GROWING, GROWING GONE?

Growth is never by mere chance; it is the result of forces working together. ~ James Cash Penny   

Economic growth – the expansion in a nation’s real (inflation-adjusted) gross domestic product (GDP) or its real GDP per capita – has long been one of many nations’ principal macroeconomic goals. There are many paths for achieving greater growth that politicians, economists and citizens often quarrel about.  

Economic Growth 

Such bickering is happening now, with less than 2 weeks before the midterm elections. Should tax cuts be provided to the wealthy or to the middle-class; should government expenditures be increased or decreased? Do such policies actually make a difference; and if so, how long does it take for them to take effect?

Adam Smith’s renowned Wealth of Nations (1776) emphasized that the “division of labor” is at the heart of rising wealth and prosperity. Such division referred to workers specializing in various productive tasks, rather than each worker making the entire product. Early on, the book provides a description of how ten (10) workers in a pin factory can make 48,000 pin a day if they specialize, but perhaps only one pin per worker every day if each produces the pin completely by himself.

The Industrial Revolution in large part was founded on Smith’s concept of labor specialization, along with its accompanying technological progress, rising education levels and more productive capital stock. After centuries of Malthusian economic stasis, many people’s lives were economically improved beginning in the latter 19th century.

In the intervening centuries numerous routes for economic growth have been tried. Some are not viable. The most recent example is the shellacking received by Liz Truss, then Britain’s still wet-behind-the-ears prime minister (PM). Her plan to abolish England’s highest tax rate on top-earning Brits in the name of stronger growth without compensatory government funding proved economically treacherous and politically expensive. She was forced to publicly abandon it within 10 days of its conception.

Her attempt proposed creating a 2022 version of “trickle-down” macroeconomic growth – famously undertaken twice by President Reagan. As has happened previously, trickle-down upset too many folks and more importantly, proved ineffective in practice. Like many things, the Repubs have never accepted the empirically-proven result that trickle-down has never delivered broad economic growth.

The stress on PM Truss grew overwhelming. She did not survive. Her tenure lasted a mere 45 days (or by other accounts 44 days, take your pick). Her opening economic policy missteps put her government in a deep, inescapable hole. Ms. Truss’s trickle-down will no longer dribble. The brand new PM, Rishi Sunak, will be Britain’s third in just seven weeks. He is expected to offer more mainstream macroeconomic policies to combat high inflation and other economic challenges. He’ll need considerable luck.

Last year, our real GDP grew impressively at 5.67%, the highest annual growth since 1984. That will not be repeated this year; through June 2022 real GDP dropped 0.3%, which is never a good sign for the incumbent party.

The Biden administration has offered several large, multi-faceted programs to prolong US economic growth, such as an expanded $1.0 trillion (T) for infrastructure, $400 billion for cancelling students’ college debt as well as limiting the price of insulin. These efforts may be worthy, but the president’s timing is dreadful. Why? Because in September, the consumer price index rose at a rarified 8.2% annual rate.

Pleasing voters before this election can be politically beneficial, but economically exorbitant. In fact, the economic legislation that our current Congress has passed accounted for $1.45T of new spending. Interestingly, these massive outlays represent only 33% of what the president initially requested in his 2022 budget. Given their size and breadth, let’s hope some growth endures through these expenditures without strengthening inflation.

Unfortunately, such expanded fiscal policy expenditures now are clearly at odds both with the Federal Reserve’s significant tightening of monetary policy and with taming our enduring high inflation. Such increases in government spending likely will stimulate demand for more goods and services, resulting in higher prices.

How long will it take for the Fed’s anti-inflation increases in interest rates to reduce our damnably relentless inflation? No one knows, except too long. Which means the Federal Open Market Committee (FOMC) will assuredly increase the interest rate at its upcoming November 1-2 meeting. It’s very unlikely but the FOMC could reduce the interest rate rise by a sliver under the 0.75% increases its effected at the past 3 meetings. Such a minor change might please the markets, if that means anything to the Fed.  

Despite the Dems’ considerable efforts to focus on the Repubs’ horrendous abortion policies and extremism, potential voters have listed inflation as the number one issue they are facing. Understandably, folks want prices to stop rising for items they buy in every grocery store isle (11.2% annual price increase) as well as energy (19.8%) and virtually all other goods and services.

The simultaneous combination of lackadaisical growth with inflation is termed stagflation by economists. Stagflation is the worst of both issues. Macroeconomic policies to resolve a lack of growth – such as increasing government expenditures – can result in more inflation. Policies to ameliorate inflation – cutting expenditures or raising interest rates – can produce less growth and raise unemployment. In effect when facing stagflation, policy makers have to choose which quandary, inflation or lack of growth, is most important to remedy first. That’s a choice no one wants to make.

Until this past week, the Dems’ midterm election messaging did not directly address how worried and choleric people have become about ever-rising, inflationary prices. Nancy Pelosi seemed to agree, saying “We’ll have to message it better.” David Axelrod, President Obama’s chief political advisor turned pundit, stated it’s a mistake that Dems’ campaigns did not explicitly mention how they would resolve inflation, the nation’s primo economic problem. In his adroit words, this flawed messaging strategy is “sort of like, ‘How was the play otherwise, Mrs. Lincoln?’”

Will this needed although belated change in messaging overturn what pollsters now expect: a “red tide” on Nov. 8? Remembering how flawed election polls can be, I’ll keep every finger crossed that they’re wrong once again.

 

 

 

 

LAGS AND LIVES

It’s not easy to recover from jet lag. ~ Gael Monfils  

I’ve been getting older ever since my first breath, like every other human.[1] Except for Benjamin Button. Our aging hopefully has involved numerous jovial, opportune and exultant times.

Nevertheless, living often includes a fair amount of lagging, even beyond jet lag. You know, waiting for buses, trains and airplanes to arrive, waiting for the server to realize you’ve been seated at one of her/his tables for more than 10 minutes, waiting for the server to actually communicate with your computer, waiting to know if you got that job you want. As ever-speedier technologies allow us to receive and use information more swiftly, we still repeatedly wait for stuff. Even if lags aren’t announced or you’re not flying on a jet, we live with them all the time.

Instantaneousness is a very rare occurrence. Lags – intervals of time – happen all too frequently between what we expect or hope for and what actually occurs. Some of these lags may cause losses of lives as well. I’ll first talk about lags, and follow with how lives can be affected.

Lags.  Some lags are so pervasive that I don’t really think about them as delays. For example, a sidereal day, the length of time it takes our Earth to complete one rotation on its axis is 23 hours, 56 minutes, and 4.09 seconds of solar time. It takes Earth 365 days, 5 hours, 59 minutes and 16 seconds to revolve around the sun, our yearly orbital period. These lags are simply immutable parts of our lives. Do I wish I lived on Mercury whose “year” is a speedy 87.97 Earth days? Heaven forbid, no.

