U00 Economics Table of Content

U01 How Did We Get Into This Mess
U02 Economic Strategy
U03 Unintended Consquences
U04 A Little Known History
U05 How Effective are Tax Cuts
U06 Inflation
U07 Laffer
U08 War
U09 The Tax Cut Myth
U10 Contention
U11 Economic Activities
U12 The GDP Illusion
U13 Inflation
U14 Capitalist
U15 Warren Buffet
U16 The Self Made Man Myth
U17 Our Daughter
U18 What is Our Economic Problem
U19 Japan
U20 Profit is a Dirty Word
U21 Government waste

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A13U01 How Did We Get Into This Mess

Many factors have contributed to our current situation, but the two most important are: we have been following a faulty economic philosophy and have assumed from our history that we can grow our economy and can grow it forever. For more than forty years our economists, politicians, and pundits have accepted Milton Friedman's economic philosophy.
1 Money is not everything, it is the only thing.
2 Economics is an exact science like math and physics.
3 People are completely rational when making economic decisions, that is, they always make  decisions in
                their own best interest.
These statements are blatantly false.
Obviously, money is not the only thing. When people treat money like a commodity, they are in trouble. They begin to hoard money. They become addicted to making money. Their thinking becomes warped. They think only about themselves. They tend to become greedy. They become capitalists.
I want to make the distinction between prosperous and wealthy. A prosperous person became prosperous because they did something very well. They will continue doing what they do very well because that is what made them prosperous and they will continue to excel. By doing so they make a contribution to our standard of living because what they do well they do efficiently and efficiency contributes to the standard of living.
When a person makes the transition from prosperous to wealthy they tend to stop doing what they do well and switch to making money with money. By doing so they increase the number of people who are wealthy, but everyone has lost their contribution to our standard of living. Herein lies a common fallacy, people think that an increase in money increases the standard of living and it does for the person who gained money, but everyone else loses if their contribution to efficiency is lost. Money does not contribute to the standard of living. Money is a medium of exchange and when it is treated in any other manner it causes inflation which reduces the value of money.
Economics can never be an exact science, how could it be when people are the operators of an economy. People are seldom rational. People rarely make decisions that are the best for their own self interest and many times they make decisions that are decidedly detrimental to their own self interest.
Another very important factor is a combination of the weaknesses in every political system and the bias in our thinking. We hate to lose. That is why most people dislike taxes, they consider it money lost. Their thinking is to narrow, they can't see what they have gained or it is not what they wanted to gained.
This is why many people bought the tax cut myth, hook, line, and sinker. Tax cuts creates jobs. Tax cuts put more money in your pocket. This is true, but at what cost.
This is where the weaknesses in every political system is important. For a politician to get reelected he must appear to do something. It must be big, so as to attract attention and so people will remember and it must be done quickly because people hate to wait.
This is exactly what happened with the tax cuts, they were to big and to quick. Our economy could not adjust to the large increases in income at the top in so short a time period. High income people got a 30% increase in income, an amount far greater than they would have received from their employer. Not only that, it raised the disparity between the low income people and the high income people much faster than at any time in history and then it was compounded by the necessity of giving these same people even larger raises in the future because a small raise would be considered an insult.
What most people do not understand is that money is a negative motivator. Rarely does an increase in income provide satisfaction for an extended period in time and if their income or a raise in pay is not large enough people will be dissatisfied until their income is raised to their level of satisfaction. Promises of future increases in income will not over come their dissatisfaction, people hate to wait.
Because Reagan never vetoed a spending bill, he set a precedence that has been followed ever since, very large deficit spending. The deficit spending was justified by 'It was only 4% of GDP'. But I have never seen the GDP pay for anything.
When deficit spending is combined with the inflationary effect of a large amount of money available from the tax cuts for spending and you have recipe for disaster.
We are now in a lose - lose situation. No matter what we do we lose. If we increase taxes to pay down our debt, our economy crashes. If we keep on spending our dollar will become worthless.
We passed a very important mile stone many years ago, it is mathematically impossible for us to ever repay our national debt, (be sure to include the unfunded commitments of Social Security, Medicare, and Medicaid).
From the very beginning our economy was based on growth and we have heard 'grow our economy' so often that most people believe it is true without question, but we can't grow our economy, infinite growth is impossible in a finite world.
My first encounter with economics came when I had to take a one semester course in economics during my junior year in high school. The teacher did not explain futures correctly, she said when a farmer sold futures he would not lose any money if the price went down, but he would gain money if the price went up. To my under educated brain it was not logical and I objected. I don't remember what I said, but it created a very lively discussion. Half the class agreed with the teacher and half with me. I gave the teacher credit because the next day she said Richard is correct and she then explained how futures work correctly. That was also my first encounter with the stock market.
A friend of mine is a cash crop farmer, he raises corn and soy beans. He has been using the futures market for many years. Here is what he does. Each spring he buys his fertilizer, herbicide, insecticide, and seed and uses each when appropriate. When he is done planting he knows about 90% of his costs because by then he has used most of the gasoline he will use for the year. He estimates how much gasoline he will use to harvest. He then calculates what price he needs to make a profit. He then watches the futures market and when and if the price rises to his profit price he sells 75% of what he estimates his yield will be. By doing so he guarantees 75% of his profit for the year.
He belongs to a co-op through which he buys a share in heating oil futures for 75% of his winter heating oil usage during the summer when the price is usually low thereby fixing 75% of his heating oil costs. During the winter when gasoline prices are usually low he buys a share of gasoline futures for 75% of his estimated gasoline consumption for the next year. Again fixing 75% of his gasoline costs for the next year.
Each fall he delivers beans and corn to settle his futures contracts and sells the rest at current market prices. This way he does not have to pay storage costs on his crops. By buying and selling futures he usually gets good prices for what he buys and sells and his income is steady. In fact he has done so well that he does not have to borrow money to operate his farm and he has avoided boom and bust cycles for the most part.
Another advantage of using futures for his home heating and gasoline is that the futures substitute for storage, in other words he does not have to buy a large quantity and store it on his farm to get a good price. When he needs more oil or gasoline he simply sells a part of his part of the futures contract with the co-op to pay for his next delivery and only needs to store the amount of one small delivery truck for each product.
What has happened in recent years is that more small business, even home owners, are doing the same thing. They are joining co-ops or taking advantage of the futures market through independent jobbers who will sell them a share of the futures market commodities that they consume. Large businesses have been doing it for many years, but recently even they have been using the futures market to a larger extent to protect themselves from rapid price increases.
So it is not just the speculators who are contributing to rising commodity prices, more people and businesses have learned how to use the futures market and have added to the trading volume, but by doing so, it allows the speculators a greater opportunity to increase the volatility of the market.
I began to read about economic in that eleventh grade economics class, we read Adam Smith's Wealth of Nations and a few others. When my work forced me to become an applied economist I read Keynes, Galbraith, Marx, Malthus, Ricardo, and many other less well known economists. I can't remember all the economists I have read.
Many years later I read Milton Friedman, I disagreed with almost everything he wrote. The worst of all he said, 'Economics is an exact science like mathematics and physics'. Also, there was no mention of the disasters caused in Argentina, Bolivia, Chile, and Peru when Milton Friedman economics were put into practice. The capitalists made out like bandits, but the people of those countries lost and suffered a lot.
I continued to read about economics when ever I could not find something better to read. I say that because I felt that the economists over simplified elementary economics and over complicated the rest and after I had read a book on economics I always felt like something was missing. I learned what was missing when I began to read the works of the experimental psychologists and more recently, the works of the behavioral economists.
I know what I am going to say in the following is an over simplification, but I want to make what has happened obvious. If I were to include all of the (and, but, or, if)s what I want to say would soon become unintelligible. And I will repeat.
