Econ 101

It amazes me how little average (and even above-average) people understand some of the basics of economics. For example, this "recession" we're in. The standard definition of a recession is "two consecutive quarters of negative economic growth." Translation: if the economy shrinks for 6 months, we're in a recession. But it hasn't shrunk yet. Last quarter, the economy grew at 0.6%. Now, admittedly, that's crummy, especially compared to the robust growth we've gotten used to for years. Yet everywhere you turn, allegedly smart people think we're on the verge of another great depression. I even had a friend (and a guy who should know better) opine last week that the primary reason for "this recession" is the war in Iraq. Now, it's fine to be anti-war, and even to think that the cost of the war is a good reason to get out. But to think that the main reason our multi-trillion dollar economy is sputtering is the war--not the housing bubble, not the price of oil, not inflation--that's just amazing to me.

Speaking of the price of oil, that's another one that gets me. EVERYBODY thinks something oughtta be done about the price of gasoline. But nobody seems to understand the law of supply and demand. We want to wave a magic wand and just have the price go down. Yet supply is low, and demand is high. We are unwilling for a variety of reasons to do anything about supply... won't drill offshore, won't drill in ANWR, won't build new refineries, won't even use certain kinds of Candian oil. So price goes up, which is supposed to temper demand (and it does, just like it's supposed to). Then we complain. In a logical world, we should want the price to keep climbing, as that's what will make alternative fuels relatively more competitive.

Then there is ethanol policy. The government subsidizes corn used for ethanol. So farmers, who are not stupid, would rather sell corn at a high price than the lower one for feed corn. Currently about 28% of US corn production goes for ethanol (which costs roughly the same as gas or diesel). Of course, supply and demand means that there's less corn for everything from people food to cow food to chicken feed. At a time when some of the poorest people in the world are literally starving due to an insufficient fuel supply, we burn our corn up so we can feel "green." Of course, you can make ethanol out of sugar, too. And sugar is cheap. But not US sugar, because we subsidize the domestic stuff and put huge tariffs on the imported stuff.

Meanwhile, the Fed just cut rates... AGAIN. This to "stimulate" spending, because of the not-quite "recession." So we increase the money supply. And once again, the magic of supply and demand works, causing each dollar to fall in value. The US dollar is trading like a glorified peso on the world market, and our brilliant government keeps devaluing it. How a bout a rate hike? We could slow inflation, strengthen the dollar (and therefore each dollar would buy that much more oil...) No. That would make too much darned sense.

I don't have an answer to this. None of the major candidates have put forth anything like a sensible strong-dollar policy. McCain would (foolishly) give us a gas-tax holiday. Hillary would, too. Obama would raise the capital-gains tax rate (love to see what THAT does to the market). All will dance to any tune the environmentalists play regarding fuel. And nobody will touch the sugar tariff. I'm just griping. But at least I'm not griping that this is the "worst economy since 1932." Nonsense on stilts!