May 13, 2007
Assorted Mysteries of Economic Life
By BEN STEIN
THERE are many mysteries in the world of economics. The subject is in
good measure terra incognita even now, 231 years after publication of
"The Wealth of Nations," Adam Smith's free-market bible.
For example, why is unemployment so low when the economy is supposedly
slowing rapidly? If gross domestic product grew at only roughly 1.5
percent in the first quarter of 2007, why is unemployment at barely
If the housing construction business is correcting rapidly, as it so
clearly is, why has the fall in construction employment been so slight
— even in residential construction employment?
Or on a subject of equivalent scope, corporate America has record
profits both as an absolute number and as a percentage of G.D.P. And,
in many parts of this nation, we have severe labor shortages. Why, in
that case, have average wages stagnated for so long? We know wages in
finance and at the top of the heap are rising rapidly, but why is wage
growth stagnant throughout the rest of this superheated economy? It
cannot just be foreign competition, because service sector wages are
not rising or are barely rising at all.
Why is labor, and especially organized labor, such a whipped dog? Why
isn't the tidal wave of demand created by foreign lending and
borrowing from future generations pulling up demand for labor so
strongly as to raise wages? I don't get it.
Then there's the little matter of the falling dollar. Every time the
Chinese or the Japanese or the petro states scoop up another $20
billion of our Treasury bonds, they not only swallow a modest yield on
their investment but also absorb a loss on the falling dollar when
they translate the interest payments back into their own currency. So
why do they keep piling up dollar-based assets?
I know they're little by little diversifying into euro-based assets,
but what happens when the euro actually becomes the reserve currency
of the world, or at least shares that title with the American dollar?
When demand for dollars as a reserve asset currency falls, the dollar
falls. If oil, for example, becomes denominated in euros, the price in
dollars rises — perhaps significantly. This in turn means even higher
trade deficits and an even more rapidly falling dollar and then, dear
reader, you eventually have a genuine dollar crisis. What do we do
then? Have the powers that be in the Treasury thought about this? It's
not only a distinct possibility but seems to be the direction toward
which we are slouching.
[this assumes that when oil is denominated in euros, its price is
constant even though the dollars is falling. I don't think that this
is a reasonable assumption. If the US economy is falling into
recession, for example, that would drive down the price of oil
denominated in euros and my even cause the dollar value of oil to
fall, depending on what falls faster.]
What happens to our whole economy if the world simply no longer wants
to hold dollars in stupendous amounts? Is the Treasury Department's
Henry Paulson worrying about this or only about how to further
insulate corporate chief executives from responsibility to their
Allow me to deviate from our theme a moment to consider exactly what
policy makers and regulators in Washington might be up to when it
comes to monitoring chief executives.
A new low was suggested in that realm recently by news reports saying
that the Securities and Exchange Commission was considering allowing
revisions to corporate law that would bar stockholders from suing
their own managements in court for wrongdoing.
Instead, corporations would be able to require their owners — yes,
their owners — to go through arbitration instead of court litigation
if they had grievances. To say that this trivializes and betrays the
ownership rights of stockholders is putting it mildly. It's really a
betrayal of capitalism itself.
O.K., back to the dollar.
If there is a dollar crisis and oil goes to $150 a barrel, where does
the S.& P. go? Where do all of our retirement plans go? Where do our
401(k)s go? I think this is worth considering.
Alas, all of the mysteries I've been pondering in the last week are
about large, global issues. Another thing that preoccupies me, albeit
on a slightly smaller scale, is an enduring mystery of the retail
economic world: why don't people in New York City want a Wal-Mart in
Manhattan is the most underserved market I have ever seen for retail
customers. There really is nowhere for bargains on ordinary household
goods and groceries in the whole borough. Yes, I know unions hate
Wal-Mart. But not every New Yorker is in a union, and every New Yorker
needs food and paper towels. (I, by the way, am a member of three
unions: the Screen Actors Guild, the American Federation of Television
and Radio Artists, and the Writers Guild of America, West. How many
unions is Mayor Michael Bloomberg in?)
Don't the consumers deserve a break, too? I know Wal-Mart is not hip,
slick and cool. It's for people who have to live within a budget, not
for people who see movies with subtitles and have houses on Martha's
Vineyard (or would like to). But don't working-class people deserve
bargains on their daily bread?
To keep Wal-Mart out of New York — or my home, Los Angeles — is simply
to inflict a snobby class prejudice on working people. Why they and
their representatives put up with this classist, "let them eat Whole
Foods" nonsense is yet another mystery, and one that could be solved
if politicians really cared about consumers.
You know, even thinking about politicians really caring about ordinary
investors and consumers actually made me laugh as I was writing this.
Pretty sad, huh?
Ben Stein is a lawyer, writer, actor and economist. E-mail: email@example.com.