Tone Deaf

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.” Groucho Marx

Recently we have had various speeches by Biden and a cast of the usual purveyors of grandiloquence telling us what a wonderful job they have done to address problems they themselves helped to create. History shows us that the inevitable behavior of government leads to problems that they at first deny; when reality forces them to acknowledge the problem they blame others, and then proceed to pass laws that make things worse; such behavior goes so far as to claim credit for at least doing something. As Sigmund Freud once observed “No one who shares a delusion ever recognizes it as such.”

The media has not been very critical about this, but there is a growing chorus of those that have, often with a common phrase that much of what these politicians say shows a certain tone deaf behavior regarding what’s really happening. The definition of tone deaf is “Having or showing an obtuse insensitivity or lack of perception particularly in matters of public sentiment, opinion, or taste; unable to appreciate or understand the concerns or difficulties of others; out-of-touch.”

A conspicuous example of this was Joe Biden’s “The Battle for the Soul of the Nation” speech at Independence Hall in Philadelphia on September first. The staging was awful, but the words were even worse; according to most polls a majority of Americans viewed it as not only divisive, but more a campaign speech than a presidential address, a continuation of his anti-MAGA comments, some of which characterized Republicans as “semi-fascists”. This not only ignored his pledge to be a unifier, a president for all Americans, but it insulted about 48% of the electorate. Name calling shows weakness, a tactic deflection of failures you refuse to admit to.

Then there was the Biden speech in Boston a couple of days ago taking a victory lap for his success in reducing inflation and improving the economy, followed by Pelosi’s speech praising him and congress for doing so. Unfortunately it was the same day that the CPI data showed a substantial rise in inflation and fall in the markets. It was as if these speeches were written for the previous month’s data and someone forgot to update them. While bear markets are usually temporary, inflation is money lost forever. Promoting spending bills as anti-inflationary ignores the lessons of history, like failing an open book test.

The reality of where the economy is seems to be an ongoing debate since April of 2021 when the Fed called inflation “transitory”; at that time the more intelligent economists like Mohamed A. El-Erian, and the former Treasury Secretary and Director of the National Economic Council, Lawrence Summers, cautioned the Fed that they were already late in raising rates and reducing their balance sheet.  The Fed finally started raising rates in March 2022, after persisting for nearly a year with “accommodating” rates; it also stopped with the transitory narrative as inflation not only persisted, but accelerated.  

It’s also obvious given the recent CPI and PPI data, declining GDP, persistent yield curve inversion, and market volatility to the downside that we are in a recession. Some cite the low unemployment rate as an indication of a strong economy, but ignore the all more important low participation rate.  Further, the economic impact to jobs historically lags behind the onset of a recession by about 6 months. This boom-and-bust cycle is a by-product of Fed monetary and government fiscal policies, both of which politicians are blaming depending on their partisan bias. The fact is the two are related making both the cause. However, given that the Fed has a mandate to first assure price stability and second employment, it can’t do both, and in fact has historically done a bad job with either.

It is true that the government’s pandemic and energy policies have exacerbated the current boom-and-bust cycle by creating supply problems adding to the extreme price instability. Markets hate uncertainty, and all this instability has the added effect of creating high volatility, especially in the energy sector, which affects just about everything in an economy.

According to the latest BLS, whose reported data many economists find understated, approximately 50M households, nearly 40% of American families, will have expenses higher than their incomes, despite the fact that wages have increased by about 3.4%; however, after deducting for CPI core inflation of 8.3%, wages actually declined 4.9%. But the CPI core inflation excludes food and energy, which when included gives actual inflation at 9.1%, and real wages that declined 5.7%.  This does not provide for a victory lap, and in fact the trend indicates even further problems.

Obvious political campaigning deprecating political opposition and taking victory laps for failed policies adds to an already extreme partisan derangement; a locked-down economy, medical mandates, high crime, rampant illegal immigration, proxy wars and crushing debt only adds to the frustrating tone deafness. Politicians that think they can employ totalitarian methods while denouncing totalitarian ideology fail to understand that they are one and the same thing; doing so while ignoring the immediate concerns of Americans in a recession that has all the makings of stagflation is not only tone deaf, but a threat to our future. We better not be so easily fooled as our future depends on it; if we continue as we have, then as the great Yogi Berra once said “The future ain’t what it used to be.”