-By Dan Scott
Speaking of misinformation, here is a question, how can the MSM crow that the recession is over when 1) positive GDP quarterly results haven’t been reported. 2) the EIA is reporting we once again used LESS gasoline than the disastrous year before??? 3) Summer job hires were virtually nil. 4) The gross number of unemployed has not dropped in any month despite the statistical skewing of the unemployment rate due to the continuing reduction in civilian labor force because all those on unemployment for over a year are NOT being counted as unemployed. And 5) Tax collections revenue continues to nose dive.
What we need to determine here is what are the reasonable non-political indications a recession is over because we are not getting it from the MSM or the prattling fools in Congress desperately hoping to gin up a recovery in a vain attempt in talking up the economy. Just because you can talk it down, it does not follow you can talk it up. I think they are taking this “animal spirits” thing too far, expecting people to believe the latest story line that the economy is on the rebound. At what point is the assertion falsified (
Karl Popper )? Falsification is the logical process verifying an assertion or theory is sound. A sound assertion or theory must be able to be disproved by being mutually exclusive of contradictory occurrences such as claiming the plane is not crashing because the rate of speed isn’t as great as before even though it is still headed straight to the ground. It is contradictory to claim an increase when objective measures say a decline is still present. I suggest reading what Karl Popper had to say as it really does speak directly to the current situation with the liberal spin.
How can we show an assertion of economics to be falsified? What benchmarks would be appropriate to not be simply deemed a pessimist? What are the objective terms of measure can we present that are easily understandable and difficult to spin without coming off as propagandizing for one side or the other? The point here is to give the public the means to firmly suspend their disbelief in giving the benefit of the doubt to the current administration. It is the benefit of the doubt that gives cover to the multitude of rosy stories being told.
Let’s examine some contemporaneous measures of the economy that are easily understandable.
GDP has continued to drop in a massive way in key components such as manufacturing, durable goods, exports and imports.
GDP by Industry: Value Added by Industry, Gross Output by Industry, Intermediate Inputs by Industry, the Components of Value Added by Industry, and Employment by Industry. At some point losses will slow down to a NEW equilibrium but that should not be construed as the recession being over. The percentages are annualized rates not monthly rates and therefore are deceptive. Any positive percentage at this point only means the rate of increase is a retracement off the trend and not real return to normal business activity. Any anemic annual growth rate that is not in excess of population growth and inflation is in reality recessionary or a contraction in per capita terms.
Energy consumption is proportional to economic activity.
When we look at the details our national energy consumption level it is on par for 2003. As long as energy consumption such as gasoline are not rising back toward to pre-2008 levels we know economic growth is not occurring. There is no way that we suddenly became more energy efficient to this degree over such a short period with a growing population and significantly liberals are not claiming this either.
Employment is not the lagging indicator it is made out to be, employment dropped in the run up to this recession therefore it is was a leading indicator. Unemployment began to rise in January 2007 well before the economy took a dump. The NBER attempted to cover up this leading indicator by claiming the recession started sooner than it did with some interesting mental summersaults.
Tax Revenue: Here is a nice chart showing the precipitous drop in tax revenue. Tax revenue is totally dependent on business activity and then employment. Any drop in business activity causes fewer profits and therefore fewer taxes to be collected on those profits. The same goes for employment, when lots of people are laid off, they no longer are contributors via their wages.
Here is an excellent discussion on what’s been happening with tax collections.
Is the recession over? By the charts we have about a year to go until the bottom, well into 2010. That’s only if Obama and the Democrats don’t really screw things up by passing Cap & Trade and Health Care Reform.
