The Reagan Revolution rested on low inflation and low taxes and low oil cost.
Cheap money, cheap government and cheap energy. With the .5% jump in CPI-U and .6% jump in CPI-W, the old economic landscape starts to reassert itself. First it is the cost of imported goods - William Sonoma had to raise the prices of most of their items because of the price of the Euro - in many cases by 30% or more. Imported staples - food and energy particularly - are showing.
Bush has, in otherwords, broken the discipline that held the Reaganite compromise together, and by doing so, created both historical danger, as the US slides towards a debt burden which is unsustainable, and historic opportunity - as the way is opened for a new governing compromise based on different principles.
There is a shift in the wind.
First for the details
http://www.bls.gov/news.release/cpi.toc.htm
As you can see, the pressure of increasing health costs, skyrocketting energy costs offset the deflationary effects of cheaper imports. What is happening is that every penny that Americans are saving from cheaper manufactured goods is being soaked up by rising housing prices and other necessities.
What is even more troubling is that the Employment Cost Index - the cost of hiring a US worker - rose by even more than inflation by .7%. This means that while there should be a round of hiring this spring, it will be muted by the cost pressures.
That much the numbers say. What they mean is that as bad as the job situation is, economically, it should be worse - again, the Reagan compromise was based on not reving the economy up more than productivity, so that consumers could not buy more imported goods than the US could generate paper to pay for it. Again, Bush, in his headling pursuit of power, has broken this, by pumping the US economy full of a quick crack cocaine like hit of liquidity.
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Now for the interpretation.
One of the largest inflation drivers is health care. Clearly, the pricing power in health care has reached inflationary proportions. This means a single payer health system - with perhaps tiered access to premium services and long term health care insurance - is almost mandatory to relieve employment inflation.
Second, oil is going to spike upwards in price, and that means that the next Presidential term must pursue short term conservation with long term restructuring. It also means that the US must reign in spending regardless of the short term cost.
Third, one of the reasons for the drive to outsourcing is the high capital to return ration (id est Price to Earnings) ratio. There is too much capital at the high end, which makes the high cost of entry in entering China and India seem cheap, because there is so much money looking for return. The tax cuts are, in otherwords, funding the bleeding of US jobs to China and India, as rich people seek cheaper poor people to hire.
This points to five pillars of an economic restructuring plan:
- Single Payer health care.
- A program of budget balancing, including slashing the growth in defense spending - combined with an aggressive capital formation program.
- Tax overhaul to relieve the pressure on capital markets and asset inflation.
- Restructure the energy base of the economy by freeing up intellectual capital from its current monopolistic structure, creating incentives to telecommuting, universal broadband access, extended unemployment benefits, and a dramatic slashing of the cost of college education.
- Demand spreading to reduce the housing pressures.