Experts on Inflation: Prognosis, Political Fallout and Who’s Really to Blame

This is Naked Capitalism fundraising week. 1480 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in the financial realm. Please join us and participate via our donation page, which shows how to give via check, credit card, debit card, or PayPal. Read about why we’re doing this fundraiser, what we’ve accomplished in the last year, and our current goal, more original reporting.

Yves here. Inflation has become a hot topic and for good reason. It’s hard to miss the jumps in food and energy prices. Most experts agree that the price changes are “transitory” and due to supply chain seizures and whipsawing demand.

However, those experts are also relying on public health cheerleading, that Covid is on its way out. It was obvious that that was not gong to be the case with a highly contagious variant and vaccines that do little to blunt its transmission, yet the vaccinated high-fiving each other as they engage in reckless behavior, most importantly going maskless. Our PlutoniumKun reports that 90% vaccinated Ireland, which was early to be hit with a fall surge, also had very good masking behavior….except in pubs, which got pretty full pretty fast after restrictions were relaxed.

So on the one hand, these transitory dislocations are likely to be with us for a while, and thus probably more price increases too. But the businesses and likely economists who ought to know better are likely to continue to blame “inflation” on wage increases too. As we’ve pointed out in recent posts, businesses are doing everything they can to avoid paying employees more, despite hoovering down rescue funds and many if not most back to record or near-record profits. Oh, and paying CEOs and top execs more than ever too…even as hospitals, meatpackers, and fast food chains refuse to give hazard pay to front line workers, and employers are trying to cast their recruitment nets wider to avoid increasing wages.

By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

Just in time for the holidays and the winter season, prices are rising at eye-popping rates. Energy costs have leapt 30% in the past 12 months, and food is way up — the price of meat, poultry, fish and eggs together rose almost 12% over the same period.

I have just seen a $14 rotisserie chicken. Okay, it was Manhattan. But still.

All told, the consumer price index surged 6.2% from a year ago in October, the most since December 1990. According to the Labor Department, that wipes out any increases in wages workers have seen, with real wages falling 0.5% from September to October.

Neel Kashkari, the Minneapolis Fed Chair, has just said that it’s going to get worse in the coming months, blaming rising prices on people buying more goods and services with extra money from stimulus checks and also to Covid-related supply chain snags. But’s it’s temporary surge, he says. Yet Americans are still nervous – especially since energy and food prices don’t seem to fit that narrative especially well. Do you buy more heating because of a stimulus check you got months ago? Probably not.

So just how serious is the problem and what do we do about it?

Public Health is Key

Claudia Sahm, a senior fellow at the Jain Family Institute who has worked at the Federal Reserve and the Obama White House, sees higher prices at the pump and the grocery store as a real hardship to ordinary people: “It squeezed the budgets, particularly of low-income households who spend most of their money on necessities.”

In her view, the Fed failed to see just how long it would take to contain the global pandemic. “The highly contagious delta variant disrupted labor markets and supply chains again,” observes Sahm. “Covid is the root of all the problems, and the only lasting solution is a public health one.”

Sahm urges the White House, as well as state and local governments, to get more people vaccinated ASAP through measures like employer mandates and making access to the vaccine easier. Other measures she advocates to keep prices from ticking up further include using the Strategic Oil Reserve, reducing trade tariffs, and continuing to work with ports to speed the processing of goods in the short term.

On the bright side, Sahm sees a helpful buffer in the American Rescue Plan Act of 2021 – namely the “stimulus checks and the new Child Tax Credit which have given families the income necessary to cover the higher prices.” She points out that consumer spending, after accounting for inflation, is increasing more than prices: “That is notably better than after the Great Recession when families got much less relief, and consumer spending grew slowly for years.”

Infrastructure, Child Care Spending Will Help

Pia Malaney, Co-Founder and Director of The Center for Innovation, Growth and Society and Senior Economist at the Institute for New Economic Thinking, warns that “wages are not able to keep up and rising food and gas prices are hitting the pocketbooks of many Americans who are still reeling from the pandemic economy.” She notes that this has persuaded some to call for a cutback in proposed spending on Biden’s Build Back Better plan. But it is important to remember, she points out, “that much of the proposed spending will address exactly the labor and supply chain issues that are driving the rise in inflation.”

