Of all the things that impact our lives living as social creatures in a state construct, the most influential one is economics.
It is also the one that seems to be least understood.
Economics creeps into every aspect of our lives. When we turn on our lights, economics is either charging us for that electricity or we paid to have off grid systems to supply it. When we purchase anything - food, fuel, even books (shocking as it seems), economics has informed the price of that item through availability, supply, demand, desirability, and the inevitable overhead in taxes. Retirements and pensions rise and fall on the global and national economics; in the United States our version of Old Age Provision, Social Security, bases its increases off of the inflation rate of said economics.
And yet, I suspect for most people, their eyes glaze over at the thought of digging deeper.
Most people - myself for years - understood economics in terms of "I get paid. I lose some money in taxes. With the rest, I pay for my life". If I am wise, I am saving for the future. If I am not, I am consuming for the present (I have done both at one time or another).
And then the economy comes back to bite. And people are mysteriously surprised that somehow this thing, this scarcely acknowledged thing that like a rarely seen fish at the bottom of the ocean is only occasionally brought to the surface, has suddenly appeared in all of its needle-teeth, bug-eyed, bloated body horror.
Inflation eats up purchasing power. People lose their jobs and suddenly, they cannot buy more thus pushing those business they purchased from closer to the edge of failure. The government, as provider of last resort, raises taxes to support more programs. With more taxes comes less ability to spend which, when coupled with rising costs, puts even more pressure on businesses. Which means more people lose their jobs.
And so it goes.
Employees react to less ability to purchase by demanding raises. Employers either give the raises and pass the costs on or give the raise and do not pass the costs on - and then reduce staff to pay for the remaining employees. Or, they look to other technologies to reduce overhead cost altogether.
Somehow the "rich" are holding on to every thing and making it tough for everyone else, yet the definition of "rich" keeps settling downward as a government desperately in need to money to pay not only the programs it keeps continually creating, but the ever increasing national debt that is now incrementing even more quickly as the interest rates rise to combat inflation.
All of this goes on until, of course, it does not.
This may come across as a somber post for me - because it is. I am no genius and neither an economist nor the son of an economist, yet even I can see that this does not work well. Like every economic disaster - and arguably, that is what I think we are facing - the bulk of people will find themselves shocked that this occurred. "How did this happen?" will be the cry. "We were the pinnacle of economies! The richest! The most productive! How did it come to this?"
It came, because when the subject of economics came up - the one thing that cuts across every sort of political, social, religious or moral belief - came up, everyone turned away. After all economics is boring.
Predators from the deep are boring to other inhabitants of the deep. Right up to the point the predators consume the other inhabitants.
Having lived through a number of recessions, the reactions of Western governments and Central Bank's to the 2007/8 crash seems to me to have been a trigger point for much of the current malaise. The extended period of ultra low interest rates (in the UK the lowest in the entire 350 years of the Bank of England's existence) has hugely distorted asset values against investment and savings returns, and to follow it with the bail-outs during COVID has now created serious inflation. The loosers as usual will be the average Joe man in the street as we get hit with the consequences of inflation, rising interest rates and higher taxes (at least in the UK).
ReplyDeleteWill, I remember (sort of) the Stagflation years of the Carter Administration in the US and certainly was an active participant in the Dot.com bust and the 2007/2008 recession and the fallout from that. I am no economist, but agree with you that the super low interest rates (completely negating any thought of "saving") combined with bail-out of money due to The Plague have brought us to most of this point. The last little shove was given by all Western-style governments, who never met a program they did not want to fund. With climbing interest rates, servicing national debt is about to become a whole lot more painful.
DeleteAnd yes, Average person in the streets will pay for this. Although to be honest, this could be a learning experience for many - after all, majorities on every side voted for the policies that got us to this point. Perhaps a painful object lesson is what we all require.
No arguments from me. Probably the biggest reason why we as a country will never get a handle on the pocketbook is because we have elections every two years for those controlling the pocketbook. The current occupant who sets the direction we sail, is elected every four years making it hard to ever go anyplace over the long term.
ReplyDeleteOne thing is for sure, says the optimist, even after the world goes to hell in a handbasket, it will be okay again eventually. The question is whether homosapien will be around in this new world.
Ed, I would agree with everything you say, with one addition: we have elections for those who control the pocket book every two years and the Resident every four years - by people who benefit from the aforementioned spending and many of whom do not pay into the system (by the last count I saw, almost have of US taxpayers pay not taxes). Of course they will always vote for people who promise them more - after all, most people feel like they will not have to fund it.
Delete"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years." - Either Alexander Fraser Tytler/Lord Woodhouselee, or Alexis de Tocqueville.
Can remember my friend and his wife getting a mortgage, fixed, in the early eighties for 14% and they were happy with it. Myself, got a wheelbarrow all ready to trundle to the local mom & pop with the cash I'll need to get that loaf of bread........... :(
ReplyDeleteNylon12, I remember looking at an interest rate chart that charted rates across the 20th century. I believe at one point (1979-1981) the interest rates were as high as 18%.
