Feature

Key Price Indexes Don’t Understate Inflation

A close look at the key U.S. inflation indexes, and their composition, suggest that both track price changes with reasonable accuracy.

By Gene Epstein   

The consumer-price index and its companion economic indicator, the personal consumption expenditures price index, are in the spotlight as never before. Fed Chair Janet Yellen and her Federal Open Market Committee have made it known that unless the increase in these indexes runs at an annual rate of 2%, the FOMC will stay its hand in hiking the interest-rate target on federal funds.
 
In the 12 months through September, there was no change in the CPI and only a slight increase in the PCE price index (+0.2%) as both were hit hard by the plunge in energy prices. In the same period, the core CPI and core PCE, which exclude the subcomponents that track volatile food and energy prices, have had gains of 1.9% and 1.3%, respectively, as indicated on the charts nearby.
 
Illustration: Lars Leetaru for Barron's
 

The flat performance of the CPI brought unwelcome news last month to the nearly 60 million folks on the rolls of the Social Security Administration. The index is used to determine annual hikes in the SSA’s monthly payouts, and recipients were informed that they will get no cost-of-living adjustment in 2016. The CPI also governs, among other things, escalator clauses in divorce settlements, union contracts, and tax exemptions and brackets on the personal income tax.
 
These indexes are routinely used to convert nominal gains into real, or inflation-adjusted gains.

The PCE price index adjusts nominal consumer spending over time into real consumer spending. Similarly, a high-paying bank certificate of deposit bought five years ago had an annual yield of 2.8%, and the CPI rose 1.8% a year in the same period. Thus, the inflation-adjusted, or real return, was just 1%.
 
THESE INFLUENTIAL indexes constitute a kind of statistical sausage, filled with a blend of exotic quantities that are often laced with informed judgment calls.
 
Just for starters, nearly 25% of the consumer-price index incorporates not actual prices but an estimate of the rent homeowners would pay themselves if they were their own landlords. Other parts reflect estimates adjusted for changes in the quality of the goods being priced.
 
But imperfect as these indexes are, and as much as they might still be in need of improvement, they serve their purpose as very rough approximations of overall price change.
 
 
The Bureau of Labor Statistics became the keeper of the consumer-price index due to a quirk of history.
 
During the inflationary period of World War I, the government saw the need to keep labor peace in the shipbuilding yards, which meant that wages had to stay in line with the rising cost of living. With the help of the celebrated economist Irving Fisher, the BLS conducted surveys of family expenditures in 32 shipbuilding and industrial centers to determine the cost-of-living escalator.
 
The CPI was born, and the BLS has been generating it ever since. The PCE price index, maintained by the Bureau of Economic Analysis, uses most of the same prices generated by the BLS, but applies a somewhat different weighting scheme, along with an altered mix of goods and services.
 
No single individual contributed more to the math of price indexes than Fisher, author of two definitive works on the subject. In his 1911 treatise, The Purchasing Power of Money, Fisher comes off as two parts scientist to one part mad scientist, claiming, for example, that his method will “ultimately be recognized as an exact science, capable of precise formulation, demonstration, and statistical verification.”
 
TO ILLUSTRATE HOW index numbers work, Fisher used an example of a three-commodity basket consisting of sugar, coal, and “a given grade of cloth.” We can keep things even simpler by imagining a basket of just two commodities, Good A and Good B.
 
Say that, from the first period to the second period, the price of Good A has risen by 10% and the price of Good B by 1%. In order to calculate the percentage rise in the cost of living, we need to know how these commodities are weighted in the typical consumer basket. Based on our consumer survey, Good A accounts for 30% of all expenditures and Good B for the other 70%. We set the base period equal to 100, with the price per unit of Good A accounting for 30 points and B, for 70 points.
 
Formerly worth 30 points, A is now worth 33 points, since its price has risen by 10%; formerly worth 70 points, B is now worth 70.7 points, since its price has risen by 1%. Add the two components together (33 + 70.7), and we get 103.7. Against the base-period figure of 100, then, CPI inflation has run 3.7%.
 
