Economy Is Linked in Strange Ways

by: Matthew Rafat

Until this year, I had been a loyal Wall Street Journal subscriber. I usually paid less than $200 for an annual subscription, but last year, the WSJ decided to increase the price to over $300/yr. I balked. For a while, I received only the local paper. The WSJ would call me once a month--usually very early in the morning--to try to get me to renew, but the sales rep wouldn't budge on the price.

After a few months, I grew tired of the local paper and signed with the New York Times (NYSE:NYT), but just its Sunday edition. Some time thereafter, the WSJ sent me a renewal request with a price I was willing to pay. Apparently, if you wait 180 days between WSJ subscriptions, the WSJ finally offers you its "old" or "original" price, which--last time I checked--is less than $200. By this time, however, I thoroughly enjoyed the New York Times, especially its "Modern Love" Sunday pieces, and was unwilling to go back to the WSJ.

Why should anyone care about my newspaper habits? Because even small consumer habits, in the aggregate, create ripple effects. When I was receiving the weekday WSJ, I would go to Panera Bread (NASDAQ:PNRA) for coffee and a cobblestone pastry every weekday. But once I stopped receiving the weekday paper, I skipped my Panera Bread morning outing. That eliminates over a thousand dollars from Panera's annual revenue, and they did nothing to lose my business--the Dow Jones & Company (NASDAQ:NWSA), owner of the WSJ, caused me to change my morning habits with its strange marketing strategies.

Now, with a much longer and more informative Sunday paper, I spend more time on the weekend at my local coffeeshop, which is usually Peet's Coffee (NASDAQ:PEET). Dow Jones & Company basically transferred some of my money from Panera Bread to Peet's Coffee and Tea. Yet, no one at the WSJ intended Panera to lose my business and Peet's Coffee to gain it.

What is the point of this story? Basically, the economy is extremely difficult to manage because of the potential for unintended results. When the government tries to fix the economy, it, too, creates unintended consequences. Right now, we don't know the exact nature of those consequences, but at some point, we will be able to study how the stimulus package created unintended winners and losers.

I agree that Congress should limit leverage on Wall Street. At the same time, Americans are losing sight of the big picture when it comes to federal spending. For example, the portion of the federal budget dedicated to defense spending continues to increase. It is now 23% of the entire federal budget. TARP, which many Americans bitterly protested, was only 4% of the 2009 federal budget. The ever-increasing defense budget has more than just financial consequences. Over 4,200 American soldiers have died in Iraq. Over 30,000 American soldiers have been injured in Iraq. Yet, many Americans, encouraged by mass media, pay more attention to "tea parties," golfer Tiger Woods' personal life, sports, and reality television.

And so it goes.