I wonder how many people understand the significance of who won a Nobel prize for economics in 2017? Richard Thaler He has been promoting the idea that people are not rational for many years. By doing so he was and is attacking one of the pillars of economics. Ever since Adam Smith economists have assumed the market was efficient. Which meant all economic transaction were made in the person's best interest and the person had all the information to do so.
Ever since the '70's the experimental psychologists have shown that people make very few of their economic transactions in their own best interest. For him to have won the Nobel prize indicates that at least some economists recognize the error which hopefully will bring a change in our economic system that will help to mitigate our irrationality. Which in turn will help more people lead satisfied lives.
All of the economists, until the recent behavioral economists, have made the same four fatal mistakes, they assume that people have all the information necessary to make a decision, are completely rational, make all decisions in their own best interest, and we can grow our economy. The first three are obviously false.
An economy can never be larger than the amount of resources in the economy. Which means an economy can not grow, it has a definite limit. We need to replace grow from our economic vocabulary with sustainable.
The following equation describes our situation.
People = the economy = consumption = pollution
It should make you aware that an economy cannot be grown. The population can be increased which will increase all of the rest. This is why a per capita GDP would be more meaningful, but inflation makes even that meaningless. The equation should also make you aware that we are responsible.
Look at what happens if people accept the capitalists lies of ' more is better and bigger is better'. All the variables to the right of people expand without limit even if the population does not increase. That is inflation. It is our wants that drive inflation, not our needs.
Prior 1960 economists did not have the knowledge we have now, especially the work of the experimental psychologist nor the advantages of the computer. But all of them should have realized that they did not have enough data to say what they said. Economics is simple, but to formulate a theory is not because of huge amount of data that are needed to be analyzed and understood to do so. Most of them did not understand statistics, if they did, it did not show in their writing.
To make a prediction only independent variables can used. Almost all of the variables used by economists are dependent variables. Dependent variables are determined by one or more dependent and or independent variables which means the dependent variable will change when any one of the other variables change. To get an accurate prediction requires identifying the dependent variables and replacing the dependent variable with a formula containing the independent variables. This is not an easy task even with the aid of a computer. The same thing is true of any correlation between two or more variables, the independent variables responsible for the correlation must be found and used in place of the correlated variables. To many people do not understand this and draw false conclusions based on the dependent variables, again making it easy for the capitalists to mislead them.
For example, a post on Face Book by Robert Reich used the correlation between the decline in union membership and the decline in middle class income to show we need to strengthen unions to increase middle class income, but a correlation is not causation, how can anyone say which one caused the other. Why not say we need to increase the income of the middle class to increase union membership? The independent variables that caused the correlation must be found before any conclusion can be made. Again not an easy task.
I helped create the mathematical model for Total's refinery. It required more than 1200 equations and more than 1500 variables. A refinery is very simple compared to our economy. Most of the variables were independent which means we could write an equation to predict how the variable would change as other variables changed.
To model our economy would require an astronomical number of equations and variables, plus most of the variables would not be independent which means we could not write an equation to predict how the variable would change as other variables changed which means we can not predict our economy, we cannot even measure it.
I think it is way past time for economists to reevaluate their profession and put economics on a solid foundation, but look who pays their salaries. It has always amazed me what people will do for money.
I have been a dissatisfied with economics since I had to take that one semester of economics in the eleventh grade. I did not realize until many years later how important logic was for my brain. The logic of economics as presented in that class disturbed me and I did not know why. As I read more I learned that I was dissatisfied with the definitions used by economists, politicians, and business schools for such words as free enterprise, free market, capital, capitalism, capitalist, management, etc. I did not like the way they divided resources into four groups, management, money, material, and men. This grouping is divisive.
Even worse when some used labor instead of men and capital instead of money. No matter how sophisticated we think we are, in the end we are only doing what is necessary to survive, we are all digging potatoes, why demean any group by placing one above the others. Every job is important or it would not exist.
When I learned about the systems approach I could explain my dissatisfaction and dislike. A system is directed activities using resources within an environment to achieve a goal for a user. This means anything that a system can use to achieve a goal is a resource and there is no need to put resources into groups. The system that uses the resources will determine which ones and how they will be used. This also leads to the definition of capital. Capital is the excess of any resource available to a system that has value to another system. Remember, all people are biological systems so you can substitute people for system when applicable.
In the mathematics of systems a dependent system plus an independent system equals an independent system. This is why people are employed in every system we create, people are independent systems and every system we create is a dependent system, they are missing one or more parts of a system and people can supply the missing parts.
But because people are independent systems they must be led. A manager can manage how people will supply the missing parts, the role people play in the system, but the manager cannot manage the people. If an independent system is not satisfied with the situation they can stop supplying the missing parts and shut the system down. The manager can replace them, but that can be costly.
An aside: many people think when a system gets behind it only takes twice as long to catch up, but that is not true, it takes four times as long to catch up because of the time needed to train the replacements.
An economy can be underutilized and efficiency increases utilization which increases the standard of living, but reduces the number of jobs. Plus we can create or find new resources which would raise the limit on the size of the economy.
If we increase the utilization of one or more resources rapidly, people become overly optimistic, over spend, inflation increases. When the utilization of the those resources reaches their limit the value of money will be less because of inflation which will cause people to limit their consumption and the utilization of the whole economy will decrease. All economies are consumer driven.
When we make a change in our economy we need time to learn how to make use of the change which causes the change in utilization to follow a learning curve which means the change will be spread over a period of time. Many times the time period is so long people will be unaware of the change that is taking place and may be changing their behavior in a unfavorable way.
An economy can never reach full utilization because people are not rational and because people are not rational their actions many times cause the utilization to decrease.
Because the number of variables in an economy is very large we can never measure utilization, we can only have indicators of how the utilization is changing. This is why economists use many indicators, not just the GDP and the CPI.
The big unanswered question is: how do we spread the utilization among the population? Because of the large number of variables in our economy, I don't think it is possible for us to find a way, we can only choose an arbitrary method that most people would find satisfactory.
Many economists, politicians, and pundits preach 'We need more competition'. Competition does keep prices down for some economic activities, but not for all. So the question becomes when should an economic activity be private or public. Public when the activity must be a monopoly. So when must an economic activity be a monopoly. Competition will increase the price of the goods and services of any economic activity that requires complete control, expensive equipment, or large amounts of infrastructure. For example, defense, police, fire, roads, water, sewer, electricity, gas, hospitals, trash, recycling, etc. This type of economic activity should be public, they should be government operated or have government over sight.
Can you imagine the cost of water if more than one economic activity dug up our streets to lay another pipeline to each house? What about airports or highways each running parallel to each other?
When economists, politicians, and pundits make such blanket statements, someone should give them a swift kick. It is no wonder why our government spends so much money.
To many people believe big government is bad, but big is not the problem. Big government is not bad, it is the politicians in congress who write such bad laws that cause the waste of tax payer money.
Ear marks should be eliminated. All expenditures should benefit the whole country not just the people the politicians represent.
We need an effective government and we should be doing what is necessary to make our government effective instead of talking and arguing over inane beliefs. All economic activities must be regulated: to yield fair prices, to protect our environment, to keep us safe, maintain honesty, etc.
