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Tom Adkins - Contributor

Tom Adkins is Executive Publisher of 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:


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.


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?


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

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