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Contributors
Tom Adkins - Contributor
Tom Adkins
is Executive Publisher of CommonConservative.com and
frequent financial commentator on Fox News. [go to Adkins
index]
 Overrated
Economics
Econimics from dummies...
[Tom Adkins] 1/4/05
You’re
watching some news show. Any show. Any channel. They start
talking economics with a panel of experts. You know, nice suits,
impressive ties, impressive titles. Except one guy says one
thing. The other guy says another. You frown, and change the
channel. The next financial show has different experts. Different
titles. Different subjects. More gibberish. The next channel?
Same thing. After 10 minutes, you found more opinions than
channels.
You pick
up the New York Times. The Wall Street Journal.
More opinions. Money. Time. Forbes. Opinions,
opinions, opinions.
A long sigh.
You rack
up the sources: Big networks, cable news, newspapers, magazines.
You rack up the experts: pundits, politicians, personalities,
pretenders.
Half say
the glass is half full. Half say the glass is half empty. Half
are drinking something suspicious from a different glass entirely.
Hey…that
makes three halves! Welcome to modern media economics.
You scratch
your head, confused. But while you listen to these experts
babble back and forth, there’s one thing you can count
upon: most of the economic subjects they toss around are misunderstood,
ambiguous, and overrated. Especially overrated.
For your
further confusion, is an explanation of the most overrated
economic subjects:
Employment
When pundits
breathlessly cite employment figures, as in “the government
reported 225,00 new jobs created last month, blah, blah, blah…” they
are almost always quoting the Payroll Employment Survey, which
surveys 400,000 American businesses, reporting the number of
jobs created in corporate America. Sounds logical, right? Wrong.
Over the
last 40 years, corporate America has created a net job increase
of exactly (drum roll, please) – ZERO. That’s right.
Most American corporations go through a period of growth, then
settle back into consolidation and efficiency mode, typically
shedding more jobs than creating. Sure, they buy other companies
and absorb those jobs into the corporate structure. But that’s
not a job creator, either. In fact, mergers usually create
mass job loss.
Another thing
they don’t tell you? Less than half of those businesses
actually answer the survey. That’s why the figures are
always revised later.
But there
is another hidden aspect lost in the Payroll Survey. When someone
quits their big corporate job and starts their own company
(you know, folks like Bill Gates, Jeff Bezos, and Michael Dell),
they show up as one less employee. And they don’t show
up as a new job created as head of their own corporation. Or
for that matter, neither do the 10 new employees they just
hired. Or the 200 jobs their little company added over the
next two years. Or the thousands of new companies started each
month.
But the Household
Survey does show this. This survey samples 60,000 people in
America, and tells us if those folks are working anywhere,
not just for corporate America. And remember, if capitalism
is operating properly, corporations should be perpetually gaining
productivity and efficiency, therefore cutting jobs, while
smaller companies are created to snap up business between the
corporate cracks and employing those valuable corporate workers
and new employees. That’s why small business has created
almost all the new employment in America over the last 40 years.
That means
the Payroll Survey always deceives us to the condition of corporate
America, but the Household Survey accurately portrays the condition
of American jobs.
Therefore,
the Household Survey is a far more reliable indicator of job
creation. That’s why last month, jobless claims rose,
but unemployment dropped. And that’s why the US economy
has actually added millions of new jobs over the last two years,
and you didn’t even know about it.
But nobody
told you this. And I guarantee you, CNN or The New York
Times won’t be reporting that.
Unemployment
Claims
This figure
is supposed to tell us how many workers filed first-time unemployment
claims. But it’s a messy figure for a lot of reasons.
First, this
figure has all sorts of “seasonal” adjustments.
Second, it
doesn’t measure if people lost their jobs and didn’t
qualify for unemployment.
Third, it
doesn’t tell you how many people gave up and quit looking.
Fourth, large
natural disasters can sway the figures wildly, both costing
jobs initially, then adding jobs during reconstruction.
Fifth, plain
old bad weather such as a good snowstorm or lots of rain can
skew the figures.
Sixth, this
figure cites initial claims, not total unemployment. That could
miss a big rehire trend.
Seventh,
a few big mergers or cost cutting moves could cost 20,000 jobs
and skew the figures for a week, while it’s actually a
sign of a healthy economy.
Eighth, it
doesn’t measure the illegal alien job force, which is
about 4-6 million strong.
Ninth, they
don’t show a shorter work week.
When you
rack up these variables, how the heck can you rely upon “First
Time Unemployment claims” for anything except a few days
worth of chattering on the news?
