Some prices will probably fall, mainly commodity prices. Energy and food prices follow a rhythm where prices rise and then production increases to meet it, which ultimately drives prices down. There is an old saying in the commodity markets: "The cure for high prices is high prices." Relief is coming here.
Some prices will probably not fall, like housing which is a good thing. The last time housing prices fell en masse was 2008 and that was not a good time for anyone. Home prices are probably going to rise modestly for the foreseeable future, but the supply / demand situation isn't conducive to a meaningful nationwide price decline.
The most painless way to adjust to higher prices is wage inflation, and that is probably how the problem gets addressed. Trump's instincts to re-shore manufacturing jobs and limit immigration are going to be the most effective here. The left's policy of higher minimum wage laws, combined with increased immigration and welfare spending probably will not have the desired effect.
I was going to post the same thing about wage inflation being the only feasible solution. Whether they realize it or not, the general public's mindset is that inflation will be solved only when we return to 2019 cost of living levels. This is not possible without a massive depression.
Small metros have limited job opportunities. I know because I lived in one for many years. It was a great place to live in many ways, but jobs was not one of them. I say that as one of the few in the community that had a good job.
That is not necessarily true. I live in a rural exurb and work remote. Quite a few of my neighbors do too.
Many smaller metros have lots of job opportunities - depends on your field and on the metro. For example, in Virginia, Roanoke and Charlottesville have lots of medical jobs. Blacksburg has a good number of engineering jobs. Richmond, a bigger metro than the others mentioned, but not huge, has lots of jobs in law, finance, government, IT, and higher ed.
If you can get a remote job, really location becomes more, “where do you want to live”, not, “where is your employer located”, with the caveat that it’s generally good to be within a few hours driving distance.
We have a pretty decent supply of homes. We have too few homes in a few big metros and in specific states. Meanwhile I have a friend in Tennessee actively trying to get more friends to move near her as nice houses go on the market. One has so far. She decamped from Maryland and loves her new town.
Move someplace nice but cheaper. Encourage businesses to let people work remote.
I write about the hip-to-be-square trade in housing. If you look at the regional home price indices, the biggest growth has been in places like Cleveland, Rochester, Hartford, Dayton, Milwaukee.
Detroit is morphing from the Motor City to the Mortgage City with the biggest lenders based there. Eventually the Midwest becomes too cheap to ignore.
There will be no reshoring of manufacturing, at least not in any way near the numbers that are needed to make a difference in the lives of the average American worker.
I work in this field, and most of my clients are simply using the tariffs and Ai as an excuse to offshore more, not less. The American market is not as important to the world as we would like to believe.
Trump's instincts are not in line with practical reality.
Taxing imports, particularly of basic inputs like cement, lumber, aluminum, steel and copper, the very materials necessary to build the homes and factories that Trump says he wants to see more of, will not make it more profitable to make more stuff in the US. And it will likely not lead to many more jobs in steel making, mining, lumbering, etc because US labor is so much more expensive than that overseas. Shifts may be added at existing operations, but the tariffs necessary to justify the investment in new plant, as well.as.staffing it, permits, etc, would.proved have to exceed 100%. And corporate bosses would worry that either Trump would pull a TACO in response to overseas pressure, or a well placed purchase of his crypto, or that a subsequent administration would relax or eliminate them. If you are going to play with tariffs, it is best to tax imports of the highest value products, say whole refrigerators, to encourage their final.assembly in the US from parts made abroad, and to work your way backwards down the supply chain. If the Chinese are going to spend given money on subsidizing steel,.aluminum and solar panels, I say we should take those cheap inputs and make stuff with them.
If we truly do want to increase the supply of housing and build.more.factories in the US, arresting and deporting illegals who, being younger than the population as a whole and ineligible for most benefits, are some of the most hard working people in our country, would seem particularly counterproductive. Trump's anti illegal pogroms have produced much spectacle, but very few actual.deportations. Most of those arrested are now languishing in detention camps, costing close to $200 per day each to house while.we try to make the arrangements to.deport them, when formerly they were earning that much, frequently paying tax.on it and , even if they were paid in cash, were putting it back into the economy for food, gas, clothing, rent, etc.
