Tag Archive for: Bidenflation

Under The Biden Economy, The Average Family Lost $7,100

Estimated Reading Time: 3 minutes

President Biden’s policies have now cost the average American family about $7,100according to a new report by the Heritage Foundation. While Democrats have proven time and time again that they value their social agenda more than Americans’ economic security, the level of harm represented in this figure is shocking… and infuriating.

As the Heritage report outlines, the average family has lost $5,800 due to inflation and $1,300 due to higher interest rates:

Under Biden, prices have risen so much faster than wages that the average family has lost $5,800 in real annual income. That loss is thanks to the ‘hidden’ tax of inflation, caused by the Biden administration and congressional Democrats’ policies.

Higher interest rates are now costing the typical family another $1,300 annually. Combined with a lower real income, this effectively costs families a total of $7,100 in annual income under Biden.

In January 2021, before Joe Biden took over the presidency, annual inflation was at a stable 1.4%. Since then, the high inflation rate has broken numerous 40-year records, has significantly outpaced wage growth, and has driven Americans to take on more debt than ever.

Today, over a year since inflation began surging, the consumer price index is still at an alarming rate of 7.1%. The price of food has increased by 10.6% over the year: staples like rice and poultry have increased by 14.1% and 13.1%, respectively. Energy prices have risen by 13.1%, with the cost of fuel oil increasing by an astounding 65.7% and energy services by 14.2%.

Wages are also falling behind. In November, the real average weekly earnings decreased by 3%. This trend has also been consistent for over a year.

At this point, a significant majority of Americans—63%—are living paycheck to paycheck. In fact, many are losing money each month and taking on debt to pay for essentials. The total credit card debt in the United States is now at $930 billion after a 15% jump in balances—the largest annual jump in more than 20 years. Not only are Americans taking on more debt, but they’re carrying these balances for long periods of time, making it even harder to pay off as interest piles. Among Americans who carry credit card debt from month to month, 60% have been in debt for over a year.

Because most credit cards have a variable rate, millions of Americans are directly and negatively affected by the Biden administration’s interest rate hikes.

On top of the Biden administration’s monetary policies, Americans have primarily been harmed by the Administration’s fiscal policies that have driven inflation.

President Biden has passed bills and executive orders that paid Americans not to workexpanded tax creditspaused federal student loan repaymentscanceled the Keystone Pipeline, and more.

Just a few months ago, during this time of high inflation and a recession, Democrats passed a massive tax-and-spend plan. Democrats’ reconciliation bill contained substantial tax hikes including a 15% corporate alternative minimum tax, a $6.5 billion natural gas tax, a $12 billion crude oil tax, a $1.2 billion coal tax, and several more. The reconciliation bill also included careless spending on climate initiatives, Obamacare subsidies, and supersizing the IRS.

Both tax hikes and reckless spending have driven inflation. According to a 2020 National Bureau of Economic Research paper, 31% of the corporate tax rate is borne by consumers through higher prices of goods and services. Further, the federal government has flooded the economy with so much money that demand is growing too fast for production to keep up, also resulting in inflation.

A $7,100 donation to one family, in many circumstances, could be life-changing. The theft of $7,100 over the course of the year is equally life-altering, though Democrats had hoped it would simply go unnoticed. They should not get away with it. For ineffective climate subsidies and COVID funds that disappeared before our very eyes, the Left has stolen thousands of dollars from working families.

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This article was published by Independent Women’s Forum and is reproduced with permission.

Kevin O’Leary on Inflation: You Printed $7 Trillion in 30 Months. What Did You Think Would Happen?

Estimated Reading Time: 4 minutes

Americans are facing 40-year high inflation and there’s been no shortage of discussion on the topic. It’s the number one issue on the mind of Americans heading into [ the recent] midterms, and every day on TV and in newspapers pundits are debating how long it will last and deciding who is to blame.

What’s most astonishing amid the flurry of news is just how badly the commentary misses. While there is broad agreement that the US is experiencing dangerously high inflation, partisanship and ideology have polluted basic economics.

Progressive politicians like Robert Reich and Sen. Elizabeth Warren tweet incessantly that “corporate greed” is to blame, an idea even Democratic economists have summarily dismissed. President Joe Biden, meanwhile, has blamed Vladmir Putin. Republicans, on the other hand, have consistently made the case that Joe Biden is the inflation culprit.

All of these explanations are entirely or mostly wrong.

While it’s true that Putin and Biden deserve some blame—particularly in terms of high energy prices—there seems to be an unspoken bipartisan consensus to ignore the elephant in the room: the Federal Reserve’s unprecedented money printing.

One person not playing the game is Kevin O’Leary, the Canadian entrepreneur and investor who regularly appears on ABC’s Shark TankWhile speaking to journalist Daniela Cambone, O’Leary bluntly explained why Americans are experiencing the highest inflation in generations.

The printing presses have gone insane,” O’Leary said. “That’s why we have inflation in the first place.”

By printing presses, O’Leary is talking about the Federal Reserve. The central bank has been expanding the supply of money for decades, and the clip has picked up in recent years. Nothing, however, has compared to the monetary expansion that occurred during the pandemic, something Fed Chairman Jerome Powell recently admitted in a 60 Minutes interview with Scott Pelley.

“You flooded the system with money,” the CBS journalist said.

“Yes, we did,” Powell responded.

This is what O’Leary is getting at. “Flooding the system with money” is what drove inflation to historic highs, and the result was always an obvious one.

“For all the talk of inflation, you print $6.72 trillion in thirty months, what the hell did you think was going to happen?” O’Leary says. “Of course there’s going to be inflation.”

O’Leary’s figures are not wrong. Federal Reserve data show that in August 2019 there was $14.9 trillion total in circulation. By January 2022, there was $21.6 trillion.

In other words, more than 30 percent of dollars in circulation in January 2022 had been created in the previous 30 months.

What Is Inflation?

Money creation is the obvious driver of price inflation, a concept that most Americans have at least a vague understanding of because we see it all around us today. Prices are up for almost everything, and up a lot.

But are higher prices alone evidence of inflation? Prices are always changing, after all. Sometimes they go up and sometimes they fall; oftentimes it has nothing to do with money printing, but is simply a reflection of changes in supply and demand.

This is what makes inflation challenging to define, and in fact there are two definitions for it.

For centuries, inflation was defined essentially as an increase in the money supply. Basic economics holds that if you expand the money supply without expanding goods and services, prices will rise. So that was the definition of inflation: an increase in the supply of money.

Economists in the twentieth century added a second definition, however, calling inflation “a general and sustained increase in prices.” We can see from this definition that what separates inflation from simple price increases is that they are broad and sustained.

Some economists prefer the older definition of inflation, and Henry Hazlitt, author of Economics in One Lesson, can help us see why.

“Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices,” Hazlitt explained. “Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.”

Hazlitt argues that rising prices are the consequence of inflation, which is an increase in the money supply. This is why some economists don’t like the new definition of inflation.

“I prefer the older definition,” Pace University economist Joseph Salerno explained in a lecture on hyperinflation. “I think it’s more useful.”

It’s not difficult to see why some economists see the traditional definition of inflation as superior. It gets right to the cause of price increases (an expansion of the money supply), while the new definition focuses on a symptom of inflation (“a general and sustained increase in prices”).

This second definition is far less clear, which might be precisely why some people like it.

Nobody wants to be blamed for inflation, after all, and under the first definition blame will always return to one spot: the people who control the money supply, and to a lesser extent the politicians, big banks, and bureaucrats who support the Fed and directly benefit from its largesse.

That’s a lot of pressure for central bankers and politicians. It’s far easier to say Vladmir Putin is primarily responsible for high prices, or the ”greedy corporations,” or Joe Biden’s Build Back Better policies.

