Minneapolis about to have 1st hand experience of the "laws of supply and demand"

Minneapolis City Council approves $15 minimum wage

Excerpt:

The Minneapolis City Council approved a $15 minimum wage Friday, a move years in the making that will affect hundreds of businesses and thousands of workers across the city.

The vote adds Minneapolis to a list of cities nationwide, including Seattle, San Francisco and Washington, D.C., that have approved similar measures in recent years.

“Today, we uplift all workers,” Council Member Abdi Warsame, who was absent from Friday’s meeting, said in a letter that was read aloud. “Today’s vote, while historic, is just another step in our unending journey to build a better city.”

The $15 minimum wage will be fully implemented citywide by 2024, with a faster phase-in for large businesses — those with more than 100 employees.

Only Council Member Blong Yang voted against the ordinance. Before the vote, he read a statement listing his concerns about how a $15 minimum wage might negatively affect his north Minneapolis ward, including small business owners and entrepreneurs of color and youth workers.

The laws of supply and demand apply to labor, too.

Excerpt:

Thanks to a new study from economists at the University of Washington, American progressives have learned that the laws of supply and demand apply to the labor market. Everybody already knew that, except for professional economists. The study, commissioned by the city government of Seattle and published by the National Bureau of Economic Research, found that Seattle’s law incrementally raising its minimum wage — to $13 an hour last year, en route to $15 — resulted in low-wage workers’ earning less money rather than more. This surprised many in Seattle, who had been assured by all the best economists, including Paul Krugman, that such a thing would not come to pass.

So, what happened? The short version is: You can pass a law saying you have to pay low-wage workers more, but you cannot pass a law that says you have to hire them in the first place, or that you cannot cut back on hours when the price of hourly labor goes up. As businesses responded to the new higher labor costs by reorganizing their processes in less labor-intensive ways (the classic examples here are the replacement of wait staff with computer screens in restaurants and the replacement of bank clerks with more sophisticated ATMs), the law that was supposed to increase low-wage workers’ incomes actually reduced them — substantially, by an average of $125 a month.

The first lecture in Economics 101 is that supply and demand interact through prices. (And a wage is a price — the price of labor.) Producers will produce more of any given product at a higher price, and consumers will consume less of it at a higher price. At some point, producers’ preferences coincide with those of consumers, and that is the market price that emerges. That’s a rough model, of course, but it describes the basic reality of how commercial transactions actually happen.

When Economics 101 tells you something you don’t want to hear, the thing to do is to commission a study. As Ronald Coase observed: If you torture the data enough, it will confess to almost anything. For progressives desiring to raise the minimum wage in spite of the consequences predicted by basic economics, that study came from two Princeton economists, David Card and Alan Krueger, who in 1994 compared employment at fast-food restaurants in New Jersey to that of their counterparts across the river in Pennsylvania after New Jersey enacted a relatively modest increase in the minimum wage.

The Card-Krueger study found that raising the minimum wage had not cost jobs in New Jersey. There were many problems with the study: It used fast-food employment as a proxy for minimum wage even though most fast-food workers do not make the minimum wage; it ignored workers in other industries, such as hospitality, that might have been more strongly affected; it covered a relatively short period of time; it relied on telephone surveys of restaurant managers rather than on hard employment data.

The Card-Krueger study included only a few months’ worth of data from after the time the minimum-wage hike went into effect. Some economists suspected that while fast-food operators were unlikely to simply start hacking away at their staffs in the months following an increase in the minimum wage (which, again, would not affect the wages of most fast-food workers), they would instead change their medium- and long-term plans, choosing less labor-intensive modes of production, substituting capital for labor through automation, reducing hours to make their labor consumption more efficient, etc. And that is, in fact, what subsequent studies found: Restaurants didn’t just start firing people after the minimum wage went up, but the wage hike did significantly reduce future job growth and labor consumption.

Comment: See Seattle's minimum wage hike may be hurting workers

A lesson on Innovation

@SenSanders Econ 101 https://t.co/T96TzJX1pM

— James Peet (@jrpeet) November 11, 2016

Economic Reality - What Government cannot do!

