A Reader Chimes In on Economists

This gentleman in the Kansas City area, Thomas Strouod, has just started reading my book and immediately agreed with my analysis that economists don't understand what is happening in the economy. I particularly like his final line--let's declare that all unemployed workers are economists. Then, surely, they would get paid. Here's what he said:

The world’s 100 top economists meet in Jackson Hole, Wyoming every year and
proceed, with great pomp and circumstance, to prove that they have no idea of
what’s going on. They consistently miss recessions, stock busts and
interest rate projections. Yet, they continued to get paid to perpetuate
various myths and legends.

For example:

Inventories are so low that once business has confidence that the consumer
has confidence, it’ll start rehiring like crazy to rebuild those
inventories.

Guess what? Business spent many billions of dollars over the last ten years
on new computer systems and regional distribution centers. Much of the
investment was justified by the permanent elimination of high inventory
levels. So, Mr. Economist, why would someone who has spent billions to
permanently reduce inventory now say, “What the heck, let’s rebuild them
anyway”? And, did you happen to notice that business managed to supply
record high consumption while continuing to reduce the ratio of inventory
levels to sales? Stop with the talk about low inventories already!

We must closely watch measures of consumer confidence as this represents two
thirds of our economic activity!

The University of Michigan has created a major industry: measuring consumer
confidence. A bunch of wolverines, or whatever they are, go around every
couple of minutes and ask consumers how they feel. These answers are then put
in big books and economists go, “Ooh! Ah! Consumer confidence is up or
down”. Every honest study shows that consumer confidence numbers are
totally meaningless. There is no correlation between how people answer the
wolfie questions and how they actually spend their money. Yet, like priests
at some ancient temple who must say the right words or Spring will not come,
economists continue to track this busy work. It must be professional
courtesy. “I’ll continue to quote your meaningless numbers, if you
continue to quote all of my bogus explanations on why my last statements on
rebuilding inventory never panned out.”

Significant increases in productivity always lead to higher wages!

Let’s think about this. I am a hiring manager. I have a job to fill. Due to
increased productivity, about a million people, desperate for work, apply for
the job. Naturally I am going to hire the candidate who wants the most money
so that I can share my company’s increased productivity rather than
increase my profit. Naturally all of my current employees constantly press me
for a high raise knowing that they can be replaced by a younger, healthier,
cheaper candidate in about 2 seconds. Gee, I would never even think of
passing along more health care costs to my employees because I want to share
the benefits of productivity.

Hmmm..Maybe if I cut my prices while retaining margin due to increased
productivity, I will gain market share..or..I’ll just give everyone a
raise!

Productivity is about an individual worker turning out more widgets per hour.
It has suddenly and surprisingly gone up!

Consider this. Before Business invested in all of those computers and
regional distribution centers (see item 1) you needed about 2 widgets hanging
around factories, trucks, warehouses and backrooms for each widget actually
being sold off the store shelf. Now that we can better guess (Demand
Forecasting) where and when someone will buy a widget, we only need to keep
about 1.3 of the little suckers around for each one sold. By connecting the
network of all widget activity together, we have cut our required widget
resources by 35% -- that’s before any increase in widgets made per hour.
Golly, maybe that’s why Business invested all of those billions year after
year. Maybe the 1990’s full employment came from keeping the old 2-widget
machine going while you were building the 1.3-widget machine. Now the old
machine is shutting down. But, don’t tell the economists. The shock could
kill ‘em.

Increased hiring of Temporary Workers signals the return of significant
permanent job creation!

I just painfully downsized my operation to handle a base load of demand.
Temporary workers can handle all bumps. I don’t need to report hiring or
firing them. I don’t need to pay them any benefits. I am even further
insulated if they are illegal immigrants. Perhaps most important, I don’t
feel badly when I don’t call the Temp Agency to send them again next week.
It’s not like I am laying anybody off! Wait! I must make them permanent,
but I can’t remember why.

Cutting taxes always creates more jobs!

It hasn’t worked yet. Could it be that the private economy has become so
productive that government now has little or nothing to do with creating jobs
unless it actually hires folks itself? Or, it creates new regulations for
social benefits that encourage private job creation. George Senior bought
socks to try and stimulate demand so that sock industry would hire more
folks. George Junior gave the sock store to some rich guy hoping that this
wealthy beneficiary would then open a shoeshine stand to employ a downsized
knowledge worker. Guess what, the sock industry is so productive that it will
continue to lay people off no matter how much sock demand goes up. And, there
aren’t enough folks with the spare change to impulsively support the
shoeshine stand. The current tax cuts are just running up the bill on our
kids’ credit cards.

Unemployment numbers are improving!

As long as you don’t count recent graduates, people forced into early
retirement, the discouraged who have given up looking, and the underemployed
who now consult as independent contractors since they can’t afford airfare
to that full time job opening in Bangalore. Meanwhile, outplacement firms
tell the newly downsized to avoid saying, “unemployed” and many head onto
to grad school or seek dog-grooming licenses (computer science is for losers)
rather than jump into the stormy seas of jobless recovery.

But, ending on a positive note, consider:

How can economists help the unemployed?

Economists add nothing tangible to society, have no idea what’s going on
and, mysteriously, keep getting money. Let’s just declare those laid-off
workers economists and the paychecks can’t be far behind.

Thomas Stroud
13157 Grandview St
Overland Park, KS 66213
913-685-8116