UAW and Automakers: A Common Foe in Washington
In October 2021, I predicted that the inflationary consequences of President Joe Biden's economic policies would result in increased labor unrest and strikes. Two years later, we are witnessing the largest auto strike in history. This is primarily due to inflation, which leaves both employers and employees financially strained, leading each party to demand concessions from the other. However, instead of pointing fingers at each other, they should be directing their grievances towards Washington.
Impact of Biden's Economic Agenda
President Joe Biden's economic agenda primarily revolves around government spending, borrowing, and creating money, which inevitably leads to inflation. Since Biden took office in January 2021, consumer prices have risen by approximately 17%, while prices paid by businesses have increased even more. This has resulted in smaller profit margins for companies, making it difficult for them to offer wage increases that keep pace with inflation. Consequently, real (inflation-adjusted) weekly earnings have decreased by almost 5% under Biden's administration.
Declining Real Corporate Profits
Meanwhile, real corporate profits have been on a downward trajectory for months, with manufacturing corporations' real profits falling every quarter for the last year and a half. This unfortunate situation can be attributed to inflation, which acts as a covert tax, silently eroding the purchasing power of both workers and businesses. The trillions of dollars of excessive government spending over the past three years are still being paid for today through this hidden tax.
Effect of Inflation on Net Household Wealth
The substantial impact of the inflation tax is evident in the disparity between nominal and real net household wealth. Under Biden's administration, net household wealth has increased by trillions of dollars to a record high, but this increase has been almost entirely offset by inflation. Real net household wealth remains roughly the same as it was at the end of 2020. Nearly all the net household wealth generated in the past two and a half years has been seized by the government through the hidden tax of inflation.
Demands of the United Auto Workers
The combination of falling real wages and a president who openly supports Big Labor has empowered unions such as the United Auto Workers to demand significant pay increases to compensate for the inflation tax. From the perspective of auto manufacturers, a 20% raise is more than generous, especially considering that manufacturers' other costs have risen due to both inflation and the Biden administration's "green" agenda. However, from the autoworkers' viewpoint, most of that 20% raise is consumed by the 17% inflation under Biden. The UAW is seeking concessions amounting to over $130 an hour in wages and benefits.
Media Accusations and the Role of Government
Although the manufacturers and unions are far from reaching an agreement, some media outlets have gone as far as blaming one side or the other for inflation. Businesses are accused of causing inflation by increasing prices to boost profits, while unions are blamed for demanding higher pay, which will increase consumer spending. However, these accusations lack credibility. Neither businesses nor laborers create money—they can only redistribute existing money. Moreover, businesses are always striving to increase profits and unions are always seeking to raise their members' pay. These realities didn't suddenly emerge when Biden became president.
The Federal Reserve and Inflation
Only the government can create money, and therefore, only it can cause inflation. The Federal Reserve created trillions of dollars from 2020 through 2022, increasing the money supply by over 40% in that short period. This was done to finance the unprecedented deficits created by the runaway spending bills passed by Congress and signed by the president. The result was a temporary economic high, where everyone initially seemed to have plenty of cash, but then prices began to rise. Over time, all the extra money was absorbed by higher prices, to the extent that consumers can't even afford to purchase what they could before the excess money was created.
Reduced Purchasing Power and the Need for Government Spending Cuts
This is precisely what has happened to the typical American family with two working parents earning average weekly wages. Their annual purchasing power has decreased by about $5,200 compared to when Biden took office, despite receiving higher nominal pay. Excessive government spending is detrimental to both employers and employees, as it robs them both. Instead of engaging in a zero-sum game, auto companies and the UAW should focus their efforts on pressuring Washington to reduce spending, which is the common enemy and the root cause of their problems.
Conclusion: The Impact of Inflation on New Businesses
The current inflationary fallout, a result of the economic policies implemented under President Joe Biden's administration, could have significant implications for new businesses. Inflation, often described as a hidden tax, erodes the purchasing power of both employers and employees, leading to increased labor unrest and strikes.
For new businesses, this inflationary environment presents several challenges. Rising costs can squeeze profit margins, making it more difficult to offer competitive wages and keep pace with increasing consumer prices. This could lead to decreased employee morale and productivity, and potentially even labor disputes.
Moreover, the inflation tax effectively confiscates the wealth generated by businesses and households, leaving them worse off in real terms. This could impact consumer spending and demand, potentially affecting the revenues and growth prospects of new businesses.
The current situation underscores the importance of sound fiscal policies and responsible government spending. New businesses, along with established ones, should advocate for such policies to mitigate the harmful effects of inflation.
In conclusion, the inflationary fallout from current economic policies serves as a stark reminder of the importance of fiscal responsibility. For new businesses, navigating this challenging environment requires strategic planning, cost management, and advocacy for sound economic policies.
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