Economy 101

Once upon a time we made our own tools.  With these tools we made the things we needed: our house, our barn, our clothes, our food.  We made things to sell and trade and use.
Then someone told us that they could make the tools we need faster and more cheaply than we could do it ourselves.  We could purchase these tools for a small price and have more time to make things we need and things we sell.
Then someone told us that they could make the things we need faster and more cheaply than we could do it ourselves.  We could purchase these things for a small price and have more time to do other things.  Since we had become quite accustomed to letting others do what we can do on our own and accustomed to paying them to do it for us, we found this new offer easier to accept.
Now we had the task of selling and trading things that others made.  This was more necessary because we had to have money to buy what we needed since we no longer made these things ourselves.
What surprise to learn that our neighbor was facing the same problem, and a great many other people as well.  So much competition meant that no one person could sell or trade enough to support their necessities.  They looked for solutions and discovered that the people who sold us our tools and clothing and food needed people to make them for them.  They were willing to pay money for this labor.
So millions of us went to work  making tools for others that we used to make for ourselves.
Over time we learned to accept corporate structure as the legitimate source of societal fulfillment.
Personal survival skills were devalued and replaced by the acquisition of money or extravagance or power. 
What one could do was less valuable than what one could buy. 
We also learned that certain words that once seemed important, words such as civics, family, community, self-reliance, thrift, ethics, etc. had been overtaken by other words:  consumer, jobs, economy, jobs, bargain, jobs, career, jobs, education, jobs, diploma, jobs, power, jobs, credit, jobs, etc.
I wrote the thoughts above after reading the following piece  by the American writer Guy Davenport:

"Take back your body from its possession by the automobile;  take back your imagination from the TV set;  take back your wealth from Congress's bottomless pit and maniac spending;  take back your skills as home makers from the manufacturers;  take back your minds from the arguments from necessity and the merchants of fear and prejudice.  Take back peace from perpetual war.  Take back your lives;  they are yours."
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Capitalism isn't working

The online firm Scottrade polled 226 registered investment advisors for their opinion on the amount of retirement money people will need to live at the level of comfort they are used to enjoying.
71% of them stated that one million dollars will not be enough.  People between the ages of 25 to 42 will require 2 to 3 million dollars for a comfortable retirement.  You young'uns better get hoppin'. 


Shortly after Katrina destroyed much of the Gulf Coast economy, the Governor of Mississippi was quoted as saying the first thing to do was get the casinos in Biloxi operating because "Casinos are the life blood of the state of Mississippi".  Wow, I wonder what Adam Smith would say about that!


Writing about a particular firm in the New York Times on April21, 2007, Brad Stone stated "revenues will inevitably flatten as the company matures.  If it wants to keep treating investors to torrid growth, the company needs to develop other ways to make money."  Again, what would Adam Smith say about that?


The Adult Entertainment Industry says there is room for pornography in the economy because "a market for porn exists".  The impramatur of the market is greater than the infalliblity of the Pope.

More news on gambling.  (Proponents call it 'gaming'.  Isn't that cute?)  The state of Florida is considering changing Florida into a state with full  casino gambling.  There are casinos in Florida now, mostly run by the Seminole Indians.  It is proposed to start with twenty-six counties and proponents claim the state could get S2.5 billion in first four years from license auctions and taxes.
Of course, this is being considered because the government is running a deficit and can't meet its obligations.  Legislators refuse to tax people because people who earn their money should keep it.  Except of course, they should remember to spend their money on slot machines and card games.  Then the state can tax the profits of the casino.  That's okay.
Not enough to fund education and schools with lotteries.  We must fund police, firemen, libraries, highway construction, etc. with gambling profits.
These are ideas from the 'family values people'.  What hypocrisy.  What cowardice.
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Damn the automobile

There are several examples  of how this economy is organized and managed that earn the adjective stupid.
Let me cite one (because it is one of the most important): the automobile, the pollution-dispensing, oil-consuming money pit that we must have in order to live in this economy.  Almost everyone must use a car to obtain whatever they need (food, clothing, education, medical care, etc.) and to do what they must do (work, play, visit, etc.). 
Why is this so?  Possibly General Motors and the Government felt it would be mutually beneficial and good for the postwar economy to build an interstate highway system.  Of course, it was presented as necessary for National Defense.   (Let's not forget that Ike's Secretary of Defense was "Engine" Charlie Wilson, former CEO of GM.)
If that sounds too conspiratorial for your taste, perhaps it was the working of "the unseen hand", that magical invisible property that moves the free market system described by Adam Smith in The Wealth of Nations.
Conspiracy or magic?  Take your choice.

