July 15: Your best economy now!

In which, everything is awesome, everything is cool when you’re part of a team, everything is awesome… according to the Biden administration.

A watershed moment in Japan?

The proverbial ink was barely proverbially dry on the proverbial page of last week’s newsletter when news broke on the assassination of former Japanese Prime Minister Shinzo Abe.

The assassination has several strange elements to it not the least of which was the use of a homemade gun in a country with highly restrictive gun laws and very low numbers of gun deaths. 

Abe had been campaigning for a member of the ruling political party, the Liberal Democratic Party, and was gunned down while giving a speech on the campaign trail.

The shock produced by the assassination yielded what appeared to be an immediate surge in support for the LDP. Despite being the consistent majority party, elections in the week following the assassination left the LDP with a supermajority. 

Now, the question on the minds of many observers is whether Prime Minister Fumio Kishida will leverage the supermajority and political goodwill generated by the assassination to carry through Abe’s long sought goal of amending the Japanese constitution to remove the pacifism language. Stay tuned. This development in Japanese politics could be a watershed moment.

A political tsunami in Sri Lanka 

Speaking of watershed moments, the dam broke due to civil unrest in Sri Lanka this week. Readers will remember a few weeks ago that protests had brought down the government over soaring food and energy costs. When the new Prime Minister proved unable to stem the tide of rising resentment both he and the country’s President resigned, hopped on planes and got out of Dodge.

With the president and prime minister effectively in exile, protesters broke into the prime minister’s office and the  presidential mansion  looting… and swimming. What else are you gonna do? 

You think the January 6 riot was bad in the US? What if the rioters had sacked the Capitol AND the White House, and not only prevented the Biden transition to office, but forced President Trump and House Speaker Pelosi to flee the country? That’s basically what happened in Sri Lanka this week.

Failed state? Not quite yet, but close. A hastily assembled government quickly moved to assert control by ordering the military to restore order, and that’s where things now stand. We’ll see how it goes.

How did it all come to this in Sri Lanka? It’s a long story, but it starts with some poorly informed policy decisions related to monetary and energy policy. So, reckless inflation and artificial energy market manipulation actually has real consequences.

Your best economy now!

I emphasize the role of inflationary monetary policy and unrealistic energy policy in the case of Sri Lanka because of their parallels to the American economic situation. The two countries are not the same, not even close, but the parallels are instructive.

This week in economic news started with President Biden and team taking victory laps for a stronger than expected June jobs report. That single data point was amped up to ‘11’ to describe America’s continued post-Covid economic “recovery.”

I put the word in air quotes because following hard on the heels of that jobs report was the report on inflation and the consumer price index. Lo and behold, both continued to climb to historical highs in the month of June. 

Jobs =/= healthy economy when you can’t save money. New data shows that 42% of Americans are barely getting by (and blaming government policy for it), which means that all those Covid-era savings that got talked about have been completely eaten by inflation. With unemployment benefits ending people need to get back into the job pool to keep their heads above water.

America’s economy is more sound than Sri Lanka’s, but let’s not pretend it’s healthy, or recovering, or that the Biden administration isn’t going to experience the political consequences from this situation.