How the Ball Lost Its Bounce

Zero.

0.00000

Nada.

That is how many jobs were added in the August jobs report - zero.  At this point can anyone even trot out the cliched "unexpectedly worse" line to describe this report?  It's absolutely not unexpected if you understand how our economy operates.

Let me provide a quick picture of how our economy works.

Imagine a bouncy ball - it represents the movement of our economy moving forward in time.  As the ball moves upward, our economy is experiencing growth.  But as the economy grows, poor decisions or wagers accumulate.  Think about the tech bubble or the housing bubble.  As people continue to overprice certain stocks or commodities, overhire & overspend, the ball begins to become weighted down by all this - we'll call it excess.

Burdened by the weight, the ball begins to fall.  Somewhere underneath is a natural floor which the ball will hit.  This is the downturn of a recession.  But when the ball hits this floor, all the excess will be broken off the ball and the bouncy ball will do what bouncy balls tend to do when they hit the floor quickly.  It will bounce back.  And the cycle will repeat itself if left alone.

The problem develops when the government tries to alter the cycle.  Can government help?  Yes, but only when it understands how.

In 2008-2009, both Presidents Bush & Obama saw an economy in a death fall and they believed they could and should do something about it and they did.  Rather than allow the ball to fall to its natural floor, they attempted to arrest the fall - which they did.

(Wait a minute.  Are you giving President Obama credit for ending the economic downturn?  Absolutely.)

The policies put into place, mostly by Obama, created a soft landing place for our economy, sort of like a pillow, in an attempt to protect Americans from being hurt by the fall.  It arrested the fall before it hit a natural floor, thus keeping the downturn from going as low as it may have. 

But, unlike what Obama says, that does not mean he prevented another Great Depression.  In fact, he has ensured that we would go through a depression.

By cushioning the fall, protecting homeowners, bailing out banks & the auto industry, funding states, Obama prevented the ball from shedding the excess that had accumulated on it.  Now it just sits there, overweighted with no bounce.  It's not going anywhere for a while.  This pretty much represents, if not a literal depression,  then at least the quagmire our economy is stuck in.

Even worse, the president's administration is putting in place new regulations that will represent obstacles to growth, so that even if we can get the ball bouncing, it will be hard to build any momentum.

Contrary to how this recession was handled, look at how Ronald Reagan reacted to taking office under a similar economic downturn.

Reagan understood that a falling economy could not be propped up.  Rather than attempt to stop the fall, he & Treasury Secretary Volker put into place policies that actually accelerated the fall.  By doing so, the economy hit the floor sooner and quicker.  This created an even larger bounce than would normally be expected.  The economy quickly shed the excess and took off. 

In addition, Reagan's tax & regulatory policies gave the economy room to grow so the ball bounced higher and higher than ever before and created a higher floor for the next bounce.

President Obama will give a speech next week on jobs.  I wish it mattered.  Unfortunately, I don't see how it does.  As long as our ball sits on the ground, covered in excess, surrounded by new regulations and the threat of higher taxes, it's not going anywhere anytime soon.

Ruminations From the Void

Double standards - noun - any code or set of principles containing different provisions for one group of people than for another...

Hypocrisy - noun - the practice of professing standards, beliefs, etc, contrary to one's real character or actual behaviour

Double standards exist when two groups are held to differing standards due to an inherent difference between the groups.  People often have different standards for men and women given the many differences between the groups.  It is somewhat less acceptable to regard groups of different ethnic or religious cultures differently, but it happens.  With the exception of a few fringe groups, the standards for humans and animals are wisely very different.

Hypocrisy on the other hand is when a person exhibits a standard for others and refuses to hold themselves to that same standard.

A double standard says "some for this one, but not for that one" and hypocrisy says "some for me, but none for thee".  Got it?  Of course there is always a situation where one simply has no guiding principles and improvises standards all willy-nilly. 

Beyond that, some use an immutable guiding principle for their words and actions.  See if you can spot which approach is being used in each story of today's Ruminations.  Don't be afraid to call me out too.

#1 - Here is President Obama in remarks made Friday, March 18th 2011,

Now, here's why this matters to us. Left unchecked, we have every reason to believe that Qadhafi would commit atrocities against his people. Many thousands could die. A humanitarian crisis would ensue.  The entire region could be destabilized, endangering many of our allies and partners.  The calls of the Libyan people for help would go unanswered. The democratic values that we stand for would be overrun.  Moreover, the words of the international community would be rendered hollow.

And that's why the United States has worked with our allies and partners to shape a strong international response at he United Nations. Our focus has been clear: protecting innocent civilians within Libya and holding the Qadhafi regime accountable.

Our decisions have been driven by Qadhafi's refusal to respect the rights of his people and the potential for mass murder of innocent civilians.

In 2007, an interview with Senator Obama began with this lede,

Democratic presidential hopeful Barack Obama said Thursday the United States cannot use its military to solve humanitarian problems and that preventing a potential genocide in Iraq isn't a good enough reason to keep U.S. forces there.

Tell Them About the Twinkie

I love Washington DC math.  I'm already a math geek as it is, but when you throw in a certain amount of creativity, math can really be a lot of fun.  I just wish there was a tangible use for Washington math in the real world.  Balancing my household budget would be a piece of cake.  If only...

This week, HHS Secretary Kathleen Sebelius testified before a House subcommittee.  She was questioned on an obvious budgetary fudge of double counting money saved from cuts to Medicare Advantage.  During questioning Rep. John Shimkus (R) asked her,

What’s the $500 billion in cuts for? Preserving Medicare or funding the health-care law?

Sebelius’ reply? “Both.”

By the sheer force of her will power, Secretary Sebelius is able to take $500 billion in cuts and double that into $1 trillion.  Her talents are being wasted in HHS.  Surely the ability to double money on a whim could be used more productively in other areas.