Inflation and Asset Prices:  I’m Tired of the Whining

When it comes to state and local government in New York, the primary subject of this blog, it is now reasonable to be unreasonable.  Because after decades of being reasonable and fair minded, willing to pay more in taxes and accept less in services while being supportive of the “heroes,” we find that we have been robbed and robbed and robbed.  Things have gone so far that demanding more, and demanding that we pay less, including a demand that the State of New York, City of New York, and related agencies declare bankruptcy — and shirk their obligations to those who have shirked their obligations to us — is now a fair-minded thing to so.  And the reverse – expecting that we’ll be forced to pay and pay and pay even more, while getting less and less and less in exchange, and be required to provide what used to be public services for ourselves, bike riding instead of transit, homeschooling co-ops instead of schools, neighborhood watches instead of police – is now the sensible thing for those who choose to live here.

On the other hand, with regard to the current whining about inflation, in general and with regard to specific goods and services, and decreasing asset prices, I have the opposite attitude.  What seems to be happening is that those who benefitted from their own past inflation, for decades, at the expense of those (people, groups of people, generations, industries) left poorer and facing personal deflation, now find that the serfs, and the lowest-wage workers in particular, have briefly gotten a little more at their expense.  And demand that something be done – by force through the government, rather than through voluntary action by themselves in the marketplace — to restore the natural order of things.

Question:   did the super-rich, today’s seniors – the richest in history, those working in industries that have been raising prices far faster than the average for decades, existing homeowners that bought their houses decades ago at far lower prices, and the political/union class in places such as New York, ever, during the past four decades, really concern themselves with those who have been facing personal deflation to offset their own personal inflation?  Those who were being left further behind so those cutting the deals could get further ahead?  The average later-born worker, and the lowest wage workers in particular, have been falling behind overall inflation, compared with those at the top and the generations that preceded them, for decades.  Yet only now, when the self-dealing winners of the past four decades are paying more, that is a national crisis that requires drastic measures?   And if an economic era is now ending, is that really a bad thing?  Bad for whom?


There is so much whining going on, and being amplified by the media with no perspective at all, I thought that someone ought to at least offer a corrective.  To start with:

Oh no, stock prices are falling!

That’s because they were too high to begin with.

Artificially inflated by decades of federal policy to bail out existing asset holders very time the stock market went down or a financial crisis threatened to erupt.  This was described as “saving the economy,” but mostly benefitted those existing asset holders – the rich and richer earlier born generations.   While dooming young savers, seeking to save and invest for their own futures, to lousy or even negative future returns.  Income redistribution on a massive scale.  Did those who seemed to have a de-facto guarantee of higher stock prices for when they sold ever worry about the effect on later-born buyers?  Nope!  High stock and bond prices are good, the media said.  Sure, good for those who have them already, and good for sellers.  Not for buyers.

I’ve written about this in the past, but in the event that anyone believes that I lack financial bona fides, here is the same explanation from someone else.

There are two sources of return on an investment: income and capital gain. The income on, for instance, a government bond is the interest (or “coupon”) paid once or twice a year. Bond prices and yields move inversely. So when interest rates fall, as they did for much of the past four decades, bond investors enjoy a capital gain. 

In essence a capital gain of this kind brings forward future returns. You get the income now you were going to get later. But as yields fall ever lower the scope for further capital gains becomes more limited. So low yields imply low expected returns. This bond-like logic holds for other assets—equities, property, private equity and so on. Dividend and rental yields have fallen in response to the secular fall in interest rates. Owners of all kinds of assets have experienced windfall gains. But today’s low yields imply low expected returns in the future.

That’s what young savers who invest in stocks or bonds or anything else today will get, because they are being forced to pay more for assets than their future income is worth.  What will happen in the future, when those who benefitted from this are gone – or perhaps now?

