The Economy

This post was originally written on 3/25/2012


The Economy is a major big deal issue in the 2012 election cycle.  It's all about money and stuff, and Americans LOVE both those things.  We all want lots of money and lots of stuff (except for us mom's who HATE stuff because we're the ones who have to find places to put the stuff) and we like for it to be easy to get money and stuff, and we don't want to have to give any of our money or stuff to anybody else unless we really really like them.  The Economy is also about math, and I've mentioned before that I HATE math, so this piece will be kind of like The Economy For Idiots- without a whole bunch of really complicated math stuff.

     Understanding the economy of a country is pretty hard to do, cause countries are big, and not too many people can remember off the top of their heads how many zeros are in a billion or a trillion.  Even those people who can remember that (by the way, the answer is 9 for a billion, 12 for a trillion- at least in the US) really can't actually count to a billion or a trillion without a calculator- it takes a really long time.  What I do is try to scale it down and imagine that country like it is a multi family household.  For example- you've got a big ole farm house out in the country, and in that farm house you have a family with Mom, Dad, two kids, Grandma and Grandpa, plus Uncle Steve and Aunt Bertha and Cousin Billy Bob.  Oh, and you've also got some foreign exchange students, Chen and Rodrigo, living there too.  I call it the USA Ranch.

     Every economy has four things that it has to deal with in order to keep things going and keep everyone's needs met.  It has to have a Budget, some Debt, some Taxes, and there are usually some Trade Issues that have to be handled.  Technically, Debt isn't mandatory, but since we're trying to talk about the US economy, we're going to assume that the USA Ranch has gotten a little behind on some bills.  Trade Issues can sometimes be avoided as well, but since even Amish folks do some trading, we're going to assume that USA Ranch has to do some too.  Now let's take a look at these four issues.  For those of you wondering where the talk about the and minimum wage and jobs is, you'll have to read the piece that comes after this one, about Daily Life.  Here we're sticking to what the government has to be involved with as far as the economy goes.

BUDGET

     On the USA Ranch, Mom makes out the budget for everybody that lives on the Ranch.  She's good at that stuff, even though she hates it.  She's good at it because she's able to see The Big Picture.  In the US Government, Congress makes the Budget, along with some suggestions from lobbyists and The President.  Mom's budget tends to be a little better about putting needs before wants than Congresses budget, but they both serve the same purpose.  You have to make a list of all the things that have to be paid for, so that you know how much money you're going to need to pay for them.

  


The Budget of the USA Ranch looks like this:
            House Payment
            Necessary Utility Bills
            Bills for stuff we like having
            Home Security System Bill
            Health insurance premiums
            Life insurance premiums
            Food
            Clothing
            Transportation
            Stuff that the kids need for school
            Medicine
            Charity n stuff

     The Budget of the US Government looks kinda like this:
            Stuff Everybody Needs
            Stuff A lot of people need
            Stuff different lobbyists say people need
            Stuff different lobbyists say people want
            Military personnel salaries
            Military personnel benefits and perks
            Military weapons
            Military toys
            Maintenance of stuff military owns
            Salaries of a bunch of people to run the government
            Salaries of a bunch more people to run agencies for the government
            Benefits and perks for all the people who get salaries from the government
            Operating costs of a bunch of government agencies
            Social Security- retirement savings for old people to live on
            Medicare- health insurance plan for old people to use
            Maintenance costs for stuff the government owns
            Stuff  to buy just to support different businesses interests of US people
            Emergency supplies for possible alien invasion
            Stuff the kids need for school
            Medicine to prevent icky diseases and stuff
            Charity n stuff

     Obviously, Mom's budget for the USA Ranch is going to be a little less complicated because she's meeting the needs of fewer people, but her job and The President's job are basically the same.  Both of them have to look over the requests made by the people who want stuff, and say either yes, you can have that and we'll find a way to pay for it, or no, you can't have that because we can't afford it- if you want it that damn bad you'll find a way to get it for yourself.  The problem that The President has that Mom does not, is that The President is replaceable.  And he can't hold out on giving up the lovin until Dad (Or the members of Congress) agrees to back him up and tell the kids that the discussion about what they want is OVER.

