Tag Archives: #Economics

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The Dummkopf from Delaware really doesn’t have a clue Enjoy paying your heating bills this winter!

We noted, on September 19th, that President Joe Biden said that we should put things in perspective, that the “inflation rate, month-to-month, was up just an inch, hardly at all”, that we’re in the position where for the last several months it hasn’t spiked, “we’re basically even.”

Well, our distinguished President doesn’t have to worry about paying his heating bills this winter, but most Americans do:

A cheery fire in our wood stove in Jim Thorpe, December 18, 2016.

Here’s how much more you’ll pay to heat your home this winter

By Kelly Hayes | Tuesday, September 20, 2022 \ 11:41 AM EDT

Americans are likely going to pay more to heat their home over the winter months.

The average cost of heating a household is set to increase by 17.2% this winter, compared to winter last year, according to a forecast by the National Energy Assistance Directors Association (NEADA), an educational and policy organization for federal programs that help low-income families pay their utility bills.

The article was illustrated with a nice, stock photo of a cheerily burning wood fire in a nice, upscale home fireplace, but I figured that, using my own photo from our previous home, was wiser for copyright purposes. Alas! Mrs Pico absolutely vetoed a wood-burning stove in our current house, because she says they make too much of a mess, so, to supplement the heat, and be a backup for when the sparktricity goes out — something not that infrequent here, and can be for several days out here in the country — we installed a propane fireplace.

The group expects the average winter heating bill to increase from $1,025 to $1,202, which would be the highest figure in over a decade.

U.S. residential electric bills are also forecast to increase 7.5% from 2021, according to the U.S. Energy Information Administration’s latest short-term outlook.

There’s more at the original.

Gas fireplace in my computer room/den.

Mr Biden is wealthy, and even if he did have to pay his own electricity and gas bills — which, for his private homes, he does — the increased costs would be an insignificant matter to him. But an extra $177 for the average working-class family? That’s a big bite. In the past, I’d have compared that $177 to a week’s trip to the grocery store, but now that’s barely half a week!

Let’s tell the truth here: for all of their protestations that they care about ordinary Americans, the Democrats really don’t understand us. The Washington elites have plenty of money, and the increases in energy costs simply don’t matter that much to them. Their proposals to fight global warming climate change will add thousands to people’s electricity bills, because so much new infrastructure will have to be built to support the greatly increased demand for electricity as people have to charge their Chevy Dolts at home. Phasing out reliable, fossil-fuel burning power plants and replacing them with solar and wind power generating facilities will cost big bucks.

By 2050, the US will demand nearly 90% more power than it did in 2018, in a scenario in which all new passenger vehicles sold by 2030 are electric and buildings and factories also aggressively electrify, according to an analysis by Nikit Abhyankar, a senior scientist at the Goldman School of Public Policy at the University of California, Berkeley.

Different scenarios will lead to a smaller increase in demand, but any changes which require more energy not from fossil fuels are going to lead to a huge increase in demand. Yet the projected increases in home heating costs are coming without any significant global warming climate change policies additions to current costs.

Perhaps President Biden doesn’t personally understand this, but his advisors certainly do, but that doesn’t matter: they just don’t care about what you have to pay, as long as they get their way.

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Bidenflation The American working class are primarily Republican voters, so you can't expect the Biden Administration to consider them, can you?

I was wryly amused to see these two editorial links together on the front page of The Wall Street Journal’s website front page Wednesday morning. As President Joe Biden wants desperately to reduce inflation, with the midterm elections just 55 days away, it demonstrates the lack of thought the Administration has put into its policies.

Another Inflation Jolt for Markets

Investors get a reality check about prices and Fed tightening.

By The Editorial Board | Tuesday, September 13, 2022 | 6:54 PM EDT

Biden Administration officials have been claiming so confidently that inflation is under control and falling that investors may have believed it. Bad idea. Tuesday’s report on the consumer-price index for August showed inflation has remained high and sticky, and markets promptly fell out of bed.

And we mean from the top bunk. The 3.94% tumble in the Dow Jones Industrial Average was the worst day since 2020, and the declines in the S&P 500 and Nasdaq were worse. Investors apparently had believed the hopeful chatter that inflation was headed downward, and that the Federal Reserve wouldn’t need to raise interest rates so high as to court a recession. Investing lesson of the week: Never trust a politician.

Consumer prices overall rose 0.1% in August, after being flat in July. But the decline was almost entirely the result of falling energy prices. Gasoline fell 10.6% and fuel oil 5.9% in the month. That was a happy respite from the spring when gasoline prices averaged more than $5 a gallon nationwide, but prices at the pump are still up 25.6% in the last 12 months and still average $3.71 a gallon.

The larger problem is that the energy declines weren’t enough to offset price increases across nearly everything else. The 12-month inflation rate in August fell only to 8.3%, down from July’s 8.5%, but higher than the 8% to 8.1% that economists had expected.

Then there’s this, from Washington Post economics reporter and Editorial Board member Heather Long:

Hmmm: “Inflation has been eating up wage gains since April 2021 and shows little sign of significant easing.” People are getting poorer in real terms, and that has been the case really since Joe Biden became President.

