facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search
%POST_TITLE% Thumbnail

Misunderstanding Basic Economics


How did we get ourselves into this mess?

The mess to which I refer is the woeful public misunderstanding of basic economics. Worse, many of the world’s people know less than Americans do (older countries have had longer to incorrectly educate their citizenry).

Capitalism has been around in America since the pilgrims failed in their attempts to establish a “Collective” (Socialism) in the New World. After realizing poor results from the experiment that would have made Karl Marx proud (“from each according to his abilities, to each according to his needs”) the pilgrims changed course. Capitalism as we know it was founded in America.

America prospered.

Today, that story is little known, and is no longer taught in schools. Capitalism is seen by many today as an oppressive system; one that allows “fat cats” to dominate poor people. People in today’s America (especially younger people) prefer what they call “Socialism.” Most have no clue what that term means, much less the destruction it has caused around the world for centuries. Far too many Americans associate Socialism with “free stuff.”

Why bring this up today? The answer lies in this week’s June jobs reports; talk about catching the “experts” off-guard! According to the Bureau of Labor Standards (BLS), 220,000 jobs were created, compared to the “expert” consensus, which was for 178,000 new jobs. The prognosticators were shocked and pleased, and the market regained its upward trend.

We were surprised, too, as we thought the number might be even higher.

After all, the Trump Administration is quietly keeping its promises to deregulate business, produce domestic energy, and to put Americans back to work. People who become employed have a moniker in economics – consumers. They drive 70% of our economy. Consumers buy things, expanding the businesses that produce the goods and services consumed. Those businesses and individuals make more money, invest more, and the cycle feeds itself. If left alone, that is.

Who are these “experts,” and where do they get their expectations? If their qualifications involve the location of their offices, the many letters behind their names, or simply “who they know,” I suggest that their consensus may be inaccurate at best; misleading at worst.

Another illustrative number was the Unemployment Rate, which “unexpectedly” went up. Why? A few years ago, the government changed the definition of Unemployment to “U3” from “U6.” The difference is that U3 disregards discouraged job seekers when they give up looking for work. The effect of this is to lower the Unemployment Rate (U3). Now, discouraged ex-workers returning to look for work will (and did) cause the Unemployment Rate (U3) to rise.

Actual Unemployment (U6) tells a far different story. It has quietly been cut in half over the past few years. Understanding correct statistics is crucial to making accurate forecasts and decisions.

The economy is humming, business is beginning to thrive, and the outlook for investors is rosy. Let the Socialists maintain their gloom and doom. Just don’t let them ruin your day (or your life).

Marvin Gaye had it right. “Believe half of what you see, and none of what you hear.”

 

Van Wie Financial is fee-only. For a reason.