It's the Economy Stupid!

The worst economy since the great depression? Oh stop, said as Austin Powers would say it! We hear stuff like this from both sides on the issue of the economy, and most of it is silly. Of course we have come to expect hyperbole from politicians, it is their stock in trade. But when in comes to the economy, do some research because it is astonishing how little politicians know about the subject.

Rule number 1: Never forget that politicians do not have to be qualified, only popular. Keep this in mind every time one speaks.

Defining the national unemployment rate as a crisis betrays an ignorance of even the most recent history. (Has education really gotten that bad?) In 1991, unemployment was 6.8 % when the recession ended, and climbed to 7.8 % by the summer of 1992. In December 2002, unemployment was 6 % after less than a year of recovery lower, by the way, than the 6.3 % average of the past 30 years.

Regrettably, the national approach to the economy is, by its nature, bipolar, as we fluctuate between Democratic and Republican strategies. But the capitalists are probably winning the debate. It is unfortunate that they so often barely comprehend what it is they are advocating, can’t explain it and can’t be comfortable with the fact that it works best unfettered.

Unquestionably free market advocates and nations are proliferating. Nations around the world are heeding the call to free markets and free economies. The Russians now have a flat tax and their economy is booming. Where is a flat tax for the US, the supposed bastion of capitalism? Perhaps Khruschev was right, they might 'bury us', unless the Democrats come around, and, thankfully, many are. The radicals on the far left are finding it more and more difficult to have their message heard within the Democratic Party. They are turning, instead to alternatives like the Natural Law and the Green Parties to get their voices heard. This is a good thing because it marginalizes them. The New Deal may finally be over . . . if we ever manage to get Social Security overhauled.

But, don’t hold your breath that politicians will stop mucking around with the economy. In 1913, Congress willfully created the Income Tax and the Federal Reserve ostensibly so that government would be able to tame the business cycle of boom and bust, but also with the full realization that it would increase by infinity their ability to tax, i.e., buy votes. They are not about to give that up.

The myth of government taming the economy has persisted and many still believe it possible. For those who still cling to this notion consider that in order for the government to smooth the cycle, it would have to initiate split second decisions affected by millions of variables (tax rates, interest rates, monitory policy in Lithuania, the price of cheese in Chile, just to name a few) or in other words be able to stop on a dime and reverse course based upon several thousand pieces of information several times a second; day in and day out 24/7. Does that sound like the definition of government to you, except for the hubris?

The demise of the economy and American prosperity is vastly exaggerated. The tempest is in the tradition of: "the Japanese are taking over the world", of the late 80s and early 90s. The entire corporate community in that era was in a panic to understand the Japanese ‘way’. Today, you can choose from greedy corporations, the far right, the vast right wing conspiracy or, best of all, NAFTA. Pick one, problem solved! Or, one could chill and come to the realization that nothing much is wrong, except the Fed’s perpetual proclivity for mischief.

Before continuing, I would like to caution you to beware of the folksy notion that conventional wisdom is the same as common sense. Conventional wisdom is often wrong. If you don’t believe me just listen to a few of the call-ins on C-span in the morning, or read the flaming contents of most of the posts one finds on the Internet. (For all you passive aggressives out there who make these phone calls and post these bonfires, there is a corollary to rule number 1. It is 1a, which is that the best-qualified person NEVER gets the job. It goes to the most attractive applicant with the best line of bull. So, if you’ve not been most attractive candidate and this is why you are frustrated and bitter, come to terms with the ‘unfairness’ of it and start your own business or get a nose job, but stop the flamin’ and ‘passive aggressin’.)

Common wisdom: American factories are moving lock stock and barrel to Mexico or China.

The truth: U.S. manufacturers invest no more than $2 billion a year in Mexico, and even less in China. We have invested more manufacturing bucks in the Netherlands than Mexico and China combined. What has changed in the US economy is not work moving offshore, but the collapse of high-tech stock prices and the resulting over capacity due to less demand. Contrast what goes to Mexico and China with the $200 billion invested in manufacturing in the U.S each year. A recent study by Deloitte Consulting found that last year 94 % of America's foreign investment in manufacturing went to high-wage, high-standard countries. So much for competing with Asians making 2 cents an hour.

