Tuesday, July 8, 2014

Lies and More Damned Lies About the Economy

Lies and More Damned Lies About the Economy Lies About the Economy Don't Just Occur in Election Years, Lex Loeb Contributor Network . Things are not always what they seem to be because what you see is dependent on where you are looking at it from. If you have ever been sitting on a train going no where and another train passes by you might not be sure that your train is not in motion. A person on the moving train also might not know that your train is not moving where as a person standing on a distant platform can be sure which train is moving and which one is standing still. A tourist in Mexico or Europe is more aware what the purchasing power of the dollar is than a tourist at home in the USA. In recent times it has seemed that gasoline and food had become extremely expensive on a historic basis but when you find a chart that corrects for inflation as it has compounded over the same number of years the reality becomes totally different as we find out that oil prices have hardly kept up with inflation over the past 40 years . One also can get inflation adjusted stock market charts which clearly show that although the stock markets have exceeded the rate of inflation on a compounded basis their long term yield are a lot lower than the face value non corrected for inflation charts show. The simple trick of going to Yahoo or Google Search with key words: "inflation adjusted stock market chart " or gasoline price chart etc will relieve some of your greatest anxieties about the so called economy. People earning 80,000 dollar incomes today on an inflation adjusted chart for incomes at that level might show the same job paying $8000 a year a full 60 years ago. What that can mean is back 60 years ago you could have earned $8000 and had more or less buying power than you do now with one tenth the money. The overall taxes you paid 60 years ago might have been higher or lower but they are also in need of inflation adjustments. A trillion dollars bills printed by uncle SAM today might have been the same as a hundred billion dollars 60 years ago! Other inflation adjusted charts show that Gold has not necessarily kept up with inflation over various periods of time. Measuring the economy on the basis of face value dollars without inflation adjustments is likely to give you defective perspective. It is a matter of getting off one of the two trains and walking out on the platform to get a more objective one of which one is moving and which one is standing still? Having perspective from various frames of reference at the same time is the best way to view an economy or any general environment to impart any value judgment on the particulars of it's condition. One way to do this is to take "snap shots" at various points in time such as comparing the cost of bread and rent for a two bed room apartment with the cost of a two bed room home in the same quality neighborhood with the average take home pay for the periods such as intervals of every decade in a city such as Chicago as one example with a number of variables . That can give you a nice frame of reference to figure out what might really be cheaper and what is more expensive because face value of contemporary retail prices gives you no metric to compare anything with. When someone says that an environmental ecosystem has been degraded there usually is no real comparison using frames of reference to really prove that anything much is different. It is easy to make a bad argument seem reasonable when variable frames of reference comparisons are not made available. Frames of reference can also be exploited. I have seen government agencies argue that although taxes have gone up 50% in 40 years that government is out of money because of inflation and their real net is less than it should be on account of inflation. That argument never should work for a currency minting government. For a state government it is also patently absurd statistical logic because the government itself does the taxing and is not taxed. Public school systems often complain that they cannot compete with private schools because those schools are part of non taxable religious organizations or just non-profit in general and that becomes a completely warped perspective because the government school system is also not subject to taxation. The fact that government employees may be subject to taxation unlike some nuns is no advantage to the nuns at a parochial school if their net income after taxes or with no taxes is still lower than the public school teacher's. One of the biggest lies in US economic history is the tax cut. Most tax cuts have been designed as no net loss revenue measures. The success of so called trickle down economics went to prove the Laffer curve because moderate tax cuts definitely can generate more government revenue and often time government offered the tax cuts while quietly raising other user fees at the same time. Most tax cuts never were and never will be the way they are structured. It is very unlikely that a tax increase will ever be anything but exactly that so the bias to one's frame of reference in assessing the trend is on the side of increasing taxes regardless of the rhetoric. Another place to find out what frames of reference can do in economic assessments is to calculate the percentage of a new car purchase price that is taxation of all the various part supplies and manufactures involved in making all the components of each car. When every corporation involved is paying income taxes on profits after they sell each item the tax has to add up down though the entire industrial supply chain. An American made car with a list price of $24000 possibly can be made over seas in a country without any income taxes or export taxes for half the price it costs the US manufacturer to do it here. As it happens US auto plants overseas can make the exact same cars from foreign parts in countries overseas with the same labor costs and transportation costs to import to the USA and come out ahead. Some taxes cancel out though the supply chain because taxes are due on net profits such that expenses included in paying other companies taxes that supply parts can be minimized to some degree but an expense is an expense and the costs have to ultimately be paid for by the final retail consumer. I have seen no studies made to show how much a gallon of gasoline or milk might cost if all the hidden taxes paid are factored out. The argument against this perspective is that the good the government does always justifies the additional costs paid for by consumers. With Newman's salad dressing maybe guilty people feel like they should be paying a fee for a charitable expenditure of some kind when they buy salad dressing and there it is completely voluntary, but when you find out that you are also paying 50 cent in various taxes for supplies purchased by the Newman salad dressing company that get passed on to consumers the bottle should also mention the percentage of tax is automatically contributed. Government can see tariffs as an argument then to add taxes to cheaper foreign imports but that makes you wonder who exactly they are taxing and why. The taxation environment can really slow the economy down from what it's alternative growth rate would otherwise be. If American cars and everything else manufactured in the US were half price to produce than American goods could actually compete with import competition because other studies show that US productivity is actually higher. Foreigners buying exports also find themselves paying lots of hidden taxes because of compounding income tax and cap gains taxes in the supply chain. A change of the law could make a company like Boeing more competitive than any other commercial aircraft manufacture anywhere else on earth on price alone, In spite of this government will argue that the reason Boeing can't compete as well as it should is because tariffs need to be higher on the competition and sometimes they even argue that taxes are too low because Boeing workers need more government services to be able to compete. There is a way to get frames of reference reading on both arguments to find out which is the economic lie and which is the environmental truth. What recently happened was government officials in the US decided that the US dollar needed to be devalued against the Euro to make Boeing and other companies competitive with their European counter part Airbus ultimately the devaluation completely backfired wrecking much of the world economy instead of adding any long term competitiveness to any us manufacturer or exporter. After doing this government never even considered taking any of the blame except that in the election competing political parties blamed each other but carefully invented stories that blame broader environmental economic conditions beyond their control. When one is not sure of the what the truth really is one should just travel to a foreign country with foreign currency and there with the variable exchange rates it is possible to see weird prices can get. The story of the tourist who goes to Tokyo from New York with a brand new Nikon camera that he can sell for twice the price that he paid for it in New York city reveals the strange world of frames of reference in economics. Taxation of the homemade Nikon camera in Tokyo plus the higher rents on retail establishments verses export variables to get the camera to new York city and japan's export favorable tax system explains how it happened even with the added transportation costs. It can cost a Japanese consumer more than twice as much money then in Tokyo because his annual income could be higher but his living expenses can be more than twice the cost of living in new York city. If the American gets the better overall deal in having to work fewer hours to buy the exact same camera the benefit should be considered 1. a gift from japan and 2. A benefit of being an American consumer with open import market. The economic lie that results in the US is that this constitutes a form of dumping goods at below cost to beat any possible US competition. Unfortunately we know that is a complete lie because nothing comparable to that same Nikon camera is manufactured in the US. \ .

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