     So Mom makes out the Budget, and it's a list of everything that everyone needs and wants, that has to be paid for out of the money that USA Ranch has on hand.  Hopefully they have enough to pay for everything that everyone needs, and Mom has enough sense to not pay for things that people want (or overpay for anything in general) before she starts sending off checks for things that people would like to have.  But sometimes Mom gets giddy when she sees something shiny, and she agrees to let someone on the ranch buy something that they really can't afford.  Sometimes an unexpected expense comes up, and USA Ranch has to shell out for that expense as well as paying for all their other bills.  Then the good ole USA Ranch is in Debt.

DEBT

     Debt is something that most people are at least a little bit familiar with.  When you need (or want) more stuff than your income can pay for, nice people always seem to pop up who are willing to extend you Credit so that you can have the stuff you need and pay for it later when you have more money than bills to pay it towards.  People who extend credit aren't always all that nice though because they usually are extending you that credit in exchange for you giving them back more money that they let you Borrow in the first place.  That's called Interest, and it makes sense to pay it if you're getting Credit for something you couldn't have just waited to buy until you had the money for it (like snakebite medicine) but it's pretty stupid to pay it on something that you could have saved up for instead (like a bigger TV.)  A lot of people who are willing to extend Credit, or loan money, don't just wait around for people to come looking for them either.  They advertise, and try to entice people to come borrow money from them or buy something that they don't need on Credit.

     Back to Mom and her budget on the USA Ranch.  Well, Dad convinced Mom (with some really good lovin and some fancy talk) that he needed to buy a new tractor for farming down at the John Deere dealership because the one that he already owned didn't vrroom vrroom fast enough.  Dad said it would be a great investment because he could farm faster and grow more corn to sell- why, it would practically pay for itself!  Turns out that Dad is a damn liar who got sucked in by the John Deere salesman and that shiny green paint job.  Now the USA Ranch is in debt to the JD Credit department, and Mom has to work the payments on that tractor into the budget.  If Mom is smart, she'll cut some of the other expenses for stuff that everybody on the ranch likes having (or just flat out wants) to make up the new tractor payment until it's paid off.  If Mom is less smart, or the USA Ranch is really unlucky with their income generating abilities, then she's going to have to go down to the bank and get another loan to keep paying all the bills that USA Ranch had before, plus stay on top of the tractor payment.  Her budget is going to have a whole lot of little red numbers on it, because now the USA Ranch is into what's called Deficit Spending.

Expensive Shiny Tractor Thingy

     Deficit Spending is when your budget shows you having more going out that you can possibly have coming in.  Your Deficit is different than your Debt.  Debt is everything that you have to pay money for, the bills.  Deficit is the difference between what you are supposed to be paying on your debt, and what you actually have to pay it with.  If Mom is smart and cuts back on the things in the budget that aren't necessary until they can keep the lights on, the family fed, the kids in school, and pay the tractor payment then she isn't running a Deficit- USA Ranch is just in Debt.  Debt isn't a great thing to have, but it's also not the end of the world as long as you've got a plan to pay it off and you're sticking to that plan.  It's just going to cost you more in the form of Interest than you would have paid had you saved up and bought all your stuff with cash, instead of on Credit.  A Deficit is a really bad thing to have, because it means that you still haven't come up with a plan for getting your ass out of Debt, and you're just spending away like the money fairy is gonna come save you.

TRADE ISSUES

     Our USA Ranch, although it sits secluded off on a bunch of acres, is not without neighbors.  Down the road a piece is the MEXICO Ranch, and across the pond is ENGLAND Ranch and a whole bunch of other Ranches.  Each of them have their own little group of people living on them, and they all have some different skills and stuff.  Although the USA Ranch is pretty self sufficient and can provide for themselves most of the time, some things they just can't find or make on USA Ranch, and some things they just don't feel like putting forth the effort to make.  When someone on USA Ranch wants something that they can't (or don't want to) make for themselves, they can trade for it or buy it from another Ranch.  By the same token, when they have more of something than the folks on USA Ranch can use, they can trade with or sell it to another Ranch.