Then there was this:

Biden Freezes Oil and Gas Leases

Calling Joe Manchin: Interior uses ‘sue and settle’ to suspend Trump-era approvals.

By The Editorial Board | Tuesday, September 13, 2022 | 6:53 PM EDT

Joe Manchin’s deal with Democratic Senate leader Chuck Schumer isn’t looking so good for the West Virginian, and the latest evidence is a Biden Administration settlement with green groups that stops previously approved oil and gas leases.

The Interior Department last week agreed to conduct additional climate reviews for five federal oil and gas lease sales held in 2019 and 2020 that were challenged by environmental groups. Activists claimed the Trump Administration didn’t sufficiently study the climate impact of the leases under the National Environmental Policy Act (NEPA).

Rather than defend the earlier environmental reviews, the Biden Administration surrendered to their progressive friends. According to last week’s legal settlement, the climate reviews will incorporate the “social cost” of greenhouse gas emissions that could result from the leases. This takes into account indirect global costs of emissions such as property damage from natural disasters, risk of conflict over resources, reduced agricultural productivity from drought, and more.

By including the social cost in the NEPA reviews, the Administration will be able to claim the leases have a significant negative environmental impact even when they don’t and then seek to cancel them. Alternatively, the Administration could try to force oil and gas producers to mitigate their emissions by helping fund its climate agenda.

While the settlement doesn’t outright cancel the leases, it will effectively freeze their development. Interior has agreed not to approve new drilling permits or rights-of-way on the leases until it completes the climate reviews. Even after those reviews are done and if Interior allows development, green groups will still be able to challenge the reviews and leases afresh in court.

There’s more at the original. The Wall Street Journal has a serious paywall, but even if you’re not a subscriber, you can get a couple of free articles a month.

The Biden Administration wants to reduce carbon dioxide (CO2) emissions and the use of fossil fuels to do so, but freezing oil and gas extraction leases won’t do anything about that. It simply means that more oil-and-gas production will come from overseas, and less from the United States, which means more of United States’ workers money will be going to Saudi Arabia and Venezuela rather than staying at home. Even if you don’t like those evil oil corporations, it means that there will be fewer American oil company workers, workers who earn what the Biden Administration likes to call “good, union wages,” will have jobs while more men overseas will be drawing paychecks from American dollars.

All of this makes American workers poorer. The American oil rig worker who makes big bucks per hour, but is getting no hours isn’t helping his family, and isn’t helping our economy. The oilfield worker who is unemployed because the Biden Administration is throwing obstacles into American production isn’t spending money at Dunkin’ Donuts for a coffee and bagel on the work in the morning, is buying fewer clothes because his work clothes aren’t getting worn out as fast, and his lack of work affects a lot of other people downstream.

The economic measure I find most important is actually a simple one, the velocity of money. The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. The lower the velocity of money, the less positive impact a dollar has on the economy. If the gasoline you buy is extracted in Kuwait, it may cost the same amount as if it had been extracted in Texas, but the dollars spent on Kuwaiti wages disappear from our economy while the dollars spent on Texas workers stay here. The more gasoline and diesel fuel we produce in the United States, the faster he velocity of money in the United States, and the more benefits and wealth accrue to American workers and their families.

There is another part not being considered in all of this. If we assume that we can move away from an energy economy based on petroleum, as the climate change activists want, and we can power our homes and cars and economy on ‘renewable,’ non-polluting energy, the more petroleum we buy from overseas because we are producing less here during that transition, then the more of the value our natural resources we have just wasted, left in the ground with no value. We will be making ourselves poorer during the transition.

Of course, the Biden Administration’s climate change activists can’t see that part, because they never think things through, and never really consider the economic impact on American workers in their plans. But hey, the American working class are primarily conservative, primarily Republican voters, so you can’t expect the Democrats to consider them, can you?

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Well, imagine that! As the Feds add tax credits to buy plug in electric cars, manufacturers raise the prices of them

The so-called Inflation Reduction Act was supposed to, you know, reduce inflation, right? A lot of people thought it was festooned with all sorts of things which had nothing to do with inflation, and one of those things was the Qualified Plug-in Electric Drive Motor Vehicle Credit:

Inflation Reduction Act of 2022

Enacted August 16, 2022

The Inflation Reduction Act of 2022 (Public Law 117-169) amends the Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), now known as the Clean Vehicle Credit, and adds a new requirement for final assembly in North America that takes effect on August 16, 2022. Additional provisions will go into effect on January 1, 2023. Further guidance on these provisions is forthcoming. Find more information about the credit from the Internal Revenue Service.

List of Vehicles with Final Assembly in North America

The following table provides a list of Model Year 2022 and early Model Year 2023 vehicles with final assembly in North America based on data submitted to the National Highway Traffic Safety Administration (NHTSA) and FuelEconomy.gov as of August 1, 2022. Note that for some manufacturers, the build location may vary based on the specific vehicle, trim, or the date in the Model Year when it was produced because some models are produced in multiple locations. The build location of a particular vehicle should be confirmed by referring to its Vehicle Identification Number (VIN) using the VIN decoder below or an information label affixed to the vehicle.

As vehicle manufacturers continue to submit the applicable vehicle identification information to the relevant government agencies, this list will be updated as more information becomes available.

