Who knew spiking prices and shortages of everything were a positive development? We’ve gone from inflation wasn’t going to happen, period, to it’s happening but it’ll be short-lived, to it’s actually a good thing to begin with in less than 10 months. The spin is strong as the experts try to explain away what’s eating at your wallet.
For months, the experts told us that inflation wasn’t really a concern, no matter how many trillions in coronavirus stimulus were lathered on the economy. Once upon a time, the Federal Reserve had a target of 2% in mind and all the people that mattered believed that was achievable. The economy, however, had other plans and prices have spiked across the board, up 5.4% year over year in September, the highest in thirteen years after setting similar records for the past several months. They’re expected to hit 6% in October, the highest in 30 years. Energy and food prices have spiked even higher, as have cars and homes. The reality is now inescapable, so unavoidable that even CNN was recently forced to cover it, albeit in a segment so odd one wonders if they weren’t intentionally creating a target for progressives.
The goal of the segment was to demonstrate “how badly inflation is hitting the middle class,” as in the impact on an average American family, but for some inexplicable reason they chose to center on a family in Texas with 9 kids that consumes 12 gallons of milk per week. Perhaps needless to say, this prompted more than a few snickers. Slate.com’s Jordan Weissman wrote, “Yes, That’s a Ton of Milk.” “So, CNN decided to run a folksy segment about how inflation has been hitting real Americans in the pocketbook, and in doing so introduced us to the Stotlers, a family that appears to be single-handedly propping up the American dairy industry.” Jonathan Chait tweeted, “12 gallons of milk a week may sound like a lot, but they’ve actually had to cut out their milk baths on alternate days.” Eric Howell was more vulgar, “Fuck me. 12 gallons a week. Buy a fucking dairy cow at that point. Would be cheaper.”
In the segment, the Texas family claimed milk prices have increased some 50% in their area. “A gallon of milk was $1.99. Now it’s $2.79. When you buy 12 gallons a week times four weeks, that’s a lot of money,” they said, claiming their overall grocery bill has risen 50-100%. The USDA, however, reported that food prices have only increased 10 percent since June, meaning the family could have exaggerated somewhat or the USDA could be undercounting the increase due to variations in prices by region, possibly both. Regardless, potential discrepancies like these have prompted some additional pushback on the story and the nature of inflation in general. For example, James Surowiecki, writing for MSNBC, claimed “doing it the way CNN did is likely to confuse and frighten viewers rather than enlighten them” and that the “inflation hawks have been telling scary stories about impending inflation” for more than 12 years, strongly implying this is just another one in a long line.
At the same time, even he’s willing to concede that a 10-20% price increase “in a matter of months hurts.” Ultimately, however, Mr. Surowiecki believes it should be “enough to talk about the inflation we actually do have” before launching into a description of the kind we don’t really have. In his opinion, “any discussion of inflation needs to include the context in which it’s happening.” The context he refers to now is the coronavirus pandemic, of course and, from there, he somehow jumps to the idea that the current spike in prices is actually good news in some ways because it was prompted by the brief recession after the government-ordered shutdown of many businesses in March 2020. You might think recessions are bad, Mr. Surowiecki declares that the “Covid recession was different.” Instead of depleting savings and making people poorer, the combination of extra unemployment benefits and additional stimulus payments left many “better off, not worse.” “The result of all this was that Americans ended 2020 $13.5 trillion richer than they were at the beginning of the year.” This extra wealth included a 50% increase in savings rates among even low income families. “So lots of Americans came into 2021 with money in their pockets. And since then, we’ve seen the sharpest recovery from a recession since World War II, one that’s driven the unemployment rate down to 4.6 percent, and wages up almost 5 percent year-over-year.”
Mr. Surowiecki surmises that “consumers are, relatively speaking, flush with cash,” and therefore demand, not lack of supply or government printing endless money, is actually driving up the prices. The root cause problem in his mind is that “it’s taking manufacturers and food producers time to increase supply after cutting back production during the pandemic. When you have high demand, and relatively low supply, prices go up.” Mr. Surowiecki concludes the “inflation we’re seeing is not, then, some mysterious affliction that’s descended on the economy. It’s the predictable product of the economy’s rapid recovery, and its costs have been offset, to a large degree, by robust wage growth and government policies.” In this regard, he might be onto something in some parallel universe where the experts predicted this wave of inflation and economic growth hasn’t been sputtering for the past six months.
