You laugh, but I'm sure there are people who sincerely, unironically believe eating meat or eggs from vaccinated chickens is bad for you, because it's "unnatural" or "something-something-GMOs."
Only up to about four, if I remember the literature correctly. And it's not quite correct to say they can "count", but rather that they recognize and can distinguish between discrete sets up to four items. And so it is even with us--we can immediately grok small quantities, but for larger quantities we actually did need to invent the process, the concept, of counting.
Does no one even understand? Big PHARMA knows they can't sell expensive vaccines to suckers anymore (Trump's name be praised), so now they're switching to Vaccination by Proxy, just like they tried to do Proxy Voting in the House of Representatives so The People wouldn't know what's going on. They're gonna put the vaccines in your food, just like they genetically modify the organisms, and then YOU'LL GET THE VACCINE TOO. Any Patriotic American who does his own research and isn't one of the sheeple will only eat raw chicken that has been treated with Ivermectin.
As someone who works in agriculture, I believe this article undercuts the importance of exports for the U.S. poultry industry. While exports only account for 15-20% of poultry production, they play an outsized role in the value of the bird, as the 15-20% is not distributed evenly across all bird parts.
Americans love to eat chicken wings and chicken breasts, but you can't grow a chicken that's only wings and breasts. Other countries prefer different parts of the bird including legs, dark meat, and "paws" (chicken feet). By exporting those parts of the bird, we limit food waste and create a market for chicken parts that otherwise of little value. Without these export markets bringing value to all parts of the bird, the overall value of producing an individual bird will plummet - and make the parts Americans love (wings and breasts) significantly more expensive as production declines.
Interesting comment, thanks for sharing. I recently read a book that involved a guy getting rich in China by importing chicken feet from Tyson's Chicken
Same here. My neighborhood Popeye's used to have an "all-dark special" version of their various combos/family packs that was like 20% cheaper than the regular version, which I greatly enjoyed. (Sadly, it disappeared from the menu during COVID and never came back.)
They've already bred turkeys into the "Broad-Breasted White", whose physiology basically constitutes cruelty to animals. Like the way their body grows makes it more or less impossible for them to engage in any of their normal behaviors. (Imagine something like a pug or dachsund where the body has been distorted from its original wild form, and then turn the dial on that up to 11.)
Does vaccination prevent exports of parts? I thought the issue was exporting live vaccinated chickens, because you can’t identify whether they’re infected. But the parts (probably?) aren’t going to infect living chickens.
All poultry product exports (meat, eggs, reproductive materials, live animals etc.) typically get banned in an HPAI outbreak, as is the case with other livestock diseases. Currently, whenever there is an outbreak poultry products are banned from export from the counties (or a more localized area) until the outbreak is contained. Disease could spread from products. It's the same reason you've likely seen warning signs at airports regarding the importation of pork products due to African Swine Fever.
So if exports all get blanket-banned during an HPAI outbreak, that only strengthens the case for vaccination, because vaccination will reduce the likelihood, duration and severity of HPAI outbreaks.
1. Exports currently do not get blanket-banned during an HPAI outbreak. They may be banned from certain regions of the countries with outbreaks (very localized - in the USA this is at the county or even a sub-county level)
2. A lot of major markets (including the USA) won't allow poultry imports from vaccinated birds. In 2023, the World Organization of Animal Health (WOAH) found that only 25% of its members would accept imports of vaccinated poultry.
So, if the USA started allowing vaccination - we would shut ourselves off from trading partners. For instance, the USA banned all poultry products from France in Fall 2023 when France started vaccinating ducks.
We just last week started allowing non-duck poultry in from France, but still will not import duck products from France.
The ag trade sections (specifically SPS) are often the hardest market access agreements to reach and take years. This this is a clunky, outdated system, but its also how it works. If we started vaccinating - and Brazil, the other big poultry exporter who has yet to have bird flu in commercial flocks - doesn't, it'll be major issue for U.S. poultry exports. I'm not saying we shouldn't have vaccines on the table. Just that there will significant costs and unintended consequences from implementing them.
Quite the day to write this post given Trump withdrew the US from the WHO. I know a lot of you have reasonable complaints about the WHO during the pandemic but I feel extremely confident in saying the solution isn’t to withdraw entirely (this would be like if Matt took his criticisms of excessive environmental review blocking housing and said “therefore all environmental rules are dumb and protecting environment is fake news”).
Between RFK jr and the WHO, gonna go out a limb and suggest that this administration is actively supporting the spread of infectious diseases.
Not only that. It was also announced that HHS and CDC will be halting public communications for the time being. This absolutely impacts the H5N1 bird flu reporting. Seems super dumb to me. It's like a speed run us being unprepared for any major health crisis.
Regarding, the US pulling out of WHO it only allows other countries like China to step in and take a leadership role. Again, we can have valid complaints and try to address them. Or we can act like petulant toddlers that take our ball home with us when we get mad. The later is what this current administration is doing.
I just want to take a moment to think of the vaccine-induced autism chickens that would suffer at the hands of Matt's proposal. And then ask: how good would they taste?
"Show the wokesters who's boss by buying (slur word) Chicken! Whether you like their tasty tits or their (slur word)tically flapping little wings, whether you like snowflake-white meat, or meat that's dark as a (slur word), (slur word) Chicken has you covered!"
"Whatever anti-vax mania is sweeping the country, I don’t think people are worried about autistic chickens."
Oh, I think that the food purists out there are highly capable of making something up to demand non-vaccinated poultry and eggs, thinking it's analogous to non-antibiotic beef.
Yes, 100%. While a funny line, I immediately thought that was also a wildly overoptimistic assessment of anti-vaxxers' rationality given the number of them who are freaked out about eating animals that have been fed GMO corn, etc. (Like, even though I think the concern is baseless, I can rationalize someone being worried about the possible health consequences of eating GMO foods directly, but I've never seen even a semi-intelligible explanation of how whatever is supposed to be "wrong" in GMO foods is supposed to survive an animal's digestive tract and get incorporated into its meat.)
NGL, I have had to severely restrain myself from pulling a Captain-Kirk-versus-the-Supercomputer on my mother-in-law on this issue. She is convinced that an evil cabal of globalists (masterminded by Bill Gates and George Soros) control the US government and have a plan to depopulate the Earth by, among other things, contaminating the food supply with GMOs, pesticides, etc. to impair human fertility and shorten lifespans. She therefore protects herself by exclusively eating organic foods. Certified by the USDA. Which, last I checked, is part of the US government . . . . [/Facepalm]
Organic food, too. Still blows my mind that this is something that the USDA has to define. My ears feel grated when I have to hear the pitch for this at my local Albertson's, saying the word organic over and over.
Lol. To my understanding the "non-GMO" designation is basically just sheer sophistry. I haven't looked in a few years so maybe this loophole was closed, but from what I remember reading:
Scientists create and test a transgenic crop, let's say tomatoes modified with mushroom DNA.
Once vetted they then take examples of the original tomato species, irradiate the fuck out of it until they can get it to spit out the specific snippet of DNA that they borrowed from the mushroom, now "tomato origin DNA."
The viability of the whole irradiated genome is irrelevant, they only need the exact small sequence of genes for the trait they borrowed... take that, splice it back into a new tomato for breeding, et viola, cisgenic modifications that could theoretically be achieved by breeding and therefore don't require a GMO designation under American law.
I am not an expert so this understanding could be completely wrong, but this was what I took away at the time.
I mean there’s probably more to it - just because a gene is present doesn’t mean it’s actually transcribed and translated, but they have ways of making that happen too. Especially now in the world of CRISPR, I reckon.
I think these are the articles I enjoy the most. Just "here's a policy problem and here's a policy solution."
Anyways, it's kind of on the nose that the #1 issue people said they were mad about was "egg prices" and the first crisis to hit the new administration is a disease that kills chickens.
This is good example of the importance of delivering on policies that actually work. If the Trump Administration actually manages some Operation Warpspeed for chickens and gets egg prices to drop in a few months, people will notice that. Then it would behoove him to do a victory dance. "Look at where egg prices were in January, look at where they are now." Politics 101!
Also I'm going to be laughing my ass off all day about "autistic chickens."
The thing is we’ve had these egg price spikes and drops several times in the past few years, and people have never noticed the drops the way they noticed the spikes. It’s the same as with gas prices, where people viciously deny that gas prices ever come down, no matter how much you try to point out that gas used to be over $5 and is now under.
If I was Trump's advisor, and egg prices fell by April, I'd encourage him to make a big deal about it. "ANYBODY PAINTING EASTER EGGS THIS YEAR? CHEAP, HUH!"
Maybe it’s because they’re below average. It would explain why they care about it so much to begin with, wages and intelligence being correlated and all.
Biden had a big push to make meat prices cheaper which seems to have worked; but par for the course for that administration never really took credit or followed through. Chicken prices specifically dropped after the post-COVID spike but are now back up; I can't tell if that's due to bird flu culls or something else.
Maybe I missed the last egg crisis, but I just came home from the grocery store having purchased eggs --- holy Toledo batman, they were crazy expensive.
Oh my, yeah I just checked Instacart (which is marked up a little usually, but not like this) and it’s $7.99 a dozen large white Kroger brand eggs. Which I reckon is about a doubling in price from baseline. (I don’t normally use Instacart, but it’s a good resource to check for stuff like this)
Edit: I went grocery shopping tonight and it was $7.49/dozen not Instacart
I think vaccinating chickens is an absolute no-brainer.
Look, I know I'm an outlier in this comment section (and Americans in general*) because I actually care about animal welfare and I grieve the horrific suffering inflicted on sentient beings in the name of affordable meat and eggs and dairy. Full disclosure: I eat the occasional egg, and my husband eats more; I always make a point of buying free-range eggs with "Certified Humane" on the carton.
Anyway, I read of how chickens are killed when they're infected with avian flu. The vents to the building are closed and the heat is turned on until all the poor animals die of heatstroke. Sounds like a horrible way to die!
That alone, never mind any benefit to consumers, is reason enough for government to mandate vaccines. David R. below provided an estimate of how much this would increase costs to consumers: something like half a cent per dozen eggs? So, basically, next to nothing. And if you mandate that all egg producers do this, you eliminate the free-rider problem.
*yes, I know not all Slow Borers are Americans, but this is an American-dominated Substack that focuses mostly on American issues. Any non-American SBers reading this, I didn't mean to exclude you.
if you have a small backyard raising your own chickens is actually REALLY easy. It used to be quite common. And they will eat up most of your table scraps, plus give you good compost.
Thanks, we do have a backyard and Husband and I have been talking about buying some chickens, we just haven’t gotten around to it. We’ll have to make sure they have adequate protection from the many hawks and coyotes found in our area.
We did pasture raised hens for a while for the farmers market. We really liked Barred Rock hens. Very gentile and good layers even in the winter. Note we've never lost one due to hawks. We do put an electric net around their area to protect against other stuff, but we are out on 20 acres.
Not sure this is any more horrific a way to die than the alternatives, and vastly better for human safety.
Nonetheless, folks who actually work in the field have raised the point that our trade partners require non-vaccination, and we don't export chickens, we export parts which are fashionable abroad but not at home, harmonizing demand across whole chickens, so there would need to be some serious discussion with trading partners before we can do this.
I suspect that suffocation in a barn while temperatures are raised is in fact worse than the stun to the head followed by decapitation that they usually get. (At least, I’m pretty sure that standard practices require some modicum of non-cruelty in normal slaughter, even though they don’t for culling.)
