It’s the economy, stupid…not the President

The title of this post is [a slight variation of] a term coined by the famed Democratic strategist for Bill Clinton’s 1992 campaign, James Carville.  This catchy phrase is now so often repeated in American political discourse that it might possibly unseat the sports cliché, “I just went out there and gave it 110%,” as the most irritating adage I can personally think of.  The point Mr. Carville was making was that Clinton just needed to remind the American public that the economy wasn’t doing so well, and that George Bush (Sr.) also happened to be the current U.S. president.

As everyone in America assuredly knows by now, our economy is very much affected by who our president is.  He’s the final decider, he creates and approves all of the fiscal policies, he creates jobs and wealth, he determines the market interest rates and tax rates, he sets the levels of supply and demand for all products being produced around the globe, he determines who is allowed to sell what, where, and when across every continent on Earth…

“Wait a minute, Mr. No-Name-Blogger, you went off the rails somewhere in there.  That last bit is ridiculous!”

Were you just thinking that, or something like it, when I appeared to be going off-kilter?  Well, sir/madam, if you did, then you probably weren’t thinking it soon enough!  Oh, I was off-kilter alright…right from the very beginning.  There’s a well-kept secret in politics in the United States that has kept the mass public hoodwinked for a very, very long time when it concerns the state of our economy and the president’s role in it: The U.S. President has very little to do with the state of the U.S. economy.  The problem is that the public has been indoctrinated into a ubiquitous belief that presidents are extremely involved in the state of the economy.  We just went through a $2 billion+ presidential election recently, and of course the primary theme of every debate and attack ad was the economy.  Presidential terms live and die by the health of the U.S. economy (or at least they did until Obama was reelected…).

“Romney knows how to create jobs.  Look at the employment rate in Massachusetts!”  (bet you can’t spell that state properly without a spell-checker)

“Romney loves to fire people!”

“Obama knows what it takes to kick-start this economy again!”

“Obama will get this country back on track by making sure everyone’s paying their fair share!”

Oh yes, I heard each one of these as many times as I’ve sneezed in the last 18 months (and I am a recently self-diagnosed nonallergic rhinitis sufferer, by the way), and you can bet that every single time I heard them, my eyes rolled so far back in my head that I could actually see my own spinal cord.  This is a point that I have struggled to make known to as many people as possible for many years.  I even once dated the daughter of a prominent former U.S. ambassador with ties to Bush, Clinton, and Obama, and even she couldn’t grasp the “outrageous” concept that the president doesn’t actually have very much impact on the economy at all.  “That can’t possibly be true!  I’ve never heard that in my life!” she would proclaim.  You bet your behind you haven’t ever heard it before (read: my first blog post — the rich and powerful allow us to see and hear what they want us to see and hear), but that’s certainly no reason why it isn’t still 100% true.  Unless you’re an astronomy enthusiast uber-nerd like me, I bet you also haven’t heard a detailed explanation of precisely what a “magnetar” is.  Doesn’t mean it doesn’t still exist.

The media, in their never-ending quest to avoid reporting actual fact rather than whatever the other guy is reporting, have — for generations —  failed to point out the true impact a president has on our economy.  The result has been a great number of Americans who have unfortunately sent in their votes on the basis of what they believe a candidate can do for the economy, and in many cases these voters cared very little or not at all about any other issue.  “The economy, stupid.”  James Carville nailed it, even though his actual intention was simply to perpetuate the stalemate of ignorance gripping our country in this regard.