Inflation: A Silent Killer

Now, some will tell you that if you’re under 60 this is probably the first time you’ve experienced inflation, but this is not true. Usually inflation is just small enough that people don’t notice it as much.

For example, government data show a dollar printed in 1990 had already lost 50 percent of its purchasing power by 2021. This is why inflation is often called a “silent killer.”

Yet history shows inflation often does not remain silent. It persists and grows, and over time it becomes a destroyer of civilizations.

“I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments,” the Nobel Prize-winning economist F.A. Hayek once observed.

This is why Hayek believed the only way to have sound money was to take control of it out of the hands of central bankers and planners.

“I don’t believe we shall ever have a good money again before we take the thing out of the hands of government,” Hayek said.

This is precisely why there has been such enthusiasm around decentralized currencies like Bitcoin and Ethereum.

Whether cryptocurrencies can supplant the dollar remains to be seen, but one thing is clear: the primary cause of inflation is not a boogeyman. It’s not a Russian dictator, corporate greed, or bad legislation.

The primary cause of inflation is the printing presses, exactly like Kevin O’Leary says.

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This article was published by FEE,the Foundation for Economic Education and is reproduced with permission.

Your Thanksgiving Feast Is 20 Percent More Expensive Thanks To Bidenflation

Estimated Reading Time: 2 minutes

The cost to host a Thanksgiving dinner for your closest friends and family members is 20 percent more expensive this year, and President Joe Biden’s administration is to blame.

According to a report from the American Farm Bureau Federation, the average cost to serve 10 of your guests a classic Thanksgiving dinner including turkey, stuffing, sweet potatoes, rolls with butter, peas, cranberries, a veggie tray, pumpkin pie with whipped cream, coffee, and milk is $64.05.

That’s $10.74 more expensive than last year’s average of $53.31 and up more than $17 from just before Biden assumed office.

If it wasn’t evident last year that Biden’s policies, such as bloating the American economy with trillions in federal dollars, are to blame for inflation including hikes in Thanksgiving food prices, then it certainly is now.

After another year of excessive spending, including sending $66 billion in taxpayer dollars overseas and funneling billions toward legislation that will definitively do more economic damage, Americans will have to pay significantly more to feed their families during the holiday season.

Thanksgiving gatherers who want to do more than the bare minimum by adding ham, russet potatoes, and frozen green beans to their menus are expected to pay $81.30, up 18 percent from 2021.

The feast centerpiece, a 16 lb. bird, is up 21 percent from last year for an average cost of $28.96. That price, AFBF noted, might fall thanks to store discounts the week of Thanksgiving. Shoppers interested in bags of cubed stuffing mix, which increased in price by a whopping 69 percent, frozen pie crusts (26 percent), whipping cream (26 percent), frozen peas (23 percent), and dinner rolls (22 percent), however, are still paying much higher due to months of record-high inflation.

In October alone, consumers paid 7.7 percent more for goods. The largest price increases recorded were found in household necessities such as shelter, food, and energy, which saw much higher increases.

“General inflation slashing the purchasing power of consumers is a significant factor contributing to the increase in average cost of this year’s Thanksgiving dinner,” AFBF Chief Economist Roger Cryan confirmed in a press release.

In addition to paying more for food, Americans who travel to see loved ones and give thanks over the next week will be paying more at the pump, where gasoline is currently averaging $3.66 per gallon.

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This article was published by The Federalist and is reproduced with permission.

It Apparently Wasn’t the Economy, Stupid!

Estimated Reading Time: 6 minutes

Democracy is the theory that the common people know what they want, and deserve to get it good and hard. H. L. Mencken

The recent results of the mid-term elections have a number of pundits puzzled, including ourselves.

It was felt that the economy would be dominant. Inflation is at the worst levels in 40 years, falling markets are chewing up savings and folks’ 401K plans, there are no eggs at Costco, rents are soaring, and only about 21 days of diesel fuel is left in the country.

Crime is out of control in major cities, and the border is wide open for anyone, terrorist or bricklayer, to come into the country.

The Federal Budget is completely out of whack.

Surely, people are feeling this. It is evident at the meat counter, at the gas pump, and on the electricity bill.  There is no way the media can hide this reality from the American people. These are the conditions for a Red Wave. Or, at least, that is what was thought.

We think the American people are feeling the pain, despite the best effort of the press to hide the problems. But, it seems voters think Russia is the cause and not the Democrats and they were more concerned about abortion and “election denial” and the “taint of Trump” than they were about kitchen table issues thought to be more important.

So, it seems the economy is not the most important issue for voters. What else can one reasonably conclude?

But it is also true, few people, including leading Republicans, understand the budget crisis. If they do, they are so terrified to talk about it because Democrats will portray them as “pushing grandma off a cliff”, if they even bring up the subject in a campaign. We urge you to watch the video by Congressman David Schweikert.

Independents apparently broke heavily for Democrats late in the game. Usually, they are independent for a reason and break late for the challenger. It didn’t happen. Younger, unmarried women also voted heavily for Democrats.

Republicans consistently polled that they are more trusted on the economy. But since the economy did not seem to matter that edge was lost. Did the Republicans blow it because they too got bogged down in peripheral issues? It appears they did.  

Independents voted against Republicans because of the “taint of Trump”, so says the Wall Street Journal in a perceptive analysis of Arizona results. Republicans took Congressional seats 6-3 and took the legislature. But many identified with Trump lost narrowly. Those like Kimberly Lee, not identified with Trump, won handily.

If the Wall Street Journal is correct, that sort of makes our point. The public was turned off on Republicans despite the weak, inflationary-wracked economy. The economy was not paramount after all.

The result is that while the Republicans barely took the House, they won’t be able to do much but hold off additional bad decisions on the economy, and they certainly will not be able to mount a counterattack to reverse many bad decisions by the Democrats. Meanwhile, Biden will be free to use his executive power to wreak havoc. The courts may eventually correct some of that, but it takes too much time to occur to help a declining economy.

We think of the ever-ebullient Larry Kudlow, who advised us that Republicans would do well, and that “the calvary was coming”, to make the economy better.

But the cavalry got mauled badly just as they did at the Fetterman Massacre in 1866. Similarly, Republicans got massacred in Pennsylvania by a truly radical Democrat of the same name, who can barely speak a complete sentence. He will likely destroy the once vibrant energy sector that has employed so many Pennsylvanians. But then again, rural Pennsylvania went all Republican and the rich environmentalists around Philadelphia and the black vote carried the day.

You can’t say in this race, the Republicans ran a poor candidate, certainly compared to the Democrats. One was a brilliant doctor, and the other was brain-damaged. Say what you will about the Democrat Party, it was a stroke of genius to run Fetterman. He was just what the people wanted.

That leads to our concluding thoughts. If indeed people were not concerned enough about the economy, but other things, they are likely to get it “good and hard” as the sage of Baltimore suggested. This is as it should be. Unfortunately, all of us will pay for the mistake.

The reason goes back to Kudlow’s observation, but with a negative twist. The cavalry is not coming and the likelihood now of a serious recession looms.

To be sure, many of the about-to-be-mentioned factors were present before, and they would be difficult to deal with in any case, but now, there is really no chance of reversing the impact of bad Democrat policies. 

And, we would add, the economy has its own complex cycle, independent of politics. But the distortions of the Biden Administration (gunning the money supply 40%), chocking off energy production, and blowing out the deficit, touched off an inflationary burst that the Federal Reserve has to address. We have long felt an economy that had become addicted to cheap money would suffer withdrawal symptoms when the cheap money is withdrawn.

Here are some of the negative factors we currently see:

The increase in interest rates needed to fight inflation causes an immense increase in borrowing costs for our bloated government debt.

