Inertia and the American oil tanker

An oil tanker can measure up to 1300 feet (400 meters) in length and carry 550000 DWT (dead weight tonnage), making them the behemoths of the seas. Because of their mass, tankers have large inertia.

A loaded supertanker could take as much as 4 to 8 kilometers and 15 minutes to come to a complete stop and has a turning diameter of about 2 kilometers.

The U.S. economy is the ULT (ultra-large tanker) of the world’s economies. It takes time to get up to speed and time to slow down.

Keep that in mind as you read excerpts from the following article:

The Biden Economy and How It Could Be Fixed, By Andrew F. Puzder Businessman and Author, The Capitalist Comeback: The Trump Boom and the Left’s Plot to Stop It

The following is adapted from a talk delivered on February 22, 2023, at a Hillsdale College National Leadership Seminar in Indian Wells, California.

Just about everybody on Wall Street knows, despite what you read in the financial press, that the Biden administration’s economic policies are driving our economy into a recessionary ditch.

This is the mark of the conspiracy theorist. He claims “just about everybody on Wall Street knows this,” but the “financial press” doesn’t.

One wonders who constitutes the “everybody” and where “everybody on Wall Street” gets its information if not from the financial press. Fox News, perhaps?

In a recent Wall Street Journal survey of 23 large financial institutions that do business directly with the Federal Reserve, 16 predicted a recession in 2023 and two predicted a recession in 2024, while only five predicted that we would avoid a recession.

A recession is predictable because the Fed wrongly follows a recessionary policy to reduce inflation.

Unfortunately, a recession is not the opposite of inflation, as the term “stagflation” indicates. Curing inflation should not require causing a recession.

A recession is defined, traditionally, as two consecutive quarters of negative economic growth. At least it was defined that way before the financial press redefined it prior to the 2022 midterms, ensuring that despite two consecutive quarters of negative growth, President Biden’s policies couldn’t be labeled recessionary.

But regardless of the definition, this negative growth meant declining standards of living, fewer job opportunities, lower wages, and increased poverty for the American people. 

Puzder complains about “fewer job opportunities” under Biden when the unemployment rate is near a low not seen since the 1950s — and lower than during the Trump administration.

The hard economic times we are experiencing are especially striking as they come on the heels of the Trump boom, which opened our eyes again to American economic potential when we have low taxes, reduced regulation, and a bountiful supply of domestic energy.

Low taxes (but only for the rich), reduced regulation (of the rich and of the banks that caused the last recession and went bust this year), and a bountiful supply of energy (thanks to alternative energy, which Trump hates, along with a compliant OPEC and no Russia/Ukraine war).

Everybody, particularly minority and low-wage earners, reaped the benefits in the Trump years of abundant job opportunities, increasing wages, historic highs in family income, and historic lows in rates of poverty and unemployment.

It’s difficult to say that low-wage earners benefited from Trump’s tax cut for the rich. Comparing the economic times under Biden vs. Trump, one sees that Biden’s time was better regarding lower unemployment and greater real GDP growth.

Turning the clock ahead, since March 2021, two months after Biden took office and began reversing Trump’s economic policies, the Consumer Price Index—the average in prices paid by consumers for goods and services, by which inflation is commonly measured—has surged. And it continues to surge. 

Granted, the Federal Reserve has to take some of the blame. It failed to react in a timely manner when inflation started to set in.

(Similar to the way Trump failed to react timely to COVID).

Coming out of the pandemic, we knew two things. First, we knew the federal government handed out $5 trillion during the pandemic, and people had minimal opportunity to spend it since they weren’t traveling, eating out, going shopping, etc. So in 2021, Americans had a lot of cash.

The second thing we knew coming out of the pandemic was that fewer people were working.

The result was a low supply of goods.

Excess demand and low supply: this was the situation when Biden took office in 2021. And as any student of elementary economics knows, when demand exceeds supply, you get inflation.

The emphasis had been on low supply when Trump left office, partly due to Trump’s denial of COVID and the resulting millions of workers hospitalized and dying.

Had he encouraged masking and vaxxing, the supply situation would have been less difficult.

Isn’t it pretty obvious what should be done in that situation? You should adopt policies that juice supply and avoid adopting policies that juice demand.

Partly right. All inflations are caused by shortages of critical goods and services, most often oil and food.

To cure inflations without causing a recession, the federal government must use its infinite financial power to increase the availability, i.e., the supply, of those goods and services.

Raising interest rates, which the Fed has done and still is doing, indicates an attempt to use a recession to cure inflation.

Puzder, like all right-wingers, hates to help the middle classes and the poor financially. Helping the rich with tax cuts seems to be fine.

Were we not to have “policies that juice demand” (i.e., not give people spending money), we would make the same mistake the Fed is making: Attempting to use a recession as a cure for inflation.

Instead, the Biden administration proceeded to do the exact opposite.

Despite the solid-block refusal by the GOP to cooperate in anything that could help Democrats and the economy and the recalcitrance of Democrat Senators Sinema and Manchi, the Biden administrate managed to accomplish a surprising amount.

