Eeyore’s Cabinet: Thoughts on the Economy

Victor Davis Hanson // Private Papers

As I wrote not long ago, I think we can expect a big boom of pent-up demand coming that will result in 5 percent or so of annualized GDP growth, maybe as early in late second or third quarter of 2021 lasting until mid-year next year but accompanied by inflation reaching 4-6 percent. And then at some point, depending on whether the Biden huge tax hike, green deals, and new regulations are in effect, a much higher inflation, slower growth, and recessionary trends in late 2022 or early 2023. So growth/boom/inflation/stagflation/recession?

 You say, “So what? That’s the natural order of things”. Perhaps. But an entire generation has come of age without knowledge of anything but de facto zero interest, and little or no inflation, and plentiful jobs. I can attest from 1978-84, that inflation, recession, and unemployment can all exist at the same time. I can remember feeling lucky to have a farm production credit loan at 9% and knowing “delighted” friends who bought homes in 1981 at 10% and a family member who bought a car at 18% and felt he got a good rate. So buckle up…

The general consumer price index went up in March at .6 percent, in just 30 days (if that were to continue, we would have an annualized rate of over 7 percent.) But what really counts are life’s vitals like increases in gasoline (out here it’s up $1 dollar a gallon since the new year), and natural gas heating (5 percent rise). But these measurements lag. Housing has gone up about 20 percent here in California, at least new housing that depends on sky-high lumber. 

So I drove into town again yesterday and did the following: bought gas at $3.97 a gallon; went to Home Depot: there I was stunned to see 4×8 one-inch plywood at over $100 a sheet and 1/2 inch over $60 (a year ago they were a quarter that or less). I wanted to buy a cheap ratchet set: all sold out, as many things in the tool departments were. All the lumber was either picked over, or so expensive to be left alone (e.g., redwood 2/4s) or sold out, as paradoxical as that seemed. A family member is looking at a new house. The price from a year ago has gone up by a third. Propane has soared too.

Labor is short; “now hiring” or “workers wanted” signs are common. In sum, millions, with stimulus money, are re-emerging from their cocoons—rediscovering the joys of eating out, traveling, going somewhere/anywhere, driving longer than to the supermarket and back, and eager to buy a car or truck, remodel, fix up something—as the somnolent economy retools to accommodate them, but in apprehension faces higher taxes and more regulations. And the Biden response: print more money, dream up more unproductive woke “investment” and run up bigger deficits as if we were back in March 2020 in need of stimuli.

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