What happens in Europe generally makes it to North America eventually.
Brexit, a movement against statist control and globalization forces in Brussels, the EU capital, was the precursor to Donald Trump’s rise in 2016. Norway and the Netherlands were the first to ban the sale of new cars with internal combustion engines, as soon as 2025, a move that President Biden copied for two-thirds of all U.S. automobile production by 2032, a far more relaxed schedule.
And as we warned six weeks ago, labor strikes protesting high living costs driven by inflation, have now arrived in North America and are here to stay.
Canada, with a March inflation rate of 4.3% (not as high as other Western economies), has seen multiple examples of labor unrest in its organized government sector. The vast country has a much lower population density than the United States, with about one person to every nine in America. But, the Canadian bureaucracy is large, reflecting the country’s liberal vision of offering cradle-to-grave benefits in return for extremely high taxation.
On May 1, the Public Service Alliance of Canada (PSAC) union, which had been striking against the Canadian government, said it wrested a wage increase of 12.6% over four years for nearly 120,000 government workers, including a one-off payment of C$2,500 (US$1,845). But strike action continues across the country for 35,000 members at Canada Revenue Agency, a move that has delayed the processing of tax returns and providing essential services. At least a dozen more unions are in separate talks with the government.
Beginning this week, every American will feel the impact of labor strikes as many live television programs will go dark. Hollywood writers will stop working in a wage dispute with the studios. While the disagreements are more technical, involving revenue sharing for shows that stream, the underlying cause is inflation. According to the Writers Guild of America organizing the strikes, median weekly writer-producer pay has declined by 4% over the last decade. But adjusted for inflation, the decline is 23%. AFP News reported that other Hollywood unions have voiced solidarity with writers, including the actors’ SAG-AFTRA, and the directors’ DGA. Both will hold their own talks with studios this summer.
While those who win wage increases legitimately celebrate, Milton Friedman’s warning about inflation comes to mind: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
What Friedman said was that more money in the pockets of families will tend to exacerbate the inflationary picture, not help it. Businesses attempting to recover losses from slower economic activity will try to raise the price of goods and services, knowing that families with the extra cash can afford such an increase. Central banks, attempting to slow down inflation, will tighten the money supply through higher interest rates and stricter lending, resulting in even higher costs for families. Workers will then strike again, demanding even higher wages. It is difficult to stop this cycle.
But for businesses facing labor strife, not increasing worker pay and quickly coming to a settlement is not an option either. Companies, already hit by very low service-quality levels because of worker shortages during Covid, are struggling to lure back customers. Disruptions or slowdowns from strikes turn customers away, resulting in falling revenues, profits, and share prices.
Inflation is a conundrum from which there is no escape.
To make the macroeconomic picture worse. and to further add to woes brought about by inflation, the Biden administration warns that the Treasury will likely run out of money to honor government obligations by June 1. But President Biden is stubborn in not negotiating with the GOP House to lower federal spending as the cost to raise the debt ceiling. We do not hope the White House meeting with the four congressional leaders this week will do much as each side is digging into its position, playing with fire, as the government is heading towards default, a possibility that can have disastrous consequences.
Meanwhile, the war in Ukraine drags on as the American military spends billions of dollars each week that the government does not have and the next ten years of federal deficit spending will push America to nearly $50 trillion in debt. And on the monetary side, the Fed is expected to announce another rate increase this month to contain inflation – an increase that makes it even more difficult for families to cope.
Americans are justifiably exasperated with their Washington leaders, but are helpless to do anything about it. The 2024 elections are still 18 months away.
Want to understand inflation better? We recently wrote an explainer that sixth graders could understand. Everyone can benefit from it. Milton Friedman’s Priceless Lessons On Inflation
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Geopolitics And Geoeconomics
1. Ukraine: U.S. To Deliver Rockets In New Aid Package – D.W.
The United States is sending $300 million in fresh military aid to Ukraine, including air-to-ground rockets, artillery rounds, howitzers, and ammunition ahead of an anticipated spring counteroffensive.
As Ukraine’s spring counteroffensive looms, the country’s Defense Minister Oleksiy Reznikov recently declared that preparations are on the “home stretch, when we can say: ‘Yes, everything is ready.'”
