We cannot stay off the sand forever.
In my prior blog “Paying People Not to Work”, I concluded:
“There is a price to pay for shutting down an economy, for paying able-body people not to work. Not sure what it is exactly, but I suspect that we are about to find out.”
Well, now we know. Paying able-body people not to work and paying businesses not to produce products or provides services, results in supply shortages, a very inflationary force, pushing in the same direction as the recent massive increase in the money supply.
Why are supply shortages inflationary? Spend a whopping $3 (no price increase here) and buy the kindle version of my book on Amazon. Fast forward to page 204 for my simple explanation.
Contrary to what some might suggest, inflation is anything but a “high class problem”. Inflation is perhaps the most regressive tax, disproportionately drawing wealth from the less wealthy. Ask yourself this, who has benefited from the dramatic increase in home prices? Homeowners or renters? Who has benefited from the dramatic increase in stock prices? Who spends a greater percentage of their income on gas, heating, and food? Whose income, without the benefit of the increased cash flow from inflation-proof financial assets, will lose ground to the devaluing dollar?
These are not trick questions.
We all are aware of the present labor shortages, whether it be cancelled airline flights, backed-up cargo ships or the dreaded late delivery of your Peloton. As shown in the graph below, the workforce participation has yet to recover to pre-pandemic levels. A 2% gap remains. How significant is this 2%? More than you would think.
Someone who makes six figures and can easily work from home probably did not give up their career for a $300/week federal unemployment check. But instead, if they had been working long hours for relatively low pay, residing in a low cost of living state, they may very well have decided that it was time for a long overdue vacation, or perhaps an early retirement. This 2% gap may not include a significant number of software engineers, but it probably includes many truck drivers.
Someone apparently forgot that our economy consists of millions of individuals constantly deciding what it in their best financial interest, that artificial market manipulations, such as rewarding those for not being productive, will probably result in unintended market distortions.
Click here to read my prior blog on market distortions.
Which begs the question, if these 2% are not working, how are they paying their bills? Buying food? With redistributed wealth from other people, of course. Remember that our government cannot create wealth, all it can do is redistribute it.
The other reason why so many are not returning to the workforce is lingering fear, and while this may not be killing the economy, it is certainly not helping it.
Remember the early, panicky days of Covid? Some measures, such as washing your hands, and staying home when you are sick, have always made sense. Other measures, such as San Diego County declaring that ocean surfing was illegal, will never make sense.
We quickly found out who was expendable, and who wasn’t, which jobs were more important than others. Schools shut down while farmers kept providing food. Restaurants closed, while grocery stores remained open. Elective surgeries were put on hold, while emergency personal stayed on the job. Small business closed their doors, while Amazon expanded.
Between government mandates and general panic/fear, a partial economic shutdown ensued. We were temporarily short on toilet paper, but no one starved to death. The stock market quickly sold off, and just as quickly recovered.
The good news is that there was no devastating recession. And thanks to our robust, private, competitive, often-hated profit-driven pharmaceutical industry, the world’s most effective Covid vaccines were quickly developed.
Today almost 70% of the U.S. population has received at least one dose of the vaccine, and over 80% higher have the Covid antibodies (the more important metric). Even as the D variant has fiercely spread, the Covid related death rate, and hospitalization rate are both significantly less than last year’s outbreak and are winding down.
If you are under 50 and in good health, you have absolutely nothing to worry about, other than the recent acknowledgement from the military that UFOs are real. Even if you are over 50, in good health and vaccinated, you too have very little to worry about, other than, you know.
And yet the fear persistently remains (made evident by those that continue to wear masks outdoors), and the economy continues to sputter, thanks in part to the non-stop and often breathless media coverage of Covid, bogging down the economy, costing us trillions in wealth creation.
Result being the high inflation we are experiencing today, the price we pay for the massive Covid related redistribution of wealth.
Yes, safe to assume that a devaluing currency reflects a society that is losing wealth, becoming poorer. A historical repeat.
The proposed “solution” from the White House? Even more redistribution of wealth, on an even greater scale. A permanent shift towards a more centralized economy, thus ensuring that less wealth will be created in the future.
This is economic insanity, often confused by chants of “follow the science” or “for the greater good”. Let us not forget that the training of future scientists, not to mention scientific research itself requires vast amounts of wealth, and in the long term, what is more important for all of us than a healthy, wealth creating economy?
We no longer require draconian measures because we now know that for the vast majority who are young, health or vaccinated, Covid is nothing more than a nuisance, similar to catching a cold.
The early reaction to Covid, before we understood it, was expected. But this lingering over-reaction has led to the needless destruction of vast amounts of wealth. To dig ourselves out of this fiscal hole, and to address future challenges (such as climate change) we will need to create even more wealth, not less.
What is really required is a shift towards a more decentralized economy, not the other direction.
I long ago accepted that the average politician does not understand economics, that they believe that the printing of dollars, like fairy-dust, creates wealth.
I am just hoping that you know better.
Let’s conquer the fear and once again unleash the powerful wealth-creating force of a free, decentralized economy, to be prepared for the next economic challenge our society will inevitably have to face.
The Federal Reserve needs to pull their collective head out of the sand, acknowledge that inflation is a persistent problem, and increase interest rates. This will of course put a damper on how much wealth Congress can redistribute, but perhaps this is a desirable outcome.