This massive concrete highway system destroyed the thousands of linked, self sufficient, full-service communities that made up the United States before 1950.  It wasn't long before families knew they needed more than one car.  Indeed, it wasn't long before they found that two cars weren't enough. After all, Father is working 50 miles away in an easterly direction. Mother is working twenty miles away in a northerly direction. Oldest son is working 35 miles away in a southerly direction. And all the stores have been moved out of town to a mall ten miles in a westerly direction.
Compounding the problem was the disappearance of a reliable extensive system of public transportation. Slowly but surely, railroad tracks disappeared, bus routes were curtailed, trolleys disappeared in nearly all cities that had them.
And thus did a freedom-loving America become dependent on the automobile.
But that isn't what we were told.  No, we were all having "a love affair with our car".  We were advised to "see the USA in our Chevrolet".  Americans, it was said,  looo-oved their car.
And today, my fellow Americans, when you are in one of those 14 lanes of backed-up traffic on the interstate at 6:00PM, moving at 15-20 mph,  looking out over what James Kunstler sharply calls "automobile slums",  praying there won't be a breakdown or accident, consider what we have done to ourselves.  Are you still in love with your car?  Are you seeing the USA?  Is she beautiful and exciting?  Not from where I'm sitting.

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Corporate Overreach

The pricing of automobile repair is established by coded standards based on units of time. The labor costs based on these units of time are in excess of the actual time required. The system rounds upward the unit of time, usually in 15 minute increments. A 5 minute task will be charged 15 minutes. A 35 minute task will be charged 45 minutes. These charges start with a base labor cost of 60 minutes, due, I suppose, for the work required to start the process. Some call it a ‘hedge factor’ to offset possible losses in the estimate.



Added to these labor costs is the material cost of parts which is fixed at a straight 100% mark-up.


When the repairs are finished and billed, the customer finds at the bottom of the invoice, as a percentage of the subtotal for material and labor, a figure for ‘Shop Costs’, ie, rags, hand cleaner, paper floor mats, etc. This add-on percentage will run from 10% to 25% of the subtotal for material and labor.


I submit that the policy of coded pricing is a form of price control. I further submit that the Shop Cost add-on is passing the cost of normal overhead on to the customer. This is not free market capitalism. It is despotic capitalism and works only for the benefit of the corporate state.
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Debt and the Economy

"For decades we have piled deficit on deficit, mortgaging our future and our children's future for the temporary convenience of the present. To continue the long trend is to guarantee tremendous social, cultural, political and economic upheavals."


That was from Ronald Reagan on his first day as President of the USA.


We know that when President Reagan left office, the US had the largest deficit ever achieved in its history, had been changed from the biggest creditor nation in the world to the biggest debtor nation in the world, and the middle class had shrunk to the point where it was smaller than the poor and rich classes combined, first time ever..


All successive Presidents have done as badly or, in the case of Obama, worse, apparently in emulation of Reagan.


Yet all Presidents campaign against debt and deficit, and malign those who cause it. Are they lying? Are they hypocritical? Perhaps. But I think it is something else. What that may be I don't know. But  if we don't start asking questions we'll never find out.
There are some things I have learned from this latest financial meltdown that I didn't know before. The most surprising of these was to learn how important credit is to the daily operation of our nation's businesses.
Apparently most corporations, large and small, depend on ready lines of credit for the payment of salaries, overhead, and purchases on a weekly or monthly basis. To express this same fact differently, these businesses do not have a 90-day or even a 60-day cushion of capital as an element of their business model. Who knew?
Most individuals cannot survive without the credit offered by the credit card. Trillions of dollars of consumer household debt attests to that.
This is probably due to the not-talked-about-enough fact that real earnings have not kept up with inflation.
SO, let's sum up:
The Government needs debt in order to keep the economy strong.
Corporations need debt in order to survive and grow.
Individuals need debt in order to survive.
SO - why is debt a dirty word?
Why don't we admit we can't live without it and stop all this phony denunciation of it?
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Capitalism is failing

