Democrats & Liberals Archives

The Economy In Context

There is a word in our language that represents the error in mistaking an abstraction for a reality: reification. It’s a common error in our data-driven, telecommunication criss-crossed society. We want a simple message to reflect a simple reality, but often things are more in the pattern of the information before us, than in the simple indexes the media feeds us. It is therefore important to realize that playing around with these numbers is not necessarily the best way to benefit our society or to improve our economy.

We must not forget that the measures of our economy are just that. This is a complex world, and there are many ways to come to those numbers. That's what makes a market economy work. The trick of things is, that many people treat the market as if its a special province of society. It's not. It's just a way of looking at our interactions from a certain angle. In this day and age, though, we can over-rationalize and over-literalize these measures, and miss the reality they gauge.

Too much emphasis of the symbols over what they symbolize can lead us to trap ourselves in bubbles of speculation, both ideological and financial. There's a reality out there, natural and human, that defies complete, simple description. Economy once operated along more strictly real terms, but as mankind's societies became more complex, the simple terms of barter and exchange were unworkable. We had to come up with systems that would allow us to idealize exchanges. This allowed an increase in the versatility and manageability of both complex and simple transactions. We exchange economic information, in the form of money, stock certificates, checks, bonds, and other financial instruments We make arrangements for these arrangements, even, and then put arrangements on top of those!

As your instincts are probably already telling you now, once a system is freed from strict correspondence with reality, the structure of it can become recursive (that is, folded in on itself) with no bound but the results of things in the real world. The beauty of the market is that the boundary itself can be used to force simplicity, elegance, and real-world correspondence on the businesses that run our economy. It's an incomplete solution, though. Sometimes the recursive properties of the goings on in the market, and the opacity of information can hide those things from the market that would allow more efficient market action. Sometimes, the market just isn't suited to handling a particular kind of behavior. The market can be compared to an ant colony, where unguided, simple behaviors can collectively act with great sophistication. We must note, though that many kinds of ant-poison exploit exactly that kind of behavior. The market is marvellous in how its adaptations solve complex problems without much central direction, but the trouble is that the market is mostly about adaptation to the things as one perceives them. If things aren't as they seem, as they often are, then the market can end up reinforcing or encouraging counterproductive behavior.

Many free-market boosters have a hindsight-oriented bias, failing to criticize culturally ingrained misbehavior until after a disaster, then claiming that this bad behavior was only the result of the action of a few bad apples. If we look at all the restatements of earnings put out in the wake of Enron and all the corporate collapses, though, a reasonable person might find it difficult to call Enron isolated. It practically became a bad joke.

Common sense use to be that a company was okay as long as it turned a profit. Now there are all these numbers and growth estimates people have to hit, numbers that are often attained by destroying parts of the company that indirectly aid in truly profitable behavior. Some people who read the Blue Column regularly might think that our issue is with evil corporations, or stuff like that, but the real question is, are people earning the money we investors and customers are giving them.

The trouble comes when people do their best to bypass having to actually provide real world benefits for folks. Naturally, the desire for profit would tend towards 100%- all benefit, no cost, all guarantee, no risk. But in the real world, there's always struggle and work involved in gaining true profits.

So much of the profits we now see announced are gained by means that hurt rather than help the companies. Workforces are cut even while the workload and productivity goals are not. Research and Development Divisions, which would help the company by increasing its ability to innovate and compete, see their budgets slashed and even their existences eliminated. Companies eliminate folks with the most experience with the logic that their salaries cost the most. Companies send certain divisions overseas, searching for rockbottom wage markets, many never even considering the barriers to efficiency that language, time, and cultural differences create. That's not to imply that all outsourcing is bound to fail, but as with any business move, there are costs to every benefit. Many companies brought divisions back to the states on that account.

I think one of the main flaws in the thinking on these issues is expecting corporate executives to be any wiser, any more pure and intelligent in their decision-making than some Washington politician or bureaucrat. No sector, public or private, is free of lackluster leaders. The atmosphere of leadership can in fact become worse when we divorce our standards for leadership from a balanced, considered appreciation of the world around us and the consequences of our leader's decisions. We will see the insitutions and business of our society degenerate into dysfunction when the motives of profit matter more than the means and when the politics and the campaign rhetoric matter more than the policy of a government and the consequences thereof.

The economic policy of the last few years has basically been this: give business leaders what they want. Detroit want you to subsidize Hummers through tax breaks? Done. Relax accounting standards so that folks can impress the investors without doing real work for it? Of course. Bail out the airlines after years of foot-dragging on their lax security? We must ask you whether you'd like those taxpayer dollars in small or large bills, then.

That's not government. That's chaos in the making. A government, to be a true government, has to be able to lay down the law. The law need not dictate all the different aspects of economic life, but it should set the moral and ethical boundaries past which misbehavior takes on added risk. That, in general, is the role of government: setting boundaries for behavior. For everybody else, I would say this: where the government doesn't set its boundaries, we should think long and hard about where we set ours. That's is the greater part of what makes our freedom worthwhile. I think many of our problems here are cultural, and just bashing the corporations and the politicians won't solve the problem. We have to stop thinking so obsessively about our pocketbooks and our self interest, and recognize that now, more than ever, how we succeed is more important than even the fact of our success itself.