Yet the length of lags that some actions require to start and be completed usually goes unmentioned, perhaps purposefully. Here are several examples of variously lengthy lags that can affect many of us.

11 Month lag.  The Dems deservedly touted the passage of their Inflation Reduction Act (IRA) recently. For once, they cleverly named this legislation as a solution for one of the public’s largest current worries: mammoth inflationary price increases for fuel, food and other goods that people regularly buy. President Biden signed the IRA into law on Aug. 16. That’s 11 months after it was first introduced in the House. That may be quick for Congressional clocks, but it’s not for most folks.

Like much proposed legislation, during these months the IRA had a long, roller-coaster ride through various Congressional committees as well as innumerable transmutations after interactions with the White House and affected parties like energy producers and consumers (for the bill’s climate change regulations) and health care patients and the drug industry (the IRA is also introducing a Drug Price Inflation Cap as well as limiting prices on a few prescription drug 4 years from now).

Will the IRA soon reduce inflation? No, the Congressional Budget Office and others have stated this Act will not significantly affect inflation, despite its title and $777 billion (B) overall price tag. Like all new legislation the IRA will take a fair amount of time to actually have any effect on the citizenry. Bureaucracy’s wheels turn very slowly when creating rules and regulations as I’ll now illustrate.

4 Years.  The Federal Aviation Administration (FAA) issued new rules on Sep. 6 that are designed to guarantee the independence of aviation engineers tasked with performing safety oversight on the government’s behalf. Congress called for the FAA take on this additional responsibility in 2018, when the first of the 737 Max crashes occurred.

These safety engineers are employed by Boeing and other aviation firms because the FAA does not have the resources to place its own staff at airframe manufacturers like Boeing. Such lengthy rules-setting lags, although never focused on, are always present for Federal, State as well as local government operations.

10 Years.  Another major focus of the IRA is providing $380B in subsidies to change the nation’s energy investment and infrastructure to help mitigate climate change. Infrastructure, like building new, much-needed EV charging stations across the US is essential if EVs are ever to be bought and operated by hordes of drivers.

Over the next decade, the IRA will provide $1.7B of tax credits for building EV chargers or other equipment perhaps in lower-income areas. New infrastructure like this never happens quickly. Let’s hope the IRA is a bridge to a better place.

Such incentives will be needed; the average price of an EV sold in the US in July was $66,000. But domestically building more EVs and its key components (like batteries) to satisfy the IRA requirements will take considerable time.

It’s not yet clear how many more EVs can actually be produced using the IRA’s incentives that begin next January because EV demand currently outstrips production capacity. If you’re ordering a Tesla, its order backlog in July was 504,000 vehicles. Hurray Elon! Tesla has already abandoned its past practice of estimating specific delivery months for its EVs. It also increased the price of its cars by up to $10,000 in March. Nasty Elon! 

In a big jump, last year 5.6% of new cars sold in the US were electric. This EV share of new car sales has never been higher. Yet despite EVs’ notable sales growth, they still represent less than 1% of the 250 million cars, SUVs and light-duty trucks on US roadways.

Because of this new demand, the average price of an EV in the US now is 37.4% higher than that of an internal combustion engine (ICE) car and the wait time for actually receiving your EV is measured in multiple months.

Efforts to ramp up domestic EV production in record-quick time to save the environment will need to account for challenging lags and realities. There are several causes for concern regarding production lags for EVs due to potential constraints. First, as a sop to unions’ wishes, the IRA stipulates that federal subsidies will only be provided for EVs and their components that are made in North America, only if the EV is priced below specified caps (e.g., sedans’ cap is $55,000) and only if the individual buyer’s taxable income is less than $150k.

These requirements will reduce the EV subsidies’ applicability and the number of buyers who can qualify. The buyers’ income ceiling is probably less of an issue but the domestic manufacturing restrictions are significant, and troublesome. Such restrictions aim to promote domestic EV production and more equitable EV ownership, at the cost of higher EV MSRPs and fewer sales.

An industry spokesperson said no vehicles will qualify for IRA’s $7,500 EV incentive over the next few years because of the production restrictions. This statement may be exaggerated, but these restrictions will certainly reduce EV sales over the next several years. It’s another case of politics trumping consumer and environmental interests.

Why? Because inconveniently China currently controls over 70% of the world’s component supply chain for EVs, including production of lithium-ion batteries. There is only one lithium mine operating currently in the US. It produced 1,000 tons of lithium content last year, representing an inadequate 1% of world production.

New American mines are being discussed, but it can take over 16 years to initiate actual mine production. These mines require huge amounts of water and space to operate. Water is already a very scarce commodity, especially in the Western US. Indigenous peoples, where several of these potential US lithium mines may be located, are understandably opposed to such development.

In addition, mineral experts say there may not be enough lithium, a vital ingredient for making EV and other batteries, to satisfy the increased consumer EV demand, let alone the expected orders of magnitude surge involved with satisfying California’s new mandate to sell no ICE cars after 2035. Another 14 states and Washington, DC may also adopt California’s EV mandate that requires a specified minimum percentage of ZEVs (zero-emission vehicles) for certain future years that will increase EV demand big time.

EV battery demand is forecast to increase at least 25% per year that will require more than 100 additional giga-sized battery and vehicle factories to be built to keep up with demand during the next 8 years. This will be a giant challenge. EV battery factories can be erected in 5 to 7 years, with consistent support and little litigation. Because a lack of litigation mostly never materializes, construction lags will almost certainly lengthen.

The IRA’s more than $200B of consumer subsidies will hopefully benefit the US and its residents in becoming more productive, greener and thus eventually may check inflation. These federal EV subsidies, like virtually all others, are expected to be periodically renewed and will need to last for more than the IRA’s decade of funding, assuming the Dems are in control. Nevertheless, due to inherent lags for dramatically increasing EV production, and for consumers to step up and buy them, it will take many years for them to be broadly provided.

2 months.  The second coming of (Charlie) Crist may not take nearly as long as producing more EV-bound lithium. In Florida’s primary, Crist recently defeated a progressive Florida Democratic rival. He’ll now be engaged through November 8 in yet another quest to become Florida’s governor by surmounting substantial challenges to de-throne Trumpian Gov. Ron DeSantis. Goooo Charlie.

One week.  Gasoline prices change rapidly. Fuel prices escalated 47.9% during this past year, which is a big deal except for you EV drivers. 

The US nominal retail gasoline price in July was $5.032/gal., the highest since 2008 when it was “only” $4.114/gal. In the SF Bay Area, we can’t count that low. The Bay Area gas price was $6.056/gal. on July 1st, partially due to California’s recently-increased $0.539/gal. gas tax, the nation’s highest.

