Jacked Up Economy – Common Sense Economics

The New York Times writes about how jacked the economy is and how partisan politics is screwing all of us.  What no one is mentioning is how we got here in the first place.

Economies run on two things – goods and services.  Your economy is providing goods and services or, guess what, boys and girls – IT IS NOT AN ECONOMY

First off, back during the 1970’s we started exporting all the manufacturing jobs.  Making things is a dirty process and, WOW!  we could do that overseas for less and with less regulation about trash, pollution, etc.  So we exported almost all of our manufacturing.  So there go all the manufacturing jobs – no more making goods.  Go visit the so-called “Rust Belt” if you want to see what that looks like.  Whole cities have dried up and are going rotten because all the jobs got sent overseas.  We retrained all of those people to take jobs in the service industry.

Then, during the 1990’s we started exporting the service jobs.  Service jobs were cheap and easy to relocate.  We could put call centers in India.  We could put programmers in India.  We were outsourcing and “helping the global economy”.  We exported the service jobs.  Ok – so now we’re not providing services either.  The dot-bomb bubble was part of this phenomenon.  A lot of the development and engineering jobs have been shipped off shore, leaving experienced IT professionals in the dust because they’re “too expensive”.  I have to say that from personal experience, if you hire an $8/hour programmer, you’re getting what you pay for.  You have no idea where the person is.  They may have access to your most sensitive internal data but you’re paying the guy a pittance and he’s probably in a country where it’s not illegal to stream the name, address, phone #, SSN, etc.of every person who works for or does business with your company through every chat room on the Internet.  And you want to know why identity theft is rampant????

You want to know why we’re in an economic slump that shows NO and I do mean absolutely NO signs of letting up – it’s because we are not producing goods or providing services.  Many of the indicators say that we’re going into the worst “recession” since the Great Depression.  Some of the indicators say that our economy is actually tanking harder *now* than it did prior to the Great Depression.  That’s some serious shit, people.  Think bread lines and soup kitchens and millions out of work.  Think guys fighting, physically, for day labor jobs so that they can feed their families.  And our ecnomy is tanking harder and faster now than it did then…. hang on to your hats, kids…. it’s gonna be a rough ride.

Without goods and services there is not a viable economy.  Anyone who is even passingly familiar with economics will tell you that you must have goods or services in order to generate this wonderful thing called INCOME.  Things have to be changing hands for the cash to be flowing.  Well, things are changing hands….. just not here in the USA. 

The car makers are having problems – BIG surprise there.  Who can afford a $20,000 car when they’re making $8.00/hour working at Wal-Mart???    That’s a whole $320 a week or $1400 a month.  Take out $700 for rent.  The payment on our hypothetical $20,000 car is $404 at current rates.  That leaves a mere $396 for insurance, gas, groceries, and other necessities.  Easy to see why that gets passed on by most.  They just can’t pay for it.  Given a choice between car or food…. most people will choose food.

Credit card companies are in a lot of trouble.  When people get laid off, what’s the first thing to go?  Credit card debt.  It’s high interest and since you already got what you put on the card, there’s no real incentive to pay for it.  Big guess as to why they are in trouble.  When your service jobs gets exported and you get laid off, you stop paying your credit cards. 

The home industry is another sector that’s in serious trouble.  They wrote out a lot of “sub prime” mortgages. What “sub prime” really means is “that we know damn well you can’t afford this but we’re hoping you have a better job or that you’ve sold this house before the balloon payment comes due.”  Well, with the service jobs being exported, the “better job” is out of the question and as the market gets flooded with houses for sale, well… that makes it a little hard to sell the house and starts driving prices down. 

Travel and tourism is another sector that’s hurting.  Well now… Einstien…. let’s see if you can figure out why.  That’s right…  If you’re not working, you sure as hell aren’t going on vacation.  Or out to eat.  Or to the hair salon. Or shopping for clothing or jewelry or anything else “non-essential”.  Or any one of another zillion “extra” things.  And guess what happens as *that* spreads out.  People stop going out to eat so restaurants close.  They stop getting their hair cut so salons close.  Then the people that worked in those restaurants and salons are laid off so they also stop spending money.  The effects just continue to ripple. 

