I read an editorial recently about the incoming administration’s plans to raise gasoline taxes. The editorial contained a caveat that went something like, “of course, the middle of a recession is not the best time to do this…”. Hmm, interesting. Well if increasing the tax rate on an essential commodity is detrimental now (i.e. during tough economic times), when is it a good idea? In other words, what level of prosperity makes it okay to confiscate more of our money?
Forgive the digression, but similar comments have been made about Obama’s plan to cut middle class income taxes. People are asking if this campaign promise will be tabled as well. Why? Well you see, the middle class tax cuts come at a cost to the government (i.e. lower tax revenue – this could be argued, but that’s not the point). That cost would presumably be paid by increasing the tax burden on the rich. Speaking on behalf of Obama’s administration, David Axelrod addressed part 2 of the tax cut, increasing taxes on the rich. On Sunday December 28th’s Meet the Press, he said "the question is on the Bush tax cuts for the very wealthiest Americans and it's something that we plainly can't afford moving forward. And whether it expires or whether we repeal it a little bit early we'll determine later, but it's going to go. It has to go." In other words, they want to cut taxes for the middle class, but they’re not willing to increase taxes on the rich – at least not yet. Huh? Excuse me? Does anyone else see the admission here? Axelrod is implying (though reluctantly) that increasing taxes on the rich will hurt the economy. Duh! Of course it will. I’ve never worked for a poor person, thank you very much. Additionally, he’s implying that the Obama administration does not have a problem with increasing the federal deficit (like the Bush Administration). Anyway, my point was to illustrate the prevalence of this position - tax hikes don’t seem to be a good idea, at least not when you want to grow an economy!
Okay, so let’s get back to gasoline taxes. If in the next 100 days, the White House press secretary utters a single word about higher energy taxes “when things get better”, I’m going to throw up. A logical follow up question would be, “what GDP numbers would make this move palatable?” Of course, the White House press corps will not ask that question.
Mark my words; this will be a matter of discussion in the Obama White House. Recall that in the summer of 2008, Obama’s issue with high gas prices was not how high they were, but in how quickly the prices rose. There is a liberal left ideology which seeks to curb energy consumption and/or drive consumers to certain technologies through higher fuel prices. To what extent President Elect Obama will adopt this ideology is yet to be seen. The answer will have more to do with where the blame for higher prices can be assigned than anything else. Joe Biden will not have the guts to ask all Americans to “be patriotic” and pay higher gas taxes.
Let get down to simple logic folks: if one states that we wait to levy higher taxes because of a poor economy, one must be prepared to define an economic threshold (or set of circumstances) under which said taxes can or should be levied. This will not happen, folks. They will never define the threshold. Doing so would lead to a simpler question: if said tax increase prolong or exacerbate the malaise of a bad economy, wouldn’t it erode or slow a good economy?
So that’s my question, Mr. Axelrod. Please ask President Elect Obama for me when you get a chance… If not now, when?
Monday, December 29, 2008
Monday, December 1, 2008
How Bad Is the Economy?
It’s been the media’s number one topic - the US economy. Network anchors pronounce, "The economic crisis, the worst we’ve seen since The Great Depression". Really? Is it really that bad?
Now before I continue, let me state the politically correct disclaimer - I know people are suffering out there. There are millions of unemployed Americans. Some families are close to losing their homes. Others have already lost their homes. More go to bed hungry and don’t know where tomorrow’s bread and milk will come from. I know that this is a matter of fact because I know some of them. So... having said that, how pervasive is the misery? This is the question at hand.
This question presented itself to me recently, though in a slightly different format. In its first incarnation, 'To what degree are our spending habits influenced by media reports of the economic crisis?' I first considered this in October, 2008 when a colleague told me he is canceling a New Year's Eve trip to New York City, "...because of the bad economy... it makes sense to save since I don't know what's around the corner". The statement was interesting on many levels. First of all, isn't it a good idea to have rainy day money no matter what the economic condition? Second, I was talking to a gainfully employed young professional, not in eminent danger of losing his job, his home, his car, or even his weekend beer money - yet his behavior was apparently influenced by reports of doom and gloom. So we have the veritable chicken and the egg question: which came first, the apparent lull in consumer spending, or the reports of its inevitability?
I’m not an economist. I frankly know very little about macroeconomics and the principles that drive consumer spending and a nation’s overall productivity. But what I do know is that there are sources of meaningful and objective information out there. So I spent a few minutes and visited a few websites:
The US Department of Labor – Bureau of Labor Statistics
The US Department of Commerce – Bureau of Economic Analysis
Between these sites (and a few definitions on wikipedia), I was able to gather some statistics on a few economic indicators. Before I started, I told myself, “Whatever you get is what you get… no selective exclusion of data”. Here’s what I gathered.
The Unemployment Rate - not even close to the worst since The Great Depression. I counted at least 7 other peaks of around 7% or more. The highest rate was in 1980 shortly after Reagan got elected (Carter legacy I suppose :)
Consumer Price Index - this is a measure of, for example, how much a typical bag of groceries cost today versus a month ago. CPI was down in October, 2008. It was as low then as it was in May of 2008 (my guess is that gas prices influenced the summer highs in CPI). The CPI was virtually unchanged in September (as compared to August). If the unadjusted price of things we need is going down, what does that mean for Main Street? To me, it suggests the buying power of a dollar now is as strong as it was this summer. Granted, this is not a long term historical comparison, but I doubt that inflation adjusted numbers would suggest that milk is as expensive as it's ever been.
