The economists tell us that we have a consumer based economy. My question is how can you have this type of economy when there are no jobs?  Some politicians proclaim that giving someone welfare helps stimulate the economy.  Isn’t welfare a transfer payment?  I guess the assumption is that if everyone has a flat screen TV, a place to live, a car, food stamps, and household appliances without having a job that they are contributing to the economy.  How?

Doesn’t an economy require that some type of goods and services be produced—the traditional economic guns or butter? What type of goods and services are generated by someone who lies around the house watching TV all day and night?  Answer. None.

It has been reported in the financial news that as our population grows older, our problems meeting their needs become more difficult. The major factor here seems to be healthcare costs which almost always increase as we grow older.  With more and more people growing older, Social Security and Medicare costs increase and there is the danger that both programs will soon run out of money and become bankrupt.  To combat this trend, most governments are hoping the young people will come to the rescue.  The young were supposed to save Obamacare, but they are having trouble finding more than a minimum wage job and have trouble supporting themselves without including healthcare costs.  It could be that our government politicians and most economists are full of what makes green grass grow because they don’t have any solutions to these problems.  Ouch!!!!

Remember that our government has been taxing us for years by deducting Social Security and Medicare payments out of our paychecks. The Social Security payments were supposed to be deposited into an interest bearing account that could be used only for individual retirement payments.  Of course, our all knowing politicians broke that promise and used those monies.  Do you trust the federal government to do the right thing?  I don’t.

How well the economy is performing is defined by Gross Domestic Product (GDP). GDP is the sum of consumer spending, government spending, investment capital spending and total net exports.  According to the news reports, about two thirds of GDP is driven by consumer spending hence the consumer economy.  Back to my question above:  How can consumers spend money to drive our economy if they do not have a job to generate the money to spend?  Do you remember your parents telling you that money doesn’t grow on trees when you asked them for some spending money?

Let us look at how GDP is calculated and see if it will help us.

Consumer spending

Government spending

Capital investment spending

Total net exports

Consumer Spending

This one is pretty simple and maybe that is why the economists have focused on it. Money is spent to buy a good or service—both of which generate a job for someone.

Government Spending

One of the major problems with this section is that in recent years and for decades, government has borrowed and wasted billions of dollars and the national debt kept growing. There is no accountability for anyone in government with at times billions of dollars missing and unaccounted for.  What this means is that government waste and corruption are out of control—and no one in government is trying to fix it.  Their solution is to raise taxes.  My blog post[1] on bureaucracy and book[2] propose ways to control spending.

Capital Investment Spending

High dollar spending in this area is a good indicator that our economy is growing and with growth more jobs are being created. In this area, all levels of government have conspired to issue so many new rules and regulations that they are restricting growth.  Regulation of the economy by dumbbells who know almost nothing about running a business is killing growth.  Every regulation good or bad that affects a business must be read by someone.  The time and money used to do this is a business expense.  It is painfully obvious that the regulators who propose, write and issue regulations have never worked in the field they regulate and have no idea what the impact of their regulation will have on the regulated other than it should agree with the Obama Administration’s green agenda.  They also don’t care how badly the public may be affected.  President Obama is delusional to promote some of the outrageous regulations his rogue EPA issues.

To make an investment, any larger private business will estimate the cost of the investment, estimate how much profit can be made and then determine if the return on investment is sufficient to proceed. If other projects have a higher return, the project will not proceed.  Many small companies and startups do not have the luxury of using this method.  They do not have the financial resources to do these estimates and market surveys which is why so many small companies fail.  The business is started with little capital and hopes that hard work and a little bit of luck will help the business succeed.  Despite these problems, small businesses are where the most job growth has traditionally occurred.

Businesses are formed to make money for the investor. Before spending money, the smart investor looks for the most favorable location for his business.  Taxes play a very important part in what country and where in that country to locate the business.  Tax holidays and lower tax rates are excellent ways to induce a business to invest.  Locations with high taxes are very poor choices for a new business location.  An exception to this might be a physical location that is so exceptional that the high taxes are endured.

Total Net Exports

For decades the United States has run trade deficits and no one seemed worried. Times have changed because now it has an impact on American jobs.  Right after World War II ended, the United States was one of the few places in the developed world that did not suffer war damage.  In addition, it was the industrial might of the United States that produced the guns, tanks, airplanes and ships that helped defeat the Axis powers.  Since there was no war damage, to a large extent, the United States was the only viable product exporter.  With little to no competition, life was good.

As the rest of the world recovered from the war damage, gradually they rebuilt their industries destroyed by the war. With more and more industrial infrastructure being rebuilt, the demand for American exports began to diminish.  With no foreign competition, the labor unions were able to demand and get their wage demands met.  With more and more foreign competition, the wage gravy train began to disappear.  The problem was exacerbated when the American worker decided that quality work was no longer needed and the product quality sold to the public was poor.  The foreign competition took advantage of this lower quality by selling to the American public a higher quality product.  This was especially true for the automobile industry.  As a result, American cars no longer dominate auto industry sales.  The most serious loss for America was the loss of good paying jobs with benefits.  The unions and auto industry shot themselves in the foot and to this day have not recovered their former status.

Our trade balance with China in 2015 exceeded -481 billion dollars. We also had large trade balances with Japan -68 billion and Mexico -58 billion—and Mexico continues to export thousands of their undereducated citizens into the US economy.  The total net export loss is 607 billion dollars.  If the dollar export loss for these three countries were translated into equivalent American jobs with a cost for each worker in salary and benefits of $120,000, this would represent more than 5,000,000 jobs.  America, we need to do more to minimize our negative trade balances to save jobs.  We may have to pay a little more for the goods if we buy American, but would you rather pay more for something and have a job, or do you want cheap stuff and no job?

My analysis of the Obama economy is that his administration has demonstrated that his big government communist wannabe ideology has generated ignorant policies with total disregard for the people of this country. It appears that Obama’s policies are killing the goose that lays the golden eggs.

In Part I, my intent is to describe our current situation as I see it. In Part II, future new problems and suggestions on how we might start to fix our dilemma will be presented.

[1]Ernest Kanak Jr., thewayiseeitbyernie.com, Blog post on bureaucracy, Feb. 10, 2016

[2] Ernest Kanak Jr., The Way I See It, Outskirts Press (2014), p 45-46