Borrowing costs will soon be the blob that eats whatever is left in the 16% of the budget that is “discretionary”, that is the part our leaders actually vote on.

The yield curve is inverted, that is short-term interest rates are higher than long-term rates. This has been a reliable indicator of recession, regardless of politics.

Corporate earnings are now in a downtrend with 75% of the S&P companies announcing downgrades.

Inflation may have come off its peak, but the FED wisely has said one or two data points do not make a trend and that they will keep raising rates, which they should. The old maxim is the FED will keep raising “until something breaks.” We wonder if the crypto disasters we keep seeing are not the leading edge of a liquidity crisis in an over-leveraged economy.

It will be no fun when something big does indeed break. It will be scary.

The rate of change of the money supply is falling fast, and the velocity of money is contracting.

The combination of rising mortgage rates and the housing bubble is making home affordability a serious problem for future demand. According to Charlie Bilello, it now takes $107,000 in income to afford a median-priced home, which is up a whopping 45% in just the past 12 months. The American dream is getting crushed.

The Leading Economic Indicators have now been down for eight months in a row, more than long enough to establish a trend.

According to David Rosenberg, the consumer sentiment number kept by the University of Michigan averages 71 during recessions and hovers around 88 during expansions. The latest number is around 55, the lowest in about 70 years. The consumer is in trouble and consumer spending is 70% of the economy.

While anecdotal data, the fact that Amazon and FedEx are both laying people off, during the time of the year they normally hire temps because of Christmas shopping, suggests shipping demand is way off. If you are making stuff or buying stuff, it has to be shipped. If stuff is not being shipped it is for a good reason…the economy is contracting fast.

The same can be said for container prices which are falling sharply. This indicates a sharp slowdown in international trade.

Home prices have started to decline and homes are the main source of wealth for most of the population. They are highly leveraged contracts as we found out in the last housing crisis. People can walk away from their commitments in most states, sticking taxpayers with the bill.

Existing home sales have been down for nine months, off 28% from last year.

Federal debt has ballooned so much that interest payments will soon be equal to defense expenditures. When you have to borrow money to pay for interest and essentials, you are in real trouble. However, negative trends compound in a welfare state economy. Demands for more spending will soon be heard, while revenue to the government will decline. Deficits will go up even more. The deficit crisis, long ignored, will reach the critical stage.

However marginal the Republican win in the House, fiscal policy will be less stimulative and the Fed will keep monetary policy tight until the inflation fever breaks. The era of easy and cheap money is likely over, for at least a while.

A number of nations centered around the BRICS economy (Brazil, Russia, India, China, and South Africa) are toying with a new payment system that will not use US dollars. Without that demand, the dollar will have to be valued on its fundamentals, and those fundamentals are not that great.

The Green New Deal and ESG have starved capital investment in energy. New alternatives are not comparable and are being brought on too slowly. An energy crisis is likely to unfold in the next few years.

After throwing $80 billion at the Ukraine war, Biden is asking for another $37 billion. How much, how long, and to what end?

We could go on with another ten or so factoids, but hopefully, the point has been made. We are now more likely to have a serious recession and no political relief is likely.

Perhaps the silver lining in all of this is that as the economy gets worse, especially if unemployment starts to rise to a painful level, it successfully focuses the minds of voters. If this happens as is likely, in 2023 and 2024, peripheral issues will take second or third, or tenth place behind the economy.

If we are not in one already, a recession is likely sometime next year. If forced to guess, we would say by next spring.

If things turn as bad as we think they will, Democrats will not be able to dodge responsibility during the next election cycle.

History shows when the economy turns sour, those in power have to take the blame.

The dictum that it is “the economy stupid” will take center stage once again. But to get there, the American people will have to have their attention focused by getting a recession good and hard.

That is nothing we wish for, or voted for because it necessarily involves all of us regardless of party. But, voting has consequences.

 

 

Real Wages Fell for the Nineteenth Month in a Row in October as Inflation Remained Entrenched

Estimated Reading Time: 4 minutes

The federal government’s Bureau of Labor Statistics released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, but remained near 40-year highs. According to the BLS, Consumer Price Index (CPI) inflation rose 7.7 percent year over year during October, before seasonal adjustment. That’s the twentieth month in a row of inflation above the Fed’s arbitrary 2 percent inflation target, and it’s eleven months in a row of price inflation above 7 percent.

Month-over-month inflation rose as well, with the CPI rising 0.4 percent from September to October. October’s month-over-month growth also shows some acceleration in monthly price inflation growth. Month-to-month growth had been approximately zero in July and August.

October’s growth rate is down from June’s high of 9.1 percent, which was the highest price inflation rate since 1981. But October’s growth rate still keeps price inflation well above growth rates seen in any month during the 1990s, 2000s, or 2010s. October’s increase was the eighth-largest increase in forty years.

The ongoing price increases largely reflect price growth in food, energy, transportation, and especially shelter. In other words, the prices of essentials all saw big increases in October over the previous year.

For example, “food at home”—i.e., grocery bills—was up 12.4 percent in October over the previous year. Gasoline continued to be up, rising 17.5 percent year over year, while new vehicles were up 8.4 percent. Shelter registered one of the more mild increases, with a rise of 6.9 percent, according to the BLS.

The rise in shelter, however, was an increase in October over September when shelter prices rose “only” 6.6 percent, year over year. In October this year, shelter prices were up 6.9 percent year over year, and 0.7 percent, month over month. This was the largest month-over-month increase since March of 2006 and was the largest year-over-year increase since July of 1982. The CPI is finally starting to reflect the enormous surges in costs that many renters have been experiencing in recent years.

Meanwhile, so-called “core inflation”—CPI growth minus food and energy—has hardly shown any moderation at all. In October, year-over-year growth in core inflation was 6.2 percent. That’s down slightly from September’s growth rate of 6.6 percent, which was the highest growth rate recorded since August 1982. October’s year-over-year increase was the fifth largest recorded in 40 years.

The White House used this slight moderation in price inflation growth to crow about how the administration has somehow reduced inflation. According to the White House press release: “Today’s report shows that we are making progress on bringing inflation down, without giving up all of the progress we have made on economic growth and job creation,” he said. “My economic plan is showing results, and the American people can see that we are facing global economic challenges from a position of strength.”

In spite of the fact that month-over-month inflation actually increased, the administration once again selectively annualized the monthly inflation numbers in order to claim that the inflation rate is “2 percent” in spite of year-over-year growth that surpasses the Federal Reserve’s target rate by more than 5 percentage points.

Rather, it is a bit early, to say the least, to announce a victory over CPI inflation. Throughout 1975 and 1976, CPI growth decelerated rapidly, falling from 12 percent in December 1974 to 4 percent in December 1976. Yet, by early 1980, CPI inflation had risen to over 14 percent. At the time, Federal Reserve (Fed) chairman Arthur Burns had used the mid-decade decline in price inflation as an excuse to embrace more easy money. The Fed pushed down the target policy interest rate, and within 5 years, inflation had surged even higher.

Unfortunately, both the White House and Wall Street are both hoping for a replay of the Arthur Burns protocol of the mid-70s. Any small reprieve in inflation rates will be put forward as an excuse to once again have the Fed push down interest rates, and perhaps even ramp up quantitative easing. This will be pushed with the argument that the US is headed toward recession, and the country needs low interest rates and east money to ensure a “soft landing.” If inflation continues to ease even slightly, we can even expect mounting international pressure against the “strong dollar” which has been surging ahead of other currencies thanks to the unwillingness among other central banks to abandon their own easy-money policies.

In other words, now is a time of mounting danger that the central bank will return to the same failed policies of the last 25 years in which it turns to ever larger monetary stimulus in order to prevent recession-fueled deflation. The markets are even now banking that the Fed will take a more dovish turn now that CPI inflation has slightly fallen. For example, mortgage rates fell sharply on Thursday in the wake of the new inflation numbers’ release.

