MWI Weekly 10.07.2022

"Calculator" by Jorge Franganillo is licensed under CC BY 2.0.

This week: Economics. Lots and lots of economics. Plus, why you hate your job.

For most people, probably the most important single thing currently on their minds is the state of the economy. And for good reason. Our lives literally depend on economic conditions, especially the availability of products and the prices we pay for them.

Which makes inflation the primary concern in most households. And that's where things start to get tricky for policy makers. As we've exited the pandemic, we've been faced with not one, but two kinds of inflation at the same time.

On the one hand, we have demand-pull inflation -- the kind we're most used to talking about, where aggregate demand causes prices to rise. As we learned at school, when too many dollars are chasing too few goods inflation is the result.

But thanks to all the Covid-related disruptions to trade, manufacturing and production, including of key commodities, we've simultaneously had to confront cost-push inflation: The tangles in the supply chains have caused the steady stream of commerce to become erratic, causing shortages which aggravate swings in the underlying economic data and fuel inflation even further.

At the same time, as always, we need jobs and all the opportunities they provide. But a strong labor market can also drive inflation through the wage/price spiral economists find so concerning. And the latest job report indicates the labor market is still very strong, despite all the efforts of the Fed to put the brakes on.

All of which adds up to -- well, it's a mess. The good news is, we can and will work it out over time. The bad news is no one can be really sure exactly how long the time period will be. As it stands now, the consensus view is for a recession to take hold (if it hasn't already) sometime between now and the middle of next year.

How deep the recession will be is a matter of speculation as much as projection. Many in the know, including the CEOs of American corporations, believe it's going to be a pretty nasty one. At the very least, hopes for a soft landing as the Fed tries to tame inflation through rate hikes have largely faded. And with our national debt at historic levels, rising rates are going to be, to put it mildly, a serious problem even if they are effective.

For our part, we believe the root cause of our problems to be decades of poor economic policy. To begin with, Whigs believe in fiscal prudence, by which we mean, at least at first, government revenues and expenditures should match as closely as possible; deficit spending is a tool best used in times of emergency or to fund initiatives which promise a greater return, not as a standard funding mechanism in the course of regular business.

We also believe government's primary role, at least at the federal level, is to create solid and sustainable macroeconomic conditions and let American capitalism do the rest. Where government does get directly involved, it should be through the use of public/private partnerships to develop and support key domestic and strategic industries.

In a way, our economics is closely related to Rhine capitalism which, like our own view, is a descendant of ordoliberal thought. Had we been pursuing a distinctly American variant (we hesitate to call it Potomac capitalism, for obvious reasons) all along, with a robust industrial policy as a central component, we likely wouldn't find ourselves in the fix we're in now, or at least not so challenging a situation.

We also need to understand how unique our country's economic position actually is as compared to the rest of the world. We are, in fact, the one country on Earth which could, if necessary, be completely self-sufficient. There are very good reasons for us to not go that route and to engage, enthusiastically, in international trade, not least of which is to enhance our own prosperity.

But we could do it if we had to. And that gives us a unique advantage. In the near term, thanks to the current situation, we can't make the most of it -- not yet. Going forward, we should. As we've said before, tackling the climate crisis alone offers a tremendous opportunity, but there are other areas where our technological prowess, economic power and secret weapon -- our natural and inherent ability as first-class administrators -- can be brought to bear.

Which brings us to a silver lining.

Good Ol' American Know How

In the wake of Hurricane Ian's devastation of the Florida coast, stories are emerging of resourcefulness, resilience and innovation. One in particular caught our eye, about a place just inland from the destruction called Babcock Ranch. It's worth a full read:

A Florida community built to weather hurricanes endured Ian barely scratched : NPR

In many ways, Babcock Ranch serves as an example of what Whig economics is intended to produce, how it means to produce it, and why. A for-profit real estate developer entrepreneurially created a subdivision based on the best technology available. The infrastructure was purposefully designed to offer its residents the best protection from the local environmental risks. The housing itself can only be considered affordable, and the people who live there have, rather quickly, developed a sense of community which they've been able to extend to their stricken neighbors in a time of desperate need.

