Coronavirus / Employment / Politics

Analysis: Economic Crosswinds


Storm winds whip down a pass, stirring the valley below, making people uneasy, sending confusing signals. That is what economic data is doing. Is our economy rising or falling, what is the real trajectory? Some thoughts.

First, we just got a “good” employment report – 943,000 new jobs, unemployment down to 5.4 percent. But what does that mean? On the plus side, seeing travel, restaurants, hospitality grow is hopeful. People are getting out and about. See, e.g., U.S. Economy Added 943,000 Jobs in July, Unemployment Rate Fell to 5.4%.

On the other hand, cold gusts abound. We continue to “dig out of a hole.” US unemployment in July 2019 – six months before COVID – was 3.5 percent. Between June 2015 and July 2019, unemployment was never as high as 5.4 percent. So 5.4 percent is nice, but nothing to write home about. Pre-COVID, four prior years were better.

Look through another lens. Yes, the economy has created 4.3 million jobs this year, but we remain 5.7 million jobs below February 2020 – a lot to recapture. Moreover, one-quarter of the “good” report is “government” jobs. From 2008 to 2018, state budgets got tight. COVID compounded job cuts. New federal money is buying back jobs. Nice, no cause to celebrate.

As an aside, government jobs do not “make” things, even if vital. The multiplier effect – number of times a product made generates added jobs – is lower with government jobs. Teachers and law enforcement fell in 2020; teachers are coming back, law enforcement not so much. See, e.g., Nearly All States Suffer Declines in Education Jobs; Nearly All States Suffer Declines in Education Jobs.

Finally, the latest report masks added facts. Labor participation is low, in contrast to record participation from 2017 to 2019.

Why? Generous state and federal unemployment benefits, free money, eviction waivers, other freebies – $6 trillion now disincentivizing labor participation.

Ironically, that fact tightened the labor market, driving up wages. What does that mean? It means those who choose to work are getting more. That, in turn, tells us time to stop paying people for doing nothing and affirms markets’ work. We do not need an artificially high minimum wage if wages respond to demand for labor. Right? Less government is better.

Second point:

Inflation is rising. The more federal spending, the higher the national debt goes (now approaching 30 trillion), and less our dollar is worth since more paper chases less real wealth. Of course, the pending $3 trillion-dollar “infrastructure” bill, driven by one-party government, does not inspire further confidence.

As inflation rises, affecting gas, lumber, steel, everything, something else happens. Real wages – purchasing power of what we earn and save – falls. The means we earn less and pay more, a drag on quality of life, economic security, growth.

In 2018, inflation was 1.9 percent, in 2019 2.3 percent, in 2020 1.4 percent. In 2021, 5.4 percent. Answer:

Stop federal spending.

Third point:

Inflation is accelerating for another reason, energy costs. While Democrats push distant energy dreams, we live right now.

Killing fossil fuel exploration and production, Biden has single-handedly ended US energy independence, making the US dependent on hostile OPEC.

As 2020 COVID recedes, energy demand creeps up, and higher prices are being paid for energy – everywhere.

Energy is just one accelerant for inflation, but big – since used in producing everything. See, e.g., Energy Inflation Gathers Pace As EU Gas, Power Surge To Record. Expect higher gas and oil prices this winter.

Fourth, while inflation rises, we now face another headwind: Competing with post-COVID recovery, we now confront fear of new lockdowns, civil and economic restrictions. These are attributable to fear of a “delta” variant.

Weaker but easier to acquire, the variant will slow the economy, at least temporarily. How much? No one knows, but new restrictions are coming.

Fifth, the Federal Reserve is uneasy, unsure as the rest of us. On one hand, they want modest inflation, tracking modest real growth, but in truth, they cannot project how fast inflation will rise or how high go.

They do not know. Worse, their policies typically lag reality.

If inflation rockets, they will raise interest rates. If the “delta” variant, or God forbid some politically inspired “mega” variant in 2022, slows the economy, they will need to double back, revise predictions, disavow rate increases. Truth is, the Fed is not good at predicting where the economy will go and is always slow. Expect markets to be jittery if fresh uncertainty replaces confidence and if predictability gives way to baffling crosscurrents.

Where does all this leave us? In some ways, we are left looking forward with more uncertainty than last year. If fear of the delta variant fades (as it should), the economy will grow. If excess federal benefits stop flowing, people come off the bench to work at higher wages; the economy will grow. If wild federal spending stops – a very big “if” – fear of inflation may quiet.

But also possible:

Fear of COVID variants may continue, fanned by politicians, slowing the economy. Unjustified federal benefits may flow, disincentivizing labor participation. Massive Federal spending may go unchecked with one-party government until people shout “enough!” Those developments would all buffet economic growth.

