Monday, June 10, 2013
Wednesday, June 5, 2013
Shut Up About The Economy
Pundits love to tell us that the American economy is circling the drain due to the recession and politicians throwing money out the window like it's made of bees. To hear them say it, America is always just on the cusp of a Mad Max-style blasted hellscape.
But in the midst of all that doom and gloom, there are a whole bunch of very smart people saying that things aren't nearly as bad as the inflammatory headlines make it look. Now, I'm not saying they're right (spoiler alert: nobody can actually predict the economy), but there's no reason why we should always assume the pessimists are right, either. So if nothing else, it will improve your mood a bit to hear ...
The myth:
American spending is so off the charts that President Obama has to fly to China every year and beg on his hands and knees for the Chinese president to lend America money. With the Chinese owning most of America's debt, it's only a matter of time before China asks for their money back and we all become slaves to the dastardly communists, because that's totally how it works.
The reality:
First of all, China only owns 8 percent of the total U.S. debt. That's not enough to repossess Rhode Island, let alone the whole United States. And Washington isn't begging China for money, either. The debt that we owe to China comes from treasury bonds, which are kind of like IOUs, which they buy because it helps to keep China's currency low, which is better for trade. And because they sell so much shit to America, China basically has to buy our debt as a way to unload the trillions of American dollars we're giving them.
Also, for those worried about China swinging their economic dick around, China can't just recall their debt. First of all, you can't do that with treasury bonds, and even in a fictitious world where you could, it would be economic suicide for China. What, you thought the "debt" was money they lent because they felt sorry for the U.S. and wanted to bail them out, like lending your buddy $30 until payday? Nope. They buy debt because it's a good deal for them.
And while it's easy to panic about the amount of debt that America owes to other countries, people forget that the U.S. buys other countries' debt too, so much that it almost cancels out the issue entirely. For every dollar the U.S. owes a foreign country, it is owed 89 cents in foreign debt. America actually makes more money off of buying other people's debt than other people make buying theirs. And rest assured, those countries are probably also running terrifying ads about cackling American students making fun of their economy.
The myth:
All the stuff on your desk right now, how much of it was made in America? How about the clothes on your back? Between Japanese electronics and fabrics made in Asian sweatshops, it seems like we import everything. Mom and Dad will remind you that there once was a time when America ruled the world of manufacturing, but then the cold dark eternal winter came in the form of developing economies stealing all of those jobs.
Nowadays, every factory in America is an abandoned graveyard with a permanent ominous black cloud hanging overhead, and the only thing the Midwest produces is clinical depression.
The reality:
Although China managed to edge the U.S. off of the top seat in manufacturing in 2012, American manufacturing is still a powerhouse. In fact, America's manufacturing output is stronger than ever - it has actually doubled since 1970, and is continuing to climb. And U.S. manufacturing broke record profits in 2011, and manufacturing output is currently 35 percent above pre-recession levels. It just takes fewer people to make all of that stuff because of robots. If you want to get mad at somebody, get mad at them.
So why can't you find anything in your house that's made in America? Because America makes supercomputers and jumbo jets, while countries like China produce all of your cheap consumer stuff. Cheap-labor countries base their manufacturing on having a ton of people who can sit in factories for 18 hours a day assembling iPods. America's manufacturing is centered on its high intellectual capital, which produces more skilled workers able to make far more advanced things with far fewer people. It's estimated that American workers are almost six times more productive than Chinese workers. That's why, in 2009, American manufacturing produced more than China with less than half the workers.
And while the recession may have wreaked havoc on Detroit, the auto industry is also coming back with a vengeance. As of now, the auto industry is on track to reach its record-breaking 2007 sales, and the two companies that received government bailouts? Have paid them back. It won't result in as many high-paying union manufacturing jobs as the "good old days" because, well, we've gotten way more efficient at making things.