I’m still trying to figure out why ANY of this is a news flash to anyone who has even the most rudimentary understanding of economics.  OH… WAIT… I forgot… Economics isn’t taught in public school any more.  It was “too hard” and too many of our students were failing it because, if your school district is anything like DISD, 26% of the graduating seniors are “functionally illierate” which means that they can’t do math well enough to balance a check book or read well enough to fill out a job application.  That’s 1 in 4.  That’s shameful in a modern developed country.  But hey, that’s kinda why we’re in the shitter now.  Stupid and short sighted actions, right????

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25 thoughts on “Jacked Up Economy – Common Sense Economics

  1. Good post, but what makes you think America doesn’t produce?  America has a GDP of $14.58 trillion, of which $1.37 trillion is exported.  That means $14.5 trillion worth of goods or services.  22% of Americans are employed in various parts of the manufacturing chain.  35% are working in business or technical jobs.  We produce a lot.  Everyone but 7.6% of Americans who want a job have one.Do you have any research to back up the idea that there are no jobs in America, or that America is being hurt by ‘exporting’ jobs?   I would be interested in seeing that.  It’s a recession, not the end of the world.

  2. The last time I called my internet company to find out why it was down, someone from Pakistan answered the line.  He helped me out and the problem was solved.Recently it seems almost any support centers that I call for assistance is run out of a different country.  There are jobs in America, however, like you stated above, there aren’t enough in the goods and service industry.  There’s plenty of cashiers, bus boys, waiters, janitors, nurses, and mechanics. But as for the real economy boosters such as factory production, support centers, and product assembly, you can look elsewhere…Good post!

  3. I’m sorry, but this was entirely uninformed and ignorant to how economics works. You can’t apply common sense to economics, because econ isn’t common sense. Just like the neuron doctrine isn’t common sense, neither is economics. The reason we started exporting jobs is because we, as consumers, wanted lower prices. Firms responded by shipping jobs overseas so they could make things cheaper because that’s what consumers wanted.@phantomFive – Thankyou. @TigerArmy89 – Hollywood, Banks, Hedge funds and Brokerage Houses, Doctors, the Executive boards of McDonalds, Goodyear, etc. There are lots of service jobs left. Services make up over two thirds of the economy, and we have the 2nd highest GDP per capita in the world and the highest GDP (not counting the aggregate European Union).

  4. It’s nice to hear from other folks here who are financially awake- good post.You also need to include the overuse and abuse of easy credit that’s impacting people from all income strata. It helped fuel the housing bubble which shortened the big recession that was going to follow the dot com implosion.Now people who still have good incomes are in just as much trouble as those who are laid off because their credit lines are being reduced or eliminated entirely and people no longer know how to spend within their means.@phantomFive – A good source of info regarding exported jobs would be to look at the monthly jobs statistics beyond the surface numbers. Before the recession hit the surface numbers look nice in that more jobs are being added to the economy than lost, but if you look at the details you’ll find that the higher paying manufacturing jobs are being lost in favor of lower paying service sector jobs. So the long term trend is less high wage jobs are more lower wage jobs which hurts our long term future. @sheepthatsblack – I think the reason companies started exporting jobs was that our Govt allowed them to with no penalties and they saw a chance to make a greater profit. Then those companies that moved their jobs overseas can no market their products back in America and undercut the companies who stay local. This starts the domino effect that forces more and more companies to follow suit and ship their jobs overseas to remain competitive. It’s turning to a race to the bottom where companies keep scaling back on insurance and benefits because we’re competing with countries who have no labor laws and have workers getting paid next to nothing.

  5. @SoullFire – right, since profits are evil. Another reason is unions…UAW for example demands upwards of $40 an hour + healthcare to work on assembly lines. That’s a gross overvaluing of what that (unskilled) labor is worth, can you blame the Big Three for wanting to export more jobs? And what do you mean by “Local”? If you mean Mom’n’Pop resturaunts…well…you’re never going to be able to outsource waiters (until robots come along). If you mean the town blacksmith then you’re appealing to bygone days. If you mean domestic factories (e.g. bottling plants) then you’re partially right in that it becomes a game to see who can lower costs the most, but it’s not so much so they can make more and more profits, it’s so they can stay competitive. The profit margin is only a few cents per can of soda. I’m a soon-to-be Economics Ph.D. I’m not saying the economy is in fine shape, I’m just saying this post is uneducated about what caused it. (though they were getting close when talking about credit cards…and then they dropped the ball entirely.) You seem to have more of a clue regarding how we got into the current crisis, which I admire, but you have to admit, it’s not some evil corporation who’s maliciously trying to screw us who’s moving jobs, it’s the fact that we demand way too much for unskilled labor. We over value what time is worth and forget that labor, not raw materials, is the primary input to making, say, hair gel. We demand cheaper prices, firms respond by outsourcing to stay competitive. It’s simple.Plus, have you ever considered and slight bit of humanitarian intent? I mean us loosing jobs means another, impoverished country gaining jobs so that families can finally earn enough to buy bread, and maybe send a child to school.http://www.xanga.com/sheepthatsblack/690513087/prozac-for-the-economy/ (though this isn’t updated to the most recent update in unemployment)

