Here’s hoping everyone’s
Thanksgiving was grand. Really, isn’t Thanksgiving
the best? Family get-togethers (a joyful
event for this blogger), a grand meal, no gift-giving (or more accurately,
gift-buying) hassle, and even a parade (a spectacle this blogger attended as a
child) marks the day. What more can one
ask for? But now, it’s time to move on
and, oh yes, prepare for the next holiday or two.
And that next family-oriented day or days rely on economic
conditions to be what one hopes for. So,
what better time to address the economy.
Of course, that’s a topic this civics-oriented blog looks at from time
to time. One writer this blogger depends
on for this area of concern is William K. Tabb.[1] The last posting citing Tabb is entitled “Are
They Misdirected Moves?” and it appeared July 5, 2019.[2] That posting ended with a foreshadowing that
Tabb’s work would be revisited again and here is that next visit.
Tabb points out that among the American electorate there
seem to be two polar opinions concerning the role government plays in the
economy. One is that government meddling
– or intrusion – can be best considered opportunities for disasters. Government proves to be ineffective and
surely incompetent. The little good it
might eke out is over-taken by the harm it produces. Usually, that view is associated with
conservative people and, in turn, with those citizens that identify themselves
as Republicans.
The others – the liberals or those associated with the
Democratic Party – see market participants as being the “out-of-touch” or
shortsighted people who engage in mindless herd behaviors. They refer to the inevitable, resulting crises
that spring up every so often causing serious harm not just to numbers of
businesses, but to the lives of real people.
Of course, the most recent example was the 2008-09 financial crisis that
turned into the Great Recession.
They
blame market believers for being too self-centered to realize macro forces that
lead to the downturns. Good times lead
to over exuberance and over purchasing of investment assets – like stocks or
real estate – often with borrowed money.
Result is the makings of bubbles which look like the ultimate solution
to securing economic riches. But bubbles
burst. Here’s Tabb’s description of the
last crisis:
There is now a good deal of research
that links rapid increase in credit creation in an economy with the likelihood
of financial bubbles and busts. When
serious economic crises occur, government intervention on a significant scale
is required, as [former FED Chairman] Greenspan was to acknowledge … This
suggests the unenviable, but necessary, task of taking away the punch bowl when
the party becomes too exuberant.[3]
Here’s
a thought, Trump’s trade “war” with China is functioning as not currently taking
away the bowl but inserting a leak. And
that leak might be discouraging the irrational exuberance alluded to
above. The closest indicator that might
suggest a bubble in the stock market, for example, is or has been forming is
stocks’ price to earnings ratio (p/e ratio) indicator. In 2018 it was getting a bit high, but since then
it has significantly dropped.
Perhaps
trade woes had something to do with that.
In any event, the economy presently seems strong without the usual
concerning indicators – like inflation – causing much worry.[4] This blogger is not aware of any significant
concern for a forming bubble. There is
the concern among some over corporations borrowing too much money. This seems to be encouraged by persisting low
interest rates – as this blogger has asked before: is this a bubble-like effect?
But
this brings up an important distinction when considering economic issues and
trends. There are production issues and
there are financing issues. One refers
to the production of wealth – hence, it being called production issues – and
the other fuels production. And leading
Western economies, like the US, have become more centered on the financial end of
the equation. Tabb describes how that
end has become dominant.
He
writes:
Financialization has become the
leading organizing logic of accumulation in Anglo-American-style economies and
has had impacts elsewhere to a substantial degree. In its shortening time horizons of production
capital, it allows a redistribution of profits from the realm of production of
actual goods and non-financial services to speculator profits and enlarges the
sphere in which money is made from money.
Speculating on and manipulating the future value of financial assets
implies consequences for citizens. It
increases uncertainty and risk with regard to decisions about financing
consumer purchases, homes, education, retirement, and other quality-of-life decisions.[5]
And with those sobering
thoughts, this blogger hopes the reader’s holiday goes on unperturbed.
[1]
William K. Tabb, The Restructuring of
Capitalism in Our Time (New York, NY:
Columbia University Press, 2012).
[2] Robert Gutierrez, “Are They Misdirected Moves?”, Gravitas: A Voice for Civics – a blog, July 5,
2019, accessed November 28, 2019, https://gravitascivics.blogspot.com/2019/07/are-they-misdirected-moves.html .
[4] One should not make investment decisions based on
what a blogger might opine – especially when the blogger writes about civics
education issues.
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