First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about Revenge Revolution and author, Entry #1. List and general description of entries to date. Annual assessment if Revolution plausible.
Note: most characters appear in a number of entries, with many entries building on previous conversations. Profile of characters. You’ll catch on quickly. Thanks for your time and interest…and comments.
Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011. Section starts Entry #235. (Primer will be available as PDF in more traditional format after the first few entries. The download will be updated regularly.)
Jordan: “What are you talking about? Dismal? Do I look that bad?”
Gelly: In your write-up, you said economics has been called a dismal science. And I know you love economics. Seriously, I am not sure why it’s called ‘dismal’ since economic-based decisions can have such a profound impact on society.”
Chapter 2. Basic Economics and a Common Sense Test.
There are some basics of economics that we all need to understand. The “economics wonks” already know the basics…but the wonks aren’t the concern. The concern is politicians who choose to ignore the data or cherry-pick the data and claim a result that the data do not support. So, if you’re not an “economics wonk,” the primer is designed to help you understand some terms and statistics that are cited frequently but that you might not understand completely.
One of these problems is data are not displayed in easy-to-understand charts. (Pardon me for using a plural verb with data but…OK, so I’m old school.) In addition, the data are often cited without reference to previous data points or without the proper context. One of the goals of this primer is to explain some economic terms in language for non-economists.
Three comments about the primer before proceeding:
- If you want to learn more about a series of data or an economic indicator, start with the Federal government websites. Bureau of Labor Statistics has an excellent data base and reasonably understandable explanations. (www.bls.gov) (Let’s hope the Trump Administration honors the history and integrity of the government’s economic data. If BLS data are compromised or access denied by the Trump Administration, then check some academic websites – start with MIT, Harvard and Chicago, which all have a long history of Nobel Prize winners in economics.)
- The list of databases and examples is not comprehensive but selected to be relevant to discussions.
- Not everyone will agree with the items listed and/or the definitions. The primer is just that, a primer, and not a college textbook on economics. Please read it accordingly.
Much of my academic and professional life has included using economic indicators to forecast demand, primarily for sales of cars and trucks. The forecasts have been used to decide: (i) if new assembly plants required; (ii) how many cars and trucks to produce: (iii) what type marketing programs needed: (iv) how many workers required. These-type decisions can affect the lives and incomes of thousands of people.
Some key lessons learned from many years of forecasting:
- Forecasts are always wrong!
- Goal should be to minimize the forecasting error for critical variables. If the forecast is for an item where there is little credible historical data, the default position I use is start at the mid-point of what you think are reasonable high and low estimates. By starting at the mid-point, the worst is the forecast is 50% wrong…and virtually all the time, the error is far less.
- Math-based forecasting models are very helpful. The model, however, needs to be easy to understand. If you cannot explain the basics of the model to a non-economist colleague, the model is too complicated
Common Sense Test – Like Some Real Basic Stuff
Question #1: Is society better off with the person working and being productive or doing nothing…and likely receiving some form of assistance?
Situation #2: “A person has no money and can find work only in minimum-wage jobs.”
Question #2: Will a person with a minimum-wage job benefit from a tax cut?”
Tax Cuts for the Unemployed?
When the Bush 43 Administration was faced with declining employment and decreasing real personal income, the answer was not to implement programs similar to the New Deal but to implement tax cuts. I realize parties have platforms and some people are fundamentally opposed to any government programs. But, c’mon, use some common sense. If you were unemployed, would you want a tax cut, which is of no value since you pay little, if any, income tax… or would you want a job that provided cash to buy food, pay the mortgage and utilities? This is not a complicated question. (Trump Administration – are you listening? In another segment, we’ll address the societal benefit of “trickle-down” economics.)
Laws of Economics Are Like the Laws of Sciences
The laws of economics are much like the fundamental laws of physics and chemistry. From time to time someone claims to have invented a perpetual motion machine that defies the fundamental laws of physics or to have invented a battery that will last forever. And usually sooner rather than later the claims are proved false.
The same seems to apply to some who want to defy the fundamentals of economics. Despite claims to the contrary, wealth for society cannot be created by transferring money between individuals, selling services, offering more medical care or a plethora of other activities. The only way to create wealth over the long-term is manufacturing.
Transferring money between pockets helps individuals but offers no benefit to society. Stop and think about it. If you go to the doctor for a problem, where is the value add to society? If you go to a restaurant, where is the value add for society? Money has changed hands but there is no more wealth in society than before.
New-Age Economy Is Horse Pucky
The belief that a new-age “service” economy adds wealth to the country is horse pucky. Yes, certain services may make individuals more productive but at the end of the day, it is manufacturing that creates wealth.
The Chinese get it. I’m afraid many decision-makers in the US don’t get it — whether in Congress or in the board room. Unless the US changes policy toward retaining manufacturing and changes the system of rewarding executives for transferring wealth by relocating operations outside the country, the US is headed for a sustained decline in wealth and standard of living. (In other entries, we’ll discuss: (i) international trade as a critical component of economic growth. And, no, trade can’t be just one way; (ii) what activities constitute “manufacturing.” Do economists…and policy makers…need to rethink the definition of “manufacturing”? )
No country can sustain itself by just providing services and transferring money between pockets. The US needs a healthy manufacturing sector to survive.
(Trump Administration Policies re Manufacturing. The Trump Administration is right to emphasize the need for manufacturing in the US. The claim that the US manufacturing base has been completed eroded is false. The claim that Trump Administration’s policies will bring back manufacturing jobs to industries that formerly included many semi-skilled workers – automotive, e.g. – is sheer folly. Many semi-skilled and some skilled jobs have been eliminated by technology. The idea of numerous jobs in “clean coal” is even more ridiculous. An even greater proportion of mining jobs have been replaced by technology and electricity production is shifting away from coal. More about these issues in a later entry.)