Posted on 11/13/2003 10:20:18 AM PST by Chi-townChief
The economy is not in bad shape. In fact, it's growing and even if pessimism is everywhere, there will be glory in the end.
That's the view Brian Wesbury, chief economist at the Chicago-based investment bank of Griffin, Kubik, Stephens & Thompson Inc., carried to Great Lakes Bank's annual economic breakfast.
According to Wesbury, who also spoke at the bank's breakfast last year, national deficits are essential, jobs will be plentiful and there is no evidence of the rich getting richer and the poor getting poorer.
"Deficits are essential investments in our future to get the economy moving again, which it is," he said to the crowd of businessmen and women.
"In the early 1980s, the U.S., in my opinion, was making incredibly powerful investments with (President) Reagan cutting taxes and putting so much pressure on Russia that the Cold War ended.
"Then (President) Clinton came in and inherited an economy that was high in technology investments and inherited a world at peace.
"But the only way Clinton ended up with the surplus he had was because Reagan invested and understood the theory of no risk, no rewards."
Wesbury added that George Bush inherited, much like Reagan did, an economy going into recession — one where deficits become bigger than initially planned and one involving tax cuts in war time.
The Cold War was costly but its success helped bring about the economic progress of the 1990s, he said, adding that he expects that will happen again.
"If we don't win the war on terrorism, we'll never recover," Wesbury said.
"People think terrorism is new. It's not. In 1981 there were 31 commercial airlines hijacked. The same number was hijacked in 1982.
"And with the Cold War, other countries felt we were dangerous to world peace. And in the eyes of the world, the U.S. was losing stature.
"It's happening again — trade and budget deficits and an economy where no one could say anything nice. And all that started the biggest economic boom in our country's history."
Given the similar scenario to years past, Wesbury said the country is in a great transformation, one that is less agriculturally based and more technologically driven.
He offered the example of the automation of the dishwasher putting about 19 dishwashing employees out of work at a restaurant.
According to Wesbury, the end result of layoffs like this is better for the country's economy because producers in the service sector must "continue to add value and increase productivity" in their businesses.
"Part of the anxiety with this transformation is it doesn't come without pain," he said.
"But even though families may suffer, in the end, the economy is better off because you think about the resources that were released when you don't have those 19 dishwashers tied up in one job.
"The country gets more productive and proactive ... by technology."
To reiterate this point, Wesbury gave the example of a lawyer for a telecommunications company paying her way through college from the money earned at her former telephone operator job.
He added that in the 1970s, if productivity grew in the nation by 1 percent, economists and analysts were excited.
Today, the country is looking at an 8 percent productivity increase, which Wesbury likens to the Cubs winning the World Series eight times in a row.
Wesbury said raising productivity subsequently doubles the standard of living every 10 years, and the threat of losing jobs to China, India or another country helps the American populace in jobs and average wage earnings.
"In 1982, when talk of losing jobs to Japan was going on, the U.S. employed 89 million people with an average wage of $270 a week," he said.
"In 1992, after Japan, 109 million people were employed in America with an average wage of $370 a week, and today, 130 million people are employed and the average wage is $520 a week.
"So when we bring in competitors, we always get more productivity and more jobs. We just have to remember to protect our economy by not imposing protective tariffs or drawing the value of the dollar down.
"If we devalue our currency, it can hurt more people."
A chart of business and household surveys performed by the Bureau of Labor Statistics, revealed numbers of employment similar to two years ago. Businesses report less people on their payrolls while households report more jobs gained in the past year.
'There's no evidence that people are worse off today than before," Wesbury said about the monetary classes. "There has been an extreme movement from one group to another.
"Yes, some people get caught in the transformation, but at the same time, you have a former operator who is a lawyer. In general, the whole group is being lifted up every year."
With positive news like this, Wesbury provided an economic forecast that proved just as positive.
Forecasts included:
A decrease in unemployment rates from 6.1 percent to 5.6 percent by the end of next year.
Inflation will slowly increase.
The Federal Reserve will raise interest rates early next year.
Mortgage rates will go down another 1 percent, a move that will make the housing market plateau at record levels of activity.
"When interest rates go up, it's a reflection of the economy and wages are going to go up and higher incomes will offset the housing market," Wesbury said.
"You want to forecast the economy, take the Federal Reserve fund rate and minus inflation. If the Federal Reserve raises interest rates high, we have a recession. If they lower them we're out of recession.
"If you combine the federal stimulus of cutting taxes and lowering interest, we're on our way to a very robust economy in 12 to 24 months."
Wesbury added that the bond market is overvalued and the stock market is undervalued, so a move to more stocks is expected, which makes for an excellent forecast.
"Economists and analysts live for disparate and dramatic events so we can break them down into some model of a forecast. And in the last couple of years, it's been great," he said.
"But that doesn't mean that people love living in these times, which Spiro Agnew would describe as a nattering nabob of negativism and what I call (a) pondering pod of pessimism.
"There are a lot of better things going on than negative stuff."
Darcel Rockett may be reached at (708) 802-8817 or via e-mail at drockett@starnewspapers.com
I know most of our people here understand this point but I'm always amazed at the people I talk to every day who don't.
"They haven't made the joint that can hold me - I'm bustin' out, see? ..."
Constructive and in line with our decades-old trend away from manufacturing and toward a service-oriented economy. As Capitalism cuts some series of jobs in the quest for profits, other niches open up and are filled, usually with decent wages. The low-paying jobs were a scam by Klinton, when he claimed he was creating so many jobs, as he trashed our economy. Remember his plan to make a lot of the "downsized" military folks into park rangers? He took a lot of good jobs and turned them into McDonalds jobs. Why do you think the Dims are so interested in raising minimum wages to make it so "a worker can support his family"? If they had their way, that's the only kind of job the average American would be able to get - no need for an education and with government-controlled wages.
Yes there are people that are having to retrain because a good factory job has gone away, but most of them will find great work in the medical fields and make more than they did in a factory. there are going to be thousands of NEW jobs doing repair and maintence of AC units in the millions of home built during the past three years, plenty of factory men and women can do this work and make 20-30 dollars an hour.
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