The Cost Of Procrastination: America’s Broken Economy

“Whatever availability you put down when I hired you is what I expect,” a self-important man in a denim button-up said, scolding an earnest-looking teenager walking next to him in the produce section.

I was buying avocados. I’ve been forced into large grocery stores lately. When the locally-owned places aren’t out of my favorites, they’re gouging customers for the privilege of not driving 20 miles to the nearest national chain, where the lines are long and everyone’s irritable. Honestly, it’s not the gouging that bothers me. I’ll pay more. But I won’t go without things I know I can easily get a few miles inland. Like my favorite brand of cranberry juice.

The man in the dress shirt was wearing a hair net despite being Bruce Willis-bald. To his credit, the store is a well-oiled machine. Very much unlike another chain I visited recently, there are no long lines, the shelves are stocked, every register has someone checking out customers and someone bagging. Considering the operating environment, it’s an impressive feat. And it’s why I’ve been there twice in a month.

Nevertheless, I wanted to intervene. “Don’t do it, Bill! Don’t irritate the kid on his first week. Not in 2021. It’s too risky. Walmart is probably paying $40 an hour by now. He’ll be folding Dickies and stocking Great Value cheese for the Waltons by noon tomorrow.”

Maybe he wasn’t a “Bill.” He looked like one. But I didn’t engage. I’ve already aggravated one grocery store manager this month. I didn’t want to go for two.

The more I venture out, the more convinced I am that mistakes were made on the policy front. I realize that sounds somewhat incongruous with my Progressive bent, but it’s far from clear that the current situation is sustainable. Although I’m basing this assessment on just two visits, it’s apparent that the store described above is fully staffed due almost entirely to the preponderance of very young employees. It’s nestled between several extremely affluent communities. My guess is, the manager tapped into a pool of teenagers who still live at home and suddenly discovered they can make $500 in a week (and possibly quite a bit more) bagging groceries part time.

That’s nothing like the Hobbesian scenario facing your average Kroger. Or your local Walmart, where there’s no captive suburban labor pool. Rather, it’s just pure competition to bring in low-wage workers off the streets. The situation is even more vexing for restaurants and bars. This probably hasn’t occurred to most analysts, pundits and macro PMs, but serving tables is hard. It can take months, or even years, to get the timing right. If you think that sounds absurd, ask your server the next time you’re out to eat. You can hire inexperienced servers and bartenders, but there’s no guarantee it’ll work out. They may be incapable of doing the job. Or they may simply hate it and quit. After all, Walmart pays now.

The point is, there’s too much friction in the US labor market. And it’s not primarily attributable to virus fears or child care needs. Sure, it’s partially attributable to those factors, but if we’re being honest, the US economy is experiencing a self-feeding dynamic that started with stimulus and lockdowns, then evolved into a kind of mass, collective rethink about what counts as “fair” when it comes to wages, which jobs really require in-person interactions and what the government’s role should be in providing for its citizens.

None of that is bad. Indeed, a rethink of the capital-labor relationship was decades overdue, as was a reevaluation and overhaul of the country’s embarrassingly inadequate social safety net. But much as the global transition to clean energy is proving to be just as disorderly as it is urgent, America’s reckoning with an unsustainable economic model is manifesting in rolling blackouts and acute disruptions which, in extreme cases, render businesses completely unable to function.

Finding a “balance” that keeps the lights and the heat on while humanity shifts to energy sources that won’t doom future generations to climatic oblivion is proving to be quite an onerous task, mostly because we waited too long to get started. The same is true of the US economy. It took a once-in-a-century public health crisis to get the ball rolling, and now we’re experiencing the kind of disruptions that go along with decades of procrastination.

Workers don’t know what to do. Maybe more stimulus is coming, maybe it’s not. If Joe Manchin comes around to extending (or making permanent) the revamped child tax credit, that’s a game changer. If Progressives finally convince Joe Biden to cancel $50,000 in student debt (an amount he says he isn’t amenable to), that too would be a game changer. Additionally, employers will likely find it impossible to lower wages or reduce benefits once the labor market does normalize. That could doom countless small businesses, especially considering their lack of bargaining power when it comes to what they pay for the goods they sell.

For what it’s worth, Goldman doesn’t expect wages to keep growing at the pace witnessed over the last two quarters. In Q2 and Q3, the bank’s composition-adjusted wage tracker ran at a 5-6% annualized pace (see the figures, below) and far higher than that at the low-end of the pay scale.

