Pelosi on the economy
Posted by Moonage on 05 Oct 2006 | Tagged as: National Politics
I read this headline:
She also vows that Democrats will keep American jobs from going overseas by repealing current tax incentives if voters give her party the reins of Congress on Nov. 7.
€śThis economy is making the super-rich richer, and leaving middle-class American families further behind, deeper in debt and struggling to make ends meet,€ť Pelosi, D-Calif., said in excerpts of a speech she was delivering Thursday at Georgetown University.
Now, that sounds all politically rosy, but, the realities haven’t been so. Sometimes, when the economy is strong across the board, it can absorb the increased costs and tighter monetary policies. But, sometimes it can not. Wanna see?
From 1974 to 1981, Congress passed a series of minimum wage hikes in total disregard of the economic situation of the time. The US was mired in a recession, interest rates were pretty high, unemployment was high, but things were picking up. However, from 1974 to 1981, unemployment more than doubled, going from 5.1% to 10.8%, people living in poverty increased 3%, the federal prime went from 10.75% to 20.50%. Here’s a picture:
See that grey line towards the right? The country’s GDP actually went from 6% growth to almost -2%. That’s pretty amazingly bad. The era was highlighted by soaring gas prices, the ending of an unpopular “conflict”, and a conflict with Iran.
Now, don’t get me wrong here, I’m not saying that raising the minimum wage caused all that, I’m saying it can not be raised in a vacuum. When the economy is recovering is the worst possible time to do it. The raises of 1996-1997 had little effect on the economy, the raises of 74-81 compounded an already bad situation. When Reagan came in, the raises stopped. The economy had fits for a few years, but it set the basis for possibly the strongest economic boom this country, and possibly the world, has ever seen. That’s not the case now, growth is steady but not fantastic. Oil prices are dragging the economy, especially for the working poor. Raising the minimum wage right now while simultaneously limiting the money supply will only push this country’s economy down when it least needs it. Other growing economies such as China could care less what their minimum wage is, that’s who we’re competing with regardless of whether Pelosi thinks she can limit foreign competition by way of eliminating “tax incentives”.
And, I just love this garbage about “super-rich richer, and leaving middle-class American families further behind”. The fact is this. In 1974, 11.2% of the public were living in the 1 percentile of poverty. By 1981, that percentage had grown to 14%. In 2005, it was 12.6%. The number of people living in 150% of the poverty level in 1974 was 21.6%. By 1981, it was 24.7%. In 2005, it was 21.5%. The fact is, the same economic principals Pelosi is championing now was what they did in 1974. What it did was hurt the poor while the rich got richer. That’s not speculation, that’s historical fact she chooses to ignore.
So, what Pelosi’s promising, in light of the current situation, is a return to 1978. Either she has no clue about the history of the United States in the late 70’s, or she doesn’t care ( she’s old enough to remember, so it has to be the latter ). What Pelosi does a lot is if it sounds good politically, blurt it out, she knows most people won’t bother to factcheck it.
That’s what we have to look forward to come November 7. So, what I’m doing pre-November is putting all my eggs in personal real estate and getting what I can out of the markets. At the beginning of January 1974, the Dow was at 855. At the END of 1981, the Dow was at 875. To put that in perspective, the Dow closed yesterday at 11,850.61. A lot has happened since 1981, but nothing happened between 1974 and 1981. That’s because it was a very unfriendly business climate. And, nothing epitomized that unfriendliness more than the minimum wage increases and sky-high prime rates. And, if Pelosi gets her way and raises the cost of doing business while simultaneously choking those same businesses by tightening the money supply, I can’t see what would stop the same thing from happening in 2007 that did in 1974.
And, even the 96-97 minimum wage increases signaled the end end of the tech bubble and by 1999 the economy was once again heading toward recession. The problem then was the political rhetoric of “it’s the economy, stupid” overwhelmed those who were cautioning the optimism by citing the fact that outside of the markets, a lot of other things were going wrong.
If anyone cares to enlighten me, I’d sure like to hear it. But, there’s too many similarities to 1974 right now than there are 1996. But in both cases, dicking around with minimum wage was a pre-cursor to a recession. Call it coincedence if you want. I call it bad economic policies. And, that’s what Pelosi’s got.
( I am no economist at all, I do however, love numbers. )
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