“Iced tea. . . air conditioning . . . water.” – Stargate SG-1
I went to an air conditioning conference once. It was pretty cool.
Let’s begin our tour of the economics world with the lowly thermostat. When The Mrs. and I were first married, The Mrs. would turn the thermostat on our air conditioner way down in the summer, say, to 62°F (45km). This led to the house gradually beginning to cool down, but the air conditioner would labor on like a Billy Barty attempting to oil a “modern” Sports Illustrated, um, model with a stepladder and a 55 gallon bucket.
This electrical effort by our air conditioner would continue until the outside of the house would resemble Joe Biden after he’s seen his latest approval ratings: a cold sweat on the exterior of the house as the moisture outside condensed on the meat-locker temperature windows.
I asked The Mrs., “Why do you turn it down so low?”
“So it gets colder, faster.”
The Mrs. says I’m an absolute 10 – on the Kelvin scale.
Now, on the surface, that sort of logic makes sense. If I spin the dial on the stove farther, it heats up my Dinty Moore Beef Stew® and Orange Jell-O© mix faster (goes great with corn and doughnuts). Twisting the dial puts more energy onto the stovetop. But (at least in every house I’ve lived at) the air conditioning doesn’t work like that – at all.
The air conditioner at our house is either on or it’s off. There is no “kinda on” or “working as hard as a Supreme Court Clerk deleting his phone texts” setting. Nope.
On.
Off.
Two choices. So, if you want it to be 68°F, and you put it to 68°F it will get to 68°F exactly as fast as if you put it down to 40°F. But not everything works that way, and The Mrs. can certainly be forgiven for not knowing that when we met. Plus, in our case, the air conditioner dries the air, so when I woke up in our 40°F house in the summertime, the air was making fun of Hillary Clinton since it was as dry as Norm Macdonald’s wit.
I hear that when Norm got to Heaven, St. Peter told him, “Norm, you have to have an eye test. Cover one eye.” Norm covers one eye and reads the chart: “E-I-E-I . . . Oh, come on! I wasn’t that old!”
The economy is certainly more complicated than a household HVAC unit, but I’m not sure the incompetent participation trophy award winners at the White House have any sort of clue. At all. They’re like putting playful river otters in charge of running a nuclear reactor. Sure, it’s all fun and games watching them be all nimbly-pimbly with the control rods. But sooner or later (mainly sooner) the control rods will be pulled and the uranium will eventually melt into a radioactive mess that’s slightly more destructive than the Amber Heard v. Johnny Depp trial after the core melts down.
I believe this is actually from the trial – Lawyer: “Did you see what happened after you left?” Depp: “I wasn’t there after I left.”
The point is that our economy is complicated, and we’re dealing with a current Resident of the Oval Office that would find running a YouTube® video complicated. “What do you mean, I press the button and the sheep start to talk? How does that happen? Who puts them in there?”
It would be hilarious if we weren’t actually living through this, like when Caligula named his horse a Senator of Rome. My sides are still in stitches about that one! But when it’s us, it’s scary. I mean, Kamala’s not exactly a horse, but, still, the analogy holds, even in this case if it rhymes.
The air conditioner analogy (as a very simple one) actually does have some meaning in this case. When an economy is stalled, there is a case (not the best one, but at least a case) for using money to restart it. Sure, it’s dangerous. And I can make the argument that we’ve done it so many times that it’s really messed up the entire system.
I hear she’s auditioned to be a Batman® villain – The Giggler™.
But after the system is going, by continually forcing more money into the system, well, as Joe said, “I did that.”
If that were the only issue, it might be solvable. It’s just one variable. Have Kamala and AOC eat all the spare money and then it might be as okay as Buddy Holly in a parachute. Might.
Joe, however, has other ideas. When you put sanctions on a nation, the idea is to hurt that nation. Really, that was their plan. But the sanctions against Russia (along with the war, which I also blame Biden for – he could have stopped it with ONE PHONE CALL) have resulted in soaring fertilizer and food prices. That’s bad enough, but it has also popped fuel prices to record highs – The Mrs. wanted to give me something rare and valuable for Father’s Day, so I just asked for five gallons of gasoline.
Fuel impacts everything.
Roses are red, violets are blue, Janet Yellen doesn’t care about you.
