BOOGEY BOUNCES BACK!

He's always around. Crouched under the bed. Lurking in the dark. Popping up mysteriously, and ready to pounce and pummel to death. We know and we fear him. And we feverishly work to protect ourselves from his mayhem by making sure that our doors are tightly locked, windows sealed shut and, for an extra measure of safety, we may even keep a light on at night. He's menacing and his raison d'etre is to ensure that we abide by certain rules or face the consequences of being terrorized, snatched, and destroyed. Sometimes something just as simple as calling his name can summon him forth. And, across the globe, he's known by various names: Bokkenrijders, Butzemann, Hombre del Saco, Baba Yaga, Tokoloshe, and Gurumapa. But, like me, you probably know him simply as Boogeyman.

Or, more colloquially, you might know him as Freddy Krueger, Mike Meyers, Tall man, Pennywise, or Candyman. Whatever you call him, he's up to no good and, generally speaking, he specializes in hunting and haunting supposedly naughty children and teenagers foolish enough to put him to the test.

THE BOOGEYMAN OF INFLATION

But today there's another boogeyman whose name is getting called. Not at the box offices or in some book or tales of folklore. Unlike Tall Man, Pennywise, or Candyman, he's not particularly concerned about snatching up purportedly misbehaved kids or defiant teens. He's not fictive like Myers, Kruger, or Hombre Del Saco. He's not hiding under the bed or popping out of closets. Locked doors or sealed windows can't deny him access to the imagination.

He's the boogeyman of inflation and right now he's all the rage. His name is in the mouths of panoply of pundits and politicians, not to mention mainstream economists, and the nation's leading newspapers and business magazines. This boogeyman, so the story goes, is a sure sign that the economy is on the verge of overheating and, unless slayed, will result in declining real wages, higher interest rates, burgeoning deficits and, ultimately, a blown engine in the form of an economic crash. Further, it's implied--if not explicitly stated- that fiscal stimulus spending is primarily responsible for recent price hikes. Stuff like Biden's American 1.9 trillion American Rescue Plan is framed as the equivalent of hollering out "Candyman," unleashing and summoning forth the boogeyman of inflation. And, we're told, if the Infrastructure and Family Assistance proposal sees the light of day that'll be akin to throwing gas on the already lit presence of Boogeyman of Inflation. In short, it's the old "we're doing too much, too quick." We need to take our foot off the pedal and ease up on the gas.

This is what Jason Furman, chairman of President Barack Obama's Council of Economic Advisors, meant when he said that the American Rescue Plan was "too big for the moment." And it's exactly what economist Lawrence Summers means when he recently warned President Biden: "I think policy is rather overdoing it." Convinced that the Boogeyman is not an imaginary but a real and muscular threat to the economy, we are being bombarded with an urgent appeal to "tap the brakes." Biden and dem, we're repeatedly told, are too extra. They're trying to do way too much. You may, like I, feel even more needs to be done, that we're not doing enough. But there's clearly a chorus of Cassandras who fervently believe that it's time to chill.

Why? What's behind their warning? What is that has them convinced that there's a boogeyman under the bed?

BLS MONTHLY INFLATION REPORT

Each month the Labor Department's Bureau of Labor Statistics (BLS) releases its inflation report, and it's in that report that some are convinced they hear the boogeyman banging around. Each report refers to the previous month. So, today's report, June 10th, 2021, refers to what went on with May's price level.

The top line of the BLS report is two-fold: first, consumer prices increased by 5% between May 2020 and May 2021, the fastest price increase since August 2008 and, second, the core inflation rate, which excludes food and energy prices, rose by 3.8% over the past twelve months, it's sharpest increase in nearly three decades. By all appearances, then, it looks like the boogey is back

. But hold up a sec before you swallow the story that fiscal stimulus spending is juicing up consumer demand to such an extent that it has summoned forth the boogeyman’s presence. Wait a minute before you lend your voice and support to the 'enough already crowd." You know, the crowd that's doing it's darndest to convince us that we need to slam on the macroeconomic brakes to break the supposed threat represented by some sinister and sinewy monster flexing in the shadows.

