19 thoughts on “Inflation…or Deflation? The Debate”

  1. I read John Mauldin regularly — not because he is particularly insightful, but because he is a good thermometer about insider thinking in the financial world. The fact that Mauldin (the very definition of a squishy RINO) is writing about inflation/deflation tells us that the financial community is beginning to recognize that there will be consequences from destroying the US economy’s productive manufacturing, running perpetual FedGov deficits, and papering over the problems with printed money. Like the rest of us, Mauldin’s peers are just not sure what those consequences are going to be.

    The big issue the financial insiders ignore with their backwards-looks at past episodes of monetary insanity is that — the world has changed! All the old guidelines about financial performance came from a time when most countries’ economies had a substantial degree of self-sufficiency. They made their own shoes, built their own automobiles. The Ivy League crowd have taken the US to a new position — a Cargo Cult economy which is heavily dependent on imports from other countries, many of which would be happy to see the US fail (eg the English, the Germans, and of course the Chinese Communist Party).

    Past performance in this case may not be a useful guide to the future, especially when the CCP decides to stop trading real goods for rapidly-depreciating freshly-printed FedGov dollars. That is the key issue which Mauldin’s correspondents cannot allow themselves to consider.

  2. I expect a period of stagflation, the same combination of slow growth and inflation that bedeviled the 1970s. It is possible that, if sanity returns and the GOP takes the House next year, and especially if the Senate is also taken, either by the election audits in GA and AZ, or by the election results, we could see a beneficial period with the left neutralized and then the risk would be war, not economic collapse. Hopefully, the Chinese and Russians would not be tempted by our emasculated military too much. I wish I could be optimistic.

  3. I wonder if anyone’s ever taken a chart of white noise (completely uncorrelated random numbers) and labeled it as something like CPI (consumer price index) and shown it to economists to see just how many interpretations and predictions they got.

    Something I haven’t seen is consideration that some large part of the covid labor dislocation may be permanent. If I’d been working for tips or flipping burgers under the best managers 30 cents extra an hour could buy, $15 an hour mindlessly stuffing small boxes into bigger boxes for Amazon might be attractive.

    One of the drivers of unemployment during the Depression was the mechanization of agriculture. Just the fodder production was the equivalent of increasing production by a third. Then, consider the fact that implements, formerly limited to 1-2 horse power could be designed for as many as 20 or more, all controlled by a single person that no longer had to spend hours per day taking care of the horses.

    How many businesses besides McDonald’s are going to be paying more for an even lower decile of the labor pool than before? All those robots just got a lot more attractive as well. The people that lose those jobs aren’t going to get new ones fixing the robots.

    My personal bet is on inflation. We saw how the housing bubble that could have been deflated by allowing prices to come back to earth was “fixed” by printing enough money to pump it back up to even greater heights, I have no doubt that any deflation will be fixed the same way until it all comes crashing down. I’d be all set if I could figure out how to corner the market in zeros.

  4. From the Deflation article: “The number of available workers should grow considerably in the next few months as vaccinations make jobs safer, schools reopen, and enhanced unemployment benefits expire (which is already happening in many states). That should, at the very least, cap aggregate wage pressure without even counting the many ways businesses have become more efficient and automated. Certain industries like restaurants and hotels are indeed seeing wage pressure, but Dave thinks it isn’t enough to affect the broader picture.”

    “Number of available workers” really needs to be viewed in conjunction with the skills, attitudes, and incentives of those available workers. There are many people whose potential for literacy and numeracy has been crippled by our ‘public school’ system, and if you need to hire a lot of people with these skills, then the ‘availability’ of such workers is purely theoretical. Also, there are a nontrivial number of people who have developed such negative and even hostile attitudes as to disqualify them for many jobs.

    These factors don’t tend to be considered in estimates of the total potential capacity of the economy.

  5. I see zero reason to believe any so-called “experts” have any clue at all about the economy and what it’s going to do over the next few years. I do think any talk about a vigorous recovery is totally delusional. I live in rural NY and every business that still exists has Help Wanted signs up with no indication they’re ever coming down. My guess is NY’s continued harsh covid regulations has caused most of those who are capable of and interested in working to leave, at an even faster rate than they’ve been doing the past few decades.

