Economic News

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"Of all the people Trump could have picked to run the BLS, he picked a guy who either doesn't understand or regularly misrepresents labor and economic statistics, who found himself in the crowd outside the Capitol on Jan. 6, and who chose to do media appearances in front of a giant poster of a Nazi battleship."
 
Purple Nurple said:
I just heard one of the hosts on CNBC say that 80% of this increase was attributable to services (haven’t verified). That wouldn’t seem to be driven by tariffs.
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You can't try to break down a composite report like this. It's not specifically fallacy of composition, but it's related.

1. One reason is that prices are intertwined in ways that are too complex to be analyzed. For instance: the expansion of tariffs mean that some legal questions that have been largely ignored in the area of trade law suddenly become important again. Like, what does it mean for a product to comport with the USMCTA? When tariffs are essentially zero, it doesn't matter that much. But when tariffs go to 25%, it suddenly matters a lot whether a good is compliant with the trade agreements, and thus companies need to pay lawyers to figure it out. That increases demand for lawyers and pushes the price up.

That's a weird example but one that has been chosen for illustration purposes. There are tons of other examples. Anything priced on percentage margin would also see an increase. For instance, if a shipper charges 1% of the cost of the items it ships, then tariffs increase those costs and thus what a shipper charges. Leasing office space is a service, and one that is quite obviously related to housing costs, which are related to tariffs through the monetary policy mechanism.

2. Another factor here is inflation expectations. If you're a portfolio manager, and you expect 5% inflation this year, then you need to raise your prices by 5% or you're going to take a pay cut in real terms. So if people are expecting inflation, those expectations create inflation. This was basically the story of the 1970s.

This is why central banks, especially the US central bank, put so much emphasis on their credibility. They want people to know that, when they say they are targeting 2% inflation, they mean 2%. Because if they say something like, "well, 2.5% is close enough for now," then the market doesn't know what to expect. The market might think, well, I guess I should plan for 3%, so I better start raising my prices. And it's a huge suboptimal equilibrium game, aka the prisoners' dilemma, where rational expectations of everyone else acting rationally creates a worse outcome than you'd think possible. Because everyone thinks that others will think that the central bank isn't committed to fighting inflation, everyone plans for a higher inflation future and thus creates that higher inflation future.

This raises a lot of other questions for other discussions (e.g. 'but what if 2.5% is really close enough for now, because there was a sudden economic collapse and unemployment is skyrocketing'?) but that's the gist.

3. I wouldn't say that 100% of the increase is related to tariffs. I think tariffs here are shorthand for Trump economic policies, which also include the tremendous uncertainty of economic strategy, the fear that he's going to replace the Fed chair with another one of his minion mooks, his constant pleading for inflationary policies. But the vast majority of Trumponomics is about tariffs, and it's obvious that these increases are responses to Trump.
 
Here’s a question I have. How does a softening economy, and a weaker job market, not put a cap on inflation. Look at McDowells. They just rolled out a new value menu in response to lower same store sales in an effort to regain traffic. I think I have an idea here, but I’ll hang up and listen.
 
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