In the end, all politics are local, and much economic decision-making is too. Economic decisions boil down to collecting data, thinking about what you have and want, then making choices. America is a country that likes to work, works hard when given a chance, so growth is probably the better bet – if government will just get out of the way and give Americans the chance.

That said before we wrap – two cautions. Conservative economist Milton Friedman reminded us, “the combination of economic and political power in the same hands is a sure recipe for tyranny.” Colin Powell, for whom I worked, reminded us that every decision you make is made on incomplete information; you still need to make the decision – even in crosswinds, downdrafts, storm in the mountain pass.

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3 months ago

I visited the US Debt website a few days ago, so I was surprised (well, not really) to hear last night a PBS news hour reporter say that the US debt was now “22 trillion dollars”. Of course, she (Lisa Desjardins, sp?) considerably underestimated that amount, which is now almost $29 trillion. So progressives are sugar-coating (read: outright lying about) the real situation in this country. Duh.

Also among those numbers ticking furiously up or down is the number of people in the US work force. Today–151,800,000; but in 2000, it was 159,700,000! Not in the labor force today–100,200,000; but in 2000, it was 81,500,000! Clearly, liberal policies aren’t “working” in this country. (I could not pull up numbers for recent years.)

If Biden, Harris, and the rest of the mob get their way, debt will soar, numbers of non-workers will grow, inflation will run rampant, we’ll never get past Covid, more private businesses will fail, and the streets will devolve into chaos. In other words, nothing new. Then the feds will take over everything, and dole out jobs like they’re candy. “Trick or treat?” Doesn’t matter. We’re talking about the dems, after all; it’s all the same to them.

3 months ago
Reply to  Kim

Yes the ultimate goal of the Dems has long been to nationalize everything, do away with the private sector economy, property rights, seize all the money in private hands and make everyone a ward of the state. America reduced to a nation groveling for scraps from the Washington, D.C. table.

3 months ago
Reply to  PaulE

Ugh, I despair!! It seems that the longer they persist in transforming America, the more of us lose hope, stop complaining, and are “happy” to get just a few of those scraps. They win.

Unless WE win in 2022 and 2024, the country is in for a very rough slide.

Stephen Lykins
3 months ago
Reply to  PaulE

Yes, they have the deluded idea that they can make Socialism work when it has failed EVERY other time it’s been tried!

Tim Toroian
3 months ago

6+ trillion dollars deficits over the past two years don’t help anything either and the Dems want about 5 trillion in more spending. For those who don’t really know how large a number one trillion is one trillion seconds is approximately thirty-one thousand and six hundred and eighty-eighty YEARS.

3 months ago
Reply to  Tim Toroian


3 months ago

Just after being sworn in as President Joe Biden killed the keystone pipeline and fracking on federal .lands, which made the United States no longer energy independent. Yesterday President Biden begged OPEC to increase oil production, for which they did not commit and said they would think about it. Remember that when you get your electric bill, heating bill next winter, fill up your gas tank and pay for the increase of trucking transportation added on to your next shopping excursion.
That’s “Building Back Better”?!?!

3 months ago
Reply to  Felix

OPEC isn’t going to raise production to bail Biden out. They are laughing all the way to the bank for the idiots in the Biden administration being stupid enough to hand world-wide control of energy prices back to OPEC. Yes, Biden is Building Back Better the Saudi Arabian economy.

3 months ago

Always keep your eye firmly fixed on the larger, macro-economic trends driving the economy. The REAL trends, NOT the noise that the media and so many politicians try to divert our attention with on a daily basis. If you can do that, then navigating the economic minefield that the Biden administration has laid out before us becomes relatively simple to navigate through. The economic winners and losers have already been clearly defined in the global economy based on the set of policies that this administration is imposing and other global leaders have already adopted. The multi-trillion dollar game being played out right in front of us requires an agile and economically literate public, if they hope to survive what will be the most fundamental change of economic and societal circumstances we’ve seen in the last century.

3 months ago
Reply to  PaulE

Yes, that’s all true. Business owners require that agility if they’re going to get through recessions, changing tax policy, regulations, and every other obstacle thrown their way. For most of us, that was doing business.

But with increasing government control over labor force policy (through covid money, massive infrastructure and other bills, illegal immigration, green new deal, etc.), will many of us have to put our dreams on the back burner and take the work “permitted” by the federal government? Is it inevitable that American workers will have to surrender a basic freedom, which is to choose his or her own employment path? And, how long will we put up with that?

Signed, Totally disgusted with Biden!

3 months ago
Reply to  Kim

Hi Kim,

Yes, all of us that have owned and operated businesses successfully have always had to be agile and economically literate to survive and grow our businesses under a myriad of challenging conditions. In simple terms, our mantra has always boiled down to “adapt or die”. Either we quickly realized what the changing conditions from either the government or other sources meant to us and our businesses and we took swift and appropriate action or our businesses wouldn’t have survived.

