“Putting People First, It’s The Economy, Stupid!”
~James Carville and Bill Clinton
The Old Thinking
The U.S. Federal Reserve announced on Wednesday Sept 21, 2022, its third consecutive 0.75 percentage point rate increase for money lenders. Then the Chairman, Jay Powell, warned that at least one more such increase would be coming later this year, with the likelihood of more necessary next year to bring inflationary rates back under control.
Despite those announcements, he could not rule out that these rates would be high enough to prevent a full economic recession.
A September 13, 2022, article from Investopedia defines inflation:
“Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. The rise in prices, which is often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.”
They also explain that basic measure of selected goods is referred to as the Consumer Price Index.
“In the U.S., the Bureau of Labor Statistics (BLS) monthly collects the prices of some 94,000 items from a scientifically selected sample of goods and services to assemble its representative basket.2 The numbers are then adjusted to ensure price changes don’t reflect improvements in product quality, and weighted in proportion with consumer spending patterns derived from a separate survey of about 36,000 consumers in a given year.”
The reason for the increase then, is that the government, and economic analysts, have historically believed that the most effective way the government has to curb out-of-control inflation in a supply and demand capitalist economy is to make it more difficult and expensive for people and businesses to borrow money.
This, in turn, is expected to lead businesses to cut back on potential raises and hiring, and ultimately force layoffs that will increase unemployment.
The higher interest rates on credit lines and borrowed money, as well as the diminished income and loss of employment, will force most consumers to cut back on their expenditures, especially their discretionary spending.
The driving force of this thinking is that we need lower wages and higher unemployment to reduce the demand creating a surplus in supply which will force goods and service providers to drop their prices.
The always present inherent danger is that it is an extremely fine line to walk before it becomes a full-blown devastating economic recession or even worse, another Great Depression.
It isn’t just the United States that operates this way, Central Banks around the world are making similar decisions using the same reasoning.
Historically, these methods have been mostly successful, even though those hovering at the poverty lines would argue otherwise. The difference in a single percentage point can be the difference for many families between poverty, and lower middle class. For others, it can mean the difference between being able to afford their place to live and the food and medicines that keep them alive or having to choose between them.
This leads us to the issue that economists, and governments, seem to be finding that these same old “tried and true” methods aren’t working as well as they should be expected to in our current situation.
To understand that we must first expose the flaws in the old thinking. Then we must examine what is different about our current situation than in previous times. Only then can we begin to identify and implement real, lasting solutions.
Checking back in with Investopdia, we learn that:
“An economy is a complex system of interrelated production, consumption, and exchange activities that ultimately determines how resources are allocated among all the participants. The production, consumption, and distribution of goods and services combine to fulfill the needs of those living and operating within the economy.”
However, far too often in modern times, we conflate the strength of the economy with the strength of the stock market. As noted above, for the companies to maintain record profits, they need to be able to price gouge while still meeting the demand those prices dictate. So, a strong stock market needs the income disparity that creates a massive gap between an impoverished populace and a much smaller group of wealthy consumers willing to pay much more for most items.
For example, consider Disney’s recent open admission that they want fewer attendees at their parks than they were hosting prior to the temporary pandemic guest restrictions, all paying much more to be there. They are intentionally pricing themselves out of being an achievable destination dream for an even larger segment of the populace than before. They are depending on income disparity to protect their new post-pandemic record-breaking profits.
The only way to truly measure the strength of an economy is to measure the ability of it is poorest members to obtain a sustainable quality of life. Instead, we tend to measure it by the strength of corporate profitability and stock market value. This is a #Culturalinertia issue that must be changed.
The next flaw in the old thinking is the pool of people we base this measurement upon.
The voluntary monthly survey of buying habits is filled out by roughly 36,000 people. But only people who have the time to fill it out, the means of submitting it properly every month and are willing to share their buying habits with the government. 36,000 such people from a population of 330,000,000.
That’s a sample size of 0.001%.
The margin of error on any analysis of such an insignificant sample, especially one already distorted by the issues mentioned above, is so substantial as to render any predictive assessments impossible to make accurately. It is all just guesswork based on anecdotal evidence and invalid historical comparisons.
This brings us to an evaluation of what is different about the current inflationary issues than those previous instances we are comparing it to.
The Current Situation
The current inflation the government is attempting to curb is not simply one of just supply and demand market fluctuation.
During the pandemic, demand for fuel dropped considerably as much of the world went into mandatory lockdown, work from home, and social distancing protocols. This did not stop fuel companies from raking in massive record-breaking profits. They did this by manufacturing a supply shortage. Knowing the pandemic would eventually end or be brought under control, they still choose to decrease their production instead of building a surplus for the eventual demand surge as everything returned to normal demand levels.
Then as demand did begin to normalize Russia invaded Ukraine and government sanctions from the U.S. and European Union on Russia created an additional slowdown in predictably available global supply. This fabricated supply shortage allowed them to again raise rates far beyond what the market would normally bear without the war to blame it upon.
In turn, the additional increase in fuel prices drove up the cost of transport cost of all goods and services across all markets. However, despite the last 20 weeks of falling fuel prices, the cost of those goods and services has not been readjusted accordingly.
This indicates that the inflation we are seeing across the board is not a true result of supply and demand fluctuation nor is it a result of changing fuel costs.