  6. I suspect the recovery, such as it is, will continue in red states and lag in blue states. The mechanization of menial jobs like wait staff depends on the ability of the owners of businesses with low margins to mechanize. McDonalds is one thing. Local restaurants are another.

  7. If the shift to home delivery continues, that changes the whole dynamic of restaurants below the upper tiers. Who eats in a McDonald’s for the atmosphere? There doesn’t need to be a McDonald’s and a Wendy’s, etc. every mile, on expensive, high visibility, real estate to snag a share of passing traffic. Just kitchens sited to allow reasonable delivery times. The workforce will be different and the economies favoring automation more pronounced. The delivery driver might be the only human to touch the food until drones take over that too.

    How many store clerks will we need when you can get anything you want delivered in hours? How much of consumer demand is driven by just picking up something that appeals while shopping for something else? What happens when all you see is what you say you want?

  8. [I] There doesn’t need to be a McDonald’s and a Wendy’s, etc. every mile, on expensive, high visibility, real estate to snag a share of passing traffic. Just kitchens sited to allow reasonable delivery times.[\i]

    Electric cars will affect that whole segment in chaotic ways. Less “drive by” marketing or selling. But more expensive delivery. Small vehicles with less cargo or passenger capacity – fewer sales per trip. Charging stations co-located at eat-in diners to feed faces during the hour it takes to charge the car so trend toward better food instead of grab and go fast food. Smart AI assistive driver s may allow more booze sales.

    Disruptive

  9. re: listening to experts, Tyler Cowen is a very popular economist. Writes lots of book, very prominent on twitter, etc. And he writes this today:
    https://marginalrevolution.com/marginalrevolution/2021/05/why-the-lab-leak-theory-matters.html
    “A number of you have asked me what I think of the lab leak hypothesis. A few months ago I placed the chance of it at 20-30%, as a number of private correspondents can attest. Currently I am up to 50-60%.”
    In other words, he is either a moron, or he is so captured by conventional wisdom as to be incapable of rational thought. And that’s the situation we are in today–ruled by an “elite” who cares about its place in “elite” society, rather than anything actually going on in the real world.

    “Who eats in a McDonald’s for the atmosphere? ”
    Paging Chris Arnade…

    re: food delivery, InstaCart shoppers became fairly ubiquitous in my small town grocery store for most of the last year, but they are completely gone now. I think that sort of thing, along with self-driving cars, is something with almost zero appeal for anyone except for a small sliver of very online urban people…

  10. “e: food delivery, InstaCart shoppers became fairly ubiquitous in my small town grocery store for most of the last year, but they are completely gone now.”

    Is that because people have stopped ordering for home delivery?…or because they are ordering from stores that provide their own delivery service (such as the Giant service which was previously called Peapod) rather than using an overlay service provided by a different company?

  11. What has happened is a absolute crap ton of money printing by the fed. This has made the dollar worth less, and that is percolateing through the world systems, with somewhat predictable results.

  12. David: My town has 10k people. You can’t get UberEats or anything like that, and there are only a few restaurants anyway. I’m pretty sure that people are basically back to doing their own shopping. Just in the last several days I’ve seen masks go from almost universal to a distinct minority.

  13. Re:rent relief. Perhaps, like me, you wondered how all the piled up unpaid rents would be discharged. Here’s how:
    Rental assistance Available for XXXX County Renters (Headline)
    “XXXX County received a $53 million grant from the U.S. Treasury to assist residents with unpaid rent and utilities. The funds were made available by the recently passed CARES Act and are part of the COVID-19 Emergency Rental Assistance Program (ERAP). Residents financially impacted by COVID-19 can use (sic) apply for funds to help with rental and other assistance.
    This program will pay 100% of rental and utility assistance for up to 12 months for qualifying households. Payments will be made directly to landlords and utilities plus an additional three months if funds are available and it’s determined the extra months are needed to ensure housing stability…The program will not provide funds to residents already receiving federally funded rental assistance provided for the same time period.”