The new set of government mandates heading straight for the American economy will necessitate that every American, not just business owners, understand what all these bad policies mean and how they will directly impact them going forward. That requires a sound understanding of macro economics and how these policies, implemented in other countries, have changed life for the people of those countries. We have many countries from which to see examples of how the policies the Biden administration wish to enact here have already worked out. My concern is many average Americans lack this knowledge or think something will magically happen to save them from the destructive policies being put in place. At the rate these new, regressive policies are being pushed through, the American people will need to either adapt, adjust or otherwise deal with them quickly end effectively or they will find themselves reduced to dire straits quite quickly. Certainly we don’t have the luxury of sitting around and waiting for the next election cycle as many seem to think here.

For many business owners, the mandates and policy changes being advanced will mean, depending on the sector of the economy you service, either an investment in more automation, if you have the financial means to do so and if it makes financial sense, to get around what will be prohibitively high and unrealistic labor costs or either scaling back operations or selling your business altogether before the new government rules put you out of business or bankrupt you. As successful business owners, we have to take emotion out of the equation and just deal with the realistic options available to us.

As an example, the hundreds of thousands of landlords across the country that are facing potentially long-term or permanent illegal rent moratoriums from the federal government, with no real financial recourse to recoup lost revenue, don’t have an infinite amount of cash to cover their monthly operating expenses, as well as mortgage and property tax obligations indefinitely. So their choice under the left’s trend towards “housing as right” as the socialists like to call it, is for them to take an honest assessment of how long they can continue under the current conditions before they start losing their buildings to bank foreclosure. Then they either opt to start selling off their now non-income producing real estate assets before that happens or risk losing everything and walking away with nothing. Different sectors of the economy will face a different set of hurdles they will have to deal with. It all depends on what sector of the economy you’re in and what it takes for your business to function normally.

The average American will be faced with the same hard economic choices going forward. Socialist economic policy is extremely disruptive for the average person, if they are not prepared to quickly adapt. You need to understand what the regressive policies will affect BEFORE they enacted in order to to minimize the damage you suffer from their implementation. That means being highly proactive and NOT reactive as so many people are. If they wait until they already see they are in trouble, it is likely too late to avoid a bad outcome.

As an example, Biden is offering massive government subsidies to so-called “green sector” companies in both the bi-partisan infrastructure deal, as well as the so-called human infrastructure deal. Hundreds of billions of dollars in initial subsidies to multiple economic sectors, that in and of themselves, would never be profitable with their so-called “green ” solutions, without the government propping them up in this way. That will increase the transportation costs of all goods and services, which will lead to permanently higher prices for almost everything from food, gasoline, electricity, etc. as a consequence. So it would be wise to understand that certain economic sectors that supply the government subsidized sectors of the economy will tend to benefit financially from this bad government policy. So it is important to understand how the hand of government, being firmly pushed down on the scales of the economy, will be producing massive winners and losers and economically changing the lives of all Americans.

3 months ago
Reply to  PaulE

I feel sorry for the generations coming after the baby boomers, with most of their working years still ahead of them. They’ll have to make those about-face decisions regarding education and their career choices. But then again, they’re the ones, primarily, who caused this mess by voting overwhelmingly for democrats. Unfortunately, everyone suffers under this scenario, regardless of party affiliation.

You’ve laid out a disturbing assessment of workplace realities. Yes, we need to think critically and beyond the simple “this is what I want to do” in order to prosper in this kind of environment. I need comfort food. Enjoy your evening, PaulE.

3 months ago

All this seems to be a way to control the American public — especially the big government handouts for Covid unemployment benefits, the moratorium on evictions, and the child care payments. The only problem with those payouts is that inflation will increase, and those relying on the payments will find they can buy less and less. This will cause candidates for election and reelection to push for an increase in government payouts. It is a vicious circle. Ultimately, it will destroy the middle class.

3 months ago
Reply to  George

See, with your last sentence you ended up correctly determining the ultimate goal. In order to achieve “economic and social justice”, everyone but the small group of ruling elite have to be reduced to the same level of misery and poverty. Then everyone gets to fight over the same scraps and crumbs the government may or may not choose to provide its population.

Sharon Ormsby
3 months ago
Reply to  PaulE

Communism in a nutshell.

3 months ago
Reply to  Sharon Ormsby

And every communist regime brings famine and violence! Expect to see masses of innocent people eliminated, especially those that disagree with the small group of ruling elite! Animal Farm and 1984 coming alive in the USA!

3 months ago
Reply to  George

This is just the same pattern that led to the downfall of the Roman Empire (west branch).

3 months ago

Biden didn’t create new jobs. Period!

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