It is counterintuitive, but good news in the economy frightens people, especially those who want the economy to be good. People are watching "the Fed," the Federal Reserve Bank decision makers who control the money supply and therefore the cost of borrowing money.
In recent memory 10-year treasury yields were nearly zero. People have anchored that zero rate as a before point, an original position, before Biden. Now they are almost 4.79 and they have been on a steady climb.
Most Americans are not retired and living off of investments. They are paying interest, not earning it. Some of them are hoping to buy homes. Home prices have stayed high. New homes are hard to site and expensive to build, so new supply is not coming on line in places where the jobs are. The housing crisis of 2008-2012 shrank the construction trades. Contractors went broke. Workers left the industry. Meanwhile, inflation hit the cost of materials. Industry professionals tell me that building residential housing in Southern Oregon would cost me a minimum of $250/square foot, and that is on top of the purchase of a development-ready lot. New housing is nowhere near "affordable" based on local incomes.
For several years -- 2018-2020 -- mortgage rates were in the 3% range. People mentally anchored on that -- the good old days. Now rates are over twice that, hitting 8%. Home buyers face the double whammy: prices stayed high while financing prices grew.
Democrats' fueled the post-Covid recovery with easy money. It worked. The economy surged back. Inflation here is lower than in Europe, but Americans see what they see, higher prices. Democrats get the blame for inflation. Statistics show the overall rate of inflation is down.
A strong labor market means the Fed will likely keep raising rates. The Dow Jones Industrial Average is flat for this year. The SP500 is up 12% but that is entirely due to a half-dozen very large technology stocks. Unless one owned a disproportionate share of those giant companies, one fell behind. If one did, one feels lucky, a bullet dodged. There is not a broad-based stock market "wealth affect" making investors feeling comfortable about their retirement funds. This is another place of distress.
There is a bright spot. Workers, especially entry level and lesser-skilled people, are in demand and can readily find work if they seek it. That mood trickles up, so we see growing demand for pay raises and unionization. Farm owners have to scramble and pay up to get workers who will show up. $25/hour is the new wage paid to get work done in Southern Oregon vineyards.
The strong jobs report is a net good sign for the economy. Fed Chair Jerome Power promised generalized economic "pain" -- his word -- as necessary to end inflation. Instead, we are getting a soft landing. It turns out that some localized points of pain have emerged, and unluckily for the incumbent president, they come in the places people most notice prices and values: gasoline prices, interest rates, the value of their retirement savings, and from the point of view of employers, the price they have to pay to get work done.
Politically, Biden "owns" the economy, and he has labeled it Bidenomics. It reflects on Biden's core point of comparative value: governing competence. If the 2024 election is a referendum on the economy, it will be hard for Biden or any Democrat. But it won't be. Trump insists on being the center of attention, so it will be a referendum on Trump. That is the sweet spot for Democrats.
6 comments:
2024 will not be a referendum on the economy. It will be a referendum on who best represents American values.
On the one hand, we have a president who cares about people and has served the public for decades with honor and distinction. On the other, we have an ex-president we know all too well: a scam artist who tried to overthrow the government. His incessant lies promote fear, anger, hatred and racism, resulting in a surge of hate crimes and threats against everyday Americans such as election workers, teachers, school board members, public health officials etc. He’s gone out of his way to make it clear he couldn’t care less about the government, the Constitution or anyone but himself.
Right now, polls show that about half the electorate would prefer the psychopath. Some say we need to understand and empathize with them. Understanding is easy – they’re batshit crazy, but I’d be worried about anyone who can empathize. The U.S. has some bad karma. It looks like it may be catching up with us.
The U.S. inflation rate was 3.7% in August, 3.2% in July. That is not a high inflation rate. The Fed's fixation on 2% is unwarranted. There is no evidence that a healthy economy requires a 2% rate. For most of the 20th century it was significantly higher, usually higher than the current inflation rate, and yet people thrived. Workers are thriving more now than they have for the last two decades, which may be why the Fed wants to put the brakes on. Regarding housing, in 1966, when I bought my first home, the mortgage rate was 6%. That wasn't considered high. The problem with housing isn't the mortgage rate so much as the inadequate housing stock. And as for affordable and low-income housing, we've known for years that the market can't supply it. In most other industrialized nations, there is a large investment in public housing.
What government does mostly is react to economic events, usually too slowly to be of any effect in the short term. As a result the ups and downs become politicized, especially when one party has an agenda that is not in the public interest.
The administration should educate the public on the fact that government does not, can not, completely control the economy. The sooner people accept this basic fact and learn how the it actually works the better off more will be, certainly less susceptible to partisan political misinformation.
I agree.
I think Biden has done an excellent job of staying in his lane.
One problem is the inordinate amount of attention the media pays to TFG - and not just conservative outlets. It's dumbing down Americans.
If Russia launched a nuke the lede would be TFG praising Putin's actions.
Big Oil does not like Biden. MBS cut production to increase the price per barrel. Petroleum and gas drilling has, in oil company’s opinion, regulatory headwind. Extreme weather events have disrupted refinery production. The high cost of fuel significantly increases the inflation rate. EVs and ICE vehicles are affecting Big Auto. Again, Detroit is bucking the trend at the cost of market share. Infrastructure projects are not coming online fast enough due to Congressional foot-dragging and dysfunction. None of this bodes well for Joe six pack or the average blue-collar working family. Nothing in the current economy appears to be hope on the horizon.
How is being dependent on the terrorists in the oil-producing Middle Eastern countries good for our national security?
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