Tuesday, June 07, 2022
Mid-Year Predictions: some unpleasant thoughts
Our apologies. "We" at Unforeseen Contingencies have failed to keep up with our annual predictions for the year. Our predictions always run the gamut of subjetcs, but typically focus on social matters. Unfortunately, social events are such a mess. We've had novel features to deal with, such as lab-altered gain-of-function viruses, quarantines of healthy people, organized riots, rigged elections, and hyperinflations, all of them very stupid ideas we had hoped our "leaders" would eschew. Alas! Add to that the bizarre crazes of critical racist theory, transgenderism, the sexual grooming of children, and the suicidal hysteria over undocumented climate change, and oh, what a mess! We apologize to our dear readers, but it is not easy to predict in such circumstances. We face an unstable balance of political power and social forces. UC's Prediction Desk tries to discern long run tendencies and extrapolate from them, but good luck sorting that out; there are a few too many unforeseen contingencies arriving together for that.
However, there remains solid ground for certain kinds predictions...and that ground is economics. Economics can make excellent conditional predictions of the "if this, then that" sort. And a few of the "ifs" are established. So here are the mid-year predictions.
1. Inflation in the United States will worsen, dramatically so. Official Figures (TM) will rise above ten percent by September. In reality it will be much worse.
Why? The monetary expansion that was supposed to fix the harmful effects of Wuflu Lockdowns has not run its course. That's real inflation. But for those who think inflation is just higher prices, there's more. First, the war on fossil fuels being waged by the Biden administration has only started to take effect, and Official Figures (TM) fail to correct for these real losses. Second, supply chain breakdowns will worsen because of regulation, energy costs and shoratges, and various international unpleasantries, especially with China and Russia. China, a major supplier of parts and pieces for the world economy, has been shutting down its economy, allegedly for Wuflu reasons but in fact as part of political infighting in the CCP. Russia is a major exporter of energy, including in the form of fertilizer, and that supply is being reduced. Hence, prices higher.
2. One response of the Biden administration will be to impose price controls. They are already threatening this. The effect of price ceilings (they aren't talking floors, of course) will be shortages. Effective price ceilings always cause shortages. Democrat economists including Larry Summers, Paul Krugman, and Austin Goolsby have decried this madness. But controls will be imposed.
Why? First, they've said so. Second, they've said the goal is to impose "fundamental change," a "Great Reset." This necessarily means redistributing property rights. Removing from people the right to pay what they are willing for a good and the right to receive what they require to give it up is fundamental to redistribution. Hugo Chavez' regime imposed price controls and then condemned stores that suffered the resultant shortages as saboteurs and seized them. That's the idea.
3. The results will be shortages of energy and food will hit the United States this year. I predict we'll have shortages of diesel before the end of July, and shortages of gasoline by the end of August. Shortages here are defined by lines to puchase and supplies run out in some locales. Shortages of food are more difficult to define. One of my Ag Econ contacts tells me he doubts we'll have food shortages in the United States this year. Americans will be able to eat, but it won't be a matter of walking into the supermarket and getting whatever you want. You'll eat what's available. OTOH, if you are in South Sudan, you're doomed.
Why? The expansion of the money supply means more dollars available to bid up prices. The reduced supplies of products from lowered avaliability of energy and more regulation means those dollars are bidding up prices on less stuff. The price controls mean increasing numbers of producers find additional production to be "not worth it."
Hence, inflation, price controls, and shortages are in our immediate future.
As for food, inventories of beef cattle are declining because of feed costs and other factors. Fertilizer prices are at least tripling and the reduction of natural gas supplies means this will worsen. If prices of inputs rise and prices of output are held down by price controls, producers stop producing. Shortages follow.
We at Unforeseen Contingencies could be wrong, and sincerely hope we are. But don't bet on it,
