The Recession Response

Everything is political. Sadly, this has spilled into economics. Data can often be looked at half full, or half empty. But, it’s hard to put lipstick on the pig that is the American economy.

The White House is desperately trying to paint a different picture. They lean exclusively on the job market. Yes, most everyone in America who wants a job right now, has, or can get one. That’s huge. It is what makes this recession different from most every other. But, wages, when adjusted for inflation, have not kept pace with the rising costs. Therefore, the majority of the American public is working to live. That’s a problem, and it’s reflected in the sour mood of most everyone when you look at polls asking if one believes America is moving in the right direction. Working a full week barely ensures you’ll have enough money to pay for your living expenses, gasoline, and food. There’s almost nothing left over for discretionary spending, and forget about savings. This is not a healthy economy. This is a communistic economy where the laborer has minimal rewards to reap from the seeds he sows.

The other problem with the current recession is that Americans just came out of another very unique one a mere two years ago. It fell as fast as it rose, and that conditioned Americans to think the pain can be short lived. That is almost never the case, and despite this recession being unique in nature, the growth is going to take a while. Recessions do not go away until the economy expands. And, the economy doesn’t expand until businesses can become more efficient, which will lower costs. The lowered costs allow consumers to have more money left at the end of each month, giving them the opportunity to increase savings and discretionary spending. Today, corporations have remarkably strong balance sheets. That’s why most companies are going to keep all their current employees on the books. But, demand is low, so most businesses will see declining profits for quite some time. That’ll drain their currently strong cash stockpiles, and prevent them from investing in new ways to increase efficiencies and capitalize on new innovative technologies. Because of this, the economic growth will stay low for quite some time.

The other factor that stymies growth is government regulation. The current administration is not reducing regulatory burdens on companies, nor are they harvesting a pro-growth atmosphere for business. There are grave amounts of uncertainty, and Congress, as well as the White House, is consistently increasing corporate costs by adding new regulatory hurdles on a day-to-day basis. This distraction further prevents a company from having the opportunity to seek out investments that will drive down future costs.

We have a Federal Trade Commission that is reluctant to permit mergers and acquisitions, most of which help drive down costs for consumers. The SEC is constantly adding new climate initiatives to most every sector in America due to the environmentalism directive coming from the White House. And, Congress just raised the minimum corporate tax rate to 15%. The White House touts the job market, but how can they expect a company like Amazon to pay higher taxes, while keeping prices low for consumers, and subsequently maintain their current slate of employees. The math doesn’t add up.

Another problem in today’s recession is inflation. The Federal Reserve has responded by drastically hiking interest rates. This is crushing the lowest earning consumers, as they are the folks who typically carry the most variable interest credit card debt. Their monthly bills are rising, while their wages cannot keep up with the prices of food and energy. It’s a vicious cycle. Inflation does not magically disappear because of a recession. Yes, the decreased spending from a recession helps reset some of the prices, but it does not take them back to pre-expansionary levels. This is referred to as the stickiness of prices. The stickiness goes away when new innovations are harnessed. As mentioned above, we’re a ways away from this coming to reality. Another drag on inflation is the unnecessary amount of government spending. This week, Congress has authorized their annual reconciliation budget deal. The deal includes upwards of $500 billion in new spending. Also, Congress passed a bill focused on boosting semiconductor production in the USA. The $72 billion in grants that’ll directly make its way to the companies shouldn’t hurt prices. However, the other $150 billion in government spending will make its way to the agencies and affect inflation. These are huge hurdles that will drastically dampen the effect of interest rate hikes and keep the prices elevated for some time.

Inflation is going to remain hot as it pertains to food and energy. The international policy of defending Ukraine at all cost, combined with a reluctance by the Ukrainian government, as well as the US, to seek peace, will further put pressure on food and oil prices. Sanctions against Russian oil are not going away. Europe’s need for energy is becoming more dire by the day, and there’s simply not enough energy in the US to offset the loss. The supply chain problems caused by the war have also slowed down the ability of wheat, fertilizer, and other commodities to make it to the market in a timely manner. While a decrease in demand will occur because of the onset of a global recession, the US dollar remains remarkably strong because of our rate hikes. Most commodities are priced in dollars, and the majority of countries have heavily diminished purchasing power because of that. A drop in commodity demand is hardly going to help when their currency can’t command as much as it once did.

The response to the recession is simple. The Fed needs to realize their rate hikes won’t print food and energy. Moving the rate much higher from here is doing more harm than good. Lower rates, or paused rates, will reduce the debt load on all consumers and businesses alike. It will also lower the rapid rise of the US dollar and slow down the global economic recession.

Congress and the White House have to reduce spending, especially climate based spending, to simply carry out their stubbornly rooted goals. Instead, both need to be working together to introduce programs that spur growth across multiple facets of our economy through tax cuts. Legislation that are creating angst amongst the companies and paralyzing their decision making need to be scrapped. This will give businesses the ability to forecast effectively.

The White House should advise the FTC to be less stringent and allow mergers & acquisitions. The Department of Transportation needs to do more when addressing issues within the supply chain, and the transportation sector in general. Right now, truckers are no longer allowed to be treated as independent contractors in California. This is a huge drag on shipments. The rail workers union is on the verge of striking, and the White House has yet to broker a deal. This is lowering the amount of cargo being transported via our vast rail network. The excess subsidies for electric vehicles is artificially keeping the prices high for gasoline powered vehicles. There are more lucrative benefits and profits by producing an EV, which recently led to Ford firing 8,000 employees to solely focus on EV production. The subsidies are backfiring, and should be stopped. Finally, the pilot shortage is rooted in a reactionary law Congress passed almost a decade ago that drastically raised the hours required before a pilot can fly. Something must be done here to increase the supply of pilots again.

They need to cease the climate initiatives carried out by the SEC. Energy should be harnessed, and the White House can support the this by making the process to drill on federal land more efficient. There are also large amounts of antiquated red tape that slows down the extraction and shipment of oil. These outdated laws can be emergency repealed. Allowing Keystone to come back into production would drastically reduce the cost of energy years out. Farmers should also be given a reprieve for the difficulties they’ve been incurring. They need help with their debt load due to the rising interest rates. They also need relief from the rapid rise in cost for diesel and fertilizer. Congress should authorize emergency subsides that farmers can receive to help drive down their costs and subsequently increase their future crop yields.

There is a lot that everyone in D.C. can do to help. It’s become increasingly strange that these helpful solutions are avoided like the plague. Also, there have been some precarious lines that have come out of the White House in recent weeks. They’ve been reluctant to admit this is a recession. They referred to the climate transition as a path to the ‘liberal world order.’ These things were Alex Jones peddled conspiracy theories years ago, but now they seem to be vindicated. It doesn’t make much sense as to why our president and his staffers are almost going out of their way to inflict economic pain of the American public. A transition to a cleaner planet is nice, but it takes time and money. And, doing it steadfastly as they are, is causing unnecessary harm across the economy. The administration would be wise to understand this is real-life. They’re not playing a game of the Sims or Sim City. Rational decisions need to come back into reality for the good of all of us.

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