Instead of tracking two commodities, however, the CPI is recorded from the prices of literally thousands of goods and services, classified under 200 broad categories. To update the index on a monthly basis, BLS data collectors call or visit retail stores, service establishments, rental units, and doctors’ offices to determine the price of things.
 
Since there are millions of these establishments, the economic assistants are sampling the universe of price data, which necessarily means that the numbers reported are vulnerable to sampling error. There is also nonsampling error, which can arise, for example, when the good or service being tracked is no longer available. Moreover, the data-gathering work is generally not done on weekends and holidays, times when shopping has become increasingly prevalent.
 
These approximations are then fed into the BLS weighting scheme, which is itself based on approximate weights derived from Consumer Expenditure Surveys for 2011 and 2012.
 
The weighting raises the vexing problem of substitution. Say that the price of blueberries goes up and the price of strawberries stays flat. Consumers naturally respond by purchasing more strawberries. Should the full effect of the blueberry price rise be recorded, or should strawberries receive a greater weight to reflect the substitution? The CPI adjusts the weighting to reflect the substitution. Within the steak category, for example, the formula permits substitution between flank steak and filet mignon. Contrary to myth, however, the CPI never allows hamburger to be substituted for steak.
 
The Bureau of Economic Analysis, keeper of the personal consumption expenditures price index, gives its PCE index more latitude with respect to substitution—one key reason the PCE index generally rises more slowly than the CPI. Through September, the five-year average annual increase in the PCE has been 1.5%, compared with 1.7% for the CPI.
 
ANOTHER PROBLEM to which there is no good solution: tracking the “price” of living in the home you own. While 36.5% of U.S. households are renters, and thus pay rental prices that can be sampled and compiled, the other 63.5% are their own landlords and therefore pay no recordable rent.
 
Until 1983, the homeownership component of the CPI tracked monthly mortgage payments, which in turn reflected house prices and mortgage interest rates. That was scrapped in favor of “owner’s equivalent rent,” which is supposed to estimate what homeowners would pay themselves if indeed they were their own landlords, renting their homes to themselves. The estimates are arrived at by finding comparable homes that are actually being rented, an imperfect process at best.
 
Another imperfect process, but likewise unavoidable, involves products whose quality changes noticeably.
 
A simple, if now outdated, example, is to consider two TV sets that are identical in every way, except the new model includes a remote control. If the new model sells for 5% more than the old, should we say that TV-set inflation is running 5%? Hardly. Since consumers are more than willing to pay the premium for the convenience of having a remote, a statistical method called “hedonics” is applied to the change, and no price hike is recorded.
 
Hedonics is routinely applied to items that include men’s and women’s apparel, major household appliances, and, of course, housing, which often gets renovated and enlarged.
 
Then there are new products, which can also disrupt the price trend. When economist Fisher declared in 1922 that his price indexes were precise to a tolerance of one part in 800, he neglected to mention that the automobile was not at that point in the CPI. It was introduced in 1935; air conditioners, in 1964; and cellphones, in 1998.
 
THE CLAIM MADE BY many skeptics that the current CPI and PCE grossly understate price inflation simply doesn’t hold up.
 
Their case is refuted by a statistical form of reductio ad absurdum. Recall that the PCE index is used to turn nominal consumer spending into real consumer spending, and that over the past five years, the PCE has risen at an average annual rate of 1.5%. Over the same period, nominal consumer spending has grown at an average annual rate of 3.8%. Back out PCE inflation of 1.5%, and real consumer spending has risen by 2.3%.
 
But what if the skeptics are right that the actual rate of inflation has been 4% or greater? If that were true, we would get an absurd result; it would mean there has been no growth at all in real consumer spending over the past five years, since 4% inflation turns nominal growth of 3.8% into a small negative. But no growth in real consumption defies belief, if only because wholesale and retail trade establishments have added 1.7 million jobs over the past five years, an employment increase of 8.6%.
 