Yet, Americans continue to get poorer as price inflation continues to outpace growth in wages. In October, average hourly earnings grew by 4.86 percent. Given that price inflation surged by 7.7 percent, that real wage growth of about -2.9 percent. That’s the nineteenth month in a row during which real wages fell.

Meanwhile, the jobs data shows few signs of improving. In October, the number of employed persons in the US fell by 328,000, and remains below the February 2020 peak. Moreover, according to the Bureau of Economic Analysis, disposable income is lower now than it was before the covid panic, coming in at $15,130. That sum was $15,232 during February of 2020. Meanwhile, the personal savings rate in September fell to 3.1 percent. That’s the second-lowest level since 2007. Credit card debt, in contrast, reached new highs in September and is now well above its previous 2020 peak. More recent news is hardly better. Meta (Facebook) announced it is laying off 11,000 workers this week, adding to continuing job woes for the tech sector. Home construction and home sales activity is set to show big declines, which will lead to layoffs in real-estate related industries.

Price inflation is indeed likely slowing, but it is slowing as a result of a struggling economy. The White House may soon find it is celebrating much too soon.

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This article was published by Mises Institute and is reproduced with permission.

This Inflation Will Be Tough to Get under Control

Estimated Reading Time: 3 minutes

It’s like a dam broke. And now higher interest rates and mortgage rates for much longer, with lower asset prices, as the Everything Bubble gets repriced.

 

So now the media suddenly focuses on this big problem I’ve been screaming about for many months: Inflation has shifted from energy and from goods tangled up in supply-chain issues to services where there are no supply chain issues.

A great example is insurance. I guarantee you that there is an unlimited supply of insurance, and yet health insurance costs spiked by 24% over the 12-month period, and auto insurance jumped by 9%.

It’s small stuff too. I just got a 20% increase on my broadband service that I subscribed to a year ago to replace Comcast, which had doubled its monthly fee a year earlier.

Other service prices jumped too. Motor-vehicle maintenance and repair jumped 9%, rents are spiking, and all kinds of service providers are jacking up their prices, and consumers are paying them.

Yet gasoline prices have plunged from their highs in June, and many supply-chain issues that drove up prices of some goods have been resolved, and lots of commodities prices have come way down.

So now we’re dealing with inflation in services. This type of inflation means that something has seriously changed in the economy, and how the participants in that economy – so that’s consumers, businesses, and governments – are reacting to price increases. And how they’re reacting is that they’re paying those price increases.

Businesses are paying them because they know they can pass them on to their customers. Consumers are paying them because they’re getting raises, and they’re still flush with cash from all the pandemic money, from the PPP loans, the mortgage payments and rental payments they didn’t have to make, and from the gains in real estate and from the cash-out refi last year, and from the gains in stocks and cryptos, though those gains have started to dissipate.

And governments at all levels sit on huge amounts of pandemic-era cash, and this cash is getting spent, and so wholesale prices go up and businesses pay them, and consumer prices go up, and people pay them. And it happened suddenly, starting nearly two years ago.

For many years, central banks have engaged in massive amounts of money printing and interest rate repression. The Bank of Japan started this over two decades ago, and it bought up a big portion of the government’s debt, and it repressed interest rates to zero, and in recent years below zero. It got away with it for years, and there was essentially no consumer price inflation.

And then during the Financial Crisis, starting late 2008, the Federal Reserve in the US started printing large amounts of money and it repressed short-term interest rates to zero, in order to bail out the bondholders and stockholders of the banks, and to inflate asset prices in general, to inflate stock prices, and bond prices, and real estate prices. And that didn’t trigger a big wave of consumer price inflation either.

And when the European Central Bank saw that neither the Bank of Japan’s money printing, nor the Federal Reserve’s money printing triggered consumer price inflation, but just asset price inflation, it too jumped into the game and printed huge amounts of money and repressed interest rates to zero, and then below zero.

And central banks of smaller countries were doing it, and just about everyone in the developed world was doing it…..

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Continue reading this article at Wolf Street.

 

Mr. Biden’s Wild Ride

Estimated Reading Time: 4 minutes

Central planning should be…planned, at least in some cohesive way, based on a rational basis. We are not suggesting we are a fan of “coordinated” central planning either since it can’t ever be done correctly by bureaucratic agencies that override the price signals, which are the actual guide to what is real about supply and demand. However, some central planning is more coordinated than others.

But what the Biden Administration is doing is truly monumental. It is attempting command and control type economics with a totally confused and contradictory set of instructions. It is a little like driving a car by pressing the accelerator pedal, while at the same time jamming the brakes, steering the vehicle with the radio, while looking in the rear-view mirror, all while drunk as a skunk.

Even with the “best” central planning, politicians make decisions without the real information being generated by prices. They have no profit and loss statement to guide them in their journey, so bad policies can persist for a long time. There is no information feedback loop nor any economic incentive to change course. Politicians are always playing with other people’s money and other people’s lives, not their money or their lives.

Their guide is what they believe is public opinion, the ‘radio’ – the MSM, social media, the actual radio. But they both shape and react to, what they hear on the ‘radio’. In many cases, they hear from people that are simply repeating what they were told by the media which is largely compliant with Democrat goals and objectives. It is living in an intellectual echo chamber.

Biden and crew are driven by visions of a neo-Marxist utopia of equal outcomes for all people, regardless of the natural differences in effort and intelligence, and deep hatred for white heterosexual male Americans. It is not a happy channel to listen to but for Biden and crew, it is the only channel to which they will listen. It informs them where to drive and hence is their steering wheel.

The gas pedal is, of course, a massive fiscal stimulus. Rather than let the economy recover from the medically ineffective but economically destructive lockdown policies, Biden and his Democrat acolytes have put perhaps upward of $4 trillion in stimulus into the economy (Federal spending), all while the economy was naturally recovering from the artificial shutdown. This has caused the economy to overheat badly, displaying the highest inflation rate in two generations.

The brakes, in this case, include labor shortages, new heavy regulations, higher taxes, and sharply higher interest rates. More gas, but even more brakes.

Insofar as labor shortages, changes in the unemployment insurance laws, which allow people to collect the benefit without having to even prove they are looking for work, have a lot of people gaming the system. In many industries, workers simply can’t be found as there has been a huge and persistent drop in labor participation numbers.

While the stimulus of spending gins up demand, higher taxes and regulations make it onerous to produce supply. What should have been short-term supply chain issues, have become long-term problems. In particular, their utopian visions of changing the climate of the earth have caused a drop in investment in traditional energy sources (which should be directed by the marketplace, not politicians), while not bringing the alternatives online in time. The results are shortages and high prices. Coupled with the Ukrainian war, and the fertilizer crisis, this is creating a dual food and fuel crisis.

Electricity and fuel prices were rising even before Putin decided to try to annex part of Ukraine. A good argument can be made that this energy shortage created by Democrats made it clear to Putin, that this was the time to strike because his energy weapon would be so much more effective during a period of rising demand for energy, and a drop in supply. 

So, demand is rising, supply is falling, prices are rising, and the central banks of the world finally decided not to go along with the politicians and instead do their job, to wit, attempt some semblance of price stability. After 20 years of near-zero interest rates, capital was deployed as if it were free because it was. This made the whole structure of finance vulnerable to interest rate increases.

The central bank tool is to increase interest rates, which in turn, has burst multiple financial bubbles born of their previous obsequious accommodation to politicians spending desires. The result is a sharp drop in stocks, bonds, cryptocurrencies, and now housing prices.  This has hurt badly the savings of working and retired citizens, causing them to become justifiably frightened. As consumers cut back consumption, recession looms. Consumption is 70% of GDP.