Low expected returns can materialise through either “slow” or “fast” pain. In the slow-pain scenario, assets remain expensive and investors receive desultory bond coupons, equity dividends and rental receipts for years on end. In the fast-pain scenario yields revert to their higher historical averages. This implies a spell of brutal capital losses followed by fairer returns thereafter. The choice is between well-heeled stagnation and a crash.

Long time readers of this blog and its Room Eight predecessor know which one I’d prefer.  I said “let it burn” in 2008, I said “let it burn” in 2020, and I say “let it burn” now – and would hope that this time asset prices stay at a level that provides fairer returns thereafter instead of another government bailout keeping asset prices inflated.   Here is a screenshot of a chart of the historic dividend yield for the S&P 500.

Buy stocks today, after all those recent declines from the absurd highs, and how much would you, as a saver, get in dividends as a percent of your investment?  Just 1.58%, meaning the value of your savings would decrease by 6.0% or so compared with inflation current inflation.  What about stock buybacks?  Those are used to offset the stock and options that those controlling American businesses issue to one another, transferring wealth to themselves from everyone else.  How much would stock prices have to fall (assuming no change in dividends) for the dividend yield to rise to the historic median of 4.23%.  They’d have to fall approximately 64% — well more than half.

To this add the impact of demographics.  Baby Boomers own all the stocks.  What happens when they start selling, net, to finance their retirement?  They have left the generations behind them poorer, and those poorer generations can’t afford to pay as much as the earlier born generations expect to get.

I’m tired of the media describing soaring stock prices as good, and falling stock prices as bad.  Good and bad for whom? 

Oh no, house prices are going down!

Perhaps, like stock prices, they were too high to start with.

Intentionally kept high compared with the past to benefit senior citizen homeowners (who got to buy at lower prices as young adults) and the financial sector, which holds the mortgages, to the detriment of young adults who might aspire to become homeowners themselves.  

For well more than a decade the federal government has done everything it could to re-inflate housing costs – to avoid losses on the massive debts run up against houses during the 2000s housing bubble.  Allowing banks to sit on millions of homes to the point where they deteriorated and were abandoned, to inflate the value of millions of other homes to the point that private equity firms were willing to buy them up.  Increasing the share of income that could be used to pay for debts to as high as 50%, so that Millennials could borrow and pay more, and therefore would be forced to outbid each other and borrow and pay more, for Generation Greed’s houses.

I warned people not to fall for it.

But during the pandemic many gave in, and house prices truly exploded.  Making a crash almost inevitable.  So what is our geriocracy going to do now?  Force those with massive mortgages to keep paying 50% of their incomes for debt, so the financial sector doesn’t take losses, by prohibiting the discharge of mortgage debt in bankruptcy – as was done for student loan debt?  Take additional action to try to push the price of houses to new highs?  After all, a generation that didn’t save is counting on inflated house prices to fund their retirement.

The Boomers may not start selling until they start dying.  Perhaps that’s why there are so few houses for sale – too few empty nesters are willing to downsize.   But all those houses are going to hit the market eventually.  The later born can follow the propaganda and overpay now, or hold out.

Oh no, food prices are going up!

Perhaps they were also too low to start with, after getting cheaper for decades.  

Not in terms of what is paid, but in terms of how much of what is paid is food, as more and more of the food dollar goes to packaging and preparation, and less and less to the farm.

Yes, I’m concerned about food scarcity in the developing world.  In fact, I have been since my formative years in the 1970s, when we last had soaring food prices and widespread famine in places where war was not the cause.  My own food choices during my entire life have reflected that concern.  But here in the United States we throw a lot of perfectly good food away, have lost the cultural skill to efficiently buy, prepare and fully use our food without wasting it, and eat way too much meat, something that is bad for the economy, budget and health.

Around the world, grain production went up by 17% in the 2010s, exceeding population growth by six percentage points. Consumption per person, however, remained flat, even as many went hungry.

