Infrastructure and Inflation

Delia Kane, age 14.  The Exchange Luncheon, Boston.  January 31, 1917.

General Motors and Ford are having to cut automobile production due to a chip shortage.  Chrysler has already idled some plants.  All over the country constructions materials are climbing in price so rapidly that prices quoted one week, aren't good the next.

What can we do to make that a really roiling inflation fire?

Well poor a bunch of dollars back by nothing into the economy, that's what!

The real news on the economy is being missed, which is simply that it never got as bad as the news outlets had it. Rather, for the most part, people kept their jobs throughout the pandemic but the workers worked from home, if they could.

Where things were bad is in the service sector, and that makes sense.  Workers working from their homes didn't go out at noon and get lunch, for example, and in many places restaurants just closed down. That part of the economy isn't rebounding and, frankly, it might not ever rebound.  This shift towards home offices may simply be permanent, and for more than one reason.  Some workers don't want to go back into the office, and some employers realize they don't need offices.  Effectively, we're getting a revival of a early 19th Century, and earlier, style of employment when artisans of all types, and professionals as well, simply moved from one part of their house to another for the work day.

It doesn't seem to have occurred to anyone that it was actually the post mid 19th Century style of employment that was deeply unnatural and only came about due to the Industrial Revolution.  You can make shoes as a single shoemaker from your house.  Amalgamated Mega Shoe can't do that.  Amalgamated drove individual shoemakers, for this example, mostly out of business through economies of scale over time, and people who makes shoes went into the factories.

Well, more accurately for this example, they went into the factories and the shoe makers went to Southeast Asia and China and now people in those areas are making them.  But never mind, you get the point.

Or take lawyers and doctors, for example.  At one time most of them just went to another part of the house, unless they were in relatively large cities.  Now, almost none of them do that.

Well, the old pattern has returned in a modified form.  People are largely still working for somebody else but a lot of them aren't coming into the office and they're not going to.  This is going to have a permanent effect.  Restaurants, bars, etc., that really depended upon downtown workers are never going to see that business pick back up.

Indeed, a friend of mine who is a Denver native recently went back downtown for the first time since the pandemic (that person no longer lives in Denver) and reported downtown abandoned to the street population.  Denver's always had a pretty sizable street population but its really grown since Colorado adopted the fiction that week=money.  In actuality, weed=social problems=decay=spending money, but no mind.  I noticed this too last time I was downtown.  I don't think it will rebound.

Given that, this is a probable permanent shift.

No infrastructure bill is going to change this.

Which means the Delia Kane's of this country aren't going to have their economic boats lifted by an infrastructure bill.

Indeed, the entire thing is either charmingly naive or massively cynical, I'm not sure which.

As the economy has pretty much rebounded, as it never really collapsed, but the service sector remains sick, a person has to believe somehow that investing in infrastructure will cause a revival in that sector and, if you don't want to make the entire economy sick, you have to believe either that 1) the sort of "infrastructure" being discussed will boost jobs for these very people, or 2) a collapse in the infrastructure is keeping people from going downtown, or 3) people aren't looking at the data.

Clearly people know you can go downtown, so #2 isn't it. They just don't want to.

So, basically, what we're being lead to believe is that everyone works in this sector and pouring money into the economy this way is for all of our benefits. But that's false.  So what you have to believe in order to support it is that all the Delia Kane's are going to switch over to being Rosie the Riveter, or that every infrastructure workers will be really hungry during lunchtime.

Miss Kane now?

There probably is an element to that hope. I.e., the thought may be that now that these jobs are gone forever, and jobs like them of which there are a pile, a migration will follow boosting infrastructure spending.

Maybe, but at this rate it will also boost inflation, and if that doesn't completely kill the downtown economy nothing will.  Right now there are a lot of things in flux, maybe, in regard to that.  One thing is that companies that maintain expensive downtown rentals are likely wondering if they should keep them.  If they were able to keep on keeping on during the pandemic with people at home, they're probably figuring they don't need to.  And if the owners of the buildings have to start raising the rents due to inflation, they'll abandon them and accelerate the shift.  That will hurt the downtown businesses even more.  And, it was like the disasterous 1970s, and the 1970s were a disaster, we'll see a period of stagflation, that's almost impossible to stimulate the economy out of.  During that period, which I'm old enough to remember, the Federal Government tried to bring in wage and price controls which failed.  People quit eating out as you couldn't afford it.  It was horrible.

Ronald Reagan brought the country out of that period by throwing the economy into a major recession.  People hated him for it, but he was right. And we haven't experienced that again since that time. We're about to.

Indeed, not only are we about to, but like large national debts we're getting government functionaries telling us that we need now worry about "a little inflation". We need to worry about it.

Of course, a person would be well entitled to simply ask how much of this massive spending proposal is not about stimulating the economy or infrastructure at all, but rather a clever way to camouflage an economic and manufacturing transition.  That's a completely different topic, but it doesn't reduce the risk of inflation.  Be that as it may, what that would entail is a big bill pitched to the American people as "infrastructure", as people who live in large cities and the like that see their bridges decaying are really happy to have people who live in  Shoshoni help pay for them, even if the latter will never use them.  If this is it, it's in the age old spirt of "never letting a crisis go to waste".  And there's frankly some merit to that sort of thing, even its really cynical.

And to at least some degree, there's some elements of that at work.  "Infrastructure", generally, are bridges and the like in Old Blight, New York, or some such place. They built them back in the day when New York paid for its own stuff, but anymore, nobody does, so a proposal to borrow money from future generations and tax everyone a little bit more is really appealing to the people in Old Blight, the same way having the Federal Government occupy so many things that were once occupied by state and local governments, or local institutions and even individuals, once did.  But some of it also is an effort to accelerate a fundamental shift in fuel consumption in the US. The Democratic Party has been trying to do this for some time, but now with a supposed crisis in the offering, its being used as a vehicle to do that now.

And your view on that is going to depend on what you think of that effort.