Malaney is optimistic that money spent on infrastructure will improve roads and transportation, and that help with child care and education “will allow many women to re-enter the workforce, easing the tight labor market that is making it hard for employers to hire.” But she also observes that climate change is already causing costly damage that will have long term effects on economic output if not addressed. “While the rise in inflation is troubling, reigning it in at the cost of long term investments in people and the economy can be even more costly.”

Political Turmoil, Greedy Oligopolists

Delft University of Technology’s Servaas Storm also worries that consumer prices are eroding the real incomes of households, resulting in “all-round pessimism and growing recession fears, as shown in a recent CNBC poll).” He warns that if we see a long, cold winter and rising energy prices, U.S. households will increasingly suffer from “fuel poverty” and the number of “winter deaths” will increase. Most households are likely in for a rough ride, he warns.

“All this is likely to lead to anger and upset among the population and to political repercussions for the U.S. mid-term elections in 2022,” predicts Storm. “The recent elections for governor in Virginia may well be the first of more electoral surprises.”

Storm does not believe that the Fed has underestimated the problem. “Officials have been telling anyone who would listen to expect higher, transitory, inflation in the near term as the economy recovers from the COVID-19 crisis and gets back to normal,” says Storm. “And it has not raised interest rates, even with influential observers telling it to do so.”

The Fed thinks the problem is transitory, he notes, but a lot of folks still worry that higher inflation will become entrenched and we will see a rerun of 1970s stagflation, when supply shocks (the two oil crises) triggered a wage-price spiral in a stagnating economy with rising unemployment. “That’s due to a communication error on the part of the Fed,” says Storm. “They made a mistake in avoiding comments on the major role played by food and fuel prices.” Storm thinks that people with such fears are focused on the wrong issue — stagflation is unlikely, he says, because there’s nothing to keep pushing up wages.

“Labor unions in the U.S. have been crushed and no longer constitute a force for wage-cost-push inflation,” he says. “It is true that strikes and work stoppages are rising, but their impact at the macroeconomic level is still negligible.”

He points out that while nominal wages are rising, especially in specific industries where workers left during the pandemic and are reluctant to come back, it’s not nearly enough to offset the sudden increase in cost of living. In his view, we should be looking at how firms in various industries, from retail and manufacturing to biotech, have boosted their profit margins, which inflates prices.

“The Wall Street Journal noted recently that nearly two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019, before the pandemic,” observes Storm. “Rising inflation makes it possible for firms to hide their increased profit margins from customers.

“Nearly 100 of these corporations raised profit margins by more than 50%,” says Storm. “Part of the inflation is therefore due to profit-push – and we should blame the oligopolists, rather than the working population.”

Thomas Ferguson, Research Director at the Institute for New Economic Thinking, who has just released a new study on what drove the 2020 election, put it this way: “We don’t’ have a wage-price spiral. We have a price-wage spiral.”

Storm thinks the Fed is right so far in refraining from increasing the interest rate in order to curb inflation. “That’s a blunt instrument which can bring inflation down, but only by depressing consumption and investment demand,” notes Storm. In his view, the problem is not mainly about too much demand, but rather supply-side problems “in very specific global and domestic production chains impacted by the pandemic.”

“Higher interest rates won’t solve bottlenecks in (just-in-time) commodity chains,” he warns, “so instead of solving inflation they will just depress aggregate demand and push the economy into recession.”

Sure, says Storm, a recession will lower inflation. “But it would amount to a clear instance of ‘operation succeeded but patient died.’”

Storm points out that there is another reason why the Fed will remain careful when raising the interest rate, namely “the high indebtedness of U.S. households, banks and corporation in combination with strongly inflated asset markets.” Raising interest rates too quickly, or even at all, could trigger painful financial-sector adjustments and a crash in the dramatically overvalued stock market and derivative markets, he warns. And that could mean “a balance-sheet-restructuring recession of similar proportions to the one following the financial crisis of 2008.”

Yikes.

Bottom line, says Storm, is that the Fed will likely err on the safe side in allowing higher inflation with the hopes that it will be short-lived rather than risking a major crash.