Thus, you can see, that it really is the case of mashing the gas pedal and jamming on the brakes.

Looking in the rear-view mirror, they think this is just another run-of-the-mill downturn in the economy which can be quickly eased by spending more money and adding even more deficits. 

The problem is monetary and fiscal stimulus can create demand, but they can’t create supply.

This cycle is quite different as it is global in nature. Moreover, as the economy turns down, how can you add more stimulus when prices are soaring? Can central banks achieve a “soft landing” when debt levels and investor speculation have been this high? And how can central banks fight inflation when even with the increases we have seen, interest rates remain far below the inflation rate? Never mind, their eyes are fixed on the rearview mirror.

As the Democrats careen down the road, they drink heavily of intoxicating hubris. They are convinced they can change human nature, change the climate, and change you. They want to change what you drive, how you wash your clothes, your dishes, where you live, what you eat, how to farm, and what you think even about sex. They are literally drunk on power.

So, enjoy the wild ride with Biden economics. Press on the gas, jam on the brakes, be guided by the propaganda on the ‘radio’, keep your eyes fixed on what is behind you, and drink heavily the intoxicating sense of power. And be in a big hurry. Get as much done politically before a reversal at the polls.

Pride cometh before a crash. Buckle up your seatbelt. This vehicle is out of control.

 

Inflationary Vice

Estimated Reading Time: 4 minutes

Samuel Gregg, in his article on the French economist, Jacques Rueff, provides a timely reminder that inflation is much more than merely an economic phenomenon. It also has profound social effects. This, of course, was recognized by Keynes himself in the book that made him famous, The Economic Consequences of the Peace. He recognized that inflation functioned as a transfer of wealth from creditors to debtors, thus upsetting the previous social equilibrium; and he also quoted Lenin to the effect that the debasement of the currency was a sovereign method of producing revolutionary change.

Not all inflation is equally dramatic, of course. The grandfather of a German friend of mine once owned a portfolio of mortgages on valuable properties and soon found himself in possession of pieces of paper of less value than yesterday’s newspaper. Apparently, he took this loss philosophically and never turned to political extremism; he was later sent to Buchenwald. Not everyone in these circumstances stayed sane or decent, however.

But even less catastrophic levels of inflation have profound psychological, or perhaps I should say characterological, consequences. For one thing, inflation destroys the very idea of enough, because no one can have any confidence that a monetary income that at present is adequate will not be whittled down to very little in a matter of a few years. Not everyone desires to be rich, but most people desire not to be poor, especially in old age. Unfortunately, when there is inflation, the only way to insure against poverty in old age is either to be in possession of a government-guaranteed index-linked pension (which, however, is a social injustice in itself, and may one day be undermined by statistical manipulation by a government under the force of economic circumstances, partly brought about by the very existence of such pensions), or to become much richer than one would otherwise aim or desire to be. And the latter turns financial speculation from a minority into a mass pursuit, either directly or, more usually, by proxy: for not to speculate, but rather to place one’s trust in the value of money at a given modest return, is to risk impoverishment. I saw this with my own father: once prosperous, he fell by his aversion to speculation into comparative penury.

When inflation rises to a certain level, it is prudent to turn one’s money into something tangible as soon as it comes to hand, for tomorrow, as the song goes, will be too late. Everything becomes now or never.

With the concept of enough go those of modesty and humility. They are replaced by triumph and failure, the latter certain almost by definition to be the more frequent. The humble person becomes someone not laudable but careless of his future, possibly someone who will be a drain on others insofar as he has failed to make adequate provision for himself – even if, given his circumstances, it would have been impossible for him to have done so. For notwithstanding technical progress, automation, and robotics, we shall need people of humble and comparatively ill-paid employment for the foreseeable future.

Inflation plays havoc with the virtue of prudence, for what is prudence among the shifting sands of inflation? When inflation rises to a certain level, it is prudent to turn one’s money into something tangible as soon as it comes to hand, for tomorrow, as the song goes, will be too late. Everything becomes now or never. Traditional prudence becomes imprudence, or naivety, and vice versa.

Inflation comes in more than one form. For quite a number of years, it took the form of asset inflation, while the prices of consumables remained relatively constant or actually fell. This, in western societies, was the result, it seems to me, of a concatenation of at least two factors: the expansion of money while keeping interest rates low, and globalization that allowed everything to be produced as cheaply as possible. The former allowed governments to run on deficits without apparent consequences for years at a time, while the latter allowed the less well-off to think that they were living in times of little or no inflation. 

Asset inflation, though, has certain social and psychological consequences. First, it puts the meaningful accumulation of assets for those who do not already possess them out of reach. (I speak, of course, in generalities; there are always exceptions). This in turn has the effect of transforming a society divided by permeable classes into a fixed caste society. There have always been advantages to being born in a well-off household, but asset inflation encourages them to become hard-wired, so to speak, into the social fabric.

Asset inflation fosters delusions in those who benefit from it. I sit in my house and grow richer, though of course, the house remains the same, with the same number of square feet (beside which, I have to live somewhere). I look at the value of my investments and hug myself, though in fact, their value has no relation to their yield, which overall remains much the same. I am richer only if I sell them – and then, what do I do with the money?

Nevertheless, I am richer on paper, and for some dizzy people this feeling of wealth encourages sumptuary expenditure, often on credit. Why not take out a loan when interest rates are low and asset prices rising? At one time in the not terribly distant past, my bank offered me $40,000 to pay for a holiday of a lifetime. Why not, when my house was increasing by far more than that every year? Luckily, I have lived (and live) a life of sufficient satisfaction that the concept of a “holiday of a lifetime” has no meaning for me: I cannot even imagine what it would be.

The inability of people at a lower level in the social scale to make any meaningful provision for themselves from savings, as well as the fact that so much is taken out of their hands by the state, means that their income is, in effect, pocket money of the kind that a child receives from its parents. They spend up to the hilt and even beyond, and remain economic minors. Gone in my lifetime is the idea that debt is to be avoided, that it is discreditable to live entirely on credit, and shameful not to repay. If you have no assets worth speaking of, the bailiffs have nothing to seize, and creditors can whistle for their money.

We have entered a more ‘traditional’ phase of inflation. No one knows how long it will last, or how serious it will be. But the very unpredictability creates anxiety even among those who have no real need to feel it – or rather, whom events will show to have had no need to feel it.

Inflation has not merely economic or social consequences, but moral and psychological ones too.

*****

This article was published by Law & Liberty and is reproduced with permission.

About That “0 Percent” Inflation in July

Estimated Reading Time: 8 minutes

On Wednesday, August 10th, the Bureau of Labor Statistics released the July 2022 Consumer Price Index data showing a year-over-year change of 8.5 percent. That’s down from June’s 9.1 percent year-over-year number, but still at 40-year highs. The Biden administration, predictably, chose to seize upon the 0.0 percent month-over-month change between June and July. As the New York Post reported,

 

“I just want to say a number: zero,” Biden said in the White House East Room…”Today, we received news that our economy had 0 percent inflation in the month of July — 0 percent,” Biden said. “Here’s what that means: While the price of some things go up — went up last month, the price of other things went down by the same amount. The result? Zero inflation last month.”

It first bears mentioning that a view that this 0 percent number simply isn’t plausible has been voiced (loudly). My own investigation shows that since September 1971 there have been 205 month-over-month CPI releases. Fourteen of those, and four since 2010, have been flat: a 0 percent change from one month to the next. More than half of the largest monthly CPI changes – 14 of the top 25 – occurred in the troubled, highly inflationary period between 1971 and 1982. Two of the largest monthly changes occurred this year, one in 2021.

