The Economy is Fundamentally Broken and is Going to Get Worse
Contrary to the President's rhetoric, there's no good news on the horizon and there's no plan to fix the fundamental problems.
I don’t possess nearly the economics pedigree of Janet Yellen and perhaps that serves me well at times, in grasping the fundamentals. I’m mainly an engineer and retired Army officer by training, so my sense of the world is based on what can be observed and proved. I’d like to think a deeply learned and experienced economist like Yellen does the same. So perhaps Yellen understands precisely how dire our current economic situation is but doesn’t dare say it.
You’ll recall it was Yellen herself who injected the word “transitory” into last year’s public discourse on inflation.
I’d like to think Yellen “did the math” and factored in the trillions of government “stimulus” spending her boss committed us to (at a time when over a trillion was still unspent from the previous stimulus only a year before). I’d like to think she considered the soaring costs of energy and the impact of higher prices for gas, diesel and electricity and how that oozes into the cost of everything in our economy - before committing to this “transitory” trope. But I doubt it. She has people at Treasury who likely wrote that line for her. They’re supposed to do the math.
Either way, like most Democrat talking points that are destined for contradiction in time (see all their global warming predictions as a starter and then move onto literally anything Joe Biden says) this one crashed on the rocks within months. But credit Yellen for this: she said the “W” word that is almost always absent from the Democrat vernacular:
Yellen doesn’t strike me as an overly proud or hubristic person, so I doubt she believed she could “whip inflation down” just by saying it was “transitory”. You laugh, but you’ll find whoever her replacement is next year (and Yellen will be hypovehiculated after the midterms) Biden will put someone in who practices economic rhetoricism a whole lot better than Yellen. A more accomplished gaslighter.
For now we have to settle with Joe Biden himself talking up the economy. To hear him say it, we’ve never been in a better position than we are today. Well, excepting inflation, of course - which is his “number one priority” we’re assured. Keep in mind this is just six months after he was saying inflation was merely “transitory”.
If you’re hopeful Biden has assembled a “crack team” of brilliant economists to develop a carefully thought plan to get after inflation, I’ll simply defer to the opinion of Biden’s former boss on this: “Don’t underestimate Joe’s ability to f— things up”.
And true to form, a reading of The Biden-Harris Inflation Plan: Lowering Costs and Lowering the Deficit will disabuse you of any notion that serious people are in charge. The “plan” (which I’ve read and “you’re welcome” for thanking me to take one for the team) is nothing more than Democrat political talking points. It advocates for more spending and incentives for “green energy”, more beating up of the oil and gas sector, gratuitous swipes at the Republican minority in both houses of Congress, an unartful assignment of blame to Putin (why not?), dramatic hikes in vehicle fuel economy standards, and on food prices advocates (evidence-free) “taking actions to crack down on illegal price fixing and enforce the antitrust laws in the meat and poultry processing sector.”
So a fetid pantload of plans to free us from foreign energy dependency decades from now (which his policies have actually caused). And a pantheon of strawmen whom he intends to “crack down” on. Oh, and he’s going to break the agriculture industry by parachuting money and “new technology” onto farms to make them “more efficient”. That’s his plan. Seriously, Soviet-era “five year plans” compare favorably to this.
Never mind none of this will ever pass Congress - it’s not intended as a “serious” legislative agenda. It’s just political posturing that he can point to in speeches before the proles.
Now you might ask “is he really this stupid?” or is he just being cynical and manipulative? I’ll let you be the judge on that, but no, there’s no third option that he could just be mistaken. Among the many false hopes within the economy, Biden likes to talk about “lowering the deficit” and how many jobs he’s “created”.
On “deficit reduction” Biden loves to cite how he’s lowered the deficit by “1.6 trillion dollars, this year alone!” Say….where did that number come from? Why is it so familiar? Oh, right! That’s precisely the number his 2021 America Rescue Plan cost! And he likes to blame Trump for the $2.9 trillion deficit in 2021, but Trump had nothing to do with ARP - that’s all on Biden’s watch. So thank you Joe for not proposing yet another budget blowout this year, but you don’t get credit for “saving” us a damn thing by not rolling us over and giving it to us again.
