It’s inflation, stupid

Groceries, gas, utilities, insurance, housing, medical, tuition, travel – all have jumped at least 20% since the pandemic. Legendary Democratic political strategist James Carville told Bill Clinton to focus his campaign on “It’s the economy, stupid” to defeat George H.W. Bush in the 1990 Presidential election. We now live paycheck to paycheck and forced to choose between taking our families to restaurants or travel. In March, 26% of American families with kids cannot pay their energy utilities. Any financial planner will tell you to never, ever use your credit card for groceries because your paycheck should cover basic expenses, yet consumer credit card debt has grown to $1.1 Trillion, and 10.7% is 90-days delinquent in Q1 2024 up from 8.2% a year ago, according to the Federal Reserve.

Inflation affects nearly everyone, so we all feel the stress

Cumulative inflation has raised stress for families nationwide. Economists say inflation is finally easing, but prices aren’t coming down — cumulative inflation over the last 3 years is at least 20%. CNN reported economists said a $100 bag of groceries now cost $130. I think it’s worse than that! Everything is way more expensive than before the pandemic - that’s COVID’s impact on our economy.. This isn't just about numbers; it's about real struggles. We in the Bay Area know, as inflation started for us before the pandemic. It’s not a surprise we’re experiencing strikes - UPS, UAW, Longshorement, Machinists, etc.

Inflation not only erodes our quality of life, but makes it even harder for small businesses to survive

Reason #1) When I studied economics, the 1973 oil price shock (caused by the OPEC oil embargo over the Yom Kippur War in October 1973) rippled through the economy leading to double-digit inflation in the mid-70s. Today, the rise of gas prices since the pandemic is a “supply shock” that has ripple effects throughout our economy, as transportation costs drive up the price of groceries, restaurants, retail products and airfare. My utilities and insurance bills have gone up too to keep up.

Reason #2) Ongoing Federal budget deficits over the last decade has also fuelled inflation. Each year since the 2008 Great Recession, the Federal government has spent a $ Trillion more than it collects in taxes.

We have deficits no matter which party is in charge - Democrats increase spending and Republicans cut taxes

Our Federal debt was $16 Trillion in 2016 and is now $35 Trillion – is more than our annual GNP, and enormous fiscal stimulus over only 8 years. While some economists may say that owing more than our annual income isn’t so bad, but:

Interest payments on the Federal debt will exceed defense spending in 2025

Reason #3) What I remember from my economics major is the Federal Reserve’s primary tool to fight inflation is to raise interest rates to cool demand - a tight monetary policy after a decade of “quantitative easing”. As a result, the 30-year mortgage rate went up from 2.78% in January 2021 and reached 7.79% in October 2023.

High mortgage rates make it harder for working people to buy a home.

As Menlo Park's former Mayor and with a career in finance, I know how to make tough financial decisions and balance budgets. I earned bipartisan credibility as the “numbers guy” on the City Council. At my suggestion, the City paid down an unfunded pension liability which saved taxpayers $4.3 million and balanced the city’s budget.

Congress doesn’t seem to understand financial analysis, so both parties have an ideological imperative for deficits.

Goal: “But even stabilizing our debt below 100% of gross domestic product—just holding the debt to below the size of the economy— would do significant good. Achieving this goal would require a challenging but doable $6 trillion of savings over a decade, which would be enough to meaningfully grow our economy, improve our preparedness for future emergencies, and strengthen our national security.” - Maya MacGineas, president of bipartisan Committee for a Responsible Federal Budget.

We don’t need to pay down the debt, we just need to keep our economy growing!

My idea toward this goal: If we had no deficit starting next year, and therefore our total $35 trillion total outstanding Federal debt, our economy will grow and reduce the ratio of debt/GNP, a common measure of fiscal sustainability. Let’s say our $30 trillion economy grew at 3%/year, our GNP in a decade will be $40 trillion. So our debt/GNP percentage can drop from 117% to 88%! So we need to figure out how and when to get to no deficit - say over 5 years?

Idea #2: The Social Security Trust Fund should fully invest in high-grade corporate bonds like most pension funds, rather than US Treasury securities, which would earn 0.60% more interest income annually. The Trust Fund is projected to run out of its surplus in 2034. This idea will extend the Trust Fund for a few more years at least.

It’s about analyzing which programs work, and cutting those that don’t.

Idea #3: Review expensive weapons system programs in the Department of Defense. Procurement of weapons systems take over a decade and cost tens of billions before the first production model gets tested. We are a generation more advanced in military technology relative our adversaries. We need to adopt agile approaches to weapons development to evaluate faster which programs work and cut those that don’t. The Marines Osprey tilt-rotor aircraft program wound up costing $38 billion - $15 billion over budget - and too many soldiers have been killed in Osprey crashes. Drones are an example of commercial technology that can be leveraged, as Ukrainians are effectively using against Russian invaders.

What do you think?

So getting to the goal of $6 trillion savings over a decade, we have to get a sense of the size of the annual budget - $1.6 trillion discretionary spending for next fiscal year of which $866 billion for defense and $704 billion for non-defense. The non-discretionary spending for social security, medicare cannot be altered. That’s why Idea #2 above is so important since social security is such a large part of our budget that it has to viewed separately as its own financial entity.