Gross Domestic Product (GDP) - the total value of what Americans produced over a given period of time. GDP is closely tied to terms like economic growth, recession, and depression. On December 1, 2008, I read an article on cnn.com that stated something like, “some people erroneously think that a recession is defined by 2 consecutive quarters of GDP decline…”. The article went on to state that a private research organization has deemed that "the U.S. is officially in a recession, and has been in one since December, 2007". What was missing to me was the definition of recession that these guys actually used. It occurs to me that if one defines growth or recession on one’s own terms, one can be in any economic condition desired!
Having said that, the U.S. quarterly GDP has been up 27 of the last 31 quarters going back to the beginning of 2001 (source – U.S. Bureau of Economic Analysis website). Over that period, it was down in Bush's 1st quarter in office, the 9/11 quarter, the 4th quarter 2007, and the 3rd quarter 2008 (by the way, all nonconsecutive quarters).
So here, I’ve presented a few statistics from some leading economic indicators. All of these data demonstrate (to me at least) that we are certainly not in the worst economy since the 1930’s. So is the media coverage of this crisis related to:
a) Ratings
b) An unpopular President in the White House
c) I’m way off – the sky is indeed falling
d) Something else I’ve missed
Finally, I noticed something while watching football on Thanksgiving… a sold out arena Detroit, Michigan, smack dab in the middle of a state hit very hard by the current crisis. Is a holiday football outing still considered discretionary income?
Now before I continue, let me state the politically correct disclaimer - I know people are suffering out there. There are millions of unemployed Americans. Some families are close to losing their homes. Others have already lost their homes. More go to bed hungry and don’t know where tomorrow’s bread and milk will come from. I know that this is a matter of fact because I know some of them. So... having said that, how pervasive is the misery? This is the question at hand.
This question presented itself to me recently, though in a slightly different format. In its first incarnation, 'To what degree are our spending habits influenced by media reports of the economic crisis?' I first considered this in October, 2008 when a colleague told me he is canceling a New Year's Eve trip to New York City, "...because of the bad economy... it makes sense to save since I don't know what's around the corner". The statement was interesting on many levels. First of all, isn't it a good idea to have rainy day money no matter what the economic condition? Second, I was talking to a gainfully employed young professional, not in eminent danger of losing his job, his home, his car, or even his weekend beer money - yet his behavior was apparently influenced by reports of doom and gloom. So we have the veritable chicken and the egg question: which came first, the apparent lull in consumer spending, or the reports of its inevitability?
I’m not an economist. I frankly know very little about macroeconomics and the principles that drive consumer spending and a nation’s overall productivity. But what I do know is that there are sources of meaningful and objective information out there. So I spent a few minutes and visited a few websites:
The US Department of Labor – Bureau of Labor Statistics
The US Department of Commerce – Bureau of Economic Analysis
Between these sites (and a few definitions on wikipedia), I was able to gather some statistics on a few economic indicators. Before I started, I told myself, “Whatever you get is what you get… no selective exclusion of data”. Here’s what I gathered.
The Unemployment Rate - not even close to the worst since The Great Depression. I counted at least 7 other peaks of around 7% or more. The highest rate was in 1980 shortly after Reagan got elected (Carter legacy I suppose :) Consumer Price Index - this is a measure of, for example, how much a typical bag of groceries cost today versus a month ago. CPI was down in October, 2008. It was as low then as it was in May of 2008 (my guess is that gas prices influenced the summer highs in CPI). The CPI was virtually unchanged in September (as compared to August). If the unadjusted price of things we need is going down, what does that mean for Main Street? To me, it suggests the buying power of a dollar now is as strong as it was this summer. Granted, this is not a long term historical comparison, but I doubt that inflation adjusted numbers would suggest that milk is as expensive as it's ever been.
Gross Domestic Product (GDP) - the total value of what Americans produced over a given period of time. GDP is closely tied to terms like economic growth, recession, and depression. On December 1, 2008, I read an article on cnn.com that stated something like, “some people erroneously think that a recession is defined by 2 consecutive quarters of GDP decline…”. The article went on to state that a private research organization has deemed that "the U.S. is officially in a recession, and has been in one since December, 2007". What was missing to me was the definition of recession that these guys actually used. It occurs to me that if one defines growth or recession on one’s own terms, one can be in any economic condition desired!
Having said that, the U.S. quarterly GDP has been up 27 of the last 31 quarters going back to the beginning of 2001 (source – U.S. Bureau of Economic Analysis website). Over that period, it was down in Bush's 1st quarter in office, the 9/11 quarter, the 4th quarter 2007, and the 3rd quarter 2008 (by the way, all nonconsecutive quarters).
So here, I’ve presented a few statistics from some leading economic indicators. All of these data demonstrate (to me at least) that we are certainly not in the worst economy since the 1930’s. So is the media coverage of this crisis related to:
a) Ratings
b) An unpopular President in the White House
c) I’m way off – the sky is indeed falling
d) Something else I’ve missed
Finally, I noticed something while watching football on Thanksgiving… a sold out arena Detroit, Michigan, smack dab in the middle of a state hit very hard by the current crisis. Is a holiday football outing still considered discretionary income?
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