Honestly I don't think the issue is that another recession is coming. It's going to be the fourth or fifth serious economic crisis I've experienced in my lifetime. What worries me is that the quality of our political leadership and in general our ability to diagnose and address complex issues is, in my view, at an all-time low.
The quality of the political leadership is a direct consequence of what average people want from their leadership.
For the past decade or so the modus operandi has been:
1. Print more money, give it to bureaucrats and corporations
2. Toss in some non-monetary issue that will piss of ~50% of the population, while making the other ~50% feel entitled.
3. Promise one half to serve their interests by punishing the other half.
4. Print more money, give more to bureaucrats and corporations.
5. Rinse and repeat.
It seemed to work for over a decade: people gave up dreams of retirement, property ownership, having children, we were headed straight for normalizing living with parents while eating factory-produced bug proteins. Thankfully, the black-swan COVID-19 happened, the money printer got too cocky and people finally started to notice a problem.
The quality of life will decrease in the short term. But once enough people admit it's a bigger problem than being offended by what somebody on the Internet said, there will be finally demand for competent politicians offering viable solutions.
They are downplaying this whole thing heading into the midterm elections. Inflation is transitory, it's the supply chain, it's Putin, it's gas station owners and oil companies, we're doing a soft landing. These are all cover stories for doing nothing. Low interest rates + $5T in bond purchases fueled remarkable growth and all time high employment. Raising interest rates and selling those bonds will do the opposite. This reality is uncomfortable heading into midterm elections, which is why the Fed has largely done nothing to curb. And yes, 1.5% is nothing.
From what I can understand (which I will freely admit is somewhat limited, and biased), it seems to me that the root of the problem is that we let the very wealthy soak up all the economic gains due to productivity over the course of a few decades, while also letting those with more money have more influence over our politics (thus meaning that they had the means to ensure their gains would be locked in, rather than redistributed for the benefit of those who actually created them—ie, the workers).
Until we can collectively recognize this and address the staggering socioeconomic inequality in our society, we're going to keep seeing the economy limp and sputter frequently. A healthy economy needs its working class—the vast majority of people in it—to overall have healthy economic situations, enough for at least some disposable income on a regular basis on top of being able to comfortably pay for basic necessities and save a bit for the future. Ideally, it needs that to be the minimum condition, so that everyone in the economy has some genuine discretionary spending capability.
>the root of the problem is that we let the very wealthy soak up all the economic gains
Not that I like it, but my understanding is the exact opposite.
Inflation is going up because workers are finally getting some of the economic gains. The wealthy can gain tremendous amounts of money on paper, but it doesn't impact inflation because they aren't spending it. For example, a trillionaire isn't buying a trillion dollars worth of of steak.
However, minor employment Improvement and salary means that there are tens of Millions of more people competing to buy steak in the supermarket, hence price inflation
The reasons for current inflation seem to be complex.
I'm willing to believe part of the reason is higher wages, as it does seem that there have been some (fairly minor) real gains over the past several months.
But it's also quite clear that the increased oil prices are affecting the prices of goods and services across the board.
And I've seen a number of reports of companies posting record profits and raising prices—which indicates that they're not raising prices because they have to, but because "oh, it's inflation, we have no choice" is a convenient cover for them to increase their margins.
More importantly, the concern at hand is recessions, not inflation, and the comment I replied to was specifically noting the fact that there had been several significant recessions in recent years. It was the apparent fragility of our economy recently that I was attributing to the drastically increased income inequality, not inflation specifically.
>I've seen a number of reports of companies posting record profits and raising prices—which indicates that they're not raising prices because they have to
You are thinking about this only from the profit side. The entire reason this can happen is because customers are willing and capable to pay more. Cost were never limiting the price because companies were making a profit before too!
If you are selling steak, you raise your prices until customers stop buying. You don't stop at X profit margin. Prices go up because customers are willing and able to spend more.
If you're saying they're using inflation as a cover and lying, I totally agree. But waiting for an excuse isn't what was stopping them before.
>More importantly, the concern at hand is recessions, not inflation
You can't separate the two. Recession is GDP loss after adjusting for inflation. The U.S. GDP without inflation is still increasing. Without inflation there would be no recession
Wage inflation could accomplish this without forced redistribution. I’m hoping we get out if this with more wage inflation than price inflation, but monetary authorities don’t have the control to get a good outcome here (regarding inflation), and business is against it.
No, it is not. In fact, this trope of pigeonholing any criticism as if it is advocating for a "command economy" is itself a large part of how we've gotten to the present condition.
The federal reserve has kept interest rates artificially low for the past few decades, to sell broken unpopular policies to the public (eg Iraq war), to enrich the financial industry, and to simulate growth.
The vibrance of capitalism relies on capital being distributed, so that it competes rather than acting uniformly. By flooding the market with newly created capital from a central source, the federal reserve has completely undermined capitalism and substituted it with the politics of who gets newly created money. One of the biggest recipients of new money has been the financial industry, which has even been whitewashed as some kind of neutral actor but is anything but. This is why more and more of people's every day lives have been financialized - made legible to the financial system and parceled out into monthly payments.
Much of which was growth in name only and will prove to be investments in unproductive assets that never would have made it out of the brainstorming session if there was an actual opportunity cost of capital.
They really don’t have much of a choice. None of those issues can be solved in the near term, and many of them were setup 10-15 years ago. Both parties have been irresponsible when it comes to spending, interest rates, and inflation. We should have been tightening up on interest rates and taxes during boom times so we could loosen during bust times, but it’s just been loosen loosen loosen since 2001 or so. No one is interested in evening out the economic cycle.
And the parties have been irresponsible because we the voters wanted that.
> Gas prices are from day 1 decisions of the current president. The real fun will be when strategic reserve runs out.
That simply isn't true at all. The only thing of consequence that Biden did was prevent Albertan oil from more easily being exported to Latin America and Europe by cancelling the keystone pipeline expansion. At the same time, oil producing states were complaining that oil prices were so low that it didn't make sense to invest in production. Now that demand has picked up and Russian oil is off the table, prices are going up worldwide, not just in the USA. The USA's production hasn't changed much since the Trump administration, which hardly changed much since the Obama administration (which has been going down because oil-shale extraction costs couldn't be covered by the price of oil for much of the time).
Democrats are blamed when oil is too cheap (because red states depend on oil production jobs), they are also blamed when the price of oil is too high. I'm just going to buy an EV and ignore the whole issue, it isn't worth my time to worry about the price of gas when we don't really have to anymore.
Yep. But it is about time we revamped that infrastructure as well. There are huge opportunities in the next couple of decades with respect to transportation (toward electric from trucks and let's get those overhead wires in for our rails already) and labor (automation, productivity increases are our best way out of inflation).
However, the expected but worst thing that could happen now is oil crashes down because of a recession (demand playing most of the role in oil's price) and labor becomes cheap again.
The market generally factors in a lot of things, it's not looking at 1.5% rates, it's looking at what the fed has effectively committed itself to doing. It's looking at 3% rates by the end of the year.
