“Ping,” says economist Todd Buchholz, “is a terrible sound.”
Speaking to the 2015 NAFA Annuity Distribution Summit audience on Oct. 15 at the historic Biltmore resort in Coral Gables, FL, Buchholz was referring to the 2008 Olympic Games when both the U.S. men’s and women’s 100-meter relay teams dropped their batons in Beijing, sending out pings heard around the world.
According to Buchholz, “Economies have metaphorical batons, too, when certain sectors must transfer growth to others, say from trains and cement to consumer goods like socks and trousers. But those economic batons can be dropped just as easily as a relay runner’s.”
Modern economists, according to Buchholz, attempted to pass a slippery baton in recent years when they misunderstood U.S. economic growth patterns.
After a boom time propelled by oil and gas drilling, with particular growth coming from fracking, driving jobs in states like North Dakota, Oklahoma and Texas, many experts predicted oil would top $130 a barrel. They believed the baton would ripple through multiple sectors, driving significant economic growth.
In April 2014, Buchholz appeared on TV with Maria Bartiromo and delivered a bearish report, stating oil would drop to $50 a barrel. Today, oil remains below the $50 mark, falling to $48.70.
Optimistic economists didn’t let the swooning oil prices deter their bullishness over the American economy. According to Buchholz, here’s what many predicted: With oil at $50 a barrel that meant more money in the pockets of consumers, hence, consumers with all those extra dollars will rush to retail outlets and spend money, driving the U.S. economy.
What would Milton Friedman do?
Unfortunately, that growth never occurred. Buchholz says the 2014 U.S. economy meandered and the 2015 economy initially went negative, before correcting to meandering status.
If only today’s economists had heeded the ideas from Milton Friedman’s Permanent Income Hypothesis. Nobel Prize Winner Friedman stated that people have a long-term view of how much they make. So, when a bump occurs, like the drop in oil prices, consumers don’t run to the local mall and hand over their hard-earned money.
“It’s going to take a long time,” says Buchholz, “for people to change their attitudes about money and the economy and their spending habits.”
Friend or FOE
Buchholz describes the current economic situation with the acronym FOE:
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