Not sure, I have heard hypoxia mentioned as a very peaceful way to die but I don't know.
Given the views I have expressed on this in the past it should come as no surprise that I don't think giving the chickens a peaceful death is worth risking even a single human contracting disease from exposure to them, of course.
Agreed re: would have to negotiate with trade partners beforehand, good point. I wonder why they don’t allow vaccinations for chickens? Is this a crunchy-hippie “natural good, vaccines bad” ideology? Are there legitimate safety concerns?
I think that when they were negotiated rapid testing for antigens or viral RNA wasn't possible, so inspectors surveyed for symptoms, which could be suppressed in vaccinated chickens.
Why this matters when the overwhelming majority of what we're shipping is frozen pieces of chicken, I have no idea.
I've cracked open a lot of econ textbooks in my day (and papers) and I have never seen the idea that boosting relative prices won't boost inflation. People substitute goods all the time to deal with inflation. It's why we have two main measures, CPI which doesn't take this into account, and PCE, which does.
If America trades less, as a result of distortions from tariffs, that means that there is just less productive capacity in the economy. We can't take as much advantage of comparative advantage, and there are fewer widgets to go around. People can't get as much stuff. That makes them poorer in the short run at least. Exchange rates also don't pass through instantly like you seem to be assuming.
To be frank, this take is very under baked. I'd like to see an actual model or non-Trump-stooge-sourced.
I think that Matt is right in the sense that it is not impossible to raise ones good's price and if everyone spends their money on it then they have less money to spend on other things and other prices must fall to compensate. However, I agree with you that it is far more likely that people don't buy that item and instead spend more on other items causing additional inflation.
This whole conversation is confusing but the pedantic side will say tariffs are 1x changes in the price level so by definition that's not inflation. It's also true that Trump round I tariffs didn't result in inflation so that's a good data point but that's because the renminbi depreciated and absorbed some (most?) of the tariff impacts.
The 2018 tariffs didn't have a big effect, because they weren't that big, in the grand scheme of things. Trump was promising to tear up NAFTA and cut off trade with China and just didn't. Maybe he'll do the same thing this time, but he's promised to do much more. I do think that people overstate the effect somewhat. America just isn't super reliant on trade, compared to other countries, but there is an inflationary impact.
"2018 tariffs didn't have a big effect" ... I was surprised to learn that China's contribution to our trade deficit has been cut from 50% in 2015 to 25%. My read is that's a huge reduction and China's manufacturing exports have been substantially weaken but it seems others just read this data / story differently.
I think there's a big argument about rerouting. Vietnam and Mexico seem to be the net "gainers" (though I think they're both net surplus nations) but China's still running a trade surplus of a trillion dollars. And the US has a surplus of 1.9 trillion. It has to be that we're still absorbing the surplus production, just mathematically.
Edit: sorry should say vietnam and mexico are net deficit nations
There's no question some of the trade is final assembly shifting out of China and into Mexico and Vietnam. That still weakens China's manufacturing capabilities. This is product specific (i.e., bleeding edge chips are different) but in general the value / equity is in the finished goods assembly because the components are commoditized.
Just stepping back -- look at how much pressure the Yuan is under:
"During the initial round of U.S. tariffs on Chinese goods under Trump’s first term as president in 2018, the yuan depreciated by about 5%, according to Reuters, and weakened another 1.5% the following year when trade tensions intensified."
These are massive developments - which IDK ... maybe only I'm thinking are massive.
Sure, sure, I think it's very very hard to deny that the Trump then Biden-maintained tariffs have been very tough on the RMB - or maybe put more truthfully, exposed how much China is willing to crush the wages of its workers to maintain this "free trade" model of the world.
But as for your first point, I dunno, maybe it's true that the value is in finished goods assembly? But the Chinese State actually exercises industrial policy in a way that, I suspect, isn't going to let them lose that much capability. They'll sacrifice a lot to maintain that for a lot of political economy reasons I'm guessing.
Something to keep in mind though is that China has done a lot of final assembly as well. High level components are made in Japan, S. Korea, etc. and are shipped to China for low cost final assembly. If that moves out of China to other countries, it will move more of the other parts as well.
China's strategy at every turn since at least 2008 has been "fuck it, maintain growth statistics and increase global manufacturing share regardless of how much immiseration it requires of the citizenry."
Prior to 2008 it wasn't entirely dissimilar but genuine growth in productivity was so rapid that even taking a large share of national incomes from consumers still led to significant growth in consumption and standards of living.
Yeap. (1) Their citizens have absorbed the cost of the long-term strategic currency de-valuation (manipulation really) but then (2) their equity markets can't generate any wealth so their citizens can't participate in that path to prosperity either.
But but but "long-termism!" or whatever the tankies are whining about today.
The PRC strategy *might* produce an advantage in warmaking for a brief window before the demographic deficit it's generated cripples them, but that's about it, and even then the US model has a tendency to produce sudden and significant paradigm shifts that let us win out anyway.
This isn't to say we don't need to unfuck military spending efficiency (we'll need a very large stockpile of expendables and munitions to see us through any kind of scaling effort for war production) but our, for instance, ability to surveil and replenish orbital surveillance capacity over the Pacific is going to be infinitely higher than the PLA's in the event of a war, and we have a much better chance of deploying effective anti-satellite weapons at scale. Our SIGINT is infinitely better and we're more likely to be able to decrypt and exploit what we gather. Our ability to buy abroad to both fulfill direct military needs and grow production at home will be hugely better even with Trump's stupid, short-sighted fuckery. And some of the bone and sinew to grow exists on the naval front, it's just not being used at all well at present... which sounds an awful lot like the run-up to WWI and WWII.
Even with our incredibly low production of submarines right now, leaving the littoral will be an immediate death sentence for any major PLAN surface assets, while their subs will be mostly very dead, very fast. Meanwhile, our airframes and powerplants are hugely better, likely even than their new 6th generation testbeds, requiring less logistical tail to generate more uptime and with more and better trained personnel to keep them running under wartime conditions...
I would not care to lay a wager on our ability to interdict a cross-Straits invasion, but nor would I want to mount one and risk leaving 80,000 young men floating face down in the water. Anywhere outside the First Island Chain we can run the table and that will remain true for quite some time.
You are confusing the nominal economy with the real economy. Prices are nominal. Goods and services are real. A supply crisis WILL cause the world to be "poorer", and "people can't get as much stuff". That is absolutely true.
What you are missing is that declining real wealth and consumption has nothing (necessarily) to do with prices. A gallon of milk costs about $4 in the US, and it costs about Y800 in Japan. There is no ("real") economic significance to the numbers "4" vs. "800".
"Inflation" is a change in the overall price level. It is a decline in the value of the currency. The value of money comes from the intersection of money demand ... and money supply. In your analysis, you have completely ignored the nominal money supply (aka central bank monetary policy), and focused only on real factors.
The truth is that the central bank's monopoly control of the money supply allow it to target the value of money wherever it wants. Inflation is a change (decline) in the value of money, and the central bank has complete control over the value of money -- regardless of what supply problems happen in the real economy.
I'm no economist (and perhaps you are), but I believe the idea is that, unless there's more money sloshing around (more demand), it's impossible for everyone to pay more for everything and still buy the same amount: that's simple arithmetic.
So, if some prices go up, people either have to buy less (putting downward pressure on other prices), or other prices just have to go down. I grant that this is hand-wavey, and I'm not rigorously modeling it.
Forgive me if I'm stating the obvious, but I've been trying to work this through in my own head.
Comment 2: Tariffs do drive US manufacturing investment for global multi-nationals. I know the radical free traders don't think this actually happens or they say it doesn't matter on net but just look at how Hyundai has changed their global manufacturing strategy since just 2021. This same story is happening in every major industrial product sector.
Not disagreeing with you, but Hyundai has long been invested in the southeastern US. That being said, I think it's a given that *some* on-shoring happens in the case of tariffs; obviously if we went full autarky, it would have to. The usual pushback is that it comes at the expense of all Americans just to benefit a few. I haven't fully understood the exchange rate aspect of the argument yet though.
Yeap. It's a long-term tread for all foreign auto OEMs dating back to the voluntary Reagan import quotas (which BTW was a brilliant strategy that re-invigorated US manufacturing). But yeah, I thought this was a cool article because the Hyundai CEO straight up says the "best way for us to navigate tariffs is to increase localization". This is exactly what we want. We want foreign multi-nationals to invest in the US to serve the US market. That's the goal or should be.
How much of that investment comes out of their profits and how much comes from us in the form of higher prices? Is there a theory then that can tell us how to optimize tariffs or is it just that we have to try and see what happens?
Have you seen Cochrane's blog? He's always banging on about this topic. Here's a representative post, but there are many others: https://substack.com/home/post/p-151799850.
He also posted about a relevant debate he had with Alan Blinder about the existence of a "monetary anchor". I think here Matt is taking the view that monetary anchors are a real thing (although both perspectives have some merit).
(I’m not an economist but) doesn’t even a very stylized Keynesian model predict inflation here? AD doesn’t change, AS shifts inward, the price level where the lines cross is higher (and the quantities are lower, because we’re all worse off).
Or is the argument that that’s not “inflation” because it’s not a wage-price spiral? Or that what happens depends on the response from Fed policy and how it affects demand?
If any economists round these parts want to enlighten me, I’d appreciate it!
Matt, maybe opining on macroeconomics based on cramming a few hours with an undergraduate textbook isn’t your sweet spot?
I’m especially amused by your model which combats price increases due to tariffs by refusing to pay rent. On second thought, maybe you’ve hit on the genius of the Trump plan—tariffs will lead to more homeless in blue cities!
You want serious, instead? He said rents might crash because there’s less money left in the wallet for housing.
That’s just wrong. First, housing needs are inelastic and residential tenants have no bargaining power. The landlords have their loan payments and other overhead to meet. The tenants can’t move so easily because of costs to change location and any new landlord has the same kind of expenses as the old one. Rentals are a very imperfect market, just like medical care. In the longer term, there are effects on the amount of rental stock. In the short term? Nah.
Also, his assumption that exchange rates stay the same is wrong. They won’t. The dollar will strengthen. Most imports are essential—there are no substitutes. We don’t manufacture much and that won’t change for a long time. We get many commodities and minerals and so on from overseas cause that’s where the planet put them. Not to mention that much of what we manufacture is assembled here from preassembled components from elsewhere. Finally, since the dollar will strengthen, US exports will decline. Not good for our farmers. etc.
You might be reading too much into the word "crash." While rents are relatively inelastic compared to other costs, the reality is that on the aggregate, people are capable of spending relatively less on housing by moving in with their parents or getting roommates (increasing household size). It's true not everybody can do this, though.
I think the general principle Matt writes about (people could respond to a supply shock by cutting back elsewhere) is true, but rents perhaps isn't the best example.
Ehh... demand for rent is a real thing. For instance, there's some evidence that during COVID, the premium people were willing to pay to live alone increased. That's a thing. Everybody has to live somewhere, but not everybody has to live by themselves or even somewhere nice. If people have less money in their pockets, more of them will cram roomies in to a crappy apartment than if they have more money.
Okay. You “did your own research” by consulting your head and deciding what makes sense. Of course, there are people who make a good living understanding how rental markets actually work. But if you think they are wrong and you are right, you can raise money various ways and make investments. That’s the American way!
I think Matt was just holding exchange rates steady for purposes of example, not because he actually thinks there will be no exchange rate response. The likely result of tariffs is some exchange rate changes, some price changes, but he was interested in the price changes for this article.
