or empty careers. Twitter, for all its many flaws, provides a direct line into the thought process and values of the military’s elite class. Too often, the minds of our great and courageous “warriors” are filled with nothing more than anodyne policy statements, automatic deference to other members of the elite expert class, and received wisdom from the mouths of MSNBC hosts. A painful lesson for patriotic citizens, perhaps, but a necessary one. As these leaders spend their days scrolling twitter in the twilight of their careers, waiting to secure their pensions and post-retirement defense contractor gigs, they deserve to feel some heat from the people they allegedly serve. Getting “ratio’d” is, for many of them, the worst consequence they’ll ever face for overseeing institutional failure. [Josiah Lippincott]
• In short, installing and running your own server is today approximately as difficult as computer installation was in 1985, or home networking in 1995, or home theater today. (As it happens, NASes are often purchased as a component in a home theater system.) The low price and high value of NAS devices, together with their ease of installation, makes me think they’re ready to take over the world. I for one am never going back to centralized cloud corporations. I hate them (yes, even Apple), and a growing number of people share my feelings: we absolutely despise the encroachments of those corporations on our privacy and liberty. Many of us are looking for answers. Many are already doing the sorts of things I listed back in January in “How I’m locking down my cyber-life.” In their responses to me there, a few people mentioned they were using their own cloud servers. (Those mentions are what first introduced me to NASes, so please keep up the excellent blog comments!) That struck me at first as being a little too hardcore. Having actually bought and installed a NAS, though, I don’t think so. Getting your first NAS is like getting your first computer back in the 80s, or your first smartphone in the 00s. You might have had to wrap your mind around it. [Larry Sanger]