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Show "I know y(Hi you understand what you think I Mid. hut I tun not tore you realize that what you heard is not what I meant. The foregoing is the maxim that greets students of popular economist It. Thuvne Rolison in his U. of U. economy classes. Dr. Itohson, director of the universitys Bureau of Kconomic and Business Research, is putting into words the frustrations of the American consumer public: Whats going on here? There b no field of multiple participation (i.e., government. Consumer John Q. Public and the business and finance world) in which there is more controversy and confusion than in identifying economic forces that make us or break us either as a nation or private in- dividual. If your head b spinning from the conflicting figures and nebulous terms thrust at us daily through the media and via the spoutings of politicians eager for a sole, you are not so different from the economists who also reach for the aspirin I Kittle to assuage the pain from a headache ikiwn, and at the same time, prices continued on their spiral ascent. sKnding) Added to the effects of Johnsons and the war were other Great factors which all participants, government, business and consumers helped to bring about. And this is where your guess is as giaal as the experts. Ghetk your idea for the cause of the maelstrom in which we now find ourselves. Included in the list were a drop in priKluctivity (higher labor costs; fewer priHlucts), a shift in balance of trade (more imjsort dollar outgo; fewer export profits), more women moved into the force, higher food and fuel costs, and a Klicy of easy money and etc., etc., etc. Take your pick. As a result of the unexpected development of inflation plus unemployment, we foiuid ourselves in a state of "stagflation" (economic stagnation plus inflaSm-iet- ir tion). Today, economic theories are a dime a dozen. Mere too, like the economist, you may choose whichever suits your fancy, making your decisions with the assistance of a coin or eeny meeny mince mo," if you wish. Prominent in the present theories is Monetarism" which holds that controlling the money supply" (money available for spending and borrowing) and Indeed, the nation is frantically allowing it to grow only as the economy searching and experimenting to find a and priKluctivity grows will stabilize our stable economic policy. economy. The idea is that the money It has not alwavs lieen so. For over supply is a much more important infour decades the U.S. has followed the fluence on the economy than is the Coneconomic theories of British economist gress and its taxing and spcndability. John Maynard Keynes. Keynes postulates The money supply of this country has that full employment and price stability !een under the control of the Federal result from fiscal policy the use of Reserve System (Feds) since 1913. But to fill the Feds themselves are at the heart of a government taxing and sending the gap between insufficient demand vigorous controversy. and full employment. The Federal Reserve System is a priPresident John F. Kennedy put this vately owned central bank set up by the theory into practice when he ordered a government, and given power by the tax cut for the purpose of stimulating a government, but not controlled by the lagging economy. President Lyndon B. government. Johnson followed suit opting for a tax inBecause it bears the name federal, crease designed to curb economic activi- most people are under the misapprehension that it is somehow a branch of the tyBut something happened to our econgovernment. It is not although the omy on the way to The Great Society government pays the expenses of its that the Keynesians didnt count on. nor is it subject to control operation Most authorities and experts agree by you, the electorate. that the seeds for double digit inflation, According to the critics of the Feds, which began our present woes, were all of these privileges are against the planted in the 1960s when President Constitution and the original intent of a econofederal reserve system itself. Johason launched a mic program of The Great Society and Therefore monetarists believe that the Vietnam War, financing the whole through the Federal Reserve and control thing on deficit spending which, of of the money supply, we can control course, meant liack to higher taxes. spending, thus curbing inflation. The idea liehind Keynesianism is that Monetarists believe that the Feds have if you want to ease the effects of a recesthe power to stabilize the economy. sion then the government should create They argue that Changes in the money deficits either by increasing spending or supply are the chief determinants, not lowering taxes. Johnson increased both. only of prices but also of production, The result was that during the 70s, a employment and spending. situation arose in which unemployment They do not believe that fiscal policy reached a new high and refused to come (government budgeting, taxation and grown to gtrgautuan proKrtions. Nowhere is there a field of expert experts who disagree more vigorously on how we got into our present economical mess or what steps to take to get out of it than we find among economists today. two-prong- is as effective a stabilizing de- vice. "The money supply of the country is actually created by banks lending and relcnding their customers deposits, but the amount of money the banks can create is controlled by the Feds. The Feds add to the money supply by buying Treasury securities in the open market, thereby pumping deposits into the linking system. Too much money in the system may fuel inflation. At the same time the Feds have the power, at any time, to drain off money from the economy by selling off these securities, which could bring on a depression. This is only one of the powers affecting the economy which the Feds possess. In addition, money expansion is controlled through a discount rate, which is the interest rate a commercial bank pays when it Uirrows from a Federal Reserve Bank. Interest that is too high creates tight money which affects borrowers everywhere such as home builders and the automobile industry. Low interest creates easy money which could result in inflation. The Feds also set the level of reserve requirements that banks must keep on hand, rather than lend. The total effect is to control expansion or contraction of lank lending operations. Thus the Monetarists feel that controlling the money supply controls the economy. You may take your pick, if you will. You may side with those advocating a strict fiscal policy or those who opt for control of the money supply, or you may go with one of the other economic theories. The New Economists" recognize that monetary policy matters as much as fiscal policy in managing the ups and dowus of our economy. Supply Siders" advocate cutting taxes to restore incentives for savings and investment. There are others who opt for giving the government more direct control over the economy in federal wage and price controls, a device used by President Richard Nixon and later President Jimmy Carter to a lesser extent. Another group is pushing for a balanced budget as the only answer to our woes. Reagonomics is a combination of Monetarism and Supply Side economics, asking the Feds to allow the economy to grow gradually with productivity at a rate of from three to five percent, and to cut taxes and contain federal spending and balance the budget over the course of a business cycle. But as one expert pointed out, only Congress has the power to cut taxes and appropriate money. And another observer pointed out, Actually the Feds have more power than either Congress of the President. Our advice. Join the economists. If Anacin doesnt work, try Excedrin. .Leading and Lagging indicators do not mean much to the poor lay person who has enough trouble keeping his checkbook balanced without trying to understand what the economists are talking about. Things May Not Be As Bad As They Seem While the experts" are not exactly singing Happy Days Are Here Again, they do look with optimism to the days ahead. Not only do they say we are not going into a full scale depression, but they encourage recession watchers to look for an upturn in the economy the latter part of this year. The financial wizards and prognosticators base their findings on different indicators and from a point of view different from that of the lay public. And most of them do a lot of comparing of this recession with past recessions. , On the other hand, all around us are prophets of gloom and doom pointing to the unemployment rate, the bankruptcies, the high interest rates, the international market. Their tone indicates that they are hoping for the worst and will be disappointed if we dont have an econo mic collapse. But many economists claim much of this depression is over-hyp- e by a negative media. Most of them point to the fact that huge changes have taken place in our economy - not all of them as bad as the purveyors of pessimism would have us believe. Americans are a very impatient peo- ple, points out financial guru Larry Williams quoted by Max B. Knudson in the Deseret News. Claiming that we gravitate toward headline and bumper sticker economics, he pointed out that inflation is now down below 5 percent (a subject that is rarely treated in headlines nowadays) and that the gap between inflation and interest rates is closing. He also attacked the big play given the budget deficit, projected at $121 bil lion by Congress, saying that debt must be compared to income and when you compare them, the ratio is only 3.2 percent. n UniDr. Joseph S. Peery, of Utah economist versity points to the lowering of inflation and labor costs. Quoted by reporter Knudson in a Deseret News special report on finance and investing, be said, Its hard to give advice to people who are frightened, but it will become evident within six months dethat the scare of another is foundation. without pression In the same article, R. Thayne Robson, well-know- 30s-sty- le director of the universitys Bureau of Economic and Business Research, cautioned that any upturn' is based on the President and thl Congress reaching a