our budget deficit has a sweet tooth
George Eliot’s short stories “Brother Jacob” begins with a warning about the dangers of the desire to offer sweets.
“Among the many fatalities associated with the blossoming of youthful desires, perhaps the fatality of blindly embarking on a confectionery line is not sufficiently considered.” Elliott write.
What are the risks that are not being fully considered? the danger of inflation. If they produce and consume too many treats, they lose their ability to please.
“The son of an English yeoman who grew up on a diet of salt pork and yeast dumplings explains that even in a paradise full of candied almonds and glass jars full of pink lozenges, the human stomach still feels full.” “How can we know? Could a boring life reach such a limit that plum buns no longer provide the slightest excitement?” Eliot writes.
The story is about a young man named David Foe, who is dissatisfied with his position in life and flees to the West Indies. After some unspecified adventures, he returns to a place in England called Grimworth, where he establishes a new identity as a confectioner for the local high society under the name David Freeley. All hell breaks loose when David’s “stupid” brother Jacob, who has an insatiable appetite for sweets, shows up and exposes Freely’s identity fraud.
American consumers play the role of Jacob in the Grimworth of the modern American economy, and our vast appetites make that clear. nothing comes freely.federal government huge budget deficit The country has created a highly attractive economy with low unemployment and rapid economic growth, but this has come at the cost of massive and persistent inflation.
Nasty inflation mess
this personal consumption expenditure (PCE) price index A report released this week highlighted the persistence of inflation. Durable goods prices are rising again, contrary to expectations that they would plateau after falling in the second half of last year. Inflation in services rose at a ferocious rate of 7.4% per year.
Given the data, it is becoming increasingly difficult to advance the narrative that inflation is ending. Overall PCE inflation rose 0.3% in January, up from 0.1% in December. Core PCE inflation, which excludes food and energy prices, rose even more rapidly to 0.4% from 0.1% in November and December. In other words, after just two months of price stability, inflation is back on an upward trajectory.
The resurgence in inflation does not appear to be related to data flukes or supply shocks. The measurement results, excluding outliers, convey the same message as the headline. Median PCEIt rose 0.4%, twice the rate of inflation over the past three months, according to calculations by the Cleveland Fed.of Dallas Fed 16% trimmed average Inflation rose at an annual rate of 5%, the fastest pace since January last year.
It is clear that current inflation is exacerbated by the lack of sustained supply constraints across the economy. caused by excessive demand for goods or services. That’s what monetary policy is supposed to be able to control, which is why it doesn’t make much sense for the Fed to start cutting rates.
The real story about real interest rates
The best argument that proponents of rate cuts can muster is that “real interest rates” (nominal interest rates minus inflation) are rising, which should, in theory, lead to a tightening stance in monetary policy. But the only thing that exists is There is no evidence that monetary policy has been tightened. In a way that retrains inflation and the real economy. Even parts of the economy that are generally considered “interest rate sensitive,” such as home prices and stock prices, are booming.
The long-term phenomenon is extremely low unemployment rate The large number of job openings, combined with the wealth effect due to the booming stock market, Rise in home values This is to encourage consumers to continue spending. And with wage growth out of line with the Fed’s 2% goal, there’s little reason to expect consumers to back out.
Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington, DC, February 1, 2023. (Kevin Dietsch/Getty Images)
Some analysts believe the employment report is flawed. They claim that the number of jobs is somehow double-counted or that phantom jobs are being counted. Or maybe your salary has been inflated. However, if that happens, personal consumption will likely fall even further. The robustness of personal consumption expenditures shows that The labor market is actually tighter than you think..
Disdain for currencies and borders
Eliot’s last literary work was published in 1879, the year before her death. It was a novel disguised as a collection of essays. Such impressions of TheophrastusEliot’s title character complain Regarding the “degradation of moral currency.”
To our knowledge, this is the first appearance in the English literature of the idea of a wage-price spiral, in which a decline in currency value causes a demand for higher wages. Eliot writes:
This is what I call moral currency debasement. A permissive motive that diminishes the value of all inspiring facts and traditions, and thus dominates something other than the spiritual product, that is, bread, that maintains the charm and exaltation of our social existence. It’s about making it less and less. Through this, people keep their souls alive. The breadwinner of the family might ask for more copper shillings, or quotas, or US dollars for the day’s work, and obtain the amount of food he needs. But let’s empty that moral currency of value. When greedy buffoons debase all historical beauty, majesty, and pathos, the more desecrated symbols heap, the more the noble sentiments that subdue the tyranny of suffering are lost. , and unites ambition with social virtue.
Returning to Eliot’s story of “Brother Jacob,” Grimworth’s wives become obsessed with Forfrey’s sweets. cook a book of their household budget to disguise the cost of shopping from her husband.
Our government has adopted a similar policy of hiding the costs of fiscal deficits, and continues to have a too accommodative monetary policy. What is that policy? encourage large-scale illegal immigration.
Latin American migrants join a caravan heading to the U.S. border in Huehuetan, Chiapas, Mexico, June 7, 2022. (ISAAC GUZMAN/AFP, Getty Images)
“The rebound in net international migration over the past two years has been the primary driver of labor force growth,” Bank of America analysts said in a note Friday. “This surge in labor supply has allowed us to maintain strong labor demand without overheating the economy.”
Of course overtime, new arrivals consume production, just like almost everyone does. Immediately upon arrival, however, immigrants can be exploited to produce more than they consume, which can act particularly as a disinflationary factor in wages.
But eventually Jacob appears and reminds us: Freely is a scam.