There are to many people offering old solutions to our problems, they do not understand our current situation. We have a new problem that requires a new solution. In addition, to many people want the benefits of science, but refuse to accept the results of science when it does not agree with what they want to believe. This is a recipe for disaster. I often wonder where they think our technology comes from.
Three major changes in our political economic system created this new problem. The most important one is global heating, a problem that is still not being addressed. The second one was the burst of the '08 greed bubble. The third one was the rapid rise in the price of oil. Again, a problem that is not being addressed. Ethanol from corn, a waste, and changing our light bulbs, the mileage of our cars, necessary, but not a solution.
Every change in our political economic system has unintended consequences. Most of the time these consequences go unnoticed, but they can have a major impact on our lives. If these consequences are negative, we make another change quite quickly, but if they are positive they continue unnoticed.
For example, when Henry Ford mass produced the car, it changed our life style dramatically, from a rail and horse to a car and truck society. In the process, how many people realized how vulnerable we were to an increase in the price of oil, how many people were aware of the number of trees that were cut down and acres of farm land paved over to build the roads for our vehicles.
If you do not understand our current condition, you cannot define our problem and if you cannot define the problem you cannot solve it.
The right to work is a lie, no one has a right to work, if that were so, employers would be forced to hire everyone who came for a job. So many of these so call rights are based upon beliefs, no law should be based on anyone's belief, laws are for the many, not the few.
The 'free' market is a myth, we need a fair market. Many people do not understand that free markets and free enterprise do not exist. In the past when 'free' markets were possible the seller would cheat the buyer by using false weights and measures and the buyer would cheat the seller by using counterfeit money. Why do you think we have a treasury and bureau of weights and measures? One to prevent counterfeiting and the other to prevent the use of false weights and measures. What we are trying to achieve is a fair market which leads to the next misunderstanding. What we want is a fair market price, that does not mean it was a fair price.
I saw something on TV some time ago that made me laugh because of the appalling ignorance. A protester was carrying a sign saying 'Vote no on health care reform because there is a free market solution'.
If there is a 'free' market solution, why is it not in effect now, how many centuries do we have to wait.
The first requirement for a fair market is the buyer must have an alternative. Now the question becomes, can we have a 'fair' market in health care? You know the answer. NO.
Many people mistakenly believe that a choice of providers is an alternative, but it is not. Many people have no choice in providers and if they do, the cost is the same. If the only difference the buyer can determine is a change in name it is not an alternative.
But the most important mistake is that many people believe we can't afford health care reform. What they don't understand is that we are paying for it right now, they just can't see the payment. We must stop the stupid bickering and start paying taxes to pay for health care so the cost is spread over a large number of people keeping the cost per person as low as possible. If we reform health care we may actually reduce our costs.
Another thing that many people forget is that disease knows no boundaries. In a world where the human population has already exceeded the world's carrying capacity for people, we can not afford to let a pandemic get out of control. Which means we must have good local health care for every person. We can not afford to have a homeless disease ridden population, especially one with antibiotic resistant bacterial diseases, which we now have.
I have spent more than twenty years creating systems. My experience tells me that no one knows how to create an effective and or an efficient health care system, it has to many variables. So our best course of action is to expand what is now currently working, Medicare and Medicaid. Then modify them as we learn.
When considering specific ways to provide for health care is when alternatives come into play. It is quite obvious that there are many alternative ways to feed, cloth, and shelter ourselves and that water, oxygen, and health care are in a separate category, they have no alternatives.
While it may seem at first that health care has alternatives when specific heath care needs are considered there seldom is an alternative. For example, if you have appendicitis what alternatives do you have? If you have a hernia, you do have a choice? The same with near sightedness. But few people will take one of the choices.
Ignorant people confuse market forces with a 'free' market. Market forces are real and they do work, but the people that stand to gain the most are constantly trying to manipulate the market forces to their advantage.
The strongest market force is the law of supply and demand. Followed by money saving, advertisement, fashion, peer pressure, convenience, taxes, subsidies, fairness, etc. Most people want a fair market and will apply political pressure to obtain a fair market. Why do you think we have laws such as truth in lending, truth in advertising, product safety, and many other such laws.
When the prices of goods and services change or the availability of goods and services changes or new goods and services are provided they are the result of market forces they are not the result of a 'free' market.
The second requirement for a fair market is a fair market price. Do not confuse a fair market price with a fair price, they are not the same. A fair market price is arbitrary and is determined at the time of the trade by market forces, it may not be a fair price.
To have a fair market price there must be a sufficient number of buyers and sellers and a sufficient inventory such that a small change in the supply or demand by any one or a small number of buyers and sellers does not cause a large change in fair market price.
The third requirement for a fair market is the laws and rules of the market must not impede the market from being timely in the execution of trades or the delivery of goods and services. Nor should the taxes on the trades or on the goods and services place an undue burden on either the buyer or seller. Nor should subsidies distort the market.
Likewise 'free' enterprise does not exist, every enterprise must follow local zoning codes plus township, county, state, and Federal rules. When we do not define what we are talking about accurately our thinking is seldom correct. To continue to use these false words misleads ignorant people into believing something that is not true and they in turn support the politicians that change the laws so the capitalist can make more money which in turn reduces the amount of money available for the rest of us.
We must change the rules for our benefit, capitalists must be regulated.
We deceive ourselves when we want businesses to pay taxes, businesses consider all taxes to be an expense and increase the price of their goods and services to cover the cost, but because we can not see the cost we think we are not paying the tax.
Rather than a tax, I would like to see a standard operating procedure used by all non capitalist businesses, some profit should be contributed to a contingency fund, the rest should be distributed, 20% to owners or stock holders, 20% to management, 20% to employees, 20% to government to pay for infrastructure, and 20% to reduce prices to customers. Businesses should be serving the community not a group or an individual. Capitalists are only concerned with making money and must be regulated in a different way, more later.
We are the number one debtor nation, public and private debt. No other nation comes close. More is better, bigger is better. Not when it comes to debt. Our nation has never had a savings rate of any size, most of the time it has been below zero, in other words debt, and we have seldom had a surplus in our national budget.
If the politicians cut government spending, jobs will be lost, if they increase government spending, inflation will occur. Unless the cuts or increases are made in small amounts and very slowly the snow ball effect will occur which will then lead to another recession.
Politicians like to do things fast and big so that people will remember that they did it. If the politicians do things slow and small most people will not remember for more than one second. This is another reason why we are in our current mess, human nature.
We should pass a constitutional amendment requiring all laws that effect our economy be done in a slow and small manner, like the Fed does with interest rate changes.
The reason for going slow and small is so we have time to observe for unintended consequences of the changes we make and can back track if we need to. We are not Ivory Tower people, we can not think of all the things that will be affected by the changes we make. Also if we go slow and small the changes will not shock the economy and the economy will have time to adjust before the next change comes.
I don't like to pay taxes any more than anyone else, but I am willing to pay taxes if our government uses our tax money for the good of the country and does it efficiently. My goal is not to soak the rich, but to have them pay the same per cent of their income as all the other tax payers. The rich do not pay their fare share to Social Security, the argument goes, they will not receive as much as they pay in. True, but aren't they already receiving more than anyone else, they surely don't need Social Security. I would like to see the cap on income subject to FICA tax removed and use the excess to remove the employer contribution to Social Security from all self employed people and small business. This would encourage more people to start small businesses.
Savings provide the slack that every budget should have so that the unexpected does not push us into bankruptcy. Our economy has many slack points in it, so if the individual and government also has some slack, our economy can withstand small unexpected disruptions without creating a recession. I have never seen our politicians do anything small or slow.