It is simply that corporations are seeing an opportunity to drive up prices while scapegoating the public into accepting the blame for the price increases.
Other companies, also looking to rein in their own costs without losing profits, are engaging in “Shrinkflation” practices. Instead of raising their prices, they are downsizing their products without lowering their prices. This means consumers are still absorbing the inflation rates, they are just getting less in exchange for doing so.
On the labor front, employers complain that no one wants to work, while unemployment is at record lows. The problem is really that they don’t want to give up shareholder profit margins, lower executive pay, and lessen executive benefits in order to be more competitive in courting workers with better starting salaries and better entry-level benefits.
They want to maintain that wage gap, because as we learned at the start of all this, it is deemed necessary to keep inflation down. The main workforce can’t have too much buying power for our economy to work the way we have established with our #Culturalinertia.
The Short Term Fix
The most obvious short term quick fixes to all of this are simple:
Instead of punishing consumers for business practices that drive up inflation, focus on regulating the business. Set price caps on products and services at no more than a specific percentage above the cost of making and providing them. Pass laws to prevent ridiculous wage and benefit disparity between entry level workers and executives within the same company.
The Long Term Solutions
I’ve already outlined a good bit of the long-term solution in an article I posted here on April 2, 2021, as the COVID vaccines were starting to open the world back up. That article was called “Creating A Better Normal” and you can read the entirety of it here.
It is interesting to note in hindsight that at least part of what was proposed there was included in Biden’s pandemic relief and recovery, and it proved successful. Most of our current economic problems began when those relief efforts were discontinued and before those recovery efforts could reach full effect.
It is also interesting to note with that same hindsight that Trump’s attempt to solve the problem from a corporate standpoint instead of a general populace approach greatly exacerbated all of the problems raised in both this article and my 2021 article, as well as opening up a huge opportunity for corruption that is only now being fully exposed.
Below is a slightly updated version of the solution I proposed:
So, what might a new normal look like?
Let’s look at a few things.
Imagine the true freedom created for the people of “The Land Of The Free” if we could make this thought exercise a reality.
Embrace work automation. Allow and encourage every single job that can be automated to be.
End all corporate tax avoidance loopholes and increase the tax rate for businesses that draw over a few million net profit per year.
Create a single payer universal health care program that separates health care from employment, freeing corporations from having to provide and fund health insurance packages for their employees as well as eliminating the insurance premiums that consumers pay just to be insured, the vast majority of which fund the insurance companies’ business model, not the actual health care.
The health insurance industry could still thrive as a supplemental insurance covering voluntary procedures outside the scope of the government subsidized care.
Establish an income tax free, minimum living wage, universal income for all adults.
All people would then be free to pursue their own interests with their time and money. The vast majority would seek out training and work in the fields that actually interested them to supplement their income, instead of just choosing to work anywhere that would give them the paycheck and health care to survive long enough to work more.
Any income above and beyond the universal minimum living wage would be taxable.
Primary education could return to a focus on developing critical thinking and life skills, rather than churning out an economic workforce. A renewed focus on STEAM education; Science, Technology, Engineering, Arts, and Math; instead of the artless approach of STEM, thus renewing the nurturing of creativity across all fields of study. It could even proceed at an individualized pace instead of a uniform pace measured by one size fits all testing.
Make state funded colleges tuition free for those who want to pursue a higher education. Private colleges could still charge whatever they wanted but would need to find ways to further enhance their curriculum and experience to entice students from the state colleges to give those students a higher return on their investment.
Companies would have to compete for quality employees in those positions that could not effectively be automating, providing opportunities for those with a focused interest and ability in such fields to advance both themselves and their employers while increasing their available income for their families.
Imagine the productivity and creative advancement of such a society.
One where everyone who was working wanted to be there and was appreciated and rewarded well for being there.
One where the arts and entertainment were advanced by nurturing the creativity of those drawn to them and they had the time and ability to seek the training to enhance their skillsets.
One where people were freed to focus on raising their kids instead of depending on schools to do so while they toil away at seemingly meaningless and thankless work just to survive.
One where the impoverished were not forced to choose which necessities of life to live without each month, or turning to crimes of necessity, just to survive.
Every individual that wanted to could become a sole proprietor of a small business for others interested in the goods or services they were interested in creating to purchase. If successful they’d supplement their income, if not, there would be no harm done to anyone and they’d still survive to pursue their other interests if they failed.
One where a representative government of the people, empowered by the people, would focus on being for the people that empowered it.
We could once again establish a socially democratic republic based on regulated capitalism with a conscience, protecting consumers, the environment, and the volunteer workforce needed to keep it all running smoothly.
Of course, there would be people content to live upon the minimum universal income, but they would be doing so by choice, not necessity, and they would still be contributors to the national economy as consumers of the goods and services created by those choosing to do so.
Programs like SNaP, CHiP, and other social safety net services would become obsolete because those needs would be taken care of other ways.
All other programs subsidizing shortcomings in corporate wages could be eliminated.
At this point, we truly would be the land of the free.
Nobody would owe their soul to the company store.
The poorest among us would have a sustainable quality of life lacking none of the necessities to survive.
Imagine the wonders that such a society could create where everyone was free to pursue their interests and achieve their full potential.
Imagine how we would advance the culture of not just our nation, but the world, with the work product of people in such an unburdened society.