Monday, September 8, 2008

Why a Strong Economy is Important

I'm not going to go into my "economic plan" just yet. Instead I'm going to give you a few basics on indicators of a strong healthy economy and why it's beneficial to you as an individual and to your family. Keep in mind a person or family's perspective of whether or not the current economy is strong or weak, is largely driven by their own personal circumstances. If you dad just lost his job, his view of the economy will be that's it's terrible. However if 2 or 3 weeks later he gets a new higher paying job than he lost, his view of the economy will likely change to a more positive outlook.

One indicator of a strong economy is the unemployment rate. The lower the unemployment rate the stronger the economy. This means that people have jobs and there are jobs available to them if they want. There will always be a certain amount of unemployment simply because some people are "holding out for management positions," meaning there are jobs for them if they will choose to take them, even if only on a temporary basis. Then there are the people who have learned to work unemployment to their advantage, meaning they find ways to get fired from jobs to collect unemployment. They are adding to the unemployment rate every time they "loose their job."

Either way, a low unemployment rate is a good thing and job creation helps keep this number low. Let say you want to start a snow cone stand in front of your house. You have just created a job for 1 person that didn't exist before. Let's say your stand does so well that you can now afford to hire your friend to help you work it. You have just created a 2nd job that didn't exist before. Let's also say that you and your friend were only working for 3 hours a day, but you discover you still have people coming up for snow cones when you are ready to quit. So because you notice you still have a demand for your snow cones, you hire 2 more people to run the stand for the next 3 hours. Now you have created a total of 4 jobs that are available. In the real world, you'd pay sales tax to the local government, and you and your employees would pay income taxes to the federal government, which they use to pay for all kinds of intrusions in our lives. However some of these services they provide are seen as necessary. Either way the more people that are employed, the less dependence there is on the government for help.

Another indicator of the economy is Gross Domestic Product or GDP, which measures the market value of the goods produced for a given period of time. One of the easiest ways to understand this is to put it in a math equation:
GDP= consumption + investment + government spending + (exports - imports)
The trick is to not have more imports than exports, reduce government spending, and have a happy balance between consumption and investment. However you never want to give up investment in favor of consumption. This is why consumption is commonly perceived as an indicator of a healthy economy. But just because consumption is up, doesn't mean investment is up. Just remember government spending is always going up and up and up and is hurting the overall GDP. I'm not in favor of that personally. And that is one thing I intend to get a handle on if elected.

In my opinion the true test of a healthy economy is whether or not its citizens can take care of themselves now and when they retire if they choose to retire. This means they don't have more debt than they can handle, they can pay their bills every month, they don't have any credit card debt, they have savings that they are contributing to so they can handle financial emergencies, and they are contributing to retirement savings every month. A healthy economy is filled with citizens who take personal responsibility for their finances and their financial well-being. They don't depend on the government, or other countries to feed, clothe, and house them. They prepare for emergencies, and are generous and helpful to each other in temporary times of need. Based on the credit card factor alone, I'd say we live in a pretty unhealthy economy. I'd like to educate people to start taking more personal responsibility for themselves since you can't rely on the government to.

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