Herewith a few thoughts as to what might be in store for the political economy of a beleaguered America in the coming year.
Mud Still To Be Slung
It is more rather than less likely that no matter which party survives the mud-slinging of the November 2022 mid-term congressional elections, the nastiness that has been a feature of American politics will continue, stalling progress on needed economic legislation. Democrats will continue to investigate anyone remotely connected to Donald Trump, as well as the expected 2024 nominee himself, in part to toss red meet to their constituents.
The party’s progressive wing will continue to lacerate senator Joe Manchin for his apostasy: he kept a promise and will vote against President Biden’s $5 trillion remake of America in the image of European social democracies with a bill that Manchin believes will fuel inflation, spill more red ink over the nation’s ledgers, and increase income transfers to families not required to work, and far better off than those in his native West Virginia. Biden, to his credit, has not joined in the self-styled Progressives’ calls for revenge on the senator from West Virginia, and continues to work for a compromise that would save the affordable and better parts of his massive bill, some of which Republicans will be loath to vote against.
Republican have warned all government departments not to destroy documents they will need in the investigations they plan to unleash on Democrats should they gain control of either house of congress. President Biden talked the talk of unifying the nation but did not walk the walk; Republicans are not even bothering with the talk. They have become fans of the late Democrat, Bobby Kennedy, who counselled, “Don’t get mad, get even.”
More Prices To Be Raised
It is more rather than less likely that inflation will remain America’s number one economic problem. The Fed’s preferred inflation index shot up 5.7% above last year, the fastest pace since 1982 and well above the Fed’s long-term average goal of 2%. Soaring home prices have put ownership beyond reach of many, and increased the demand for rental units, pushing rents up 20% this year and renewal rents for next year up about 13%. Rising lumber and materials costs, and labor shortages make in unlikely that new supply will hold down house prices or rents. Transport and logistics companies are announcing hefty increases for next year, with ocean-shipping executives planning to double rates from the already elevated levels established this year and parcel deliverers penciling in rate increases that average 5.9% starting next week. Food companies say the price rises they have so far instituted have not kept pace with rising costs of all sorts, and are planning further increases.
Demand remained buoyant in November, and even if it cools as early December data suggest it might as some government payments end with the current year, there is still plenty of cash in consumers’ hands. Supply bottlenecks are proving resistant to efforts to ease their grip and President Biden’s TV statement that the day of empty supermarket shelves and delayed goods shipments have passed drew raised eyebrows from his supporters and derisive laughter from his opponents, although a few decibels lower than emitted by Democrats when George H.W. Bush inadvertently proved how wide the gulf is between Presidents and the great unwashed by discovering bar codes years after they were in common use. Sticky supply-side, booming demand, negative interest rates: a prescription for rapidly rising prices.
Wages To Follow
It is more rather than less likely that wages will rise, chasing prices as workers struggle to make real their inflation-bloated nominal earnings. Most important is the re-emergence of cost-of-living adjustment (COLA) clauses after strikes at Deere and Kellogg, assuring workers that pay will jump in pace with inflation – a prescription for a wage-price spiral. Exacerbated by government policy strengthening trade unions. Union representation elections that go against trade unions will continue to be invalidated, and non-union shops such as Tesla’s will be excluded from infrastructure contracts and participation in subsidy schemes. Government support, inflation, and workplace demands deemed unreasonable are combining to encourage warehouse workers, architects and baristas to seek union representation after decades in which membership declined.
Powell Plays Catch-Up
All of this makes it more rather than less likely that Fed Chairman Jay Powell, having reversed Teddy Roosevelt’s advice to speak softly but carry a big stick, instead has spoken with a roar against inflation but carried a twig, will find it necessary to take more vigorous steps to control inflation which he now dubs “persistent’ rather than “transient”. Renominated for another four-year term, he need not worry about Presidential ire should the economy slow. Indeed, he might take satisfaction from the discomfort of a President widely known to have preferred a candidate more agreeable to senators Bernie Sanders and Elizabeth Warren.
Banks’ Green Money Takes On Emissions
It is more rather than less likely that we will see a major change in environmental policy. Politicians’ terror at voters’ reaction to the cost of a full-fledged Green New Deal, the inability of world leaders and their entourages to reach agreement in Glasgow, and Manchin’s objections to the evisceration of his state’s coal industry have set the wheels in motion for a new approach to climate change – greater reliance on the private sector.
An international coalition of more than 450 financial institutions has pledged a staggering $130 trillion to convert the economy to clean energy by making capital available for projects that, net of offsets, do not add to carbon emissions. “Questions remain” acknowledged treasury secretary Janet Yellen. Indeed, but with such as billionaire Mike Bloomberg and former Bank of England governor Mark Carney in charge, it is more rather than less likely that progress will exceed US climate czar John Kerry’s plan for more of the Paris Accord approach.
Sense Creeps Into Covid Fight
Finally, it is more rather than less likely that some form of virus will continue to bedevil America, but that the economic impact will be manageable. There is mounting evidence that the costs of lockdowns exceed their benefits, if any. They are not only ineffective in slowing the spread of the virus, but wreak havoc on the economy and are socially and educationally damaging to students denied in-person education, especially those in poorer households. That evidence has at long last penetrated the until-now impenetrable minds of policymakers: there will be no federally ordered lockdowns in America. For now, bureaucrats, marching under the banner of “science”, determined to destroy the economy in order to save us, have lost sway over policy, but they continue to compete for Biden’s ear.
“There Is Great Deal Of Ruin In A Nation” – Adam Smith
Seven in ten Americans tell pollsters that 2021 was a bad year for America, and more than five in ten say it was a bad year for them personally. Over half are pessimistic about the country in the new year. They would do well to reflect on the continuing truth of what Founding Father James Madison wrote in 1829, “The Happy union of these states is a wonder, their Constitution a miracle; their example the hope of liberty throughout the world.” Let’s not confuse a sizeable bump in the road with the end of the road to the Constitution’s goal of a more perfect union.
On that optimistic note I would like to thank all those who have followed my notes in 2021, and wish one and all a wonderful, or at least tolerable 2022.