It’s Where You Start That Determines Where You Finish

I enjoy articles on economics. The first thing I attempt to determine however is the writer’s starting point.

If a writer  starts from the premise that “government planners” can successfully control the allocation of scarce resources better than free markets, then I know that the author isn’t living in reality. He instead lives in a daycare world.  His “finish”, no matter how sophisticated his thinking, can be summed up as all us children nicely sharing our little resources like Tonka Toys.  Of course those who write from this perspective see themselves as the grownup women watching over us selfish children and our resources with a keen eye on who gets to play with what.

Many “economists” still live in such a world.  Because resources like, say, food, simply appeared on their tables at dinner time, and cars appeared in their driveways at 16, and a full government or daddy-funded education just appeared, seemingly from nothing, experience has conditioned them to feel that resources simply appear from nothing and the driving question then is not how to create more but rather how can what already exist be fairly distributed. That homes, medical care, education, or food are not a right that can be guaranteed by one man to another is utterly unfathomable to those who start with such thinking.  Such starting points determine the finish; though like all Utopian dreams, that finish must ever be in the future requiring patience from those who suffer interminably from the inevitable hardships that come with them.

On the other hand, writers whose starting point is the realization that resources are the result of risk, work, and production, not to mention human factors such as self-interest and motivation, are much more trustworthy.  Good thinking must necessarily be aligned with reality.

As for me, I’m much more confident in the economics of one whose thinking was forged in making payroll and successfully competing for business in a hostile world while simultaneously thwarting greedy lawyers, and power-hungry politicians and their bureaucrat dogs.  I’m much more inclined to think this person’s economics more insightful than those of tenured theorizers whose circumstances insulate them from the consequences of their stupid “ideas”.

Marxism, Capitalism And Their Politics, Explained

Why can’t government use its power to force equality?

What are some real problems with Marxism’s idealistic theories?

Does Capitalism really exploit the weak?

This video is a great short lesson in answering these questions:

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See also:

Bob And His Apples

No Matter What Happens, There Will Be A 1%

Well, the Title is not totally true. If everyone had exactly the same thing, then there would only be the 100%, which would include everybody. But let’s face it, that’s not ever gonna happen.

Below is an excerpt from this paper, written by someone who imagines just such a world… until it gets interrupted by reality. And that same reality includes those who would rather not have any cool stuff for themselves at all if it meant being faced with the possibility that someone else might end up with more than their “fair share” of cool stuff.

Imagine a society with perfect economic equality. …[N]o one worries about the gap between the rich and poor, and no one debates to what extent public policy should make income redistribution a priority. Because people earn the value of their product, everyone is fully incentivized to provide the efficient amount of effort. The government is still needed [and are funded] with a lump-sum tax. […]The society enjoys not only perfect equality but also perfect efficiency.

Then, one day, this egalitarian utopia is disturbed by an entrepreneur with an idea for a new product. Think of the entrepreneur as Steve Jobs as he develops the iPod, When the entrepreneurs product is introduced, everyone in society wants to buy it. They each part with, say, $100. The transaction is a voluntary exchange, so it must make both the buyer and the seller better off. But because there are many buyers and only one seller, the distribution
of economic well-being is now vastly unequal. The new product makes the entrepreneur much richer than everyone else.

The society now faces a new set of questions: How should the entrepreneurial disturbance in this formerly egalitarian outcome alter public policy? Should public policy remain the same, because the situation was initially acceptable and the entrepreneur improved it for everyone? Or should government policymakers deplore the resulting inequality and use their powers to tax and transfer to spread the gains more equally?

Was Hitler A Radical Right Wing Extremist, Or A Leftist?

To answer the question one needs to define the terms. What does it mean to be a leftist, or right winger?  Confusion on these terms lead many to embrace more laws and government intrusion in the name of liberty.  Taking ten minutes to watch this little explication will be ten minutes well spent for the sake of clarity.

