May 20, 2021 at 11:56 a.m.

The coming stagflation crisis

The coming stagflation crisis
The coming stagflation crisis

You may not have noticed it yet, but prices are on the rise.

The price of gas is going up. The price of lumber is sky high. Food prices are marching in the wrong direction. And so are our bank accounts.

Meanwhile, as we have been writing about in the last few editions - and will continue to do so - there is an acute labor shortage that is crippling small businesses. Don't think that the price increases and the labor shortages are unrelated. They are very much so.

And both are in turn related to the country's new administration under President Joe Biden.

The labor shortage, of course, stems from many factors, including demographics, but it has been sharply exacerbated by the federal government's downpour of cash upon the American people.

The chief culprit is the extra federal unemployment benefit of $300 a week that makes it more financially rewarding for those making up to $32,000 a year (if they were working) to instead sit on the couch and watch MSNBC. Or CNN. Take your pick.

Those benefits will last until September on the federal level. Then there are other federal transfers, the latter rounds of stimulus checks only the most obvious example.

All of which means there's a lot of federal cash out there, especially for those not working, and, combined with next-to-zero percent interest rates, what you have is a spectacular explosion in demand.

In healthy economic times (meaning when Democrats don't control the government), growing demand means a growing economy. But not now, at a time when producers and suppliers can't produce and supply the goods and services they need to meet that demand. That means product shortages, and that means higher prices.

All of this is predictable. In the lumber industry, producers were already hard pressed because so many sawmills had been wiped out in the Great Recession, and the pandemic idled many of the rest. Now, with demand growing again, workers are in short supply to boot.

In energy, a shortage of truck drivers is hampering producers' ability to get gas to market, but Biden's energy policies - cancellation of the Keystone Pipeline and an expressed intention to end oil and gas production on federal lands - will drive prices ever higher.

It's not just in energy but in food, clothing, and everywhere - the labor shortage is driving wage inflation throughout the economy, good news for workers in the short term but not nearly so in the long run.

Now get ready for the next whammy. Biden wants to raise taxes. That will only build in more inflation as companies move to make it up by passing higher tax bills on to consumers. But it will also curtail investment, which will restrict supply even more, and, more important, curtail growth.

At the end of the day, it's a head-on collision waiting to happen. Biden's high-tax and expensive energy policies will ultimately kill growth and demand but it won't curb run-away inflation, and that's an ugly wreck we've seen before.

At this point in the play, expect good old Jimmy Carter to ghost through the door. In the very early days of his administration, President Biden has seemed to be channeling Jimmy, and it's working: we can already see stagflation at the crossroads.

Stagflation, the combination of little or no economic growth and inflation, was Carter's great signature, and Biden is already forging his name on his economic policies. The government's profligate spending - and this analysis hasn't even considered the president's green energy and infrastructure spending plans - higher taxes, and wild stimulus will continue to drive prices higher while simultaneously depressing economic growth.

All of this is surely going to lead to a political nightmare for the Democrats, but before that day of reckoning comes to pass, it will cause a political nightmare for the middle class.

Talk about malaise -well, malaise Joe Biden style is looking a lot worse than malaise Jimmy Carter style.

There are things that can be done.

For one thing - and this is most important - states can and must move to end the federal unemployment extended benefits on their own, since Biden is unwilling to do so. This week 50 chambers of commerce in Wisconsin asked Gov. Tony Evers and the Legislature to do so immediately in Wisconsin.

If Wisconsin did end them - Evers is not about to let that happen, just so you know - Wisconsin would join such states as Texas, South Carolina, Iowa, Alabama, Arkansas, Arizona, Georgia, Idaho, Mississippi, Missouri, Montana, North Dakota, Ohio, South Dakota, Tennessee, Utah and Wyoming in revoking the benefit.

That would remove an obstacle to finding workers, and a major obstacle at that. Republicans also need to block attempt to raise corporate taxes that will only punish American workers, small businesses, and the middle class.

To be sure, corporations need to pay their fair share, and so the smart way to approach the issue is to close corporate loopholes that allow predator and anti-worker companies like Amazon to pay an effective tax rate of only 9.4 percent, while smaller companies get stuck paying a rate of 21 percent.

This would make smaller businesses more competitive, incentivize job creation, protect investments in the economy, and reduce price pressures.

So let's recap. Right now, the Biden administration is, on the one hand, irresponsibly priming demand in a variety of ways (stimulus and other government spending) while choking supply in other ways (stimulus-driven labor shortages, higher taxes, unrealistic energy policies) - with major plans to stimulate and strangle even more.

There will be a long list of losers in this debacle. The poor will lose, as they always do. Sure they're getting the extra cash, but they are also paying higher prices for basic necessities such as food and gas.

Here's where it gets sick: The benefits will run out just about the time prices have exploded and demand for their labor begins to cool with rampant inflation and slackening demand. Employers will soon be forced to play a game of chicken with workers.

The middle class will lose, too. They are already the recipients of fewer benefits and welfare, but they and their small businesses will get more than their fair share of tax increases. High demand and shortages today will translate into stagnation and surpluses tomorrow.

The only winners will be the billionaires, stalwart Democrats that they are. They will pass along and avoid taxes as usual, they will take advantage of the suffering of small businesses to continue to corner markets, and the almost inevitable Biden stagflation will dampen employment need and depress wages.

Meanwhile, Democrats will continue to pursue trade, immigration, and technology policies that will enrich them even more. The corporations will return the favors with hefty campaign donations and woke soundbites in their commercials.

That's one scenario. The other scenario is to put the breaks on both the benefits gravy train and the proposed tax increases - instead of disincentivizing work and investment, the idea is to incentivize both, thereby balancing supply and demand, even as both grow, and reducing pressures on prices.

In other words, let the markets work, and get government out of the way,

The government should also unleash our energy resources through free markets, level the playing field for American workers through free and fair trade deals, and confront giant corporate power by enforcing the antitrust laws the nation already has.

That would create a roaring economy. It would be a lot less like Jimmy Carter, and more like, well, you know who.

Comments:

You must login to comment.

Sign in
RHINELANDER

WEATHER SPONSORED BY

Latest News

Events

July

SU
MO
TU
WE
TH
FR
SA
29
30
1
2
3
4
5
6
7
8
9
10
11
12
27
28
29
30
31
1
2
SUN
MON
TUE
WED
THU
FRI
SAT
SUN MON TUE WED THU FRI SAT
29 30 1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31 1 2

To Submit an Event Sign in first

Today's Events

No calendar events have been scheduled for today.