The myth:
Every year, thousands of illegal immigrants pole vault over the southern border and run free in these United States, feeding off the government teat. Once here, not only do they take jobs from honest, hard-working Americans, but they also suck all the money out of social services and don't pay taxes. It's obvious that, if we ever want to get out of this economic slump, we have to round each and every immigrant up, ship 'em all back to Mexico (even the ones that didn't come from Mexico), and fortify the American border with lasers and electric eels.
The reality:
The idea is that these impoverished people cross over, live off the grid, and soak up America's precious tax dollars. But actually it's estimated that illegal immigrants pay $15 billion a year into social services and only take $1 billion out of it. Social services actually relies on illegals' taxes to help the system remain solvent.
How the hell is that possible? Well, for one thing, you can't exist in America without paying taxes - just by living here and buying things, you're paying sales and property taxes. It's true that some immigrants aren't paying income taxes (in America, if your income is low enough, you aren't paying taxes anyway), but somewhere between 50 percent and 75 percent are. On the other hand, very few illegals are able to benefit from Social Security because it's really hard to get it without a legitimate Social Security number.
And then you have the "they're taking our jobs" narrative, but for the most part, illegal immigrants are taking jobs that Americans just won't do - farmers who want to hire Americans are often unable to find people willing to do the work. In Alabama, after they enacted tough new laws to drive out the illegal immigrants, the poultry industry went into crisis because legal Americans would rather be unemployed than spend their days carving up chicken parts.
Then there's the argument that illegals drive down wages, because they're basically willing to work for peanuts, right? Well, it's true that illegal immigrants lower wages somewhere between 0.4 percent and 7.4 percent for low-skilled workers, but for the rest of America, there is virtually no impact on wages. In fact, immigrants actually increase the income of American families a small amount. By taking on the grunt work that Americans don't want to do, immigrants free up skilled workers to do more of the work that they're paid higher wages for.
Boil it down, and the majority of economists agree that illegal immigrants have a net positive effect on the economy. Which seems hard to argue against - if they're "taking our jobs," it means they're working, and getting paid, and spending that money. That isn't bad for the economy - that is the economy.
But while I'm stepping into hot-button issues ...
The myth:
It's a simple principle - if you make $2 and spend $5, then you are $3 in debt and need to tighten your purse strings, Spendy McSpenderson. But Obama and Congress must have been four hours into a rampant coke binge when this very simple concept was explained to the rest of us and they can't seem to get it through their heads. We're in a recession, and yet they still choose to run deficits, because they're big-spending nanny state socialist wackjobs.
The reality:
The big problem when trying to understand deficit and budget stuff is that everyone wants to compare it to their own household budget (a favorite tactic of pundits). It's understandable that people want to try to simplify the issue, but this is one of those times when simplifying makes it wrong.
While it seems absurd to think that a country, a business, or anyone else can "spend their way out of hard times" (because it sounds like a drunk spending more money on gin in order to forget the problems caused by yesterday's gin), for every government, running a deficit is just something they have to do when the economy is bad in order to keep it from getting worse.
It works like this: When the economy goes into recession, people obviously have less money. That means the government has to cut taxes to give people a break. That means less revenue, and on top of that, the government has to spend more on unemployment benefits, food stamps, and such because a lot more people need them now. So basically the government has less money and higher bills. And you want the government to keep spending that money, not because we're all communists who want to be enslaved by Big Brother, but because that spending helps the government to stabilize the downfall.
The biggest problem with an economic downturn is the potential for a death spiral - you lose your job, so you don't have money to spend at McDonald's, then McDonald's closes and all those people lose their jobs, then they don't have the money to spend at the grocery store, then it closes, etc. The government, however, can use its borrowing power to break that chain reaction - you lose your job, but you have food stamps, which you spend at the grocery store, so it doesn't have to close and its employees can keep drawing paychecks. That way you don't get into a situation where everyone is out of work at once - you keep things afloat until people can find work again.
Then once things have turned around - and this is key - you start paying those deficits back. Oh, look at this - the U.S. deficit has been slashed by a third just over the last few months. How about that.
