As Americans stare down the highest inflation anyone under 40 has witnessed in their lifetimes, I wanted to briefly revisit the idea of the proverbial “free lunch” and the extent to which we’ve seemingly lost track of reality when it comes to what is and isn’t possible.
Let me say, up front, that we shouldn’t confuse this discussion with Modern Monetary Theory. MMT is descriptive, not prescriptive. It’s not a theory, really, and it’s not a suggestion about how things should work. Rather, it merely explains how government finance does work in developed markets with sufficient monetary sovereignty. In simplistic terms: If London were overrun by the Russian military, the US wouldn’t wait on tax day or next month’s Treasury auctions to liberate Canary Wharf. We’d just print money and go.
Americans woke up to this reality in the aftermath of the pandemic when the US government spent trillions on a whim to rescue the economy and Donald Trump delayed tax day. The almost one-for-one relationship between the ballooning deficit and the Fed’s rapidly expanding balance sheet was another clue.
Obviously, the proximate cause for much of the acute price pressure in the economy is fractured supply chains (as a result of the pandemic) alongside soaring energy prices and a burgeoning food shortage (both brought on by the war in Ukraine). When it comes to the institution of overt fiscal-monetary partnerships (i.e., the out-in-the-open, or even direct, financing of government deficits by the central bank) we were simply dealt the wrong crisis.
As I put it in December, the exogenous shock that finally tipped the scales in favor of a policy conjuncture aimed at fostering an almost literal interpretation of the term “full employment” simultaneously introduced severe supply-side disruptions. Those disruptions translated into a powerful inflationary impulse which, at least temporarily, supplanted and overwhelmed myriad well-documented deflationary forces that most of us assumed would everywhere and always predominate.
Again: We were dealt the wrong crisis. One could conjure any number of exogenous shocks that would’ve compelled the same policy rethink (i.e., the institution of fiscal-monetary partnerships) without the accompanying inflation. The nature of what, by now, is a dual-shock, was incompatible with many key disinflationary forces (e.g., globalized supply chains), even as it magnified others (e.g., too much debt).
But it’s not all a supply chain problem, nor is at all explainable by reference to the war. There’s too much demand relative to constrained supply. Note that I emphasized “relative.” It’s not necessarily a bad thing to flood the economy with money and inflate the value of assets, notwithstanding the impact of the latter on inequality. It only becomes a bad thing when there’s not enough “stuff” to buy, services to enjoy and, critically, people to make and sell the stuff or provide the services.
Part of the problem is too much stimulus, something most people now recognize, in hindsight. But there’s a behavioral element too — a psychological shift that was already underway prior to the pandemic, but which is now enjoying a kind of faux legitimacy on the coattails of stimulus and the work-from-home shift.
For a decade (or more) we’ve fostered and perpetuated (inadvertently or otherwise) a pipe dream that says everyone can be rich. It crescendoed in the pandemic era, reaching peak absurdity in what I’ve called “the Ethereum fever dream.”
But it’s not just crypto, or even primarily crypto. It’s showing up in a real-time reimagining of the so-called “gig economy.”
The new “gig economy” isn’t about “getting by,” it’s about getting rich. And further, about getting rich doing the least possible amount of work. As of noon Thursday, the top trending article on CNBC’s website carried this title: “‘I work just 2 hours a day’: 24-year-old who makes $8,000/month in passive income shares her best advice.”
Spoiler alert: The young lady featured in the article is an affiliate marketer. She uses TikTok. “I started my entrepreneurial journey as a personal trainer, but I found that selling a one-on-one coaching service meant I’d always be trading my time for money,” she explained.
I hate to be the bearer of bad news, but that’s what work is: Trading time for money. That’s one (maybe even the) literal definition of work. The article seeks to bridge the gap between work and passive income. But those two things are almost a contradiction in terms. That gap isn’t easily bridged.
As a society, we’re increasingly prone to reinterpreting sage aphorisms and wise dictums in ways that make little or no sense. The young lady from the CNBC article was, possibly without realizing it, repeating a version of the old adage about working “smarter, not harder.” But worshipping efficiency and striving to create a scalable business model doesn’t mean severing the link between time and money. That’s not a link that can be severed. Another old adage says time is money. That supports the notion that one should seek to maximize efficiency, but it also casts considerable doubt on the idea that the two things can ever be truly separated.
