The New Malaise

Wisconsin Manufacturers & Commerce

By Kurt R. Bauer, WMC President and CEO

2022 felt a lot like the Carter years of the late 1970s. That period was marked by runaway inflation, spiking interest rates, high crime, energy insecurity, and the Cold War. Add to the mix a lingering governmental legitimacy crisis caused by Watergate, and the blow to both our national psyche and international prestige caused by the Iranian hostage crisis (and the failure of the Desert One rescue mission).

All of the above created a widespread belief that America was in decline.

I see a lot of parallels to what happened then and what is happening now. For example:

• Inflation is the highest it has been since the 1970s;
• Interest rates are rising; Crime is rampant in big cities;
• The cost of energy is way up and its reliability is in question;
• We face a new Cold War with not only Russia, but with China as well;
• Distrust in government and other institutions is way up; and
• We saw an incredibly chaotic U.S. withdrawal from Afghanistan.

The difference between 40 years ago and now is that many of the problems we face today are self-inflicted by wrongheaded policies. When President Carter gave his “malaise speech” in 1979, the U.S. didn’t have the technology to affordably extract oil and gas from the vast deposits of shale found in North America, which meant we were at the mercy of the Organization of the Petroleum Exporting Countries (OPEC).

Hydraulic fracturing changed all that and as a result, the U.S. was a net exporter of oil and gas in 2019 and 2020. But, not today because the Biden Administration’s energy policy is to rapidly (I would argue recklessly) transition away from fossil fuels by thwarting the investment, exploration, extraction, refinement, and transportation of domestically produced coal, oil, and natural gas. As a result, energy prices are rising, which drives inflation because energy is the common ingredient in everything that is made, grown, and transported. That is why energy is often referred to as the master resource. Without reliable and affordable energy, countries cannot prosper. The U.S. is no exception.

What we are doing is unprecedented. In the history of the world, I can’t think of another nation that had access within its borders to an incredibly valuable natural resource, but decided not to use it. Instead, the U.S. is begging other nations, including unfriendly and/or autocratic regimes like Venezuela and Saudi Arabia, to sell us the energy we are capable of producing ourselves. Not to mention that the U.S. is dependent on China for the production of much of what goes into or otherwise constitutes “green” energy, like batteries, wind turbines, and solar panels.

Looking ahead, I am not optimistic because if you keep doing what you are doing, you are going to keep getting what you got. According to Gallup, 81% of Americans said before last fall’s mid-term elections that they were dissatisfied with the direction of the country. Despite that, President Biden’s party performed unexpectedly well, which will embolden him to stay the course.

As a result, energy inflation could very well tip the U.S. into a recession in 2023. It will certainly continue to hurt Wisconsin’s two signature industries — manufacturing and agriculture — because both consume a lot of energy.

Oddly, the saving grace may be the workforce shortage. As has been well documented, Wisconsin has a demographically induced labor shortage caused by a combination of several decades of below replacement birthrates and outmigration patterns.

I recently asked an economist from the Federal Reserve Bank of Chicago if there can be a recession without a spike in the jobless rate. The economist smiled wryly and answered with an emphatic no. So even with high inflation, tangled supply chains, and rising interest rates, unemployment in Wisconsin is only 3.3%, up slightly from a record low of 2.8% last spring.

It’s a paradox. The labor shortage is keeping many Wisconsin businesses from growing, but it may also help buoy the economy in a downturn.

Founded in 1911, Wisconsin Manufacturers & Commerce (WMC) is the combined state chamber of commerce, state manufacturers’ association, and state safety council. With nearly 3,800 members, WMC is Wisconsin’s largest business association representing employers of all sizes and from every sector of the economy.