My family and I recently traveled cross country and I looked for inexpensive hotels for our overnights. I discovered that the average price for a decent hotel was about $70.00 a night. So let me see. $70.00 a night equates to about $2100.00 a month for rent. Wow, what a rip off for a one-room kitchenless, unit in a so-so neighborhood next to a freeway.
So there I was, getting sleepy, in dire need of a place to lay my head, and waiting for me were these greedy hotels wanting to gouge me just because they could. Man! Greed is so ugly.
So, what I propose is a law that makes it illegal for these shady types to charge so much to people who have no other place to stay. Let’s see, the going rent payment for a family of 4 is, say, $1000.00 a month. This equates to about $32.00 a night. But since hotels only give you one room, then it ought to be at least half that. So the proper rate should be about $15.00 a night. That would be fair.
“But wait”, you say, “hotels are different than houses. What you’re saying is completely absurd.” To this I respond, “Yes it is, very.”
But what if I were to change the discussion to loans? Suppose I said that all loans ought to look like a home mortgage. Suppose I looked at the payday-loan business down the street and started a crusade to force them to lend their money for a more “fair” rate?
In the same way that finding a place to sleep would become virtually impossible if rates were forced to be less than $15 a night, then so would getting that much needed loan to keep my lights on, or being evicted; both of which are much more expensive to remedy than the interest rate for high risk loans.
But hey, at least my do-gooderness would get a boost from “helping” the poor, even if I actually did more to hurt them, and that’s what it’s all about… isn’t it?
Would you buy a 100 million dollar house if you liked it? How about a 100 dollar house… if you liked it? Since most of us can’t afford the former, and will never see the latter, the house we end up buying, if we buy a house, will necessarily be somewhere between these two extremes.
Whether it be houses, cars, milk or bread, there must, therefore, exist an exact price beyond which we will forgo our desire and keep our money.
Granted, while it does seem odd that one penny could break a deal on a transaction involving hundreds of thousands of dollars, like say a house, in reality one penny could. We can follow this logic by asking the question: “Would I still buy this house if it were one penny more? OK then, how about two penny’s more?” Simply repeat until the house is “too expensive”.
For this reason marketers grapple with each penny in the final price of something. They know that that penny may become one penny too much for someone, or some.
Corporations, from necessity, must constantly make decisions based on this fact. They must attempt to squeeze the most return for the buyer and themselves out of each penny. While such decisions can appear to have a slimy greedy feel to them when examined out of context, each of us make similar decisions daily without even realizing it. We could spend an hour walking to the store, which is safer; or we could spend 15 minutes driving to the store with higher risk of harm or death, to save 45 minutes, for example.
In the final analysis the lines are precise. Whether or not we extract resources, buy that thing, indeed every decision we make in an economy ultimately comes down to a line that exists between “not one cent more” and “that’s one penny too far”.
How can saving money be the same as spending it? What? Do you think the banker just hides your savings in a big vault until you want it back? In a normal and healthy economy your money would be put to use doing things like building stuff, or digging and exploring for new resources, or all sorts of things like that. It would in fact be working just as if you had spent it. What you are putting in the bank, you see, represents value: which is your work. But rather than consume the fruits of your labor right away, you forego that satisfaction and save. This means that the currency that represents something of value, your labor, is used for other enterprises. Those other enterprises involve profits, of which you get a little, (interest) the banker gets a little, (interest) and the one who borrowed it gets a little. (profit)
Don’t be an economic moron. Take the time to watch this short video to understand how we are all much better off with a true banking system, and not just a spigot with a money printer at the other end.
Hat tip: Austrian Economics Addict
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 laws of economics are much like the laws of gravity. If you drop a space shuttle, gravity will have the same effect on it as it does a pebble. With that in mind many times I attempt to simplify economics by thinking of it in smaller terms. So you guessed it, I reduce things down to an island with only a few inhabitants.
On this island let’s say that there is no currency, only bartering. Let’s also say that you are a maker of furniture. Now, desiring fruit, you go to the farmer and begin negotiating the purchase of some apples. So it must be determined how many apples, say, one chair, is worth. A factor that will arise quickly in this negotiation is the farmer’s lack of need of furniture. This would reduce the “demand” the farmer has for your chair and as such will reduce the number of apples he may be willing to exchange. But, he may need a new plow. So perhaps you could go to the blacksmith and trade your chair for a plow and ultimately get more apples for your chair.
It’s easy to see that the absence of a currency is awkward. Furthermore, all the extra time spent trading takes time away from the thing that you do best: build furniture. This results in less furniture for the island to enjoy. Now while that may be a good thing for you on the short term—less furniture means higher prices for furniture—the islanders as a whole have to live with less furniture and so have a lower standard of living.
There’s another factor that will also change the dynamics of your situation considerably. That factor is competition. This comes into play if you’re not the only person on the island that makes furniture. But for now I must honor my post limits. (300ish words)
If President Obama promised every single person in America ten million dollars, then made good on his promise, would everyone be rich?
Ever wonder how many people would quit their job? Would you?
Again, one of the most important words in the definition of
If this happens, or you think it’s going to happen, convert your paper to something that is scarce as quickly as you can. Also, keep in mind that this is actually happening on a much smaller scale. There’s a reason for the skyrocketing of scarce metals.
Money is a mind game. You get these little pieces of paper and other people give you neat stuff in exchange for it. But it’s not about the paper but the resources that it represents, and we’d all do well to remember that. Here’s one example, a person could buy a comfortable house in 1960 for $10,000. You can’t do that today. So what happened? Did houses (a) get more valuable? Even though modern construction techniques and innovations have made them much easier to build? Or, (b) did the money loose its value?
If you answered “b” you are correct! So how does this happen? There are many factors that govern the amount of dollar bills you must fork over to get neat stuff… like houses, but in this case the major culprit is a printing press. Let me explain:
Key to understanding economics is the word “scarce”. (see header for economics defined) No one is going to trade you anything for air because air is not scarce, much to Algore’s chagrin. If we colonize the moon then that would be a great place to set up an air store. On the same token, the more money that’s printed the less scarce it becomes, and so the less value it maintains. The real winners in this scheme are the printers. These guys get to spend the dollar bills before the poor slubs that are taking it in exchange for their stuff have had a chance to figure out that it’s not worth as much anymore.
Now keep in mind that there’s more than one way to increase the supply of dollar bills, and it’s not always wrong to increase them. But since I promised myself to keep these posts to less than 250 words thereabouts, I’ll have to talk about that later.