..or perhaps I should say it is failing us as a people. This is because  there is no moral component in the American capitalist system.  Corporations do not get involved with community or social life as there is no money in it.
Insurance companies  refuse to insure people who need medical care from the get-go. They  drop people who are too sick to insure any longer. Profit and the concerns of the stockholder are the only standards for their policies, not the health and well-being of fellow citizens.
Manufacturers have shipped their factories overseas. This left many communities devastated and jobless. This weakens our society and removes a solid base from the national economy.
Mergers and acquisitions have decimated many good American companies. American capitalists intentionally buy good firms, some with famous names, and proceed to strip them of their assets and sell what is left. Millions of dollars are made this way. It is legal, but it is anti-social and hurts the nation.
This blind loyalty to the profit goal and the shareholder is what concerns me about the privatizing of military activities. There are thousands of private contractors performing a variety of support and logistics for our men and women in uniform. I believe these contractors have no serious interest in winning, or ending war quickly. Why should they? No one wants to work themselves out of a job, especially one that pays so well.

The 'Science' of Economics

From U. S. News of April 30, 2010:


"...economists think many of the 8.4 million jobs lost during the recession are gone for good.
"There's a global paradigm shift going on", said Mohammed El-Arian, CEO of the huge investment firm PIMCO, at a recent conference in Los Angeles.  "There's always a recognition lag.  People hold onto the old paradigm until the evidence of a new paradigm is overwhelming."


So, we, the people, are supposed to understand that the financial meltdown was the result of some inexorable tectonic forces deep in the substructure of economics.  And it's our fault if we can't let it go and catch up with the latest ideas in chaos theory. 

What pompous puffery!   "Paradigm shift' is a fancy euphemism for system failure.
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Quotation

"Back in 1964, I had a mortgage payment of $51, and I made $200 a week.  Four mortgage payments there.  What I make today will not hold four mortgage payments."

Finley, the barber
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More on the Economy

Yesterday I finished reading an article by an economist wherein he stated that the consumer represents 70% of the nation's economy, that without the consumer spending again the recovery will never happen.
Normally when one hears this bromide repeated again and again one comes to believe it is the truth. 
I am a little odd, I guess, because I ask myself what makes the other 30% and why don't they do more?
So I visited the internet in search of what constitutes percentages of the economy or the Gross Domestic Product (GDP).
There are three important sides to the GDP figure.  They are:
household  which is called consumption
government which is called public expenditure
business expenditure which is called investment
Sure enough, as of September 2009, the consumer represents 71% of the GDP.  (Here, I digress, because this is what I don't understand.  If the recovery isn't happening, why are consumers spending at a higher rate than last year?  Because everyone agrees that is what the figures show.)
To continue, the consumer represents 71%,  government spending (or public expenditure) represents 41%, and Investment represents 15%.  Call me stupid, but don't those percentages add up to 127%?
There is something wrong somewhere.  This economy is sick and getting sicker and I don't read or hear anyone who seems to know what will happen next, or what to do about it.
And they call Economics a science?  And they give Nobel prizes for it?  Puh-leeze!
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Social Security Takes A Hit for The Economy

CBS News reported tonight that Social Security recipients will not receive an increase in their benefits this year, the first time ever.  CBS also reported that the COLA increase given last year was a record 5.8%.
I knew that the statements were incorrect, as proven by this chart.
Why can't CBS do a better job of fact checking?

The reason given for no COLA increase this year is due to the steep fall in the price of oil compared to last year.  Oil (or energy) must play a HUGE part in the calculations for the COLA because everything else we buy increased in price.
I note also, after studying the chart in the link above, that three changes have been made to the time of year that the calculations are used.  The chart shows a sharp decline in the COLA increase since those changes.  I'm certain these changes were not made for the benefit of Social Security recipients.