The price of some kinds of success is the success itself, and more on top of that. We can poison the sustainability of our prosperity and the quality of our lives if we poorly choose our courses of action, and don't give proper weight to practical, moral, and ethical issues. We human beings have a bad habit of thinking at certain points that we have the ability to escape the consequences of our actions. Truth is, as many have said it, that we are only human. We cannot have everything we want. We will never act free of error, free of ignorance, free of subjectivity. Now that does not mean that we should act with slack ambition and sink into our own complacency. No, we are driven to do otherwise for good reason. The question is how we satisfy those drives, how we see to our interests. Those are the true questions of an economy, and the decisions we must make count.

Posted by Stephen Daugherty at May 7, 2006 2:42 PM
Comment #146051

Wow…. ummmm…. sheeeesh… Dude, that was deep.

(huh? way over my head)

Posted by: tony at May 7, 2006 6:23 PM
Comment #146054


We have to use the information we have to analyze things. We can argue about whether the whole system is good or bad. The numbers may not give us the normative answers, but they show relative changes.

The figures of today’s economy are good compared to historical American or international figures. Today’s U.S. economy is better than most other countries. It is also better than most years of Americans history. This year is a lot like 1997/8.

SO if you are saying that the U.S. (and the world generally) is and has been in bad shape, that is your business. But if you are trying to say that this economy is worse than previous U.S. economies or comparable international situation, you are incorrect.

If something bad has happened, it was not in the last couple of years.

Posted by: Jack at May 7, 2006 6:36 PM
Comment #146059


The key to using “the measures of our economy” is to compare the same measures with different time frames. If you compare all the same indices from one 10 year period to another 10 year period, you will see how they compare.

It’s important also to keep them in context. For instance, looking at a 300 point change in the stock market in 1999 would be far different than a 300 point change in the market in 1959. But you could probably compare percentages.

The measures of the economy do help us, otherwise we’d never be able to measure an economy. No one would be able to claim that the Clinton economy was good, the Carter economy bad etc.

Posted by: joebagodonuts at May 7, 2006 7:51 PM
Comment #146061

I would say that the economy is doing OK - but given the soaring debt, potential issues with Iran and continued dealings with Iraq - people don’t feel good. I think it’s alot like finding out you have cancer - sure your finances are in good shape, but in comparison with what you expect to happen, things don’t look good at all.

Also, I remember watching the corporate clients of mine - even after they recovered from the 2001 implosion - they failed to pick up spending like they had in the past. It took 2 more years before they recovered from the aftershock… in fact 2003 was our worse year ever (at my company). I think maybe the consumer is feeling the aftershock + dread of what is likely to happen in the next few years.

Americans spend and save like there’s no tomorrow… and that’s OK until they get spooked.

Posted by: tony at May 7, 2006 8:02 PM
Comment #146064

Part of what motivated my writing were my thoughts on technology. Let me say what I neglect to say in the main entry: I think the boom of the 90’s, where it was real, had more to do with the expansion of the computer and internet related businesses than who was in the majority in the legislature, or who was in the White House. I think the persistence of growth in the economy owes more to the continued benefits of that technology than anything else.

The stumbles we’ve had since then, I feel, have much to do with the same old-fashion bullshit that accompanies every boom, every pioneer rush to get in on the ground floor for the next big thing. It’s also about people finding out by trial and error the good and the bad of what the new technology brings, and then adapting to that.

If we want to improve our economy, improve science education, dump all this testing bullshit, and put together some foundations to feed funding into good science.

Posted by: Stephen Daugherty at May 7, 2006 9:10 PM
Comment #146070

These discussions of whether the economy is good bad or indifferent are malarky. The fact of the matter is that we as a species are staring down the barrel of the greatest challenge we have ever faced—the end of cheap oil, and the eventual end of oil as an energy source.

There is no substitute for the flexibility, the portability, the ease of use oil provides. Nothing. Everything depends on it—agriculture, manufacturing, transportation of goods, everything. We have had two wild fluctuations of the price of oil in the last eight months. The oil people will tell you it was because of Katrina and the damage to the Gulf oil platforms and refinaries. The fluctuations now? Getting ready for summer driving and the Iran tensions. Bullshit!

There is no more room in oil discovery and production for error—any oil petroleum geologist worth his salt will tell you that the possibility of peak oil already having happened are probably a reality. We will not drill our way out of this crisis. There is no seamless, soft landing into another comparable source of energy with the flexibility of oil. You can talk nuclear, wind power, coal whatever… it ain’t gonna happen within the time allotted by our intransigence on this issue.

The population of the earth before the advent of oil was a billion to a billion and a half. It is now approaching seven billion. Without oil enabling an agricultural ability to feed that many people, where does that leave us as a species?

The United States, of all the countries in the world, is probably the worst prepared for this crisis. Why? Our love affair with the car has devastated some of the finest farm land this country has. When gas is seven, eight, ten dollars a gallon, how are the suburbs that are 25, 30 miles away from business and city centers going to look to homeowners? How does it look now to the folks that are 35 miles away from Atlanta, Boston, Ft. Worth, Seattle and Denver?
How are those forty-story skyscrappers going to look without air-conditioning? For that matter how’s the Southeast and the Southwest going to look without air-conditioning? They were the backbone of the Republican resurgence in the seventies and eighties, just as the rust-belt cities of Cleveland, Detroit, Boston, Chicago enabled a Democratic surge in post-WWII America. Can you say political housecleaning boys and girls?

Think the economy is good now? Keep watching.

Posted by: Tim Crow at May 7, 2006 10:10 PM
Comment #146077

We can be pessimistic about this, or we can be realistic. The difference is that the realist acknowledges that the pickle he or she is in is both real and needs a real solution. I think we are just on the knife’s edge of getting to where we don’t need to rely on petrochemical sources of energy. Yes, oil has likely peaked.

