Tuesday, October 30, 2012

More And Better Is To Come - If Allowed Unfettered

"The power of population is infinitely greater than the power in the earth to produce subsistence for man. Population increases in a geometric ratio, while the means of subsistence increases in an arithmetic ratio. The number of mouths to be fed will have no limit;  but the food that is to supply them cannot keep pace with the demand for it.  We must come to a stop somewhere, even though each square yard, by extreme improvements in cultivation, could maintain its man.  In this state of things there will be no remedy."

Thomas Robert Malthus (1766 - 1834)

This is a surprisingly faithless view put forth by a Reverend!  You would think that he, of all kinds of people, would understand that an all-knowing, Grand Designer (I use those words playfully) would have known what future populations held in store and would have provided Creation sufficient to handle it! 

His philosophies also surprisingly lack understanding of the power of free-market economics as he thought he was taking "the long view" of economics, and poo-pooed short-term expediencies.

Toward that end he encouraged domestic taxes called the Corn Laws (tariffs) on the importation of wheat, which, he thought, would encourage increased production of grains on his nations' islands!  He was amazingly influential in his time.

His name has become intertwined even today with modern population doomsayers and pessimists who similarly lack understanding of free-market economics and its ability to encourage the search for PROFIT in invention and change.  Each time we are told that the earth cannot "sustain" this or that population amount, and we will all die because of it, the word "MALTHUSIAN" comes to the fore!

Notice when he died.  It was BEFORE the Industrial Revolution, and the discovery and general use of OIL.

In Malthus's day, a farm was necessarily small because it took a farmer and a single-horse or ox plow one day to plow an area about 88 yards x 55 yards.  That area is called an ACRE.

In his day corn was a crop requiring more labor than any other.  Corn was used for grain (human food) and its stalks and leaves were used for animal food.  After the corn harvest, where one man could pick about one acre of corn in a day, the stalks were then gathered by hand, cut down and tied into shocks.  Those shocks were peppered around a field, for later retrieval.

Corn had to be stored in silos of some sort.  The shocks had to be stored in a dry place, and were very important.  Corn farming required a lot of labor and the farms were therefore small.

What teensy thing did the good Reverend Malthus disregard in his thinking?  The mind of FREE MEN!  

People free to think and invent and innovate and change and improve! 

WHEN LEFT UNFETTERED THE CREATIVE MINDS OF PEOPLE FREE TO PURSUE THEIR PASSIONS AND BUSINESSES PRODUCE NEW AND BETTER.  THESE MINDS ALWAYS PRODUCE NEW AND BETTER.

Take for instance corn farming.  Actually let's consider many types of grain farming.  Grains are certainly essential to the survival of mankind.

The Industrial Revolution produced mechanisms, and mechanisms in many markets and industries.

Better plows became mechanical plows.  Implements and tools were invented to provide quicker and mechanical picking, then picking and threshing, then picking and threshing and winnowing of many kinds of grains. 

The first could do so in one row, then a couple of rows and now A DOZEN ROWS of grains!  The latest COMBINE HARVESTERS, so named because they combine picking, threshing, winnowing and collecting for storage, of many rows of a given grain.

Hundreds of acres of farmland can be harvested in one day, by one man! 

While we can't be too hard on Thomas Malthus for his myopia in not seeing all this, we should wonder at his lack of depth of understanding and faith in his considered professions - one profession of worship of a providing, and grand designing, Heavenly Father, and the other profession which considered Adam Smith's free markets and the wondrous powers thereof.

And certainly, if economics is allowed to thrive in a free-market fashion, MORE IS YET TO COME.  There are many better mouse traps being created all around us today, and more are yet to come.

The gubment CANNOT create jobs.  But with policies conducive regulation, and taxation, and domestic laws and unfettered access to markets, gubments can create environments which DO create jobs!

WHEN ECONOMIES SPUTTER AND JOBS ARE LACKING, IT IS ALWAYS DUE TO FREE-MARKET ECONOMICS NOT ALLOWED TO FLOURISH AND DO WHAT FREE-MARKET ECONOMICS, FREE ENTERPRISE, DOES BEST!  GUBMENTS NEED TO GET OUT OF THE WAY! 

SO, MAY I SAY AGAIN, GET OUT OF THE WAY!



Tuesday, October 23, 2012

New Economic Thinking

"It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest."

Adam Smith (1723 - 1790)

This simple, yet profound, statement is typical of the thinking of one of the most prominent and influential economists in world history.