3/50 Project and Other Good Ideas

The overpaid deadheads who run the banking system, the Treasury and the Federal Reserve may be trying to restore their credibility but some others who live and work at the lower level are finding new ways to recover their autonomy and their wealth.
One clever idea has been conceived by Cinda Baxter.  She calls it the 3/50 Project.  It is an initiative that encourages consumers to commit to spending fifty dollars a month at three independent local stores ($50 total, not $50 per store).  She is not asking shoppers to stop shopping at chain stores or malls but to balance their spending in ways that maintain the community.  The best approach is to choose three local stores that you would miss if they closed and commit to spending $50 a month between those three businesses.  Click on the link and read more.


Another clever approach is the deal struck between Kohl's, the department store, and the Hospice of Palm Beach County Resale Shop.  Vans from the Resale Shop appear in the parking lot at Kohl's on a designated Saturday.  Peolpe who donate clean, gently used clothing, furniture, accessories, books, etc. are given discounts of 15% & 20% on purchases at Kohl's.


Another innovative idea is to use a credit card for purchases only every other month.  Or, to put it differently, to use your credit card for purchases six months a year only.  Use cash or debit card in the other six months.  If even one third of the population did this, it would send a message to the banks that might freeze more than their assets.

More on the "Science" of Economics.

During the last Presidential campaign, the nation was treated to one of those so-called stimulating debates that the so-called conservative right is famous for, namely, "the redistribution of wealth".
That sterotypical American, 'Joe The Plumber", with the overt assistance of the teat-sucking media, reminded us all how much we hate the concept of distributing the wealth of America because of its ugly dirty association with that well-known European evil called SOCIALISM.
As often happens in moments like these, I find myself asking questions of myself that no one else seems to ask.  Here are some:  isn't all our wealth redistributed one way or another?  And isn't the redistribution of America's wealth controlled by the corporations and the government working together?   Isn't the trickle-down theory a form of wealth redistribution?
Isn't wealth redistributed daily in the form of setting prices, wages, salaries, bonuses, and, yes, Golden Parachutes?
When CEO's move our factories overseas, aren't they redistributing America's wealth, and yours , and mine?
So, we are not really talking about Socialism here, are we?  No, we are talking about keeping the redistribution of wealth in the same hands where it has been since the birth of the Nixon Administration.
So, how well is it going?  Here's one answer.  
In the 1960's, it was still possible to say that a hard-working enterprising young person could 'work his or her way through college'.  That was a famous American story, revered and justly so.  But it is long gone now.
Today, graduates begin life with an onerous debt.  This is the new American story.  This is the New Capitalism at work.  Or is it the New World Order?
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More on debt and the economy

Yesterday Federal Reserve chairman Ben Bernanke warned Congress that it must do something about the projected debt the nation faces from enlarged use of entitlement programs such as Social Security and Medicare. Again, we heard the same warning about the danger to the economic strength of the US from this projected but probable debt.
Bernanke did not apologise for his role in creating almost two trillion dollars worth of debt taken on to fight a danger to the economy, i.e., bank losses. He still thinks that was the right thing to do.
There is something circular and deceitful about his reasoning.
People like Bernanke never speak about raising taxes as a way to raise revenue.
People like Bernanke never speak about the year in and year out raid on the Social Security Trust Fund by every President starting with and since Lyndon Johnson.
I am still waiting for an economist to produce a paper study that would show how little of a debt threat Social Security might be today if the Trust Fund had never been used for as a subsidy for the General Fund.
But that won't happen. Why? Because it would reveal the true size of our Federal deficit. It would reveal that all our Presidents, regardless of party, have not been honest with the people.

About The Economy (Part 1)

My dictionary defines Economics as a science. I disagree.
I believe it is a branch of philosophy concerned with the use of money in a socio-political context.
Economists speak of 'tinkering', 'tweaking', 'waffling', 'manipulating', 'planning', and more.
Markets are bullish or bearish.
Formulae and equations abound, kicked about by ratios and graphs.
People 'lose confidence', or 'panic' or 'pull back to wait to see what the Fed will do'. Those are not scientific terms.
There are no laws of economics that everyone agrees are applicable throughout every economy in the world. Even the sacred bromide called The Law of Supply and Demand has been shown to fail too often to be considered a hard law or principle.
No, the realm of Economics is more like an elaborate belief system than a science. There are factions and various schools of thought. Some economic philosophers have reached the status of Saint while others are seen as doing the work of the Devil.
Frankly, when it comes to the use and misuse of money, any person's opinion is as good as another.
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