Securing the Southern border was necessary and overdue, and those illegals who commit felonies or high level.misdemeanors should be listed from the system without delay. But spending millions of federal - mostly borrowed - dollars to go after some.of our hardest working people - when we have a shortage of worthwhile workers - makes no sense. We should be legalizing them, not deporting them.
Trump wants to reshore manufacturing and reverse the open border policy of the past 4 years via tariffs and immigration enforcement.
The left wants to raise the minimum wage, open the borders and increase welfare spending.
The first item is more likely to raise wages. Note that Trump's policy is more or less identical to boilerplate D policy up until the Clinton Administration.
The far left are fools, but Trump is a moron. (I believe it was Rex Tillerson who called him a "fucking idiot" to his face)
Taxing imports and booting out hundreds of thousands of working age illegals will raise the cost of goods and the labor to make them, and will likely result in higher wages and employment. But, with 4% unemployment, virtually every able bodied worker already has a job, so it is going to be very difficult to find legal workers to fill any of the vacancies left by deportations, without sparking a wage/price spiral.
And insisting that illegals leave the country and apply for readmission is not practical on any meaningful scale. The reason we have so many illegals is that our system was unable to meet the demands of our industries or the desire of foreigners to fill them. Having gutted so many agencies, I don't see Trump or his officers being able to increase our ability to process immigration applications.
The reason why we have so many illegals is because the left refused to enforce immigration law for 4 years and strongly hinted that it would naturalize all the illegals who came here. The democrats saw that people were fleeing states like California and NY and thought that importing illegals would offset the projected loss in electoral votes. They also bet (wrongly) that the Hispanic vote would swing their way. It was a political gamble that didn't pay off. Cry me a river.
Trump was elected to reverse this policy and he is doing what he was elected to do. The left wants to cement their illegally gotten gains, and will bitch and moan about every deportation but so what? Trump is doing what he promised.
If you want to raise wages, you shrink the labor supply. Econ 101. And the policy of keeping manufacturing in the US and limiting illegal immigration was boilerplate D policy before Bill Clinton. Guys like Dick Gebhardt, John Glenn, Fritz Hollings, hell, even Ross Perot thought the same thing. Ideas aren't dumb simply because you don't like the guy espousing them.
I don't disagree with much of what you say. But there were plenty of illegals here before Biden and his gang opened the floodgates. We have no meaningful way to replace them. And Econ 101 will also tell you that raising wages without raising productivity is a recipe for a wage/price spiral and stagflation.
Everybody, left and right, clings to simple answers, but in a complicated world the answers rarely are.
I don't think we need to replace the illegal aliens. If anything, AI is going to rip the shit out of a lot of jobs, especially at the entry level. This means that we are going to see lots of young adults entering the trades, where the labor shortage is most acute.
I would also argue that a lot of terrible jobs are held by (illegal and legal) immigrants… jobs with no upward mobility. I don’t want us bringing in immigrants of any kind to do fast food and other crap work that they can’t easily escape from. I’m happy that it looks like we’re on a trajectory to build more than lattes and big Macs. If I combine that with jobs that’ll be replaced by AI I think we have more than enough people to do the work without having open borders or dragging wages down with too many workers vying for the lowest rung jobs. This is not even considering how many social services are needed to support families that work in these areas.
We need to examine the idea of a shortage of worthwhile US workers. There are millions of working-age citizens who would like decent, well-paid jobs; if we reshore the plants that make building materials, we solve several problems: no more tariffs importing these goods, and the wage increases for workers that we're discussing here. The problem is that one or two generations of prime-age black and white US workers are indeed "out of the workforce" due to epidemics of addiction across the Northeast, South, and Rustbelt. A really great way to bring these workers out of addiction and back into the productive economy? A meaningful, well-paid job.
