Inflation — and Some of What Comes with It

Gas pump at a Shell gas station in Washington, D.C., May 15, 2021. (Andrew Kelly/Reuters)

The week of January 10: inflation, chicken wings, scapegoats, price controls, and much, much more.

Well, I suppose I have to say a bit more about inflation. For now, I’ll stick with Wednesday’s guess prediction, which is that inflation will start easing off during the course of the year (in the middle of the year?), but will not return to anything like pre-pandemic levels until, well, who knows.

So, let’s look instead at a few related phenomena:

  1. Shrinkflation!

I’ll return to a Bloomberg story by Stephen Mihm that I quoted on shrinkflation last year. This time round, I’ve added a little emphasis:

How will we know if inflation is making a comeback? Most economists are focused on the price of commodities, wages, and other basic goods and services. But history suggests they might want to keep an eye on a related phenomenon that often escapes notice: so-called “shrinkflation.”

This practice became increasingly common in the 1960s and 1970s, when manufacturers confronting runaway inflation tweaked packaging rather than hike prices. At first, the practice attracted relatively little notice: It’s difficult to discern changes in unit prices when they’re camouflaged in different-looking boxes and bags . . .

But there comes a point when that’s no longer enough:

As inflationary pressures rose over the course of the 1970s, manufacturers pursued a number of methods to pass along price increases. The most basic of these was so-called “downsizing” – same package, same price, fewer goods.

In late summer of 1974, for example, Woolworth’s offered a packet of pencils at its back-to-school sale for 99 cents – same price as the previous year. But as a sharp-eyed reporter at The New York Times observed, the packages only contained 24 pencils, six fewer than the previous year. The same strategy affected packets of construction paper (24 sheets, not 30) . . .

The ne plus ultra of shrinkflation (not least because of a bonus feature: disappointed kids!) may have been this:

Gumball makers may have pulled of the most brazen act of shrinkflation. As the price of sugar climbed in the 1970s, they couldn’t easily raise prices – gumball machines were set up to accept a specific coin. And they couldn’t make the gumballs smaller – the dispensers couldn’t reliably handle any other size. So they created a hollow in the formerly solid gumball. Instead of sugar, kids got some air.

Mihm concluded:

In the past year, there have been increasing reports crafty manufacturers whittling away everything from sheets of toilet paper to servings of cat food. These have intensified in recent weeks.

If the trend continues, beware: This may signal that inflation, long dormant, may finally be resurgent.  

Mihm was writing in June last year. It’s hard to say that he was wrong, and something tells me that the shrinkflaters are only warming up. Gumballs then, chicken wings now.


Domino’s Pizza customers ordering chicken wings will soon get fewer of them for the same price.

The pizza chain said it’s cutting the number of wings in its $7.99 carry out offer from 10 pieces to just eight because of rising food and labor costs. Wings will also become an online exclusive, meaning customers can no longer order them via phone.

Domino’s CEO Richard Allison said the company expects to deal with “unprecedented increases” in food prices, explaining that the costs of its ingredients are increasing 8% to 10% compared to last year. That is substantially higher than the usual hike of 3% to 4% the chain normally forecasts.

Moving the deal online has “several benefits” for the company, he added, because the more customers order food online the higher the average receipt. There’s also a cost-cutting benefit because fewer workers are needed to answer the phones.

Note that last paragraph, too. A company’s response to margin pressure is, one way or another, typically to make do with less. That can include reducing its payroll. The pandemic has accelerated the transition to automation. It would not be a surprise if inflation has a similar effect. Once those jobs have gone to the machines, they are not coming back. That’s part of a longer-term trend, but it is another reminder (in my view) that the current labor shortage is not going to last very long. That may also be the case if inflation starts to crush some of the demand that has helped create it. If goods become expensive, people will buy fewer of them, the next stage in what can prove to be a complicated economic dance.