  6. I think you explained what has been going on for quite a while. Most people don’t unsterstand that working at $8 dollars an hour at walmart is measured in the gdp. Now if the loans cycling back into the economy disapeared the gdp is expected to contract to 8 trillion. Meaning 40% unemployment and the collapse of the monetary system. However, the government will do what brazil, mexico, argentina, russia, japan did and print more money.  The service economy accounts for 70% of the jobs in the economy. Most activity occurs on loans. The United States failed as a nation on march 14 2008. It was the forgotten day America was destroyed. It had the same effect as a gamma pulse we are only feeling the cellular death now. So how do we get out of it? Let us consider the economic policies of 2 nations that were completely destroyed economically. They are Russia and Germany. Germany had 25% of their population wondering around homeless in the winter. A hundred thousand froze to death with their families. Russia had horrific management that caused the food supply to fail. So how did they get out of it or survive it as a nation? They resorted to comand economies. German used national socialism and Russia used Communism. Going through those systems Communism had to resort to brutality in order to make it work. National socialism used instead a system of developmental ratios funded by redistribution of the scapegoat’s assets.Now since we have significant assets still as a nation we can avoid ethnic cleansing of the Jews, Leftists, homosexuals and pagans. We can impliment a Wheat dollar backing as we fill the strategic grain reserves. From there we can feed the hungry as we issue employment bonds for their labor on major projects. After that we switch to electricity as out medium of production, rebuild our home industries, limit foriegn goods on our markets and then begin exporting electricity to china and india. Then we designate enough income from the sale of electrical supply to pay the annual interest on the employment bond. At that point we would have achieved a trust society based on resources that would be able to sustain a consumption pull even with near total automation.To do it this way it would have to be done in the next 6 months. To allow things to compound past that basically sets the nation up for severe civil unrest.

  7. Exporting jobs is a natural occurrence in a free market society. It’s the people’s responsibility to be prepared for such events and adapt if necessary. “Stupid and short-sighted actions” would accurately describe the current stimulus bill.

  8. @sheepthatsblack – Now I never said profit in and of itself is evil, but when it becomes the end all and be all and is put ahead of Americas best interests, then it sure can be evil. As a current non Wall Street example- that peanut paste company that put profits over peoples welfare and lives by shipping their product even though they had good reason to believe it was tainted with salmonella. Now everyone is entitled to an opinion, and I have to say I’m surprised you dismissed morrighu’s entry as being “entirely uninformed and ignorant”. You may not agree with all of her premises, but surely you can see she does make some valid points? While job exporting may not have caused this recession, it serves to set the economy up to make the effects of the recession worse as the economy becomes more service oriented with lower age pay, and therefore more vulnerable to downturns.Granted, some unions are overpriced for the goods they produce, but unions shouldn’t be casually dismissed as evil either. They are the reason we have a 40 hour work week as well as health benefits. Those things sure weren’t willingly offered by corporations. By “Local”, I mean all jobs and services located in the US. Looking at your examples like Mom and Pop restaurants, yes- waiters jobs an be exported- so to speak. It’s the other side of exporting jobs out – importing non-Americans to take over our jobs and work at a cheaper rate. Right now there are many illegals that work in the restaurant industry which spell bigger profits to companies at the cost of American jobs. And this just isn’t relegated to unskilled labor. I sure wouldn’t call the factory workers in Asia making Ipods and plasma TV’s unskilled labor. These are not simple widget factories. H1B Visas bring in a host of skilled professionals such as doctors, lawyers, engineers, etc that also put downward pressure on American salaries.I disagree that companies are just responding to Americas desire for cheaper prices. The true cost isn’t just the product- when a cheaper product is the result of one less job in the US, there’s a hidden cost associated with that too….which is being felt more and more.Handing out jobs to other countries may be humanitarian, but I’m a nationalist at heart- and I’d like to see American jobs helpng Americans first.Somewhere in India and/or China there’s also a soon-to-be Economics PH.D. who desperately wants to come to America, is highly intelligent, and is willing to work at a fraction of what your salary would be. There are American companies that would just *LOVE* to have unlimited H1B Visas to hire as many foreigners as they want. How humanitarian are you willing to be when it’s YOUR job on the line?One more thing- please explain your statement “You can’t apply common sense to economics”??? Common sense told me to get the heck out of this bloated stock market before the meltdown. My friends didn’t and got a 40% financial haircut.