NOTE: Some manufacturers that have vehicles assembled in North America have reached a cap of 200,000 EV credits used and are therefore not currently eligible for the Clean Vehicle Credit.

Of course, the Europeans are just hopping mad that the tax credit only applies to vehicles whose final assembly takes place in North America, but wait until they figure out that Canada and Mexico are in North America. The Europeans would much rather put Canadians to work than Americans.

The tax credit is up to $7,500 for purchase of a new, plug-in electric, and since President Biden and his supervisors subordinates very much want to have Americans gobbling the things up, that $7,500 credit is supposed to help consumers who just can’t quite afford the things be able to say, “OK, yeah, with this tax credit, we can go ahead and buy a Ford Mustang Mach E!”

Oops!

Ford hikes price of electric Mustang Mach-E by as much as $8,475 due to ‘significant’ battery cost increases

by Michael Wayland | Published Friday, August 26, 2022 | 10:59 AM EDT | Updated Friday, August 26, 2022 | 2:07 PM EDT

  • Ford Motor is hiking the starting prices of its electric Mustang Mach-E crossover by more than $8,000 for some models.
  • The increased prices will go into effect for new orders placed starting Tuesday, when order banks reopen for the 2023 model year.
  • Ford said the markups are due to “significant” material cost increases, continued supply chain strains and market conditions.

DETROIT – Ford Motor is hiking the starting prices of its electric Mustang Mach-E crossover by more than $8,000 for some models, as it reopens order banks for the 2023 model year.

The company on Thursday said the markups – ranging between $3,000 and $8,475, depending on the model and battery – are due to “significant material cost increases, continued strain on key supply chains, and rapidly evolving market conditions.”

The Mach-E is the latest electric vehicle to experience a price increase, as raw material costs for batteries for electric vehicles more than doubled during the coronavirus pandemic.

The starting prices for the 2023 Mustang Mach-E will now range from about $47,000 to $70,000, up from roughly $44,000 to $62,000 for the 2022 model year. Prices exclude taxes and shipping/delivery costs.

Ford earlier this month also raised the starting prices of its electric F-150 Lightning pickup by between $6,000 and $8,500, depending on the model. The automaker cited similar reasons for those increases, specifically related to raw materials such as lithium, cobalt and nickel that are used in batteries for the vehicles.

There’s more at the original, but I’m shocked, I tell you, shocked!

Of course, the various vehicle price ranges are based on that most important characteristic: range. The ones that see price increases of ‘only’ $3,000 are the ones with the lowest battery capacity and therefore shortest range. You buy the biggest battery pack available, and you can get a listed 305 miles on a full charge. Of course, you’re also going to be getting that $8,475 price increase! We don’t know yet what the 2023 Mustang Mach E will have for a Manufacturer’s Suggested Retail Price, but the chart to the right shows MSRPs for the four versions of the 2022 model.

The “Select” model had a range of 211 miles. It was assumed that the 2023 MSRPs would see an increase anyway, but the new price hikes, well, you’d be paying $70,000 or more for the GT model.

I must say that I am amused. Who could ever have guessed that this would happen?

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Economics aren’t #woke

My good friend Robert Stacy McCain recently wrote about an article in Jezebel which claimed that normal men were going “unpartnered” because women’s “relationship standards” had been raised. Women might be willing to occasionally copulate with said lonely guys, but they weren’t really interested in anything more serious. I found the math strained, because unless you include homosexual males, the very people who ought to be excluded in an article about how normal men are having more difficulty finding women with whom to have serious relationships, the number of “partnered” men ought to equal the number of “partnered” normal women. Given that women slightly outnumber men, and that women live longer than men, the math Jezebel cited just doesn’t work out.

I was reminded of Mr McCain’s article when I read this one in The Wall Street Journal.

Inflation Widens Married Couples’ Money Lead Over Their Single Friends

Rapidly rising prices and more than two years of living in a pandemic increase the financial stress on those without pooled assets

by Julia Carpenter | Tuesday, August 16, 2022 | 7:14 AM EDT

It is better, financially, to be married than single, as has almost always been the case. But the money gap between young married couples and singles has widened, thanks to inflation and rising home prices.

The median net worth of married couples 25 to 34 years old was nearly nine times as much as the median net worth of single households in 2019, according to the most recent data from the Federal Reserve Bank of St. Louis. In 2010, married households’ median net worth was four times as much. And now, after a spell of rapid inflation and more than two years of pandemic living, single people are getting left further behind, say economists at the Fed and elsewhere.

“This 25-to-34-year-old age is a time of transition, it’s a time of household formation, and I think it matters whether or not you can pool your financial resources with someone else,” said Lowell Ricketts, a data scientist for the Institute for Economic Equity at the St. Louis Fed.

Married people are being tested by inflation, too. It is just that they have a larger, shared cushion, often with two incomes and pooled assets. They hold a greater concentration of wealth and considerably less debt, according to research from the St. Louis Fed.

Having combined assets was particularly helpful over the past decade as many households’ wealth was compounded by rising housing prices and a strong stock market.

As people marry later, the number of sole-person households is growing, which means more single people are tackling multiple financial challenges entirely on their own. Over the past four decades, the number of sole-person households has nearly doubled, according to data from Freddie Mac. And by delaying marriage, many now struggle to access money milestones at the ages previous generations achieved them.

The article continues to tell us the woes of a 27-year-old single woman in Columbus, Ohio, who recently got a raise, which is allowing her to start saving a bit, but, for her, home ownership is still out of the question. The Journal’s photo of her slicing zucchini in the small, cramped, and cluttered kitchen in her rental apartment says a lot: she has a roof over her head and food on her table, but she’s still living a fairly modest lifestyle. To relate this to Mr McCain’s article, I will note that the woman in question does not really meet contemporary standards of physical attractiveness.

Further down:

When it comes to building wealth via homeownership, finding a smaller starter home—once the gateway for single people becoming homeowners—remains especially difficult as prices remain high, say economists. Housing affordability in June 2022 hit its worst level since June 1989, and home prices are up 44% over the past two years, according to data from real-estate brokerage Redfin Corp. With housing prices so high and starter-home inventory so low, more single people are struggling to find affordable houses to buy.

So, what happened in 1989? An economic downturn happened, a housing market crash. Interest rates soared again, and housing prices had to fall, or houses just wouldn’t sell. An economic downturn which eventually cost the elder George Bush the presidency in the 1992 election. We saw the same thing in the early 2000s, as housing just plain skipped the 2001-2 recession — I was amazed at how much concrete we were selling for homebuilding even as the unemployment rate soared — but the sub=prime mortgage lending market collapsed in 2007-8, and people who had bought during the bubble, with adjustable-rate mortgages were defaulting at record paces.

I can see something similar in the not-too-distant future.

The Journal article continues along the theme of singles, and primarily single women, being priced out of the housing market.

This is where married couples have one of their largest advantages. Applying for a mortgage, these couples can work together to create an attractive application as well as amass the necessary money for a healthy down payment.

Single women face additional hurdles to generating wealth.

The gender wage gap begins to widen as early as three years after college graduation, a Wall Street Journal analysis found. Women also live significantly longer than men, which puts added pressure on them to finance their retirement years solo.

“These are scary times for anyone, but they’re particularly scary times, I think, for the reasons we have cited, for single women,” said Jill Gianola, a financial planner and the founder of Gianola Financial Planning.

This, you see, is the problem: social customs may have changed, customs which no longer have others asking, “What’s wrong with him?”, or her, if they don’t get married by the time they’re 22. But economic laws aren’t #woke, economic laws don’t care that you want to party hearty until you’re thirty. The reality of economics and the passage of time mean that if you are delaying adulthood, you are also delaying your economic advance. It might be more fun to take your whole paycheck and spend it wastefully, but those are years in which you should be building your career and setting yourself up for financial success later in life.

There was more in the Journal article, this time about a married couple, a couple which appear to have married a bit late, but one which were able to work out the husband’s pre-existing $10,000+ credit card debt by virtue of being serious and by the fact that they were paying for one residence for the two of them. When economic problems arise, there are two of them to work things out.

The way people behaved in our economy and our society in the 1950s might seem just horribly, horribly old fashioned and just not with it, but the simple fact is that they worked for people, because they made economic sense.

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Welfare for the well-to-do Joe Manchin's deal will have his West Virginia constituents helping to pay for electric vehicle purchases by Rhode Islanders!

Remember “Cash for clunkers”? From Investopedia:

Cash for Clunkers

By Julia Kagan | Reviewed by Lea D Uradu | Fact checked by Kirsten Rohrs Schmitt | September 30, 2021

Cash for Clunkers was a U.S. government program that provided financial incentives to car owners to trade in their old, less fuel-efficient vehicles and buy more fuel-efficient vehicles. The purpose of the program was primarily to act as an economic stimulus during the Great Recession by providing the population with monetary incentives to buy new cars, thereby increasing automobile sales, while at the same time reducing carbon emissions by replacing old vehicles with new, fuel-efficient ones.

The program, passed by a Congress controlled by Democrats and signed into law by President Barack Hussein Obama, the plan ran from June 2009 through August 24, 2009, when it ran out of money.

At the time, I called it welfare for the well-to-do, and I was right. Running during the so-called “great recession”, the only people who could afford to buy a new car were the ones whose jobs had survived the cuts, knew that their jobs were secure, and had good enough credit to qualify for a new car loan. In other words, they were the people during the “great recession” who didn’t need help from the government. Only 49% of the new vehicles sold through the cash for clunkers program were manufactured in the United States.

Now we have the ‘deal’ between Senator Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) on electric vehicles. From Reuters:

U.S. Senate Democratic deal would expand EV tax credits

By David Shepardson | July 27, 2022 | 11:00 PM EDT

WASHINGTON, July 27 (Reuters) – A Senate Democratic deal includes a new $4,000 tax credit for used electric vehicles and other new tax credits and grants for automakers to retool factories to build greener cars.

The deal struck between Senate Majority Leader Chuck Schumer and Democratic Senator Joe Manchin also includes an expansion of the existing $7,500 EV tax credit as well as a new $10 billion investment tax credit to build clean-technology manufacturing facilities, according to a summary from Schumer’s office.

The bill that Schumer and Manchin agreed to also includes $2 billion in cash grants to retool existing auto manufacturing facilities “to manufacture clean vehicles, ensuring that auto manufacturing jobs stay in the communities that depend on them.”

