Punchinello’s Chronicles

April 9, 2009

Are the Fundamentals of the Economy Sound?

Filed under: Word of the Day — Punchinello @ 5:32 pm
Tags: , , ,

It’s Thursday, April 9, here in 2009, and everyone is raving about the financial markets. The DOW average jumped 246 points, all in one day! Wells-Fargo, one of the major banks, now that the bailout and buyout efforts are resting, announced record first-quarter profits! Economic pundits are saying that we’re in the longest “rally” since ancient history. And wow, look at the 247-point gain! The DOW closed today at 8,083.

Oddly enough, on April 3, only a week ago, the DOW closed at 8,018. You’d think that with a 247-point jump, we’d be well above 8,083 right? Well, nobody likes to keep track of the context. Nobody likes to talk about the incredible swings taking place, day by day in a highly volatile market. “Volatile” means “it changes a lot,” when you translate money-language.

Something else to consider is that we’re seeing these swings take place in days, even hours. Not over months or years. That’s not a good sign, particularly when you’re talking about global financial markets, money around the planet, and the size of the US economy. But…what the hell, it’s an adventure, right?

The point is that it’s not supposed to be an adventure!

This is like watching an airplane start to come apart in the sky. It begins to swing back and forth, buck up and down, and everything starts to shake. Violently. Its course and direction begin to go wild, but the pilots reassure the passengers that every so often, they’re still on course. For a minute or two. So disregard all the spinning and twisting, shrieking of stressed metal, and the downward inclination of the plane.

In theory, there are millions of people trading back and forth in all the world’s financial markets. So how is it that when Wells-Fargo, a large bank but still only one bank, announces they made some money, the market goes up so much? Are those millions of people hunched over in a runner’s starting position, just waiting for a single announcement?

Or is it the so-called institutional trading that makes for such swings? When the entire teacher’s association pension fund manager makes a trade, does that affect the numbers? Pretty much.

Everyone likes to talk about how despite all these ups and downs, it’s only temporary. The fundamentals of the economy are fine. What fundamentals? What are those basic, core-level principles and structures? Is that what they mean, that the “structures” of the economy will be made sound? Or do they mean the conceptual and philosophic principles?

Some would argue that a fundamental part of the economy is the American dollar. That’s a piece of paper, for those Obama voters who don’t pay attention. They might also argue that steady jobs are a fundamental part of the economy. Unions are a good thing, because unions help keep steady jobs. Regardless of whether corporations can pay the salaries.

Another fundamental seems to be corporations that are “too big to fail.” That would be like the banking systems, the Federal Reserve, and of course the automobile giants in Detroit. Then we could say that what people “need” is fundamental to the economy. So health care, doctor care, and medical intervention are all critical to each person, therefore the health care industry is fundamental to the economy.

What about food? That’s fundamental to people, so therefore, to the economy? What about a house, or a car? How about a TV? And of course, electricity and broadband Internet connections are necessary these days. So they too, must be fundamentals in the economy.

All of this comes down to a society that believes people’s lives are the same thing as an economy. Life = Economy, would be the formula. Unfortunately, that’s just stupidity. People’s lives are one thing. What they DO with those lives, generally creates an economy. Action = Economy is the better formula.

To reduce the communist manifesto to its “fundamentals,” we say: From those who have, to those who need. Effort, work, self-reliance, ideas, thought, freedom — none of that really matters. Only needs matter. Poor people and victims of tragedy need and need and need. Therefore, those who have lots of stuff “should” give it to those needy people. It’s only fair. Right?

Where did all that “stuff” come from? What created the broadband industry, the health care industry, the aviation industry? How did all this “industry” come about? Did the government sit down, one afternoon and sign it into law? Did some previous president say, “Behold! I shall bring forth Industry!” And it was good?

Of course not! Industry is the result of capitalism! It’s the result of people willing to take a risk on what they think is a Good Idea. That risk includes money. Their OWN money! It also means that a free market with limited oversight, allows for bad risks to fail.

With the election of 2008, not to mention a couple of decades prior, we’re seeing a major increase in “class envy.” We’re seeing more and more people who want to punish rich people, control rich people, regulate rich people, and tax rich people. They want to make the distribution of paper more equitable, more “fair.”

Is that fundamental to the economy? Right when consumers run out of money, have too much debt, and aren’t spending anything, the politicians want to increase taxes. They want more fees, more regulations, more paperwork, and more taxes. Always more taxes.

Who’s cutting politicians’ salaries? Where are state budgets being slashed? Is government getting smaller? Not at all.

The assumption is that “the fundamentals” of the economy are sound, continuing right along, and that nothing whatsoever will change the “luck” that some Americans have. Since wealthy, successful people were apparently just lucky to end up that way, then whatever we do to those people won’t matter. Someone else will just get lucky.

Capitalism and free markets are the fundamentals of the US economy. Whenever and wherever capitalism has taken hold, anywhere in the world, in any nation, that nation’s economy has improved. And when the economy improved, so did the daily lives of the nation’s citizens. So did their standard of living.

Today, with capitalism under assault, and free markets about to be terminated, how can anyone say that “the fundamentals” are sound? Nobody knows. It’s a mystery!

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