(What’s Left of) Our Economy: More Evidence of Biden-Flation’s Toll

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American Rescue Plan, Biden administration, Covid relief, energy prices, Federal Reserve, food prices, hunger, inflation, monetary policy, progressives, recession, supply chain, Ukraine War, {What's Left of) Our Economy

Left-of-center critics of the Federal Reserve’s inflation-fighting efforts keep insisting that risking recession to tame prices would unnecessarily harm the most vulnerable Americans and their struggling working class counterparts. Instead,  many have claimed that living costs can be cut sufficiently by forcing greedy corporations to charge less through windfall profits taxes, price controls, and the like.

And they’ve bridled in particular at charges that the Biden administration’s American Rescue Plan (ARP) greatly worsened the problem by handing trillions of dollars of CCP Virus relief – and therefore purchasing power – to U.S. consumers well after economic growth had already rebounded strongly and unemployment had already nosedived.

Any development that can engulf the gargantuan American economy, like historically high inflation, almost by definition has many different causes. But anyone doubting the economic overheating role of the ARP should check out the graph below, which is found in this Reuters piece from over the weekend.

The article adds to the evidence that still-towering inflation rates are devastating low-income Americans by super-charging the prices of that most basic of basics: food. But the graph makes clear as can be how the ARP contributed to the problem.

As it shows, prices of food (the darker line) began taking off just about the time that the ARP’s strings-free child tax credit payments started to be sent out (July 15, 2021, to be precise) – and not just to the needy, but to considerably better off households as well. Not so coincidentally, the share of American families with children reporting to U.S. Census Bureau surveys being “sometimes or often” short of food (the lighter line) started taking off soon after. And also noteworthy – these food price rises began many months before Russia’s February, 2022 invasion of Ukraine began playing its own major food inflation role. 

As the article also emphasizes, between 2020 and 2022, “as pandemic restrictions eased, so did the appetite for congress and some states to fund hunger prevention efforts.” But continuing federal purchases for “pantries, schools and indigenous reservations” were needed in the first place largely because food – not to mention other necessities – kept becoming so much more expensive.

The lesson here isn’t that no pandemic assistance should have been provided at all. After all, genuine suffering was widespread in its early phases and no one knew how long they would last. And the Fed’s left-of-center critics are correct that ongoing CCP Virus-related and Ukraine War-related energy supply disruptions have greatly boosted prices recently, too.

But as noted here previously, the supply- and demand-side roots of inflation are very closely related (because businesses can be relied on to continue raising prices as long as they can find enough buyers, and to cut them when customers start balking). Moreover, although in economists’ lingo, some prices are “inelastic” (because they’re for goods and services that are essential enough to prevent purchasing cutbacks even after major price increases), when they rise high enough, they can still foster lower prices for other purchases that are deemed less important.

Therefore anything, like big government checks, that fills consumer pockets will strongly tend to spur inflation sooner or later. So when help does need to be provided, it should be much more precisely focused on relieving genuine privation than pandemic relief was.

Even more important: The inflationary effects of supporting household consumption can be offset – and are best offset – by policies to support more production. When the Fed’s left-of-center critics start addressing defects in that supply side of the economy, rather than trafficking in gimmicks sure to exacerbate them, their complaints about excessive central bank monetary medicine will deserve a much bigger audience. In the process, they’ll be able to deliver lasting assistance to those whose plight they rightly emphasize.        

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Our So-Called Foreign Policy: The Other Scary Ukraine War Threat

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energy, energy prices, global financial crisis, globalism, hunger, Lehman Brothers, Lehman moment, Our So-Called Foreign Policy, Russia, Taiwan, Ukraine, Ukraine War, Vietnam War, vital interests, Western Europe

Take it from me – the words “Lehman” and “moment” are words that no one should ever want to see in the same sentence ever again. Yet they’ve been making a collective comeback lately (see, e.g., here, here, and here), signaling in the process that the determination of the United States and other countries to help Ukraine achieve its goal of expelling Russia from the territory it’s lost could backfire disastrously.

