by John Mattingly
What’s the big political issue of the day?
“It’s The Economy, stupid.” – a phrase used by Bill Clinton’s 1992 presidential campaign against George H.W. Bush.
But what is The Economy? As my previous three articles that touched the elusive hide of the economic elephant should indicate, I haven’t the foggiest idea what politicians, talking heads, experts, analysts, and especially economists mean when they force these two words together.
When we talk about The Economy, we’re usually talking about our favorite person, ourselves. We tend to compare our present situation to more favorable times or situations in the past. We seldom compare ourselves to desperate times, with the notable exception of a few old timers who lived through the Great Depression. Those folks have perspective, but they are a dwindling minority, now being somewhere north of their 80s. And when was the last time an octogenarian ran for office, wrote an economic non-fiction best seller, or appeared on CNBC?
A modern rancher about to lose his held-for-four-generations ranch does not compare his situation to the Great Depression, or to the millions of people in the world who have to burn dry cow dung to cook gruel to survive. The rancher instead wants his situation to return to the days of free land, cheap cattle, and high markets.
A person who was making $90k a year at a computer station usually doesn’t want to take a job at $50k involving physical labor. There is a difference between wanting work and work that’s wanted. My guess is we need to brace for 10 to 15 percent unemployment as normal, and everyone, including the federal government should stop yelping about job creation.
How big a secret can it be that the labor forces in South America, China, and India are willing to work longer hours for less than our labor force? The jobs exist, it’s just that the U.S. labor force has lost its competitive advantage in certain sectors, and is unlikely to get it back. Which, I say, is fine.
As proof of just how good things are with near-10% unemployment, I offer the following:
1. Almost every day of the year, literally hundreds of thousands of people pay hundreds of dollars (each) to watch other people hit, kick, bounce, or throw various sized balls. How can anyone claim, with a straight face, that we need fuller employment when that much cash is available to follow the fate of so many pointless balls?
There doesn’t even seem to be any correlation between the size of the ball and the amount of fan money it attracts. You’d think soccer and basketball, or rugby and American football would enjoy some parity in this department, but no, basketball and American football players get as much individually as is paid an entire team of rugby players. And look at golf. The smallest ball in the bunch pays the highest wage to its hitters, if you consider the key ratio of ball size to salary. Hmm. What does that suggest about Wall Street CEOs?
Which reminds me. According to an internet article I accidentally read, things are really, really bad for Tiger Woods’ ex-wife, Elin. She has to raise two kids, alone, on the $500 million divorce settlement. You know you’re getting old when you can remember the day when that kind of money would raise an orphanage of about ten thousand kids.
2. And then there are the people who pay good money to watch odd looking cars (that cost upwards of a million bucks each) go around in circles at high speed, sometimes crashing and bursting into flame. If there’s money for that, it makes you wonder if we really need any more stimulus spending by the government to create jobs.
3. Economists and analysts are concerned about the fact that U.S. citizens are now saving, which means they are spending less. But wait a minute, I thought that saving was a good thing. Save, then spend. That’s the order of finance I learned as a farmer. But no, that is wrong. If consumers don’t spend, it wrecks the economy. The consumer is supposed to spend, not save. But if they do that, they get into debt and that wrecks the economy. According to this deranged logic, no matter what the consumer does, the economy is doomed.
If people really did start saving first, and spending second, the price of all goods and services would likely come down about 25% because that’s the approximate systemic cost of credit. Ever notice how, when you walk into a car dealership and offer to pay cash, the sales force looks at you like you’re trying to beat them out of a chunk of their profit?
Any store that accepts credit cards, but gives no discount for cash, is passing along the cost of credit to anyone who pays with cash. The credit managing machine is huge, and so the people in it are probably the ones hollering for more irresponsible spending. Those “people” are hiding in unlikely places, but least of all at your friendly corner bank or credit union, which institutions that are more likely to start sacrificing children on a stone alter than make a small business loan. No, the credit junkies have merged with the vendors and retailers, which is why almost every store you go into these days will give you a whopping 10% discount on your first purchase if you sign up for their proprietary credit card. And this segment is thriving.
4. The volatility of the stock market has many experts shaking their heads as if the market suddenly changed from some sort of tame house cat into a wild tiger. Some people claim a conspiracy of big bankers and robotic traders. My guess is that there are some smart folks, call them “quants,” who understand mass human psychology. While these smart people can’t create volatility, they can amplify it when they see it coming.
