Aug 11, 2016

Hillary, The Donald, and Obama-They All Slept Through Econ 101

Hello All

I haven't posted in a very long time, but given all the garbage coming from our two candidates as well as our sitting President regarding the economy, I felt compelled to add my two cents.

This week both Hillary and The Donald offered their prescriptions to solve our economic woes.  Both plans are horribly off the mark, although I will say that The Donald ALMOST gets it right in a couple of areas.  Unfortunately he really can't explain it as he is just repeating what his team of economists told him.

Hillary came out and had the chutzpah to criticize The Donald's plan as she proposed a Keynesian nightmare that won't solve anything except her desire for power by buying votes with economic sounds bites that strike a populist chord.

Amazingly these two candidates are so bad that the country has taken another look at Obama and decided he really isn't as bad as we all suspected.  I think part of his improving approval rating is a direct result of him taking the George Bush approach to leadership.  When Bush was in office he rarely gave major speeches.  During the first seven years of the Obama administration he gave a speech- actually, lecture would be a more accurate description- almost daily.  The American people couldn't stand him-with the exception of the 18% self-described liberals and the media, who are liberals but don't describe themselves as such.  Now that he's taken to golfing and working on both his foundation (think Clinton Foundation) he doesn't have as much time to lecture us on how we should think, act, and be, and his popularity has risen accordingly.  Sometimes less is more.

Polling Data

RCP Average7/29 - 8/10--51.744.4+7.3
Gallup8/8 - 8/101500 A4946+3
Rasmussen Reports8/8 - 8/101500 LV5247+5
Reuters/Ipsos8/6 - 8/101459 A5045+5
Bloomberg8/5 - 8/81007 A5044+6
Economist/YouGov8/6 - 8/9911 RV4949Tie
Monmouth8/4 - 8/7683 LV5640+16
ABC News/Wash Post8/1 - 8/4815 RV5345+8
McClatchy/Marist8/1 - 8/3983 RV5340+13
NBC News/Wall St. Jrnl7/31 - 8/3800 RV5244+8
IBD/TIPP7/29 - 8/4921 A5240+12
FOX News7/31 - 8/21022 RV5245+7
CNN/ORC7/29 - 7/311003 A5445+9
PPP (D)7/29 - 7/301276 LV5047+3

The fallacy being followed by both of these candidates is that "shovel ready" spending on infrastructure has a stimulative effect on the economy.  This analysis is based upon observations from the 1940's and 1950's when the highway system in this country was expanded dramatically.

Consider a strawberry farmer in Peoria (please don't lecture me that they don't grow strawberries in Peoria, this is just an illustration) in the 1940's.  Because there was no paved road to Chicago, this farmer didn't have access to the larger Chicago market.  In steps the government to build the road, which has three impacts which are important.  First, jobs are created immediately.  This isn't stimulative in the long run because, unless the government wants to keep spending (I mean, who could imagine that?) those are temporary jobs.  Second, the money diverted from the private sector to pay for those jobs has a higher multiplier effect than the jobs, meaning ultimately, unless the economy has tons of slack, the impact of those jobs is actually negative on the overall economy.  Third, the new road creates access to a new market for the farmer, who can expand his business to address the new market, planting more strawberries, buying more fertilizer, using more water, possibly hiring more help, all of which is stimulative to the country's economy and hopefully his bottom line (I'll try to skip the tangent where the Democrats try to achieve something similar without letting anyone but the Clinton Foundation profit, for now).

Fast forward to 2016.  The road is in disrepair, but still being used by the strawberry farmer.  The government decides to repair the road, again creating temporary jobs at the expense of the private sector, in essence reducing economic activity in the overall economy.   Once the road is repaired and the temporary jobs move on or go away, we are left with the same road, albeit in slightly better condition.  Now, assuming there weren't road closures during the repair, the strawberry farmer is in exactly the same position he was in prior.  Not better nor worse.  The net is that there is no long term economic benefit from this activity.  It's akin to hiring someone to break a window, then hiring someone else to fix it.  In the end there is no difference except you've wasted some money.

This isn't to say there aren't infrastructure projects that could be additive to the economy, it's just that these two boneheads running for President are focused on roads and bridges like they are manna from heaven and spending money in this fashion will save the economy.  Hillary, who lies more than Charles Ponzi, actually mentioned in her painful, convoluted, overly contrived, pandering economic presentation a piece of infrastructure spending that could help the economy-broadband spending.  Now, it would appear from her presentation that she is actually just focused on getting subsidized or free internet access (aka Mo' Free Shit) to her constituents, however, in a knowledge based society, better access to information would be beneficial and could have a stimulative economic impact.  Unfortunately, with the exception of a couple of airports where throughput needs to be increased, the rest of her spending plan is exactly what she accused The Donald of-enriching special interests.  The temerity she demonstrates with her criticisms of pandering to special interests when her top donors are those she attacks is unfathomable.

 Let's talk a bit about the wage growth that Obozo was touting in February.  Unit Labor Costs, ie compensation, was reported to increase by 4.5% in the first quarter.  Obozo out on his victory tour, telling everyone that his economic policies were finally working.  Well, guess what kids?  The BLS revised that growth from an increase of 4.5% to a decline of 0.2%.  Have we seen that in the mainstream media?  No, because even though they are bemoaning the lack of income growth for the middle class, they are touting Obozo's success at getting wages up.  The 0.2% decline?  That's known as an inconvenient truth.

Anyway, I hope you are all well.  I'll try to post periodically and keep it on the economy and markets as opposed to the horrific leadership choices we now face.



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