Government Policies Have Consequences

For the first time in a while, my phone is ringing with clients concerned about what’s going on in America.

My focus is on what’s going on now with our economy, post-Covid government shutdowns.

No reason to panic (never a reason to panic), but a 180-degree shift in government policies will have a long-term impact.  More government intrusion will and always has led to economic slowdowns.

The biggest economic news is the latest job report:

There were 7.5 million jobs available in the United States, but only 270,000 were filled.

Tough jobs report scrambles Washington battle ahead of a crucial week

Q. Why aren’t so many people getting off their couch and getting back to work?

A. Unemployed Americans are getting an extra $300-a-week bonus (federal unemployment)check to stay home. As Bank of America economist Joseph Song noted, even those making $32,000 a year would get a raise by going on unemployment. That seems like evidence of something horribly wrong. Why work when you can make more money staying home?

Why work for $12/hour when you can stay home and get paid $13.74/hour (unemployment money + temporary federal unemployment)?

$12/hr x 40 hours = $480/week $480 x 52% State Unemployment benefit = $249.60/wk + Federal Unemployment = $300/wk Total Unemployment = $549.60/wk. ($249.60 + $300) / 40 Hrs. =$13.74/Hr.

This makes it super tough on small business owners that have to compete with the unemployment benefits to find workers. If they need to pay higher wages to attract employees they will either do with fewer employees or raise prices. That means more unemployment or higher prices which hurts lower-income people that may want their product.

I’ve personally seen more “Help Wanted” signs than I can ever remember.  Am I the only one seeing these signs?

Stimulus checks are another reason people are delaying work.

My three college students all received $3,400 in free stimulus money!      Insanity!

Two of them filed tax returns this April showing ZERO income (still received money) and none of them has any dependents (good news) to worry about.

Now that two of them just graduated college and money in the bank they had less incentive to go out and find their first job. Simple economics.

This shortage in the workforce is creating big production issues.

Shortages of workers, materials, and equipment have messed up the housing market.  In April 2021, the 12-month moving average of permits issued to build new homes was 136,000 above actual housing starts.  This is the highest on record. Higher even, than the bubble years.

There’s is pent-up demand and not enough workers to keep up with it. The worker shortage will change when the government handouts stop.

These 21 states have already stopped the federal unemployment benefit and will likely recover the best economically.

At Least 21 States Dropping $300-A-Week Federal Unemployment Benefits

Inflated prices are a massive silent tax that hurts lower-income people the most.

Here are just a few ways rising prices under the current administration’s new policies are already hitting Americans’ pocketbooks:

• Prices for a range of goods, including toilet paper, diapers, soft drinks, and plane tickets have increased.
• Whirlpool is raising the prices of some of its appliances by up to 12 percent.
• Food prices are increasing by up to 10 percent. Prices rising WSJ article link
• Gas prices have surged, and experts predict they are going to keep going up. There’s has a ripple effect on prices!
• Manufacturers and builders are facing skyrocketing prices for raw materials.

(Jacqueline Dormer/Republican-Herald via AP)

The current administration has repeatedly promised that they won’t raise taxes on American families earning less than $400,000 per year. Yet widespread and growing inflation due to his policies is — at least indirectly — breaking that promise.

Consumer prices have increased at an accelerated rate every month this year. In April, core inflation rose at its fastest month-over-month pace since 1981. The producer price index grew by the largest amount on record last month. Commodity prices are skyrocketing, with corn rising by more than 50% this year, lumber elevating to four times its traditional rate, and copper hitting a record high.

Average gasoline prices nationwide have risen by about 40% since Biden was elected, exceeding $3 a gallon nationwide. Biden’s longstanding opposition to the Keystone XL pipeline contributed to widespread gas shortages across the Southeast caused by the cyberattack on the Colonial Pipeline. As these input prices filter down to consumer goods, prices will rise even further.

Inflation acts the same way as a tax by reducing the value of earnings. It devastates retirees and those on fixed incomes by making them poorer through no fault of their own. And it hurts small businesses, which must constantly raise prices, reducing sales and alienating customers.

Steel prices are tripling.

New homes cost $36,000 more because of an epic shortage of lumber

Gas hits the highest price in 6 years, fuel outages persist despite Colonial Pipeline restart

Illinois gas prices were up to $3.25 per gallon May 17 for regular unleaded, which AAA reports as the highest average in the Midwest.

Illinois gas prices are the highest in the Midwest partly because the state tax on gasoline doubled in 2019 to 38 cents per gallon from 19 cents. It is automatically hiked every July 1 for inflation, with this year’s boost hitting $0.392 per gallon.

After the last automatic increase in 2020, Illinois’ average gas taxes ranked third highest in the nation. The hike set for July 1 will see the average driver paying the state $105.67 more per year than in 2018.

A summary on inflation and government spending from my favorite economist Brian Wesbury:

Brian Wesbury -“Three forces pushed April CPI to 4.2% year-over-year growth. 1) The base effect: comparing to hard shutdown months. 2) Supply chain constraints and artificial demand from fiscal policy 3) Easy money. All three are pushing inflation higher…it’s not all transitory”The divergence between consumer spending and actual production is a manifestation of inflationary economic policies, which also showed up in last week’s reports.  Consumer prices are up 4.2% from a year ago while producer prices are up 6.2%.  That’s what you get when people are spending more dollars provided by short-term-oriented government policies, not the return for the production of actual goods and services.

But, ultimately, there is no free lunch.  All extra government spending today must be paid for by reduced spending by others, today or in the future.  Yes, in theory, there are some “good” infrastructure projects out there that could help the overall economy. But the monies for those projects could easily come out of other government spending commitments; they shouldn’t add to the deficit or require higher taxes, which themselves will tend to dampen future economic growth further. First Trust Monday Morning Outlook

For now, there are plenty of reasons to remain bullish.  Opening up is the best stimulus and the economy still has a long way to go to get fully open.  Look for further gains in production in the year ahead, even as policymakers in Washington adopt some policies that hurt us in the long run.

Opening up is the best stimulus and the economy still has a long way to go to get fully open.  Look for further gains in production in the year ahead, even as policymakers in Washington adopt some policies that hurt us in the long run.”

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