In the long run we are all dead. That is perhaps the most famous quote – and caution – of the late economist John Maynard Keynes.
While Keynes today is best known for his philosophy of running deficits during recessions and the ignored paring that countries should horde budget surpluses during times of prosperity, his pointed admonition to those in ivory towers of academia and public policy stands. Economic principles suggest that markets correct over time. Those that govern us and the governed have a 24-hour news cycle that keeps us stuck in the present.
The present has long been a problem for economists and those who rely on their guidance. This is rooted in the basis of economic models that consumers and producers have rational expectations. As a good and plain spoken friend of mine would say, “well there’s your problem right there.”
An era where the public has decided each member can choose their own facts and ignore all others that cause conflict with their deeply held beliefs makes life even more challenging for those who take their public policy seriously. We are now unserious people living in serious times.
We have Russia currently positioned to invade Ukraine and willing to hold Europe’s main source of electric generating energy hostage in order to do it. We have China hosting its largest propaganda display ever masquerading as a sporting event while committing genocide against an ethnic minority within their own borders and as NPR notes, claiming the greenest games ever while running their coal powered electric plants at 100% capacity.
Our economic focus at home has become inflation, which is producing statistics not seen since the very early 1980’s. After four decades of little to no inflation, an American population is again grappling with questions not relevant since bell bottoms were trendy and Coors beer had to be smuggled into the Eastern US.
This is where the expectations problem factors in. We have roughly half the American population that has never experienced inflation, and since the fall of the Berlin Wall, has viewed war largely as something that happens elsewhere – with only those willing to volunteer who will make the sacrifices to go fight it. Others have lived through the cold war of the fifties and sixties and the inflation decade of the seventies and expect history to repeat itself.
To properly counter the long term economic security goals of our country, additional checks against Russia and China will be required. The immediate threat of sanctions against Russia will use their export of energy as leverage – and will drive up the prices of oil and natural gas. This would show up almost immediately as “pain at the pump” and continue to have ripple effects into the prices of manufactured goods, electricity, and costs of delivery.
Likewise, to insulate the country’s reliance on China and Taiwan for the manufacture of virtually all electronic goods – especially the all-important chips now at the root of many supply chain issues – production will have to be increased domestically. This will likely cause additional price increases to many products as well.
These are overly simplistic but easily explained examples of what we know to be good for the country’s long term economic and security interests. These are increasingly the types of issues that are ignored by a myopic electorate and the various forms of media who feed them a diet of short term pain-based clickbait.
Our current pain point is inflation. It’s a truly serious issue if left unchecked, and has both short and long run consequences.
We, of course, didn’t listen to Keynes’ admonition to build budget surpluses during our country’s boom times, and now have over $30 trillion in debts on the country’s balance sheet. Raising interest rates will begin to fight inflation, but will cause deficits to grow as the cost of financing that debt increases.
Meanwhile, we have a Congress that has spent two years fighting a pandemic by printing unprecedented amounts of money – much of it bipartisan. They now want to pretend that inflation is the Federal Reserve’s sole responsibility and that their fiscal policies have no bearing on economic outcomes that have been totally predictable.
Leadership is required to move our focus from short term pain points into ways to address long goals and to counter strategic threats. We may not live to see the long run, but this is the only way that our country will survive to experience it.