Commentary on Political Economy

Friday 27 May 2022


Inflation has been pummeling the middle class for decades, but the out-of-touch CPI masks this reality

The ‘True Cost of Living’ index shows millions of low- and middle-income families don’t earn enough to buy necessities like shelter, food, and child care

The cost of living is shocking.


For several years now, many of us have focused on the scourge of “fake news.” But much as we may blame avaricious social platforms and conniving public figures for driving widespread cynicism, we need to consider the role played by another more innocuous reality: misleading statistics. 

Flagging confidence in both government and the mainstream media tracks decades in which official economic indicators—most notably those that purport to gauge the cost of living—have fundamentally failed to mirror middle-class reality.

Perhaps “fake” is too strong a term to describe the data-driven consumer price index (CPI), which serves as the U.S. government’s proxy for inflation. But the narrative the CPI has long burnished—namely that, since 2000, ordinary expenses have been fairly manageable amid rising wages—is entirely debunked by new research

Breaking news: U.S. inflation rate slows to 6.3%, Fed-favored PCE gauge shows, in a sign that price pressures could be peaking

CPI understates rising costs

Over the 20 years that preceded the present crisis, prices for things middle- and low-income Americans must purchase rose 40% beyond what CPI would indicate, more than wiping out a median earner’s income gains. In short, the CPI-driven narrative is something akin to “fake news.”

The implications are dire. Not so long ago, a family of four earning the median income in the United States could make ends meet with a little left over. 

But, as a study done by the Ludwig Institute for Shared Economic Prosperity (LISEP) reveals, that’s no longer true. A two-income family—say, one where one parent works as an emergency-room technician and the other as a home-health aide—would at the median have had $4,000 extra to spend after covering their basic needs in 2001. Today, by contrast, that same family would have to go $2,000 into debt to sustain a very modest lifestyle.

Follow all the inflation news on MarketWatch

Percentage of families in the U.S. population with sufficient household income to meet all minimal adequate needs, 2001 and 2019, by family type. For example, more than 80% of families with two adults and no children could afford the basics in 2019, but less than 20% of single parents with three children could.

Divorced from reality

That’s not to insinuate that the government is purposefully misleading the public. Rather, it suggests that the prevailing statistical methodology produces tragically misleading information for one clear reason: Prices for yachts, luxury hotel rooms, and other high-end items have risen much more modestly than the everyday items—food, housing, medical bills—that middle-class families are compelled to cover. 

So the CPI’s heavy weighting of those luxury goods divorces it from the inflationary reality it purports to track.

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Oddly enough, conventional wisdom within the world of economics isn’t that the government’s prevailing indicator understates inflation—but rather that the figure overstates it. For decades, many have worried that CPI fails to account for the possibility that consumers would find substitutes for more expensive products rather than accept a higher price. More recent studies have argued that CPI does not properly account for technological change. 

But between 2001 and 2020, rents shot up by 150% at the same time CPI’s measure of housing costs grew by a mere 54%. Is it any wonder, then, why so many Americans sense that their plight is invisible to the people in charge?

Median wages adjusted for the CPI (orange line) show healthy increases in the past two decades but have been falling (white line) when adjusted for the True Living Cost index.

Failure of fiscal policy

None of this is to absolve those who have cynically exploited American skepticism by stirring various pots or spreading false conspiracies. Nor is it to argue that the Federal Reserve should pursue a monetary policy different from what the board of governors might be inclined to employ given more traditional indicators. Today’s situation is real, and policy makers should work in concert, as President Joe Biden has proposed, to curtail the price increase borne primarily from the supply-chain bottleneck and the war in Ukraine.

But what has now been revealed as a more endemic divergence between CPI and a more accurate measure of middle-class inflation suggests that our fiscal policy has over the decades failed to ensure that successive generations of Americans have equal opportunity to enjoy the fruits of upward mobility. 

Bad statistics have shrouded a worrisome economic reality that affects not only the poor and working class, but those earning median incomes as well. And once today’s crisis is stabilized, Washington should be focused squarely on rectifying that oversight.

Those of us who believe a responsible civic discourse rests on broad public understanding of the real world should stand strong against those who would exploit misinformation to serve their own interests. But we should also acknowledge reality. Purveyors of what is supposed to be good, fact-based, information have done us no favors by championing statistics born in some unreality. And the fact that government statistics have inadvertently done more to hide than reveal the extent to which America’s middle class has been hollowed out suggests we need to rethink the way we understand the world as it is.             

