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Brooks Wilson's Economics Blog: The Little Engine Who Could?

Tuesday, May 11, 2010

The Little Engine Who Could?

On Friday, the Bureau of Labor Statistics released unemployment data for April.  Like the little engine that could, the data tells the story of a little engine, the American market economy, carrying an oversized train over a high mountain pass on the track to economic recovery.  GDP growth for the first quarter of 2010 groaned in at 3.2%, a rather anemic rate for the second quarter of economic recovery, but sufficient to invigorate discouraged workers who come out of the shadows and reentered labor markets bumping up the labor force participation rate to 65.2% in April from 64.9% in March and better exposing the burden of unemployment which jumped to 9.9% from 9.7%.   

How did we get to the point that the little engine's success is in doubt?  It left the station in good mechanical order and properly packed and began its journey at a full head of steam.  Although the little engine is imperfect, many of its problems were created or compounded by those in charge of maintaining the track.  Unhappy with that important assignment, they wished to choose the direction of the track, the speed of the train and the loading of cargo.  As the little engine chugged through the plains, a man in charge of the rails gave a wonkish wink to the little engine as he added home ownership goals and weaker lending standards to achieve those goals to the little engine's burden. 

Further down the line, another man compassionately raised the home ownership goals.  Imprudent workers on the train responded and grew bloated on bad loans that were needed to meet the new goals.  It was like creating a downhill run before the little engine began its uphill battle but the dirt had to go somewhere and it wass added to the top of the mountain.  

The train raced downhill, but it knew excess speed on a flat run is as dangerous as the long pull uphill.  It feared both “The Boom and Bust.” A wise man with long experience working the track saw the looming disaster, but rather than keeping the track clear, stoked the little engine's fire with lower interest rates, adding to the train's speed but depleting its fuel. 

Finally, as home loans started to go bad and the bloated banks fail, the long uphill battle began and the little engine chanted, "I think I can, I think I can."  Terrified by the slowing train and the long climb, the compassionate man yelled at the little engine, "This is your fault; you are letting your cargo (the bad loans) fall off the train.  Banks that are too big are failing.  People on Main Street will be hurt!"  He quickly arranged a bailout for the banks that added to the debt burden of the lumbering train. 

A post partisan man who supported the bailout pushed the compassionate man and his followers out of the way and pontificated, "Can't you see what you have done?  You have let the little engine choose its path.  You trusted the little engine too much and it is hurting Main Street!"  He quickly organized shovel ready projects to help the little engine but added more debt to its burden.  Angry at those who made the little engine run and refusing to recognize the jobs and products it carried or the burden created by the track maintenance crew, the post partisan man cried, "You earn too much.  We should be more like Europe.  It's time to give back to the community."  He raised taxes, but only on the wealthy, to pay for a health care program, further adding to the weight of the train. 

The train slowed but continued to groan, "I think I can, I think I can."  At its side it sees Greece's little engine wrecked and smoking.  Those in charge of their track had promised too much for too long are facing an angry mob demanding that their little engine maintain their benefits, but the train’s cargo has already been looted. 

The little engine passes other European little engines whose track maintenance crews fear that Greece's wrecked engine will run into theirs further burden their own little engines with more debt to bailout Greece.  The little engines of Spain, Italy, and Portugal look hopefully to the larger European engines whose debt burden is growing. 

Will the European engines crash and burn?  More importantly to American's, will our little engine follow suit?  If we as an electorate continue to support expanded entitlements through increased debt, it will.  It we continue to expand the size and scope of government, it will. If we continue to bail out failed enterprises, it will.  If we view the market economy, our little engine, as a goody bag from which policy makers can take from one group and give to another, it will.  It is past time to return our trust to the spontaneous actions of economic agents and to limit the actions of government officials who would hamper growth and prosperity by redistributive rules or worse, taking over part or all of the economic planning function.


  1. Kevin Wilson25/5/10 8:21 PM

    From What I know unemployment is a limiting factor to over productivity of a population, some unemployed people really are trying to find jobs while other's are free riders and get the benefits for being unemployed

  2. This train can! The question is will it? The American people maintain this train with their initiative, their laws, their leadership, and the ability to choose who makes the policies for maintaining the tracks and the train. Our leaders past and present, were put in place by the American people. Some leaders have been concerned with the equality of all the people. The stimulus packages, and the equality policies will continue to redistribute the wealth of the people, and reduce incentive of the working people, as long as the leaders are allowed to put them into action.
    Maybe its time to chunk the excess baggage weighing down the train, before we all equally live in poverty with limited fuel (labor, land, capital) for the train. OH... but lazy poverty is not to be feared, since we all know that selfish greed and capitalism rule the economy in America. (HA!)
    Some stimulus money projects in the past were not as short sighted as the ones recently adopted. When dams were funded with stimulus money, the projects employed workers and created an end product that produced more incentive for growth. The dams controlled water ways, created electricity for thousands, allowed for new communities to be built, creating even more jobs.
    The dying projects recently adopted do little more than create debt and prolong the rise in unemployment numbers, but rise they will.
    Education, to promote advances in technology, would be another way of funding for production.
    Productivity being a key principle of economics would make one wonder why some of our lawmakers insist on rewarding the unproductive?
    If policies were made by economist.. intead of politicians, I wonder where this train would be headed?