E-piphany

It’s like a classic Star Trek scene where we learn the true genius of Captain Kirk – what sets him apart from other great leaders.

Kirk beat the no-win scenario by reprogramming the simulation. Now consider the parallels with the current situation, as Captain Biden paces the bridge.

The economy is booming: Q2 GDP is forecast to have advanced at an 8.5% annualized pace (the GDP report will come out Thursday). However, at the same time Initial Unemployment Claims have remained stubbornly high and many remain out of work. In the meantime, inflation has become the number one concern of consumers and they’ve stopped listening credulously to claims that the widespread price increases are “transitory” as company after company reports price pressures and shortages that go far beyond used cars! A single article in Fox Business listed Kimberly Clark (toilet paper products), Harley Davidson (motorcycles), Whirlpool (large appliances), General Mills (food), and Constellation Brands (beer and booze) as companies that have recently announced price increases under pressure from cost increases. And there are hundreds of others.

The Captain is also aware that the reaction to the new directly-deposited monthly stimulus checks, which is obviously meant to be a down payment on (and habituate taxpayers to) “universal basic income,” did not produce the expected accolades from the crew. To be blunt, it went over like a damp squib and morale is not good.

If the Administration increases spending even more, then the bottlenecks and shortages that have helped produce quarter-over-quarter inflation at a roughly 10% pace in Q2 are not going to get better. And if the Administration tries to reduce spending to take pressure off of product markets and some of the froth out of securities and asset markets, then growth could suffer (and employment, especially his own, could be at risk!). It’s a no-win scenario…unless…

So Biden broke out of the frame. He re-wrote the rules. He is going to spend an additional $4 trillion on infrastructure. But he is beating the Kobayashi Maru scenario, because this massive spending program is going to create jobs and heal the economy and also reduce inflation.

“If your primary concern right now is inflation, you should be even more enthusiastic about this plan,” Biden said in remarks from the White House State Dining Room. “These steps will enhance our productivity, raising wages without raising prices, and won’t increase inflation. It will take the pressure off of inflation.” – Captain Joe Biden

Genius.

Of course, it’s only possible if Biden succeeds in re-programming reality. Because in the world we actually live in, that’s not the way this works. Massive government spending programs, financed by feckless central bank financing of deficits, always leads to inflation.

The President’s claim – although, let’s be fair, he’s just reading cue cards so it’s someone else making the claim and forcing the poor guy to say the crazy things – is that by making “prudent, multi-year investments in better roads, bridges, transit systems and high-speed internet and a modern resilient electric grid, here’s what will happen: It breaks up the bottlenecks in our economy; goods get to consumers more rapidly and less expensively; small businesses create and innovate much more seamlessly.”

Let’s ignore for the nonce the government’s record of making “prudent investments.” And let’s be generous and imagine that the trillions and trillions of dollars of spending will actually result in the things he claims it will. It still doesn’t solve the problem, which is that right now there are massive supply issues, mostly because every consumer has more money now than they did before the shutdown and they’re spending it. There’s too much money chasing too few goods, today! As far as I can ascertain, prices are not shooting higher because the nation’s bridges aren’t good enough, and the internet isn’t fast enough. But even if they were, pushing more cash into the economic system to solve that problem years in the future makes today’s problem worse. The fact that this spending is not being done by the private sector but by the public sector compounds the mistake.

The only way to get the results he wants is to re-write the simulation so that it doesn’t work this way. So I assume that’s what he has done. (I would say, as David does in the script above, “he cheated”, but that evokes other things we aren’t supposed to talk about these days.)

Well done, Captain Joe!