This specific risk has emerged not because the conflict could spread beyond Ukraine’s borders and embroil the big new concentrations of U.S. and other NATO military forces right next door – and therefore all too easily escalate to the nuclear level. It’s also emerged because of the growing economic hardship and potential political instability in major world regions created by the disruption of global energy and food trade triggered by Russia’s invasion and the sanctions it’s triggered.  

The phrase “Lehman moment” refers to the time when the national and global financial systems and economies nearly collapsed because so many of the world’s major banks and other lenders had engaged in such reckless practices, and because they were so interconnected that the failure of one – America’s Lehman Brothers – threatened to topple the whole house of cards that had been created.

Today’s Lehman moment is feared to be coming in Europe’s energy sector – also dominated by huge, closely connected institutions and also endangered by contagion. But this time the culprit hasn’t been greedy executives or asleep-at-the-switch regulators. It’s been the price of natural gas. The Russian invasion of Ukraine itself, the duration of the fighting, Russian supply curbs and threats of cut-offs have pushed it so high that many European utilities have been forced to buy the increasingly scarce fuel on the very expensive spot market and sell it to customers at the much lower prices stipulated by the contracts they’ve signed. (See here for a useful explanation of all of the above.)

As with the original Lehman moment, government bailouts are likely to save the day – at least for the foreseeable future. But the costs are shaping up to be astronomical, and even if they’re paid by all of the continent’s well- and less well-off countries alike, enormous national debts are sure to grow. Moreover, Europe’s near-term energy, and overall economic, future looks so grim because major shortages and towering prices this winter seem both inevitable and bound to bring on a serious recession and all the suffering and anxiety that accompany such downturns.

That sure sounds like a formula for even more political instability than Europe has already seen lately, including a loss of public faith in national and regional establishments and institutions of all kinds, and a further strengthening of the sort of political movements – on the right end of the political spectrum in particular – that globalists keep warning are grave dangers to the democracy and even the peace the continent has enjoyed until Russia’s attack on Ukraine.

Nor is Ukraine War-rooted turmoil confined to Europe. As the Biden administration has just warned, “protracted conflicts – including Russia’s invasion of Ukraine” have been developments that have “disrupted global supply chains and dramatically increased global food prices.” As a result, “world leaders [need] to act with urgency and at scale to respond…and avert extreme hunger for hundreds of millions of people around the world.”

Sub-Saharan Africa, one of the areas of greatest risk, has (rightly) never been seen as a high U.S. foreign policy priority. The other area, though, is the Middle East, which has become much less important even to America’s economic well-being because of the energy production revolution at home, but which continues to attract considerable attention from globalist U.S. leaders.

Hence the backfire risk – and a gigantic irony. Globalist backers of the current Ukraine strategy justify it as necessary to protect what they call a “rules-based international order” they believe has been essential for preventing great power conflict, as well as for promoting impressive degrees of prosperity and democracy around the globe. I’d give far more credit to the balance of nuclear terror that’s prevailed for nearly all of that period, but that’s not the main point.  The main point is that, along with great power conflict, the widespread international turbulence being fueled by the duration of the Ukraine War per se is another major geopolitical nightmare that globalism has striven to avert.  

It’s true that incurring great risks to protect specific, concrete interests the U.S. considers vital – like the security of Western Europe and, more recently, Taiwan (because of its leadership in manufacturing the world’s most advanced semiconductors) – by definition are worth running. This logic also holds for objectives like fostering and maximizing stability the world over, even though they’ve always been more dubious because they’re so much gauzier and less realistic. For whatever the damage possible from attempting to safeguard any of these interests, the term “vital” means that failure can generate even greater dangers – particularly national survival and independence.

But running such risks on behalf of Ukraine’s independence – which was never seen as remotely vital U.S. interest even at the height of the Cold War, which was habitually described as a Manichean struggle for the entire world’s future – is a different matter altogether, and indeed makes no sense at all.