WHERE'S THE ACTION AT?

To see what's really going on, you've got to dig deeper into the BLS report and examine the detailed expenditure categories that constitute the overall Consumer Price Index (CPI). The CPI is an index of the overall price level and, therefore, it's possible that the prices of some good and services might be rising faster than others or even declining. Inflation does not mean that the price tag of every single good and service is rising.

When you break the core inflation index down into its component parts, guess what you find? You'll find that just three "items" is driving most of the increase in the overall price level. Just three. Hotels, airlines, and used cars. Here's where the action's at:

• Used cars and truck prices climbed 7.3% between April and May and was up a whopping 30% over the year.

• Airline tickets jumped another 7% over the last thirty days and was up 24% from a year earlier.

• The price of a hotel room has jumped 10% between May 2020 and May 2021

The price increases for these three categories is exerting an overwhelming and upward increase on the overall price index. In fact, the BLS itself notes that the increase in used car prices all by itself accounts for one-third of the overall increase in prices that got's some pundits and politicians all besides themselves.

Yeah, I know it's hard to think about this when you're at the grocery store and dishing out an additional 1-3% for a dozen of eggs or fish or chicken. When you reach the cashier and pay that grub, ain't no one thinking, "Damn those used car prices!" Or uttering, "If those freaking hotel bills don't come down!". You're focused on the price of them eggs. But big- picture wise, it's the airline tickets, not the price of eggs, that's really driving the overall price increase.

But wait. There's one more thing.

THE PROBLEM'S SUPPLY, NOT DEMAND

Used cars.

Airline tickets.

Hotel rooms.

All are among the major culprits in pushing up the average price level. But not a single one of these three prices are increasing because of a federal stimulus spending and an increase in consumer demand.

Not. A. Single. One.

Think autos. The problem here is a shortage of semi-conductors that power automobiles. The pandemic and the consequent slow-down in the production and supply of these chips. Not surprisingly, then, new car production has declined, creating a shortage that's allowed companies to jack up their prices for new cars. And this, in turn, has spilled over into the used car market, causing the price of these automobiles to skyrocket. Federal stimulus spending has nothing to do with this. People, in mass, did not grab their stimmy and increased the demand for--and price of-- automobiles.

That's a supply problem, not demand.

Think airlines tickets. Service industries, like airlines and retail, got creamed during the pandemic. In order to scoop up whatever demand still existed during the pandemic, these industries lowered prices. What's happening now is that they're undoubtedly trying to recoup their pandemic losses by raising prices, testing--as one economist recently put it-- "what the market will bear in terms of inflation." While it's true that folk been hankering to get out and travel, to get that vacation going that they've had to postpone because of COVID restrictions, it strains the imagination to think that any of this is due to rising demand on the part of folk who received some form of federal stimulus spending or that such spending is juicing up the economy enough to start obsessing about the boogeyman supposedly curled up under the bed--and ready to pounce.

A REHEARSAL FOR AUSTERITY

So, here's the deal: Sure, we're witnessing a rise in the price level. That's undeniable. But it's vastly overrated and has extraordinarily little, if anything, to do with stimulus spending to help mitigate the economic and human damage wrought by the pandemic induced recession.

The boogeyman of inflation is nowhere near as burly as some are making him out to be. In fact, all of this is just the warmup act for a conservative call for economic austerity. It's part and parcel of a larger narrative about the so-called dangers of Big Government, the allegedly miraculous powers of the market, and how "busy-body" social policies inevitably harm rather than help. It's the kissing cousin of a libertarian notion of freedom and the family member of all those pundits who are ever so quick to sacrifice the economically vulnerable at the altar of price stability.

If they get their way, the cacophony of voices hollering out "Candyman!" will push the poor and the working class deeper and deeper into the economic quagmire, with little or no federal assistance, and they'll do it all in the name of the "higher good" of stomping out a boogeyman who--at least at this moment-- is more puny than powerful.

Beware of those out here screaming, "Bogie’s Back!"

Catch you on the flip side,

Doc Greene