We got worldwide inflation because all the nations of the world did the same thing at the same time. They printed money to stimulate their economies, thus creating the inflationary hangover. They also provoked social strife by doling it out to favored groups who got to spend it before prices went up. They also got to devalue all debts, including government debt, and this is what they will eventually do about their government debts. They will pay it off with printed money, which favors some groups over others, and so political life becomes even more divisive.
The federal government could cut its debt in half if it started to monetize the left-hand side of the balance sheet which includes $1 trillion in gold, the entire continental shelf, thousands of empty office buildings, one-third of Alaska and every state west of the Rockies.
US spending went from under $4.5 trillion in 2019 to $7 trillion under Biden. Trump and Reps, inexplicably have continued the insanity. Covid increased US spending by nearly 50%, and neither party has any interest in ending the money orgy. It was a larger government expansion than WWII. We were conned, into permanently growing government, which nearly always leads to a reduction in the living standards.
Then to add insult to injury, 10-12 million people unexpectedly crossed the border, without a single extra bedroom to house them, along with our regular 1 million immigrants a year, thru normal immigration. That is 14-16 million new people in need of shelter in 4 years. The US only has 5 states with populations larger than 14 million people. All as interest rates were held too low, too long. That housing is not more expensive, is rather amazing.
At the same time, the Dem war on fossil fuels prevented maximum energy for 4 years, just as AI has exploded demand. Neither party has the guts to make the Mag 7 and their ilk, subsidize residential energy rates as they drive up energy prices, due to AI insatiable needs.
Finally, the " the whole world had inflation" is a red herring. We are the world's only true Superpower, because we are the only nation on earth able to feed, power and protect ourselves, without outside aid or interaction. We do not produce our own medication, due to lousy public policy, not because we are incapable. So Covid inflation would have had much less effect in the US, than the rest of the world, had DC not panicked like teenage girls with their first flat tire, while spending like drunken sailors.
We were horrendously governed by any historic standard for 4 years, and rather than righting the ship, Reps keeps spending and promising immediate relief, that will take years to turn around. We are living thru the perfect economic storm, and it will not abate anytime soon.
Apartment rents have declined, and rent is the second largest item on the Consumer Price Index from the BLS. (Largest item is "owners equivalent rent" ie what you could rent your own house for)
I think for most people inflation, affordability, and all the other names are simply names for the same thing. People don't have enough money to pay for stuff.
Tariffs have surprisingly added up to just about nothing, and they are mostly being paid by foreign manufacturers and governments who it turns out had been making lots of profits and governments like China are willing to prop up industries to maintain market share. Tariffs have cost the US consumer very little, and remember, half of consumption is by the top 10%. Trump has used tariffs for many reasons, most having nothing to do with trade.
"Affordability" is a word for elite overproduction. Too many college grads not getting the six digit job they feel entitled to. Maybe not getting any job at all. Median houses are $400K, which before taxes takes a household income of $170K. Frankly I could care less, they can pick lettuce or work janitorial. There aren't enough of them to make a difference. Except maybe in midterms in blue states.
The 60% of voters who do make a difference, the working class, is still being squeezed. At the same time corporate America is putting the hurt on Trump, they are going to have to raise wages, and they don't like it. The bourgeois is going to have to pay more for uber eats and the corner table at the new ethnic restaurant.
Trump was just the tease. A tiny taste of what a citizen oriented government might be like, and Trump is extremely imperfect and corrupt. America is awash in dollars, it's past time to spread the wealth.
I generally agree. Where we may or may not agree is in what mechanism should be used to “spread the wealth”. Instead of higher taxes to feed the government leviathan which inevitably exacerbates whatever problem it tries to solve, I’d rather see government focus like a laser on broad based economic growth, while fully enforcing our immigration laws. This will require businesses to compete for workers, which will raise salaries and benefits.
Excellent post, and rather than focus on where we disagree, I’d like to dovetail off of your point about rent. Our mental model needs to be that given the current regulatory state, our ability to build is crippled. If we let a million immigrants come in, we can’t simply build a million new houses. The zoning and permitting is to onerous.
So free markets can’t do their thing and allow supply to rise to match the demand shock. Instead you get much higher rents and housing prices for the working class.
