Mish asks if the Fed is in control of inflation, deflation and economic growth. His point is that the Fed can only target one of interest rates or money supply at a time. And in terms of money supply, because of sweeps and fractional reserve lending the Fed has effectively allowed almost unrestricted lending – and lending is how the economy creates new money (odd but true.) Since inflation largely results from more money in circulation (hold the amount of goods and services constant, and increase money supply and prices go up) that means the Fed has lost control of inflation, to a large extent. For now, because only corporations and rich people can take advantage of many of the loopholes, this has mostly not shown up in consumer inflation, but it has resulted in massive, and repeated, asset bubbles.

Brad Setser notes that Dubai is adding so much new office space in 2007 that it's equal to Minneapolis's entire office space in one year. In 2008 – as much office space as all of San Francisco is scheduled to come on-line. This is a direct result of high oil prices, and can only be partially explained by Dubai's continuing strength as a financial center. As long as oil prices remain high, this is sustainable, and it's also a version of welfare for the elites – most of whom are in the construction business. However, at the end of the day, this isn't productive investment unless the financial shift to Duba from New York continues to accelerate. Likewise it is driven by interest rates of 20% and nominal borrowing rates of 5% - which means that you make money by borrowing and investing in inflation – and inflation right now is in real estate. This is a common strategy and it's how the rich get richer. It amounts to a government subsidy for the wealth – entirely similar to what happened in the US when Greenspan dropped rates through the floor and kept them there, or what the Yen carry trade does today.

Grist magazine discusses the Tortilla crisis and how it was created not just by misguided ethanol policies (the type of corn that used in ethanol is not the type of corn used in tortillas) but by Mexican corruption and by US agribusiness giant Archer Daniels Midland – which has raised prices faster than the rate of corn price increases. Calderon's solution? A voluntary deal to hold prices down that is already breaking down. When you have, effectively, an oligopoly on an everday staple, whether it is gasoline, or food, it is very easy to obtain monopoly profits. Privatization, in Mexico's case, merely made a government semi-monopoly, into a private oligopoly, and the people who have paid the price, quite literally, are ordinary Mexicans. Free markets are wonderful things, but they require real competition or they almost always lead to price gouging. Nor should anything else be expected, it is a corporation's duty to price gouge if it can get away with it.

Mark Thoma discusses the similarity between the inequality argument (how much is there? Has inequality really risen in the US as much as people say) and global warming. Which is to say – those corporations and individuals who don't want anything done about it, are still trying to throw doubt on it, when the vast preponderance of evidence is that the US has experienced a massive rise in inequality over the last three decades, making it the Western nation with the most inequality, by far. The question should no longer be “is there a problem”, but “how should we fix it?” However, since fixing it would require things like, oh, progressive taxation, closing tax loopholes for corporations and the wealthy, and so on, there's a strong incentive to keep the debate in the “does it really exist? Is it so bad?” stage, rather than in the “let's solve this” stage.

Management consultant Jim Belshaw discusses Australia's proposal to link teacher pay to student performance on tests. He notes first that the evidence that appraisal systems are very good at raising performance is not all that good in most fields – that there are often better methods for raising performance. He notes second that when you base pay on certain measures only those measures get maximized and he notes third that the best way to increase your student's average test scores is to encourage the worst performers to drop out, as just one example. This is an important article because the argument that pay effects performance has been used to justify obscene executive compenation. Yet, oddly, that compensation continues even in corporations with below average performance and strangely, as wages of US executives have risen, the US economy has stopped raising all boats. Simply put, excessive executive compensation doesn't seem to have made corporations operate better, nor has it made the US economy operate better for most Americans. Yet it continues to rise. That suggests that it isn't about improving performance, and that argument should be dismissed.