Conventional Wisdom: Thanks to NAFTA, there is no manufacturing left or even possible in the United States. All we have left is the service industry.

The truth is that in the first eight years of NAFTA, 1994 through 2001, manufacturing output in the United States rose at an annual average rate of 3.7 %, 50 % faster than during the eight years before the agreement. The number of Americans employed in manufacturing grew by half a million in the first five years of NAFTA.

Neither the trade deficit nor NAFTA can be blamed for the slow economy. The United States runs a trade deficit because foreigners continue to find the U.S. an attractive investment, and that investment capital buys new machines and funds new research.

Between 1994 and 2000, imported manufactured goods doubled, and employment rose in the US by 12 million (the unemployment rate went from 6 % to 4 %) and U.S. manufacturing output rose by 40 % at the same time. Manufacturing declined in 2001-2002, but imports were not the reason. Manufacturing output fell 4.1 % in 2001, but imports of manufactured goods fell 5.4 %. The same recession that hurt domestic manufacturing has also slowed the interest in imported goods.

Trade and prosperity are two sides of the same coin. The more we trade the more we prosper. Yes, whole industries will go out of business, but others will take their place. No one mourns the lost of the buggy whip industry any longer, although there was probably quite a fuss at the time. Opponents of trade will only undermine the ability of the U.S. economy to expand and create well-paying jobs. Free markets create wealth; it is not created politicians.

Common Wisdom: Daily we hear about the "millions of jobs President Clinton created, as opposed to the number Bush has lost.

No politician ever created a real (non-government) job, not Bush I, not Clinton, nor Bush II. The only job Clinton ever created was for Monica Lewinsky. Ask a Democrat how to create jobs and he/she will tell you, it is done by raising the minimum wage and extending unemployment benefits. Yet, these are two things guaranteed to push unemployment even higher. At least Republicans want to get the money to the right people, the iniquitous rich, the people who create the companies that produce the jobs.

Unemployment is 3.2 % among white-collar workers, and only 3 % among college grads. It is 3.6 % among married men, 9.7 % for 20 to 24 year olds, and 5% for ages 25 to 54. Unemployment is higher in manufacturing, at 6.8 %, but there are only 11 million workers in that sector, while 21.4 million work for the government, none of whom are unemployed.

The fact that 10 million more people work for government than in manufacturing is important. When government officials talk about "creating jobs," they mean government jobs; and don’t believe all the whining you hear about government employees who have to take a pay cut to work in the public sector. That is true only at the very top. Public service jobs pay well, offer perks, and very generous health plans, plans your private sector employer, without the power to levy taxes, can not afford to pay. Paying salaries and benefits in the government sector costs jobs in the private sector. Even what’s left of Alan Greenspan agrees and credits, not government, but liberalized trade, deregulation and information technology with raising the real incomes of American workers.

Governments have three variations on the same theme as the means for paying public employees: taxes, borrowing or printing mo’ money. Each of these reduces the income of private citizens who have to pay the taxes, service the debt and save depreciating dollars. More government jobs are a negative because of the burden they place upon private citizens.

Bush is well advised in this matter. He or his advisors know that the best thing the government can do is to minimize the burden of taxes and regulations. If anyone has any doubt about the major difference between Liberals and Conservatives, this is it in a nutshell.

The truth is that anyone with half a lobe can see people are poor because of the minimum wage not for lack of one. In a free economy, businesses that offered such a paltry sum would be laughed at. They would either not find workers or be forced to hire a substandard work force. Only by force of government fiat can employers succeed in offering this wage. The government minimum wage enables piracy, assisting the greedy not the needy. It permits the rapacious and their bureaucratic enablers to rip off the blue-collar worker.

Notice, that it is only the under-educated and unskilled, the very people government pretends to protect, who are the victims of this substandard government largess. In a free economy, only a beginning wage earner in order to gain experience would lift a finger for this wage. If there were no government imposed minimum wage, a company would have to offer a decent wage and good benefits, or they would not be able to maintain a competent workforce.

This is not fiction or pie in the sky. It’s how it works right now for the more skilled or educated worker, free from the good intentions of the government. White-collar workers negotiate their salaries or have headhunters do it for them. If wages are depressed in one area, they have the resources to relocate to better, higher paying jobs. Where can the unskilled go? The minimum wage is universal. How is it virtuous to doom these workers to a life in which they are unable to negotiate a better wage? Leftists might counter with that’s what unions are for. Well, if they favor unions why offer a minimum wage in the first place, because union no longer have government clout that’s why. Leftist schemes never fail; they simply require more effort. So now, some on the left, the Greens, for example, argue for a 'living wage' of $20 or more dollars an hour, telling us that's what Jesus or Robin Hood would do.

Sound good? Think again! You can not pay workers more than their labor is worth without inflation. The result would be $20 fast food burgers and $40 pizzas, and it would inflate the salaries of those who do achieve; bringing the spiraling cost circle back to where it started with a few more zeros added to the price of everything. Up again would go the “living wage’ and it would start all over again. We’d end with prices like Italy, before the common market, where everything was priced in the millions of Lira. In fairness it would benefit drop outs and potheads living in someone’s basement or those too lazy or crazy to acquire marketable skills.

Greens/Progressives/Liberals, like all state planners, can not distinguish between expropriated and created wealth, and Robin Hood is their ideal. They can’t or won’t acknowledge that the ‘rich’ whom Robin stole from were ‘the government’. In liberal minds, wealth is static. Money is finite. If one person has money, it is because someone else has none. This absurdist bit of logic is the heart of the dispute between left and right; but because the left controls the schools and universities not many people have heard the argument. “Give me a child for the first 7 years and you may do what you like with him afterwards.” (Attributed to the Jesuits.)

Not that Republicans/Conservatives are blameless. They are only the lesser of evils often correct on fiscal issues, but suffering from the delusion that morality derives only from the arbitrary pronouncements of their religion (Denis Prager). As a result they muddy their cause by associations with strange bedfellows (pun intended). May Satan’s punishment for the religious right be, that they spend eternity reading and rereading Romans 13, or until they understand it.

The most frightening words in the language are, “I’m from the Federal government and I am here to help”. Life is miserable on government handouts, ask anyone on Social Security. But Liberals will continue to do well by doing ‘good’, because, by in large, they are in charge of parceling out the coins with which the votes are bought that endear the folk to the plantation.

Common Wisdom: Robin Hood stole from the rich to give to the poor.

Sadly, an half correct but mostly wrong belief. In the stories of Robin Hood, he mostly robbed the sheriff's men of the tax monies which they had collected from the poor by over taxing them. He would take the ill gotten tax money and return it those who had been taxed, only occasionaly, robbing from a noble, and usually not much as nobles didn't carry a trunk of there fortune with them.

Yes I know Robin Hood wasn't real, and I know somone out there is going to call me a geek. I can't help it, I used to love the story when I was a kid.

You may want to see this post, I hope it doesn't give you a coronary.

Why?
It's obvious the author doesn't have the slightest idea what he's talking about.
Either that or just making up a pile of nonsense to support his idiotic thesis.
Take the following statement for example:

"The truth: U.S. manufacturers invest no more than $2 billion a year in Mexico, and even less in China."

LOL!
$2 billion is a drop in the bucket of what's being invested in China.
Heck, I can cite references exceeding that with just a few links:
Motorola Boosts China Investment ($6.6 Billion/5 years = $1.32 Billion per year)
Microsoft says to invest $750 million in China (Another 3/4 Billion)
Corning (1/4 Billion) Invests In China (Closes US HiTech Plant, Sell-Out Of USA To Enemy Continues)

Does the author think that Motorola, Microsoft and Corning are the only 3 companies investing in China?
What about Boeing? or GE?

Do me a favor, Sonny. Don't waste my time with this drivel.

Willie,

The economy is fine and will remain robust until I finally lose my job/business. Until then I will stick my head in the dirt and ignore those nasty rumors started by the many millions of victims.

Now all we have to do is to find a way to pursuade those who have lost jobs and wages that they are actually doing much better then they were in the 1990s. That any hardships they believe they are facing are simply a misinterpretation of their current state of prosperity.

Wasn't there a President Bush who was tossed out on his tail for trying the same thing? Time will tell. Until then, let there be spin.

