During a discussion tonight with friends, the issue came up about whether the Biden administration has created a good economy. One participant decided to put out there for consideration the economic data points often cited by the mainstream media. The participant cited inflation, arguing that inflation has been coming down under the Biden administration, moving ever so closer to the Federal Reserve’s two percent target. The participant also argued that unemployment is currently the lowest or among the lowest that it has been in years.
Citing headline numbers do not help me achieve nirvana, especially if you are arguing textbook or mainstream media concepts about the health of an economy. One of the biggest indicators to me that a person has no acumen regarding the economy is when they ignore the pain in the grocery aisle and place the onus of their “economy is great” argument on the labor market.
First, a quick definition of economy. Economy is a top-down concept. The economy, specifically the macro-economy, refers to a matrix of rules that guide the movement of goods and services through interconnected markets. The rules implemented on the top are designed to optimize the returns on the movement of goods and services, with the result being optimal business revenue and government tax revenue.
The underlying activities that people confuse for economy are the periodic transactions between individuals and businesses. An individual enters the loanable funds market and exchanges collateral and their promise not to default on a loan for a credit account. The individual then enters the labor market and promises to compensate a potential employee with some of the money from their credit account in exchange for the potential employee’s time. At the same time, the employer enters other market transactions to procure supplies, machinery, and real estate to further establish his business.
Economy is a state or government concept. The state through the power of government extracts yield from the underlying transactions of the individual or business. Were it not for government, individuals would still trade, but they would not be concerned with macroeconomic indicators. The individual would trade for what they need and be on their way. Their actions would be microeconomic.
The State or government needs to establish macroeconomic indicators such as unemployment rates, personal consumption indices, and consumer price indices in order to sell the electorate a narrative that under the State or government’s watch, the “economy” is doing fine.
As another participant shared, whether some people are doing well and others are not means nothing. It is the set of indicators that matter. Some people are expected not to do well.
I agree that some people will not succeed, that they may become exhaust within the combustion engine we call capitalism. If we expand this assertion, then we should also conclude that macroeconomic indicators such as unemployment rates, personal consumption rates, or producer price indices mean nothing; that there is no good or bad economy especially under any president or political party. What matters is the individual’s ability to successfully trade their time, goods, and skills for the government’s coin.
Alton Drew
14 March 2024
For more of my take on the American political economy, purchase my book at amazon.com/author/altondrew.
Alton Drew 