Eugene Ludwig, a former U.S. comptroller of the currency, is chair of the Ludwig Institute for Shared Economic Prosperity and author of “The Vanishing American Dream.


 If you examine carefully (although it is an extremely simple exercise) Goodhart’s Law, you will find why Jay Powell MUST BE REMOVED from heading the Fed.

Goodhart’s Law, in a nutshell, says that once a central bank instrument applied to a target BECOMES KNOWN, it immediately loses its effectiveness. 

It’s a simple thing to understand. Goodhart just proved empirically that it is applicable in reality.

In a competitive regime, once market agents know how a central bank operates…they take measures aimed at avoiding the adverse effects that follow from that operation. With the inevitable outcome that the effectiveness of the central bank operations is dissipated and lost. 

In other words, Goodhart is saying that, whilst it is DESIRABLE that central banks keep markets informed, there are times when you have TO SHOCK AND AWE markets into a retreat by barring the escape route! Effectively, by punishing markets for challenging the central bank!

Goodhart was aiming at “moral hazard”: if I lend you a dollar, you have a problem. If I lend one million, I have a problem.

Similarly with central banks: if I telegraph every one of my moves in advance, it is obvious you will take preventive steps to elude or defeat my purpose.

And that is precisely what the Fed is doing with asset markets! By being “data driven”, the Fed keeps giving market agents ample room to jump ahead and give it very little room to change course ON PAIN OF CAUSING MARKET PANIC!!!!

Essentially, the Fed is allowing market agents to hold it to ransom by threatening “tantrums”!

So beholden is the Fed to markets, that it has lost all authority and now markets openly and aggressively DEFY its every move well ahead of time!!!

I discuss central banking and financial instability in a regime of rising rates and consequent disinflation/recession in this fairly technical paper:

Wednesday 25 May 2022


 Ross Douthat in NYT:

“…the American republic does appear sclerotic, stalemated, gridlocked and in need of some kind of conspicuous renewal…

Both right and left are reacting, in different ways and with different prescriptions, to the sense of crisis and futility in our politics, the feeling that surely some kind of revolution or transformation is due to come around — that God in his wisdom is overdue to send us a Lincoln or a Roosevelt and that the existing norms of our politics probably won’t survive the change.”

Unfortunately, for the entire West, it’s a case of…

“Così non si può andare avanti”.

Reform is overdue, if some kind of revolution, left or right, is to be avoided. But the reform must go in the direction of greater social cohesion: more economic equality and social solidarity; less, much less, identity politics and divisions - which, I insist on this point, are financed by elites as distractions from the important national tasks.

As an example, this NYT piece on “incivility” has the right order of priorities: distributive justice, (for America) racial and ethnic justice (almost inapplicable to Australia), greater gender equality. The writer duly leaves out “identitarian” garbage, which includes the tragic lie of “the right to bear arms”… because it distracts and, worst of all, it divides and enervates the polity.

Tuesday 24 May 2022


When you find a moment, you may want to have a quick perusal of this stunning Michelle Goldberg piece in the NYT.

It will demonstrate why, as I keep arguing, the political is personal always, and the personal is rarely political. Because political power, not personal leanings, is what rules the world. 

What Goldberg leaves out is that politics has turned conservative if not reactionary, and is crushing the personal of identity politics for the precise reason that the "progressives" grossly misjudge the real needs of people in societies as they are and have been for millennia!

The Left can and will NEVER match "the political strength" of the Right, as Goldberg calls it, because the Left idealises the needs of the vast majority of people, which are very material and very narrow and..."practical".

One thing I learned at Uni and as a lawyer is how inner city types think they can change REALITY by simply changing how they DESCRIBE it! (That's Goldberg's point - something on which I focused 40 years ago.)

An example: I am and always have been "a walking dictionary" (at least since my brother bought me The World Encyclopaedia Dictionary in 1975).

But I never knew the word "TEAL" because it is a very specific colour hue adopted by architects and painters, perhaps. So you can see how these people totally distort political reality by simply giving themselves a new LABEL! 

NOTHING CHANGES! NOTHING WHATSOEVER! If anything, things get worse - "things fall apart". But these people delude themselves and others that they are in control. They will find out soon enough the real state of affairs...


"Progressives sometimes seem to believe Breitbart’s maxim as well, acting as if the way to change the world is to change how we describe it. At best, the left’s ever-shifting language rules can push social norms in a more decent direction. At worst, they’re obscurantist and alienating. Either way, they reflect a choice about where to focus political energy."

