Let the Tail Wag the Dog

I found myself feeling as though I was in the Twilight Zone recently when the government announced that due to the bad economy our international trade deficit for one month was only a record low of 39 billion dollars. Don't look now, folks, but that is pathetic. If we want to get our economic house in order, we should give priority to reducing our international trade deficit and not let it turn out to be whatever happens. The G7 trade ministers are putting pressure on countries not to respond to bad economic times by turning protectionist, i.e. telling their people to buy only their domestic products. They fear that protectionism will reduce the total amount of international trade and lead the world into a downward economic spiral. I have a modified plan to suggest. Let Americans buy anything they want from any country they want, but set a gradually decreasing international trade deficit target, and by law state that the trade deficit cannot exceed the monthly or annual benchmark. Once the difference between imports and exports exceeds that deficit, the only legal way to import more would be to export more. It would help the situation if Americans bought domestic goods, and it would also put pressure on foreign firms and countries to buy U.S. goods if they wanted to be allowed to increase their exports to the U.S.A. It's not protectionism. It's common sense.

Sexual Economics on Valentines Day

On every other day of the year except for February 14th (and a few days anticipating it), women do almost all of the shopping and most of the consumer buying. It all changes in the pre-Valentines Day period when men (in a spirit of self-preservation, if not romance) shop and purchase generously. I predict that we will see an economic pulse upward this week because of men realizing that it is time to buy for the sake of their relationships with women. It is even possible that in this year's tough economic environment some men (and women) will spend more on Valentines Day to add cheer to an otherwise bleak period. I was at the local Costco this morning, and during the first half hour an amazing number of people had already done their shopping and were checking out, 95% of them with at least one bouquet of flowers. We still pursue romance, and we still have optimism. Nurture those qualities well for an economic and spiritual rebound.

The Velocity of Money

The battle is being fought in Washington now about how huge the amount of money we should have in the Stimulus Package in order to get the economy back on the recovery track. Perhaps more important than the amount of money is the character of the projects we are going to tackle with this money. I'm not trying to nit-pick the specific projects; the politicians have already done that, and neither side is completely satisfied. What we have to study is whether we will be funding projects that get the money moving through the system rapidly. If you give me one dollar, and I put it into my savings account, the bank may lend it out in a few weeks to someone who might use the loan to make a down payment on a house a month later. In this example, the single dollar changes hands three times in a couple of months. The economy basically had three dollars pumped into circulation over two months. If, instead, you give me one dollar, and I use it to pay for groceries, and the store uses it to replace the item I bought, and the wholesaler uses it to pay his employee, and the employee uses it to pay for gasoline, and the gas station owner uses it to buy more gasoline to sell, the same dollar changes hands six times in a few days. There are effectively six dollars pumped into circulation in a few days, or potentially, more than one hundred dollars added to the circulation in the same two month period as before. If we want a rapid recovery from our economic malaise, we need to get the new money pumped into the economy in ways that make it circulate from person to person and company to company in a high-velocity fashion. The faster the money circulates, the more quickly we will recover. The problem right now is that people have stopped buying whenever possible. In a bad economy the velocity of money circulation slows to a crawl.

What Is a Bank?

I was in my local branch bank today to expedite a computer glitch, and the banker suggested that I cancel one of my accounts and open a different type that would pay 1% interest instead of 0.5% interest. My response was that at this time banks are Piggy Banks, places for holding your money securely, and places to store cash as a liquid asset, but that they are no longer sources of significant earnings. In this economy, it is important to have cash in the bank as protection against the declining stock market. Cash in the bank means you don't have to sell securities and turn a paper loss into an actual loss. However, most bankers still talk about their interest rates with a straight face, as though they mean something. Banks are quick to cut the interest rates they pay on deposits when the Fed lowers their rates for borrowing funds, but they completely resist lowering the rates they charge for outstanding balances on credit cards. Why is this so? What is there about the people on Wall Street who single-handedly ruined the world's economy, that makes them think they deserve huge bonuses for having done so? Maybe we need a new financial system wherein loans are issued by companies that have actually earned the money in their coffers. Then they would really be loaning their own money and would be more careful with it. The banks deal in someone else's money but treat it as their own.