compromise on the budget. He believes that if the deficit can be brought under The economy is uncharacteristly insouciant in that the last months with the Gross National Product, the leading economic indicators, with an anajusted interest rate. . . expect a national recession or an upswing. $100 billion, interest rates will come down. With an assist from expected Social Security benefit payments and tax cuts, spending should increase and bring about some recovery in business conditions, he said. But most all of the txperts caution that the recovery will be a long process. Reagans tax cuts are going to work, but it will take 12 to 14 months, said Williams who added that there has not been a single time in history when things did not get better as the result of a tax cut. Harry W. Laubscher, stock marker analyst speaking in a Salt Lake conference is quoted by George Ferguson, business writer for the News as saying that Reagonomics will work. Of course, it is going to work, but it is going to work more slowly than the avid spectator and worried politician would like and probably of them point to the that huge changes have fact taken place in our economy not all of them as bad as the Most purveyors of pessimism would have us believe . . . more thoroughly than the most ardent Kenynesian theorists would admit. Pointing out that in this recession the decline in the economy has been less than half as much as in 1974-7- 5 recession and is about average for all post- year recessions, Warren T. Brookes, writing for Heritage Features said the is used not only by the meover-hyp- e dia but by the permanent bureaucracy who issue and interpret government ' data. Using March unemployment figures, he said that this was the first nine percent rate since May 1975, and that dur-.in- g March the actual (unadjusted) employment in the nation rose by 525,000 jbbs while the actual unemployment figure fell by 82,000. By using what is called seasonal ad t V justment, a formula designed to make' the statistical year smooth out, the Labor Department is able to show that employment fell by 98,0(X) and unemployment rose by 279,(XX) which is just the opposite of what actually happened. Since in a normal March, employment was expected to grow by some- - ", . . While high interest rates will make recovery slow, the worst of the dramatic jumps in unemployment ap- pear to be over. thing over 620, (XX), the fact it only grew 525, 0(X) comes out as a 98, (M)0. Because there is no such thing in a recession as a normal March, seasonal adjustments are a way to jigger the fi- gures for the purpose of gloom Mr. Brookes said. Mr. Brooks added that from almost every angle, the current unemployment figure is clearly inflated. In March over 57 percent of all working-ag- e Americans held jobs. That figure is higher than any during the 70s which were supposed to be the boom years. But the most impressive argument of all, said Mr. Brookes, is that as of the end of March the total number of people drawing an unemployment check was a million less than the same month in 1975. And the employment force is 20 million people larger now. Mr. Brooks referred to what he calls the misery index (inflation plus unemployment) and said that Americans are "During March the actual employment in the nation rose by 525,000 jobs while the actual unemployment figure fell by 82,000. better . . off than they, were in Dec. 1980. At that time inflation was 12.4 percent and unemployment 7.4 percent. Today inflation is 4.6 percent (annualized) and unemployment 9 percent. The misery index of the former added up to 19.8 while todays is 13.6 which he takes as a sure indicator that individual purchasing power is now growing again, a sure sign of powerful economic recovery. U. of U.s Robson is not quite so optimistic. He expects to see unemployment rise even further before reaching its peak. Unemployment is a lagging not a Unleading indicator, said Williams. employment goes up at the end of a recession not the beginning. Ray L. Sargent, chief economist for the Utah Job Service told the Deseret News, that while high interest rates will make recovery slow, the worst of the dramatic jumps in unemployment appear to be over. Although the unemployment rate for Utah reached 8 percent in May, an 0.4 percent hike, it was only half that of Aprils 0.8 jump. Economist Sargent noted that the unemployment trends in the state for the past six months are similar to the end of the 1973-7- 5 recession. All experts point to the jump in unem- ployment as an indication that the worst is over. While the figure may climb over the summer, unemployment should then begin to fall. "There has not been a single time in history when things did not get better as a result of a tax cut. ... While news is encouraging overall, it does not bring much joy to Tooeles mining and metal industry unemployed who do not have much hope for change ahead within the next couple of years. And while it is nice to know that our recession is not statistically as bad as that of 1975, it does not make facing each morning without a job any easier to take. ! ' |