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The Now Economy
I hate most airlines, but ask me on any given day which one I absolutely hate the most, and I will always give you the same answer: The one I’m on today.
I feel the same way about FedEx vs. UPS: They are both unreliable at times and maddeningly opaque, but the one I dislike most intensely is the one that has disappointed me most recently.
(That’s you this week, UPS.)
That’s a variation of “present bias,” as the behavioral economists call it. Present bias is your preference for getting paid less today rather than getting paid more tomorrow — accepting a smaller reward in the here and now rather than holding out for a larger one in the future. It’s also what pushes us toward consumption over savings.
Present bias isn’t necessarily irrational: As the famous economist Rooster Cogburn put it, “I don’t believe in fairy tales, sermons, or stories about money.” Sometimes, tomorrow’s payday doesn’t come, or it takes a lot longer to get here than you expected.
(Especially if it’s being sent by UPS.)
Just as we tend to add a modest multiplier to benefits had in the present, freshly inflicted wounds are the most sensitive — scars can, eventually, become a good story. And what is true of deep wounds also is true of minor irritations.
To be clear, this is not going to be a column about parcel services, and I don’t much fault UPS for this week’s delays, although it could be a lot better about transparency and such. I can live with three days late — it’s indefinite delays that rankle, or three-day delays that become nine-day delays. My disposition is such that I’m willing to be pretty flexible about things like delivery dates and other details, but, once something has been agreed to, I expect people (and companies, and governments) to stick to the agreement. If Instacart needs an extra three hours to deliver my groceries and says so up front, then I’m the picture of equanimity until T-plus 2:59, at which point I start to turn into the Tasmanian Devil from the Bugs Bunny cartoons. I hate having my time wasted, not because I am so busy but because wasting someone’s time is an expression of contempt for them. And that is especially galling in relationships where my direction of cashflow is outward.
(Like most people, I am a lot easier to get along with if you are paying me than if I am paying you.)
While trying to figure out when UPS might return to its more or less usual predictable mediocrity after the winter storm in Texas (where UPS operates many facilities, including a regional air hub), I inevitably fell into the rabbit hole of customer horror stories, a genre that thrives on the Internet and one to which I have made too many enraged and petty contributions of my own. The complaints offer a snapshot of the U.S. economy in this waning winter of discontent: Blue-collar small-business owners complain about being sidelined, their businesses effectively suspended because critical parts and supplies have not been delivered to them on time, costing them thousands of dollars in lost business; at the other end of the market, customers of Louis Vuitton are reporting a high degree of frustration with delayed deliveries, and one poor fellow who had paid good money to get a pair of highly desirable new sneakers delivered to him pre-release won’t even have his kicks on release day, much less beforehand. One sympathizes.
This is a weird time for our economy. We’ve been through some truly terrible stuff, a long ugly chaotic run from the subprime meltdown and the Great Recession to dysfunctional health-care markets, a fruitless and destructive trade war with China that suplex-slammed many American farmers, the COVID-19 mess that saw U.S. GDP plunging at a rate of 32 percent while unemployment spiked to 15 percent, and goodness only knows what next.
And what came of all that? It was very hard on those who already were unemployed or marginally employed, who had little savings and little room for error, including something on the order of 12 million renting households who collectively owe back rent that may add up to more than $70 billion, by one estimate. Moody’s Analytics calculates that the typical distressed-renter household owes about $6,000 in back rent and fees, or between three and four months’ rent. There isn’t any good outcome likely there: Many of them will end up being evicted and put into even worse circumstances than they already are, and many small landlords, who often have only modest incomes, will be ruined by their renters’ defaults. There are good reasons not to intervene there, but, for perspective, consider that the Democrats’ proposal to forgive the student loans of nice young progressives who went to Haverford and Oberlin could pay off those poor Americans’ back rent 22 times over. If you’re into that sort of thing.
At the same time: The Dow closed at a record high last week, car dealers and art dealers both are enjoying record profits, commodities prices from oil to soybeans to copper are soaring, and, as though some rank symbolism were needed, the display cases of the nation’s Rolex boutiques are stripped as bare as a San Antonio supermarket after a polar vortex. It is difficult to think of another plague that has been accompanied by quite so much high-end conspicuous consumption.
