Economic Madness

I am, admittedly, not an economist, but I am astounded at all of the giddy press that is resulting from the published news that our economy shrank by one percent in the second quarter, and especially by the accompanying predictions that a) it means that the economy will grow in the third quarter and b) that we are in the beginning of economic recovery. So the stock market is soaring and people are buying cars literally faster than the government can provide money to subsidize them.

Somebody with a higher forehead than mine will have to interpret the facts that federal government spending grew by 10.5% in the second quarter, state government by 1.5% and that everything else shrank, including the overall economy, and how that relates to economic recovery, because I just don’t see it. When manufacturing decreased by 7% and more than half a million people lost their jobs in any single month of that quarter, I just have a hard time seeing that as indicative of a recovery.

Part of the stock market gain was supposedly due to the drop in the number reported as continuing to draw unemployment; but given that 1.5 million people lost their jobs in that quarter, it should not take a rocket scientist to figure out that drop was not due to people getting jobs, it was due to people’s unemployment benefits expiring.

The CARS program is evidence that “the stimulus is working” except that those cars are being sold from inventory; a goodly number of them from dealerships that are going out of business. How many of those dealers are going to replenish that inventory once the CARS program ends? That huge boost of current sales is all but certainly going to be followed by a huge slump in future sales; the program is not so much creating sales as it is moving future sales into the present.

It's a good enough program, and trading low mileage polluting cars for more efficient ones is a worthy goal, but let's not kid ourselves about this being the "stimulus" to the economy that is going to make things better.

Meaningful stimulus to the economy involves putting people to work, creating projects and businesses which put unemployed people to work and provide them with paychecks (the $2 billion extension of CARS is being diverted from just such programs, in fact) and not “feel good” handouts that stimulate short term consumer spending.

Meanwhile the stock market, like a self-licking ice cream cone, continues to grow based on things such as diminishing unemployment rolls and an economy that shrank more slowly than expected.