You're also overreading the rent changes. It was just an example of other prices falling to counteract rising prices. Doesn't have to be specifically rents, or only rents.
You're wrong that demand for rent is completely inelastic and renters have zero bargaining power. If you're inclined to respond to me by saying, "yes of course I didn't mean literally zero, it was for brevity," consider applying the same doctrine to the post.
Re: "The likely result of tariffs is some exchange rate changes" ...
I though this was an interesting analysis and helps explain why there was no inflation during the Trump round I tariffs on China. "We find that tariffs explained at most one fifth of the dollar effective appreciation but around two thirds of the renminbi effective depreciation observed in 2018-19."
Rents are a battleship, they change very slowly unless there are special local conditions such as recent overbuilding or restrictive zoning, etc. Most rents are leases, not month-to-month. Landlords are reluctant to lock in low-ball rents to boost occupancy. They’d rather wait and eat the losses, which are of course tax advantaged. Also, like most consumer prices, there’sa built-in ratchet. Rents mainly go up fast, go up slow, pause going up. They generally don’t go down.
Sure. Those are reasons why rents change slowly, and of course demand is fairly inelastic. But they are not in fact reasons why demand is perfectly inelastic or why they can never go down -- even if the way they go down is landlord bankruptcy and discharge of their loans!
But see how you went from saying that demand was inelastic full stop and renters have "no" bargaining power to a more nuanced position where you said rents "generally" don't go down?
You should assume that others do the same as you and write briefly assuming their readers will understand implicit caveats.
Fair, for the most part. That said, I do cut more brevity-breeds-overstatement slack to comments than to full-fledged professional Substack posts. Matt here should get more than one gives to edited magazine pieces, or to academic articles, or to monographs, I agree. But I should get more slack than him! 😁
Tax advantaged? That a professional landlord can use losses in one building to offset profits in another one, thus reducing his taxes, and that even can be done in complex ways across tax years. Wage slaves who eat losses in their finances because of unemployment for example, not so much.
And if the rate drops below the rate of inflation, then they go down in real terms. If rents increase more slowly than under the alternative scenario, then they go down relative to the counterfactual.
I'm a macroeconomist who's usually pretty critical of Matt's macro takes, but here he explains the issue very cogently, actually. Changes in input costs of individual goods induce changes in *relative* prices. Inflation is about the overall *price level*, on the other hand.
Whether a supply shock that increases the relative price of some goods (e.g., eggs) translates into overall inflation really depends on how the central bank responds to the shock. If the central bank is accommodative, you probably get inflation: the price of eggs goes up, and the prices of other goods stay the same. However, if the central bank wants to stop inflation, it can be more restrictive: then overall demand will decrease, and maybe the price of eggs stays the same while other prices go down.
Anyway, transitory supply shocks can't really drive persistent inflation because eventually, the relative prices of the affected goods will come back down, bringing the price level down with them. So at most, supply shocks can give you an inflation followed by a deflation.
(I'm just confused by the fact that in many previous columns, Matt seems to have taken the opposite perspective: doesn't he always focus on shifts in relative prices as a source of inflation?)
Now, I’m confused. Are we talking about a supply shock in one or a few goods? Eggs or what have you? Or are we talking about massive tariffs on imports across the board?
I thought Trump was promising the latter. That would affect the majority of consumer spend other than that which is necessarily local, like housing. That’s why Matt chose rent as his cost to reduce when other expenses are higher but inelastic.
And that’s why I made my joke about homelessness as the end result….
Maybe the more charitable interpretation isn't that people won’t pay rent, but that they’ll more strongly prioritize a cheap place to live over other potential concerns (thus decreasing demand in pricier areas)?
Not claiming this is correct either, but it seems more reasonable.
People face budget constraints. When relative prices of a particular purchase increase, consumers reorient the bundle of goods and services they purchase. You would see more people getting roommates, people opting for lower quality housing, and less price pressure rentals if tariffs substantially affect people's budgets. We see this during recessions.
Very basic micro-theory. Michael Fuchs's glib statement shows that he does not know what he is talking about.
Here’s some advice. The world is full of people who know stuff you don’t. Best practice is to go around humble and willing to learn. That’s how I’ve spent my life. I know a lot, but not everything. That’s why I read and listen and then think and judge. Try it, my friend.
Me? I’m 75, have owned apartment buildings in New York and elsewhere, and am a former managing director at money-center banks, including Citi and JP Morgan. You?
In this day and age one might say MY is overqualified to be talking about economics and certainly an elite on politics. I am though wondering why MY wasn’t nominated for ag secretary. Seems like a lost opportunity for Trump.
Inflation just means that the weighted average of the cost of the things we buy has gone up. Saying that higher used car prices aren’t part of inflation because people don’t have to buy used cars doesn’t make sense. Higher prices can be caused by increased aggregate demand or decreased aggregate supply. So unless there’s a full exchange rate adjustment, tariffs can definitely lead to inflation. And a big increase in the cost of a single good (like oil in the 1970s) can lead to both inflation and higher unemployment due to the negative supply shock. It doesn’t matter whether it’s OPEC reducing supply or the US government imposing tariffs that leads to the higher price. Increased aggregate demand that isn’t matched by an increase in aggregate supply can also (of course) cause inflation. I feel like both of these causes of inflation are covered in undergraduate economic textbooks. I’ll be covering them at both the Principles level and intermediate level in about 3 weeks.
We may be about to find out if Trump plans to actually implement tariffs on Canada. The part Matt is leaving out here as far as why tariffs can be so damaging is other nations have agency too. And “surprise” Trudeau is threatening to cut off oil exports to US in response (have a strong suspicion the next Canadian government will likely agree).
Given the promince of the tech oligarchs (Amazon surely would be impacted by high tariffs) and the prominence of oil titans (lot of these US companies actually work with Canada and Mexico so it’s not like they’d get immediate windfall profits from this) I have to believe the tariffs will have loopholes big enough for dare I say an oil tanker to drive through.
But Lordy the hubris of not realizing that other countries even smaller countries have the ability to actually hurt you is depressingly on brand. We rightly focus on trumps authoritarian tendencies but we sometimes forget he truly is an idiot in so many ways.
But at the end of the day a lot of these midwest states are still quite tight electorally. Despite, the rhetoric of the last 3 months Trump's victory was actually quite narrow and the House majority is extremely narrow.
Point being if 95% of Trump voters blame Democrats, but the other 5% (rightly) blame Trump that can still be huge electorally.
I think it's worth revisiting Matt's model of the Department of Commerce as a miniature planning department for the entire country under a Trumpian tariff regime. If regulators have wide latitude to grant exemptions to tariffs, they will almost certainly grant those to prevent widespread economic chaos, but this also puts them in a position by default of picking winners and losers and steering the entire economy by selectively applying enormous price penalties.
But you have ignored that total aggregate demand is under the complete control of central bank monetary policy. So it simply doesn't matter what happens to aggregate supply (for the topic of inflation). Whatever happens to aggregate supply, the only question is whether the central bank manages changes in aggregate demand to match whatever is happening with aggregate supply. If the central bank targets excess demand, then you get inflation. If the central bank targets insufficient demand, then you get deflation. But whether you get inflation or deflation, the root cause is ALWAYS central bank monetary policy determining aggregate demand. Changes in aggregate supply are NEVER an explanation for inflation.
(Another way to look at it: decreased aggregate supply can ONLY "cause" inflation if the central bank has a fixed monetary policy that isn't at all responsive to changes in aggregate supply. What kind of central bank does that? None. What is the point of an economic "analysis" that assumes a completely unrealistic central bank reaction function? Your conclusion has zero relevance to real world economies.)
We saw that aggregate demand is definitely not under the complete control of the central bank after the Great Recession. When we hit the zero lower bound and enter a liquidity trap, there is very little that the central bank can do. In that period we saw a huge increase in the monetary base that did not lead to higher inflation because aggregate demand was so depressed, mainly because households increased their savings and companies saw little reason to increase investment.
The story you are telling is a simple and compelling Keynesian perspective ... but it is simply not correct. It is an excuse, and it is mistaken macroeconomics.
It is correct that the Fed did not successfully manage aggregate demand, and that inflation was too low for about a decade after 2008. You interpret this failure as the central bank "can't" increase aggregate demand. Because you think they ... did all they could? And failed anyway?
That story is false. The Zero Lower Bound does not matter, because interest rates are not actually the primary monetary policy transmission mechanism. And the Fed knows this, and engaged in Quantitative Easing (which involves the very same Open Market Operations as so-called "conventional" monetary policy) after 2008. Here's the first question for you: the Fed has no upper limit on how much additional money they can create. If the amount they chose to create was "not enough" ... then why didn't they simply create more money? 10x as much money? 100x as much? 1000x?
Secondly, the "huge increase in the monetary base" went almost completely into excess bank reserves at the Fed. And why did that happen? Because the Fed -- for the first time in a century! -- began paying interest on excess reserves (IOER) after 2008. In the century prior to 2008, commercial bank excess reserves at the Fed were approximately zero. Immediately after 2008, the growth in excess reserves almost exactly matched the growth in the monetary base. So let me ask you as second question: why did the Fed decide to start paying IOER after 2008, if their apparent goal was in fact to "do whatever it takes" to raise aggregate demand (and inflation)? The central bank had never needed this tool for a century. And the choice to begin it wound up sterilizing all of the increase in the monetary base. A rather puzzling choice, wouldn't you say, for a central bank that for some reason "can't" increase aggregate demand.
No, the real answer is not that the Fed "couldn't" control aggregate demand. The real answer is that the Fed screwed up ... and then covered its tracks, and deflected blame, and people like you bought into the plausible story that it's wasn't the Fed's fault and the Fed couldn't have done any better. That story is wrong. The Fed messed up. The Fed had all the power it needed to manage aggregate demand. It simply didn't do it.
The distinction between higher prices caused by an increase to the money supply and higher prices caused by other things (supply shocks, tariffs, etc.) is important because the policy response should be very different for each.
No. No difference at all. In either case, the root cause is that the money supply is too large for current economic conditions. And the policy response is the same: decrease (the growth of) the money supply. They are EXACTLY the same situation.
Around ten cents a head for ducks a decade and some odd ago (great-uncle runs a specialty poultry farm and did think vaccination worth it for 40,000 ducks as they're apparently more fragile.)
Presumably the same or less for chickens due to scale, plus some inflation since.
If fully passed along to consumers that would raise chicken prices by maybe 1-2 cents per pound? (Not sure how many pounds of meat you get from the average modern broiler chicken.)
I'm sure it'd be fully passed on to consumers, we're talking about a commodity market with razor-thin margins most of the time.
Most broilers are killed at 8 weeks, 7ish pounds, so 1-2 cents is about right. The average American adult consumes 100 lbs of chicken a year, so call it $5 across a whole family of four.
A typical egg-laying hen is killed after 300 eggs or so, so the impact there is pretty close to nil, half a cent per dozen. Coincidentally Americans consume 300 eggs a person each year, so the impact on a family of four would be around $0.40 cents a year if fully passed on.
As you say, think this would be fully passes on to consumers.
That being said, either prices rise to accommodate the loss of export income, or more likely they fall as domestic supply increases until a bunch of producers go out of business.
I'm sure the export treaties can be renegotiated reasonably expeditiously. Not sure if production can be segregated as a short-term measure. (EDIT: per another exchange the answer is no)
Per LNG the model should be the second of your scenarios above.
Forgot what bet this was for but I won’t decline free money. I don’t have your email anymore (milan@slowboring.com no longer exists) but my current email is milan.singh@yale.edu. My Venmo is @milansingh03 if that’s easier.
