Saturday, April 19, 2014

US Inflation Edges up in March but Inflation Expectations Remain Moderate

The latest data from the Bureau of Labor Statistics shows an uptick in consumer price inflation for the month of March. Separately, estimates by the Cleveland Fed show that inflation expectations remain flat and well below the Fed’s target of 2 percent.

As the following chart shows, the all-items consumer price index rose at a seasonally adjusted annual rate of 2.43 percent last month, up from 1.21 percent in January. Food prices helped push the CPI upward, as they did in the previous month. Energy prices, which had fallen by 0.5 percent in February, decreased by just 0.1 percent in March. The core inflation rate, which removes the effect of food and energy prices, rose by 2.48 percent for the month. If we look hard, we can construe the latest inflation data to be consistent with a slight upward trend, as represented by the chart’s fourth-order polynomial trend lines, which just brush 2 percent in March. >>>Read more

Follow this link to view or download a brief slideshow with charts of the latest inflation data

Thursday, April 10, 2014

Comparing the Ukrainian and Russian Economies. How will Ukraine's Weakness Affect Voters?

Last month residents of Crimea voted to secede from Ukraine and join the Russian Federation. Although many in the West have questioned the freedom and fairness of the referendum, which was held in the intimidating presence of Russian troops, no one doubts that many Crimean residents did have a true preference for the Russian option. Historical, linguistic, and cultural considerations were presumably decisive for many voters, but according to reports, economic factors also played a role.

By conventional indicators, Russia is a much wealthier country than Ukraine. According to the latest data from the IMF, Russia’s per capita GDP, measured at purchasing power parity, was $17,884 in 2013. That is nearly two-and-a-half times higher than the $7,423 per capita for Ukraine. Russian wages and pensions are correspondingly higher. Russian Prime Minister Dmitry Medvedev made a point of flying to Crimea soon after the vote to announce in person the decision to raise pensions and wages for government employees to Russian standards.

More votes are coming. Demonstrators in Eastern Ukrainian cities, encouraged by television and political tourists from the Russian side of the border, are demanding referendums similar to that in Crimea. Even if those do not come about, Ukraine as a whole will hold a presidential vote in May that will itself be seen as a referendum on a turn toward the East or toward the West. Whatever the circumstances, economic issues will be on voters’ minds as they set out for their polling stations. Which side of the scales do they weigh on?>>>Read more

Monday, April 7, 2014

Law Enforcement Officials and Economists Agree on Need to End the War on Drugs

Last week Darby Beck of LEAP (Law Enforcement Against Prohibition) sent me a statement on drug legalization by Major Neill Franklin (Ret.) Franklin, now LEAP’s executive director, is a 34-year veteran of the Maryland State Police and the Baltimore Police Department. Like other members of his organization, he now advocates ending the war on drugs, after years of fighting on its front lines.

While reading Franklin’s statement, it struck me that although law enforcement officials and economists start from contrasting perspectives, they reach many of the same conclusions.
Here is how the war on drugs looks to those who, like Franklin, have a street-level view of U.S. drug policy:
Before Nixon declared the war on drugs in the early 1970s, policing was a different creature altogether. Police were the “good guys” going after the “bad guys”—the rapists, the murderers, the child molesters— [the ones] most people could agree society was better without. Since that time, the very nature of policing has changed. . .
All of this has caused society generally and our communities of color specifically to look upon us as people to be feared rather than as public servants advancing public safety, and that distrust, far from being merely an abstract concept, makes our jobs infinitely more difficult as community members shy from cooperating in investigations.
For Franklin, the broken relationship between police and the communities they serve is unintended consequence number one of the war on drugs. He also points to a second unintended consequence—the way drug policy enriches criminals.
Will the legalization of marijuana and other drugs lead to a reduction in the power of street gangs and cartels that terrorize our cities? I believe that most officers brave enough to be honest with themselves can only answer in the affirmative . . . The prohibition of drugs, just like the prohibition of alcohol, is what provides the tremendous profits to the criminal organizations that provide the drugs on our streets.
Economists, in their own way, make the same point. They see the wealth and power of the drug gangs in terms of elasticity of demand. If demand for a good is elastic, a small increase in price causes a big drop in sales, and the total revenue of the seller goes down. If demand is inelastic, which is the case for illegal drugs, even a large increase in price makes only a small dent in the quantity sold, so the revenue of the seller goes up.