These price indexes are rough approximations, but they are still useful. For example, when the Nasdaq Composite hit a nominal high of 5073 this past April, the media declared that its March 2000 peak of 5048 had finally been topped. But not in real terms. The CPI has risen 38.9% since March 2000. So to keep up with inflation, that peak of 5048 must be 38.9% higher, or more than 7000 in 2015 dollars. Give or take.



Enlargement and the euro are two big mistakes that ruined Europe

Wolfgang Münchau

The single currency is a trap and eastern expansion forced the EU to take its eye off the ball
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Evening panorama of Brussels from Monts des Arts©iStock
 
There has hardly been a year when the EU has not been on the brink of some crisis: banking, sovereign debt, Russia’s annexation of Crimea and now refugees. You can always point fingers at individual politicians and assign blame. But it is highly implausible that the EU’s serial failures can always be explained as the product of accident and malice.

I put it down to two catastrophic errors committed during the 1990s and at the beginning of this millennium. The first was the introduction of the euro; the second, the EU’s enlargement to 28 members from 15 a couple of decades ago. You might agree with one or other of these statements, or with neither of them. But few people will agree with both.

I was among those who supported monetary union at the time of its introduction. Advocates of the euro at the time came from two different groups, who struck a Faustian Pact.

Members of the first group believed the euro as constructed would fail, and hoped it would somehow be fixed. The others thought the system would stay rigid, and bend the economies of its members into a new shape. This latter group knew that, to withstand the rigours of a fixed-exchange system that resembles nothing so much as the gold standard, countries would have to adjust to economic shocks through shifts in wages and prices — a course, they believed, that the euro’s members would be forced to take.

The admission that the euro was a mistake should not be confused with a desire to dissolve it. That would be even more catastrophic. It is merely a recognition that we are trapped in a dysfunctional monetary system.

But how does enlargement play into this? This is not an argument about any particular member state with whose actions one happens to disagree. Nor is it an argument about the principle of enlargement, which is fundamental to the EU. My quarrel is with the speed of accession, and the criteria that aspiring members have to meet. Just as countries have maximum absorption capacities for migrants, the EU has a maximum absorption capacity for new members. I have no idea what that number is in any given time period, but it surely is not 13 members in a single decade.
 
Enlargement affected Europe’s ability to respond to the shocks of subsequent years in two ways.
 
First, it forced the EU to take its eye off the ball at a critical time when it should have focused on building the institutions needed to make the euro work. Second, enlargement meant that EU countries that were not in the eurozone suddenly found themselves in the majority. That shift naturally shaped the EU’s own agenda. I recall the obsession during those years with competitiveness, a typical small-country economic issue. Debates on the reform of Europe’s treaties during those years focused on voting rights and the protection of minorities. It was the overwhelming view of European officials and members of the European Parliament that the eurozone itself did not need to be fixed.
 
At that time it would have been comparatively easy to set up a banking union. But once the crisis set in, and banks suffered huge losses, countries could no longer share their deposit insurance schemes, let alone to create a single one for everybody. After the crisis had started, the debate about common insurance mechanisms became intertwined with one about transfers.

The crisis thus rudely interrupted the EU’s time-honoured, step-by-step approach to integration.

An optimist might interject at this point that it is worth hanging in there. Crises come and go.

The EU will still be there. Perhaps so, but then ask yourself: why was the period from the 1950s to the late 1990s more stable compared with the period since?

In the first years of the then European Economic Community, the external security risks were taken care of by Nato. There were almost no risks to financial stability because regulation was extremely stringent by today’s standards. While the economic shocks, such as the oil and inflation crises of the 1970s, were no less severe than today, EU members had the ability to absorb them through flexible exchange rates.

Today Brussels suddenly has to look after its own foreign policy interests and run the world’s second-largest economy. The EU is not institutionally ready for either job. And its leaders are intellectually not ready either.

We should expect to see more crises, more unilateral action by member states, greater willingness to explore opt-outs, invocation of exceptional circumstances to suspend EU-level action, more rule breaking and the like.

The real risk is not a formal break-up. That would be technically hard to do. But this is no consolation. The real danger is that the EU is simply going to wither away and turn into a ghost.


Catalonia and the Move Against Empires

by Jeff Thomas




Recently, the people of Catalonia voted in favour of seceding from Spain.

In the recent election, secessionist parties secured 72 out of the 135 seats, confirming that the majority of voters want secession. Artur Mas, region president of Catalonia and the leader of the Junts pel Sí movement, is seeking independence from Spain in 18 months.

This is great news for libertarians the world over, as, to our minds, this is a clear step forward for the Catalan people and for those who seek greater freedom from governments worldwide.

And, of course, any blow against the present trend toward empires is a step in the right direction.

But, this is not the whole picture and, if we’re going to look at the greater truth instead of the truth that we’d like to see, things get a bit more complicated.

Can They Pull it Off?

First off, the mere fact that a majority of Catalans have, at this point, voted for independence is not sufficient to assure separation from Spain. Although Catalonia became a province of Spain through a rather arbitrary occurrence (a royal marriage in 1469) and Catalans have for centuries repeatedly behaved more as a conquered people than as loyal Spanish subjects, the territory has remained under Spanish rule for the most obvious of reasons: Spain has the greater power and is able to dominate.

Although many Catalans seek a legally-recognised referendum from Madrid, Spanish Prime Minister Mariano Rajoy has called the separatist plan “a nonsense” and has stated that he will block it through the courts.

It is perennially true that, once a given politician in any country feels he “owns” a piece of geography and its population, he will almost invariably hold onto it regardless of the will of the people, using force if necessary.

And then, there are the practical benefits to being the ruler of a territory. In the case of Catalonia, Madrid has historically exacted more tax from Catalonia than it has paid out in benefits. Catalonia is a cash cow for the Madrid government. Surveys demonstrate that the majority of Catalans would choose to remain within Spain if they could be granted a more favourable tax regime.

And so, what appears at first glance to be a victory in the quest for independence may not be quite so significant.

Out of the Pan and into the Fire?

But, let’s say that the secessionists prevail, that they achieve their goal. What then? Would Catalonia become a beacon of freedom for all the world to see? Well, possibly not. Artur Mas has already planned a central bank, tax authority, and even a Catalonian armed forces. In so doing, he is hoping to begin his reign in much the same way that the vast majority of politicians do, seeking to create controls that will assure his own power and wealth. (Cue The Who, singing “Meet the new boss; same as the old boss.”)

And let’s not forget that all Catalans are not unified on the subject of independence. Polls over the years have flipped back and forth between a majority in favour of independence and a majority opposed to independence. As American independence visionary, Thomas Jefferson said:

Democracy is nothing more than mob rule, where 51% of the people may take away the rights of the other 49%.

In any move for independence, there are always those who unwillingly must pay for the new “freedom”, whether it be real or only imagined.

This is not to say that the secessionists are wrong. It is only to say that, when considering change, it’s wise to step back and assess the overall situation, not merely the immediate goals of the movement.

The Way of the Future?

Finally, there is the world view. Internationally, the vote in Catalonia is being covered in the media, especially in Europe, where there are literally scores of secessionist movements, some of them with considerable support. Catalonia gives these efforts renewed vigour and, surely, with the EU shaking to its flimsy foundations, every successful move toward secession by any territory brings an end of the EU ever closer.

And, to a lesser extent, there are secessionist movements around the globe. In the U.S., (which became a country as a result of independence from the UK), all 50 states have received secession petitions filed by their citizens. These have been signed by as few as 2,656 people (Vermont) to as many as 125,000 (Texas).

It’s important to note that these numbers are not large and the state and federal governments of the U.S. can easily claim that secessionists are merely a crackpot fringe. However, when the empire, be it the EU, the U.S., or any other, past or present, reaches the point at which the government has become overlarge, overly domineering, and overly rapacious as to taxation and other forms of confiscation, secession movements will arise. (To be sure, the 1861 American secession of the southern states was not undertaken over the slavery issue, but over the increased power and economic dominance of the northern states over the southern states.)