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and more:

http://suyts.wordpress.com/2013/06/19/shock-news-nazism-is-short-for-national-socialists/

The Anatomy Of Debt

Living in a debt based economy has a way of obscuring reality, perhaps especially when it comes to the basics of debt.  So to get back to those basics, and right to the point, let’s look at 3 basic components of all debt:

1. Something of value
2. The lender’s past
3. The borrower’s future

“The past” you ask? How can debt involve the past?  Well, let’s say you hit me up for ten bucks.  That ten spot doesn’t just pop into existence because you need it.  No, In order for me to have it, it had to be earned at some point in the past.  If I now lend it to you, with interest, I am in effect delaying the benefit of my past effort so that you may use it as a present benefit.  Of course I don’t forgo that benefit for free, I charge you interest.

This loan, in essence, was a transaction.  I exchanged, or sold, a piece of my past for a piece of your future, with a profit margin.  This is debt in a nutshell and there are perfectly logical and good reasons, both for the lender and the borrower, to engage in such transactions.

The purchase of knowledge, (education) a modest home and transportation are excellent reasons a lender might “invest” in someone’s future.  And the borrower, who uses the benefits of his future early, enables himself to profit from earning more for longer.

These kinds of transactions take place across the spectrum of scale everyday.  Even government gets in on the action, only it plays out much differently there.  While its transactions still have these three components, they become mixed up.  The politician confiscates the pasts of some, sells the futures of others, invests that capital into his own political future through vote buying schemes, and then calls the whole thing compassion.

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Related posts:

On Political Motivations

On Fractional Reserve Banking

On Saving/Borrowing

Government-Run… Competition?

In a USA Today article I read of a faltering “green” energy manufacturer that needed government subsidies.  According to the journalist these subsidies ensured competition in the “green”  marketplace.  Me?  Head smack!

While she’s at it she could point out a few other manufactures that could have used government subsidies to remain, shall we say, competitive:

• Steam engine locomotive manufacturers
• Analog computer manufacturers
• Typewriter manufacturers

She did get one thing right.  Real and true competition is at the heart, not only of real and true capitalism, but also of progress.  It edges out old and inferior technologies in favor of better, and more efficient ones.  But these better technologies arise due to the allure of profit, and not because they were propped up by your tax dollars.  

The hard truth of this is just another one of those harsh realities that plagues man’s existence.  And more times than not, feel-good attempts to alleviate the suffering of a few, while ignoring the long term consequences borne by the many, end up causing more pain than it alleviates.

In short here’s a good rule of thumb when it comes to government “investments” into celebrity causes.  Politicians should never be trusted to invest anyone’s wealth except their own.  That a politician desires to invest your hard earned money into some scheme, rather than his own, ought to be a red warning that the investment is a for sure loser.   While yes, it might be a winner for his political aspirations  or he might simply be using your money to shore up some company that’s threatening to suck his own personal investment into a corporate black hole, it is always a safe bet to assume that you are not figured into his interests.

Many a credulous patsy has fallen prey to the charms of a charismatic politician with promises of Utopia.  Don’t be one of them.  Think!

I’m Sure Glad Our Government Is Not Making Withdrawals From OUR Bank Accounts (Evil Laugh)

One has to appreciate the honesty represented by the Cyprus government in their consideration of simply making withdrawals from the people’s bank accounts.  The world could use much more of that.

There’s more than one way to skin a cat they say.  Cyprus’ problem is that they didn’t, or perhaps couldn’t, skin this cat correctly.  There is another way to make withdrawals from citizen bank accounts, and leave them cheering you on while lining up to stuff their votes into your ballot box in the process.  But this method requires the authority to print money.  Cyprus, unfortunately for their unhappy politicians, does not have that authority evidently.

But in America, why the printing presses are running overtime with the same effect of making withdrawals from the people’s bank accounts.  But we don’t get mad, we cheer. No one’s throwing a fit.  No wall to wall news coverage with indignant info-chicks whipping everyone into a lather.  Happiness abounds.  See Cyprus?  Now that’s how you do it; though again, I do appreciate your honesty, forced though it may be.  I wish our government could be that honest about its withdrawals.  But then again, if they were, then they would be in your predicament, wouldn’t they?

The Price Of Utopia? You Can’t Afford It

When a person buys a loaf of bread he probably has no idea how the price of that bread came to be.  He notices when it is different from last week.  Some may have a vague idea that it is being impacted by inflation, whatever that is.  Yet prices, and how they are set, are central to economics.