It's the kind of winning combination of American traits historian Daniel J. Boorstin wrote about extensively throughout his career. And it points up something we may have lost sight of in our current climate of poltical conflict and finger-pointing: we, as a people, really do prefer to focus on the pragmatic and the practical. As member Daniel Nardini points out in one of his latest posts to our Members Blog, when just living our lives, we do fine together. It's only when the subject of politics comes up when we find our divisions.

We ought to keep that in mind.

Meanwhile

Of course, those divisions have always been there. It's actually one of our strengths, when contained within the boundaries of civility and patriotism. The push and pull of two competing general ideologies has made for a swinging pendulum which keeps us from going too far in either direction. (Our own Whig ideology is, in a sense, the point where the pendulum crosses on its way to either side.)

What is curious is the way in which both sides believe they're losing -- although, to be fair, lately one side seems to feel they've always losing, just to different degrees, while the other side is just fine if they're on top and not very happy at all when they're not. Pew Research captured the phenomenon:

Americans increasingly say their side is mostly losing in politics | Pew Research Center

Taken at face value, it looks like a losing proposition all around. Yet, even when there is disagreement about policy, once a decision is taken and things are moving, our native pragmatism takes over and we seem to be able to make the most of it.

A good example is the Chips Act, which passed with at least a modicum of bipartisan support. Whatever criticisms may have been made in the debates leading up to its passage (some of which were valid), and complaints about it afterward (some of which were nothing if not hypocritical), and leaving any political grandstanding aside, it's already having the desired effect:

Micron Plans to Invest Up to $100 Billion in NY Chip Factory (MU) - Bloomberg

As an example of what a dedicated industrial policy can accomplish, it's a good start. There's much more to come, we hope. When the public and private sectors are rowing together in the same direction, we're unstoppable as a country. We've proved it in the past, whether in conflict as we won World War II or in competition in the Space Race.

The key is to ignore the noise, at least as much as we can, and stay focused on what really matters. And to stick together. We don't have to agree on everything. We just have to remember our shared values and the commitment to each other, and ourselves, which they reflect.

Odds and Ends

To many on the left, the climate crisis is a direct and unavoidable result of the capitalist system. For those farther out on the spectrum, the obvious solution is to reverse the Industrial Revolution and return to (we guess) a more bucolic way of life. They call it degrowth -- the creation of a new social and economic system which puts the emphasis on ecology and social justice (a fraught term if there ever was one).

While we ourselves believe economic growth in and of itself isn't the only economic concern -- economic development leading to broad-based prosperity and the highest sustainable standard of living should be the goal -- it's hard to see how going backwards as the road to progress. Some take it even further:

More people mean more innovation, not just more consumption | The Economist

If we were inclined to place a bet ourselves, it would be on human innovation every time.

Another voice on the left, Vinny Byju, had something to say about work, productivity and satisfaction which we think is worth considering. While we can't wholeheartedly endorse his view (as we've said, Americans are great administrators, which requires someone to be doing the administrating) we certainly hope the pandemic has taught us what, and who, an essential worker really is:

Why You Hate Your Job ❧ Current Affairs

There's also something to be said about the cost and value of an elite education, especially as the subject of student loans has so recently come into focus. While the fact of rising tuitions is impossible to ignore, it's only part of the story. Here's another angle we can all expect to get some attention going forward:

Princeton isn't free — but it's endowment is so large that it could be (axios.com)

Finally, the Poynter Institute recently celebrated the 15th anniversary of the founding of their fact-checking operation, Politifact. As the wise have always noted, there's a difference between facts and the truth. But discovering the latter is impossible if you have no grasp of the former:

Facts come to the rescue in the age of gaslighting : NPR

And with that, I wish you a safe and fun weekend. As always, it's a pleasure to be at your service. See you next week.

Kevin J. Rogers is the executive director of the Modern Whig Institute. He can be reached at director@modernwhig.org. ___________________________________________________________

The Modern Whig Institute is a 501(c)(3) civic research and education foundation dedicated to the fundamental American principles of representative government, ordered liberty, capitalism, due process and the rule of law.