Part of the underlying drama of the show The Americans is that we know how it ends up. The glorious communist utopia of the Soviet Union, to which the main protagonists have devoted their lives as undercover spies, goes belly up at the end. Which is to say: they seem to be wasting their lives on a lost cause. The viewer knows this going in. The characters do not. They continue to believe they are working for the great cause.
You can summarize every domestic economic policy of Russia following the Bolshevik Revolution through 1991 as an attempt to salvage the unsalvageable. The attempt began in 1922 with the New Economic Policy, an expedient to save lives following the disastrous wartime socialism. It continued all the way through Nikita Khrushchev’s attempt to create a pricing system for planned markets. Even Mikhail Gorbachev’s reforms were intended to save the system from itself.
In the period covered by the show, Soviet elites had come to the conclusion that communism was failing for one main reason: corruption. The goal of the secret police, then, was to find the people who were doing bad things not allowed by law and prosecute them. Surely more force would lead to more compliance, which would then cause the central plan to work. You can look at this today and think: how ridiculous can you get? Obviously the whole model was wrong and needed to be upended. But it’s not so easy to throw out one model, and, along with it, the entire intellectual apparatus that backed it.
That Soviet communism persisted 74 years, and that people even today subscribe to the socialist model of economic organization, is a perverse tribute to the power of an idea.
In one scene, the Soviet secret police have in their interrogation room a woman who works at a grocery store. It appears that she had been gathering some of the food and exchanging it for goods and services on the side. This is corruption. To the astonishment of the investigators, the captured woman admits everything. She says, very nonchalantly, that this is how business is done in Russia. Everyone is involved — for the purpose of surviving. If you are not involved in this gray market, you are not taking care of your family or yourself. If this is corruption, she says, the entire country is guilty.
She continues to make the most salient point of all. She says that the secret police and the party elites do not understand anything about how the people live. They already get their provisions. They have special access. They are not fighting for their lives. They are taken care of in a special way. The people, on the other hand, are not so lucky. They have to be scrappy and deceptive just to survive. The elites need to understand this, else they risk losing control over the entire system.
The investigators stare at her blankly in silence.
This scene from the show struck me as true. Everything I’ve heard from Soviet, Polish, East German, and Romanian friends who lived through this era confirms this. The law existed on paper, but its only social purpose was to reveal where the landmines in social and economic life were. There was no question of compliance. So-called honesty — a life without “corruption” — meant that you could not thrive, and often that you could not eat.
How Foreign Is This?
The Soviet case we tend to look at as foreign and strangely unfamiliar. But the more you study the history of politics, and the history and operation of states, the more you discover that the differences between them are a matter of degree and not kind. The ruling class enjoys privileges that the people do not. When laws and regulations become too costly, and too inconsistent with people’s desire for a better life, they are ignored, even at personal peril.
I’m thinking of cases of this in the United States today. We have a drinking age of 21, unusually high compared to the rest of the world. That puts the U.S. in the 6 percent of nations with such extreme laws. They are not obeyed. Everyone knows it. College has become a cesspool of binge drinking. Everyone knows it. As enforcement has intensified, kids have found private places to drink. They are not safe. Everyone knows it.
So far as I know, there is no politically serious movement to change this. We have a model in our heads that says kids should not drink until they are 21. No amount of experience can seem to shake our sense that this is a realizable goal.
Another case concerns pot. Richard Nixon declared war on this plant with full confidence that he could win. It didn’t happen. Now the decriminalization movement has made huge gains. It is probably affecting even your community. The town in which I’m currently writing has a new pot shop that opened just a few days ago. The lines to get in are around the block. The population had been for decades threatened with jail. Millions have gotten caught up in the drug war. And yet, exhaustion has finally arrived and the laws are changing.
It was widespread disobedience, and the grotesqueries of hypocrisy, that finally made the difference. At some indiscernible and unpredictable point, laws that are universally ignored or at least carefully avoided come under pressure. Regimes have to adapt or risk their very credibility. Enforcement only goes so far. When the anomalies in the theory that backs the law or regulation pile too high, something has to give.
I can think of a thousand such cases in the U.S. today, some large regulations but millions of small ones too. Everything in our bathrooms has been degraded by them. Our kitchens. Our gasoline. Our food supply. Crazy labor regulations gum up the employment market. And while the current administration is deregulating some things, it is adding more in the form of interventions in trade relationships, imposing taxes in the form of tariffs. Every one of these economic controls is enforced by coercion, which is to say, at the point of a gun.
Why are the efforts at deregulation taking so long? The woman in the show revealed the truth. These interventions affect the ruling class far less than the people, both in the sense that they are not the ones starting the business and in the sense that they have better connections to stay out of trouble. For everyone else, every regulation is another tripwire to fall from compliance to criminality.
When government regulates and legislates, it is not causing some imagined form of social uplift for the masses toiling under the terrible demands of freedom. It is instead making more criminals out of people who just want to live a better life.
