Friday, July 1, 2022

A Blue Collar Guide to Understanding Economics in todays world.

 Economics is fairly simple, at least on the long term, however politicians, who are not always looking out for the countries better good make it difficult. When you operate in a political environment focuses on Business profits over the people, we end up where we are now. So this will be an easy to understand guide for those of you confused on how basic economics effect your life. 

Tax cuts. 

This is the stalwart of the Republican party, cut taxes fuel spending, maximize profits, which is what it does. When taxes are cut spending ensues, usually in the form of corporate buy outs and take overs, money which would go to the Government to pay for their projects, instead goes into their pockets. The myth being they are going to reinvest, which sometimes they do, not always in America. 

During the Raygun tax cuts, the government suffered such a deficit that taxes were raised in 12 different area's to pay for the declining coffers, this is where Social Security and Medicare taxes came from. 

https://www.ssa.gov/history/InternetMyths2.html

Tax cuts rarely benefit the common man as they are given to those at the top tier, they do fuel spending overall however and I will explain at the end why too much spending is a bad thing. 

Interest Rates; 

The Federal Reserve controls interest rates, which is the amount you pay federally on money borrowed. Low interest rates sound amazing, I mean who doesn't want to pay less in interest rates? The less money in interest rates you pay the more money you have in your own pocket. At the common persons level a half a interest point is negligible in our lives, where as people dealing with hundreds of millions or billions it makes a HUGE difference. Eventually the cuts keep going and more spending again occurs as lenders have more money to spend. To slow spending the Federal Reserve then raises interest rates which makes industry slow. This sounds bad but it actually can be a good thing as it slows the rate to which homes for instance are purchased. Too low of a interest rate and spending goes wild which fuels inflation, high home prices are a direct result of our previous record low interest rates as people can borrow with more money and buy a higher priced home, thus raising hte prices. Not difficult in the least bit to understand really. 


Employment; The result of both as I noted means industry has extra money to spend on it's pet projects or investing, this means growth. Growth requires jobs to fill lowering the overall unemployment, this sounds great but it means you will inevitably be short of workers, which is where we are now. As industry runs short on workers they must raise their prices to compensate, thus more inflation. Moroever too many people employed means you have less of a workforce to fill down the road, less people going to college and less educated growth in the future. 

While current thinking has stated that worker shortages mean higher pay, that is proven to be somewhat bunk as employers have not raised wages accordingly to fill those jobs. Instead they close or limit hours, which again means higher prices. 


Tariffs; These are used when trading internationally, if a country is protecting all people, it uses higher tariffs to push away investment which will hurt their own industry in that area, if they are short on goods in an area, they will use tariffs at a lower price to encourage import. Currently America has some of the most lax tariffs in the industrialized world which has created a lord of the flies effect, or only the strong survive. This means less stability. 

Trade; Directly proportional to the above, especially Tariffs, this means we again work at a international level to trade our goods. Good relations mean more trade which is a good thing overall. More Trade means more industry in a country and more employment which lowers the number of Immigrants either leaving a country or in our case, coming to a country. Idealy wages are raised to keep employment, however with America's lord of the flies and flip of the switch supply chain economics, indsustry is unstable with our trade meaning at a moments notice that can change with little regard or incentive for long term stability. We experienced this recently with Trump trade wars, where competition and bidding wars started, this destabilized the supply chain creating bottle necks and supply problems which inevitably means higher prices=inflation. 

The President and Congress; Overall the POTUS normally has little direct control over all of this as we do not live in an Autocracy. He does however oversee it all and makes calls for adjustments, suggestions if you will. He proposes a budget  or idea's which is pushed to Congress who then write laws around it. If congress wants the POTUS to approve their idea's, then they captulate and make amends in at least some area's. In short hte POTUS is an executor, or a figurehead who signs laws and trade agreements into power. Ideally the POTUS is neutral in this regard, looking into the future and making sure the good of all is met. Clearly this does not always happen and some POTUS, such as I mentioned Trump and Reagan, put immense pressures on Congress to get what they want. 

In the end if all are working properly, you have a slow growth equal to the birthrate but not more than the retiring rate. When they are out of sink you end up with too much spending, too much growth and inflation. The worst case is hyper inflation where currency can become worthless, we are NO where near that as of yet, but we are at a point of near record inflation all of which could have been easily avoided save certain people in Government not working for the people, but rather working to maximize profits quickly for themselves. 






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