The combination of these sanctions and war have effects that haven’t been felt yet – not remotely. An example: a farmer normally fertilizes his alfalfa to increase yield. Not this year – the cost increase for fertilizer far outstrips what he expects to make in revenue. So, he deals with the “natural” yields. Due to high diesel costs, he also gets less money after the cost for harvesting is deducted.
What eats alfalfa?
Well, for one, cattle. So, less alfalfa, more expensive food for cattle. More expensive food for cattle? Well, if the rancher can’t make a profit, he’ll sell the herd. Those aren’t magic, and cattle don’t regenerate immediately like Wolverine®, so if you think we have high beef prices now . . . . just wait.
That’s the second idea: every action has a reaction. Some are immediate, like lower amounts of oil leading to higher prices. Others are longer-term. There’s a delay between taking the action and the result.
Going back to houses, this is like water hammer. That’s what happens when a valve closes too fast in a poorly designed plumbing system. The closing of the valve sends a pressure wave back and forth through the system, rattling the pipes as the pressure goes (at the speed of sound!) through the piping system. If you’ve ever lived in a house with water hammer, you know the sound. It’s loud.
But a simple act, closing a valve, can send waves of pressure moving back and forth through the system.
If you find a bomb that explodes when it’s stepped on, let me know. It’s mine.
We haven’t seen the end of those pressure waves from the magical sanctions that were supposed to have weakened the Russians but have instead raised the value of the ruble and thrown the food and fuel systems of the world into turmoil. Again, my analogy of otters running a nuclear reactor doesn’t appear to be far off as these secondary impacts reverberate through the system.
Eventually, these systems come back into equilibrium. However, unlike the consequences of a 40°F house, in this case we end up with the possibility of an economy more wrecked than the Pelosi family after about 11 AM.
As Nancy would say, “Cheers!”
I don’t comment much. But I’ve read and appreciated your site for years. This is a fine example of your perceptive and timely writing.
I also like your podcast, though I never get there to hear it live.
Thank you so much! 9pm EDT on Wednesdays!!! We try to be pretty prompt . . .
Amazing how you can make serious and accurate comments with puns John.
Going to be a cold (heating costs), dark (power outages) hungry (food availability) winter of our discontent.
But, HEY! Maybe we can pass a law that all electronic digit dollars have a printed one available for camp fire fuel?
That is the bright side! Also? The vegans will likely finally shut up.
John, I’d be happier with otters running the show. These people grew up wondering what dirt looks like, went on to Choate or Andover, then an Ivy or Stanford or Dook, then an MBA or Law Skool.
In other words, they ain’t gotta clue about the real world.
Yup. When I lived in Houston, I rarely set foot on anything but asphalt or concrete. Here? I spend more time on dirt or gravel. Good times.
As far as Yellen reading your blog, yeah, either way I don’t care, just as long as you keep her out of the Bikini graphs, I’m good.
Ohhhhh, I need brain bleach now.
Valid teaching point about the operation of thermostats. In many ways the Fed is the American economy’s thermostat and the interest rate is the “temperature” the economy is set to run at. Low ( or zero or negative) interest rates make the economy run hotter, high interest rates make the economy run colder. Everybody is so used to the blazing hot beach party we’ve been running in the 21st century, they’re gonna die of exposure (a pun!) if the Fed sets the interest rate thermostat even a degree higher now.
You can’t cure 10-15% inflation with a 3% 10 year Treasury bond rate. The current strategy seems to be for the Fed to talk up future 0.5% hikes with the hopes that Wall Street screams in fear and that high inflation is “cured” by a stock market crash instead of a government bond default.
Do you wanna die of blood loss from a arm cut off or a leg cut off? You’re still dead from blood loss.
Inflation is only a symptom of a sick, sick currency in a sick, sick American economy. The real disease is the corruption of American Capitalism. Not to worry. Both the Chinese and the Russians have moved on from Communism and are about to show us what economic system comes next, something Americans once knew well back in the days of Yankee Clippers:
Mercantilism !!!
https://vblgoldfix.substack.com/p/dear-michael-every-bretton-woods?s=w
If you read nothing else in that article, take a long hard look at that first picture detailing the US-China trade war.
And inflation is a symptom of moral failings as well.