Allow me to explain precisely, in as many words as humanly possible (I have a penchant for being overly verbose), why you’ve been wrong all your life if you thought your candidate would do anything at all for the economy at any point in your life.  There are five main reasons why the economy is its own untamable beast almost completely severed from the U.S. president:

  1. The Laws of Supply & Demand — You don’t have to be a Harvard-educated economist to know about this one.  It’s the granddaddy of a free market system.  It’s the foundation upon which our entire economy rests.  The health of our economy, which is technically a “mixed market” economy rather than a purely “free market” economy, is first and foremost determined by these two rock-solid economic laws.  They are as tested and proven as is our understanding of the wheel or fire.  There is no other facet of our economy that is as substantially omnipotent as the level of aggregate supply of goods in the U.S. vs. the aggregate demand for those goods.  If there is too much supply for not enough demand, the economy falls.  The same is true of the opposite situation.  It seems simple because it is.  Notice I never mentioned the president anywhere in this paragraph until this sentence…
  2. The Federal Reserve System (The Fed) — Here’s a little nugget of information that you may not know (because no one in the media or the general public ever discusses it): the Fed is not actually a federal government agency.  The Fed is a private banking institution!  I want you to wrap your head around the fact that a private institution is sitting at #2 on my list of things that impact our national (and global) economy.  I’ll discuss why that’s such a big deal in a separate blog post, but believe me, it’s scary.  The Federal Reserve System was created in response to a series of very public panics in the early 20th century with regard to banking practices.  As I’m sure you would agree, I certainly make my best decisions when I’m panicking  (end sarcasm here).  The Fed performs a variety of functions concerning the finances of the U.S. Government, and one of the major ones is determining the prime rate.  The way I just said that actually gives too much credit to the “Fed.”  I make it sound as if some grand institution of many great minds determines such a critical number.  This rate is actually determined by a small board of directors of the Fed (i.e. 12 people), and most of these guys are there not because they’re the greatest economic minds alive, but because they’re rich, powerful bankers and have been direct or family friends for decades (read once again: my blog about the rich and powerful in “…Un-American”).  The prime rate has an immediate and substantial impact on the lending practices of all major institutions in the United States.  Lending practices in turn directly impact the business operations of countless businesses across the country and the globe.  When this rate changes, the economy changes with it, for better or for worse.  Note, again, no presidential inclusion.
  3. Congress – Man do these guys love to argue!  It’s like watching Tyson and Holyfield every day of the week, except pretend that Tyson was still in his prime and not completely crazy.  Congress is full of blowhards who care more about political posturing than making things happen.  There’s only one thing they love more than posturing, and that’s MONEY.  They love this stuff, and by “love,” I mean they love to throw it away (or steal it).  Congress writes every law in existence, every bill, and every measure of every fiscal policy to have ever been implemented.  There’s also no president in sight among this collection of fools (unless you count the vice president, who’s as feckless as Lindsay Lohan’s AA sponsor).  Oh sure, the president signs Congress’ bills into law and can even veto them if he likes, but Congress can still override the veto.  It’s more difficult to override a veto than to simply pass a bill, but ultimately the power to create fiscal policy still entirely rests with Congress, not the executive branch.  As an aside, I’d also like to point out that Congress is also the branch that declares war, not the president.  Everyone who blames the poor economy on George Bush Jr. because of “two wars we couldn’t pay for” (as Obama loves to say) should understand that Bush never declared war on anyone; Congress holds that honorary distinction.  Congress wrote all of the bailouts, all of the tax laws, all of the sanctions, tariffs, and regulations that affect business around the world.  These regulations and taxes have a very potent and direct influence on our economy.  If you don’t like the state of the economy, stop voting for the same man or woman you’ve been voting for in every election for the past 20 years.  Now there’s a thought!  Ok, I admit I mentioned “president” several times in this one, but hey, it was only to further demonstrate what he has nothing to do with.