Instead, the extra grain was put to other uses. Nearly one-tenth was converted into biofuel, which is used mainly to power cars. But the lion’s share went to animals. In 2019 pigs ate 431m tonnes of grain, 45% more than the people of China did, according to our calculations. Overall, from 2010 to 2019 the amount of grain used for animal feed rose from 770m tonnes per year to 987m, as the world’s pasturelands shrank and appetite for meat grew.

Some grain by-products, such as maize husks, are unsuitable for human food. And feeding grain to animals does generate food for people indirectly, in the form of milk, meat and eggs. However, this process is highly wasteful. For every 100 calories of grain fed to a cow, just three emerge as beef. Along with other feed crops and pasture, rearing animals also uses land that could produce human food.

I’m not a vegetarian, because some meat is healthy, and there is lots of land that could be used for pasture that is unsuitable for the plow.  But that land isn’t going to produce enough meat for every American to continue eating as much meat as they have been – let alone everyone else in the world.

Moreover, part of our cheap food has been made possible by unsustainable and environmentally destructive but temporarily cheap and effective farming methods.  One reason food prices are going up is because the price of artificial, fossil fuel-based fertilizer is going up.  You’d think our biotechnology industry could figure out a way to use less.

Then there are the low wages for food producers in rural America.  Did those enjoying the cheap food ever consider what that meant for those communities, where people were struggling to buy things from those getting paid more while getting paid less, relative to overall inflation, themselves?  Consider this map of 2010 to 2020 population growth, and see the widespread decline of rural America.

Only tourist and second home counties are not losing population.  Since my children attended the same Upstate NY college my wife and I had 30 years earlier, I ended up riding on the same roads through the same communities, and saw the decline first hand.

My view – Americans should stop whining about prices, and start eating more non-meat foods cooked from scratch, and throwing less food away.

Oh no, energy prices are going up!

Maybe they were too low to start with.   

And because they were low, the American lifestyle and landscape were transformed in ways that force people to use lots of energy just to live decently.  Places where one has to drive a motor vehicle to go anywhere and do anything.  Where not only the motor vehicles, but also the houses, are larger and larger and larger even as the number of people in them is, on average, smaller and smaller.  Americans can’t afford cars and houses, but somehow we have 276 million motor vehicles for 267 million people age 16+, and also far more bedrooms than people.

With regard to the cost of energy, Americans have put a gun to their own heads with their own choices, and are now blaming everyone else for the consequences.

When it comes to commodities, “the cure for high prices is high prices.”

People are apparently finding ways to drive less — for example trimming or consolidating trips to run errands, limiting the number of days they go to newly reopened offices or turning to public transit.

There is enough pent-up demand for vacations that it’s not clear many people are willing to forgo long-planned trips to avoid $5 gas. But the end of this summer’s travel season could result in an even bigger drop in demand for gas come fall, and an even bigger drop in prices. US gasoline consumption — and prices — typically decline steadily in the fall and early winter.

They may be finding ways, but they are still stuck with gas guzzling SUVs, and oversized McMansions in low density areas where they have a significant drive to get to anything.  That doesn’t change overnight.  We have had nearly five decades since the 1973 Arab Oil Embargo threw the U.S. into recession.  Generation Greed, always putting its own short term wants first, felt those to be needs, and wasted those decades.

Increasing energy supply, especially enough to rebalance markets, will be difficult. It would take many months, maybe years, to significantly increase US refinery capacity to match where it was before the pandemic. And oil companies seem committed to not flooding the market with oil, which could drive down prices. Instead, oil companies are using their windfall profits to increase share repurchases or dividends and help boost their stock prices.

That’s because they know that if they invest a lot of money, the price of energy could plunge and they would lose that money.  OPEC (and Russia) have slashed the price of oil over and over again, every time people started to conserve, switch to alternatives, and produce more fossil fuels in the United States, to keep the world dependent on them.  And yet every time they have done so Americans (and Europeans) went with the cheap and easy, and increased that dependence.

