America is suffering from the wide dissemination of misinformation. The advent of social media on the Internet, such as Facebook, has introduced new means for the rapid and widespread dissemination of potentially deadly lies. Most of us retweeting or “sharing” lies believe them to be true. The motives of those who invent them are another matter.
A great deal of attention has focused on Facebook. What should it do to protect us from misinformation and who should set the rules? Facebook is a private platform on which we post our thoughts and pictures or repost information supplied by others. It does not provide content of its own. Facebook’s business model is to attract as many users/viewers as possible and to keep them happy in order to connect them with advertisers selling products that might interest them.
Some have claimed that the Facebook “like” button and other reaction indicators has enabled Facebook to direct posts that are liked or that create a strong reaction to the reacting users, thus creating echo chambers (bubbles) in which people increasingly only hear what they already agree with. If they are viewing misinformation, it risks going unchallenged. “Must Read on Facebook”
Without delving (again) into how well or poorly Facebook is doing its job of bringing useful information to its users, I want to address (again) the question of who should be responsible for rejecting and filtering out false information. “Facebook covid misinformation”
Should it be the government (the Xi, Putin model only with Trump or Biden at the helm), social media themselves (the charming Mark Zuckerberg), or its users (us)?
Anyone who has read more than one of my blogs knows where I stand. America’s greatness derives from the fact that sovereignty in America resides in each individual (us) and we delegate rule making upward (to our family and friends, then our clubs and villages, then our cities and states, then to the Federal government, and finally, on a very limited basis, to the world community) as needed to protect ourselves and our property and to facilitate cooperation and commerce among us. In short, while Facebook and other social media platforms should continue to work at improving their game, the choice of what to believe should rest with each of us.
We should learn from our parents and schools how best to evaluate information and where to look for trustworthy information. The success of American democracy will depend, in part, on how well we each perform this duty. I recommend that you start with the new book by Jonathan Rauch: The Constitution of Knowledge: a defense of truth. “Trust”
Prices of many goods and services have increased in recent months. Are these increases permanent or temporary or will they continue rising in the future? Before exploring those questions, it is important to understand the measures of inflation we are considering. What is the current rate of inflation in the United States? U.S. inflation in September was 3.0% (Compound annual rate of change for Consumer Price Index without food and energy prices over the month of September), or 4.0% (percent change from a year ago) or 5.4% (percent change from a year ago including food and energy prices). What does it mean if this is temporary or long lasting?
If prices remain where they are today after the 5.4% increase from a year ago, inflation going forward would be zero even though the cost of living would be permanently higher. If inflation is long lasting it means that prices will continue to rise for some time (years). What are the factors that influence the future behavior of prices? What should we expect in the U.S.?
The price of a good or service increases when its demand exceeds its supply and similarly for prices in general (when aggregate demand exceeds aggregate supply). As prices are measured in a country’s currency, supplying too much of the currency (generally when the money supply grows more rapidly than the supply of goods and services) causes its value to fall (i.e., prices in the country’s currency to rise).
On the cost side, firms will hire workers and pay them a particular wage (and related benefits) when it adds more to the company’s income than it costs, which includes the cost of the tools they use (capital). Workers will accept a job when its benefits (pecuniary and nonpecuniary) are the best they can find. The inflation expected by the employer and the employee over the period of the wage contract is an important factor in determining what will be offered and what will be accepted.
Because of changes in consumer demands, worker preferences, halving of work visas for immigrants, and supply chain disruptions, labor markets are temporarily in turmoil. September unemployment in the U.S. was 7.674 million while there were 10.4 million job vacancies. Employers are raising wages in an effort to fill those vacancies. As reported by Scott Lincicome: “Goldman Sachs analysts saw a ‘perfect storm of factors that have significantly reduced the supply of workers who are currently looking for jobs at the same time that labor demand—as measured by job openings—has risen to an all-time high.’ This includes… state and federal benefits, early retirements, severely restricted immigration, a switch to self-employment, fear of COVID, and a geographic mismatch between unemployed workers and available jobs. Combined, these factors account for most of the missing workers out there.” “What if the labor shortage isn’t transitory?”
