Saturday, February 16, 2008

Dude, Where's My Economy?

For the last 7 years the President's opponents have been talking down the economy as if it were 1979 or something. Truth is despite the huge run up in energy (and food) costs the economy has been clipping along with low unemployment, low interest rates and low non-energy related inflation. There are a myriad of complicated reasons beyond Bush's oil buddies that energy is so expensive, not he least of which is good 'ol supply and demand. Contrast this with the late 1970's and sky high inflation, unemployment and interest rates as well as high energy costs complete with long lines at the gas pump. Frankly we have it pretty good right now.

Part of the reason we are in better shape is that the service and information age based economy is more diverse than the industrial economy of the 60's and 70's. Also, consider that in spite of the domestic economic disruptions of today's hyper-globaization the door has been opened for American business around the world like never before. This is a good thing.

Still, there are two fundamental areas of the economy that are struggling. These constitute the most important things average Americans spend their money on. Houses and cars.

The subprime mortgage mess is profound, but I believe it will right itself in a few years. Housing prices will start moving up again but hopefully at a more reasonable pace - provided lending discipline has returned to banks and mortgage companies.

The auto business in America is a much tougher nut to crack. The big three - GM, Ford and Chrysler have the deck stacked against them, their backs are against the wall and have their own gun pointed squarely at their own feet with the union ready and willing to pull the trigger. Foreign makers are successfully and profitably manufacturing cars in this country. What's with the big three? Well, there is a union legacy that doesn't affect the foreign companies who have for the most part put their factories in right-to-work states. Also, Detroit has forsaken the small, high quality, high mileage economical car to the Japanese and Koreans. They have been betting on low energy prices lasting forever and then pushing large trucks, SUV's, luxury and performance cars to fill their coffers. Bad bet.

So, based on these developments today's economy is riding on the precipice of recession. Clearly the fault of Bush and conservative economics, right? Not necessarily.

For one, the continual denigration of the economy by the Democrats and the media can produce a self fulfilling prophecy. Second, the liberals and civil rights groups continually pushing banks and lenders (and legislation) to loosen lending restrictions to sell houses to those clearly unable to get mortgages under normal circumstances. Unscrupulous businesses smelling blood in the water, began a terrible cycle of the outrageous run-up of real estate prices. The inevitable foreclosures and then the do-gooders desire to ease the pain with (government) bailouts are going to make the necessary corrections linger on - further hurting the economy.

As for the domestic car business, well... Most of my really liberal friends, all very good people, do not, will not buy American made cars. They claim to be sympathetic to the working man, the union man, but that goes right out the window when they are shopping for a new car. It is clear that Toyota and Honda make extremely good cars, but so does Buick and Chevrolet. American manufactures are making incredible strides in quality and design since the low point of the 70's and early 80's. By now reputations have been made and destroyed and it is going to be hard for the big three to attract the Honda and Toyota buyer - particularly the well-to-do liberals.

My own experience showed me that the Japanese car is a fine machine, but my Pontiac is also a very good car. There is no comparison, however, when it comes time to pay for repairs. Perhaps the foreign car needs fewer repairs, but my God talk about expensive!!!

In the end, unless the Democrats completely forsake American business with their empty populist economic prescriptions, the American economy will push on with a sustained growth curve for the foreseeable future. Profit driven companies and venture capitalists will continually remake our dynamic economy just as they have since the founding.