Panic On The Economic Front Lines
A New Economy For A New War
October 17, 2001
America’s “Talking Heads” are mobilizing for the “New Economic War” with the same flair for the dramatic that they exhibit in their synthesis of the developing “New War” (military).
Across the free world and on every front, the popular battle cry of the day shouts out, “The Sky Is Falling In!”
As reported by the Associated Press, “Businesses slashed 200,000 jobs last month, the largest cuts in more than a decade, the Labor Department said Friday in a report offering a snapshot of how anemic the economy was even before the terrorist attacks …the unemployment rate in October could surge to 5.3 percent or higher….”
Before the media panics this country’s population into feeling so economically depressed that they start suffering panic attacks induced by nightmares of selling apples on cold 1928 street corners, let common sense offer a little perspective and comfort.
Everything in life is relative. For a starving person from Somalia, a McDonalds dumpster is five star dining. For a college student, a pizza is a luxury. For a spoiled Boomer, a suprême sauce a tad too cold is a calamity. The folly of human entitlement!
For a myriad of reasons, which will take the economic historians decades to either explain or further confuse, the last ten years of America’s economic history have not been normal…if a normal exists. People paid premiums for stocks whose companies produced nothing except hype and the federal government only had two speeds on its throttle of monetary policy: on and off! Incremental tinkering was not Alan Greenspan’s style and the politicians were all too happy to spend the nonexistent funny money that they fantasized was a surplus.
Consequently, always willing to believe in magic, America adapted to its environment and believed that there indeed was a free lunch…everyday and forever.
Splash…and a bucket of cold-water hits the country in the face and all awaken from the dream of the sugar plum fairy and… voilà…reality is home.
Before the entire nation feels abused, consider reality as the normal. According to the Chicago School of Economics, “Friedman showed that monetary policy could not be used to achieve full employment. Unfortunately, inflation starts accelerating before full employment is reached. The best a nation can do is settle for the lowest level of unemployment that will not begin accelerating inflation. Friedman called this point the "natural rate of unemployment…Some controversy exists over what the natural rate is, because it depends partly on what markets expect inflation will be. But in the U.S. today, economists estimate it to be slightly less than 6 percent.” (This is quoted from a very informative Critique of the Chicago School of Economics. Follow the link if you wish to read it in its entirety).
During periods of ancient history (pre-1990), an unemployment rate that hovered around 6% was considered normal. Anything substantially less that 6% unemployment was considered to be inflationary. Just study the chart below for a picture of the good old days.
What a shock! There was 7.5% unemployment in 1992. And, God forbid, in the early 1980’s unemployment reached almost 10%. Yet, the bull market rally started in August of 1982. Does this mean that just when things look the worst a new beginning for the better is quietly developing? It might.
The bottom line conclusion reaches out to common sense. Always remember that news sells and bad news really sells. News is often sensationalized into emotion because emotion can be delivered in a second and does not lose the attention of its audience.
In the months to come, the media of this country will be sensationalizing the news in its transformation from fact to emotion. Do not play into this suckers game. Stay calm and let your brain do the thinking.
Losing sight of common sense can lead to misinformed panic.
Even if, “Many economists, who now think the nation is entering a full-blown recession because of the attacks, predict that the jobless rate could climb to 6.5 percent before a recovery begins,” just remember that the facts of history are on your side. 6.5% unemployment is just slightly higher than the historical normal rate of unemployment.
Things only seem worse than they actually are if you allow it. The media has an interest in keeping the public constantly panicked. It sells and sells and sells.
The public has an interest in thinking with logic and avoiding the panic of emotion. You have a family to feed and a life to lead. Keep a steady course.
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