People seem to have forgotten that just two years ago the price of oil was negative – since you couldn’t just dump it somewhere thanks to environmental laws, if you were stuck with it you had to pay someone to take it.  That’s why there isn’t enough oil and gas being produced today, not the reasons they are telling you.

If everyone knew that prices were going to stay high, on the other hand, then it would make sense for consumers and businesses to start to make the kind of changes that should have been made decades ago, for economic and national security reasons even before anyone even heard of global warming.  Imagine if the inflation-adjusted price of gasoline had stayed where it was in 1981, because public policy kept it there.

We wouldn’t be so supine and dependent and feckless and facing recession today.  We are in this situation because of Generation Greed’s four-decade party, a party to which most of those coming after are not invited to.

So today, if over the next 30 years you want to get rid of $5.00 per gallon gasoline, and its natural gas and electricity equivalents, pass a law that guarantees at least $3.80 per gallon gasoline, and the equivalent for natural gas and fossil fuel-produced electricity, inflation-adjusted.  Then producers would know they could invest, and consumers would have an incentive to save and switch to alternatives.  And since the price of imports would be no different than the price of domestic, our remaining fossil fuel consumption as we transition to other sources – and that of Europe – could be produced right here in the U.S.A.

Oh no, overall inflation is too high!

Or perhaps the real issue is that it is now high in categories where privileged people are used to it being low – while benefitting from high inflation in what they themselves get.

Consider this chart of the average annual increase in prices by type of good or service from 1993 to 2020 (April data) and then from 2020 to 2022.  

The average annual increase from 1993 to 2020 was 2.2%.  Low inflation.  But the average increase for personal care was 2.0%, and the average for recreation was 1.1%, meaning those who work in those industries were gradually falling behind.  Food away from home went up in cost by 2.7% per year, but work that had previously been done only by teenagers has instead come to be a “career” for adults.  These are industries were low-wage workers work.  The price increases for these sectors were higher from 2020 to 2022, but so was overall inflation, so they are still falling behind – the natural order of things.

But take a look at health care and education, particularly college tuition.  The price of these services went up much faster than overall inflation from 1993 to 2020, with health care up 3.6% per year on average, education up 4.8%, and college tuition and fees up 5.1%.  These services were becoming more and more expensive, but for those who worked in those industries, what they bought from others was getting relatively cheaper and cheaper.  Since much of the money for education and health care comes from the government, directly or indirectly, they never had to worry about whether their customers could actually afford what they were charging.  

In fact, add shelter to that, another service that went up by more than inflation.  Education, health care, and housing are the three industries most affected by public policy, and most likely to be financed through debt, public or private.  And lo and behold, these sectors increased their prices faster than the average for nearly three decades – and longer.

And now?  Note the health care and education inflation has actually gone down the past two years.  So perhaps these politically active and influential industries, and those who work in them, are feeling the pain they have been imposing on everyone else for decades.  Their inflation had been high all along, but has slowed as that of other industries has increased.

The cost of private transportation went up just 1.7% per year from 1993 to 2020, less than overall inflation, as gas was mostly cheap, and the vehicles themselves got bigger and bigger.  Now it has soared 17.4% per year for two years.  Again, this is mostly about people putting guns to their own heads.  Instead of just paying up, even those in the suburbs could start carpooling, or buy an e-bike instead of another SUV.  Yes, they’d have to buy some clothing for inclement weather to go with it, but the best models are less than $2,000, offer the option of also getting some exercise (or not), go up to 25 miles per hour, and go up to 30 miles on a single charge.  For most trips it is the only type of transportation required, and it is an option that didn’t really exist 20 years ago.  

