Economic Illiteracy

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Ohg Rea Tone is all or nothing. He is educated and opinionated, more clever than smart, sarcastic and forthright. He writes intuitively - often disregarding rules of composition. Comment on his posts - he will likely respond with characteristic humor or genuine empathy. He is the real-deal.

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Economic Illiteracy

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Illiteracy.  Generally we think of this word in terms of simple reading and writing.  Some have changed the phraseology to ‘functional illiteracy.’  I suppose this means that a person knows the alphabet, can discern some words, and can perhaps sign their name.  People are ‘functionally illiterate’ when their comprehension of reading impairs their ability to function in a complex society.  If we apply this axiom to our economy, we might easily conclude that most of us are economically functionally illiterate.

So what does it mean to be economically literate?  What does it mean personally, and what does it mean in a global economy?

Most of us understand at some level that we should not spend more money than we have as income.  One might think this is pretty obvious – except it appears that many people in this country have not been following that simple rule.  And more astounding, a bunch of big bankers have not been following the rules either.  And worse – we are hearing the people who are supposed to understand economics praising the ‘credit market’ as the solution to our problems.  It is clear in their minds – if people can borrow money, they will spend it and the economy will prosper.

Those folks are talking about big ticket items ( or at least I hope so).  They are talking about new automobiles and homes.  Not many of us have $30,000 cash laying around to buy a new car, and not many of us can buy a home without the support of a bank.  But what about a washer or dryer, or a new water heater or a dishwasher?  And what about consumable items such as gasoline for that $30,000 car?  And what about groceries?

Many years ago, as a young husband and father, I experimented with that financial device affectionately referred to as a credit card.  It seemed simple enough, charge the gas in my car and make one payment at the end of the month.  The credit card company provided an accounting of where my money was going.  That sounded pretty good to me.  But the credit card company offered the option of a ‘minimum payment.’  Unfortunately for me, I exercised this option and in about a year found myself stuck in a quagmire of debt.  With my credit exhausted, I could no longer afford to buy gasoline at all.  I had no cash and no credit.  It seems to me that this is where we find our country today – no cash and no credit.  No spending means no production.  No production means no jobs.  No jobs means less spending – and down we go into economic despair.

OK – we all agree the global economy is in a mess.  Many of us agree on the causes.  But few of us agree on the solution.  The people in the top ranks of economic leadership (The President, Bankers, and Congress) do not agree on economic strategies.  Some of the talking heads on cable news admit they do not know the answers – others are emphatic that their plan is best.  Most Congressional leaders have opinions on what to do – but they do not agree with each other.  Some try to reduce the problem to simple terms such as supply and demand.  Or to making more credit available.  Or to creating artificial jobs by government borrowing and spending.

The politicians talk about the economy in terms of politics – they like to use the word ‘pork’ – this is their mask to disguise their lack of real understanding.  The business folks, including bankers, talk about their General Ledger – where they posted transactions – to mask the real economic consequences.  The News Media talks about the personalities of the combatants – disguising their own economic illiteracy.  And all of them use the Illinois Governor to divert attention.

The simple reality that people who claim to know what to do are in disarray is evidence of general economic illiteracy.

President George Bush and the Republicans were in charge and we experienced a financial meltdown.  So we changed our ballot and elected the Democrats.  Does this mean the Democrats know the answer?  No, it does not.  It means that the people of America are desperate for someone to do something.

The economic debate in the news media is disjointed.  We often hear economic debate framed in the context of politics – because the debaters understand politics and do not understand economics.  They do not want to admit they are functionally illiterate – so they mask their deficiency with distractions, trying to frame the problem in terms they understand.

HELP!  Does anyone really know what the heck is going on?  Only history will tell.

There Is 1 Response So Far. »

  1. Well. The answer is not found in “stimulus” packages and artificially low interest rates. Those are short-run fixes with devastating long-run effects. Sadly, those on both sides of the aisle, particularly Democrats these days, have run to Keynes for answers. Why would anyone run to a man who even described himself as the “most immoral man in history”? The man was a crook, and he helped to create this mess we’re in now. Why give crack to a crack addict to help fight his addiction?

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