Edward Foster

Who Loses From Inflation

To know who loses from inflation we must understand the social forces that cause it and be able to predict what will happen if we stop it. We do not know enough to make such a prediction, so my answer to the question is partial. Inflation should not be blamed for the fall in private consumption caused by the Organization of Petroleum Exporting Countries (OPEC), food shortages, or government spending. Rather it is the way we have resolved the conflicts created by the need to cut consumption. The main cost identified by economists is distortion of economic activity as people change their behavior to avoid holding cash; such effects are not severe enough to explain the intensity of public opposition to inflation. This could mean simply that people are deluded, blaming inflation for shortages, rather than the reverse. But here is another possible explanation: the most serious costs of persistent inflation may be that it destroys our confidence that society can solve its problems and creates fear that our social contract is falling apart. Coupled with the fear is resentment, based on suspicion by many that inflation treats them unfairly. Those who lose are all of us who share those fears and frustrations.

Real Earnings of Full-Time Workers by Education, Age Group and Sex, 1974–2012

This note rearranges the data from Census Bureau Personal Income (PINC) tables 32–35 showing earnings of full-time, year-round workers from 1974 to 2012 to display the 39-year time series for average real earnings by education, age group, and sex. Aggregated data show strong upward trends for all males and all females combined, for males and females with a bachelors degree or more and for those with less than a bachelors degree. However, all trends have flattened or become negative since 2000. Shifts in the composition of the work force over time mean that trends in aggregated earnings incorporate those shifts, so may not be useful for projecting earnings growth for any individual plaintiff of a specific age and educational background. The note addresses that problem in two ways: First it re-weights the aggregate statistics to remove some effects of shifts in composition of the workforce. Second it gives summary statistics for log-linear regressions of real earnings on time for all education-age-sex combinations for the period 1974–1999 and for 2000–2012. Growth for the latter period is negative for most of those combinations. Supplemental material for a Microsoft Excel workbook contains the underlying data and several figures and is accessible from the Journal of Forensic Economics website.

Competitively awarded government grants

Abstract The model of consumer behavior subject to a budget constraint, often applied to such programs as Federal grants to local governments, ignores the fact that the terms and size of the grant may be influenced by the potential recipients own efforts. This is most clearly true for competitively awarded grants. In a simple case the marginal recipient of a competitively awarded grant receives no net private benefit and imposes a net loss on society for his effort. The issue is general and should be considered in adopting a grant program to achieve social goals.