Unfortunately, this analysis is more political spin in defiance of actual economic reality than a legitimate attempt to come to grips with the crisis. It’s true that the economy came roaring back from the recession, but that was over a year ago, when third quarter GDP spiked 38.3% and many businesses were still suffering from lockdown restrictions. The combination of the two certainly could have resulted in scarcity and caused price increases at the time, except it didn’t. The effects, apparently, were delayed more than a year, even though GDP growth has not eclipsed 7% since and in the most recent quarter it declined to 2%. Today, the economy is only slightly larger than it was before the pandemic, $19.2 trillion at the end of 2019 compared to $19.47 trillion today. Are we to believe a paltry 1.4% increase in the overall size of the economy over close two years is resulting in over 5% increases in prices and a veritable shortage of everything?
We shouldn’t discount that consumer and business spending habits have changed before and after the pandemic. Businesses are generally spending less on travel, entertainment, office space, and overall investment. Consumers are generally spending more at home and on their homes, but even then we see a sharp decline over the past three months, not an increase that would squeeze demand. After rising at 12.6% in the second quarter, consumer spending was down to a mere 1.6% in the third. This decline was across almost the board, including a whopping 26.2% decrease in expenditures on big ticket items, from appliances to cars. Spending on services increased by 7.9%, though even that was down from a 11.5% clip a quarter earlier. Further, there was a .7% decline in disposable income, after a much larger 25.7% decline last quarter, meaning consumers aren’t currently flush with cash relatively or otherwise. The personal savings rate also dropped, from 10.5% to 8.9%.
“Overall, this is a big disappointment given that the consensus expectation at the start of the quarter in July was for a 7.0% gain and even our own bearish 3.5% forecast proved to be too optimistic,” explained Paul Ashworth, chief U.S. economist at Capital Economics. In other words, it’s almost impossible to square these numbers with Mr. Suroweicki’s assumption that consumer demand, which has plummeted over the past three months, is driving inflation, which has spiked over the same period. Also, if demand were driving the spike in prices and shortages, we would expect to see the increases and accompanying scarcity confined to certain market sectors. Instead, the shortages are across the board, from glass, to chips, to cars, even chicken wings as a server at a Ohio restaurant recently told me, and the price increases have been driven primarily by food and energy, both up far more and far faster than one would expect given the overall economic picture. Putting it another way, are we to believe everyone’s eating a lot more than they were last year and, thus, demand for food has shot up?
Nor does it seem like an end is in sight anytime soon despite the happy talk from the experts and the progressive pundits pushing for even more government spending. Wholesale prices, which ultimately translate into consumer prices, were at record highs in September for the eighth month in a row, up 8.6% from last year. It’s only a matter of time before this hits consumer wallets. Of course, none of this is stopping the constant spin from the media, the politicians, and the experts. Mr. Surowiecki believes we should only be “sort of concerned” about inflation. Mr. Ashworth claims the economy is going to come roaring back any day now. “We expect something of a rebound in the final quarter of this year — if only because motor vehicles won’t be such a drag and any negative impact from Delta should be reversed.”
The sad truth, however, is that nobody knows. Inflation always starts this way, and then it spirals, interest rates increase, and it spirals some more. Perhaps even worse, the Biden Administration is incapable of even speaking about the supply chain crisis, which is certainly contributing to increased prices, coherently. The President himself recently said that the media is equally incapable of performing that basic function. This past Saturday, he put it this way, “And so, all I can say is: What I’m going to try to do is explain to the American people, as best I can — And, by the way, you all write for a living. I haven’t seen any one of you explain the supply chain very well. No, no, I’m not being critical. I’m being deadly earnest. When your editor says, ‘Explain the supply chain.’ Okay? ‘Lots of luck in your senior year,’ as my coach used to say.” Incredibly, the President was more empathetic and on top of things than his Energy Secretary, Jennifer Granholm, who outright laughed when asked by Bloomberg what the administration’s plan was to keep gas prices down.
It’s pretty clear at this point that they have no plan on energy, the supply chain, or inflation. In fact, on at least two out of the three, they actively plan to make things even worse. They are intentionally restricting the production of oil and natural gas on American soil, while begging OPEC to help and considering shutting down even more pipelines. Mr. Surowiecki is surely correct in his assumption that supply influences prices, but in this case we are actively reducing supply to intentionally increase prices, exactly the opposite way one would want to proceed if the goal was to tame inflation and end the crisis. He is equally incorrect that there is no connection between rampant money printing and inflation. In this case, the government has spent some $4 trillion combatting coronavirus and just passed another $1.2 trillion in infrastructure spending while progressives plan yet another $1.75 trillion.
What are we to believe is the culprit here, a paltry 1.4% increase in economic growth or a whopping $6.2 trillion in government spending, almost a third of the total economy with even more on the way? Of course, this will not prevent progressives, the media, and the experts from lying about it, but make no mistake: They didn’t predict this spike in prices. Now, they refuse to accept what’s behind it and are actively lying about it. Sometimes, it seems this is precisely what they want. Welcome to the Great Reset…