And this is to be expected. It’s the primary business of any government to grow its own power and wealth at the expense of its people. It’s therefore in the best interests of the people to do all they can to limit the size (and therefore the power) of their government.

Even under the best forms of Government, those entrusted with power have, in time, and by slow operations, perverted it into tyranny. - Thomas Jefferson

A government big enough to give you everything you want is strong enough to take everything you have. - Thomas Jefferson

Small countries are more free and prosperous than large nation-states. - Ron Holland

All of the above bear remembering. But a word on that last one, by Ron Holland. My own country, the Cayman Islands, is quite small (population 58,000); small enough that each of us who takes an interest can access our political leaders in a personal way. We find that this level of direct contract not only keeps them accessible to us, but places a lid on their ability to expand their ambitions to “rule”, rather than to “serve.”

And, indeed, the Cayman Islands are decidedly freer and more prosperous than any of the world’s current empires.

A long-held belief by the Amish, the Hutterites, and some sociologists is that the ideal population is a mere 150 people, the greatest number that an individual can relate to in a very personal and inter-dependent way. Certainly these communities are far more peaceful and rarely produce dictatorial leaders.

The concept of secession is an admirable one and a move to secession will often arise whenever a government overreaches to the point of intolerance. In the case of empires, secession has served to increase freedom from the days of the fall of the Roman Empire on. Political leaders will always seek to create empires, whether large or small. The alternative to the ability to secede is the acceptance of tyranny and, therefore, secession, whilst not a panacea, is an essential tool of liberty.

Editor’s Note: It’s not all doom and gloom; the world is your oyster, and there are very attractive jurisdictions that are cause for optimism. Some are ideal places to reside. Others are great places to park some savings or to invest in. Others are optimal for conducting business.

Yet others are perfect for obtaining a second passport.


The Return of Geopolitics to Europe

Joschka Fischer

. European Union flag
BERLIN – With Russia’s military invasion and annexation of Crimea, and the subsequent war in eastern Ukraine, President Vladimir Putin has made it abundantly clear that he has no intention of respecting the inviolability of borders and the primacy of international legal norms. It is time for Europeans to end their wishful thinking of a continental order determined by the rule of law. The world, unfortunately, isn’t like that. It is much harder, and power rules.
 
Russia’s military intervention in Syria and Europe’s refugee crisis underscore this point. Europe must recognize that if it doesn’t take care of its geopolitical interests, sooner or later crises in its neighboring regions will arrive on its doorstep.
 
Unlike the United States, Europe is not a continental island insulated by oceans. It is the western end of the giant Eurasian land mass. Eastern Europe, the Middle East, and North Africa are its direct neighbors, and this unstable neighborhood poses the greatest security risks to Europe in the twenty-first century.
 
How should Europe deal with a Russia that is again pursuing great-power politics and making almost the same mistakes as the Soviet Union, which similarly relied on authoritarianism to try to reconcile the ambitions of a military superpower with the reality of a moderately developed and scarcely modernized economy?
 
Russia is Europe’s neighbor, which means a modus vivendi is essential. At the same time, Russia’s geopolitical ambitions makes it a continual threat to Europe’s security. For that reason, a strong transatlantic relationship remains indispensable for Europe, as is the revival of its own deterrence capabilities.
 
In the short term, the relationship with Russia will probably be dominated by efforts to end the war in eastern Ukraine, safeguard NATO territory in the east, and prevent the crisis from expanding toward the southwest and the Balkans. Beyond the current crisis, however, a much more fundamental strategic challenge is emerging.
 
Europe is currently pursuing a policy vis-à-vis China – the emerging world power of the twenty-first century – that is based on an unrealistic and inconsistent mix of concern for human rights and for corporate profits. Here, too, Europe must demonstrate much greater awareness of the geopolitical risks and its own best interests.
 