     For example.  Let's take a trade situation with USA Ranch and CHINA Ranch.  USA Ranch has all kind of good stuff.  Uncle Steve makes radios, Aunt Bertha can turn out some mean jellies and jams, and Rodrigo has a line of organic hair care products that he makes out in the shed that is to die for.  Don't forget that we have Dad cranking out corn with his fancy tractor like it's going out of style.  Why, USA Ranch is just bursting with the fruits of all this creativity and labor.  CHINA Ranch, on the other hand, is a little different.  What CHINA Ranch has is some crappy soil and 25 children of various ages.  Fu Qin (Dad) over on CHINA Ranch does his best to try and grow enough corn to feed all those kids, but the land over there isn't working with him, and Mu Qin (Mom) is tighter with the purse strings, so he didn't get the fancy John Deere tractor that he asked for.  What they do have there on the CHINA Ranch, is a bunch of toys that the kids sit around and make all day long out of clay, and a whole lot of pretty hats that Mu Qin and her sister Mei Mei make while they're sitting around gossiping about their menfolk.  Solution to everyone's problem?  USA Ranch trades a radio, some blackberry jelly, some styling gel, and a truckload of corn to CHINA Ranch in exchange for some toys and hats and some cash (gotta get some cash comin in to pay off the tractor.)

     What about the fact that CHINA Ranch is a little short on cash at the moment?  Well, there's a solution for that too!  Turns out that Rodrigo would really like to expand his business with that hair care line, but there just aren't enough people back on the USA Ranch to get it all in bottles and labeled as fast as he can sell it to the people on ENGLAND Ranch and AUSTRALIA Ranch.  But 15 of the kids over on CHINA Ranch are bored with making toys all the time, and they are willing to switch to bottling and labeling Rodrigo's products in exchange for part of the profits he's making from their sale.  Thing is though, Mom and Mu Qin want to make sure that with all this trading and exchanging of work and money going on, nobody is getting cheated.  Rodrigo is a creative type after all, and has no head for business.  The kids only speak Chinese, and sometimes they have trouble understanding which labels are supposed to go on which bottles, so Mom and Mu Qin work out the basics of the deals.

     Trade is a great thing as long as everybody stays busy and everyone is getting what they need out of the deal.  Problems pop up when not everybody is busy, or when one Ranch is getting the better end of the deal than others.  Those deals that USA Ranch and CHINA Ranch worked out were great while all the people on USA Ranch were busy with their own tasks and had plenty of stuff to trade with balanced by plenty of stuff they wanted to trade for.  That deal that Rodrigo made with the CHINA Ranch kids was good, right up until USA Ranch ran out of stuff for the kids on the Ranch to do, but now the kids on USA Ranch are just sitting around playing with the toys they got from CHINA Ranch, and they're getting kind of bored with it.  They want to bottle and label Rodrigo's products now, and they could too, but they want a bigger portion of the profits than Rodrigo is paying the CHINA Ranch kids.  Rodrigo thinks that's bullshit, and USA Ranch is in a uproar, with people sitting around not making anything to sell or trade with other Ranches while they fight about it.

Sucks for everybody.

     USA Ranch needs to get back in the business of being productive.  It needs to start making more of the stuff the people that live on it want for itself, and it needs to start making more of the stuff that other Ranches want to buy from it too.  Other wise the bank is gonna foreclose on USA Ranch's mortgage, and everybody living there is gonna have to pay rent to Fu Qin when he buys USA Ranch at the Sheriff's Sale.

     Of course, if we stop trading and Rodrigo stops paying the CHINA Ranch kids to bottle and label his stuff, then CHINA Ranch is gonna get a little huffy with USA Ranch for a while, but that's kinda too bad.  USA Ranch needs to remember it's own bottom line and take care of it's business first.