Anyhow, watch for shrinkflation — a phenomenon, incidentally, that does its bit to create the inflationary mentality that can itself contribute to inflation.

  1. “It’s not the 1970s!”

Those of us who came of age in the 1970s (let alone those who are a bit older still) will rarely be entirely free from a fear of inflation. (If, like me, you were growing up in the U.K., this may be even more the case: Inflation there reached 24 percent in 1975.) I suspect that the administration is concerned that the (political) pain of today’s inflation will be made worse if it either revives memories of that era for voters who lived through it or gives rise to an inconvenient curiosity about the rising prices that scarred that time among those too young to have experienced it first hand.

And so expect stories like this from, oh, CNN:

Overall, consumer prices rose in 2021 at the fastest pace in 39 years, meaning this is the worst inflation experienced by anyone not on the cusp of retirement or older.

But, as those older Americans can tell you, as unwelcome as it is for consumers, today’s price increases are nowhere near as bad as they were in the 1970s and early 1980s. And most importantly for policymakers trying to deal with today’s price hikes, what fed the double-digit prices increases in those days are not a factor today — nor are they likely to be ever again.

True up to a point, but the final words in the second paragraph, well . . .

It is correct, however, that, as CNN points out, various factors differentiate 2022 from the 1970s. These range from lower private-sector unionization, meaning that the ability of workers in that sector to secure catch-up wage increases is far less than it was, and so, therefore, is a 70s-style wage-price spiral.

CNN also points to globalization as a factor that will keep prices down. That’s true enough, although China will not, I suspect, be exporting as much deflation as before. Not so tangentially, one interesting question will be whether the widespread experience of working with Zoom or its equivalents may accelerate the offshoring of certain service-sector jobs, depressing prices (and wages) over here.

Also on CNN’s list, the effects of deregulation as a brake on prices. Again, that’s not wrong, but I cannot help noticing — it’s hard to miss — that the Biden administration, and “independent” agencies such as the FTC, are moving in the opposite direction.

And, looking back to the inflationary impact of the two oil shocks, CNN explains (correctly) that the economy is far less energy-intensive than it was. Again, that’s correct, but higher energy prices are still going to bite. Indeed, they are. What’s more, if the direction of climate policy now being set by the administration, Larry Fink, and various states and numerous regulators is maintained (broadly speaking, it seems to be) that is going to mean a ratcheting up of the cost of energy for the foreseeable future, a slow(ish) “oil shock” that the U.S. will have unleashed upon itself, and just one aspect of the greenflation that is likely to intensify in years to come.

Meanwhile, writing in the Wall Street Journal, Thomas Sargent and Lee Silber turn their attention to the 1970s aftermath. The comparisons are both instructive and depressing:

Today’s low interest rates “forecast” low inflation, a “rational expectations” idea that now comforts the Fed. But the central bank shouldn’t feel too complacent. Evidently the market expects the Federal Reserve will soon bring inflation back to within a narrow band centered on 2% a year, despite the surge in federal deficits and the central bank’s monetization of a large fraction of those deficits.

Ah yes, “the surge in federal deficits and the central bank’s monetization of a large fraction of those deficits.” There’s been a bit of that, I believe.

Sargent and Silber:

Today’s low interest rates “forecast” low inflation, a “rational expectations” idea that now comforts the Fed. But the central bank shouldn’t feel too complacent.

As Sargent and Silber explain, long-term rates took a long time to come down in the Volcker era. The reason?

The market seemed not to believe that the Fed would stick to its guns, and instead put its money on the view that the same forces that caused the 1970s Fed to fuel high inflation would make the Volcker-led FOMC do the same. Investors refused to believe that a new monetary regime had arrived with Volcker, betting that policy would revert back to past behavior.

That proved not to be the case, but markets needed to wait . . . and wait . . . to see if Volcker was serious. Given the Arthur Burns years and the fiascoes of the previous decade it is hard to blame them.

Sargent and Silber (emphasis added):

If the market had more quickly understood Volcker’s persistence as an inflation fighter, the recessions of the early 1980s wouldn’t have been so deep. In addition, the “rational expectations’’ theory that long-term interest rates provide good forecasts of average inflation would have worked better. Instead, interest rates remained too high for too long as predictors of inflation. It was 1986 before the 10-year note rate averaged in single digits.

We worry that today’s situation is the flip side of the Volcker experience. Forty years of price stability have given breathing room to today’s Federal Reserve, but U.S. interest rates could again provide erroneous forecasts of inflation. Most market participants have apparently played down the possibility that we are in a new monetary and fiscal regime, one in which policy makers don’t worry enough about large deficits and excessive money creation and new purposes like addressing climate change distract the Fed from inflation. We hope our fears are misplaced, but if they aren’t, the new reality of higher inflation will eventually take hold, and the 10-year rate will jump to reflect that regime. History teaches that central bank credibility usually moves slowly in both directions.

And if the ten-year does do that, well, I’ll (once again) quote John Cochranewriting in September (my emphasis added) on the relation between current debt levels and interest rates.

Monetary policy lives in the shadow of debt. US federal debt held by the public was about 25% of GDP in 1980, when US Federal Reserve Board Chair Paul Volcker started raising rates to tame inflation. Now, it is 100% of GDP and rising quickly, with no end in sight. When the Fed raises interest rates one percentage point, it raises the interest costs on debt by one percentage point, and, at 100% debt-to-GDP, 1% of GDP is around $227 billion.

My best guess is that, unlike in the Volcker era, the Fed will not have the stomach to do all that it takes. We’ll have to see what the consequences will be (spoiler: ugly).

  1. Someone else is to blame!

The classic instance of this was the Biden administration’s attempt in November to blame large oil companies for the fact that gas prices had remained high, and to persuade the FTC to intervene.


“I do not accept hard-working Americans paying more for gas because of anti-competitive or otherwise potentially illegal conduct,” the president wrote. He asked Khan to “bring all of the commission‘s tools to bear if you uncover any wrongdoing.”

And if the administration doesn’t attempt to find a scapegoat for rising prices, there’s always Elizabeth Warren.

David Harsanyi, writing in December:

After demanding that the government investigate Big OilBig CarsBig Poultry, and Big Semiconductors for allegedly gouging consumers, Elizabeth Warren now contends that Big Grocery is also conspiring to take advantage . . .

  1. Price Controls!

The idea that price controls could be used to control inflation was an idea that had, I thought, long since vanished, at least in countries where some understanding of how markets worked had survived.

But no:

Isabella Weber, an assistant professor of economics at the University of Massachusetts Amherst, writing in The Guardian:

Price controls would buy time to deal with bottlenecks that will continue as long as the pandemic prevails. Strategic price controls could also contribute to the monetary stability needed to mobilize public investments towards economic resilience, climate change mitigation and carbon-neutrality.

In some ways, that second sentence may be more ominous than the first. Central planners may be on the way to generating greenflation, but central planners have a long association with other more direct forms of shortage too.

Dominic Pino had something to say on this topic, including this:

Weber uses the following metaphor:

“If your house is on fire, you would not want to wait until the fire eventually dies out. Neither do you wish to destroy the house by flooding it. A skillful firefighter extinguishes the fire where it is burning to prevent contagion and save the house.”

This doesn’t work in a few respects. First, the increase in prices is not the fire. The fire is that there’s an imbalance between supply and demand. An increase in prices is the fire alarm, so to speak, alerting everyone to this reality. You don’t put out a fire by turning off the fire alarm, and you don’t solve inflation with price controls

Second, who is the “skillful firefighter” in real life? Who is the person or group of people with sufficient knowledge of the economy to know which prices need to be controlled and what they need to be set at? The president? The Department of Commerce? Congress? The UMass economics faculty?