The real story is Obama and the Democrats believe spending money you don’t have will prime the economy out of a recession. This is in complete contrast what the American people as a whole believe. Pump priming may have been a short-term benefit when the Democrats ruled the Congress for 50 years prior to 1994, but that doesn’t hold anymore. Not when the Federal Reserve is printing money to pay for the so-called stimulus. The Fed is buying an ever-greater percentage of bond offerings by the Treasury that means private money is not available for either public bonds or private investment. No investment means no expansion of plant and equipment to create jobs. Manufacturing creates value and therefore wealth. Our economy is an inverted pyramid, where manufacturing may represent 30% of the GDP but the 70% is completely dependent on the existence of the 30%. This is why you can’t spend yourself out of a slump; you can only invest yourself out of a slump. Without expansion or renovation from investment there can be no new jobs much less replacement jobs that are deleted due to productivity gains, period…
As a side note here, the increased saving by the public while viewed as a bad thing by Democrats because it isn’t contributing to the spending is actually a good thing. Where do banks get their money to lend to businesses for plant and equipment expansion? From personal savings aggregated by the banks to make loans. This is where Keynesians have their theory all wrong and this is why Democrats continue to make the same mistakes they always have with poor government policies.
Expanding on my point of the 30% supporting the 70%, understanding the mechanics of the economy will go a long way to shutting down the liberal myth that you can spend your way out of a recession. Once people understand that manufacturers create value and therefore wealth and jobs by their activity the whole notion of this liberal myth becomes so absurd, they will look upon liberals as either total idiots or self serving corporatists.
A very simplified outline of the supply chain:
Raw materials supplier gets about 10% profit after expenses selling their product to the manufacturer.
Manufacturer gets about 10% profit after expenses selling that product to the wholesaler.
The wholesaler gets about 5% profit after expenses selling to the retailer.
The retailer gets about 7 or 8% profit after expenses selling the consumer (end user).
Notice that the combined profit of the raw material, wholesaler and retailer is around 22 to 23%. So to start off with when we compare sales volume and profit around 65% of the total sales profit is NOT the manufacturer but the wholesaler and retailer. Also, in pure sales volume the manufacturer is 1/4 of the total sales. Now this just on a macro scale to demonstrate why manufacturing is 30% of the GDP.
On the micro sale, a retailer usually charges up to four times the price they buy it for. Why? To pay labor, rent, insurance, taxes (expenses) in order to get to that 7 or 8% profit. Furthermore, on the wholesaler side typically they charge up to 36% above their buying price from the manufacturer to cover their expenses as generally summed up above.
As you can see by the very simplified summary I have given here the vast majority of economic activity is totally dependent upon the manufacturing base, because without the manufacturer they would be out of business. This shows why any stimulus, which is not directed at the base is a futile short-term waste of money. The manufacturing base over the years in this country has not decreased but increased and diversified contrary to the ludicrous claims of liberals who focus only on vehicle production, which is a proxy for union membership. As usual liberals spin the story to show how victimized their campaign contributors are when in fact, the unions screwed themselves by their own greed with ever increasing wage demands.
The same mechanics of manufacturers representing only 30% of the GDP but creating the other 70% holds true of tax cuts. When you make expenses cheaper for manufacturers to allow them to expand plant and equipment, the effect is to multiply the TAX BASE (taxpayers) because all the people who supply raw materials, wholesale and retail then expand to handle that increase in supply. The population could expand indefinitely, however, without the manufacturers, there are no jobs to employment directly or indirectly. So for every $1 you cut taxes on the manufacturer you get back $2 from the other guys, thus netting the Treasury a dollar. This is why Reaganomics works. Just targeting a tax cut (lessen expenses) to only the manufacturers would slowly revive the economy. Giving a tax cut to everyone at once adds a powerful stimulus kick starting the economy, we saw this in 2003. Had it not been for the foolishness of the Democrats blocking oil and gas drilling driving up energy prices (raising expenses on manufacturers), we just might have gotten by the mortgage debacle since those at the low end of the economic ladder would have had jobs to pay their mortgages and not tried to exit the market en masse thus destroying all liquidity.
Now you understand why any pump priming give away program like Cash for Clunkers is based on a myth and doomed to failure as it doesn’t give the manufacturers any money for investment just a prolonging of subsistence.
Informative Web sites:
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Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.
Dan can be seen on the web at http://www.geocities.com/fightbigotry2002/ as well as http://www.geocities.com/dscott8186/saidwebpage.htm, And can be reached for comments at dscott8186@yahoo.com.
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