Economy Stuff

I was talking with a friend of mine the other day and he was griping to me about how is it that a country with so many internal problems can be laying off much needed teachers while spending so frivolously wasting American resources abroad. I just listened. I wonder how many people actually feel that way. I overheard some people recently talking about politics at the market and they were self-proclaimed Democrats, and talking about how they were going to be voting for Hillary because they were sure that with McCain in the White House, he was going to be raising taxes.

There are all sorts of problems with misconceptions and lack of information and perspective on the part of the public. Did you know that Kennedy had 9% of the U.S. budget dedicated to national defense? What do you think it was with Reagan during the Cold War? 6%. What would you say about now? 4%. Do you know what an overwhelming amount of the budget goes to? Social programs and entitlements. How many people thinks that bureaucrats are better at spending their money than they are? I'm sure most people would say they could do a better job themselves, but there are people who actually think that Democratic leaders would lower taxes while Republicans would raise them. For tax reasons alone, I can't believe more people aren't self-identified as conservative.

I came across this article on Larry Kudlow's blog about the American Spirit. Some interesting points from the article:

Right now we have an unemployment rate of 5% and headline inflation topping 4%. We have economic growth of 0.6%, extremely low consumer confidence and weakening consumer spending, small business optimism at a 28-year low, and of course a housing market that is showing declines in excess of 20% in some parts of the country.

These are hardly statistics to celebrate, but they are a far cry from the crises of the 20th century. Next time someone compares the present to the Great Depression, stop them. Between 1929 and 1932, the Dow Jones index went to 41.22 from 380.33, a decline of 89%. Today's hang-wringing about a 20% decline in the major indices (much of it since recouped) doesn't come close.

The unemployment rate in 1933 was 24.9%; seven years later, after the intensive efforts of the New Deal, it stood at 14.6%. Even adjusting for changed methodology since then, today's jobless situation hardly compares. While the recent collapse of Bear Stearns shocked Wall Street, in 1933 alone 4,000 banks failed, and millions not only lost their homes but were rendered homeless...

The rhetoric and the polls paint a bleak picture of America today. Yet it bears remembering that barely 10 years ago the mood was almost diametrically opposite. In the heyday of the Internet boom and the utopian spirit of the New Economy, the prevailing attitude was that anything is possible. Even with several crises – such as the collapse of Long Term Capital Management and the Asian currency crisis – the mood remained bright.

Take this from 1997: "This is the golden age of capitalism," said Leonard Riggio, the son of a Brooklyn cabdriver and head of Barnes & Noble. "The wealth is more expansive and deeper than in the past – not four hundred or a thousand rich, but tens of thousands." Others forecast the beginning of a "long boom" leading to widespread prosperity and the end of poverty. The gospel of the New Economy promised a magical fusion of the Internet and Wall Street that would finally solve the age-old riddle of how to make a society both happy and wealthy.

That all came to an end in 2001; and yet the technological advances of the 1990s led to incredible innovations and wealth creation, especially around the world.

Something that is really interesting that Kudlow likes to refer to is the Intrade Prediction Market trends. It's a betting site that allows people to wager on things like who is most likely to win the Presidency, the Democratic Nomination, etc. Recently, they had Democrats winning control of both the House and the Senate at over 90%. And if Obama wins in November, that means Dems sweep control of all of the branches up for election, which does not bode well for investors, or more broadly-speaking, the economy at large. That is the truth, that's not just the convservative in me speaking.