Where Are We? Where Are We Going?And How Do We Know

Photographs released this week taken by the James Webb Space Telescope show extraordinary images of deep space. Among them were fascinating pictures of a planet 1,150 light years away.?Our ability to grasp such concepts at the galactic scale is tenuous.

In the same way, sub-atomic concepts are equally hard to process. For example, Heisenberg’s Uncertainty Principle sets out that that it is not possible to measure both the position and the momentum of a particle at the same time. The Uncertainty Principle also serves as a fairly apt metaphor for many aspects of life. Finding a frame of reference by which to assess things can be hard to process.

Any efforts to understand where things currently stand in politics, the markets or our culture and where they are headed are all going to be, at best, approximations. And there is an inherent limitation in both understanding where things currently stand and how fast they are changing.

Measuring or understanding life at the human level, rather than the sub-atomic level, has a further constraint compared to conducting physics experiments. In a physics experiment, the observer knows where the particular being measured has come from. That aspect of understanding location or speed is without doubt. However, in our world, it is a further element of uncertainty. And it is not possible to know where we are without knowing where we have come from.

Consider a traveler waking up and looking out the window at a field. If they know they came from New York City, perhaps they are in upstate New York or Connecticut or Pennsylvania. But if they came from Madrid, perhaps they are in Andalusia. Or if they were in San Francisco, perhaps they are now in Sonoma. If they don’t know where they started, or how they traveled, then how will they know where they are? If someone traveling doesn’t know where they are coming from, not only don’t they know where they are, how do they know where they are going?

In today’s world, we suffer from this problem. Lots of people want to confidently state where we are and also where we are going and how rapidly. But all too often, there is not even a valid assessment or agreement from where we have come.

For example, a lot of concern and analysis has taken place as to whether the inflation that is taking place will essentially “set in” and become an endemic issue changing consumer behavior. It turns out that emerging from the coma into which the economy was placed at the outset of the pandemic has been much more difficult than expected. Extraordinarily high price and wage increases have taken place since the second quarter of 2021 in a wide range of industries. Those increases have been at a rate not seen in forty years.

Debt became essentially free at the outset at the pandemic with interest rates at zero. But in real terms, debt had been free for a decade prior to the pandemic, as the Federal Reserve kept interest rates below the 2 percent annual inflation rate that persisted over that period. At the same time wage growth was basically stagnant for the average worker during the decade since the financial crisis.

When the pandemic struck, the US government quite reasonably responded with an immense fiscal stimulus, giving huge cash grants to both businesses (forgivable PPP loans and other programs) and to individuals (thousands of dollars to everyone earning below $75,000 in addition to enhanced and extended unemployment benefits). The combination of cheap debt and cash outlays to business and individuals led to a sudden and marked increase in demand for certain goods and services. A market economy should respond by raising prices to meet that demand and paying greater wages to find sufficient employees both to manufacture goods, deliver them and service customers. Adding to the bottlenecks at home in meeting that demand have been global supply chain disruptions resulting from the pandemic.

Further adding fuel to the inflationary pressures due to the monetary and fiscal response to the pandemic is where we were coming from prior to the pandemic. Recognize it or not, the predicates to the current inflation we are facing were set during the dozen years prior to the pandemic. Following the Great Recession there was an extended period of deflationary pressure as economic growth was muted. Added to that, there has been four decades during which average wages have effectively been flat or declined compared to GDP growth. Economic statistics show that the proportion of revenue transferred to owners has increased significantly relative to the proportion spent on wages since the late 1970s.

With this history of decades of limited to no wage growth, deflationary pressures on the economy for a decade and a sudden burst of capital flooding the economy and subsequent skyrocketing of demand, plus the pressures on the economy such as the fallout of the Ukraine invasion, continued disruptions to the supply chain, limits on immigration to the US holding down the normal increase in the pool of workers, and so forth, it is little surprise that prices and wages have spiked upward. A true understanding of our current circumstances and where we might be headed can only come from understanding how we got here. Realizing that the pent up demand for wage growth is in part responsible for our current inflation means that in many respects the seeds of our current inflation could be viewed as having been sowed from the consequences of the steps taken to end the inflation of the late 1970s.

The same dynamic is at play on many other current issues. What is the state of our democracy and where are we headed? What is the state of racial equity in this country and where is it headed? Understanding where we have come from is fundamental to understanding our present and our future.?In many ways, another way of understanding the role of history in understanding today and trying to understand tomorrow can be found in Faulkner’s lines “The past is never dead. It’s not even past.”

In other words, as with sub-atomic particles, understanding where we have traveled from greatly informs figuring out what is in fact happening and what will happen next. Without that understanding we are truly lost.

By contrast, our view of the planet we see through the Webb Space Telescope today is a view of that planet from over a thousand years ago. Those alive on Earth today will never know what is happening there today or what will happen there tomorrow because it will take another thousand years for that light, and those pictures, to reach here. Somehow that is a sobering thought.?