Monday, September 20, 2004

Election Year Economics 101

Morons. I'm surrounded by morons.

Everyday I wake up and be it the radio, the TV, or (if I'm especially blessed) in person, I am inundated with morons. It was almost as if God decided to give 90% of the population just enough brain cells to form incredibly uninformed and stupid opinions. And if that wasn't enough he went a brain cell or two beyond that to create "Uber-Morons;" morons with the confidence that their opinions are somehow worthy of broadcasting.

But during an election year it seems the moron population doubles, especially the Uber-Morons. And more and more I hear things like:

"This is the worst economy in 50 years."


"Unemployment is reaching Great Depression levels."


"This is the largest deficit in history."

Which is irksome, because as an economist, I actually know something about unemployment rates, the Federal Budget, and GDP growth figures, unlike these morons.

But what is even more irksome than listening to the electoral year morons regurgitate their lines received from socialist headquarters, is when I'm listening to talk radio and I find out that these guys, who are allegedly the front line of defense against the forces of socialism, are morons too!

And there I sit, hopelessly in traffic, without a cell phone, listening to two morons duke it out, sadly forming the opinions of thousands of other morons.

"This is the worst economy in 50 years."

"No it's not!"

"Yes it is."



"Oh yeah? Well my dad can beat up your dad!"


Thus, it seems to be my calling to inform the masses about some simple, basic economics because it doesn't seem like anybody else is going to do it. That and it might just play a larger role than you'd think in helping you determine who to vote for, which ideology to subscribe to and a whole host of other things.

But first off, let's educate ourselves on the difference between "thinking" and "knowing."

Thinking is what children, liberals, socialists, college students and other people who don't work do. They are faced with a problem and with that limited "moron +2 brain cells" brain of theirs they single handedly solve the world's problems and form opinions.

"If we just printed off more money then all of our problems would go away."

Or one of my favorites,

"I just feel that if we taxed the rich a little bit more we could afford adequate health care and education for everybody." (Note "feeling" is very much like "thinking," except requiring no brain at all.)

"Knowing" is all together a different universe. Knowing takes what is called "intellectual honesty." Which means you do not sit on your ass at some coffee shop with a bunch of other suburbanite sociology majors pondering the world's problems whilst you sup a cup of $4 latte on your daddy's dime. It means you get off your ass, you go to the library or computer and find out the facts for yourself.

Sadly too many people do too much "thinking" and not enough "knowing."

So let's go through an exercise in "knowing."

Take unemployment or the statement commonly heralded from the left that "unemployment is approaching Great Depression levels." Can they cite what the unemployment rate is? Can they tell you what it was? Do they even know where to go to get the unemployment rate?

Of course not. They're too busy thinking in their cushy little office at the local NGO, regurgitating what they heard on NPR.

But we are more intellectually rigorous than that. We know that there must be some government database out there with a historical record of unemployment. And sure enough there is; the FRED database at the Federal Reserve.

And shucks howdy will you look at that. The question you should be asking yourself is if you've ever seen that graph before in your life. And if you haven't; have you ever dared argue anything regarding the unemployment rate without this seemingly vital piece of information?

Thankfully you've been spared becoming one of those morons who insist on spouting off an uninformed opinion. Furthermore, you're probably one of 2% or so of people in the United States that has even bothered to look at that chart and therefore can competently argue about it. But most importantly you now have KNOWLEDGE. You KNOW that;

1. The unemployment rate is only at 5.4% and that is not only historically low, but considered full employment by most economists.

2. The peak rate it achieved in this last recession (6.3%) is absolutely nothing compared to the peak it reached during the Volcker Recession.

3. The peak rate is absolutely nowhere near the 25% unemployment rate during the Great Depression.

And chances are your brain, after looking at the chart is saying...

4. "Gee, that last recession doesn't look too severe."

And this is a good sign. For this is what we call "called for thinking;" thinking that has been triggered by KNOWLEDGE not hopeful wishing, or feeling or thinking or pondering. Thinking that pioneers new questions, questions that can be satiated with further knowledge. Coincidentally leading us into our next exercise in "knowing;" the economy.

Exactly how is the economy performing? Ask any socialist or aging CBS anchor and our economy is horrible. Ask any union leader or Lou Dobbs and we are hemorrhaging jobs to China. Ask your friendly neighborhood Democrat and they'll say, "This is the worst economy in 50 years."


Aren't you glad all these people are here to do all the thinking for you? Why, you just sit back and relax and don't worry that little head of yours with such pointless and bothersome questions.

Well, surely there must be a government database somewhere with GDP figures? And as luck would have it there is! The Bureau of Economic Analysis actually calculates GDP figures on a quarterly basis and is even so kind enough to calculate year over year growth for us.

Of course this only goes back a couple years. Remember, John Kerry and Friends say this is the worst economy in 50 years. The data is there, you would just have to copy, paste it, and then chart it yourself in Excel. Fortunately Captain Capitalism has come to the rescue and already done this for you. And surprise surprise. This "Horrible Recession," this "Worst Economy in 50 Years" this "pox GW has cast upon America" turns out to be


This, the mildest recession in recorded history, coming off of a Dotcom Mania crash that tanked stock markets by 50%, a terrorist attack and accounting scandals than ran rampant during the 90's. If anything it is a tribute to the rapid and effective fiscal and monetary policies implemented by Mr. Bush and Mr. Greenspan.

But not only that (and here's the real kicker to flabbergast all the morons at parties)...


In order to qualify as a recession, GDP must contract for two quarters in a row. This last "recession" was a Kerry Recession where it "flip-flopped" (ha ha ha) for three quarters between growth and contraction. And although certainly not a booming economy, it technically can't even be called a recession.

