Economics is the science of trying to predict the performance of the economy, such as "If the manufacturers do THIS and the banks do THAT and the Federal Reserve does this other thing while the consumers do yet another, then the economy will do thus and so.

This is a lot like forecasting the weather, but Economics has one term that meteorologists don't have: When the manufacturers DO the manufacture thing and the banks do the bank thing and the FED and the consumers all do their part ...   yet the Economy doesn't do as it was predicted to do ...   it's called Market Failure.

Not "I screwed up" or "I don't know my butt from a hole in the ground." "NO, I am perfect and my formulas are exact ...   it's the market that simply failed to do as it was required to do." Try THAT some time at YOUR job and see how long you last.  

Simply, when people HAVE money, they tend to SPEND money.   Oddly enough, that money goes to businesses who use it to expand and hire MORE people who in turn spend THAT money ...   in an ever expanding upward cycle that seems to be good for almost everybody.   If they SAVE money in banks, then the INTEREST RATE for borrowing goes down and OTHER people can BORROW effectively and use THAT money to buy things which, theoretically, filters down to the jobs of the people who saved in the first place.  

In war time, the Government spends a lot of money on planes and bombs and ships that put a lot of people to work ...   but they borrow that money and never seems to pay it back.   (Note, the Federal Income Tax was supposed to be temporary to pay off World War II)

In Peace time, we used to buy cheap raw materials from over seas and manufacture things here and then sell them to ourselves and to other countries.   This led to lots of manufacturing jobs where people got paid for producing products that other people (and they themselves) bought, but it had some serious drawbacks: First, it was really HARD work.   Second, as labor unions got involved and pushed the wages up, businesses had to raise the price of the goods to cover these extra costs which made it harder for people to buy them.  

Consumers demanded cheaper products, so business started looking for places where the expense of manufacturing was less, and started importing cheaper goods from places where it could be purchased for less than it cost to build here.   This gave consumers lower prices, which was good, because since they were unemployed from the manufacturing they had way less money to spend in the first place.  

Without need for manufacturing labor, people started moving into service industries that paid less while the more far sighted countries started producing more to sell TO the USA.   It used to be that "made in America" meant quality and "made in Japan" meant crap.   Now "Made in Japan" means quality and "made in America" is almost extinct.   At the same time we were importing and Japan was exporting, Japan saw the greatest economic boost seen in the last century.   But finally the worm turned: Japanese workers didn't want the low paying jobs (those jobs moved to Korea) and Japan became more of a service and management economy and Japan's economy started to be at the whim of forces beyond their control as well.   Since we no longer are the largest consumers of our own goods our economy becomes even more dependent on how well other countries and their own economies are doing.   Welcome to the World Economy.  

The Stock Market

It used to be that the Stock Market was a place for companies could go to sell their stock (ownership in their company) so that the company could get more money to invest IN the business and pay the stock holders money back (dividends) from their investment.   But somewhere along the line, the Stock Market took on a life of it's own (not unlike Godzilla) and much LIKE that foam rubber monster, is now running amok and trying to stomp the life out of the villagers.   Of course you know you can buy stock in General Motors.   Or sell it, if you have it.   But now, you can sell stocks you don't even own.   You can even put money down to 'bet' that a stock will go up ...   or bet money (on stock you don't own) that the stock will go DOWN.   One is left to wonder how this differs in any substantial way, from a local bookmaker, taking illegal bets.   More to the point, the Stock BROKER gets a commission on everything you do, win, lose or draw.   So when a Stock Broker calls you with a 'hot tip' that subsequently causes you to lose money, You may be tempted to call them scum. (See NOTE below)

Let's say you had a company that was worth (cost of all your inventory, fixtures, designs, etc.) of a million dollars and you divided all your ownership into a million shares of stock.   Each share would be worth ...   um ...   lessee here ....   uh ....   ONE DOLLAR.   And lets say that a million people each bought one share.   Now you have a million dollars in cash.   You invest that money in MORE products, sell harder, pay your bills, and yourself, and have a half million dollars left over.   You then pay your stock holders 50 cents each.   Each shareholder now has the stock (still worth $1) and 50 cents in cash.   That's a great deal! Now, the company still has the million dollars worth of stuff that it bought with the investors money, so it's BOOK VALUE is still 1 million dollars.   BUT it generated a 50% return for the stock holders, so ONE of your stock holders says "tell you what, I'll buy stock back from the other 999,999 people at $1.15" Well now, even though the COMPANY is only worth 1 million dollars (book value) in reality, the STOCK collectively, is worth $1,150,000 so the company's STOCK VALUE is higher than it's BOOK value.   If one person bought all the company's shares they would have paid $1,150,000 for a $1,000,000 company.   Which sucks, except that they could expect to get $150,000 a year in dividends, so they'd be even 12 months later and $150,000 ahead every year thereafter ....  

except ....

1) The company president raises his salary by $160,000 a year
OR
2) The employees demand pay raises that will cost another $200,000
OR
3) Some offshore company comes into the market with cheaper products and sales fall off.  

Now the company not only doesn't pay the $150,000 a year but maybe owes money to the bank.   Now, all of a sudden, that $1,500,000 for a million dollar company isn't such a good deal.   So you go to SELL the stock and the best offer you get is 50 cents each, or $500,000 for something you paid $1,150,000 for.  