But new technology is on the rise which may greatly improve energy efficiency. The question is what gets here first: the energy crisis, or the technology to prevent it.

This is part of what I mean when I talk about the economy being more than just numbers. You can play around with the numbers all day, and not change the amount of oil in the ground. But change the technology, and the economics of dealing with that oil or leaving it alone change, perhaps dramatically.

It is a lesson that both sides should learn- the side that insists on the status quo, and the side that wants something done.

Posted by: Stephen Daugherty at May 7, 2006 10:44 PM
Comment #146079

Jim and Stephen

There is not energy crisis. It is all just a matter of price you need to pay.

It looks like we may have run out of $40 a barrel oil. But we have got a lot of $70 a barrel oil and we have too much oil at $100 a barrel.

You can estimate the costs of the adaption at various price levels. In 1998, oil was selling for about $15 a barrel. We absorbed the price rise between then an now and still managed robust economic growth. Lower prices would probably have produced better growth, but the price did not cause a collapse.

The long term price ceiling for a barrel of oil is around $60 in today’s dollars. If you adjust for inflation, it has been like that for a very long time. I hope it pushes above that, since we then go into alternatives.

Prices carry their own incentives and rewards. Those who drive more efficient cars get a much bigger incentive when gas cost $3 than when it costs $1. Conversely, SUV owners suffer a higher penalty. it is a remarkably good and flexible system.

YOu probably also know the old wisdom that any problem you can afford to buy your way out of is not a problem; it is an expense. You work to lower expenses, but they don’t kill you.

Posted by: Jack at May 7, 2006 10:55 PM
Comment #146082

Somehow, I knew there would be a glib, slick anwer—you’ve convinced me boys, I’ll stop fretting about it now.

Posted by: Tim Crow at May 7, 2006 11:20 PM
Comment #146084


It is very simple, just not easy.

Think of it like this. There are all sorts of books and programs to help people lose weight. But the bottom line is eat less, move more. Simple, not easy.

The problem with both energy and fat is that all the books and programs tend to make people think there is a complicated, but easy answer. We get all this confidence in a big program to create alternatives - with the implicit assumption that the alternatives will be cheap. They won’t. Realistically, we will all pay more for energy. Simple. We can adapt. Also simple. None is easy.

That is why people prefer the complex BS. I also think people like to feel guilty and/or blame someone for their troubles. But the bottom line simple truth is that WE - you and me - are the cause of our own trouble and WE have the ability to get out of it.

Posted by: Jack at May 7, 2006 11:37 PM
Comment #146090

Jack Spake Unto Us:

If something bad has happened, it was not in the last couple of years.

Of course not! How could it be?!

I mean, that would be Heresy!

We all know that All Bad Things happened as a result of the Clinton Administration!

Since our Prince, Regent Cheney, is Infallible - gifted with Divine Right and Manifest Destiny - how could one argue otherwise?

Posted by: Betty Burke at May 7, 2006 11:57 PM
Comment #146091


You are not being fair. Please read ALL the hundreds of words I have written about Clinton and find me ONE instance where I unfairly blame Clinton for anything. YOu will find many cases where I praise him, however. Clinton was a good steward of the economy and basically a good president.

The only point I am making is that if the statistics are bad now, they were bad then. And if they were good now, they were good then. If anyone wants to throw away the stats, they can do so. BUT they cannot just throw them away for the last couple of years. The same statistics that made the late 1990s good years are what we are getting today. You can accept them both or reject them both, but there is no logic in selecting one and not the other.

Posted by: Jack at May 8, 2006 12:05 AM
Comment #146096


Jack is correct. Actually, if you take the politics out of the economy, you will find it working well with both democrats and republicans in charge. The only reason parties make a point of the economy is self serving. I am speaking of the national economy.

There are other economies. If you look at for instance the bottom 20%, I think there is an argument of who harms them both. Nafta was signed by? On the other hand, tax cuts for the wealthy were signed by? it could be a good honest debate as to who has harmed the bottom 20% the most, democrats Repubicans or just plain globalization.


Posted by: Craig Holmes at May 8, 2006 12:24 AM
Comment #146101

“But the bottom line simple truth is that WE - you and me - are the cause of our own trouble and WE have the ability to get out of it. “

Very ecumenical of you, Jack—and being a car driver (how can you not be in our society) I’m willing to take my lumps along with everyone else—assuming those lumps are equally distributed.

But why would that be the case at this point? Equally distributed pain strains the imagination. And I guess that is my point—do we really have the ability to get out of this quandry without tremendous economic, social and environmental upheavel?

As for the rigors of free enterprise and the wonders of the market system pulling us out of our species-wide recalcitrance—I submit that they are why we are in this fix to begin with. With the discovery of the North Sea and North Slope oil fields, prices went south in the eighties, and everyone forgot the gas lines and OPEC of the seventies. It is capitalism’s myopia and profit-taking for today and to hell with tommorrow philosophy that has placed us in this fix.

Yes, prices will sky-rocket for energy. The “incentives” for alternate fuel sources will definitly be there. Ah, but will the system be able to react quickly enough to preclude desperation and lunacy from collapsing economies that cannot react quickly enough to the challenge?
Will the nuclear genie, which has been sitting on mankind’s shoulder for sixty years, behave, when things start getting desperate?

As STephen says, will the alternatives be in place before the crises? I am not sanguine about the prospects—especially when we have an oil-baron administration that, for the first time, mentioned out loud several weeks ago (so everyone could hear) “We need to get off of Middle East oil!”

