In my house, we have an upstairs bonus room with a separate central air conditioning unit. We use the upstairs room as a guest room and for some storage in the closets. The air conditioning unit stopped working over the summer, and it started getting pretty hot up there. Admittedly, this is a first-world problem.
I eventually had to remedy the situation because we had guests coming to visit. We received an estimate to repair the unit at $800. But the unit is about 13 years old, so I don’t really want to fix it at that price because something else could go wrong with it. Therefore, I asked for an estimate on a new unit. For a 1.5-ton unit (which is relatively small), the price would be $6,000 (including labor).
I ended up shopping around and got the lowest quote at just above $4,000. Again, this is for a relatively small unit that cools and heats just a bonus room. I can’t imagine what the price is for a new unit that has to work to cool or heat an entire house.
I think Trump’s tariffs play a little role in this, particularly on steel and aluminum. When the input costs go up, the price of the product will tend to go up. Even if the Trump tariffs added $500 to the overall cost of the unit, it is still a lot of money.
(The increased prices from Trump’s tariffs are perhaps offset by his tax cuts. The problem is that the tax cuts were not really tax cuts because the government keeps increasing its spending.)
We ended up buying a portable unit for our upstairs guest room. It probably isn’t going to cut it in the heat of the summer when it is 95 degrees outside. It did put off our decision on whether to get a new unit or to fix the existing one until at least March or April of next year.
I also recently brought my car in, and I need a new air compressor because there is a small leak in my current one. I have been quoted in the neighborhood of $1,000, but I am still shopping around. Again, this just seems obscenely high to me. How long ago was it that, for $1,000, you could practically put a new engine in your car?
I feel fortunate that I have some reserves, so it isn’t a situation of panic on my part. I hate paying the high prices, but it isn’t life shattering.
For most of the poor in America, and even for much of middle class America, these are devastating expenses. Many middle class families (at least as defined by income and lifestyle) do not have even have a few thousand dollars in liquid money.
Give Me Deflation
Despite signs of a falling stock market, currently we are supposedly in a boom period. The unemployment statistics are low, but it seems that life is expensive for almost everybody. In the U.S., health insurance and medical care are particularly ridiculous, but really almost everything seems expensive. Electronics may be the major exception to this, as they keep getting better and better with relatively lower prices.
I have this running joke that nothing costs less than $100. If there is anything wrong with your house or your car, it is going to cost you close to $100 just to diagnose the problem. If you can escape anything with paying less than $200, you feel fortunate. If you have a really simple plumbing problem that requires no parts and only takes 15 minutes to fix, then maybe you can get it done for about $95 (just under my $100 threshold).
Life is expensive. It is a theme I constantly harp on.
When the federal government alone is spending well over $4 trillion per year, it is consuming/ misallocating these resources. It is costing tens of thousands of dollars for most middle class families every year. When you add in state and local spending, it becomes even more absurd. Many middle class families are paying $50,000 per year to fund the government, even if they don’t know it.
It isn’t just the taxes taken out of your paycheck. It is all of the taxes you pay in one form or another. This includes all government spending, which is funded through taxation or debt or inflation. Whether it is through direct taxation, or lower wages, or higher price, it is coming out of your pocket somehow.
We need massive price deflation. I think the only way we are going to get that is by having a good hard recession. When that happens, the best thing the Fed can do is to not repeat its performance in 2008 through 2014. It should not expand its balance sheet.
Recessions are painful, as business activity drops. People are forced to curtail spending, and unemployment rises as resources are reallocated to more efficient uses (as dictated by consumer demand).
If you don’t lose your job, and you don’t take too big of a hit in declining assets (such as stocks and housing), then you will likely benefit from a recession. Middle class America needs declining prices, and it is a recession that will bring that.
I feel like a patient who has a tumor and is awaiting surgery. I am not excited about having surgery and the recovery time that goes with it. But in some ways, I want to get it over with. I want to get on with my life. I want to get the surgery done so that I can start my road to recovery. And I especially don’t want the tumor to grow any more and make for a more complicated and painful surgery in the future.
I wish nobody pain, except perhaps those who are most responsible for the mess we are now in. But I do realize that whatever fix we have in store, it is going to require some pain at this point. So let’s get the pain over with. Let’s get on the road to recovery.
I am actually cheering for an inverted yield curve at this point. I know that will signal a coming recession. It doesn’t cause a recession, but it points to one. Whether they know it or not, I think most Americans need a recession in order to make their lives better in the long term.
The damage has already been done. The Federal Reserve went on a digital money printing spree from 2008 to 2014. The federal government is spending like crazy, and still running up trillion-dollar deficits, despite our supposed boom.
Let’s clean out the damage. Let’s let the free market take hold and allow consumers to dictate the allocation of resources, instead of central bankers and politicians.
Unfortunately, even if we have a recession, it isn’t going to reverse the harmful impacts of the tariffs. On that, we just need for Trump to learn some basic economics and do the right thing and repeal them.
And when we finally get a recession, I hope I can get $1,000 off the price of a new air conditioning unit as compared to what I was recently quoted.