So what to do to help the ordinary people who are hurting? “A sensible policy response to the inflationary pressures would make a distinction between the short run and the long run,” Storm explains. “In the short run, the government can impose temporary price controls (and rationing) on energy, especially.”

He agrees with Sahm that government agencies should act vigorously to unsnarl supply-chain bottlenecks, adding that there should be “mandatory cooperation moves between firms and unions, reversing decades of deregulation, to solve the present trucking crisis, for instance.”

Storm also urges direct income support to the poorest households to compensate for higher energy costs. This could be paid for out of higher taxes imposed on the super-rich (say, the richest 1%-5% of U.S. households or on corporate profits, which in many cases have grown because of higher profit mark-ups).

“The collateral damage of such targeted fiscal interventions would be much smaller than the negative side-effects of higher interest rates, and the distributive implications will be progressive (rather than regressive),” notes Storm.

In the long run, Storm sees the need for increasing the energy efficiency of homes and transportation, as well as expanding the renewable energy supply system and to lower the dependence on fossil fuels. He would also like to see governments curbing speculation in oil, gas and coal futures markets, which he says is now contributing to higher energy prices and inflation. “The Fed can outlaw the trade in socially useless crypto-currencies,” says Storm, noting that “Bitcoin mining consumes around 0.6% of global electricity production, which is roughly equal to the annual energy consumption of the 21.4 million people of Sri Lanka.”

“Of course all these responses require cooperation, coordination and planning between the various actors including the federal government, state governments, the Fed, unions, corporations, the CFTC, and political parties,” Storm points out. “Absent that, we are left with second-best and third-best ersatz-solutions – which will not work.” He warns that how this ends will depend on the vagaries of the coming winter, the fancies of the coronavirus, the speed at which supply-chain bottlenecks will be removed, and the dynamics of heightened political polarization in 2022 and beyond.

Fasten your seatbelts, folks.

Print Friendly, PDF & Email

37 comments

  1. Sound of the Suburbs

    Neoliberals were always going to be in trouble with neoclassical economics.
    They don’t know what real wealth creation is, and associate it with things like making money, rising asset prices and trade.
    They don’t know how the monetary or banking systems actually work.
    They don’t look at private debt.
    It’s a recipe for disaster.

    What did happen to Japan?
    It was demographics, mate.
    Economists!
    Now everyone is going to copy Japan’s mistakes.
    (The economists were using neoclassical economics so there was no way they could see what really happened in Japan)

    Japan led the way and everyone followed.
    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
    https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
    What Japan does in the 1980s; the US, the UK and Euro-zone do leading up to 2008 and China has done more recently.
    The PBoC saw the financial crisis coming unlike the BoJ, ECB, BoE and the FED.
    It was very late in the day, so the Chinese are still in trouble, as we can see.

    “Oh dear, we did what you did in Japan. Now we’ve had a financial crisis and are facing a Great Depression just like you.” US, UK and Euro-zone policymakers in 2008.

    Neoclassical economics is the economics of the Roaring Twenties, the Wall Street Crash and the Great Depression.
    Policymakers sooner or later use the economic growth model of the Roaring Twenties, oblivious to where this is leading.

    The US had done it first in the 1920s, so Japan could study the Great Depression to avoid this fate.
    https://www.youtube.com/watch?v=8YTyJzmiHGk
    How did Japan avoid a Great Depression?
    They saved the banks
    How did Japan kill growth and inflation for the next thirty years?
    They left the debt in place and the repayments on that debt killed growth and inflation (Japanification)

    Japan discovered how to avoid a Great Depression and deliver Japanification instead.
    The West copied this solution after 2008 and can’t work out why things haven’t been the same since.

    We have never been able to understand the deflationary environment we have created and this is why we worry so much about inflation.
    The Japanese have understood it, and you can too by watching the video link above.

    Reply
      1. Sound of the Suburbs

        The two are very closely intertwined and both reinforce each other.
        What came first?
        There is something very interesting that comes from this, I would only discover much later on.

        I have been looking at the history of neoliberalism and this reveals the Mont Pelerin Society went round in a circle and got back to where they started.
        Western liberalism failed miserably in the 1930s and new ideas took hold, but those in favour of Western liberalism looked to bring it back in a different form.
        They were initially well aware of past failings and sought to address these problems, but as time went on, they moved further and further to the right and got back to pretty much the old form of Western liberalism, with its old problems.