If it becomes law, it will further provide up to $20 billion in loans to build new clean vehicle manufacturing facilities and $30 billion for additional production tax credits “to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing.”

Schumer said the Senate was expected to vote on the proposed legislation next week and it would next go to the Democratic-controlled House of Representatives.

President Joe Biden last year proposed boosting EV tax credits to up to $12,500 per vehicle — including $4,500 for union-made vehicles — and lifting a cap of 200,000 vehicles per manufacturer on the $7,500 credit. Automakers including General Motors (GM.N) and Tesla (TSLA.O) have hit the cap and are no longer eligible for the existing EV tax credit.

Toyota Motor Corp (7203.T) said this month it had hit the sales cap, which means its $7,500 credit will phase out over the next year.

Automakers have heavily lobbied for an extension of the EV tax credit, warning they cannot meet aggressive goals to cut emissions without tax incentives that make electric vehicles more cost competitive.

Also see: William Teach: NY Times: Democrats “Inflation” Plan May Lower Costs Sometime In The Future

In other words, plug-in electric vehicles cost more than gasoline engine vehicles. But tax credits only come after you have purchased the vehicle, which means that buyers will have to pay the full (negotiated) price for them, including whatever interest payments accrue. If you couldn’t afford the car without the tax credit, you still won’t be able to afford the car with the tax credit!

The new EV tax credits would be limited to trucks, vans and SUVs with a suggested retail price of no more than $80,000 and to cars priced at no more than $55,000. They would be limited to families with adjusted gross incomes of up to $300,000 annually.

This is kind of laughable. How many people, and, for Mr Manchin, how many West Virginians, can afford to buy an $80,000 truck or a $55,000 new car? Once again, this is welfare for the well-to-do!

Limited to families with an AGI of less than $300,000? Median household income was $67,521 in 2020, down 2.9% from the 2019 median of $69,560, thanks to the idiotic COVID restrictions. Guesstimates of current median family income vary, but this estimate of $76,563 seems at least somewhat realistic.

Of course, the median household income for Senator Manchin’s constituents is just $51,615. They could really use that $7,500 tax credit, but how many outside of Charleston or Morgantown will be able to afford to buy a Tesla? In reality, Mr Manchin’s constituents will be taxed to subsidize new car purchases for federal employees in Maryland and executives in New York and Connecticut. 🙂

I found nothing stating that the bill would require, as the old cash for clunkers bill did, that the cars the well-to-do traded in for a new electric vehicle be destroyed, so while the bill, theoretically reducing carbon emissions from new cars, wouldn’t take their older, gasoline-engines off the road, but hey, if the goal is to reduce emissions, then it should. Take the newer used cars — we assume here that the people who can afford to buy a new vehicle have the newest existing cars — off the road, and that not only reduces the total emissions, but makes the used car market relatively older, meaning that those gasoline-powered vehicles will wear out sooner. In 2021, there were 43.1 million used cars purchased, versus only 15.3 million new vehicles, meaning that roughly 73.8% of all car sales were of used, not new vehicles. And the poorer the state, the higher percentage of used cars bought, simply because fewer residents can afford new.[1]Full disclosure: when we bought Mrs Pico’s 2021 Toyota Camry in June, it had been a dealer demonstrator with just 6,000 miles on it. This was the second car we bought with just dealer demo … Continue reading

As always, this act will not do what it is purported to do. It was put together by Democrats, who have virtually no understanding of economics; if they actually did understand economics, they wouldn’t be Democrats! The only question is: just how badly will it fail?

References

References
↑1 Full disclosure: when we bought Mrs Pico’s 2021 Toyota Camry in June, it had been a dealer demonstrator with just 6,000 miles on it. This was the second car we bought with just dealer demo miles. If we had bought new, well, we probably wouldn’t even have the car yet, due to supply issues.
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Recession! The Biden Administration won’t admit it, but people know it

To absolutely no one’s surprise, second quarter Gross Domestic Product figures came in showing real economic contraction. From The Wall Street Journal:

U.S. GDP Fell at 0.9% Annual Rate in Second Quarter

The economy contracted after shrinking earlier in the year, held back by rising inflation and interest rates—marking a recession in many eyes

by Harriet Torry | Thursday, July 28, 2022 | 8:47 AM EDT

The U.S. economy shrank for a second quarter in a row—a common definition of recession—as businesses trimmed their inventories, the housing market buckled under rising interest rates, and high inflation took steam out of consumer spending.

Gross domestic product, a broad measure of the goods and services produced across the economy, fell at an inflation and seasonally adjusted annual rate of 0.9% in the second quarter, the Commerce Department said Thursday. That marked a deterioration from the 1.6% rate of contraction recorded in the first three months of 2022.

The report indicated the economy met a commonly used definition of recession—two straight quarters of declining economic output.

The official arbiter of recessions in the U.S. is the National Bureau of Economic Research, which defines one as a significant decline in economic activity, spread across the economy for more than a few months. Its Business Cycle Dating Committee considers factors including employment, output, retail sales, and household income — and it usually doesn’t make a recession determination until long after the fact.

The GDP report offered some discouraging signs, and underscored the challenges facing U.S. businesses, consumers and policy makers—including high inflation, weakening consumer sentiment and supply-chain volatility.