DeleteWheelbarrow also secured here...
I actually closed a loan at 17% for a VA loan. He had elected to float his rate as they were changing every day. He went ahead and bought the house but we refi'd his loan a year later with a 6% reduction.
ReplyDeleteGL - By the time we purchased our first home in 1999, the rate was 8%. And we thought it was a great rate at the time. I cannot imagine 17%.
DeleteThe Carter years where my beginning of political awareness. We moved into a small farming community and all the farm kids were excited that a farmer was gonna be running. They were ecstatic when he won. In 1980, my geometry teacher was a poll watcher, he said they ran out of ballots and had to do some magic to have enough. He said he didn't know if they were voting for Reagan or against Carter, but it was a blow out.
ReplyDeleteAbout a quarter of those farm kids' families lost their farms in the four years between 77-81. A couple hard years for cotton and the 20% interest rates just sunk their business model.
Tell me again why the federal government needs our income taxes (in 2019 they received 1.5 Trilion in income taxes) when they just invent 6 Trillion in a year (some sources complain about the amount but it was at least double the tax income). Economics as practiced by the US gov is not coupled to reality. The interest rates of 1980 would make servicing the hational debt payments untenable. What happens when a government defaults? Stay tuned and now a word from out sponsors....
STxAR, 2008-2009 was 13 years ago. A generation has grown up not really understanding what a true economic blow looks like.
DeleteHonestly, I have no idea why we are taxed when the government can invent money out of thin air. I really do not. It is the biggest argument against taxes that I can think of.
The interest on the national debt is climbing, even as we speak, another effect of the Federal Reserve raising their rates. We do have examples of governments defaulting on debt - but not a first-world government who, when it will default, will find zero sympathy for its plight. The wailing and gnashing of teeth will truly be astounding.
And yes, Average person in the streets will pay for this. Although to be honest, this could be a learning experience for many - after all, majorities on every side voted for the policies that got us to this point. Perhaps a painful object lesson is what we all require.
ReplyDeleteThe Average Person in the Street may pay for this, but he is not smart enough to connect the policies he voted for with the current Fiscal Disaster. That is one reason why things have gotten worse. Too Many Rubes voting for "More Free Stuff". I tried explaining to a couple work buddies why the Fiscal Stimulus was bad. Neither could get past the fact the "Govt" has no money of it's own to give. That is either creates out of Whole Cloth, or Collects Taxes in order to have money.
We are doomed, and the folks hit hardest will, for the most part, never understand what part they played in the disaster.
Twas Ever Thus!
Skwab, I agree both that it could be a learning experience - and that many people will not make the connection. The fact that the government has no money of its own beyond what it gains in taxes and duties seems to not register with a great many people.
DeleteIt certainly does not seem like this ends well. Whether or not people learn will be interesting to see.
Comment above mine has much wisdom in it and I own it: ". . . he is not smart enough to connect the policies he voted for with the current Fiscal Disaster." I am a liberal arts major who ended up with a career in banking. My lack of smarts in economics shows itself every day. It all seems filled with irony, e.g. the economy is booming, and unemployment is practically non-existent, which one would think is a good thing, but the Federal Reserve raises interest rates to slow things down and people lose their jobs. Just one example.
ReplyDeleteBob, we are no longer educated or trained to think economically. The first time I had an economics class was, in all places, preparation for graduate school (so post B.A.). Would that more people understood economics - if so, I do not wonder that much of what passes for voting and policies in this country should go a very different way indeed.
DeleteYou all be safe and God bless.
ReplyDeleteThank you Linda. You as well.
DeleteThis round of inflation is hurting me even though its coming was no surprise. I'm not a "money man." I'm not running around chasing the wind, trying to wheel and deal my way to riches. I work a good job, have retirement from the military, and my house is my only debt. I don't spend frivolously. Even with that though, I'm losing money every month. My grocery bill for AUG22 was $314.00 higher than in AUG20. The only variable was inflation. That was ONE LINE ITEM in our budget. And the sad thing is, in 2020 we bought what we wanted at the grocery store. That increase in AUG22 came in even after we tried to find any way to save a dollar! On top of that, my savings have been losing value month by month! There's no win here!
ReplyDeleteNo, this round of inflation was no surprise, but it's still my problem...
Pete, I saw an article some months ago that the "average" family was paying an additional $400 a month due to inflation. I found this amusing as the current party in power (Blue) has always very much touted themselves as the "working peoples' " representatives. Nothing like make someone pay $4800 more a month due to bad policies to think of "working people".
DeleteNo one gets away from it. And this continues, the more and more people it will impact. Certainly the generation that lived through and came out of The Great Depression was changed and scarred in ways that impacted them for the rest of their lives (both sets of grandparents and that generation of family all lived through it).