It's funny, typically, for me, I am not so comfortable giving a simple answer to what looks like a simple question. I like to mine the question and travel through all the parts, like an ENT putting a scope up your nose or in your ear and you find out that you have sensations in real estate in twists and turns that you didn't know existed but now you always knew existed. And then after the exercise you feel better and cleaned out.
Maybe I can give you an ENT nostril and outer ear cleaning and you'll feel all cleared up on this topic as well.
First question.
What is inflation? When ppl say this, what do they mean?
a. inflation in prices
b. inflation in money supply
And why does it matter anyway?
Prices
As a child I remember our father telling us about prices when he was a kid. And now I can do the same. Granted, I can't say that I remember when a loaf of bread was a nickel. But I do remember when I could get lunch in New Orleans for $4.50 and now what is lunch in NYC? 20? It keeps going up. By the time someone reads this in a few months from now, it could be $25 or $30. It also depends on what you buy. But whereas when I was in med school in the 90s the difference between a cheap lunch and a fancy one might have been a dollar, today the percentage difference may be the same but the actual dollar amount is more.
People don't care about an abstract like increase in money supply. Leave that to the math people. They care about what they have to pay.
Back to my dad- how do you encapsulate a lifetimes worth of memories? Basically only the great ones, the dramatic ones or odd ones stick out. We probably talked about money a lot, like anything else that comes into one's direct purview. I think boys in particular, around ages 6 through 10 are very interested in this. This is the age of collecting- be it stamps, baseball cards, stickers, Pokemon cards, etc. It is the age of interest and memorization of facts and statistics. It is the age of counting and saving. It is also the age of interest in rules based games and competition. Money falls well into all of these categories.
School lunch was an example. It cost 75c. With the last quarter you could get an ice-cream. I stopped eating ice-cream because as a little boy I was fat. I remember in 1st grade playing Santa Claus in the school play, for example. So I would only spend 75c. At some point it was brought to my attention that I was missing the extra quarter and I realized that I was throwing it out with the garbage on my lunch tray. So I started saving those quarters. I put them in the lid of a box of a board game. At the end of the year, we counted the quarters and, actually, it added up to $20! My parents gave me a $20 bill for all the quarters and apparently that left an impression on my younger brother.
Next year suddenly my brother was rich. He always had money. A lot. How did that happen? Well, it turned out that he wasn't eating lunch in school. Instead of saving the quarter at the end, he saved the whole dollar each day. This began the identity of my brother being rich. Of course, once my parents found out, I think that they tried to make him eat lunch or gave him special shakes in the morning for him to maintain caloric intake (which backfired because they gave him diarrhea because he was lactose intolerant). Anyway, the identity stuck and his wealth was always inflated compared to the other kids. That's a good kind of inflation. And as it formed his identity, or maybe because he liked being active, or both, as we got older, he always worked harder than other kids. I remember one summer in high school we both worked as life guards. But he also worked as a valet parker. By the end of the summer he had saved 10K, which was a lot in 1990 and he used that money to buy a used BMW, stick shift, which was in awesome condition and was still the new model. Then in college he ran a flower business the week of Valentine's Day each year and killed it. But I am digressing from the topic of inflation.
So the point- what is inflated? Prices?
Back to a memory of my father- so, once, during a conversation on inflation, he said that it didn't really matter because everyone got inflated together. Even if bread was more expensive today, the money that you made was greater as well. I think he might have been repeating something that some respected economist said at the time.
Ah, silly man, if only you knew...
Today we are well aware of fake news and bullshit dressed in a suit and tie and a degree. He was gaslit as he himself was experiencing the effects of inflation his whole life.
Wages do not keep up with inflation in other areas, generally speaking. Especially when you accept medical insurance in your practice. It is like that line from Matthew McConaughey in "Dazed and Confused", when he is talking about High school girls, "I keep getting older and they keep staying the same age." Except here, inflation keeps going up but you, the doctor accepting insurance for the past 20 years keeps staying at the same reimbursement. This may not sound like a big deal but at 7% yearly inflation as a rough estimate that is reductive because inflation in a price doesn't only apply to one thing but many things at different percentages- using the rule of 72 for compound interest, after 20 years you are making about 25% in real terms of what you were making originally. It is eviscerating. And the 2 to 3% inflation that the Fed tells you is occurring is just them gaslighting us, as we know. By the way, the 7% inflation rate holds if looking at the price of lunch example above.
