George Katona was a German psychologist hired by the U. S. government during World War II to combat war-induced inflation. The idea was that inflation was partly a psychological phenomenon triggered by expectations of consumers.
Katona spent his academic career studying the relationship between mass psychology and macroeconomics. After coming to America, he founded the University of Michigan Consumer Sentiment Index.
Wikipedia states, “Use of this index enabled him to predict the post-war boom in the United States at a time when conventional econometric indicators were predicting a recession, a success which helped his fledgling index establish itself.”
The index has been a key piece of economic data reported widely each month in the news media. In June of 2022, the index hit 50 — its lowest point since it began 1962, 60 years ago.
Wow! That’s an amazing piece of information. Consumers are more negative today than they have been in at least 60 years, maybe even more.
In 1979 during the Carter administration there was super-high inflation and long lines to get gasoline. The index hit 52 back then. But that’s still higher than the 50 it hit in June.
This month it has climbed up to 58, but that’s still lower than all but five months over the last 60 years. We could use some encouragement!
The all-time high for the index was in 1999 at the height of the dot-com boom. The index reached 112.
By comparison, in the depths of the covid panic, consumer sentiment was 72 — far higher than this month’s 60.
Remember the horrible financial crisis of 2008? Consumer confidence was higher than 56, then it was in June of this year.
Dr. Katona was right about consumer sentiment affecting macroeconomics. four months after consumer sentiment hit an all-time low in June of this year, the stock market experienced its 27th bear market since 1929.
So which came first: the chicken or the egg? Are consumers really that smart that they can predict a bear market four months in advance? Or did the lousy consumer sentiment eventually spill over into the financial markets. This is an intriguing question.
The driving force behind this negative consumer sentiment is, of course, inflation, which is the worst it’s been in 40 years.
The Democrats can raise income taxes all day long and it will only upset the 50 percent of our citizens who actually pay income taxes. And most of these people aren’t voting for them anyway.
But when the Democrats went on a $2 trillion spending spree that created inflation, that’s a completely different story. Inflation is the most regressive tax there is, affecting the least affluent the worst. Inflation is a killer to the Democratic party. So expect them to lose big-time in the midterm elections. Think Carter losing to Reagan.
How could the party leaders not have thought this through? What a monumental mistake. That’s why the two-party system has proven so resilient. It’s almost certain that the party in power will massively screw up and get replaced by the party out of power.
The one constant in this scenario is the almost certainty of the party in power screwing up in a big-time way. That is why democracy and free elections are so vital to a successful country. The electorate simply must have a way to throw out the bums. If not, the incompetence snowballs until there is a fundamental collapse.
This is what we are now seeing in Russia, and sooner or later, in China. Both these countries have short-circuited the democratic process, ensuring the bureaucratic incompetence can reign supreme. Both countries will ultimately fail, ensuring the dominance of free, democratic countries for the foreseeable future.
The current Ukraine war is a perfect example. It has exposed the magnitude of incompetence in Russia caused by the lack of democratic checks on power.
This is the same process that caused the great Soviet empire to collapse in the first place. Putin, who kills potential rivals, is back to square one, the head of a decrepit country ruled by delusional tyrants. The results are evident on the battlefield.
This war is already won thanks to the bravery of the Ukrainian people, who, having had a taste of Western freedom, would rather spill blood than be ruled by Russian thugs.
Western Europe and the United States combined have a GDP 25 times the size of Russia. This is not a fair fight.
I know many people think we have no business in Ukraine, but I disagree. We gave Russia a free pass when they annexed Crimea. When they invaded Ukraine, it became clear that Putin wanted to resurrect the old Soviet empire. We have to nip this in the bud.
Fortunately, we have a fearless Ukrainian leader, Zelensky, a true hero, a motivated nation and competent soldiers. All the West has to do is supply the money and weapons and this war will be won.
The next step, the West must provide an impenetrable missile shield around Ukraine so Russia can’t bomb innocent civilians. This can and will be done.
Step two, Ukraine recaptures Donetsk and Luhansk. This can be done as well. Then a deal can emerge. Ukraine gets Donetsk and Luhansk. Russia keeps Crimea. End of story. End of the fantasy of the second Soviet empire. This will end well.
As for inflation, give the monetarists credit. They were right. Inflation is a monetary phenomenon. When you dump two trillion dollars into the economy, inflation happens. Duh!
Back in the depths of the covid panic, I wrote that when in doubt, do nothing. Or as Calvin Coolidge said, 95 percent of problems will go away by themselves if you just wait long enough.
But we panicked, both with quarantines and government subsidies. As we look back, the quarantine states didn’t do any better than the non-quarantine states. And all that covid money created a bigger financial crisis than the covid crisis itself. Or at least according to consumer sentiment.
Not to worry, we live in a democracy. Throw the new bums out. Give the old bums a second chance. Rinse and repeat. Is this a great country or what?
Meanwhile, technological progress continues to accelerate beyond anything anyone could have possibly imagined 100 years ago. Material wealth abounds. At what point, will we then start concentrating on our spiritual wealth?