John, the last 1.5 years has demonstrated, on the one hand, the apotheosis of a practice of an economic theory. It has also demonstrated the apotheosis of the Mendacitic class: those that have neither the knowledge, sense, or experience to run anything. As you note, the rather shocking comment by former member of the Federal Reserve and current Treasury Secretary that she was “wrong” about the path of inflation – while on the one hand refreshing to hear a government official of any party admit they were wrong – rather apropos of the entire situation. The problem with things like game theory and “we hope this works out” is in point of fact, the real world is rather unforgiving. And unlike simulations and think tanks, the consequences exist in the real world and impact people, including those pesky voters.
Or, as the saying goes, given the success rate, perhaps they otter think about another career path…
Indeed. You’d think they were in otter space.
They think they’re cute, but they’re really justa buncha weasels.
Ha!
You are too generous in ascribing everything we’re seeing to mere incompetence.
Oh, there’s evil. Possibly Evil. But there’s a lot of stupid, too.
“I hear she’s auditioned to be a Batman® villain – The Giggler™.”
I’ll just leave this here…
I miss Bronson. Drove all the way to Vermont to pay my respects to him a few years ago.
Hahahaha! I’d forgotten about that one!!!
AC is a construct of the white male patriarchy as is fuel.
Preezy of the steezy Jo Jo is fixin’ the crops and growin’ the comony.
Enroll your youngsters at Costco Law School for a bright future.
Haulin’ ass and gettin’ paid.
I *love* air conditioning.
We are at the beginning of the pain, not nearing the end. The shockwaves are building up and when they hit it is going to be incredibly bad.
Hit send too soon. As for this “Those aren’t magic, and cattle don’t regenerate immediately like Wolverine®, so if you think we have high beef prices now . . . . just wait.” People don’t understand the cycle of how a baby calf becomes a cheeseburger, it is a long process and that process depends on other stages that also take a long time. We bought a young heifer last summer. She is about ready to breed now. If it takes we will have a calf late next Spring. Then we have to feed that calf to full size. So if we are lucky the heifer we bought in 2021 will results in an edible offspring sometime in 2024. I am planning on adding a steer calf soon so we have meat sooner but most people don’t have that option so they are going to be left with yummy Real Beef Flavor Bug Paste.
Absolutely. We need to get a few in process here. This summer should be a great time to buy.
“People don’t realize what’s fixing to hit them,” said Texas farmer Lynn “Bugsy” Allen.
“They think it’s tough right now, you give it until October. Food prices are going to double.”
This is a quote from a story on ZeroHedge today. It goes on…
“Chester said that fuel and fertilizer together make up 55 percent of his total costs. The price of diesel fuel has more than doubled, from $2.50 per gallon at the end of 2020 to more than $5 per gallon today. Farmers say the cost of fertilizer, an oil derivative, has tripled and in some cases quadrupled.”
Actually, fertilizer is more of a natural-gas derivative, but who’s splitting hairs?
It’s time to get out the $600/year diet cookbook, at https://efficiencyiseverything.com. (I am not the seller, and have no financial interest.)
Awesome website. Thx for the link.
Great link. And every farmer is thinking like Chester – they have to.
The problem with that, is it’s only looking at one side of the market teeter totter.
If farmers controlled prices, they’d charge $10,000/lb. for beef 24/7/365/forever, and live like Bill Gates.
But in reality, if they did that, they’d go broke, and live like homeless people, because they would be.
They can only raise prices as high as the market tolerates, and if they go beyond that, they go bust, and sell nothing, because people will eat what they can afford, not what the farmer is raising, and he’ll drop his prices to what the market will bear, and not one dollar more, and/or get out of that market before he loses his shirt, his farm, and his livelihood.
Factor that in, and get back to me. IDC about momentary blips, tell me about year-long averages.
Prices will be higher for a certainty, but at some point, farmers will stop raising certain foods, because they can’t sell any at the prices they’d need to receive (but can’t get). They may get out of beef, and switch to hogs and chickens. Bad for McDonald’s, good for KFC. Which model Japan has only made work for 3000 years.
The future in the short term will not be better, but it will assuredly be different.
Driving outside of Charlotte and back home in SC, lots of grains planted in areas where I’ve never seen those before, mostly wheat & corn, some beans. No cotton.
**Unless, of course, said farmer is receiving free* monies to underwrite his herd Because Reasons. Reasons TBA by the governing autorities. Which are more often unelected and unaccountable than otherwise. Said “unless” being the current day norm.
I miss living in the United States.
*values of free may include hidden charges, huge costs, and unintended consequences
**Dueling ackshullies 😋
My guess is that beef prices will hold or dip slightly, but start to take off next year. Potentially by a lot.