With hundreds of price index constituents and plunging poll numbers, manipulation seems eminently likely to critics. With no prejudice against those views, I do not make that charge here. Rather, the nature of the artifice is gloss. Yes, it is true that gasoline prices have fallen significantly. In July 2022 the average price of a gallon of gasoline in the United States fell from $5.34 to $4.80. Yet even after that decline the price of gasoline is up 87 percent since the start of 2021. 

To consider the actual contours of the trumpeted “zero percent” change, below are the largest June to July 2022 decreases in price among CPI constituents according to the Bureau of Labor Statistics. (Because certain goods and services are broken into subcategories, some categorical redundancies may be present.)

Goods/services July 2022 June 2022 June-July chg
1 Unleaded Regular Gasoline -8.0% 10.1% -18.1%
2 Gasoline, Unleaded Midgrade -6.5% 9.6% -16.1%
3 Gasoline, Unleaded Premium -5.5% 8.7% -14.2%
4 Frankfurters -6.0% 4.8% -10.8%
5 Airline Fare -9.6% -0.2% -9.4%
6 Margarine -0.8% 6.8% -7.6%
7 Shelf Stable Fish and Seafood -3.3% 1.8% -5.1%
8 Women’s Outerwear -3.2% 1.6% -4.8%
9 Newspapers And Magazines -0.5% 4.2% -4.7%
10 Audio Equipment -1.4% 3.2% -4.6%
11 Ham Excluding Canned -0.8% 3.6% -4.4%
12 Computer Software and Accessories -1.9% 2.3% -4.2%
13 Ham -0.6% 3.4% -4.0%
14 Frozen Non Carbonated Juices & Drinks -1.1% 2.4% -3.5%
15 Other Linens -1.8% 1.6% -3.4%
16 Girls apparel -3.8% -0.4% -3.4%
17 Recreational Books -1.7% 1.6% -3.3%
18 Tomatoes -2.4% 0.8% -3.2%
19 Men’s furnishings -2.4% 0.8% -3.2%
20 Peripheral Computer Equipment -1.8% 1.3% -3.1%
21 Men’s Footwear -1.4% 1.7% -3.1%
22 Other Furniture -4.3% -1.5% -2.8%
23 Processed Fish and Seafood -1.3% 1.4% -2.7%
24 Prepared Salads 0.7% 3.1% -2.4%
25 Apples 0.0% 2.3% -2.3%
26 Fresh Biscuits, Rolls, Muffins 1.2% 3.4% -2.2%
27 Boys’ Apparel -2.0% 0.2% -2.2%
28 Frozen & Refrigerated Bakery Products 0.7% 2.9% -2.2%
29 Butter and Margarine 1.6% 3.7% -2.1%
30 Dental Services -0.1% 2.0% -2.1%
31 Frozen Fish & Seafood -0.1% 2.0% -2.1%
32 Stationery, Stationery Supplies, Gift Wrap -2.6% -0.6% -2.0%
33 Men’s suits, sport coats, and outerwear -1.6% 0.4% -2.0%
34 Indoor Plants and Flowers -1.2% 0.7% -1.9%
35 Non Electric Cookware and Tableware -0.7% 1.2% -1.9%
36 Major Appliances -1.8% 0.0% -1.8%
37 Other Condiments 0.2% 2.0% -1.8%
38 Motor Oil, Coolant, and Fluids 0.8% 2.6% -1.8%
39 Boys & Girls Footwear -0.9% 0.8% -1.7%
40 Fresh Cakes & Cupcakes 1.2% 2.9% -1.7%
41 Other Appliances -0.8% 0.8% -1.6%
42 Lodging Incl Hotels & Motels -2.4% -0.8% -1.6%
43 Flour and Prepared Flour Mixes 4.0% 5.5% -1.5%
44 Sewing Machines, Fabric and Supplies 0.4% 1.9% -1.5%
45 Eyeglasses & Eye Care -0.8% 0.7% -1.5%
46 Motor Vehicle Body Work 0.3% 1.8% -1.5%
47 Parking and Other Fees -0.4% 1.1% -1.5%
48 Lodging Away from Home -2.0% -0.7% -1.3%
49 Motor Vehicle Maintenance & Servicing 0.7% 2.0% -1.3%
50 Lettuce -1.0% 0.3% -1.3%
51 Butter 1.6% 2.9% -1.3%
52 Sports equipment -1.1% 0.1% -1.2%
53 Nursing Home & Adult Day Service 0.1% 1.3% -1.2%
54 Sweet Rolls, Coffeecakes, Doughnuts 0.5% 1.7% -1.2%
55 Fish and Seafood -0.6% 0.5% -1.1%
56 Frozen & Freeze Dried Prepared Foods 1.9% 2.9% -1.0%
57 Child Care and Nursery School -0.2% 0.8% -1.0%
58 Women’s dresses -3.3% -2.3% -1.0%
59 Parking Fees and Tolls 0.2% 1.2% -1.0%
60 Floor coverings 0.1% 1.0% -0.9%
61 Pets, Pet Supplies, Accessories 0.0% 0.9% -0.9%
62 Uncooked Beef Steaks -1.0% -0.1% -0.9%
63 Canned Vegetables 1.1% 2.0% -0.9%
64 Clocks, Lamps, and Decorator Items -0.3% 0.5% -0.8%
65 Fresh Whole Milk -0.7% 0.0% -0.7%
66 Women’s Suits and Separates -1.2% -0.5% -0.7%
67 Frozen Vegetables 0.7% 1.3% -0.6%
68 Tires 0.1% 0.7% -0.6%
69 Cable, Satellite Television, Radio Service -0.6% 0.0% -0.6%
70 Pork Roasts Steaks and Ribs -0.5% 0.1% -0.6%
71 Other Miscellaneous Foods 1.8% 2.4% -0.6%
72 Men’s apparel -1.4% -0.8% -0.6%
73 Fresh & Frozen Chicken Parts 1.1% 1.7% -0.6%
74 Breakfast Cereals 2.0% 2.5% -0.5%
75 Frozen Fruits and Vegetables 0.5% 1.0% -0.5%
76 Tools, Hardware and Supplies -0.1% 0.4% -0.5%
77 Beer, Ale, and Malt Beverages at Home 0.3% 0.8% -0.5%
78 Other Meats 0.5% 1.0% -0.5%
79 Oranges, including Tangerines 0.2% 0.7% -0.5%
80 Motor Vehicle Repair 1.7% 2.1% -0.4%
81 Fresh Milk Other than Whole 0.5% 0.9% -0.4%
82 Wine At Home 0.1% 0.5% -0.4%
83 Services By Other Medical Professionals -0.3% 0.1% -0.4%
84 Intracity Transportation 0.4% 0.8% -0.4%
85 Other Uncooked Poultry including Turkey 0.6% 1.0% -0.4%
86 Miscellaneous Household Products 1.0% 1.4% -0.4%
87 Jewelry 1.6% 2.0% -0.4%
88 Poultry 1.2% 1.5% -0.3%
89 Chicken 1.4% 1.7% -0.3%
90 Wine away from Home 0.0% 0.3% -0.3%
91 Cigarettes 0.3% 0.6% -0.3%
92 Distilled Spirits Away From Home -0.1% 0.1% -0.2%
93 Landline Telephone Services -0.1% 0.1% -0.2%
94 Intracity Mass Transit -0.2% 0.0% -0.2%
95 Cakes, Cupcakes and Cookies 1.7% 1.8% -0.1%
96 Pet Food 1.2% 1.3% -0.1%
97 Rent of Primary Residence 0.7% 0.8% -0.1%
98 Women’s Footwear 0.3% 0.4% -0.1%
99 Fresh Vegetables 0.6% 0.7% -0.1%
100 Owners Equivalent Rent of Residences 0.6% 0.7% -0.1%
101 College Tuition and Fees 0.2% 0.3% -0.1%
102 Haircuts and Other Personal Care Services 0.2% 0.3% -0.1%
103 New Trucks 0.6% 0.7% -0.1%
104 Owner Equivalent Rent Primary Residence 0.6% 0.7% -0.1%

The following CPI constituents saw price increases from June to July 2022, starting with the largest month-to-month percentage change.