Economic Reality

Excerpt:

In 1977, responding to the difficult energy outlook brought on by the Arab Oil Embargo, President Jimmy Carter created the position of Secretary of Energy and chose James Schlesinger as America’s first “energy czar.” Previously Schlesinger had served as Chairman of the Atomic Energy Commission, Director of Central Intelligence, and Secretary of Defense, and in his early days he taught economics at the University of Virginia. I was tickled by a story – undoubtedly apocryphal – about his days in academia that made the rounds when Schlesinger was in his new energy post.

As the story went, Schlesinger was such a convincing evangelist for capitalism that two students in his economics class decided to go into business after graduation. Their plan was to borrow money from a bank, buy a truck, and use it to pick up firewood purchased in the Virginia countryside, which they would then sell to the grandees in Georgetown. Schlesinger wholeheartedly endorsed their entrepreneurial leanings, and they proceeded with great enthusiasm. From the start of their venture, the former students could barely keep up with the demand.

Thus it came as quite a shock when their banker called to tell them the balance in their account had reached zero and the truck was about to be repossessed. They contacted Schlesinger, and he listened attentively as they recounted their experience: they had, in fact, been able to acquire vast amounts of wood for $50 a cord, and they’d been able to sell all they had for $40 a cord. How could they be broke? Where had they gone wrong? Schlesinger puffed on his ever-present pipe and said: “The answer’s obvious: you need a bigger truck.”

Comment: An essay on what government cannot do (link sent to me from my daughter). Image source

Cheap imports undermined Haitian food production

U.S. policies encouraging low tariffs on imports destroyed local agriculture

Excerpt:

Decades of inexpensive imports — especially rice from the U.S. — punctuated with abundant aid in various crises have destroyed local agriculture and left impoverished countries such as Haiti unable to feed themselves.

While those policies have been criticized for years in aid worker circles, world leaders focused on fixing Haiti are admitting for the first time that loosening trade barriers has only exacerbated hunger in Haiti and elsewhere.

They're led by former U.S. President Bill Clinton — now U.N. special envoy to Haiti — who publicly apologized this month for championing policies that destroyed Haiti's rice production. Clinton in the mid-1990s encouraged the impoverished country to dramatically cut tariffs on imported U.S. rice.

"It may have been good for some of my farmers in Arkansas, but it has not worked. It was a mistake," Clinton told the Senate Foreign Relations Committee on March 10. "I had to live everyday with the consequences of the loss of capacity to produce a rice crop in Haiti to feed those people because of what I did; nobody else."

Comment: a rare admission of culpability by former President Clinton!

Milton Friedman: The origin of our medical care morass

A Way Out of Soviet-Style Health Care: Solzhenitsyn's prophetic warning about the depersonalization of medicine

Excerpt:

For the first 30 years of my life, until World War II, that kind of practice [private medical practice] was the norm. Individuals were responsible for their own medical care. They could pay for it out-of-pocket or they could buy insurance. "Sliding scale" fees plus professional ethics assured that the poor got care. On entry to a hospital, the first question was "What's wrong?" not "What is your insurance?" It may be that some firms provided health care as a benefit to their workers, but if so it was the exception not the rule.

The first major change in those arrangements was a byproduct of wage and price controls during World War II. Employers, pressed to find more workers under wartime boom conditions but forbidden to offer higher money wages, started adding benefits in kind to the money wage. Employer-provided medical care proved particularly popular. As something new, it was not covered by existing tax regulations, so employers treated it as exempt from withholding tax.

It took a few years before the Internal Revenue Service got around to issuing regulations requiring the cost of employer-provided medical care to be included in taxable wages. That aroused a howl of protest from employees who had come to take tax exemption for granted, and Congress responded by exempting employer- provided medical care from both the personal and the corporate income tax.

Because private expenditures on health care are not exempt from income tax, almost all employees now receive health care coverage from their employers, leading to problems of portability, third party payment and rising costs that have become increasingly serious. Of course, the cost of medical care comes out of wages, but out of before-tax rather than after-tax wages, so that the employee receives what he or she regards as a higher real wage for the same cost to the employer.

...

The best way to restore freedom of choice to both patient and physician and to control costs would be to eliminate the tax exemption of employer-provided medical care. However, that is clearly not feasible politically. The best alternative available is to extend the tax exemption to all expenditures on medical care, whether made by the patient directly or by employers, to establish a level playing field, in terms of the currently popular cliche.