In short, the labor force has shrunk just as the demand for output is increasing. This excess demand for workers is driving up labor costs and thus pushing up output prices. If the 5 or 6 percent price increase experienced over the present year is expected to be temporary, i.e., if prices are expected to return to their level a year ago, because the supply of labor returns to its pre-pandemic level, wage increases should be temporary as well, falling back to their pre pandemic level and growing thereafter on average with labor productivity plus the 2% inflation target of the central bank once there is full employment and better labor market balance.
More likely, if the inflation is expected to be temporary, i.e., the current 5 to 6 percent inflation stops but prices remain at their increased level, wages will remain at the increased level, but their real (inflation adjusted) value will fall back to their original level. In other words, if these higher prices are expected to be “permanent,” the nominal wage increases now being experienced will not result in any increase in real wages and the worker short fall might remain.
While some of those who withdrew from the labor force will probably return, it is not likely to fully satisfy the demand for various reasons (early retirement, fall in immigration, etc.). Filling (or attempting to fill) the remaining labor shortage will require additional wage increases (unless the public’s demand for goods and services falls–see below). In that case, firms will plan to pass on their higher cost of labor to their customers. If we, the customers, can continue to pay the higher prices, the inflation will continue. Expectations of higher prices and or inflation will be realized.
The Covid-19 pandemic caused a sharp fall in output and thus to most people’s incomes. The government provided extraordinary financial support to temporarily fill the resulting income gap. Such support did not increase the output of goods and services or even prevent their decline but rather temporarily redistributed income from those saving it to avoid hunger and defaults on rents, mortgages, and other financial obligations by those who lost it. “The new covid-19 support bill” Because personal incomes were substantially maintained while actual output fell, personal savings rates increased dramatically and continue to be well above pre pandemic levels.
The Federal Reserve pitched in by buying up huge amounts of the resulting government debt increasing its balance sheet from $3.5 trillion in February 2020 to $6.3 trillion in August 2021 (measured by the monetary base, M0). This fueled an increase in board money (M3–M0 plus bank deposits and similar liquid assets of the public) from $15.5.0 trillion in February 2020 to $20.8 trillion in August 2021. This increase, though substantial, was significantly less than the increase in M0 (which almost doubled) because the Fed paid interest to banks for keeping the new base money with the Fed (excess reserves) rather than lending it to the public, by paying banks interest on all bank reserves kept with the central bank.
Historical experience is that the public will not be willing to hold these larger amounts of money for ever. They will eventually attempt to spend them down to their traditional (normal) levels, thus adding to aggregate demand for goods and services (and inflationary pressure).
Eventually, the demand for goods and services (aggregate demand) must fall to match real output, or output must rise to match demand. But if the Federal Reserve continues to print money faster than its real value is being inflated away, the inflationary process will continue or accelerate. Similarly, if the government continues to redistribute income from those with a lower propensity to consume (generally higher income families with a higher savings rate) to those with a higher propensity to consume (generally lower income families that save little), aggregate demand will remain excessive perpetuating inflation.
Historically, hyperinflation episodes invariably exploded in the collapse of the currency. “Hyperinflation in Zimbabwe” Turkey has come closest to a high inflation “equilibrium.” From the mid 1980s to the end of the 1990s Turkey’s inflation rate varied between 80 and a 120 percent. A high inflation “equilibrium” would be characterized by nominal interest rates and wage rates that fully incorporate the ongoing expected rate of inflation in order to preserve the appropriate real (inflation adjusted) rates. Interest rates in Turkey in this period generally exceeded 100%, as did wage growth.
In its most recent World Economic Outlook, the International Monetary Fund stated that: “In settings where inflation is rising amid still-subdued employment rates and risks of expectations de-anchoring are becoming concrete, monetary policy may need to be tightened to get ahead of price pressures, even if that delays the employment recovery.” “World Economic Outlook-October 2021”
As stands out clearly from the increasingly but unevenly rising inflation in the 1970, the process of increasing inflation is not linear (see the chart above). As inflation increased, the Federal Reserve tightened monetary policy (raised interest rates to slow monetary growth) to slow inflation, causing real output to slow or decline. Policy then eased prematurely, and inflation and the expectation of higher inflation took off again, each time reaching a higher peak (until Paul Volcker stepped on the breaks and ended the game in 1979-80–the exciting year I worked at the Federal Reserve Board).