Goods/services July 2022 June 2022 June-July chg
1 Window Coverings 4.0% -3.9% 7.9%
2 Photographic Equipment 5.6% -0.7% 6.3%
3 Peanut Butter 3.5% -2.0% 5.5%
4 Uncooked Other Beef and Veal 1.8% -1.9% 3.7%
5 Pork Chops 2.3% -1.4% 3.7%
6 Crackers Bread & Cracker Products 3.8% 0.5% 3.3%
7 Fats and Oils including Peanut Butter 4.0% 0.8% 3.2%
8 Other Fresh Fruits 0.0% -3.1% 3.1%
9 Women’s Underwear, Nightwear 0.0% -2.9% 2.9%
10 Dried Beans Peas & Lentils 1.7% -1.0% 2.7%
11 Bacon, Breakfast Sausage, & Related 1.9% -0.8% 2.7%
12 Laundry Equipment 1.7% -0.9% 2.6%
13 Video Discs and Other Media 2.9% 0.3% 2.6%
14 Rice 1.4% -1.1% 2.5%
15 Bacon & Related Products 1.4% -1.1% 2.5%
16 Potatoes 4.6% 2.1% 2.5%
17 Carbonated Drinks 2.3% -0.1% 2.4%
18 Breakfast Sausage & Related Products 2.6% 0.2% 2.4%
19 Bread Other than White 3.5% 1.3% 2.2%
20 Olives, Pickles, Relishes 3.0% 0.9% 2.1%
21 Sauces and Gravies 3.2% 1.1% 2.1%
22 Ship Fare 0.0% -2.1% 2.1%
23 Admission to Sporting Events 4.9% 2.9% 2.0%
24 Telephone Hardware, Calculators, Etc. 0.9% -1.1% 2.0%
25 Salt and Other Seasonings and Spices 2.0% 0.1% 1.9%
26 Coffee 2.7% 0.9% 1.8%
27 Men’s pants and shorts 0.1% -1.7% 1.8%
28 Toys, Games, Hobbies, Playground Equip. 1.1% -0.6% 1.7%
29 Citrus Fruits -1.3% -3.0% 1.7%
30 Men’s Shirts and Sweaters -1.3% -3.0% 1.7%
31 Fresh Fruit -0.3% -1.9% 1.6%
32 Delivery Services 0.7% -0.8% 1.5%
33 Roasted coffee 2.6% 1.2% 1.4%
34 Other Beverage Materials Including Tea 2.4% 1.0% 1.4%
35 Spices, Seasonings, Condiments, Sauces 2.3% 0.9% 1.4%
36 Care of Invalids and Elderly at Home 1.5% 0.1% 1.4%
37 State Motor Vehicle Registration, License 1.4% 0.0% 1.4%
38 Candy and Chewing Gum 2.0% 0.7% 1.3%
39 Televisions -0.2% -1.5% 1.3%
40 Canned Fruits 1.1% -0.2% 1.3%
41 Instant & Freeze Dried Coffee 2.3% 1.0% 1.3%
42 Bread 2.8% 1.6% 1.2%
43 Toys 0.5% -0.6% 1.1%
44 Vehicle Parts and Equipment 0.4% -0.7% 1.1%
45 Watches 1.2% 0.1% 1.1%
46 Baby Food 2.1% 1.1% 1.0%
47 Sports Vehicles Including Bicycles 0.4% -0.6% 1.0%
48 Pet Services 0.3% -0.7% 1.0%
49 Processed Fruits and Vegetables 2.2% 1.3% 0.9%
50 Uncooked Ground Beef 0.8% -0.1% 0.9%
51 Household Paper Products 3.1% 2.2% 0.9%
52 Other Intercity Transportation 0.7% -0.2% 0.9%
53 Other Bakery Products 2.0% 1.2% 0.8%
54 Financial Services 0.3% -0.5% 0.8%
55 Pork 0.9% 0.1% 0.8%
56 Soups 2.8% 2.0% 0.8%
57 Distilled Spirits 0.8% 0.1% 0.7%
58 Housing at School, excluding Board 0.8% 0.1% 0.7%
59 Vehicle Accessories Other Than Tires 0.7% 0.0% 0.7%
60 Beer, Ale, Etc. (Away From Home) 0.9% 0.2% 0.7%
61 Video Discs and Other Media 1.7% 1.0% 0.7%
62 Club Dues & Fees for Sports and Exercise 0.4% -0.3% 0.7%
63 Whiskey at Home 0.6% -0.1% 0.7%
64 Inpatient Hospital Services 0.6% -0.1% 0.7%
65 Uncooked Beef Roasts -1.3% -2.0% 0.7%
66 Fresh Whole Chicken 1.9% 1.2% 0.7%
67 Sugar and Artificial Sweeteners 2.2% 1.6% 0.6%
68 Living Room, Kitchen, Etc. Furniture 2.7% 2.1% 0.6%
69 Cosmetics, Perfume, Bath, Nail Prep 0.8% 0.2% 0.6%
70 Veterinarian Services 0.8% 0.2% 0.6%
71 Distilled Spirits at Home 0.7% 0.1% 0.6%
72 Hospital Services 0.6% 0.0% 0.6%
73 Admission to Movies & Concerts 1.5% 0.9% 0.6%
74 Lunch Meats 1.1% 0.6% 0.5%
75 Outdoor Equipment and Supplies 0.3% -0.2% 0.5%
76 Apparel Services 1.5% 1.0% 0.5%
77 Beef And Veal -0.1% -0.6% 0.5%
78 Fresh Fish and Seafood 0.1% -0.4% 0.5%
79 Outpatient Hospital Services 0.5% 0.0% 0.5%
80 Admissions 2.1% 1.7% 0.4%
81 Meats 0.4% 0.0% 0.4%
82 Funeral Expenses 0.5% 0.1% 0.4%
83 Bananas 0.9% 0.5% 0.4%
84 Salad Dressing 2.4% 2.0% 0.4%
85 Cookies 1.7% 1.3% 0.4%
86 Audio Discs, Tapes and Other Media 0.6% 0.3% 0.3%
87 Other Video Equipment -2.0% -2.3% 0.3%
88 New Cars 0.8% 0.6% 0.2%
89 Other Fresh Vegetables 0.5% 0.3% 0.2%
90 Rental Of Video, Audio Discs 0.0% -0.2% 0.2%
91 Prescription Drugs 0.3% 0.1% 0.2%
92 Physicians Services 0.3% 0.1% 0.2%
93 Womens Apparel -1.2% -1.4% 0.2%
94 White Bread 2.0% 1.8% 0.2%
95 Nonfrozen Noncarbonated Drinks 1.5% 1.4% 0.1%
96 Nonprescription Drugs 1.3% 1.2% 0.1%
97 Hair, Dental, Shaving, Care Products 1.3% 1.2% 0.1%
98 Music Instruments and Accessories 0.0% -0.1% 0.1%
99 Wireless telephone services 0.0% -0.1% 0.1%
100 Elementary & High School Tuition & Fees 0.6% 0.5% 0.1%
101 Bedroom Furniture 1.2% 1.1% 0.1%

Two particularly noteworthy features should be clear. First, the changes in the general price level remain extraordinarily broad. We see not just increases in food and energy, but in services, clothing, events, consumer non-durables, and beyond. Additionally, the complementary nature of many goods likely mitigates the benefit of certain declines in price. Labor Day BBQers will note that rolls and frankfurters have declined in price, but pickles, noncarbonated beverages, and household paper products (plates, cups, etc.) have risen in price. Gasoline prices, still high, have declined. But the cost to access destinations, such as sporting events, movies, and gym memberships, has continued ascending. The decline in gasoline prices is a welcome development for individuals who drive, but doesn’t help the working poor when within the same index are increases in the cost of intercity transportation.

