A non-economist’s interest in economics and view of the economy

This is a pretty long post and probably a bit unexpected, but this is some of what has been in my mind lately, so I thought I’d post about it.

If you happened to read my first 2 posts, then you know that I am not an economist (nor do I play one on TV). In fact, when I was growing up, I frankly could have cared less. I’ll never forget one morning when I was riding to school with my great friend (his pop owned a gas station, so he had a car). He usually had an all-news station going on the radio. When the business report came up that morning, he declared that he intended to major in economics (I don’t remember if I prompted him by saying something like, “Who cares about this stuff?”). We were probably 16 or 17 at the time, and it was the first time I recall him revealing his intended major, and I was surprised since almost all we ever talked about was sports and sometimes girls. And while me, the meteorologist to be, changed course, he went on to achieve a Masters degree in economics and used that knowledge to work as an economist for a while, then go on to have a long career in the world of sports. I gradually began to become interested at least generally in the economy, mostly due to my interest in politics and in job security. As time moved on, my interest included investing to be able to get my kids through college. And more recently, I my interest has continued to grow as I tried to prepare for life after work. In addition to my great friend the economist, I have become friends with another economist who works as a financial advisor, and I now have a (different) financial advisor my wife and I work with. I have conversations with all of these smart folks, I read anything they give me, and I pepper them with questions and some of my own comments/views. And every so often, they tell me that my thoughts/views/opinions aren’t totally bizarre. They even occasionally agree with me. I also think that my investment strategy has set us up for a comfortable retirement. I’m even reading books like The Undercover Economist (Tim Harford), The Courage to Act (Ben Bernanke), Too Big to Fail (Andrew Ross Sorkin), and several of Tom Friedman’s books and liking them (and understanding some of what they’re saying). And there’s more; I’ve been watching a lot of CNBC recently. It’s been a real education for me. Now, given all of that verbiage, here’s this pseudo-economist’s view of parts of the current economy:

Bullet point 1 below.

The positive:

  • Overall, the unemployment numbers continue to look really positive (now at ~3.6%; the chart’s a bit dated). We appear to be at, or nearly at, all-time lows in unemployment. Yes, I know there are many ways to measure this value, but the trend has been positive for almost a decade. Practically every place I shop continues to be in hiring mode, I am constantly hearing from recruiters and getting messages about job fairs, and there also appear to be lots of job openings on sites like Linked In. I’m not looking for work at the moment, but I’m pretty confident that if I either suddenly wanted to get a job in my field or just have some extra spending money in my pocket, I would be able to get employed pretty quickly. This is a good feeling to have.
  • Inflation is very low, despite the strong economy. According to what I have heard many economists say, this is surprising given the recent GDP numbers. In fact, the Federal Reserve raised interest rates thrice (I love that word) last year at least partly in anticipation of an increase in inflation that hasn’t materialized. At least that’s my understanding. The President and some pundits think they should roll it back a bit. Hell, even gas prices haven’t moved too much despite expectations that they were on the verge of a serious uptick.
  • The stock market (despite the US-China trade war jitters of the past few days) has been quite good overall since 2009. As someone who was pretty heavily invested in the market during the last 10 years, this has worked out quite well for me. Now that we have to live off the income I generated this way, we’re backing off some to help assure that our money lasts, but I still am keeping a potion of our money invested because I agree with those who say, “you can’t beat the S&P.”
  • The recession that has been predicted by a fairly large number of experts to have arrived by now still hasn’t. Many are predicting it for 2020. Maybe thy are right, and nothing lasts forever, but it’s hard for me to believe that we’re on the precipice of a serious downturn.

Having said all of this, I still am pretty uneasy about this economy, especially toward those who are middle class and/or young. Here’s why:

Bullet point 3 below.
  • Even now, many of the jobs being created are fairly low paying jobs. While certainly better than nothing, these jobs are not going to raise large numbers of people out of poverty or debt. And though it hurts to say this, for many of the newly crated high tech positions, there are not a lot of US citizens that can perform them due either to lack of education and/or desire to achieve the necessary level of education/training.
  • Although unemployment and inflation levels are both very low, wages have struggled to outpace inflation. When you achieve a certain income level, a 2-3% raise might not seem so bad (like for me in the last half-dozen years). But when you’re making, let’s say, $50,000, that kind of raise doesn’t buy you a whole lot.
  • While the tax cuts may have created some jobs, it is now clear to those of us making less than $250,000 that this legislation in fact raised our income taxes. This was intended largely for the wealthy and big business, and as with other tax cuts targeted to those groups, they will keep much more than they spend on job creation.
  • Both the US government and most of the citizens living under it are in deep debt. If my wife and I did one thing right financially, we stayed out of debt and bought what we could afford. The current pattern is not sustainable, and at some point we will have to pay the piper or risk going into deep recession (remember 2009?). Belts need to be tightened, and that includes the runaway military spending that is taking place. I don’t see it happening, nor do I see any politician with the will to realistically address it.
  • Although I agree with President Trump (something I don’t often say) with regard to the issues with China, especially pertaining to intellectual property, I don’t think we can win a trade war with them for several reason; 1) China can hold out longer than us. Because it is a dictatorship, the government can much more easily pass the pain onto the citizens, who have no power to fight back. At some point, even Trump’s most loyal supporters will lose patience if they can’t afford to buy cell phones, 2) Because of point 1, China has more time to look elsewhere and find other trade partners, who will give in to the cheaper goods. The current Administration is pissing off a lot of our usual allies, and they might not side with us if we levy tariffs on them (as we are threatening), 3) Many of those “Made in China” goods (clothes and sneakers, for example) are made in (relatively) low tech factories using cheap labor. Can we bring back those types of jobs and get US workers to do them, especially if the wages are low?
  • I won’t get into Social Security, health care, or the potential effects of global warming now.

Well, there you have it. I hope I didn’t bore you. It’s high level and simplistic, but I suspect that many politicians don’t know a lot more. And I’d love to hear from some of you, especially if you think I’m off-base.

One thought on “A non-economist’s interest in economics and view of the economy

  1. Well done! I agree with much of this post, but must express some exceptions. First, neither party cares about the national debt. It is a case of moral hazard; people in government today will not be around to suffer the consequences if the debt proves to be a large hindrance.

    Second, I disagree that China can outlast the US in a “trade war.” US aggregate GDP is 50% higher than China’s. Therefore, the trade imbalance, which benefits China as a boost to its GDP and “harms” the US as a drag on its GDP, is more beneficial to China than it is harmful to the US. Here is Lloyd Blankfein, former CEO of Goldman Sachs:

    ***
    Tariffs might be an effective negotiating tool. Saying it hurts us misses the point. China relies more on trade and loses more. As in a labor strike where mngmnt & workers both get hurt, the process may demonstrate relative strength & resolve & where compromise needs to happen.

    As to who ultimately bears the tariffs cost: US buyers may eventually switch their purchases to domestic or non-Chinese companies (and pay a bit more than now). Chinese companies lose the revenues. Not great but part of the process to assert pressure to level the playing field.
    ***

    The massive effort by the Chinese government to boost its economy by all means at its disposal, including IP theft, is a desperate attempt to have the country get rich before it gets old. China’s disastrous one-child policy is coming home to roost.

    Be well.

    Like

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