Dollars and Sense

I waive any claim to understanding the economy. That is because my acumen for mathematics is that of a brilliant 3.2-year-old child. Paul Samuelson, an economist, said “without mathematical ability one is entirely lost.” Yet, my bank account is always in order, I don’t have debts, and I always live within my means even when they are rather thin, That’s no problem because I’m comfortable with a simple life anyway.

But I have a problem understanding big-time economy. I don’t think someone has to be a financial wizard to know that something is very wrong with the current national and global economies.

In an attempt to understand the problem, I’ve done some research. I realize that unlike theories of space-time, particle physics, and quantum mechanics, the more I study economic theories, the less I think they are reasonable. Keynesian Economics is remarkably similar to Ponzi/Madoff Schemes except that government money pyramids are legal. In part, legal Keynesian Economics smacks of the rather arbitrary Robin Hood ideal of “taking from the rich and giving to the poor.” Keynes’ famous statement, “In the Long Run we are all dead,” suggests license to do whatever is expedient at the moment without regard to future consequences. Not a good idea. Adam Smith had a better idea when he said, “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.” Galbraith thought that wage and price controls are an absolute necessity for full employment with low inflation. Unfortunately, that idea led many economies to lower employment and prolonged inflation. Engels, Lenin, and Marx flunked every test for reasonable-let alone successful-economic systems.

When leading indicators of the economy are announced on TV, my eyes glaze over and my ears perk down. My simple lifestyle makes it unnecessary for me to follow financial news. I’ve never paid attention to the Gross Domestic Product, Consumer Price Index, Consumer Confidence Index, or any other of the economic indices. They have nothing to do with me. But, despite my indolent attitude about money, the global financial crisis has certainly caught my attention.

Obviously, families and kings have both dropped the ball. What baffles me are the figures that economists and politicians banter about. How in the world am I to make sense of them, with or without mathematics? The statistics they cite are wildly disparate. One says we need a 9.1% increase, another says we need a 1.9% decrease. One says we need 9.2 billion, the other 2.9 billion for the same program, still another says we should cut the program altogether and put the money elsewhere. I am particularly intrigued by the tenths following the integers. How do they arrive at these seemingly precise figures? For that matter, on what basis do they determine exact figures and percentages when determining scales for income taxes? I hear them say, “The wealthy should pay their fair share.” Fair to whom? At the other end of the economic hierarchy, why is my monthly Social Security benefit $741 and not $742 or $740? It seems as though financial schedules, high or low, are the results of flipping a coin.

On a considerably larger scale, I wonder why short and long economic projections are somewhat like erratic weather reports. A meteorologist will tell you of the global ‘seasonal lag.’ When a season is about to change, there is a lag of several weeks before the old season relinquishes its grip and the new season fully replaces the old one. This lag is guaranteed, whatever the oscillations may be on a daily basis.

I suppose its equivalent in the economy is the not so predictable dance of recessions, interest rates, unemployment, and whatever else the ‘leading indicators’ tell economists. However, there is a significant difference between economic and weather forecasts. Meteorologists may be wrong in their predictions, but they give precise weather conditions—the temperature, precipitation, barometric pressure, and so on. Politicians and political economists conveniently fudge statistics. That’s pretty much like telling the public it’s 65 degrees when it’s actually 90 degrees so that people will feel cooler.

I don’t mean to be flippant about the serious financial crisis. Riots, unemployment, and poverty are not laughing matters. In fact, I began the article with an attempt to deprecate myself for financial ignorance while mocking the absurdity of everyday business. For example, I have always found it absurd to price an item at $999.99. I know that figure is designed to help make a sale, but…really! Yet, that lame tactic pales in the light of politicians who juggle figures to suit their talking points.

At the risk of offended authentic economists, I can’t resist adding that my light research provided me with a chuckle when I read an economic equation for ‘Aggregate-supply curve and Aggregate Demand’:

AD = C+1 + G + (X-M)

I rest my case.   

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