        In the early days of the Mont Pelerin Society, they were acutely aware of the problems of Western liberalism and none more so than the Germans.
        They looked for a form of liberalism that would also provide a stable society, and came up with Ordoliberalism, which they implemented in Germany. It was a huge success.

        The rest of the Mont Pelerin Society gradually forgot the problems of the old Western liberalism, and unintentionally got back to pretty much where they started.
        The US was dominated by huge trusts in the early 20th century.
        The Mont Pelerin Society remembered the problems with consolidation and monopoly until 1950, and then they forgot.
        Actually, their wealthy sponsors ensured they forgot.
        https://www.youtube.com/watch?v=ecfxHevLKsM&t=1622s
        When private backers fund academics, they can control the direction the academics take.

        As the neoliberalism (new liberalism) was pretty much the same as the old liberalism, they could underpin it with the same economics, neoclassical economics.
        It started off recognising the problems of the old Western liberalism, but gets back to a form where it can be under pinned by the same economics. The differences are mainly cosmetic.
        There is only one example in the video, but it shows the influence the private backers had on the academics.
        Were they pushed back to where they started, gradually over the years, without even realizing it?

        Reply
        1. lance ringquist

          i used to have a quote from milton freidman, he admitted free trade did not work, but because it fit their ideology, lets go for it.

          Reply
    1. lance ringquist

      yet no one in this article will say hey, there is a pink 900 pound elephant standing next to you!

      no one will admit that free trade is what is causing the downward wage spiral, a UBI without protectionism and production, will only fuel more free trade, more fossil fuel usage, more indebtedness, more inflation, more bottle necks, and even super charging wealth for a few even more etc.

      when a country cannot even make a loaf of bread, a aspirin, let alone a car, plane, or rocket engine.

      no amount of tinkering to get a rube goldberg system stable, is just plain foolishness.

      till free trade is addressed, expect ever more of the same.

      Reply
  2. rsm

    《I have just seen a $14 rotisserie chicken.》

    What if we Jains made a Wall Street Vegans forum and gamma squeezed meat futures prices to $infinity to send you a price signal you couldn’t ignore?

    Reply
  3. davie

    I find it mind blowing that the answer to “why are prices rising?” isn’t “the people who set prices keep increasing them.”

    Every other social ill gets individualized to hell and back, and this is no different.
    Store owners dont have to increase prices.
    Used auto bidders don’t have to put in a higher offer.
    Sure, revenues might decrease, and shortages might occur, but that’s an individual’s choice.
    In this case, inflation, rather than shortages, is a collective action problem.

    And when one considers it’d actually be everyone’s individual preference to set the highest possible price, it’s really a sort of tyranny that the state maintains a deflationary environment at all.
    Let alone the oppressive police state set up around persecuting people with the means to print their own money from doing so as they choose.

    Reply
    1. Yves Smith Post author

      What kind of lala land do you live in?

      How many “used auto bidders” do you know personally?

      Two of our four aides had to buy cars. One was in an accident (drunk driver with expired license totaled her beloved car), the other had a catastrophic transmission failure and a repair would have been a bad investment given the age and creaky condition of her vehicle.

      They HAD to buy a car. They aren’t traders or investors. No car, no income.

      As for stores, we documented that both farmers and stores are squeezed by middlemen. That’s where the margins lie. Grocers have thin margins and they have to pass on price increases to survive.

      Reply
      1. davie

        Yves, every once in a while you pull this “There is No Alternative” (so try not to imagine it) card to defend neoliberalism.
        Even though, and especially in the neoliberal context, there were alternatives.
        No one had a gun to their head. (Cue Amidala face) (cue Anikan face) There’s no gun right??

        Again, i find it interesting that the simple answer that “everyone has the right to increase prices” isnt the answer to why prices are increasing. Despite the way similar arguments will be made to defend gun violence, or air pollution, or debt bubbles.
        It’s a symptom of the professional managerial class, insisting everything has a mechanism with which they can manage.

        Of course, i don’t think that the fallacious “invisible hand” of the market is spontaneously making everyone’s individual decision operate in the most efficient way on whole, or that it would be more efficient if the state just got out of the way. Nor do I think a state should allow counterfeiting to produce the inflation individuals inherently desire.

        But inflation is a sort of collective action problem.

        Reply
        1. Yves Smith Post author

          You have just engaged in two violations of our written site Policies, which is broken record (repeating yourself as opposed to addressing the argument made) and straw manning, oh and worse, smearing me by putting me in the same camp as Maggie Thatcher. Attacking the site admins is a third violation of our Policies.

          You continue to handwave. If the aides don’t pay market rates for used cars, they and their families (as in children) wind up homeless. And this isn’t neoliberalism. We’ve been in a capitalist system since the early 1700s. We’ve had even more exploitative versions, such as the debtcropper system of the Reconstruction era.

          I trust you will find your happiness elsewhere on the Internet.

          Reply
      2. Watt4Bob

        I happen to know a handful of “used auto bidders” and I can tell you they truly have no choice but to bid higher.

        Auctions are an important part of the car business, if “used auto bidders” don’t purchase vehicles at auction dealers would have far fewer units to sell.

        There is a gigantic issue with lack of new vehicles right now due to the cascading effects of the chip shortage. A Chevrolet dealer in our group who usually has hundreds of new trucks on his lot has zero at this moment.

        In order to fulfill customer demand dealers must purchase used trucks, and the auctions are seeing prices that are, in some cases, higher than the trucks sold for new.

        While some people may have the luxury of waiting out these conditions in the hope that prices will moderate, there are many who must purchase trucks necessary for work right now, and they have no choice but to pay the current prices which are very high.

        Reply
        1. lance ringquist

          yep, i have seen most used car lots in my area close up. then their are the dim wits running G.M. who closed down american production of the impala, the cruz(both huge sellers), and the volt. which i wanted one.

          because the slime nafta billy clinton hedge funds want to sell only trucks because there is more money in it. drive by my local chevy dealer, row upon row of trucks, hardly a car in sight for sale.

          Reply
        2. Paul Kleinman

          Look, the issue of rising prices starts with the oligopolists who essentially unopposed, have used real problems in the supply chain and the dislocations of the Covid-19 economy to jack up their already fat profit margins, which of course starts the downward cascade down the ladder of lateral suppliers and retailers. Do the killer whales of the economic food chain have the “right ” to do this? If you believe in the “invisible hand” your answer would be absolutely, and it will all work out for the best in this panglossian world. If you believe that social democracy is the only way capitalism can be prevented from wreaking disaster on the 80% of us, you have a different answer. Then it becomes a matter of political power. Obviously, that political power can’t be fueled from the funds wealthy election donors bestow quid pro quo- it can only come from the multitudes of angry working people who need a real political party, not the Republicrats. Time to get down from the soapbox and get some lunch.

          Reply
        3. Chris D

          There were some actual good points made there about what counts as a social problem or an individual problem, and who’s to blame.
          I guess that doesn’t fly.

          Reply
  4. Dave in Austin

    Up at 5 am for a 7 am medical appointment with a first stop at NC. I watch poor people near my country house 25 miles from Austin and how they are responding to the present crisis. A pair of observations:

    First, I had not followed the details of the new tax credit. At the website https://www.whitehouse.gov/child-tax-credit/ it says that anyone earning under $110,000 gets $300/month for each child under six and $250/month for every child between 6 and 17. The first example the website uses is “Jamie, a teacher and single parent with three children under the age of 6”. What? Teaching requires a college degree. Almost all college educated people I know with kids remain married, and the odds of finding a “single mom” with a college degree and three kids under six is vanishingly small. So what are the real demographics of the tax-credit receivers? I don’t really know and if any of the NC Comentistas does, I wish they would post the info.

    For the house-trailer people out here two kids = $600/month and when you add the cost of operating a second car for an intact family of four it significantly reduces the likelihood that the mother will be in the work force. Or at least the “official” work force. For two decades the split between the BLS Household “are you working?” survey numbers and the Commerce “How many employees do you have?” number has grown very wide. Like the Soviet 1960 agriculture production numbers, the difference is what we like to call the “informal economy”- off the books.

    Second, on cars. Yves cites her personal experience trying to manage the four people helping to keep her mom at home in Alabama.