Meanwhile, what about “seniors on fixed incomes,” another loud and self-interested group.  Aren’t they hurt by overall inflation?  Only affluent seniors, because unlike at the start of the 1970s, Social Security is automatically adjusted upward for inflation.  Low- and moderate-income seniors remain better off that low-, moderate-, middle- and recently even upper middle-income workers in that regard.  Many seniors are homeowners, with their house price locked in from when they bought long ago.  Health care costs were soaring until a couple of years ago, but the government paid most of them for seniors through Medicaid and Medicare.  Otherwise?  With COVID, they probably don’t need to taking three cruises this year anyway.

For the limited types of people who had been getting richer relative to overall inflation, the complaints about falling behind for two years come down to…

Oh no, the pay of low wage workers is going up!

Yes, that is actually the attitude in Washington and on Wall Street right now.  Rising wages for low wage workers threatens to increase the cost of services for the retired and the better off, and/or reduce margins and make it more embarrassing for top executives to pay each other so much, and thus action must be taken to force unemployment up, and make workers settle for less.

Summers said in a speech on Monday from London that there needs to be a lasting period of higher unemployment to contain inflation — a one-year spike to 10%, two years of 7.5% unemployment or five years of 6% unemployment.  Put a different way, Summers is calling for the unemployed rolls to swell to roughly 16 million from just under 6 million in May.

Is their any better exemplar of Baby Boomer yuppie liberalism than Larry Summers?

The fact that prices are going up means there aren’t enough goods and services to go around.  How does rising unemployment, meaning even less in goods and services produced, solve that problem?  Perhaps because if there isn’t enough to go around, someone is going to have to settle for less.  Who should that be?  Seniors?  $billionaires?  Unionized public employees and retirees?  Those who work in the health and education sectors?

How about low-wage workers?  That is the “progressive” solution, and the “conservative” solution.  It has been for 40 years. 

You know what the supposed problem with Biden’s stimulus really is?  It was too broadly distributed.  For decades, every time the government printed up a bunch of money and handed it out, through tax cuts or the Fed, it all ended up in the hands of those at the top, causing asset price inflation – stocks, houses, bonds.  That somehow didn’t count.  This time more went to those at the bottom, leading to inflation in the cost of the goods services instead.  This is somehow considered worse.  

Meanwhile, the federal minimum wage is $7.25.  It was $2.64 when I earned it in 1977 – or $12.76 in today’s dollars, adjusted for inflation.  Back then the federal government sought to push up the wages of those at the bottom, compared with what might happen in an unfettered free market.  And today, now that Generation Greed is increasingly out of the labor market?  I guess too many workers are getting wages in excess of the minimum for free market reasons, so Generation Greed demands government action to force wages down.  It’s like something out of the middle ages.

Sorry to tell you, but because of falling birth rates and more and more Baby Boomers moving into retirement, labor scarcity is permanent.  It has nothing to do with Millennials not being willing to work, the stimulus package, the Great Resignation, and extended unemployment benefits.  And everything to do with more and more seniors who still want to buy goods and services, but no longer produce them.  We had a big labor surplus for years, as the very large Baby Boom generation was still in the labor force, more and more Millennials, another big generation, were trying to get in, and lots of immigration on top of that.  But now more and more Baby Boomers are leaving the workforce due to age, the generation entering behind the Millennials is smaller, and immigration is more limited and more contentious.  

The last time labor was scarce was in the 1960s, before the large Baby Boom generation reached working age in large numbers – and the median male wage started falling (in 1973).  Back then people didn’t expect that someone would be available for cheap to clean their houses, mow their lawns, clean their pool, cook their dinners, watch their kids, etc. etc.  Back then, the plunging share of the workforce employed as domestic servants was thought to be an indicator of economic progress – because workers had better options.  Eating out was a rare treat, and the much smaller fast food industry relied on teenagers – who found it much easier to get part time jobs doing work that is now done by adults.  Today, with fewer workers, there is some work that isn’t worth doing anymore, so that other work can get done.  So get used to consuming less in services, paying more for them, and doing more for yourself.

