Happy Days are here again

For some of us, in some places, in some industries

By Morf Morford

Tacoma Daily Index

By objective measures, in some areas and industries, the economy is booming far beyond expectations, while in other areas, to put it mildly, not so much.

One of the ironies of our current economy is that, again, by usual measures like employment, home sales and interest rates, our economy could not be better.

But few, if any of us feel much confidence in where the economy is – or where it’s going.

In other words, by those criteria that will be recorded (sales numbers, profits and acquisitions and much more) the economy, for those looking back on it, will probably look great, while for those of us living it, and lucky enough to remember it, the economy of 2021 will, for far too many of us, seem like a time of unending dread and uncertainty.

Economic textbooks give us all kinds of terms like inflation or deflation, but living in an economy gives us nuanced, if not contradictory, terms like stagflation (where nothing seems capable of growth or change) or, what most financial consultants use to describe our current economy – reflation; stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically the price level) back up to the long-term trend, following a dip in the business cycle.

It is the opposite of disinflation, which seeks to return the economy back down to the long-term trend.

Opposite of disinflation

I can’t say that I understand what the “opposite of disinflation” might, in daily reality mean.

Here are a few takeaways from the economy of 2020-21 (and maybe a year or two beyond).

Covid-19 has caused a horrible amount of death, illness and disruption – and interrupted the daily rhythms of life – and what had been predictable business cycles.

But it has not damaged credit markets or household balance sheets, as the housing bubble of the early 2000s did.

Instead, the pandemic caused a sharp, brief recession.

And many of us, especially typical middle-class home-owners, emerged with a net worth of a couple more digits that we had just a few short seasons ago.

In 2021, the unemployment rate has fallen back below 5 percent.

The value of homes — the largest asset for most families — has continued rising.

The S&P 500 is more than 30 percent higher than it was before the pandemic.

And, for better or worse, the federal government, across both the Trump and Biden administrations, has pumped trillions of dollars into the economy, much of it through checks sent directly to people.

Wealth inequality increased over the past two or more years, because stock ownership is highly concentrated among the affluent.

But income inequality declined, with the largest percentage income gains coming toward the bottom of the economic spectrum.

Thanks to a variety of government programs, higher wages and deferred spending, more cash is in motion now than for many, many years.

To put it in simple, Econ 101 terms, we have a serious case of demand exceeding supply, for almost everything.

With a few exceptions, like restaurant meals, movies and vacations, we have started buying again, especially physical goods.

Inflation-adjusted retail spending across the U.S. has risen 14 percent over the past two years, according to Commerce Department data. That’s more than the previous seven years combined.

In many areas we are seeing very strong growth, fueled by private and public demand, hitting supply constraints, and leading to some sharp price increases.

Supply chain, blah, blah, blah….

The media has been hyperventilating about supply-chain bottle-necks and delays that will impact (or already have impacted) everything from prices to holiday sales.

Almost two years of pent-up demand, no matter what the circumstances, would lead to supply/logistical complications.

High, and unpredictable inflation probably will last for at least a few more months, if not a year or so.

But nothing, even disinflation, lasts forever.

Our supply chain problems are recent, and with fairly obvious (and predictable) causes – from an aging workforce to COVID, but the underlying problems that have caused sluggish income growth over the past few decades, by contrast, are not likely to disappear.

The balance of power between employers and workers remains tilted toward employers, because of rising corporate concentration and shrinking labor unions, and will continue to (presumably) hold down wage growth.

And slowing educational gains mean that the U.S. work force will continue to have a hard time keeping up with technological change.

All of these factors create a difficult task for policy makers, including members of Congress debating economic policies or anyone’s agenda.

They face a set of long-term economic challenges very different from the obvious and immediate challenges.

For the time being, American families (and many other families around the world) have so much money that the rest of the economy is having a hard time keeping up.

But like the ever shifting seasons, and like players on a game board, the pieces move, values change once again, and sometime soon, many families will probably be struggling again.

In a dynamic economy, nothing sits still. The wheel keeps turning.

And, for better or worse, it never stops.