More Than a Feeling

The idea that the economic situation is not as bad as people make it out to be is about as absurd as the idea that Robert Pattinson is only going out with Kristen Stewart to promote their movie.  Would you date her if you were him?  Hell no, why not pull a DiCaprio and score a Blake Lively or something?  My point being that looks can be deceiving.  I’m sure that Kristen Stewart is real nice and all, but like the “jobless recovery” some things need to be more than they appear to be on the outside for things to make sense.  After all, does this look like a happy couple to you?

She looks pissed and I don’t think it’s just because of the sexting thing.  She looks like she wants to jump overboard.  Finally, something economists and Blake Lively have in common!

As Matt Yglesias points out:

“We should be constantly asking yourself “could we make real output grow faster by boosting demand, or are we facing some binding supply constraints that mean efforts to boost demand will just lead to inflation?” This is an important question because if we could boost real output by boosting aggregate demand, then our failure to do so means we’re leaving money on the table. It means that unemployment is higher than it needs to be, and also that economy-wide production of goods and services is lower than it needs to be.”

These are important issues and questions because the answers to these issues and questions leads us to the topic of why we’re in the bind that we’re in.  Is it a global problem?  Are there places that are growing in spite of the global recession?  Can we grow our market so that we can compete with the economies that are growing?  Fortunately for us, I think the answer to all those questions is an unequivocal ‘yes.’  The reason I say “fortunately for us” is because that means we’re not in this thing alone.  The downside of that observation is, of course, the fact that we’re all in this together and that means that our economies are linked in more ways than anyone would like to admit.

There are a few bright spots in all of this seemingly bad news.  The United States currently enjoys strong demand for goods and our economy hasn’t completely collapsed.  That being said, those good things come with caveats that aren’t all that reassuring.  We enjoy strong demand for goods and services because we pay so little in exchange for those goods and services.  This means that we have a really, really high trade deficit and that we’re not bringing in nearly as much as we could be if we did something smart like, I don’t know, raise tariffs and overseas taxes so that the output of other, developing countries matched the output of the most developed nation in the history of the world.  That would make sense, wouldn’t it?

The problem with this is that we have such a dependency on corporations and foreign manufacturing that it’s a sad affair to even look at.  If you raised taxes or tariffs, you’d see a spike in demand, but inflation would go through the roof as well.  Such an observation deserves a well, thought out explanation, so let me attempt to provide one.  Let’s say you produce iPads or better yet, iPad 2’s.  It costs you about $20 to make the product and you spend about five bucks for the labor.  Shipping, handling, and other various costs later and you’re selling the product for $500.  Does that seem fair?  Probably not.  But, you’re not producing this wonderfully hot item, so you don’t have the heavy demand that corporations have for their products.  So, imagine you do have that heavy demand.  Now imagine that you have to keep market prices the same, even though it’s going to cost you more to produce that product.  Would you keep output the same if your costs just increased?  Doubtful.  You’d probably pass on the cost to the consumer.  That’s what every smart business would do, right?  Not so much.

The problem that you’re not taking into account is market elasticity.  As an economy expands in one area, it collapses in another.  When the tech sector booms (as it did in the ’90’s) it’s offset by losses somewhere else.  So, while it may seem like a good idea to raise revenues right now, it’s actually a very delicate balance and it’s one of those situations where if you get it wrong, you’ve basically just screwed over the world economy.  No one wants to be in that position, especially if you’re running for re-election next year.  So, what do we do about all these problems if we can’t either increase production, increase demand, or increase the range of products that we offer the marketplace?  The short answer: not a whole lot.  Welcome to the world of the Obama administration.  A world in which you’ve tried everything you can think of, but nothing seems to work.  It’ll be great if you can just ride out the storm, but who knows what tomorrow might bring?  It could be a looming vote on whether to raise the debt ceiling, it could be a jobs report that looks terrible, it could be another foreign policy “challenge.”  We just don’t know.

It is for these reasons that it becomes so politically advantageous to attack spending and the deficit.  There’s literally no downside, even if you don’t get anything that you want.  All you have to do is keep screaming “the sky is falling, the sky is falling” and so long as things don’t drastically improve, your position looks better and better.  The problem with this is, of course, when things do drastically rebound (and they will, eventually.)  Having invested solely in a “Chicken Little” scenario, there is little to be gained by the independent voter in voting for you in the future.  After all, the powers at be solved the problem, not you.  The only thing they’ll remember about you is that, while other people were trying to fix the problem, you couldn’t shut up about how big of a problem everything is.

The problem with having a purely reactionary government is that eventually something will happen that you aren’t prepared for and can do little to guard against.  The credit crisis, the housing market collapse, the automaker bailout, 9/11, etc.  The list is so inextricably long that there isn’t enough room for me to describe it.  So, what are we to do about it?  Well, we can keep complaining, but think about all the people who spend their lives complaining and ask yourself: ‘do things ever get better for them?’  Better question: ‘do things in their life ever improve because of action that they, themselves took?”  It’s doubtful.  People who talk about problems need to have solutions, there is no more room in the world for philosophers, which is why people like Mitt Romney, Sarah Palin, Newt Gingrich and the like are such a joke.  They have no real world solutions to our problems, just a broken record about how big our problems are.  If you don’t have a solution for the problem we’re now facing, how can we trust you to come up with a solution for the problems we haven’t seen yet?  That’s a question I’d like to hear some of those “serious” GOP candidates for President answer.  Heck, that’s a question I’d like members of Congress to answer.  But, I’m not going to hold out for a response.  That would be irrational.

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