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.
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.
The last half-century has been marked by a shift in the meaning of the word morality in Western Civilizations. It has been slowly transitioning from an objective to a subjectively based word. What is considered to be good and evil has increasingly become dependent on one’s on opinion and less on objective and absolute standards. One may now feel justified in defaulting on a contract simply because, in his judgement, the other person or entity is rich and doesn’t really need the money. This mindset, when predominate, does not foster a robust economy.
Consequently, this shift has increasingly hindered economic activity over time because economics is based on millions of transactions. Contracts are signed. Trust is placed in others. It is agreed that if you do this then I will do that. As trust erodes so does the ability for the life-blood of an economy, commerce, to happen freely. Rather contracts are broken, defaults abound and lawyers celebrate. In the end, the economy suffers, and so do the people.
Unfortunately for society, the drag that immorality places on commerce doesn’t stop with the individual participant. The immorality of corruption leaches upward from an immoral society into the governing authorities. This also impedes an economy as unreasonable demands are made on the participants in commerce by those authorities. Resources are then squandered on excessive taxation, bribes, excessive regulation and delays.
This adds up to the siphoning of resources which would have otherwise led to higher standards of living for the population. If you’ve ever wondered why the people of some nations struggle to eat while living their lives on ground that is abounding with resources, one need to look no further than endemic corruption.
So what does morality have to do with economics? In a word, everything.
Government accomplishes more by tax rates than filling it’s coffers, which is kind of funny these days when you think about it because the government coffer is brimming over with I.O.U’s.
We’ve all heard, I hope, of the economic law of supply and demand. This law speaks of a relationship between the supply and the demand of resources, but this relationship can be misleading. There is a third and silent factor in this equation: “price”. Imagine, if you will, a see-saw. On one side is demand and the other is supply. Price is the center on which these two find balance… or at least should!
Consider mansions. It’s safe to say that we all want to live in a fine mansion, except that very few of us can afford to. The “demand” for mansions, therefore, is relatively low, because of price. But it’s obviously not fair that some people get to live in mansions while others don’t. Enter compassionate politician. As one such politician put it, “[mansion owners] have won life’s lottery”, and we know that’s not fair!
So the well-intentioned politician enacts price controls so that everyone can afford a mansion. Nice guy, he.
But then, without any changes in the supply of mansions, demand skyrockets. And guess what else. What was once an adequate supply of mansions is now a limited supply; a shortage in fact. Since all can now afford mansions, they are now “demanding” mansions. To further aggravate the situation, the supply begins to decline because there is no longer any incentive to build mansions because there’s no profit to be made.
Since bad law begets bad law, “No problem”says the compassionate politician. So a new law is legislated to deal with the mansion crisis. A lottery is instituted to determine who gets to live in the limited supply of remaining mansions. Now, everyone is equal because no one is living in a mansion because of “life’s” so called lottery, but rather, because of a government lottery. There, problem solved. Feel better now?
How is something so arbitrary as the minimum wage derived? Did you ever think about that? What is the minimum wage? Do you know? Well, it’s zero. Any moron ought to know that. But not so for the politician. For him, it’s an arbitrary number drawn from an entirely different science than economics; which is political science. I also know that the daily exchange of resources, which is the economy, will respond to that number in an entirely different and un-arbitrary way than the politician envisions.
But it does raise a question that deserves an answer. If politicians can arbitrary legislate what ever income they think one ought to have, why is it so low? As the mantra goes, “who can survive on minimum wage?”. So who is the real devil here? Is it the politician who legislates sub-poverty wages, or the greedy business owner who is forced to pay them?
The answer to the question depends on the perspective. Politicians survive off votes, businesses off profits. Therefore, politicians are motivated by votes, and business owners profits. If politicians, who have their own image problem, hadn’t made “profits” such a dirty word, this whole thing really wouldn’t be that difficult to understand. Still, while neither of these motivations have the worker’s best interest at heart, only one of them “profits” by fooling the moron worker into thinking that he is actually the main concern. Care you guess which one does that: the politician or the business owner?
So the bottom line is this: if high wages actually can be simply legislated, then being a man of compassion, I vote that the minimum wage be raised 1000%, and let’s be done with this poverty thing once and for all.