  9. @SoullFire – I dismissed morrighu’s entry as being “entirely uninformed and ignorant” not because of the mention of exporting jobs. I dismissed it as such because it implies that America isn’t producing much, which is, well, silly. There may have been a few points here and there aren’t false, but the basic premise of her argument was uninformed and ignorant. You, on the other hand, do make good arguments. I disagree, since I am a die-hard libertarian and proponent of free trade and few restrictions on business, but you do make legitimate arguments and claims. I won’t respond to all your paragraphs, because you’re right. Those things are, for the most part, true. That and I have an exam tomorrow. However, the question is “How do we get out of this recession.” This isn’t an easy question (It’s certainly perplexing Obama…terrible, terrible stimulus package), but I do know that protectionist policies against outsourcing, against H1B Visas, etc. have never worked well historically. And Unions have long outlived their usefulness.As far as the Humanitarian thing…I was referring to bringing industry jobs and raising the GDP of countries by building factories there. The whole H1B Visa thing is one that I admit I’m not particularly informed about. As far as me competing with others for say, a Macroeconomic Analyst position at a multi-national firm…bring it on, that’s competition, and if the firm thinks I’m not worth the money, then I’ll go somewhere else. Fortunately, I’m planning on by-passing most of that and going into public policy :PAs for economics not being common sense….common sense isn’t the phrase I would have liked to use, but it’s what was used. General Public Concensus is what I was really referring to, which is different from common sense, but the two are somewhat interrelated. Time and time again, the popular media publishes an article explaining an aspect of the economy, or what happened, and just gets it dead wrong. This is true in all the social sciences (e.g. psychology, sociology, etc.). But nevertheless, people eat it up. That’s what I meant by that comment…the popular (in the sense of popular media) views generally aren’t entirely accurate.I like you…it was good debating…Study Time! (i’m loopy on too much caffeine)

  10. @sheepthatsblack –    Frankly, I’m not concered about some other country.  Charity begins at home.  If you can’t take care of you own, you have no business worrying about anyone else.  We have plenty of impoverished areas right here.  Visit some of the areas in places like West Virginia.  It’s as bad as anything in Calcutta in places.  So no sympathy from me on that front.  Unfortunately, there isn’t ANYTHING that is really made here any more.  It might be ASSEMBLED here, but that’s not the same as being made here.  You can damn well bet your bottom dollar that goods in Europe (where the currency is strong and the economy isn’t as bad) get MADE in Europe from European made components.  We have outsourced everything from autoparts to chips.  NOTHING and by that I mean less than 10% of anything for sale in this country can be made here from components that are manufactured here 100%.  We don’t even make our damn cookware.  We send the steel to China where it gets pressed into pots and shipped back to us.  PATHETIC.  We import all the components and assemble it here and call it “Made in America” when in fact, nothing in the product is American in origin.  And assembly jobs don’t pay well either.What happens if we ever have to go war with some country who supplies us with some critical thing?  Hmm…. 

  11. Furthermore, Economy is defined as “Orderly arrangement and management of the internal affairs of a stateor of any establishment kept up by production and consumption; esp.,such management as directly concerns wealth; as, political economy.”  If people are working for $8/hour, how much do you think they are consuming at that subsistence wage?  What do you think they will buy that is extra?  So there goes your consumption and I’m sorry, but Mr “I’m working on a PhD in Economics”, you should KNOW that we have an economy based on consumption and that ANY TIME consumption drops our economy tanks.  