There is an opportunity to explore the impact of Republican and Democrat policy, as identified by Washington Post columnist Fareed Zakaria who stated on his CNN show that "if America has an affordability crisis, it tends to be in places Democrats govern, like New York, Illinois, and California…
Fareed Zakaria: If America Has An Affordability Crisis, It Tends To Be In Places Democrats Govern | Video | RealClearPolitics
How has democrat policy caused things to be more unaffordable? What is contrasting republicans policy?
I live in a deep blue state, that has been deep blue for decades, where the minimum wage is way about the national average, as is our cost for electricity, taxes, and regulations. I recently saw the affordability contrast when I spent several days in Texas for a wedding. The restaurant meal I bought cost 30% less than a similar meal at home. I was surprised to see lower prices at the grocery store. Just one person’s experience.
Don’t take my word for it. Take a long weekend in a deep red state, and see if you see a difference. Pretend you are house hunting, shopping for a family, talk to the wait staff ann store clerk about their utility costs and everyday prices. You may see a difference as I did.
Ezra Klein makes a similar point in abundance. It’s funny how they both do that despite being leading cheerleaders for the policies that make blue states dysfunctional
“Inflation” is an area where the voters should be taken seriously but not literally. IP’s piece is a mess because he does the latter then throws his hands up, because he assumes the voters want deflation and correctly points out that it is as bad if not worse than inflation.
Complaints about “inflation” at this point should be understood to mean voters are upset about a lack of buying power that was caused by inflation and while it’s been slowly getting better since 23 still exists. Trump is falling into the same trap that Biden did pointing to various areas of improvement and calling the problem solved. It just makes the administration look out of touch.
The answer is economic growth and deregulation (streamlining and simplifying not ditching them entirely). Make it easier and therefore cheaper to build. Ditch the onerous landlord regulations that make it nearly impossible to evict problem tenants which is a massive disincentive to building and maintaining cheap housing. Keep tariffs minimal and targeted, especially when it comes to free nations with a modicum of labor and environmental laws.
Removing the competition for both low wage jobs and cheap housing brought on by Biden’s hastily imported underclass is helping as well.
How to stimulate long-term sustainable growth? Follow Argentina's example and abolish every federal regulation at once. The economy would explode. Yes, there would be lots of problems but they would be outweighed by the economic boom.
The easiest way to reduce effective inflation - not necessarily the CPI - would be a full throated embrace of remote work, preferably with employer incentives.
The pandemic and expanded remote work drove substantial migration to more affordable areas, and created a secondary wave of job growth in those areas as they added restaurants, food trucks, small trades companies, child care, entertainment venues, etc. to support those workers. I live in one of the exurban rural areas that saw a big influx.
Cost of living in say, Staunton, is 79.6. Cost of living in Loudoun, 147.9. Same state.
Not only is housing cheaper, childcare, food, recreation are cheaper as well, and transportation costs are greatly reduced. And you get up to two hours a day back for your friends and family.
Why we are not embracing this obvious solution is beyond me.
Perhaps, the endless campaign is insufficient for/incompatible with effective governance. An honest discussion about the government run grocery stores in other states might be a good place to start a real discussion about the realm of the possible.
The business cycle is not going away and sometimes it exacerbated by other events! I will say one thing that the three major stock market index is are in no way of barometer of the general status of our economy, and we need to stop looking at it as such.
Great post - I've been saying this for years: politics (outrage/name-calling) are free while the economy is an insanely expensive problem to solve. But politicians do not wave magic wands and bring down prices: if your favorite coffee or shampoo is too expensive, don't buy it! Unless you're currently living on the street, don't buy a house! This is the ONLY way that prices on anything will come down, as narrated in that comment from the _Wall Street Journal_. Let's not keep shopping out of fear of recession down the road. We can do a lot to moderate prices simply by withholding our dollars, if we can stand to be without our stuff for the weeks, months, or years it takes for sellers to get the message.
Some prices will probably fall, mainly commodity prices. Energy and food prices follow a rhythm where prices rise and then production increases to meet it, which ultimately drives prices down. There is an old saying in the commodity markets: "The cure for high prices is high prices." Relief is coming here.
