TJP

Gramm Assessment of Americans is Insightful

By Byron A. Ellis - July 12, 2008

McCain believes that there is no better economist than Phil Gramm. However, according to Gramm Americans are whiners and the country is in a “mental recession.” Gramm assessment is insightful, because he is basically saying that Americans are not capable of assessing their own economic condition. Nonetheless, McCain quickly distanced himself from his top economic adviser remarks.

McCain, in what may be considered a flip flap, repudiated “the no better economist” comments. Of course, McCain was in Michigan where unemployment and home foreclosures are “mentally” high. Like Gramm, McCain has referred to the current economic condition as psychological, meaning a head thing.

Here is what Mr. Gramm said: “We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline.” And he proceeded to say, “You’ve heard of a mental depression; this is a mental recession.”

Mr. Gramm and Senator McCain are surely looking at the economy from an elitist point of view; they do not understand, or might not want to admit, how the Iraq invasion has affected crude oil prices and hence made Americans and the rest of the world worse off.

Consumers, and industry, are paying far more for energy than before the Iraq invasion. The invasion destabilized the Middle East creating the potential for crude oil disruption. Crude oil futures traders saw an opportunity to profit from “mental” (potential) crude shortages. As a result, the trade volume, as well as the price, for crude oil increased significantly since the invasion.

Increases in energy prices constrain industry profits and consumers’ ability to purchase commodities. Consumer purchases are the driver of the gross domestic product and profits enable businesses to expand and hire more employees. However, given the high cost of energy employers have been shedding workers.

The commissioner of the Bureau of Labor Statistics, Keith Hall, noted that non-farm payroll continues to trend downward. It has fallen by 438,000 in the first quarter of 2008, and average of 73,000 jobs are eliminated per month. The economy experienced job losses for six months in row. For Americans loosing their jobs it is not a mental recession, it is a real depression.

Housing foreclosures nationwide was up 50% in June from a year ago. In Michigan over 12,000 properties are in some stage of foreclosure. California and Florida had the highest foreclosures, 68,666 and 40,351, respectively.

Lets not underestimate Mr. Gramm intellectual capability. Any economist understands the consumer’s budget constraint equation. Moreover, they know that the consumers’ income is not increasing at the same rate as the price of gasoline and that the consumer income is fixed for a given period. Therefore, given a fixed consumer budget and whopping increases in the price of energy, food, and other commodities, consumers are bound to be worse off.

However, for Mr. Gramm to publicly acknowledge this “non-mental” fact would further discredit the choices made by the Republicans; choices that McCain and Republicans vow to continue.

If voters carefully examine the Republicans’ arguments, they will find them to be devoid of substance. For example, Mr. Gramm blames the media for fostering economic anxiety, as if, consumers are incapable of understanding their own budgets and are controlled by the media.

Neither Gramm nor McCain appear to understand the economic problems and challenges confronting consumers, or industry for that matter. They cavalierly ignore the causal effect of the current economic problems, the Iraq invasion. And, McCain has signal that if elected President he would bomb Iran, further compounding the world’s economic problems.

Hopefully, the American voters will make the right choice this time and not elect an aggressor for President.

However, Gramm’s insight into the mental condition of Americans may be quite accurate, given that during the last presidential election, Americans confronted with all the facts regarding the deceptive Iraq invasion reelected Bush to a second term.

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