Reagonomics vs. The People of the United States of America

“Get off your lazy butts, stop whining, get a job, and invest!” Words of wisdom from the mouthpiece of the Republican Party and most vocal supporter of Reagonomics vehemently stated in response to the recent poll that found that 60% of Republicans thought Free Trade is not a good thing. He reiterated his remarks when he found that 50% of Republicans think that the US economy is going to get worse in the near future. As he spouted off against the American worker he made a few remarks that explain why our politicians do not understand what is going on in America.

The first, and most obvious, is that the DOW Jones Ind. Average is at historically high levels. He was equating the level of the stock market with the economy. This is a gross error for several reasons. Just as oil has gone up as the dollar has weakened so do stocks. Stocks are commodities with a limited addressable market. The price is usually some multiple of earnings. Since 50% of the earning of companies in the DOW are earned outside the US they return at a higher nominal value (simply 1 Euro now translates to 1.42 Dollars).

As we send more of our equity (dollars) to countries supplying us with goods and services these countries must have something to buy. Since we no longer make anything they buy stocks. Recently they bought mortgages and real estate but today they buy stocks and US Treasuries.

Finally, on an inflation adjusted basis stocks are just now at the levels of the 2000 crash. It is inappropriate to equate nominal gains in the stock market without adjusting for these levels. Should this be done most likely the stock market would be following the US economy in its downward spiral.

This same Republican Reaganomic’s mouthpiece stated that he could not understand why Americans did not feel great about the economy. After numerous years of losses in real income, Joe Worker finally had a 2.5% gain last year. He then indicated that with Core Inflation at 2% the average American gained 0.5%. He forgot to indicate that while the economy may look at long term inflation tendencies through Core (CPI) the family pays the real inflation immediately. Energy now costs twice that of just 24 months ago and food has risen over 50%. Most families are not able to survive just buying refrigerators, they must also buy food, have heat and put gasoline in their cars.

It is always valuable to tune out the rhetoric and look at the fruits when judging if something is good or bad. Economists will tell you that Free Trade is always good. The facts are that Free Trade requires enlightened self-interest. When enlightened is gone self-interest is only greed. When greed is the primary motivating factor for trade then the results are disastrous because goods are not produced with the best cost-quality relationship. They are produced where they can eliminate or move costs onto someone else.

The case is lead in toys. It is not necessary to test for lead in toys made in USA given our legislation lead paint is no longer produced. Our lead free paints cost more. China does not have this legislation therefore their paint costs less. The producer saves money. He cannot control the quality of workmanship because that would eliminate his cost advantage.

Simply said the Reaganomics, Free Trade, Open Borders HB1 VISA and Amnesty supporters are all talking the talk. They are trying to present a case without facts using talking points and buzzwords like protectionist, lazy American workers, populist, racist, etc. Tune them out and think about what is really going on around you. This is the only time that the politicians may listen to WE THE PEOPLE. Your voice must be heard.

Tags: Government Politics Recession Corporate America Finance Illegal Immigration Economy Reaganomics