TAXES

     Sometimes, you've just got to have cash.  Usually when it comes time to pay the bills that you have outlined in your Budget.  Trading jelly for a hat is all well and good, but the guy who owns the electric company make not be a hat person, or he might be allergic to fruit.  Here's where the USA Ranch analogy isn't quite an adequate comparison to the US Government, because on the Ranch, the people get their cash by trading stuff and labor, and in the Government, the money comes from collecting taxes and fees.

     We're gonna go with it though, and pretend that instead of a paycheck every week, good old Mom gets the cash that she needs to pay the bills by collecting a portion of everybody on the Ranch's earning and stuff until she has enough cash to pay all the bills.  She also charges all of them a fee every time she has to sew up a hole in a sock, or sign a form for a school field trip, or clean up dog poop off the kitchen floor.

     The way that taxes work is that everybody who lives on the Ranch (or in the country) is supposed to be sharing the load of paying the bills on the Ranch.  It's not exactly an equal share from every person on the Ranch thing though, cause not everybody can contribute the same amount and still have enough money left over for the stuff they need their cash for. Plus some people get more back in the sense that there's more benefit to keeping the Ranch above water for them.

     Take that tractor that Dad bought for example.  Sure, everybody gets to eat corn on the cob with every meal, but there was enough corn on the cob for everybody before he bought the tractor.  Now, he's got corn to sell to other Ranches, and the profit from that is going into his pocket.  Should everybody be paying the same amount towards the new tractor, or should Dad be paying for the cost of the tractor that is now in the budget by paying more taxes out of his extra profits that he makes from having it?  Let's assume that Dad is now paying the kids on the Ranch to shuck all the extra corn his tractor is harvesting.  Since they now have an income that they wouldn't have had without the tractor, should they be contributing an equal percentage of what they make for shucking corn towards paying off the tractor?  What about people who live on the farm who aren't getting any benefit from the tractor, should they be paying the same percentage in taxes? Let's see how that works out:

Tractor cost adds $200 per month to the Budget
Dad makes an extra $2000 per month profit (income) from having the tractor
Dad pays Billy Bob $180 per month to shuck the extra corn
Grandma can't even eat the corn, so she's not getting any benefit from the tractor, but she makes $222 per month selling scarves that she knits.

If each of them contribute an equal percentage of their income in order to make the tractor payment:

Dad pays 9% in taxes and pays $163.80 of the tractor bill (Dad gets to deduct Billy Bob's wages)
Billy Bob pays 9% in taxes and pays $16.20 of the tractor bill
Grandma pays 9% in taxes and pays $19.98 of the tractor bill (I know my math is fuzzy, lay off)

Each month, every one is out a little bit from having the tractor on the USA Ranch:

Dad has $1656.20 left burning a hole in his pocket to buy stuff with
Billy Bob has $163.20 to go out on the town with
Grandma has $202 to buy more yarn with

Grammy is not amused by getting shafted

     Keeping in mind that Grandma had her full $222 before the tractor was even purchased, once the tractor is paid off, Dad will have all his profits, Billy Bob will have his income, and Grandma?  Well Grandma just got screwed, but she helped Dad buy a tractor and Billy Bob get a job.  The only way that collecting taxes from everybody is fair is if we're spending the money we collect on things that everybody paying taxes can benefit from.  When our Budget is loaded down with things that only benefit some people but not others, then we need to start cutting those things out of the Budget and letting the people who benefit from them pay for those things on their own.  Mom would do that by telling Dad (no matter how good his lovin is) that the tractor is something that he's going to have to finance and pay for by himself, and if he wants Billy Bob to pay for that, then he's gonna have to work out a deal with Billy Bob to get him to agree to do that.

     Politicians are really bad about being the bad guy and telling people like Dad no.  That's because they need people like Dad to vote for them so that they can keep being politicians.  So politicians don't usually say no, they go to the Grandma people and say "We're gonna make you pay for part of Dad's tractor, but we'll make it up to you by making Dad help pay for that fancy foot bath you want.  Head on down to the Sears and Roebuck and put that sucker on layaway, I'll add it to the Budget."  Or, they just buy the foot bath for Grandma on the credit card, give it to her for Christmas with a tag that says it's from Dad, and they add the credit card payment to the Budget without telling anyone.

     There is no way to avoid paying taxes if we're going to have a Government.  There's no way to avoid having a Government if we want to have the things that everybody has to have, like roads and a power grid and a military.  But tax money that is collected by the Government should be spent wisely, and it needs to only be spent on those things that everyone can share in pretty equally.  The cost of big ticket items that only benefit some people shouldn't be in the Budget that everyone is paying for, they should be worked out by the individuals and groups that benefit from them on their own.

CHARITY

     Charity is good for the soul, and it's something that takes many forms.  In terms of the US government, Charity usually takes the form of handing out things that are necessary to stay alive and get into a position to pay your own way.  This goal is reached by using a number of different methods, from actually distributing food and maintaining shelters for the homeless, to sending people checks or loading cash onto debit cards so that people can pay for those things themselves.  The US Government has charitable programs for providing just about everything, food, housing, clothing, child care, paying off your mortgage if a tornado levels your house, medicine if your kid gets sick- pretty much anything that someone might need and not be able to provide for themselves.  Our government not only has programs designed to meet the needs of our own down and out citizens, it sends money and stuff to other countries to help the citizens there out too.

     I'm going to go ahead and piss some people off and make it very clear that anything you get that you  have not worked for, earned a paycheck for, and handed over a payment to someone for (or made with your own two hands) is Charity.  It is a gift from someone who feels sorry for you and wants you to have something even though they have no obligation whatsoever to take care of you in any way.  Food stamps- Charity.  Humanitarian relief- Charity.  Medicaid- Charity.  Oil industry subsidy- Charity.  Farm subsidy- Charity.  Tax exempt status for churches- Charity.  Are we clear on that?  Good.

     That is not to say that the US Government should not be in the business of providing charity to it's citizens with tax money that it collects from other citizens.  For the record, I do feel strongly that the US Government should not be providing charity to people who are not citizens of the US who live in foreign countries with tax money.  I've also got a little bit of an issue with providing charity to people who are not citizens of the US that DO live in the US.  The thing about charity is that the people who need it usually have a damn good reason for needing it, and I'm much more comfortable with the idea of that charity being available to everyone based simply on whether they are a citizen of the US, than having that charity depend on the kindness of strangers- who might have ulterior motives or some rather ridiculous requirements that people have to meet before they can qualify for it.  Sorry, but if a flood carries off my house and everything in it, I'm not keen on having to depend on The Catholic Church for my next meal and a towel to dry my hair with.

     There's no way that you are ever going to have a society with a whole bunch of people in it where no one is ever down on their luck, or injured and unable to work, or born with a disability that gives them the permanent mental age of a 2 year old.  Every society also requires that children be born into it so that there isn't a built in time limit on the society that expires after 75 years or so, and kids are pretty helpless.  Never going to have a society where every person in it is able bodied, productive, and able to stand on their own two feet at all times.  So there has to be a safety net system, and since that safety net is there for everybody to fall back on if their life goes to shit, we all need to be paying to maintain that safety net when we're not flat broke and starving to death.  When we are flat broke and starving to death, that safety net will be there for us too.

     What we can have, and need to have, is a safety net that provides for needs but not wants, and makes it clear that the charity our taxes and government provides is not a permanent free ride for people who just don't like doing for themselves.  Our safety net should be one that meets needs for those who are in the worst circumstances, and makes it clear that it exists to keep everyone above a minimum standard when they are doing the best they can, but is not there to help people maintain a higher standard of living just because that's the one they'd like to have.  Our safety net also needs to be realistic, by not pulling the rug out from underneath people who are busting their asses trying to get ahead the minute that they finally start to.