  12. @morrighu – It’s called comparative advantage of trade. Look it up.We have many natural resources, but not every natural resource known to man. We have to import. You mention steel, we currently produce a large amount of steel, it’s a failing industry in the US, but it’s around because we protect it by charging tariffs on all imported steel. Realistically, we would be better off if the government got rid of the tariffs, let the steel industry collapse and paid all the wages and benefits of the steel workers who lost their jobs and we get the (massive) savings of revoking the tariff. Protectionist policies have never and will never work. As for why we send it to China and back…isn’t it amazing that companies still turn a profit after that? :)Europe didn’t get hit as hard by the credit crunch as we did, but they’re economies were also fairly sluggish before (big, but low growth). They make a bad example…especially since they import a hell of a lot as well.As for going to war…we’re currently in a war with Iraq, one of the world’s major oil producers. I don’t see where you’re going with this. We might have certain contracts with a given country, but we have trade embargoes and stuff like that all the time. It’s not like there’s one country and one country only that produces any given item. What do you want? A self-contained economy? That has never, ever, ever worked, even in more fundamental economies without all the technological frills. I normally hate stooping this low…but seriously, take an economics course. You seem to know a fair bit about the raw data of international trade, you might like learning the wonderful intricacies of how to manipulate it.

  13. @Asrael2311 – I’m not entirely sure which time period you’re referring to, but I’m guessing the intra-world war period?”They resorted to command economies. German used national socialism and Russia used Communism.”I’m not as familiar with the Russian Situation, but the German situation was one of hyperinflation. That’s a very, very different situation than the one we’re in now. Russia had a large amount of social unrest, in response to and exacerbating economic hardship, which I would guess was caused by general mismanagement of the economy by the Czars and an inability to compete with European economies.I’m glad you used the word “resorted,” but you also made it sound like that’s what we need to do. Why? Historically, communism has not worked well at all (China is an exception, but it’s only partially communist, so…), and neither have command economies…granted that’s partly because the commanding government goes off and either starts a war, kills its citizens, or in Germany’s case, both. How would a command economy help the current situation?

  14. @morrighu – “but Mr “I’m working on a PhD in Economics”,you should KNOW that we have an economy based on consumption and thatANY TIME consumption drops our economy tanks.”Consumption is ~70% of GDP, yes, and yes, when consumption falls significantly, say 3%, we call that a recession. I don’t see your point. First of all, they’re buying things like food and housing which, believe it or not, is part of consumption (and both are quite possibly produced almost entirely in the United States). Secondly, are you saying we should pay everyone $10 an hour rather than $8? It wouldn’t do a bit of good. That increases the costs to firms of producing anything, so they have to either charge more (inflation), lay people off (increasing unemployment), or both. Any which way the net effect is the same: no real growth in consumption in the long run; The Classical Dichotomy. Don’t patronize me because I know more about econ than you…the right to patronize must be earned! :P(And please pick up on my subtle, sardonic, sarcastic remarks and stop thinking they’re arguments, e.g. the altruistic/humanitarian “argument,” and above phrase.)

  15. @morrighu – Why would 20 billion make a difference? That is less than .1% of the US GDP.  In addition, you need to calculate the money people in the US are saving, which they can spend on other things.  The biggest economy saver right now would be ending the war, and reducing military spending.  That’s around a trillion a year.If you want to look at the trade deficit another way, all these countries are sending us goods in exchange for nothing more than green paper.  Who is getting the better end of the deal? 

  16. Incidentally, saying, “I work with one of the top economists” is pretty meaningless.  Even if it’s true, sometimes top economists are wrong!  You are much better off quoting numbers and letting us see the evidence for ourselves.  What numbers suggest that the economy is tanking faster than in 1930?Things are happening a lot differently this time.  We aren’t trying to destroy the banking industry like happened in the early 30s, banks that fail still have something backing them up (preventing massive runs on banks), home owners can’t be forclosed on unless they are behind in their payments, and if it does come to an inflationary period, we will know how to deal with it, we won’t enforce things like price controls (as happened in the 70s).  

  17. @phantomFive – No we don’t have massive runs on the banks, we have a massive credit scandal and a massive failure of the home mortgage system which is still driving banks and financial sector businesses out of existence.

  18. Incidentally, as far as programmer jobs being taken by foreigners, I do work in the programmer industry, and if you can’t find a job, then you either suck, are a whiner, or don’t have the skill of looking for a job.  There are way more jobs than programmers.  Last month, I personally got laid off, and within a week I had two job offers.  My other friend was out of work for nearly a year, until I taught him a few job searching tricks and in less than a month he had found a job.  When I’ve interviewed other people for jobs, there are very few who have a good, clear understanding of basic programming necessities.  So if you have that, you will always have a job.

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