The Educate a Cab Driver, Educate Thomas Friedman Campaign
Thomas Friedman is once again mass marketing misinformation on economics, something that he does all too frequently. Just about everything in the piece is 180 degrees wrong: the Friedman standard.
It begins by telling us that Tim Cook and Apple are sitting on $137 billion that they could be investing:
“Apple is currently sitting on $137 billion of cash in the bank. There are many reasons Apple has not spent its cash horde, but I’ll bet anything that one of them is the uncertain economic and tax environment in this country. Think about how much better we’d all be if Apple, and the many other companies sitting on cash, felt confident enough in the future to spend it. These are the most dynamic companies in the world. They don’t need any government help to innovate.”
Okay, Apple is so uncertain about the economic and tax environment in the U.S. that they don’t invest. (Funny how that works since they sell largely to a world market of which the U.S. is a substantial part, but not the majority.) Friedman goes on:
“Message: There is no doubt our economy is primarily being held back by the deleveraging and drop in demand that resulted from the 2008 financial crisis. But they are being reinforced today by uncertainty and worry that we do not have our political house in order and, therefore, our tax, regulatory, pension and entitlement frameworks are all in play. So businesses, investors and consumers all hold back just enough for us not to be able to move the growth and employment meters with any robust momentum.”
Okay, let’s imagine that one of Friedman’s cab drivers had access to the Internet and could go to the National Income and Product Accounts that the Commerce Department posts. The cab driver would explain to Friedman that investment in equipment and software is actually pretty healthy. Measured as a share of GDP it is almost back to its pre-recession level. Furthermore, apart from the tech bubble days of the late 90s it has never been much higher than it is today. Here’s the picture.
Source: Bureau of Economic Analysis.
In short there is no reason to expect investment to be much higher than it is currently. It doesn’t appear that uncertainty is very important in this picture.
Friedman’s cab driver would then explain to him that he is also wrong about consumption. Consumers are actually spending at a high rate relative to their income, not the low rate he seems to believe. The Commerce Department also has data on consumption and saving rates (Table 2-1, the story on adjusted disposable income has to do with the statistical discrepancy in the national accounts). [cont’d.]