Posts Tagged ‘Economics’

The Economist has an excellent piece up about the disturbing trends in the economy:

This compulsory return to thrift will be deeply painful; consumer spending and housing are almost three-quarters of GDP. Of the 1.2 million, or 0.9%, decline in jobs since December, about 700,000 are directly related to consumers: retail trade, transportation manufacturing and home-building. The rise in unemployment, from 4.4% in 2006 to 6.5% in October, is nearing that of 2001-03 and is not over. On November 19th Federal Reserve policymakers disclosed they expect the recession to last until mid-2009. Their inflation worries have evaporated; indeed, consumer prices plunged a record 1% in October from September, and by 0.1% excluding fuel and food, the first such decline since 1982. The Fed’s vice-chairman, Donald Kohn, said outright deflation “is a risk out there but it’s still small”.

I think this article, in pointing out the trends in the American economy (such as decreased savings by baby boomers as well as the sharp rise in consumer saving in the wake of the sky falling), also reveals the bigger problem in the American psyche: we risk and spend too much when things are going well, and immediately shock the system by saving as soon as things start to go bad, which makes things get worse. It can be argued that the extra saving is a good thing (and I agree that it’s what we should be doing in the first place!), but, simply put, by not spending as much money in an ailing economy, the economy is obviously going to do worse. Of course, it’s likely that what people are spending now is truly what they can afford, rather than their fake plastic money that created the piles of debt that led to this catastrophe in the first place.

What I fear the most is that this country (and the rest of the world) will weather this recession by being savvy spenders and savers, and immediately return to our old ways of boundless spending and unwise use of credit cards, again buying goods we can’t afford with our plastic friends. That would be sure to land us in another recession in the future, as the debt would, again, crash our system.

But, if we could only maintain our unprecedented level of spending with low savings coupled with unlimited amounts of credit, if we were to remain savvy spenders, taking less risks and saving more, would that mean a permanent shrinkage of the economy (proportional, of course, to the amount of workers in the system; as time goes on, the economy will “grow”, due to job creation, but the net spending per person will go down)?

Maybe this period of economic success was nothing but a hallucination, and we are now getting off the hallucinogens and waking up to reality. And that reality may be a smaller economy.

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In the wake of the financial crisis that’s engulfing the world right now, there have been many on the Left that proclaim that capitalism will cease to exist, since it alone (in their deluded eyes) has caused this collapse.

I’m astonished at their ignorance and lack of gratitude for the monetary system that has, singlehandedly (well, along with the establishment of the United States), lifted much of the world out of poverty and into a culture of freedom, free from the monarchs and Communists.

These Leftists spout useless drivel about how it’s capitalism’s fault that people are losing their jobs, that it’s capitalism’s fault that the banks did ill-advised lending, that it’s capitalism’s fault that people are in poverty in undeveloped countries, that it’s capitalism’s fault for somehow putting a gun to the head of our legislators and “making” them institute a $700 billion bailout for these banks. It’s not capitalism’s fault, and I can guarantee that those people who lost jobs wouldn’t have had them in the first place without it, that the banks would commit more fraud without it, and there would be more government intervention without it.

And then they say that capitalism is not moral; that it doesn’t give people living wages and it makes them poor. Except, naturally, they forget that capitalism has lifted hundreds of thousands of people out of poverty and into work, that it allowed people like Bill Gates and Steve Jobs to make millions with a vision for the future and the drive needed to make that dream a reality. Capitalism has let people make money with their work and their skill. It allows the individual to pursue the course that they want (economically), and they are rewarded for their competence – nothing more, nothing less.

It is these hypocrites that do not know what they’re saying when they say, “Capitalism must go!”, because they, truly, don’t have an idea of what capitalism is. They scream that the capitalist system must go, but they have no idea what economic system to put in its place; it is this fact that makes these people ignorant and nothing more than sheep. They don’t understand that, in eliminating capitalism, you must erect something with the structure of socialism (perhaps even Communism) in its place, which would surely destroy the framework of this country and all the worlds’ economies. Surely, if we’re going to remove capitalism, where capital is held and moved primarily by the private sector, we must consolidate it within the public sector – giving more control of the economy to the state.

