Today I am excited to offer another new guest commentary provider here at Stand Up For America. Mike, a good friend of mine, a year or so ago recommended to me that I pick up a book written by a friend of his, “Jimmy.” Knowing my passion for politics and my lambasting of federal economic policy over the years, he posited that I would enjoy the book, and insisted that he wasn’t just saying so because he was friends with the author. Those who know me are aware that I am an avid reader. But I have been burned on book recommendations from friends in the past. So I was skeptical, to say the least. But Mike wouldn’t relent…
“I’m telling you, the book is good, and you will enjoy it,” Mike promised me. I went home that night and ordered the book on Amazon and awaited its arrival. The book was titled Waffle Street, and was written by James Adams. It chronicled James’ true life story of a transition from Wall Street to serving hash browns on the night shift at Waffle House. Once it arrived, it sat on the kitchen counter for a week as I finished the book I was currently reading. I went ahead and ordered a second book in case I found that Waffle Street really sucked…
It didn’t. It is a great book. James told the story with a self-deprecating humor that both made some really good points and simultaneously turned “Wall Street” into a real life person. The stories of the relationships he built, and the lessons he learned, had me captivated and I finished the book in short order. As an added bonus, throughout the book James provided easy to understand lessons on basic economic principles that didn’t make me feel like I was back in a college accounting class. And the Waffle House in question was around the corner from my job, one that I had frequented at times (although Jimmy was not my waiter 😦 )To make a long story short, I loved the book, and I highly recommend it to all of you here at SUFA. Go order it now!
I decided the day I finished the book that I was interested in somehow getting James here on SUFA so that others could enjoy his insight and his no nonsense way of looking at the world of economics. Admittedly, James was immediately willing to participate. It was me that was the delay. My plans kept getting pushed off until James finally made it easy enough that even I couldn’t drop the ball too badly. As a result, SUFA finally gets to meet James.
For the record, there is a link in Jimmy’s bio at the end of the article that you should definitely visit. I have also added it to the Interesting Reading links on the SUFA main page. There is a great trailer for the book there that makes me laugh every time I watch it…
So without dragging this on any further, I am pleased to present a guest commentary article from the author of Waffle Street, James Adams…
On Friday, the Commerce Department reported second quarter GDP growth of 1.0%, down from a previously-announced estimate of 1.3%. In a seeming vindication of the stock market’s recent volatility, the lackluster number confirmed what most Americans have been feeling in their bones– or at least in their wallets– for some time: that the most tepid of economic recoveries in half a century is faltering.
In a speech later that day, Ben Bernanke said the Federal Reserve still has tools to stimulate the economy, although he didn’t commit to using them. Not that it would have comforted anyone if had done so. The anemic pace of economic “growth”, stubbornly high unemployment levels, and a sovereign credit rating downgrade are causing an increasing realization that our national leadership– Presidential, Congressional, and Monetary alike– lack the ability to extricate the U.S. from its financial conundrum.
With the release of each depressing round of economic data, both the Left and the Right trot out the same tired commentary. The former camp espouses the policy prescriptions that John Maynard Keynes advocated in his General Theory of Employment, Interest, and Money, namely:
- Redistribute wealth to lower income citizens who have a higher “marginal propensity to consume” and
- Socialize investment spending as needed to bridge the gap between current and full employment levels.
Generally speaking, the muted effects of the American Recovery and Reinvestment Act of 2009 on unemployment levels have lessened the many Left-wingers’ enthusiasm for the “socialization of investment” that Keynes espoused. Vice President Joe Biden remains a noteworthy exception. “I think the economy does need more stimulus,” Biden opined this week. “Everybody says we should’ve (had)…a bigger stimulus package. Yeah, we should’ve. I was pushing (for) it,” he said.
Biden’s remarks pale in comparison to a Keynesian assertion made by Paul Krugman two weeks ago on Fareed Zakaria GPS. The Nobel laureate claimed that if the U.S. were forced to spend massive amounts of money to repulse an alien invasion, “this slump would be over in eighteen months.” No, really. He actually said that.
Such comments give credence to right-leaning economists who point out a major problem with the contemporary economics profession: it awards Nobel prizes to men who genuinely believe that putting the government in hock to repulse extraterrestrials constitutes a financial windfall.
Not that today’s Right has perfect lucidity in economic matters, either. GOP commentators remain mired in an economic paradigm that hasn’t evolved in the past three decades. The primary tenet of their dogma: if growth is slow, it’s surely because
- Business regulations are too onerous or
- Taxes are too high
To the first point, healthcare regulations like Obamacare undoubtedly constitute at least a minor impediment to resolving our unemployment problem. Can anyone deny that forcing employers into the business of healthcare provision once their payrolls crest fifty individuals places an unnecessary constriction on hiring?
With regards to tax cuts: while laudable, they are not an effective salve for all forms of economic woe. The Republican argument runs something like this: “Economic growth comes from higher productivity, which is created by investment. Because taxes channel savings away from private investment and into government largesse instead, they are a drag on real growth.”
While anyone who seriously believes that government can allocate capital more productively than the private sector should have their head examined, there’s more to today’s story. In the first place, by many measures, tax rates are the lowest that they’ve been in decades. Rather than citing all of the individual metrics, please visit this link: http://www.americanprogress.org/issues/2011/06/low_tax.html
(Yes, I realize that the Center for American Progress is hardly an unbiased information source, but I think the data is correct just the same.)
Pundits on the Right correctly identify productivity increases as the appropriate remedy to unemployment. However, their tax-factor growth model originally championed by Arthur Laffer and Jude Wanniski three decades ago obviously fails to explain contemporary economic malaise. If there is any disincentive to investing today, it is surely not a 15% rate on capital gains or a 35% marginal rate on income.
Although credit conditions are generally tighter than they were in 2007, the Wall Street Journal has recently reported that more than 90% of small businesses who require access to capital have been able to obtain it from commercial banks or other lenders. Furthermore, the prime borrowing rate has been 3.25%– the lowest level since 1955!– for nearly three years. (Historical data available at this link: http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm). It hardly needs mentioning that the bond market is also willing to furnish capital to large corporations at the smallest yields in decades.
But if tax rates are low, capital is accessible (and quite cheap) for the vast majority of creditworthy business borrowers, then why does the economy remain moribund? Is monetary policy at fault? Notwithstanding gold’s massive run of late, the Consumer Price Index (CPI) only rose 1.5% in 2010, and is running 3.6% for the twelve months ended July 2011. Tighter monetary policy could increase the dollar’s exchange value, thereby lowering the price of petroleum and other commodities. Cheaper gasoline might provide sufficient relief for ailing consumers and businesses to solidify a recovery. On the other hand, the benefits of a strong dollar could be largely offset by a flagging export sector.
Here’s the bad news: policymakers– on both sides of the partisan aisle– have finally run out of viable fiscal, regulatory, and monetary bullets. Neither increasing stimulus spending, nor cutting taxes, nor adjusting monetary policy will spur the sustainable growth our economy so desperately needs.
The good news: there is still a way to get ourselves back on the growth track. In fact, the roadmap for getting us there was originally drawn two hundred years ago. And I’m happy to show it to you…next week.
James Adams spent eight years in debt capital markets. He is the author of a new book entitled “Waffle Street: The Confession and Rehabilitation of a Financier,” a true life account of his transition from working at hedge funds to serving hashbrowns at Waffle House. www.wafflestreetbook.com