American consumers don’t purchase or eat the CPI. Households consume preferred items in specific quantities to meet their needs within the confines of budget and income restrictions. If there happens to be an individual or family subsisting exclusively on snacks, college textbooks, household cleaning supplies, and postage – some of the very few goods that actually saw a 0 percent change in price from June to July – they are at least treading water. Even for an administration desperate for good news, touting a meaningless statistical aberration as an achievement is a pitiful turn.

*****

This article was published by AIER, American Institute for Economic Research, and is reproduced with permission.

Leave the Gas Station Owners Out of It

Estimated Reading Time: 5 minutes

Over the Independence Day weekend, the Biden Administration shifted its blame for rising prices, and specifically rising prices of gasoline, from Vladimir Putin to gasoline retailers. On Saturday, July 2nd at noon, President Biden’s Twitter account inveighed:

My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.

On July 1, 2022,  the average price of gasoline in the United States was $5.34 per gallon. That’s down from the high of $5.47 per gallon hit two weeks ago, but still a historically elevated level.  On the New York Mercantile Exchange (NYME), gasoline futures prices are up 57% in 2022. Diesel recently topped $5.75 per gallon and now sits at $5.73 per gallon, its highest price in decades.

The largest factor input for both gasoline and diesel is the price of oil, which has eased back some over the last month. The major reason for the price declines in both oil and products derived from oil are a mounting accumulation of economic data suggesting that an anticipated recession may already be here. (The first calculation of the second quarter US GDP number will be released on July 28th.) But even despite the recent price declines, West Texas Intermediate (WTI) remains up over 37 percent in 2022, Brent Crude up 38 percent.

Both misinformation and disinformation are essential skills in politics, but under the pressure of rising inflation and slowing economic growth the current administration has expanded the practice to new frontiers. The tweet, which was undoubtedly not written by the President but to which he has lent his name, begins with a salvo directed at “the companies running gas stations.”

In fact, of an estimated 145,000 fueling stations across the United States, less than 5 percent (7250) are owned by refiners who would be, as the President says, “setting prices.” But even that small number of gas stations are not ultimately setting the price of gasoline. The prices first derived on world oil markets, a major contributor to which are decisions of the Organization of the Petroleum Exporting Countries (OPEC), is the major factor.

Further, more than 60 percent of retail stations are establishments singularly owned by a family or an individual. And while the number has undoubtedly changed over the last decade, 2013 Census data reported that 61 percent of those stations are owned by immigrants. Thus the Democratic administration that rails daily against billionaires and “big companies” has taken direct aim at ‘mom & pop’ stores, in so doing assaulting the newest arrivals to the United States, upon whom it is clear the left and much of the Democratic Party stake their political future.

As for the present time being one of “war and global peril,” how tied the interests of the United States are to either of the combatants in southeastern Europe is a matter of opinion. If indeed peril is to be avoided, adopting a far more neutral stance than that which has tens of billions of taxpayer dollars and lethal weapons being sent 5000 miles would be a wiser approach.

But it is by admonishing gas station owners to lower their prices that what is deep-seated ignorance, profound dishonesty, or both are exposed.

In fact, even at the current prices, most gas stations earn a pittance from, or actually lose money, selling gasoline alone. According to IBISWorld, whereas the average US business has a profit margin of just under 8 percent (7.7 percent), the average gas station scrapes by at less than a quarter of that: 1.4 percent. At $5.34 per gallon, the average national price of gasoline over the Independence Day weekend, a 1.7 percent profit would come to $0.09 cents a gallon.

The Hustle estimates that after overhead (labor, utilities, insurance, credit card transaction fees, and so on), a gas station owner receives on the order of five to seven cents per gallon. Even selling a few thousand gallons of gasoline per day would only generate a few hundred dollars free and clear to the owner. Franchise City estimates that $50 spent at the gas pump goes

$30.75 to the oil company, $7.00 to refineries, $4.00 to the delivery company, $1.25 on processing and transaction fees, and finally right at the end of the chain you get $1.00. And that number can and does change, sometimes even lower, most owners suggesting an average [profit] of 1 to 3 cents net per gallon.

Meanwhile, the Federal gasoline tax of $0.18 cents per gallon yields a riskless, unearned fee to Washington of 3.4 percent per gallon. That’s twice what risk-bearing entrepreneurs, most of whom are small business owners and a sizable portion of whom are immigrants, are receiving. And this doesn’t take into account state gasoline taxes, the highest five of which are found in Pennsylvania ($0.57 per gallon), California ($0.51 per gallon), Washington ($0.49 per gallon), New Jersey ($0.42 per gallon), and Illinois ($0.39 cents per gallon).

And none of this takes into account other costs and headaches which accompany gas retailing. Miniscule profits come with the costs and recordkeeping associated with environmental regulations at the local, state, and federal levels. Competition tends to be fierce, with numerous locations clustering at high-volume transportation junctions. The price sensitivity of many drivers is active at differences of as little as one cent. Many stations operate 24/7 to maximize revenue. And for those which operate as franchises, in return for name recognition and some volume discounts the associated fees can be enormous. (Not only do franchisees have to pay fees to the parent company, they also have to price their product in accordance with national promotions, which can undercut profitability.)

The awful business economics of gas station ownership is, in fact, why large oil firms and refiners are not interested in it. And it is why they’ve reduced their exposure to the consumer-facing end of the energy sector over several decades. Unsurprisingly it is lousy financial prospects that have pushed fueling stations into retailing food, drinks, cigarettes, toiletries, and a wide variety of other goods travelers may want or need. All of those goods have appreciably higher profit margins than retail gasoline sales, and for many independent, single owner-operated service stations are the key to their very survival.

So why do so many immigrants choose a business with seemingly dismal financial prospects? Trisha Gopal explored that question in Eater a bit over a year ago; kindly remain mindful of Biden’s July 2nd tweet while reading her explanation:

As I speak to each owner, I realize the choice of a gas station is always a utilitarian one. When I ask her why they chose a gas station, Angelina Rizo gives me two answers. The first is one I hear from every restaurant owner I speak to: People need gasoline, so as long as people are driving, the more likely they are to have customers, and the more likely those customers will need something to eat. It’s an explanation rooted in the same immigrant mentality I’ve seen and heard my entire life: Look for opportunities, stay on your toes, and always find a way to be useful. When we wonder why immigrants are so entrepreneurial, it’s because so many of us are taught to first look to see where we are needed, and then, once we are there, go beyond.

There is a darker component to Biden’s redirection of blame as well. It is ironic that an administration built upon an ideological commitment to political correctness and the notion that words should be selected with surgical precision would message this clumsily. Gas station owners, a business community overrepresented by new immigrants to the United States, have frequently been targets of racist and xenophobic ire. Saddling them with blame for a particularly damaging aspect of the ongoing inflation increase is, beyond wildly inaccurate, irresponsible, and morally unconscionable.

No one expects government officials, especially career politicians, to understand any of this. Neither have they any incentives to take real economic, financial, and business details into their static, oversimplified missives. The image of gas station proprietors as richly-compensated corporate executives at the helm of multinational corporations earning is one the Biden Administration has a vested interest in promoting. And there is no better measure of a political body out of ideas than an increasingly frenzied leap from scapegoat to scapegoat.

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This article was published by AIER, American Institute for Economic Research, and is reproduced with permission.