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A13U02 Economic strategy

In the ‘60’s we adopted two very poor economic strategies. Our national debt is only 5% of our GDP so why worry. I have never seen the GDP pay for anything so we should worry about our national debt, how is it to be paid? I heard many people say, ‘Don’t tell me how much it costs, tell me how much the monthly payments are and if the payment fits my budget I will buy it.’ Because of this strategy many people live from pay check to paycheck when they didn’t have to, they didn’t need what they bought. Any disruption in their economic life and they were in bankruptcy. This strategy was followed by increased use of credit cards and easy credit. These same people were unwilling to change their life style when the economy changed. They did not remain disciplined and exceeded their ability to repay. This explains our current condition. It also explains why inflation is out of control. It also explains why the politicians can not solve the problem. People are the economy and only people can solve the problem. We must change our economic strategy and our life style if we want a stable economic environment.
The other night I watched a news story about people on food stamps. The people were interviewed as they went through the check out. It was obvious from what they bought the people had not changed their life style. In the months following my wife's death I expected my food bill to be cut in half because she ate as much as I did. But I was surprised to see it was reduced to one third. When I reviewed from memory what foods my wife ate, I realized why. I do not eat potatoes chips, snack crackers, prepared meals, or drink pop or bottled water. Those items were one third of our food bill. If the people on food stamps would change their life style they could reduce their food bill by a significant amount and save energy in the process. People are not rational, we hate to lose, even if what we lose is not good for us or the environment.

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A13U03 Unintended Consequences

I have been active in the stock market since '69. At one time I had more than $100,000 in the market and I lost most of it during a three year period. Few people have paid attention to the following unintended consequences. When I first became active in the stock market, the small stock holder had a large influence on the board of directors because there were many of them. The board of directors would listen to them and they would change the direction of the company. But during the next five years that would begin to change because at that time there were very few funds. A few endowment funds operated by banks and a few pension funds operated by the companies that offered them to their employees.
Every five years later the number of funds doubled or more. Today, there are 9511 mutual funds and only about 2800 stocks listed on the NYSE. The Vangard Group is one of the largest with $5.1 trillion of assets under management and there are about 16 other large mutual funds and many smaller ones. The mutual funds are only one part of the funds because there are index funds, funds managed by private and public companies, venture capital funds, pension funds, etc.
Today the fund managers at a stock holders meeting out number the small stock holder 100 to 1 or more, can you guess to who the board of directors listens. The funds do provide an important service, but at the cost of having capitalists in control of our large companies. A fund manager is the ultimate capitalist because if the manager does not make money the manager will be out of work. Making money is the manager's only goal.
The fund managers elected capitalists to the board of directors of corporations to insure their investments in those corporations would make money. The board of directors in turn hired capitalists to manage the corporations to insure the corporations would make money. The result is that money now takes president over all other considerations. Hopefully, you can now understand why the salaries of the board of directors and the top managers of the companies have become so large, each were increasing the pay of the other so they could keep their jobs.
Now that you understand what has happened maybe you can think of away to correct the situation, I do not know of any simple solution.
I have heard the economists, pundits, and politicians say new technology and trade agreements creates jobs. Yes, they create jobs, but not as many as they eliminate. Both increase the efficiency of the economy but efficiency reduces the number of jobs. I spent two thirds of my career using technology to improve the efficiency of Total Petroleum(NA) and it never created a job, always eliminated jobs. The same for acquisitions, Total made many acquisitions and all reduced the number of jobs.
We should continue to increase efficiency which increases the utilization of our economy to reduce the burden on the biosphere, but we must find away to redistribute the increase in utilization to everyone not just the capitalists.

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A13U04 A little known piece of history

Following WWII the alumni of many colleges and universities were greedy for their institutions to be well known. They wanted the famous scientists who left Europe before and during the war to come to their institution which created a bidding war for those scientists which in turn created the first large disparity in incomes since the robber barons, ie, Rockefeller, Vanderbilt, etc.
These scientists received very large salaries and many perks much larger than even the presidents of the institutions received. Soon the presidents and staff wanted larger salaries and better perks and the divide between the haves and have nots spread. As time passed the divide became larger because of greed.
Many people are protesting the divide, but do not understand how it started or why it has continued. This is a sure sign of a lack of education. To protest with out knowledge is not only futile, it is also destructive because the protestors become frustrated because they can not effect a change, then they become belligerent and someone gets hurt.
If the present conditions are not known, understood, and defined a solution can never be found. For a protest to be successful at least one realistic solution must be available.
A large number of the people have made wage slaves of themselves, they need to pay for 'I want' purchases bought on credit. For example, more than half of Total Petroleum (NA) data entry staff did not need to work. In fact, it was costing them money to work, they were loosing between $1,000 to $2,000 dollars a year.
At each performance review I explained to each one in detail why they should stay home and take care of their children and every one said, 'But if I don't work I can't have new clothes and my big car.' Only one followed my advice.
These people didn't have enough education or the skills to get a higher paying job and Total's data entry positions were the highest paid in the area. Even so, they did not earn enough to pay for child care, the new clothes, the cost of second car, and the debt on their cars and clothes, besides, their husbands 'had' to have a big truck, a snow mobile, and a camper.
This is another example of the irrationality of people, we refuse to do the arithmetic because the result would disclose that what we want to believe is false. It also is an example of a false value system, we place to high a value on things.
As the cost of energy continues to increase our false economy will continue sink as more people are forced to reduce their consumption. Our unemployment and under employed rate will remain high until
most of our 'I want' purchases are paid for from savings instead of from borrowing.

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A13U05 How effective are tax cuts at creating jobs?

The Reagan tax cuts gave millionaires a $300,000 increase in income and the middle income people about a $300 increase in income and the bottom income people nothing, they didn't pay taxes. A millionaire's spending habits are rarely changed by an increase in income, it may change how much they give to charity or how many stocks or bonds they buy, but most of the time the money simply goes into their bank accounts. No matter what they do with their increase in income, it seldom causes a labor intensive transaction, the result, little or no increase in employment.
Middle income people spend every dime they receive and most of their spending is on labor intensive transactions. For example, lets say a middle income person decides to take his wife out to diner every month instead of twice a year with his $300 increase in income. That is ten more meals each year, each one a labor intensive transaction.
It will take the tax cut of 1,000 middle income people to equal the loss in revenue to our treasury of one millionaire, so multiply the above example by 1,000. That is 10,000 more meals than before the tax cut. A tax cut for a 1000 middle income people will increase the number of jobs much more than the tax cut for one millionaire.
When was the last time you had a meal at a white table cloth restaurant not counting vacations or business? Two years after we were married, my wife and I would go to the Embers for Sunday brunch. The food was excellent. We only went on special occasions after we moved to Alma. It was a sad day when the Embers closed, soon to be followed by many other white table cloth restaurants. Their closing was the result of inflation caused by the tax cuts. Middle class people could no longer afford to eat at white table cloth restaurants often enough for them to stay in business.
To many people assume that increasing the income for the high income people will spur investment which will create jobs, a mistaken belief. Demand creates jobs, such as the increase in the number of meals. Without demand there will not be any new businesses needing investment. Why do you think many large corporations have so much cash on their balance sheets. As you can see from this simple example, tax cuts for high income people are nearly worthless for the purpose of creating jobs.
The pundits liked to say the Reagan tax cut created the longest running bull market in history, but they failed to say that the bull market was just that, bull. To many people had money they didn't know what to with so they bought stocks. Unless new issues are bought, the purchase of stock does not increase the amount of capital available for the company to invest. Since very few new issues were available no value was added by purchasing stock, all that happened was price inflation. Demand for stocks was much greater than the number of stocks available for purchase so the prices continued to rise without increasing the value of the stock until the major market crash of '87 which was followed by two minor market crashes of '91 and '93 and the dot comm market crash of 2000, so much for the longest running bull market. These market crashes removed most of price inflation in the stock market.
How did most people lose more money than they invested in stocks during the longest running bull market? Because people ignore inflation. Add to their loss in the stock market, the amount they lost to inflation, plus the money they lost paying the interest on the amount they borrowed to continue their spending spree and the amount easily surpasses the amount of money they invested in stocks during the longest running bull market. The above losses took more money out of their pockets than the tax cut put in. I wish people would stop lying to themselves and to us. We must balance our budget and reduce our debt because the deficit is a major contributor to inflation.
Sadly, our politicians must shock the markets once again because we are more than thirty years behind in balancing our budget and paying down our debt. Everyone must pay more taxes because it is impossible to balance our budget with reductions in spending alone.

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A13U06 Inflation

  The Pundits almost never mention capital inflation, but that is what the longest running bull market was, one type of capital inflation. Capital inflation increases the cost of government for infrastructure and defense and the Reagan tax cuts were the beginning of the large increases in our national debt.
Prior to the market crashes most people thought they were gaining wealth when all they were gaining was inflation. The crashes brought them back to reality. Most people lost more than they had invested. So the result of the Reagan tax cut did not do what most people thought it would do.
Tax cuts and tax increases should be done in small increments so as not to disrupt markets and to avoid the self delusion that comes with a large increase or decrease in income. Do you think our politicians will ever learn?
The Bush tax cut repeated the same mistake as Reagan's tax cut and with the same result. Again, when will our politicians learn not to make large changes in our tax system?

Greed is not good, never has been, never will be.
Greed is rampant in our society. '08 was merely the down payment for that greed, just wait until the rest of the bill comes due and the people who are causing it will never admit they contributed to it.
Greed is another unintended consequence of large increases in wealth, people think they deserved the increase even though they did nothing to earn it. Both the Reagan and the Bush tax cuts were large enough to promote greed. People thought they had an increase in wealth and thought it would continue. They began spending more which increased our consume, consume society and they bought larger homes than they needed and thought they could use them as a piggy bank. As they bought more they increased their borrowing to continue buying. The end result was that we had a false increase in our economy because of inflation, both consumer and capital inflation.
When consumer and capital inflation are coupled with tax cuts and no reduction in spending it is a recipe for disaster. When the price of oil spiked the entire house of cards came falling down because to many people didn't reduce the amount spent on gasoline until their expenses were greater than their income and they could not borrow any more, the result: bankruptcy.
It took over thirty years of tax cuts and deficit spending to bring about the severe crash of '08, so it is rather stupid to think we could recover in less than the same amount of time.

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A13U07 Laffer

A little known economist named Laffer had a US senator for a seat mate on a first class flight to Washington D.C. Naturally the conversation turned towards economics and Laffer drew a curve on a piece of paper. He used the cost of economic goods for the Y axis and money supply for the X axis and the resulting curve was a smile and it became known as the Laffer curve. When the money supply was low the cost of economic goods was high and as the money supply increased the cost of economic goods decreased, but then began to increase as the increase in the money supply caused inflation to increase which resulted in an increase in the cost of economic goods. Every economist would agree with the curve, but no one knew how to measure how the increase in the money supply changed the cost of economic goods. If it can't be measured the curve was useless. That didn't bother the senator, he had a rallying cry, increase the money supply and we can create jobs. He lobbied the Fed and the Treasury to increase the money supply to improve the economy, they did and it did and money supply economics was born. But no one knows if the increase in the money supply increased the economy or if another variable did.
What happened next is the reason for this history. The pundits, the politicians, and the economists called the increase in the money supply, 'supply side economics' making it very easy for the capitalists to pervert the effect of an increase in the money supply into meaning something entirely different. The capitalists promoted supply side economics as the cure all for the economy. Increase the amount of goods and services and it will improve our economy.
I do not understand why the economists went along with this idiotology because supply side economics violated the economic law of supply and demand. If supply is greater than demand the price of the goods or services will decrease until the excess supply is eliminated which generally will cause jobs to be eliminated which will reduce the economy.
Supply side economics fits very well with the trickle down economics that the capitalists were then promoting and continues to this day. Each one had no basis in reality, but that did not matter, the capitalists could hire professional liars to spin the topic so ignorant people would believe it. It has always amazed me what people will do for money, but it also focused my attention on belief, not only are beliefs unreliable, they act as blinders, they keep people from evaluating because beliefs are invoked by fast mode thinking.
These people continue to ignore that demand creates jobs not supply and resist any increase in the minimum wage because that would increase costs which should decrease demand which would decrease profits, but that is not what history tells us. If the minimum wage is increased these people spend every penny they earn and would prove very quickly that an increase in wages increases demand which increases the economy which would show an increase in the minimum wage does work.
These same people continue to say that increasing the wealth of the one per cent will increase jobs because the one per cent invest their money in new businesses, but without an increase in demand there will not be any new businesses needing investment. The money invested by the one per cent creates very few jobs because most of it is used to buy stocks and bonds, it is not invested in new businesses, where as an increase in the minimum wage goes to people who will spend every cent they earn there by increasing demand and creating more jobs. The consumer is 70% of our economy. This is why an increase in the minimum wage is important.
Look at it another way. Assume that the one per cent earns one million dollars and that the 99 per cent earns ten dollars an hour or about $20,000 a year. Now do the simple arithmetic, 99 times $20,000 is equal to $1,980,000 which is almost double what the one per cent can put into the economy so who does more to improve our economy?
From my work with the refinery model I knew supply side economics was false because Total's refinery produced more heavy fuel than could be sold so it was sold at a loss. How could a loss create jobs, supply side economics does not work, it is an out right lie. Demand creates jobs not supply.

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A13U08 War

'The war brought us out of the recession of 29'. Hog wash. My dad bought a new car in '37. GM had plans for a new factory in '38 and it was completed in the fall of '39 and my dad went to work there in Jan of '40. Corporations do not build factories during a recession. The 'New Deal' ended the recession.
Rants are used to distract our attention away from the real threat. Prior to WWII the imperialists set the stage for what was to follow and after WWII our capitalists finished the job and while we patted ourselves on the back for being such a good country for helping Europe and Japan recover, our capitalists, behind the scenes were raping the rest of the world. They did everything possible to keep wages low, education limited, and dependent upon us. They wanted cheap natural resources, look at the rotten deals we made to get cheap oil, tin, copper, sugar, lumber, etc. In addition we spread our false economics.
Our economy was the only one left standing after WWII so if anyone wanted anything they had to buy it from us. Which meant as the other countries recovered their production the demand for ours declined.
In 1947 the baby boom began which increased the demand for our production in the beginning, but efficiency reduced the number of people needed to produce that production which reduced the buying power of those laid off which lowered demand for our production causing a recession.
The average wage earner and below did not pay income taxes in the beginning, these people spend all of their income which created demand. So taxes were reduced on the wealthy and increased on the rest in order to make the economy strong, it did not work. The rest did not have the same amount of money to spend which lowered demand for our production. Giving more money to the wealthy did not create more jobs, it only increased inflation and prolonged the recession. People create demand and demand creates jobs which makes an economy strong. Money does not create jobs, it only creates capitalists.
Several days ago I was reminiscing, I recalled the time I agreed to help our treasurer count money from a fund raising event so he could prepare the bank deposit. I can still see the table piled high with bills in neat stacks of ten crossed ten high in each pile. I don't remember the amount, but it was more than a thousand dollars. While I was remembering the other details of the event a thought occurred. That money didn't do anything, it just sat there. It didn't create any jobs, it didn't create any wealth, or anything else. Money is worthless unless it is spent. Money is medium of exchange, it is not a resource, to hoard it is meaningless.
After the war, the nightly news, the stories of the vets, and the pictures in Life and Look about the war bothered me, but the attitude of people towards the war, also disturbed me. In the eleventh grade I became a student of economics, later I would read all of the well know economists, later still, I worked with the mathematical model of the refinery. Then I had the knowledge and some math to support my position, war is not economical, it depresses an economy. The only people who benefit from war are the suppliers of war material.
War materials are destroyed during a war and after a war they have little or no value, so the money spent on them was wasted. During the war many people were employed to supply the war materials. After the war those jobs disappeared. During the war people felt prosperous, but the money they earned was borrowed money and after the war it had to be paid back. These are the three main reasons a recession follows a war.
Several years later the recession ended and the politicians, pundits, and the economists took credit for lifting the country out of recession, each gave reasons why. But what they did, did not lift the country out of the recession, the baby boom did. People are the economy, an increase in population increases the economy. How could the economists have ignored such an obvious fact for so long!
Because people are not rational and the economist's theories often could not predict, explain, or correct what happened in the economy.
After the war Russia established puppet dictators in all of the countries they liberated from the German army and then got Great Britain, France, and the US to agree to divide Germany into four pieces. Our capitalists did not want to lose market share to Russia and our country made many mistakes trying to prevent Russia from gaining influence in the rest of the world.
But our capitalists either didn't know or chose to ignore that a centrally planned economy is doomed. All we needed to do was wait. No one is capable of planning an economy, to many variables, and control would soon be lost. In a planned economy there is no incentive to do more than necessary, economic activity will slow, shortages will occur and construction will be shoddy and the economy will collapse.
When I saw a propaganda film made by the Russians on PBS, I laughed. While the presenter was talking a man picked up a 2 by 4 and carried it from the left of the screen to the right and a few moments later another picked up the same 2 by 4 and carried it back. This was repeated many times while the presenter was explaining how efficient and skillful the work was being done.
Later, I saw another propaganda film of their oil industry. Oil was leaking from almost every valve and pump seal. In Siberia they laid the pipelines on the permafrost without any expansion loops. When a heater failed the oil would cool, the lines contracted, and broke next to a weld. Instead of repairing the line, they packed it with snow and poured water on it and let it freeze to seal the leak. When the heater was repaired the line would expand and close the gap, it would still leak, but not as much as before. The leak stopped when the oil froze. The entire film was bazaar. How could they be so egotistical as to believe other people would not understand how poorly their work was being done. It was beyond me.
My next thought answered a question that had bothered me ever since I wrote 'The Tax Cut Myth'. Why did the Bush tax cuts create jobs and why the type of jobs it did create?
I divided our population into three groups by income, the people who do not pay income tax are the 'bottom'. The people whose income is above $250,000 are the 'top' and everyone else is the 'middle'. The Bush tax cuts gave the top very generous amounts of money that didn't create very many jobs. The bottom obviously got nothing and the middle got crumbs. But the middle spends almost every penny they receive and what do they spend it on? Well, two places come readily to mind, discount retailers and fast food restaurants and that is the type of jobs that were created. This type of job does not help the economy very much, but they do lower unemployment. But, and this is a very big but, they place a very large burden on employers or our government to provide health care because these low wage employees cannot afford health insurance premiums.
Now, I was satisfied with 'The Tax Cut Myth'. Tax cuts do not create jobs unless the tax cuts target the people who create jobs. To give tax money to anyone else is a waste of tax payer money as 'The Tax Cut Myth' demonstrates.