On the “jobs created” front. There’s a simple picture worth a thousand words:
Labor force participation was trending up during Trump’s presidency prior to Covid, when it nosedived during the Covid lockdowns. Since then, the number has been creeping up steadily, yet is still well off from its previous high. So when Biden sputters that he’s “created three and half million new jobs” he’s only taking credit for Covid recovery - no new jobs, while we’re actually still millions of jobs shy of where we were under Trump.
Another favorite Biden gaslighting is to blame Putin for his inflation. The “Putin Price Hike” as he likes to describe it. Again, the truth in a single picture:
Joe Biden inherited 1.4% inflation on his inaugural. A year later - January 2022 - inflation was at 7.5% and the day Putin invaded Ukraine it was at 8.6%. Our gas prices were averaging $2.25 per gallon nationally when Biden was inaugurated and had nearly doubled to $4.30 per gallon the month before Putin invaded Ukraine. One can simply “eyeball” the graph below and taking out the price surge after May 2022 one can clearly see we’d be at $5 a gallon for regular unleaded by September this year even without Putin’s Ukraine invasion. Putin just got us to $5 gas three months early.
So the very bad news is inflation is running over 8.5% and is still increasing, despite the Fed’s raising of interest rates this year. While ordinarily Fed rate hikes are designed to “cool down” an “overheated” economy, our economy is anything but “overheated”. Real GDP actually fell 1.5% first quarter of 2022. We won’t know until end of this month whether it makes two quarters of decline in a row so we can declare we’re officially in the “Joe Biden Recession”.
What happens when you pair historically high inflation and a stagnant (declining) economy? The government can’t “stimulate” an inflated economy - it will only make inflation worse. And Democrats only have one tool in their economic war chest: spending. It’s literally the only tool they have.
What needs to happen is spending cuts. Actual rescission of prior authorized “stimulus” - and an aggressive move to reduce “baseline” spending. But Democrats react to that like garlic to a vampire.
Eliminating disincentives to productive work will force those sitting on the employment sidelines to seek jobs and become “discovered” in the official unemployment rate. We see all those “help wanted” signs everywhere - well, there’s some 55 million Americans between 18 and 60 years of age who just don’t want to work. Don’t want to contribute to GDP, don’t want to get up and go to work every day. And for decades and especially the past two years, we’ve parachuted a cornucopia of benefits at them to make every day a snow day. Canceling these work disincentives would be like throwing holy water on the Democrat vampire. But it would increase American GDP and lower inflation.
Another policy that would increase GDP dramatically would be to unleash the American energy sector. Expensive energy costs are like sand in the gears of our economy. Release federal lands for exploration and drilling. Permit the building out of critical energy infrastructure, including pipelines. Streamline the permitting process to get proven reserves to market. And commit to building two new powerplants for every one that is decommissioned. But this would be like flashing a cross at the Democrat vampire.
I don’t expect any of this to happen under Biden, even if the Republicans take back both the House and Senate this fall. The only mechanism the Republicans have is to force shutdown of the government by withholding spending authorizations. The earliest they could do that would be in the fall of 2023 - 15 months from now. And even then we’d be counting on the fortitude of Mitch McConnell and Kevin McCarthy to actually do it.
Perhaps when gas hits $9 a gallon, homes and businesses experience rolling blackouts through a bitter cold winter with millions more businesses closed, enduring food shortages, widespread unemployment, double digit inflation and the Dow under 10,000 - perhaps by then a dramatic reckoning is possible. But between now and that day, every day will be met with a new crisis and misery. Because that’s our trajectory and there is nothing useful being discussed.
You may think this paints an ugly future, but let me assure you: the future is ugly. Famed economist Herb Stein is known for his eponymously named Law: If something cannot go on forever, it will stop. My personal corollary to that law is: Any system that is broken in the future is broken right now.
In the distant future our grandchildren will ask how we managed to destroy a once great economy. And we’ll answer as Mike did when Bill asked how him he’d lost his fortune in Hemingway’s The Sun Also Rises: “Two ways. Gradually and then suddenly.”
We’ve been on the gradual path of decline for 50 years. We’re now at the “suddenly” moment.