The Economy and Understanding It
I have been looking around at a couple of my favorite sites today and I have come across two items that perked my interest. The first item was a post at one of National Review's blogs called "Sixers," a look at the upcoming mid-terms. The other was a piece on Townhall.com by the one and only Professor Walter E. Williams. Both items point out the utter lack of understanding that people have in terms of economics.
Over at NR, Mr. Greg Pollowitz explains that Karl Rove has announced his strategy for this year's elections. You see in '02 it was national defense, in '04 it was pretty much the same but in '06 Rove's strategy is going to focus on the economy. Here's what I don't understand: With unemployment under 5 percent and the GDP gaining 5 percent in the first quarter alone, how is it that the American People need to be told that the economy is good? Well, of course, I know the answer to that. The mainstream press has done its job of telling you that the economy is terrible. "Yeah, jobs are being created, but these jobs are burger flipping jobs that pay minimum wage." This is not true and I will get to that in a minute. It's hard to believe that people cannot see that the economy in this Country is booming when they go to the grocery store or to the mall. You would think that this strategy of Rove's would be a piece of cake.
The second piece that has me just as confused--yet given the topic I understand my confussion--is Prof. Williams and his explaination of gas prices. He explains that "price gouging" is a figment of people's imagination and that the price at the pump is where it should be based on market determinations. I know, I hate paying for $3 dollar-a-gallon gasoline, but we are paying that because of the market, not because of fat-cat Oil Execs sitting in some Mohogany clad club sipping brandy and smoking cigars.
These two pieces would not have been necessary if the American People had any understanding of economics. For this, I blame two things: emotions and the lack of a simplified language when it comes to economics. When people are told that the "rich" received a tax cut, those who look at themselves as "working" class feel left out. This group of people, who probably make around $75,000 as a household if not more, do not look at themselves as "rich." So when a Liberal Senator or Representative goes before the TV cameras and says "tax cuts for the rich," the vast majority of the population who do not consider themselves rich are offended. Due to this emotional reaction, there is no thought about how much taxes the "average" American pays in taxes. (Right here I want to stress that I am talking in terms of Income Taxes.) Go to the IRS website and find out how much you actually pay in income taxes, and then compare that to the "rich." http://www.irs.gov/pub/irs-soi/03in05tr.xls I bring this up because tax cuts help the economy. The "rich" also help the economy.
This gets us to the language of economics. Now, I am not Prof. Williams, that is, I don't have a Ph.D. in economics, but I can grasp the language for the most part. I know that when an outside force puts added cost to a business that business is either going to pass that cost to the consumer, or it will stop doing whatever is prompting the added cost. For instance--and we have all heard George Will use this--when some one proposes that we put in place a luxury tax to "make the rich pay their fair share," what do you think the "rich" are going to do? They are going to not buy luxuries. And when they stop buying luxuries, the people manufacturing those items are hurt. Same with a business, if government comes in and tells a business that they have to do something that they weren't doing before and it adds a cost to the business, that entity is going to pass the price of complying with that regulation off to the consumer. If I am an owner of a widget manufacturing plant, and before it cost me 5 dollars to make a widget, receive a profit and comply with government regulations, and then the government comes in and adds a new regulation to my business, what do think I am going to do to offset the cost of compliance? That's right, I am going to charge more for my widget, so that before it cost you 7 dollars to buy my widget, it will now cost you 9 dollars to buy one.
What I am getting at folks is economics in this country is really easy to understand even if you have no idea what Alen Greenspan said when he was Fed Chairman. The main thing that you have to worry about is your emotions. Getting back to my widget example, when I start charging you 9 dollars for what used to cost you 7 dollars, you will get mad at me, the businessman, without even taking into consideration why I am charging that price. If I was charging that price just to "gouge" you, then surely there is another widget manufacturer that is not charging 9 dollars. But think about this, if I am charging that price because I have to make up for the cost of a new government regulation, wouldn't it be reasonable to assume that the other widget producers are having to comply with the same regulation?