While it wouldn’t make economic sense to drive around comparing bread prices to save 2 cents, it would make sense on something that saved, say, hundreds of dollars.  And, as one might suspect, people do generally drive around looking for the best deal on a new car. Consequently, the lowest priced dealership sells more cars.

We experience the same thing as sellers.  We must offer what we are selling for a competitive price or no one will buy it.  However, most don’t see themselves as sellers even though that is exactly what’s happening  when someone’s looking for a job.  He is offering to sell his back or brains.  That’s also why someone who can do brain surgery is able to sell his services for much more than someone who can cut your grass.  If brain surgery knowledge and skill were as easy to come by as lawn mowing knowledge and skill, why you could probably have that tumor removed for 30 bucks.

But what if a politician sets prices on bread, cars and brain surgery?  What would he set them at?  How would he be able to know the intricate and myriad details of availability, want, and how his price will affect both?  The answer is that he can’t.  But that won’t stop him from trying because he’s a politician, and as such he’s selling you something in his own right, which is a line.  It’s much easier to legislate the illusion of wealth than it is to create it, and sadly, man never tires of buying the line that such can be done.

If The World Were Static, Politicians Would Be Geniuses

Sometimes the obvious isn’t so obvious.  Example: If someone is selling 10 apples a week for a dime, and he raises his price one cent, how much more money will he bring in?  The obvious answer would be ten more cents.  But to conclude such one must hold a static view of the world.  In other words, one must assume that the number of apples sold is a static number and that a higher price would have no impact on that number.

So let’s try again.  How much more will the vendor bring in if he raises the price per apple to, say, $10.00?  Here it is obvious that he would most likely sell no apples.  That would be 100% less, obviously.

But if the world actually were static, imagine the problems that could be solved.  Rather than file for bankruptcy companies could simply raise their prices to meet expenses.  Moreover, the companies could become the golden goose for government to solve its fiscal problems as well.  Higher taxes?  No problem.  We’ll raise prices.

One problem overwhelming the West these days is runaway debts.  But in a static world this would be no problem at all.  The geniuses in government could simply raise taxes until deficits were gone.  If 10% produced $10 billion, then 20% would produce $20 billion.  Problem solved.

But we all know that the world is not static.  We know it because it’s obvious.  One change over here will have ramifications over there, and over there… and even way over there where we never imagined that it would; and in ways that we had never considered or intended.  But knowing this ought to make us think about such things when someone suggests embarking on a new direction.  Yes, we should not only think about it, but we also ought to be willing to stop it when that direction proves insane.

Cause Old Joe Ain’t Never Seen A Wreck Like We Fixin Ta Have

The title comes from an old joke.  A truck driver in a job interview is given a scenario.  “You’re headed down a long grade  and your brakes fail.  At the bottom is a one-lane bridge across a ravine with a bus stalled on it.  Quick, what would you do?”

The driver answers slowly, “Well… what I’d do, is Id wake up old Joe.”

Surprised, the interviewer asks “What!?  Why in the world would you do that?”

“Cause old Joe… he hain’t never seen a wreck like we fixin t’have.”

A friend asked me to explain the so called “fiscal cliff”.  This story works as good as any I suppose.  The American voter just cut the brake lines on runaway spending and OK’ed economy-suffocating tax increases, ostensibly on the rich.  We’ll see yet how that works out for the voter.

Here’s the break down.  January will bring scheduled tax increases.  These increases are coupled with unassociated spending cuts agreed to in the last debt-ceiling show debacle.   The spending cuts are the real cliff according to many because the economy is largely dependent on Government spending.  For others it’s the tax increases that have them worried.  For still others it’s the cuts and taxes both because more people will have less money due to confiscation while less will have jobs due to cut-backs.

My guess is that it will probably get “fixed”.  The fix however will be focused on stopping the spending cuts; and the Republicans can be expected to fold like cheap lawn chairs of course.

Regardless of what happens we can take one thing to the bank.  Whatever is done to avert the “cliff”, the root problem of being fiscally irresponsible will not be “fixed”.  Why not you ask?  America, it seems, just told its government to keep the gravy flowing, responsibility be damned.