Tending to the Untenable

I have a good memory, thanks to aggressive consumption of omega-3-rich salmon and possibly dangerous herbal supplementation. I’m not sure the FDA reviewing my gingko biloba formulation would do much good, since these are the same folks that also thought Vioxx was just fine for the masses.

Anyway, I know for a fact that the same four-ounce packet of smoked salmon I bought at the grocery store five years ago for $4.99 now costs $9.99, an increase of almost exactly 100%. For the terminally bored and financially inclined, that’s a compounded annual growth rate of about 15%, far ahead of any measure of inflation you want to quote. If you can quote any measure of inflation, you probably need to reexamine your priorities and social calendar.

In yesterday’s Wall Street Journal, Ronald McKinnon laid out the doomsday scenario of stagflation. I don’t care what you call it. Things are getting more expensive, fast, and the growth rates of employment and wages are not keeping pace. That’s untenable for many reasons, and it sucks. I’m no economist, but I ain’t no doorknob either.

I really don’t think this is some elaborate, Obama-orchestrated subsidization ploy to stick it to we entitled Whole Foods shoppers. The partially hydrogenated corn syrup gunk at Safeway costs more too, and I think the normal price of a candy bar is now a dollar (I live in Californa, so I admittedly don’t have a good sense of “normal”). Someday I’ll make John Mackey’s day by publishing my proprietary analysis proving that it’s actually cheaper to shop for grocery staples at Whole Foods than at Safeway, and that day might have to come soon, given that we’re all about to go broke and starve to death if current inflationary trends don’t abate.

You may not consider yourself an investor, but you are an investor whether you know it or not. You may only participate directly in financial markets via your employer’s pension and/or 401k plans, but you’re undoubtedly inextricably linked to our monolithic global financial system. The companies you do business with require capital and profits to survive, and if you can’t afford to consume their wares, they will go away. More jobs will be lost. More people who lose jobs will compete for the job you desire. Fewer people will be able to afford gas and groceries. Corporate profits will continue to shrink, leading to ongoing declines in stock prices, which will destroy wealth. Wealth is required to pay people and create jobs. Repeat scary loop, preferably with an iPod blaring “It’s the End of the World as We Know It (And I Feel Fine)” in the background.

I have a question. How do we cut the very fabric of the scary macroeconomic loop, thus rendering it a limp, lifeless string of financial stability and prosperity? Improving financial literacy and overall educational quality and igniting entrepreneurial zeal via increased lending and investment will go a long way, but these solutions are slower than molasses.

We need a contrarian solution that’s quicker than snot on a doorknob: Stop buying things.

Yes, I argue the very thing to save our consumption-driven economy is a shock-producing lack of consumption. Don’t pay $4 for gas, or $10 for a little bit of healthy brain food. You won’t have to complain to your wife or neighbor about high prices; instead you can brag about being a prudent genius. Watch your savings build and inflation simmer and corporate profits stagnate. See the financial markets tank again (I always go for the double-dip), and pray that Bernanke hasn’t had his morning Greyhound when he implements reactionary policy.

No one’s going to loan the U.S. any money with interest rates at zero and our proclivity for willy-nilly government spending, so the dollar will keep getting crushed, and we’ll all continue to throw too much free money at too-little stuff, further driving up prices. Let’s just pull off the collective band-aid by raising interest rates to stave off inflation. No one’s lending any money anyway. A near-term hit to the markets may roil consumer confidence, but a little volatility and lack of confidence is just what patient investors with conviction need to make money. Then it’s just a matter of watching it all trickle…into the coffers of the Treasury thanks to planned tax hikes.

Maybe the rapture guy wasn’t wrong, just early.

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