Published on .

The U.S. government is trying to preside over an economy that doesn't exist anymore.

The economy the government sees is one that flourished a couple of decades ago, when manufacturing was king, when businesses could blithely pass along price increases to their customers, when workers automatically got nice fat raises. Only rich people owned stock or sold their companies. International competition wasn't an important consideration for most U.S. companies.

But what has transpired in the intervening years has rendered the government's assessment of the state of the economy totally inaccurate. Our fiscal policy is aimed at taming the demon of inflation, even though competition and much higher rates of productivity have pretty much stilled that savage beast.

Downsizing, begun in the last recession, has continued unabated in the need to control prices. And all those people let loose has created thousands of new entrepreneurs anxious to carve out a slice of the pie, further pressuring prices down.

Companies simply can't get away with bumping up prices to match increases from suppliers. In the good old days one price increase would be passed from one customer to another. Not today.

The publishing industry has taken some major price hits in the last few months. Due to worldwide demand, paper prices have risen 25%, with a similar increase expected this spring. But few publishers were able to raise their ad page rates much beyond the rate of inflation in anticipation of the paper price hike. Retailers have been beating up marketers on pricing concessions, marketers have been beating up on their ad agencies, and the agencies have been beating up on us poor media people.

And the federal government has been adding to our woes. On top of the paper costs we also have to absorb postal increases of another 15%. So to keep profits somewhat intact we've got to squeeze costs in other areas. The pressure to lower costs is as severe as I've ever seen it.

Ironically, the only thing that will bring down the cost of paper is a slackening demand, and that means publishers will be selling fewer ad pages. Fewer ad pages will hurt our revenue, but lower paper prices will help keep our costs lower. Will that turn out to be a wash? We'll see.

Another mistaken notion that's given our government a distorted picture of the economy is that you have to be rich to buy and sell stocks or even companies. But when a small-business owner-maybe one of those new entrepreneurs-sells his operation, he or she would benefit from a capital gains tax just like the big boys would.When people who have put a portion of their savings into mutual funds sell some of their gains they, too, would benefit by paying a lower capital gains tax.

I've always thought that if the Republicans were smart they could accurately bill a capital gains tax cut as one benefiting the middle class.

But I'm afraid both the Republicans and Democrats have a woefully distorted idea of what makes our economy work in today's-not yesterday's-world.

Most Popular
In this article: