Tuesday January 27, 2015
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I was reading the Trib when I came across this coment:
"Economic growth is pitiful. Unemployment has topped 8 percent for an exhausting 43 months. The nation is careering toward a so-called fiscal cliff, and maybe a recession. So why is the Dow Jones industrial average, that trusty gauge of corporate America's strength, just 4 percent shy of an all-time record?"
"Good question," I said to myself. "How come stocks and bonds aren't a correct measure of the economy as the they used to be?"
I might have known. I found out the genius economists in the Fed are playing games with numbers again. You know what they are doing? At a time when people are struggling to find enough money to buy a house--if they can buy one at all--they are working to boost the value of houses.
On top of that, what else is the Fed doing? Artificially boosting the prices of stocks. What that does is make stocks look like a great place to put your money--instead of into small business loans.
The announcement by the Fed set off a two-day rally that drove the Dow up 260 points, leaving it less than 600 points shy of its record high — 14,164, reached on Oct. 9, 2007, two months before the Great Recession began.
I'll give you an exact quote: "The idea is to pump money into the economy to push interest rates even lower, which encourages spending, and drive up stocks, which makes people feel richer."
Hey! feeling richer isn't BEING richer, as anyone who is out of work can tell you.
And another quote:
"If stock prices rise, investors will be richer and more likely to spend. It's called the 'wealth effect.'"
Think about what they are saying.
Would I be wrong if I were to conclude that it sounds like someone who is painting over the rusty spots on a car to make it look good?
Here's the real problem:
(a) "Economic growth is pitiful."
(b) "Unemployment has topped 8 percent for an exhausting 43 months."
How do will fix that?
To fix (a) we need a reason for people to open new businesses, or expand existing ones. That will automatically fix (b) because they will need to hire new employees.
Q: So why would anyone open a new business? Or expand an existing one?
A: If there were a market for his products.
Q: Is there a market?
Q: Why not?
A: The wealthy have sent money overseas to open businesses over there, to use cheap labor to manufacture junk, to sell the junk to us, and pocket the money. They're not worried about the economy because they're making more money than ever.
Q: What do we do about that?
A: We place a prohibitively high tariffs on imports coming from places where American money is invested overseas and American companies have hired overseas help.
Making the same rich people who caused our problems even richer isn't going to solve the problem, but high tariffs will.
Tom; I have to disagree with some of your thoughts. We do not have to make the rich richer to help solve our economic problems but we must open the doorway so that people may become rich through entrepenurship and hard work. The last time that the tax rate on earnings from investments was lowered (Clinton) the harvest of tax monies was way beyond expectations. History seems to show that taxes, if controlled properly, can lead to job growth. Economics taught me that a person can graph the lines of applied taxes and government income from taxes and watch where increased taxes leads to decreased government income from corporate and investmnet profits. Mind you, the US has one of the, if not the, highest rate of corporate taxes in the world. In my opinion, higher tariff rates should only be applied after careful study and consideration of the goals and expected outcomes. China is a good example where higher tariffs might help offset the price differentals between selected goods due to Chineese government control of costs and prices. In other words, targeted tariffs.
"I have to disagree with some of your thoughts."
John, when you say, "We do not have to make the rich richer to help solve our economic problems but we must open the doorway so that people may become rich through entrepenurship and hard work," we are definitely not in disagreement. I feel exactly the same way. Always have. Anyone who studies the mess the Soviets created with a planned economy, which should have worked if logic were the only thing driving humankind, understands that capitalism's greatest value is that it emulates nature's own reward system.
"In my opinion, higher tariff rates should only be applied after careful study and consideration of the goals and expected outcomes." Again, I could not have said it better myself. The across the board job done by Congress is sometimes ineffective.
"China is a good example where higher tariffs might help offset the price differentals between selected goods due to Chineese government control of costs and prices."
Again, I am in total agreement. Japan did a number on us like that and we failed to respond, which is why our steel industry went away. The question of tariffs is a difficult one, but one that cannot be swept away because it interferes with overseas investment. Not only that, having the Chinese busy trying to make a buck is a good way to keep them from looking for places to export their form of government. But they have crossed the line with shabby merchandise and unethical business practices.
A bit more....
The only place where I disagree is--oddly enough--a place that years ago got me into trouble in an economics class. We were studying the exact same thing you mention: "a person can graph the lines of applied taxes and government income from taxes and watch where increased taxes leads to decreased government income..."
The prof, and the textbook, claimed that it was the higher tax rates which CAUSED the decreased federal income. Three days before, when I read that in the textbook, it had troubled me because I am a scientist and I always look for proof--of which there was none. The statement just sat there on the page, an empty, unsupported assumption. When I brought it up during class the prof was not happy with me and was about to dismiss what I was saying offhand, but I had done my homework.
I gave him a ten page paper which looked into the dates when the data was collected, considered what was going on at those times, and showed that there were several other factors which might have caused the drop in government income. I didn't argue with him; I just politely said that I had done a little research and asked him if he would like to look at it. He wasn't happy at that moment, but when the next class session began he actually took my paper and read part of it to the class, saying that he agreed with it and that the conclusion in the text was wide of the mark.
Stuck my neck out, didn't I? But it was neither the first nor the last time. In any event, I have heard that same claim made many times. It would not fly in a scientific study. Lacks evidential support. When two factors on a graph vary at the same time it is almost always the result of some third factor. You know what I'm talking about; we hear it all the time in the mainstream media. Things like, "Study shows drinking one cup of coffee a day leads to longer lifespan."
My conclusion after I finished that course was that there was altogether too much material in that text which assumed cause and effect relationships. I later taught people how to avoid that fallacy, and some others, in my own classes (not on economics, of course; on management and logic).
That's the weak point of economics; it is almost impossible to actually prove much of what is claimed. I suspect that's why there are so many "theories" of economics. Good stuff, but largely opinion.
And more already (I just thought of something you might like to hear).
Personally, I find economics fascinating despite the fact that it is a severely inexact "science." I just got done re-reading Alan Greenspan's "The Age of Turbulence"** in which he constantly--and very honestly, I feel--points out how inexact economics is. In one place he says, "...the irony was that in spite of my supposed persuasive power, in the weeks [that followed] nothing worked out as I expected." That comment is repeatedly echoed throughout his book. "That statement did not turn out to be my most prescient." "I don't pretend to know all the answers." "Worse, we had to tell [the President] we didn't know how bad the recession would be." I like Greenspan. Honest, dedicated man.
The thing in his book which confused me most of all? Its dedication is, "For my beloved Andrea." The first time I read the book I must have missed something early on because I was far into his book, and had read a LOT of "Andrea" comment before I learned that he was speaking of Andrea Mitchell of NBC News, someone I discovered--to my total amazement!--was his wife.
I am still not able to put those two together in my head. :-)
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