Ok, bear with me. In 700 words, here are eight economic truths.
First, Inflation is at a 40-year high nationally, 8.5 percent in April, and is projected to stay high. Some sectors are getting shellacked. Inflation for used cars and trucks was 22 percent, gasoline 44 percent, and fuel oil 80 percent.
Second, high inflation has two big causes. The first is the Biden team’s hostility to fossil fuels, slowly crippling the U.S. energy sector, imagining fast renewable energy. Federal regulations, penalties, shutting down pipelines, fracking, drilling, licenses, and production ended U.S. energy independence – despite enormous fuel resources. Second, massive federal overspending drives inflation.
Third, U.S. growth seems high – but is low. As we shed low growth from COVID lockdowns, the perception is that we are gaining. That is only half the story. Moving from .001 to .002 is a 100 percent jump, but hardly four percent growth (as under Trump). We may even face two-quarters of negative growth.
Why does this matter? Why do high inflation, the two real causes, and deceptively low growth – described as high growth – matter? Because of a fourth major truth.
Fourth, the Federal Reserve aims to reduce inflation by presuming we have an “overheated economy.” They will do this by raising interest rates. The idea is that when we have high growth when everyone is trying to buy things and production lags, then prices rise, and the Fed tamps those down by reducing runaway demand. Higher rates mean a higher cost of borrowing – so people borrow less, and things slow.
But wait a minute. What do we know? Is this a time of booming demand, an “overheated” economy? No. THIS inflation is caused instead by cuts in fossil fuel production and massive federal overspending.
Raising interest rates – apparently another 1.5 percent this year, already at five percent – will not fix the emasculated energy sector or fiscal irresponsibility. With all deference, higher rates will just slow the economy further, causing higher job losses.
Fifth, watch unemployment. As prices rise, unions will argue for higher wages. This always happens, creating a cycle of wage inflation, pushing added price inflation, etc. Ironically, wages are already a problem since federal giveaways and COVID money dried up the worker pool, elevating wages.
So, think about it. If hiring people is already expensive and higher interest rates brings down borrowing, investing, spending, and hiring, what will happen? Growth will slow, and unemployment will rise. Firms will hire fewer people because doing so is more expensive, and demand for what they make is falling.
Sixth, the Federal Government will, of course, report on all this – they must. Politicians sympathize with the unemployed consumer, blame each other, blame Russia, blame the weather, blame the private sector, and give away more free money, which is never free and will only drive inflation higher.
They call this cycle “stagflation” – like stagnation and inflation – which happened under Jimmy Carter. With unending Democrat actions, we could see double-digit inflation and double-digit unemployment. That would be, well, rather bad.
But seventh – there is a hopeful truth. NONE of this bad news is permanent; it is all reversible. It is all fixable. Needed, as you know, are just serious leaders who will cut federal overspending, bringing debt, deficits, and entitlements under control, ending federal giveaways, restoring fiscal responsibility.
Maybe in a year, we could restart our energy sector, push toward 20 million barrels a day, restore U.S. energy independence – lower prices for everything, gas, food, heating oil, and raise employment again.
Calling a-spade-a-spade, we could lower interest rates, causing every sector to rally, re-igniting the stock market to keep returns, pensions, and savings up. This would trigger investment and spending.
Here is a real secret. While Biden pushes high inflation, high unemployment, and low growth, this can all be fixed. Restoring stability, jobs, and consumption restarts the economy. Recovery can follow in November 2022 if Republicans regain control. In 2024, we can introduce Biden’s misguided team to a concept – unemployment, up close and personal. Call that the eighth economic truth. What do you say?