1) $1.2 trillion infrastructure package
2) $1.9 trillion COVID relief deal
3) Highest appointment of federal judges since Reagan
4) Halt on federal executions
5) Rejoined the international Paris Climate Accord
6) Mandated converting the federal fleet to zero-emission vehicles.
7) Support for transgender service members.
8) Reduced unemployment.
9) Strengthened QUAD, alliance U.S., India, Australia, and Japan.
10) Student loan debt relief
11) Used the Russia/Ukraine war to strengthen NATO, which Trump tried to weaken.
12) Imposed crippling sanctions on Russia
13) Fought Saudi’s oil price increases by releasing 180 million barrels of oil from the country’s Strategic Oil Reserves.
14) Pardoned people convicted of a federal marijuana charge
15) Respect for Marriage Act
16) Prevented the rail strike and gave workers a significant raise.
17) Passed Government Funding Bill
18) Got us out of Afghanistan, ending years of American deaths.
19) Expanded healthcare.
20))Defended Obamacare

Although the pandemic recession was the shortest recession on record, the economic chaos it created was incredible. And as Milton Friedman said in 1964, the deeper the recession, the greater the recovery.

A little more than a month into the Biden presidency, on a totally partisan basis, the Democrats in Congress passed and Biden signed a $1.9 trillion spending bill they called “The American Rescue Plan.”

Yes, it was “totally partisan” because the Republicans refused to aid financially-challenged Americans.

This so-called rescue plan handed out more cash to American consumers, further increasing demand, and discouraging work, further decreasing supply. That this economic suicide.

The so-called “economic suicide” helped prevent a recession or a depression.

As far as “discouraging work,” the number of workers today is greater than ever in our history and is rapidly increasing, as the above graph shows.

It is vogue in right-wing circles to claim that the middle classes and the poor have no aspirations, so if you give them money, they won’t work.

Perhaps, the right-wingers have no desire to make an effort, so they believe sloth is universal. Still, most people prefer to work for more income than unemployment compensation provides.

Today’s shortages, and the resultant inflation, are not due to a lack of workers. Today’s inflation is due to oil shortages, which impact every industry. OPEC and the Russian invasion of Ukraine are primarily responsible.

Biden ordered the release of 50 million barrels of oil from the Strategic Petroleum Reserve on November 30, 2022, 60 million barrels on March 1, and 180 million on March 31.

Larry Summers, who served as Secretary of the Treasury under President Clinton and as head of the Council of Economic Advisors under President Obama—a former president of Harvard and a well-respected liberal economist—called this the least responsible economic policy in 40 years.

Quoting Larry Summers on economic policy is like quoting Donald Trump on marriage fidelity. If you would like to learn more about Summers, who is the classic example of the Peter Principle, see here.

With wage growth unable to keep up with inflation, savings melting like an ice cube in the summer sun, and credit card debt rising to historic highs, we’re facing higher interest rates, declining job opportunities, and increasing economic pain for American families.

The above is false. Real (inflation-adjusted) wages went down after the recession (in the two years between the 2nd quarter of 2020 and the 2nd quarter of 2022).

Before and after that, real wages have risen, and are rising again at the latest report, and are well higher than in pre-COVID years.

Since the year 2000, real wages have exceeded inflation.

Higher interest rates are due to the Fed’s mistaken belief that the current inflation was caused by low interest rates and will be cured by high interest rates. All inflations are caused by shortages (most often shortages of oil or food), and all are cured by eliminating the shortages.

Oil shortages (reflected in oil prices) parallel inflation. Today’s inflation is due to COVID shortages of many goods and services, primarily oil. Job opportunities are not declining; they are high and rising.

Savings are “melting” because, as Puzder himself said, the government had pumped dollars into people’s pockets, and they could not spend them. Now they are spending them.

So is there anything the Biden administration could do?

To repeat, inflation is the result of demand exceeding supply. The Federal Reserve, with its hikes in interest rates, is trying to drive down demand. But if it has to drive demand all the way down to where supply is right now, it’s going to cause incredible misery for the American people.

This is precisely what the Fed is doing: Trying to use a recession as a cure for inflation.

So from an economic standpoint, if the Biden administration wanted to lessen the misery and hasten recovery, it would do whatever it could to increase supply. And there are two areas where it could have a significant positive impact on the supply side: the cost of energy and the cost of labor.

Energy and labor impact virtually everything in our economy. Thousands of products have a petroleum component, and even those that don’t have to be delivered, which requires oil and gas. And you can’t build, manufacture, deliver, or install anything without labor—labor affects the price of everything.

So if your goal were to fight inflation, you would implement policies to drive down energy and labor costs.

True. Raising interest rates does not drive down energy and labor costs. Sadly, the Fed, Congress, and the President don’t understand that.

Biden has advanced this goal as president by, among other things, killing oil pipeline projects, failing to grant oil leases, failing to approve drilling permits, and limiting the ability of energy companies to obtain financing.

