Economic Gray Area - Durable Goods

Posted by Donny Buckman on June 24, 2009 at 10:14am
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One of the gray areas of economics is how the citizens of a capitalist society should count the leading economic indicators. Unless we as citizens are economic news hounds and reading the Wall Street Journal on a regular basis something like the new increase in the durable goods economic indicator of 1.8% appears to be a highly positive thing to many. This is not the reality. Let me explain why such an unexpected increase in durable goods in our current economy is bad for the long-run health of the country’s financial system. News stories containing the increased durable goods sales increase fail to explain in a way normal citizens can understand what the final outcome of the purchases are. As regular consumers, when we think of increases in durable goods we think of refrigerators, laundry equipment, and stoves. Given the economic activity and the numbers of people unemployed I expect the increase in durable goods has nothing to do with households in the short term.

Durable goods being purchased in the United States are machines bought by corporations and installed in plants to replace the millions of recently laid-off employees. One of the twists in the bank bailouts in which the government begged with taxpayer money to get them loaning money again after the credit market froze is that after the liquidity was injected the credit market with the least risk was in business loans. Businesses, after having laid off millions of workers could now afford to pay loans on automation equipment in what is becoming a massive shift in the scales of productivity. The means of production has been shifted from the 6% of the population who have lost their jobs in the last year and a half to new technologies and durable equipment that is being counted in the most recent durable goods statistics being cited in the media.

The government has effectively used the tax dollars of workers who have lost their jobs to help banks to afford loans to their old bosses to use for investing in the necessary equipment to permanently replace them in the workplace. If we were ever looking for a reason to keep government out of the corporate sector then this new paradigm shift of human capital destruction should be seen as the epitome of disruptive practices. Let me expand on this a little bit more. Citizens who used to work in companies which because of competitive pressures were unable to afford the necessary equipment to replace the workers are now being used to mitigate those pressures through government intervention in the banking sector. The unintended consequence of this is that the unemployment rate will continue for a very long time to increase. Given modern technology, corporations will be able to return to the productivity levels obtained through the past human capital and return to profitability. This is the reason the stock market indexes have all increased since the news of the durable goods sales improvements.
Something to look out for is when the government starts to hire people who will remain chronically under-employed to do work in newly government owned sectors like the banking industry, the auto industry, the housing industry, and the insurance industry. When any government shifts to control over the means of production as well as the mode of production for major industries the economic system stops being capitalistic, or even socialistic, but straight up communist. Keeping our politicians out of the mire of communist motifs will be the most important facet of American life over the next 10 years as the 10% or so of citizens who are out of work become more desperate for income and the government-media complex continues to perpetuate the propaganda that big government is good. The American slip to communism will not happen with a domino effect, but rather a chain reaction of events that are muted by the media and incomprehensible to the mass majority of the population.
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Comment by Donny Buckman on June 30, 2009 at 9:55am Perhaps when I get into my 50s or so I will be able to command respect from those who are not like minded thus closing the loop on any political aspirations. Until then, I appreciate the readership. : ) My own perspective on politics is that any political figure should be thoroughly grounded with well articulated positions on a grand gamut of civic subject matter. That's what I'm practicing here so that perhaps one day I'll be worthy of a vote or two.

Comment by Josie on June 24, 2009 at 7:48pm Delete Comment Gordon, that's a great point too.

You hear that Donny? I echo Gordon's statement. You have a gift!

Comment by Gordon on June 24, 2009 at 4:57pm Delete Comment Hey Donny it’s good to hear from you. As Josie said, great post, in-depth thought and articulation. As a young man with as much going for you, your ability to communicate, intense interaction and dialog, having good sense as shown through your thoughts placed here and elsewhere, you should consider a career in politics. Comment by Josie on June 24, 2009 at 2:34pm Delete Comment Excellent blog, Donny. I firmly believe that in electing Obama the voters have voted in a man with Marxist views who is destroying America, & everything she stands for, including capitalism & her people.