But the point is, this is why the political arguments about the deficit tend to be somewhat full of shit - it's not a war between the hard-working private sector and the evil oppressive big government. It's about how much money the government should pump into the private sector to keep it afloat, versus how much debt it can take on.
Which finally brings me to...
The myth:
The United States is spending money like a lottery winner with terminal cancer and racking up debt much faster than it can repay it. The U.S. now owes $16 trillion, a number so high, we don't even know how many zeroes that is. Politicians frequently use a bunch of fancy graphs to highlight the fact that America is running headlong into financial ruin. Washington, they say, is going to have to curb its spending fast or else we're going to wind up like Greece - utter collapse, followed by rioting in the streets (as a common talking point goes).
The reality:
The raw number is mind-boggling, but that number only matters when compared to the size of the economy. For instance, if you personally wound up $20 million in debt, your only option would be faking your own death and starting a new life in some foreign land. Donald Trump, on the other hand, takes on $20 million in debt on impulse purchases he barely notices. It all comes down to how rich you are, and the U.S. economy is the Donald Trump in that scenario (the total assets of the USA are around $200 trillion).
So for instance, one way to measure just how screwed a country is involves measuring public debt against gross domestic product (to compare their debt to their economy). For the U.S., that ratio is 73 percent, which seems high, but it means we're in better shape than Germany, the United Kingdom, Canada, and other countries you don't think of as being on the verge of getting their land repossessed (Japan, for example, is at 214 percent).
The other important thing isn't the amount of money that the government owes, but rather the interest on that amount, which is what it actually pays back. That isn't very much, considering that interest rates are at historic lows - it's very cheap for the U.S. to borrow right now. Also remember that a growing economy can turn the situation around fast - the government took on a lot of debt during World War II, but the growth of the economy afterward made the debt irrelevant.
Now, again, this isn't a "free government jet skis for everybody!" situation. For instance, there is a real problem with the population getting older and the fact that old people are expensive to take care of. But the U.S. is not Greece - the danger is less "Road Warrior apocalypse" and more "higher taxes, later retirement, and possible inflation."
None of those are good things, but let's not abuse the word "crisis" here. It's okay to step back, take a deep breath, and appreciate that things could be much, much worse.
Also, let's remember who put us here.
Ahem.
But in the midst of all that doom and gloom, there are a whole bunch of very smart people saying that things aren't nearly as bad as the inflammatory headlines make it look. Now, I'm not saying they're right (spoiler alert: nobody can actually predict the economy), but there's no reason why we should always assume the pessimists are right, either. So if nothing else, it will improve your mood a bit to hear ...
No, China Isn't on the Verge of Owning America
American spending is so off the charts that President Obama has to fly to China every year and beg on his hands and knees for the Chinese president to lend America money. With the Chinese owning most of America's debt, it's only a matter of time before China asks for their money back and we all become slaves to the dastardly communists, because that's totally how it works.
The reality:
First of all, China only owns 8 percent of the total U.S. debt. That's not enough to repossess Rhode Island, let alone the whole United States. And Washington isn't begging China for money, either. The debt that we owe to China comes from treasury bonds, which are kind of like IOUs, which they buy because it helps to keep China's currency low, which is better for trade. And because they sell so much shit to America, China basically has to buy our debt as a way to unload the trillions of American dollars we're giving them.
 |
| "That'll be $4 trillion dollars, please." |
And while it's easy to panic about the amount of debt that America owes to other countries, people forget that the U.S. buys other countries' debt too, so much that it almost cancels out the issue entirely. For every dollar the U.S. owes a foreign country, it is owed 89 cents in foreign debt. America actually makes more money off of buying other people's debt than other people make buying theirs. And rest assured, those countries are probably also running terrifying ads about cackling American students making fun of their economy.
