Back on August 19 I wrote a post in this blog titled "The Deficiencies in My Education," in which I lamented my lack of understanding of economics. I regret to tell you that not only does that deficiency remain, but it's gotten worse. I must tell you now that not only do I not understand economics, I will never understand economics.
Forget the sub-prime mortgage fiasco and the conundrum that the push for lowest prices can result in people losing the jobs that make those low prices so attractive. Forget the fact that the same set of numbers, crunched by different accounting systems, can yield either a profit (for the shareholders report) or a loss (for the tax man). Consider this:
Earlier this week, General Motors announced that it had suffered a 39 billion ... yes, I said billion ... dollar loss in the third quarter of 2007. In considering this number, consider also that the total value of GM's outstanding stock on that day was $20.4 billion. That means that, in one quarter, General Motors lost almost twice the value of the company in one fell swoop.
How can this be? How can a company lose such a staggering amount of money and continue to exist? And it's not limited to GM ... how many other companies (the airlines come to mind) routinely announce huge operating losses, yet continue to function from large, modern headquarters buildings staffed with exorbitantly-paid executives?
In fairness I should note that the article to which I linked above clarifies that the loss was a one-time "non-cash, non-recurring item" rooted in the arcane economic Sanskrit of the tax laws, but the fundamental fact remains that GM suffered a loss in a single fiscal quarter that was so enormous that it is literally beyond my ability to comprehend.
I'm convinced that there are no real economic laws or principles. If there were, I doubt that the vast, intricate, interlinked modern economy would function at all. I believe that economics is nothing more than applied psychology: if you can spin the news and project the proper air of sober gravitas and calm leadership, people will continue to believe in their placid, bovine way that all is well even as they watch their jobs head to Mexico and China, and the goods they used to make get cheaper even as they lose the jobs that would enable them to buy those goods. The old joke says that the economy is in recession when your neighbor loses his job, and in depression when you lose yours ... but it's not a joke any more.
As the 2008 presidential election approaches, I'm watching carefully to see what the leading candidates say they'll do about the economy. So far, I haven't seen anything that makes me believe anyone has a clue what to do.
I still don't understand economics beyond what appears to me to be the Real Person's Fundamental Economic Principle: there are no accounting rules or grand economic principles that protect you. You must have a job, you must pay your taxes on time and in full, and you must pay your bills when due.
After all, you're not a huge corporation with a staff of suits and accountants that can make everyone else believe you're prosperous when you can't feed your family or take them to the doctor.
And that's the worst thing about the country I love and served in uniform for 23 years.
Have a good day. More thoughts tomorrow.