I got a fill-up today; it cost $3.78/gallon, certainly an improvement over my last fill-up. I haven't driven a lot during the pandemic, and my hybrid tells me I'm averaging 55.1 mpg. I get mileage left estimates, but I usually do a fill-up by the time I'm under 100, and it's roughly 8 gallons or so. Of course, I'm still paying off the car over the next 2 years. And those car payments dwarf my fuel bills, even inflated.
The GOP is running against high gas prices and inflation, among other things including a stagnant economy There are roughly 3 months left, and the dated Carville dictum "It's the economy stupid" could take an unexpected turn--against Biden OR the GOP. For example, Biden, who has refused any blame for the rise in gasoline prices, has repeatedly tweeted about the slow but steady drop in gas prices over the past few weeks. As I have repeatedly noted, there has more to do with a drop in demand, recessionary fears and a strong dollar. But the recent drop in prices could spark an increase in demand, and global supplies remain tight--or maybe the dollar corrects or the market decides the economy is stronger than they feared. That could spark a second rally in gas prices that even takes out the June high, leaving the Dems exposed close to the election. Or maybe we see the trend of lower gas prices continues, and independent voters give Biden credit for it.
Another point is the heuristic reference to declaring a recession based multiple consecutive negative growth GDP. In fact, I made an early reference (July 11 tweet) based on a Peter Schiff tweet noting the Atlanta had lowered its Q2 negative growth estimate. I made early mocking reference to the "Biden recession", mostly to counter Biden's absurd economic accomplishment hype. Since BEA confirmed the second consecutive contraction in real GDP, there's been a kerfuffle between the White House/Dems and the GOP, with the latter seizing on the economy and Biden's low ratings, also using the recession to explain the bad case for the Inflation Reduction Act's business tax increases.
Barre analyzes the two-quarter heuristic here.
Since 1948, and prior to the current episode, BEA data on real GDP reveal ten periods with two or more consecutive quarters of negative growth – in 1949, 1954, 1958, 1970, 1975, 1980, 1982, 1991, 2009, and 2020 – all of which correspond to the NBER’s eventual declaration of a recession.
In fact, the 2020 pandemic recession also includes the first 2 quarters: -5.1, -31.2. The first 2 quarters this year are -1.6 and -0.9. As I've pointed out in recent tweets, NBER makes the official call. And there are reasons this seems to feel a lot different, starting with a 3.5% unemployment employment rate and we've finally reached the pre-pandemic job high. Sumner points out contrarian statistics: industrial production went up 5%. not down; and payroll employment is growing at a clip, not falling, rivaling boom periods
The employment data, however, is more subtle. BLS has 2 principle surveys: payroll and household. And whereas payroll hiring showed an unexpected surge of over 500K jobs last month, a near record low unemployment rate of 3.5%, and for the first time since the start of the pandemic, we've finally topped that payroll total, there are issues: we are still 4-5M jobs below the trend, the household survey hasn't changed much over the past 5 months, and the labor force participation rate is about 62.1%, well below pre-pandemic 63.3% or so. Recall the official unemployment rate is based on a metric of the labor force that doesn't include discouraged/long-term unemployed. The seeming inconsistency of the payroll and household may in part reflect people taking multiple jobs as wages fail to to keep pace with inflation despite a competition for workers sparking wage gains. Also we've seen jobless claims on a recent uptick, and consumer confidence has recently dropped to over a year low. Businesses worry about rising interest rates (sparked by the Fed) as prices adversely affect demand and hit profits. Businesses may look to reducing headcount in an attempt to control costs.
Robust employment doesn't mean, of course. we're in a robust economy. There are significant global supply chain issues, exacerbated by the pandemic, as evidenced by China's anemic economic growth. Even OPEC, despite recent high prices is having issues meeting projected demand.
However, the elephant in the room is decades-high inflation. The most recent figure shows 8.5% inflation year over year vs. last month's 9.1%, largely reflect a drop in gas prices since the mid-June $5.02/gallon high. And the just released CPI number shows no month-to-month gain, although this is masks things like rent and food increases because of a near 8% drop in gas prices. As someone on Twitter remarked, this is like saying, if you paid $500 more in June, you're still paying $500 more last month.
Then there's the oxymoron Inflation Reduction Act. (as I write, awaiting House approval after the Senate's 51-50 partisan vote with VP Harris casting the tie-breaking vote. First of all, we see most of the spending mostly in the form of green energy/EV subsidies and ObamaCare subsidies with some caps on Medicare out-of-pocket prescriptions and negotiated drug prices. In terms of the latter, this is probably the government specify caps on what it'll pay. The problem is that capping a price doesn't mean a supplier will make product available if it sees the price offer below the market clearing price. Moreover, government health programs doesn't make healthcare more affordable for those of us in the private insurance market. If anything we have to cross-subsidize government-provided care.
And this goes beyond the economic destructive aspects of business taxes raised in the Act, mostly in the form of a minimum tax which probably happens at the expense of business investment, which is directly related to the standard of living. As I have tweeted, this is like eating the seed corn of our economy. And taxes ultimately are paid by individuals, not necessarily rich ones, like customers, employees and stockholders, and those costs are inflationary in effect, a de facto passed along cost of doing business.
The purported inflation savings are really in the form of decreased government spending in the trailing years of the coming decade. This doesn't address short-term spending which exacerbates relevant sector expenditures, the competition for scarce resources.
The GOP heading for the midterms knows inflation is the form of regressive taxation that hits lower and middle-class Americans, that wage gains in a robust job market are outweighed by higher costs of living. There is a sense that huge government spending in the form of stimulus checks in a supply-constrained economy was like pouring gasoline on the inflation fire. There is also a sense that generous unemployment compensation created moral hazard and hampered pandemic economic recovery.
The Democrats respond weakly, arguing inflation is not just a US problem and trying to blame "Putin's price hike" and ex-USA global economic issues. This really doesn't explain other issues like rent and housing, increasing mortgage rates and skyrocketing rents or shortages exacerbated by regulatory issues, like the baby formula crisis. The Dems can also counter that Trump added nearly $8T.to the national debt, so fiscal arguments by the GOP are somewhat disingenuous.
I will say that while inflation is a difficult issue to resolve, there are steps which would make a good start:
- reform the Fed: eliminate the full employment mandate, implement rule-based interest policy, shrink the balance sheet
- repeal Trump's tariff ware, lower other barriers to trade, expand trade blocks, end economic sanctions
- streamline regulation and market barriers which impede market competition
- perform radical budgetary reform, including downsizing the military to s more defensive vs interventionist policy
- implement tax policies that are low, flatter, and more consumption base
I can't predict the outcome of the midterms yet, but as I write, despite a streak of recent accomplishments, Biden remains highly unpopular at 40%. It's all but a lock the GOP will win the House. The Senate is more mixed with some undesirable Trumpkin picks in PA, GA, OH, AZ with Johnson and Rubio facing tough reelections. I don't think the GOP is helping itself by promising partisan investigations. They need a more positive, principled agenda and to do more than repeat the latest negative economic statistics.