A doctor accepting insurance in his practice is a very bad gig, not because they chintz you on the reimbursement, which they do, or because they delay paying you, which has happened. The real problem is that they don't keep up with inflation.
Other people do a better job of keeping up with inflation. It is a matter of whether you ride the wave or get drowned by it. Remember, if you are the one inflating, well, that's fine with you.
People like lawyers can ride the wave. Dentists who were boxed out of the insurance coverage world can also ride the wave, ironically. That's an example of what seems like a punishment initially ends up being a blessing. On the other hand, they all may tell you that, sure, their top line may be that they charge a high fee but then most people can't afford that so they end up offering a reduced fee. In a world of inflated costs, people are relatively poorer and cannot afford to pay the top line request for service.
By the way, whose to say that a doctor deserves to make a certain wage? Why should a doctor's hour be worth more than a ditch digger's? Maybe he should get paid the least of all careers because he is receiving other benefits like fulfillment, etc.
If anything, this brings me back to the idea that as long as you are in the zero sum game where a service provider's financial benefit is the customer's financial loss, you will never be able to achieve financial lift off.
Anyway, back to tariffs. OK. Let's say I want to buy an American car in Europe and let's say the cost of the car is 2x what it would be in the US. Now does that mean I can't drive? No. It just means that I am less likely to drive that tariffed item. That's why you don't see American cars in Europe, or in most other countries outside of the US and Canada for example.
So, as long as I can get my basics, food, energy- I will be OK. Designer things can become more designer, in essence, as they become more expensive due to tariffs, i.e. Italian leather or French wine or a German car. But I am not obligated to buy those things. I'm just not. One might argue in that instance that a tariff is a fairer tax than income tax which is non-voluntary. It is the lesser of 2 evils because it is voluntary.
Tariff wars
A concern with tariffs is, "What if it leads to tariff wars? The answer is that the country that imports more from the other will win. And the individual in the winning country will lose. And the companies of both countries that export will lose (and the share holders in those companies will lose).
But what the individual loses is the opportunity to purchase certain goods. And, because we are talking about individuals, the question is, what do you spend money on and how will it affect you, personally?
If you spend your days in your mother's basement watching youtube then this is all meaningless to you. However, if you do that and eat (which we all do) then you have to figure out which foods you eat and if any of those will be more expensive after the tariffs, or not available all together. If tariffs on Mexico mean that you won't be able to get guacamole and Corona beer anymore, as Genius Senator Chuck Schumer showed us on live TV recently, I think you as an individual can still have a fairly full and fairly happy life.
Really, I think that people's fear of the unknown is wreaking havoc on them and stocks are using this narrative to sell off. I do run the risk of being overly simplistic in my understanding of things. As Milton Friedman once famously showed on one of his videos, a pencil may have many parts from many different places, all of which are needed in the assembly of something so simple.
Also, we have to realize who is talking about tariffs. It isn't a Nazi who is saying something about other countries being inferior and having inferior products. And it isn't an Islamist who hates everything not under the umbrella of Islam. Trump is not a hater. He wants a better deal. He wants to win. He wants to be remembered favorably and to be praised or at least appreciated. And I think he wants to do good. And I think he does have a sense of fairness and right and wrong.
And if you look at reality, other countries have had enormous tariffs on American made products and that is anti-free trade. So the real beneficiaries of a trade war, based on reciprocity of tariffs, if it is resolved, would be the individuals of the country we beat and the American companies who export to them (and their stock holders). The individuals of the winning country would neither lose or make.
For example, if the US is able to, through threats or exercise of tariffs then lead to a resolution where countries like China and others drop their long held tariffs on us, then the Chinese citizens would have more affordable options and companies like Tesla would sell many more cars in China and Tesla stock holders would see their shares skyrocket. Meanwhile, the individual consumer in the winning country would lose nothing in the end.
If, however, the point of the tariffs is to raise revenue for the country and there is no interest in using them as a bargaining tool, then foreign item prices could go up and stay there. You may not be able to get guac and corona. But then, possibly, the revenue generated could offset government costs and result in less need for internal revenue. So you may lose certain specialty goods but it may save you thousands in income taxes- a trade that I think many of us would like to make.