  4. Corporate America – AT&T, Apple, Google, Verizon, Best Buy, Walmart, Target, Stryker, and — of possibly most importance — Citigroup, Bank of America, Wells Fargo, etc.  You may have heard the oft-repeated phrase that most business in America is small business, and that’s true, but lost in translation is that most people in America are actually employed by large businesses (those with 100+ employees).  According to the U.S. Census website (, as of March ’12, 63.5 million people are in small business, and 78.8 million people are employeed by large business.  The decisions that large businesses make in what they will produce, how they will produce it, and who will get those goods (incidentally the 3 primary questions that must be answered in a free/mixed market economy) affect the lives of the majority of the working public, which of course also affect the lives of their family members.  That’s just the surface data.  Those 63.5 million people working for small business also rely heavily on large business in order to even run their small businesses at all.  Your mom & pop shop doesn’t work too well if Edison is no longer supplying your electricity or Time Warner decides to stop supporting internet access in your area, cutting off your internet sales in the process.  The decisions that are made by the leaders of the businesses in America are reliant upon the previous three points I’ve made, and their decisions are the next step in the process that will decide which direction our country goes.  This is particularly true when it comes to the banks and credit agencies.  Because of the way our economic system is designed, lending (and therefore debt) is built right into it.  When these corporations make changes to lending practices, everything else in the economy ripples like the waves in a pond when a Mount Rushmore-sized boulder falls into it.  Now, there are lots and lots of presidents in this particular category, but none of them have “United States” in front of their titles.
  5. The Global Economy – A hundred years ago, the inclusion of this point on this list would be absurd…and so would the notion of posting the list within a “blog” on a contraption that allows anyone in the world to read it at any time of the day instantly, so I think it’s fair to say that times have changed.  The global economy was once a much less noticeable facet of our national economy, but those days are long gone.  Chinese citizens are the ones consuming the majority of American products, not Americans.  The European Union’s banking system influences many of the decisions our own Fed makes on a daily basis.  The U.S. dollar is the world’s currency.  The internet allows goods produced around the world to be delivered around the world, around the clock.  It also allows the media to report news to everyone everywhere at any time, including financially significant news like the European debt crisis or the downgrade of the United States’ credit rating.  The U.S. is absolutely the world’s economical engine, but even the engine can be adversely affected if the transmission goes out.  Full disclosure: I know almost nothing about cars, so if this analogy doesn’t make any sense, pretend I said something poignant and sensical.  You should also pretend that I said nothing about the U.S. president, because I didn’t.
  6. The U.S. President – Finally the man in charge makes an appearance!  I find it shocking that I was able to write ~1500 words about what affects our economy before writing this paragraph while keeping in mind that the media continues to frame every election cycle around the state of the economy.  The president does, in fact, have some measure of impact on the economy…to the extent that he has just a bit more impact than you, the individual, do.  The president is the leader of his political party and often provides the framework for the fiscal policy he’d like to see Congress enact.  For example, Obama has mandated that taxes be raised on the top 2% of earners in America, and it looks like Congress is going to finally follow through on this.  However, this amounts to nothing more than a fairly powerful suggestion to Congress on what they should do about the economy.  Congress of course has the option (and has frequently exercised it) to completely disregard the president’s suggestions.  Beyond these suggestions, the only other thing the president can actually do about the economy is make a boatload of empty promises to a whole heck of a lot of uninformed and easily misguided voters about job creation and economic inspiration.  If he’s a talented enough orator, the president can surely make a country full of believers in the notion that the economy is going to turn itself around, but this is as far as his power goes.  I would actually also rate “blind, dumb luck” and possibly “supernatural forces” tied down here at #6 alongside the president.Having said this, I do want to point out that there actually have been a small number of exceptions to this rule: James Polk with his approach to Manifest Destiny, Franklin Roosevelt with his sweeping social policies of the 20’s and 30’s, and Lyndon Johnson with his Great Society policies.  I would also be willing to make the case for JFK due to his inspirational speeches to the American public to support the space program’s mission to the moon, which helped spur great national pride, economic growth, and innovation by encouraging millions of children to become scientists, engineers, and the like.  However, the underlying cause for America’s push into space and the subsequent effects on our economy were really due to competitiveness with the Soviet Union, not the U.S. president.The aforementioned presidents were so influential with their political idealogies, so great was their influence on Congress, that they were able to push through these wide-ranging policies which had enormous repercussions on the economies of their day as well as the economy today.  However, as noted, their power really only came from their ability to influence or inspire, not to enact.  The actual changes still ultimately came from Congress.