So what's a PIG to do ?

Simple.   If you believe in the company and it's management and product, hold on to the stock.   If they rise to the competition in two years and make an extra $10,000,000 you'll be very, very wealthy.   If you don't believe in the company and it's management and product, you should never have bought the stock in the first place.   What NOT to do is panic, dump your stock and let someone else get it at the bargain basement price.  

But that what most people do.   They dump it and take their $500,000 and invest it in the next get rich "dot com" that comes along and what THAT stock go down the tubes - then bitch that American Industry is flawed.  

Fantasy Land

Take, for example, an on-line book seller (let's call them Bamazon.com) that sells books and other things really cheap over the internet.   They sell them SO cheap, in fact, that when you add the cost of the book, getting it, having the web site, processing the order and shipping the book, they end up selling it for less than it costs.   Think about a friend coming to you and saying "I have an idea, you give me a thousand dollars, and I'll buy something that COSTS a thousand dollars and I'll sell it for FIVE HUNDRED DOLLARS!" This business plan is known as the "So what if I lose a dollar per item - think how much I'll have lost after I sell a million on 'em business model.  

But people, true to their primitive evolution, said "I'm in love with the Internet and these people lose all that money on the Internet so I will invest in their company and let them lose it for me on the Internet" - this would have been REALLY dumb, except that the stock price kept going UP because MORE stupid people kept thinking the same thing - more demand FOR the stock than there is stock to SELL ...   price goes UP on a company that loses money.  

Recently there was a stock (let's call them Kisco Systems) that was selling at a price that had nothing whatever to do with the value of the company.   If Kisco was the ONLY company in it's field and if Kisco was to sell EVERY device that would ever be needed, the sum total of all the profits from all the sales would not be equal to how much people were willing to pay for the stock.   Stock owners were basically 'betting' that some one else would, in the future, be willing to pay even MORE for the stock than THEY had paid ...   just ...   um ....   because.   These people are known technically as 'stupid people' or 'morons'.   Well, it DID happen just that way ...   for a while....  

So ..   true to their OWN particular brand of stupidity ...   Economists started calling this the 'New Economy' or 'the Economy of the 21st Century' where the ability of people to make money in the stock market was no longer attached to anything even REMOTELY real.   Yup, this was the wave of the next century, all right.   Now, it should be intuitively obvious to even the most casual observer that this kind of thinking is ..   well ....   LACK of thinking.   This is what's called a Ponzi Scheme like those "Triangle Clubs" that were popular years ago.   The ones where you enter a club at the bottom and pay everyone of the top 15 people $100 each week until you get to the top of the triangle, where you're supposed to get back a hundred times what you've paid.   The problem is that, if there are 100 people in line a head of you, you'll need to have something like 100,000 new members before YOU get the payoff.  

But ..   there was too much money to be made for anyone to ruin it all by ..   thinking.  

Then someone (the voice of reason) said 'um ..   wait, I don't like the color of the Emperor's new clothes" and everyone sold off in a panic, losing TONS of money in the process (except the stock brokers, they got 10% commission).  

What's happened to American Industry is that the management of the company is (properly) obligated to it's stockholders to give them the most value for their stock investment, but the average stock holder has the intelligence of a paperweight, the attention span of a gnat ..   and wants unrealistically high returns on their investment without ever risking a single thing.   And they want it right damn now!

So management often does the most stupid thing in the LONG term to appease the stock holders in the short term ...   and taking care of themselves (management) in the process.  

So if you're unfortunate enough to get laid off by a big company that is down sizing, keep in mind that somewhere, individual stock holders (or fund managers investing FOR stock holders) are demanding that the company abandon any long term strategies that include YOU in favor of immediate cuts that keep the stock price looking good at this particular second.  

If you're lucky enough to work for a small company, keep in mind that the owner doesn't even have a reserve of stock to sell when times are tough.   Your salary, the light bill, etc.   come every week whether sales are there or not.   Remember that the owner NEVER takes a day off: No matter where he or she is, no matter WHAT they're doing, they're always thinking about what's going on, what's NOT going on and how to make next month or the month after that pay for itself.   If they give you a $50 a month raise and then go off and buy a new Lexus, before you get all upset, ask yourself how much money YOU would want to take a job that is 24/7, weekends, holidays and nightmares.....   one that you can NEVER get truly away from.   One that has employees that treat you JUST the way you treat YOUR Boss.  

Most employers dream about one day making as many dollars per hour as their employees think they make, all things considered, or having as much fun wielding as much power as their employees think they have.  

If you think your employer doesn't appreciate you, keep in mind that your 'thanks for a job well done' comes every week in the form of a paycheck.   (see also Rules for having a job)

If they won't give you a pay raise because they say they can replace you for less than you're making ...   ask yourself if you've ever gone from one store to another because something was less expensive there.   Or go get a job where you ARE appreciated.   If you can't FIND a job that pays better, ask yourself why should ANYONE pay MORE than they HAVE to for anything?

And if you have an answer to that, please let me know.  

NOTE: It has come to my attention that I should give Stock Brokers a better deal than simply saying "they are scum."   Not all Stock Brokers are scum.   Many will take their client's needs into account and make wise suggestions based on well researched information.   Others, knowing that they only get paid based on the dollar amount of the sale, will advise you to contunually sell and buy, a process known in the trade as "churning a commission." They ARE scum.