Archived Story

Identifying problem is first step [UPDATED]

Published 9:00am Monday, June 4, 2012 Updated 12:02pm Monday, June 4, 2012

OK, so I’m only an economics minor. But that’s not going to prevent me from making the case that the U.S. economy, struggling once again, in my opinion, has not yet recovered because of three primary reasons (though I’m sure someone can make a case for more).

1.) The economic growth in the 2000s was truly false. While there are many layers of the housing bubble, in essence, we had economic growth because people bought homes they couldn’t afford, home values were overinflated, and when the loans couldn’t be re-paid, home values came crashing down.

The decline in housing values, for example, has made the fact that mortgage interest rates below four percent, historically low, a moot point. Why? Because if one’s home value is less than one owes, or even only slightly above what one owes, a refinancing loan can’t be done.

And those whose home loans are far less than the home’s value probably are close to having the home paid off anyway, and don’t feel the need to refinance.

The fact that people can’t sell their homes for what they owe, or close to it, also severely limits job opportunities.

Who wants to take a job, even one that comes with a raise, if it means taking it in the shorts on their house to the tune of tens of thousands?

2.) The economic boom in the 1990s was fueled by the Internet. However, the Internet explosion is hollow at its core, because everyone still gets products or services — news, books, music, television, etc. — for free or at a price far less than what its worth, and what an Internet company needs it to be to sustain itself.

The recent Facebook decline may finally prove the point that, despite all the glitz, it is really, really difficult to make solid revenues on the Internet.

But how can that be, you say, when you hear about Internet companies selling for billions? Those companies, like many others before them, are sold on their revenue-producing prospects, and not their actual revenues.

Everyone still thinks they should be able to get everything on the Internet for nothing or virtually nothing. And they do, for the most part. Until that changes, the cycle of Internet businesses will continue: cool web site created, millions of followers attracted, billions of dollars invested, and zero actual revenues made for the ultimate investors (the guy who invented the web site, of course, makes billions when he sells the company while it’s still hot.)

3.) The U.S. is losing jobs overseas because the minimum wage is less over there and there are fewer — or in many cases, no — government regulations on businesses in regards to pollution, occupational safety and other matters.

Places such as India and China will continue to grow mostly because the average standard of living in those countries isn’t nearly what it is in the United States.

As someone once said, during the Great Depression, Americans would take hard jobs that paid little or nothing because they had no assets and little opportunity.

Americans don’t see it that way anymore, but residents of other countries still do. Companies believe the only way to make cheap goods and maintain a profit margin is to make them in countries where employees make a fraction of the wage that U.S. employees do.

If we want to continue to have cheap products, we will have to live with the fact that we’re going to lose jobs overseas. The alternative —Americans reducing their standard of living to where those low-wage jobs make economic sense — isn’t exactly attractive.

Politicians want to talk about how we’re in the economic condition we’re in because the government did this or that, or didn’t do this or that. Give me a break.

My belief is, until the politicians, business leaders and everyone else start identifying the real issues as to why our economy is struggling, there will be no real solutions.

  • camobabe

    Careful, Joel. You are beginning to talk like a conservative when you suggest that some self control and responsibility in individuals and groups might help to solve our problems. A clue, to your suggestion to “start identifying the real issues as to why our economy is struggling”? Perhaps you could start with an epidemic of hedonistic self indulgence, with generous helpings of narcissism, served in an ambience of entitlement and expectations that anything anyone wants must be provided, and paid for by someone else’s work and income.

    • Phaedrus

      For someone who refuses to take responsibility for their own writings (by corroborating them with actual facts rather than imagined fantasies and hysteria), to suggest the conservatives have a “monopoly” on “self-control” or “responsibility” is beyond ridiculous. Joel was looking for the “real reason,” and given his position on the various bubbles over the last 20 years, maybe he should start with this quote from Henry Ford? “There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.”

  • Swede

    “The economic growth in the 2000s was truly false.”
    Is housing the only area there was growth?

    “The economic boom in the 1990s was fueled by the Internet.”
    The internet may have contributed to the boom, but it also benefited from the boom.

    “the Internet explosion is hollow at its core, because everyone still gets products or services — news, books, music, television, etc. — for free or at a price far less than what its worth, and what an Internet company needs it to be to sustain itself.”
    Have you noticed the advertising on your website, Joel? Advertising has paid for broadcast television for decades.

    “The U.S. is losing jobs overseas”
    If so, is the U.S. gaining jobs domestically?

  • Swede

    Why is it the left continues to blame economic woes on business, when business and the economy are essentially the same being?

    Government feeds on our economy. When our economy or business is slow, government should be the first to fast. Chairman Zero and his democrats are instead engaging in a feeding frenzy.

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