America's Economic Checkup Doesn't Look Good

A routine checkup of America's economic condition indicated a nation as hale and hearty in body and mind as that sprightly, energetic fellow sitting in the Oval Office. Let's review the details.

The check-up began, as they all do, with the blood-pressure cuff, which found that the pressure is still too high. (In this analogy, currency is the lifeblood circulating through an economy, and inflation is the blood pressure.)

The U.S. Bureau of Labor Statistics reported Tuesday that the Consumer Price Index (CPI), the usual measure for inflation, increased 0.4% from January to February, while it increased 3.2% from February 2023 to February 2024. Core inflation also increased 0.4% from January to February, but it rose 3.8% from last February.

That CPI score is far higher than the 2% inflation economists recommend, but not quite as high as inflation was recently. In the three years from January 2021-January 2024, inflation rose 18.0%, an average of 6% each year. Here the bodily health analogy breaks down: the economic pain of inflation -- lost purchasing power -- is cumulative to consumers, not relative.

Meanwhile, those cardiovascular economists at the Federal Reserve are contemplating an end to America's high inflation-pressure medication -- raising interest rates -- due to the unpleasant side effects. Federal Reserve Chairman Jerome Powell said last week that the Fed was "not far" from the economic confidence it would need to start cutting interest rates.

As for the patient's heightened inflation-pressure, the doctors seem to hope it will go away on its own. It's true that core inflation is steadily declining, but only slowly. Core inflation has fallen 0.1 percentage point every two months since September 2023. At that rate, reducing core inflation from 3.8% to 2.0% (the target rate) will take 36 months, or three years. Given the (unlikely) assumption that interest rate cuts will not rekindle inflation, the Fed would not meet its target rate until 2027.

Next up, out came the stethoscope to monitor the patient's breathing. (In this analogy, difficulty breathing stands for the difficulty of the necessaries of life reaching the different parts of the body, representing consumer prices of food and shelter.)

According to the U.S. Department of Agriculture (USDA), the percentage of disposable income Americans spent on food increased 12.7% in 2022, "the sharpest annual increase" on record. Food now consumes 11.3% of the average American's budget, the highest level in 30 years. "The last time Americans spent this much of their money on food, George H.W. Bush was in office, 'Terminator 2: Judgment Day' was in theaters, and C+C Music Factory was rocking the Billboard charts," noted The Wall Street Journal.

Home prices are even more painful. According to Federal Reserve data, the average price of houses sold in the United States increased from $384,600 in the fourth quarter of 2019 to $552,600 in the fourth quarter of 2022, a 44% increase over three years, or 14.5% annually. 

For comparison, during the housing bubble of the early 2000s, average home prices rose from $211,000 in the first quarter of 2001 to $322,100 in the first quarter of 2007, a 52% increase over six years, or 8.8% annually. (And no, inflation is not to blame; the CPI increased 15.85% from January 2001-January 2007 and 15.83% from October 2019-October 2022.)

By the way, one negative side effect of higher interest rates is that they make homes less affordable, even while driving home prices down. "A mortgage in this country used to consume ... 16% of a median worker's pay when Trump left office. It's 41% today," said Heritage Foundation Federal Budget Director Richard Stern on "Washington Watch" Tuesday. The average house prices did dip slightly in 2023, but it still saw a massive increase, with more increases expected by real estate forecasters.

During the course of the appointment, the doctor asked the patient about his workout routine. While the blood pressure and lung results might be disappointing, surely regular exercise will help to mitigate those conditions, and the American economy does seem to be bulking up. (In this analogy, the body's muscles stand for the American workforce.)

It turns out that the American economy has not been bulking up through a careful workout regimen that hones its innate abilities, but rather through taking injections. Although American job numbers have bounced back since the COVID recession, American workers have not. 

There were 2.7 million more people working in the U.S. in the fourth quarter of 2023 than in the fourth quarter of 2019, according to a Center for Immigration Studies analysis of data from the U.S. Census Bureau's Current Population Survey (CPS). However, there were 183,000 fewer U.S.-born workers and 2.9 million more foreign born workers (both legal and illegal immigrants).

Much of this discrepancy coincides with the intensifying crisis at the southern border. According to BLS, there were 2.34 million more foreign-born workers in February 2024 than in February 2023, but U.S.-born workers decreased by 741,000 over that same period.

"We keep hearing that the U.S. economy, especially the job market, is strong," wrote CIS's Mark Krikorian. "However, when we look closer at the data, things aren't so clear-cut. ... It's obviously not as simple as saying that every job taken by an immigrant is one lost by an American. But it's quite clear that there is significant job competition between immigrants and less educated American men."

These unemployed men "don't just disappear from society," Krikorian warned. "A number of studies show a link between not working and crime as well as mental-health issues and failure to form families. So-called deaths of despair, including suicides, drug overdoses, and alcoholism, are also much higher among those not in the labor force."

With the checkup nearly complete, America's economic doctors (policymakers in Washington) still had to prescribe a remedy for the American economy's manifold diseases. Dieting, real exercise, a scientific application of austerity -- what remedy would they prescribe?

The answer suggests one possible prognosis for the patient's ailing health: incompetent physicians. The White House's proposed budget for fiscal year 2025 assumes trillion-dollar deficits in perpetuity. "It's almost $5 trillion of tax hikes over a decade. It's more than $2 trillion of more spending on the woke and green agenda," Stern explained. "You don't have to file those taxes directly for it to show up in your wallet through higher prices, lower wage growth, fewer job opportunities, slower economic growth."

It's hard to imagine a combination more guaranteed to spark inflation, make necessities less affordable, and kill jobs. For an unhealthy, lethargic patient like America's economy, a reckless tax-and-spend budget is like a diet of donuts for breakfast, lunch, and dinner.

Originally published at The Washington Stand