Thursday, January 13, 2011

Economy Getting Better? What Do You Have In Your Wallet?

The latest news and business reports say that "the economy is improving. All economic indicators show..." If that is true, and not just hype, as the commercial for a credit card asks, "What do you have in your wallet?"

How can the jobless rate waiver between 9.8% and 9.5% and there be more than 450 unemployed persons (still receiving unemployment or registering at an unemployment office) for every job opening, if the economy is improving?

Well, WHAT IS THE ECONOMY? What does "THE ECONOMY" mean? The "hard and cold" definition is simply the management of resources of a community, region, country, etc. Put in other terms, it is a system of producing, distributing, and consuming wealth. Perhaps this definition would be better - "economy encompasses everything related to the production and consumption of goods and services in an area" (pick the size -city, state,country,world etc).

Economic purists would probably prefer "the system for the production (or acquisition), and allocation of limited resources". Put simply the Management of "SUPPLY AND DEMAND".

So, when you hear, "the economy is improving", all that means is that the system of managing goods and services, including such items as commodities (wheat, gold, orange crop (really)), "stuff" like cars and their production, houses both new and existing, is getting under control. Supply and demand for whatever is being managed better. There is no one person, nor any government agencies in charge of managing all of that. Entities like the Federal Reserve, the Treasury, Congress, and BUSINESS, each and all control parts of the management.

So, "THE ECONOMY IS IMPROVING" has little immediate change for individuals. "Things" are getting better (managed better) but that has no affect for you or me. Maybe in 5 or 10 or 20 years, but not NOW.

Oh, and "The ECONOMISTS SAY that ..." Who are the ECONOMISTS. They are people or groups of people who study ECONOMICS which is the study of the ECONOMY.

ECONOMICS is a SOCIAL SCIENCE, (not science like chemistry, or physics, or biology) that studies the economy. Adam Smith in his 1776 publication "The Wealth of Nations" described the economy as a self regulating market system that adjusts to fulfill the needs of the populace - from his point of view, LAND, LABOR, and CAPITAL are the three factors/components contributing to a nation's wealth. Because of the competition to use the limited resources of a country/area/town , those with money will buy the resources and use them profitably which will result in a balance of all uses so the owner will get the biggest return. Smith's concept goes on to argue that it is in the owner of the capital to use it for the public good in order to get the best return.

Okay, so the Economy is getting better means that the government has a better understanding of what went wrong and an idea of how to fix it. Fixing it means that a balance will be reached between supply and demand. There will be no glut of houses for sale, nor high unemployment, because there will be a demand for goods and services, because people will be working to provide goods and services. Sounds like a circular argument. It is, but each time you go around, you move up just a little bit.

Look, in simple terms, the "economy" tanked when everyone realized that there was no true value in certain stocks and bonds - that they were being bought and sold based on assumptions that were wrong. In essence, the little boy cried out, "Mommy, the emperor has no clothes". The end of the world? NO! The end of what was thought to be a managed system of supply and demand? YES!

The economy is getting better - government is regaining control over the supply and demand and production and distribution of good and services. It will take time and no one knows how much time.

The question for PEOPLE is not about the economy, it is about "IS MY MONEY SITUATION GETTING BETTER OR WORSE?"

Author's Copyright by Richard I. Isacoff, Esq., January 2011

No comments: