Revenge of the trickle-down economy

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By Morf Morford

Tacoma Daily Index

Trickle-down economics was a theory that flourished – or at least dominated economic discussions – in the 1980s.

The premise was simple, cut taxes on the wealthy and they, with all that “extra” money, would invest it in the wider economy or spend it, and either way boost the economy to new heights.

To put it mildly, it didn’t quite work out that way.

Much of this “extra” money has gone into tax havens and corporate stock buybacks.

The number of millionaires (and billionaires) has increased dramatically, as has the number of homeless people. (The word “homeless” did not exist in the public vocabulary until 1980. We had homeless people, but this condition was considered inherently temporary).

And, as we now know, our infrastructure – highways and bridges in particular – went unmaintained – for decades.

As our tax rates became increasingly unfair (those who had less were expected to pay the most), increasingly extreme income inequality, increasingly visible, even intrusive homeless populations and a disintegrating infrastructure, it has become apparent even to its proponents that the “trickle down” economy does not work. At least in the way some expected.

But now in the 2020s it works

Predictably, in the 2020s, when established economic rules that have always been true suddenly no longer make sense and principles and decisions that once seemed absurd now seem reasonable.

And, almost as expected, we are seeing the return of the “trickle down” economy. Except, of course, that we see it upside down. It is not a “runoff”; it is “runoff”.

If you take a commodity, on which everything else depends – whether for production or transportation – and raise those prices, the direct and obvious impact will be that all prices associated with that commodity will be forced to to augment.

This is what we see – and experience – with the cost of fossil fuels of all kinds – primarily gas and oil used for transportation.

The Russian-Ukrainian crisis – and its myriad of expected and unintended consequences – has pushed crude oil to its highest level in 14 years – and with that, in the 2020 version of “runoff”, (aka “runoff”) prices of everything made or transported by oil is also increasing – at least as much; in some cases much more.

While there are a host of questions about the proportionality – or desirability – of some of the price increases, it is a timing issue, and the well-known “invisible hand of the market” will need to be resolved.

It’s a global market

Some are eager to blame any president (or political party) for gas prices at the pump. As always, global fuel economy is a bit more complicated.

Oil is bought and sold in a global market – always sensitive to vagaries of nature – such as hurricanes or human disturbances such as wars, political upheavals or other threats.

As I write this, in mid-March 2022, the price of oil has increased by several dollars per day per barrel – and in many regions, reaching the highest price on record. But it can also drop just as much.

The irony of the oil market right now is that there is no drop in supply. Russia, in fact, is reducing its production – but finding fewer and fewer buyers.

In other words, it is a constructed shortage – with shortages and overages in different corners of the market.

In the United States, we are reopening oil trade with Venezuela.

Oil prices and production – and demand – are changing right now.

To say that this would destabilize an already healthy economy would be an understatement.

Impacts on an already strained economy, with changing demographics, the Great Resignation, ongoing supply chain issues and increasingly wild and unpredictable weather, the gyration of oil prices can only make a Wall Street and Main Street even more volatile.

And that’s what we see – at the grocery store, at the gas pump and at the stock market.

Every aspect of the economy, from the grocery shopper to the investment broker, assumes some level of predictability, even stability. But stability is only one of the basics that is missing in the 2020s.

Crack supply and demand

Describing something as being “on crack” was a common term many years ago – it simply meant behavior beyond the bounds of expected possibility.

And that’s our economy right now.

We may have the usual expectations and projections, but the rules in all areas – from labor to compensation to hiring practices and delivery of materials (and costs) do not apply. more.

You might see an ongoing building boom.

When, for example, have you seen more construction cranes actively at work around Tacoma?

But, as we all know, they are racing to make up for lost time due to the lull in the construction market since the Great Recession of 2008-09.

As late-night informants might say, “but wait, there’s more”; there are blockages and price hikes – and labor shortages almost at every step of the process.

A contractor recently told me that he couldn’t get concrete delivered. When it comes to actual construction, concrete is almost always the first and most essential ingredient. Everything else follows.

The cost, availability and delivery of concrete impact the cost, schedule and even the eventual completion of any project.

With the inevitable and unstoppable force of gravity, the rising costs of a few basics – like gas, concrete, and labor – drive up the end cost of everything.

The same contractor who told me he couldn’t get concrete said that, based on square footage, a new build cost about the same as an existing home.

At a time when used cars sometimes cost more than new cars, reversing house prices almost makes sense – which means it makes sense now, even though it never did. before and will no longer make sense in a year or two.

And speaking of headlines that won’t make sense in a year

Due to the Russian-Ukrainian crisis, more than 800 McDonald’s restaurants in Russia will temporarily close. But workers in Russia and Ukraine will still be paid.

Wars involved weapons or threats, but in the 2020s, wars are only about online videos and Big Macs.

May the best burger, or video, win.

So, welcome to the 2020s.

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