Self-Fulfilling Prophecies

President Obama is starting out well with an approach that is both pragmatic and positive in outlook. We do not yet know how successful he will be as he tackles the many problems facing the United States, but the important thing is that he is giving the strong impression that he knows how to get from here to positive results. Probably the most immediate problem facing the U.S. and the world as a whole is resurrecting the economy. There are many ambitious programs planned, but perhaps the most important thing is to generate a positive outlook in the marketplace. If we think things will get better, they will. We tend to act out our expectations. If we feel things are falling apart, we delay large expenditures and curtail spending on avoidable things such as dining out and home improvements. If we can convince ourselves that we are on the way back, people invest in the stock market because they expect to make a profit, they buy cars, and they consider moves to better jobs and homes. One counterproductive trend is that corporations take advantage of down times in the economy by cutting their payrolls and costs so that they will be more efficient when the economy improves. We are also seeing the greedy investment swindlers trying to disappear with their profits before they have to face the justice system. The stock market and our attitudes are leading indicators of the health of the economy. When they both turn positive, we will be on the way back. So, have a positive outlook. This is one time in history when we have nowhere to go but up.

Manufacturing Is Still the Key to the Economy

For many years American corporations have been chasing short-term profits by having more and more products manufactured outside of the country where unit costs are substantially lower. Taken out of context, this is a logical thing to do in order to be competitive in worldwide markets. This approach does, however, give the U.S. major problems that may not be immediately obvious to the individual corporation. First, when we start having our products made internationally, we give away our technological techniques and capabilities. Not only do we teach others how to make our products, but we later tend to let them work out the hands-on local production techniques for subsequent orders rather than controlling them ourselves. The second problem with having products made elsewhere is that we remove large numbers of jobs from our available employment pool. The product may be more cheaply made elsewhere, but if our companies aren't paying our manufacturing workers, then our taxpayers end up paying them through unemployment compensation, retraining costs, and inefficiencies when well-trained workers in one sector are forced to take jobs for which they are improperly matched in another sector. The third problem is that each manufacturing job creates several other support and service jobs. There was a time when people claimed that the economy could thrive on service jobs alone. This works out in a boom period, but in a bust period we discover that many of the service jobs are not really necessary, and the amount of unemployment is enhanced when people stop making consumption expenditures. One of the better ways to turn the economy around is to return more products to high-quality domestic production and to convince our consumers that they have a large economic stake in keeping American manufacturers healthy by buying their products. Further, increases in domestic manufacturing and technology are increases in national security in time of war. Self-sufficiency enhances control of your destiny.

Wait 'til Next Year (Cubs 101:1-165)

2009 is upon us, and I have to ask myself, "Is this really a new beginning?" We like to be neat about our life histories, and it always makes us feel good to have a fresh start. Why? Because if you start over fresh, you can stop worrying about the problems and difficulties you've had up to this point. Do it tomorrow; you've made enough mistakes today. The truth is that calendar years are convenient fictions. On New Year's Day, a forty-eight year old person born on January 1st could just as easily say, "Here I am at the 17532nd day of my life. What would be good to do today?"

The truth is that we are who and what we are because of all of our past learning and experiences, and that is what gives today its potential for being something special for us. When we feel pleased that we are starting fresh, we are really trying to sweep the past under the rug, and that is a mistake. Each person's life builds on the experiences and values of those who have gone before him or her. What you should do with 2009 is to live it in a way that adds to your values in order to further grow your personal, family, and religious traditions. If you really started over anew, you would be like a tree that had no roots.

The Cubs are who they are in the Friendly Confines because they have learned to cherish their roots. Maybe this year they'll learn how to make those roots sprout.