China, located at the eastern end of Eurasia, is planning to reopen the continental Silk Road through Central Asia and Russia in the direction of Europe. The pragmatic explanation for this gigantic strategic project (with an investment volume of about $3 trillion) is the need to develop western China, which has so far benefited little from the coastal regions’ economic success. In reality, however, the project is of paramount importance mostly in geopolitical terms: China, a land power, wants to challenge the potential economic and political influence of the US, a naval power, in Eurasia.
 
In practical terms, China’s Silk Road project will create a strategic alternative to Western transatlantic structures, with Russia either accepting a role as a permanent junior partner or risking serious conflict with China in Central Asia. But the choice of an Eastern or Western orientation is not in Europe’s interest. On the contrary, such a choice would tear Europe apart both politically and economically. Europe, which is most closely tied to America in normative and economic terms, needs the transatlantic security guarantee.
 
That is why, in dealing with Russia, the European Union should pursue a course of steadfast adherence to its principles and to NATO. Yet it simultaneously needs good relations with China and cannot block the Silk Road project. So, in dealing with China, Europe must be clear about its interests, which will require a high degree of unity.
 
Meanwhile, the refugee crisis highlights the paramount importance for Europe of the Balkan Peninsula (including Greece), which is the land bridge to the Near and Middle East. Turkey is even more important for European interests in this regard. European leaders gravely miscalculated at the start of Turkey’s EU accession talks, believing that close ties would make the Middle East’s conflicts Europe’s problem. As current experience shows, in the absence of firm ties with Turkey, Europe’s influence in the region and beyond – from the Black Sea to Central Asia – is practically zero.
 
Domestic developments in Turkey under President Recep Tayyip Erdoğan and the renewed militarization of the Kurdish question make a political approach anything but easy. But Europe has no alternatives (and not only because of the refugees). This is all the more true given that Russia’s emergence in Syria and the Kremlin’s de facto alliance with Iran are once again pushing Turkey toward Europe and the West, which means that there is a real chance for a new start.
 
Nonetheless, the potential for European influence in the Middle East remains low, and the region will remain dangerous in the long term. Indeed, Europe should avoid taking sides in the conflict between Shia and Sunnis or between Iran and Saudi Arabia. Instead, Europe’s interests would be best served by pursuing a course of strategic ambiguity.
 
That is not true, however, in the eastern Mediterranean. Indeed, the entire Mediterranean region, including the strategically located North African coast, plays a crucial role in Europe’s security calculations. The choice is between a mare nostrum or a region of instability and insecurity.
 
In the same vein, the EU’s Africa policy must finally abandon post-colonial thought patterns in favor of the pursuit of Europe’s own interests. The priorities must be the stabilization of North Africa, humanitarian aid, and long-term support for political, economic, and social progress. And closer ties should include opportunities for legal migration to Europe.
 
The return of geopolitics means that the fundamental choice facing Europe in the twenty-first century will be between self-determination and external domination. How Europe addresses this question will determine not only its own fate, but also that of the West.
 


Evolution

Greater than the sum of its parts

It is rare for a new animal species to emerge in front of scientists’ eyes. But this seems to be happening in eastern North America
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LIKE some people who might rather not admit it, wolves faced with a scarcity of potential sexual partners are not beneath lowering their standards. It was desperation of this sort, biologists reckon, that led dwindling wolf populations in southern Ontario to begin, a century or two ago, breeding widely with dogs and coyotes. The clearance of forests for farming, together with the deliberate persecution which wolves often suffer at the hand of man, had made life tough for the species. That same forest clearance, though, both permitted coyotes to spread from their prairie homeland into areas hitherto exclusively lupine, and brought the dogs that accompanied the farmers into the mix.

Interbreeding between animal species usually leads to offspring less vigorous than either parent—if they survive at all. But the combination of wolf, coyote and dog DNA that resulted from this reproductive necessity generated an exception. The consequence has been booming numbers of an extraordinarily fit new animal (see picture) spreading through the eastern part of North America.

Some call this creature the eastern coyote. Others, though, have dubbed it the “coywolf”.