The opportunities for a jolt-free transition are over, I believe (and from the things I’ve been reading) and the real possibility of a democracy-ending economic shock in this country I am afraid are looming on the horizon.

There are remarkable stories of courage, teamwork and tenacity in our history—we’ve overcome much to get where we are today. But this challenge is unprescedented, along with environmental degradation that we have never faced before. This is not a national problem, this is a problem for mankind—jingoism and nationalism will hasten our demise, not prevent it. The old behaviors are too dangerous to contemplate.

Optimism, as Stephen has said, is a necessary component of any realistic change. We as a nation and a species have lost much time—I am not optimistic. And we have exactly the wrong people in the positions of power to get this ship of state turned around. And time is running out. In fact, it may have already run out.

There have always been prophets of doom in humankind’s history. And we have somehow survived. But survival is not a guarantee—and unexamined assumptions and untested theories have much greater consequences now than they have ever had before. The price of ignorance has never been higher.

Posted by: Tim Crow at May 8, 2006 1:09 AM
Comment #146131

I think it’s always a bad idea to wait until things are at the breaking point to act. Usually, they’re at the breaking point for a reason, and usually those reasons compound the issue already at hand, making it more difficult to absorb all the additional costs. Do you want to start transitioning to hybrids and other engines now, while we have the cushion of our resources, or later, when we’re running dry on other fronts as well?

The Japanese got ahead of American car companies on this one, and now they’re pushing hybrids and fuel efficient cars off the lot. They didn’t wait for the market to take a two-by-four to the back of their heads, like we Americans tend to do, especially with the Republicans in charge. No, they thought ahead, and when the market caught up to their foresight, they were ready.

The reason why I describe things as complex is that things are complex, and any successful engagement of our problems will be complex as well. However, such complex problems can be broken down into manageable goals and initiatives.

This is not a problem, though, that we by ourselves can get ourselves out of. What can get us out of this is an acknowledgment that the solutions to this problem lie outside our heads, and that we have to work at find them, by science and by design. There will be no readymade solutions, and waiting for a crisis to try and start our change with one is a bad idea. There will be trial and error, and things will be best if we have the resources to make a few errors before the technology is mature enough to replace the old internal combustion engine model.

If we fail to be the leaders on this issue, there is another consequence: the death of our economic primacy. America has stayed a great economic power for over a hundred years because we’ve been the ones who best exploited the new technologies of our time. From cheap steel to the integrated microprocessor, our success has depended on being good technologists. Should we wait for somebody else to benefit from the good ideas of science?

Posted by: Stephen Daugherty at May 8, 2006 7:35 AM
Comment #146139

Jack and Craig:

Fortunately, I had this all worked out in an earlier post responding to d.a.n., who was presuming an Equivalency between BushCo. and Clinton, Inc., much as Craig does above. Take a gander:

National Debt, by Fiscal Year:

09/30/2005 $7,932,709,661,723.50
09/30/2004 $7,379,052,696,330.32
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/28/2001 $5,807,463,412,200.06

which indicates that the National Debt has grown under The Cheney Regency as follows (and counting only four Full Fiscal Years):

10/1/05 - 4/20/2006: +$416,568,036,531 [not counted: less than seven months worth of data]

Fiscal Years
2004-2005: +$553,656,965,393
2003-2004: +$595,821,633,587
2002-2003: +$554,995,097,146
2001-2002: +$420,772,553,397

for a Total of $2,125,246,249,523 - yes, that’s Two Trillion One-Hundred Twenty-Five Billion Two-Hundred Forty-Six Million Two-Hundred Forty-Nine Thousand Five-Hundred Twenty-Three Dollars - in only Four Fiscal Years!

compared to seven Full Fiscal Clinton Years:

1999-2000: +$17,907,308,271
1998-1999: +$130,077,892,718
1997-1998: +$113,046,997,500
1996-1997: +$188,335,072,262
1995-1996: +$250,828,038,426
1994-1995: +$281,232,990,696
1993-1994: +$346,868,227,618

which total to only $1,328,296,527,491 - meaning that BushCo have run up the National Debt in Four years nearly twice as much as the Clinton Administration managed to do in Seven years!

Additionally, look at the rate of Change in the Clinton Years vs. the Bush Years: notice that, during the Clinton Years, the Rate Of Change was actually declining, the great Debt Engine of America slowing down.

Now look at the Bush Years: notice that the Rate of Change is going UP - at the Projected Current Rate, the National Debt will have gone up over $720 Billion dollars by the end of this Fiscal Year, September 30, 2006!

Clinton was paying the Debt down; Bush is making it skyrocket!

In addition to which, take a close look at these:

Look at the insane slope of the Reagan-Bush(1)-Bush(2) years! Notice that is is only ameliorated by the Clinton years. Now, take a look at this very telling graph:

Notice anything about Spending vs. Revenue under Supply-Side administrations? And look at BushBaby’s effect!

Once again, you guys haven’t a leg to stand on: the Facts simply don’t agree with your Long- Held Cherished Beliefs; your “Truthiness” is no substitute for the Truth!

But go ahead, keep on Spinning those Talking Points: your carefully-created ignorant Monkeymass of Marching Morons will likely keep doing as you tell them they should do - after all, why else have you dumbed them down with Faux “News” and kept them Scared Witless with Osamasaddam all of these years?

Posted by: Betty Burke at May 8, 2006 8:05 AM
Comment #146146


Monkeymass of Marching Morons? Now that’s insightful illiterative imagery!