It is this that reveals the true hypocrisy of these fools. These are probably the same people who (correctly) say that our government has grossly mishandled and misled us into two wars, the government that is putting most of its money into feeding the military-industrial complex in doing so, and is corrupt to the core. But, in destroying capitalism, these people are advocating letting the very same government run our economy, giving out handouts as they wish. How does that make any sense? Our main legislative body has a single-digit approval rating, and these imbeciles think that we should give them more control over the country?

This is why capitalism cannot and will not fall: the citizenry will wake up and realize that more (bad) government isn’t the remedy to the situation. In fact, it’s more poison.

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Here it is:

The fact that many of them expect government entitlements like Social Security, like Medicare, and don’t expect a corresponding tax increase to pay for them. They think that the money to pay for things can just be conjured out of thin air, and they’ll be all set because they expect the government to, quite literally, hand out the service to them (hence the term entitlement). This sense of entitlement is what is going to kill this country economically; we need someone high up in government to realize that Medicaid and Social Security are going to sink us with all the Baby Boomers retiring in the next 8 years or so. What happens when taxes aren’t raised enough so the government can pay for these programs? We borrow. And anyone who has watched the economy all over the world freeze over the past couple of months knows the effects of borrowing en masse.

More on this tomorrow.

During my brief excursion, readers, I had a chance to talk to some of my relatives that are or have been employed in organizations like the UN, the World Bank, and the IMF. And, my own views included, there was never a consensus on what has caused the economy to drop so much.

One said that it’s a direct result from the subprime mortgages, and the banks went bankrupt because they took too much of a gamble in granting said mortgages, as the subprime folks couldn’t repay their loans, and proved they deserved the “subprime” tag.

Another said is that it’s not the banks, but the government, in supporting the subprime mortgages, as well as the extensive borrowing in the public sector, hence our massive national deficit and our addiction to borrowing from the Chinese. Another key issue that was raised was inflation – the dollar’s value has decreased without wages going up to compensate for it, so real wages have gone down, resulting in worse buying power for the public and private sectors, which ultimately leads to more borrowing.

The third said that, for America, it’s just a psychological issue. People see the market going down, so they feel worse and insecure, so they sell – and, as a result, more people sell because they’re anxious that other people are apprehensive about the market. The reverse is true: when the market is true, more people feel optimistic and buy, and, again, the optimism is contagious, and more people buy. What’s needed to turn the market around? The courage to buy.

All interesting takes, and somehow, I think that all of them are true to an extent. With a collapse of this magnitude, I don’t think that there is a distinct cause — the market was pushed off the edge little by little, not with one fell swoop.

Today’s good, bad, and insightful is short… Very short.

The Good

Christopher Hitchens demands on Slate that the press ceases its coverage of Palin until she gives a press conference. The highlight:

Again, I have a question: Did Palin know that she was telling a lie? Or did her handlers simply assume that she would read anything that was put in front of her, however mendacious? And which would be worse? And when will she issue the needful retraction? There seems no way of putting her in a forum where these points could be raised. So, continued media coverage of her appearances is no better than lending a megaphone to a demagogue, the better to amplify her propaganda.

The Bad

Nothing bad today, it seems.

The Insightful

Paul Kedorsky’s post at the Daily Beast is the best blog post I’ve seen, bar none, in two weeks. The money quote:

That country has spent more than fifteen years stumbling in and out of recession after its own massive real estate bubble burst. Japan’s government has tried repeatedly, to use stimulus packages to bring the economy back to life, only to have it backslide each time almost as fast as the checks were cashed. There are many explanations for why the Japanese economy has been so unobliging. High among them is a view that the stimulus applied was poorly timed and in the wrong amount. Netted out for goofy subsequent tax increases and the like, most of the Japan stimulus packages was smallish, less than 1.5percent of GDP. And rather than doing it in big chunks, the Japanese did it in dribs and drabs. Done right, Japan would have spent more money and done it once, or twice at most—not smaller amounts spread out over a decade.

How much is the right amount now in the U.S.?