Whatever name it goes by, Roland Kays of North Carolina State University, in Raleigh, reckons it now numbers in the millions.

The mixing of genes that has created the coywolf has been more rapid, pervasive and transformational than many once thought. Javier Monzón, who worked until recently at Stony Brook University in New York state (he is now at Pepperdine University, in California) studied the genetic make-up of 437 of the animals, in ten north-eastern states plus Ontario. He worked out that, though coyote DNA dominates, a tenth of the average coywolf’s genetic material is dog and a quarter is wolf.

The DNA from both wolves and dogs (the latter mostly large breeds, like Doberman Pinschers and German Shepherds), brings big advantages, says Dr Kays. At 25kg or more, many coywolves have twice the heft of purebred coyotes. With larger jaws, more muscle and faster legs, individual coywolves can take down small deer. A pack of them can even kill a moose.

Coyotes dislike hunting in forests. Wolves prefer it. Interbreeding has produced an animal skilled at catching prey in both open terrain and densely wooded areas, says Dr Kays. And even their cries blend those of their ancestors. The first part of a howl resembles a wolf’s (with a deep pitch), but this then turns into a higher-pitched, coyote-like yipping.

The animal’s range has encompassed America’s entire north-east, urban areas included, for at least a decade, and is continuing to expand in the south-east following coywolves’ arrival there half a century ago. This is astonishing. Purebred coyotes never managed to establish themselves east of the prairies. Wolves were killed off in eastern forests long ago. But by combining their DNA, the two have given rise to an animal that is able to spread into a vast and otherwise uninhabitable territory.

Indeed, coywolves are now living even in large cities, like Boston, Washington and New York.

According to Chris Nagy of the Gotham Coyote Project, which studies them in New York, the Big Apple already has about 20, and numbers are rising.

Even wilier
 
Some speculate that this adaptability to city life is because coywolves’ dog DNA has made them more tolerant of people and noise, perhaps counteracting the genetic material from wolves—an animal that dislikes humans. And interbreeding may have helped coywolves urbanise in another way, too, by broadening the animals’ diet. Having versatile tastes is handy for city living. Coywolves eat pumpkins, watermelons and other garden produce, as well as discarded food. They also eat rodents and other smallish mammals. Many lawns and parks are kept clear of thick underbrush, so catching squirrels and pets is easy. Cats are typically eaten skull and all, with clues left only in the droppings.

Thanks to this bounty, an urban coywolf need occupy only half the territory it would require in the countryside. And getting into town is easy. Railways provide corridors that make the trip simple for animals as well as people.

Surviving once there, though, requires a low profile. As well as having small territories, coywolves have adjusted to city life by becoming nocturnal. They have also learned the Highway Code, looking both ways before they cross a road. Dr Kays marvels at this “amazing contemporary evolution story that’s happening right underneath our nose”.

Whether the coywolf actually has evolved into a distinct species is debated. Jonathan Way, who works in Massachusetts for the National Park Service, claims in a forthcoming paper that it has. He thinks its morphological and genetic divergence from its ancestors is sufficient to qualify. But many disagree. One common definition of a species is a population that will not interbreed with outsiders.

Since coywolves continue to mate with dogs and wolves, the argument goes, they are therefore not a species. But, given the way coywolves came into existence, that definition would mean wolves and coyotes should not be considered different species either—and that does not even begin to address whether domestic dogs are a species, or just an aberrant form of wolf.

In reality, “species” is a concept invented by human beings. And, as this argument shows, that concept is not clear-cut. What the example of the coywolf does demonstrate, though, is that evolution is not the simple process of one species branching into many that the textbooks might have you believe.

Indeed, recent genetic research has discovered that even Homo sapiens is partly a product of hybridisation. Modern Europeans carry Neanderthal genes, and modern East Asians the genes of a newly recognised type of early man called the Denisovans. Exactly how this happened is unclear. But maybe, as with the wolves of southern Ontario, it was the only way that some of the early settlers of those areas could get a date.