Mark my words: Inflation is coming

Mark Levin recently debated Arthur Laffer, the well-known supply side economist, as to whether inflation would be an outcome of the shutdown of the American economy. Laffer didn’t think so; Levin predicted it would be a problem and he’s right. The reasons are simple to understand. In economics, price is a function of supply and demand. Gold is rare; people want it; the price is high.

Why will the American economy suffer from inflation? The answer is simple. Conditions resulting in a supply problem for many products and services are already evident.

* Meat producers are having to destroy both mature and young cattle and pigs because shutting down restaurants and institutional purchasers has depressed demand. The impact will result in higher meat prices when restaurants reopen, as it will take months before producers are able to gear up. Some farmers may go out of business as a result of the lack of a market for their livestock. That too will affect supply.

* Farmers are having to let produce go unharvested due to decreased demand, but more important in the future is likely to be a lack of labor––a function of several factors that will remain in place even after the virus restrictions are lifted. Prices of products from other countries will also go up as they will be battling the same problems we’ll be facing.

* Restaurants are being asked to reduce seating when they reopen. That will result in higher prices as food prices will be higher and restaurants will need to earn more per customer to cover expenses.

* Products sourced from China are very likely to cost more for a variety of reasons including the fact that Chinese factories will need to make up for lost sales during the pandemic.

* The U.S. is looking to move production of medical equipment and pharmaceuticals out of China back to their home countries to prevent a reoccurrence of supply problems that arose at the beginning stages of the crisis. Given the cost of labor is higher in the U.S., products for everything from hand sanitizers to ventilators to pharmaceuticals will be higher than in the past.

* All other products produced overseas, such as clothing, will be higher as a result of the impact on suppliers––some will have been bankrupt, while others will need to raise prices to catch up.

* Labor prices in the U.S. will be higher in many industries as people will be trying to catch up for lost income.

* Governments may have to raise taxes and fees to avoid reducing services.

Higher prices in some cases will be temporary, but high prices has an affect like a tidal wave. When the price of labor, products and services increase, the user of those products must also raise prices. I don’t know what percentage of manufacturing equipment is made in China or other low-wage countries, but if hammers, lithium-ion batteries and robots cost more, those costs will have to be passed along to consumers.

Complicating this is the fact that consumers impacted by the shutdown will have less money to spend. Having lower sales, sellers must raise prices to achieve the income they need to stay in business.

Get ready, folks. Inflation is on its way. Sorry, Mr. Laffer. Your curve won’t solve this problem.

 

Letter to the (Albany) Times Union re: the Paris Accord

The following letter appeared (slightly edited) in the Albany Times Union Thursday, June 15.

The Times Union ignores reality in its response to President Trump’s withdrawal of the U.S. from the Paris Climate Accord (“Mr. Trump Defies Reality,” 6/2/2017).

Instead of accepting the president’s rationale as stated in his press conference, the TU makes up its own motive: climate denial. Instead of trying to refute the president’s arguments that the Paris Accord would be harmful to the American economy costing us tens of thousands of jobs and increasing energy costs to the average householder by thousands of dollars annually, the TU is worried that our withdrawal will hurt our image and “good name,” lead scientists to leave the country, and harm our economic competitiveness.

The TU ignores the reality that the U.S. is the world leader in environmental stewardship and that our businesses are committed to the best practices to reduce pollution and conserve energy and resources.

The President’s withdrawing from Paris was not accompanied by a plan to change any of that. To the contrary. What led Mr. Trump to withdraw was that Paris would be bad for the U.S. Not only does it fail to accomplish the goal of reducing green-house gases significantly but it allows polluters like China and India to keep polluting while forcing the U.S. to pay.

Like NATO, where the member nations assume the U.S.––like Daddy Warbucks––is ready to finance their every request, Paris was written on the assumption that the U.S. needs to be punished for being the world’s most prosperous and powerful nation. The reality is it’s time for the rest of the world to step up to the plate and show us their commitment to the environment. We’re already doing our share.

Two Must Reads to Understand International Politics in a Trump Presidency

People spending their limited energy trying to reverse the election results or demonize Donald Trump in hopes he will fail and be impeached are missing a huge opportunity to understand what lies ahead of the U.S. on the world stage.

Two brilliant articles provide insightful analysis of the implications of Trump’s victory for those with the ability to remain dispassionate and advance their personal comprehension of where things stand internationally and what needs to be done.

Start with Ruthie Blum’s “Why Abbas does not emulate Sadat,” which can be found at http://www.israelhayom.com/site/newsletter_opinion.php?id=17707&r=1.

The title doesn’t do justice to the column which reviews past peace negotiations and explains why any hope that the leader of the “Palestinians” will negotiate a peace deal with Israel is a pipe dream.

Next read the lengthy, but brilliant analysis of the current world order based on Henry Kissinger’s recent book (World Order, 2014) and his own reading of U.S. history by Niall Ferguson, entitled “Donald Trump’s New World Order,” which can be found here: http://www.the-american-interest.com/2016/11/21/donald-trumps-new-world-order/.

Ferguson lays out a potential path for Donald Trump’s administration to re-balance the world order reversing the disastrous policies of Barack Obama and taking a Teddy Roosevelt-like approach, based on existing realities and actual power alignments rather than wishful interpretations.

 

You don’t have to agree with every point made by Blum or Ferguson to come away with a greater understanding of where things stand in the world and the positions a Trump administration might take to bring restore America’s role as the number one superpower on the world stage.