So, What ARE the Fundamentals?

October 9, 2008

I have been intrigued by the use of the phrase “The fundamentals are strong”.  It’s been used often by the Bush Administration until recently, and just a few weeks ago by John McCain to indicate that our economy is still strong, without ever defining what the fundamentals are.  Ironically, the person who originally coined the equivalent phrase is none other than Herbert Hoover.  Whoa boy.

I don’t believe that the fundamentals have been strong for so time, but I wasn’t sure and so didn’t know whether or not to believe either the Bush Administration or John McCain.  So I dug back to my college economics texts to get an idea of what the economic fundamentals are.  To Samuelson, they include

  • Inflation (or consumer price index) – the lower, the better
  • Economic growth (or gross domestic product) – the greater, the better
  • Wages – Higher is better
  • Unemployment – the lower, the better
  • Industrial production – growth is good
  • Worker productivity – more is better
  • Balance of trade – Positive is good
  • Strength of the dollar – stronger is better

Respectively, in the past 12 months these indicators are up, flat, flat, up, down, up, negative, weaker.  Six of the eight are pointing in the wrong direction, one is neutral, and one (worker productivity) is positive.

I thought so.

The fundamentals are strong” might not be the wisest of political statements to make, in light of where the economy’s been going.  Nonetheless, the Presidential candidates might be better spending their time talking about it, since all the rest of us are.


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