Tag Archives: Recovery

So tell me more about this economic recovery thing

Forbes magazine, both in paper and on-line, has always struck me as one of the good places for intelligent people to explore economics and investing ideas.  John Mauldin, shown below, has a nice blog piece entitled:  Impossible Things And Our Economic Recovery. This is well worth reading and is presumably the first of a group of pieces he will write on the topic.  I encourage you to read it/them.

I responded with the following comment which may have a delay in being posted or may not appear at all.  Who knows?  I just write these things.  Forbes controls the “publication,” at least on their site.  So here’s the comment:

Well done, John. It’s all true, unfortunately. That so few people understand basic economics and continue to vote for the status quo is sad.

As you say, an increase in GDP depends upon an increase in (working age) population and/or workforce productivity. Back in 1999 Harry Dent’s book The Roaring 2000s Investor described the international demographic and technology trends we could expect to see play out in the 2000s. Country by country, I’d say he did pretty well with it. Dent’s book is now too old to be on the World Future Society’s current book list. Those folks who never read Dent’s book aren’t reading the rest of the WFS’s book list, either. (Here’s where we mumble something about those who do not study history, or the future in this case, are condemned to relive it, or play it out, or mumble mumble mumble…) Dent’s arguments, much like yours, rely on inescapable economic concepts.

The US has “outsourced” most of our manufacturing jobs. Big mistake. The US has created a pink puffy cloud of financial nonsense to spur personal consumption. Big mistake. The political structure of the US has enabled powerful, wealthy individuals to become ever more so. Big mistake. Increasing disparity in wealth translates into increasing political partisanship. Big mistake. The founding fathers are spinning in their graves.

Don’t you wonder what happens when somebody brings a war to our soil? Whoops, they already did that. I meant to pose the question: what happens when we can no longer manufacture anything of value? What happens when we don’t or can’t produce steel or silicon or the basic components of our modern lives? Maybe vertical integration isn’t always the best path for a corporation, but it has a lot of strategic safety for a country. It isn’t likely the US government will try to reverse our decreasing ability to manufacture. We are far along on our way to becoming a farming and service economy. That will not permit us, ultimately, to pay off our consumption debts. And if the rest of the world becomes angry because they believe the US is responsible for economic problems faced everywhere today, what leverage do these other countries have against us? A lot. Financially and production-wise.

The US has the benefit of observing economic laboratories around the world. Some have worked better than others. But the results of those lab experiments are not readily visible to the average American. Our media would rather produce cheap junk reality shows. One thing the world laboratory has proven is that universal healthcare is a good economic foundation for a country. But that doesn’t play out well with the power and wealth entrenched in the USA. The US used to have a small wealthy class, a small poor class, and a large middle class.  The middle has been crushed over the last 10 to 20 years. Now .1% of the US population controls some 20% of the country’s wealth. Big mistake.

I love the French. Their food, their wine, their art, their language, their French Revolution. Watching the Enron, Adelphia, Countrywide, etc. stories unfold, who wouldn’t want to see a guillotine factored into the proceedings?

Let’s just say it establishes a threshold beyond which tyranny is unacceptable to a rising middle class. Whoops, the US middle class is not rising and it lacks leadership to establish significant changes. So it goes. The US government reflects the best interests of the wealthiest citizens. Capitalism and democracy have lead to politicians being hired by the wealthy and their corporations in return for the campaign funds that get them elected. Long term big mistake. Looking forward to see if you have any ideas how we can dig ourselves out of this hole!

The Next Nobel Prize in Economics

I give the New York Times and its contributors credit for getting my blood flowing in the morning.  http://tinyurl.com/munmbt is a blog entry by Casey B.  Mulligan, an economics professor at U of Chicago, entitled:  Forget a ‘Second’ Stimulus.  Stop the First One!  Having been concerned myself that the stimulus money may or may not be being spent in an optimal fashion, I have no doubt that government stimulus is required.  When nobody is spending or investing, the federal government is the wallet of last resort.  The wheels of the economy must be lubricated somehow. (Yes, I mix my metaphors while I’m having only my second cup of coffee.)

For an “economics professor”, the author does not appear to have been a student of history. Economic disasters like the current situation have always resulted in fear, caution, and reduced proactive economic activity. Does the author think FDR was misguided also?

The role of the federal government is to provide a structure in which individuals and the states can operate safely. The unholy alliance between capitalism and democracy during the Bush administration undid some of the legislation developed after earlier economic explosions. The Glass-Steagall Act doesn’t look so bad in hindsight, does it? The lack of prudent oversight of the country’s financial institutions, the same ones that contributed to that administration’s election, has resulted in worldwide disaster.

The economic system is a complex engine and the current problems must be addressed on several levels. The recovery will not be quick. Recovery depends upon creating jobs and moving income to middle and lower level Americans who have lost jobs to offshore locations or because of the fiscal crisis; encouraging education and research that will build the next big set of economic opportunities over time; and removing Bush’s war from eating away at the nation’s wealth.

The next Nobel prize in economics is likely to be awarded for thinking which is the opposite of Milton Freidman’s trickle-down economics. It will focus not on a waterfall from the wealthy enriching the earth below (which never did work), but on a fiscal osmosis providing a more even distribution of wealth throughout the nation and the world. Greed and leverage have always been the problems. We can’t eliminate the one, but we can legislate against the other.

Barney Frank and Paul Krugman are the guiding economic lights for this country at the moment.  Speaking of which, if you want to read a real economics professor, take a look at Krugman’s blog  http://tinyurl.com/23qv5r