Solving The Economy

Belt Tightening, Driving Forces Behind Economic Slowdown, Tax Holidays

Why is it that so many people are so convinced that we are in a deep recession? The worst, some would say, since The Great Depression. Are we headed into an economic period so disastrous that it will rival the economic trials that followed the 1939 Stock Market Crash?

I posted a month ago that what we are experiencing is not a recession, but merely the beginnings of one should the government continue their course of manipulating the economy with bail outs and stimulus packages. That same day The National Bureau of Economic Research declared that the U.S. economy entered a recession in December of 2007.

I based my opinion on a number of pieces of data. Partly, I made my decision that we are not yet quite in a recession due to the typical definition of a recession, which is two consecutive quarters of declines in the gross domestic product. Often, that is accompanied by double digit unemployment, but not necessarily in all cases. Some would simply say, and I suppose the National Bureau of Economic Research came to this same well thought out and complex determination, that “a recession is when it hurts, and a depression is when it hurts real bad.”

If a recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale and retail trade, then perhaps there is an argument it began a year ago, rather than is looming on the horizon. But isn’t that a slight departure from the definition of two consecutive quarters of declines in the GDP? And when one considers what is going on, is it truly the most severe economic downturn since The Great Depression? Or is this something that was conjured up partially through overstating what it is through the media and political sector?

In the end, I suppose, whether or not we are actually in a recession is not a big deal. Fact is, we are experiencing belt tightening times. My concern, however, is by overstating the economic difficulties with claims that this is the worse economic times since The Great Depression, as the liberal left and mainstream media has been doing, they are actually creating a recession capable of becoming a serious depression by simply creating such a hysteria among the masses. In other words, proclaim something is horrid long enough, and eventually, because people believe it is, it will become a reality. Hmmmm, sounds like the tactics behind the Bush Derangement Syndrome, doesn’t it?

So, just because all of those experts with alphabet honorifics before their names due to their years and years of ardent schooling at the National Bureau of Economic Research has declared that we’ve been in a recession for a year it is automatically so, regardless of the fact that the GDP doesn’t agree yet? Of course. Just like all of those scientists from the United Nation’s Intergovernmental Panel on Climate Change knew for a fact that man-made global warming was the cause of the recent period of planetary warming, and that our sea levels were going to rise and demolish coastal cities, and the polar bears are all going to die, and if we don’t start giving the environmentalists money and start buying hybrids and start wailing and crying every time a tree falls somewhere in the forest this whole planet is doomed – while never taking into account the possibility that global climate shifts may be actually part of a natural cycle involving the sun and there isn’t diddly squat we could do to cause it, or reverse it.

Yeah, those kinds of experts.

We can’t always depend on the experts.

That doesn’t mean that this isn’t a difficult time with a definite recessionary feeling. After all, times are tough. I was in the construction industry for twelve years, specifically residential homes construction, and I chose that line of work after working for a city, and being a banker, and being a financial consultant that sold securities and insurances – and being in construction for those years was quite lucrative for me. I made a lot of money operating a trenching machine. Howevr, as the old addage goes, all good things come to an end.

When the housing market bubble burst, as many of us knew it eventually would, life got a little difficult.

My wife and I are not big spenders. I bought my house in 1989. Although many times I could have bought into a much larger and more expensive house, we never did. My thoughts were, “Why get into a larger house with a larger mortgage and have less money remaining for savings, or traveling, or to do other things with that I enjoy, when this house, the one I live in, is adequate. I have two kids and three bedrooms. I never needed more bedrooms, and I knew tht once my kids grew up and moved out, my house would essentially becoming bigger for my wife and I. When I wanted an office, I added it on to the house. When we wanted a swimming pool, we put one in. Rather than move into something more expensive, and in turn, something that would put us deeper into debt, I just made my existing house better.

I have a very low mortgage payment that many people would envy. But it is because I didn’t want to overextend myself, and I didn’t use my mortgage as an ATM machine, either.

When it comes to automobiles, I have always bought used, or at least until I bought my truck in 2000. I bought the truck new, but to this day, it is the only new vehicle I have owned. But I have never had a car payment. Well, I actually got a loan for that truck, but paid it off in a few months. I had done that once before with another truck back in the nineties. I couldn’t see myself paying all that interest to someone when I can make payments to myself first, essentially saving the money, and then going and buying the vehicle I want with my own cash. All it took was a little patience, and a willingness to not spend that money frivilously on other things while I was saving. I suppose it also took the willingness to not buy things that are more than necessary, more luxury, than I need.

I am not putting people down for wanting nice things. I buy some things that are more a luxury than a need, sometimes. It is a great thing if you can afford those kinds of items, and you enjoy them when you are able to purchase something like that. I have no problem with that. But when you do it to the point that you are over-extending yourself, and you put yourself into a position that if things go wrong you may not be able to climb out from under it, it is not a good thing. That kind of budgeting is one of the driving forces behind the economic slowdown.

Now that people can’t afford to go out every night, drive their larger vehicles constantly, or buy this and buy that because they can, they figure it must be a recession. I have been through hard times before, where we had to change our standard of living to survive, and these are not those kinds of hard times. The economy seems to be a little more difficult than before, moving sluggishly forward, and it will be for a little while – but this is hardly the worse economics since The Great Depression. With the government’s manipulation of the economy it may very well wind up a recession, however. Right now, at this point in the economic downturn, it is simply a matter of tightening our belts, not being so frivilous, and for those that are losing their jobs it may mean changing what you do for a living. That’s what I did.

