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Adrian Woolridge wrote a thought-provoking essay titled "Meritocracy, Not Democracy, Is the Golden Ticket to Growth ," advertising a forthcoming book.  Meritocracy, the secret sauce of growth?   To Woolridge, meritocracy is the secret sauce of prosperity:  The surest sign that a country will be economically successful is not the health of its democracy, as some liberals like to think, or the leanness of its government, as some free-marketers imagine, but its commitment to meritocracy. Singapore is a soft authoritarian power. But it has transformed itself in a few decades from a poverty-stricken swamp into one of the world’s most prosperous countries, with a higher standard of living and a longer life expectancy than its old colonial master, because it is perhaps the world’s leading practitioner of meritocracy. The Scandinavian countries have some of the world’s largest governments and most generous welfare states. But they retain their positions at the top of internationa...

  Source . Everyone seems tired of covid. And sure, inflation, debts, "infrastructure," competing voting narratives and so on are more fun. But covid is still with us.  The graph summarizes what I've read in lots of news stories: vaccination is slowing down. There is plenty of supply, but we are running in to people who do not go get the vaccine.  This strikes me as a tragedy. (Disclaimer: this is an exploratory post, and I'm anxious to hear about it from more knowledgeable people). It means covid will remain with us as an endemic disease, occasionally breaking out as immunity fades and covid evolves. We're on the 20 yard line, folks, it's not time to punt. I'm pretty darn libertarian, but not about vaccinations. The US should be pushing for near universal vaccination. This is like finishing your dose of antibiotics.  We do not have to jump to compulsion. Can we at least allow  incentives?  Vaccine passports sound like a no-brainer even to a libertarian....

  All pre-covid. European GDP per capita fell in the decade following the financial crisis. US growth was nothing to write home about, but things could be worse. The we-should-be-more-like-Europe crowd has some explaining to do. (The Word Bank's software misplaced the UK label; it is the red line on the top of the European group.) From the World Bank , HT Marginal Revolution . The graph is in dollars, so part of the effect is that the dollar got more valuable relative to the euro. (Thanks to the commenters who noticed that I misread the graph caption. Blog post now fixed to reflect that.)  Update A correspondent sends along the following graph from IMF data. IMF data uses PPP adjustments, not straight conversion to dollars. So the exchange rate really is an issue in comparing US to EU growth.   Relative inflation has not been that different between the two countries.  At least by these measures, EU inflation has been only very slightly less than US inflation  ...

I gave the UCSD economic roundtable lecture Friday June 11 on inflation and the future of the Fed. It summarizes quickly a number of themes from previous Grumpy writings, and if you enjoy videos you might find it fun. Youtube link  in case the above embed does not work.  I happened on the New York Fed website , proclaiming on its landing page that it is now "...dedicated to understanding and finding solutions to the numerous forms of inequality that communities of color experience and working with communities in our District to address deep-seated inequities,"  in case you want documentation that the Federal Reserve is taking on inequality and racial issues.  Slides available here . 

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...

  Banks to Companies: No More Deposits, Please , says the puzzling headline at WSJ.  Why would bankers not want to take any amount of deposits, park them in reserves at the Fed or short term Treasury bills, charge fees and a slight interest spread, and sign up for an early tee-time at the local golf club? Sure "net interest margin" or other metrics might not look good, but money is money and more money is more money.  The answer:  Top of mind for many big banks is a rule requiring them to hold [sic] capital equivalent to at least 3% of all assets. Worried about the rule’s impact during the pandemic, the Fed changed the calculation in 2020 to ignore deposits the banks held at the central bank, but ended that break this March. Since then, some banks have warned the growing deposits could force them to raise more capital, or say no to deposits. This is a fascinating little insight into the crazy world of our Fed's risk regulation.  Taking deposits and investing in ...

 The latest inflation numbers are out, up 0.64% from April to May (7.7% annualized), on top of 0.77% (9.2% annualized) from March to April. . To get around the base controversy, I like to plot the level of the CPI:  The graph suggests that  "reflation" from the pandemic recession was over last year, we had been back to the usual growth, and now we're embarked on something new.  Inflation is not the same everywhere. For another purpose I broke inflation down to durable goods and services.  Until about 1985, the three categories moved together. After that we saw a sharp divergence. Inflation depends on what you buy. Services got much more expensive, while durable goods actually saw deflation. The forces are familiar. The rise in skill premium has meant that people got more expensive, and some of that reflects also the rise in cost of businesses such as health care and universities which may have more to do with government payment. Durable goods got cheaper, thank ...