Reluctant to raise prices, refusing to sacrifice profits, travel companies, retailers and restaurateurs are cutting corners wherever they can, usually without telling their customers. Is poor quality the new normal?

Did your flight get cancelled in the school holidays? Has the delivery of your new sofa been delayed? Was your last meal out disappointing? Are your new socks see-through? Are you reading this while you are on hold to customer services? Does everything feel just a little bit worse?

Welcome to “skimpflation” – a term popularised in the US and gaining traction in the UK. “Skimpflation is when consumers are getting less for their money,” says Alan Cole, a writer at Full Stack Economics and formerly a senior economist at the joint economic committee of the US Congress. “Unlike typical inflation, where they’re paying more for the same goods, skimpflation is when they’re paying the same for something that worsened in quality.”

There is an alternative.  If the executive/financial class still wants people to buy their goods and services, how about cutting executive pay and using the savings to keep quality up, or maintain or increase cash dividends for investors?  That is possible, isn’t it?  I remember when executive pay first started to explode, in the late 1990s stock market bubble.  It wasn’t a concern, it was said at the time, because executive pay was only a tiny component of total costs.  But that isn’t true anymore here in the U.S.  The C-suiters do have the power to reduce inflation and worker pay by starting with themselves.

Oh no, supply chains are disrupted! 

Or perhaps people have been buying too much cheap imported crap, rather than keeping stuff longer and fixing it.

For decades, earlier born generations and the wealthy have seen their own dollars go farther, because large companies like Amazon and Walmart substituted cheap stuff made by the very abundant very low wage workers in the developing world, in place of more expensive stuff produced by better paid Americans (who ended up not being better paid anymore).  But with COVID-19, supply chains have been disrupted, China isn’t producing as much cheap stuff anymore, and what is available is having trouble getting to store shelves, because there aren’t enough truck drivers (a formerly high-paid job that became low-paid).

Consider that CPI chart again.  See how cheap clothing has gotten, compared with the overall value of the dollar? What has been the result?  A faster and faster trip from the store shelf to the landfill.  A mass consumption party in which the future of the United States has been mortgaged so people could buy so much unnecessary junk that they later have to pay other people to get rid of it.

Buying those unused items is all that has given meaning to many people’s lives.  

And consider that population change map again.  By the early 1980s manufacturing had displaced agriculture as the biggest employer in rural America, but those rural manufacturing jobs have been displaced by imports.  

I’m sorry to tell you that the increase in the price of imports is going to outlast “supply chain issues.”  Birth rates are falling elsewhere in the world too, other countries are aging, and the number of desperate workers available at ultra-low low wages is going to go down.

On November 24th India’s government declared that the country’s fertility rate had dropped to 2.0 children per woman. That is below the replacement rate—at which new births are sufficient to maintain a steady population—and puts India in the company of many richer economies. Indeed, fertility rates are now below replacement level in all four “bric” countries (Brazil, Russia, India and China), with the population probably falling in Russia and China. It is no surprise that emerging economies should follow a demographic trajectory similar to that travelled by rich economies before them. But the pace of change seems to be accelerating, with potentially profound implications for the global economy.

Even as rising living standards elsewhere means they are going want to keep more of what they produce themselves.  You think inflation is bad now?  Imagine if, due to our approaching bankruptcy, the dollar was falling instead of rising – making the imports we now depend on even more expensive instead of cheaper.  That is bound to happen sooner or later, perhaps with a bang as the dollar ceases to be the global reserve currency.

I’m not against free trade.  I’m in favor of it, but only if imports are paid for with exports, not with debt.  Thanks to 40 years of unbalanced trade, our grandchildren will be paying for stuff that’s already in the landfill.  

And now that aging developing countries may not be producing that surplus anymore, they’ll be calling for Americans to consume less than they produce, to pay them back.  Later-born Americans who never benefitted from imported more than was exported.  Some of the goods that have imported for the past 20 years will either have to be made domestically somehow, or done without, so the U.S. can have enough exports to pay for imports that are really worth it.

