The Long Run Is Here

By Kevin D. Williamson

Sunday, December 19, 2021

 

John Maynard Keynes, progressives’ favorite economist, famously observed: “In the long run, we are all dead.” Lord Keynes had the good sense to die in 1946, when the credibility of his policy thinking was at its height. The rest of us are left to meditate on a proverb dear to Milton Friedman, conservatives’ favorite economist: “There is no such thing as a free lunch.”

 

The future is now, and it is not entirely satisfactory. The long run kind of stinks.

 

Here is a guide for predicting the future: The future is going to look a lot like the present, and the few things that are radically different are going to be the things you were least expecting. Ridley Scott’s Blade Runner was made in 1982 and set in 2019. In that version of 2019, we had flying cars and space colonies and blond robot super-soldiers, but there were no smartphones, the computers all looked like one of those Mattel handheld-football games we all had back in the late 1970s, there were telephone booths, and everybody still smoked and kind of looked like they were characters from a Mickey Spillane novel. In real-world 2019, mostly only poor people and old people smoked, there were no phone booths, our self-driving cars were still kind of buggy, and social media — basically a telegram but faster and not private, which is somehow a world-changing technological innovation — had become the opiate of the masses, except for those masses whose opiate was still opiates.

 

Some things about our semi-dystopian present were predictable. The faster and farther people travel, the faster and farther the diseases we carry will travel. (The same is true for trees, which are not really supposed to travel much at all.) If a government continues to pile up debt at a rate that far outpaces the growth of the national economy, it is going to have a debt crisis. If you cripple law enforcement, you’re going to get more crime. If you devalue work and subsidize unemployment, it will be harder to get people to work, especially in low-status jobs.

 

There is no such thing as a free lunch. Somebody always pays.

 

One of the ideas most closely associated with Milton Friedman is the “quantity theory of money.” If that sounds like econo-gobbledygook, don’t worry. All the “quantity theory of money” really means is that the familiar law of supply and demand that applies to other goods and services also applies to money. (Of course there are complicating factors, if you really want to dig into them.) If the law of supply and demand applies to money itself, then you can make some reasonable predictions: If you increase the supply of money disproportionately to the growth of the economy, then the price of money — meaning the value of a dollar, in our case — goes down. If you decrease the supply of money substantially (for instance, by raising interest rates and thereby reducing the amount of credit available), the price of money goes up. You’d think everybody would like that, but, of course, there are winners and losers in every economic tradeoff: If the value of the dollar goes up, that makes U.S. exports less competitive in world markets, and it also reduces the dollar value of assets such as houses and investment instruments.

 

When house prices or Apple shares are going up, then the price of houses or Apple shares is increasing in terms of dollars. Another way of looking at that is that the price of a dollar is declining in terms of houses or Apple shares. That is one of the reasons why inflation hawks keep track of gold prices — not because they are looking to buy jewelry, but because of what the price of gold tells us about the value of a dollar. We have some historical experience with this, from modern-day Zimbabwe and Argentina to revolutionary-era France to 14th-century Africa, when King Musa I of Mali, probably the richest man in the world at the time, spent so lavishly and gave away so much gold on the way to Mecca that he caused a collapse in the price of gold (the nearly universal currency of the time) that lasted for more than a decade.

 

Increasing the supply of money — and, thereby, reducing the value of money — is what is meant by “inflation”: You inflate the money supply. That may result in a general rise in prices, which we currently are seeing, but it may also result in price increases that are concentrated in a few sectors. In the years before the Covid-19 crisis, we saw a fair amount of that latter phenomenon, sometimes known as “asset inflation.” Starting with the turn-of-the-century recession and 9/11, we have had a pretty loosey-goosey monetary policy, which got loosier-goosier during the 2008–09 financial crisis. For decades now, we have responded to every scraped knee in the economy with freehanded spending of cheap money. And for the most part, Americans — the ones who matter, anyway — loved it. They loved it because they owned a lot of assets, and so asset inflation drove up the values of their houses and their stock portfolios. The value of the stuff they owned rose more quickly than the price of the stuff they bought, so they were, in real terms, richer. The people who are mystified by the lack of “affordable housing” in much of the United States do not seem to understand that driving up the price of houses has been a bipartisan policy program for decades.

 

The Covid-related economic convulsions — the deep, sharp recession of the shutdown era and the lingering effects of supply-chain disruptions, which probably will last years — changed the game. After years of benign consumer-price inflation and rising asset prices, we started to see the kind of inflation that ends political careers: higher gas prices, higher food prices, higher utility prices. But that cheap-money part was always going to end and end badly, Covid or no Covid: Housing prices can’t rise faster than wages forever — eventually, those richer older people who have been enjoying the boom will be outnumbered by younger, poorer people who can’t afford a decent house. For years, we used cheap credit to camouflage the high prices of houses, cars, and education — Never mind the total tab, just tell me the monthly bill! — another one of those great ideas that works until it doesn’t.

 

Joe Biden and congressional Democrats are doing their best to make inflation worse by spending vast sums of money to reward key political supporters and to try to buy themselves some love before the midterms, currently looking like they will be a slaughter for their party. (The Republican polling advantage today is stronger than it has been in 40 years — Democrats should think about how much people must hate them to vote for the party of Marjorie Taylor Greene and Ivermectin junkies.) But the way you end inflation — the thing you end up doing once all the painless options have been tried and failed — is raising interest rates. You might remember that back in 2008, we raised interest rates a smidgen, which caused ridiculously inflated housing prices to come a little closer back to Earth — and sparked a worldwide economic emergency. Raising interest rates is going to play havoc on the cheap-credit model of selling houses, cars, and college educations, along with much else. And it could be very hard for the biggest debtor of all: the U.S. government, which already spends more than half a trillion dollars a year just on interest payments. We spent $522,767,299,265.34 on interest payments in 2020, with interest rates that were low by historical standards. If interest rates start to move back toward their historic average, that number could easily double or treble — or much worse.

 

This is the predictable stuff. Nobody saw Covid-19 coming (though I suppose there is a reason we’ve had all those zombie movies and zombie television series for so many years — a kind of folk intuition, perhaps), but, this stuff, we see it coming. You can dick around with different economic models and debate sticky prices and the velocity of money and all that stuff, but that’s just Wile E. Coyote out there in the Arizona desert insisting that the anvil that’s about to fall on his head weighs only 100 pounds instead of 200 pounds. Alexandria Ocasio-Cortez and Bernie Sanders may insist that there is no anvil, but sensible people can foresee that the big heavy 50c-Rockwell anvil-shaped hunk of steel with “Acme Anvil Corp.” engraved on the side and hurtling toward our delicate little American skulls is probably — wild guess! — an anvil.

 

The long run is here.