He has done everything in his power to reduce America’s domestic energy production, cripple our energy sector, and increase our dependence on expensive foreign oil.

Except none of those things has affected today’s supply of oil. The effect may be felt several years later, but today’s inflation has nothing to do with oil pipeline projects, leases, drilling permits, or financing.

Releasing those millions of barrels from storage helped. Still, OPEC and Russia have cut way back on supplies, and there is nothing that Biden can do about that — other than to encourage other alternatives.

Against the usual pushback by the GOP, the Dems have encouraged, with direct financial support and tax breaks, alternative energy sources — wind, solar, moving water, geothermal, and nuclear. Ultimately, this will do more than oil pipelines to alleviate oil energy shortages while saving us from global warming.

The cost of labor has also continued to surge. The increase in wages that Biden crows about is normally a good thing. But it makes no economic sense to ignore the impact of inflation on the value of wages.

It is simply a fact that workers are better off if inflation is up two percent and their wages are up three percent than if inflation is up six percent and their wages are up five percent. They are making more money in the second case, but the money is worth less. 

All true, except for one small fact. Not only are wages up, but real wages are up.

Why are labor costs surging? Very simply—we have all seen the “help wanted” signs outside businesses all over America—it’s because employers can’t find workers.

Two years after the pandemic ended, there are still 2.8 million workers missing from the labor force. Why? A recent study headed by University of Chicago economist Casey Mulligan, “Paying Americans Not to Work,” found that in 24 states, unemployment benefits and Obamacare subsidies for a family of four with no one working are equal to or above national median household income.

Cute. He compares national medium income vs. total unemployment benefits and Obamacare, and with a family of four, and with no one working in 24 states.

It takes real mathematical twisting to make such a meaningless comparison.

In other words, two years after the pandemic, we’re still paying people not to work at a time when businesses and our economy desperately need workers.

To the right-wing mind, helping people who don’t have jobs is “paying Americans not to work,” as though people are satisfied with the starvation wage of unemployment compensation.

In any event, the notion that people are not working is outdated. As the above graph shows, more people are working, and unemployment is lower than in several decades.

The right-wing cure for inflation is to give tax breaks to the rich while cutting back on benefits to the middle and the poor.

An immediate way to encourage higher net salaries without punishing employers or the so-called “paying American’s not to work” is to eliminate the FICA tax.

Contrary to popular belief, FICA does not fund Medicare or Social Security.

It doesn’t fund anything.

Those FICA dollars from your paycheck (your employer figures his cost of FICA when deciding what to pay you) are paid from checking accounts.

The dollars in checking accounts are part of the M2 money supply measure.

When your dollars reach the U.S. Treasury, they suddenly no longer exist in any money supply measure. They effectively are destroyed.

The federal government creates new dollars to pay for Medicare and Social Security.

Eliminating FICA would provide higher net salaries to all salaried workers, making jobs more remunerative, especially for lower-salaried workers.

The bottom line is this: to address inflation and avoid a deep recession, Biden should, first, tell American bankers, asset managers, bureaucrats, and environmentalists to get out of the way of the energy industry because America needs oil now.

Translation: “Don’t worry about global warming. We’ll leave that problem to our children and grandchildren.”

Second, he should work with Congress to reduce or eliminate the work-discouraging programs that are keeping able-bodied Americans out of the workforce.

We should not cut programs for those who need assistance, but we should reduce benefits for those who are able to work but are choosing not to work. With abundant energy and a vibrant workforce, we could make significant headway against inflation and quickly improve the lives of the American people.

Translation: “Cut unemployment compensation. Make families so desperate they will accept any crap job offered. But by all means, don’t cut the tax dodges available to the rich.”

This isn’t rocket science. But let’s be realistic. The problem isn’t that the policymakers in the Biden administration don’t understand the basic principles of economics.

The goal animating current policy is the transformation of America’s economy and our way of life in accordance with a Leftist political agenda, using so-called emergencies like climate change as a rationale.

Translation: “So-called climate change isn’t real. It’s a Chinese hoax, as Donald Trump says. Pay no attention to the scientists who tell you climate change will destroy life as we know it. Listen to experts like Trump and Puzder.”

Americans need to open their eyes to the fact that our elected leaders across the political spectrum understand clearly what policies will lead to prosperity and freedom for the American people but that only some of those leaders consider prosperity and freedom the goal. We need more of them.

Agreed. Sadly, none of those leaders seem to be Republicans.

While the Republicans have focused on defending Trump and his false claims of a stolen election, the Dems have tried to overcome GOP objections to any economy-building program. The GOP feeling is that the worse they can make the economy, the easier it is to blame it on Biden and the Dems.

Despite headwinds from the GOP and even a couple of Dems, the party has managed to accelerate the oil tanker that is the American economy.

Now, if only they could get rid of that useless, cursed FICA and educate themselves about the realities of Monetarily Sovereign finance, what a wonderful world this could be.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY