The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

2% Loss in Wages Makes No Sense for Economy

On February 19th, 2013, posted in: Uncategorized by

Some thoughts on the economy have prompted this week’s setting of the pen to paper.

I don’t purport to know all the inner workings of the economy – it’s a thousand-piece jigsaw puzzle. My concern is that those in charge of this nebulous, yet ubiquitous thing called the economy don’t appear to have the benefit of a picture on the box. After all, without the picture, it’s tough to get all the puzzle pieces in the right place. The other thing that concerns me is that nonsense has appeared to supplant common sense. What is real has been clouded.

Before we go too much further, let’s remember something. When one speaks of the economy, they’re talking about consumers spending money – which generates jobs. Remember, somewhere between 65% – 70% of the economy consists of us spending money. A much smaller percentage, and thus a much smaller impact on the economy, is the government spending money. You, me and our neighbors drive the bus. Sheer numbers say that the money in our hands is a better play for the economy. That’s not a political statement. That’s an idea rooted in pure numbers.

By somebody’s measurement inside the DC beltway (that’s five square miles surrounded by reality, according to many), $9 billion per month will be extracted from the economy compliments of the elimination of the 2% payroll tax holiday. In other words, our taxes went up and our buying power went down, thus adversely affecting the lion’s share of spending in the market place. See Walmart’s stock for proof.

In a time when gaining traction in the economy dominates priority, is it really the right thing to do? $9B monthly of economic impact is a kick in the pants. That’s $108B annually. Sadly, $108B is considered chump change in DC or so I presume. That’s the nonsense part. It’s certainly not considered chump change during the family meeting held at the kitchen table.

There are a whole bunch of people missing that 2%. Common sense tells you that low-to-moderate income folks miss it the most. The loss of 30 bucks to a family stretching to make ends meet quickly becomes an albatross quietly choking the living out of one’s respective standard of living. That’s where I get interested. I hate to see people hurting.

So, it begs of the question. Does the economy suffer more by slowing consumer spending than the government benefits by having additional tax revenue? Critical mass lies with us. Forget the politics for a second. Based solely on the impact of our spending, the money in our hands has a greater impact on the economy than that of spending by the federal government. You know 70% versus 25%. I’m missing something right?

The arrows were all starting to point in the right direction. Spending was up, jobs were being created, automobile plants were starting to hum again, and housing markets were more optimistic than they had been in years. Now what? Early 2013 numbers show a contraction to spending. Coupled with rising gas prices, consumers are returning to purchasing only the staples.

It appears as though discretionary spending may have been negatively impacted by the 2% loss of wages. In St. Louis, discretionary spending is real money spent on real items creating real jobs.

Let’s gain perspective, people. Here’s for a return to common sense.

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