Emphasis mine.

So, the Biden Administration, eager as it is to use a subjective rather than objective measure of inflation, gets some political cover from the National Bureau of Economic Research, a private organization headquartered in — drum roll, please! — Cambridge, Massachusetts.

From Wikipedia:

In September 2010, after a conference call with its Business Cycle Dating Committee, the NBER declared that the Great Recession in the United States had officially ended in 2009 and lasted from December 2007 to June 2009. In response, a number of newspapers wrote that the majority of Americans did not believe the recession was over, mainly because they were still struggling and because the country still faced high unemployment. However, the NBER release had noted that “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle.”

So, the eight economists who decide if the U.S. is in a recession using these markers declared that the 2007-2009 “Great Recession” ended 15 months after they saw the signs that it did. That’s the political cover the Biden Administration believe will take them through November 8th, election day.

But it won’t work. With a 9.1% annualized inflation rate in June, Americans don’t need dry statistics to tell them when we’re in a recession; they can feel it, in their wallets, and in their bones.

The Federal Reserve’s Board of Governors raised their base interest rates another 0.75% just yesterday, in an attempt to fight the high inflation rate, and signaled that another rate hike would probably occur.

The very low unemployment rate is what is giving the Democrats hope that this isn’t a ‘real’ recession.

GDP is measured in dollars, and spending increased across the board, as it does almost every quarter. That’s why inflation is calculated in, to keep spending numbers from obscuring actual economic growth. Yes, inflation completely wiped out the growth in spending, but there’s more to it than just that: while inflation was 9.1% in June, wage growth was much smaller, 5.1%. Consumers spent more, but their wages did not keep up with what they had to spend; the average American is poorer, in real terms, than he was a year ago.

Bidenomics has been a disaster for Americans, but, not to worry, at least he’s not sending out any mean tweets!

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Economics writer Eduardo Porter wants gasoline to rise back to $5.00 per gallon It's for our own good, don't you know?

A bit hard to read, due to the glare from the sun, but this was the price at the station closest to my home, on Wednesday, July 20, 2022, $3.999 per gallon. It has been as high as $4.699 per gallon.

Just because you are having difficulty paying your bills doesn’t mean you shouldn’t have to pay more for gasoline!

Eduardo Porter is a Bloomberg Opinion columnist covering Latin America, US economic policy and immigration. He is the author of “American Poison: How Racial Hostility Destroyed Our Promise” and “The Price of Everything: Finding Method in the Madness of What Things Cost.” A prolific writer on economic matters, I have, sadly, been unable to find a link to his net worth, but it’s obvious that he’s reasonably well-to-do, with gigs with Bloomberg, The New York Times, and The Washington Post. It’s also obvious that he doesn’t really care about how people earning less than he does live.

The Earth Wants Biden to Keep Gas Prices High

There’s one bold move President Biden could make to curb climate change: Find a way to put a $5-a-gallon floor on gasoline prices.

by Eduardo Porter | Wednesday, July 20, 2022 | 10:10 AM EDT | Updated: July 20, 2022 | 11:34 AM EDT

When President Joe Biden visits the decommissioned coal-fired Brayton Point power plant in Somerset, Massachusetts, on Wednesday afternoon to lay out his planned executive actions on climate, his allies will be looking for bold initiatives. As Oregon’s Senator Jeff Merkley put it to the Washington Post, the impasse in the Senate created by Senator Joe Manchin’s blocking of his environmental agenda “unchains the president from waiting for Congress to act.”

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An economics lesson in The Philadelphia Inquirer I suspect it was unintentional

One of my concerns when naming The First Street Journal was that I wanted to concentrate more heavily on economics, and, to be honest, The Main Street Journal name had already been taken, actually by more than one site. Mrs Pico suggested The Center Street Journal, which I considered, but, at the time we actually lived on Center Street, in Jim Thorpe, so even though I use my real name, I thought that unwise.

More, Center Street could be interpreted as implying that I am a political centrist, and I most certainly am not.

Sadly, I’ve spent so much time on politics, that I’ve neglected economics.

Philly renters should probably expect new leases to include higher rent to account for new tax assessments

Increases in rent because of landlords’ higher property tax bills will hit low-income renters the hardest.

by Michaelle Bond | Friday, July 15, 2022 | 6:00 AM EDT

Anthony Krupincza, who owns five rental units in North and West Philadelphia, usually pays his tenants’ water bills. But now that some of his property tax bills will nearly triple because of the city’s new assessments, he’s telling new tenants they have to pay. And he’s raising rents for tenants who move in or renew.

“I have to explain to them it’s not like I’m making more money. It’s not like the extra money is going in my pocket,” he said. “The difference is to pay the tax bill. And if you really do the numbers, it doesn’t fully pay for the tax bill.”

That The Philadelphia Inquirer printed this is a bit amazing, because it teaches a lesson — at least for anyone willing to read and learn — that has been known for a long time, but wholly ignored by many: when the expenses of a business are increased, the prices the business must charge must also increase, or the business fails. The left think that we ought to tax those evil ol’ corporations more, but all that corporations do is pass on their costs of doing business, and taxes are very much a cost of doing business, on to their customers. The final consumer of their products, the individual, must pay all of the taxes heaped upon businesses throughout the production chain.