Do me a favor, Sonny. Don't waste my time with this drivel.

Hey, I saw some things here that I thought you could debunk, but if you want to act like a bitter sourpuss so be it. I knew some of this was wrong, you usually have the links and know this.

I didn't realize you are actually this angry and bitter, I'll make sure not to make any contact with you in the future.

I didn't realize you are actually this angry and bitter,

Why shouldn't I be?
I live in a nation where a tyrannical government is deliberately undermining the economic prosperity of its own Middle Class.
The Zoellick/Bush Administration view the American People merely as another market to plunder: bury the consumers (and taxpayers) in debt, knock wages and benefits down to the global subsistance level.

Does THAT sound like the "Land of Opportunity" to you???

Here are some more accurate figures as to what U.S. companies are investing in China and Mexico:

By the end of 2002, China has approved 37821 U.S-invested companies, with contractual volume of 78 billion USD, making U.S. the biggest FDI inflows of China. U.S. investment not only involves in manufacture industries , but also in tertiary industry.
Meanwhile, Chinese investment in U.S. is also very active. At present, near 1000 Chinese companies including stated-owned and private companies have been setting up in the U.S. with a total value of 1 billion. (source)

U.S. firms are major investors in China and in 1998 actual U.S. investment in China rose to almost $4 billion,(source)

During the 1995-7 period, U.S. direct investment in Mexico grew by 27%, and in 2000 nearly $9 billion of the approximately $13.2 billion of foreign investment that entered Mexico came from U.S. corporations (source)

Does THAT sound like the "Land of Opportunity" to you???

No, it does not. I'm not some free trade zeolot. Personally, I think there's more blame to go around on this. We are overly regulated, so when some country offers slave labor, companies jump at it. Its not right nor fair, to ask americans to compete with what is essentially slaves, even worse, because we over regulate our industries, they naturally leave for where there is less regulation. Instead of everyone jumping for free trade, maybe we should also consider deregulation. I also would like to see tax breaks and incentives for companies to do there business here.

Another problem is pure selfishness and greed. I work in real estate, most of the people I know do not work in manufacturing. They simply want to buy everything at the cheapest price. If somone loses there job to china so they can get a cheaper shirt, then there attitude is so be it. Though anyone that has ever heard of Nike, can shoot holes in that line of thought. Alot of people will justify it by saying, well, it helps create sales jobs. The guy who sells me my suits doesn't care where anything is made as long as he gets his commishon.

I think free trade can work, but only, and this is a big if, and it has not been addressed yet, if we have a level playing field. We do not have a level playing field, we pretty much encourage companies to move there businesses overseas or south of the border.

What I can't understand is why you wanted to lash out at me, usually I agree with you on most issues. I knew you could correct some of the stuff in the article, instead you chose to be hostile.

What I can't understand is why you wanted to lash out at me, usually I agree with you on most issues. I knew you could correct some of the stuff in the article, instead you chose to be hostile.

My apologies. Sometimes I get grumpy refuting the same convoluted bilge over and over again. My disgust shouldn't have been directed at you. I just wasn't much in the mood for wading through the tripe presented in this article.

"My apologies. Sometimes I get grumpy refuting the same convoluted bilge over and over again. My disgust shouldn't have been directed at you. I just wasn't much in the mood for wading through the tripe presented in this article."

Obviously you are stressed out from counting all the blessings of modern life, Willie. You need to take a wallk with Lazamataz and listen to the "buzzin' of the bees in the cigarette trees by the soda water fountain" and take a drink from "the lemonade springs where the bluebird sings at the big rock candy mountain". Then we can all go have some free bubble up and rainbow stew.
Just keep repeating, "the economy is great, the economy is great, we will all get rich by writing software programs, it really is better to let the Chinese do all our manufacturing". Immigrants only take jobs Americans don't want, etc. etc.
I certainly don't envy the young these days!

My figures come from 3 different sources, including the U.S. Department of Commerce.
It'd probably be pretty easy to come up with a couple dozen additional sources to refute the inaccurate bilge the author of this article pulled out of his ass.
Why don't you try doing a little research on the subject rather than trying to defend the indefensible? You might actually learn something.

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