Most important,
this statistic doesn’t show how many jobs were created.
You can have 50,000 higher unemployment claims while the economy
created 100,000 new jobs. Better to refer to the employment
figures, or the unemployment rate.
Trade
deficit
A trade deficit
is created when we buy more goods from other countries than
they buy from us. So? We’ve had a trade deficit for 25
years, and our economy is magnificent. Why is this? Because
the trade deficit doesn’t take into consideration how
many jobs were created because another nation is selling something
that saves us a ton of money, or doing work nobody in America
wants to do.
In other
words, a bunch of sewing machine operators in Indonesia, electronics
manufacturers in China and an auto builder in South Korea made
stuff for one tenth the price we would pay if Americans made
the same stuff. Instead, we pay people 5 times the money to
stay here and do other jobs, like delivering sneakers, measuring
data and selling cars. After all, don’t you wonder why
we’ve had this massive trade deficit and we keep creating
jobs? And wealth?
Look at it
this way. Bill Gates’s time is probably worth a million
dollars an hour. It makes a lot of sense to pay a cleaning
service $20 an hour to vacuum his living room, though that
person may never buy a computer program from Microsoft. Gates
has a domestic trade deficit. I’m guessing he’s not
concerned.
National
debt
The national
debt is how much money the government has to borrow to pay
its bills. Let’s be honest: it matters. But how much?
And how important is the debt? How much is too much?
Of course,
it’s better to not have a national debt. And remember
we got one by creating a massive array of stupid government
social programs that don’t work. Particularly Social Security
and Welfare, which have sucked trillions out of the economy
over the past 40 years, and have either given horrid returns
to retirees at an exorbitant cost or have paid people to not
work.
And now,
we’re paying for it.
For all you’ve
heard about the national debt, it only adds up to about 4%
of the economy. But we once had a national debt of almost 25%
under Jimmy Carter and the early years of Ronald Reagan. The
media liberals didn’t complain about it then. Fortunately,
Reagan’s tax cuts created a huge inflow of dollars to
the Treasury, but not as fast as the liberal Congress could
spend it.
Regardless,
the debt doesn’t threaten us significantly as long as
the economy grows faster than the debt. In other words, if
the debt increases at 5%, but revenues increase at 15%, you
aren’t too bad.
But paying
off the debt has a hidden problem to consider: What is the
cost of paying off the debt? If we asked every American to
fork over fat wads of money, we could pay off the debt in a
few years, but what would happen to the economy? It would certainly
fall into the toilet, producing massive poverty and little
wealth. And that still doesn’t address the issue of unrestrained
government spending. If you paid off the entire government
debt on Tuesday, we just start creating more debt on Wednesday.
It really
boils down to how we spend the money. Winning wars? Building
roads? Certainly.
But it’s
safe to say most of the money is going to programs that are
hideously outdated, and are counterproductive at best, frighteningly
damaging at worst…and usually, “worst” describes
them.
As far as
the debt itself, use this easy analogy. Consider the national
debt somewhat like your mortgage payment. If your family sold
everything you owned, cars, stereo, clothes, jewelry, shoes,
tools etc, you could barely buy a beater home in a pretty bad
neighborhood with that cash. But how would you live? How could
you get to work? It’s better to finance the home, keep
your cars and clothes, and invest your cash. In the end, you
come out way farther ahead. And if you can’t buy a home
with cash, isn’t it better to finance the debt and own
the house, rather than rent forever? The house will grow in
value, your income will rise, and your debt will seem small
in 20 years.
The national
debt is the same thing, as long as Congress and George Bush
can somewhat restrain their ridiculous spending habits.
That is one
subject that is not overrated.
Consumer
Confidence
The Consumer
Confidence index is created by the Conference Board, a private
organization solicited to poll Americans in an attempt to find
out how people feel about the economy. Interesting. But it
means nothing. In fact, last month, consumer confidence dropped
while the economy grew, and almost every statistic was up.
One thing
for certain, the consumer confidence can be swayed by what
people hear. And the John Kerry-loving American press has spent
an entire year ignoring George Bush’s solid tax cut-led
recovery. In fact, this happens whenever a Republican is President.
You didn’t hear about Bill Clinton’s miserable first
three years, did you? The economy sucked, but consumers barely
knew it.
Consumer
confidence does a magnificent job telling us what Americans
are getting crammed into their skulls, but has nothing to do
with reality.
Falling
Dollar
The dollar
is falling, and it can’t get up! It’s getting weaker.
