By Kevin D. Williamson
Tuesday, February 23, 2021
I hate most airlines, but ask me on any
given day which one I absolutely hate the most, and I will always give you the
same answer: The one I’m on today.
I feel the same way about FedEx vs. UPS:
They are both unreliable at times and maddeningly opaque, but the one I dislike
most intensely is the one that has disappointed me most recently.
(That’s you this week, UPS.)
That’s a variation of “present bias,” as
the behavioral economists call it. Present bias is your preference for getting
paid less today rather than getting paid more tomorrow — accepting a smaller
reward in the here and now rather than holding out for a larger one in the
future. It’s also what pushes us toward consumption over savings.
Present bias isn’t necessarily irrational:
As the famous economist Rooster Cogburn put it, “I don’t believe in fairy
tales, sermons, or stories about money.” Sometimes, tomorrow’s payday doesn’t
come, or it takes a lot longer to get here than you expected.
(Especially if it’s being sent by UPS.)
Just as we tend to add a modest multiplier
to benefits had in the present, freshly inflicted wounds are the most sensitive
— scars can, eventually, become a good story. And what is true of deep wounds
also is true of minor irritations.
To be clear, this is not going to be a
column about parcel services, and I don’t much fault UPS for this week’s
delays, although it could be a lot better about transparency and such. I can
live with three days late — it’s indefinite delays that rankle, or three-day
delays that become nine-day delays. My disposition is such that I’m willing to
be pretty flexible about things like delivery dates and other details, but,
once something has been agreed to, I expect people (and companies, and
governments) to stick to the agreement. If Instacart needs an extra three hours
to deliver my groceries and says so up front, then I’m the picture of
equanimity until T-plus 2:59, at which point I start to turn into the Tasmanian
Devil from the Bugs Bunny cartoons. I hate having my time wasted, not because I
am so busy but because wasting someone’s time is an expression of contempt for
them. And that is especially galling in relationships where my direction of
cashflow is outward.
(Like most people, I am a lot easier to
get along with if you are paying me than if I am paying you.)
While trying to figure out when UPS might
return to its more or less usual predictable mediocrity after the winter storm
in Texas (where UPS operates many facilities, including a regional air hub), I
inevitably fell into the rabbit hole of customer horror stories, a genre that
thrives on the Internet and one to which I have made too many enraged and petty
contributions of my own. The complaints offer a snapshot of the U.S. economy in
this waning winter of discontent: Blue-collar small-business owners complain
about being sidelined, their businesses effectively suspended because critical
parts and supplies have not been delivered to them on time, costing them
thousands of dollars in lost business; at the other end of the market,
customers of Louis Vuitton are reporting a high degree of frustration with
delayed deliveries, and one poor fellow who had paid good money to get a pair
of highly desirable new sneakers delivered to him pre-release won’t even have
his kicks on release day, much less beforehand. One sympathizes.
This is a weird time for our economy.
We’ve been through some truly terrible stuff, a long ugly chaotic run from the
subprime meltdown and the Great Recession to dysfunctional health-care markets,
a fruitless and destructive trade war with China that suplex-slammed many
American farmers, the COVID-19 mess that saw U.S. GDP plunging at a rate of 32
percent while unemployment spiked to 15 percent, and goodness only knows what
next.
And what came of all that? It was very
hard on those who already were unemployed or marginally employed, who had
little savings and little room for error, including something on the order of
12 million renting households who collectively owe back rent that may add up to
more than $70 billion, by one estimate. Moody’s Analytics calculates that the
typical distressed-renter household owes about $6,000 in back rent and fees, or
between three and four months’ rent. There isn’t any good outcome likely there:
Many of them will end up being evicted and put into even worse circumstances than
they already are, and many small landlords, who often have only modest incomes,
will be ruined by their renters’ defaults. There are good reasons not to
intervene there, but, for perspective, consider that the Democrats’ proposal to
forgive the student loans of nice young progressives who went to Haverford and
Oberlin could pay off those poor Americans’ back rent 22 times over. If you’re
into that sort of thing.