Some of it is bewildering. I recently went car shopping, and, like any middle-aged Texan with reasonably good credit and a rich fantasy life based on immoderate boyhood viewings of Red Dawn, I took a look at some wonderful customized trucks, mostly from the Rocky Ridge gang. I had no real intention of buying any such thing (the roads are paved where I live — badly paved, nonetheless paved) but I was almost offended at the prices. Cool fender flares or no, there’s no way I’m paying a hundred grand (in the imaginary world in which I’m in the market for a $100,000 car) for a jacked-up Ram pickup. But they don’t need to sell one to me: They can’t keep them on the lot. High-end Jeeps, Toyota trucks, Range Rovers, Corvettes, the Mercedes S-Class, and other rolling emblems of mid-American ostentation are going as fast as they can unload them.
New-car prices are strong because of production interruptions that have taken the slack out of the inventory, but business is booming in everything from flower shops to bicycle builders to guitar luthiers. Some luxury-goods sellers have been hit by the lack of tourists visiting their boutiques on vacation, but even unwieldy global conglomerates such as LVMH Moët Hennessy Louis Vuitton are holding up pretty well — the firm just announced that it has acquired a 50-percent stake in Jay-Z’s Armand de Brignac line of Champagne in a deal said to be worth hundreds of millions of dollars. The wine shops are doing an astonishing trade in $750 bottles of Chateau Margaux, and if you want to buy a new Rolls-Royce or Lamborghini, you’ll be lucky to take delivery sometime toward the end of 2022 — and they’ll act like they’re doing you a favor. Even for a fun-loving capitalist running dog such as myself, this looks like madness.
But even with all that bananas spending going on, the savings rate is soaring.
Aren’t we supposed to be in some kind of national crisis?
Some of the boom is being yanked out of the pockets of the hospitality industry, as COVID-19 shutdowns have Americans redirecting some of the money they would have spent at restaurants into other purchases. Some of it is stimulus checks hitting the bank accounts of people who don’t need the money. And some of it is — probably — inflation.
If you look around for inflation the way most people think of it, you won’t see a lot of it. “Core” consumer prices, as they are known, have been pretty flat, and what rise in prices that consumers have seen has mostly been in oil. But, in spite of the way the term is used, inflation really should not be treated as a synonym for a general rise in consumer prices. Inflation is an increase in the money supply not linked to an increase in economic production — rising prices are one possible consequence of inflation, but are not inflation itself.
For generations, the abuse of fiat currency — “printing money,” as the goldbugs say — was accompanied by steep and often disastrous spikes in the prices of everyday items such as bread and shoes. If that is what you mean by inflation, then there is little sign of it on the horizon, no matter what my fellow libertarians are forever promising. But if what you mean by inflation is a big increase in the money supply, then there is oodles of it: The M2 measure of the money supply has increased by 26 percent over the past year, as the Wall Street Journal reports.
John Greenwood and Steve Hanke write:
Speculative manias are in the air, as evidenced by the recent price surges for bitcoin, a digital asset with a fundamental value of zero, and GameStop, a declining retailer. Along with the other economic trends—a strong recovery, surging commodity prices and an uptick in inflation—those asset bubbles have a clear cause: the massive expansion of money and credit.
Yet America’s fiscal and monetary masters are turning a blind eye. They are focused solely on mending the labor market. With the fervor of messiahs, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen tell us the only way to save the labor market and reach full employment is to continue to pour fiscal and monetary fuel on the fire. But their prescriptions and prophecies, modeled on the playbook of the 2008 financial crisis, are not valid today.
Why the “speculative manias”? With interest rates having been at or near zero for a long time now, investors are desperately looking for higher yields wherever they can find them, from exotic assets to risky investments in China, where Ant Group investors just received a brutal reminder that political risk is both enormous and unpredictable in a one-party police state. And it isn’t swashbuckling Gordon Gekko types running after big returns on dodgy investments: The big movers and shakers here are the nation’s schoolteachers, police officers, firefighters, and sundry municipal bureaucrats whose pension funds comprise some of the biggest pools of investment capital on earth.
