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THE BLUE MONEY REPORT.
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The Blue Money Report
"...contributors will only give money to challengers when they have a realistic chance of winning, and incumbents only spend a lot when they have a chance of losing"
~ Steven Levitt
Welcome to the Blue Money Report
Today's Commentary: 10.21.03 Is it possible that inventories are so low that manufacturing will need to hire just to keep pace? No. One thing that has been a constant as each week's unemployment numbers are released is the increase in productivity. If manufacturing believes that they can squeeze one more efficient unit from those they still carry on the workforce, they will. Using temporary workers has been the reason they have been able to accomplish this.
The talk among the industry leaders is more spin than reality. Plans to hire have been spoken about at length over the past months but little in the way of actual hiring has taken place. This is a cause of great concern since most of this chatter is coming from smaller companies where presumably the recovery should have begun in earnest. Many of these were the first to layoff workers as their big brethren customers sat back on their stockpiles until they dwindled to near zero.
Those stockpiles, which are based on an inventory-to-sales ratio have reached the breaking point. Sudden demand, another illusion hoped for but unlikely, would cripple suppliers who would be unable to increase production to match this ghostly demand. As long as these inventories remain low and companies remain unwilling to extend those inventories, chasing sales that haven't materialized with product that hasn't been made make any subsequent recovery also illusory.
There are those who believe that we were well on our way to recovery before our President dragged the country into war. That derailment, which many are beginning to point to as the beginning of the recovery since paused, is still an effectual drag. Looming deficits coupled with extensive and accommodative monetary policy will help the GDP in the here and now while crippling the future of sustained growth. Unfortunately, many businesses need to forecast growth beyond the upcoming quarter. Many are unwilling to do that understanding the long term destructive nature of current policies. You will, I promise, tire of hearing the words: cautious optimism.
For the last week or so, I have commented about the worker's place in this recovery. I discussed the powerlessness of the average worker, those that are still employed. The economy thinks that enough of you are working to make a difference. Then there was the commentary modeled after a pitching strategy designed to keep the average worker off balance. Now I suppose it is time to make some relevant suggestions on how this can be fixed.
Unravel the accommodative money policy. It was this type of free wheeling lending that got us into this position in the first place. Interest rate manipulation followed by reigning in of capital in the attempt to control runaway businesses brought most of this economy to its collective knees. Although the Fed has made it clear that it wants businesses to borrow to grow, those very businesses are inclined to wonder if, just when things get rolling again, will these top bankers decide to pull the plug... again.
Meaningful tax reform should not begin or have begun with the top tier income tax payer. This was the wrong place to encourage accommodative business growth. Often referred to as a Gordian Knot, the system that taxes corporate profits is so complex that it becomes a drag on the very profits that spur growth in any meaningful way. Increasing subsidies is not tax reform and does more damage to potential job development and our place in the world economic recovery than any one single policy.
Meaningful tax reform would have been time better spent. In numerous studies released last year, one in particular from the National Election Survey have pointed to the belief among the average tax payer that tax cuts are beneficial to everyone, upper, middle and lower. This anomaly in the public's mind inparticular among lesser income brackets that was capitalized on in a big way, and still is. When one tax cut proved temporary, the White House pushed through a second cut. Now that those are in place and deficits are looming in the present, near and far future, making those tax cuts permanent is the next logical choice according to the administration.
Tax reform is less about spin and more about the factual information needed to make the public understand how these policies will affect them. If taxpayers understood that payroll taxes were the crippling bite in their personal economic recovery, they would have pushed for changes there first. The belief that taxes for Social Security and Medicare were the real problem allowed inconsequential cuts in dividend taxation and the estate tax to be the foundation for further cuts in services most often used by lower income tax payers. The inability to see the effect (diminished services) of the cause (upper bracket relief) has allowed this to continue with wider support than otherwise would have happened.
As we drift into the upcoming election year, the policy of what was done was good for the country will be at the heart of every stop on the campaign trail. The message that inequality will eventually amount to a better economy is not only the result of good spin but poorly articulated information.
Gary Schilling, a noted economist believes that we are still in recession rich territory. His belief that this will take place sometime early in the upcoming year will place some pressure on these spinmasters to show that what they were telling us wasn't just another version of Digitus Impudicus.
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