In essence, Weber is upset at an indicator of the problem, not the problem itself. Higher prices are an indicator that there’s an imbalance between supply and demand, and they’re used to coordinate behavior. They communicate, “Hey, there’s a need over here!” to people who could help fix the problem . . .

Or here’s Benjamin Powell, writing in Newsweek:

As Robert Schuettinger and Eamonn Butler demonstrated in their 1979 book, Forty Centuries of Wage and Price Controls, price controls have been imposed throughout world history—and unfailingly fail . . .

President Richard Nixon’s wage and price controls in the 1970s led to shortages and did little to stem inflation, which dogged both his immediate successor, Gerald Ford, and President Ford’s successor, Jimmy Carter. The same policy would not lead to a different outcome today . . .

Whether or not Einstein ever said it (almost certainly not), there’s something to the idea (certainly in this context) that “insanity is doing the same thing over and over and expecting different results.” At the same time, it should also be remembered that a price control is also, as the name suggests, an instrument of control — or, in other words, an exercise in power that can be quite useful to those who wield it, and there is nothing insane about wanting to exploit that.

The Capital Record

We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.

In the 49th episode David is joined by Samuel Rines, longtime chief economist at Avalon Advisors, who has recently joined Corbu as a senior market-intelligence expert in the energy sector. David and Samuel explore the U.S. energy sector and evaluate what the future holds in an ESG landscape that has done its very best to bring economic incoherence to its pharisaical agenda.

The Capital Matters week that was . . .

Woke Capital

Charles Cooke:

For the last two years, almost every corporation in America has seen fit to feed us all an endless diet of left-wing propaganda — to the point at which it has become all-but impossible to engage with the world without being lectured in one way or another. Black Lives Matter — the controversial extremist organization, not the vaguer, lower-case sentiment — has become so ubiquitous that, in 2020, Major League Baseball (a federally recognized monopoly) replaced its own logo with BLM’s and placed it on the mound at the season’s opening game. Acting explicitly in the name of their brands, large publicly-traded companies have begun issuing routine public statements about quotidian political controversies, as part of what the Harvard Business Review describes happily as the coming of an “age of corporate social justice,” that involves corporations “taking a stance, even if it alienates certain populations of consumers, employees, and corporate partners.” Day after day, Nike runs hagiographic campaigns featuring figures such as Colin Kaepernick, who sole claim to fame is his belief that the United States is a “system built on white supremacy.” And, of course, each and every June, every business, billboard, and iPhone app turns into a rainbow for thirty days straight.

And a frequent flier can’t deal with a single tongue-in-cheek luggage tag? Give me a break.


Jimmy Quinn:

Intel CEO Pat Gelsinger on Monday defended his company’s decision to backtrack after initially asking suppliers to avoid sourcing components from China’s Xinjiang region, where Beijing carries out systematic forced-labor abuses. During a webinar event hosted by the Atlantic Council’s GeoTech Center, Gelsinger said there’s no reason to specify Xinjiang-specific forced-labor abusees in Intel’s notifications to suppliers because there are similar problems all over the world . . .

Andrew Stuttaford:

Even if we disregard the question as to whether U.S. capital should, on moral (Uyghur genocide, the crushing of Hong Kong, you name it) or geopolitical grounds, be put to work in China (not least by Wall Street institutions that spend so much time trumpeting the virtues of ESG), and we shouldn’t, there is also the awkward question as to whether, even looked at purely from the basis of financial return, it is wise to be putting money into the China that is developing in the way that it now is. Spoiler #2: No. It is madness. Underpinning this madness, I think, are two illusions. The first is that there are limits to the extent to which countries that are deeply entangled financially and economically can fall out. Those who believe that should look at the connections between Britain and Germany prior to 1914.