Rent increases due to higher property taxes demonstrates only a single level, but it’s something on which to learn for the multi-level.

Think about the price of a gallon of milk, which like everything else these days, is experiencing significant inflation. Included in the price of a gallon of milk are:

Photo by Dana R. Pico, © July 15, 2022. Free use is granted, with appropriate credit. Click to enlarge.

  • The taxes imposed on the dairy farmer for the fuel used around the farm;
  • The fuel, business, and income taxes paid by the trucker who takes the raw milk to the dairy processing plant;
  • The fuel, business, and income taxes paid by the producer who manufactures the packages for milk;
  • The fuel, business, and income taxes paid by the trucker who transports those packages to the dairy;
  • The fuel, business, and income taxes paid by the dairy which processes and packages the milk;
  • The fuel, business, and income taxes paid by the trucker who hauls the packaged milk to the grocery store; and
  • The fuel, business, and income taxes paid by the grocery store.

All of those expenses are bundled into the price you have to pay for that gallon of milk. If everyone up the production and delivery chain doesn’t have all of his expenses paid, he goes out of business! How hard is that to understand? And if any elements in that supply chain fail, the consumer doesn’t get to buy milk.

We noted here that the gallon of 1% milk at the Kroger on Eastern Bypass Road in Richmond, Kentucky was 99¢ when Donald Trump was President, rose to $1.79 on January 4, 2022, and was up to $2.19 by February 23rd.

It’s too soon to say the extent to which rents across the city might rise as a result of the city’s first property reassessment in three years, which increased Philadelphia’s total property value by 31%. Tax bills based on the new values will be mailed in December and are due March 31.

But landlords in the business of operating rental properties aren’t eligible for the city’s tax relief programs that were adjusted to soften the impact of the reassessment. So they will most likely pass on at least some of the extra costs in taxes — in addition to the operating costs inflation has driven up — to new and returning tenants, who already have faced historically high rent growth.

Of course, landlords in America are frequently thought of as Snidely Whiplash, tying Sweet Nell to the railroad tracks, so naturally Philadelphia wouldn’t make them eligible for programs to soften the impact of the reassessment. 52.8% of Philly’s housing units are owner occupied, according to the Census Bureau, a lower rate than the 64.4% nationwide, which means that 47.2% of Philadelphians rent their homes, and 47.2% of Philadelphians are not going to see any relief from programs to soften the impact of property value reassessments. After all, giving landlords relief would be welfare for the well-to-do, so who cares about them? But the lesson ought to be obvious: increasing expenses on landlords,[1]Full disclosure: My wife and I own rental property, and are technically landlords, but we are not running that business for a profit. We bought a house last December, to rent to Mrs Pico’s … Continue reading increasing expenses on any business, means increasing prices downstream. Politicians, Democrat and Republican alike. don’t want you to know, and hope that you are too stupid to figure it out, so that they can raise taxes on businesses, and the public will remain serenely unaware that they actually raised taxes on individuals.

That’s why City Councilmember Kenyatta Johnson said his “Save Our Homes” tax relief plan included $15 million in rental assistance in the fiscal year 2023 budget “to support those individuals who will be significantly impacted in seeing an increase in their rents” because of increases in tax assessments. Black and Latino neighborhoods face the highest increases in their tax bills due to the new assessments.

“We wanted to make sure not only homeowners were protected but also renters as well,” Johnson said.

Well, of course the Inquirer had to let readers know that black and Hispanic citizens would be hurt worst, because that “anti-racist news organization” always has to come up with a racial angle, but there are plenty of working-class whites living in the City of Brotherly Love as well, and their rents are going to rise as well. One wonders if Kenyatta Johnson care about that!

Economics, on the other hand, definitely does not care: there are no different principles of economics based on a person’s race or ethnicity. The Inky managed to eke out an economic lesson for its falling readership, but it might not be a lesson the editors actually wanted their readers to learn.

References

References
↑1 Full disclosure: My wife and I own rental property, and are technically landlords, but we are not running that business for a profit. We bought a house last December, to rent to Mrs Pico’s sister, and we are simply hoping to break even. When we go to our eternal rewards, the house will be inherited jointly by our two daughters and my sister-in-law’s son.

From September of 2014 through June of 2017, we were also landlords, renting out our current home while we marked time until I retired and we moved back to Kentucky. We made a very slight profit, roughly $2,200 a year, doing that, but it wasn’t the kind of experience that makes me want to be a landlord for real profit.
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Bidenflation!

We need Gerald Ford’s “Whip Inflation Now” buttons!

On May 10th, we noted in Forbes telling us that the high inflation rate might not drop as quickly as some had forecast:

Inflation May Fall Slower Than Expected

by Chuck Jones | Monday, May 9, 2022 | 8:45 AM EDT

The rapid rise in inflation is causing the Federal Reserve to aggressively raise interest rates along with deleveraging its $8.9 trillion balance sheet. This has thrown stocks into correction territory or bear markets. Two of the major reasons for the increase in inflation have been the upsurge in demand coming out of the pandemic and supply chain issues.

