If the 2021 economy could be summarized in one word, I would say it is “disappointing.” Vaccine development and deployment has far exceeded expectations since the pandemic began; anyone who wants a vaccine can get one! The economic recovery in the face of this, however, is far below expectations.
In October, inflation was running at 6.2%, which is three times higher than its 25-year average. How does it get back to 2%, like it was pre-COVID?
In the March 2019 issue of My City Magazine, I discussed the debt ceiling and the government shutdown that spanned December 22, 2018 to January 2019. Now, less than three years later, we face the prospect of another shutdown. The national debt ceiling was recently increased by approximately $450 billion, which prevented a shutdown in October. However, given the sheer amount of borrowing by the federal government, this only kicks the can down the road for another month.
Inflation is a concern. Consumer prices increased by nearly 6% between June and July, on an annualized basis. This means that if prices continued to increase at this rate for a year, then prices would be 6% higher by the end of the year. This is triple the average annual rate of inflation over the last 25 years!
The Centers for Disease Control & Prevention (CDC) recently announced an extension to the eviction moratorium purportedly to slow the spread of COVID-19. This moratorium cannot be justified on economic grounds and is likely to harm the housing market.
Job openings are everywhere. One cannot drive down a street without seeing “Help Wanted” signs in front of most businesses. Anyone who goes to a bar, restaurant or other commercial establishment is likely to encounter slow, short-staffed service.
The idea behind Keynesian economics, as purported by the late British economist John Maynard Keynes and his followers, is that when the economy is in a recession, taxes should be cut and/or government spending increased to stimulate the economy and end the recession. Tax cuts give people more money to spend. Government spending creates jobs in the sectors of the economy that receives this spending. All this spending generates further income as the money is spent and re-spent. The stimulus thus ripples through the economy creating jobs, income, and promoting economic recovery. At least, that is the idea. Reality turns out to be quite a bit different.
Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen have said that if there is inflation, it will be “transitory,” meaning a short-term phenomenon. The argument is that COVID-19 has disrupted global supply chains, resulting in price increases for various goods. Once these disruptions are fixed, inflation should subside. It is like when gasoline prices spike during a hurricane, then fall once the supply comes back online.
Anyone who has driven on the roads lately or traveled by plane knows that America’s infrastructure could use an upgrade. Fifty percent of Michigan’s state and county roads are rated as being in “poor” condition. State roads are in better shape, but their condition is projected to deteriorate and be in poor condition within the next five years. Flying involves crowded airports and flight delays in part due to too few runways and an antiquated air traffic control system. Thus, the $2 trillion infrastructure bill proposed by the Biden Administration could potentially make a big impact.
On March 11, President Biden signed the $1.9 trillion COVID-19 Relief Bill. Although many Americans will welcome the $1,400 checks and other benefits, the bill presents numerous issues.
During the last week of January, the price of the GameStop Corporation stock increased from $20/share to nearly $350/share. The GameStop business model was thought to be in trouble as video game purchases moved online. According to the data collection company, Statista, about 83% of video game purchases are currently made online, compared to 20% in 2009.
Between March 2020 and January 2021, the price of a Bitcoin skyrocketed from $6,000 to $40,000. This leads to the question of whether Bitcoin is a “bubble” like the dot com stocks were in the late 1990s and the housing market was in the mid-2000s. It is hard to identify a bubble; just because an asset’s price sharply rises does not mean there is currently a bubble.
