Abysmal Students

I’m not speaking about today’s youth. I am talking about most of the adult population, those who cannot separate micro economics from macro economics. Money and banking as an academic discipline, international trade as another discipline; how about deficit spending and how that affects money supply, inflation or deflation rates? Or natural unemployment rates compared with critical unemployment rates. One is normal and transitory, the other is reflective of economic upsets. We can have too much unemployment, and not enough unemployment. We can have too much inflation or not enough. We have growth and non growth. There are a lot of other terms we could toss around and I bet most would not understand most of them.

What’s the point? Just this: too few Americans understand our economic system and how it works. When things are bright and booming, what made them that way? What keeps them that way? When conditions are gloomy and in the dumps, what made them that way? What do we do to counteract them?

My point is that too many people think they understand basic economics but really don’t. They want to understand what is happening around them but jump to conclusions based on too little information. They also listen to people who don’t understand the discipline and fall for sound bites. After a while the bites add up to a diet sufficient to support faulty conclusions.

These folks also decide on who to vote for in elections based on economics; yet they, the voter, don’t understand economics and therefore do not know what each candidate’s policy position means, let alone what likelihood that position will have in affecting a positive change to current economic conditions. How can you vote for someone on that basis when you don’t understand the basis in the first place?

A few thoughts to harden the focus:

·         If tax breaks for the highest income earners is supposed to stimulate job creation, where are the jobs?

Comment: the underlying assumption seems to be that those saving tax dollars from the cuts will invest those dollars in activity which will create jobs. However, in the current case, wealthy people may not spend such dollars, but rather save or maybe invest them in existing stocks. This action does not create jobs UNLESS an organization or firm needs to borrow those funds to expand their operations and hire more people to do so, or buy more production goods that expand equipment manufacturing, building factories, etc. Such is likely not the case. There is an oversupply of inventory on hand; no need to make new goods to sell to the newly enriched. There is an oversupply of buildings in which to install a new factory; no need to build a new factory. There may be an opportunity to sell more cars or boats or vacations to the wealthy, but these are marginal dollars at best. The vast majority of the people in the market continue to be distressed and unable to buy the goods and services that will boost the economy from the tax cut.

Another comment here, this one from Adam Smith, the father of modern economics and father of capitalism:

“It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”

It is not unreasonable because they are able to, and are the primary beneficiaries of the risk incurred when making the investment in the first place. If they are to do so again the system must be healthy.

·         If the Federal Reserve is supposed to lower interest rates to stimulate new investment, how do they do that when interest rates are at historic lows? How does one lower the rate below zero?

Comment: the economy currently contains huge capacity that is unused. We have people ready to work; buildings ready to be used in which to make goods and services; computers at the ready to handle the computations and transactions to support business activity; money supply galore to fund new investments. What we LACK is demand for these goods and services. We have the NEED but not the DEMAND. There is a major difference involved here.

·         If capitalism is a system that efficiently manages the flow of economic goods to market, meets consumer demands at the lowest and fairest prices, and sets values on all manner of production of goods and services, why then are the markets not functioning smoothly? Where are the opportunities in the market to pursue new wealth? Where is the innovation of tomorrow coming from? Who is going to make all of this happen?

Comment: Our markets and nation have needs; they also have demands What we lack is visions of the future and the moxie to go after it. The opportunity exists. Its challenge and reward is going unanswered. Unheeded. Ignored. The markets are not responding; simply put. Buying gold is motivated by fear. Stocking up on rare commodities is a hedge position pushed by fear. Sitting on one’s hands is a wait and see strategy that rarely creates anything new.

Something is missing here! And it may be a large complex of things missing such as the middle class (they not only buy the vast majority of goods and services sold in our economy, they also possess the knowledge, talent and art needed to produce the goods and services in the first place. Who do you think are filling the classrooms or laboratories or training labs? Who is gearing up to understand the new knowledge, the new education, the new technology, the new products and services the economy is going to produce? Who fills the jobs when they are not empty? Huh?

Class warfare? No. Captains of industry? No. Government interference? No. Lack of personal vision and courage to step forward and get things done? Yes. I think so. I think this is closer to the truth.

Something named Punjabgigraphics.com brings us this quote today:

“Courage does not always roar. Sometimes courage is the quiet voice at the end of the day saying, ‘I will try again tomorrow.’”

Perhaps we should all try again; tomorrow; or today. It’s our decision to make.

July 14, 2012