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The American Pie

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I've always felt that the recipe of the US economy is one part business success — you know, the actual facts on business financials, people getting fired/hired, etc — and two parts consumer psychology. Here's your American pie. Economists get paid big bucks to read the crystal ball and may have some insight based on historical information, but how many times have you ever seen an economist, or anyone else for that matter, accurately forecast the future consistently.  If their forecast was right after the fact, they'll be the first people to tell you they are great predictors, even I can do that with at least 50% probability.

The Ingredients (facts): The WSJ just reported that there was a further slide upwards of the jobless rate to 8%.  There's no fallacy that businesses were living it big, making poor decisions, and hoping for the best.  Sort of like the Dutch tulip mania of the 1800's, people bought, and sold beautiful flower bulbs without really understanding why people wanted the bulbs.  Supply and demand forced prices ski high. But then the bubble burst.  Fast forward…. Florida real estate is one present-day example.  There was no real reason for the rapid growth of home prices.  Automobile manufacturers are another, "I can keep selling SUVs 'til the cows come home, there's where the real profit is", without thought for the economy or fuel price risk.  Did the mortgage exec really think that giving mortgages out to people with unverifiable income was a smart thing?

The Mixer:  In the news today, Obama says he'll do whatever is necessary to fix the economy.  Articles discussing the economic downturn are regular parts of the news today.  You open a newspaper, or read an online politics or economy article and the theme's the same.  The big downturn. People are afraid of the economy.  And they should be, look at all the problems which have occurred over recent past: real estate dropping, major manufacturers in trouble, everyone's conserving cash.  Mix it all together and its ready to be consumed…

The ConsumersThe psychology of people is the driver. People have stopped buying stuff because they're afraid.  They read the articles, see the facts, and want to save their money. They want to pull money out of the stock market and just save it.  Loads of business who depend on receiving the extra cash that people have don't get it anymore, so bang, the self fulfilling prophecy: more businesses with decent models go down.

So we have our perfect "American pie".  How do you change it?  Here's a start…This fund manager says that we're at the bottom now, start buying stuff.  Change consumer's thinking, make them want to buy products and services like cars, appliances, home renovations, lawn mowing service, etc.  Everything else will take care of itself.

 

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About imkerry

  • The Obnoxious American

    Wow, so are you suggesting that we could fix the economic crisis, not with bold new experimental government spending programs and a lurch to socialism, but by just trying to keep the present system and helping to restore confidence (i.e. not talking down the economy)?

    What a fabulous idea. Lefties need to read this. Simple article, almost too simple, but I guess it has to be said from time to time. Perhaps this can be the current administrations second “stimulus” package that they are already talking about.

  • http://www.callcatalog.com Kerry

    The reactive, tangible fix is often what people want — its easy and understandable and fast. It doesn’t, however, mean it will work.

  • Jonathan Scanlan

    Good grief, we are not at the bottom. Not by a long shot. And while I agree that we should let the market drive out these bad businesses, the sad reality is that no government is ever gona have the balls to watch millions of people lose their jobs and be forced to find new ones.

    For the time being, the best thing that any American can do is start saving their money and stop trying to buy a home. Heck, there are so many vacant properties that the owners would be thrilled for someone to live there… saves it from getting hit by vandals.

  • http://ruvysroost.blogspot.com Ruvy

    O, bye bye Miss American Pie
    Drove my Chevy to the levee
    But the levee was dry
    Them good ol’ boys were drinkin’ whiskey and rye….

    Oh, this wasn’t the music section?

    Sorry!

  • http://biggesttent.blogspot.com/ Silas Kain

    Can Panarov’s predictions come to pass? Will there be a United States 10 years from now or will we be split into 6 distinct countries? Those who live under the Stars & Stripes should listen to the wind — the crossroads are here.

  • http://www.joannehuspek.wordpress.com Joanne Huspek

    I’m with #3, we’re not at the bottom. And if anyone wants to take a look at what big government and high taxes can do, come to Michigan. We’re a couple of years ahead of the rest of the country. The bottom? Ha! Wait for a couple of years and see what it feels like to hover just inches above it.

  • bliffle

    Michigans problems, more likely, are due to the Auto industries failure to adapt to the new world of expensive fuel and customers assertions of their own choices. The Big3 can no longer induce customers to buy their extravagant junk. All the government did was to facilitate that economic distortion on demand from Big3 lobbyists.