The Euro is getting stronger! If it keeps up, foreign investors
will pull their money out of US treasuries and we’ll have
nothing left but mounds of debt at 20% interest! Whatever shall
we do?
Have you
heard this? Sure you have. And it’s just utterly stupid.
First, calling
dollars “weak” and “strong” is incredibly
misleading. What’s really happening is this. Almost no
worldwide currency is attached to the price of a commodity
anymore. Once upon a time, we used gold as a standard. For
every dollar, we had a buck’s worth of gold in Fort Knox.
But we soon
created more wealth than there was gold. So, we removed the
dollar from the gold standard and asked the Federal Reserve
to create an honest dollar by manipulating interest rates to
control inflation. In essence, that means the dollar is now
measured against the value of American productivity.
That means
currencies are now measured in terms of productivity, not gold.
Once, Germans had a fanatical work and engineering ethic. But
socialism has crushed both, and German products are now mundane
and overpriced (witness Mercedes Benz, BMW, etc). Their 45%
personal tax rate doesn’t help. And France, where corporations
are taxed at the rental value of their building, 16% of their
assets, 18% of payroll, and 33% of whatever is left over, plus
a 52% personal tax rate, has always been a quasi-communist
state. Finland has a “net worth” tax, along with
it’s long list of other taxes.
In fact,
Europe has been on a steady socialist march since the World
War II reconstruction. Their economic diet of fat, lazy unions,
welfare state benefits and high taxes (especially the crushing
value added tax typically 15-25%) has made European economies
dangerously inefficient to the point that most European Union
members struggle to keep unemployment below 10%...and fail.
Meanwhile,
Americans are manufacturing things at an ever-cheaper price,
and with better quality to boot. And we are expertly nursing
along the developing Asian economies in a fabulous capitalist
symbiosis.
Therefore,
Europeans must keep demanding more value for their currency.
That’s why the terms “weak” and “strong” are
completely inaccurate when describing the relationship between
the Euro and the Dollar.
The Euro
isn’t getting stronger It’s getting more expensive.
Inflation
Okay, inflation
isn’t good, right? And if you get inflation, the Federal
Reserve should raise interest rates to slow everything down,
right?
Depends.
If you get inflation because too much money is chasing too
few goods, that is market created inflation. And yes, the Fed
should hit the brakes and raise rates to slow things down.
But what
happens if you get inflation because of rising commodity prices,
such as oil? Should the Fed jack up rates? No, because commodity
prices have nothing to do with the production and market side
of economics. Higher commodity process behave like a rate hike.
They take money from the economy and give people less money
to spend. They act like a built-in inflation squasher. But
how many times have you seen the various markets react to commodity-based
inflation with a mini-panic?
Deflation
Moderate
inflation isn’t bad. Anywhere between 1.5 and 2.5% is
considered healthy. Too much is bad. But too little may be
a sign of a shrinking economy, right? Not necessarily. If a
sick economy is contracting, deflation cold be a result. But
then again, if deflation occurs because the capitalist machine
is on an efficiency rampage, it’s good.
Too bad the
Fed folks don’t understand this cornerstone of capitalism,
and typically react in horrors at the thought of things getting
cheaper than the year before. Efficiency is one of the capitalist
fuels, as companies successfully embrace business practices,
techniques and technologies that make production cheaper. Such
as computers over the last two decades.
But the Fed
actually considered raising rates in the middle of the last
recession in fears that efficiency-based deflation was bad
for the economy.
Sheesh. Maybe
we should be afraid, after all.
It’s
been said that the greatest mistake an army can make is preparing
for tomorrow’s battles by refighting yesterday’s
wars. It can also be said with great confidence that today’s
economists are planning tomorrow’s economies with yesterday’s
economics. Most economists are stuck on a 1960s mentality in
a 21st Century economy. And so are modern political leaders,
who are generally inept and ignorant of economics (How else
do you explain the Democrat Party, the 108th Congressional
budget, and the European Union?), and plan their positions
around surveys and opinion polls. Of course, many economic
pundits offer their scintillating opinions often based upon
ancient, outdated and discredited information (How else do
you explain Paul Krugman, Michael Kinsey, and Eric Alterman?),
reciting endless nifty-sounding terms they learned in college,
while barely understanding how economies actually work.
In reality,
many experts, pundits and politicians are themselves quite
overrated. Yet economic fates rise will and fall as the investment
lemmings push fat wads of money all over Wall Street, based
upon the gleanings from such “experts.” You may have
hired one yourself.
Another sigh.
You go back
to the TV. A panel of four. With seven opinions. tRO
copyright
2004 CommonConservative.com
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