Friday, January 11, 2008

1-11-08: The Economy

I have a bit of a small fascination with the economy. It's not like I want to go and become an economist, but it's not something I'm shutting out. I just think it's interesting how things work. But I don't really like the details enough to see them all the time and do a lot of data mining. That's just boring.

One thing I know about the American economy, as most people should know since it's pretty simple, is that it's so complex that no one person can ultimately control it completely for any span of time. Ben Bernanke, Chairman of the Fed, knows his role and his own limited power. He made an interesting statement the other day about how it's so difficult, even for experts, to decipher anything absolute using economic data. There are too many hidden variables and relationships between known variables to accurately forecast for even short periods of time. It's possible to roughly predict, but that's often done using historical data, which Bernanke loves.

Economists tend to be boring people when you talk to them, at least that's the public perception. But I've read things written by economists that is just plain neat. There's a blog on called Freakonomics that has posts about all sorts of interesting articles or studies within economics. Give it a read. I subscribe to it via RSS; it makes for a great funk-breaker at work.

But one thing is for sure about the economy right now: it's not in great shape. How bad a shape it's in is subjective. And this is the overall economy. There are certain sectors that are at the top of their game right now, like health care and exports. They're keeping things afloat. Housing is in a real downturn right now, and people seem to be worrying more and more about recessions, despite the assurances from the Fed and other economists. But apparently that's not enough for some people. They have their minds set. One guy on the radio, who worked in the construction business, called it a depression. But that's just from his perspective. I'm sure if he worked for Exxon he'd feel differently.

The question is what the average individual, tax-paying American should do. Should we cry out to the government to provide a boost by spending (some say up to $100 billion)? Should we fight against outsourcing? Should we cash out our 401(k)'s now?

Well, I can't tell you what you need to do, but I'll tell you what I'm doing: BUYING. I increased my contribution by 4% in the last two months, and I might go up even more. I'm not slowing down at all; I'm speeding up while the market's down. My mentality is that I'm not going to be a bull or a bear, I'm just going to buy when it's low. Ben Stein says it best in his Yahoo Money column. I don't plan on selling anything for decades, so buying low now just seems to make sense. It's like a stock sale. I don't really dabble much in individual stocks, but the mutual funds are a good deal now. So, if you're years away from selling and don't need the cash now, buy more. The people who really need the money now should've invested in cash years ago. I'm sure they're fine.

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