Now, getting back to the job creation that has taken place in this Country since President Bush enacted his tax cuts. If you go to the Heritage Foundation's website and do a little searching, you will get some great work on this topic. I am going to link this particular study from 2004 about the quality of jobs created since Bush took office. You will see that these jobs are not "burger flippers." http://www.heritage.org/Research/Labor/bg1773.cfm#pgfId-1126956
Over at NR, Mr. Greg Pollowitz explains that Karl Rove has announced his strategy for this year's elections. You see in '02 it was national defense, in '04 it was pretty much the same but in '06 Rove's strategy is going to focus on the economy. Here's what I don't understand: With unemployment under 5 percent and the GDP gaining 5 percent in the first quarter alone, how is it that the American People need to be told that the economy is good? Well, of course, I know the answer to that. The mainstream press has done its job of telling you that the economy is terrible. "Yeah, jobs are being created, but these jobs are burger flipping jobs that pay minimum wage." This is not true and I will get to that in a minute. It's hard to believe that people cannot see that the economy in this Country is booming when they go to the grocery store or to the mall. You would think that this strategy of Rove's would be a piece of cake.
The second piece that has me just as confused--yet given the topic I understand my confussion--is Prof. Williams and his explaination of gas prices. He explains that "price gouging" is a figment of people's imagination and that the price at the pump is where it should be based on market determinations. I know, I hate paying for $3 dollar-a-gallon gasoline, but we are paying that because of the market, not because of fat-cat Oil Execs sitting in some Mohogany clad club sipping brandy and smoking cigars.
These two pieces would not have been necessary if the American People had any understanding of economics. For this, I blame two things: emotions and the lack of a simplified language when it comes to economics. When people are told that the "rich" received a tax cut, those who look at themselves as "working" class feel left out. This group of people, who probably make around $75,000 as a household if not more, do not look at themselves as "rich." So when a Liberal Senator or Representative goes before the TV cameras and says "tax cuts for the rich," the vast majority of the population who do not consider themselves rich are offended. Due to this emotional reaction, there is no thought about how much taxes the "average" American pays in taxes. (Right here I want to stress that I am talking in terms of Income Taxes.) Go to the IRS website and find out how much you actually pay in income taxes, and then compare that to the "rich." http://www.irs.gov/pub/irs-soi/03in05tr.xls I bring this up because tax cuts help the economy. The "rich" also help the economy.
This gets us to the language of economics. Now, I am not Prof. Williams, that is, I don't have a Ph.D. in economics, but I can grasp the language for the most part. I know that when an outside force puts added cost to a business that business is either going to pass that cost to the consumer, or it will stop doing whatever is prompting the added cost. For instance--and we have all heard George Will use this--when some one proposes that we put in place a luxury tax to "make the rich pay their fair share," what do you think the "rich" are going to do? They are going to not buy luxuries. And when they stop buying luxuries, the people manufacturing those items are hurt. Same with a business, if government comes in and tells a business that they have to do something that they weren't doing before and it adds a cost to the business, that entity is going to pass the price of complying with that regulation off to the consumer. If I am an owner of a widget manufacturing plant, and before it cost me 5 dollars to make a widget, receive a profit and comply with government regulations, and then the government comes in and adds a new regulation to my business, what do think I am going to do to offset the cost of compliance? That's right, I am going to charge more for my widget, so that before it cost you 7 dollars to buy my widget, it will now cost you 9 dollars to buy one.
What I am getting at folks is economics in this country is really easy to understand even if you have no idea what Alen Greenspan said when he was Fed Chairman. The main thing that you have to worry about is your emotions. Getting back to my widget example, when I start charging you 9 dollars for what used to cost you 7 dollars, you will get mad at me, the businessman, without even taking into consideration why I am charging that price. If I was charging that price just to "gouge" you, then surely there is another widget manufacturer that is not charging 9 dollars. But think about this, if I am charging that price because I have to make up for the cost of a new government regulation, wouldn't it be reasonable to assume that the other widget producers are having to comply with the same regulation?
Now, getting back to the job creation that has taken place in this Country since President Bush enacted his tax cuts. If you go to the Heritage Foundation's website and do a little searching, you will get some great work on this topic. I am going to link this particular study from 2004 about the quality of jobs created since Bush took office. You will see that these jobs are not "burger flippers." http://www.heritage.org/Research/Labor/bg1773.cfm#pgfId-1126956
posted by Robert A. McReynolds | 7:34 AM
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