Opinion: Consumer sentiment at historically low level
George Katona was a German psychologist hired by the US government during World War II to combat war-related inflation. The idea was that inflation was partly a psychological phenomenon triggered by consumer expectations.
Katona spent his academic career studying the relationship between crowd psychology and macroeconomics. After coming to America, he founded the University of Michigan’s Consumer Sentiment Index.
Wikipedia explains: “Using this index enabled him to predict the post-war boom in the United States at a time when conventional econometric indicators were predicting a recession, a success that helped his fledgling index take root.”
The index has been an important part of the economic data that has been widely reported in the news media each month. In June 2022, the index hit 50 – its lowest level since it started in 1962, 60 years ago.
Wow! This is amazing information. Consumers are more negative today than they will be in at least 60 years, maybe even more negative.
In 1979, during the Carter administration, there was extremely high inflation and long lines to get gas. The index hit 52 then. But that’s still higher than the 50 it hit in June.
This month it’s up to 58, but that’s still lower than any five months in the last 60 years. We could use some encouragement!
The index’s all-time high was in 1999, at the height of the dot-com boom. The index reached 112.
By comparison, consumer sentiment was at 72 in the depths of the Covid panic — far higher than this month’s 60.
Do you remember the terrible financial crisis of 2008? Consumer confidence was higher than 56 then it was in June this year.
dr Katona was right about consumer sentiment affecting the macro economy. Four months after consumer sentiment hit an all-time low in June this year, the stock market experienced its 27th bear market since 1929.
So which came first: the chicken or the egg? Are consumers really smart enough to predict a bear market four months in advance? Or did bad consumer sentiment spill over into the financial markets at some point. That’s an exciting question.
The driving force behind this negative consumer sentiment is, of course, inflation, the worst in 40 years.
Democrats can raise income taxes all day, and that will only piss off the 50 percent of our citizens who actually pay income taxes. And most of those people don’t vote for them anyway.
But when the Democrats went on a $2 trillion spending spree that caused inflation, that’s a different story altogether. Inflation is the most regressive tax in existence and hits the poorest hardest. Inflation is a killer for the Democratic Party. So expect them to lose heavily in the midterm elections. Imagine Carter losing to Reagan.
How could the party leaders not have thought this through? What a monumental mistake. That’s why the two-party system has proven so resilient. It is almost certain that the party in power will screw up massively and will be replaced by the party without power.
The only constant in this scenario is the almost certainty that the party will screw up power in a big way. That is why democracy and free elections are so vital to a prosperous country. The voters just have to have a way of kicking out the bums. If not, the incompetence snows down to a bottomless collapse.
We see that now in Russia and sooner or later also in China. These two countries have short-circuited the democratic process and ensured that bureaucratic incompetence can prevail. Both countries will ultimately fail and ensure the dominance of free, democratic countries for the foreseeable future.
The current Ukraine war is a perfect example. She has exposed the extent of incompetence in Russia caused by the lack of democratic checks on power.
This is the same process that brought down the great Soviet empire in the first place. Killing potential rivals, Putin is back at square one, the head of a degenerate country ruled by delusional tyrants. The results are evident on the battlefield.
This war has already been won thanks to the bravery of the Ukrainian people, who, having had a taste of Western freedom, would rather shed blood than be ruled by Russian thugs.
Western Europe and the United States together have a GDP 25 times that of Russia. This is not a fair fight.
I know a lot of people think that we have no business in Ukraine, but I disagree. We gave Russia a free pass when it annexed Crimea. When they invaded Ukraine, it became clear that Putin wanted to revive the old Soviet empire. We have to nip that in the bud.
Fortunately, we have a fearless Ukrainian leader, Zelensky, a true hero, a motivated nation, and competent soldiers. All the West has to do is provide the money and the arms and this war will be won.
As a next step, the West must build an impenetrable missile shield around Ukraine to prevent Russia from bombing innocent civilians. That can and will be done.
Step two: Ukraine retakes Donetsk and Luhansk. This is also possible. Then a deal can be made. Ukraine gets Donetsk and Luhansk. Russia keeps Crimea. End of the story. End of the fantasy of the second Soviet empire. This will end well.
As for inflation, trust the monetarists. You were right. Inflation is a monetary phenomenon. If you put two trillion dollars into the economy, inflation ensues. Moron!
Back in the depths of the Covid panic, I wrote to do nothing when in doubt. Or as Calvin Coolidge said, 95 percent of problems go away on their own if you wait long enough.
But we panicked, both with quarantines and government subsidies. In retrospect, the quarantine countries did not do better than the non-quarantine countries. And all that Covid money has created a bigger financial crisis than the Covid crisis itself. Or at least according to consumer sentiment.
Don’t worry, we live in a democracy. Throw out the new bums. Give the old bums a second chance. Rinse and repeat. Is this a great country or what?
Meanwhile, technological advances continue to accelerate, surpassing anything that could have been imagined 100 years ago. Material wealth abounds. At what point, then, will we focus on our spiritual wealth?