The second illusion rests on a misunderstanding of the nature of the Chinese state, which has moved a long way from communism and, indeed, the relatively freewheeling era that followed the Deng-era reforms. Instead the “People’s Republic” is rapidly evolving into a regime run on fairly classic fascist lines, even if that fascism comes with, as the phrase goes, “Chinese characteristics.” While fascism frequently involves strong elements of “state capitalism” (then and now: Think of Mussolini’s IRI), another important element within its economic history is the notion of “harnessed” capitalism, a system that is designed to exploit some of the dynamism of capitalism — companies remain privately owned — while ultimately subordinated to the interests of the state. And this, I think, is what Wall Street’s investors in China are missing. Yes, Beijing is perfectly happy that they should make money from their presence in China. However, if Sino-American relations degenerate beyond a certain point, and if, even at a financial cost to China or Chinese nationals, expropriating that investment (or the threat to do so) can be used, indirectly or directly, as a weapon against the U.S., it will be.

Supply Chains 

Dominic Pino:

As of Friday, there were 105 ships waiting for berths at Los Angeles and Long Beach. That’s the highest number ever, according to FreightWaves.

Back in November, the port authorities in southern California adopted a new queuing system for ships that allows them to wait anywhere in the world without losing their spots in line. They did this because the exhaust from all the ships idling near the ports was harming the air quality. For a few weeks, this change made it appear as though the number of ships waiting had declined because they were no longer clogging up the harbor. But the Marine Exchange of Southern California adjusted its counting method soon after . . .

Dominic Pino:

On January 2, Ryan Petersen was interviewed by Noah Smith about the supply-chain crisis. Petersen is the CEO of Flexport, a company founded in 2013 that uses and develops new technologies to modernize American logistics.

Modernization is exactly what American logistics needs, and Flexport is doing great work toward that end. Scroll down to the bottom of the interview, and you’ll find a list of all the new technologies that Flexport and companies like it are developing. Petersen is a very smart entrepreneur, and the logistics sector needs more people like him and more companies like Flexport.

It’s because Petersen gets so much right that it’s worth pointing out something he gets wrong. He calls port congestion a “market failure.” . . .

Dominic Pino:

With the record backup off the shore of southern California taking up all the port-related news for the past few months, let’s look at a bright spot. The Port of Virginia had its “most productive year” ever last year, successfully handling a 25.2 percent increase in cargo volume over the year before.

The Port of Virginia is not just one port. It includes all the major ports in Hampton Roads, one of the world’s largest natural harbors. The ports at Norfolk, Portsmouth, and Newport News are all run by the Virginia Port Authority, which is a state-level agency.

That organizational model is different than most other ports, and the port authority CEO and executive director, Stephen Edwards, credits it with delivering better results . . .

Dominic Pino:

Scott Lincicome’s  latest newsletter for The Dispatch says that Joe Biden didn’t save Christmas. Lincicome is responding to claims from the administration that its supply-chain fixes ensured that stores were stocked for the holiday season. He writes that, “Contrary to the spin, however, the broader effects of these moves on store shelves and, by extension, Americans’ Christmas gifts, appear to be muted.”

He finds that port congestion remains high, productivity at Los Angeles/Long Beach remains low, container ships are waiting longer than ever to enter the ports, and the line of ships waiting is at a record high . . .

Dominic Pino:

DHL released its ocean-freight market outlook for the next three years. I’ve used DHL reports in the past to cut through any of the talking points that Democrats want to use on supply chains. DHL is a German company with customers everywhere in the world. The company’s officials have little interest in the popularity of Joe Biden and have every reason to tell the truth, as they see it, to their customers.

The outlook goes through 2024, and DHL expects the global markets to just be catching up by then. They project that 2022 will be more of the same from 2021, with demand remaining strong and container imbalances continuing. The labor negotiations on the West Coast could be a particular point of concern. DHL projects that deliveries of new ships will be delayed in 2023 due to lack of shipbuilding capacity and raw materials. Congestion will be more manageable by then, the report says, but prices will still be high. It’s only by 2024 that the new shipping capacity will enter the market, and carriers will be able to rebalance their operations and have acceptable schedule reliability.

