This time it’s different…

History doesn’t repeat. Sometimes it doesn’t even rhyme. There are, however, in my estimation, any number of trends we see again and again. Often, though, those trends flow across such long sweeps of time that there’s little or no “generational memory” of the last time they happened. 

COVID-19 was a great example. Confronting widespread plague or communicable disease isn’t something that was fresh and new for 2020. Humans have been dealing with pandemics since the rise of civilization. The last time we faced a pandemic of such scope and scale was a hundred years previously with the Great Influenza of 1918. Given the hundred-year interval, it was an event that had nearly passed out of living memory. Although civilization had seen pandemic many times before, “this time is different.”

The major stock market indexes are down 20% from their highs in 2021. Business reporters and talking heads are wringing their hands about wealth destruction, there being no floor, and the end of capitalism. They’re obviously ignoring the fact that bear markets are a normal part of the economic cycle. In fact, we’ve seen 14 bear markets since 1945. It generally takes about two years for markets to regain their previous high-water mark. We’ve been there and done that, but “this time is different.”

Currently, the United Sates is experiencing a year over year rate of inflation of 8.6%. It’s driving prices of all manner of goods and services higher at the fastest pace we’ve seen since 1981. Many of us are too young to remember anything from 1981, but there it is, right there in the recent history books. In all likelihood the Federal Reserve will crank up interest rates to and a little beyond the pain threshold, pull money out of circulation, and inflation will cool to a manageable level. You can already hear the cries that “this time is different.”

I hate to throw cold water on the almost gleeful panic, but the only thing different this time is that we’re the grown ass adults who happen to be the ones experiencing these events rather than our parents or grandparents. Nothing that’s currently dominating the news is new. It’s the same shit different day that people have been dealing with as best they can for hundreds of years – it’s just that our lifespan is too short to effectively pull back and see the whole board. It’s far easier to believe we’re living through special and unique circumstances that could happen only to us.

Let’s all come back in about 30 months and check my work. 

Joe…

Let me say it straight from the shoulder… I’m not a big fan of Joe Biden as president. From spearheading America’s flight from Afghanistan to the current conflicted economic environment the administration is determined to cheer as rosy, while simultaneously decrying as hard times and painfully inflationary, it feels like the presidency is his in name, but that the hard work of the office remains, somehow, out of his grasp. 

I’ve never met him, but maybe he’s a nice enough old man. I’d be willing to go so far as to say he’s probably well intentioned. He might even be successful his role as head of state (à la Elizabeth II) where the main function is unveiling plaques, making proclamations, and waiving at crowds. I have to believe that even those who supported him during the election have found him wanting when exercising his awesome constitutional role as head of government. His performance when it comes to the hard stuff could, charitably, be called something between mixed and abysmal.

I’m certainly not advocating for a return to the batshit crazy administration of Donald Trump and his band of merry insurrectionists, but the fact that Joe was popularly recognized as the best available option really should concern every one of us. The best thing he could possible do would be to, as soon as the midterms are over, go on television and announce that he won’t seek a second term. I’m sure I’ll still hate the next contender’s policies, but the job deserves someone more engaged and energetic. 

Mother Russia…

Russia rattling its nuclear saber and its foibles being the butt of jokes is honestly just more fuel for the way back machine. If you didn’t listen too carefully to the news over the last few days, I think you could be forgiven for wondering if you woke up sometime in 1985. New faces, new flag, but the same old, worn playbook of threats played out against the backdrop of an economy teetering on the brink of collapse. The only difference this time is in the internet age, the entire world can see the rot and dysfunction in Russia when back then it was largely hidden behind the iron curtain and a wall of silence.

For all his bluster, Mr. Putin can’t hide that his country is a shambles if not an outright sham. Seventy years of Soviet policies followed by 30 years of kleptocracy apparently don’t build up a productive and vibrant system. Who would have guessed, right? I, of course, mean aside from anyone who was alive to watch the Soviet Union collapse under the weight of its misguided and misbegotten policies.

I don’t in any way intend for this to sound triumphant, because I know well enough that even a tired, sick, and old elephant hurts if it happens to fall on you. The takeaway, though, is that we need a full reevaluation of how we think about Russia and Russian power in the future. We should also use this brief period of western democratic ascendency and unity to put as much of our own house in order as we can while it lasts. Putin or no Putin the world is a dangerous place that’s markedly more well ordered when its great democracies aren’t busy bickering among themselves.

Be not afraid…

It’s hard to miss all the current reporting on the growing impact of inflation on the overall economy. Even without the reporting, rapidly rising prices for petrol, food, and other consumer goods, the impact of our inflationary economy would be hard to miss. 

Most of the major news outlets paint a worrying picture – particularly for retirees, anyone sitting on a lot of cash (in a savings account or in certificates of deposit, for instance), or those who loaded up on variable rate debt (like your average credit card). That’s a fair concern, but it’s only part of the bigger picture.

If you happen to be a homeowner – especially one who locked in a mortgage when fixed interest rates drifted down under 3% – inflation gives you the bonus of paying back your loan on an appreciating asset with devalued dollars. If you happen to be holding equities as opposed to cash (including things like 401k, IRA, and other retirement savings vehicles), values should largely increase as the cash value of the underlying companies is inflated. All of that, of course, presupposes that your income also paces the rate of inflation, or at least doesn’t entirely stagnate during a period of sustained inflationary pressure.

I’m obviously not calling for a return to the bad old days of inflation, sky high interest rates, and 10% unemployment… but by read is that there are things out there a hell of a lot more frightening than a little pop of inflation every now and then, so for the time being my motto is “be not afraid.”

Honoring the public debt…

It feels like only yesterday that we were last arguing about whether or not the government was going to (or should) raise or suspend the debt ceiling – the legislatively applied limit to the amount the US Government is allowed to borrow in order to keep on conducting business as usual. I’m the first to tell you that Uncle Sam’s hallways and offices are filled to the brim with wasteful spending… but trying to get after that waste by passing a law that says we can only borrow $X unless Congress passes another law to say we can spend $Y more isn’t a recipe to actual limit or reduce government spending. At best, the debt ceiling creates political theater. Now that it’s a thing we have, however, failure to raise the self-imposed limit and drive the federal government into default would result in all manner of catastrophic outcomes. 

I see today that we’re now in the period where the Treasury has begin exercising “extraordinary measures” that should be sufficient to keep us out of default for the time being. The congressional office responsible for making such projections says it’ll probably be October or November before we actually run out of wiggle room. Based on recent history, that will be about the time Congress gets around to doing something. 

Before we go into default and our bond rating collapses, though, we have to get through what’s supposed to be the federal budget season. Given the current state of our politics, I’m not in any way expecting there to be an actual approved operating budget when Fiscal Year 2022 kicks off on the October 1st. Who knows, maybe we’ll end up with a perfect storm of impending default and no functioning bureaucracy simultaneously. That feels like a recipe for good times. 

If anyone needs me, I’ll be over here restocking my supply of beans and spam in case we need to ride out a post-plague economic apocalypse. Given the kind of leadership we have in all quarters it feels like the only reasonable course of action. I mean I’m due for some extra time off… with eventual back pay, of course.

Business versus vanity project…

Over the last few days, I’ve watched a handful of news segments and read several stories all striving to make a common point – that businesses from local mom and pop restaurants to heavy industry are having difficulty filling vacant positions.

Some of these stories cite the “Amazon Effect,” that has entry level new hires streaming to fill openings in warehousing and distribution. Others lay the blame with too much free money passed out in the form of federal stimulus payments and increased unemployment.

It seems to me that the most straightforward way to resolve this particular imbalance between the demand for these workers and their limited supply is to increase wages to the point where there are enough people to fill vacancies. 

Admittedly, I’m not a fancy big city economist, but raising wages feels like a fairly basic, tried and true way to attract people into a particular job or even into an entire segment of the workforce.  Yes, it means in some cases the products and services being offered by those businesses will cost more, but if your business can’t generate the revenue necessary to hire people to do the work, you have more of a vanity project than a business anyway.

Out of place…

I drive around from time to time looking for new places where the next interesting book to add to the collection could be hiding. The invariable part of every new town I pass through is that you can tell a lot about where you are by the kind of businesses occupying prominent or high traffic areas. 

As a general rule, once I hit the part of town where pawn shops, storefront check cashing, and empty buildings predominate, I’ve probably gone too far. The likelihood of finding what I’m looking for seems to diminish with every payday loan processor I pass. Often enough, these are parts of town when I have no business being or otherwise stick out like a sore thumb. If there’s treasure hidden somewhere there, I’ll leave it to someone else. 

Last week I had something of the opposite experience. Returning home from a successful book buying expedition, I found myself driving through a picturesque bit of Delaware – long lawns, gated drives, and the early 20th century impression of old money. Soon enough the residential gave way to the commercial – cheese mongers, wineshops, and a several block stretch of insurance agencies, understated banks, and “wealth management firms.” 

Sure, I felt altogether more comfortable there than I do driving down a block of abandoned and burned-out row houses, but it was still very much a case of being a stranger in a strange land. Less likely to get mugged, maybe, but far more likely to be offered a “can’t lose” investment opportunity, so perhaps they’re not all that different, really.

I don’t suppose there’s anything particularly insightful here… just a musing on the oddities of finding yourself out of place.

What Annoys Jeff this Week?

1. Twitter. I follow a pretty eclectic mix of personalities on Twitter – celebrities, politicians, news outlets, historic buildings, porn stars, military thinkers, military do-ers, and government organizations. With few exceptions, the dumpster fire that is Twitter has turned both more dumpster-y and more fiery over the last weeks and months. It’s become considerably less fun. It may be time to clear out the ol’ Twitter feed with a chain saw to see if we can correct that issue before deciding whether or not platform is hopelessly beyond redemption.

2. Government spending. The only time the US Government spent more money than it is right now, we were fighting a war of national survival against Nazi Germany and the Empire of Japan. Now I don’t mean to imply that the Great Plague and its fallout haven’t been bad, but I’m not sure it has been end of western civilization bad. That won’t stop us from collectively throwing absolutely shit tons of money at it though. We seem to have gotten use to throwing around dollar amounts denominated in trillions over the last year, but the reality is the amount of debt we’re collectively financing to pay for short term stimulus versus long term growth is simply staggering. If it’s true that we ended the Cold War, in part, because we spent the USSR into oblivion, I don’t have a hard time imagining the day when we, too, reach the upper limit of our national line of credit. It’ll make what we currently think of as hard times feel like the most welcoming Spring day.

3. Walkers. The warm weather this week, as it does every spring, has brought out the neighborhood walkers in force. This fine. Good on them for wanting to be out stretching their legs at bit. Personally, I prefer taking the air in my own yard and woods, but to each their own. People wandering past all afternoon doesn’t particularly bother me. I’m tucked in to the back of the house with better views than out to the street. The problem, because of course there’s a problem, is that as much as I don’t mind, at least one of my canine residents minds terribly… and shows it by frantically barking at every single thing that moves anywhere within his line of sight. I can’t stop people from walking, but I am strongly considering bricking up every window on the front of the house. 

Thoughts on the death of a pipeline…

I was raised in coal country. My childhood memories are punctuated with the sound of a CSX locomotive and open coal cars rumbling through the center of town. I don’t have to tax my memory to recall its whistle screaming as the engine pulled its load across the level crossing at Union Street. Those trains were as much a part of town as any of the buildings that stood overlooking the tracks. Still, they haven’t run coal south through Midland in a long time. Then again, a lot of those old buildings are gone now, too. 