At the same time: The Dow closed at a
record high last week, car dealers and art dealers both are enjoying record
profits, commodities
prices from oil to soybeans to copper are soaring, and, as though some rank
symbolism were needed, the display cases of the nation’s Rolex boutiques are
stripped as bare as a San Antonio supermarket after a polar vortex. It is
difficult to think of another plague that has been accompanied by quite so much
high-end conspicuous consumption.
Some of it is bewildering. I recently went
car shopping, and, like any middle-aged Texan with reasonably good credit and a
rich fantasy life based on immoderate boyhood viewings of Red Dawn, I took a look at some wonderful customized trucks, mostly
from the Rocky Ridge gang. I had no real intention of buying any such thing
(the roads are paved where I live — badly paved, nonetheless paved) but I was
almost offended at the prices. Cool
fender flares or no, there’s no way I’m paying a hundred grand (in the
imaginary world in which I’m in the market for a $100,000 car) for a jacked-up
Ram pickup. But they don’t need to sell one to me: They can’t keep them on the
lot. High-end Jeeps, Toyota trucks, Range Rovers, Corvettes, the Mercedes
S-Class, and other rolling emblems of mid-American ostentation are going as
fast as they can unload them.
New-car prices are strong because of
production interruptions that have taken the slack out of the inventory, but
business is booming in everything from flower shops to bicycle builders to
guitar luthiers. Some luxury-goods sellers have been hit by the lack of
tourists visiting their boutiques on vacation, but even unwieldy global
conglomerates such as LVMH Moët Hennessy Louis Vuitton are holding up pretty
well — the firm just announced that it has acquired a 50-percent stake in
Jay-Z’s Armand de Brignac line of Champagne in a deal said to be worth hundreds
of millions of dollars. The wine shops are doing an astonishing trade in $750
bottles of Chateau Margaux, and if you want to buy a new Rolls-Royce or
Lamborghini, you’ll be lucky to take delivery sometime toward the end of 2022 —
and they’ll act like they’re doing you a favor. Even for a fun-loving
capitalist running dog such as myself, this looks like madness.
But even with all that bananas spending
going on, the savings rate is soaring.
Aren’t we supposed to be in some kind of
national crisis?
Some of the boom is being yanked out of
the pockets of the hospitality industry, as COVID-19 shutdowns have Americans
redirecting some of the money they would have spent at restaurants into other
purchases. Some of it is stimulus checks hitting the bank accounts of people
who don’t need the money. And some of it is — probably — inflation.
If you look around for inflation the way
most people think of it, you won’t see a lot of it. “Core” consumer prices, as
they are known, have been pretty flat, and what rise in prices that consumers
have seen has mostly been in oil. But, in spite of the way the term is used, inflation really should not be treated
as a synonym for a general rise in consumer prices. Inflation is an increase in
the money supply not linked to an increase in economic production — rising
prices are one possible consequence of inflation, but are not inflation itself.
For generations, the abuse of fiat
currency — “printing money,” as the goldbugs say — was accompanied by steep and
often disastrous spikes in the prices of everyday items such as bread and
shoes. If that is what you mean by inflation, then there is little sign of it
on the horizon, no matter what my fellow libertarians are forever promising.
But if what you mean by inflation is a big increase in the money supply, then
there is oodles of it: The M2 measure of the money supply has increased by
26 percent over the past year, as the Wall
Street Journal reports.
John Greenwood and Steve Hanke write:
Speculative
manias are in the air, as evidenced by the recent price surges for bitcoin, a
digital asset with a fundamental value of zero, and GameStop, a declining
retailer. Along with the other economic trends—a strong recovery, surging
commodity prices and an uptick in inflation—those asset bubbles have a clear
cause: the massive expansion of money and credit.
Yet
America’s fiscal and monetary masters are turning a blind eye. They are focused
solely on mending the labor market. With the fervor of messiahs, Federal
Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen tell us the
only way to save the labor market and reach full employment is to continue to
pour fiscal and monetary fuel on the fire. But their prescriptions and
prophecies, modeled on the playbook of the 2008 financial crisis, are not valid
today.