Some prices will probably not fall, like housing which is a good thing. The last time housing prices fell en masse was 2008 and that was not a good time for anyone. Home prices are probably going to rise modestly for the foreseeable future, but the supply / demand situation isn't conducive to a meaningful nationwide price decline.
The most painless way to adjust to higher prices is wage inflation, and that is probably how the problem gets addressed. Trump's instincts to re-shore manufacturing jobs and limit immigration are going to be the most effective here. The left's policy of higher minimum wage laws, combined with increased immigration and welfare spending probably will not have the desired effect.
I was going to post the same thing about wage inflation being the only feasible solution. Whether they realize it or not, the general public's mindset is that inflation will be solved only when we return to 2019 cost of living levels. This is not possible without a massive depression.
Trump promised to cut inflation but what they heard was cut prices.
Moving out of big cities is a feasible solution. HUGE difference in cost of living.
Small metros have limited job opportunities. I know because I lived in one for many years. It was a great place to live in many ways, but jobs was not one of them. I say that as one of the few in the community that had a good job.
That is not necessarily true. I live in a rural exurb and work remote. Quite a few of my neighbors do too.
Many smaller metros have lots of job opportunities - depends on your field and on the metro. For example, in Virginia, Roanoke and Charlottesville have lots of medical jobs. Blacksburg has a good number of engineering jobs. Richmond, a bigger metro than the others mentioned, but not huge, has lots of jobs in law, finance, government, IT, and higher ed.
If you can get a remote job, really location becomes more, “where do you want to live”, not, “where is your employer located”, with the caveat that it’s generally good to be within a few hours driving distance.
We have a pretty decent supply of homes. We have too few homes in a few big metros and in specific states. Meanwhile I have a friend in Tennessee actively trying to get more friends to move near her as nice houses go on the market. One has so far. She decamped from Maryland and loves her new town.
Move someplace nice but cheaper. Encourage businesses to let people work remote.
I write about the hip-to-be-square trade in housing. If you look at the regional home price indices, the biggest growth has been in places like Cleveland, Rochester, Hartford, Dayton, Milwaukee.
Detroit is morphing from the Motor City to the Mortgage City with the biggest lenders based there. Eventually the Midwest becomes too cheap to ignore.
There will be no reshoring of manufacturing, at least not in any way near the numbers that are needed to make a difference in the lives of the average American worker.
I work in this field, and most of my clients are simply using the tariffs and Ai as an excuse to offshore more, not less. The American market is not as important to the world as we would like to believe.
Trump's instincts are not in line with practical reality.
Taxing imports, particularly of basic inputs like cement, lumber, aluminum, steel and copper, the very materials necessary to build the homes and factories that Trump says he wants to see more of, will not make it more profitable to make more stuff in the US. And it will likely not lead to many more jobs in steel making, mining, lumbering, etc because US labor is so much more expensive than that overseas. Shifts may be added at existing operations, but the tariffs necessary to justify the investment in new plant, as well.as.staffing it, permits, etc, would.proved have to exceed 100%. And corporate bosses would worry that either Trump would pull a TACO in response to overseas pressure, or a well placed purchase of his crypto, or that a subsequent administration would relax or eliminate them. If you are going to play with tariffs, it is best to tax imports of the highest value products, say whole refrigerators, to encourage their final.assembly in the US from parts made abroad, and to work your way backwards down the supply chain. If the Chinese are going to spend given money on subsidizing steel,.aluminum and solar panels, I say we should take those cheap inputs and make stuff with them.
If we truly do want to increase the supply of housing and build.more.factories in the US, arresting and deporting illegals who, being younger than the population as a whole and ineligible for most benefits, are some of the most hard working people in our country, would seem particularly counterproductive. Trump's anti illegal pogroms have produced much spectacle, but very few actual.deportations. Most of those arrested are now languishing in detention camps, costing close to $200 per day each to house while.we try to make the arrangements to.deport them, when formerly they were earning that much, frequently paying tax.on it and , even if they were paid in cash, were putting it back into the economy for food, gas, clothing, rent, etc.