"But part of why inflation happened is that [the Fed was] trying to help the economy ride out adverse shocks. [It] maybe went too far with this. [Yes] But imagine a world in which the price of chicken and eggs is soaring and there’s also upward pressure on beef and dairy, but [the Fed keeps] keep a tight lid on the economy to ensure that spiking grocery prices don’t lead to an increase in the average price level. The only way to engineer that is to make sure people are cutting back a lot in other areas — not dining out, not traveling, not buying subscription newsletters — such that prices start to fall."
And if prices can't fall fast enough or at all, it means markets don't clear: fewer meals out, cancelled Substack subscriptions = fall in real income. That is why the Fed engineers over target inflation, running the risk of doing too much, becasue whose model is good enough to do exactly the right amount. It is "flexible" with its average inflation target to maximize real income.
Matt's take here seems to imply that short-run nominal shocks can't have a serious impact on people (setting aside the other weirdness). If the Fed was perfect, maybe that would be so, but the fact that macroeconomics exists tells me that this is extremely wrong.
The point is that inflation is the Fed's way of minimizing the bad effects of shocks. The problem with the macro books that Matt has read is that they basically only have one sector, "GDP" produced by one factor, undifferentiated "labor." There is no way to have a sectoral shock in that kind of model, you can only have a shock to the one relative price, labor. Hence the dual mandate to minimize (labor) "unemployment."
But what Matt said about "policymakers" not holding down the average price level is exactly right and he did not get that from his university macro course. So good for him!
There is only one kind of money in an economy (dollars, in the US). That money only has a single value, economy-wide. Inflation is a decline in the overall value of money. Inflation CANNOT be a sector-specific economic event. The dollars within the egg industry CANNOT have different value than the dollars in other industries.
Inflation is under control of central bank monetary policy. People who worry about the effect of sectoral-specific supply shocks on inflation do not understand the difference between the nominal economy (prices) and the real economy (goods and services). They are (essentially) independent from each other.
Inflation comes from changes in the money supply. It is NOT made up of lots of individual good-specific relative price changes. You can't look at price changes for individual goods, in order to understand why inflation happened.
"That money only has a single value, economy-wide."
That's true in one sense, but also not true in another sense. Think about the geographical variation of prices economy wide, suggesting that dollars do have different values in different places. This also has profound implications on inflation from supply/demand impacts. In 2023 fires destroyed homes in Hawaii leading to an increase in prices for housing there and in the aggregate. But the fed tightening money supply across the continental US to counteract the housing shortage in Hawaii is likely to be counterproductive.
There are regional variations in prices, for sure. That is not what the economic term “inflation” refers to, however. Goods and services may be region-specific, but capital is not. Money can flow freely throughout the economy, and if there is some kind of “mispricing” in the value of money, arbitrage will quickly rebalance it.
Please return to the actual question being discussed: could a bird flu (industry-specific) “cause” inflation (a decline in the economy-wide value of money)? Could tariffs “cause” inflation? The answer is no. Regardless of events on the supply side of the economy, the value of money is determined by the quantity of money — and the central bank has monopoly control over the quantity of money. Through that monetary policy, the central bank can make the value of money be whatever it wants. Nothing that happens on the supply side can possibly prevent the central bank from targeting any value for money that it may wish.
Inflation: the general trend of prices increasing over time. Generally measured through a basket of goods priced over time. In a supply shock, one of the components of that basket scarcity increases rapidly, driving the price of that good and the overall basket higher. The fed absolutely can address that by removing large amounts of currency so that there is simply less money available to be used on that basket of goods. However, as you note below in your reply to Thomas:
"If there is a supply crisis, then there is a drop in real wealth and income — no matter what. Nothing can “make up” for a drop in real income. There are fewer eggs to go around. People WILL consume fewer eggs. Money has no power to change the brute fact that there are fewer actual eggs available than there used to be. Real consumption (and thus real income) WILL drop."
The FED by tightening money supply doesn't stop real incomes from falling, all it does it reduce the reallocation of money supply, by reducing the money supply.
More importantly, using the example that I showed before, if there is a geographically constrained supply shock, reducing overall money supply across the full economy can create worse conditions. If there is a housing shortage in Hawaii, lowering the money supply in Illinois helps neither Illinois nor Hawaii. We saw this play out dramatically in Europe during the Euro crisis post 2008. Tightening the money supply in S. Europe in order to keep N. Europe from experiencing inflation ended up causing massive economic loss.
Did I says something different? my only quibble with your formulation would be to say we SHOULD worry about (sufficiently large) sector shocks becasue if they are NOT accommodated with inflation, real income falls.
Neither Administrations nor the Fed itself has attempted to educate the public that a certain amount of inflation, and more at some times than at other times, is good for maximizing real income, avoiding underemployment of resources.
I don’t believe your claim, that deliberate excess inflation, during supply shocks, will maximize real income. I don’t even believe your claim that excess inflation can avoid a fall in real income, during a sectoral supply shock.
Separate the nominal economy (prices) from the real economy (goods and services). Imagine a command economy, with real allocation only, and no money at all. If there is a supply crisis, then there is a drop in real wealth and income — no matter what. Nothing can “make up” for a drop in real income. There are fewer eggs to go around. People WILL consume fewer eggs. Money has no power to change the brute fact that there are fewer actual eggs available than there used to be. Real consumption (and thus real income) WILL drop.
Whether there is inflation (a drop in the value of money) or not is a completely separate question, and is a simple choice of the central bank. You are advocating that the central bank SHOULD choose excess inflation, during the conditions of a supply shock. I don’t believe you, but in any case the main point is that this is a CHOICE of the central bank. Whether it happens or not, it didn’t happen “because” of the supply shock. It happened instead because the central bank chose “increased inflation” as a deliberate RESPONSE to the supply shock. That’s an entirely different thing.
I agree that inflation cannot prevent the fall in rea income from a negative supply shock. If you read me as saying that, I need to be more careful with my wording.
What inflation can do is facilitate change in relative prices when some prices cannot fall un absolute terms. Central banks maintain a low average target rate of inflation to accommodate a low average rate of Brownian movement in supplies and demand that need constant low average changes in relative prices to maintain full employment of resources. An extraordinary shock -- positive or negative, supply or demand -- needs the central bank to engineer extraordinary (temporarily over target) inflation to facilitate the larger changes in relative prices.
“But the shift of more and more attention to social media spaces makes that harder than ever. I’m not sure I have a solution, other than offering a reminder that each of us, as individuals, have some agency regarding what we talk about and click on and subscribe to…”
A nice cue to share this idea of “passing by” that I just read about…
"'Where one can no longer love, there one should pass by,'"
I appreciate Matt’s ability here to, if not pivot exactly, subtly rotate to issues and policy ideas that could actually appeal to our new overlords - and frame it in a way designed to appeal to them. We shall see if this leads anywhere but kudos to the SB team.
"I don't think people are worried about autistic chickens"
absolute banger of a line, a master at work
Yes, although I could totally see people getting it in their heads that eating autistic chickens can cause autism.
The delicious vaccinated chicken is how they get the microchips into you.
Is this how I'll *finally* get a 5G hotspot in my body? I continue to feel like I've been cheated out of this side benefit!
How nice would that be?
“…eating autistic chickens can cause autism”
Only if they’ve been vaccinated.
The chickens or the consumers?
What if we create a race of savant rain-man like chickens that bankrupt our casinos? Where will we be then?
Then we’ll have won the Cold War with china
Just a heads up, we have a malignant commenter on hand today. And for once, it's not ME.
Noted!
I might have to steal that phrase for my user name.
Promise to turn them loose on online sports betting and I'll be in the streets marching for vaxed chix.
Rain-chicken
Free band name idea too.
Feel like it would work particularly well for a psychobilly band: https://en.wikipedia.org/wiki/Psychobilly
You laugh, but I'm sure there are people who sincerely, unironically believe eating meat or eggs from vaccinated chickens is bad for you, because it's "unnatural" or "something-something-GMOs."
Exactly, like the people who don't want to eat irradiated food because somehow they themselves will get irradiated by proxy.
Chickens already know how to count (seriously, lots of birds are able to do this.)
(drops bag of corn)
"How many kernels is it?"
Chickens aren't vampires. They are dinosaurs.
Funny you mention dinosaurs, because you know what every autistic kid I knew ate growing up? Dino nuggies.
The circle of life
Those are mostly sawdust
Underrated comment.
Only up to about four, if I remember the literature correctly. And it's not quite correct to say they can "count", but rather that they recognize and can distinguish between discrete sets up to four items. And so it is even with us--we can immediately grok small quantities, but for larger quantities we actually did need to invent the process, the concept, of counting.
Great read, although a little outdated: https://www.amazon.com/One-Zero-Universal-History-Numbers/dp/0140099190 (note this is "From One to Zero", *not* the probably execrable "From Zero to One")
Autistic Chickens would be a great name for a rock band.
Does no one even understand? Big PHARMA knows they can't sell expensive vaccines to suckers anymore (Trump's name be praised), so now they're switching to Vaccination by Proxy, just like they tried to do Proxy Voting in the House of Representatives so The People wouldn't know what's going on. They're gonna put the vaccines in your food, just like they genetically modify the organisms, and then YOU'LL GET THE VACCINE TOO. Any Patriotic American who does his own research and isn't one of the sheeple will only eat raw chicken that has been treated with Ivermectin.
By being able to rotate shapes in their head, the autistic chickens have proven they're sentient.
As someone who works in agriculture, I believe this article undercuts the importance of exports for the U.S. poultry industry. While exports only account for 15-20% of poultry production, they play an outsized role in the value of the bird, as the 15-20% is not distributed evenly across all bird parts.
Americans love to eat chicken wings and chicken breasts, but you can't grow a chicken that's only wings and breasts. Other countries prefer different parts of the bird including legs, dark meat, and "paws" (chicken feet). By exporting those parts of the bird, we limit food waste and create a market for chicken parts that otherwise of little value. Without these export markets bringing value to all parts of the bird, the overall value of producing an individual bird will plummet - and make the parts Americans love (wings and breasts) significantly more expensive as production declines.
Interesting comment, thanks for sharing. I recently read a book that involved a guy getting rich in China by importing chicken feet from Tyson's Chicken
I very much prefer dark chicken meat, so at least I'm doing my part.
Yeah I never really understood this. Dark chicken meat is just more flavorful.
Blame the low-fat diet craze.
Indeed, but even then it's so marginal compared to red meat.
I prefer chicken fingers, because the finger is the tastiest part of the chicken.
Same here. My neighborhood Popeye's used to have an "all-dark special" version of their various combos/family packs that was like 20% cheaper than the regular version, which I greatly enjoyed. (Sadly, it disappeared from the menu during COVID and never came back.)
Same! Though, admittedly I mostly eat thighs that do have more of a market in the U.S., and not drumsticks which aren't as popular.
Leg quarters are our easy button.
I too prefer the cheap parts
"but you can't grow a chicken that's only wings and breasts."
I'm sure they are working on it
They've already bred turkeys into the "Broad-Breasted White", whose physiology basically constitutes cruelty to animals. Like the way their body grows makes it more or less impossible for them to engage in any of their normal behaviors. (Imagine something like a pug or dachsund where the body has been distorted from its original wild form, and then turn the dial on that up to 11.)
Does vaccination prevent exports of parts? I thought the issue was exporting live vaccinated chickens, because you can’t identify whether they’re infected. But the parts (probably?) aren’t going to infect living chickens.
No, that's not accurate.
All poultry product exports (meat, eggs, reproductive materials, live animals etc.) typically get banned in an HPAI outbreak, as is the case with other livestock diseases. Currently, whenever there is an outbreak poultry products are banned from export from the counties (or a more localized area) until the outbreak is contained. Disease could spread from products. It's the same reason you've likely seen warning signs at airports regarding the importation of pork products due to African Swine Fever.
I thought the issue with vaccination was about exports during *non*-outbreak times.
This presentation from the USDA economic research service has some more information on how restrictions are typically implemented: https://www.usda.gov/sites/default/files/documents/2023aof-Padilla.pdf
So if exports all get blanket-banned during an HPAI outbreak, that only strengthens the case for vaccination, because vaccination will reduce the likelihood, duration and severity of HPAI outbreaks.
A couple of thoughts.
1. Exports currently do not get blanket-banned during an HPAI outbreak. They may be banned from certain regions of the countries with outbreaks (very localized - in the USA this is at the county or even a sub-county level)
2. A lot of major markets (including the USA) won't allow poultry imports from vaccinated birds. In 2023, the World Organization of Animal Health (WOAH) found that only 25% of its members would accept imports of vaccinated poultry.
So, if the USA started allowing vaccination - we would shut ourselves off from trading partners. For instance, the USA banned all poultry products from France in Fall 2023 when France started vaccinating ducks.
We just last week started allowing non-duck poultry in from France, but still will not import duck products from France.
Announcement on relaxing restrictions on French poultry: https://www.aphis.usda.gov/news/agency-announcements/usda-reduces-hpai-restrictions-poultry-france-european-union
The ag trade sections (specifically SPS) are often the hardest market access agreements to reach and take years. This this is a clunky, outdated system, but its also how it works. If we started vaccinating - and Brazil, the other big poultry exporter who has yet to have bird flu in commercial flocks - doesn't, it'll be major issue for U.S. poultry exports. I'm not saying we shouldn't have vaccines on the table. Just that there will significant costs and unintended consequences from implementing them.
Yeah it seems like the trade agreements are a major impediment to improving policy here, so we should renegotiate those to allow vaccinated birds.
Chicken legs are profoundly underrated. Guess I’m glad to be doing my part when I go to Popeyes bc I get all drumsticks
Would you say that inflation is just… our chickens coming home to roost?
*ducks*
No, the topic here is chicken, not ducks
Either way, I'm crying fowl.
Stop it, you’re just egging him on!
You're right. This kind of thread is best ovoided.
Nah, I think this thread has wings
(shhh! If you point that out, it's just going to lead to an increase in bird flew)
Evidently it has legs!
Quite the day to write this post given Trump withdrew the US from the WHO. I know a lot of you have reasonable complaints about the WHO during the pandemic but I feel extremely confident in saying the solution isn’t to withdraw entirely (this would be like if Matt took his criticisms of excessive environmental review blocking housing and said “therefore all environmental rules are dumb and protecting environment is fake news”).
Between RFK jr and the WHO, gonna go out a limb and suggest that this administration is actively supporting the spread of infectious diseases.
Trump has to give Nurgle his due.
Deep cut of the week.
Not only that. It was also announced that HHS and CDC will be halting public communications for the time being. This absolutely impacts the H5N1 bird flu reporting. Seems super dumb to me. It's like a speed run us being unprepared for any major health crisis.
Source: https://www.nbcnews.com/health/health-news/hhs-memo-cdc-report-communications-trump-team-rcna188733
Regarding, the US pulling out of WHO it only allows other countries like China to step in and take a leadership role. Again, we can have valid complaints and try to address them. Or we can act like petulant toddlers that take our ball home with us when we get mad. The later is what this current administration is doing.
I just want to take a moment to think of the vaccine-induced autism chickens that would suffer at the hands of Matt's proposal. And then ask: how good would they taste?
You don't have to be polite any more, call them what they are (slur word)Chickens. You could base a whole marketing campaign on that.
"Show the wokesters who's boss by buying (slur word) Chicken! Whether you like their tasty tits or their (slur word)tically flapping little wings, whether you like snowflake-white meat, or meat that's dark as a (slur word), (slur word) Chicken has you covered!"
I laughed way harder than I should have. Thanks. 🤣
"Whatever anti-vax mania is sweeping the country, I don’t think people are worried about autistic chickens."
Oh, I think that the food purists out there are highly capable of making something up to demand non-vaccinated poultry and eggs, thinking it's analogous to non-antibiotic beef.
Yes, 100%. While a funny line, I immediately thought that was also a wildly overoptimistic assessment of anti-vaxxers' rationality given the number of them who are freaked out about eating animals that have been fed GMO corn, etc. (Like, even though I think the concern is baseless, I can rationalize someone being worried about the possible health consequences of eating GMO foods directly, but I've never seen even a semi-intelligible explanation of how whatever is supposed to be "wrong" in GMO foods is supposed to survive an animal's digestive tract and get incorporated into its meat.)
Appeal to nature is a helluva drug.
How much of a meltdown these folks would have if they understood how "non-GMO" is defined... yay for ignorance.
NGL, I have had to severely restrain myself from pulling a Captain-Kirk-versus-the-Supercomputer on my mother-in-law on this issue. She is convinced that an evil cabal of globalists (masterminded by Bill Gates and George Soros) control the US government and have a plan to depopulate the Earth by, among other things, contaminating the food supply with GMOs, pesticides, etc. to impair human fertility and shorten lifespans. She therefore protects herself by exclusively eating organic foods. Certified by the USDA. Which, last I checked, is part of the US government . . . . [/Facepalm]
In fairness to your mother-in-law, her fantasy seems slightly more benign than what we are actually facing now.
Organic food, too. Still blows my mind that this is something that the USDA has to define. My ears feel grated when I have to hear the pitch for this at my local Albertson's, saying the word organic over and over.
Lol. To my understanding the "non-GMO" designation is basically just sheer sophistry. I haven't looked in a few years so maybe this loophole was closed, but from what I remember reading:
Scientists create and test a transgenic crop, let's say tomatoes modified with mushroom DNA.
Once vetted they then take examples of the original tomato species, irradiate the fuck out of it until they can get it to spit out the specific snippet of DNA that they borrowed from the mushroom, now "tomato origin DNA."
The viability of the whole irradiated genome is irrelevant, they only need the exact small sequence of genes for the trait they borrowed... take that, splice it back into a new tomato for breeding, et viola, cisgenic modifications that could theoretically be achieved by breeding and therefore don't require a GMO designation under American law.
I am not an expert so this understanding could be completely wrong, but this was what I took away at the time.
I mean there’s probably more to it - just because a gene is present doesn’t mean it’s actually transcribed and translated, but they have ways of making that happen too. Especially now in the world of CRISPR, I reckon.
I think these are the articles I enjoy the most. Just "here's a policy problem and here's a policy solution."
Anyways, it's kind of on the nose that the #1 issue people said they were mad about was "egg prices" and the first crisis to hit the new administration is a disease that kills chickens.
This is good example of the importance of delivering on policies that actually work. If the Trump Administration actually manages some Operation Warpspeed for chickens and gets egg prices to drop in a few months, people will notice that. Then it would behoove him to do a victory dance. "Look at where egg prices were in January, look at where they are now." Politics 101!
Also I'm going to be laughing my ass off all day about "autistic chickens."
The thing is we’ve had these egg price spikes and drops several times in the past few years, and people have never noticed the drops the way they noticed the spikes. It’s the same as with gas prices, where people viciously deny that gas prices ever come down, no matter how much you try to point out that gas used to be over $5 and is now under.
If I was Trump's advisor, and egg prices fell by April, I'd encourage him to make a big deal about it. "ANYBODY PAINTING EASTER EGGS THIS YEAR? CHEAP, HUH!"
Maybe it’s because they’re below average. It would explain why they care about it so much to begin with, wages and intelligence being correlated and all.
Below average people, unfortunately, do vote
Biden had a big push to make meat prices cheaper which seems to have worked; but par for the course for that administration never really took credit or followed through. Chicken prices specifically dropped after the post-COVID spike but are now back up; I can't tell if that's due to bird flu culls or something else.
https://civileats.com/2021/07/14/just-a-few-companies-control-the-meat-industry-can-a-new-approach-to-monopolies-level-the-playing-field/
https://www.wsj.com/business/biden-meatpacking-policy-7adbdf2e
The timing of the spike seems bird flu related to me
Maybe I missed the last egg crisis, but I just came home from the grocery store having purchased eggs --- holy Toledo batman, they were crazy expensive.
Oh my, yeah I just checked Instacart (which is marked up a little usually, but not like this) and it’s $7.99 a dozen large white Kroger brand eggs. Which I reckon is about a doubling in price from baseline. (I don’t normally use Instacart, but it’s a good resource to check for stuff like this)
Edit: I went grocery shopping tonight and it was $7.49/dozen not Instacart
I think it's worse this time. My wife is the one who buys groceries typically so my gauge is whether or not she says something.
I think vaccinating chickens is an absolute no-brainer.
Look, I know I'm an outlier in this comment section (and Americans in general*) because I actually care about animal welfare and I grieve the horrific suffering inflicted on sentient beings in the name of affordable meat and eggs and dairy. Full disclosure: I eat the occasional egg, and my husband eats more; I always make a point of buying free-range eggs with "Certified Humane" on the carton.
Anyway, I read of how chickens are killed when they're infected with avian flu. The vents to the building are closed and the heat is turned on until all the poor animals die of heatstroke. Sounds like a horrible way to die!
That alone, never mind any benefit to consumers, is reason enough for government to mandate vaccines. David R. below provided an estimate of how much this would increase costs to consumers: something like half a cent per dozen eggs? So, basically, next to nothing. And if you mandate that all egg producers do this, you eliminate the free-rider problem.
*yes, I know not all Slow Borers are Americans, but this is an American-dominated Substack that focuses mostly on American issues. Any non-American SBers reading this, I didn't mean to exclude you.
if you have a small backyard raising your own chickens is actually REALLY easy. It used to be quite common. And they will eat up most of your table scraps, plus give you good compost.
Thanks, we do have a backyard and Husband and I have been talking about buying some chickens, we just haven’t gotten around to it. We’ll have to make sure they have adequate protection from the many hawks and coyotes found in our area.
We did pasture raised hens for a while for the farmers market. We really liked Barred Rock hens. Very gentile and good layers even in the winter. Note we've never lost one due to hawks. We do put an electric net around their area to protect against other stuff, but we are out on 20 acres.
my wife built a mobile chicken mansion for them
https://www.youtube.com/watch?v=gsJDpkqguVI
Not sure this is any more horrific a way to die than the alternatives, and vastly better for human safety.
Nonetheless, folks who actually work in the field have raised the point that our trade partners require non-vaccination, and we don't export chickens, we export parts which are fashionable abroad but not at home, harmonizing demand across whole chickens, so there would need to be some serious discussion with trading partners before we can do this.
I suspect that suffocation in a barn while temperatures are raised is in fact worse than the stun to the head followed by decapitation that they usually get. (At least, I’m pretty sure that standard practices require some modicum of non-cruelty in normal slaughter, even though they don’t for culling.)
Not sure, I have heard hypoxia mentioned as a very peaceful way to die but I don't know.
Given the views I have expressed on this in the past it should come as no surprise that I don't think giving the chickens a peaceful death is worth risking even a single human contracting disease from exposure to them, of course.
Agreed re: would have to negotiate with trade partners beforehand, good point. I wonder why they don’t allow vaccinations for chickens? Is this a crunchy-hippie “natural good, vaccines bad” ideology? Are there legitimate safety concerns?
I think that when they were negotiated rapid testing for antigens or viral RNA wasn't possible, so inspectors surveyed for symptoms, which could be suppressed in vaccinated chickens.
Why this matters when the overwhelming majority of what we're shipping is frozen pieces of chicken, I have no idea.
I've cracked open a lot of econ textbooks in my day (and papers) and I have never seen the idea that boosting relative prices won't boost inflation. People substitute goods all the time to deal with inflation. It's why we have two main measures, CPI which doesn't take this into account, and PCE, which does.
If America trades less, as a result of distortions from tariffs, that means that there is just less productive capacity in the economy. We can't take as much advantage of comparative advantage, and there are fewer widgets to go around. People can't get as much stuff. That makes them poorer in the short run at least. Exchange rates also don't pass through instantly like you seem to be assuming.
To be frank, this take is very under baked. I'd like to see an actual model or non-Trump-stooge-sourced.
I think that Matt is right in the sense that it is not impossible to raise ones good's price and if everyone spends their money on it then they have less money to spend on other things and other prices must fall to compensate. However, I agree with you that it is far more likely that people don't buy that item and instead spend more on other items causing additional inflation.
If Matt was right about uniform, swift, and complete adjustments, then macroeconomics wouldn't be a thing. His analysis is really bad.
This whole conversation is confusing but the pedantic side will say tariffs are 1x changes in the price level so by definition that's not inflation. It's also true that Trump round I tariffs didn't result in inflation so that's a good data point but that's because the renminbi depreciated and absorbed some (most?) of the tariff impacts.
https://www.nber.org/system/files/working_papers/w27654/w27654.pdf
The 2018 tariffs didn't have a big effect, because they weren't that big, in the grand scheme of things. Trump was promising to tear up NAFTA and cut off trade with China and just didn't. Maybe he'll do the same thing this time, but he's promised to do much more. I do think that people overstate the effect somewhat. America just isn't super reliant on trade, compared to other countries, but there is an inflationary impact.
"2018 tariffs didn't have a big effect" ... I was surprised to learn that China's contribution to our trade deficit has been cut from 50% in 2015 to 25%. My read is that's a huge reduction and China's manufacturing exports have been substantially weaken but it seems others just read this data / story differently.
I think there's a big argument about rerouting. Vietnam and Mexico seem to be the net "gainers" (though I think they're both net surplus nations) but China's still running a trade surplus of a trillion dollars. And the US has a surplus of 1.9 trillion. It has to be that we're still absorbing the surplus production, just mathematically.
Edit: sorry should say vietnam and mexico are net deficit nations
There's no question some of the trade is final assembly shifting out of China and into Mexico and Vietnam. That still weakens China's manufacturing capabilities. This is product specific (i.e., bleeding edge chips are different) but in general the value / equity is in the finished goods assembly because the components are commoditized.
Just stepping back -- look at how much pressure the Yuan is under:
https://www.cnbc.com/2024/11/28/chinas-yuan-to-hit-record-lows-as-us-tariff-threat-mounts-investment-banks-forecast-.html
"During the initial round of U.S. tariffs on Chinese goods under Trump’s first term as president in 2018, the yuan depreciated by about 5%, according to Reuters, and weakened another 1.5% the following year when trade tensions intensified."
These are massive developments - which IDK ... maybe only I'm thinking are massive.
Sure, sure, I think it's very very hard to deny that the Trump then Biden-maintained tariffs have been very tough on the RMB - or maybe put more truthfully, exposed how much China is willing to crush the wages of its workers to maintain this "free trade" model of the world.
But as for your first point, I dunno, maybe it's true that the value is in finished goods assembly? But the Chinese State actually exercises industrial policy in a way that, I suspect, isn't going to let them lose that much capability. They'll sacrifice a lot to maintain that for a lot of political economy reasons I'm guessing.
Something to keep in mind though is that China has done a lot of final assembly as well. High level components are made in Japan, S. Korea, etc. and are shipped to China for low cost final assembly. If that moves out of China to other countries, it will move more of the other parts as well.
China's strategy at every turn since at least 2008 has been "fuck it, maintain growth statistics and increase global manufacturing share regardless of how much immiseration it requires of the citizenry."
Prior to 2008 it wasn't entirely dissimilar but genuine growth in productivity was so rapid that even taking a large share of national incomes from consumers still led to significant growth in consumption and standards of living.
Yeap. (1) Their citizens have absorbed the cost of the long-term strategic currency de-valuation (manipulation really) but then (2) their equity markets can't generate any wealth so their citizens can't participate in that path to prosperity either.
https://archive.is/y92GB#selection-5777.79-5777.146
But but but "long-termism!" or whatever the tankies are whining about today.
The PRC strategy *might* produce an advantage in warmaking for a brief window before the demographic deficit it's generated cripples them, but that's about it, and even then the US model has a tendency to produce sudden and significant paradigm shifts that let us win out anyway.
This isn't to say we don't need to unfuck military spending efficiency (we'll need a very large stockpile of expendables and munitions to see us through any kind of scaling effort for war production) but our, for instance, ability to surveil and replenish orbital surveillance capacity over the Pacific is going to be infinitely higher than the PLA's in the event of a war, and we have a much better chance of deploying effective anti-satellite weapons at scale. Our SIGINT is infinitely better and we're more likely to be able to decrypt and exploit what we gather. Our ability to buy abroad to both fulfill direct military needs and grow production at home will be hugely better even with Trump's stupid, short-sighted fuckery. And some of the bone and sinew to grow exists on the naval front, it's just not being used at all well at present... which sounds an awful lot like the run-up to WWI and WWII.
Even with our incredibly low production of submarines right now, leaving the littoral will be an immediate death sentence for any major PLAN surface assets, while their subs will be mostly very dead, very fast. Meanwhile, our airframes and powerplants are hugely better, likely even than their new 6th generation testbeds, requiring less logistical tail to generate more uptime and with more and better trained personnel to keep them running under wartime conditions...
I would not care to lay a wager on our ability to interdict a cross-Straits invasion, but nor would I want to mount one and risk leaving 80,000 young men floating face down in the water. Anywhere outside the First Island Chain we can run the table and that will remain true for quite some time.
Isn’t “making people poorer” disinflationary?
Nominal wages are sticky. If there's less stuff to go around. That takes the effect of higher prices or shortages.
You are confusing the nominal economy with the real economy. Prices are nominal. Goods and services are real. A supply crisis WILL cause the world to be "poorer", and "people can't get as much stuff". That is absolutely true.
What you are missing is that declining real wealth and consumption has nothing (necessarily) to do with prices. A gallon of milk costs about $4 in the US, and it costs about Y800 in Japan. There is no ("real") economic significance to the numbers "4" vs. "800".
"Inflation" is a change in the overall price level. It is a decline in the value of the currency. The value of money comes from the intersection of money demand ... and money supply. In your analysis, you have completely ignored the nominal money supply (aka central bank monetary policy), and focused only on real factors.
The truth is that the central bank's monopoly control of the money supply allow it to target the value of money wherever it wants. Inflation is a change (decline) in the value of money, and the central bank has complete control over the value of money -- regardless of what supply problems happen in the real economy.
Matt Yglesias got this basically correct.
I'm no economist (and perhaps you are), but I believe the idea is that, unless there's more money sloshing around (more demand), it's impossible for everyone to pay more for everything and still buy the same amount: that's simple arithmetic.
So, if some prices go up, people either have to buy less (putting downward pressure on other prices), or other prices just have to go down. I grant that this is hand-wavey, and I'm not rigorously modeling it.
Forgive me if I'm stating the obvious, but I've been trying to work this through in my own head.
Comment 2: Tariffs do drive US manufacturing investment for global multi-nationals. I know the radical free traders don't think this actually happens or they say it doesn't matter on net but just look at how Hyundai has changed their global manufacturing strategy since just 2021. This same story is happening in every major industrial product sector.
https://www.axios.com/2025/01/15/hyundai-trump-tariffs
Not disagreeing with you, but Hyundai has long been invested in the southeastern US. That being said, I think it's a given that *some* on-shoring happens in the case of tariffs; obviously if we went full autarky, it would have to. The usual pushback is that it comes at the expense of all Americans just to benefit a few. I haven't fully understood the exchange rate aspect of the argument yet though.
Yeap. It's a long-term tread for all foreign auto OEMs dating back to the voluntary Reagan import quotas (which BTW was a brilliant strategy that re-invigorated US manufacturing). But yeah, I thought this was a cool article because the Hyundai CEO straight up says the "best way for us to navigate tariffs is to increase localization". This is exactly what we want. We want foreign multi-nationals to invest in the US to serve the US market. That's the goal or should be.
I question how much is due to the tariffs vs. already planned, but it's not a big deal either way. But why should that be the goal?
Foreign capital investment is free growth and then everyone of these mega factories create amplified investment down the supply chain.
How much of that investment comes out of their profits and how much comes from us in the form of higher prices? Is there a theory then that can tell us how to optimize tariffs or is it just that we have to try and see what happens?
Have you seen Cochrane's blog? He's always banging on about this topic. Here's a representative post, but there are many others: https://substack.com/home/post/p-151799850.
He also posted about a relevant debate he had with Alan Blinder about the existence of a "monetary anchor". I think here Matt is taking the view that monetary anchors are a real thing (although both perspectives have some merit).
(I’m not an economist but) doesn’t even a very stylized Keynesian model predict inflation here? AD doesn’t change, AS shifts inward, the price level where the lines cross is higher (and the quantities are lower, because we’re all worse off).
Or is the argument that that’s not “inflation” because it’s not a wage-price spiral? Or that what happens depends on the response from Fed policy and how it affects demand?
If any economists round these parts want to enlighten me, I’d appreciate it!
Matt, maybe opining on macroeconomics based on cramming a few hours with an undergraduate textbook isn’t your sweet spot?
I’m especially amused by your model which combats price increases due to tariffs by refusing to pay rent. On second thought, maybe you’ve hit on the genius of the Trump plan—tariffs will lead to more homeless in blue cities!
“ I’m especially amused by your model which combats price increases due to tariffs by refusing to pay rent.”
That’s not what he said. You should work on your reading comprehension.
It was a joke, dude.
You want serious, instead? He said rents might crash because there’s less money left in the wallet for housing.
That’s just wrong. First, housing needs are inelastic and residential tenants have no bargaining power. The landlords have their loan payments and other overhead to meet. The tenants can’t move so easily because of costs to change location and any new landlord has the same kind of expenses as the old one. Rentals are a very imperfect market, just like medical care. In the longer term, there are effects on the amount of rental stock. In the short term? Nah.
Also, his assumption that exchange rates stay the same is wrong. They won’t. The dollar will strengthen. Most imports are essential—there are no substitutes. We don’t manufacture much and that won’t change for a long time. We get many commodities and minerals and so on from overseas cause that’s where the planet put them. Not to mention that much of what we manufacture is assembled here from preassembled components from elsewhere. Finally, since the dollar will strengthen, US exports will decline. Not good for our farmers. etc.
Thanks for playing, though.
You might be reading too much into the word "crash." While rents are relatively inelastic compared to other costs, the reality is that on the aggregate, people are capable of spending relatively less on housing by moving in with their parents or getting roommates (increasing household size). It's true not everybody can do this, though.
I think the general principle Matt writes about (people could respond to a supply shock by cutting back elsewhere) is true, but rents perhaps isn't the best example.
