The Wheel of the Economy

I’ve been reading a lot about the economy. I’ve lived through Reagan, Clinton, the Bushes, Obama. In my old age, I’ve probably forgotten a president or maybe two. But it really doesn’t matter who is President of the United States, he (so far we’ve only had Hes) gets more credit and blame for things than he really has the power to change. Without a cooperative Congress to write legislation, there are no bills for the President to sign into law. Currently, many people think it is President Obama’s fault that our economy is in its current state. They blame his policies. Others blame the Fed (the Federal Reserve Bank). Still others blame big corporations. I think it’s much simpler and comes down to basic money habits and how we each learned to apply them. Oh, it gets into economic policy too. Just roll with me for a bit first, we’ll get to the policy.

I’ve been told in the comments section on various boards that I don’t understand basic economics. In yet another comments section, I was told that I’d just effectively written a basic treatise on economics. So I’ll write, you can read and decide if I know anything about the basics. This is my world view of economics.

The basics of economics are what concern me. The basics are what concern most people. Most of us will never own stocks other than through a 401K. Our day-to-day lives are just the basics. No derivatives here. Our basic concerns are a roof over our head, food on the table, and gas in the car. We never get as far as saving more than a ten or twenty per paycheck…if we are lucky. We know nothing of government bonds vs foreign investments. The closest we’ll ever come to a foreign investment is if our employer provides a 401K plan and we’re invested in it. Our economics are simple. Money comes in; money goes out. We hope that things balance out at the end of the month.

I’m a pictures person. I see the economy as a wheel. What comes around goes around. Money moves around the circle as it is spent. There’s a saying, “If a rich man gives a poor man a dollar, it will be back in the rich man’s pocket within a week.” That is a very basic description of an economy. The economy of the United States currently has an unbalanced economic wheel. Most of the money has become contracted at the top of that wheel. People at the bottom and sides of the wheel are getting less and less. Companies aren’t hiring because consumers aren’t buying. Consumers aren’t buying because employers aren’t hiring or giving raises. Benefit packages cover less. Employees must pay higher healthcare premiums. Higher healthcare premiums mean smaller paychecks. Smaller paychecks mean less spending. Less spending means less hiring. Notice the circle?

So how do we get out of this circular mess? Obviously waiting for the private sector to begin hiring isn’t working. We’ve had tax breaks for corporations and those in the top income brackets for years now and we’re still not seeing quality jobs come back. As new technologies are developed, we’re seeing many good paying jobs go away. Medical transcriptionists have been replaced as doctors enter their own notes and voice recognition software has improved. Theranos Lab Testing and similar advancements will soon replace laboratory technicians. Restaurants such as Applebee’s and Panera Bread are replacing wait staff with ordering kiosks. Where there were once pages of software jobs in the newspaper, there are now jobs for caregivers at minimum wage. We seem to be stuck in the mud with no way out.

If the wheel on our car becomes unbalanced, we take it to the tire shop and they add weights to the rim until the tire is balanced. How do we add weights to an economy to return balance? Balance means money to move around the economic wheel. The simplest method would be for companies to realize that their own employees can’t afford to buy their products and provide pay raises. The government could force the issue and raise the federal minimum wage. The government could get really drastic with taxing the money sitting at the top of the wheel and institute a basic income scheme to move money around the wheel. I think the best method is for large corporations to forego a bit of profit and provide pay raises. This is the quickest and least invasive action. If large companies were to offer better wages, smaller companies would follow. A rising tide carries all boats.

How does a pay raise given by a large corporation help a small business owner? Remember the circle. I sell sewing patterns. I’m a one woman business operating from my home. I sell an item that is not a necessity. It’s cheaper these days to buy clothing than the fabric to make your own. So people tend to buy when they want to give a special handmade gift or when they get a tax return or bonus.Sally works for the XZY Corporation. XYZ Corporation has 3,000 employees. They’ve just received a new contract and the employees are getting a pay raise. Sally likes to sew but buying fabric and patterns haven’t been in the budget. But she just got a pay raise and is feeling flush. So Sally orders a $5 sewing pattern from me. She buys fabric from her local store. Now, I like to indulge in fountain pens. Once again, not a necessity. So Sally buys a $5 sewing pattern from me. It’s only $5 but I get excited. Those $5 orders add up. So now I’m feeling flush with money. Maybe I buy school clothes, new team swimsuits for the kids, and maybe, just maybe, I order a fountain pen for myself.

This is how money moves around the economic wheel. A pay raise at a large company can lift many other businesses and individuals as the wheel and money turns. We need to push for higher wages either by asking for a raise or pushing for a higher minimum wage.