Securing the Southern border was necessary and overdue, and those illegals who commit felonies or high level.misdemeanors should be listed from the system without delay. But spending millions of federal - mostly borrowed - dollars to go after some.of our hardest working people - when we have a shortage of worthwhile workers - makes no sense. We should be legalizing them, not deporting them.
There are two items on the menu to raise wages.
Trump wants to reshore manufacturing and reverse the open border policy of the past 4 years via tariffs and immigration enforcement.
The left wants to raise the minimum wage, open the borders and increase welfare spending.
The first item is more likely to raise wages. Note that Trump's policy is more or less identical to boilerplate D policy up until the Clinton Administration.
The far left are fools, but Trump is a moron. (I believe it was Rex Tillerson who called him a "fucking idiot" to his face)
Taxing imports and booting out hundreds of thousands of working age illegals will raise the cost of goods and the labor to make them, and will likely result in higher wages and employment. But, with 4% unemployment, virtually every able bodied worker already has a job, so it is going to be very difficult to find legal workers to fill any of the vacancies left by deportations, without sparking a wage/price spiral.
And insisting that illegals leave the country and apply for readmission is not practical on any meaningful scale. The reason we have so many illegals is that our system was unable to meet the demands of our industries or the desire of foreigners to fill them. Having gutted so many agencies, I don't see Trump or his officers being able to increase our ability to process immigration applications.
Nobody thinks these things through.
The reason why we have so many illegals is because the left refused to enforce immigration law for 4 years and strongly hinted that it would naturalize all the illegals who came here. The democrats saw that people were fleeing states like California and NY and thought that importing illegals would offset the projected loss in electoral votes. They also bet (wrongly) that the Hispanic vote would swing their way. It was a political gamble that didn't pay off. Cry me a river.
Trump was elected to reverse this policy and he is doing what he was elected to do. The left wants to cement their illegally gotten gains, and will bitch and moan about every deportation but so what? Trump is doing what he promised.
If you want to raise wages, you shrink the labor supply. Econ 101. And the policy of keeping manufacturing in the US and limiting illegal immigration was boilerplate D policy before Bill Clinton. Guys like Dick Gebhardt, John Glenn, Fritz Hollings, hell, even Ross Perot thought the same thing. Ideas aren't dumb simply because you don't like the guy espousing them.
I don't disagree with much of what you say. But there were plenty of illegals here before Biden and his gang opened the floodgates. We have no meaningful way to replace them. And Econ 101 will also tell you that raising wages without raising productivity is a recipe for a wage/price spiral and stagflation.
Everybody, left and right, clings to simple answers, but in a complicated world the answers rarely are.
I don't think we need to replace the illegal aliens. If anything, AI is going to rip the shit out of a lot of jobs, especially at the entry level. This means that we are going to see lots of young adults entering the trades, where the labor shortage is most acute.
I would also argue that a lot of terrible jobs are held by (illegal and legal) immigrants… jobs with no upward mobility. I don’t want us bringing in immigrants of any kind to do fast food and other crap work that they can’t easily escape from. I’m happy that it looks like we’re on a trajectory to build more than lattes and big Macs. If I combine that with jobs that’ll be replaced by AI I think we have more than enough people to do the work without having open borders or dragging wages down with too many workers vying for the lowest rung jobs. This is not even considering how many social services are needed to support families that work in these areas.
We need to examine the idea of a shortage of worthwhile US workers. There are millions of working-age citizens who would like decent, well-paid jobs; if we reshore the plants that make building materials, we solve several problems: no more tariffs importing these goods, and the wage increases for workers that we're discussing here. The problem is that one or two generations of prime-age black and white US workers are indeed "out of the workforce" due to epidemics of addiction across the Northeast, South, and Rustbelt. A really great way to bring these workers out of addiction and back into the productive economy? A meaningful, well-paid job.
