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The Economy of Thought

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By wax
August 25, 2004

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During the course of almost every week, I try and blaze through any number of financial website discussion boards, just to see what the general mood for that particular week happens to be. Over the years I've found it's a great way to keep up with the numerous stocks of the day and the current fad industries.

By now, some of you may be aware that I have serious reservations about the economy, and as I have written on more than one occasion, what the government is saying about the economy just doesn't make sense to me. That's why I've been pretty amazed that so many posters to the discussion boards I've visited seemed to be focused on the coming election instead of the coming economy.

First off let me say that for the most part, I'm a very positive individual. It's just my nature to look for the positive in anything as opposed to the negative. But when it comes to investing, preserving my capital, I can become a bit adversarial.

As sort of a trial balloon, I posted some thoughts in a discussion board on a financial website, with the hope that as the members of this discussion board posted their comments I would be able to get some idea as to the correctness of what I keep seeing and hearing in the popular media about America's current economic state.

Part of what I keep reading and hearing is that outsourcing and economic synergies are creating a business environment that requires fewer American workers and because of these two business dynamics, the American workers that are needed are being hired at a reduced wage.

I have repeatedly seen on the evening news and read in the popular press that exploring the synergies between companies to determine what can and can't be outsourced to India, China, and other countries, is a very good thing for business globally, which is a very good thing for the economy globally.

My thoughts about this are fairly straightforward. The name on the sign at the boarder to my country isn't GLOBAL, it's AMERICA, and while at heart I may be a capitalist, I want my capitalism to be about American business keeping American workers, working. That's what I believe is good for the American economy.

Yet I freely acknowledge that more than likely I'm not seeing things clearly, that I don't understand the grand picture, that I'm not thinking far enough ahead, that there really is a calculated design for the global economic changes now in full swing, a calculated design I'm not bright enough to understand.

I keep asking how all of these synergies between companies and all of this outsourcing to Nepal or wherever, is going to benefit my economy, my American economy. As yet, I have not gotten an answer, a lot of rhetoric, but not an answer.

To me it's pretty simple, if the American consumer is indeed two-thirds of the American economy, then that means that the American worker is two-thirds of the economy as well, and if more and more of that two-thirds is working for less money, and if more and more of that two-thirds has increasing debt levels, and if more and more of the jobs of that two-thirds are being outsourced, then how many of that two-thirds is going to be able to afford to participate in the American economy?

Over the past several months I've gotten the word through Mr. Greenspan that the Federal Reserve believes from an economic perspective, all is well. As the matter of fact, all is so very well the Fed has raised interest rates...twice. I personally am still trying to get a glimpse of what the Fed is seeing.

Of course this being an election year, I can't seem to turn around without the Republicans trying to get me to realize it was those pesky Democrats that created the economic downturn and it's been the Republicans, those stalwart captains of industry, that have been fixing what the Democrats broke.

But if the Republicans have been fixing what was broken, why does unemployment seem little changed from month to month, why the need for interest rate hikes from the Central Bank, and why is the government operating the largest deficit in the history of the country? I have to wonder if the economy was really ever broken?

The Republicans are quick to point out that because of the wonderful job the current administration is doing with the economy, more and more Amarekins are working, the Evil Doers, those that sought to destroy our Amarekin way of life, are either on the run or dead, and thanks to the tax cuts, again given to everyone by the Republicans, American workers have more money to spend.

American workers may or may not have more money to spend, but the wealthiest Americans seem to. As I noted last week, according to a study released by the Congressional Budget Office (CBO), tax filers with an average income of $182,700 and above, the upper 20% of tax filers, had a lowered tax bill by 1.8%, while the tax filers with incomes between $51,500 and $75,600, the majority of tax filers, saw their tax bill increase by 1%.

But when the effective tax rate (the tax rate after allowing for deductions) was examined, the tax decrease for the majority of tax filers was found, or at least sort of found.

When the effective tax rate was examined, the CBO found that taxes for the vast majority of filers, the working folks, had indeed gone down by 4%, as the Republicans have said. But what the CBO report also showed was when the effective tax rate was examined for the top 1% of filers, commonly referred to as the "rich", the effective tax rate for those folks had dropped by 19%.

So yes the tax cuts may be working, just not as I thought they would.

In all fairness, I would present my take on the Democratic view of the economy, but try as I might, I just can't get it to stay the same long enough to understand what the Democratic view actually is. I've read that their economic plan looks great, with nary a hair out of place, but I'm a bit of skeptic so as far as I'm concerned more than shiny teeth are going to be needed if I'm to believe the No Hair Left Behind bunch has any understanding of the economy, much less a plan for the economy.

What is the real story with the economy and unemployment? Who is going to provide me with enough information to make a reasonable decision about the economy? Are the vast majority of working Americans, those that are two-thirds of our economy, really falling deeper and deeper into debt? What can I do to preserve my capital while at the same time looking for opportunities to make my capital grow?

In my tours around cyberspace, very few folks seem to be asking these questions. I find a lot of bashing of both Republicans and Democrats, but I find almost no suggestions about how to improve America, and the American economy.

Don't fix what isn't broken many people say, and while that of course is the prudent thing to do, if it isn't broken why are both Republicans and Democrats trying to fix it?

Focusing on the coming election creates great fodder, which in turn creates great discussion, which in turn creates a lot of hot air, which is what I believe both the Republicans and the Democrats are blowing when it comes to the economy.

Someday I'm going to need the money I'm saving now, and if past experience is any indicator of future activity, Social Security probably isn't going to be able to make my "golden" years, happy and carefree.

It's the money I save today that is going to pay the bills of tomorrow, and that was the underlying message from last week's thoughts, the thoughts I posted on-line in an attempt to get a different perspective of how the economy was challenging a microcosm of the American wok force.

By and large, most responses missed the underlying message altogether. But the folks that did responded while saying nothing about the economy in general did say they watched their spending and always paid their credit card bills in full every month. Smart folks!

I'm still not sure about the economy, except to say that with each passing day I think it's deteriorating. That as time goes by, the decisions each of us makes today not only about our investment portfolios but our economic portfolios as well, takes on more and more importance.

There comes a time when each person finally understands that no matter how much they want to, they aren't going to live forever, they aren't going to be young forever, and decisions, perhaps unpleasant decisions about the future, have to be made.

The problem with decisions is that while made in the present, they always change the future, a future that some day will find us all.


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