If you’ve read this far, then you should think of all of these things the next time another presidential election cycle rolls around, and just watch and see what the framework of that cycle will be as presented by the media and the candidates.  I can already guarantee you that the economy will be one of the main talking points.  The debate moderators will ask each candidate how they’re going to turn the economy around (if it’s currently bad) or keep it going in the same direction (if it’s currently doing well).  There is no magic secret to how a president is going to “fix” the economy.  He merely has to sit in his chair in the Oval Office and wait.  If the economy does well, he’ll be praised.  If the economy does poorly, he’ll see who he can shift the blame towards.  In either case, he is barely more than a bystander, lucky to be there in good times or unfortunate to be around in times of struggle.

If you hear anything else from anyone, print this blog out and send it to them…also send them a link to my blog so they can follow it.  I want to see that number climb its way above “1”…and I’m pretty sure that’s just my mother who somehow found her way onto my page.


Living in an Ineptocracy

There’s a concept in the world of microeconomics called “Economies of Scale,” and its antithesis, “Diseconomies of Scale.”  It works like this: as a company grows, the usefulness and cost efficiency of its labor, materials, technology, etc. improves.  For example, a clothing manufacturer’s machinery might cost $10,000.  If that machine only makes one piece of clothing a day, even though it’s capable of producing many pieces of clothing per day, then the company is taking a tremendous loss on that machine.  If, however, the company grows and starts selling a lot of clothing per day, then that same $10,000 machine is now producing many pieces of clothing; at some point the machine will be offsetting its cost and, eventually, earning an economic profit.

Seems pretty straight forward, doesn’t it?  The more you sell, the more cost effective all of your production costs are.  When a company is in this period where continued growth equals continually rising cost effectiveness, this is called “economies of scale.”  It refers to all of the advantages a company earns as a result of its expansion.  Unfortunately for companies (and our country, which I promise you I will eventually address in this diatribe), economies of scale do not continue indefinitely.  All good things must come to an end, or in the case of our country, an apocalyptic burning to the ground.  An expanding company will eventually reach a point where continued growth is no longer earning any economic benefit (called “economies to scale”).  This happens because at some point the company is no longer reaping any additional profit as a result of incurring more production costs.  Hiring another worker or buying another clothing manufacturing machine isn’t going to result in sales that outpace their cost, only offset them.

Then, of course, what follows is called “diseconomies of scale.”  Companies inexorably reach a point where they have grown so large as to become inefficient and wasteful in excessive costs.  If you’ve ever worked for a company in its early years and stayed with the company during a large period of expansion, you’ll have likely noticed this effect.  Maybe you were talking with your coworkers around the watercooler and mentioned how it seems like the company has become so “corporate” since you started back in the good ol’ days.  You didn’t realize it, but you were talking about the company’s diseconomies of scale.  This occurs because the bureaucracy of the company, the red tape, becomes exorbitant   Processes become inefficient when they start requiring 8+ different approvals to happen.  Employees also become lax.  With more employees comes more opportunity for some employees to find ways to be lazy, otherwise known as “shirking of responsibilities.”  In order to combat this, companies must pay for the cost of increasing supervision, but the increased supervision results in even more red tape.  The additional influx of employees also results in increasingly less knowledgeable employees overall, and those hired to oversee production become more and more detached from the processes they are supposedly overseeing.  The management of the company inevitably becomes inept at their own duties, sending responsibility for the day-to-day activities of the company back to the mid and low-level employees, who then abuse their supervisors’ lack of knowledge to shirk their responsibilities once again.  It’s a cycle that is sometimes hard for large corporations to break out of, if they ever do.  Companies may continue to earn profits of course, but a very large portion of their income is now being wasted at an ever-increasing rate.

