But there’s no need to panic. The United States has experienced a near-perfect economic downturn over the past few years, maintaining a strong job market and good GDP growth even as it eased off from the post-COVID-19 reopening highs. Not only are we doing better than anyone expected; We are performing much better than our European peers, including the UK, and Japan. The biggest challenge, housing inflation, is a slow-moving problem that comes as no surprise to markets and individuals dealing with rising interest rates.
what happened? It sounds bad, but it’s actually encouraging. The days of cheap are over.
The past five years, marked by the pandemic, the Ukraine war, and its aftermath, signal the end of an economy based on all things cheap: cheap money, cheap energy, and cheap labor. All of that is gone or about to go away. A decade and a half of go-go speculation is over. Gone are the days of cheap products.
The first thing that comes to mind is a time when money is easily available.This is not a short-term response to President Biden’s many policies.–required post–Pandemic fiscal stimulus. (In fact, it is precisely that stimulus that has kept the U.S. economy resilient while its peers have had problems.) Recent New York Fed Reports.) This is a return to a more rational and robust economy. Not all companies and stocks are created equal. Many people have large amounts of debt on their books.
Years of easy money supported it all. The higher cost of capital will be a temporary pain, but it will give the market something it has needed for a long time. This is why investors sort out riskier investments (such as some consumer technology stocks and meme stocks) from safer investments (a set of industries). (to benefit from the manufacturing boom).
Cheap energy is also over. One consequence of Russia’s invasion of Ukraine is the realization (especially in Europe) that it is never a good idea to obtain vital supplies from a dictator. The United States, Europe, and China are all accelerating their transition to a green economy in various ways.
Domestically, that means more wind and solar farms, more electric vehicles, and a more diverse supply chain to build it all. This will mean manufacturing new products and investing in new technology, which will lead to inflation in the short run. However, if it were to turn around, it would result in strong deflation.
Finally, the era of cheap labor is over. wages are risingand we have saw more labor activityIncluding strikes, there are more people this year than in the past 40 years. More to come. This is an appropriate response to decades of wage stagnation amid record corporate profits. Unions as well as non-union members in many sectors of the economy, such as construction and manufacturing, are being backed by the largest infrastructure investment since the 1950s, giving unions bargaining power they have not had for years. Ta. Meanwhile, service-sector companies are rethinking their usual fast-track approach to hiring and firing, as the pandemic has trained them to keep employees employed for as long as possible.
Yes, artificial intelligence could throw spammers into all of this. CEOs are trying to use it to reduce labor costs. But today’s workers are becoming more aggressive in demanding greater control over both trade and technology.Hollywood’s shock writers are still in negotiations How is AI used? In the entertainment industry, this tactic will soon spread to other industries.
The end of cheapness is a big change. That means Main Street, not Wall Street, drives the economy. The result is a more balanced and resilient economy. The bond market won’t like this, and there will be calls for a return to the old ways, especially if inflation remains severe.
But over the years we’ve learned that cheap isn’t really cheap. It’s just shelving your worries.