April’s CPI estimate will be announced Wednesday before the stock markets open. Expectations are for the all items rate to drop from 8.5% to 8.1%. To hit 8.1% the month-to-month inflation rate will have to fall from 2.3% in January, 2.6% in February and 3.8% in March to no more than 1.25% to hit the expected number.

“Expectations,” were not met. Not only did the May inflation rate not drop to 8.1%, not only did it not even remain steady, but the rate rose slightly, to 8.6%.

Energy prices rose 32% on an annualized basis in March. In April Gasoline and Diesel prices were fairly flat, which will help lead to a lower inflation increase since they comprise about 4% of the inflation CPI Index and were up 48.2% year-over-year in March. However, natural gas prices increased in April, which will somewhat offset gasoline’s impact.

Well, guess what actually happened. From The Wall Street Journal:

U.S. Inflation Hits New Four-Decade High of 9.1%

Prices up broadly across the economy, with gasoline far outpacing other categories

by Gabriel T Rubin | Wednesday, July 13, 2022 | 12:08 PM EDT

U.S. consumer inflation rose last month from the year before at the highest rate in more than four decades, as prices climbed throughout the economy.

The consumer-price index rose 9.1% in the 12 months ended in June, the fastest pace since November 1981, the Labor Department said on Wednesday. The June increase also eclipsed May’s 8.6% rate, which led Federal Reserve officials to shift to a faster pace of benchmark interest-rate increases in its campaign to bring down inflation.

The report likely keeps the Fed on track to raise its benchmark interest rate by 0.75 percentage point at its meeting later this month. Stocks dropped and bond yields jumped following the inflation report.

Core prices, which exclude volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain, the Labor Department said.

There’s more at the original, but as I’ve asked before: why are “volatile food and energy components” excluded from the core inflation rate. Food and energy, in the form of gasoline and utility bills, have to be purchased every month, often several times a month. You see it when you fill your gasoline tank, and you see it when you go to the grocery store, and you see it when you get your electric and natural gas bills. Economics reporter for The New York Times noted that:

Gas prices rose 11.2% in June alone, and are up nearly 60% from a year earlier. Grocery prices were up 1% in June (a bit slower than in May) and were up 12.2% from a year earlier.

And:

One big reason “core” inflation accelerated in June: Rents rose 0.8% in June, the fastest one-month gain since 1986. “Owner’s equivalent rent,” the BLS’s (confusing) way of accounting for owner-occupied housing, is also picking up. Over the past three months, rents have risen at an annual rate of 8.2%. (Owner’s equivalent rent rising at 7.3% rate.) That’s especially worrying because rents don’t tend to turn around quickly.

You know what has happened? Virtually every single projection of the economic “experts,” or at least the great majority of them, has been wrong.

Back to the Journal:

Despite June’s inflation reading, economists point to recent developments that could subdue price pressures in the coming months.

Investor expectations of slowing economic growth world-wide have led to a decline in commodity prices in recent weeks, including for oil, copper, wheat and corn, after those prices rose sharply following the Russian invasion of Ukraine. Retailers have warned of the need to discount goods, especially apparel and home goods, that are out of sync with customer preferences as spending shifts to services and away from goods, and consumers spend down elevated savings.

“There’s a pretty serious recession fear affecting a broad range of asset prices,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.

Retailers’ ability to shed unwanted inventory could test whether pricing is returning to prepandemic patterns, Ms. Rosner-Warburton said. Some retailers, such as Target, have already said they are planning big discounts. Others with robust warehouse capacity, such as Walmart Inc., could be more likely to hold on to their excess inventory, analysts say.

The first guesstimate of second quarter Gross Domestic Product figures is scheduled to be released on Thursday, July 28th, with a second, supposedly more refined guesstimate on THursday, August 25th. GDP decreased by 1.6% in the first quarter — the initial guesstimate was -1.4% — so if the figures show any negative reading at all, we will officially be in a recession. The second quarter already being over, there’s no time to change things.

I’m old enough to remember the last heavy inflation cycle, 1974-1982, and, after years of President Ford’s Whip Inflation Now buttons, and President Carter’s “malaise,” inflation was tamed the old-fashioned way: with a deep recession.

This isn’t 1982: inflation is not (yet) being accompanied by serious unemployment, but that’s in part due to people who should be working or looking for jobs still being paid, with phony money, not to work.

I’m not some fancy economics professional, and don’t have a PhD to my name. BUt it seems to me that things are going to get worse before they get better. The fer-mongers are attempting to scare us with dire warnings about the BA.5 Omicron sub-variant, and while those warnings are not being taken too seriously by the public in general, there’s at least the possibility that the warnings will be reasonably accurate. The Fed has been raising interest rates in an attempt to depress consumer demand, to fight inflation, but if they foul that up, such interest rate hikes could hasten a recession. Ukraine, the breadbasket of Europe, has seen its wheat crop and exports devastated by the war, and the economic restrictions put on Russian gas and oil, though they haven’t hurt Russia yet, could really mess things up in Europe, especially when winter arrives.

My wife is more worried about the economy than I am, and she’s pretty smart — smart enough to have married me, anyway! — but I am concerned enough. Perhaps it’s unfair to place all of the blame on President Biden, but hey, you know that he’ll take the credit for any good news; we might as well lay the responsibility for bad news at his stinky feet.