Why the “speculative manias”? With interest
rates having been at or near zero for a long time now, investors are
desperately looking for higher yields wherever they can find them, from exotic
assets to risky
investments in China, where Ant Group investors just received a brutal
reminder that political risk is both enormous and unpredictable in a one-party
police state. And it isn’t swashbuckling Gordon Gekko types running after big
returns on dodgy investments: The big movers and shakers here are the nation’s
schoolteachers, police officers, firefighters, and sundry municipal bureaucrats
whose pension funds comprise some of the biggest pools of investment capital on
earth.
Inflation, meaning the artificial
expansion of the money supply beyond what increase productivity demands, is
supposed to devalue currencies. Has that happened? The dollar remains pretty
strong vis-à-vis the items in the basket of goods that control CPI
calculations, and it remains pretty stable vs. the euro and the yen, having
declined only slightly against them in the past year, while it has gained just
a little on the Swiss franc. So the value of the dollar is pretty solid if you
are in the market for bread, gasoline, or foreign currencies. On the other
hand, the value of the dollar has declined significantly against certain financial
assets, commodities, certain luxury goods, etc. That is another way of looking
at the rise in prices in these sectors: If a wristwatch is worth more dollars,
then the value of the dollar has declined as measured by wristwatches. Not
everybody is in the market for a fancy timepiece, but most Americans — the vast
majority of them — live indoors, and the value of the dollar has declined quite
a bit in terms of houses. In 2020, the collective market value of the total
stock of housing in the United States increased by $2.5 trillion, driven not by
new construction but by rising valuations of existing housing. The nation’s
houses are a year older and have an additional year’s worth of wear and tear on
them — why should they be worth $2.5 trillion more? The population isn’t
growing fast enough to bump up demand such that prices would climb so
dramatically.
This is the Now Economy. To be clear, I am
not an economist and do not purport to explain this in technical terms. I am
not even necessarily arguing for tighter monetary policy — some very smart
people, including my colleague Ramesh Ponnuru, believe
that we would be better off if inflation were given a little more leash.
But the run-up in stocks and commodities, paralleled by the run-up in real
estate, luxury goods, Bitcoin, etc., has the feel and smell to it of cheap
money chasing a stagnant or declining pool of opportunities for investment and
consumption. Perhaps the stock market and the commodities indices reflect some
underlying economic prowess that is too subtle to be detected by the likes of
me. Or maybe it is, at least in some part, a series of bubbles created by
increasingly desperate efforts to stave off certain economic realities that
must one day be dealt with, from public debt to unfunded pensions to
entitlements to labor
productivity.
Globalization and ruthlessly efficient
markets may keep the prices of ordinary consumer goods from going all zany
Zimbabwean on us, and the specter of the stunned burgher pushing a wheelbarrow
full of rapidly depreciating paper currency down to the baker’s to exchange for
a single loaf of bread may be one of the many powerful historical images that
has outlived its practical usefulness.
But that doesn’t mean that all is well. It
could mean that market distortions are simply happening in silos — the change
is dramatic in each silo, and there are a lot of silos, but it does not have
the look and feel of a general condition because a box of Kraft dinner still
costs what it always costs. But when stocks are trading at price-to-earnings
ratios that are unusual and, let us say, optimistic, and Ferraris are selling like Honda Civics, it is hard not to get
an impression of frothiness. It’s not just GameStop and Bitcoin.
Maybe I am a pessimist or am temporarily
possessed by the ghosts of my beloved New England Puritans, but this feels just
a little like a game of musical chairs. Everything looks peachy right now, but
I wonder how soon we’ll be saying, “It seemed like a good idea at the time.”
In Closing
The death of Rush Limbaugh provoked
approximately the reaction I expected, i.e., one that made me ashamed to be a
member of this awful species of ours. But one struck me as particularly
egregious: that of Bishop Talbert Swan of the Church of God in Christ, who opined
of Limbaugh: “Wishing him to rot in hell is being kind.” I think you can write
and think that way and call yourself a barely literate columnist for the Arizona Republic or a histrionic peon on
Twitter, but I do not think that you can maintain that attitude and call
yourself a minister of Jesus Christ.
Bishop Swan would not be the first to let
the purple go to his head: “He spake this parable unto certain which trusted in
themselves that they were righteous, and despised others. . . .”
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