But the report calls the U.S. “the bottleneck of global trade.” . . .


Gabriella Hoffman:

Dr. David Weil, the former Obama administration Department of Labor Wage and Hour Division administrator, is vying for his old job yet again. Unfortunately, his selection would imperil small-business creation and freelancing in the U.S . . .

Covid Lockdowns

Casey Mulligan:

We can add a new, fatal wave of alcoholism to the unintended consequences of pandemic policy in the United States. Covid policies reduced the financial cost of excessive drinking and flooded families with extra cash . . .

Inflation Scapegoats

Dominic Pino:

Elizabeth Warren is attacking the grocery sector for being too consolidated . . .

David Harsanyi:

Grocery chains, incidentally, are one of the least-profitable major businesses in the United States, with average margins coming in at a little over 2 percent. Kroger holds around 10 percent of the grocery-market share. Walmart holds the largest share, at 20 percent, and also provides the most affordable option. One of the reasons the big chains Warren wants to break up can offer lower prices is that they buy in massive quantities.

And considering the inverse relationship between more consumer choice/affordability and government intervention, the best way to keep food prices relatively low in the long run is stop people like Warren from taking advantage of a crisis and ruining another robust market. Inflation’s costs will always be absorbed by consumers. Warren’s price controls, or whatever regulatory interventions she has in mind, will never change that reality . . .

Robert H. Bork Jr.:

By December, prices for the previous twelve months had risen by 6.8 percent. Remove volatile food and energy prices, and prices still rose by 4.9 percent. With inflation already at a 40-year high, the Biden administration is not planning an economic response but rather resorting to the political misuse of antitrust law. The stage is now set for public show trials of “Big Energy,” “Big Meatpacking,” “Big Grocery,” and other corporate ogres to blame for these rising prices.

Such political theater is worse than misdirection. It is policy malpractice, sanctioning heavy-handed interference in the economy likely to lead to even worse inflation.

Preparing this crusade is Federal Trade Commission chair Lina Khan, who had barely warmed her seat at the agency before upending more than 40 years of bipartisan consensus on antitrust policy. Prior to Khan, the FTC acted when it believed that business concentration may harm consumers by raising prices or lowering quality and innovation. Under this standard, affirmed by the Obama-era FTC, regulators protected competition, not competitors . . .


Andrew Stuttaford:

The only surprise in this story (to me) is that someone at the European Central Bank, Isabel Schnabel, the member of the ECB’s Executive Board responsible for market operations, has been talking frankly about greenflation. Her motive for doing so may (I’m guessing) come in part from her well-publicized worries about the ECB’s, uh, aggressive use of its balance sheet, but her speech is focused elsewhere than on the quantitative-easing debate.

Schnabel highlights how much energy prices have risen in Europe (a development, it must be said, that’s hard to miss). To be fair, it’s a phenomenon that doesn’t owe a great deal to climate policies (except in the U.K. and, arguably, Germany).  However, Schnabel’s key point is that, sooner or later, such policies are going to have a more persistent impact on the cost of energy:

“While in the past energy prices often fell as quickly as they rose, the need to step up the fight against climate change may imply that fossil fuel prices will now not only have to stay elevated, but even have to keep rising if we are to meet the goals of the Paris climate agreement . . .” 


Andrew Stuttaford:

I am sure that Larry Summers would have preferred not to have seen today’s inflation numbers, but he might just have felt a flicker of satisfaction at further confirmation that he has been on the right track about rising prices.

Under the circumstances, it’s worth scrolling back a few days and seeing what Summers was quoted by Bloomberg as saying last week . . .

Dominic Pino:

Larry Summers isn’t the only economic official from a past Democratic administration who’s sounding the alarm bells about inflation. (Read this post from Andrew with an all-time great headline for more on that.)