When the construction industry, linked as it was to the housing market, died, I had no work. My wife and I, since we don’t live frivolously, and we are quite frugal, had some money in the bank, and we survived the slowdown for a while (hoping it may pick up again). We realized, however, that we weren’t going to be able to maintain our standard of living, no matter how careful of spenders we are, with the lack of hours I was getting in the construction industry. So I went to work for somebody else, a trucking company. Right now I am on the road on my way to work long before most people are considering even crawling out of bed, often before four o’clock in the morning, sometimes as early as two in the morning. I am not used to these long, hard hours, to be honest with you. I am not used to not even having time to eat dinner because I get home and go straight to bed, for the most part. Sometimes I catch a bite to eat on the way home. I am not complaining or whining. I am just saying that the adjustment was difficult. But sometimes that is what one must do. It is definitely harder, more difficult, than it was a few years ago – but that does not make it a catastrophe. That does not make it the worst economic crisis since The Great Depression. But it is difficult. I won’t argue with you on that.

When I drive home at night I have noticed the traffic jams around the malls. The Wal-mart parking lot is packed with cars and people walking between their vehicles and the store. People are still buying, people are still consuming, and for the most part, people are still surviving. And those that are having major difficulties, like the ones losing their homes, I feel bad for them, and I understand the fears and frustration – but that is what happens when you bite off more than you can chew, and then as luck would have it, a difficult economic downturn arrives.

Was that new SUV with a loan that barely fit in your budget worth it? What about that big house with more rooms than you need? Is it something that you regret now? Was deciding to buy a house before you were truly ready your idea, or the so-called predatory lenders? You are the one that wanted that loan in the first place, weren’t you?

Toyota posted, for the first time in 75 years, a loss last quarter. The increase of gas prices, of which have come back down (so much for the greedy oil companies theory), and the economic downturn, have definitely had their impact on the automobile companies. Toyota is not going to suddenly fold because of this. I don’t think we should panic. But it is a telltale sign that times are tough.

The big three American auto-makers have not been putting out a decent product for years. They have been a failure, partly because of government regulations and demands, partly because of poor management, partly because of the deals they have been making with the unions that have placed a stress on their ability to make a profit. Now, the Big Three are asking for a hand-out. Congress said, “No,” but Bush wrongly overrode Congress, and the American People, and provided a temporary, plastic bandage for the gushing artery anyway.

What I don’t understand is with the failed mortgages, and with the failed banks, and with the failed auto-makers, why is it that government feels it to be necessary to bail these entities and people out? If they go under will it really completely destroy the U.S. economy? Is it necessary to abandon free-market principles to save the free-market system when it was abandoning free-market principles that put us in this mess in the first place?

A self-adjusting free market economy, if left to its own devices, will do what it has always done: Failures, if necessary to the market, will be replaced by another company, or with another industry that performs the function better. If all of these entities are allowed to fail, the industry learns from it. Failed policies proven to be failures are avoided in the future. Rather than becoming victims, the people and industries that did not succeed will pull themselves up by the bootstraps and try, try again.

Unfortunately, Government would rather strap some temporary boots made of paper mache on your feet, without any bootstraps attached. I am sure you’ll be able to walk for a little while, but they are only temporary, and in the end we will wind up in the same economic situation, and worse. The bail outs are not going to work. They have already proven not to work.

The government gave the banks money so that they would begin lending again, and the lending institutions pocketed the money instead. Handing out money does not fix the problem. But, you see, that is the problem with government. Whenever they are faced with a problem, they start throwing money at it. Your money. This is why I have a problem with stimulus packages as well.

What is interesting about Bush’s stimulus package, and Obama’s upcoming stimulus package, is that they write checks from the government, which comes from the taxpayers, to give to a wide range of people that includes a large segment that didn’t even pay taxes in the first place. I have a better idea. How about we follow the lead of Congressman Louie Gohmert, Representative out of Tyler, Texas? He is recommending a tax holiday. That is two months of paying no Federal Income Tax, social security tax, or whatever.

Stimulus packages add the cost of bureauocracy with administrative costs. The check has to be printed, the postage has to be paid, added costs that the taxpayer is not noticing comes with a stimulus package. Tax holidays don’t have to be administered, printed, and mailed. How about avoiding those costs, and not sending checks to people who don’t pay taxes anyway, and truly giving the taxpayers a break for a couple months. Now that, my friends, is a stimulus package.

Something like a tax holiday may be exactly what we need to put more money in the hands of the taxpayers, and stimulate the economy, and help us avoid a lengthy recession.

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Published in: on January 2, 2009 at 4:41 am  Comments (2)  

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2 CommentsLeave a comment

  1. Nice post. I agree. I grew up in the 70’s and 80’s in a depressed area with few jobs and lived much as your discribe. It simply feels more like those times but not like the sky is falling. There are many positives with this volitility, many opportunities. Now is the time to invest if you can and pinch your pennies otherwise. I hope every one does start to tighten the belt and save. All that does is set the groundwork for the next upturn in the economy. Maybe then we can pay a little towards that $1 Trillion dollar bailout loan we took against our great grand kids.

  2. I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you down the road!


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