As for topic, you have to remember that the Freepers think National Debt and deficit spending are good things.

PS: how do you put in images?

Posted by: Dave at May 8, 2006 8:48 AM
Comment #146149

Stephen, Excellent article and discussion.

When I took philosophy of economics, I learned many things, but, 3 of them are overriding in any discussion of economics and MUST never be forgot or abandoned in any discussion of economics.

1) Economics is the study of how finite resources are allocated amongst a population with infinite demands.

2) Economics is not a current real-time activity, but one which can only be understood and appreciated, directed and managed, when viewed with its history, present measures, and future trends and costs.

3) Macro-Economics of nations is ultimately measured by the general satisfaction of the general population regarding their own position in the economic picture AND the prospects for their children’s future.

When these 3 aides to understanding economics are born in mind, they explain a great deal that is otherwise inexplicable. For example:

Jack and Craig argue the economy is in good shape. Yet, consumer sentiment about our economy is negative. How to reconcile. Static, current real-time measures of the economy are positive as Craig and Jack argue, but, as anyone familiar with credit knows, one can appear to be wealthy on credit while actually being in debt up to one’s eyeballs. Which in turn, would make sentiment about the future economic situation very negative indeed.

When parents look at the economic prospects for their children, unless they are independently wealthy, they are concerned and with good reason.

I could go on, and on, but, I thought you did a very good job setting many of the parameters for understanding economics and thought these additions might clarify a bit.

Posted by: David R. Remer at May 8, 2006 8:59 AM
Comment #146153


Nothing responds as quick as people can to price changes. We saw that in the aftermath of Katrina and we are seeing it today.

At my office, when the gas prices went up two of my staff who used to drive started to take the train. They complained, but they took it. And a couple more people now telecommute. They all acted very quickly. Look at sales of SUVs versus hybrids. Price is a big incentive. I have even noticed changes in home prices. In the outer suburbs, home prices are falling. Closer in they are still going up.

How complicated would an incentive system need to be to accomplish all these things in such a short time?

There will be no jolt free adjustment. If that were possible we would have done it already.

We are all ignorant of most things. Fortunately, the market figures it out, since it depends not on one person having all the knowledge but on all of us making individual choices based on our piece of the knowledge pie.


Good for the Japanese. Can you buy their cars here? Have you noticed where many “Japanese” cars are built? U.S. auto production is at an all time high. It is just the big three that are down. I bought shares in Toyota last year. Any American can do that (although you would have been better off doing it sooner). Individual firms make good or bad decisions and they pay for it. GM is betting on ethanol right now. If it works out, GM will profit mightily. If not … But other firms will take up the slack.


Debt and entitlements are problems. The question is what to do about them. What do you propose to cut? If you restore the taxes to the rates we had in 2000, you still will not have enough money to fund the growing government. And the taxes will slow revenue growth, so you won’t even get that.

The point I will make again is that the future could be trouble (what do we do), but the economy is good now. It is like we are having a sunny day, but rain is predicted tomorrow. You can still predict rain, but acknowlege it is sunny today (and maybe make some hay while the sun shines)

Posted by: Jack at May 8, 2006 9:26 AM
Comment #146158

Jack, sacrificing the prosperity of our children and theirs in order to shore up good living for ourselves today is not good economic management, nor does it make solid ground for saying our economy is fine, today. Our economy does not exist just for today nor is it even predicated on today. The underpinnings of economic statistics are both historical and future looking. It is a radically erroneous perception to view the economy today as good if it that view is predicated on vast debt to create that appearance.

Perception leads to conclusions, and conclusions lead to action and action shapes the future. To hold the perception that our economy today is great is an enormous error in perception, understanding, and management.

Posted by: David R. Remer at May 8, 2006 10:14 AM
Comment #146161

The market figures out nothing. It’s an emergent effect of imperfect people making a succession of imperfect decisions based on imperfect information. The advantages of the system are in its correctability.

The market is an incomplete toolset, really, specialized in terms of what it does well. It cannot replace good old-fashioned judgment. It cannot function in the absence of reliable information. It works terribly when the agents that investors and customers depend upon have conflicts of interest, making money for themselves more than they’re earning money working on behalf of their clients and customers.

You’re looking for the market to perfect us. I’m telling you that instead, it reflects us. If we want a market that works, a market that encourages moral and ethical behavior, then we have to start with ourselves, and our own behavior.

I cited the case of the Japanese to demonstrate that. The Japanese were selling fuel efficient cars before the market shifted. They patiently laid down the track for their future progress. They did this before, in the seventies and eighties. There we had to play catch-up. Here we’re having to do it again.

I think our government’s mollycoddling of business has led to this lax attitude. I think when government intervenes on business’s behalf time and again, when the point of business becomes making money rather than earning it, its then we see business engage in this kind of chronic stupidity and shortsightedness. If we were stricter on regulations, that would become part of what shaped the market. Those who could comply the most efficiently, and maintain the other product advantages would win. If we were less willing to give out tax breaks and other things at the drop of the hat, maybe they would start cleaning up their act and thinking ahead instead of coming begging to the government to make up for their errors.

As for tax cuts, I think you underestimate the complexity of the system. I think you also ignore what happened with the tax raising of the early nineties. When people know their government is paid for, that the bill is not hanging over them, threatening inflation and high interest rates, business will be more confident. The unpaid costs of the war and everything else will not be such pessimism inspiring problems anymore.