The last time the global economy shifted, importers like Amazon and Wal-Mart replaced others major retailers that had business relationships with domestic suppliers.  I only hope that, starting now, these companies and their networks will in turn be replaced by new companies networks that create a more balanced – and sustainable – global economy.  Stop whining, and stop buying.

Oh No, Apps and Airfare Aren’t Cheap Anymore!

In addition to low wages for later-born American workers, and even lower wages for workers in the developing world, the fantasy economy of excess consumption financed by debt was also supported by investors willing to lose money, or who at least assumed the federal government would bail them out so they wouldn’t lose money.

For the past decade, people like me—youngish, urbanish, professionalish—got a sweetheart deal from Uber, the Uber-for-X clones, and that whole mosaic of urban amenities in travel, delivery, food, and retail that vaguely pretended to be tech companies.  Almost each time you or I ordered a pizza or hailed a taxi, the company behind that app lost money. In effect, these start-ups, backed by venture capital, were paying us, the consumers, to buy their products.

Part of this was low wages. 

The old ways were made possible by an era of lower demand and weaker labor markets, which was not a winning combination for most workers. Many people drove an Uber or delivered Thai food because they didn’t have competing job offers that would clearly pay more per week. Today, job openings are historically plentiful and nominal wages are rising fastest for low-income workers. That virtuous adjustment has shown up in higher Uber and DoorDash prices.

But that wasn’t all of it.

Rising interest rates turned off the spigot for money-losing start-ups, which, combined with energy inflation and rising wages for low-income workers, has forced Uber, Lyft, and all the rest to make their services more expensive. Meanwhile, global supply chains haven’t been able to keep up with domestic consumer demand, which means delivery times for major items like furniture and kitchen equipment have bloomed from “three to five days” to “sometime between this fall and the heat death of the universe.” That means higher prices, higher margins, fewer discounts, and longer wait times for a microgeneration of yuppies used to low prices and instant deliveries. The golden age of bougie on-demand urban-tech discounting has come to a close.

So walk to the store, ride a bike, or take the subway – at least until subway service completely collapses again.  If it’s too much to pay, don’t pay it.

Many people were very, very poor in the early 1960s “heyday” of the United States.  Much poorer, in terms of goods and services they could buy, than poor Americans today.  But the American middle class felt it had it pretty good, in their little houses, with one car per family, etc.  What do people expect to have now that they didn’t have then?  Is it necessary?  A lot of it is worth it.  But a lot of it isn’t.  It’s just what Americans have been sold that they could no longer afford.  Marketers and influencers are constantly pushing for an increase in what people have to spend in order to be happy, whether it makes sense or not.  And now they can’t even deliver what people cannot afford.  Welcome to the Fyre Festival economy!

When it comes to investors losing money and government bailouts, there is no industry like the airline industry.  Post-1980 de-regulation a formerly overpaid industry became underpaid, companies went bankrupt over and over – wiping out the shareholders who paid for the airplanes, there were government bailouts, and fuel was cheap – and untaxed.  As a result of cheap labor, capital and fuel, the real cost of air transportation plunged, and we were now free to move about the country.  Close-by vacation destinations – such as Upstate NY for NYC and Michigan for the Midwest – went into decline, as ordinary people flew to Florida, the Caribbean, Europe, etc.  

This was never sustainable.  And it has now collapsed, despite the airline industry getting vastly more bailout than the motorcoach industry or Amtrak.  So the kind of places, and ways to get there, that we used to have 50 or 60 years ago will have to be recreated.  It will be different.  It will not be worse.

Oh no, the pay of unionized public employees is too low!

That’s what’s coming next.  Based on what has already happened in the UK.

