What Goes Down Must Come Up

After Wednesday’s brutal day on America’s major stock markets President Donald can no longer brag about their record highs, but if he wants to attempt a complicated and counter-intuitive argument he can claim some credit for the rosy economic conditions that have caused the recent swoon.
The markets tanked because the Federal Reserve Board now intends to slightly raise the artificially low interest rates that fueled the markets’ record run, which is because by now they’ve successfully brought the economy to below full employment and a potential 4 percent growth rate in the gross domestic product, and for now it’s more worried about an inflation rate that’s slightly outpacing the long-awaited wage increases that have lately occurred. According to the perverse logic of the stock markets, good news is bad news, just as back when high unemployment and low GDP growth were bringing interest rates down and raising the indices up bad news was good news.
All of this damnably good news started shortly after the big financial meltdown of ’08, which was caused by the subprime mortgage social engineering of President Bill Clinton’s administration but came to fruition in the final days of President George W. Bush’s administration. Bush and most of the Democrats and Republicans in Congress — including both both of the party’s presidential nominees — responded with a big bailout of some major banks that annoyed people on both the left and the right, and the Fed started printing money at a rate that alarmed any conservative old enough to remember the hyper-inflation of the ’70s. In retrospect, though, the center-left and center-right compromise seems to have more or less worked.
The economy was already officially out of recession by the time President Barack Obama was elected by a scared-to-death electorate and passed a pork-laden “stimulus package” through the overwhelming Democratic majorities in Congress, and after that a historically slow recovery slogged along on the easy money the Fed was printing. We’re still convinced that Obama’s anti-business regulatory and tax policies slowed the recovery, and that only the Fed’s foolhardy money-printing sustained it, but after a scared-to-death electorate elected a Republican majority in the House of Representatives in the “tea party” wave of ’10 there were no more “stimulus packages” or other major interferences and thus things improved slightly. As much as we still disdain Obama-nomics and hate to give the guy credit for anything, we have to admit that during the last two years of Obama’s presidency the economy was on a clearly upward path.
By the time a scared-to-death-of-something-or-another electorate gave an electoral majority to Trump, the unemployment rate was a respectable 4.8 percent and the GDP was growing at a not-great-but-not-bad 3 percentage points or so. As much as we disdain Trump’s trade wars and attempts to restore the coal-driven and low-tech economy of the ’50s, and as much as we hate to give the guy credit for anything, we also have to admit that economy has been on pretty much the same upward trajectory ever since Trump’s inaugural speech promise that “The American carnage ends right here, right now.” Trump’s exceedingly business-friendly regulatory and tax policies have no doubt helped, and his stupid trade wars and economic nostalgia haven’t yet hurt much, and by now the economy is rolling along at a rate we can’t blame the Fed for applying some slight pressure to the brakes.
Trump is already grousing about it, though, as he’d much rather be bragging about record stock market highs and new land speed records in economic growth and how nobody has ever seen anything like it. As much as we hate to give the guy credit for anything, we have to admit it’s another brilliant political ploy. If your stocks are down it’s because of that damned fellow who’s Chairman of the almighty Fed, that quintessentially quasi-governmental institution that actually runs everything according to all the leading “deep state” conspiracies since the days of President Andrew Jackson, and has nothing to do with Trump, who is surely an innocent bystander and fellow victim.
Trump did in fact appoint Jerome Powell as the chairman of the Fed, and Powell was confirmed by a Republican Senate, but so was Attorney General Jeff Sessions appointed by Trump and confirmed by a Republican Senate, and for now both are suspected conspirators in a “deep state” plots to overthrow Trump. Those smarty-pants know-it-alls at the Fed have a darned convincing case for raising the prime interest rate to a few notches lower than historical norms, tough, and if it keeps the economy chugging along at a optimal if not the-greatest-anyone’s -seen rate without inflation we’re sure Trump will be glad to claim the credit, and boast about how great it could have been if only he had been in charge. At this point the labor market is tight enough that further economic growth will require an increase in immigration, and Trump should also be grateful if the Fed spares him that dilemma.
These days our only interest in the stock market is in the long run, and over that dreary amount of time it’s survived the Great Depression and Stagflation and the Dot.com and subprime bubbles, and it’s even survived Obama and we figure it will probably survive Trump. We give some of the credit to those smarty-pants know-it-alls at the Fed, but most of it to all those anonymous schmucks who get up every morning and go to some office or factory or shopping mall and make the decisions and do the work that keeps our still mostly-free economy slogging along through good times as well as bad times.

