Coming Complications on the Inflation Front
According to the US Bureau of Labor Statistics, about eight million people are directly involved in the US Construction industries. The housing recovery has lifted incomes, but strained building supplies. Inflation has been blamed by President Biden on everything from the meat industry to Chinese container shipping companies. Maybe he’s right, and the whole world is against him. He’s complaining now about press coverage. With a straight face, even. Never mind. The only cure is to raise interest rates above inflation rates. That will lead to unemployment in the housing industry. More importantly, it will lead to much higher mortgage rates.
Home ownership is the single most important factor in building inter-generational wealth. Marginalized groups historically have lower home ownership rates, one factor in wealth disparities. The last time government intervened with the intent to increase minority home ownership; it triggered the great recession.
The effect at the local level will be significant. Home sales are a major source of revenue for local jurisdictions such as towns, townships, school districts etc. This loss of revenue will reduce expenditures for classroom instruction, because bureaucracies need every dollar they can get for expansion. A teacher’s aide is meaningless compared to the value of a vice deputy principal assistant to the deputy principal assistant of vice. Not to mention the equal opportunity office bureaucracy.
The impetus of regulators to regulate is palpable. If there is a process or program in sight, it must be regulated so that it is fair. Too often, fair means ensure equal outcomes for everyone, especially adjusted for immutable qualities such as skin color or genitalia.
In states where there is a high regulatory burden, the revenues from home-building fees, permits and inspections provide a great deal of employment. When a bureaucracy finds itself starved of resources, its immediate reaction is to tighten the screws and fight back. Because the difference between government and private industry usually is represented by proving versus achieving diligence, government always wins. It can prove diligence, while private industry is trying to achieve it. Another way to say this is do the thing right, versus do the right thing.
The second problem is similar. It engenders an atmosphere of graft. That eventually grows to take over the organization involved. When the organization is government, graft is the worst possible motivator. Tis government, graft is the worst possible motivator. Tis government, graft is the worst possible motivator. There are endless ways for governments to intervene in due process and tax citizens, transferring wealth from citizens to government employees.
The third problem has no solution. There is no provision in US law for a state to declare bankruptcy. The federal nature of our government means that each state is sovereign unto itself. Without repealing the Tenth Amendment, there is no higher power that can impose its will on a state in bankruptcy. Past attempts at circumventing this have proven fraught with danger. In about 1800, the US State of Maryland issued debt that was purchased by foreign investors. Maryland subsequently attempted to repudiate the debt, which under international treaty was impossible. It then attempted to circumvent the entire situation by issuing its own fiat currency. That turned out to be unconstitutional, which California later discovered was an unfortunate precedent. In the end, the State of Maryland was cut out of the international bond markets for 150 years.
The final problem is the bond market. State and local governments regularly issue bonds, usually called municipal bonds. This is so that a new elementary school, or upgrades to a district water and sewer system, do not need to be paid for in a single year. To attract investors, bond-issuers must offer competitive rates. Loyalty to one’s state or city might motivate one to purchase a municipal bond, Otherwise, most people do not feel an obligation to give free money to strangers. As the Federal Reserve raises rates, which is now inevitable, it is the poorest jurisdictions with the most urgent needs that will inevitably be hurt the worst.
President Biden claims that everything wrong in the country is due to white supremacists. His war on poor communities, his war on the criminal justice system that puts criminals back on the streets with multiple outstanding felony warrants, his party’s support of “Defund the Police,” have all hurt communities of color far more than any other group. If he wants to find the nearest white supremacist, I suggest he look in a mirror.
You make complicated things understandable. Most of us swim in the murk.
Back to Kudlow making noises about supply side vs demand side. Inflation ends when supplies are adequate to meet demand. Free up 'excess' resources to invest in future gains via increased output. (Not invest in financial engineering, IMHO). Do not stimulate demand by printing money and dropping it from the air. The government has no way to invest in anything despite clever wording to hide spending. At best the government can fund things never likely to result in wealth, creation of goods or services. At best they compete with the consumer.
Restrictions on energy began ~ 3-4 years ago as ESG investment arose to reduce investment in fuel energy because long term, fossil has no future. It never does have a future according to history we run out of it every 30-40 years since Malthus has been warning us. So energy companies went green, reduced exploration, reduced placing capital at risk on less promising assets, divested some assets held for the future (hedging). We now see the result where energy supply reductions are now arriving and are not capable of meeting demand.
Fiscal policy can not do much about creating energy. You plebs must live with less and be happy.
And War helps destroy wealth by consuming resources, soaking up any excess and reducing real investment in wealth creation. We have become too big for our britches, too comfortable so let's try a bit of hardship (?). Sadly it's always the least of us who are hurt the worst. For the moment, raising all our boats worldwide has to stop as a few wish to raise their boats more.