    One has a car destroyed by a drunken driver with no insurance. Now this is the usual modern American “wink and nod” non-enforcement story. Here in Texas roughly ¼ of the drivers are either uninsured (illegal), unlicensed for some reason (also illegal) and often undocumented people who can’t get a license. In Austin the hit-and-run rate has gone up not because the drivers are particularly criminal but because many of the drivers are illegals and can be deported, so they run.

    A second has “a bad transmission”. In my personal experience men fix cars and keep them running. In the past horse-trading was a male pastime and car fixing and “checking out” is a male avocation today. So unattached women tend to go to the local Craigslist or “10 cars on the lot dealer with the Auto Nation rejects” and gets sold a lemon- on time- by the prototypical “used car salesman”. Men tend to be clueless about how much work it takes to keep a baby going; women are usually equally clueless about cars.

    It’s called the lower class division of labor. I’ll make a small bet that the two women in Yves’ example purchased on time from Mr. Used Car Salesman, never took the new nag to a garage for a check-out , didn’t do the check to see if it had been wrecked and never gave it a compression test… the modern versions of checking the horse’s teeth to see how old it really is… and never checked the transmission oil level on the old car. And I’ll make an equally small wager that most of these women are Black, the product of single moms and with kids and no man. And the truly sad part is most of them are now past 40, scraping by and truly doing their best in a bad situation… and worthy of the respect Yves feels for them. Suddenly being confronted by the lives of our underclass is a sobering education in reality for us “College kids”. And I don’t have a good answer either.

    Reply
    1. vlade

      Out of the curiosity re insurance.. Here the car insurance works so that you have to be insured – but when someone rams you, you claim from _your_ insurance company, and it’s up to them to recover it, ideally from the insurance company from the other party, but if not, well, tough luck to the insurer, they have to go after the perp.

      Either way, you as the innocent party get the money, so you don’t care.

      In case the car was totaled you’d expect to get a replacement value at the current market prices. Mind you, here’s where insurance companies can get nasty, we ended up in a court suing ours few years back as we said we’d have got more. This is not something most people can do. Even in an obvious case like ours it took two years to get the money. Since you have to pay the legal fees up front, it’s money and time effort (and stress, which no-one will pay for). The insurers rely that most people don’t want/can’t do this.

      Reply
      1. doug

        In USofA, one needs uninsured coverage, and under insured coverage. That second one is the kicker. Folks can get minimum liability coverage as required by out of date state laws(way too low in most cases now). Then these same folks can then cause infinite amount of vehicular damage, and the wealthy insurance company only has to pay up to the (low) limit.
        Innocent parties get screwed all the time. Laws vary by state.

        Your insurance companies need to lobby more?

        Reply
      2. Yves Smith Post author

        The drunk driver was uninsured AND driving on an expired license. I bet their car tags were expired too.

        You are supposed to be insured but you are supposed to have a valid license too….

        Our aide had been mis-sold on her insurance. She thought it covered at least some of her car.

        Reply
    2. Yves Smith Post author

      Actually, the first woman, who had her car totaled, had a three bay car repair operation with her first husband when she lived up north. She does minor repairs on our car.

      Reply
    3. Keith Newman

      @Dave, 7:26
      Re “In my personal experience men fix cars and keep them running.” Well it depends. A lot. When I was living on a shoestring many years ago I had a friend, an excellent and very experienced auto mechanic, who encouraged me to do repairs on my car myself at his garage, at no cost other than parts, with his help when needed. One day my transmission began to give out. He said I didn’t do those, don’t have the equipment nor the knowledge. Soooo…transmissions aren’t easy to fix…
      Re the life of “our underclass” and “I don’t have a good answer either”. Well, I have a pretty good and easy answer for you, although not easy in practice to actually accomplish: higher wages, easy unionization, medicare for all, quality public childcare and seniors’ care. As a good start.

      Reply
  5. William Hunter Duncan

    My property tax in Minneapolis is going up 19.1% in 2022.

    Minneapolis just gave a 5% wage increase over 3 years, to it’s municipal workers.

    So riddle me this – why even in an article like this, can it not be mentioned, that the Fed has been printing $100+ billion per month since the Fall of 2019? More money sloshing around makes for more spent on product, yes? That is like 3trillion dumbed in the market making nothing but banks and Mr Market drunk, right?

    Reply
    1. GF

      Ii it was me, I would appeal, if allowed, the property tax stating that over the last year housing prices have only increased 5% to 8.5% (depending on source). There could be other reasons for the rise like a new jail or hiring more police etc. They will let you know when you appeal.

      Reply
  6. Nels Nelson

    I have followed the motor vehicle industry for most of my life and subscribe to a number of trade publications. First thing I like to make clear when discussing the retail trade is that FoMoCo, GM, etc. do not sell cars to you and me. They sell their products to their franchised dealers and to large fleet operators such as rental car companies. We buy them from the franchised dealers. The manufacturers have some control over their dealers but as a group they often tend to be wealthy and locally powerful and use this to protect themselves by enacting state and local franchise laws. The manufacturers by federal law post a “suggested” price for a vehicle often referred to as the MSRP, Manufacturers Suggested Retail Price. The dealers can sell a vehicle for whatever price the market will bear.

    To say that the pandemic has been disruptive to the above-described system would be an undersatement. Bottom line is that it has increased the profits of motor vehicle retailers to record levels. As has been pointed out by Yves, a motor vehicle is necessary for survival in our economic system and this has put motor vehicle dealers, both new and used, at a huge advantage. The trade publication Automotive News reports weekly that dealers are racking in record profits. Which brings me to this question. Why would they want things to return to normal? Under the current situation they can sit back and wait for someone desperate for a car or truck to come in and throw all the money they can afford or not afford to acquire transportation. A return to normal would mean back to the old grind of working to sell more product at very little profit.

    Furthermore, franchised motor vehicle dealers were huge recipients of PPP loans in 2020. The largest retail dealer group in my city received 7.7 million dolars from this program and the owner who I grew up with brags about how much money he’s making and how rich he is.

    Socialism for the rich and the precarity of markets for everybody else.

    Reply
    1. Watt4Bob

      The largest retail dealer group in my city received 7.7 million dolars from this program and the owner who I grew up with brags about how much money he’s making and how rich he is.

      Dealer groups are extremely organized, which helped when the PPP program was launched because they have long term relationships with their banks, (PPP was administered by banks) and they have professional accountants at hand to generate the documentation necessary to apply for the money.

      Our group instituted a 20% pay-cut as the pandemic took hold, only to revert and give back-pay when the PPP funds arrived.

      I’m sure that many businesses were unable to move quickly enough to apply successfully, my boss said we just got in under-the-wire, the window closed after they cut our check.

      It’s amazing how fast the government can move when it’s “Their kind of people” who need help.

      Reply
    2. Expat2uruguay

      As has been pointed out by Yves, a motor vehicle is necessary for survival in our economic system

      Small point. In the USA a motor vehicle is necessary for survival in the current transportation system. It’s not due to the economic system. It’s due to lack of public transportation. There are many countries in the world that have the same economic system as the US but have large cheap and abundant public transportation. Sorry to be a nitpicker, but it’s important to correctly name the problems, yes?

      On a side note, I know a lot of people are worried about spreading covid-19 on public transportation. Uruguay has done exceptionally well with only one quite large wave of infections, and many people here in Montevideo, the capital city of one and a half million, don’t own cars and rely on public transportation. The windows are simply open the small amount and of course everyone wears a mask on the bus. We currently have five new infections per hundred thousand and a test positivity rate around two and a half percent.

      Reply
      1. Nels Nelson

        Not a small point. In my city the public transit system which is by bus is viewed as having a sign above the door saying “Losers Enter Here”. The local press has been publishing articles about how wonderful it is going to be when additional capacity is built with funds from the infrastructure bill. Congestion will be gone and driving will occur under free flowing conditions.

        Mass transportation in the US by private motorcar is not going away anytime soon. At this point the strategy is to eliminate propulsion by internal combustion engine and replace it with battery electric. The worst part currently is that so many find it necessary for their private vehicles to be 3 ton trucks and SUVs.

        Reply
  7. lance ringquist

    the person who made this statement, is completely out of touch, and will never let reality trump ideology.

    “measures she advocates to keep prices from ticking up further include using the Strategic Oil Reserve, reducing trade tariffs, and continuing to work with ports to speed the processing of goods in the short term.”

    since when do tax cuts work? and the ports are being over whelmed because a country run by a rich world wide oligarchy, has designed a system, that if you fix the port situation, only invites more free trade, more port congestion, more pollution, more fossil fuel usage and more inflation.

    this will take decades to fix, if it can be fixed that is. the real solution is, source our products from us, that is inside our borders.

    including reversing this,

    https://www.investors.com/news/oil-export-ban-lift-needs-obama-ok/

    Oil Export Ban Lifted As Obama Signs Spending Bill

    Reply
    1. JEHR

      Good point:

      “and the ports are being over whelmed because a country run by a rich world wide oligarchy, has designed a system, that if you fix the port situation, only invites more free trade, more port congestion, more pollution, more fossil fuel usage and more inflation.”

      Reply
  8. JEHR

    Remember the saying, “Never let a crisis go to waste?” I feel that everyone up the scale and down the scale is now implementing that idea. House prices going up, rent prices going up, property taxes going up, municipal taxes going up due to amalgamation of districts, food prices going up, etc. It is hard to understand why ALL these prices are going up ALL at the same time. I am beginning to believe that price increases will defeat our desire to attend to climate change and climate change will really make the difference (in a bad way).

    Reply
  9. Susan the other

    I agree with Tom Ferguson that we have a price-wage-spiral. It’s very Gail Tverberg on an economy-wide basis. If producers (here or foreign) can’t make enough money on their goods they stop producing. She was talking about oil drillers but it applies everywhere – and throughout the whole cycle of the economy from energy producers to demand consumers. So, imo, clearly the place to start is with the wonderful world of petroleum products. That’s where we sever the supply/demand vicious circle. Buy up-and-out all the major oil wells and all the wildcatters. Give them good money and lots of incentive to go into renewables of all sorts, but especially safe, reliable, renewable energy. Get renewable energy up and going and keep it going by subsidizing it whenever it is necessary. And in the meantime, with oil/gas nationalized it can be rationed. Subsidize the energy necessary to keep the economy going, but do it with an eye to eliminating wasteful and irresponsible pollution. We can get energy under control with a long-term plan – like to the end of the century because that is what CO2 mitigation will require. And inflation will be a minor and adjustable problem. The “free market” can never accomplish this because they live and breathe the profitable ups and downs of supply and demand.

    Reply
  10. sharonsj

    Last week I hit a deer with my 2013 Nissan Rogue. The plastic bumper immediately turned into smaller pieces across the road. (Plastic!) The entire wrap-around front end is damaged, the hood is a bit wonkey, the engine is in plain sight minus the fan. However, I was able to drive home and then start making phone calls. I spent an hour on hold to Geico, so I filled out their on-line form while I was waiting. It took five days for an adjuster to show up and figure out an estimate.

    I was beside myself that the adjuster would decided to total my car rather than fix it. That’s because I’d just finished paying off a 6-year car loan (that I got only by lying about my income), which I estimate meant I’d spent $24,000–and I bought it used, not new. And the car had recently passed inspection as well. According to current values, my used car was selling for between $10,000 and $13,000. Fortunately I’d been paying a lot for very good coverage and the adjuster went for fixing it, not totaling it.

    Still, I view the entire car industry as a scam.

    Reply
  11. Bellatrix

    Mistake # 1: Reducing interest rates to the zero bound to goose up demand, thereby destroying all pricing and market signals, pushing up prices of all real assets, fomenting wage and general price inflation and dramatically increasing inequality.

    Mistake # 2: Continuing Mistake # 1 (see above) for so long and adding extreme money printing to the mix so that there is now no way to reverse the process without precipitating a crash, which will push down prices of all real assets and dramatically increase inequality even further.

    Mistake # 3 (in the pipeline): When the crash happens, trying to fix it by repeating Mistake # 1 (see above) and Mistake # 2 (see above), re-inflating prices of all real assets and dramatically increasing inequality even further.

    This story does not end well and the problem is governance, not capitalism.

    Reply
  12. Skip Intro

    So if we assume crypto market cap is 85% bezzle, 15% FOMOing bag holders how much ‘wealth effect’ spending arises in the US from this faux stimulus? (This is a hypothetical question, not an assignment, though if someone did want to rough out some spreadsheets and plots…)

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *