Sour economy

So the Obama administration misread the economy.

The good news is this implies administration officials can at least “read” the economy, unlike the trillion-dollar stimulus bill that was unread but passed, with help from our Reps. Dennis Moore and Emanuel Cleaver. The bad news is that after campaigning nonstop against the Bush administration with themes such as “worst economy since the Great Depression” and “reckless deficit spending leading to ruin,” the new administration is surprised that the economy is worse than previously thought.

I hope the proposal of raising energy taxes on top of rising gas prices is better reasoned than the campaign rhetoric, but pardon me if I am skeptical.

Perhaps this administration should consider taking an oath similar to what our doctors do prior to treating illnesses: First do no harm.

Steven Fetter

Overland Park

Comments

[JoCo]

pmcw, See! I know you have vast business acumen. But ,still, and I'll get back to you on your Q's as time allows, that's the main difference I SAW in Econ and Bus. Adm. Econ is integrally and unfailingly tied through all levels of curricula, to human strengths, weaknesses as well as those of nature. You may be a good predictor because of your long experience. If all is so clear-cut in business, then why the natural cycle and lengthy list of winners AND losers in the daily markets, many and the most severest completely unpredicted? Philosopher kings never caught on and, though it might seem worthy, neither has businessmen-presidencies.

C'mon now, GWB was a strong C at best and not a good example IMO.

And "ceteris paribus" is emphasized early on because it is indispenseable throughout the studies, not because it's elementary. Even with advanced statistical applications in all of the scientific disciplines, multiple variables are functionally broken into dependent and independent,just like production and consumption vis-a-vis GNP. And ,in that vein, what is your view, in the Keynesian macro model as to the efficacy of government spending as a plus or minus on top of consumption and investment? Whatever your take, I'll bet you can't make it without certain variables being held constant or a possibly valid precondition of socio-economic-political supposition. All in all, though, I still subscribe to the need for more unfettered pragmatism in the formation of public policy and cannot, without my own human bias, pretend to know the answers.

Thanks MUCH for taking the time to search your mind and express your knowledge, and reading mine to point out faults. I intend to use it in the place of blinders and that's a GOOD start!

[pmcw]

JoCo, You are absolutely right. In Econ101 they do teach lessons using the assumption "all else equal." In Physics 101 they teach lessons using the caveat, "in a vacuum" for precisely the same reason; students need to learn to walk before they can run.

In physics there is a whole real world of variables one must consider when running useful calculations, but one must learn the basic rules before learning how to apply the myriad of variables. In the vast world of economics that exists beyond 101 there is an equally large world of variables used to calculate risk adjusted returns.

Just like there is no perfect vacuum, there is no perfect free market; a point that, if I remember right, was also covered in Econ101. When making adjustments to account for market imperfections there are those we can recognize and handicap (possibly leverage) with reasonable accuracy and those we don't know about; the latter are much more dangerous and, if the stack of them is high enough, people simply don't make the investment.

The primary problem today is not tied to the current rules of play, the problem today is we don't know what the rules will be during the investment horizon (the time during which we hope to reap return on the investment). As a result, capital is in hiding and that means what economists call "the velocity of money" has slowed.

Keeping it simple, GDP equals money supply times the velocity of money. When you inject uncertainty into an economy, velocity slows and, in this case, so much so that even the huge injections of money supply we've seen at the Fed and into our banking system have not been able to budge it much. If it weren't for Asian stimulus plans driving our tech and tech services exports through the roof, we would be in a deep pile of Peolsi.

Here's a question for you: Do you know precisely why the rally we saw in the stock markets started when it did in March? I do and I predicted it.

There are some things in economics that are highly predictable. The "uncertainty factor," the "tax factor" and the "policy factor" are among the most predictable.

Here's another predictable point for you. The domestic economy supply channel has finally gotten real close to wringing out the excess inventory. As this happens we'll see momentum build in job recalls and prices stabilize. We've already seen used car prices stabilize as measured in the Manheim index.

The point here is we are nearing an intersection where production will perk back up to consumption level (it trailed as inventory was digested) and there is a real desire to invest. IF our Senate saw its way to shelve cap and trade (ACES as its called), we would see a very convenient convergence of circumstances lead to a nice upward trend in economic activity.

We have real systemic problems in the health care field. I don't know what role government should play there, but it is a system in desperate need of attention. If we could back away from the preconceived notion that the only answer is one that can be performed by the government and dedicate more time to root cause discovery and, from there, evaluate all alternatives, it would be a huge step in the right direction.

[JoCo]

JoJack is talking to himself again.lol
JoJack is talking to himself again.lol
JoJack is talking to himself again lol.

There, now, argue with THOSE facts.

[JoCo]

And THAT is why, my friend, ECONOMISTS are DISMAL. They all reach that conclusion by studying human nature constantly side-by-side with economics.

Early on in classical economics the Latin term "ceteris paribus" became the standard disclaimer to all theory. "All other things being equal." It espoused the dismal realization of dismally imperfectworld and human nature.