Jason Furman, chairman of the Council of Economic Advisers under Barack Obama, has an op-ed today in the Wall Street Journal detailing why he’s still worried about the price level. He writes, “Many economists and market watchers expect most of it to disappear in 2022. I am much less sure and expect the economy to experience elevated inflation this year, possibly even higher than in 2021.”

He points to four “countervailing forces” that he believes could keep inflation high . . .

Dominic Pino:

Another month, another inflation report that causes the words “highest rate since” to appear in headlines. The Biden administration definitely wants those three words in succession to stop showing up in response to the release of the consumer price index from the Bureau of Labor Statistics.

This time, it’s the highest rate since June 1982: 7 percent annual inflation in December. It’s still broad-based: Food is up 6.3 percent, energy is up 29.3 percent (still a lot of pandemic base effect there, but still not good), and everything other than food and energy is up 5.5 percent.

On the bright side, the indexes for beef and pork declined last month, which means the fabled “greed of meat conglomerates” must have been brought back into check. Thank you, Jen Psaki! . . .


Kevin Williamson:

There is almost no subject — not even Modern Monetary Theory! — that inspires toxic stupidity quite like the subject of rental properties.

The New York Times has brought its subscribers a video (because some things are, in fact, too blisteringly stupid for print) about a so-called tenants’-rights bill under consideration in the state of New York, a daft little sliver of propaganda put together by Jeff Seal, “a comedian, visual journalist and member of the Lower Manhattan chapter of Democratic Socialists of America,” as the Times puts it. That description is just terrific — no Upper West Side socialists here, comrade, we only want to hear from the socialists in Tribeca and Greenwich Village! Socialist comedians must perforce work with some pretty edgy material: “A funny thing happened on the way to the gulag . . .”

The bill would effectively impose rent control on all properties, capping rent increases at 3 percent per year or 150 percent of the increase in the Consumer Price Index, whichever is greater. It would forbid landlords from evicting tenants for most reasons other than nonpayment of rent, and would also forbid evicting tenants for nonpayment of rent in the case of a rent increase exceeding the cap. That is old-fashioned stupidity, of course, the defects of price controls being very understood in the economics literature . . .


Travis Nix:

With the Build Back Better Act thankfully dead (fingers crossed!), lawmakers need to make a better list of legislative priorities for the new year that will actually improve Americans’ lives. Congress can start with the tax code, where expiring tax provisions are poised to kneecap the post-pandemic economic recovery. Extending these tax provisions on a bipartisan basis would provide a better framework for future U.S. tax-reform efforts, and it would provide investors and businesses greater certainty to invest in the future.

The No. 1 priority for Congress in 2022 should be to continue to allow research-and-development costs to be fully written off. Unless Congress takes action, starting this tax year, businesses will have to write off the cost of R&D over five years, rather than writing off the full amount in the year it is incurred. Allowing R&D expenses to be fully written off incentivizes companies to allocate capital to innovate and to improve their product range, something that, if successful, should ultimately increase jobs and wages . . .


Jennifer Schulp:

While determining what “green” means — or what qualifies as such — is not a new endeavor, the Securities and Exchange Commission (SEC) has recently begun to wrestle with it for investment products. As funds advertising themselves as green or ESG (environmental, social, and governance) reap record inflows, there’s growing concern that investments may not be as environmentally or socially “responsible” as the products’ marketing implies. Some call this “greenwashing” — a term first coined more than 30 years ago by an environmentalist who was skeptical of the hotel industry’s encouragement of reusing towels to save the environment — but it’s easy to think of it as bending the term green beyond any meaning, just as Ellis’s song does.

Investment funds claiming to be ESG-focused or ESG-friendly may follow a myriad of different strategies — some of them genuine, others not. But what, if anything, should the SEC do about it? Everyone agrees that investors should not be deceived; that’s why the SEC already has plenty of tools at its disposal to ensure that funds live up to their promises to investors. Yet classifying investments as green or sustainable seems to be an entirely separate matter — far beyond the SEC’s remit and its capabilities.

To sign up for the Capital Letter, follow this link.