There's been some exciting news about the economy over the last 24 hours as stock prices plummet and job growth seems to be picking up. The media is having a blast with sensational graphics and dramatic headlines, but let's hang on to our thinking caps and get a few things straight.
1. Now is a splendid time to buy stocks.
If you can swing it, if you happen to have money you can manage to part with for a while, invest it in Wall Street. Stocks are suddenly a bit cheaper, so gobble them up while you can. Help yourself, help the economy.
2. Unless you're a day trader, today's stock plunge doesn't need to affect you.
Regular people who have invested part of their wealth in stocks have no obligation to sell them on a day like today. In fact, to do so would be exceedingly silly. Those who can stomach the temporary disappearance of wealth and hold onto their horses of impulse will be rewarded later when things return to normal.
3. Things will return to normal (eventually).
Better yet, things will continue to improve after they've returned to normal. Markets go up and markets go down, and all we have to do is wait.
4. The media needs to get a grip before it is too late.
Naturally, the media are inclined to frighten the masses into thinking the economy might never recover. It is a captivating story. But this sort of yellow journalism has a real impact on consumer and investor confidence and, therefore, a chilling effect on economic growth. In the long run, the press is only making things worse for all sectors, including its own, by inspiring fear and reservation in the public.
5. The economy just added 112,000 jobs.
Finally, unemployment is down, if only by a smidge. With stock prices down (read: more affordable) and jobs up, the economy might be able to pick up some real momentum.
We can only wait to see whether these predictions and assessments will hold true. In the meantime, I don't think there is any reason to dismiss optimism entirely and squander opportunities for growth.
Hold the course.
ReplyDeleteHullo and greetings Leo! Really like the idea of this blog to begin with. Some thoughts:
ReplyDeleteThat the economy added 112,000 jobs is not very telling in a way. People get way too high and low about the monthly jobs reports and the fact of the matter is that the confidence level of each report is +/- ~100,000 jobs; (via Daniel Larison) Betsey Stevenson, chief economist at the Department of Labor, said in an interview with On Wall Street, "that over the past 35 years, the monthly jobs figures have been routinely revised and adjusted after the initial release and end up being, “on average,” around 115,000 jobs higher or lower than originally reported." It's a startling "average" number of jobs! Investors and Wall Street often jump the gun on reports like this mainly because of public opinion and media reporting, and because the confidence factor is vastly overlooked.
I wish I could express the same hope in our unemployment numbers but another sad fact of the matter is that our economy needs to add jobs at a rate of (have seen different estimates) 120,000-150,000 jobs per month just to keep up with population growth. Net job growth is still negative according to this month's Bureau of Labor Statistics... statistics lol :(.
Will, hallo! Fair points all. We don't hear enough about population growth in the news, and we really can't assess these numbers reasonably without "per capita" stats. I guess we will have a better sense of job growth in a few months, once the numbers are revised.
ReplyDeleteBut even with such a large margin of error, and even if this reported job growth isn't enough to "fix" the economy, I'll still stick to the point that what we've got is much better than, say, no reported job growth. After all, the margin of error gives us a huge range, but that doesn't discount the statistic. Unlike in May and June, it's now *possible* that *maybe* things are getting a little better, if you see what I mean.
Your point about confidence is definitely an overarching issue. If only we could be more confident, if we could count on everyone being more confident, well, folks would start buying, investing, hiring, the works. Clearly, Washington pep talks and political grandstanding haven't (and won't) solve our confidence issues. And I'd say that as much as people are confused or misled by job growth numbers, the one job they really care about is their own.
So what's it going to be? More stimulus? Not during this Congress. A war? Worked for FDR. President Obama hopes to increase exports, but I'm not so sure how realistic this is, or whether it will address the heart of the matter.
One idea gaining traction among some economists (even Paul Krugman is getting on board!) is for the Treasury to mint trillions of dollars in platinum coins and deposit them in the Fed. Reserve to buy back some of our debt. This would clear up lots of space under the debt ceiling! We could have avoided the whole debt ceiling impasse had we done this months ago but it would still have good effects. We could use that space for tax cuts (payroll) to stimulate demand. It would be great if the Treasury had the guts to act independently to this end. But maybe if the two vacancies on the Fed Reserve Board could be filled without Republican obstruction (just like they’ve done to Elizabeth Warren and Richard Cordray and any other senior federal official Obama has tried to appoint...) things could be better? Or if they hadn’t used the debt ceiling to make hostage games the new status quo ugh.
ReplyDeleteBernanke has suggested interest in another round of Quantitative Easing but I doubt they can avoid making the mistake of introducing too little money in the economy like the government's first stimulus bill. For reasons I do not understand the Fed is waiting for the economy to do worse before it enacts any new Easing. They want inflation to slow even more before acting…
I don't think we'll see much improvement in the unemployment rate for a while to come. Companies just aren’t feeling the demand they need to start new hirings. While it’s true those BLS confidence levels can be adjusted up or down, the net job growth since ’09; http://www.motherjones.com/files/images/blog_net_job_creation_july_2011_0.jpg. There are moderate increases; http://cr4re.com/charts/chart-images/EmployRessJuly2011alinged.jpg but in tandem are factors like people leaving the work force all together and people working part-time due to economic reasons. But there are some positives… unless there’s a double-dip economic downturn it seems like we’ve at least stabilized for the time being. It’s just that wafflings all over Congress and the media keep turning our attention away from the most important issue of jobs. I do applaud President Obama’s efforts to temper the hullabaloo in his weekly addresses but I’m afraid they don’t reach enough ears.
But aside from that I don't know what can be reasonably done seeing as how awful the Eurozone is doing at the moment. China’s economy is beginning to slow down and they have enormous (albeit not American sized!) housing bubbles in a lot of urban areas too. I too am unsure of whether or not focusing on increasing exports will do all that much or how it will even be achieved.
You made a good point in your 8/7 post about start-ups. Turns out that start-ups add 3 million jobs annually while existing companies lose 1 million jobs annually! The White House has been lately pushing the payroll tax cut agenda. I would seem wise if we enacted payroll cuts for start-up companies in the first some period of their infancy (a year or two perhaps?). This would definitely increase their means for hiring and expanding.
Will - I think payroll tax cut could definitely help. Just from conversations I've had, I gather that small businesses owners have realized, or have come to believe, that they can get by well enough without the employees they've laid off over the last few years. If the cut applies to both start-ups as well as small companies, maybe those stagnant businesses would be inspired to invest in new employees and ventures.
ReplyDeleteYou point out that politicians have distracted the public from the real problem of unemployment. This may be true for the time being, but I don't think it can really last. Most people, eventually, are going to realize that budget cuts don't create job growth, and they're not going to be cool with that. That moment can't come soon enough, because only then will politicians have nothing to gain by hollering further about the deficit.