Why Everything Is a Mess and You're Paying For It

The New York Times tussles with the truth and almost gets a draw

There’s a reason inflation and the economy are the most prominent issues in voters’ minds: For almost two years, the cost of every last thing you buy has been going up at a pace that considerably outstrips the (nominal) growth in wages. What that means is simple: Your standard of living is going down. And the electorate correctly senses that our real problems have only just begun. The consensus is that because inflation is continuing at a high if not ruinous rate, the Fed will continue to have to raise interest rates to suppress business activity and consumer demand. That means we’re in for a recession. The only realistic questions among those willing to face reality are how deep and for how long.

Among the MSM, of course, it’s impolite to say “recession,” so you don’t hear it that much (and won’t until after November 8). The only things it’s polite to say are “abortion” and “January 6.” But reality does have a way of intruding, so much so that even the NYT felt obliged to print a story yesterday about the galloping cost of living since President Biden and the Democrats took power 22 months ago.

Of course the story wasn’t introduced that way. Instead it was titled, “Two Inflation Crises,” and its thesis is that inflation is best understood as, you see, a global problem with global causes.

In truth, there’s something to that. The worldwide COVID pandemic and Russia’s war in Ukraine — the one Biden’s diplomacy failed to avert and has failed to stop — are in fact responsible for a measure of the inflation we’re suffering. But eventually the Times gets around to admitting that there’s more to it. It acknowledges that the Administration’s

…responses to the global crises also influenced inflation, at times making it worse than it otherwise would have been.

Right there I knew I was seeing something unusual in the New York Times.

Policymakers’ initial instinct during the pandemic was economic preservation. To prevent Covid from setting off a deep recession, they enacted relief measures. In some cases, they might have gone too far: The point of stimulus packages is to elevate spending and demand, keeping the economy afloat. But if supply can’t keep up with the new demand, prices will rise.

Notice what’s missing here — the size of the “relief measures.” They totaled over three trillion — that’s “trillion” with a “t” — in spending, all of it “financed” simply by printing money and sending out government checks. So now we have inflation. What a surprise!

Once they did, central banks were also slow to respond — believing that the inflation would subside as the impact of global catastrophes like the pandemic faded. So inflation increased unchecked.

The U.S. suffered from both problems. America spent among the most of any country in the world on economic relief, likely leading to too much demand and then worse inflation. And for much of 2021, the Federal Reserve viewed rising prices as a temporary phenomenon; it didn’t acknowledge that inflation was enduring until late last year.

That combination of overstimulus and central bank inaction helps explain why the U.S. had the highest inflation rate among its peers until Russia’s invasion of Ukraine.

If it weren’t for the war, the U.S. could still be worse off than the others. America still has a higher core inflation rate, which excludes food and energy prices, than many of its peers — indicating it has deeper problems than the global events that are primarily driving up food and energy costs.

The Times’ story is noteworthy both for what it admits and what it conceals. Remarkably, it admits that the Administration bears no little responsibility for the ruinous rise in the cost of living, and that while there were causes other than the Administration’s policies, those policies have made things worse. But it conceals, not merely the gargantuan size of the Administration’s overreaction, but the key factor that made its over-reaction so damaging.

Our response to COVID wasn’t merely recklessly to goose the money supply. It was recklessly to goose the money supply while intentionally and substantially suppressing the production of goods and services through mandatory commercial and industrial lockdowns.

You don’t get inflation merely because there’s more money being created. You get it when there is money being created that does not correspond to, and instead exceeds, more goods and services getting supplied. It was the lockdowns as much as the antic expansion of the money supply that did us in and now spell so much trouble — specifically, recession — for the future.

To be fair, there was reason for the lockdowns, at least as first introduced. “Flatten the curve,” remember that one? The perfectly sensible idea was to abate the explosive spread of the disease so that emergency rooms would not be overwhelmed at the outset and the delivery of medical services could be adjusted and expanded to cope with a new and (mostly for older people) serious disease.

But it went on……..and on. Weeks of “flattening” became months and then more than a year. And why was that?

That’s a complicated question. I doubt I have the whole answer, but a part of the answer is our culture’s grossly excessive degree of risk aversion, combined with an inability or (more likely) unwillingness to see what risk aversion costs us; it’s as if we thought, or pretended to think, that gutting the economy would have only minor long-term consequences. That is not so, and was known to be not so at the time, at least by those (often shouted down as callous or worse) willing to speak the obvious if unwelcome truth that the lockdowns would exact costs of enormous if unknown scope.

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Still, hope peeks out from Pandora’s box. When the New York Times, of all things, is willing to acknowledge a number of important and politically highly inconvenient facts about why we find ourselves in the shape we’re in, and do it a scant three weeks before the election, perhaps journalism isn’t quite done for. A long term ICU patient, yes, but not dead yet.