Overall, the US local prices of gasoline are closely tied to the West Texas Intermediate (WTI) crude price which varies daily, as well as the costs of production and distribution. During the last month the price of WTI crude dropped 11.5%.  

Neighborhood gas stations usually buy their wholesale gasoline once every 3 to 5 days. Many consumers of gasoline are quite aware of local price differences between stations, helped by the giant signs displaying the station’s prices, shown below, and by apps like GasBuddy that has more than 60 million users.

    When gas prices are rising, local stations quickly raise their pump prices, usually within one week. But when crude prices drop, as they have since early summer, pump prices fall slowly. Station operators quickly increase pump prices because after several days of rising crude/wholesale prices, the stations’ profits are evermore slender and losses loom. It takes less than a week for retail pump prices to shoot up. When crude prices fall, operators can attempt to make up for those lower profits by waiting to reduce their pump prices. From June to July retail gas prices have dropped 12.4%.

Gasoline pricing thus is relatively efficient – local retailers quickly modify their prices based on everchanging wholesale crude petroleum prices. But it’s not symmetric. Falling WTI prices offer local stations more business profit possibilities than when the WTI is rising.

Lives.  The Ukrainian War started on Feb. 20, 2022. This war has been turning into a war of attrition for a while.

The US has provided more than $13.5B in security assistance to Ukraine for fighting against Putin’s unprovoked, insidious attack. In addition to this giant financial support, a key element for ensuring Ukraine’s hopeful victory is finding and training available Ukrainians into combat-ready troops.

Military losses have been heavy for both Ukraine and Russia. Rough guestimates for combat deaths are about 9,000 Ukrainians and as many as 25,000 Russians. These deaths require new replacement troops. Training raw recruits to become capable troops takes time.

Dealing with troop training lags is thus an essential component for winning wars and saving fighter’s lives. Winning requires at least adequate basic training as well as additional tactical support. For Ukrainian solders, they need know how to use new, sophisticated military equipment provided by the US and allies. Ukrainian soldiers’ training is being conducted in England and other locations inside and outside Ukraine.

US Army basic training takes about 10 weeks. The Army’s subsequent Advanced Individual Training (AIT) courses can last an additional 4 weeks to 7 months. AIT courses provide skills needed to perform a specific Army job, such as field artillery, engineering or medical proficiencies. US Army Special Forces training for Green Berets and Rangers, its most elite and capable special operations units, can take up to 63 weeks.

Several weeks.  Unsurprisingly, Ukraine and Russia have both shortened their new troop training time. Conscript standards for both nations have also eased considerably. New Ukrainian recruits are on average in their 20s and getting only several weeks of basic training. According to one observer, Russian recruits are “old, broke and out of shape.” Having only a few weeks of training before combat is far shorter than US standards mentioned above. Will such obligatory reductions cause added lost lives for Ukraine’s troops? Here's hoping they keep on breathing through the thick and thin of this war. 

 

---

[1] Folks at Dartmouth College estimate that an average human at rest takes slightly more than 8.4 million breaths each year. 

 

GREENERY, ROBOTS and TAXES

That is not a drug; it’s a leaf. ~ Arnold Schwarzenegger 

Aside from offering a slight helping of food for thought, is my first vegan blog. I’ll verbally taste a plateful of two quite dissimilar and sometimes organic green plants that made the news recently. The first one I’ll examine, asparagus, is fairly distinctive but lacks public awareness. It remains an enduring but minor contributor to our overall agricultural output. The second green plant, marijuana, has a polemic history and far more community standing.

Asparagus is also called sparrow grass. Humans have cultivated it for several millennia. Its origins are shrouded in the mists of horticultural history, but include temperate, often maritime climes in most of Europe and western Asia. Some agronomists believe an Egyptian hieroglyph from 3000 BCE shows asparagus being grown. Ancient Greeks ate wild asparagus’ tender shoots. In the West it was the Romans who first began farming asparagus more than 2000 years ago. Cultivators spread this triffid throughout their empire. The Sun King, Louis XIV was a big fan, calling asparagus the king of all vegetables. He had several greenhouses built so he could eat it throughout the year.

Asparagus has been cultivated in America since the late 17th century. Hoping to entice travelers to move to his part of the new world, William Penn advertised that asparagus grew well in Pennsylvania’s climate.

Growing up in Philadelphia, my parents apparently were not enticed by Penn’s ancient advert. They did not ever grow any asparagus in their gardens. But I do remember eating spring asparagus shoots, shown below, on a semi-regular basis at dinnertime. Yum.

 

Young asparagus shoots doing their version of the hula.

I also remember one of asparagus’ signature post-consumption effects, my urine smelled strange. Asparagus contains aptly-named asparagusic acid which during digestion produces sulfur compounds in one’s intestinal tract. Hence the pungent smell. Benjamin Franklin, among many others, characterized this odor as “disagreeable.”

Only four (4) states account for the entire US asparagus production. It is a very minor crop in America, just 37,200 tons most recently, which accounts for a trifling 0.09% of all US vegetables produced. In contrast, China grows about 900 thousand tons of asparagus every year.

Unlike many other veges, California isn’t the largest producer of asparagus. Michigan produces 40% of the total crop, followed by Washington, then California and finally New Jersey. However, asparagus’ growing season in California is the longest of any state, from January (in far southern valleys) through mid-June (on the central coast).

Because of dire shortages of agricultural workers in the US, growers are eagerly hoping that viable, robotic harvesting machines can take up the slack. As the supply of seasonal agricultural labor has withered, crops have been plowed under. The reduced farm worker supply has been caused by multiple reasons. One of which is that exclusions for using temporary, nonimmigrant H-2A workers principally from Mexico have increased. In 2019 there were 442,000 H-2A admissions; in 2021, just 258,000.

First attempts at automating crop harvesting began in the 1950s and 1960s. Abundant challenges have slowed expected progress in making autonomous, robotic harvesters for commercial produce like almonds, apples, grapes, oranges, strawberries and tomatoes. For these crops, robotic harvesting still remains on thin ground.

 

The Sprout asparagus harvester

But asparagus’ distinctive and unusual physical shape may make it a shoe-in for fully-automated harvesting, hence its recent newsworthiness. Asparagus consists of a single stalk without any confusing foliage that can styme robotic harvesters. A single plant can produce up to 20 stalks during its 2-month growing season. It is also fast growing – up to 0.8 inches in an hour – so the robot can return in a couple of days in peak season for another go at the same field, rather than wait for a reappearance next season. One prototype robotic harvester, shown above, is the Sprout, made specifically for asparagus. It’s been successfully tested at several locations in the UK. More US farmers continue to face conditions that lead to giving up and leaving their fields behind. Could the Sprout help asparagus growers provide a more sustainable supply? Let’s hope so.

