Democrat-Led Economy Tanking

Biden’s economy – all distracting happy talk aside – seems to be tanking. Although reading economic crosscurrents is like tracking water flows in a whirlpool, you can feel the shift. Why?

First, as the Wall Street Journal just reported, “US hiring slowed sharply in August.” Economists predicted 720,000 in job growth – Biden got 235,000. While the “delta” variant did not help, that is only half the story. See, U.S. Hiring Slowed Sharply in August – WSJ.

As job growth slows – and has since January – labor demand is still high. Why? Obvious reason is something not right in our labor market. July labor data showed us 5.7 million jobs below early 2020.

Why? No rocket science needed. The Biden team and congressional Democrats – aiming to buy votes, widen dependency, force higher wages on struggling employers – has pumped extra federal unemployment money into the national labor market, big checks on top of state benefits.

Paying people to do nothing has had a predictable effect. With an added $600 federal benefits per month, then $300, on top of COVID checks, people stay home. While this can be reversed, Democrats seem intent on dragging the labor disruption forward for as long as possible.

Add non-income Democrat benefits, like a presidential extension of an “eviction moratorium” – struck down by the Supreme Court two weeks ago, educational loan forgiveness, federal child tax credit expansion, other free goodies, and you see why people are slow to return to work.

In this category, get ready for more distortions – as Democrats now push mega-spending bills as “infrastructure.” These so-called “infrastructure” bills are minimally roads, bridges, airports, and ports –mostly big, unjustified, unaccountable federal spending – and more federal dependence.

As Kimberley Strassel recently wrote, these bills fund “Medicare expansion, the Green New Deal, and huge new family and education entitlements,” and if law “may be the largest expansion of the federal government in US history.” See, WSJ OPINION: POTOMAC WATCH BY KIMBERLEY A. STRASSEL.

All this is bad news for the economy. On top of labor distortions and wild benefits, more looms.

Second crosscurrent: Accelerating inflation. A second-order impact of mass spending – is inflation. Call this the monster that ate your dollar. As federal spending explodes, dollars are borrowed and printed.

Currently, the US has a $28.7 billion-dollar national debt. This year’s wild spending – which cannot be covered by taxes – pushes more debt, more borrowing, on which we pay more interest, creating more debt. Inflation is the obvious effect of such irresponsible fiscal behavior, reducing the dollar’s value.

Third crosscurrent: Elevated taxes. Two kinds of tax increases are coming, obvious and hidden. The obvious is a Democrat pledge to raise taxes, pretending to cover mass spending. Problem is, no chance. As the economy slows, tax base shrinks, so that is a head fake. Taxes will not cover their spending.

The other tax is sneaky, hidden. It will hit seniors on fixed incomes, middle-class holders of credit cards, and mortgages. As spending, debt, inflation, and declared taxes rise, the indirect tax of higher inflation will come. We will pay more, fuel to groceries, dollars earned have less value. That tends to trigger panic reactions, fewer savings, and unions pushing irrational wage increases.

Fourth crosscurrent: Falling consumption. All this causes employers to pull back. They do not hire if labor costs go too high, instead of cutting hours and jobs. With fewer jobs, people earn less and what they earn is worthless.

What does that do? Think about it – it naturally reduces what the economy is producing and what people can spend. In other words, it reduces consumption, with fewer people having money to spend. That, in turn, reduces investment, further slowing public consumption, adding drag to the economy.

Fifth crosscurrent: Federal Reserve. Strangely, even as unemployment rises – putting aside the “delta” variant – the Fed will be concerned about inflation. The Fed is in a tough spot. On one hand, to stop runaway inflation, it must raise interest rates. On the other, doing so may further slow the economy.

Why? Think on it again – if you must pay more to borrow, you borrow less, slowing your economic activity. For businesses, that means slowing production and hiring, slowing the wider economy. While it might mitigate inflation in future years, the impact will be felt now.

They have another problem. Even as the Fed wrestles with rising inflation, it has a bloated balance sheet. The Fed “purchased” assets in recent years to preserve predictability in our economy and markets. Historically, they never did this, as lower interest rates caused people to borrow, invest, and grow.

Only that did not work recently. Interest went to zero, but things dragged. So, they started buying assets. In time, our economy came back. Under Trump, with lower taxes and regulation, things roared.

Problem is, “we are not in Kansas anymore, Toto.” We are facing slow growth with a fat pile of assets that need to be sold. Like taking your last finger off a card house, this must be gentle. That was how “tapering” of bank holdings was expected to be done – until recently.

Now, spendthrift Democrats have messed up the process. The economy is again delicate, with huge uncertainty. The distorted labor market, stagnant employment, overspending, rising inflation and taxes, lower consumption, and a need to raise rates to confront inflation – has created jitters. In the end, these crosscurrents – relating to each other – suggest a slowing economy. Thank you, Mr. Biden and congressional Democrats.

Healthy economies do not like these sorts of currents. The predictable effect is coming “stagflation.” Nothing suggests we can avoid it. So, prepare.