For whatever reason, I feel like pontificating on a variety of topics the last couple of days, so readers will have to bear with me. The world is pretty f***d-up right now, I think we can all agree, and the US is a mess. I don’t know how anyone could not say we have a completely incompetent, if not senile, President and a deranged federal administration, which is intent on furthering division in the country and pursuing policies which are destructive to a rising standard of living and a peaceful, rational society. Unfortunately I am not sure we can reverse much of the damage.
The foundation of any society is a strong economy and a solid financial status. Successive administrations have done their best to undermine that and it is a testament to the resilience of a semi-free market economy that we haven’t fallen into permanent low or no growth mode, although Obama tried his best to get us there. But we have piled on incredible amounts of debt, and continue to run astounding deficits every year which add to that debt. Interest on the debt had been low, but is now rising rapidly, and as it is refinanced, the total annual cost to service the debt will similarly increase quickly. We are reaching a point where we will be making very tough spending choices.
Last year about this time, I pointed out that inflation was unlikely to be temporary when so much money was being pumped into the economy and that interest inevitably had to rise. No matter what nonsense is spouted by progressives, money supply growth, coupled with velocity, is the key factor in inflation. I thought we would see 2% on the ten year by last year, but the Federal Reserve kept buying the debt, artificially restraining increases. The Fed, with all its super-smart economists, whiffed on inflation projections and is now in panic mode. The game of unlimited quantitative easing is done now, and the Fed has committed to substantial rate increases. So now we see the ten year recently spike over 2.5%, and it almost certainly is headed higher. So we are clearly in for a prolonged spell of both high inflation and high interest rates, never a recipe for strong growth.
At the same time, a variety of factors are contributing to even more reductions in economic growth. Inflation itself leads to uncertainty about potential returns on investment, so businesses become more cautious. Higher inflation means more spending, but not necessarily more production or more jobs. The crux of economic growth is investment and especially investment in productivity. If the same amount of money can produce more goods and services, then the total cost to consumers can be lower and they eventually benefit by buying more goods and services for the same amount of money, raising living standards. Without productivity gains, consumers are trapped in a cycle of higher wages, but also higher prices, leaving them at best running in place.
Government has placed a number of headwinds on businesses that lead to less investment and lower productivity. One is regulation, particularly environmental regulation. It is almost impossible to do certain kinds of large projects due to environmental costs and delays. China has phenomenal infrastructure in part because it doesn’t tie itself in knots appeasing whacko environmentalists. And an emerging detriment to productivity is the extreme woke DEI movement, which causes diversion of resources, division among employees, suspicion and a huge amount of wasted time. It also will lead to hiring, retention and promotion of less qualified staff and poorer quality products and services. Our focus on social justice in education, and not on math, science, economics and other disciplines that actually improve lives, is killing our talent development.
While there is a lot of energy and entrepreneurial dynamism in our economy; government regulation and woke giant corporations do their best to stomp that out. Rising interest rates don’t help. So, voila, we will have stagflation. High inflation coupled with low or now growth. Old people like me lived through several years of this once before. It was miserable, but at least we weren’t saddled with the level of debt and the kind of regulatory strangulation we have now. We are well and truly f***ed, without major changes that I don’t foresee occurring.
The formula to re-strengthen our economy is actually simple; mustering the political will to do it is difficult, especially with everyone feeding at the government trough in one way or another. We have to stop running deficits, period. We should begin to pay down the debt and force ourselves to reduce it in some defined amount every year. Where would the money come from? We do in fact let a lot of rich people use all kinds of mechanisms to avoid taxation. Closing them would make a huge difference, without raising rates. Tax all forms of income the same, while lowering the rates. Eliminate deductions except possibly for a child credit. Make the whole system far simpler while taking away the ability to play games and avoid taxes.
There is an enormous amount of waste in government spending. We could literally eliminate one-third to half of all government employees without it making a bit of difference, starting with everyone who has any job description relating to DEI. Force government retirement benefits to be no better than private sector ones. Actually try to prevent fraud in government social programs. It isn’t hard to find a lot of money that doesn’t need to be spent.
And encourage growth by limiting the ability of government to hinder private business projects–combine and streamline permitting and put a deadline on dates to make decisions. No more stalling by environmental groups for years on end. Do a real review of regulations and repeal all except those that are absolutely necessary. And on and on. It really isn’t hard to identify the solution. Just hard to get people to implement it. So as I noted at the start, I don’t expect change, and I expect an acceleration in the decline of the American economy and standard of living.