(Mises)—There’s a growing palpable sense of optimism among many economists and journalists that the United States economy is heading toward a growth phase while avoiding recession. They are in turn lauding the Federal Reserve for its strategic handling of inflation—with economic growth and low unemployment rates—as well as praising the efficacy of the Biden administration in reining in prices through social pressure on profit-making and through increases in production via large subsidy grants, along with the stimulus checks that have been distributed generously through various legislative acts.
This optimism and belief in the ability of the government to deal with economic problems come right after experiencing a severe inflationary crisis over the last three years, starting in late 2020. The turbulent inflationary experience faced by the average American was largely due to the expansionary monetary and fiscal policies pursued by both the Fed and the US government as countercyclical policy measures to deal with the covid shock and the emanating effects of the work stoppages, which was accomplished via strictly enforced lockdowns that regulated economic lives to hitherto unforeseen levels.
The combination of a decline in the rate of price inflation with unemployment remaining under 4 percent has bolstered a sense of elation and euphoria widespread amongst these economists, journalists, and the broader audience. They believe that the Fed has effectively employed the tools to control inflation and growth, so we should count it as another win for the central banking era where industrial policy overcomes the errors of capitalism.
However, before we applaud institutions and policies whose track records for over a century haven’t always aligned with their stated goals, it’s essential to dig deeper. The reasons behind seemingly stable unemployment figures merit a closer examination, with the “immaculate disinflation” narrative—which is gaining ground amongst the wider audience—needing to be demystified.
The Myth of “Immaculate Disinflation”
For more than six months, headlines have declared that inflation has dropped sharply to 3 percent, achieving the lowest point it’s been in more than two years. The purported claim intends to signal to the public that the fight against the inflation menace has been won and that economic stability is being achieved. Notwithstanding such claims, the actual users—the consumers of the US dollar—have been on the receiving end of policies under which the purchasing power of their nominal dollars has continued to fall due to inflation, and the personal savings rate has been steadily falling as well, from a prepandemic 9.1 percent to the current 3.9 percent.
The gradual eroding away of people’s purchasing power has led to a situation where the goods that people use to maintain their living standards are more expensive. This is the experience of average consumers despite their having received stimulus checks, having moratoriums placed on their debt payments, and experiencing nominal wage increases from the monetary expansion in the economy.
The persistence of the painful experience of consumers becomes a siren call. In light of changing economic conditions when prices are still increasing from one month to the next, previous debt moratoriums are being lifted, and unemployment in the labor market that earlier seemed to be stable is now ticking up. The unemployment rate rose to 3.8 percent in August, the highest it’s been in over a year, which otherwise had been falling from 14 percent at the beginning of the pandemic before stabilizing around 3.4–3.6 percent.
These events, however, are only manifestations of a deeper problem involving investment and the intertemporal coordination of economic activities, which are in a much graver situation. Prices in a market economy act as a coordinating communication language that allows market participants to adjust their own plans with those of others. The money market rate of interest or the loanable funds rate, as understood by Ludwig von Mises and Friedrich Hayek, facilitates the coordination of intertemporal economic activities or activities where coordination amongst different individuals’ production and consumption plans needs to be established.
If the market rate of interest is allowed to emerge without intervention, it will reflect the current needs of money holders and the demand for loanable funds by borrowers for investment opportunities. High demand for money is reflected through saving periods by consumers whereby by forgoing consumption, these consumers make crucial intermediate goods available to be used in long-term investments rather than final-stage consumer goods.
However, if consumers do not hold money as savings and interest rates are artificially lowered below market levels, it sends false signals to producers regarding the production of capital versus consumer goods. This situation, in turn, gives rise to inflationary pressures, capable of spreading throughout the economy, while simultaneously creating false expectations about future demand for capital goods based on an artificially created scenario.
The tightening cycle of the Fed started in March 2022 with price inflation running at 8.5 percent, marking the official end of the low-interest policy that started in early February 2020. As the Fed’s rates have gone from nearly 0 percent to 5.5 percent in only over a year, price inflation has declined from 9 percent to 4 percent. However, it has remained above 3 percent for the past four months and is beginning to show signs of further upward increases in the inflation cycle as producers’ costs increase. While inflation has refused to budge in the past few months, the unemployment rate has steadily climbed uphill, edging toward 4 percent.
The year 2023 marked significant financial turbulence in the US, as high costs of borrowing have met overexpanded businesses. More than 230 companies have declared bankruptcy due to macroeconomic stressors like decelerated growth, rapid interest rate hikes, and persistent inflation. High-profile bankruptcies included Vice Media, impacted by operational and financial challenges; Bed Bath & Beyond, struggling with debt and market shifts; and retailers like Party City and David’s Bridal. The Federal Reserve’s aggressive interest rate increases have led to a “credit crunch” that is affecting overexpanded and vulnerable companies.
This paradoxical economic landscape includes escalating bankruptcies and bank failures coexisting with a seemingly stable unemployment rate. The resilience in employment figures—in the face of financial disarray—can largely be attributed to the government’s audacious adventures into industrial policy experiments, where trillions of dollars have been funneled into specific sectors through incentives such as tax breaks for investment.
The rise in unemployment in the private and the general sectors of the economy—including manufacturing, construction, information, financial, and technological sectors—has been met by ever-increasing levels of government employment. Government employment increased by seventy-three thousand in September, representing about a quarter of the total jobs added that month, coming in above the average monthly gain of forty-seven thousand jobs over the prior twelve months. Employment and spending in the public sector of the economy have overshadowed the private sector in recent times, creating a bloated public sector with heavy fiscal burdens.
In this grand charade of economic stability, we find ourselves spectators to a precarious illusion, a spectacle that vaunts the triumph of “immaculate disinflation” while blatantly disregarding the eroding purchasing power of the average American. This is not stability; it’s a meticulously crafted mirage, obscuring a landscape littered with the casualties of fiscal and monetary recklessness—savings plummeting, consumer baskets shrinking, and a private sector gasping for breath under the weight of bloated government.
The narrative of victory over inflation and unemployment is a dangerous diversion, pulling the wool over our eyes as market signals are distorted and economic principles sacrificed at the altar of political expediency. The surge in government employment—far from a sign of health—signifies a troubling imbalance, a steroid boost offering a temporary high while the body politic weakens.
About the Author
An economics and a libertarian scholar with research interests in capital theory, monetary theory, and business cycles, I write about events in the economy from a legal and economic standpoint with a proliberty outlook and believe that safeguarding the liberty and rights of each individual is the most important act toward peace, prosperity and growth. My other works can be found at the Austrian Economics Center, the Libertarian Institute, and beinglibetarian.com. I can be reached at [email protected] and on Twitter (@vibhu3333).
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