We got worldwide inflation because all the nations of the world did the same thing at the same time. They printed money to stimulate their economies, thus creating the inflationary hangover. They also provoked social strife by doling it out to favored groups who got to spend it before prices went up. They also got to devalue all debts, including government debt, and this is what they will eventually do about their government debts. They will pay it off with printed money, which favors some groups over others, and so political life becomes even more divisive.
The federal government could cut its debt in half if it started to monetize the left-hand side of the balance sheet which includes $1 trillion in gold, the entire continental shelf, thousands of empty office buildings, one-third of Alaska and every state west of the Rockies.
US spending went from under $4.5 trillion in 2019 to $7 trillion under Biden. Trump and Reps, inexplicably have continued the insanity. Covid increased US spending by nearly 50%, and neither party has any interest in ending the money orgy. It was a larger government expansion than WWII. We were conned, into permanently growing government, which nearly always leads to a reduction in the living standards.
Then to add insult to injury, 10-12 million people unexpectedly crossed the border, without a single extra bedroom to house them, along with our regular 1 million immigrants a year, thru normal immigration. That is 14-16 million new people in need of shelter in 4 years. The US only has 5 states with populations larger than 14 million people. All as interest rates were held too low, too long. That housing is not more expensive, is rather amazing.
At the same time, the Dem war on fossil fuels prevented maximum energy for 4 years, just as AI has exploded demand. Neither party has the guts to make the Mag 7 and their ilk, subsidize residential energy rates as they drive up energy prices, due to AI insatiable needs.
Finally, the " the whole world had inflation" is a red herring. We are the world's only true Superpower, because we are the only nation on earth able to feed, power and protect ourselves, without outside aid or interaction. We do not produce our own medication, due to lousy public policy, not because we are incapable. So Covid inflation would have had much less effect in the US, than the rest of the world, had DC not panicked like teenage girls with their first flat tire, while spending like drunken sailors.
We were horrendously governed by any historic standard for 4 years, and rather than righting the ship, Reps keeps spending and promising immediate relief, that will take years to turn around. We are living thru the perfect economic storm, and it will not abate anytime soon.
Apartment rents have declined, and rent is the second largest item on the Consumer Price Index from the BLS. (Largest item is "owners equivalent rent" ie what you could rent your own house for)
I think for most people inflation, affordability, and all the other names are simply names for the same thing. People don't have enough money to pay for stuff.
Tariffs have surprisingly added up to just about nothing, and they are mostly being paid by foreign manufacturers and governments who it turns out had been making lots of profits and governments like China are willing to prop up industries to maintain market share. Tariffs have cost the US consumer very little, and remember, half of consumption is by the top 10%. Trump has used tariffs for many reasons, most having nothing to do with trade.
"Affordability" is a word for elite overproduction. Too many college grads not getting the six digit job they feel entitled to. Maybe not getting any job at all. Median houses are $400K, which before taxes takes a household income of $170K. Frankly I could care less, they can pick lettuce or work janitorial. There aren't enough of them to make a difference. Except maybe in midterms in blue states.
The 60% of voters who do make a difference, the working class, is still being squeezed. At the same time corporate America is putting the hurt on Trump, they are going to have to raise wages, and they don't like it. The bourgeois is going to have to pay more for uber eats and the corner table at the new ethnic restaurant.
Trump was just the tease. A tiny taste of what a citizen oriented government might be like, and Trump is extremely imperfect and corrupt. America is awash in dollars, it's past time to spread the wealth.
I generally agree. Where we may or may not agree is in what mechanism should be used to “spread the wealth”. Instead of higher taxes to feed the government leviathan which inevitably exacerbates whatever problem it tries to solve, I’d rather see government focus like a laser on broad based economic growth, while fully enforcing our immigration laws. This will require businesses to compete for workers, which will raise salaries and benefits.
Excellent post, and rather than focus on where we disagree, I’d like to dovetail off of your point about rent. Our mental model needs to be that given the current regulatory state, our ability to build is crippled. If we let a million immigrants come in, we can’t simply build a million new houses. The zoning and permitting is to onerous.
So free markets can’t do their thing and allow supply to rise to match the demand shock. Instead you get much higher rents and housing prices for the working class.