“We expect wage growth to moderate to a pace closer to 4%,” the bank wrote, in a recent note. “First, wage growth in the spring and summer was likely temporarily boosted by labor shortages caused by enhanced unemployment benefits,” David Mericle and Alec Phillips said, adding that “one would expect that policy to restrict labor supply and boost wages disproportionately for low-paid workers, for whom benefits often exceeded regular wages.”

Further, Goldman cited an in-house composite measure of business and worker expectations about wage growth over the next year, which the bank said is currently running below 4%. Finally, a wage growth model that employs (no pun intended) the ratio of unemployed workers to job vacancies suggests a moderation in wage growth to somewhere around the same level.

If that’s the case, one certainly hopes the bank is correct to project a marked slowdown in inflation. Because if current price pressures persist, 4% wage growth won’t cut it.

I am, of course, squarely in the camp that believes the implementation of a Progressive economic agenda is the only way to prevent inequality from spiraling so far out of control in America that the country ends up experiencing acute societal breakdown. Similarly, I think it’s fairly obvious that absent a rapid about-face on energy policy, the biome is doomed.

That said, procrastination has consequences, my unblemished collegiate track record of penning publication-ready papers the night before they were due while finding my way to the bottom of a Hennessy bottle notwithstanding.

Decades of procrastination on climate initiatives likely means the world will experience “significant energy storms [with] prices much higher at times, and prone to turbulence pretty much all of the time,” as SocGen put it last month. Decades spent pursuing supply-side “reforms” and instituting an unbridled version of capitalism free from common sense guardrails left America to rewrite the rules virtually overnight when the pandemic hit, with predictable results. Haphazard policymaking begets suboptimal outcomes even when (and, in many cases, especially when) the policy shift is well-meaning.

For the second time in a week, I find myself compelled to quote Howard Marks, despite having stopped reading his memos more than a year ago. In one of a half-dozen missives penned over March and April of 2020, Marks wrote that,

I imagine [Treasury] can print enough checks to replace every American worker’s lost wages and every business’s lost revenues. In other words, it can “simulate” the effect of the economy on incomes. [But] we actually need the output of workers and businesses. If all businesses shut down, we won’t have the things we need. These days, for example, people are counting on grocery deliveries and take-out food. But does anyone wonder where food comes from and how it reaches us? The Treasury can make up for people’s lost wages, but people need the things wages buy. So replacing lost wages and revenues will not be enough for long: the economy has to produce goods and services.

I’ve been critical of his recent musings, but as I put it previously, Marks’s worst work is still better than most people’s best. The excerpted passage (above) wasn’t particularly novel. But it managed to be profound despite itself.

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10 thoughts on “The Cost Of Procrastination: America’s Broken Economy

  1. A few thoughts.

    Think of an ice storm: liquid rain falls through a freezing atmosphere, becoming supercooled, then solidifying on contact with the frozen ground. A very graphic example of a system that is far from equilibrium suddenly approaching equilibrium. I think our economy has been like that–supercooled. The disruptions to our supercooled pre-pandemic economy include factors that are not solely due to the pandemic, in particular, dramatically reduced immigration during the Trump years and continuing into the pandemic. It will be very difficult to reach equilibrium (or even steady-state) again, and that new steady-state could look far different from 2019. We’re also going into an election year, and Americans are as divided as they’ve ever been, or at least as divided as they’ve been since the reconstruction. Expect careening.

    Another thought, regarding the switch to carbon-neutrality. I will support the switch and work towards it, but at this point I don’t think it’s going to happen. If you nudge the asteroid when it’s far enough from earth you can displace it, but the asteroid is too close. Technologists (e.g. Nathan Myhrvold) will argue that humans will come up with something, e.g. carbon capture, solar reflection, etc to compensate. But I think the incentive system is messed up, we’re already in a world that is decidedly NOT coming together to address global issues, but is instead cascading towards destabilization and conflict. When we’re faced with a near-term shortfall of energy, we will revert to fossil fuels, country-by-country, regardless of treaties. A heroin addict can’t just stop, no matter how good his intentions are. I think we’ll end up burning all the hydrocarbons we can find, come hell or “high water.” That’s my base case for planning (financial and otherwise).

    Finally, on the specific policies we followed at the outset of the pandemic: Could it have been otherwise? There is no provision for continuity planning in the power centers of the US government (even if there might be in certain corners, e.g. DoD). Donald Trump was the president of the United States, and the House of Representatives was in Democratic control. This ain’t Germany or Denmark (and it hasn’t been smooth sailing even in countries such as these that actually do plan for continuity).

