Inflation is under control… depending on how you define inflation. Those macro-numbers, like Gross Domestic Product or the rising stock market may have substance for macro-economists, but they lie through their biased teeth for most of us. Here’s a simple example I use frequently: assume a group of ten people, nine of whom earn $50,000/year and one who earns $1 million/year. Their average per capita income is $145,000. That’s how GDP numbers skew, weighted for the largest economic segments, so a couple of major industrial successes in an otherwise mediocre economy can elevate the entire metric into the stratosphere. To be fair to “just plain folks,” you have to break the analysis into the economic world in which they live.
High interest rates, for example, benefit those who earn interest (or can borrow to buy higher-yield assets) or are able to pass on their interest costs to others (hence retailers and manufacturers). For those not falling into those categories, all they see is higher costs where wages just have not quite kept up… or lag well behind the cost increases… or where past losses (e.g., those generated during the pandemic, a labor dispute or upon the collapse of a major sector of the economy), still have not been paid for. If you own a house and have for a while, if you still have a mortgage generated before the interest rates skyrocketed, housing unaffordability works in your favor. If you have a college degree and paid for it a long time ago, and you aren’t currently supporting your kids in school, student loans are pretty abstract… and you might not want governmental loan forgiveness, because that comes out of the tax dollars you pay.
If you own your home, that rents have increased across the land by 30% or ain’t your problem. So, this news that we’ve got inflation under control is great for macro-economists and that segment of the economy that benefits – and yes, that augurs well for a Federal Reserve set of rate cuts… in the future – but for just plain folks and those entering the work force… it just does not reflect their day-to-day reality. Lots of retirees are slammed too. As costs go, up, where profits track a percentage of costs, well… yeah.. big companies make out like bandits. As Tom Perkins writes for the July 26th The Guardian UK:
“As inflation shot to its peak around mid-2022, Chipotle’s prices also rose, pushing up what customers paid for burritos and bowls by as much as several dollars. Since then, the fast casual restaurant’s costs have broadly fallen. Prices have not.
“Chipotle’s decision to maintain high prices helped boost profits 110% in recent years, while its executives boasted to investors that they raised prices higher than inflationary costs… Chipotle’s sparkling financials are representative of much of the food industry, according to a Guardian analysis of financial documents and earning calls transcripts from 36 top US food corporations… It reveals that while you may be feeling the pain from high prices at restaurants and supermarkets, many companies making and selling the products are doing remarkably well. Most have seen their profits jump as they continue raising prices on customers, the analysis found.
“Some companies say they have no choice but to pass inflationary pain on to consumers. Others, however, acknowledge they are exploiting the inflationary atmosphere to raise prices, or to shrink product sizes [at the same price], a strategy dubbed ‘shrinkflation’… Meanwhile, companies spent billions rewarding investors with stock buybacks that drive up stock value… Menu and grocery store prices may remain elevated. In earnings calls, executives detail plans to maintain high prices even as some costs are falling… ‘Food prices are sticky – they either don’t come down, or they’ll come down just a little bit,’ said Angela Huffman, president of the consumer advocacy non-profit Farm Action. ‘Companies are setting a new normal.’
“The companies’ net profits are up by a median of 51% since just prior to the pandemic, and in one case as much as 950%... In the last two years specifically, since inflation peaked and started slowing, restaurants have generally recorded the highest profit increases among food companies – a median of 72%... The average American worker has not fared as well: wages are only up 5% since inflation’s peak. For the lowest earners, food price increases during the last two years are outpacing wage gains by over 340%... This is fueling deep economic discontent that may help decide the nation’s political future in November.
“Corporate executives often make no secret of their ambitions… Kroger’s CEO told investors in June 2022, ‘a little bit of inflation is always good for our business’, while Hostess’s CEO said rising prices across the economy ‘helps’ it profit because they can raise prices to levels that exceed their increased costs.” The MAGA Republicans blame all this on the Biden/Harris administration. Some of the price increases are driven by interest rates over which the president has no control. Likewise, global pricing is a product of supply and demand, which in turn is impacted by everything from flood-storm-fire damaged agricultural land, shipping costs, escalating insurance costs, major conflicts and unbridled corporate greed. Not exactly under presidential control..
So what does the Trump campaign say they will do to help the economy? Cut taxes for the rich? That has never worked to improve the lot of average Americans. Let “tips” go untaxed? That would unleash a firestorm from workers in the same general wage bracket who won’t get the benefit. I suspect that exemption will never happen. How about imposing new duties on virtually all imports, from 10% to 100%? If you think manufacturers and retailers will absorb all that, as Trump is trying to sell, there’s bridge you might want to buy in Brooklyn.
The MAGA force also pledges to deport millions, make that even tens of millions, of perceived undocumented immigrants who are already here. By voting against an immigration reform bill supported by Republicans in Congress – because Trump want to keep the border crisis going as a major campaign issue… which seems to have worked – all those deported workers at the bottom of the economic ladder would be replaced either by increased (expensive) robotic automation or vastly more expensive US citizens. Gee, that should work well to lower prices, huh?
You can see the damage as consumer credit card debt is soaring, now generally between 25-29% APR… for average Americans just to keep up. “The costs to borrow for a home, a car or on a credit card are at the highest levels in decades, after the Fed raised rates nearly a dozen times in the past two years. The total amount of interest consumers paid on mortgages in 2023 rose 14% from a year earlier, according to Bureau of Economic Analysis data. It jumped 50% for other types of consumer debt, such as credit cards and auto loans.” Wall Street Journal, July 21st. Consumers are waking up to all these price hikes, with concomitant increases in corporate profits. MAGA isn’t, but lots of voters are buying Trump’s rather abstract pledge to “reduce prices”… even those most of such policies would very much have the opposite effect. This cannot end well.
I’m Peter Dekom, and there are millions of voters, angry at change and feeling abandoned, who are willing to vote against their own self-interest to elect a president who seems as angry as they are… but just might be laughing all the way to the bank with all his cronies.
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