Perhaps the second-most important thing of 1776 was the publication of his second-most popular book, commonly referred to as The Wealth Of Nations.

But how that book actually came about the the rest of the story.

He began lecturing at the University of Edinburgh in 1748.  He taught "rhetoric," and his economic philosophy which he called "the obvious and simple system of natural liberty."  His lectures met with much success.  Then, in 1752, he took over as what we would call "chairman" of the Moral Philosophy Department.

His first book, The Theory of Moral Sentiments, was published in 1759.  His basic premise was this:  that interactions between people, whom he called agent and spectator, depended on sympathy.  His definition of moral sentiment was "sympathy."

Then, in contrast to the prevailing ECONOMIC THEORY of his time, which we refer to as "mercantilism," he began the development of his thinking that the wealth of nations does not depend on their quantity of gold and silver, but what he called the wealth of its labor.  Labor therefore, if left to freely operate and sympathetically deal voluntarily one with another, would produce and economic growth would result.

Moving to France (and befriending one Benjamin Franklin while there) he witnessed something that would change his life, and influence his thinking.  He watched France's wealth become virtually destroyed by Louis 14 and 15, and their destructive wars.  The country's destruction was due to the Royal excessive consumption of goods and services, which Smith deemed to have no economic contribution.  The country was falling apart due to their, what he called, UNPRODUCTIVE LABOR.  He saw how the unproductive leadership TOOK from their society and nation, and did not CONTRIBUTE.

In our current politics, we might refer to this as a struggle between GIVERS AND TAKERS, and those who feel ENTITLED TO ANOTHER PERSON'S LABOR.

THE DISTINCTION BETWEEN THIS UNPRODUCTIVE LABOR, AND THE TRULY PRODUCTIVE LABOR OF THOSE STRIVING TO MAKE LIVINGS, FIGURED PREDOMINANTLY IN THE DEVELOPMENT OF HIS THINKING OF ECONOMIC THEORY.

Smith wrote a letter to his good friend David Hume that he had begun to write a book to "pass away the time."  It was published in 1776, and entitled An Inquiry into the Nature and Causes of the Wealth of Nations.

And history was changed.  And economic thinking, forever.

In addition to the prominent thought quoted above, was his idea that markets are literally controlled by the billions of interactions (hopefully voluntary and sympathetic) between those who "productively labor."  He called that control "THE INVISIBLE HAND."

The most productive national economies of our current world are those countries who practice economic models which most exemplify the thinking of Adam Smith. 

And, obviously, the least productive economies are those countries whose economic practices are the furthest from it.

THE LAST FOUR YEARS HAVE BEEN A DETERMINED EFFORT TO DRAG (A GOOD WORD) OUR ECONOMY FURTHER FROM ADAM SMITH. 

Has this dragging caused our economy to drag?  YES! 

Why is it so hard to understand how freedom and liberty, productive labor, sympathy between "agent and spectator," to use Smith's words, and invisibly-controlled market interactions grow economies, and are beneficial, and their opposite is not?

WHY IS IT SO HARD TO UNDERSTAND?


Tuesday, October 16, 2012

Business Failure Equals Consumer Benefit

"A fact rarely suspected, let alone understood, is that businessmen are by no means the chief beneficiaries of the free market, private ownership, limited government way of life.  Many business ventures fail entirely.  Who then are the beneficiaries?  The masses!"

Leonard E. Read (1898 - 1983)

Businesses fail?  Who knew!

Can business fail in a free market?  Of course. 
Can business fail when gubment intervenes?  Of course.

Should gubment invervene to prevent business failure?  NO!

Who benefits when businesses fail?  According to Dr. Read, well, the consumer does!

Why would a consumer benefit the most when any business fails?  Particularly one that provides goods or services that a consumer desires?

Does this mean to say that a free market, private ownership, limited gubment way of life is not tilted toward business?  Instead it's tilted toward the consumer?

Of course!  When a business fails, in a free or controlled market, what happens is that the consumer is no longer paying for inferior products, poor service, inefficiencies and/or dishonest business practices. 

A controlling gubment might try to prop up the business further.  We have seen that recently.

What happens when that controlling gubment picks winners and losers?  Let's say, for instance, that the gubment wants to pursue what it calls POMEGRACIOUS energy?  It does so because it is promoting a political angle, and it's not necessarily promoting a purple, or violet, or amethyst, or pomegranate color - IT'S A NEW COLOR WHICH THEY CALL POMEGRACIOUS - the color must be pursued.  The new color is the same as the "old" color, but now it's more important!