Many individuals would then find it attractive to negotiate with their employer for a higher cash wage in place of employer-financed medical care. With part or all of the higher cash wage, they could purchase an insurance policy with a very high deductible, i.e., a policy for medical catastrophes, which would be decidedly cheaper than the low-deductible policy their employer had been providing to them, and deposit all or part of the difference in a special "medical savings account" that could be drawn on only for medical purposes. Any amounts unused in a particular year could be allowed to accumulate without being subject to tax, or could be withdrawn with a tax penalty or for special purposes, as with current Individual Retirement Accounts—in effect, a medical IRA. Many employers would find it attractive to offer such an arrangement to their employees as an option.

Comment: Written in 1996 by the brilliant economist Milton Friedman

The vote is really about who commands the country's medical resources.

The ObamaCare Crossroads

Excerpts:

The consequences of this bill will not only be destructive for the health-care system and the country's fiscal condition, though those will be bad enough. Inextricably bound up in a plan as far-reaching and ambitious as ObamaCare are also larger questions about the role of government, the dynamism of American enterprise and the nature of a free society. Above anything else, this explains why Democrats have had such trouble convincing the public, let alone their own Members.

...

In our world of infinite wants but finite resources, there are only two ways to allocate any good or service: either through prices and the choices of millions of individuals, or through central government planning and political discretion. This choice is inexorable. Stripped of its romantic illusions, ObamaCare is really about who commands the country's medical resources. It vastly accelerates the march toward a totally state-driven system, in contrast to reforms that would fix today's distorted status quo by putting consumers in control.

Friedman lays out how the country arrived at our current pass, starting with the World War II-era decision to offer tax subsidies for employer-sponsored coverage only. Like the company store, this inefficient and inequitable preference encourages workers to be paid in kind rather than cash, and over the years the third-party payer system it entrenched has inhibited competition and desensitized patients to the costs of their own care. With the 1965 creation of Medicare for seniors and Medicaid for the poor, government has come to play the leading role in shaping the way care is paid for and provided.

Naturally, the result has been high and rising costs. Since 1962, the share of the economy devoted to health care has risen to about 17% from 6%. Today, health entitlements account for about 5% of GDP but on current trend will rise to 7% in 2025 and about 15% in 2062.

...

Once the health-care markets are put through Mr. Obama's de facto nationalization, costs will further explode. The Congressional Budget Office estimates ObamaCare will cost taxpayers $200 billion per year when fully implemented and grow annually at 8%, even under low-ball assumptions. Soon the public will reach its taxing limit, and then something will have to give on the care side. In short, medicine will be rationed by politics, no doubt with the same subtlety and wisdom as Congress's final madcap dash toward 216 votes.

As in the Western European and Canadian welfare states, doctors, hospitals and insurance companies will over time become public utilities. Government will set the cost-minded priorities and determine what kinds of treatment options patients are allowed to receive. Medicare's price controls will be exported to the remnants of the private sector.

Comment: Interesting how wage price controls after WWII created system whereby employers offer health insurance. See next post for Milton Friedman 1996 article

It's all about supply and demand!

Black Barbie Sold for Less Than White Barbie at Walmart Store

Excerpt:

A photo first posted to the humor Web site FunnyJunk.com and later to the Latino Web site Guanabee.com shows packages of Mattel's Ballerina Barbie and Ballerina Theresa dolls hanging side by side at an unidentified store. The Theresa dolls, which feature brown skin and dark hair, are marked as being on sale at $3.00. The Barbies to the right of the Theresa dolls, meanwhile, retain their original price of $5.93. The dolls look identical aside from their color.

Editors at Guanabee.com said the person responsible for the photo told the Web site that it was taken at a Louisiana Walmart store. The person did not return e-mails from ABCNews.com.

A Walmart spokeswoman, who could not verify the exact store shown in the photo, said that the price change on the Theresa doll was part of the chain's efforts to clear shelf space for its new spring inventory.

Comments:

• My wife never had a Barbie doll. My daughter never did either!
  
• I think they are stupid! Legos are my toy of choice!
  
• WalMart is not pricing human beings! They are pricing dolls
  
• Want the price to go up ... buy more of them!
  

"for the virtuous person, doing the right thing is incentive enough"

Incentives vs. Virtue

Excerpt:

Greensboro, North Carolina, is paying teenage mothers $1 for every day they are not pregnant. Like paying students to improve their grades and test scores, paying teen mothers to not get pregnant appears to be having the desired affect.

The core ideas in these kinds of programs come from a new field known as “behavioral economics.” Classical economics assumes that people are rational and act in accordance with their best interests. Behavioral economics knows that, in the real world, people make bad and even self-destructive choices all the time.

The goal of behavioral economics is to identify the “dizzying array of human foibles” and help policy makers take them into account when shaping policy.

In the case of incentive programs like the ones I have described, it means “nudging” people to act in their own best interests. It’s an approach, by the way, that is favored by a “number of high-level appointees” in the Obama administration.

While basing policy on human beings as they actually are is certainly preferable to basing them on rational “economic men” that exist only in economists’ imaginations (you can count me among the critics on that one).

It doesn’t surprise me that these “nudges” can have a short-term positive effect. But it’s difficult to imagine these programs making a long-term difference.

On the contrary, the “long term damage” mentioned earlier may very well include creating a generation of people for whom incentives will become a necessity, not a nudge.

To put it in Christian terms, incentives will replace virtue. Instead of doing the right or prudent thing because it’s what a moral person does, people will do what they do because they get something out of it. This doesn’t build character—it builds calculators.

What’s more, in the real world, people don’t always reward you for doing the right thing. But there are still consequences for behaving foolishly. How will people raised on a steady diet of nudges avoid these pitfalls?

The answer is that many won’t avoid them because they never learned that, for the virtuous person, doing the right thing is incentive enough.

Four uncomfortable questions that could bankrupt the country

Commentary: What's driving the U.S. over a cliff?

Excerpts:

1. First, why do we let people retire too early and then expect them to live so long without working? In 1910, the average retirement age in the United States was 74. In 2002, however, the average retirement age was 62. Average life expectancy in 1910 was around 55, while in 2002 it was 77.
   
2. Second, why do most Americans spend so much of their health care expenditures in the last three months of their life? Fully 27 percent of Medicare is devoted to spending on end-of-life health (in other words, health care that doesn't work), according to the Journal of the American Medical Association.
   
3. Third, why do so many people pay nothing in federal income taxes? According to the Tax Foundation, fully 32 percent of all Americans pay no federal income taxes while 42 percent of single Americans pay no federal income taxes. ... But at some point in time, squeezing the so-called rich will become counterproductive to economic growth, and the pie will start to shrink. It is not fair that so many Americans pay nothing in income taxes to their government.
   
4. Fourth, why is it more profitable to work in the government than to work in the private sector? According to one study, public employees earned benefits worth an average of $13.38 an hour in December 2008, while private-sector workers got benefits worth $7.98 an hour. Overall, total compensation for state and local workers was $39.25 an hour, $11.90 more than in the private sector.
   

Comments:

1. Employers don't want employees that at that old!
   
2. Dying medicine is expensive medicine.
   
3. We need a major revision of the tax code. I don't see it happening.
   
4. Government workers (this is a generalization) vote Democratic (like Union workers)
   

“Excess capacity, once entrenched, perpetuates itself"

Economy Falling Years Behind Full Speed

Excerpt:

As the recession grinds on, more and more of the nation’s means of production — its workers, its factories, its retail outlets, its freight lines, its bank lending, even its new inventions — are being mothballed.

This idled capacity, like baseball players after a winter off, takes time to bring back into robust use. So even if the recession miraculously ended tomorrow, economists estimate that at least three years would pass before full employment returned and output rose enough for the economy to operate at full throttle.

While stock market investors have embraced tentative signs of improvement in the mortgage market and elsewhere, even a sharp pickup in demand for products and services will take considerable time to play out.

The mathematics are daunting. The shortfall is running at more than $1 trillion in annual sales and other transactions. Only once since the Great Depression has there been such a severe loss of output — in the 1981-82 recession — and after that downturn, it was seven years before the economy regained the lost production.

Comment: Looks like a long road to economic recovery.

Has the Economy Hit Bottom Yet?

Has the Economy Hit Bottom Yet?

Excerpt:

The economist John Kenneth Galbraith once said, “The only function of economic forecasting is to make astrology look respectable.”

Comment: Worthwhile read.

Will the economy suddenly "go poof"?

Wells Fargo so confident recession will end in '09

Excerpt:

The second half of '09 is going to be "better than expected," said Jim Paulsen, chief investment strategist for Wells Fargo Capital Management:

"It's like you're at a cookout and you're trying and trying to get your charcoal going and you keep squirting lighter fluid and all of a sudden it goes 'poof!' "

Comment: Quote from the 2008 Economics Conference.

2008 Economic Outlook Conference

Comment: I am on a teleconference hosted by Wells Fargo economists. Brief comments (not quotes)

• Worst post-war (WW II) recession
  
• Household debt too high
  
• Expect end to recession in June 2009 (19 months from commencement in Dec '07)
  
• 3.7 M job loss in '09
  
• Unemployment expected to be 8.8% in the 4th Qtr '09
  
• 5.5 M job loss total
  
• Deflation in '09: Oil prices and commodity prices in decline
  
• Inflation expected in '10
  
• Stimulus package size 750B ---> 1T
  
• Fiscal deficit: $ 1.9 T in '09; $ 1 T in '10
  
• Total debt will be 9% of GDP (high and risk) - risk of currency collapse
  

I missed the last 20 m of the meeting (unfortunately).

How long the Recession?

The Longest Recession Since …

Excerpt:

Economists have been forecasting that the current recession will likely end sometime in the spring (which is, presumably, when some of the new stimulus money will start to be spent). If they’re right, this recession will be roughly as long as the 1973-75 recession and the 1980-81 recession, both of which were 16 months. To find a longer one than that, you have to go back to the Depression.

Comment: I'm pessimistic about that time frame because:

1. I have read about a commercial real estate mortgage crisis (Meltdown far from over, new mortgage crisis looms)
   
2. I don't think housing is anywhere close to bottoming out (Housing Prices: Bottom or Temporary Bear Break?) (By the way: Good news if you are buying a home!)
   
3. There are more ARM resets that will force more into foreclosure (Closer Look At The ARMs Reset Problem)
   
4. The last stimulus package seemed to do so little (Reality Checks: Living costs are keeping stimulus-money recipients from going on shopping sprees)
   
5. The national savings rate is so low, and consumers are so extended that they are unable to borrow (see yesterday's posting)
   
6. Back to the stimulus: putting money into consumers' wallets to have them spend on imported goods (think of China-Mart (er Wall Mart)) really does nothing to help US manufacturing
   
7. Job losses are just beginning to climb (coincidentally, a guy at work told me just today that today is his last day!)
   

My own thought is that the recession may go all the way through 2009 and end in the 1st or 2nd QTR of 2010.

Cusp of harsh recession?

US faces worst recession in 26 years

Excerpts:

The US economy appears to be plunging into what many experts believe will be its worst recession since 1982.

Senior officials at the Treasury and Federal Reserve are confident that the rescue plan for US banks will succeed in preventing a financial system meltdown and ensure there will not be a repeat of the Great Depression. But they know that a sharp economic downturn is already baked in the cake. They do not,however, know how deep or protracted it will be.

...

“The actual deterioration in the data in the last few weeks has been much more severe than anyone was expecting,” said Frederic Mishkin, a professor at Columbia university and former Fed governor.

Consumers, who account for 72 per cent of the US economy, are pulling back amid a brutal tightening of credit conditions on everything from car loans to credit cards and home equity lines. Meanwhile, foreign demand is also weakening.

Alan Blinder, a professor at Princeton and former Fed vice-chairman, said: “It looks to me like the economy has fallen off a cliff.”

He said it was all but certain the US would face a recession worse than in 2001 or 1990-1991.

“The game is now about making sure this recession is less deep and less long than the 1982 recession.”

Many experts expect unemployment will soar from its current level of 6.1 per cent and worry it could go above 8 per cent.

The Fed now thinks that unemployment will rise above 7 per cent and is likely to peak at about 7.5 per cent – a level last seen in 1992.

“We may be talking about one of the most severe recessions in the post-war period,” said Larry Meyer, chairman of Macroeconomic Advisers and a former Fed governor.

Comment: Wiki article on The early 1980s recession

A combination of deficit spending and the lowering of interest rates slowly led to economic recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984

Comment: The problem is ... how much more deficit spending can the Federal government do? And that debt clock keeps a clicking!

NYTimes Interactive economics graphic

Can a President Tame the Business Cycle?