During the Vietnam War, a U.S. Army officer is supposed to have told a reporter after one battle that “It became necessary to destroy the town to save it.” The Lehman moment references and mounting signs of tumult in several major regions long seen by Washington as bearing at least significantly and even vitally on America’s safety and well-being indicates how close U.S. Ukraine policy – even if it simply prolongs heavy but geographically contained fighting – is moving toward achieving that absurdly self-destructive goal.

(What’s Left of) Our Economy: A Trade Cover-Up at Bloomberg? Or Just Ignorance?

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Bloomberg, exports, food insecurity, health insurance, hunger, Idaho, imports, Matthew Winkler, poverty, Trade, trade balances, Trump, wages, {What's Left of) Our Economy

Memo to Bloomberg News and its Editor-in-Chief Emeritus Matthew Winkler: If you’re going to try to foist a flagrant piece of trade fakeonomics on your readers, choose a contention that can’t be debunked after twenty minutes searching on Google.

According to an August 18 article by Winkler, Idaho is America’s “top performing” state economy and “relies heavily on international trade for its success.” Moreover – irony alert! Even though its “21^st century economy…shows that the U.S. does best when it puts the world first,” the state’s (inexplicably) doofy voters went for that quintessential America-Firster, Donald Trump, in the last year’s presidential election – and by a two-to-one margin!

And the author marshals some impressive statistics to back up this claim. Winkler’s big takeaway on Idaho:

“It’s had the best combination over the 12 months that ended on March 31 of robust personal income, job growth, stock-market gains and home-price appreciation because its largest employers sell the bulk of their products overseas, count the world’s biggest multinational companies among their customers and suppliers, and make most of their money from the technology driving globalization.”

He seems unaware, however, of all the data showing that Idaho’s trade performance has been anything but impressive. For example, let’s look at the state’s goods export performance, and over an analytically respectable period of time.  This information is easily found on the Census Bureau’s website. These data show that, from 2013 to 2016, measured in current dollars, Idaho’s goods sales overseas actually shrank as a share of the U.S. total: from 0.4 percent to 0.3 percent. Moreover, its exports as a share of its the state economy fell faster than the corresponding figure for the entire country – by 23.76 percent versus 17.09 percent.

Idaho has indeed grown faster than the nation as a whole during this period – by 6.57 percent in toto in constant dollars (the same value unit used for the above trade figures) versus 6.48 percent. But it clearly hasn’t grown much faster. And exports have hardly been at the leading edge.

It’s true, moreover, that Idaho has run a merchandise trade surplus during this period. Indeed, it’s risen from $244 million to $383 million. (We’re back to pre-inflation dollars here, because the Census state trade date don’t adjust for price changes.) But that’s mainly because its imports have tanked. Does Winkler view that as a positive? If so, he wouldn’t be much of an enthusiast for trade’s contribution to the U.S. economy overall – since in those years it ran a goods deficit that grew from $738.8 billion to $778.2 billion.

Similarly, Idaho has performed relatively well in terms of those measures that shed light on how well its economy has been performing for its inhabitants. For example, its wages have been growing faster, in current dollar terms, than their national counterparts, both measured by the average and by the median. The former in Idaho is up during those years by 7.43 percent, versus 5.57 percent for the United States as a whole. The latter is up 7.93 percent between 2013 and 2016 versus 6.85 percent for all American workers. (See this Bureau of Labor Statistics site for national- and state-level information for 2016 and this source for the 2013 numbers.) At the same time, how can trade and especially exports be credited if the latter have fared so poorly?

In fact, if the state’s trade performance was really up to snuff lately, maybe its average and mean wages wouldn’t be lagging the national averages so significantly as of last year – by 11.45 percent for the former and by 15.55 percent for the latter. In addition, maybe its poverty rate wouldn’t rank in the top half nationally. Along with its level of hunger and food insecurity. And the percentage of its population lacking health insurance. (Find these and more such info here.)

Again, these data are no secret. But Winkler either was completely unaware of them and had no interest in thorough research, or he was hoping you wouldn’t find out.