Not cool dude.  Not cool at all.

     For example-  In order to qualify for food stamps in this country, you have to be able to show that you have an income that puts your household within a certain percentage of the poverty line.  People who qualify for food stamps are adults, many of whom had jobs that paid them an income that they bought their food with before something happened and that income dropped or wasn't enough to pay for food with.  These people have other expenses to pay for besides food, just like everyone does.  They have rent, utilities, car payments, health insurance, medical bills, needs, wants, and etc.  The food stamp program gives money specifically for the purchase of food to people whose income qualifies them for the program, which allows those people to use the income that they have from other sources to pay for all the other things that they need.

     A problem that many people receiving food stamps (and other forms of assistance) face is that the moment their income goes back above a certain threshold, they lose their food stamps and they have to start buying their food again out of an income that hasn't grown enough to cover that expense.  Here's what it looks like for a family I'll call the Smith's.  Mr Smith got laid off and had to switch to a job that paid a LOT less.  Like minimum wage compared to good paying factory job less.  They had some things that weren't necessities that they started paying for back when Mr. Smith had the factory job, plus the stuff everybody has to have:

May Budget (income $300 below food stamp threshold, family gets $500 in food stamps)
Rent                          $1200
Utitlities                     $500
Health insurance        $400
Life Insurance           $120
Gas for the Car         $150
Janie's braces            $100
Car payment             $300
Car Insurance           $75

Total for May           $2845

     The Smith's bills are still more than Mr. Smith can cover with his new minimum wage job,  so the car insurance and the life insurance get cancelled, Janie's braces payment gets shoved to next month, they move to a cheaper place, and they only made half the car, utilities and health insurance payments.  They also had to get a loan from Mr. Smith's parents just to be able to do that.  Never mind that loan, they're never going to be able to pay it back, so no sense adding it to the budget:

June Budget
Rent                          $600
Utitlities                     $750 (only paid half last month, remember)
Health insurance        $600 (again, half carried over)
Gas for the Car         $150
Janie's braces            $200 (skipped this one last month)
Car payment             $450 (half again!)

Total for June-           $2750

Shit! Still can't keep up with a minimum wage job.  Mrs. Smith better hurry up and get that job at McDonald's.  Hope they call her back.  Until then, We'll have to borrow more money, this time from Mrs. Smith's parents.  We can pay all the bills off except the braces, that'll have to ride another month.






July Budget (Hooray, Mrs. Smith is working part time at Mickey D's!)
Rent                          $600
Utitlities                     $500
Health insurance        $400
Gas for the Car         $250 (Mrs. Smith working, and gas prices jumped)
Janie's braces            $300 (haven't paid this one since April, gotta pay it!)
Car payment             $300
Food                        $500 ( Mrs. Smith's income pushes us over the limit for food stamps)

Total for July             $2850

FML.  Even with Mr. Smith working full time, and Mrs Smith working part time, we can't pay all these, and there's nothing else to cut.  So much for that safety net that was supposed to help us get through a set back like a job loss without losing everything.  Guess we'll have to go live with Mrs. Smith's creepy uncle for a while.  Hope he doesn't molest Janie.



     Hopefully you've enjoyed this demonstration of how the charity programs that the US government has in place aren't really all that helpful for the people who actually need them.  We definitely need to have Welfare to Work type programs, and we shouldn't just be handing out money to people who have all the the necessities but feel like they are entitled to a handout of some kind, but when the goal is to help people through a rough patch, let's actually help them.

     Overall, charity programs need to be in place to meet real needs.  Food, shelter, disaster assistance, these are real needs.  Emergency medical care, help paying for outrageous utility bills, subsidies to clinics that provide checkups and vaccinations for poor children, all good things.  More must be done to spend money where it is needed, stop spending it just to help people who are doing okay get or stay more well off, and set time limits for those who can help themselves to start doing it.


     That wraps up the economy, now all that is left to talk about is Daily Life stuff.  Whew, my fingers are tired!