Also remember: American companies that export- in the case of a trade war, they would eat their own profits as well, leading to lower earnings and lower stock prices. Elon himself would take the greatest hit in that scenario.
What would also most likely happen in many situations is that the companies based in foreign countries would take a beating on their profits but still provide their goods. Also, as we are now seeing, many companies that are foreign based or are American but based in foreign lands, are starting to relocate a substantial part of their company state-side so as to avoid the potential tariff, which they will. Also, that will provide more jobs for the local economy here as well. This is another benefit of tariffs.
Another benefit of tariffs is that it is another avenue to fight in prior to having to go to war. If you can use the stick to incentivize someone's behavior, better for it to be through trade (or threat in trade) than in actual physical war. This is another useful option in a peacetime leader's repertoire of tricks.
Effective Amount of Tariff as a behavioral incentive
Trump is talking about 25%. I am guessing that the threat of this is big enough to incentivize a change in behavior. If it were 5%, the recipient nation wouldn't care enough and it would be a revenue maker only. Also, if the tariff goes above a certain percentage it would probably become too high for the recipient nation's company to eat and it would become too expensive for the individuals from the nation giving the tariff to afford. Effectively, it would raise no money for the tariffing country because it would simply halt trade all together.
I am not a prophet. But what I guess may profit you nonetheless. My guess is that the tariff thing is a work in progress. I think it is very flexible. Thus far I have seen Trump put them on, take them off, put them on again, change them. I think he is trying to use it as an incentive to get countries to behave in certain ways. I think he is using them as a tool and less as a revenue stream. But in order for the threat of tariffs to be effective, he must say how beautiful they are and how much revenue we will make.
In the end I think he will use this as a way to get more work state side and get other countries to drop their tariffs, both of which are great for the US and for individuals in the US who are both workers and share holders. And, I do think that there will be some stubborn leaders who will not or cannot drop their tariffs, in which case we will probably have some income from tariffs as well.
I don't think Trump is anti- capitalism. I think he wants Americans to do well, which means everybody. I think we will go through a rough patch which may last for months but not years. I think once things get better in Trump's estimation, then we will really be up up and away like one of Elon's rockets.
"It's the economy, stupid." - James Carville, Democrat strategist for Bill Clinton, 1992.
Trump's plan:
1. Decrease Government expenditures- waste, fraud, abuse- therefore saving 1T, thus decreasing the need for inflation to monetize the debt and decreasing need for tax revenue.
2. Decrease tax revenue- this stimulates growth
3. Decrease the rate of increase in debt will decrease inflation --> decrease in interest rates, thus making houses, cars, etc more affordable.
4. Bringing more work stateside --> decrease unemployment. This decreases the chance of "stagflation" which is inflation in a stagnant economy, which happened in the 70's, which sux.
5. Saving the dollar. using the Bitcoin reserve.
Elon's contribution:
6. The benefit of D.O.G.E isn't just about eliminating expenses but it is also about eliminating useless regulations/ improving regulations. This will allow for growth including: safe growth in robotics, AI and getting us to Mars.
Imagine a world where we aren't in debt as a nation? What if you didn't have to pay taxes anymore? And what if you could have a car drive you everywhere safely and comfortably for a fraction of the cost of an uber? And what if you had a very affordable robotic servant, that you could lease for $250/mo? It might not cost much more than your cell phone bill. Remember the days when a flat screen TV cost 20K and now a big beautiful one costs what? $400? Imagine having a servant who will walk your dog, go to the grocery store, buy your food, bring it back, cook it as the best chef would, clean the house, set the table, serve you and 20 friends dinner, pour your wine, play the piano for you like a concert pianist, for your listening pleasure while you eat, and clean up afterwards, walk your dog again and then charge itself at night? You could talk to it if you were lonely. It could teach you about art, philosophy, physics. It could be your music teacher.
It could be your primary front line doctor. It could take your weight, blood pressure, heart rate and temperature. It could do a full body skin check on you. It could do a full physical exam (including breast exam and prostate- I'm ready for the jokes). It could remind you to take your medications. You could live longer because the robot would be the first to observe a sign or symptom that you had that you might not have been aware of.
This is what Elon is talking about. The future doesn't need to be about restriction. It can be about boundless optimism, freedom, creativity and fun. It could be about great improvement in QOL (quality of life) and expansion of our consciousness into the universe.
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