Friday, February 18, 2011

Kelly Evans Gets It Right On US Standards of Living vs. Inflation

Kelly Evans' Ahead Of The Tape column in yesterday's Wall Street Journal contained a concise, distilled read on the US economy over the past 25+ years.

Evans began,

"The threat of inflation is real. It is just a different threat than many realize."

She then reminded readers that much of the price pressure on commodities comes from smaller, faster-growing economies. It's a demand-push phenomenon.

Then she noted that "median income for men was actually higher, in real terms, in 1973 than in 2009."

But the best, punchiest passage was,

"The globalization of the labor force, meanwhile, continues to exert pressure on the U.S. job market even as it pushes up commodity prices by expanding the middle class world-wide.

This vulnerability was highlighted in mid-2008 when oil prices soared and consumer spending promptly tanked. That was before the worst of the recession. Households are hardly better able to handle such a run-up now."

Thus, the more we look backward, protect union jobs at defunct auto makers and such, the more we pour scarce economic resources into the wrong opportunities. And you wonder why the US is a slowing economic power, relative to some other nations?

Evans then delivers an apolitical shot of truth in her last sentence,

"The real risk is that the U.S. faces a poverty cycle rather than an inflationary one."

That word, poverty, should rivet you. It did me. But that's what happens when your economy no longer focuses on ever higher value-adding opportunities, seeking, instead, to subsidize less robust value-adding economic situations.

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