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A13U09 The Tax Cut Myth

When I heard, 'Tax cuts create jobs,' for the umpteenth time, I decided to do the calculations for myself. I think I saw these calculations somewhere before, but I can't remember where.
Let me begin with a tax calculation based upon one hundred families with incomes and tax rates as listed in the table below. Allow each family to deduct $10,000 for the standard deduction plus personal exemption. Seven of the bottom 20 families are on unemployment. Assume that the budget is balanced.

No of             income       taxable      tax     tax         Budget
families                            income     rate   paid        Balanced
 1              1,000,000       990,000     70   693,000
 9                 200,000       190,000     40   684,000
10                  50,000         40,000     30   120,000
30                  30,000         20,000     20   120,000
30                  20,000         10,000     10     30,000
20                  10,000                 0       0              0

Now put a tax cut in to effect. Two families came off unemployment
and earned 10,000 each saving the government 20,000.

No of       income      taxable       tax       tax      Budget Deficit
families                     income      rate     paid     at year end
 1           1,000,000   990,000      40     396,000     -297,000
 9              200,000   190,000      30     513,000     -171,000
10               50,000     40,000      25     100,000       -20,000
30               30,000     20,000      15       90,000       -30,000
30               20,000     10,000        9       27,000        -3,000
20               10,000             0        0                0        20,000
                                                                             -501,000

Two $10,000 jobs for a $500,000 deficit, if tax cuts create jobs, it's certainly not cost effective.
Now assume a 2% per year inflation rate for twenty years and a 20,000 standard deduction plus personal exemption.

No of        income        taxable     tax       tax         Budget Deficit
families                        income     rate     paid       at year end
 1           1,460,000    1,440,000    40     576,000      -117,000
 9              292,000       272,000    30    734,400          50,400
10               73,000         53,000    25    132,500          12,500
30               43,800         23,800    15    107,100         -12,900
30               29,200           9,200      9     24,840           -5,160
20               14,600                  0     0      29,200
                                                                                 -42,960

Now assume a 30% increase in population over the twenty years.

No of          income       taxable      tax        tax       Budget Surplus
families                         income     rate       paid      at year end
 1.3          1,460,000    1,440,000   40      748,800       55,800
11.7            292,000      272,000    30      954,720     270,720
13.0              73,000        53,000    25      172,250       52,250
39.0              43,800        23,000    15      139,230       19,230
39.0              29,200          9,200      9        32,292        2,292
26.0              14,600                0      0         37,960
                                                                                 438,252

You can change the numbers however you like, but it should be obvious that the tax cuts didn't balance the budget or improve the economy. All the tax cuts did was give people more money and caused inflation. The narrowing of the budget deficit and improvement in the economy came about because of an increase in population. Now you know how the politicians came up with the rosy forecast of a budget surplus in ten years.
What they couldn't predict was the sharp increase in the price of oil which put us into a recession because the increase in the price of oil took a large sum of money out of our economy. Do you really think a 25 basis point change in the federal funds rate can control inflation. A one penny change in the price of gasoline has more impact on the economy than a quarter of a basis point by the fed, this was true until 2000 when adjustable rate mortgages and balloon mortgages were widely used.
The most important impact of a tax cut or a decrease in the fed funds rate is psychological. It makes people feel confident and they spend more money than normal which then gives a temporary increase to the economy until inflation increases and reverses the psychology.
When people spend more than normal they create a surplus demand greater than normal thereby creating surplus jobs more than normal. This can become a self perpetuating cycle until inflation sets in. Then all the surplus spending decreases and the surplus jobs disappear. Again, this can become a self perpetuating cycle causing deflation and eventually, a recession.
I think it was fitting that the longest bull market in history led to the slowest recovery in history. The bull market was fueled by huge deficits and we will pay the price. It's just a matter of when.
Tax cuts do not create jobs, psychology does. We're not smart enough to create the psychology without betting the farm. "A way of thinking is at the same time a way of not thinking" to quote S I Hayakawa. People let their egos block their view. They feel good because they have another zero on the end of their income. They have more paper money today than yesterday, but in buying power they have less than they did yesterday. We are not better off than we were twenty years ago. We, just, think we are. Very few check. Anyone on a fixed income can attest to it.
An economy is a zero sum game. It can never be greater than the sum of the productivity of its members nor greater than the amount of money the participants, both foreign and domestic, in the market place are willing to spend for the goods and services produced in the economy. The production of goods and services can never be greater than or less than the demand for those goods and services, otherwise deflation or inflation will occur.
The only way an economy can grow is by increasing the number of people or by inflation. Economists like a small amount of inflation because they don't know how to handle a deflationary environment. They think they know how to handle an inflationary one.
The standard of living can increase without an increase in the economy by being more efficient and by using cheap energy allowing prices to be reduced (importing cheap goods or services has the same effect as cheap energy). Remember, the standard of living is not the same as the economy. But efficiency and cheap energy brings on the problem of what do you do with those unemployed by the efficiency and the cheap energy.
The unemployed are no longer contributing to the production side of the economy. The efficiency actually lowered the economy by lowering prices. If the unemployed are supported by tax dollars this will cause inflation because the unemployed will take money out of the economy while not contributing any production.
If the lowering of the economy is balanced by the inflation caused by the tax supported unemployed, dangerous undercurrents in the economy can go undetected until it is to late to prevent their effect on the economy. Inflation also occurs when people live longer causing a change in the distribution of the population. The increase in the number of retired people contributes to the demand side of the economy, but not to the production side.
I hope you realize that we cannot keep increasing our population and that cheap energy is a thing of the past.
Note: At the time I did the calculation the number of people per household was 2.1. Since only about 2/3 of the household file income tax returns and only about 2/3 of the population is considered in the work force, the ratio of number of people filing income tax returns to the number of workers in the work force remained 1 to 2.1, hence one millionaire equals two unemployed.
This is why targeted subsidies and tax cuts are much more effective than general tax cuts because they create demand and then people with marketable ideas can create jobs.

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A13U10 Contention

To many ignorant people are saying our government should not have control over our freedom. A recent example is the protesters of the virus avoidance rule, Stay at Home. What they do not understand is that the individual can not survive unless the herd survives and the herd can not survive unless the individual does survive, at least most of them. Our government is our herd, it is our collective self, together we are our government and our government must have some control because people lie and cheat so if we are to have a fair market our government must have control to prevent lying and cheating. Plus people are not rational so our government must protect us from ourselves. If we are to survive we must protect our environment, again in order to do that our government must have rules and laws to keep people from destroying our environment.
The conflict between the need for our government to have control versus the desire of the individual to have as much freedom as possible is a contention. A contention does not have a solution, we can not calculate or measure how much control our government should have nor how much freedom the individual must give up so our government can have some control. Since we can not make the calculation or measure we can not put a name on it, to do so is an exercise in futility.
For example: How much control do you want the government to have over the concerns I have mentioned. If you give the government 50% control then the individual will have 50% freedom, the sum of the two must always equal 100%. Let G stand for government and I stand for the individual.
A simple example
                                   person                    dictator             capitalist
Economics          G 50%   I 50%       G 100%    I 0%     G 0%   I 100%
Rationality          G 0%     I 100%     G 100%    I 0%     G 0%   I 100%
Environment       G 50%   I 50%       G 100%    I 0%     G 0%   I 100%