At the bottom of the piece were links to similar articles. A 29-year-old “made $245,000 in a month.” A 28-year-old “made $100,000 in passive income ‘in just one day.'” A video documented another young lady’s “$141 million side hustle.” Apparently, people between the ages of 25 and 30 can barely walk around in 2022 without running into a million-dollar hustle.
And we wonder why there aren’t enough bartenders. Or baristas. Or gas station attendants. Or Waffle House cooks. Spare me the protestations about people revolting against low pay. I’ve made that case better than anyone, as any regular reader will happily attest. It’s not just menial jobs. There aren’t enough store managers either. Or car mechanics. Or shift bosses. Go to any place of business anywhere in America and there’s a good chance they’re hiring for every position.
I said above that Americans are increasingly prone to reinterpreting dictums in nonsensical ways. The society-wide, big-picture, macro manifestation of that is the false equivalence many people implicitly draw between the self-evident assertion that because America is the richest nation in the history of the world, no one should be poor, and the not-at-all-self-evident claim that because America is the “land of opportunity,” everyone should be afforded the leeway they need to chase the magic money fairy down the yellow brick road.
Eradicating poverty and instituting, for example, a federal jobs guarantee, universal healthcare and free college, are initiatives that make sense for a country which prints the world’s reserve currency. Such initiatives would invariably pay for themselves over time, and probably over a much shorter timeframe than even the most enthusiastic Progressives believe. I bet we’d be amazed at what 330 million healthy, well-educated, gainfully employed people can do together!
What doesn’t make sense is perpetuating (implicitly or explicitly, by policy, by propaganda or by both) the idea that there’s no longer a connection between work, time and money.
If we continue to perpetuate that notion, not only will we not all be rich, we’ll all be poor.
I constantly see these sorts of articles in my feed. Pointless, clickbait fodder to whip up the capitalist sentiment in the world’s richest 3rd world country where people work the most hours.
I sincerely hope you’re not referring to my article. What I wrote here is true. And, to reiterate, I’ve spent countless hours championing the plight of working Americans over the past half-decade in these pages. Right now, there is a yawning, record-wide gap between the supply of labor and the demand for it. I count myself a Progressive. Always have. I was a progressive (lower-case) before it was popular to be a Progressive (capitalized). The problem for Progressives (politicians and particularly economists) in 2022 is that they won’t give any ground anywhere. They’re unwilling to countenance the idea that anything is attributable to over-stimulating on the demand side. Because they won’t even entertain that idea, it makes them appear less credible. If I’m 90% right, and I want people to know it, the best strategy is to admit I’m 10% wrong.
I’m pretty sure Wave Dash is referring to the article like the “24 old makes $1,000,000 in 30 seconds” that CNBC peddles. Regardless, you’re right about the above. I also consider myself a card-carrying progressive, but I often hear other progressives lament that if we just pushed democrats harder and punished the Joe Manchin’s of the world politically, it’d usher in a new era of progressivism doesn’t recognize the reality of where the country is today for many reasons. I wish I had a better answer for how to change that, but at the end of the day, I think it follows the old scientific axiom that “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
Love that quote at the end..
An old friend of mine that I saw yesterday told me the story of his 25 year old son, a golf pro who is already tired of making only $100 giving a golf lesson. His plan is to dramatically scale back his hours as a golf pro so that he can make a lot of money selling insurance “for a couple hours in the morning”, which he has been told by some friends is “easily doable”. That way, he can have the rest of the day off. Needless to say, my friend is not impressed with his son’s plan.
I suppose it could be worse. Another friend of mine’s thirty-something year old son quit his job earlier this year to focus on NFTs.
A couple of decades ago I was reading my favorite weekly column in Newsweek which went under a headline something like: “The youth of today don’t want a perfect job, they want a perfect life.” The one you describe, work two hours and lay around the rest of the day, or go surfing or whatever. Others want to work a couple of days a week and then tell the boss they are taking the rest of the week off. Those are the ones Musk hates. You and H nailed it here. Those CNBC apocryphal stories are mostly just that, stories. In my day the get rich quick was Penny Stocks from boiler rooms in New Jersey. Then it was how to make a million in real estate with no money down. Then it was self help. Now it’s crypto and NFTs. A few guys will get lucky but most never will.
And before that, it was panning for gold. It’s the ones who are selling the shovels and pans who end up on top.
Progress for the sake of progress will attract the easy money followers whether outright snake oil sellers or smooth talkers/fad walkers.
It used to be if someone wanted to waste their money on “services” that was their loss, but maybe the scale of these individual losses is changing it and the funding of them is guilty by association.
In other words the same risk of losing credibility, and combining today’s topics, it’s a shame policies delayed responsibility to an administration willing to take accountability. Again, opportunists get protected then pass the buck while the regulars begrudgingly pick up the slack for now.
H-Man, admired your restraint in your response to the first post. In the Seeking Alpha days, that post would have been destroyed by the viper tongue.
Back on course. If making money was easy, everyone would be rich.
I think some of this is the result of a very strong job market, such that people feel able to try new gigs because they can get regular jobs if they need to. That’s not an entirely bad thing. In general, while inflation is bad, plentiful jobs is good, and the good outweighs the bad for many people. I realize that for many, even plentiful full time work leaves them struggling to pay for gas and rent. But even there, having full time work is better than the alternative.
Seems good, but as has been detailed, if there are plentiful jobs then there’s no reason for the essentials to be filled and with continued immigration restraints, retirees and inaccessible childcare to name a few, things are far off from that ideal world.
Definitely a labor shortage situation presents problems as well as benefits. However, I think it is sad that just as the economy tilts to favor workers, external inflation sources are forcing the Fed to take away their punch bowl. Workers seldom get to enjoy the punch bowl.
It makes it seem like there has to be inequality for the broken system to work. This is why I wouldn’t call it a wage price spiral. It is just catching up and will fall short of trying to break even.
I think what you are describing can also be lumped in with the death of the middle class in our country. The idea that you can start working a crap job and, if you work hard enough and long enough, eventually you will be promoted to a point where you live comfortably with a good work life balance. The middle class is essentially dead now so what options do young people have? Either be poor or be rich, there is no other alternative for them. Pensions are dead, healthcare is a perpetually increasing cost that employers only barely cover some of, and you can be fired for no reason at all other than the company wants to improve it’s operations budget. So what’s the point of putting in time with a business that treats you like you don’t matter? The only person that cares about you is you, so do what you can to give yourself financial freedom.
This is coincidentally also part of the death of labor unions and the government’s increased focused on only looking out for their rich dark money donors. Guns laws don’t happen even if there are kids murdered in your very state because you don’t care about those kids, their parents, the teachers, or anyone else who isn’t the gun lobby throwing you several hundred thousand dollars a year. There’s no incentive other than the moral imperative that as a law maker it is your responsibility to look out for the people of your state. But now we elect sociopaths and nihilists to our highest offices, they have no morals.
This is a great post, by the way, it caused me to reflect on how I also get those same stupid clickbait articles all of the time and why that is. What those articles are saying and why they are so popular. I do believe with a strong middle class we would have a more normalized society with civil discourse and more unity. However, to restore the middle class will probably require some financial shock on par with the great depression to incentivize the government to take back power they have been willingly giving away to big business.
Great comments, cdameworth.
My grandfather worked for decades for a large, publicly traded, blue chip company. When he retired, he bought a massive land tract, built a house on it, and built a literal lake next to the house. Not a Koi pond, not a pool and not what counts as a “lake” for today’s nouveau-riche. Rather, an actual, real lake. (I mean, not an old school, European, landed aristocracy-type lake, but you get the point. It was a lake.)
By all accounts, he was an average guy. With all due respect to him (rest in peace) there wasn’t anything special about him. He just worked for a long time for the same company.
Imagine hearing that story today. It’d be a fairy tale.
Point being: You’re right. Sure, there’s still a sizable upper-middle class, but for the statistical majority of people, the choice is increasingly between being relatively poor or trying to get rich. The idea of, you know, “Well, I don’t have to worry, because I like to work, so I’ll just get a job at Nabisco and 50 years from now I’ll be rich” is out of the question, unless you end up being so good at cookies that you land in the Nabisco C-Suite.
Maybe we should reinstate the tax code and fairness doctrine from your grandfather’s time. Since money is speech, that would shut up the mega-rich and return democracy to the people. Ozzie & Harriet ride again! (not holding my breath)
Yesterday I saw that the Beaver (actor) is only three years younger than me at 74. Those days are long gone. And Zuckerberg’s goal is that we will all become fakes of ourselves and play games in the “metaverse.” Seriously? Will farmer avatars be growing our food, then? Ozzie was a ditz but I’ll take H’s “real” people any time.
They will have all the Soylent Green you can eat in the metaverse but somewhat less for H’s “real” people.
My dad worked for Nabisco for 44 years and some months until forced retirement at age 65. His 10th grade education didn’t take him any farther than being a top producing cookie salesman. Nonetheless, his defined benefit pension plan provided him with all the wine and jazz he wanted until he passed…
The rags to riches anecdotes referenced in the article suggest there may be a current dearth of “Fools,” fools that the “hot potatoed” last tranche of fools are last ditch attempting to recruit and engage as an alternative to wage and salary based earning efforts…perhaps that’s yet another reflection that at least one bubble has been successfully detonated…just my interpretative two cents worth…
Not everyone can not eat the cookie and wait long enough to get two…
This post inspires an interesting conversation. I was going to comment earlier about the hapless folks being taken in by the hucksters. But Wave Dash beat me too it, and in better form, painting a picture of the world’s richest third-world country. Gotta like that.
I’m reacting now to the therealheisenberg’s comment that he is a Progressive. I am progressive too – in my thinking – but more on the lower-case side. I totally agree with you that the public posture and management of build back better by the Progressive members of Congress influenced the absence of agreement to pass it. I’m hoping the Progressives are learning that passing a bill requires building consensus from before the time the pen first touches the paper. No pride can even be felt, let alone expressed, until the bill becomes law.
Wave Dash pointing out the US as the world’s richest third-world country is a funny caricature. But in reality, how does anyone corral 330 million people that move in different directions, guided by different thoughts? How do we take stock of who we are as a people, living together in this republic? Going to the moon was a milestone that brought us together. But aside from similar monumental events, only substantial political leadership can do this.
The history of US politics leans conservative. Traditionally, democrats and republicans have largely managed to work effectively together because each party has conservative roots. What has been bastardized is the definition of the party labels.
Liz Cheney is the epitome of a conservative member of the Congress. Her votes tell the story. She has been uncompromising, actually. She is not at all radical, which is why she is on the Jan 6 committee, working in opposition to the radical movement that seems to have broken the law by trying to subvert the transfer of power to the duly elected leader of our democracy.
One problem we have as a country is dilution and distortion of language. In our politics we pigeonhole each other, making assumptions about the meanings implied by labels, whether self-identified, applied by a colleague, or by a disagreeable adversary.
The terms “conservative” and “radical” describe a broad spectrum of behaviors. They stand abstracted and alone, not implying republican and democrat, except in the mouths of the individuals that distort them. This is one important root of disinformation in recent republican rhetoric.
In our lifetimes, beginning with Newt Gingrich’s tenure in Congress, through the long years of Rush Limbaugh’s caustic bloviations, and through the time of Trump’s election and tenure as President, the Party of Lincoln was slowly, grossly radicalized. During that time republicans verbally and systematically “talked down” and minimized their traditional democrat colleagues, as if they, the republicans, were no longer made of the same sod from which we all spring.
We clearly have a need for clarity about who is who and what do they stand for. Trump’s self-serving politics and egomania only accentuated the rhetorical confusion in the republicans’ use of language. As of today, we’re damn lucky he has been largely expelled from the political sphere.
It is past the time for calling a spade a spade. The Democratic Party needs get on the horse and corral those radical republican steers by upping their rhetorical game and speaking the truth in clear language to the American people.
The Jan 6 Committee in prime time can serve as the perfect preface to democratic rhetoric leading into the midterm elections. Democrats and progressives should need only to distinguish themselves from the true radicals. And if it is done well, I expect the difference will be fairly clear. But even so, to have a viable two-party system, democrats must use effective rhetoric to differentiate the radicalism of the republicans while moving forward into November.
But the table is certainly set.
Forgiving student loan debt is another major stimmy that will probably push the behavioral distance away from time is money.