  2. H-Man, sounds like your shopping at the pricey P store but remember you get 2 for 1 on selected items that you probably don’t need but you simply can’t pass on a good deal.

  3. I doubt I will read a more sober (!) and encompassing analysis of this bizarre year. Thanks for helping us make (some) sense of it, day in and day out.

  4. “Finding a “balance” that keeps the lights and the heat on while humanity shifts to energy sources that won’t doom future generations to climatic oblivion is proving to be quite an onerous task, mostly because we waited too long to get started.”
    Same with infrastructure. Inevitable breakdowns in the next generation could easily wreck our economy.

    Clearly, however, the real problem right now is that everyone wants their agenda to control everyone else’s. No one is willing to give an inch, on anything. No one wants to follow any rules, except their own. And that’s just here. There are now 200+ sovereign nations that all want a chance to make their own mistakes, satisfy their own greed, and subjugate the marginal groups in their societies, just like we do. And who are we to say they shouldn’t do those things just because they were late to the party. We had our chance to wreck the planet, and we did. We use 20-25% of the world’s resources, huge amounts of which we still waste, and do this with less than 5% of the world’s population. Now we have decided maybe it’s time to fix the problem, the way we want to. I don’t think giving in to the US will become the way of the world anytime soon. Imports just hit a record of nearly $100 billion last month. We need those guys. They have leverage. Germany just announced they are closing their last six nuclear power plants. In the short run at least, my guess is hello Russian nat gas (wind later, maybe, but can’t be stored effectively yet)

  5. In a desperate bid to inject some optimism, however macabre, into this comment thread, I’ll note that we may be reaching a point where many of these trends have grown so self-destructive that even the parties pushing discord, denial, and delay may be reaching their self-enlightenment threshold. After all, it’s no coincidence that in the Middle Ages, self-flagellation eventually led many to the enlightenment: “I should probably stop hitting myself. It hurts”. To wit: American conservatives, the traditional bastion of corporate interests, are hopefully feeling some pain knowing that anti-immigrant hysteria, milked for political points, has now bled the economy of labor to the point that every business donating to the Reps is paying for that particular stupidity through wage cost growth (other factors aside). Time for a conservative about-face there, but will money speak louder than racism? Similarly, American divisiveness has reached a point that international competitors have started using it against us on the global stage; eventually some degree of unity will come from that – likely under severe duress or, if we’re lucky, because we just get tired of listening to our own mass invective. The climate change deniers and procrastinators also may soon have their faces rubbed in cause and effect, courtesy of Thwaites or any number of increasingly blatant climate disasters that stubbornly won’t agree to hold off for a thousand years so we can shove the need for futuristic solutions off on our descendants. Rewriting the US coastline in the next decade might succeed where past effects have failed, in stirring legislators to action. Things are bad enough on various fronts that we may collectively start changing them (and, indeed, having markets change them for us), without waiting for political views to catch up with reality.

  6. Progressives building castles of sand in the sky. Which get blown to the four corners in the ballet box. Familiar pattern. I listen to NPR and the local wing-nut station. Why the wing-nuts too? Because I don’t want to get taken by surprise AGAIN! What I’m hearing is incessant utterly unrepentant diatribes of crazy. The attacks on Democrats and anyone they deem “lefties” reminds me of what I’ve heard happened on the radio in Rwanda.

    I wear camo (John Deere cap, work shirts, etc) when I pick up groceries at Wally World so I can subtly query the youngsters on their work conditions and their thoughts about the economy, Covid, Walmart, and whatever they want to talk about with an old geezer. I’m not picking up on any Progressive talking points so far. Quite the opposite, if they are neither reticent or so painfully ignorant/uniformed they’re to depressing to listen to. Sometimes, I’ll lay down a counter argument to whatever is making the rounds on wing-nut radio. Responses seem to be about half obliviousness and half anxious looks that suddenly cloud their faces suggesting they are uncomfortable with such heresy or they’ve never heard such notions. Of course, it could be a rational dread that the talk might veer in the direction of Politics at work. Their opinions are mostly parroted, which is interesting, however, these young folks are not reliable voters. And around here I have to think the reliable voters are going to be angry about inflation and Biden’s perceived Left turn after entering office. If they also take bear-market hits to their 401k, then lookout! One-third of the voters here are registered Independents. Their vote was Centrist as were the Never-Trumpers. Anger is not good for incumbents.

    But you know who NPR’s worst enemy is in the hinterlands? Same as it always is. NPR.

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