There is an opportunity to explore the impact of Republican and Democrat policy, as identified by Washington Post columnist Fareed Zakaria who stated on his CNN show that "if America has an affordability crisis, it tends to be in places Democrats govern, like New York, Illinois, and California…
Fareed Zakaria: If America Has An Affordability Crisis, It Tends To Be In Places Democrats Govern | Video | RealClearPolitics
How has democrat policy caused things to be more unaffordable? What is contrasting republicans policy?
I live in a deep blue state, that has been deep blue for decades, where the minimum wage is way about the national average, as is our cost for electricity, taxes, and regulations. I recently saw the affordability contrast when I spent several days in Texas for a wedding. The restaurant meal I bought cost 30% less than a similar meal at home. I was surprised to see lower prices at the grocery store. Just one person’s experience.
Don’t take my word for it. Take a long weekend in a deep red state, and see if you see a difference. Pretend you are house hunting, shopping for a family, talk to the wait staff ann store clerk about their utility costs and everyday prices. You may see a difference as I did.
Ezra Klein makes a similar point in abundance. It’s funny how they both do that despite being leading cheerleaders for the policies that make blue states dysfunctional
“Inflation” is an area where the voters should be taken seriously but not literally. IP’s piece is a mess because he does the latter then throws his hands up, because he assumes the voters want deflation and correctly points out that it is as bad if not worse than inflation.
Complaints about “inflation” at this point should be understood to mean voters are upset about a lack of buying power that was caused by inflation and while it’s been slowly getting better since 23 still exists. Trump is falling into the same trap that Biden did pointing to various areas of improvement and calling the problem solved. It just makes the administration look out of touch.
The answer is economic growth and deregulation (streamlining and simplifying not ditching them entirely). Make it easier and therefore cheaper to build. Ditch the onerous landlord regulations that make it nearly impossible to evict problem tenants which is a massive disincentive to building and maintaining cheap housing. Keep tariffs minimal and targeted, especially when it comes to free nations with a modicum of labor and environmental laws.
Removing the competition for both low wage jobs and cheap housing brought on by Biden’s hastily imported underclass is helping as well.
How to stimulate long-term sustainable growth? Follow Argentina's example and abolish every federal regulation at once. The economy would explode. Yes, there would be lots of problems but they would be outweighed by the economic boom.
The easiest way to reduce effective inflation - not necessarily the CPI - would be a full throated embrace of remote work, preferably with employer incentives.
The pandemic and expanded remote work drove substantial migration to more affordable areas, and created a secondary wave of job growth in those areas as they added restaurants, food trucks, small trades companies, child care, entertainment venues, etc. to support those workers. I live in one of the exurban rural areas that saw a big influx.
See https://www.coopercenter.org/research/remote-work-persists-migration-continues-rural-america
Cost of living in say, Staunton, is 79.6. Cost of living in Loudoun, 147.9. Same state.
Not only is housing cheaper, childcare, food, recreation are cheaper as well, and transportation costs are greatly reduced. And you get up to two hours a day back for your friends and family.
Why we are not embracing this obvious solution is beyond me.
Perhaps, the endless campaign is insufficient for/incompatible with effective governance. An honest discussion about the government run grocery stores in other states might be a good place to start a real discussion about the realm of the possible.
The business cycle is not going away and sometimes it exacerbated by other events! I will say one thing that the three major stock market index is are in no way of barometer of the general status of our economy, and we need to stop looking at it as such.
Great post - I've been saying this for years: politics (outrage/name-calling) are free while the economy is an insanely expensive problem to solve. But politicians do not wave magic wands and bring down prices: if your favorite coffee or shampoo is too expensive, don't buy it! Unless you're currently living on the street, don't buy a house! This is the ONLY way that prices on anything will come down, as narrated in that comment from the _Wall Street Journal_. Let's not keep shopping out of fear of recession down the road. We can do a lot to moderate prices simply by withholding our dollars, if we can stand to be without our stuff for the weeks, months, or years it takes for sellers to get the message.