The second green plant under consideration is marijuana. For at least 2500 years it has been grown for its psychoactive effects. Originally native to Central and South Asia, its use spans recreational, medicinal and spiritual purposes. It is the most commonly used illegal drug in the world, including America.

No matter whether you call it cannabis, kush, bud, herb, dope, reefer, tea, ganja, grass, weed, head, mary jane, doobie, hash, bhang or, if you must, pot, it has a far higher public profile than asparagus. Currently, 19 states have legalized the sale of recreational and medicinal marijuana; 21 states allow only medicinal marijuana to be sold. Eleven hold-out states, you know who you are, do not allow marijuana of any sort to be legally sold or grown.

California voters approved Proposition 64 in 2016 that legalized recreational cannabis; its medicinal use was permitted 2 decades earlier. Legal recreational cannabis sales began in 2018.

 

 This bud’s perhaps for you.

     Prop 64 was heralded at the time as a fine way to shrink the state’s large, illicit, black market weed, and give people harmed by the war on drugs and other historical events a chance to join the licit economy. They could become cannabis growers or distributors. However, local and state politicians soon dismissed any real interest in reducing black market “street” weed when they imposed significant, multi-jurisdiction taxes on legal cannabis.

California’s system of reeferegulation that attempts to control the cultivation, processing and sale of cannabis is exceedingly byzantine and ultimately based on politicians’ fiscal greed. California’s taxes on cannabis may mount to 50% of the retail price for consumers, which can make legal weed a harder sell on the street against some of the world’s best (and illegal) kush from the Emerald Triangle.

A recent guestimate of the total size of California’s cannabis market states that the legal market is merely 35% as large as the black market. Doesn’t sound like California’s legalization has crushed the mature, well-established unlawful market, does it.

The legal framework established by Prop 64, together with California’s flawed implementation, have contributed to continuing problems for legal producers and distributors. One predominant reason for such problems is centered on Prop 64’s requirement that local governments must opt in to allow recreational sales to adults. Sizeable portions of California officialdom have prohibited recreational cannabis sales; 67% of the state’s jurisdictions still block sales.

At last count, there are only 866 licensed cannabis dispensaries in the state or 1.6 per 100,000 residents. This low number puts California far behind other states in terms of dispensaries per capita, one-tenth as many as Oregon. When and where there are no legal dispensaries, black market cannabis rules at far lower prices.

Experts believe the street price of an ounce of weed is 50% lower than the taxed, legal weed. No wonder growers are unhappy, although they’ve known since the very beginning of California’s legalized cannabis that their products cannot compete purely on price with street weed.

But cannabis spot-prices have steadily dropped over the past 3 years and more so in 2022, in part because legal production had increased. Over just the past 2 months, national spot-prices fell 17%. In California, statements of a legal weed “glut” are commonplace.

Nevertheless, legal weed has found a valuable niche in California’s cannabis firmament. We’re not talking penny-ante change here. The state is now the largest legal cannabis market in the world, the biggest Kahuna, raking in $5.2 billion (B) of taxable sales in 2021, a 17.1% increase from 2020. Last year, $1.5B in cannabis-related tax revenues were provided to selected localities and the state. California politicians may be happy. But other actors in the legal market are not and have made their complaints clear in Sacramento.

Governor Newsom and the Legislature’s Democrat leaders finally reached a deal to restructure the state’s oppressive taxes on legal cannabis. He signed the legislation into law on June 30 that will eliminate the growers’ cultivation tax. In addition, the new law provides $150 million from the state’s seemingly huge budget surplus to recipients of this tax’s revenues over the next 3 years as a back-stop for the resulting tax revenue reductions.

Beyond growers, another key group of market participants are dispensary owners, including what’s known in liberal nomenclature as social equity operators (SEOs). SEOs are folks who have received their dispensary licenses through local programs, like in Oakland, San Francisco and LA, intended to diversify the industry with more people of color, formerly incarcerated people and residents of neighborhoods with historically disproportionate marijuana arrest rates. SEOs represent about 23% of all cannabis dispensaries in California.

SEOs have been vociferous in their displeasure with the tax restructuring legislation. After all, issues surrounding the numerous facets of equity have established a prominent place in the hearts and minds of true blue Californians, include legislators. The new law provides SEOs with a $10,000 tax credit and allows them to keep 20% of the excise tax revenue they collect for the next several years.

SEOs dismissed this benefit as “crumbs.” They wanted much more, including a complete elimination of the sizeable excise tax. They thought they would get it, given their cause and the cobalt blueness of much policy-making in Sacramento. They did not.

The retail price of California’s legal weed may be reduced a bit due to the new law, but wholesale cannabis prices have already rebounded from last year’s slump because of increased demand. Meanwhile the price of asparagus has dropped, due to decreased demand and increased supply. A plate of asparagus spears and a pre-roll thus offers mixed fiscal blessings, depending on your taste. What will it be?

 

 

 

A TALE OF TWO elastiCITIES

It was the best of times, the worst of times. ~ Charles Dickens  

Charles Dickens wrote A Tale of Two Cities in 1859 in the later part of his literary career. Dickens was already an admired, well-known author when wrote this book. I read A Tale of Two Cities long ago, together with many other high school-age Boomers. So long ago I hardly remember the book’s plot and characters. Nevertheless, the book still has relevance. 

Dickens’ judgements of Victorian society were represented in his tale. He sympathized with the revolution’s overthrow of France’s imperious aristocracy but disparaged the subsequent reign of terror. Fortunately today we have no broad reign of terror, except perhaps in the divergent eyes of radical leftists and rightists. Views of our aristocracy are similarly conflicted depending on which side of the political spectrum one inhabits.

No matter what your political beliefs are, our continuing excessive inflation has effectively emptied many people’s pockets. Inflation-adjusted weekly earnings for employees decreased 3.9% during the year ending in May. Investors have suffered more; the stock market is now in bear territory. The S&P 500 has dropped 13.3% during the past 12 months and 30.5% since Jan. 3. Pop goes the market.

 

A grizzly bear alarming intrepid investors.

Explaining who and/or what is responsible for our growing macroeconomic predicament is a challenge. President Biden’s attempts to blame Czar (er, Russian President) Vladimir Putin are valid, but not the whole story.

Anyone younger than 40 years old has never lived with inflation as high as it now is at 8.6%[1]. The average yearly inflation rate during the Millennial generation – the oldest of whom are now 41 years – was 4.1%. For Gen Zers –  the oldest are now 25 years – the average inflation rate was 2.4%. Although both these averages are greater than the Fed’s 2% target inflation rate that was officially set a decade ago, they are much lower than today’s inflation rate.

In 1981 we suffered from 10.3% inflation, principally due to the after-effects of the Iranian Revolution and resulting world Oil Shock, too-robust government spending and a swirling wage-price spiral. The Federal Funds Rate (FFR), our key baseline interest rate that the Federal Reserve sets, was 21% in 1981, which is more than 10x higher than the current FFR.

Starting in the early 1980s, this four-decade long period of historically low inflation has both been truly remarkable and uncommon. It has now ended.

Once again, dramatic energy price rises, initiated last month when the 27 European Union nations proclaimed they will be cutting much of their petroleum and natural gas from Russia, have enlarged macroeconomic inflationary pressures facing us consumers, shown in the table below. The giant increases in energy prices are notable. By themselves, gasoline prices have increased an astronomical 48.7%. The price of any kind of vehicle has also risen dramatically.

Consumer Price Index for All Urban Customers (CPI-U)	Annual Price Increase ending May 2022
All Items	8.6%
Food at Home	11.9%
Energy (incl. gasoline, electricity & natural gas)	34.6%
New Vehicles	12.6%
Used Cars & Trucks	16.2%

   The US government’s $5 trillion of covid-induced stimulus checks, business support and funding to state and local governments have increased consumer demand for many goods and services that have been stymied by supply-chain snafus.[2] When overall consumer demand increases relative to available supply, inflation results. Despite being clearly needed and useful, there’s little doubt such government funding has contributed to the economy’s inflationary pressures.

Elasticity is one analysis tool that microeconomists use to judge how much customer demand changes as a consequence of a good’s price changes. If a relatively small percentage increase in a good’s price causes consumers to buy disproportionately much less of that good, its price elasticity of demand (PED) is said to be elastic; numerically the elasticity is greater than 1.0. Conversely, if a good’s price increases by a relatively large percentage but consumers’ demand doesn’t change much, this good’s PED is said to be inelastic, and less than 1.0.

Factors that influence a good’s PED include whether it is a necessity or a luxury; whether it has close substitutes; what proportion of a person’s income is spent on this good; and how much time has passed since the price changed. If a good has no close substitutes, doesn’t account for a large proportion of people’s expenditures and the price change has been recent, then that good’s price elasticity is likely to be numerically low, termed inelastic. A good that has price inelastic demand is not that sensitive to price changes.

Let me tell a tale of two goods’ elasticities that have particular relevance for our existing situation: gasoline and food.

Gasoline’s PED is quite inelastic; calculated to be -0.26, which means if the price of gasoline increases 10%, consumers’ demand for gasoline will decline 2.6%, much less than the price increase. This calculation is unsurprising given that until very recently there have been no substitutes at all for gasoline if you drive a car. Gasoline remains an absolute necessity for the 97% of us car-owners who don’t drive EVs. As I mentioned above, gasoline prices have risen nearly 50% since May 2021, which means that car drivers’ demand for gasoline could drop by only 13%, given its PED. One of several conflicting factors that could lessen this drop includes that it’s now officially summer vacation time when folks who’ve been cooped up for months due to covid want to travel “on the road.”

Gasoline demand’s very low price elasticity also means that President Biden’s request to temporarily eliminate the 18.3¢/gal. federal gas tax won’t have much if any effect. His proposed 3-month gas tax holiday will likely have about as much impact on the US gasoline market as his release of millions of gallons of oil from the Strategic Oil Reserve did several months ago; which is to say minimal. But these actions demonstrate Joe’s at least trying to reduce inflation; perhaps more than his previous, bizarre statement that his bipartisan infrastructure program will diminish inflation. Don’t hold your breath, infrastructure expenditures’ effects move at the tortoise-like speed of concrete.

A gas tax holiday is a strictly performative, smoke and mirrors action that would effect no significant inflationary relief. In addition, it will cut the already-stretched Highway Trust Fund of needed infrastructure money. I expect the impact of a transitory removal of the federal gas will mostly be visual, showing a small price reduction on the giant price signs at gas stations across the nation.[3]

This is especially true if you live in California, as I do. On July 1st, our state’s gas tax, which has a built-in yearly CPI adjustment, will increase to a monumental 53.9¢/gal., the highest in the US. My closest gas station is currently selling regular at $6.39/gal. If only it were a mere $5/gal. like the media constantly reminds everyone.

It’s fortunate that Congress will unlikely go along with the president’s proposed tax holiday, for political not substantive reasons. But if enacted, I and the other 39 million Golden Staters would see only a 2.8% reduction in our gas price that could result in a miniscule 0.8% increase in the demand for gasoline given its inelastic PED. Even this slender price break has been understandably and vociferously opposed by environmentalists and most economists as the wrong way to “get to green,” despite its ephemeral value for the inflation-fighting president. In sum, due to gasoline’s price inelastic demand Joe should not press Congress to add another federal holiday.

Let’s now examine a second good’s price elasticity of demand. Food is in an elite class of items because it is absolutely required by all living creatures to sustain life, like air and water for those of us who live on more or less solid ground. As a necessity, food’s PED is quite inelastic, meaning the amount of food we consume is not much influenced by price changes. And as you’ve already noticed, food prices have risen. The price of food we buy for home consumption at grocery stores has increased 12% during the past year.

There are many different kinds of food, as anyone who walks the isles of a grocery knows. The average grocery store apparently carries an astonishing 40,00 individual items, which means there’s not just a single price elasticity for food. Price elasticities are calculated for specific food types.

Fortunately, thoughtful microeconomists have been busy for decades estimating the price elasticity of demand for many food types. One meta-assessment of food type elasticities reviewed 160 individual studies. Soft drinks, the most-often purchased item in groceries, have an inelastic PED of -0.79. The food item with the greatest price inelasticity (the numerically lowest numeric value) is eggs at -0.27. The PED of milk, the second most purchased food item, is a bit less inelastic than eggs at -0.59; meaning a 10% milk price increase could reduce milk purchases by 5.9%. Our grocery store offers a stultifying choice between 37 different types of “milk:” everything from 7 versions of good ol’ animal milk (in 4 different fat concentrations: whole, 2%, 1% or 0%) and 2 different sources (cows and goats) to 30 versions of plant-based milks (almond, coconut, oat and soy).

This tale of two inelastic elasticities - food and gasoline - has illustrated the president’s weak and limited policy options to reduce inflationary pressures. However, these elasticities have far less direct consequence for the Federal Reserve’s efforts to cut inflation. That’s because Fed anti-inflation policy focuses more narrowly on increasing the price of money (hiking loans’ interest rates) to reduce aggregate demand.