Dear H,
Has it ever dawned on you that maybe the developing world with insufficient monetary sovereignty wasn’t exactly happy seeing the US flooded its economy with stimulus? Maybe it’s not fair to the rest of the world that the US and its European allies could print their way out of a crisis while they (Russia and China), who produce the majority of the goods and ship them to US and Europe, couldn’t, because MMT doesn’t apply in developing world. Maybe that’s what triggered Putin to invade Ukraine and prolong the supply chain shock and thereby the inflation shock in the US. Maybe Putin thought it’s past time the advanced economies feel what it’s like to be a developing country for a day (or a year) experiencing some inflation. That’s a lot of maybe and I know this is not a platform for spreading conspiracies, which isn’t my intention here. But I am pretty sure that Putin and Xi, just like the rest of the world, don’t entertain the idea of MMT applicable only to a few countries and the notion that the US could just ‘print money and go’ while Russia and China couldn’t because of ‘inflation’. It’s not fair, and they are probably trying to restore the balance. Let’s just hope they don’t go for the ‘changing the world order’ by WWIII option.
Best,
China has sufficient monetary sovereignty. And no, the invasion of Ukraine has absolutely nothing to do with what you’re talking about. That theory of yours has no merit whatsoever, and zero basis in reality.
Please note: I don’t say that to be abrasive, I say it because there is quite literally nothing to what you’re saying. The story of Russia vis-a-vis Ukraine is textured, highly nuanced, religiously-charged and subject to multiple historical interpretations. There are people who’ve spent their entire professional careers studying it, and intelligence operatives who’ve spent decades immersed in it. It’s an entire field of scholarship.
I can’t even begin to tell this story here, so instead, I’d recommend you read the following two articles so that you can be better informed. Seriously, do yourself a favor:
https://www.newyorker.com/news/essay/the-war-in-ukraine-is-a-colonial-war
https://www.newyorker.com/news/daily-comment/the-long-holy-war-behind-putins-political-war-in-ukraine
I can understand why Russia and China would want the world to follow their lead. But they cannot have their cake and eat it too. Xi’s and Putin’s problems and challenges go beyond the question of the impacts on their economies from the US currency. My personal sense is that their politics actually make capitalism itself less practical or rewarding for their economies.
When the English Pound was the standard currency for world trade. I read stories about it as the world currency in stories from the London Times. Though young, I understood them enough to gather the purpose of the world currency as a standard of exchange for world trade. The US had to play by the rules, though they sometimes disliked it at the time.
The Pound fell to the wayside largely because the US Dollar became the predominant currency of the world. The US economy was the single largest and most vibrant economy in the world. It was a no-brainer. There also had to be acceptance and broad agreement about when to make the change and how to do it.
Today the Yuan is finding some acceptance. But it’s not predominant, and there is more than predominance to the question of becoming the world’s currency for trade. If the world were to adopt the Yuan, it would happen gradually, and there would have to be broad agreement about it becoming the world’s currency. We’re talking about the world economy here. It’s not just China, or Russia, or Europe, or the United States.
I have to note the broad interplay between politics and capitalism as an element in the discussion. For years I waited patiently for China’s politics to intrude on their experiment with capitalism, and China did not disappoint. I had hoped the Chinese would ultimately shift to a full-throated embrace of capitalism, as they did in the ’80s and ’90s. But recently, China has cracked down on the capitalist tendencies in its economy. As an authoritarian state, it is run from its center, which is limiting. We’ll have to wait and see how the overall Chinese story plays itself out on the world stage. Will they be more controlling? Will they become more open? They seem to be closing themselves off at the moment.
As for Russia, in his old age Putin’s leadership for some reason has taken on the countenance of thuggery. As a result, they’re feeling the impacts of heavy sanctions. The everyday murders and rapes of Ukrainian civilians and the absolute destruction of Ukrainian infrastructure by the Russian army have had a secondary effect of degrading the Russian economy by making Russia a “pariah” state. In short, it’s not good public relations.
Our former President displayed obvious affection for Vladimir Putin, and there has naturally been a tendency for some sympathetic Americans to follow his lead and give Vlad their ear. But the Ruble is being shunned, by and large, via sanctions against the pariah state. Today the Russians have little say in anything at all. State TV is all about bad, bad NATO.
Even the Dollar required time to be accepted as the world’s currency, though it had become predominant for quite a while before it was broadly accepted. I don’t exactly recall how the process worked to establish it formally. I assume there had to be broad consensus. And the jury, in a sense, is still out regarding China this regard. But there’s a definite chance the Yuan may be adopted at some point.
The broader theme from my experience seems to be that capitalism works best in a democracy, which directly affects the success of the economy. The Ruble will be traded on an ongoing basis and reset its value after the war. But I can’t imagine it ever having enough power that its currency could be adopted as a standard. We’ll see what happens with China.