My home town’s entire reason for being was to support the men who went down the mines in the 19th and 20th centuries. I grew up riding bikes in the shadow of draglines and immense tailings piles carted out of the deep mines a hundred years before I was born. Even those “coal banks,” pressed hard against the backs of the town’s two churches, are long gone following a spate of reclamation and restoration efforts made a decade or two ago. It’s a not-so-subtle reminder that, for good or bad, we’re living in the closing era of the coal industry. Government – and the people – are going to demand “clean” energy options going forward.

You can rage against it all you want.  There’s no silk weaving mill in Coney anymore because it didn’t make economic sense in 1957. There’s no Kelly-Springfield plant in Cumberland because it didn’t make economic sense in 1987. There’s no Bethlehem Steel in Baltimore because it didn’t make economic sense in 2012. Maybe you see where I’m going with this line of thought.

Sure, hang on grimly to your plant or pipeline. Get out of it whatever you can in the time it has left. The oil is still going to flow – by rail or truck or one of the hundred other pipelines crisscrossing the continent. A few mines may hang on for decades yet, but the battle is over. Coal from western Maryland will never again fuel the ships of the Great White Fleet. Oil, over the next few decades, is going to be phased out. The future is ugly ass wind turbines marring every mountaintop and offshore vista and acres of solar panels where there use to be open fields.

The economy has always been built on creative destruction. It sucks when you’re on the “destruction” side of the equation. Ask the men who built wagons what happened after Henry made the car affordable to the masses. I take no pleasure in acknowledging this, because the end of this type of industry is going to have real and lasting negative impacts on my old home town and the people I know there. Pretending it’s not going to happen, or that we can somehow reverse the inexorable march towards the future isn’t going to help them, though. 

Times change. Technology evolves. King Canute couldn’t order the tide to go out and we’ll fare no better trying to resuscitate dead and dying industries and ordering the future to be an exacting continuation of the past. 

That’ll be an unpopular opinion where I’m from, but as a lifelong holder of unpopular or controversial opinions, I’m ok with that. 

Plague economics…

I can’t tell you how many times in the last 6 months I’ve heard or read someone say “Wall Street isn’t Main Street” or “the stock market isn’t the economy.”

That’s usually shorthand for telling your readers or viewers you want them to ignore record setting highs in the market in favor of focusing on more gritty, personal stories about small businesses. Those businesses are important. No one loves their small, local book shops more than I do, but I’m not going to sit here pretending that how the market does is irrelevant to the overall health of the economy or that it’s only “the 1%” who take advantage of its magical power of wealth creation.

Despite the popular press narrative that most people aren’t impacted by the stock market, the opposite is really the case. According to an article released by Pew Research in March 2020, “a majority (52%) have some level of investment in the market. Most of this comes in the form of retirement accounts such as 401(k)s.” If something north of half the people having a vested interest in Wall Street doesn’t count as having a deep influence on Main Street, I don’t know what would.

Yes, how “invested” someone is depends on many factors – age, race, and income, among others – but you really sound like an idiot when you write an article trying to convince me that I should feel badly that the market is booming. I’m never going to be upset by a story that tells me real money is being made by real people. Even when it’s painted as a story of winners and losers, I’d reminded them that there are winners and losers in ever field of endeavor – none of the great -isms of history have managed to change that beyond shifting a bit of who gets what. The wheel turns, but some group is always on top at any given moment – princes of the church, members of the politburo, or heirs to the House of Morgan – and they reap the reward of being in the right seat at the right time. I’ve never felt the need to hate them for that.

The two streets measure (mostly) different aspects of the economy. While I’ve made an effort to support local businesses with my spending during the Great Plague, I won’t for a moment feel bad about seeing growing equity prices. Both sides of the economy are important and while I’d love to see both go like gangbusters in an endless bull market, having half a loaf in this plague-ravaged environment is something to celebrate.