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For those that are still in their tender years, this is former President Jimmy Carter. He was President when I was in high school, 1977-1980. Nice guy, bad President. Thank goodness Reagan was elected in 1980 otherwise I might not have found gainful employment when I graduated from college in 1984.
I saw a tweet by Brian Wesbury. I decided to read the report for myself.
Keynsians, of which there are many, and they are made famous with the megaphone of the mainstream media, will say that Biden’s infrastructure bill would cure this. As usual, they are wrong.
The drop in economic growth falls squarely on the Big Guy in charge.
As any person worth their salt in economics knows, the multiplier effect of government spending on GDP is 0, or very close to 0. The private sector and private sector stimulated growth drive up standards of living and GDP. Freshwater economics beats saltwater economics every time.
Folks, here is a bad equation.
.5%GDP+5.39% rate of inflation+high unemployment=Stagflation
You might quibble with unemployment. However, U6 is 8.8%. It’s not that no one can find a job. It’s that the incentive to work is gone.
This equation is sapping your personal savings every second of every day. In order for you to keep up, you have to earn more than the inflation rate less taxes every day. Higher taxes for the rich won’t do a thing to help you beat inflation/stagflation.
One thing we don’t have right now is very high-interest rates. That’s not “good” or “bad” but a feature of where we are at and the path we have trodden down. One would hope that the price of money is set by people who are objective and not political. In an inflationary/stagflationary situation, interest rates have to rise to pull money out of the system and increase the value of fiat currency. Otherwise, you get hyperinflation. Check out Venezuela and Zimbabwe for recent examples of hyperinflation but the classic example is post-WW1 Germany because it gave rise to the despotic Third Reich. Just an aside, the communists were and are worse than Hitler.
In Jimmy Carter’s day, interest rates soared to over 20% on the short-term end of the yield curve. To be fair, one of the things Carter inherited was the break up of Bretton Woods and the end of the gold standard. Money supply and the adjustment to a market was just sort of beginning. Fortunately, we had people like Milton Friedman, Bob Lucas, Paul Samuelson, Friedrich Hayak, Theodore Schultz, George Stigler, Ronald Coase, Gary Becker, Robert Fogel, James Heckman, Merton Miller, and the guys at the University of Chicago to quantify and systemize it for us.
Interest rates dropped a lot lower in the 1980s and economic growth soared.
Supply-side and trickle-down economics worked contrary to what you might have learned! They always work. It’s not a magical formula that some magician churns out. It’s math and human incentive quantified into policy. Turns out, less regulation, lower taxes, and putting people in charge of their own lives is better than central planning. This is exactly the opposite of what is being proposed today by President Biden and his central planning puppeteers. Unfettered and transparent free markets work.
Shutting down the worldwide economy to combat Covid was a gigantic mistake. It was one of the largest unforced errors in the history of mankind. A huge error by Trump. However, the remedies being proposed by the current people in power today will only make the effects of that shutdown worse.
Growth -- even the dead cat bounce of the post Pandemic recovery -- was always the trump card to the dopey Biden policies. We would "grow" our way out of any real dangerous problems.
You hit it right on the head.
Low to no growth
High inflation -- I predict double digit inflation
Rising interest rates
Uncertain employment
Supply chain issues -- the Biden admin just discovered the supply chain?
Loss of energy independence
Dramatically higher energy prices
Massive gov't spending
This is a recipe for a dangerous punitive recession and even when the eventual day of reckoning comes and the Dems are thrown out to compost on the ash heap of history, it will take a long time to recover.
Two years ago we had the best economy in the history of the United States.
Today we have Joe Biden -- a feckless, unskillful, faux, self-importunated, not smart, lying poseur of questionable health and mental acuity who has surrounded himself with a Noah's Ark cabinet of equal lack of distinction
Jeffrey, you are hitting a literary stride of incredible focus. Keep it up. Brilliant observations.
JLM
www.themusingsofthebigredcar.com
I will give everyone a pass on the first month or two of the epidemic. No one knew what was going on or what might happen. Fog of war. But then the government refused to learn anything as more and more data became available, refused to be honest about what may or may not work, and continue to act as though we're all gonna die when the only danger (and it's a great danger) is to older people. I'm not an economist, but it seems the same applies with energy and the economy. Policies that have proven to work over time, creating jobs and wealth are never as good as what's ideologically acceptable. And during Trump the lower class finally got to see an increase in real income. That's all gone just through inflation. The pity is it's not the loons who will freeze this winter and not have quite enough to eat.