Related Articles – Regulation
December Business Conditions Monthly


AIER’s Leading Indicators index inches higher while the Roughly Coincident index and Lagging index fall.
AIER’s Business Cycle Conditions Leading Indicators index increased slightly in November, remaining modestly above neutral at 58. The Roughly Coincident Indicators index fell 17 points to 75 from 92 while the Lagging Indicators index fell nine points to 58 after posting 67 for three consecutive months (see chart).
The always-important holiday spending season is well underway and while early indications are for a strong selling period, the early indicators are not always indicative of the final results. Nevertheless, positive early signs are a welcome development given the importance of consumers to the economy, and holiday sales to most businesses. Other areas of the economy continue to post mixed results, suggesting the economy remains heavily dependent on consumer spending and therefore more vulnerable than usual to the whims of consumers.
Politics (impeachment proceedings and upcoming elections) and policy (trade policy, monetary policy, immigration policy and fiscal policy) have the potential to undermine consumer and business confidence. Overall, the economy continues to expand but at a slow pace and remains vulnerable to continued erratic policies and extreme partisanship.
Leading indicators index rises slightly in November
The AIER Leading Indicators index posted a small gain in November but remains close to neutral, supporting a cautious outlook.
The AIER Leading Indicators index rose 4 points to 58 in November. The index has been range bound between 25 and 75 for 12 consecutive months. The extended period of close-to-neutral results are consistent with the overall mixed performance of the various sectors of the economy. The general message is continued economic expansion albeit at a slow(ing?) pace and with a heightened degree of uncertainty.
The small change in the Leading Indicators Index was the result of just one change among the 12 indicators. Initial claims for unemployment insurance improved from a neutral trend in the previous month to a positive trend in the latest month. This indicator had been in a favorable trend prior to the drop to neutral. As discussed last month, initial claims for unemployment insurance is a bound indicator, meaning it cannot go below zero and in practical terms is about as low as can be expected. Therefore, it’s not surprising to see the indicator move to a flat trend. The improvement to a favorable trend in the most recent month helped boost the overall leading indicators index but as initial claims fluctuate near its natural lower bound, the indicator is likely to flip-flop between favorable and neutral. A move to an unfavorable trend would be a more significant development.
Among the 12 indicators, seven indicators had positive trends in November with 5 trending lower and none registering a neutral result. In addition to initial claims, positive trends were seen in real retail sales and food services, real new orders for consumer goods, housing permits, total heavy-truck unit sales, real stock prices, and the 10-year–1-year Treasury yield spread.
Unfavorable trends were seen in debit balances in customers’ margin accounts, new orders for core capital goods, the ratio of manufacturing and trade sales to inventory, the University of Michigan index of consumer expectations, and the average workweek in manufacturing.
Overall, the Leading Indicators index remains modestly above 50, indicating continued expansion is likely. However, the fluctuation around the neutral level over the past 12 months combined with the other mixed economic data and erratic policy suggest a high degree of caution remains warranted.
The roughly coincident indicators index fell to 75 in November from 92 in October. As expected, the industrial production indicator, which had improved from a negative trend to a neutral trend in the prior month, returned to a negative trend in the latest month. Manufacturing-related data continue to suggest a very difficult environment for the sector. In addition to the industrial production indicator, the consumer confidence indicator weakened from a positive trend to a neutral trend in the latest month. As discussed above, consumer spending remains a critical source of growth. Deterioration in consumer confidence is a worrying development. Overall, there were four roughly coincident indicators trending higher in November, one trending lower, and one neutral.
AIER’s Lagging Indicators index also declined in the latest month, dropping to 58 following three consecutive months at 67. The November result was the lowest reading since July. Among the six lagging indicators, three indicators are trending higher, two are trending lower, and one was neutral.
Consumer spending increasing but the pace is erratic
Following a moderate gain in the third quarter, early indicators for fourth-quarter consumer spending are mixed
The revised estimates for third-quarter real gross domestic product shows output rose at a 2.1 percent annualized pace versus a 2.0 percent pace in the second quarter. Consumer spending decelerated in the third quarter, rising at a moderate 2.9 percent pace compared to a 4.6 percent growth rate in the second quarter. The deceleration was broad-based across the major segments of consumer spending, with durable-goods spending rising 8.3 percent versus 13.0 percent in the second quarter, nondurable-goods spending up 4.3 percent versus 6.5 percent, and services gaining 1.7 percent versus 2.8 percent. Consumer spending contributed 2.0 percentage points to the 1.9 percent real GDP growth rate versus 3.0 percentage points in the second quarter.
October retail sales rise modestly…
The fourth quarter may have gotten off to a moderate start as retail sales and food services spending rose 0.3 percent in October following a 0.3 percent decline in September. Over the past year, total retail sales and food services were up 3.1 percent through October, the slowest pace since February.
Excluding the volatile auto and energy categories, core retail sales and food services were up 0.1 percent in October after a fall of 0.1 percent in September. Core retail sales had posted six straight monthly gains through August before declining in September. Over the last three months, core retail sales are up at just a 1.5 percent annualized rate, the slowest since February.
…though light-vehicle sales for first two months trail the third quarter…
Sales of light vehicles totaled 17.21 million at an annual rate in November, up from a 16.5 million pace in October. For the second quarter, unit light-vehicle sales averaged 17.0 million, ahead of the 16.8 million average for the first two months of the fourth quarter, suggesting vehicle sales may be a bit of a drag on overall consumer spending in the final quarter.
…However, Redbook weekly sales estimates suggest a strong holiday gain.
The Johnson Redbook weekly same-store sales index jumped to a 7.9 percent gain from a year ago for the week ended November 29. That is the third-highest result of the current economic expansion, trailing only the 9.3 percent gain recorded for the week of December 28, 2018 and the 8.9 percent rise for the week ended January 4, 2019. Other shopping tracking services have been generally optimistic about the start of the holiday selling season as well.
While these are welcome signs, the early results are not always indicative of the final tally. Shoppers can change the timing of purchases – spending heavily early but then slowing sharply, especially given that there is a shorter shopping period between Thanksgiving and Christmas this year. It’s also possible that consumers maintain or increase spending throughout the period.
Consumer attitudes holding at favorable levels
Consumer attitudes, measured by The Conference Board and the University of Michigan suggest consumers feel pretty good overall. Views on the current environment as well as expectations for the future remain relatively optimistic by historical comparison. While the various measures have fluctuated over the past two years, the levels of the measures of consumer attitudes are broadly trending sideways at a high level.
Various surveys note that the strong labor market is one of the key supports for the positive outlook and that spending is likely to remain solid. Surveys also note the sharp partisan differences among respondents and suggest that political events can have a significant impact in the future. The continued strength of the labor market and outside influences such as the impeachment proceedings and the 2020 presidential election cycle may be critical factors for consumer spending next year.
Trade deficit improving as imports fall more than exports
The U.S. trade deficit shrank to $47.2 billion in October, the lowest since March 2018. On a three-month average basis, the deficit totaled $50.6 billion, the lowest since July 2018. The improvement is a result of a smaller drop in exports relative to imports. Total imports dropped to $254.3 billion in October, down from $258.7 billion in September and $266.8 billion in October 2018, a 4.7 percent decline from a year ago. Total exports were $207.1 billion in October versus $207.6 in September and $210.1 billion in October 2018, a drop 1.4 percent.
Erratic trade policy including on-again, off-again trade negotiations and on-again, off-again tariffs can disrupt supply chains for businesses and alter buying plans for consumers. The elevated degree of uncertainty has the potential to become a significant drag on economic growth.
Federal Reserve balance sheet is growing again
Despite the end of quantitative easing, the Federal Reserve’s balance sheet has started to expand again. As of Wednesday December 4, total assets were $4,066 billion, up from $3,760 billion as of August 29, an increase of $306 billion or an 8.1 percent jump. About $180 billion of the increase is due to additional U.S. Treasury securities held outright. Repurchase agreements have also surged in recent months, totaling more than $200 billion. Holdings of mortgage-backed securities, the other major asset acquired during the implementation of quantitative easing programs, continue to fall.
The changes may be related to normal operations of the Fed and the banking system. While the Fed has been slowly shrinking its assets acquired during and after the financial crisis, the current methods of implementing monetary policy require the Fed to maintain a sizable quantity of assets. To that end, the Fed may be attempting to “right-size” its balance sheet.










Related Articles – Business Conditions Monthly
Initial Claims Rose Sharply but the Labor Market Remains Tight


Initial claims for unemployment insurance jumped to 252,000 for the week ended December 7 versus 203,000 in the prior week (see chart). The latest reading is the highest result since September 30, 2017. The four-week average rose to 224,000 from 217,750 in the prior week.
Weekly initial claims data tend to be quite volatile, especially around the holidays. Despite the surge in the latest weekly data, claims overall remain at historically low levels, hovering near the lowest levels since the late 1960s. The four-week average has been trending essentially flat since the beginning of 2018 and is also close to five-decade lows.
Measured as a percentage of employment (employment is much larger now than in the 1960s and early 1970s), initial claims are near record lows, well below the percentage seen in the 1960s and 1970s (see chart).
Furthermore, the latest employment report showed private-sector nonfarm payrolls added 254,000 in November following a gain of 163,000 in October and 183,000 in September. Over the past year, private payrolls have added 2.0 million workers or an average of 170,000 per month, a very solid pace of increase but below the 2018 average of 215,000 new private-sector employees per month. As of the end of September, there were approximately 6.3 million private-sector job openings, resulting in an openings rate of 4.7 percent. The unemployment rate in November was just 3.5 percent, matching a 50-year low.
Overall, while claims jumped in the latest week, the labor market remains tight. Mixed data on other sectors of the economy combined with nearly-neutral readings from the AIER Leading Indicators Index suggest continued economic growth but caution is warranted.