Thoughts On Our New Recession

Network news people are all over the place. We are in recession. No, look at the job numbers, we are not. But wait, look at the inflation numbers, we are in recession. No, yes… confusion abounds.

Let me, a shade tree economist with 50 years of business and political experience, try to give clarity to the word salad.

First jobs. Even though tempered by restated April and May reductions, the June jobs report was strong. How can that be in these uncertain times? Simple, when the government dumps trillions of dollars into the economy lots of jobs will be created. Job growth will continue until the impact of all that “free” money runs its course. Therefore, job growth brought on by government benevolence should be expected for a while, until the money runs out. Then without an underlying vibrant economy, an economy that most suspect doesn’t exist, the job numbers will plummet.

Inflation. The impact of a government continuing to pour money into an economy that has returned to pre-COVID levels has to be inflation. To be clear, some commodities such as gasoline, whose prices are largely driven by supply and demand, should readjust to lessening demand. But there is a limit to that. High costs and a weakening economy will reduce demand, theoretically lowering prices, but Biden’s policies have and will continue to also drive down supply. So, in the long term as demand picks up but supply is lower, prices will jump up again.

Another key point about inflation. When politicians and the media talk about lowering inflation, they think that they seem to be talking about lowering prices. History proves that that is a false assumption. In fact the inflation that we are experiencing is setting a new normal for prices. Decades ago, concrete cost $25 per cubic yard, today it is north of $125 per cubic yard. Driven by periods of inflation and shorter-term deflation the cost of this and all other raw materials have continued to increase. The term “lowering inflation” generally means lowering the rate of growth of prices, not lowering prices. The damage from current inflation has been done, the new normal in prices has been set and will likely exceed wage growth for some time.

The impact of government induced inflation almost assuredly will be recession. Rising prices create a demand for higher wages, and as wages are a significant element of the cost of production and transportation, the climate of out-of-control inflation exists. Hence the Federal Reserve in its role to control inflation, has no option to slow demand but to dramatically raise interest rates and tighten money. Inevitably that will lead to a serious economic slowdown, perhaps even a deep recession. The folly of the government dumping all that money into the economy has most likely left no other outcome.

Ironically, the actions of the politicians that triggered our quandary may turn out to be helpful to minimize recessionary damage. In past downturns Congress, responding to political pressures in contradiction to Federal Reserve anti-inflation actions, would pour billions into the economy. But since over the last two years the government gorged itself on spending that tactic is not available. The inability of Congress to interfere may be a blessing, forcing government to allow the free market to overcome a recession in the normal course of time .

Once again history is our resource. Today it is understood that the depth of the Great Depression was not as many have been taught due to the Stock Market crash. The Crash may have been a fearful precursor, but the depth and length of the Depression were due to the populist policies of FDR and the Democrats, policies which undercut the free market’s ability to naturally recover. These were policies that vomited far too much government money into the economy for far too long. Policies that started the spiral of government dependency. Poverty, broken families, urban decay, and all sorts of social ills plaguing today’s society find their roots in misguided economic policies implemented in the 1930s. Fortunately, with little more money available to a weak-willed Congress, such may not be our fate.

This leads us to another principle, debt. Government debt is by its nature corrupting. Currently Louisiana maintains a $21 billion debt for unfunded pension liabilities. By law this is a debt that must largely be paid off by 2027, five years from now. Politicians have not taken any significant steps to lessen the impact of the deadline. Their logic is why should they, most know that they will be long out of office by then so let others worry about the problem. Those of us who tried to focus on the ticking time bomb of debt had a name for the actions of those who chose to ignore it, “Kick the can down the road”.

I call debt corrupting because it has been the key to unlocking the treasure of the people for politicians to spend on projects and policies that are low priority to the global needs of the state or nation. The state is bad for this, but the Federal Government is positively evil when undertaking debt on behalf of the people, debt that today is about $21 trillion.

Fundamental economic philosophy. The American people have for hundreds of years been the beneficiaries of prosperity resulting from a free-market capitalistic economic system. Over the last decades Democrats, with the acquiescence of spineless Republicans, have methodically pushed a lot of the “free market” out of our economic engine. Regulations, taxes, and all sorts of Progressive big government policies restrain the potential of what a free American economy could mean to all tiers of our people.

A metaphor of Democrat actions is as planting of red seeds of revolutionary change in American society. Their spoken goal is to replace equal opportunity with equal outcome. But such a drivel, flies in the face of human nature, if you will it manifests as Marxism in lieu of free market capitalism. By its nature efforts to implement this form of Democrat defined “fairness” substitutes mediocrity for meritocracy, government dependency for self-sufficiency. Equal outcome proffers a nation in which the vitality delivered by capitalism is replaced by lowering the bar of expectation to meet the lowest common denominator of mediocrity. Incentives to take risk, to work hard, to be frugal, to have an expectation of pride and prosperity, to flourish within a family structure, are crushed on the altar of socialist group think. The outcome, Havana instead of Miami, Caracas instead of New York.

The next time you hear the media all tangled up in economic confusion just remember a few simple precepts that have brought us to where we are.

Freedom isn’t free.

If it sounds too good to be true, it probably isn’t.

The nine most frightening words are, “I’m from the government, and I’m here to help.”

Life, Liberty, and the Pursuit of Happiness.

Free market capitalism created the strongest economy and most powerful nation in history. By international standards our poor are not poor, economic opportunities are there for all, and our freedoms are the most significant benefit of American citizenship.

One more precept to remember,

If it ain’t broke, don’t fix it.