And “political energy” is exercised most powerfully by expressing the material practical needs and interests of people, not by seeking to deflect attention from them through empty slogans and labels. Ultimately, reality catches up with dreamy ideologues…

Saturday 21 May 2022


 My good friend Paul Monk in The Oz likens the challenge Australians face to defend what is left of the “public thing” (the res-publica) to what the Greek city-states confronted in their epic struggle against the vast Persian armies cobbled together by the various kings (Cyrus, Darius) in the fifth and fourth centuries B.C. (Before Christ). 

Alas, the historical analogy is mistaken, and this also vitiates the political analysis. However much the autocracies (China, Russia) may seem to resemble the Persian Empire, the reality remains that the present-day empires (and one could add here Turkey, Iran and India) are immensely more homogeneous and cohesive than the loose confederation of satrapies that the Persian kings tried unsuccessfully to knit together into a compact network. And this is because the modern autocratic empires benefit in part from religious fanaticism (Iran, Turkey and India) and in part from truly horrific mediatic propagandistic networks that easily assure them popular support and consensus through disinformation and indoctrination.

Not only. But on the Western side we have a historical configuration far more akin to that of the Late Roman Empire internally economically stagnating and defeatist through the undermining pacifism and passivity of rising Christianity.

The Greek polein or city states, like the early Roman Republic, were made up of fiercely independent slave landowners who took a very active part in the running of the polis or city-state (whence the word “politics”) for which they were more than prepared to give up their lives. (Amazingly, Ukraine has turned out to be a very unlikely emulator of that ancient spirit.) The same obviously and emphatically does not apply to Western societies, for reasons that I have been articulating seriatim (from time to time).

Far be it for me to criticise my valiant and capable friend (I like his reference to Dennys Prior of the Classics Department whom I remember fondly). But the justice of my objection is hardly confutable - alas!

My uni friend Paul Monk is a TRUE PATRIOT, one of the few left. He deserves a monument!

Friday 20 May 2022


 Jacob Greber in the AFR captures (how wittingly? only accidentally?) the social and political catastrophe that Western bourgeoisies have brought upon themselves and upon their countries with reference to today’s elections in Australia:

“It may well turn out be a definitive election that breaks down the “big-tent” policy models of both Labor and the Coalition. No doubt many would hope this vote ends the past decade of turmoil and uncertainty and weak policy. But it may turn out that the post-2010 period was merely a warm-up session.

Governing in the social media- and smart-phone age, which has slashed the cost of entry for hucksters and political charlatans, and supercharged the power of tiny but noisy minorities, has been getting harder worldwide. It has upended traditional political alliances and undermined the old political institutional stability that only dominant, competing, political parties could guarantee.

Governments have become scrappy, in both style and perception, since the early 2000s. So much so, that the durable models demonstrated by Bob Hawke/Paul Keating and John Howard are at risk of becoming the historical exceptions to the rule of chaos and toothless, temporary leadership.”

Thursday 19 May 2022


 This article in Le Monde by two sociologists advances my contention that "populism" originates from the disappearance of quality employment for the middle classes.

I'm not entirely happy with this formulation of the problem: I think it is the "liberal professions" in particular that have been demoted in terms of status and income, and therefore of political independence and influence.

I have nearly all Rodrik's works (he's at Harvard). The limit of his approach is the failure to link "globalisation" to the essential dynamics of capitalist industry.

Wednesday 18 May 2022


In the short extract below, the NYT writer refers to my favourite political theoretician of the last century, Hannah Arendt (my most popular piece, The Philosophy of the Flesh, borrows her words for the title and is a lengthy analysis of her “The Life of the Mind”).

Here is the extract:

“The experience of reading Hannah Arendt’s 1951 classic “The Origins of Totalitarianism” in the year 2022 is a disorienting one. Although Arendt is writing primarily about Nazi Germany and Stalinist Russia, her descriptions often capture aspects of our present moment more clearly than those of us living through it can ever hope to.

Arendt writes of entire populations who “had reached the point where they would, at the same time, believe everything and nothing, think that everything was possible and that nothing was true.” She describes “the masses’ escape from reality” as “a verdict against the world in which they are forced to live and in which they cannot exist.” She points out that in societies riddled with elite hypocrisy, “it seemed revolutionary to admit cruelty, disregard of human values, and general amorality, because this at least destroyed the duplicity upon which the existing society seemed to rest.”

[You can listen to this episode of “The Ezra Klein Show” on Apple, Spotify, Google or wherever you get your podcasts.]

It’s hard to read statements like these without immediately conjuring up images of Vladimir Putin’s Russia or Donald Trump’s presidency or the QAnon faithful. But that’s exactly the point: The reason Arendt is so relevant today is that her diagnosis doesn’t apply just to the Nazi or Soviet regimes she was writing about. It is more fundamentally about the characteristics of liberal societies that make them vulnerable to distinctly illiberal and authoritarian forces — weaknesses that, in many ways, have only become more pronounced in the 70 years since “The Origins of Totalitarianism” was first released.” 

Note that the writer refers to Putin and Trump…but not to Xi! Unforgivable.

But the biggest omission is that the reason why Western publics are ripe for authoritarian turns is that the “normality” of their everyday life has been SHREDDED by the elites (to facilitate “globalisation”). From social media, to cancel culture to sexual and gender trauma, citizens emit “a verdict against the world in which they are forced to live and in which they cannot exist [wherefore in societies riddled with elite hypocrisy] it seemed revolutionary to admit cruelty, disregard of human values, and general amorality, because this at least destroyed the duplicity upon which the existing society seemed to rest.”

This systematic destruction of, first, normality, second, solidarity, and third, security is the reason why our societies are becoming utterly and irreparably ungovernable!

The mistake of the “liberal” elites is to think that the real problem is populism when in reality populism is a REACTION to the social devastation of bourgeois “liberalism” both in the ethical-moral AND in the political-economic spheres!

Sunday 8 May 2022

 And almost to prove my theories AND Ross Douthat's account, here is Maureen Dowd attacking the conservative judges on the Supreme Court WHILST WHOLLY IGNORING the politico-economic reality that these elite Republican judges are THEMSELVES exploiting these "woke" issues TO MAINTAIN CLASS DIVISIONS!

Here Democratic and Republican elites exploit MORAL beliefs TO MAINTAIN CLASS DIVISIONS!

But class conflict, which both US parties wish to conceal behind the "judicial screen" of court-made law (removed from Congress) actually comes back to haunt the American polity!

These same dynamics are playing out in Australia, as is made plain by the current electoral campaign!

Saturday 7 May 2022

This is a MASTERFUL piece from Ross Douthat at the NYT. WELL WORTH READING, if you have time. It will help understanding the political and economic dynamics of how "wokeism" divides and fractures Western societies ONLY APPARENTLY on moral lines BUT IN REALITY along CLASS CONFLICT.

I often jokingly suggested on my Blog that perhaps Ross Douthat was a frequent visitor (!) given how his columns seemed "to shadow" the theories I had just advanced!

This piece is almost a case in point because, from a political, economic and sociological standpoint it clearly reinforces my view, based on politico-economic theory, that business elites use these "woke" matters as (a) potent weapons to divide class solidarity in favour of capitalist globalisation and (b) distract from the negative social effects of this globalisation.

Here it is:

How Roe Warped the Republic

Credit...Damon Winter/The New York Times

Opinion Columnist

In one sense, liberal outrage at the prospect of the Supreme Court overturning Roe v. Wade seems like an uneasy fit with liberalism’s current master narrative, which holds that liberals are defending democracy against the threat of authoritarianism and fighting for the principle of majority rule against a Republican Party that benefits from counter-majoritarian power. After all, overturning Roe would return the abortion issue to the democratic process, after two generations in which abortion policy has been set by a juristocracy, an elites-only vote of 7 to 2 or 5 to 4.

However, narratives are adaptable. “In Draft Abortion Ruling, Democrats See a Court at Odds With Democracy” ran a recent Washington Post headline, over a story summarizing some of the arguments (the polls showing public support for Roe, the fact that three of the justices were appointed by a president elected with a minority of the popular vote) being offered to prove that letting states or Congress legislate on abortion is actually authoritarian, not democratic.

I don’t want to argue with these interpretations so much as take note of them, while offering a different view of abortion’s place in the American republic’s discontents. I share some of the anxieties that inform the liberal master narrative these days — about a country too deeply polarized to function, a populist right that’s steeped in paranoia, a decay of the norms that allow republican government to function. But if I set out to write a story about how exactly we got here, I would place the original Roe decision near the center of the narrative — as an inflection point where the choices of elite liberalism actively pushed the Republic toward our current divisions, our age of chronic strife.

When seven Supreme Court justices overturned the nation’s abortion laws in 1973, they were intervening in a debate whose politics were unstable and complex. Both pro-life and pro-choice sentiment cut across both parties, and across ideologies as well — there were anti-abortion liberals, many of them Catholic Democrats, and Republican and right-wing supporters of abortion who regarded it as a possible prop to social stability.

It’s likely that the debate would have been nationalized and polarized eventually no matter what. But the Supreme Court decision nationalized abortion politics in a very specific way, removing most abortion regulation from the realm of legislative debate and linking it to the court itself and the office of the presidency. Thereafter, instead of being fought over in the institutions that are designed to channel mass opinion and activist mobilization into stable settlements — whether state legislatures or the Congress — abortion would be bound to the all-or-nothing outcomes of presidential elections and Supreme Court nomination fights.

The predictable result was an increasingly Manichaean politics: You were either for the original ruling or against it, no compromises could be negotiated or local policy experiments conducted, and the issue was distilled every few years to a referendum on presidential candidates and high court nominees, the friend-enemy distinction in its purest form.

Over time the apocalyptic style that this encouraged in both parties would expand to encompass other issues, such that the role of abortion was partially obscured. But whether it was feminists rallying to a sexual-predator president in the 1990s or religious conservatives throwing over all their ideas about character and decency and piety to back Donald Trump in 2016, when polarization corrupted principle, the Roe debate was usually at the root.

But the nature of the polarization also mattered. A nationalized abortion debate split America along two especially dangerous lines of fracture, class and religion. Though liberals often insist that they are championing abortion rights on behalf of the poor and marginalized, the reality is that poorer and less-educated Americans are more likely to be pro-life, while the rich and well-educated are more likely to be pro-choice. Likewise, though pro-lifers stress the secular arguments against abortion, the reality is that Christian beliefs are one the best predictors of anti-abortion sentiment.


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So the sorting that defines our politics today — a right that’s working-class, rural and religious, a liberalism of the city and the secular and the managerial class — was accelerated by the divisions over Roe.

And the way Roe was decided made this polarization worse. From the perspective of geography and class — was accelerated by the divisions over Roe.

And the way Roe was decided made this polarization worse. From the perspective of geography and class, a group of robed lawyers in Washington, D.C., demanding that the country simply accept their settlement on one of the gravest moral questions imaginable is the perfect primer for a populist revolt.  What has happened in similar ways with other issues — immigration, most notably — happened with abortion first: The elite settlement failed to settle the issue, and the backlash encompassed not just the issue itself but elite legitimacy writ large.

From the perspective of religion, meanwhile, by constitutionalizing the issue Roe didn’t just hand a normal political defeat to the pro-life side; it seemed to read their core convictions out of the American constitutional order entirely, seeding a religious alienation that continues to bear bitter fruit today. And the timing was particularly unfortunate: When Roe was handed down, both Catholicism and evangelicalism had just passed through periods of reform and modernization that promised a reconciliation between Christian faith and liberal modernity. Then immediately, liberal modernity changed its demands and made them all-or-nothing, making the moral price of admission more than many Christians could reasonably pay.

Finally, and crucially for the deformation of liberalism itself, the price demanded was not just moral but intellectual — because Roe was not a persuasive constitutional decision,  but rather the clearest-possible case study in what it looks like when justices legislate from the bench.


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This is something that was acknowledged by a few rigorous liberals from the beginning, and the best feminist legal scholarship — including the work of Ruth Bader Ginsburg — always sought a different grounding for abortion rights.

But once you have nationalized and constitutionalized an issue, it is not so easy to adapt your position or your arguments. Having (seemingly) won the policy battle, you are incentivized to avoid hard debates, avoid reopening vexing questions, assume the worst of your opponents and never admit they have a point. And in that sense the commitments that Roe required of its supporters anticipate the entirety of liberalism’s drift: toward a debilitating mix of expert certainty and incuriosity, moral superiority and ignorance of what its adversaries actually believe.

Nothing in the story I’ve just told means that overturning Roe now will necessarily improve either liberalism or conservatism, reinvigorate democracy or depolarize our politics. You begin from where you are, and where we’ve ended up does not inspire confidence in whatever may come next.

But if Roe does fall, it makes sense that a decision that did so much to divide our parties and delegitimize our institutions would ultimately be undone by the very forces it unleashed: In its beginning was its end.