The Federal Reserve is smarter today than it was in the 1970s and has the tools to prevent the acceleration of inflation and the unhinging of inflation expectation. But the excess money balances and personal saving are very large and the government’s seeming willingness to run up unprecedented deficits create a powerful inflationary head wind. The tightening of monetary policy that will be needed (sooner rather than later in my view) will reduce the Fed’s purchases of Treasury debt and increase interest rates. Higher interest rates will increase government spending for debt service on its very large stock of debt, which will further increase government borrowing and debt or require cuts in spending for other programs. This must be added to the economic challenges of confronting climate change, the continuing recovery and adjustments from the Covid-19 pandemic, the deepening and destructive partisan divide that is stifling Congress, and the growing lack of public trust that drives it.
Whether our current inflation is temporary or longer lasting depends on how quickly and decisively the Federal Reserve tightens monetary policy and how quickly people go back to work. Whether the U.S. economy and the government’s large stock of debt continue to enjoy safe haven status around the world depends heavily on whether our government brings its spending and tax policies under better control.
Did you know that the first Covid-19 vaccine shot reduces your body’s ability to produce white blood cells by 50% and the second shot reduces it by an additional 25%? For good measure these shots contain poisonous ingredients as well. Did you know that “former” President Trump actually won the 2020 election? Or that former President Donald Trump’s grandfather was, “a pimp and tax evader,” and that his father was a member of the KKK. Or that Rep. Alexandria Ocasio-Cortez proposed a ban on motorcycles, and that House speaker Nancy Pelosi was diverting Social Security funding for the Trump impeachment inquiry. None of these claims are true but they were viewed and often believed by millions of Americans, often on Facebook.
Granted that it is often hard to know who or what to believe, many of these claims don’t pass the laugh test (though they are rarely funny). A debate is now underway in the U.S. over whether social media should do more to weed out such lies. (“What to do with social media”) While the best answer to this dilemma probably requires balancing several approaches, I want to focus on our own responsibility vs the government’s to sort out the “truth”. To what extent should we rely on protection by government (forgive me for referring to it as “Big Brother”) or on our own efforts to identify reliable (trusted) sources of information (“Trust”) and to develop the capacity to spot obvious or likely lies. Where do we want the dividing line between what we do for ourselves and what we want the government to do for us?
Over the years I have defended free speech as the best way to challenge bad ideas. “Do we really need free speech” So naturally I resist giving the government much of a roll in protecting us from offensive, or “wrong” speech. Controversies over vaccines, facemasks, climate change, oil pipelines, etc. often involve serious claims on each side that are best tested in open debate. In my view, Facebook and other social media platforms should be free to set their own rules and standards for posts. According to The Economist “Nick Clegg, Facebook’s vice-president of policy and global affairs,… pointed out that last year the company removed 30m posts that violated its policies on terrorism and 19m posts that crossed company lines for inciting hatred.” “Facebook flounders in the court of public opinion” Their users can decide whether they agree or disagree with these rules and either stay or opt out of the social platform.
But we have an interest in and responsibility to evaluate the many claims that come our way. We can do a better job of providing our children with the tools for spotting fake or potentially fake information. Along with civics and home economics (how to cook etc.) that are (or should be) taught in high school, students should be taught how to spot and challenge highly improbably statements.
For example, it does not require any medical knowledge at all to spot the vaccine video referred to above as a fake. The medical “expert” who presents her shocking claims is anonymous, as are her credentials and medical affiliations. The vaccine she reports on and claims will kill 20 to 30% of those who take it is unnamed. All the animals it was tested on died, she said. While many of us have lost confidence in the veracity of the information provided by the Food and Drug Administration and the Center for Disease Control (drugs might be approved too slowly or too quickly, etc.) none of us would (or at least should) believe that they would approve a vaccine with the properties alleged in the video.
I have seen much better produced videos the were totally fabricated stories for reasons I find hard to understand (we shouldn’t blame Russia for everything). One very well done and potentially convincing video claimed that no plane actually crashed into the Pentagon on 9/11. Any sensible person should have doubts about claims that are so directly contradicted by pictures and reports to the contrary. But I must admit that my rejection of its big lie was fortified by the fact that at that time I lived next to the Pentagon and saw the damage to the building, and I witnessed the wreckage of the plane laid out for months in the Pentagon parking lot. I also knew a woman who died in that plane.