Not only must POMEGRACIOUS energy be pursued, but the old energy (for which there is no substitute* in the near or long term) must be crushed.  How should it be crushed?  Politically, with words, by creating a more POMEGRACIOUS attitude for Dr. Read's "masses," with tax and regulatory policies - you name it - it MUST be crushed!

* Now we all know that the floating DeLorean is coming, into which we will pour whatever garbage is available nearby, and it will have power forever - but in the near and long terms it simply isn't on the horizon. When I was a kid, I was certain that by now we would all be driving floating cars, but alas, I was wrong.

What if a few POMEGRACIOUS businesses are picked out because it is known they are failing and will soon fail completely?  And those businesses are propped up, let's say, with tax money?  What if they are chosen because some of that tax money can make it back to the GRAND PROPPER in the form of, let's say, political donation?

DOESN'T THAT REPRESENT THE WORST FORM OF GUBMENT INTERVENTION?  ISN'T THAT CRONY "CAPITALISM" AT ITS WORST?  DOES THE CONSUMER BENEFIT IN ANY WAY?  ANY, ANY, ANY WAY?

But, because we are dealing with POMEGRACIOUS businesses, nobody, not the gubment, not the media, nobody with the swag gubment encourages, will say anything about it.  Sure, a few kooks might try, in vain, to point out the utter illegality and stupidity of the moves, but, hey, after all, who listens to the few kooks?

Any business, even if not POMEGRACIOUS, any business that must be propped up with subsidy, or cash infusion, or even utter gubment take over, should not be so propped up if it is going to fail.  And especially if that formerly not POMEGRACIOUS business is now introducing a POMEGRACIOUS product line!  

Why?  Because, as Dr. Read rightly points out, the consumer is not going to benefit! 
  • The same inefficiencies that got it into trouble will still exist. 
  • The same policies that got it into trouble will still exist. 
  • The same substandard products that got it into trouble will still exist.
  • The same consumer that did not want the former product line, will not want the new product line, especially if the new product line introduces a POMEGRACIOUS product the consumer has not demonstrated a desire for!
  • The new beast will be the same as the old beast.  I've heard a song that says just that!
AND YET THE GRAND PROPPER TELLS US THE EFFORT IS A SUCCESS!  EVEN WHEN THE REST OF US CAN SEE THAT THE CASH INFUSED, NOW GUBMENT-RUN BUSINESS, IS STILL TENS OF BILLIONS OF (OUR) DOLLARS IN THE HOLE!

May I say - pay no attention to the man behind the curtain!  Don't let the smoke and mirrors confuse!  Smoke and mirrors are used by magicians to aid in their illusion.  Even without the smoke and mirrors, an illusion is still an illusion!

Dr. Read is right - (even if POMEGRACIOUS) bad businesses that fail = consumer benefit!



Tuesday, October 9, 2012

Free Enterprise And Innovation

UNDERSTAND - SIMPLIFY - FOCUS - INNOVATE
This philosophy provides the continuing motivation to develop innovations, which are the best driver of economic development and a guarantee for job security. It is a philosophy of the essential, of customer value, of simplicity. A philosophy built on the conviction that things created for a purpose and with logic, do not need to be completely renewed, but must instead be subject to continuous evolution.
EFFICIENT - RELIABLE - INNOVATIVE

Clarence C. Hobart "C.C." (1854- unknown)

That is the corporate philosophy of the now Hobart Corporation, started in 1906 by CC Hobart.

My first experience with CC Hobart was as a 15 year old.  I got a job as a dishwasher at a hotel near my home.  There was nothing glamorous about the job.  It was exactly as you imagine.  Basically I took dirty dinner and silverware, put it all in special containers and onto a conveyor belt, pushed a button and the belt would drag it all through a huge dishwasher.
 
This logo is what I remember most about that dishwasher!

Anyone who works in a commercial kitchen anywhere is familiar with that logo and the Hobart name.

Certainly, one of the hallmarks, most important hallmarks, of free enterprise is the concept of CREATIVE DESTRUCTION.

Basically, when entrepreneurs and inventors are left to their own means they will innovate.  Creating a product, or taking another product, they will change it and make it different, better, faster or more productive.

As regards creative destruction, does anyone remember the typewriter?

At the turn of the last century C.C. Hobart was partnered and working with a young man named Thomas Edison.  They were creating what they called a "dynamo."  Literally the night before the fully-assembled, $1100 dynamo was to be delivered to their client, the factory burned down.  They only had $200 of insurance on a building containing $3800 worth of equipment.  The two men went their separate ways.