This kind of free-money attitude is antithetical to trully free-market thinking. Excessive taxes may cause economic harm, but ourse are hardly that high, especially for an industrial country like ours. Meanwhile, though, your tax cuts are piling on debt. They aren’t free, and its unlikely that we will be able to grow out of these debts. It may cause some short term economic slowdown to see the tax cuts expire and repeal them, but the long term effects will be healthier.

Posted by: Stephen Daugherty at May 8, 2006 10:34 AM
Comment #146198

Note also that tax cuts have never paid for themselves. Ever. Truth vs. truthiness.

Posted by: Mental Wimp at May 8, 2006 12:13 PM
Comment #146203
At my office, when the gas prices went up two of my staff who used to drive started to take the train. They complained, but they took it. And a couple more people now telecommute.

But if fuel efficiency standards had been raised or alternative fuel infrastructure invested in, then they could have had the convenience of driving their own personal vehicle rather than take a bus or train and it never would have been an issue.

I don’t know why you’re so hell-bent on destroying our way of life in order to get beyond oil. It doesn’t have to be like that.

Posted by: American Pundit at May 8, 2006 12:21 PM
Comment #146205

Stephen Daugherty,
Good article.
Yes, it is complex.
You have to look deeper than current interest rates (which are rising) and inflation (which is also rising).
A few cherry-picked statistics don’t explain all the rest …

  • National Debt has never been larger. In 1950 dollars, debt now is quadruple what it was afer WWII.

  • %Debt to GDP (now over 68%, up from 33% in 1980) has never been worse since WWII.

  • Deficits have never been larger, and $200 to $400 billion annaul deficits (in 2006 dollars) are planned to continue for years.

  • The g a p between the wealthiest 1% and the rest of the U.S. population hasn’t been larger since the Great Depression of 1929.

  • Median incomes have fallen for 6 years.

  • We have energy vulnerabilities.

  • Energy costs increasing fast (looked at you fuel and electricity bill lately?).

  • Social Security is $12.8 trillion in the hole and has never been in worse shape.

  • Medicare has never been in worse shape.

  • War in Iraq and Afghanistan are not going well, and the cost is very high (lives and money).

  • Foreclosures have risen for 13 consecutive months.

  • Interest rates are increasing.

  • Inflation is increasing.

  • Foreign competition has never been greater. It’s a race to the bottom.

  • Foreign investors are starting to reduce their exposure to the falling U.S. dollar.

  • Trade deficits have never been larger.

  • Corruption in government is growing (it always is, without sufficient Transparency and Accountability to limit/reduce it), and the longer voters ignore it, the more painful reforms (if possible) will be later.

The big picture ain’t very pretty at all.

Also, massive problems in Social Security (a term that will be synonymous in 2020 with Ponzi Scheme), Medicare, PBGC, National Debt, annual deficits forecast for many years, trade deficits, printing too much money, perpetual inflation (the free money scheme … another Ponzi Scheme), wide open borders and all the problems stemming from massive, uncontrolled illegal immigration, etc., etc., etc., and the numerous growing problems facing the nation can not be considered separately. A few cherry picked statistics does not explain away all of this.

Posted by: d.a.n at May 8, 2006 12:22 PM
Comment #146212

d.a.n, right now, Social Security revenue is greater than Social Security outlays, and the date on which SS outlays are projected to exceed revenues is something like 2052 — if it happens at all. Those projections are based on worse-case scenarios and the date gets pushed back every year.

Just a little nit-pick of your otherwise interesting and gloomy assessment of our economy. Carry on.

Posted by: American Pundit at May 8, 2006 12:49 PM
Comment #146222


We need to cut the size of the Federal government and address entitlements. The President and Congress are negligent on the first one, although I don’t see many proposals by anyone else to do better. We are currently taking in enough revenue to fund a government the size of what we had in 2000. Cut it back to that and we have no worries.

The President tried to address entitlements and was ambushed by his own party and Dems. The Dems even cheered for themselves when he mentioned it during SOTU.

Some of what I am saying is just definitional and it would be more useful to see the truth. The economy is currently very good. The proper response is not to deny that the economy is good, but rather use it. Say - the economy now is very good. It probably will not get much better. THIS is the time to address entitlements etc.


The market is an incomplete tool box. We also need rule of law and reasonable regulation. What we don’t need is central planning. In fact, the things you are criticizing are government, not market failures.


I am glad to get anyone off the roads. The problem is not only gas. Congestion and traffic are the bigger headaches. I prefer they take the train or telecommute to the alternatives of building more and more roads and filling them with more and more traffic. Anyway, people have an implicit energy budget. They are willing to pay a certain amount for energy. Give them better mileage and they drive farther. That is what happened, in fact. If we only drove as many miles as we did in 1975, we would have no energy problems at all.

Posted by: Jack at May 8, 2006 1:12 PM
Comment #146240

Youre looking for the market to perfect us. Im telling you that instead, it reflects us. If we want a market that works, a market that encourages moral and ethical behavior, then we have to start with ourselves, and our own behavior.

Whoa! That’s excellent.

I think our government’s mollycoddling of business has led to this lax attitude. I think when government intervenes on business’s behalf time and again, when the point of business becomes making money rather than earning it, its then we see business engage in this kind of chronic stupidity and shortsightedness.

Which was my point about the short-sidedness of free marketism in regard to a longterm problem—oil.

I’m taking notes, professor Daugherty….

Posted by: Tim Crow at May 8, 2006 2:27 PM
Comment #146244


Jack and Craig argue the economy is in good shape. Yet, consumer sentiment about our economy is negative.