Ehh... demand for rent is a real thing. For instance, there's some evidence that during COVID, the premium people were willing to pay to live alone increased. That's a thing. Everybody has to live somewhere, but not everybody has to live by themselves or even somewhere nice. If people have less money in their pockets, more of them will cram roomies in to a crappy apartment than if they have more money.
Okay. You “did your own research” by consulting your head and deciding what makes sense. Of course, there are people who make a good living understanding how rental markets actually work. But if you think they are wrong and you are right, you can raise money various ways and make investments. That’s the American way!
You're coming off pretty aggressive in the comment section. Just flagging to chill out.
Got it. Thanks.
Yes, that's how supply and demand works, it's like math, you very much can "do your own research."
I think Matt was just holding exchange rates steady for purposes of example, not because he actually thinks there will be no exchange rate response. The likely result of tariffs is some exchange rate changes, some price changes, but he was interested in the price changes for this article.
You're also overreading the rent changes. It was just an example of other prices falling to counteract rising prices. Doesn't have to be specifically rents, or only rents.
You're wrong that demand for rent is completely inelastic and renters have zero bargaining power. If you're inclined to respond to me by saying, "yes of course I didn't mean literally zero, it was for brevity," consider applying the same doctrine to the post.
Re: "The likely result of tariffs is some exchange rate changes" ...
I though this was an interesting analysis and helps explain why there was no inflation during the Trump round I tariffs on China. "We find that tariffs explained at most one fifth of the dollar effective appreciation but around two thirds of the renminbi effective depreciation observed in 2018-19."
https://www.nber.org/system/files/working_papers/w27654/w27654.pdf
Rents are a battleship, they change very slowly unless there are special local conditions such as recent overbuilding or restrictive zoning, etc. Most rents are leases, not month-to-month. Landlords are reluctant to lock in low-ball rents to boost occupancy. They’d rather wait and eat the losses, which are of course tax advantaged. Also, like most consumer prices, there’sa built-in ratchet. Rents mainly go up fast, go up slow, pause going up. They generally don’t go down.
Sure. Those are reasons why rents change slowly, and of course demand is fairly inelastic. But they are not in fact reasons why demand is perfectly inelastic or why they can never go down -- even if the way they go down is landlord bankruptcy and discharge of their loans!
But see how you went from saying that demand was inelastic full stop and renters have "no" bargaining power to a more nuanced position where you said rents "generally" don't go down?
You should assume that others do the same as you and write briefly assuming their readers will understand implicit caveats.
That last part should be declared the Universal Law Of The Internet. Society would be in a lot better place if we all did it.
Fair, for the most part. That said, I do cut more brevity-breeds-overstatement slack to comments than to full-fledged professional Substack posts. Matt here should get more than one gives to edited magazine pieces, or to academic articles, or to monographs, I agree. But I should get more slack than him! 😁
"They generally don’t go down."
Checks back in on Austin and Nashville trends ... yeap, rents still collapsing.
https://www.newsweek.com/austin-rental-market-collapsing-real-estate-expert-says-1986647
https://www.wkrn.com/news/local-news/nashville/nashville-rental-prices-dropping-at-fast-rate-report-shows/
“…wait and eat the losses, which are of course tax advantaged”
What does that mean?
Tax advantaged? That a professional landlord can use losses in one building to offset profits in another one, thus reducing his taxes, and that even can be done in complex ways across tax years. Wage slaves who eat losses in their finances because of unemployment for example, not so much.
“ residential tenants have no bargaining power”
My my - it’s not often we run into a complete moron here. It’s almost refreshing.
"WE NEED RENT CONTROL AND DEMAND SIDE SUBSIDIES!!!!!1111!!!!!!!"
Yah, that is why rents don't go down during recessions and go up during boom periods.
Thank you for bringing your beautiful energy to this place!
I’m sorry to inform you that you don’t know much, though. Rents DON’T go down during recessions. And so on.
Read this: https://www.forbes.com/sites/qai/2023/01/14/does-rent-go-down-during-a-recession-what-renters-and-real-estate-investors-can-expect/
"Rents DON’T go down during recessions. And so on."
The article says they don't _necessarily_ go down. The rate of increase DOES go down.
(If that rate was already low then a decrease would likely send it negative)
And if the rate drops below the rate of inflation, then they go down in real terms. If rents increase more slowly than under the alternative scenario, then they go down relative to the counterfactual.
I'm a macroeconomist who's usually pretty critical of Matt's macro takes, but here he explains the issue very cogently, actually. Changes in input costs of individual goods induce changes in *relative* prices. Inflation is about the overall *price level*, on the other hand.
Whether a supply shock that increases the relative price of some goods (e.g., eggs) translates into overall inflation really depends on how the central bank responds to the shock. If the central bank is accommodative, you probably get inflation: the price of eggs goes up, and the prices of other goods stay the same. However, if the central bank wants to stop inflation, it can be more restrictive: then overall demand will decrease, and maybe the price of eggs stays the same while other prices go down.
Anyway, transitory supply shocks can't really drive persistent inflation because eventually, the relative prices of the affected goods will come back down, bringing the price level down with them. So at most, supply shocks can give you an inflation followed by a deflation.
(I'm just confused by the fact that in many previous columns, Matt seems to have taken the opposite perspective: doesn't he always focus on shifts in relative prices as a source of inflation?)
Now, I’m confused. Are we talking about a supply shock in one or a few goods? Eggs or what have you? Or are we talking about massive tariffs on imports across the board?
I thought Trump was promising the latter. That would affect the majority of consumer spend other than that which is necessarily local, like housing. That’s why Matt chose rent as his cost to reduce when other expenses are higher but inelastic.
And that’s why I made my joke about homelessness as the end result….
No it wouldn't. "Massive tariffs on imports across the board" would still only represent an increase on 14% of GDP.
I said consumer spend, not GDP.
Maybe the more charitable interpretation isn't that people won’t pay rent, but that they’ll more strongly prioritize a cheap place to live over other potential concerns (thus decreasing demand in pricier areas)?
Not claiming this is correct either, but it seems more reasonable.
People face budget constraints. When relative prices of a particular purchase increase, consumers reorient the bundle of goods and services they purchase. You would see more people getting roommates, people opting for lower quality housing, and less price pressure rentals if tariffs substantially affect people's budgets. We see this during recessions.
Very basic micro-theory. Michael Fuchs's glib statement shows that he does not know what he is talking about.
You are repeating my joke! You just said people will reorient their spend! As in, they’ll stop paying rent!
Jokes are supposed to be funny. The "you are dumb and should open a book, hahaha" is lazy.
You’re an idiot - yes, that’s been established. Are you like 19 and have never rented an apartment?
Here’s some advice. The world is full of people who know stuff you don’t. Best practice is to go around humble and willing to learn. That’s how I’ve spent my life. I know a lot, but not everything. That’s why I read and listen and then think and judge. Try it, my friend.
Me? I’m 75, have owned apartment buildings in New York and elsewhere, and am a former managing director at money-center banks, including Citi and JP Morgan. You?
Sorry, no.
In this day and age one might say MY is overqualified to be talking about economics and certainly an elite on politics. I am though wondering why MY wasn’t nominated for ag secretary. Seems like a lost opportunity for Trump.
What he should have said is slows housing formation.
No Egg Is Illegal.
Inflation just means that the weighted average of the cost of the things we buy has gone up. Saying that higher used car prices aren’t part of inflation because people don’t have to buy used cars doesn’t make sense. Higher prices can be caused by increased aggregate demand or decreased aggregate supply. So unless there’s a full exchange rate adjustment, tariffs can definitely lead to inflation. And a big increase in the cost of a single good (like oil in the 1970s) can lead to both inflation and higher unemployment due to the negative supply shock. It doesn’t matter whether it’s OPEC reducing supply or the US government imposing tariffs that leads to the higher price. Increased aggregate demand that isn’t matched by an increase in aggregate supply can also (of course) cause inflation. I feel like both of these causes of inflation are covered in undergraduate economic textbooks. I’ll be covering them at both the Principles level and intermediate level in about 3 weeks.
We may be about to find out if Trump plans to actually implement tariffs on Canada. The part Matt is leaving out here as far as why tariffs can be so damaging is other nations have agency too. And “surprise” Trudeau is threatening to cut off oil exports to US in response (have a strong suspicion the next Canadian government will likely agree).
Given the promince of the tech oligarchs (Amazon surely would be impacted by high tariffs) and the prominence of oil titans (lot of these US companies actually work with Canada and Mexico so it’s not like they’d get immediate windfall profits from this) I have to believe the tariffs will have loopholes big enough for dare I say an oil tanker to drive through.
But Lordy the hubris of not realizing that other countries even smaller countries have the ability to actually hurt you is depressingly on brand. We rightly focus on trumps authoritarian tendencies but we sometimes forget he truly is an idiot in so many ways.
I feel like the Midwest isn’t going to like what happens to oil prices under the trump administration
Yeah, but they'll blame Democrats because Republicans have rhetorically embraced fossil fuel production and consumption.
Depressingly likely.
But at the end of the day a lot of these midwest states are still quite tight electorally. Despite, the rhetoric of the last 3 months Trump's victory was actually quite narrow and the House majority is extremely narrow.
Point being if 95% of Trump voters blame Democrats, but the other 5% (rightly) blame Trump that can still be huge electorally.
Thermostatic politics still is a thing. I think the last election shows there is more elasticity in the electorate than we usually assume.
Yes, but think of how good "the groups" will feel about it!
/s
I think it's worth revisiting Matt's model of the Department of Commerce as a miniature planning department for the entire country under a Trumpian tariff regime. If regulators have wide latitude to grant exemptions to tariffs, they will almost certainly grant those to prevent widespread economic chaos, but this also puts them in a position by default of picking winners and losers and steering the entire economy by selectively applying enormous price penalties.
And also picking winners and losers based on who is currying favor with Trump or buying huge amounts of his meme coin.
I don't think we're really prepared for how corrupt tariffs are likely to be in practice.
"Saying that higher used car prices aren't part of inflation because people don't have to buy used cars doesn't make sense"
Did he say that? That's not what I got out of reading that section
But you have ignored that total aggregate demand is under the complete control of central bank monetary policy. So it simply doesn't matter what happens to aggregate supply (for the topic of inflation). Whatever happens to aggregate supply, the only question is whether the central bank manages changes in aggregate demand to match whatever is happening with aggregate supply. If the central bank targets excess demand, then you get inflation. If the central bank targets insufficient demand, then you get deflation. But whether you get inflation or deflation, the root cause is ALWAYS central bank monetary policy determining aggregate demand. Changes in aggregate supply are NEVER an explanation for inflation.
(Another way to look at it: decreased aggregate supply can ONLY "cause" inflation if the central bank has a fixed monetary policy that isn't at all responsive to changes in aggregate supply. What kind of central bank does that? None. What is the point of an economic "analysis" that assumes a completely unrealistic central bank reaction function? Your conclusion has zero relevance to real world economies.)
We saw that aggregate demand is definitely not under the complete control of the central bank after the Great Recession. When we hit the zero lower bound and enter a liquidity trap, there is very little that the central bank can do. In that period we saw a huge increase in the monetary base that did not lead to higher inflation because aggregate demand was so depressed, mainly because households increased their savings and companies saw little reason to increase investment.
The story you are telling is a simple and compelling Keynesian perspective ... but it is simply not correct. It is an excuse, and it is mistaken macroeconomics.
