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Economic Split Personality: Personally Optimistic, Generally Pessmistic

Like many people, I have my own internal contradictions. With regards to the state of the economy I have a split personality, I'm personally optimistic, but pessimistic in general. Following is a look at my economic split personality.

The Case For Economic Pessimism

  • Unemployment: What goes up stays up. Gravity defying unemployment is holding steady, with little sign of going down.
  • U6 unemployment is defined as: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers.
  • Calculated Risk blog has a good summary of causes for unemployment pessimism:
    • Unemployment-population ratio of 58.5% for June 2010.
    • Labor force participation rate of 64.7% in June 2010 – down from historical average of 67%.
    • Part time for economic reasons (U6 unemployment) 16.5%.
    • Unemployed over 26 weeks stands at a record 4.39%. This metric tracks back to 1948.
  • Decline in Manufacturing. The Congressional Budget Office has a good, albeit old, post outlining what accounts for the decline in manufacturing employment
  • Increasing debt-to-GDP ratio.
  • Failure of the political parties to face economic reality and support economic liberty. While there are important differences between the Republican and Democratic parties, they pale in comparison to the cataclysmic debt crisis that has exploded on the country. We can argue all day long about policy and the scandal of the day, but unless drastic action is taken, we're merely rearranging deck chairs on the Titanic. Karl Denninger states that "math doesn't care about politics". He is right.
    • We desperately need a party that stands for economic liberty because government debt isn't free
    • Measures such as the Constitutional Amendment to cap government spending at 20% of GDP, proposed by Representative Mike Pence, are not the answer. He says, "If God can get by on 10 percent, Uncle Sam ought to be able to keep getting by on 20." Government spending 20% of GDP is absurd. If God, Creator of the universe, asks for a voluntary 10% tithe, then government – creator of nothing – should be able to get by on much less.
  • Stupid government policies. From health care reform to cap and trade, the government sure can screw up an economy. The economic uncertainty is freezing small businesses and making them more reluctant to invest or hire new workers.
  • Sovereign debt default is a looming likelihood. The danger isn't so much that certain governments default on their debt so much as that waiting too long may bear a higher cost.
  • Jobs are being shipped overseas. Andrew Grove recently wrote about this for Bloomberg Businessweek.
  • Household Debt. As a percentage of GDP, household debt is still very high, and will make economic recovery very slow.
  • With all the reasons to be pessimistic about the economy, who could possibly be optimistic? Me. Here's a few reasons why I am personally optimistic about the economy.

    The Case for Economic Optimism

    • While the larger economy is largely outside my control, I do have the ability to exert influence on my immediate environment.
    • I can keep a careful eye on the household budget.
    • I can be a more conscientious employee.
  • I can keep up-to-date about the economy and anticipate future trends. What catches some by surprise may not surprise me.
  • Learn from the past. My father once got bit by some variable interest rate business loans. I learned a lesson from his mistake and when I purchased my home I chose a fixed interest rate loan. While several of my neighbors' homes ended up in foreclosure, mine has not.
  • Increase your knowledge about business. Knowing how business operates and what they must do to profit and prosper in any economy is important. The more you can do to help your employer (or own business), the more valuable you are to your company. Add to the bottom line and help secure your own economic future.
  • Family. Remember why you work so hard. On those days work seems tough and the grind gets me down, I remember I am here for my family. They are the reason I work hard. Whether it is your spouse, parents, children or someone else, you have plenty of good reasons to soldier on even in this tough economy.
  • A good employer. I am fortunate to have an employer that not only appreciates my efforts, but offers praise and support. That can be a rare quality today. If you have the good fortune of working for an employer who really supports you, that can make a huge difference.
  • There are plenty of reasons for economic pessimism. However, there are reasons why – on a personal level – I am an economic optimist. In tough times like these, having an economic split personality is how I have chosen to deal with the adversity around me.

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