What You Don't Know Can (or Should) Embarass You!

Again, a Facebook response which turned into a blog post. This, occasioned by a person who presented a list of economic indicators, up over the last two years, as proof of Trump's economic genius and wizardry. As I began, I realized that addressing this much ignorance would take up a lot of space, so.....   

"XXXXXX... and the falsehood in almost every single statistic you post is the fatally flawed assumption that the President has much if anything whatsoever to do with any of it.      

       I reiterate for your economically semi-literate friend (who interjected another small blast of unsolicited ignorance) that the economy in the last seven Obama years, with the exception of a “micro-dip” in 2011, was on a constant upward slope, and had almost recovered the Bush administration “high” of 2006. In early 2006, the "Market" (to many, the DJIA, but actually a broader  composite of leading economic indices but, roughly synonymous with the "Economy” for this discussion), was largely under-regulated and under-scrutinized (as Trump would like it to be once more). It was also  and grossly under-supervised (hey, we're making money!) and  misunderstood by almost all CEOs of major investment banks (can you say Bear-Stearns?) and  was riding the crest of the bundled “bad” mortgage scam which would eventually collapse us into the Great Recession just in time for Barack Obama to take over the mess. Read “The Big Short” for more specifics. This was actually the second recession of the Bush 8 years, after a mini recession in 2001, again, not “W”s fault, but Osama bin Laden’s.

        In 2009, we began the long, and continuously increasing climb out of the cesspool Obama inherited, including TARP bailout spending, but not from "W," but rather deemed necessary to avoid complete collapse due to unchecked financial market malfeasance and greed. It wasn’t Bush’s “fault”, as we all know damned good and well he had little or no understanding of what was truly happening in the financial sector, but finally, by late 2009,  all major economic indicators were again on a constant positive slope. In fact between 2010 and 2012, the index of economic indicators rose more, and more sharply than during the 2016-2018 period! The article your friend cites, regarding Obama and the economy in a negative light, comes from the New York Post, once a merely more urban version of the National Enquirer, but now, as bad or worse. The Post has been criticized since the beginning of Rupert Murdoch's ownership for sensationalism, blatant advocacy, and conservative bias. The Columbia Journalism Review was more specific and stated "New York Post is no longer merely a journalistic problem. It is a social problem – a force for evil." The Post today is a stranger to factual reportage and data driven analysis.

       As I began with earlier, generally presidents have little to do with the economy unless, of course, they impose tariffs against the advice of real economic advisors, by executive order, which jacks up the price of foreign steel and aluminum. As for any federal influence on oil prices, the sole federal factor is the federal tax per gallon, which has remained constant since the Clinton administration at 19 cents/gallon. In fact, adjusted for inflation the federal portion of gas prices has been steadily decreasing. Gas prices are purely a  market supply and demand issue. 

       Citing any president as influencing gas prices is as stupid as believing Michelle Bachmann when she said if she was elected gas would be $1 per gallon. She also didn't know what she didn't know about economics. All those stats you post indirectly reflect the two overwhelming factors which actually do drive the economy.
       The first is the availability of money/credit. The driver of this isn't the President but is rather one of a relatively few officials in policy making positions whom he cannot control, that being the Fed chairman, who, with the open market committee, sets the federal funds rate with its discount rate. That's what the Fed charges banks who borrow directly from its discount window. And yes, I understand that your friend probably has no idea what this refers to, but don’t feel bad, I’m not sure the current President does either, save some vague notion that it affects the price at which the Trump Organization can borrow.

          The second and far “fuzzier” factor is consumer expectation. This is a mixed bag which no one controls. Example: I phone sales in China dip, Apple loses mega billions in stock prices (happened 2 weeks ago), markets drop, even though no real money changed hands. Lots of “imaginary money” as reflected by the share price, not “value”, mind you, that’s a far more nebulous figure, but the price of stock shares may fluctuate wildly.  Similarly, if a manufacturing sector reports higher sales and profits than expected, their stock price rises, possibly taking the market with it. These are, or are usually, short-term issues.

       Over the long haul, factors   such as the Federal Deficit are more deeply responsible for economic trends over the long haul. It also means that, as a rule, an increasingly large portion of our national debt is bought and held by foreign powers such as the Saudis and Chinese. What is equally troubling, or should be, is the (apparently) general propaganda that the tariffs recently imposed will be money makers for "us." This is extrapolated by the great unwashed as more money coming in, ergo a lower deficit. Technically it might be "sorta true", but it just ain't so, in the long run, Bubba. 

        In fact, the tariffs will generate some income for the federal government, but retaliatory tariffs by other nations will, in essence wipeout any advantage our exports may have in foreign markets. (one quick and actual example: We impose Chinese steel tariffs, perhaps we buy less Chinese steel. In retaliation, China has imposed tariffs on soybeans, which has really hurt American soybean farmers, Call it a win-win for importers, but for other sectors it's a lose-lose as well. As a point of historical  interest, until the Civil War when the first income tax was imposed (Lincoln and Congress agreed to impose a 3 percent tax on annual incomes over $800) the vast bulk of Federal Revenue came from tariffs.
 

       Sadly, and of importance in understanding to most of the MAGA chanters, many of our citizens today just don’t realize that the 19th and early 20th century, when American industry boomed, was also a time when we had, within our borders, almost all the natural resources needed for manufacturing, and were essentially able to sustain the economy without actually “needing” to import raw materials. In a real-world scenario today, where the vast bulk of rare earths and other elements critical to the manufacture of advanced electronics (as just one example) are offshore in, primarily, Brazil and China, this will never be true again. This, unfortunately, is a fact many among us either don’t want to acknowledge or, far more likely, simply don’t understand.

        Unfortunately, here's where an actual lack of understanding of economics comes in. We have seen this new tariff revenue touted as if there were no other consequences, which is blatantly false. Let's take the example of imported sheet steel. A manufacturer of (let’s just for example use metal interior wall studs) pays the tariff, as required. Not about to lose money on it, he adds that additional cost to every stud his factory produces, maybe even a few cents more since he can always say it's "due to the tariff" (not making this up, they do it!). Now the home builder supplier adds the higher cost of the steel studs to the price he charges the contractor (who perhaps "pads" it like the manufacturer but, even if he doesn't, the final cost of the house is increased by at least, if not more, the added cost of the steel due to the tariff. So yeah, the government makes a bit, but it's all (probably plus a little) paid right back by extra cost to us consumers. Who wins? absolutely no one.

       Adam Smith understood this in 1776 (“The Wealth of Nations”). Even so, blind adherence to protective tariff policies, in all candor, as well as religious bias and racism, greatly exacerbated the Great Irish Famine of the 1840s greatly. (the “Corn Laws” – look it up) Apparently Donald Trump and much of his sycophant fan base have some of the same issues in both economics and international relations.