    There follows a list of eligibility that concludes “has a household income at or below 80% of the area median”. Here this is about $80,000 per year… Hopefully unpaid landlords are keeping up with this and urging their tenants to apply. This is a high rent county and that money won’t go far and will probably be provided by the customers of the County’s public assistance at the urging of their social workers.
    So — Inflationary or not? Bets on the probability of there being cries for additional cash when the money runs out before all the grifters get their share.

  14. I’m with Gavin Longmuir.

    It’s amusing to read these so-called experts argue we can’t have inflation because of charts describing the last century, while of course ignoring recent political events.

    But it’s worse, because I agree with John Williams of Shadowstats.com that the government has been falsifying the real inflation numbers for decades to cover up how bad they actual are. Thus, when certain folks argue we can’t have inflation because reasons they don’t even manage to be wrong, because they’ve completely missed the inflation we’ve already had that doesn’t show up in their fanciful charts.

    Hence, I think that actual wages for many jobs that still exist in the US have dropped so low that Americans just won’t do them given the alternative of living in their parents basement or welfare. Our so-called elite has wallpapered this over by importing H1-B serfs and myriad other foreigners to work here.

    So far, this has resulted such events as the election of the complete outsider of Donald Trump in 2016, the massive fraud required to steal the election from him in 2020, the $15 dollar minimum wage movement, bleating for a so-called basic universal income, etc.

    All in all, not good omens for the future of the US.

  15. I read both articles, both seem to be full of a bit of wishful thinking.

    SWAG:

    – Back to the Future, or at least Obama Rates of Growth at Best.
    – Minimum Wage increases to $15 are going to push automation in service jobs.
    – We are going back to being an oil importer, as we get Solyndra 2.0 and implement a Green Deal.
    – Less Wait staff, as more restaurants go to a model like Panerea Bread.
    – The economics of meal delivery are being subsidized. When the real costs hit, I question. Plus there is a huge push to make the drivers into employees. Basically destroy the Gig Model.
    – Someday soon, other people’s money is going to run out. The US has been the reserve currency of the world, but China and Russia will be happen for this to stop. Probably devaluation of the US Dollar.
    – Huge economic restructuring in commercial real estate, as it’s cheaper to have employees work from home.
    – Crime and Homeless is destroying the economics of larger blue cities. People will flee into other areas, and with the increase in telecommuting, that can even be out of state. Tourism will take a huge hit in these areas.
    – Blue states will see an even bigger decrease in their population.
    – Illegal Immigration is going to hurt the low end job market even more.
    – Huge automation will happen in agriculture. Part of this is the fall out of Covid, but also getting employees. With higher employment costs, the ROI makes more and more sense.
    – The chip shortage will be over in a year.
    – More businesses will flee blue states.
    – Interest Rates will stay low, until there is enough inflation, for the US Government with it’s HUGE DEBT can’t afford lower interest rates.

  16. More SWAG:

    – Lots of students will stay outside of traditional schooling. Parents have been forced to discover alternatives to traditional schools, due to the actions of the teachers union. Home schooling doubled in size in the pandemic, from around 3.2 million to 6.4 million. Out of a population of 51 million in public schools, and 6 million in private. My guess is this will happen more in the middle class, where they can work from home. Especially as they have found out more about the state what public schooling is actually teaching. This will impact public school funding. The teachers union is already trying an end run around alternatives by banning charter schools and other competitors, in some areas.

    – Loss of credibility and students by the 2nd tier and lower schools. It’s going to hard to continue charging $60K a year for being brainwashed, if you are not seen as producing value.

    – Loss of credibility / prestige by elite schools by foreign students. My guess is these full paying students will decrease, and not see their pre pandemic numbers. And the more Woke the schools become with their public utterances, the more their prestige will decline. Think Evergreen College, but at a higher level.

    – Gas Prices will reach $5, or may be even $6 a gallon in California.

    – The Fed will do it’s best to keep the economy going strong through the mid terms.

    What I am not sure of is the best strategy, if you have assets such as rent producing property. My guess is refinance with a fixed interest. I am not sure about if you should pull out money.

    With low interest rates, the ROI on buying new properties does not make sense. The cash flow is break even at best. Properties are over valued. And they are being bought by those desperate for a safe haven for those that see economic uncertainty, including inflation. And it seems housing is being bought to be turned into rentals. This time people are putting down more equity and getting fixed rates.

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