Last week the Fed finally increased the Federal Funds Rate by a whopping three-quarters of a percentage point to 1.75%, the biggest hike since 1994. This increase will raise the cost of consumer and business loans that the Fed hopes will eventually reduce demand for big-ticket items like appliances, cars, homes and business expansions. The Fed’s action, along with its sale of some of the $8.5 trillion corporate bonds it has amassed, will reduce or tighten the US money supply. The risks associated with the Fed’s delayed, aggressive tightening our money supply include eventually pushing the nation into a recession, with higher unemployment and reduced GDP growth.

The Fed chairperson Jerome Powell and his 20,000 employees remain cautiously optimistic that its efforts will reduce inflation to its 2% target without causing a hard-landing recessionary downturn. The Fed’s record in this arena is problematic.

Since 1955 during 7 previous inflationary cycles when the Fed has increased the FFR as fast as it’s now doing, a recession has followed in 6 of them. Six out of 7 means the Fed’s Recessionary Batting Average (RBA) is regrettably an economic Hall of Fame high of .857. Looking even farther in the past, the Fed has managed to reduce inflation without wounding growth only 3 times since 1945.

Will 2022-23 demonstrate a rare, successful economic soft landing for the Fed’s anti-inflation efforts that reduce its all-too high RBA? We can help by embracing the Fed’s efforts by somehow believing in an edited version of Dickens famous book’s incipit, “it is an age of wisdom and a season of light.” The benefits of such an embrace can go far beyond softly taming inflation.

 

---

[1] As measured by the Consumer Price Index for all urban consumers (CPI-U).

[2] Snafu is an acronym that stands for situation normal, all fucked up. It was born in the beginning of WWII by Marines as a satirical expression of what they all too often faced on a day to day basis.

[3] Interestingly, these ubiquitous signs are not required by federal or state regulation. Nope, it’s drivers like you and me who in effect require those signs, born from decades of tradition that gas station operators accede to. 

WATER and WHEELS

You can lead a horse to water, but a pencil must be lead. ~ Stan Laurel 

There’s now next to no water available in much of the western US, especially California. Little water is sluicing down rivers to help salmon spawn and produce dams’ clean hydroelectricity, or sloshing along irrigation canals that create a bounty of produce, or providing liquid sustenance to millions of parched customers throughout the region. We again face a serious lack of water.

The supply of electric vehicles (EVs) has shrunk because of supply-side snafus. More folks are thinking of purchasing an EV, largely due to huge increases in gasoline prices – in Berkeley, gas prices well above $6/gal. are common. But far more substantial EV purchases are needed, along with greater numbers of public charging stations.

Thus, water and EV wheels each have problematic challenges at this point. Water wheels are barely turning despite politicians’ grandiose pledges.

 

Let’s first look at water before shifting to wheels.  California’s 39 million inhabitants depend on sufficient, clean water for their daily livelihoods, just like everyone does no matter where they live. But as Marc Reisner presciently stated 36 years ago in his landmark Cadillac Desert, much of California is a semidesert. Climatologists have shown that periodic droughts in California and the West are a long-time, recurring feature. Residents of the Golden State (perhaps better labelled now the burnt brown state) are in the midst of a multi-year regional drought that may be the worst in 1200 years. Other notable droughts include the 5-year event in 2012-2016, as well as in 2007-09, 1987-92 and 1976-77. “Dust bowl” dry conditions have periodically harmed Californians, just like they did for more than a decade in the 1920s and 1930s for folks in Oklahoma. Despite all these droughts and history, we haven’t yet fully understood that fresh water in the Western US is a finite resource that’s traditionally been priced way below its value, especially for non-residential customers.

The bulk of the state’s precipitation falls in the Sierra Nevada as winter snow and rain hundreds of miles from the nearest population centers. Seventy-five percent (75%) of California’s supply of water is in the northern third of the state roughly north of Sacramento, but 80% of urban and agricultural (ag) demands are in the southern two-thirds of the state.

Because of this geographic misalignment of water supply and demand, during the past 90 years the federal government and the state of California have constructed a huge system of water infrastructure including dams and aqueducts/canals to bring water from distant mountains and rivers to farm acreage and masses of urban end-users, businesses and individuals like you and me.

How is our state’s precious water used? Nine million acres of California farmland is irrigated, which represents about 77% of the state’s total end-user water demand. Agriculture is by far the single largest user of California water. In the proverbial average year, agriculture uses 4x as much water as urban end-users.

The abundance of California’s ag production is the most valuable of any state, everything from artichokes and almonds to garlic and walnuts. However, our enormous ag harvests paradoxically account only for a slender 1.5% of California’s gross state product. A gallon of water doesn’t offer much fiscal bang per bushel of California produce.

Unlike most previous droughts, both state and federal water authorities – the California State Water Board and the Bureau of Reclamation, respectively – already have significantly curtailed their water allocations to ag and other end-users. In March, the State Water Board slashed its water allocation from the State Water Project (SWP) to just 5% of normal for the SWP’s ag and urban customers.

In April, the federal California Water Project cut its water allocation to irrigation contractors to 0% of normal. For the second consecutive year ag irrigators supplied by the CWP will receive no federal water. Farmers will need to turn to groundwater or storage, if they have it, or else forgo planting and production entirely. The Central Valley’s land subsidence will intensify. If this drought continues as expected, California growers and our land will suffer greatly, and the prices of their food products will swell.

The East Bay Municipal Utility District (EBMUD) supplies our home’s water, along with another 1.4 million customers. Last month, EBMUD reported its Mokelumne River storage reservoir was 71% full which is less than normal for this time of the water-year, but fortunately much fuller than either the California state or federal systems’ reservoirs that are now hovering around being 25-30% full.

Like many other water distributors, EBMUD has recently mandated an immediate usage reduction by its customers: a district-wide 10% water use decrease together with an 8% price “surcharge” beginning on July 1. In addition, EBMUD instituted restrictions on outdoor water use and a sizable “excessive use penalty” for households who use more than 1,636 gpd (gallons per day). No worries there; our usage is less than 13% of that large threshold. We’ve cut back on our landscape watering. Landscape watering accounts for roughly 50% of homeowners’ typical usage, so that’s a fine place to start despite gardeners’ understandable lamentations.

“Nonfunctional” grass lawns are becoming so yesterday. Significant sod is being removed in desert-dry Las Vegas where such lawns have been outlawed and made illegal to water. Here’s hoping such water conservation efforts by a so far reluctant public water-users can soon make a sizeable difference. Otherwise, every Californian will learn how they must use even less water than they have been.