CC was convinced electricity was the wave of the future, and moved to Troy, Ohio to open The Hobart Cabinet Corporation and begin creating.  His first products consisted of wood cabinets to house parts for electric generators, lighting systems, dynamos and flywheels used in the first electric coffee-grinding mill.  It also produced office filing cabinets and desks. 

But remember his philosophy - innovate and innovative.  This is a time line of just SOME of the electric inventions CC Hobart introduced to the world.  .

1905 - electric meat choppers :: 1914 - first commercial mixer :: 1922 - combination meat chopper and mixer :: 1926 - first commercial warewashing machine (dishwasher) :: 1928 - first commercial potato peeler :: 1930 - first electric meat slicer :: 1933 - first electric air whip machine (to create whipped or cream toppings) :: 1942 - helps the war effort with telescoping mounts and fire-control generators :: 1946 - meat saw with "easy clean" design :: 1946 - "moneyline" scales which can be read from any angle :: 1946 - angled meat slicer :: 1955 - heavy-duty bakery mixer :: 1956 - automatic weighing and labeling system :: 1958 - "Saniquick" cold-water glass washer :: 1965 - high-volume, automatic meat weighing and wrapping system :: 1969 - 20 commercial product lines, 32 manufacturing operations and customers in over 100 countries :: 1972 - automatic meat patty machine :: 1972 - pioneers the use of universal product symbols, later becoming the UPC code :: 1982 - the first scale and labeling system which interfaces with store computers :: 1984 - "Scalemaster" technology which gives retailers centralized control of scale files :: 1992 - refrigeration is CFC free :: 1995 - first combination oven/steamer :: 1997 - 100th anniversary :: 2001 - first food-equipment manufacturer to introduce microbial product protection :: 2001 - first fast-food "smart" scales :: 2004 - first "opti-rinse" spray nozzles for dishwashers :: 2006 - the oldest operating Hobart mixer (from 1913) found to still be in operation.

Remember, after their initial invention, each of these products was creatively destroyed and improved upon, even until today.  The Hobart Corporation files as many as 1000 patents annually.

In America's free enterprise, capitalist system, our products get more efficient because of our ability to innovate; our products get more productive because of our ability to innovate; our products get more profitable because of our ability to innovate; and our ability to innovate does not come through gubment edict, mandate or taxes.

NO GUBMENT BUREAUCRAT COULD POSSIBLY HAVE COME UP WITH OR CAUSED TO HAPPEN ALL THE IDEAS THAT HAVE MADE THE HOBART CORPORATION THE INNOVATIVE GIANT IT HAS BEEN FOR OVER 100 YEARS.

BUT FREE-MARKET ECONOMICS AND FREE-ENTERPRISE CAPITALISM DID!


Tuesday, October 2, 2012

What's The Plan?

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises.  I say after eight years of this Administration we have just as much unemployment as when we started.  And an enormous debt to boot."

"We want to see private business expand.  We believe that one of the most important ways of achieving these ends at this time is to continue progress toward a balance of the federal budget."

Henry Morgenthau
United States Treasury Secretary
1934-1945

In the early 30s FDR took Herbert Hoover's "New Deal" spending plans and tripled and quadrupled down on them.  Hoover's very Keynesian spending plan was embraced by FDR, only creating a couple of new agencies on top of what Hoover had there.

What ended the depression was when people finally got to work turning plowshares into weapons.  Many left to fight and many stayed to work.  And private business did expand.

And it is said by many economists today that FDR took a recession and turned it into a full-blown depression.  Some economic historians do not have the depression ending officially until 1948, after a brief and slight recession at the end of WWII.

AS I LEARNED MY FIRST DAY OF WORLD HISTORY CLASS IN COLLEGE, WE LEARN FROM HISTORY THAT WE DON'T LEARN FROM HISTORY.


Economics books published this 1934 cartoon, which I first saw while studying economics in college.  I didn't get it then.  I do now.

So here we are again.  Nearing the end of a presidential election campaign we have two philosophies.  One is not addressing issues, saying "give me more time."  The other is not addressing issues, saying "I have done it before, I can do it again."

