Thoughts on inflation, value, and values

Most economists think the Phillips Curve -- describing the inverse relationship between inflation and unemployment -- is broken. Therefore we can keep cutting interest rates as long as there is no inflation these days.

I think that in fact we don't have an absence of inflation these days, we have inflation that is not being measured properly, because it is expressed in the inability to find people to get things done. Contractors who don't call back because they're too busy, for example. Businesses that can't expand because they can't staff up quickly enough. Right now Amazon is seeking to hire 20,000 people nationally, 10,000 in Seattle alone. But housing is so expensive in Seattle that a medical practice downtown (where a client works) can't hire young doctors because they can't afford to live within an hour's commute of work. That is a to a large extent a zoning problem (they need to build more housing and to do so must tear up restrictive zoning).

A couple of stories have supported my thesis. The Fed is taking the view when people say they can't hire they aren't offering enough pay (see here in the Economist). Meanwhile, the town of Emeryville, CA has raised its minimum wage to $16.30, but businesses are having trouble because their margins are eroded. A large part of the problem there is that one small town was trying to take action on its own, so it made its services more expensive than those of neighbors. Why pay $18 for a burger when you can drive 5 miles and get it for $13?

Fundamentally it's a problem of price-inelasticity: people balk at paying the prices that things actually cost, so they substitute or go without. If we want things to be cheaper, we need more people.

But that clearly means we need to arrive at an immigration policy that is acceptable politically. Unfortunately the current situation at the border was probably fueled by an instance of judicial activism (a 2015 court decision that created an exception for families seeking asylum, vs. individuals seeking asylum) that has created an opening for nativist extremists, who also are suspicious of judicial activism. Better that the border situation be addressed legislatively and the nativists defanged.