Let’s now turn to electrically-powered wheels.  A substantial part of US environmental improvement policy rests on significantly increased sales of EVs. In 2021, EVs accounted for 3.3% of total US car sales. Meaning there’s lots of room in the vehicle market for EVs to capture, if people decide to buy them and shed their generations-old routine of purchasing fossil-fueled vehicles.

As you have already noticed, inflation has spread its ugly, non-transitory budget-sapping cloak across many markets. As a result, macroeconomists have been uttering a word, that hasn’t been spoken in 40 years, stagflation. Stagflation is the nasty, simultaneous combination of economic stagnation (diminished macro growth) together with inflation (elevated general price increases). Stagflation may be in our future; inflation is here already.

Giant upsurges in the price of gasoline – 43.6% over the past year – have spurred more people to consider EVs. But EVs’ availability has been constrained by the lack of key components needed by manufacturers. The increased interest in EVs together with their limited supply has driven too many dealers to add substantial markups on their EV prices that were already higher than gas-fueled cars. Customers have complained these markups can sometimes add thousands of dollars to an EV’s MSRP. One industry publication states that some EVs’ prices have jumped 25% in the last year, and wait-times have lengthened. If they persist, such grumbles will confound attainment of the ambitiously-set EV market advancement.

President Biden has addressed several federal efforts to increase EVs. First, he signed his Infrastructure bill into action last November. This $1.2 trillion legislation will eventually provide $7.5 billion over 10 years to expand the nation’s meager EV charging station network. In addition, Mr. Biden signed an Executive Order last August calling for the federal government to ensure that 50% of all vehicles sold in the US will be electric by 2030. This Order was a political statement, not an actual plan because it included no funding to accomplish the aggressive objective. The Build Back Better (BBB) plan would have provided needed funding. But he and the Dems struck out with his vaunted, much larger BBB that remains a fading disappointment. It never was voted on in the Senate after passing the House. Among other efforts, it would have nearly doubled the federal EV purchase subsidy to $12,500 if the vehicle was made in a factory that has a unionized work force.

Forty-five states plus Washington DC have implemented policies and procedures that support EVs’ advancement. Only Kentucky, Kansas and North Dakota apparently don’t have any EV policies in place according to the National Conference of State Legislatures.

California is the single state that has set a specified goal mandating a stipulated percentage of EV sales to be purchased by a specific year, in addition to other EV incentives. Gov. Gavin Newsom signed the enabling Executive Order in September 2020.

California’s specific EV goals were formalized last month. The goals require 35% of new passenger vehicles sold in the state by 2026 to be zero-emission vehicles (ZEVs), powered by batteries or hydrogen. Less than a decade later in 2035, the state mandates that 100% of all new car sales will be free of the fossil fuel emissions. To portray these goals as aggressive is to notably understate the challenges that must be met for success. In a mere 4 years from now California EVs sales will need to almost triple. Total US vehicle sales increased 3.4% in 2021.

The state’s EV goals will be administered by its principal environmental organization, the California Air Resources Board (CARB) within the California EPA. The CARB has disproportionately large influence on US environmental policy because 15 other states and the District of Columbia have adopted California's stringent emissions and vehicle mileage standards as their own. The CARB set its first auto fuel efficiency standards in 1990, others followed. They were and remain very strict, have never been actualized on schedule and thus have been postponed many times. I expect the 2026 EV market goals likely will be postponed, as well. The CARB EV standard states what type of vehicles can be sold and operated in the state.

Assuming that annual California vehicle sales increase at 3.24%[1] between 2022 and 2026, over 759,000 EVs will need to be purchased in 2026 to satisfy Gov. Newsom’s EV mandate. Admittedly, this growth rate is much lower annual vehicle sales growth rate than recent history, due to Covid and supply constraints. But 759,000 EV sales in 2026 would represent a colossal 3 times as many as EV sales than happened in 2020.

Simply creating an official ukase that 35% of 2026 vehicle sales will be EVs is as naïve as it is insufficient for making it actually happen. Politicians cannot mandate that private individuals must buy a lot more EVs by 2026, only that EVs will be available. How is Governor Newsom along with Liane Randolph, the Chair of the CARB, going to convince California consumers to buy more EVs. To save our environment, someone will need to motivate most Californians to stop buying fossil-fueled vehicles like they have been for over a century. Changing our car-buying habits will take a lot of motivating that so far is utterly lacking. Federal and state incentives are solely financial – rebates for EV purchases – which is necessary now but wholly insufficient to quickly modify long-term public behavior.

Recent history provides little solace for the Governor’s, Ms. Randolph’s or others’ potential EV marketing efforts. The majority of California’s car buyers have consistently refused to consider the CARB’s previous EV vehicle mandates and incentives when contemplating a new car purchase.

Most EVs remain expensive despite offered incentives. Potential EV buyers still contend with range anxiety issues. The state’s public EV infrastructure, aka charging stations, remains spotty, insufficient and unmaintained. California now has one of the country’s worst availability records of charging stations for EV drivers, just one station for every 31.2 ZEVs. This  ratio is almost ten times inferior than North Dakota’s (3.18 ZEVs). Who would have guessed the Peace Garden state is the nation’s leader? A survey of 181 Bay Area charging stations revealed that 23% had either non-operable screens, payment system failures or broken connector cables. Non-functioning charging stations will not ameliorate range anxiety.

If politicians want cleaner air via EVs, they better do several things: start building multitudes of additional, fully-maintained EV charging stations before more EVs are sold, and mandate standardized construction of far quicker charging level-3 public stations. California is planning to increase the number of public charging stations. It’s unknown if they will include standardized level-3 charging ports or how well they will be maintained.

California deserves praise for leading the US in its quest towards a cleaner, healthier future for transportation and the environment. The likelihood of significantly higher federal investment in EV incentives and infrastructure is low, given the BBB’s demise. California and other states will need to up their ante if EV sales are to substantially increase. This will entail sustained public investments that will effect colossal changes in the public’s vehicle purchase behavior. Such investments should include persuasive marketing campaigns that focus on the general car-buying public, not wealthy purchasers of Porsche Taycans or Tesla Model Xs.

Improved public management of an expanding EV system is essential. Hopefully, challenges will be addressed and quickly surmounted. Otherwise EV sales will remain far below policy-makers’ aggressive goals.

 

---

[1] California vehicle sales will increase 3.24% between 2021 and 2022, according to California Auto Outlook. 

 

LOOSER LABOR AND TIGHTER MONEY

Disorder in the house, Time to duck and cover. ~ Warren Zevon 

After several years of relatively benign macroeconomic circumstances that are based on impressively large fiscal programs and loose, rock-bottom interest rate monetary policy, the past year has become more exigent.

