Stoneage Ramblings

By John R. Stone

Is the economy good or bad? It seems to be an issue with various politicians.

According to the Wall Street Journal, which I have found is a good source for news about the economy, the economy is mostly fine.

A recent article in the Wall Street Journal by John Michaelson entitled “The Case Against Low Interest Rates” makes the case that because the economy is strong much lower interest rates are no longer necessary.

“By obvious measurements, the economy is all right. Even with short-term interest rates stuck at 5%, where they approximate something like a historical norm, America is essentially at full employment. The economy is growing, not so fast as to raise inflation alarms. The stock market is setting records. The dollar is strong.” Inflation is down writes Michaelson.

Michaelson goes on to argue that low rates may actually have had a role in inflation by encouraging people to buy things they might not have otherwise purchased. He says they also encourage businesses to buy one another rather than innovate on their own. He added that pension funds aren’t calling for low rates. And the combination of low rates and supply shortages pushed the prices of houses up.

Like a lot of things economic, the big overall picture doesn’t always apply to individuals. It doesn’t matter what the national economy looks like if you don’t have a job or you have a job that doesn’t pay sufficiently to support a family.

If farm prices don’t generate enough revenue to cover farm inputs and living expenses that is a problem for those who own or operate farms and also the vendors that supply them.

Interest rates are an interesting issue. If you have money in the bank you like high interest rates. That can be a big issue for retirees, pension funds and those who don’t trust the stock market and like to have tight controls on their savings.

I think bankers like higher rates because it allows them more room to make a return on loans. Also, remember that bankers are lending money that is deposited with them. With interest rates paying one percent or less many people preferred alternatives to bank accounts. Higher rates can mean bankers have more money to lend.

If you are a borrower with lots of debt, higher interest rates may threaten your financial security. And credit card interest rates are much higher than secured bank loans which makes them much more expensive.

We got into this low interest rate era because of the pandemic. The Federal government took many steps to keep the economy from collapsing as it did after the financial crisis of 2008. We got checks, interest rates were lowered, and unemployment payouts were boosted with Federal money.

We avoided a deep recession and the higher interest rates slowed the economy gradually and it appears the Federal Reserve may have accomplished the rarest of financial turnarounds to slow inflation, the “soft landing.”

But in the interim we had inflation well above the Fed’s goal of two percent. With extra trillions of dollars in their pockets consumers didn’t hesitate to spend. Part of that is good, it kept the economy running. But there was probably a little too much money so consumers were a little less price conscious. And consumer price consciousness is one of the important tools in controlling inflation.

Over the next few months you will hear a lot of candidates talking about their take on the economy and what they see as solutions for improvement.

  It is worthwhile to listen to what they say because not everyone’s situation is the same.

What is important is that the economy finds a point where we all know how it is going. Herky jerky moves to boost this or that do very few any good, what is most important is that a steadily growing economy be maintained because steady growth will benefit the most of us.