I assert that the United States is the largest “company” in the world, and it has entered its own diseconomies of scale, a period which I personally don’t know if we’ll ever be able to break out of.  Look at the local, state, and federal governments around you.  In California, no less than 10 counties since 2008 have declared bankruptcy.  Cities and counties like Stockton, Atwater, and San Bernardino have declared bankruptcy despite earning tens of millions of dollars a year in local revenues in addition to several millions more of state and federal awards.  Santa Monica, a city that attracts A-list celebrity and wealth, is in dire economic straights, with over 70% of its revenue lost to city maintenance costs.

How is this possible?  The cities and their management have grown so large as to allow for corruption, horrid mismanagement of funds, and willingness to pay for outrageously expensive social programs for the poor to exhaust any revenue they might have.  The common thread in all of these local governments is that they spend a very large portion of their revenue on pensions for government workers and services for the poor/indigent!  Pensions for police, pensions for firefighters, pensions and wages for the city officials themselves!  The amount of money that is absolutely wasted in these cities is abhorrent and out of control.  Stockton, for example, paid out incredible amounts in pensions to their police force, so much so that one of their police chiefs — who lasted a whole 8 months — made the news for reaping an annual $204,000 pension from the city for his 8 months of service!  Santa Monica, specifically, imposes a tax on its residents in the form of an automatic cost of withdrawal when using the city’s ATMs.  This is on top of whatever bank fees the residents are already incurring!  Where does this additional revenue go?  It’s sent directly to the throngs of homeless individuals who have flocked to the city over the past several decades.

Another city in California, Bell, was the focus of a financial scandal two years ago that has left the city’s finances in ruin.  That crisis was brought about by the corrupt embezzlement schemes of just a few city officials because the complexity of their management of the city had grown to such a point that the citizens no longer knew (or evidently cared) what was going on behind the city hall doors.  The city’s voters blindly and repeatedly voted for these same scheming officials election after election.

Bell is just a microcosm of the grandiosity of the state-run operations, and those state-run “corporations” are in turn microcosms of the enormity of the United States economical machine.  If a couple of city officials of average intelligence in a relatively small city in California are able to get away with such massive waste, just imagine what can be (and IS) wasted at the state and federal level.

The United States has been on this “diseconomies of scale” trend for quite a while, and the reason is because our country has turned from the democracy it was originally intended to be into an ineptocracy.  An ineptocracy, as defined by the great site, is, “A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.”

Santa Monica, are you reading this?  Look, I want to save the lives of every poor person on the planet just as much as the next guy, but it’s a pipe dream.  We simply cannot do that.  It boils down to simple mathematics.  There is not enough money on the planet to be able to provide all the food, water, shelter, and medical coverage necessary for every human being on the planet to live comfortably or even decently.  It’s a wonderful sentiment to want to lift everyone out of the mercilessness of homelessness, but that sentimentality turns to madness and stupidity when one attempts to actually enforce it on a governmental scale.  The failure of Marxism has already proved this in history.

As our country now grows, we are dealing with two swirling tides of destruction: Our country faces potentially perpetual diseconomies of scale, and our government continues to confiscate the wealth of the providers for the sake of those who do nothing but add costs and burdens to the societies around them.  Where is the incentive to become a successful and wealthy producer in this country when you are now assured that your earnings will be taken from you and given to the recently released, habitually detained, drug-addicted prison inmate so that he can get a few food stamps?

I’m of course not implying that we should end all social programs in this country, but the amount of money we are now stealing from productive members of society for the benefit of those who produce nothing is growing at an alarming rate.  Bell, California will become California, United States, and that in turn will become the story of the United States, Planet Earth.  The magnitude, scope, and sheer number of social programs we now have in the United States is staggering, and the amount of corruption and abuse of these systems is equally disturbing.  It is a prime example of the costs of diseconomies of scale on full display.

Voters must decide if they want to continue to be led by the Inept, or if they want to return this country to its economic heyday of the 50’s and 60’s.  Note, by the way, that the 50’s and 60’s economic production benchmarks existed before the introduction of Lyndon Johnson’s “Great Society” policies.  Coincidence?  You decide.