Everyone has become worried over price inflation, and understandably so. Kelly Blue Book revealed that retail prices for mid-size family cars increased over 7% this year, and full-size SUVs increased by over 12%. Realtor.com reported that the price of the average American home increased by 15% this year. The near-term buying power of our salaries is fading fast.
President Biden just introduced his $6 trillion budget for 2022, which is a 33% increase over the $4.4 trillion pre-COVID budget of 2019. To put this into perspective, only two countries in the entire world (the U.S. and China) have an annual GDP higher than $6 trillion.
What will this $6 trillion federal budget buy the typical American family?
The latest trillion-dollar federal economic stimulus package is having a positive, short-term impact on the economy. The Bureau of Economic Analysis (BEA) recently reported that in the last month alone, personal income in the U.S. economy has risen by more than $4 trillion. This represents a 21% increase that exceeded even the most optimistic of economic projections. It appears that giving a $1,400 stimulus check to nearly every American who filed a federal income tax form last year is seriously boosting consumer demand.
The Wall Street Journal reported how a restaurant owner resorted to offering employees a $1,000 bonus for staying on for three consecutive months. The Business Insider reported how a McDonald’s restaurant, which pays a few dollars an hour higher than the local minimum wage, was offering people $50 just to show up for a job interview. He failed to attract many applicants.
The sheer magnitude of recent federal efforts to stimulate the American economy over the past year is difficult to fathom, but the potential for their unwanted side effects is easier to grasp.
President Trump signed the CARES Act in March of 2020, adding $1.9 trillion of COVID-related assistance to the existing federal budget. He also signed the Consolidated Appropriations Act in January of 2021, adding another $900 billion in aid. When President Biden recently signed the American Rescue Plan in March of 2021, he added $1.9 trillion more in assistance.
As remote work becomes the new normal, employees are relocating their residences beyond the suburbs of metropolitan business centers—even to an entirely different state. Often, they are making lemonade from the lemons of the Covid crisis, seeking to fulfill personal goals or accommodate the needs of family members. They are pursuing a happier work-life balance that retains their salary and (most) of their company benefits. But is this effort sustainable?
Big City, Small Dreams
When the economic environment of a major metropolitan city changes, its residents will respond—with their feet. Higher apartment rents and worsening crime rates can chase away residents. Higher taxes and more burdensome regulations can chase away jobs.
The transfer of Oracle headquarters from San Francisco, CA to Austin, TX is but one example. The pending move of Hewlett-Packard from Palo Alto, CA to a suburb of Houston, TX is another. And don’t forget Tesla is relocating factories from Fremont, CA to Austin, TX.
One concept they teach in every university economics class is that life is full of trade-offs: every decision you make will have both positive and negative consequences—otherwise, there wouldn’t actually be a decision that needs making. Put another way, there is no such thing as a free lunch.
International trade allows each economy to consume a larger and broader market basket of goods than if they each tried to go it alone. When each country exports their surpluses of specialized goods to import the goods that they lack, the lives of consumers in both countries are much improved.
However, this also means some domestic industries gain jobs while others lose them. The American economy has parlayed its own advantage at exporting tech-related goods and services into a growing number of domestic, white-collar jobs. Yet, importing ever more manufactured goods from overseas has resulted in the “export” of millions of American blue-collar jobs abroad.
The Covid-19 pandemic has been harsh on the American retail economy. Like the lingering symptoms of an illness, the year’s economic shutdown will influence both consumers and businesses during the coming Holiday shopping season.
Trading Economics reports that total retail sales were hardest hit in April, when they were 20% lower than last April. The U.S. Bureau of Labor Statistics estimates that over 2.5 million retail jobs were lost during the second quarter alone—about 16% of the American retail workforce.