The economic numbers, like unemployment, inflation and GDP, are getting gamed. Layoffs are being offset by government hiring. Slowdown in the economy is being offset by government spending. No one in the actual economy wants to spend, so the government is counter-balancing it with spending of its own.
As interest rates rise and all the economic health indicators look increasingly horrible, the short-term Keynesian band-aids are being applied. After all, politicians have to do something, lest they be accused of not caring. This is, of course, an excellent example of high time preference behavior. Politicians really only worry about the next election and long-term consequences be damned! So what if government keeps growing? So what if inflation destroys peoples' savings? So what if the private sector mal-investment never has a chance to clear out? The game is to keep things the same so that they can get re-elected and they can always dip into the cookie jar of inflation to fund it.
In the short term, this is a very understandable strategy. Creating government jobs not only makes the unemployment numbers look better, but it also has the nice side effect of making those that get these jobs way more statist. These are not people that are going to vote for a reduction of government, they have strong financial incentives to never do that. And spending on unnecessary wars to prop up defense contractors? You think those people would ever vote for less spending?
The divide right now is not between liberals and conservatives. The divide is between the rent-seekers and productive people. And as currently comprised, it's about 50/50. And it's not who you think that's on the productive side. Sure, obvious groups like government employees, media and even the military, educational and health care industrial complexes are very obviously on the rent-seeking side, but there are others that you may think are productive but are not. Big tech, for example, is overwhelmingly on the rent-seeking statist side. The war-mongerers are on the statist side.
The productive people are the middle and lower class people that haul away your garbage and fix your AC and deliver your packages. And as the populace re-aligns, the productive people are correctly calling out the uniparty as the party that wants to keep the rent-seeking going.
There's only so much you can steal from the productive people before there's a revolution. But this is where the infinite pool of money that the central bank can draw from becomes the tool to tip the balance. You can co-opt the productive people by giving them government jobs. And make no mistake, that's exactly the strategy being executed right now. The public sector is growing fast, even as the private sector shrinks. They are nationalizing the work force so that voters are dependent on the state. And honestly, it's not that far from socialism. If 100% employment by the state is socialism, then we're about half-way there, roughly speaking.
But this strategy has consequences. As more people come on the government payroll, either through direct payment, as with government employees, or through subsidization of industries, the money to pay them has to come from somewhere. If it's explicit taxes, that will get the politicians voted out real quick, so it's not really an option. Inflation, on the other hand, is great because it's a stealth tax and there's plausible deniability by blaming greedy corporations and so forth.
But inflation debases savings and soon, people can't afford to live on their old salary. Not least of this is the bloating public sector, whose salaries tend to adjust last. Thus, there quickly becomes a large and powerful lobby of government workers who will demand raises. And this creates a major dilemma for those in power. Do you give them raises and exacerbate inflation, or do you deny them raises and get voted out of power? The high time preference nature of politicians almost guarantees the former outcome. But then, that extra money adds inflationary pressure to the economy. This may hold things off for a bit, but the bigger the public sector, the faster prices in the rest of the economy increase. Inflation becomes a problem again. Soon, the government employees, stronger now, perhaps as a larger constituency and having a precedent to work with, will again demand raises.
Raises -> Inflation -> Raises -> Inflation -> …
The only end here is hyperinflation and that's not pretty.
I'm not going to suggest that it's around the corner, but as Caesar once said, "aleta iacta est" or "the die has been cast." The expansion of the public sector is inevitable and thus, so is inflation and eventually hyperinflation.
The thing is oil has collapsed, and that's with two wars and inflation. It's lowered quite a few industry inputs, and we're witnessing the largest reshoring of jobs in my lifetime. For Hire signs are everywhere I go. The fed fund rate is only 1% above the historical average. Then we have ai and the renewable energy transition is in their infancy. Silicon production is about to explode on our shores. The DOW at/near all-time highs. California now has enough water to have historic farming seasons and we provide huge percentages of these products. It seems the rocket is nearly fueled and we're a rate cut or two from ignition. Bitcoin will love absorbing the excess. Hyperinflation, scarcity, and disruption are no friend of a commodity money.
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313 sats \ 0 replies \ @jeff 8 Feb
The divide is between the rent-seekers and productive people. And as currently comprised, it's about 50/50.
Do you have data to substantiate this?
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313 sats \ 1 reply \ @ek 8 Feb
When do you think will hyperinflation happen though?
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It is already happening in few countries. Just watch out. As the time passes you will see more and more country added to the list. It is always starting from the bottom of Fiat pyramid to up. Undobubtedly on the top of the fiat pyramid is the US dollar.
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Public sector unions have destroyed California
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Throw in some romance, a pirate, and a lot of railroad talk and you got yourself a 1000+ page novel.
Do you have a valley you hope to retreat to when the die stops rolling and settles on snake eyes?
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I remember reading Ayn Rand and looking at it as an intriguing form of realistic horror fantasy.
Now I'm finding it's prophetic. Ayn Rand villains here. Ayn Rand villains there.
Thank god for Bitcoin.
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The problem with gov interference in the economy is that creates 10x problems we wouldn't have not having them do anything.
  1. Controlling the money suply, that gives them God power will over the masses, so they decide who get to be rich or poor by allocating the money wherever they want.
  2. Taxing a bounch of stuff more/less than others and even the act of taxing is imoral or lligal because requires force and violence to reinforce. For exemple, why should a bounch of people get better tax incentive to go buy an over-priced/luxurious/battery charging fail in the cold Tesla car? Their argument is they are protecting the environment, which not, so why does my grocery price has to be higher because a spoiled imbecile decide to make bounch of stupid decisions like this on top of their worthless degree cost?
  3. Controling your retirement fund, why is the gov has to be everybody parents for retirements? If you understand how inflation kills your fiat savings you know this can't be good when inflation starts moving higher.
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There is no better example of government wasteful employment than California lol. I am always looking up coworkers on transparentcalifornia.com and just appalled by how much waste and lack of fiscal responsibility there is.
Like in what world do ultrasonographers get paid 350-400k total comp? lol There was an outcry about the (truly incompetent) mayor of oakland getting a raise and yet you have so many nurses clearing 400-500k+ total comp and every unit has a nursing supervisor and an assistant nursing manager (managing a floor of nurses, not even physically seeing any patients) making more than the mayors of major cities? lol
Just zero fiscal responsibility, paying literal double the market rate for everything. It's crazy.
No clue how SF is going to survive their crazy incoming budget deficit. So much surplus money completely squandered.
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Some good points here, however I would suggest the root issue is not cultural vis a vis producers vs rent seekers, the problem is the maths dont add up between public funded and private funded work, and the cultural stuff covers this up... Here's my thinking, rough maths to illustrate the point, UK data... 30m employees total 4m self employed 6m public sector total Ratio 34/6 or 5.6/1 So, the taxes of 5.6 workers pays for the cost of services (pay, pension, and facilities) of one public funded worker. In reality, its more complex, there are a million plus private sector jobs that depend on public sector contracts; and public sector workers still pay taxes! This isnt criticising public funded workers. We'd be stuffed without the work many do. But the maths will not add up... So, state funding via ever increasing nationalisation of the economy and debt financing backed by QE will have to make up the difference.
As the author of the post infers, the road to socialism is paved with good intentions...
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Inflation works for the federal government, but how do individual states get in on this act? Also where do they list these g-jobs? Asking for a friend.
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Great essay. The root cause of inflation is government spending especially employees and pensions
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