There’s no recession, only a collapse
Phony stats can’t hide the pain working families are feeling
Photo credit: Unicorn Riot
Yes, you are still subscribed to Contention. No, we are not going back to the lockdown heyday of 2+ newsletters a week. But you can only take so much nonsense in the news before you bust out your contrarian business newsletter. This should take you about six minutes to read -- please share!
According to widespread media reports, a large majority of people in the United States suffer from a bizarre delusion. These lost souls believe that they are struggling economically, when in fact official statistics tell us that everything is totally fine. Worst of all, this malady might cause many of them to not vote for Joe Biden later this year, despite his very apparent accomplishments in improving conditions for everyone, regardless of what they all mistakenly believe.
The latest wave in this mass hysteria came last week when surprisingly strong job numbers came in for May at the same time that overwhelming majorities give poor or “only fair” grades to the economy. This continues a trend that’s gone on for months at least, with media outlets churning out fretful investigations of this underappreciation pandemic.
These observers have started to land on a rough consensus to explain the condition: consumers really really hate inflation. This irritates economists, who often find space in these pieces to wag their fingers at silly consumers who think prices ought to go back down just as aggressively as they’ve been going up. That’s not the way things work, they scold. At the same time, the experts maintain their own willful ignorance around the very dishonesty of their own inflation statistics.
Most notably, economists rarely report cumulative inflation figures, preferring quarterly or year-over-year numbers. So markets looked favorably upon April’s 3.34% annual consumer price index (CPI) increase -- still substantially higher than the Fed’s target of 2% -- but you have to dig around among the libertarian corners of the internet to find that cumulative inflation since 2020 sits at 21.15%. This is like losing most of a week’s pay every month, and working families notice it.
Ah, but wages have increased too, right? The problem with this logic: that 21.15% is a phony number reflecting decades of juking the stats. Most egregious are the ways these figures suppress the single biggest cost most Americans face: housing.
Economists have complex rationales for the way they account for housing costs in inflation numbers, but for actual human families the costs of providing shelter are very simple. Real-life data like rental prices advertised on Zillow or the Case-Shiller Home Price Index show that housing costs have risen far more dramatically than the official guesstimates used in the CPI. And even this underestimates what families have faced in the last few years, as insurance, utilities, and property taxes have all skyrocketed, generating a 26% increase in the cost of owning a home -- $1,510 a month over and on top of mortgage costs.
The biggest driver of this cost increase: homeowners insurance, which is NOT included in the CPI. Instead, the index uses renters insurance, despite the fact that 65% of U.S. families live in a home they own. One estimate finds that replacing renters insurance with homeowners insurance would add 0.84% to the CPI -- putting it well over 4% annually.
It’s here that we begin to glimpse the real driving force behind all of the pricing chaos, namely the steady breakdown of the U.S.-led world system. Climate change is accelerating the crisis, and Insurers do not mince words that their homeowners insurance hikes are the direct result of a surging number of climate catastrophes. China’s rise also weighs on the system, and tariffs on China are now a bipartisan priority despite raising inflation at least 0.3% officially -- likely much more.
At the heart of the decline: it’s getting harder to make a surplus big enough to satisfy American expectations. This is hard to see directly, but since profits are revenue minus expenses, we would expect a shrinking social surplus to look like either steadily eroding income or steadily increasing costs. Seeing as businesses have the luxury of passing on their costs, we should not be surprised that the loss of U.S. economic privilege would show up as inflation.
We would also expect the politically weakest parts of U.S. society to experience the most significant consequences of this decline, and it’s this surging wave of destitution that really belies official statistics. Homelessness has risen at least 20% in the last five years, with a single year increase of 12% in 2023. These numbers are certain to be underestimated, with the National Homeless Law Center estimating in the past that HUD undercounts the unhoused by up to an order of magnitude.
Unsheltered homelessness has risen even faster than the overall rate of the unhoused, meaning that families on the edge have ended up homeless, and homeless families that had some sort of shelter before have ended up on the street. Swelling numbers of panhandlers and sprawling tent cities across the country provide every day visual evidence of how bad things have gotten for many.
This desperation also shows up in life expectancy numbers, with the biggest single-year drop ever two years after the COVID vaccine mitigated that cause of death. That virus killed predominantly older people, while the current decline is driven by a 26% increase in mortality among 35-44 year olds. Overdoses have exceeded 100,000 a year for three years running, and suicides exceeded 50,000 for the first time ever last year.
All of this dances around the most significant locus of economic despair in the United States: the southern border with Mexico, where more than 8 million migrants displaced by climate chaos and sovereign debt crises -- i.e. the same big forces crushing U.S. workers -- have sought refuge only to find police violence, hunger, and exposure. Now we’ve arrived at the same bipartisan consensus around this crisis that we’ve been trying in response to homelessness and addiction: send in the cops and make them disappear.
Is it any wonder that the average American now suspects Donald Trump is more apt for that job than Joe Biden? Economists scratch their head at why workers aren’t more grateful for an unemployment rate that’s a couple of points better than the historic average without considering that maybe these same families are terrified by a slightly higher -- but very real -- chance that they or one of their children will die on the streets.
These experts have let themselves get high on their own supply, falling for their own propaganda about the broad benefits of policies that were only ever meant for the megarich. Now that real conditions have made the charade impossible to sustain, the smartest kids in the class are the last ones to realize that it was all a lie. One thing we all know for sure: nothing much is going to get better by November, and with the choices available in that contest, it doesn’t look too good after that either.
Disclaimer
Our only investment advice: Thank Marlon
Post more!