Notes from an observational economist
or what the GOP will do with falling fuel prices
When it comes to economics, some things are more telling than others in terms of data.
If arrests for shoplifting and scrap metal theft1 surge, the economy is headed into a recession. I learned that while practicing as an attorney. In addition, DUI arrests also increase dramatically before the economy bottoms out.
If the economy is bad, holiday weekends feature full parking lots at strip malls as people choose staycations versus travel plans. More than once, I drove up and down the Mainline of Philadelphia to take in such data.
And one of the best indicators of the economy’s direction is the famous men underwear index (MUI).2 The theory behind the MUI is that purchasing men’s underwear is utilitarian oriented. It’s only bought as needed, otherwise a rise in sales is signs of a boom and a drop is viewed as recessionary, i.e. dressy drawers v. holey underwear.
For those on the Right cheering for a bad economy, the dip in consumer confidence occurred last November and December. Underwear is doing very nicely, thank you.
Two of the least understood economic statistics are also two of the most commonly referenced pieces of economic data — unemployment and inflation.
Unemployment is measured, for the most part, by unemployment insurance claims divided by the total pool of labor. Corporate America is all too good at cutting its labor costs to protect its bottom line; but if productivity and sales revenue suffer, it quickly returns to its least liked bit of economic realism — labor creates all wealth —and increases its labor force
One critical question always asked when unemployment falls is what kind of jobs did people take after being unemployed. The political Right, when out of power, cheers for underemployment; while Democrats do the same, when dispossessed of political power.
For the political Left, the question is less about underemployment and more about poverty wages made possible by the minumum wage, which has not increased since 2009. When assessing a low unemployment rate, the observational economist checks what McDonald’s and convenience store chains are paying. Neither Casey’s3 nor WaWa4 is offering minimum wage jobs to anyone. Same goes for McDonald's.
In the 1970s, a period that featured both high unemployment and inflation, the conventional wisdom was that Democrats focused unduly on the former and Republicans were only concerned about the latter. In the political battle for the middle-class, the GOP was remarkably successful at convincing people that declining purchasing power due to stagnant wages was preferable to inflation producing the same result.
The biggest flaw in inflationary woes is a fundamental misunderstanding of the math behind it. Inflation is an average of consumer or production cost increases and it is extrapolated over an annual basis to obtain a rate. Thus if someone says in April that the inflation rate is 8.9% for 2022, it’s based upon the average cost of goods having risen about three-quarters of 1 percent for 4 straight months and the extrapolation to December is pure guesswork.
That said, when the political Right was cheering on inflation this past Spring, it was purely political. Corporate America’s profits, particularly the Oil industry, which have been up by more than 25% from last year, are bigger feeders of inflation5 than government economic policy. Worse still, the political Right will demand tax cuts for the same price gouging tactics that occurred over the first half of 2022 should they regain political power as a bizarre "sorry you didn't make more money" gesture.
For consumers, particularly those in the bottom half, inflation comes down to gas prices, groceries, and rent. When Big Oil ramped up gas prices, groceries went up with it, and the rest of Corporate America followed suit.6
The problem is, though, that Biden’s cajoling the Saudis and Big Oil over oil production has led to the price of gas plummeting for nearly 3 months now. The WaWa near where I live has gone from a high of $5.09 a gallon in early June to a just posted $3.63 a gallon — less than I paid in December when consumer confidence was waning. Throw in supply chain issues easing substantially and inflation, politically and economically, has been stunted.
With gas prices down and grocery costs stabilized, the GOP has pulled out its standard “Crime is out of control and the Democrats cannot be trusted on the issue” messaging for midterms.
The problem with that is that outside of gun deaths, particulary mass shootings, crime is down and has been so for a while. And the GOP really doesn’t want to debate gun control much these days.
People boosting metal from construction sites and junkyards and then sell it to scrap metal dealers.
https://en.wikipedia.org/wiki/Men%27s_underwear_index#:~:text=The%20men's%20underwear%20index%20(MUI,times%20and%20sales%20remain%20stable.
Midwest convenienc store chain — I lived in SW Minnesota for 3 years
Mid-Atlantic chain
https://www.epi.org/blog/corporate-profits-have-contributed-disproportionately-to-inflation-how-should-policymakers-respond/
https://www.omfif.org/2022/06/corporate-us-making-consumers-pay-for-inflation/