In May of 1996 the Michigan Consumer Sentiment Index stood at 89.4, today (April) it stands at 87.4. Consumer sentiment is about what it was 10 years ago at this time. There is no alarm in consumer sentiment, consumer sentiment is fine.

I think the economy should grow at about historical norms going foward, which ever party wins in the fall.


Posted by: Craig Holmes at May 8, 2006 2:37 PM
Comment #146263


Fortunately, I had this all worked out in an earlier post responding to d.a.n., who was presuming an Equivalency between BushCo. and Clinton, Inc., much as Craig does above.

You misred my comments. What I said was that the economy does well under democrats and repubicans. I used Clinton and Bush as an illustration of that fact.


Posted by: Craig Holmes at May 8, 2006 3:29 PM
Comment #146269


Jack is correct about today’s economy vs. that of 10 years ago, but I would not even call them the “Bush” or “Clinton” economies. Congress and the American people (you and I) have more to do with the economy than the President. But as the CEO as it were, they get the lion’s share of the blame or accolades. Unless it’s a Republican President during a good or great economic time. Then the media takes a “nuanced” look at the facts, and comes to the forgone conclusion that he is “eeeevil”. Kind of a Soviet show trial, which somehow seems appropriate.

Posted by: David C. at May 8, 2006 3:46 PM
Comment #146274

Betty, love the charts and graphs, very colorful! However the President or VP don’t spend a dime in our government. Congress does. If you would simply address you complaints to Congress, your charts and graphs would be as pretty, and Constitutionally correct! Congress has failed miserably to control spending, and Bush’s failing was in not using the veto pen. However the man you criticize the most, Cheney, was involved the least. So while we all admire your copy and paste skills, other than the occasional tie vote, he had virtually nothing to do with spending.

Posted by: David C. at May 8, 2006 3:53 PM
Comment #146275

Mental Wimp,

Actually tax cuts don’t pay for themselves, the bring in PROFITS. As long as Congress doesn’t go on a spending binge once they realize they have MORE money coming in. Hey, that sounds familiar somehow…

Posted by: David C. at May 8, 2006 3:56 PM
Comment #146294


You are usually pretty good on your information and context. I would have you relook at your comments on consumer sentiment. If you read the data from the university of michigan here:

you will find that consumer sentiment has a horrible record of looking forward. Actually consumer sentiment looks at the present. For instance this index reached it’s peak on June 1, 2000 (110.7) which actually was a good predictor of the coming recession. On the other hand, this same index reached a low of 51.7 on May 1, 1980, right before the eighties boom took off.

The data almost makes the exact opposite conclusion that you do. Poor consumer sentiment usually means the economy is about to rebound. High consumer sentiment means that the economy might be ready to slow. The current figure suggests that we are mucking through right now.


Posted by: Craig Holmes at May 8, 2006 4:51 PM
Comment #146402

Craig, I never made the claim or even implied that consumer sentiment was a predictor of economic future. It’s not. I made the point that consumer sentiment does not match the static economic statistics at this particular point in time.

Please read carefully what is said. The stock market is strong, the short term economic forecast is the best its been since Clinton, yet, consumer sentiment does not reflect confidence in the economy consistent with those statistics. That was my point clearly stated.

And the reason is that consumers don’t look at their current checkbook balance and debt load and purchasing power of today as their sole criteria for assessing economic confidence. They look too to how their children will fare and a host of other things that affect them where they live like job security (way down) and retirement security (way down).

The point being, the American people are far more foresightful about their situation than present day snapshot economic statistics. The American public is very uneasy about their economic future and they have a lot of evidence to support that uneasiness: rising national debt and service on that debt which will bring at best only 50 cents of quality of life back for their service tax dollar (the balance going to foriegn nations and investors), rising interest rates, rising inflation on consumer staples, rising property taxes, increased costs for education and less quality output K-12, and wage & compensation growth way below all those other increases. The perceived end of Social Security and Medicare safety nets, and the list goes on.

Posted by: David R. Remer at May 8, 2006 11:32 PM
Comment #146422
American Pundit wrote: d.a.n, right now, Social Security revenue is greater than Social Security outlays, and the date on which SS outlays are projected to exceed revenues is something like 2052 — if it happens at all. Those projections are based on worse-case scenarios and the date gets pushed back every year. Just a little nit-pick of your otherwise interesting and gloomy assessment of our economy. Carry on.

AP, guess what form the “so-called” $1.5 trillion of surpluses in Social Securty are ?
ANSWER: Government bonds.

Yep. The cash surpluses were borrowed, and replaced with worthless I.O.U.s .

Who will make good on those $1.5 trillion surplus of worthless I.O.U.s ?

The fact is, the surpluses have been getting plundered for 60 years.

Social Security is $12.8 trillion in the hole (Source: CATO Institute).
The National Debt of $8.4 trillion does not even include that debt.
The Pension Benefit Guaranty Corp. is $450 billion in the hole.
Medicare is a mess.
Personal (nation-wide debt) is about $32 trillion.
The nation is swimming in debt (about %54 trillion altogether).
Interest on the $8.4 trillion National Debt is over $1 billion per day!
Then there is an additional borrowing and printing money of over $1 billion per day.
The debt is growing by about $2.3 billion per day.

Where’s the money going to come from for that so-called $1.5 trillion surplus in Social Security?
I’ll tell you where.
They’ll print more money.
That’s their only choice now.
Get ready for double digit inflation again.
We can’t grow, tax, or immigrate enough to outrun the debt.

