Econ 201

I'm a big fan of Keynesian Economics - at least the part about government being the basic circulation pump for the life blood of the economy (ie: money), and the part that says while government needs to stay outa the way as much as possible, it has to step in on occasion to be the Customer &/or the Employer Of Last Resort.

note: And that's about as far as I got in my first abortive attempt at college.

The biggest problem with that though is when we use government to boost this sector or that sector, or to provide a safety net that gets too big and too generous. If you go overboard on that shit, you get some really bad things like inflation and worsening inequity, which makes it all too easy for cynical manipulators to jump in and make some political hay out of the pain being felt by people who end up kinda grasping at straws - "Save me, Daddy - please".

So anyway, here's a fair rundown on some very troubling news from WaPo:

Five charts explaining why inflation is at a 40-year high

The bumpy economic recovery has had policymakers, economists and Americans households grappling with greater price hikes for gas, groceries, cars, rent and other essentials.

The latest inflation data, released by the Bureau of Labor Statistics, showed that prices in June climbed 9.1 percent compared with the year before, the highest measure in 40 years and a new pandemic-era peak. This is a breakdown of how we got here.

Persistent supply chain backlogs and high consumer demand for goods have kept prices elevated. More recently, Russia’s invasion of Ukraine has strained global energy markets and sent the national average for a gallon of gas above $5 last month. And though gas prices have since ticked down, there is no clear answer for when overall costs will subside, leaving Americans to feel the strain in their pocketbooks in the meantime.

Inflation explained: How prices took off

The run-up in gas prices has become one of the most visceral ways people feel inflation in their daily lives. In some parts of the country, particularly on the West Coast, it was not uncommon to find gasoline well above $5 or even $6 a gallon in June. Since then, gas has trended down slowly, with the national average hitting $4.65 on Tuesday, according to AAA.

The concerns over soaring gas prices, home prices and rising rents have economists worried about whether cost increases will last even after the coronavirus pandemic has mostly passed, and if the Fed’s tools will be enough of a match. The White House points to its recent moves to lower prices, including through the release of 1 million barrels a day from the nation’s Strategic Petroleum Reserve and an emergency waiver to allow use of blended biofuels. But gas prices in particular have become a fraught economic and political issue for the Fed and Biden administration.

Families across the nation are also facing higher prices at the grocery store and could see more of a pinch if Russia’s invasion causes widespread shortages of wheat, corn and other items. People are also stretching their wallets for dairy, fruits and vegetables, baked goods and meats.

Throughout the pandemic, new and used cars have been a kind of litmus test for the country’s supply chain issues and related price hikes. Used cars and trucks were a driving force behind the surge in inflation last year.

The market relies heavily on trade-ins and auto parts, which have been in low supply during a global microchip shortage. That pinch has made it more expensive for dealers to get any of their models, much less repair them. All of those problems are also hurting the supply of used cars, which depend on trade-ins as well as rental car company inventories.

There are some encouraging signs. The rise in used car prices — which made up a bulk of inflation for much of the past year — has slowed in recent months and are expected to drop as semiconductor shortages improve. The red-hot housing market is also cooling, as a runup in mortgage rates discourages aspiring buyers from competing for the few homes available.

The Federal Reserve has launched major interest rate increases to get inflation under control, penciling in seven hikes by the end of the year. In June, the Fed raised rates by three quarters of a percentage point, the most aggressive hike since 2000. Higher rates will slow the economy by making it more expensive to borrow money, which will discourage businesses from expanding and raise the cost of consumer loans like mortgages.

Jobs report fuels White House optimism that recession will be averted

The challenge is a delicate one: If the Federal Reserve moves too forcefully to slow the economy, it could cause a recession and spell unwanted consequences for the job market and rest of the recovery.

“We’re not trying to provoke — and don’t think that we will need to provoke — a recession,” Fed Chair Jerome H. Powell told Congress last month. “But we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market as much as anything else.”