Look Ma! It’s a Recession!

Posted on August 20, 2019 by admin

This just in: I haven’t been blogging for a while. I’m not exactly sure why but “futility” comes to mind. I’m just one person shouting into the wind. However, I think the time has come for me to post a few times; at least enough to clear my head.

Today, I’m going to talk about economics and the coming recession. A recession can have a few definitions but generally, it is a fall in Gross Domestic Product for 2 successive quarters. In short, we become less productive for about 6 months or more.

The two options available are Monetary and Fiscal.

Monetary refers to the abundance or scarcity of money. When there is more money in circulation, we tend to spend it. When we spend it, companies have to produce more. Jobs are created etc. To put more money into circulation, the Federal Reserve lowers interest rates. Lower rates mean we can borrow money cheaply. We buy houses and then fill those houses with stuff. Historically, the FED will take a 6.5% interest rate and maybe lower it to 2% or something like that. However, right now, money is already cheap (2.25%) so there is not much room to lower it even more. So, monetary policy is basically neutralized…not available to make a big impact.

Fiscal refers to government spending and taxation. The government can raise taxes that will take money out of consumer pockets and thus, cut spending. So, doing the opposite – cutting taxes, will put more money into people’s pockets and increase spending and thus, get the economy moving. However, we have already cut taxes more than we can afford to (see skyrocketing national debt). But wait, the government can increase spending and that will put money back into the economy. This works! However, if we are already spending more than we have, this should be kept as a last-ditch effort. For example, deficit spending is considered one of the best ways to get yourself out of a recession, once you are already there.

Tariffs are a form of taxation. In spite of what you are hearing from the White House, Americans are paying the taxes we are imposing on Chinese goods in the form of tariffs. There is no economic justification for the current tariffs. Yes, there seems to be some political justification but that is more of a Trump Personality issue. If we remove the tariffs, that gives us immediate relief from one of the biggest taxes out there.

Immigration, or lack of it, is a real problem. If we don’t allow immigration, we will not be able to sustain any real economic growth. This is because our population growth without immigration is dropping every year. If we have a fixed population and we want to have economic growth, then those that are working, have to be more productive year after year. Imagine how much you contribute to our economy right now. Next year, you must do even more, then more again. Immigration is not an economic burden. Immigration is an Economic Necessity if we are to avoid a recession. It is an Economic Necessity if we find ourselves in a recession and want to get out of it.

Green Energy is the next big economic driver in the world. If we want to be a part of it, we need to start playing. Economically, I am progressive. I’m looking forward and all I see is Green. Someone that is conservative is holding on to a past that is fading in our rearview mirror. Yes, you can invest in coal…but I wouldn’t recommend it and it is an industry in decline.

Trade opens more markets for our goods. Trade deals help amplify the benefits of trade. For us to make these agreements, we need to do two things: (1) make sure the interests of the other parties are also satisfied or they will not play and (2) make sure that people entering trade deals with us are confident that we will hold up our side of the deal. Right now, the entire world is side-stepping the United States on economic issues because we satisfy neither of these two requirements.

That’s enough for now. Time to save the world.

Up, up and away…

Jim

Economics of a Bully

Posted on July 11, 2018 by admin

This just in: Trump’s tariffs have started a global trade war in which there are no winners. Not unless you call the smug satisfaction Trump gets when he is bulling someone a “victory.”

Here is what tariffs do. They are a tax on an imported good. For example, if China once sold a cell phone in the United States for $400, then a 25% tariff would increase the cost of that phone to $500. We put a tariff on China and Americans pay more for goods they buy from China.

To be clear…the tariff on imported goods is a tax on Americans.

If this is true, why would anyone implement tariffs?

Setting Trump aside for the moment, there are times that tariffs are practical. For example, let’s suppose China has a huge technological and cost advantage when it comes to producing solar panels. Let’s also assume that the United States would like to encourage the development and production of solar panels domestically. Since China has such a huge advantage and can sell panels much cheaper than we can make them, any company in the United States that produces panels will not be able to compete. Their panels will not be as advanced nor as cheap as those from China.

Enter the tariffs…

By putting tariffs on Chinese solar panels, their panels will now cost Americans more to buy. In fact, the Chinese panels are now so expensive that we will buy American panels instead. This allows a domestic industry to survive and grow. Eventually, we will be on par with China and the tariffs, no longer needed, will go away.

So, the tariff increased the cost of solar panels but in exchange, we got a foothold in a huge global market for our domestic panels.

Let’s bring Trump back into the picture.

As president, he is allowed to unilaterally implement tariffs up to 25% if it is in the interest of national security. For example, to protect an American industry that contributes to defense.

