Fake It ’Til You Make It
Confidence; inflation pt. 3
Does anyone remember that asshole in school? The one who was so incredibly arrogant -with confidence that radiated from their being- who seemed always to get away with it because they were a touch charismatic? Maybe they got a bit of grief for being the way they were, but they managed to skate through life just fine, having found a nucleus of people who are either just like them, or could tolerate their unbearable antics. Then you grow up and realize there are a lot more people like that than you ever understood. This piece is not an invective against self-confidence bordering on arrogance. In fact, try it on for size, champ, you’ll like it.
“Fake it ‘til you make it,” right? Would you act differently? I know I would. I don’t suffer from particularly low self-confidence, and yet I admit I’d act differently. I would be a little (more) obnoxious, (more) blunt, justifiably aggressive, and probably a little less pleasant. But the benefits! No more waiting in line. No more being overlooked or dismissed, because you don’t allow yourself to be. You could muscle your way to the center of attention, project success, and just think of what this is worth in social currency! You can’t do this all of the time, of course. Being like this would probably destroy your interpersonal relationships, because people who came to know and love you for who you are might struggle to adapt to the person you’ve become. But it’s fun to dream of the possibilities of this personality, and it speaks to how critical of a catalyst confidence is. The same is true for the economy. And the ham-fisted government response to Covid is killing confidence. Where confidence goes, so too the economy goes, because the economy is made up of billions (trillions?) of microdecisions based on expectations.
Once confidence goes, decision making shifts. Heavy spending by the US government and money printing at the Fed in 2020 laid the groundwork for rising asset prices and a whole lot of inflation, the latest figures of which peg core inflation at eep 6.8%! The Fed’s continued aggressive money printing and to a lesser extent, expectations of government spending in the infrastructure bill is signaling to the US consumer, who, for all its faults, makes up roughly 2/3rds of the US economy, that this inflation is not as transitory as people smarter than me insist it is. But you can’t fool the footsoldiers of the US economy for very long.
People have noticed that every fucking thing is way more expensive: gas, housing, food. The only thing they haven’t personally experienced yet is healthcare inflation, but with the amount that has been haphazardly spent on the pandemic being underwritten by the federal government, that bill will come due in the coming years in the form of higher taxes and higher private insurance premiums, as today’s marginally profitable healthcare centers bill more to make up for pandemic-era depressed profitability. Business are seeing dramatic wage inflation, and if wages are part of the input costs of producing goods in this post-covid economy, the cost of producing goods has gone up, too. Consumer confidence is being dented, dramatically:
All that extra work, at $15 an hour, means she’s earning more. But Ms. Holmes says rising costs, for everything from food to electricity, coupled with weariness from the state’s monthslong Covid-19 surge, have left her feeling depleted.
“I’m not going to lie,” she said during a recent shift at the store. “It is very stressful trying to keep up with everything — my bills at home and trying to balance everything here.”
Ms. Holmes said she spends more than $60 to fill her 2011 Ford Explorer, up from about $40 a year ago — although gasoline prices have recently been dropping. She said her twice-monthly grocery bill is nearly $500, up from $300.
WAKE UP, FED — The singular crux of policy and monetary economics, a social science, is that the ultimate aim of these policy tweaks and bellyaching is to instill confidence in all players of the economy: consumers, businesses, the markets, etc. And you need to keep your ear to the ground to figure out what is confidence bolstering vs. destroying! Price instability/volatility is but one way to signal to 2/3rds of GDP that they cannot trust the ground beneath their feet, and, like any rational actor, will look to cut back expenditure where possible. Consumer inflation is a lagging indicator. It’s the result of months and months of input cost increases for businesses, and friction within the production and supply chain that is squeezed out, finally, to the last one in the chain, in this case, Ms. Holmes in Maine. To misread these tea leaves was a big, big miss by people who are smarter than me; worse than that, they’re driving the bus, altogether too fast. Let’s hope when they hit the brakes, we don’t go through the glass.