The underlying problem is that high inflation is eating into people’s income. In May prices rose at an annual rate of 9.1%, the highest level since 1982 and much more than was expected when the government set departmental budgets last October. The Bank of England expects the inflation rate to hit double digits later in the year.

That has made conflict over wages all but inevitable. Public-sector employees want their pay to keep pace with rising prices: one teachers’ union is demanding a 12% pay award, for example, against a government suggestion of 3%. But each one-percentage-point increase in the wage bill would cost the government around £2.4bn ($2.9bn), or 0.1% of gdp. That would require offsetting spending cuts, higher taxes or more borrowing.

Again, the question is whose “inflation” gets to be higher?  Who “gets ahead” in buying power, by making others fall behind and ends up poorer?

Next April the state pension will rise by at least September’s rate of inflation—why should public-sector employees not be afforded the same protection as pensioners? 

What about low-wage private-sector serfs?

According to Ben Zaranko of the Institute for Fiscal Studies, a think-tank, average pay in the public sector is still higher than in the private sector but the gap between the two has narrowed significantly… Indeed, if you adjust for differences in the two workforces for factors like age and education, the premium disappeared altogether in 2021-22, although this does not account for relatively generous public-sector pensions.

Maybe in places such as Arizona, Texas and Florida, where public employees have not fared that much better than the serfs.  But certainly not in New York, where mean public sector compensation (including benefits) has soared relative to private sector compensation.  

And our taxes have been higher and services worse to pay for it.  New York’s taxpayers and service recipients have been facing the kind of rising costs and diminished services people are now complaining about in the private sector, for more than two decades.

And not for the first time.  I showed how our state and local government employees grabbed, grabbed, grabbed so much in the 1960s and early 1970s that New York State and New York City nearly collapsed.  They were only saved by high inflation, which allowed everything else to catch up.

And yet who will be described as the “truly needy,” whom everyone else will be expected to sacrifice even more to “keep our promises?”  Will it be even higher taxes in New York, or more of the public sector equivalent of  “skimpflation?”

Get ready for the excuses – COVID-19, the Republicans, the Congress, the Russians.  Get ready for the abortion rights tax increase, and the gun law pension increases, the “Wall Street stole out money” service cuts, the poor left to die on city streets and the “progressives” flee to the suburbs.  The media will report what the press releases say, but just look to the long term and realize – there is no excuse.

In summary…

We have had an era of inflating asset prices, including inflating house prices, inflating executive pay, inflating education and health care costs, and inflating public sector compensation compared with private sector compensation.  No one complained about that inflation.  It was an era of cheap and available servants for the upper middle class, cheap goods imported from the developing world, cheap services produced by less and less well-paid serfs, and cheap borrowing to pay for it all. 

Now some of this seems to be unraveling, and everyone is shocked.

In a paper published in May, Jeremy Rudd of the Fed made a provocative point: “Our understanding of how the economy works—as well as our ability to predict the effects of shocks and policy actions—is in my view no better today than it was in the 1960s.” 

Or worse, because back then decisions made in Washington for the United States could set the course for the U.S. and world economy.  Today, the U.S. is a smaller part of a bigger world, albeit still a bigger part of that bigger world than any other individual country.  Chinese demographics and Russian militarism can change our situation.  But people can also change their own situation.  They should focus on that, rather than expecting the government to bail out choices they have made and refuse to change.  What do they think they are, Wall Street banks?

In any event, I won’t be disappointed to see some of this go away, because in the end it was neither sustainable or healthy.  The consequences of a society and economy of self-indulgence are shown by an average U.S. life expectancy that fell for three years in a row before COVID-19 even hit, as a result of the higher death rate for the later-born – including all those born after 1957 or so.

Note the date on the article – December 3, 2018, pre-COVID-19.  The most significant news of this century so far, and it is a marker of societal failure, not success.  Getting back to the economy and social norms that produced that by further mortgaging the common future is not something I think is worthwhile, no matter how much privileged people whine about falling asset prices and inflation.

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