But yet, even more stupidity from the mouths of morons. For while the recession ended approaching a full three years ago, the left so desperate to hold onto the past, insists this economy is still in the dumps, or at best suffering a very slow and weak recovery. Two and a half years of solid economic growth averaging 4% a quarter makes one think what exactly would qualify as a "rapid and strong" recovery in the eyes of the left?

Our third and final excursion into the Realm of Knowing is the deficit.

"The largest deficits in history." "Deficits, bankrupting the future of our children." "Mortgaging the future at the expense of social security." And so forth and so on.

But unlike the above, the morons are actually correct to a certain extent. By no fault of their own mind you. Inevitably if you think enough thoughts, one or two will accidentally be right. It is true, deficits are the largest they have ever been. And it is true, chronic government deficits do "crowd out" other investments, eventually driving up interest rates. And it is true, deficits are nothing more than a mere post-poning of taxes into the future. It is about the only legitimate criticism of the Bush administration heralded by the left that I happen to agree with. But let us put things into context.

The simplest reason deficits are the largest they've been in recorded history is because our society and thus economy has grown. Adjust for inflation and who knows whether deficits are truly "the largest in history."

But fortunately there are people who do know. Savvy individuals with that rare combination of looks and intelligence. Individuals with charisma that make women blush and men speechless. Individuals that rank right up there with "fireman, police officer, the Pope and the President" when first graders are asked what they want to be when they grow up;


Yes, it is hard to believe that in addition to calculating GDP growth rates at the BEA, tracking the unemployment rate all the way back to 1947, and gently turning down scores of romantic advances from members of the opposite sex, these people still have time to take deficits and put them in terms of the total economy. More specifically; "Federal Deficit as a Percent of GDP."

The great thing about this information is that it really puts things in context. WWII experienced a government deficit of 1/3 our entire economy. Of course that was a world war. A more reasonable comparison would be the real worst economy in 50 years, the Volcker Recession, when then President Reagan ran deficits on the order of 5%GDP. GW comes in a full point below that at 4%. Certainly not good, but not necessarily the crisis those morons think it is.

Next Lesson; "Common Criticism of Economics by the Left; How They Feel About These Figures and Think They Should Be."


SocialJusticeFirst said...

REAL social justice means the government should give everyone free health care for all! Our world would be much better if there was zero cost to health care, which is what Kerry is going to do. Plus, nobody should have to work anymore. If the government simply mails us all paychecks, then we'd all finally have fairness and equality - and our communal desire for peace, freedom, and TRUE social justice would be achieved.

Bucktowndusty said...

Captain C,

How would an economist such as yourself factor in population growth into the debate. Ex. If America's unemployment rate stabilizes around 5%, as far as percentages go, that's a good sign. However, 5% of 100 people equals 5 unemployed people, but 5% of 1,000,000 people equals 50,000 unemployed people. As our population grows, the fears of having so many people unemployed must factor into your equations, even in the slightest, right? I'm just curious, because I often hear the percentages, but no reference to the underlying population variable.


Captain Capitalism said...

Social justice first - Yeah, you keep on thinking.

Well the way economics "factors in" the size of the population is by calculating a rate, not the nominal amount of unemployment. Furthermore, you really wouldn't be concerned about the nominal number of people unemployed because it's all relative to your population's size. For example in China over 100 million people have been laid off over the past 10 years. This would make the Great Depression in the US look like nothing as there's only 280 million people here. But China has 1.3 billion people, thus making it important to put things into context and calculate percentages.

Janet said...

Excellant! Keep on teaching! We have the lowest unemployment rate in the world and the best life. Why else do all want entrance to USA.

Captain Capitalism said...

Hi Janet,

Technically we don't have the lowest unemployment rate in the world.

Places like Hong Kong, Japan (historically anyway) and some smaller tax havenish countries like Luxembourg and Bermuda have lower unemployment rates, but only marginally so. And we certianly have lower unemployment rates than our socialist/European counterparts.

TCC3 said...

awesome analysis...finishing my mba this year, it'a amazing how many of my classmates don't understand basic economics.

Basic micro & macro economics should be taught as required courses in high school.

RexChap said...

Solid info- like the links to documented sources. The size of the deficts doesn't worry me- it's the pending doom of entitlements for the aging US population. Paul Peterson's book Running On Empty lays out some very ugly scenerios for the future. Greedy Baby Boomers demanding a Medicare drug plan will cost me and my family. The Bush Medicare Drug plan is probably one of the worst piece of legislation I have seen in my lifetime. When looking at the chart comparing deficts to GDP, it does not reflect the aging US population or rapidly increasing entitlement expenses due in the future. A 5% deficit to GDP in 1960 is not nearly as big as problem as a 5% deficit in 2020 when Social Security will probably start to run out of surplus money. The ratio of workers to retirees is continuing to shrink and will eventually get below 2-1. This will not sustain Social Security. Even the great US ecomony cannot grow it's way out of this. The upcoming demands of Social Security and Medicare are the greatest threat to the US ecomony and way of life. Sadly, the morons we have been talking about have no clue about this and politicians do not want to upset these morons by informing them.

Captain Capitalism said...

Hi Guys,

Yeah, unfortunately, economics is usually required to graduate from high school. The problem is that you don't get economists to teach the class. They usually have a history teacher or somebody with an equivalently worthless degree teach the subject that they know nothing about.

As for the pending doom of the Baby Boomers, I couldn't agree more. There is an EXCELLENT survey (collection of articles) in The Economist called "Forever Young" that addresses that issue in more detail than I would have here. They also compare and contrast it against other countries. It's enough to make you want to send money offshore and set up a backup plan.