“I haven’t grilled in years, what if I’ve forgotten how?”
“I haven’t done long division since high school, can I still do it?”
“I haven’t danced in so long, I’m afraid to go out on the floor.”
In dozens of examples in our daily lives, we may go years without doing something that we used to know how to do, but someone is always there to reassure us: “It’ll come back to you. It’s just like riding a bike.”
And it usually does. In most cases, if we knew how to do something once, the memories come back and we find a way again.
Unfortunately, this really doesn’t apply to everything in life. The middle ages are notorious as the era when Europeans forgot how to make concrete, how to repair aqueducts, how to work a water screw, and the world was transformed from Roman progress to the regression of the Dark Ages.
Those of us who look at the business pages are seeing a similar example in real time, as we try to make sense of numbers in an age of Bidenflation.
Hopefully, all of us have the occasional meeting with a financial advisor, either the managers of our personal IRAs or the one our employer assigns to help with our 401K. They advise us to think of inflation, and to remember in our twenties and thirties that a two or three percent rate of inflation will make a real difference in our needs when we reach our sixties and seventies.
We therefore should have always kept inflation in mind, as we looked to the future, even if it wasn’t particularly noticeable from year to year.
The last 2.5 years, unfortunately, have changed everything. Since the Biden-Harris regime doubled energy prices at the stroke of a pen on their first day in office (by cancelling the Keystone Pipeline and issuing a moratorium on oil and gas leasing), the inflation rate has skyrocketed far beyond the two to three percent per annum to which we had long been accustomed.
We tend to be focused on our own day-to-day lives – what does this inflation rate mean to our grocery budget, to our ability to afford rent or mortgage, and gas for the car? What does it mean to our ability to send our kids to school, to take vacations, to keep up the house?
But the business world needs to ask the same kinds of questions, and since none of us have experienced these conditions in forty years, our business sector is having even more trouble adjusting to it.
A business may have planned an expansion – buy the neighboring parcel, add on another 50,000 sq ft of factory space, install some equipment. The prices of real estate, construction costs, and plant machinery ebb and flow in cycles of their own; only the cost of employees is sure to cost more. So inflation might not be measured the same way by every business. Some may not even realize that inflation is relevant to them; many businesses have long baked in a regular annual price increase to cover inflation, and they assume that’s enough – because for forty years now, it has been.
The financial pages report corporate earnings, as if none of this was happening at all. Company A reports revenues rising by 5%, Company B by 8%, Company C by 12%. Profits may be dropping, but that must just mean we need some cost cutting measures – tighten the belt for tough times, have a small layoff, postpone an expansion. That’s all we need.
We tell ourselves, sales are up, after all. We must be doing okay if we’re selling more, we must just need to cut costs. That’s how it has to be. We’re growing beyond the reported inflation rate, after all!
And if everybody’s sales are up, then it can’t possibly be a recession!
Conversations like this have been taking place in boardrooms all over the country for two years, and analysts are judging them from the outside, at investment banks and newsdesks. Everyone knows something is wrong, but they don’t know what.
The population is growing by leaps and bounds. Thanks to the internet, there are more options for advertising and selling than ever before. We simply MUST be able to succeed; we just have to figure out what we’re doing wrong. Right?
No.
It’s not that simple.
Companies and analysts alike are basing their analysis on either the idea that inflation is irrelevant to them – because it usually is – or on the published, official inflation rate.
And that’s where they’re wrong.
This inflation isn’t like anything we’ve seen in forty years, and the government’s method of calculating it is intentionally deceptive, to drastically underreport it.
Look in your grocery cart. Pork has stayed flat; beef has doubled. Refrigerated goods have gone up faster than dry goods because of the cost of energy. Products made in big cities have increased more rapidly than products from rural areas because of the big city trend of doubling entry level wages since 2020.
Now look at your staffing levels. You’ve had to double the salary of your entry level employees, your assemblers on the line, your drivers and clerks. As a result, you’ve been unable to give raises to your managers, your directors, everyone on the higher tiers. Inflation hits every employee the same, but since we’ve been forced to help the lower half so much, we’ve been unable to help the upper half at all. This too skews the data we analyze.
The US Bureau of Labor Statistics can issue press releases all day long saying that the inflation rate, aside from food and energy, is just 4.7%, but when food and energy have doubled, raising the cost of doing business by far more, we have to rethink the entire way we do business.
Since it’s been over forty years since the nightmarish conditions of the Carter recession, virtually nobody leading businesses today remembers how to analyze anything in these circumstances. The economists, reporters, professors, bankers and controllers were children the last time this happened, if they were born at all. They have no memory of it; many have no appreciation of how different everything is now from how they were taught.
If we have a real inflation rate of 2%, and our sales go up by more than 2%, that’s an increase. Sure.
But if we have a published inflation rate of 4.7%, and our real, effective inflation rate – for our specific business, for our specific industry, for our specific employees – is more like 10 or 12 or 14 percent, then that’s a disaster, making it impossible to accurately measure our condition, let alone predict our future.
Many companies are labor-intensive, and have switched from $7.50/hour to $15.00/hour for half their staffs, for various reasons, in just three years.
Many businesses are transportation-intensive, and have seen these transportation costs rise from twenty to forty percent in the same period, between the greater cost of truck drivers and the rapid climb of fuel surcharges.
Energy-intensive manufacturing and distribution businesses have seen not only huge cost increases in their electric bills, they have suffered the huge losses of blackouts caused by state government mismanagement of power utilities. We’re talking about the predictable, intentional undersupply that results from replacing coal and nuclear plants that work, with alternate sources that don’t, such as wind and solar farms. You think you suffer when a blackout causes you to throw away the contents of your freezer? Imagine a food plant that has to throw away the contents of its entire warehouse because their state government forced their utilities to shut down the plants necessary to power their grids.
And what of the businesses that need to expand, and need to take out loans to do so? With the Federal Reserve sending interest rates into the stratosphere in a futile effort to control inflation, every expansion costs infinitely more than it was projected to when businesses first planned the expansions. And that leads to expansions postponed or drawn down, or resources undesirably shifted to meet the new interest rate realities.
Our economy grows only when new businesses bloom and when existing businesses grow; the inflationary pressures of the current economy thwart this critical growth at every turn.
What is a recession? Two successive quarters of negative growth. That’s the definition that everyone agrees on.
But what about when we’re in a period of deceptive growth, where sales numbers look good only because they are measured in inflated currency, and comparisons with two or four or six years ago become difficult if not impossible?
In fact, more and more of us are coming to the realization that no matter how good our numbers may look, they’re full of so much air, they can’t be trusted.
Corporate America’s revenues – the heart of our GDP – are saddled with inflated employee costs, inflated tax obligations, inflated health insurance costs, crippling transportation costs, precarious energy supply, and a future customer base that grows effectively poorer by the minute. No matter how good these sales numbers look when viewed without context, the reality is that our economy is taking a beating from the regulatory micromanagers of Washington D.C.
The economists who weren’t around in the Carter years may not be bright enough to recognize a recession when they see one, but we all know how math works: When you keep on adding negative numbers, it may still be called addition, but there’s no denying that you’re going backward.
Copyright 2023 John F. Di Leo
John F. Di Leo is a Chicagoland-based international transportation and trade compliance professional and consultant. A onetime Milwaukee County Republican Party chairman, he has been writing a regular column for Illinois Review since 2009. His book on vote fraud (The Tales of Little Pavel) and his political satires on the current administration (Evening Soup with Basement Joe, Volumes I and II) are available only on Amazon
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