More could be done by social media platforms to flag potential misinformation, but it should not be censored by the government. We should strengthen our personal capacity to evaluate propaganda but most importantly we need to carefully establish news sources that we trust. Knowing that the Facebooks of the world feed us what they think we like, thus creating an information bubble, we should make the effort to check other sources for their views. We have not flourished as a nation because we turned over our care to the government even if it must provide a critical foundation for our security and interactions.
Our country was founded and has prospered on the proposition “that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” We jealously guard our individual liberty. We are free to decide what we want to do and how we want to do it. This liberty is subject to two major conditions: we must live with the consequences of our choices and actions, and our actions cannot interfere with the same exercise of freedom by others. We never fully live up to these high principles, but they do define the goals we continue to and should continue to aim for.
When our actions or circumstance fail to sustain us, we do step in to help those in distress, whether from family obligations or friendships or a government administered social safety net. We continue to debate and refine its features.
Determining the boundary between those actions I am free to choose, and those that unacceptably affect others is not always easy. Walking in public naked is not acceptable in most societies (except at designated nude beaches). While this would not infringe on the freedom of others to behave as they want, it would “force” them to see something they do not want to see.
I chose this example because it does not fall neatly into something purely private that I have a right to do (walking around my home naked) or something clearly and obviously damaging to others that I do not have a right to do (driving my car through my neighbor’s garden). In the realm of social norms, I can walk in public dressed in many ways depending on the society I am in. A man might freely walk around in a dress (if he chooses the neighborhood carefully) without getting knocked down in some societies but not in others. Such social norms are important in defining and guiding acceptable public behavior and they vary across societies and over time. Such norms are continuously debated.
But clearly my freedom to swing my fist ends where your face begins. If you are infected with a contagious disease, you do not have the freedom to walk around potentially infecting others even in the most libertarian of societies (e.g., lower Manhattan). I assume that anyone sick with Covid-19 knows that she must isolate/quarantine herself.
But what about someone who doesn’t feel sick but hasn’t been vaccinated?
Any establishment has the right to require that only vaccinated people work or shop there and/or wear face masks. And I certainly have the right to attend only those performances or eat in those restaurants that impose these requirements. These are implications of freedom.
Surely everyone understands and accepts these propositions. So why is there such controversy over wearing masks and getting vaccinated? I don’t know the answer to this question but will suggest a few factors that I think are important. That such health issues have become so politicized is almost more distressing than the fact that in the United States 728,000 people have died from Covid-19 by October 10, 2021.
One reason is that some people are pushing back on being told what to do by the government. Such behavior is common in freedom loving children but rather unseemly in adults. Another is that vaccines were developed with miraculous speed and their effectiveness and potential side effects are not yet fully known. None the less the evidence is overwhelming that being vaccinated significantly increases your prospects of living and surviving the infection compared to those who are unvaccinated. Another is that during the Trump administration medical policy and advice became quite politicized. Many of us, often with good reason, stopped trusting the messages from the CDC and FDA. And to this day government messaging remains poor. Rather than offering advice based on the most recent evidence (which can change over time) and the reasons for those recommendations, government pronouncements are often confusing and sometimes sound like demands. Many of us have lost trust in the government’s pronouncements. Unfortunately, some people have put their trust in unreliable sources of information and even, in some cases, in deliberately malicious sources (and we can’t always blame Russia).
Where our choices and actions affect only ourselves, we should be free to do as we like and benefit (or suffer) from the outcome. Where our actions affect others, more or less directly, social norms and government rules should limit our choices. In societies where its citizens live by the golden rule and respect these norms, beneficial behavior is followed voluntarily — enforcement is not a serious problem. We must determine the sources of information that we trust carefully and based on such information we must treat our neighbors with the respect we expect from them.
Protecting our freedom is critical but it is not enough. We must also exercise it virtuously. The “fusion” of freedom and virtue has been (most of the time) the basis of American success. We seem at risk of losing both. Get vaccinated now for everyone’s benefit. Please.