No, American Manufacturing Isn't Dead
All the stuff on your desk right now, how much of it was made in America? How about the clothes on your back? Between Japanese electronics and fabrics made in Asian sweatshops, it seems like we import everything. Mom and Dad will remind you that there once was a time when America ruled the world of manufacturing, but then the cold dark eternal winter came in the form of developing economies stealing all of those jobs.
Nowadays, every factory in America is an abandoned graveyard with a permanent ominous black cloud hanging overhead, and the only thing the Midwest produces is clinical depression.
The reality:
Although China managed to edge the U.S. off of the top seat in manufacturing in 2012, American manufacturing is still a powerhouse. In fact, America's manufacturing output is stronger than ever - it has actually doubled since 1970, and is continuing to climb. And U.S. manufacturing broke record profits in 2011, and manufacturing output is currently 35 percent above pre-recession levels. It just takes fewer people to make all of that stuff because of robots. If you want to get mad at somebody, get mad at them.
So why can't you find anything in your house that's made in America? Because America makes supercomputers and jumbo jets, while countries like China produce all of your cheap consumer stuff. Cheap-labor countries base their manufacturing on having a ton of people who can sit in factories for 18 hours a day assembling iPods. America's manufacturing is centered on its high intellectual capital, which produces more skilled workers able to make far more advanced things with far fewer people. It's estimated that American workers are almost six times more productive than Chinese workers. That's why, in 2009, American manufacturing produced more than China with less than half the workers.
And while the recession may have wreaked havoc on Detroit, the auto industry is also coming back with a vengeance. As of now, the auto industry is on track to reach its record-breaking 2007 sales, and the two companies that received government bailouts? Have paid them back. It won't result in as many high-paying union manufacturing jobs as the "good old days" because, well, we've gotten way more efficient at making things.
Yeah, Illegal Immigrants Appear to Be Helping the Economy
Every year, thousands of illegal immigrants pole vault over the southern border and run free in these United States, feeding off the government teat. Once here, not only do they take jobs from honest, hard-working Americans, but they also suck all the money out of social services and don't pay taxes. It's obvious that, if we ever want to get out of this economic slump, we have to round each and every immigrant up, ship 'em all back to Mexico (even the ones that didn't come from Mexico), and fortify the American border with lasers and electric eels.
The reality:
The idea is that these impoverished people cross over, live off the grid, and soak up America's precious tax dollars. But actually it's estimated that illegal immigrants pay $15 billion a year into social services and only take $1 billion out of it. Social services actually relies on illegals' taxes to help the system remain solvent.
How the hell is that possible? Well, for one thing, you can't exist in America without paying taxes - just by living here and buying things, you're paying sales and property taxes. It's true that some immigrants aren't paying income taxes (in America, if your income is low enough, you aren't paying taxes anyway), but somewhere between 50 percent and 75 percent are. On the other hand, very few illegals are able to benefit from Social Security because it's really hard to get it without a legitimate Social Security number.
And then you have the "they're taking our jobs" narrative, but for the most part, illegal immigrants are taking jobs that Americans just won't do - farmers who want to hire Americans are often unable to find people willing to do the work. In Alabama, after they enacted tough new laws to drive out the illegal immigrants, the poultry industry went into crisis because legal Americans would rather be unemployed than spend their days carving up chicken parts.
Then there's the argument that illegals drive down wages, because they're basically willing to work for peanuts, right? Well, it's true that illegal immigrants lower wages somewhere between 0.4 percent and 7.4 percent for low-skilled workers, but for the rest of America, there is virtually no impact on wages. In fact, immigrants actually increase the income of American families a small amount. By taking on the grunt work that Americans don't want to do, immigrants free up skilled workers to do more of the work that they're paid higher wages for.
Boil it down, and the majority of economists agree that illegal immigrants have a net positive effect on the economy. Which seems hard to argue against - if they're "taking our jobs," it means they're working, and getting paid, and spending that money. That isn't bad for the economy - that is the economy.
But while I'm stepping into hot-button issues ...
No, Deficits Aren't Always Bad
The myth:
It's a simple principle - if you make $2 and spend $5, then you are $3 in debt and need to tighten your purse strings, Spendy McSpenderson. But Obama and Congress must have been four hours into a rampant coke binge when this very simple concept was explained to the rest of us and they can't seem to get it through their heads. We're in a recession, and yet they still choose to run deficits, because they're big-spending nanny state socialist wackjobs.
The reality:
The big problem when trying to understand deficit and budget stuff is that everyone wants to compare it to their own household budget (a favorite tactic of pundits). It's understandable that people want to try to simplify the issue, but this is one of those times when simplifying makes it wrong.
While it seems absurd to think that a country, a business, or anyone else can "spend their way out of hard times" (because it sounds like a drunk spending more money on gin in order to forget the problems caused by yesterday's gin), for every government, running a deficit is just something they have to do when the economy is bad in order to keep it from getting worse.
It works like this: When the economy goes into recession, people obviously have less money. That means the government has to cut taxes to give people a break. That means less revenue, and on top of that, the government has to spend more on unemployment benefits, food stamps, and such because a lot more people need them now. So basically the government has less money and higher bills. And you want the government to keep spending that money, not because we're all communists who want to be enslaved by Big Brother, but because that spending helps the government to stabilize the downfall.
The biggest problem with an economic downturn is the potential for a death spiral - you lose your job, so you don't have money to spend at McDonald's, then McDonald's closes and all those people lose their jobs, then they don't have the money to spend at the grocery store, then it closes, etc. The government, however, can use its borrowing power to break that chain reaction - you lose your job, but you have food stamps, which you spend at the grocery store, so it doesn't have to close and its employees can keep drawing paychecks. That way you don't get into a situation where everyone is out of work at once - you keep things afloat until people can find work again.
Then once things have turned around - and this is key - you start paying those deficits back. Oh, look at this - the U.S. deficit has been slashed by a third just over the last few months. How about that.
But the point is, this is why the political arguments about the deficit tend to be somewhat full of shit - it's not a war between the hard-working private sector and the evil oppressive big government. It's about how much money the government should pump into the private sector to keep it afloat, versus how much debt it can take on.
Which finally brings me to...
No, America Doesn't Have a Debt Crisis (Not Yet, Anyway)
The United States is spending money like a lottery winner with terminal cancer and racking up debt much faster than it can repay it. The U.S. now owes $16 trillion, a number so high, we don't even know how many zeroes that is. Politicians frequently use a bunch of fancy graphs to highlight the fact that America is running headlong into financial ruin. Washington, they say, is going to have to curb its spending fast or else we're going to wind up like Greece - utter collapse, followed by rioting in the streets (as a common talking point goes).
The reality:
The raw number is mind-boggling, but that number only matters when compared to the size of the economy. For instance, if you personally wound up $20 million in debt, your only option would be faking your own death and starting a new life in some foreign land. Donald Trump, on the other hand, takes on $20 million in debt on impulse purchases he barely notices. It all comes down to how rich you are, and the U.S. economy is the Donald Trump in that scenario (the total assets of the USA are around $200 trillion).
So for instance, one way to measure just how screwed a country is involves measuring public debt against gross domestic product (to compare their debt to their economy). For the U.S., that ratio is 73 percent, which seems high, but it means we're in better shape than Germany, the United Kingdom, Canada, and other countries you don't think of as being on the verge of getting their land repossessed (Japan, for example, is at 214 percent).
 |
| Hm. I have no idea why. |
Now, again, this isn't a "free government jet skis for everybody!" situation. For instance, there is a real problem with the population getting older and the fact that old people are expensive to take care of. But the U.S. is not Greece - the danger is less "Road Warrior apocalypse" and more "higher taxes, later retirement, and possible inflation."
None of those are good things, but let's not abuse the word "crisis" here. It's okay to step back, take a deep breath, and appreciate that things could be much, much worse.
Also, let's remember who put us here.
Ahem.
Tuesday, June 4, 2013
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