[JoCo]

One concensus that economists stress in 101 is that there is and never has or will be unadulterated free market. If you've read my side of our conversation, and I know you have, you've been preparing an answer.

So cite your example of "free market" operation in American history. Again I say: Free market economy is a noble END of mankind and efforts to that goal are, as well. But the MEANS we've seen have never proceeded unfettered. Not even close. If you can say that the market has lived a free life in America since our founding,then you can also say that politics has been perfect through that history as well, because they ARE insparable.

[JoCo]

pmcw,

Don't tell me you BELIEVE government is a "short story" and has just now begun to pick winners and losers? I thought the market now was uncertain. Winners and losers have long been the predicted outcome of our purchased government. They are the donors of the winning or losing sides.

When I was working the "best" years of my life during Clinton, I ran across a young apprentice who stood to get very well. He only bemoaned that his dad had suffered immensely under Clinton because he was an employee of Allied Signal. That closed my smug mouth as I pondered that REALITY. Of course, as we cannot deny, for better, worse or either, those industries have been picked this millenium and that is really what American politics has been about for over 100 years.

This is the system you so eloquently rail against and is hardly newborn.

[JoCo]

pmcw,

You describe the uncertainty of economic prediction and some of the reasons why, then you attribute market viability to certainty. I know you have a world of experience in business, but that doesn't change the consesus that uncertainty is always around the corner, much like good times.

What, then, IYO is the source of our current uncertainty? Did GWB preside over a perfect free market and leave the office with the economy unscathed?

[Wild Man]

“The short story is we are doing worse than we would have if Washington had done the one and only thing they do well - nothing.
http://www.istockanalyst.com/images/articles/stimulus-vs-unemployment-may-corrected.gif2009642442.jpg” – pmcw

Look at the graphs and what you see is a continuation of a line that began under the Bush administration. What was misread in the economy was the extent of the problem created under the Bush administration.

The stimulus package was not designed to be a quick fix. We are four months into a two year plan. The first part of the plan was designed to stop the hemorrhaging. If you take a look at the numbers, during the last quarter of the Bush administration jobs were being lost at a rate of 700,000 per month. The numbers that were not shown on the graph was that the rate of unemployment was halved in June. It is way too early to evaluate success or failure.

Economists are split on whether another stimulus package is needed. You have to remember though that if another package is passed it will be a third stimulus plan. The alarms of pending disaster were originally sounded by the Bush administration. The stimulus plan that was passed during the last quarter of the Bush administration was supposed to buy up toxic assets in order to free up the credit markets. If you remember, it was used instead to shore up the books of AIG and other major investment firms. That plan was so poorly mismanaged that the credit markets remained locked.

There are signs that the economy is starting to turn. As I said before, the rate of unemployment is slowing, and the rate of exported goods has increased. Consumer confidence measured by consumer spending which had been falling has flattened.

The right wants to declare the program as a failure now in order to strengthen the Republican agenda. It is still to early to measure the success or failure.

[pmcw]

Economics is called the "dismal science" for a reason - if you lined all the economists in the world end to end, you still wouldn't reach a consensus.

However, there are some generally accepted theories that are overwhelmingly supported by empirical data. One is that "the market" hates uncertainty.

What we have today is a huge case of uncertainty. We don't know how the litany of unfunded mandates being proposed will be funded. We also have no idea how proposals for the outrageous cap and trade policy will weigh on various industry sectors - read the bill and you still won't know because it leaves it wide open for interpretation and adjustments without due process.

The list goes on and on and on...

The short story is government has made it clear that, in the name of "fairness," it will now pick winners and losers rather than allow free market forces to do their job. In this atmosphere even those who can raise capital are reluctant to invest. These facts are all predictable and explain why rather than stimulating the economy, the policies foisted upon us by Washington have literally slowed what would have been a very normal cyclical recovery process.

The short story is we are doing worse than we would have if Washington had done the one and only thing they do well - nothing.

http://www.istockanalyst.com/images/articles/stimulus-vs-unemployment-may-corrected.gif2009642442.jpg

[Rosco]

I think the intent of the letter was to piont out that Congress should at least read bills prior to signing. And that the administration may not have a clue about the economy. And that our current spending is indeed reckless.

[Kee]

Eww you pissed off the Gayhawk Steve! I bet he is so mad he is just, why I bet, he is stomping his foot!

Tell you what Gayhawk the Conservatives have not cost the American people $1.6 Trillion and counting! They have not overseen 10% unempmloyment like your Yomama has. I bet you are ecstatic in the second term of the Carter administration, aren't you?

God help this country to survive until 2012.

[JayhawkinMO]

So Fetter thinks Moore and Cleaver should vote with the conservative Reep minority? What a piece of convoluted clap trap!

[JoCo]

Bulletin Bulletin Bulletin (hope this works):

EVERYBODY misreads the economy. It's not actually textual and the historical and literary references used to gaze the crystal today offer such varied interpretations as to make prediction a lottery-pick endeavor. Might as well read tea leaves.