What Trump has done is to impose arbitrary tariffs on China, the E.U. and Canada without any clear rationale. No one, including those in this cabinet, know what it is that he is actually trying to do. No one can tell us what the “national security” issue is.

And what’s worse, those countries he is imposing tariffs on don’t know what he wants. They don’t know what he is trying to negotiate for. He says things like “China is treating us unfair” without clarification. He puts tariffs on Canadian milk as if this will prevent a national security breach. He puts a tariff on German cars and leaves the E.U. to scratch their collective heads in confusion.

Trump does all of this for two reasons. The first being because he can. The Republican Congress has indicated to Trump that they will not challenge any issue he wants to take on.

The main reason for tariffs is that Trump is a bully. He puts tariffs on counties for the same reason the biggest kid in 3rd grade beats up on the other, smaller kids. He is mean and insecure. Being a bully is the best way he has come up to deal with this.

So, the world is entering a trade war because Trump basically needs a nap.

And as the result, Americans will pay more for many for the products they buy every day.

Vote in November and get the Republicans out of our house.

Up, up and away…

Jim

The insanity of Trump’s economics

Posted on July 3, 2018 by admin

This just in: It has been said that economics is a “soft science” because the outcomes of certain actions are not always predictable. In fact, there is an entire field of economics known as Behavioral Economics, that tries to find out why this is so. This diversity of outcomes from a repeated experiment is why we find several economic opinions that all differ with regards to nearly any given topic.

But there are some things we can count on, either by observation or irrefutable logic. On these types of issues, the economic world is in nearly unison with their recommendations.

One such issue is Trump’s fantasy world of economics. Nationally and abroad, the absurdity of Trump’s actions are astounding anyone that is paying attention.

Let’s look at a broad view of what I mean.

I will lay this out in steps, trying to put order to something that is nearly random.

Trump wants to deport millions of illegal aliens. These are people that have raised families here. They pay taxes. They commit crimes at a much lower rate than others. And, this is important, they are filling many of the jobs that most of us would not take due to the low pay. Trump’s policy of deporting these people is, in large part, justified by “They are taking away jobs that belong to U.S. citizens.” Somehow, Trump is saying that for every field hand we deport, a high paying job is Silicon Valley opens up.
Trump, and the Republican Congress passed a tax bill that takes from the nation as a whole, and gives to the vastly rich. There are two ideas behind this: (1) Rich people will hire us to mow their lawn if they have more money. This is known as Trickle-Down economics and is the most widely disproven economic theory there is. And (2) Corporations will use their tax breaks to raise wages. This makes the assumption that corporations are benevolent. Instead, companies exist to make a profit. If they already have employees that come to work for $x per hour, why would they pay more? In fact, they didn’t. Instead, they are in the process of buying back company stock which has the effect of enriching shareholders, not workers.
Trump cut subsidies for Green Energy, one of the fastest growing industries in the world today. Many of the jobs in this industry are good paying. Instead, Trump is investing in coal and other fossil fuels; an industry that is rapidly shrinking.
Trump dropped out of the Trans Pacific Partnership and is now threatening to drop out of the World Trade Organization. There is no clear reason for doing this but the outcomes are certain. These are the exact steps one would take if they wanted to reduce the amount of goods we sell overseas. Confusingly, Trump complains about the Trade Deficit all the time. He thinks its a bad thing (it’s not) and then he does the exact opposite of what it would take to increase exports.
Trump is putting tariffs on everyone that pisses him off. As president, he can levy a tariff as high as 25% if it is deemed necessary for national security. So, suddenly, Canadian cheese imports are a threat. The result of this is two-fold. First, is causes our trading partners to levy counter-tariffs against us. These counter-tariffs raise the price of our goods overseas. Harley Davidson is a good example of this. Tariffs placed on their product means they will sell fewer of these overseas…unless….they move the factories and jobs overseas…which is exactly what Harley Davidson is doing. Secondly, we now pay more for good that are imported. If we put a tax on imported steel, then everything that uses imported steel will cost us more. Already we are seeing spikes in goods like automobiles.

In summary, Trump touts jobs and then does everything he can to eliminate them. He claims he is putting more money into the hands of the middle class and yet, they small amount we all get from the tax cut is quickly eaten up by the higher prices we are paying for anything imported.

And here is the kicker. Europe, China and the rest of the world want to make this stop. they actually want to know what it will take to make Trump stop this Globally Destructive behavior.

The thing is, even Trump doesn’t know what he wants. The conversation goes like this…

Trump: Here are some tariffs on the rest of the world.

The World: What can we do to make you change your mind?

Trump: I have no idea.

Time to save the world.

Up, up and away…

Jim