The Economic Solution

Tim Harford comments on the variable impact of any economic slump. He could possibly do better by relating Consumption experience to loose Disposable Income. The real significant difference between Boom and Bust rests upon what People do with sudden windfalls of extra Cash. They first must have those windfalls of Cash, whether they take the form of Pay Raises, Bonuses for Good Work, Inheritance, enhanced Property Sales, or surprise Gains in the Stock Market or other facilities. The important thing is they have concentrated Cash outside of their natural Expenditure pattern, and are making the Choice of How to dispose of it. They tend to expand their Savings and Investment with the extra funds if they are worried about the future, and tend to spend heavily if they imagine they have achieved a higher pattern of Income. Fear or Faith in the future remains the governing factor in these decisions to Spend, and it does not help when Economist, Business, and Politician talk Gloom and Doom. The Reader should realize how Personal and Individual such decisions are, and recognize it is the Herd direction from this specific Group which determines Boom or Bust.

Roger Farmer and I have reached the relatively same Estimation about the future for the economy. What I would point out is the interaction of the Revisionists and the Keynesians. The worst possible fuel for Inflation with combination Retardant of the economy is low Taxes combined with low Interest rates. Low Taxes generate undue excessive Profits for Business ventures, while low Interest rates incite Business into more less-taxed Business ventures. One would nominally states this was good for Employment, except for the highly transitionary aspect of the Employment, which combines with low Wages, Underemployment, and Interim Jobs Costs all sharply reducing actual Take-Home Pay. On the other hand, there is excessive Capital expenditure on Equipment, low Unit Return on Production with such Equipment, and excessive buildup of Debt on that Equipment. The telling Point, here, is that Capital becomes highly overvalued under such circumstances, and cannot fulfil normal Productive Profitability. Here is your traditional Stagflation, though most Economists would disagree with this formulation.

The Economy is going through the traditional rudderless phase which marks the transition from Boom to Bust, which Sometimes avoids Bust, but also Sometimes avoids true Boom. It means that Everyone is insecure, and None know exactly what to do. No one has Confidence, and every day assures them that their misreadings of the economy were very real, as some added element shows stress. People turn to trusted Commentators, yet these Individuals cite a variety of formulas, with little common themes. We all await that common theme behind which We can advance, yet there is still little strength in any economic proposal. When in Doubt: have another Drink, and wait for Tomorrow. lgl