First, several millions of us have been engaged in the Great Resignation that’s contributed to an ever-tightening labor market. Second, the government has spent over $5 trillion (T) so far fighting an insidious ever-altering virus and passed a $1.2T decade-long effort to improve our aging infrastructure. Spring’s hopes rest eternal. But notwithstanding everyone’s hopes, Covid will not be going away, ever. Covid’s latest variant, BA.2, is leaving its dark mark across the Atlantic and beginning to here, as well. Let’s hope an added booster can make a difference.

In addition to the much-increased public spending, frazzled supply-chains have also pushed annual inflation to the highest levels in four decades; 7.9% at last measure. For the year ending February 2022, the Federal Reserve increased nation’s money supply by 11%. Given such loose money, together with Congress’s expansionary fiscal efforts, no one should be surprised that inflation has risen.

Despite all-too-tardy statements from the Federal Reserve Board’s chair Jerome Powell that inflation was “transitory,” it has continued and grown. Oops. The current elevated inflation level will be present for an extended period. In their overdue response, the Fed has just begun raising its key interest rate (the Federal Funds Rate, FFR) by 0.25% and started tightening our money supply, as depicted below.

 

Tighter Money

As post-Friedman monetarists, Jerry P. and his Board buddies (as well as Joe B. in the White House) hope this FFR increase, together with expected later rises will soon temper inflationary price boosts. But not so much that the economy shifts into dreaded “stagflation” territory –stagnating growth concurrent with inflation.

Antediluvians like me remember living through the nasty stagflation-full 1970s when oil prices rose big-time, together with macro price upsurges and diminished growth. They were most definitely not the good ol’ days, especially then. That bout of stagflation required the Fed to launch a painfully corrective, multi-year recession to “cure” it.

This existing inflation is likely to be bad news not only for us consumers. It’s a grave omen for Dems’ November election chances, especially after BBB became Build Back Never.

And that’s not all. For the past month, the US has been fiscally fighting a war in Ukraine, an impressive young Eastern European democracy. This horrific, unprovoked conflict is being waged by Russia’s kleptomaniac modern-day Czar, Vladimir the Terrible.

Beyond horrible human suffering, this war has fractured world commodity markets. That’s because Ukraine and Russia are crucial suppliers of several important products. Together they export over 25% of the world’s wheat, 16% of corn, 30% of barley and 80% of sunflower oil and seed meal. No one now expects any of the winter wheat planted last fall in Ukraine, the former “breadbasket of the Soviet Union,” to be harvested this summer. Ukraine also provides about 50% of the world’s neon supply, required for manufacturing microchips.

Russia is the world’s third-largest oil producer behind the US and Saudi Arabia; the second-largest producer of natural gas and supplies roughly 40% of the European Union’s natural gas needs. Russia is the world’s top exporter of nickel (essential for EVs’ battery production) and palladium (required for cars’ catalytic converters).

Prices for these crucial ingredients have risen significantly, which will soon add to many products’ costs beyond Ukraine or Russia. For example, two weeks after Russia’s incursion into Ukraine the world price of wheat is no longer loafing. It soared 41.2% above the pre-war price. Most recently the price of wheat settled to merely 23.3% above that price. Ouch.

Let’s change the discussion from dismal commodities to promising communities, focusing on recent changes in our harried labor market. The Great Resignation began in April 2021, when almost four (4) million workers quit their jobs. The quitters include older near-retirement Boomers and a larger number of Millennials and Gen Zers. Principal reasons for their departure included low pay, no advancement opportunities and feeling disrespected at work.

But what’s happened to all these people who’ve left their jobs during the Great Resignation? It’s hard to find any direct information about whether the quitters have found more meaningful and more respected jobs.

Pay has definitely risen. Labor compensation across the US rose 5.5% in 2021, although after accounting for inflation, 2021 real labor compensation fell 1.1% according to the Dept. of Labor. Companies are paying higher wages as well as offering signing bonuses to entice (and retain) workers. Fortuitously, this tight labor market seems to be reducing pay inequality, as lower-paid workers’ compensation has risen more than other workers’.

Nevertheless, the demand for labor from employers continues to outstrip the availability of workers interested in returning to the labor force. Thus, job prospects for workers are brighter than they have been in several decades. Unfilled job openings in February remained at near record levels. Workers who voluntarily resigned their positions increased to 4.4 million last month.

A ”greener grass” factor also is playing a role in workers’ quitting their current jobs. This factor may be most driven by Gen Z, who now comprise more than one-quarter of the workforce, and who might be joining a new firm thinking their new work-gig will be a more-fulfilling dream job. After a short time, reality may strike.

A recent survey of new hires found that almost three-quarters of them experienced either “surprise or regret” that the new position or new company they quit their job for turned out to be “very different” from what they were led to believe. Nearly half of these workers said they would try to get their old job back.

Realistically, the grass more often than not is pretty much the same color green at the new job as it was before, despite hopefully better espresso. Particularly if the newly-hired worker places importance on the company’s values matching their own, and on the firm’s hints that plentiful career development opportunities are very near their cubicle. This job change shock may be caused by a certain amount of naivety among the Great Resignees. Also, it’s more likely to happen in smaller firms, where satisfying such desirable but encompassing career goals can be challenging.

Although there are no actual numbers, it’s likely that a fair number of resignees decided to go their own way and establish their own new businesses. After all, American commerce is replete with memorable tales of adventurous entrepreneurs succeeding after beginning in a garage or similar petite places. New applications for federal tax ID numbers jumped 56% in the past two years. There’s been a 5.3% increase in the number of self-employed workers. This may be an impressive set of new entrepreneurs, a few of whom may beat the large odds and succeed. The Small Business Administration’s data show that 90% of start-up businesses fail sometime during their first five years.

My bet is that workers will soon begin to boost their so far leisurely return to working. Why would this loosening of the labor market happen? Three reasons; first, evermore workers who have been sitting on the labor market’s sidelines have depleted the stimulus check funds’ cash they received last year. Second, labor-force participation for workers aged 25 through 64 has been steadily rising, and is now close to what it was 18 months ago. These folks have not resigned and withdrawn from working. Instead, most folks who’ve “resigned” have actually been frictionally unemployed, and rapidly found new, presumably better jobs. March unemployment was at a rock-bottom 3.6%; employment rose by 431,000 folks.

Third, total household debt last year increased almost 7%, the largest annual increase in over a decade. Car loans are a large factor; the hyperactive housing market and booming credit-card balances are others. Receiving paychecks will help America’s households that are on the fiscal hook for delivering larger monthly debt payments. 

The loosening labor market and tighter money – the opposite of what we’ve recently lived with – can lead to better days, the sooner the better. Let’s hope the Fed can somehow thread its monetary needle into a macroeconomic soft-landing without a trace of recession. Otherwise it’s time to duck and cover, as Warren Zevon declared.