Tuesday, February 13, 2024

What of the Economy?

We have known for some time that the economy is being impacted by long-forgotten inflation levels. The pandemic was a time of great panic and economic turmoil. Perhaps there has not been a similar time of economic upheaval, and certainly not in living memory. In retrospect, there were so many poor decisions made regarding federal borrowing and spending. With the dollar tied to no standard, money is worth what we perceive or believe it to be worth. The more dollars there are in the economy, chasing goods and services, the higher prices will go. According to Investopedia, this is the borrowing record of recent presidents:


The borrowing during George W. Bush's administration exceeded the borrowing during the three presidential terms (20 years) prior. Not to be outdone, the overspending during the Obama administration almost doubled that of Bush (W.). Explaining the largess of either is a frustrating endeavor. The pandemic years were not better, and there is no apparent end in sight. We might discuss the pandemic, with words like unprecedented, urgent, or more. 

But nonetheless, the spending has been significant even against the backdrop of the Obama years. Despite the graphic above of 2.5 trillion during the Biden administration, Investopedia says that the debt "has grown by over $6.24 trillion since Biden took office." If that is valid, then the last eight years have exhibited over $12 trillion, and that is close to the overspending of the 52 years prior combined. 

We are paying interest on the debt. Even if we quit borrowing now, the expense of paying the interest on all that past consumption and debt would continue. The total debt of the country is unprecedented, and much of that money is running through the economy here and abroad (when you buy a product made in a foreign country, that money goes to that economy).

According to CNN, "Sixty-seven percent of employees say the cost of living is outpacing growth in their salary and wages." This is largely because money is being persistently poured into the economy through trillions of dollars in increased debt. Those dollars all chase the same supply of goods such as homes, cars, and other consumables.

Wages have been artificially increased. Instead of market forces determining how much someone earns for an hour of work, there have been various government efforts to increase the "minimum" wage of workers. As those wages increase, the cost of the goods or services that they produce will also increase. The cycle will continue. And as wonderful as the fiction of legislating success may sound, the results are sometimes unfortunate (and to those who cannot comprehend consequences, perhaps unexpected.

California legislated a new $20.00 minimum wage. This is an apparent attempt to regulate out of the impacts of prior poor regulatory decisions. Previous legislative efforts have raised rates, which raised prices, which did not result ultimately in better living for the working. Continuing to legislate ever-increasing minimum wages will continue to drive prices. The results are as elementary as they are inevitable.

KTLA reports that several businesses have elected to therefore lay off workers. Those who would like to deliver pizzas for the $16.00 per hour they were working for last year now find themselves without a job. The result of the government management of private employment relationships has not lifted those drivers, but unemployed them.

The Daily Mail says 1,200 will lose jobs. Drivers feel they have been "slapped in the face." The food companies have said they will instead use gig services like Door Dash and Uber Eats (on a recent order, I saw that add $6.00 to the price of a pizza. I will order less often as a result). Other impacts are also noted with major fast food outlets saying that menu prices will increase. 

Wages rise, prices rise. Then people who eat fast food will feel their earnings not going as far and they will seek raises, and the prices of their services will rise. The quest for a "living wage" won't be fulfilled by legislators striving to micro-manage the employment relationship. The impacts are being seen now on fast food, with consumption reactions according to the news

One news source recently asked "Is the $18 Big Mac combo what finally broke America?" Does anyone remember when the "minimum" wage was $7.50 and so was a combo meal? I wonder what would happen if we forced the wage upwards to $20 per hour? Everyone would make more money, and as Louis Armstrong noted "What a wonderful world it would be" (1967). Perhaps if we raise the minimum wage to $50 that would fix the "living wage" conundrum? 

Some think that the fault is on product producers. They take to the airwaves (or the web) to complain of "Shrinkflation." See Shrinkflation and SB 959 (December 2021). See a producer can maintain the price, or slow the increase, by using less inputs. That means robots instead of humans in some instances, but could mean less product in the bag or cheaper ingredients in the product. That is the "shrink." The shrink is a reaction to economic reality and it does impact the price we pay. Is it as insidious as injecting trillions of dollars into the economy? Likely it pales by comparison, but it is easier to point a finger at in distraction and denial. 

According to Business Insider, people have reacted to the insidious lockdown mentality of the pandemic. The government's reaction to SARS-CoV-2 destroyed much of the American economy directly. But it also changed the way people think and feel about their existence. The BI article notes that people "prefer to spend their weekends quietly at home over socializing." The impact is personal, but it is also economic. Those people staying home are not out dropping $15.00 on a cocktail and tipping their server. For that matter, they are not dropping $18.00 on a Big Burger Combo nor paying $6.00 to have it delivered to their home. 

One quoted in the BI story notes
"If I leave my house I spend at least 100 dollars,"
Another that
"Everything is so expensive it's not fun anymore."
The cost is not because of some unseen and unforgivable supervillain (OK, perhaps there are some villains out there). The cost of going out is increasing because the cost of wages is increasing. The wages at the restaurant, at the trucking company that brings things there, at the brewery that makes/bottles the beer, at the trucking company that brings supplies to the brewery, there is a cascading impact in the economy of every increase in wages. Wages are a part of every element and segment of the product and its consumption.

And this is not an American thing in isolation. Last year, the Guardian brought us news (not news really, we all knew already) that "the cost of living crisis is destroying young people’s social lives." The young are not headed out to socialize in the United Kingdom because of the cost of living. This failure of socialization has an economic cost. But moreso a personal cost. What are the impacts on mental health? What are the detriments to our collaboration, collegiality, and cooperation from isolation and introversion? The young likely want to meet for coffee and cannot afford a cup. 

The impact of that is fewer customers. Fewer consumers will drive down the demand for goods and services. That is less sales by the business. But, with government-mandated wages, the pay at restaurants and similar establishments will (can) not respond by similarly decreasing. The only way for business to respond to the decreased demand and thus decreased business will be to lay off some portion of the workforce to cut costs. People will lose jobs. Artificially force up particular costs and the market will react.

There are discussions in the news about human reactions to stress and challenges. There are natural human emotions and COVID has impacted people, some deeply. The overall impact of that virus has been felt personally and variously. But in addition to the great personal loss experienced by many who lost loved ones, the economic loss persists. The emotional impact of the virus that was loosed upon us resultingly continues and is pernicious. 

That emotional evolution will impact the employer/employee relationship for years to come, as will the ongoing effort to legislate relationships and myths such as the "living wage." The world has witnessed multiple attempts at controlled economies. In the end, those have brought societal ruin and ultimately failure. Socialism, communism, and variants of each have failed consistently and spectacularly. What controlled economy has demonstrated long-term success?

In America, we have seen some attempts at central control, but moderated by largely free-market, laissez-faire evolution and freedom. Government has been able to periodically tweak without destroying. Workers' compensation, unemployment compensation, Occupational Safety and Health, are all good tweak examples. But, there will be a line somewhere that cannot be crossed. 

As the nation adapts to the "new normal," and the evolution of workplace, retailer, and wage earner continues, the great engine of American economics must be allowed to rev. People must be allowed to thrive in their production, contribution, and consumption. Value must be generated, products and services must attract consumers, and people must be confident in their existence and economic desires. It is the secret of our success and our only hope for tomorrow.

Ambition and optimism built this country. The expectations of today are in need of resuscitation and rejuvenation. People must be able to see their futures as attractive and motivating. The young must perceive opportunity and progress. The answer is not in dumping billion after billion (trillion?) of debt into consumer's hands. If it were, the government could borrow another $2 trillion and cancel all the credit card debt that has been unwisely accumulated). If we relieve the people of all consequences related to their decisions, will that lead to better decisions in the future?

The answer is in opportunity, ambition, and the American dream. Young people must come to realize that no one had it easy. The challenges have always existed. A poster on LinkedIn recently overviewed what the people born in 1900 faced. It is a real eye-opener. 

For example, here is what those folks faced on various birthdays during their lives:

14 - WWI
18 - Still WWI
25 - the Great Depression
39 - WWII
45 - Still WWII
52 - Korean War
64 - Vietnam War

As the poster so eloquently put it, "How do you survive all of that? A child in 1985 didn’t think their 85-year-old grandparent understood how hard school was." Yes, I was young and naive once. I doubted and questioned the "old folks." But look at what they lived through. That person born in 1900 evolved from horseback to Tesla; from telegraph to iPhone; from the invention of the airplane to the moon; and from the Second Industrial Revolution to artificial intelligence. 

And, in truth, they did complain from time to time. I heard them. But they persevered, adapted, and gave us the world of today. A world full of advantages, technologies, and opportunities.
The fact is, those challenges were overcome by legions of ambitious and motivated people who clawed their way through difficulties and challenges. They found frustration, discrimination, and unfairness. They fought through it, and they (we) made great strides. It will not be easy, but today's young will eventually embrace it. I believe they will grow, evolve, and thrive. But it will not be because we deride or belittle them, it will be because we enable and encourage them. It will not be because we collectively borrow more money, flood more markets, or inflate more prices. It will be because we lead.