2. Volodymyr Zelensky Says White House Did Not Warn Him About Secret Documents’ Leak – WION
Ukrainian President Volodymyr Zelensky said in an interview that he wasn’t informed about the leaks of secret U.S. documents.
He added, “It is unprofitable for us. It is not beneficial to the reputation of the White House, and I believe it is not beneficial to the reputation of the United States.”
3. Russian Defense Minister Calls For Missile Production To Double – Al Jazeera
Russia’s defense minister Sergei Shoigu urged a state company to double its production of missiles as an expected Ukrainian counteroffensive looms, and both Moscow’s and Kyiv’s forces are reportedly experiencing ammunition constraints.
The United Kingdom’s Defense Ministry said, “Logistics problems remain at the heart of Russia’s struggling campaign in Ukraine.”
4. U.S. To Weigh Rules For Keeping AI Safe From China, Other Competitors – Nikkei Asia
U.S. policymakers will study the need for regulations to keep vital artificial intelligence technology out of the hands of America’s competitors in a possible clampdown akin to restrictions on semiconductor exports to China.
The Commerce Department will talk with the business community about export controls on information technology, asking about such topics as the hardware used by the Chinese military in AI development.
5. Fang Bin: China Covid Whistleblower Returns Home To Wuhan After Jail – BBC
Mr. Fang is one of several so-called citizen journalists who disappeared after sharing videos of scenes in Wuhan, the pandemic’s epicenter.
After disappearing in February 2020, he was sentenced to three years in jail at a secret trial in Wuhan, sources said. He was released on Sunday and is in good health, they added.
6. NATO To Open Japan Office, Deepening Indo-Pacific Engagement – Nikkei Asia
NATO plans to open a liaison office in Tokyo, Japan, the first in Asia.
The station will allow the military alliance to conduct periodic consultations with Japan and key regional partners, such as South Korea, Australia, and New Zealand, as China emerges as a new challenge, alongside its traditional focus on Russia.
7. China’s Foreign Minister Touts ‘Friendship’ On Myanmar Visit – Al Jazeera
China’s foreign minister has met Myanmar’s top general in Naypyidaw, hailing the “friendship” between the two nations and pledging to boost ties.
Qin Gang is the highest-ranking Chinese official to meet Myanmar’s Senior General Min Aung Hlaing since his power grab two years ago.
China is a major ally and arms supplier of the internationally isolated military and has refused to condemn Min Aung Hlaing’s takeover.
8. TikTok Says Head Of U.S. Trust And Safety Will Leave Company – Reuters
The news comes as TikTok faces calls from U.S. lawmakers to ban the popular short-form video app from the country over concerns about its Chinese ownership and protection of U.S. user data.
9. Palestinian Groups, Israeli Forces Agree To Gaza Ceasefire – Al Jazeera
Two sources said that the “reciprocal and simultaneous” ceasefire went into effect at 00:30 GMT and was brought about with efforts from Egyptian, Qatari, and United Nations officials.
Earlier, Israeli fighter jets and tanks attacked targets in Gaza, and Palestinian fighters fired rockets into Israel following the death of prominent Palestinian hunger striker Khader Adnan in prison.
10. Weigh ‘carefully’ Efforts To Engage Assad Regime, Blinken Tells Egypt – Al Arabiya
Egypt is among the several Arab and Gulf states that have reestablished communication lines with Syria’s president in recent months.
During a phone call, the State Department said Antony Blinken and his Egyptian counterpart, Sameh Shoukry, discussed the weekend meeting on Syria hosted by Amman.
11. Drought Threatens To Dry Up Crucial Panama Canal Shipping Link – RFI
Two artificial lakes that normally maintain the water level in the canal and refill the locks have been depleted by lack of rain.
Without water to fill the 12 locks, raising and lowering vessels in transit is impossible. The authority has already had to limit the size of boats entering the canal system five times this drought season.
Six percent of global shipping passes through the canal, mostly from the United States, China, and Japan.
12. Europe’s Inflation Inches Up – Infographics – tippinsights
Consumer prices in the 20 countries using the euro currency increased in April, extending the squeeze on households. Core inflation, which excludes volatile food and fuel, slowed slightly.
Europe’s current inflation followed high energy prices triggered by Russia’s invasion of Ukraine — Moscow cut off most of its natural gas supplies. At the same time, Europe slapped sanctions on Russia’s crude oil shipments.
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Republished with permission from TIPP Insights