The federal government is fiscally and morally bankrupt.

Social Security is Pay-As-You-Go, and the surpluses are being plundered, and that is why those predictions of 2052 are a farce.
They are using the $1.5 trillion in worthless bonds in their calculations.

Like I said, it’s a ponzi scheme.

So, I don’t think it is gonna make it to 2052 .
I don’t think it will make it to 2022 .
Hell, the way things are going, it might not make it to 2012.

Posted by: d.a.n at May 9, 2006 1:22 AM
Comment #146445

Craig, David C., Etc.:

Nice try. Unfortunately, it falls short of being Convincing - let alone True.

The awesome power of the Presidency affects the nation’s Budget in *many* ways: first, the office of the President submits the Budget; second, the President controls the Veto Power; third, the President controls the National Agenda far more clolsely than the Congress does; fourth, the Executive (as is seen with the skyrocketing Debt incurred by the Iraq War) determines to a large degree what Spending will be necessary, for Pet Projects such as Elective Political Wars, Space Projects, Etc.; fifth, the Executive also puts forth many programmes by Administrative Fiat, working around the Congress, if not through it, as in the cases outlined Above.

It’s just silly of you to claim that Presidents have No Impact on an Economy, when their Agenda, Actions, and Inactions so clearly DO.

Posted by: Betty Burke at May 9, 2006 7:16 AM
Comment #146514


The American public is very uneasy about their economic future and they have a lot of evidence to support that uneasiness:

You used the term “consumer sentiment” which can be measured. Consumer sentiment is about where it was in 1996. Consumer sentiment is fine.


Posted by: Craig Holmes at May 9, 2006 12:37 PM
Comment #146516


It’s just silly of you to claim that Presidents have No Impact on an Economy, when their Agenda, Actions, and Inactions so clearly DO.
I have never claimed Presidents have no impact on the economy.

What I claim is:

1. Neither party shows a significant advantage in economics.

2. The economy should grow at historical norms going forward. ie. there will be recessions etc, but economic growth in the future should look a lot like the past. Doomsday is not coming.

3. This will happen no matter who is elected in 2006 and 2008.


Posted by: Craig Holmes at May 9, 2006 12:41 PM
Comment #146525


yet, consumer sentiment does not reflect confidence in the economy consistent with those statistics. That was my point clearly stated.

I think consumer sentiment has it about right. For consumers to “feel” better than in 1992 about the same as in 1996, but not as good as 1999 makes great sense to me.

Back to my belief that the economy is “fine” in that it is achieving historical norms. I think the economy is in a nice band of sustainable growth, which could last for a number of years. (more than two less than five).


Posted by: Craig Holmes at May 9, 2006 1:03 PM
Comment #146604


wow. Even all that back and forth on the red-side blog you still want o adhere to the up-fron numbers without considereing what is behind them? The indices are flat. You must consider them in context. The context is debt, spending. growth and what is going on in the world. If all you do is look at the numbers from one ten period and then compare to another ten period…you will have learned nothing. You must consider what was going on to drive those numbers and then figure out what forces are currently acting on the market and are going to act on the market in the future. Without that, you’re just spitting in the wind.


Posted by: RGF at May 9, 2006 5:36 PM
Comment #146718

Government mistakes, but mistakes you’re neck deep in as a Republican.

You see, I don’t like government screw-ups or attempts to manipulate market prices. Difference is, that’s not all I think is possible from them. I think that’s part of how the Republicans have managed to sink so low in their governance. They don’t expect any better, and in a way, they don’t want it. That would prove that big government works, which they want to get everybody off.

Trouble is, we’ve got big government in many areas for good reason, due to the complexity of the issues and the shear scale of our nation. In both population and area, we’re one of the largest nations out there. We have tens of thousands of cities and towns, thousands upon thousands of miles of roadway, an airspace through which thousands of aircraft dance the air traffic control boogaloo. As much as people want this country to be simple and want this government to be small, it matters little. We are what we are.

I do want cheaper and smaller agencies if I can help it, but not at the expense of them doing their job. If we decide we’re going to do disaster mediation, we’re not going to do it half-assed. It shouldn’t matter how enthusiastic or unenthusiastic we are about an agency. We run that agency well, with a sense of duty.

Ah but for what reward, what incentive? Here’s another complaint I got concerning the GOP. Does everybody have to bribed into doing the right thing? If we’re all agreed pollution is bad, instead of coming up with some byzantine scheme of pollution credits, why don’t we just tell these people not to pollute, and leave the market mollycoddling out of it? Government should govern.

Posted by: Stephen Daugherty at May 9, 2006 11:42 PM
Comment #146728

“It shouldn’t matter how enthusiastic or unenthusiastic we are about an agency. We run that agency well, with a sense of duty.”

And there in lies the reason why neocon policy regarding Katrina and it’s aftermath is criminal negligence. The underfunding and cronyism that sank FEMA, an agency that under Clinton had been raised to a professional standard second to none in the government, was political policy. The results are clear to see.

If there is any Congressional inquiries next January from a possible Dem takeover of the House, I think they ought to start with the Katrina fiasco, and the ongoing looting by unethical companies doing ‘business’ with the government.

Posted by: Tim Crow at May 10, 2006 12:13 AM
Comment #281135

Hi, I just stumbled upon this post. You’re a modern day prophet- you totally called out why our economy was a bad idea while everyone else was still riding the good-times wave. Bravo.

Posted by: Sara at April 30, 2009 8:28 AM
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