It is correct that the Fed did not successfully manage aggregate demand, and that inflation was too low for about a decade after 2008. You interpret this failure as the central bank "can't" increase aggregate demand. Because you think they ... did all they could? And failed anyway?
That story is false. The Zero Lower Bound does not matter, because interest rates are not actually the primary monetary policy transmission mechanism. And the Fed knows this, and engaged in Quantitative Easing (which involves the very same Open Market Operations as so-called "conventional" monetary policy) after 2008. Here's the first question for you: the Fed has no upper limit on how much additional money they can create. If the amount they chose to create was "not enough" ... then why didn't they simply create more money? 10x as much money? 100x as much? 1000x?
Secondly, the "huge increase in the monetary base" went almost completely into excess bank reserves at the Fed. And why did that happen? Because the Fed -- for the first time in a century! -- began paying interest on excess reserves (IOER) after 2008. In the century prior to 2008, commercial bank excess reserves at the Fed were approximately zero. Immediately after 2008, the growth in excess reserves almost exactly matched the growth in the monetary base. So let me ask you as second question: why did the Fed decide to start paying IOER after 2008, if their apparent goal was in fact to "do whatever it takes" to raise aggregate demand (and inflation)? The central bank had never needed this tool for a century. And the choice to begin it wound up sterilizing all of the increase in the monetary base. A rather puzzling choice, wouldn't you say, for a central bank that for some reason "can't" increase aggregate demand.
No, the real answer is not that the Fed "couldn't" control aggregate demand. The real answer is that the Fed screwed up ... and then covered its tracks, and deflected blame, and people like you bought into the plausible story that it's wasn't the Fed's fault and the Fed couldn't have done any better. That story is wrong. The Fed messed up. The Fed had all the power it needed to manage aggregate demand. It simply didn't do it.
The distinction between higher prices caused by an increase to the money supply and higher prices caused by other things (supply shocks, tariffs, etc.) is important because the policy response should be very different for each.
No. No difference at all. In either case, the root cause is that the money supply is too large for current economic conditions. And the policy response is the same: decrease (the growth of) the money supply. They are EXACTLY the same situation.
Thank you, that part of the piece did not make sense to me, and I was hoping one of the resident Econ Profs would straighten it out.
What’s does vaccinating a chicken cost? The article is deeply incomplete without that fact.
Around ten cents a head for ducks a decade and some odd ago (great-uncle runs a specialty poultry farm and did think vaccination worth it for 40,000 ducks as they're apparently more fragile.)
Presumably the same or less for chickens due to scale, plus some inflation since.
If fully passed along to consumers that would raise chicken prices by maybe 1-2 cents per pound? (Not sure how many pounds of meat you get from the average modern broiler chicken.)
I'm sure it'd be fully passed on to consumers, we're talking about a commodity market with razor-thin margins most of the time.
Most broilers are killed at 8 weeks, 7ish pounds, so 1-2 cents is about right. The average American adult consumes 100 lbs of chicken a year, so call it $5 across a whole family of four.
A typical egg-laying hen is killed after 300 eggs or so, so the impact there is pretty close to nil, half a cent per dozen. Coincidentally Americans consume 300 eggs a person each year, so the impact on a family of four would be around $0.40 cents a year if fully passed on.
Seems like a good deal to me.
I agree, sounds like a good deal. Is 7 lbs including the bones and organs or just the edible meat?
Everything.
But the processing adds enough cost that I think the same would hold for meat prices for individual parts as well, call it a cent or two a pound.
A Google search suggests that would be weight at slaughter -- meat, bones, feathers, etc.
As you say, think this would be fully passes on to consumers.
That being said, either prices rise to accommodate the loss of export income, or more likely they fall as domestic supply increases until a bunch of producers go out of business.
I'm sure the export treaties can be renegotiated reasonably expeditiously. Not sure if production can be segregated as a short-term measure. (EDIT: per another exchange the answer is no)
Per LNG the model should be the second of your scenarios above.
The Costco chicken I prepared last night says 3 lbs. So maybe about that much?
So 10 cents inflated to.. 15, or 5 cents/pound? Prices seem to get as low as around $4.00, so. about 1.25%?
EDIT: David R has a much more complete answer below so go with his.
Per other comments here probably cheaper than that. And at least Costco is committed to not raising prices.
So possibly one more person in line at Costco.
Pretty big no-brainer here.
Long time no see!
I owe you $100. Email me your address and I’ll send a check
Forgot what bet this was for but I won’t decline free money. I don’t have your email anymore (milan@slowboring.com no longer exists) but my current email is milan.singh@yale.edu. My Venmo is @milansingh03 if that’s easier.
Matt is getting close to it:
"But part of why inflation happened is that [the Fed was] trying to help the economy ride out adverse shocks. [It] maybe went too far with this. [Yes] But imagine a world in which the price of chicken and eggs is soaring and there’s also upward pressure on beef and dairy, but [the Fed keeps] keep a tight lid on the economy to ensure that spiking grocery prices don’t lead to an increase in the average price level. The only way to engineer that is to make sure people are cutting back a lot in other areas — not dining out, not traveling, not buying subscription newsletters — such that prices start to fall."
And if prices can't fall fast enough or at all, it means markets don't clear: fewer meals out, cancelled Substack subscriptions = fall in real income. That is why the Fed engineers over target inflation, running the risk of doing too much, becasue whose model is good enough to do exactly the right amount. It is "flexible" with its average inflation target to maximize real income.
Matt's take here seems to imply that short-run nominal shocks can't have a serious impact on people (setting aside the other weirdness). If the Fed was perfect, maybe that would be so, but the fact that macroeconomics exists tells me that this is extremely wrong.
The point is that inflation is the Fed's way of minimizing the bad effects of shocks. The problem with the macro books that Matt has read is that they basically only have one sector, "GDP" produced by one factor, undifferentiated "labor." There is no way to have a sectoral shock in that kind of model, you can only have a shock to the one relative price, labor. Hence the dual mandate to minimize (labor) "unemployment."
But what Matt said about "policymakers" not holding down the average price level is exactly right and he did not get that from his university macro course. So good for him!
There is only one kind of money in an economy (dollars, in the US). That money only has a single value, economy-wide. Inflation is a decline in the overall value of money. Inflation CANNOT be a sector-specific economic event. The dollars within the egg industry CANNOT have different value than the dollars in other industries.
Inflation is under control of central bank monetary policy. People who worry about the effect of sectoral-specific supply shocks on inflation do not understand the difference between the nominal economy (prices) and the real economy (goods and services). They are (essentially) independent from each other.
Inflation comes from changes in the money supply. It is NOT made up of lots of individual good-specific relative price changes. You can't look at price changes for individual goods, in order to understand why inflation happened.
"That money only has a single value, economy-wide."
That's true in one sense, but also not true in another sense. Think about the geographical variation of prices economy wide, suggesting that dollars do have different values in different places. This also has profound implications on inflation from supply/demand impacts. In 2023 fires destroyed homes in Hawaii leading to an increase in prices for housing there and in the aggregate. But the fed tightening money supply across the continental US to counteract the housing shortage in Hawaii is likely to be counterproductive.
There are regional variations in prices, for sure. That is not what the economic term “inflation” refers to, however. Goods and services may be region-specific, but capital is not. Money can flow freely throughout the economy, and if there is some kind of “mispricing” in the value of money, arbitrage will quickly rebalance it.
Please return to the actual question being discussed: could a bird flu (industry-specific) “cause” inflation (a decline in the economy-wide value of money)? Could tariffs “cause” inflation? The answer is no. Regardless of events on the supply side of the economy, the value of money is determined by the quantity of money — and the central bank has monopoly control over the quantity of money. Through that monetary policy, the central bank can make the value of money be whatever it wants. Nothing that happens on the supply side can possibly prevent the central bank from targeting any value for money that it may wish.
Inflation: the general trend of prices increasing over time. Generally measured through a basket of goods priced over time. In a supply shock, one of the components of that basket scarcity increases rapidly, driving the price of that good and the overall basket higher. The fed absolutely can address that by removing large amounts of currency so that there is simply less money available to be used on that basket of goods. However, as you note below in your reply to Thomas:
"If there is a supply crisis, then there is a drop in real wealth and income — no matter what. Nothing can “make up” for a drop in real income. There are fewer eggs to go around. People WILL consume fewer eggs. Money has no power to change the brute fact that there are fewer actual eggs available than there used to be. Real consumption (and thus real income) WILL drop."
The FED by tightening money supply doesn't stop real incomes from falling, all it does it reduce the reallocation of money supply, by reducing the money supply.
More importantly, using the example that I showed before, if there is a geographically constrained supply shock, reducing overall money supply across the full economy can create worse conditions. If there is a housing shortage in Hawaii, lowering the money supply in Illinois helps neither Illinois nor Hawaii. We saw this play out dramatically in Europe during the Euro crisis post 2008. Tightening the money supply in S. Europe in order to keep N. Europe from experiencing inflation ended up causing massive economic loss.
Did I says something different? my only quibble with your formulation would be to say we SHOULD worry about (sufficiently large) sector shocks becasue if they are NOT accommodated with inflation, real income falls.
Neither Administrations nor the Fed itself has attempted to educate the public that a certain amount of inflation, and more at some times than at other times, is good for maximizing real income, avoiding underemployment of resources.
I don’t believe your claim, that deliberate excess inflation, during supply shocks, will maximize real income. I don’t even believe your claim that excess inflation can avoid a fall in real income, during a sectoral supply shock.
Separate the nominal economy (prices) from the real economy (goods and services). Imagine a command economy, with real allocation only, and no money at all. If there is a supply crisis, then there is a drop in real wealth and income — no matter what. Nothing can “make up” for a drop in real income. There are fewer eggs to go around. People WILL consume fewer eggs. Money has no power to change the brute fact that there are fewer actual eggs available than there used to be. Real consumption (and thus real income) WILL drop.
Whether there is inflation (a drop in the value of money) or not is a completely separate question, and is a simple choice of the central bank. You are advocating that the central bank SHOULD choose excess inflation, during the conditions of a supply shock. I don’t believe you, but in any case the main point is that this is a CHOICE of the central bank. Whether it happens or not, it didn’t happen “because” of the supply shock. It happened instead because the central bank chose “increased inflation” as a deliberate RESPONSE to the supply shock. That’s an entirely different thing.
I agree that inflation cannot prevent the fall in rea income from a negative supply shock. If you read me as saying that, I need to be more careful with my wording.
What inflation can do is facilitate change in relative prices when some prices cannot fall un absolute terms. Central banks maintain a low average target rate of inflation to accommodate a low average rate of Brownian movement in supplies and demand that need constant low average changes in relative prices to maintain full employment of resources. An extraordinary shock -- positive or negative, supply or demand -- needs the central bank to engineer extraordinary (temporarily over target) inflation to facilitate the larger changes in relative prices.
Also, like the last four years.
“But the shift of more and more attention to social media spaces makes that harder than ever. I’m not sure I have a solution, other than offering a reminder that each of us, as individuals, have some agency regarding what we talk about and click on and subscribe to…”
A nice cue to share this idea of “passing by” that I just read about…
"'Where one can no longer love, there one should pass by,'"
https://www.cbc.ca/radio/ideas/nietzsche-passing-by-healthy-discourse-1.7434781
I appreciate Matt’s ability here to, if not pivot exactly, subtly rotate to issues and policy ideas that could actually appeal to our new overlords - and frame it in a way designed to appeal to them. We shall see if this leads anywhere but kudos to the SB team.
Agree (and note that it's strategically un-paywalled). Well-played, SB!