It’s the profession that matters most to your money, but reading about economics is often about as entertaining as putting your head under a ceiling fan.
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Finally, an elegantly rendered book that makes the dismal science engaging, with real-world examples from Hollywood, rock ‘n roll, and sports, including actor Ben Affleck, the Rolling Stones’ Keith Richards, and the Dallas Cowboys. Real life stories of people struggling with the real life consequences of government officials who too often view the economy in the abstract.
In his new book, Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics, John Tamny also proves that common sense is actually the best disinfectant for bad economic policies. Popular Economics succeeds where other meandering door stoppers failed, as if economists and academics were writing with one arm of their eyeglasses broken off.
It’s not an understatement to say that in tackling big subjects, Tamny also reports alarming statements from government officials and central bankers on how they think they can micromanage the U.S. economy. I appear with Tamny on 'Forbes on Fox' every week, and hope he writes a follow up book just on this subject alone (for more, see below). Popular Economics proves once again the history of financial crises is a history of missed opportunities, of crises in search of leaders with long-term vision.
The book’s arrival comes as the resurrected ghosts of past strategies have failed yet again: The Obama administration trying to buy economic growth with $7 trillion in new spending, up a breathtaking 70% since 2009; federal spending that vacuums capital away from future Apples—see any Apples in North Korea or Russia?; tax hikes not seen since the Hoover administration stimulating nothing but politicians fighting like drunken apple women; wasteful government bail outs of zombie companies devouring capital; the vegetative universe of a regulatory state that didn’t catch, say, the financial crisis (why regulate if you’re going to just bail ‘em out?); and central bank maestros picking and choosing when to print money and which bonds to buy (often overpaying, bad market timing here).
The end result: U.S. payroll employment just 1.8% bigger than it was in 2008, a deflationary world with no pricing power, and growth at a 2.3% annualized pace since June 2009 when the “recovery” began, the worst performance in modern times.
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When will the Real Recovery Start?
This soggy U.S. recovery is now being noted for its startling, negatives: Declining median income, now 8% below where it was in 2007; the number of U.S. businesses folding now greater than the number debuting; a sizable 15.5 million unemployed or underemployed, about a tenth of the labor force; fewer people in the 25-to-54 demographic working in the U.S. versus France, Germany, the U.K. or Japan.
Tamny makes the case for “reversing” U.S. course: lower taxes, a cut back of the kudzu of the regulatory state, and a stronger dollar. The latter, a standard that the Reagan and Clinton administrations appeared to have understood, but the Nixon, Carter, George W. Bush, and certainly the Obama administration, have not. All to attract private investment, the true creator of jobs and growth, not redistribution of taxpayer money.
It’s also a strong case built on the Founding Fathers’ vision: Limited federal powers, and not, say, “guilty until proven innocent” powers for a massively intrusive IRS bureaucracy. Reduce a corrupt, overgrown government, Tamny warns, quoting former BB&T Bank chief executive John Allison who said, “While government can’t make us all equal, it can make us all small.”
Tamny quotes Keith Richards, who explained why the Rolling Stones became tax exiles and fled the U.K. for the south of France in the early 1970s due to high U.K. taxes. Its economy in trouble, the U.K. was slapping top earners with a frightening 83% tax rate, 98% for investments. “That’s the same as being told to leave the country,” Richards has said. Tamny quotes even progressive actor Ben Affleck citing tax breaks as the reason why one of his films was being shot in Georgia and not California, “You just follow the money.”
Though Tamny is sure to rankle when he says income inequality is “a beautiful thing,” he argues it was a bad patch that led a broke, divorced J.K. Rowling to feverishly write the Harry Potter hit series. Pushing back against the President Obama-Elizabeth Warren ‘you didn’t build that’ crowd, Tamny asks: “Should I resent” entrepreneurs like Steve Jobs, Bill Gates, Michael Dell, or Reed Hastings who struggled to build companies and have climbed the income ladder, or should we be grateful for how they have enriched our lives? Would we have iPhones, tablets, home computers or home video streaming without that struggle?
Tamny reminds us: “The 1% club is always open for new members.”
Tamny also slaps down media critics at places like the New York Times decrying Apple’s (AAPL) outsourcing, pointing out research showing Apple in reality has created tens of thousands of jobs in the Cupertino area, has helped spark the swarming app industry, and has created prosperity for local businesses.
“Does anyone believe that John Boehner, Nancy Pelosi, Mitch McConnell, and Harry Reid are better allocators of the billions of dollars [in taxes] that ExxonMobil (XOM) annually relinquishes to the government?” Tamny asks.
He becomes even more pointed on the D.C. bailout culture. “When a casino loses its luster, and its profitability along with it, Nevadans don’t run to Washington seeking a bailout,” Tamny writes (though Sen. Harry Reid through the years has helped Nevada with a lot of taxpayer money).
Tamny asks us to understand that bailing out the 2,000 automakers that operated in the early 20th century would likely have meant no private capital to create a Ford, General Motors (F), or Chrysler (FCA), and that the latter two would have been even stronger if Toyota, Honda, or Volkswagen could have bailed them out and not taxpayers.
Bankruptcy is as old as Moses, it’s natural and good, it stops bad companies from destroying further capital. Capitalism is about “markets constantly correcting errors,” he says, adding that “it is government intervention that can and often does cause crises.”
Consider this, Tamny says: The response to the severe 1920-1921 U.S. recession set the stage for the roaring ‘20s because “the federal government got out of the way,” it cut federal spending in half, leaving capital to the private sector to heal itself, and it kept the dollar anchored to the gold standard, attracting private investment. But ten years later, Herbert Hoover and then FDR did the polar opposite with massive government interventions that lengthened the Great Depression—a folly in replay today.
Strong vs. Weak Dollar
Where Tamny is really powerful is when he takes on economists, including the Federal Reserve, for devaluing the U.S. dollar: “Money is not wealth, it’s a yardstick” by how we measure our “work and then trade products.” Talk of a “strong dollar” or a “weaker dollar” to boost exports is equal to saying we should “increase the length of a meter” or “shorten the minute,” he writes.
Returning the dollar to the gold standard would attract private sector investment and knock out all sorts of waste. For instance, Tamny notes that it would stop the “astounding” loss of productivity that has “our best financial minds” beavering away in the estimated daily $3.2 trillion currency market, hanging on central bankers’ every word (which is why most Fed officials now act like they have Hollywood agents). It’s a market that largely didn’t exist up until the ‘70s, he points out—and that’s not counting the regulatory waste.
Even more dangerous, though, is the belief held by government and Fed officials that they can manipulate the economy. For example, Tamny quotes Fed Vice Chairman Donald Kohn, who suggested in a speech in 2008 that the Fed should orchestrate an economic slowdown just to keep inflation in check:
“Bringing overall inflation immediately back to the low rate consistent with price stability could be associated with a much higher rate of unemployment for a short time," he writes. Maybe another book idea in this alone?
For now, Tamny says that the entrepreneurial spirit is still strong in America, noting that capitalism makes us compassionate, that socialism breeds government corruption, that running a business makes us understand human nature better, “even if we don’t feel compassionate in our hearts.”
One thing is certain—it’s good for all of us that its author was compassionate enough to take the time to teach us common sense in Popular Economics.