— Bud Norman

Trickle Down Revisionism

That was a humdinger of a speech that Hillary Clinton delivered last week, packing more nonsense into a 30-second sound bite than most politicians can manage in an hour-long oration. Speaking at a rally on behalf of Massachusetts’ Democratic gubernatorial nominee Martha Cloakley, which is outrageous enough by itself, Clinton warned an adoring audience “Don’t let anybody tell that, uh, you know, it’s corporations and businesses create jobs,” and added “You know that old theory, ‘trickle down economics,’ that has been tried, that has failed. It has failed rather spectacularly.”
Hearing such astounding ignorance from a woman widely presumed to be the next president of the United States was alarming enough, and the roar of the crowd was downright dispiriting. Given that it was a Democratic gathering in Massachusetts it is possible than a smaller-than-usual proportion of the crowd held jobs created by corporations and businesses, but even in that bastion of liberalism any crowd anyone anyone who was around in the ’80s should know better than to cheer that tired old trope about the failure of “trickle down economics.” For those too young to have experienced that halcyon age, “trickle down economics” was the derisive nickname that the left attached to President Ronald Reagan’s policies of aggressive tax-cutting and de-regulation and generally getting out of the economy’s way. Instituted after too many desultory years of “stagflation” the policies reduced a runaway inflation rate to a near-optimal level and then set off a record-setting run of economic expansion that lowered the the unemployment while increasing the labor participation rate, boosted median household income, brought down the poverty rate, launched revolutions in consumer electronics and telecommunications and other crucial industries, doubled federal revenues and financed a defense build-up that brought the Cold War to a victorious conclusion, and was agreeable enough to the American that Reagan won 49 states in his re-election bid and saw his vice president elevated to the top job four years later. It is true that there were deficits, although the numbers seem quaint by today’s red-ink-soaked standards, and there were all those videos bands with big hair and skinny ties, but it’s hard to see this record as a disaster. All true-believing liberals of the time regarded this as a spectacular failure, however, and have stuck to the story ever since.
Oddly enough, they’ve had considerable success in this effort. “Trickle-down economics” has long been a pejorative, to the point that its adherents insist on “supply side economics” or even “Reaganomics” to avoid the connotations, and by now most people have developed a clear recollection of its spectacular failure. We recall a a fellow patron at a local tavern who was still cursing “trickle down economics” as a failure, and when we recited all the same indices recounted above he said “Yeah? Well, I didn’t get rich,” and a similarly subjective understanding of economic history has given his self-serving theory wide currency. A large portion of the electorate is too young to recall the fall in the inflation rate and the rise is gross domestic product and the rest of what happened in the trickle-down days, and they’ve all been educated by public school teachers who also didn’t get rich in the ’80s, and by now any candidate promoting lower taxes and less regulation and getting out of the economy’s way will surely be be tarred with the slur of “trickle-down economics.”

Mark Twain would probably be sick of hearing it repeated by now, but he famously remarked that “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so,” and the mis-remembering of “trickle down economics” is an excellent example of the aphorism. There aren’t plenty of them, from the do-nothing policies of Herbert Hoover and how the New Deal ended the Depression to the military defeat America suffered in the Tet Offensive to the black teenagers gunned down on the streets by white racists freed by an uncaring justice system, but the nonsense about “trickle down” economics is especially troublesome. A public gullible enough to believe it is likely to also believe the upcoming narrative about the spectacular success of Obamanomics, and to elect a woman who doesn’t believe that corporations and business create jobs.

— Bud Norman

The Rising Cost of Living and Chili

A recent cold snap induced an appetite for our famous homemade chili, with “famous” being an honorific bestowed on any decent pot of chili in these parts, and that in turn led to our latest measurement of the inflation rate.
The folks in the federal government measure inflation in one way, some economic contrarians figure it another way, and it seems that everyone else uses a methodology of their own. We go by the Chili Index, which is pegged to the price paid at a nearby grocery store for the necessary ingredients for a large pot of the stuff, and it suggests the country has yet another economic problem to worry about.
Lest anyone doubt the scientific validity of the Chili Index, we would note that its findings are corroborated by more familiar data. Even the folks in the federal government have noticed a steady rise in prices, for among the slew of dispiriting economic statistics that were released just after the election — odd timing, that — was an uptick in the official inflation rate to 2.2 percent. That’s not a particularly worrisome number to most economists, who apparently enjoy regular cost-of-living raises, but it’s the third increase in as many months and rapidly approaching a rate that would cause policy-makers to reconsider all the quantitative easing that’s been propping up the slumping economy.
There’s also reason to believe that number significantly understates the economic reality. Shortly after the bad old days of stagflation in the ‘70s the government revamped its formula for determining the inflation, including the use of “hedonic” pricing to account for the supposedly improved quality of some of items, and running the same information through the earlier formula would put us right back in the bad old days of stagflation. Given that the quality of ground beef, onions, bell peppers, jalapeno peppers, crushed tomatoes and chili beans has not improved noticeably in recent years, the Chili Index reflects on the price charged at the register.
We’re not the only ones who perceive a higher rate of inflation than the government statistics would suggest. An exit poll conducted by NBC News during the election found that 37 percent of the respondents cited rising prices as the biggest problem they face, just one point shy of the number who cited unemployment, and other studies have shown that most Americans guess the inflation rate is higher than the official figure. Women tend to see even more inflation than men, and low-income people more than the higher earners, but almost everyone is seeing higher prices than the bureaucrats are reporting. That likely reflects a widespread skepticism about all manner of government economic statistics, including unemployment rates that sometimes drop because of all the people who have given up looking for work, but it’s not because the government knows better than the skeptical individuals about the prices of the things they buy.
Should the inflation rate continue to rise, even the official one, expect to hear a lot of pontificating in the media about the advantages of inflation and how brilliant the federal government has been in staving off the dread deflation. They’ll note that inflation is beneficial to debtors, among its many other virtues, but they’ll probably not mention that the biggest debtor in the history of the world is the federal government. Let us hope that the government doesn’t print up enough money to pay off the current $16 trillion of debt and tell its creditors to use it for a pot of chili.

— Bud Norman