Inflation, meaning the artificial expansion of the money supply beyond what increase productivity demands, is supposed to devalue currencies. Has that happened? The dollar remains pretty strong vis-à-vis the items in the basket of goods that control CPI calculations, and it remains pretty stable vs. the euro and the yen, having declined only slightly against them in the past year, while it has gained just a little on the Swiss franc. So the value of the dollar is pretty solid if you are in the market for bread, gasoline, or foreign currencies. On the other hand, the value of the dollar has declined significantly against certain financial assets, commodities, certain luxury goods, etc. That is another way of looking at the rise in prices in these sectors: If a wristwatch is worth more dollars, then the value of the dollar has declined as measured by wristwatches. Not everybody is in the market for a fancy timepiece, but most Americans — the vast majority of them — live indoors, and the value of the dollar has declined quite a bit in terms of houses. In 2020, the collective market value of the total stock of housing in the United States increased by $2.5 trillion, driven not by new construction but by rising valuations of existing housing. The nation’s houses are a year older and have an additional year’s worth of wear and tear on them — why should they be worth $2.5 trillion more? The population isn’t growing fast enough to bump up demand such that prices would climb so dramatically.
This is the Now Economy. To be clear, I am not an economist and do not purport to explain this in technical terms. I am not even necessarily arguing for tighter monetary policy — some very smart people, including my colleague Ramesh Ponnuru, believe that we would be better off if inflation were given a little more leash. But the run-up in stocks and commodities, paralleled by the run-up in real estate, luxury goods, Bitcoin, etc., has the feel and smell to it of cheap money chasing a stagnant or declining pool of opportunities for investment and consumption. Perhaps the stock market and the commodities indices reflect some underlying economic prowess that is too subtle to be detected by the likes of me. Or maybe it is, at least in some part, a series of bubbles created by increasingly desperate efforts to stave off certain economic realities that must one day be dealt with, from public debt to unfunded pensions to entitlements to labor productivity.
Globalization and ruthlessly efficient markets may keep the prices of ordinary consumer goods from going all zany Zimbabwean on us, and the specter of the stunned burgher pushing a wheelbarrow full of rapidly depreciating paper currency down to the baker’s to exchange for a single loaf of bread may be one of the many powerful historical images that has outlived its practical usefulness.
But that doesn’t mean that all is well. It could mean that market distortions are simply happening in silos — the change is dramatic in each silo, and there are a lot of silos, but it does not have the look and feel of a general condition because a box of Kraft dinner still costs what it always costs. But when stocks are trading at price-to-earnings ratios that are unusual and, let us say, optimistic, and Ferraris are selling like Honda Civics, it is hard not to get an impression of frothiness. It’s not just GameStop and Bitcoin.
Maybe I am a pessimist or am temporarily possessed by the ghosts of my beloved New England Puritans, but this feels just a little like a game of musical chairs. Everything looks peachy right now, but I wonder how soon we’ll be saying, “It seemed like a good idea at the time.”
Words About Words
From the Washington Post:
[ESPN’s Doris] Burke sees a different silver lining to the pared-down travel schedule.
“I’m watching maybe more basketball right now than maybe ever,” she laughed, “and I watch a lot of basketball.”
But she still considers the simple act of being there tantamount.
Maybe she said she considers the act of being there tantamount, but she meant that she considers the act of being there paramount. In this case, tantamount means the opposite of what she intends to say: If watching the game on television were tantamount to being there, then it would be equivalent to being there. That’s what tantamount means: Her statement was tantamount to a confession; His negligence was tantamount to murder; The invasion was tantamount to a declaration of war.
You can see the word amount in there, and the English word comes from the Old French expression tant amunter, meaning to amount to as much. Paramount, meaning in the highest place or degree, comes from the Latin phrase per ad montem, to the mountain, via the French paramont. The state of being paramount is paramountcy.
I’m not entirely surprised that the Washington Post doesn’t know the difference, but ESPN?
Thanks to reader John G. for the tip.
Shined is a transitive verb. That means it is something that something does to something else. I shined my shoes; The sun shined on the righteous and the unrighteous alike; The lights shined on the crowd in Times Square. Shone is intransitive: The sun shone all night in Norway; Osaka shone in the tennis match. My guess is that people resist using shone in its proper context because it is a homophone for shown, and we instinctively resist formulations that sound nonsensical, even if the sound is coincidental.
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The death of Rush Limbaugh provoked approximately the reaction I expected, i.e., one that made me ashamed to be a member of this awful species of ours. But one struck me as particularly egregious: that of Bishop Talbert Swan of the Church of God in Christ, who opined of Limbaugh: “Wishing him to rot in hell is being kind.” I think you can write and think that way and call yourself a barely literate columnist for the Arizona Republic or a histrionic peon on Twitter, but I do not think that you can maintain that attitude and call yourself a minister of Jesus Christ.
Bishop Swan would not be the first to let the purple go to his head: “He spake this parable unto certain which trusted in themselves that they were righteous, and despised others. . . .”
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