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	November 2, 2003

ECONOMIST NEWSPEAK The newspapers were full of 'joyous' and 'encouraging' news about the economy this past week, and there was little mention of the fact that, on the heels of this 'good news', several businesses announced another round of layoffs. It's infuriating to me that newspaper and television reporters are so ignorant of how the economy works these days that they are unable to see what this 'good news' really means to their readers. Let's break the recent euphoric announcement down into its components. WHAT THE ECONOMISTS TOLD YOU WHAT THEY DIDN'T TELL YOU "The GDP rose 7.2% mainly on the strength of a 6% annualized rise in consumer spending" That means consumer costs, mostly reflected in the leaping cost of home purchases, are growing at a 6% annual rate. Most of those costs are fixed, non-discretionary costs like mortgage, transportation and health, which have increased 3-to-10 fold in a generation while spending on food, clothing, recreation and furniture has plummeted in that time, because there's just no money left over. Since incomes are not growing at all, this means consumer debt is rising yet again, and if interest rates spike the consumer is toast. And if you need a reality check, consumer spending dropped in September, showing that consumers are tapped out. "Profits are soaring" The reports indicate that this has occurred almost entirely by cost reductions, not increased sales. The primary means of cost reduction have been layoffs, exporting ("offshoring") jobs, contracting out, and downsizing. In other words, profits are soaring on the backs of American workers. "The risk of deflation is largely forgotten now" When people are forced to spend more than they can afford on the above-noted non-discretionary items, and incur record levels of personal debt, the risk is inflation. A sudden spike in inflation would crush already over-burdened consumers, put the economy in free-fall, accelerate the collapse of the US dollar, and prick the housing bubble. The only significant asset most Americans have, the family home, would then lose much of its value, and foreclosures would soar. And economists do expect rates to rise soon. "Unemployment has leveled off" Half a million Americans a month are giving up looking for work every month. In more ways than one, they don't count in the economists' numbers. "Employment will have to rise to keep pace" There is every reason to believethat net new employment by large corporations will almost all be in India, China, and other third-world countries. Hiring overseas not only reduces costs, it puts money in the pockets of consumers in those countries who are more likely to spend it on the crap these companies produce (most of which is now manufactured in these countries anyways) than debt-ridden Americans would be. So now you know what this important economic news means. Don't you feel better now? 10:49:21 AM  trackback []  comment []

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