ECONOMICS: The Super Bowl Economy
Wesbury, Brian S.
ECONOMICS B 'iat S~ - u _l..J::l e _ upe " B{ ......... I{! co:no my S o AY YOUR FAVORITE PROFESSIONAL FOOTBALL TEAM goes 16-0 during the regular season, 2-0 in the playoffs, and then wins the...
...In hindsight, only the most hardcore Luddite can complain about the impact of the Industrial Revolution...
...In fact, it is winning all of them...
...manufacturing...
...And, yes, average hourly earnings have not kept up with inflation in the past three years...
...You get the picture...
...industrial production rose to an all-time high this year-American companies have never produced more "stuff...
...It's not that the stories about hard times are wrong...
...Compensation as a share of GDP, and the so-called savings rate, both climbed to historically high levels during the 1970s...
...co:no my S o AY YOUR FAVORITE PROFESSIONAL FOOTBALL TEAM goes 16-0 during the regular season, 2-0 in the playoffs, and then wins the Super Bowl...
...Moreover, there is no correlation between these statistics and robust economic activity...
...Why would anyone want to return to the 1970s...
...However, profits are the single best indicator of a growing economy...
...But, average hourly earnings do not include tips, bonuses, or commissions...
...W HAT ABOUT THE former Wal-Mart employee in Kentucky who now has a much better paying job at a new auto plant built by a foreign manufacturer...
...It is...
...Part of the problem is that success is not as exciting as failure...
...NOVE~E~ER 2006 THE AMERICAN SPECTATOR 39...
...The real problem is not that our favorite team is losing games...
...These are all important events or developments...
...The U.S...
...auto companies...
...The answer is no one would...
...Total compensation (wages and salaries plus benefits plus employer contributions to government social insurance) is up 7.5 percent during the year ending in August (a 4.3 percent real increase...
...This same bias has affected coverage of the current economy...
...While some fret about a negative savings rate, the statistic itself is virtually meaningless...
...But, as everyone knows, those years saw unemployment and inflation rise in tandem--stagflation...
...There can be no hiding from it...
...This is not to say that a story about a well-paid Detroit-area auto worker losing his or her job, healthcare, and pension benefits only to land a job at Wal-Mart with lower pay and benefits is not an important story...
...W HILE A NEGATIVE SPIN to the coverage may impact polls and public perceptions, the good news is that the real economy is immune to bad feelings...
...Nor should reporters ignore the economic impact of terrorist attacks, hurricanes, war, energy costs, corporate and government scandals, outsourcing and global competition, a slowdown in housing, multiple Fed rate hikes, and pension fund problems...
...Brian S. Wesbury, The American Spectator~ economics editor, is Cbief Economist at First Trust Advisors...
...There is little demand for coverage of people running routine errands or commuting to work...
...economy has won the Super Bowl already-let's be excited about it...
...Would the coverage be negative because the team did not meet expectations...
...In other words, its margin victory in each game was less than the experts predicted...
...Others complain about rising corporate profits and a declining share of GDP devoted to wages and salaries...
...State of the art design, printing, and production technology allows it to produce customized products in small quantities and compete with anyone in the world...
...According to the Federal Reserve Board, U.S...
...Unfortunately, by focusing on the pain of transformation, the press misses the bigger story of technological progress that has lifted hundreds of millions of people out of poverty and toward higher standards of living...
...But it is not really that simple...
...But it is easy to understand how in the midst of all that change, the first brush of history highlighted the stories of companies, workers, and ways of life that were destroyed during the upheaval of that time...
...Then, imagine that during all of this unprecedented success, the team never covered the spread...
...The news, by its very nature, is biased towards the pain and suffering of the world, not the normal routine which ekes out progress at a rate that is hard to see even from year to year...
...it's that they do not reflect the central theme of recent years...
...Sure energy prices are high, but Americans are only spending 5.9 percent of after-tax income on energy today versus 6.5 percent in 1960 and 8.0 percent in 1980...
...Would it focus on mistakes by the quarterback or head coach, the supposed strength of its competitors, the fact that the team fell behind occasionally and had an unbalanced runpass ratio...
...It seems to skip from one disappointing story to the next...
...Television is filled with video of high-speed auto accidents and police officers pulling over drunken idiots...
...Some readers of this column will conclude that the author is naive and argue that politics explains all the negative press coverage...
...But isn't the resilience of the U.S...
...In the end, what matters is that the economy is moving forward with positive momentum, living standards are rising, and people who are swept up by the force of change can find new opportunity...
...How can anyone believe they represent the true measure of worker earnings...
...economy in the face of all this turmoil and upheaval the defining business story of 21st-century America...
...38 THE AMERICAN SPECTATOR NOVEMBER 2006 BRIAN S . WESBURY Some believe that the press exhibits an anti-capitalist bias...
...Or would the press coverage get it right, cut through all the pessimism, and label this team as the greatest of all time...
...Yet, because some economic data misses forecasts, a few companies or sectors of the economy fall on hard times, orbecause technologybrings some career paths to an end, the press coverage tends toward the negative...
...Find a country without corporate profits (think Russia in the 1980s) and you will find stagnation and declining standards of living...
...Despite a spate of near epic afflictions, the U.S...
...Because this depreciation is subtracted from personal income, it reduced the rental income portion of personal income from $170 billion in 2000 to just $64 billion in July...
...The real problem is that many people forget that winning is hard...
...As a result, a negative and pessimistic view of the changes taking place in our world today seems to dominate press coverage...
...For example, as home ownership rates and the price of homes surged in recent years, imputed depreciation expenses also surged...
...With the unemployment rate at 4.7 percent, real GDP up 3.5 percent in the past year, real wages and salaries up 6.2 percent at an annual rate during the first eight months of 2006, and with productivity and profits booming, the economy is still in great shape...
...Free market capitalism has rarely shone brighter...
...It would seem to be one of the greatest untold stories of all time...
...This is counterintuitive for anyone who reads the doom and gloom reports about Chinese competition, outsourcing, and the collapse of old line U.S...
...Other measures of compensation and income growth are much healthier and therefore more believable given the strong overall economic picture...
...Employment at this companyhas grown from 10 to 150 in the past five years...
...Whether the negativity is a function of this political impulse, or a true misunderstanding of the long-term forces of technological change, or just the overwhelming impact of change itself, doesn't really matter...
...While the benefits from productivity increases are immense, there is also a great deal of pain as the old gives way to the new...
...Technological change is accelerating, and the global economy is experiencing a period of upheaval at least as great as the Industrial Revolution...
...Sure energy prices are high, but Americans are only spending 5.9 percent of after-tax income on energy today versus 6.5 percent in 1960 and 8.0 percent in 1980...
...What about MagnetStreet, a small company in Wheaton, Illinois, that manufactures refrigerator magnets and other creative marketing material...
...Government tax receipts are also growing at double-digit rates, which suggests that income growth is strong...
...That would be boring even though these activities make up a vast majority of everyday living...
...Why this isn't shouted from the rooftops is a mystery...
...economy keeps chugging along at growth rates twice as fast as, and unemployment rates at half the level of, France and Germany...
...This is an awesome achievement...
...But partisan analysis is always part of the issue...
...Adjusting for this anomaly shows that the savings rate is actually still positive on a cash flow basis...
...Given this highly unlikely set of events, ask yourself what the press coverage would look like...
...Perversely, rising home prices reduce the reported savings rate...
...As long as monetary policy is not too tight and tax rates are low, the economy will grow...
...There are thousands of companies like MagnetStreet that together are leading a renaissance in U.S...
Vol. 39 • November 2006 • No. 9
