Hi, LGL:
If you read newspapers, you should know what those figures (e.g. retail sales up 1.4% and housing starts up 1.5% in July) mean. The housing market remains strong because of low interest rates. Retail sales are up because consumer demand is back.
Initial jobless claims falling below the 400,000 level in the latest week means less than 400,000 people filed their initial claims for unemployment benefits in the latest week.
Yes, that also means about 368,000 people joined the ranks of the unemployed in the latest week. But that doesn't mean America lost 368,000 payroll jobs in the latest week, because the economy also created some new jobs in the latest week.
As mentioned before, there are no inflationary pressures at present because growth in aggregate demand is still anemic. That urges the Federal Reserve to increase money supply and enables the Bush administration to implement its tax cut packages despite budget deficits.
Recent data indicate that the Federal Reserve's interest rate cuts, the Bush administration's tax cuts, and the federal government's deficit spending have already stabilized the economy and the labor market, reducing the risks of deflation. Better days are right ahead of us.
Economics is not rocket science. Anyone with a knowledge of mathematics should be able to understand why money supply is important to economic growth. If there is zero money supply, there is no economy.
People need money (i.e. a special kind of printed paper that represents claims on goods and services) to conduct business transactions. If there is no money, there is no transaction and no economy.
If the amount of paper currency in circulation is excessive, prices rise. That's inflationary pressure. If the amount of money in circulation is not sufficient, prices fall. That's deflation.
Besides, paper currency tends to disappear from circulation through wear and tear, allowing the federal government to increase deficit spending and create even more paper money without fanning inflation at all.
Have you ever collected postage stamps? If you hold mint stamps long enough, you are likely to see them appreciate in value, because the quantities of stamps issued are limited and, as time goes by, they disappear through wear and tear, while collector demand increases.
All this means the Federal Reserve must keep increasing money supply to ensure the smooth operation of a growing economy. If the Fed doesn't increase money supply, the economy can't grow, because a growing economy, which brings about a higher demand for cash balances, needs an ever-increasing money supply.
One of the reasons that stocks began to fall sharply in spring of 2000 and the economy began to slow down sharply in the second half of 2000 is there was a severe liquidity shortage, which Fed Chairman Alan Greenspan refused to acknowledge even during Congressional hearings.
The market knew better. At the time, gold traded below $280 per ounce -- a clear indication that there was deflation and a liquidity shortage. No wonder America plunged into a recession. No economy can grow with a severe liquidity shortage.
Economists don't worry about inflation in times of economic sluggishness and labor market weakness. Instead, they worry about deflation in such times. Inflation can only emerge with strong demand growth and strength in the jobs market.
Right now, concerned about losing their jobs, employees are not in a position to demand wage increases. Many of them may have to accept wage decreases. How can wage decreases and job losses lead to inflationary pressures?
Empirical evidence shows that previous recessions (e.g. the recessions in the early 1980s and the early 1990s) were ended through interest rate cuts, money supply increases, tax cuts, and deficit spending. This requires me to give credit to both John M. Keynes and Milton Friedman and their classic theories.
Tax policy certainly has a role to play. Ronald Reagan became a popular president and got re-elected with his supply-side economics (i.e. tax cuts and deregulation) which helped create investment opportunities and investment demand.
George H. W. Bush lost his re-election bid because of a weak economy damaged by high interest rates and the tax increases passed by a Democrat-controlled Congress and signed into law by himself.
Bill Clinton raised taxes only to see his own party lose control of both chambers of Congress. Voters don't like tax increases. Do you? Maybe, you do like tax increases, but not for yourself. Maybe, you don't have to pay taxes.
I prefer "voluntary tax increases". That is, those who call for high taxes should be allowed to pay high taxes on a voluntary basis. Put your money where your mouth is.
So, you are one of those who believe fighting global terrorism is "wrong". Despite 9/11, you want me to believe that it is unnecessary to wage the current global war on terrorism and that because the Bush administration is waging this war on terror, it is the creator of this war on terrorism.
Perhaps, I have stumbled upon the "rationale" and mentality of the political left:
(1) If America doesn't wage this global war on terrorism, there will be no war. 9/11 happened not because of al-Qaeda's evil intentions toward the U.S., but because of the Bush administration's refusal to befriend Osama bin Laden. Don't you see that the Clinton administration befriended North Korea's Kim Jong-il with a $4 billion deal that saved the world from a nuclear war?
(2) There is no such thing as global terrorism, so why wage this war on global terrorism? The Bush administration is just trigger-happy. That's wrong, because if America shies away like a turtle, terrorists will leave us alone. Fighting terrorism will create more terrorism, making America even more insecure.
(3) Even if there is global terrorism, America shouldn't fight it at all because it is too expensive. Save the money and give it to us.
(4) It was wrong to topple Saddam Hussein's regime, because his torture chambers, mass graves, WMD programs, huge financial resources, ties with terror groups, and evil intentions toward America were perfectly O.K. by us.
(5) We enjoyed watching Saddam Hussein stand up to the Bush administration. Bush is our enemy number one. He who stands up to our enemy is our friend.
Right or wrong, these are the impressions I have derived from the messages and performances by the political left. Would you kindly tell me if you share such sentiments?
If unfortunately you do, I suggest you see a psychiatrist for your own good, because, in my opinion, they don't seem to reflect the workings of a sound mind.
Sincerely,
Robert M. Liu