And it’s been coming at the markets in the guise of Baby Boomers retiring with their estimated $17 trillion in various assets. That kind of money is bound to cause a few bumps in daily trading patterns.
A good friend of mine sent along an analysis of trading volume in the S&P 500 Stock list that takes place in seconds. Normally, we look at volume by the day or week, and some technicians look at hourly volume, so this analysis was prompted by a bit of thinking outside the box. It turns out that robotic traders are placing huge sell orders out-of-the-money followed by huge buy orders deep-in-the-money, causing fluctuations of a few dimes in a stock price in both directions, all within ONE SECOND, then harvesting the small wiggle in the market in both directions with orders slightly in or out of the money.
A human could not physically do this, placing, say, an order to sell 30,000 shares of a $30 stock at $35 and a simultaneous order to buy 50,000 shares of the stock at $25, and a single order to buy at $29.80 and sell at $30.20. This sort of action is enabled by the presence of so much capital and so many players. It has become like the Heisenburg Uncertainty Principal. If people really have time to dream up these kinds of things, maybe they should be cleaning toilets or doing factory piece work … something that actually contributes to the economy, however humble.
Or again, if that magnitude of disciplined creativity was applied to the labor market, it’s possible that the U.S. could achieve a competitive advantage in the world economy.
5. People who can afford to even talk about buying Korans for the purpose of burning must have their homes, cars, and credit cards paid off and their refrigerators full of food.
6. It’s common to hear complaints about big corporations, but before one wags too vigorous a finger, it might be a good idea to see if you have stock in any of those cruel entities in your retirement portfolio.
7. The biggest business in history – the one that sells eternal life, reunions with dead loved ones, pleasant places and activities after death, and unconditional love from a father who has yet to actually show up – is doing well, despite a recent setback over accusations that middle management has been molesting children in their spare time.
The flagship example here, the Catholic church, is still the world’s largest real estate holder, and has the world’s best economic business plan. The plan includes no property taxes to pay, daily public offerings that raise capital, upper management parading around in ridiculous hats, and middle management that can’t have kids, thus dedicating, and leaving, their life’s work to the organization. I bet some of those big, bad corporations are looking on with envy. Or maybe they realized that it’s a business model which tends to produce an unusual number of individuals with their heads in the clouds and their hands in inappropriate pants.
8. The second biggest business in the world, fear, peddled by ideologues and military interests, is also doing quite well, yanking hundreds of billions of hard earned dollars out of the U.S. economy both directly and indirectly. The persistence of this business has to be testament to a bloated affluence among the U.S. populace. Poor people would never tolerate the excessive cost of military adventurism, spending that has almost no multiplier effect in The Economy, being money spent on what Buckminster Fuller called “killingry.”
An interesting historical parenthetical. Back in the early 1300s, our ancestors in Europe were neatly divided into the Three Estates. The First Estate being the church and clergy; the Second being the nobility, or landed aristocracy; and the Third being the working class, which at that time included everyone from gravediggers to lawyers. When The Plague hit about mid-century, the church claimed, of course, that it was punishment for human sin, a diagnosis that proved problematic when murders, thieves, priests, and noblemen all turned up with the dreaded buboes (swollen lymph nodes resulting from bubonic plague) in their armpits. The church lost its influence, as it was shown to have none, and the nobility learned that money couldn’t buy immunity from nature.
The power vacuum left by the failure of the first two Estates, gave rise to a golden era in which the Third Estate ran Europe, primarily because the working people weren’t wasting time on prayer and bribes and were doing the necessary spadework of existence. The reign of the Third Estate lasted about a hundred years and was finally derailed by bands of brigands, led by exiled clergy and power-hungry nobles. Their business plan was simple. Why produce when you can steal and delude? Eventually, the need for security led the Third Estate to surrender its sensible grip on society, making that historically predictable trade: a boatload of efficiency and common sense for a morsel of security.
This is, of course, a vastly simplified analysis, but it still sounds all too familiar.
In the end, I think it defensible to point out that our society has a very low threshold for pain and a huge appetite for irrational concern. This combination has real potential to convince masses of folks that things are a lot worse than … well, than we’d like them to be.
John Mattingly cultivates prose, among other things, and was most recently seen near Creede.