Comment: Mouse-over each bar for greater detail. Select "see chart" for another view

Obama's "trickle-up theory of economics"

OBAMA FIRES A 'ROBIN HOOD' WARNING SHOT

Excerpt:

"It's not that I want to punish your success," Obama told him. "I want to make sure that everybody who is behind you, that they've got a chance for success, too.

...

"My attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody. I think when you spread the wealth around, it's good for everybody."

McCain: "an income-tax cut for millions who aren't even paying income taxes right now".

Finding "the bottom" of housing prices

In Their Various Ways, Economists Try to Find Right Price for a Home

Excerpt:

he New York Times asked economists across the country to share the data they use to figure out how much houses in regional markets are overvalued, a calculation that approximates where the bottom may be. Models built on these variables show that while some markets — such as California — are on a road to recovery, others — such as south Florida — have a way to go.

These signs cannot possibly tell the whole story, especially since they point more toward where prices should be valued than where they will be. But these measures are nonetheless helpful to anyone buying, selling or borrowing against their home sweet home.

“Anybody who says they know when it’s going to end with confidence is delusional,” said Karl E. Case, an economics professor at Wellesley College and co-creator of the Case-Shiller home price index. “But yes, you can get a sense of where things are going.”

One way to envision the bottom would be to look back at where prices were five or 10 years ago, before the current price run-up. There are some better ways, though.

Noting that home prices have outpaced inflation in the past, one can calculate how much houses appreciated annually in the decades before the bubble, and then figure out how far out of line prices are now. Edward E. Leamer, director of the U.C.L.A. Anderson Forecast, has crunched these numbers for various regional markets.

In Ocean City, N.J., for example, inflation-adjusted house prices rose about 1.6 percent a year from 1988 through 2002. Compared with what this rate would predict, the city’s houses in the first quarter of this year were overvalued by 51 percent. Over the previous year, they had fallen 0.6 percent; at this pace, Ocean City house prices will be at the right level in about 13 years. The model foretells eternal decline for some cities. It predicts that Kingston, N.Y., will not return to “normal” for almost four centuries.

Comment: Notice this: "Kingston, N.Y., will not return to “normal” for almost four centuries." !!!! Good article with helpful charts

An "extraordinary redefinition of free-market success"

What Is a 'Windfall' Profit?

Excerpt:

The "windfall profits" tax is back, with Barack Obama stumping again to apply it to a handful of big oil companies. Which raises a few questions: What is a "windfall" profit anyway? How does it differ from your everyday, run of the mill profit? Is it some absolute number, a matter of return on equity or sales -- or does it merely depend on who earns it?

Enquiring entrepreneurs want to know. Unfortunately, Mr. Obama's "emergency" plan, announced on Friday, doesn't offer any clarity. To pay for "stimulus" checks of $1,000 for families and $500 for individuals, the Senator says government would take "a reasonable share" of oil company profits.

Mr. Obama didn't bother to define "reasonable," and neither did Dick Durbin, the second-ranking Senate Democrat, when he recently declared that "The oil companies need to know that there is a limit on how much profit they can take in this economy." Really? This extraordinary redefinition of free-market success could use some parsing.

Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any "windfall" tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too. Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. That sounds like a government windfall to us, but perhaps we're missing some Obama-Durbin business subtlety.

Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon's profits don't seem so large. Exxon's profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).

Comment: I've long been a proponent of eliminating corporate taxes altogether. The reality is that individuals pay all of the taxes. Every corporate tax is passed onto consumers in one form or another.

The failed stimulus package

The Simple Math of a Failed Stimulus

A new report, released yesterday, says that real growth in gross domestic product (GDP) -- otherwise known as "the economy" -- was 1.9% during the second quarter. Trouble is, this data comes with two giant caveats:

1. Growth was lower than the 2.3% economists had expected.
2. Gross domestic purchases -- a measure of demand -- fell for the second time in the last three quarters.

Translated, this means that the much-ballyhooed stimulus package likely had some effect, but not as much as the experts thought it might. Me? I'm not surprised at all.

I'm not a number-cruncher or a brilliant prognosticator. I just know what I read in my credit card and home equity statements, and in my paycheck. I'm making less, I'm paying interest on borrowings, and my savings options aren't thrilling. The average five-year CD from credit-crunched financiers such as Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and Wachovia (NYSE: WB) is just 4.13%, Bankrate reports.