Monday, February 27, 2012

Is The Economy Recovery A “Slam Dunk”?

Déjà Vu All Over Again

Almost all the experts have agreed that an economic recovery has begun. Now the discussion is on how weak or strong the recovery is and if it will last. Many descriptions of the current recovery include the words: slow, modest and sluggish.

But it is a recovery. Last year at this time the economy also had shown some strength but then financial troubles in Europe, unrest in the Middle East and high gas prices derailed the train. It’s a good thing we don’t have to worry about any of those things this year. What? ….. Hey, wait a minute.

Yes those stupid, irresponsible, Greeks. For years their government overspent to the point that they were actually spending and ran up huge deficits. The politicians kept providing larger and larger benefits and entitlements to keep the people happy and ensure they would stay in power. They are definitely not as smart as we are because we ….. whoops, moving on….

Then you have the situation in Iran. We don’t want them to have nuclear bombs because they will use them to threaten their enemies to get what they want. Of course we are threatening them with our military might until they do what we want. Obviously Iranian nuclear bombs are a bad thing, but again it seems a bit hypocritical.

Last month President Obama basically said we have all the petroleum we need so we have no need for a new pipeline that would provide more oil from Canada.  This month he is very concerned that gas prices are too high and is going to do everything possible to bring them down.  Of course basic economics says that an increase in supply (FROM A NEW PIPELINE IN CANADA PERHAPS) would create lower prices.  Idiots will argue that the pipeline will not lower prices now, but if you don’t like paying more for gas in the present, why would you want to pay even more in the future?  We have just hit the “Hypocrite Trifecta”.

A Weighted-Down Economy
The economy is growing but is being weighted down by a weak housing market, high unemployment, consumer and business caution, a still healing financial system, and new regulations.  The housing market was overstimulated for years and is just starting its recovery (I predicted a February recovery months ago).  There remains a significant structural unemployment issue that requires funding for worker training and a stable housing market so more people can move to where the jobs are.  Everyone is still cautious due to the whole economic and world situation. The credit markets are healing slowly.  And the new regulations due to the Healthcare Act and other mandates are causing uncertainty and barriers that hinder growth.

The fact that the economy is still growing at around a 2% rate with all these obstacles is really a testament to how strong and resilient the U.S. Economy really is.  If there was nothing weighing it down, I think current economic growth would be in the 5-7% range.

So I think this economy is running with ankle weights. Athletes wear ankle weights to strengthen their legs while walking and performing everyday activities.  I wore them as a teenager, probably because I thought it was a cool thing to do.  Looking back on this I initially thought that it was a huge waste of time and appeared very foolish since I never became much of an athlete.  (My old ankle weights are pictured here.  The fact that I still have them qualifies me to appear on the TV show "Hoarders")

However, on second thought there was one athletic feat that I did accomplish that is impressive. I could dunk a basketball.  I am 6’ 3” tall, however although I was not fat, I was “big-boned”. So it took some serious strength to lift this thick body that high off the ground, but this white man could jump.  In addition, my knees are unusually strong.  So I have to guess that wearing the ankle weights did provide a benefit.

My New Theory

And considering the benefits of wearing ankle weights leads me to a new theory:  Maybe the economy will be stronger in the long run because it is still moving forward despite significant obstacles.  A slow recovery might be better than a fast recovery if the economy gets “restructured” in the right way.  This may set the foundation for solid long-term growth.

Think of it this way, we drove our car too fast and recklessly and drove it right into the ditch.  Things got bent and parts were damaged.  Now you could haul it out of the ditch, jump back in the car and drive it on down the highway.  Or you could take the time to repair the damage and replace the parts before starting up again.

The U.S. economy is still incredibly resilient. If we can make through the new obstacles and get better policy decisions from our government, it will be time to “slam dunk” again.       

Monday, February 13, 2012

The Tale of the Berry Pickers

Almost two years ago I introduced you to the land of Nectarinia.  Nectarinia produces vast amounts of honey, some of which is given to the government to promote the public good.  Unfortunately, the people of Nectarinia made the mistake of selecting a Pooh Bear as their current leader.  And as everyone knows, pooh bears have an insatiable appetite for honey.  We now revisit Nectarinia as it has its annual berry harvest.

Every year the delicious nectar berry bushes produce fruit for a short two week period.  The berries are only ripe for this time and almost all of the berries get picked before they spoil. The people of Nectarinia stop refining honey during this time to collect as many of the coveted berries as they can.  This year’s harvest has just concluded and leader Pooh Bear is addressing the people. 

Pooh Bear:  “I have noticed that during the berry harvest that some people were able to collect many more berries that others.  I propose in the spirit of fairness and equity that we take some of the berries from the people who picked many and give them to the people who picked few.” 

The people who would receive more berries were ecstatic.  “Free Berries!” they exclaimed.

But the people who had picked the most berries (the “Big Pickers”) were outraged.   

Big Pickers: “Fair? Are you serious?  How is it fair to take away the berries that we worked so hard to pick?”

Pooh Bear:  “But I am the leader, so only I get to decide what is fair and I like having the power to decide who gets the berries.  And those people just love me for providing them with free berries.”

But the “Big Pickers” were not mollified.  “Many of us sacrificed to gather more berries.  Some bought books on berry picking strategies. Some invested resources to create better berry picking processes.  Some went without adequate sleep to gather the berries and some required medical treatment from being scratched by the thorns.  What gives you the right to take away our berries?” they protested. 

Pooh Bear:  “But these people still don’t have enough berries.  How do you propose to correct that?”
Big Pickers:  “Perhaps instead of spending all your time developing plans to take our berries, you could develop some ideas on how to increase the berry crop.”

Pooh Bear:  “That’s just kooky talk.  How would we do that?”

Big Pickers:  “Maybe we could expand the space where the berries are planted.  Maybe new fertilizers could be approved that would increase the berry yield.  You’re the leader; it’s your job to figure it out.”

Pooh Bear:  “I think you guys are just greedy.  It’s that berry (and honey) greed that is hurting Nectarinia.  Of course it is just you guys who are greedy.  The rest of us really aren’t.  So that gives us the moral authority to tell you how bad you really are and as punishment you need to give up your berries.”

Big Pickers:  “Look we realize some people need help to get berries.  When the berry redistribution plan was started it was to provide berries for those who were unable to pick any due to special circumstances.  But over time, more and more people found reasons not to go pick and to then receive free berries.  Now you want to take even more of the berries for people who do pick berries, but not enough of them.”

Pooh Bear:  “That may be true.  But who wants free berries?”

The Free Berry Recipients:  “We Do!”

The Big Pickers: “You do realize that if you take more of our berries, the total harvest will be reduced and there will be fewer berries for everyone.”

Pooh Bear: “What strange talk is this?”

The Big Pickers:  “It’s called economics.  I would think an Ivy-league educated pooh-bear would have studied economics.”
Pooh Bear:  “Yes, yes I do remember a class called economics in college.”

The Big Pickers: “Perhaps Poo Bear should have paid more attention in class.”

So Pooh Bear and The Big Pickers continue to vigorously debate how the berries from the harvest should be redistributed. 

The First Nectarina Blog