Econ 1

Posted in Politics and Justice by EloiSVM42 on February 23, 2018

There are two ways to view our economy: with a macro-view, the aggregation of all economic activity from every source; and a micro-view, the economic activity that affects one person or family directly. The macro-economy is of interest to very rich people, large corporations and academics. The personal economy is of interest to actual people.

The macro-view is more complicated, with the result there are many differing opinions about it from equally qualified academics. George Bernard Shaw said famously that, “If all the economists in the world were laid end to end, they would not reach a conclusion.” That’s why Economics is called The Dismal Science.

The personal view is more basic. It concerns whether a family has enough money to pay its bills this month, and the factors affecting its being able to do so the next.

Rule One of economics for the micro-view is a political one. The president gets the credit, or the blame, for whatever happens during his term in office, whether he had anything to do with what happens or not. It’s too simplistic, but it is the only way we can keep count. (I told you it is a dismal science.)

This rule is why President Trump is taking credit for the relatively good economic performance now, which is in fact running at about the same rate than when President Obama’s term ended and Trump’s began. Obama, not Trump, got this economy rolling again, but Trump gets to take the bows today.

(President Trump tried to take credit for their having been no commercial aircraft fatalities over the last year. This is not quite the same thing, Donald. Your influence was meaningless. No cigar; in fact, you looked kind of silly.)

President Trump is also taking credit, more deservedly, for the dramatic rise in the stock market last year. True, the stock market was rising before Trump was inaugurated, but he has added an accelerant.

This leads us to another rule of Economics. The economy and the stock market are not the same thing, and the latter is a poor indicator of the former. About 80% of stock is owned by 10% of the population, so the stock market affects roughly only one in 10 people taking the personal view of the economy.

What’s more, the economy and the stock market react to some stimuli very differently. An egregious example of this is when companies shed workers to cut costs and their bottom lines improve. This causes stock prices to rise, even without any sales growth, and the CEO gets a bonus, while the personal economies of workers are devastated.

Donald Trump has helped the stock market rise dramatically by giving large corporations and very rich individuals (who buy stocks) $1.5 Trillion dollars of tax reductions. Just gave it away. This has made them all richer, and their stock prices higher immediately, though with no great effect on the macro-economy, and even less on individual economies.

Trump’s tax reductions will send a small amount of money (that’s why they call it “trickle” down) to most, but not all middle and lower class earners, and this may have some modest positive effect on personal economies, but nothing compared to what’s going on with the stock market, which means for those already rich.

Our economy was already starting to do pretty well when the Obama Administration ended. It is hard to achieve a significant percentage increase on such an already large base over any long length of time. Likewise, unemployment is already at almost full employment levels. It will be hard to get it much lower.

I expect the economy to perform much as it has been doing, but not significantly better, because, despite what politicians say, it can’t really do that much better today.

That said, another economic law states that when labor becomes scarce enough, wages will rise, which is long, long overdue in our current recovery. This will cause interest rates to rise. This affect profits, which reduces stock prices.

Well, this is beginning to happen now, and the stock market is becoming erratic. This circles us around to the first rule we discussed: the President gets the credit, or the blame, for what happens with either/or the stock market and the economy.

One final rule. This was included in John Maynard Keynes’ economic theories about deficit spending, but nobody seems to remember this part: deficit spending and tax cuts are indicated to stimulate the economic activity during hard times, BUT, during good times, the budget should be brought back into balance with tax increases and debt reduction.

Please think about this economics lesson, because it will help you understand the blog I will post early next week, which explains why President Trump’s tax cuts were absolutely the worst thing he could have done. (You may have figured it out already.)






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