History says the plea of the former is ridiculousness.  More of the same does not RECOMMEND re-election.  The latter has not garnered enough trust.  His position, however, will be very, very difficult for many to live with.  Why?  Because his vision is one that says we will grow out of this thing through hard work.  People won't need welfare, or food stamps or free phones or whatever because they will be working.  His vision is the traditional American way.  That is the harder thing to vote for.  Both sides of the voting electorate desire "hope and change," and both will get the change part.  But hope?

WE HAVE SERIOUS ISSUES THAT EXISTED AND/OR HAVE BEEN MADE WORSE IN THE LAST FOUR YEARS.  BUT I DON'T SEE ANY PLANS TO ADDRESS THEM.  THESE ARE ISSUES THAT MUST BE ADDRESSED!  THEY MUST BE HIT HEAD ON.  MORE OF THE SAME WILL NOT WORK!  WE NEED TO CHANGE NOW OR WHAT MADE THIS COUNTRY STRONG AND GREAT WILL EVAPORATE.  HERE ARE A FEW THINGS THAT MUST, MUST, MUST BE TACKLED:
  • GDP growth barely moving at 1.3%.  During the Depression such growth was 8-9%.  What's the plan?
  • The US credit rating was reduced for the first time in history.  There are some rating agencies considering doing it again!  What's the plan?
  • Even the "mainstream" news media recognizes that 16% of the population, some 49.1 million people, are in poverty!  That's the most in history.  What's the plan?
  • Some 47 million people are using food stamps.  Again, the most in history.  What's the plan?
  • Unemployment is said to be 8.1%.  That is statistical poop.  If you include those who truly aren't working, those who have given up, and those very UNDER employed that number more than doubles.  I read where between the Truman years and 2009 the economy has only had 39 months of unemployment over 8%.  Even using the statistical poop numbers, we are now experiencing 43 consecutive months of unemployment over 8%!!  What's the plan?
  • Almost 50% of the American consumer budget is food and energy.  Yet these two criteria are NOT included in the national inflation statistic.  Inflation is said to be "in check."  What?  I buy gasoline and meat.  Inflation is not in check.  What's the plan?
  • We have unimaginable debt!  It is not "in check!!"  The deficit and national debt have exploded in four years!  The mushroom cloud is still growing.  Such debt is truly unsustainable, especially as 10,000 Baby Boomers exit the work force every day.  What's the plan?
  • The "average" family's annual income is down 4.7% (about $5K) in the last four years.  What's the plan?
  • Personal income and national income, as macroeconomic statistics, are down in the last four years relative to population growth (according to PBS!).  What's the plan?
  • How about energy production?  How are we doing?  And don't count North Dakota, because that is PRIVATE ENTERPRISE at work!  The gubment has no role there.  How's oil and coal production going?  Oil is selling between $90 and $100/barrel!  Structural changes have been made to those industries, and that is significant as there is no energy substitute, no matter what the regime pretends.  What's the plan?
  • Huge tax increases are coming in 2013.  They are already in the works.  What?!  What's the plan? 
  • The Middle East is in flames.  Our embassies have never been attacked like this, and in US history only 6 ambassadors have been killed intentionally.  The "mainstream" news media hardly mentions this!  What's the plan?
Could I go on?  I guess I could!  Student loans, housing, personal bankruptcy, trade - gee, what's going gangbusters?

WE HAVE BEEN WARNED, AND KNOW, THAT WHAT IS CALLED A "FINANCIAL CLIFF" IS COMING.  AND IT IS COMING!  THIS HAS BEEN CALLED "THE MOST PREDICTABLE ECONOMIC CRISIS IN HISTORY," BY MANY PEOPLE!

WHAT'S THE PLAN?  WHERE'S THE LEADERSHIP?  WHAT'S THE PLAN?  WHERE'S THE LEADERSHIP?  WHAT'S THE PLAN?  WHERE'S THE LEADERSHIP?

Leaders rarely, and that is really true, RARELY, have so much information in advance of a crisis.  CRISES are usually not predicted, OR EVEN PREDICTABLE! 

A TRUE LEADER HITS THE PROBLEM HEAD ON.  IF A LEADER HAS INFORMATION IN ADVANCE OF A CRISIS, IMMEDIATE EFFORTS ARE EMPLOYED, AND LEADERS SPRING INTO ACTION, TO DEAL WITH AND/OR MINIMIZE THE CRISIS.

Don't tell me what you are going to do.  That is useless.  Should we go over all the unmet promises of the last four years?

I WANT TO HEAR HOW, HOW, HOW YOU INTEND TO HANDLE THESE PROBLEMS!!  

THE HOW IS WHAT COUNTS.