Now each person can place a different % on each of these concerns and when you add all of the other possible concerns, such as, defense, taxes, health, education, etc., the number of different combinations becomes very large so how can anyone put a name on each possible combination?
So we need to stop arguing about definitions of meaningless names and start a discussion about how much freedom the individual is willing to give up so our government can have enough control so we can survive, again at least most of us.
The dictator and the capitalist are the extremes, both extremes will fail because they ignore human nature, so we have a choice, we can choose a %  in between but the choice we make is arbitrary. No one can calculate or measure where we are between the extremes because of the number of different %  are so large, we can only make our best effort to find a balance between the requirements of government and freedom for the individual.
Even if we could calculate or measure the %, the most important variable can not be known, no one knows how to measure human nature. People are the political and the economic systems in which we live. We must chose how much freedom the individual can have and how much control the government should have and any % in between the two extremes is socialistic.
As you can see capitalism is not mentioned because it does not exist, the word came about because of a poor choice of words by the early economists. I have replaced the word socialism with socialistic and I know that it is just a change in words, but it serves an important purpose because all isms are a figment of someone's imagination, a dream, they do not exist because they ignore human nature.

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A13U11 Economic activities

At first all economic activity was individual. Then as our population increased our economy increased and  partnerships were formed. When the businesses became larger, corporations began and sadly capitalists began to take control of the corporations. They were not regulated which led to many recessions and the market crash of '29. Then in '34 people elected politicians who regulated the capitalists and our economy stabilized and co opts and associations were add to our economy. Then our economy was definitely socialistic. After WWII we added quasi government businesses such as utilities, air ports, and communications plus non governmental organizations and the number charities increased and so did our economy.
But in '80 this socialistic economy started to change as the capitalists gained political control and changed the rules of our economy in their favor and our economy has been going down ever since. Capitalists must be regulated. We must over turn Citizens United, plus one other law that gives person hood to businesses.
We need the capitalists to fund projects our government should not finance plus we need every form of economic activity we now have: government, individual, partnerships, corporations, co opts, non governmental organizations, charities, etc. We should use the form that solves a problem efficiently. No one form can do that.
An example, two summers ago, the trucks from seven different trash haulers drove past my house. Now some would say that is free enterprise, to me it is stupid. Why waste the gasoline for seven trucks when one serving every house would be a lot more efficient. Yes, it would probably eliminate six jobs, but that is why we need to develop another way to distribute our economic utilization.
Our economy is not a capitalistic economy it is a socialistic economy. We must stop this inane argument about capitalism and socialism because neither exist and face reality and regulate the capitalists.
Inflation always ends in deflation, deflation does not always end in inflation. If deflation or inflation is extreme it can cause the complete collapse of a civilization. During inflation assets increases in value and money decreases in value, thus the net change is zero. During deflation the opposite occurs, assets decreases in value and money increases in value. Again the net change is zero. Not all assets change at the same rate, property changes at a very fast rate, but food changes at a much slower rate.
An economy is a zero sum game, it is always balanced. But because an economy is dynamic the distribution and flow is not uniform in space or time, it will be different for people in different places and at different times and for different assets. Because people are not rational the non uniform distribution and flow in an economy are amplified making an economy chaotic and therefore an economy can never be completely predictable.
Again, because people are not rational, psychology is of utmost importance. Why do you think the Chairman of the Federal Reserve uses ‘Fed Speak’ and economists say, ‘ on the other hand…’ and politicians always use words that imply things are getting better or will get better.
Because we are not rational, if we think things are getting better, they will, if we think things are getting worse, they will, because people will change their spending habits to match how they feel about the economy and people are the economy.
There are limits to psychology, psychology can not over come economic problems that cannot be solved by changes in spending habits, such as reaching the limits of a resource, as we did in ‘08 when consumption reached maximum oil production. Reaching limits puts a severe strain on an economy. The only way to reduce the strain is to conserve until technology can find a way to by pass the limit. The politicians, pundits, and economists display their ignorance of the forces that lead to inflation and deflation when they recommend making changes that are contradictory to the direction they want the economy to move.
Low taxes, low interest rates, cheap energy, cheap labor, etc., promote want spending and are inflationary. The reverse is deflationary. Inflation creates want spending jobs, deflation eliminates want spending jobs. Need spending tends to remain constant regardless of inflation or deflation.
So this is our dilemma, to reduce our national debt, we should reduce government spending and or increase taxes, but this would be deflationary and would reduce the number of want spending jobs. To increase the number of want spending jobs, we should increase government spending and or decrease taxes, lower interest rates, but this is inflationary and would increase the national debt.
What very few people understand is the high cost of energy makes resolving our dilemma almost impossible. We must become energy efficient and to do that we must change our life style until our technology can find a solution for energy conversion. Until we understand that we must become energy efficient our economy will continue to decline regardless of what the politicians, pundits, and economists do.
A few years ago in March I predicted $4 gasoline by Aug. A new oil field came into full production raising the world oil production limit and China tried twice to slow down its economy resulting in a slowing of oil demand from China. The result of both kept our cost of gasoline near $3 a gallon.
Oil demand has continued to increase. Current world consumption is about 100 million barrels a day. We are, again, approaching the oil production limit. Unless we conserve we will repeat Aug '08.
We had seven major spikes in the price of oil before Aug '08. How many people paid attention? How many recessions must we have before we wake up and recognize how serious our situation is.
My guess is the next recession will not be as severe as '08 because most of the people with over extended finances are bankrupt, so the next batch of bankruptcies will be smaller plus many people have reduced their debt burden giving their budgets some slack. But the number of unemployed and under employed will continue to rise.
I recommend we extend unemployment benefits indefinitely and increase taxes on oil, gas, and coal to reduce demand. Start with small increases in taxes and repeat the increase each year until the cost of fossil fuels is greater than alternative fuels. If the cost of oil, gas, and coal are cheaper than alternative fuels, alternative fuels will never be used.
The increased costs will cause people to change their life style. Use the tax money to pay for unemployment benefits, health care, social security, and to reduce our deficit. If we don't balance our budget and reduce our energy demand we will crash our economy.
I have been active in the stock market since '69 and I can remember when the Dow was at 500, now it is over 25000, this is an example of inflation, bigger is better, more is better. Is it?
I have not liked what I have been seeing in the market for more than 40 years. Have you noticed as companies merge the result is a larger company, but with one less company on the market. When I first went to work there were 52 integrated oil companies, now about 8. Each time companies merge one company is larger, but work force becomes smaller. When automation is included, is there any wonder why there is unemployment and under employment.
Has an increase in the Dow or GDP ever increased your income or buying power? I know for sure that the CPI has reduced your income by reducing your buying power.

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A13U12 The GDP illusion

We practice self deception and maintain illusions in our country so we can continue to do what we want to do, we are right, we know how to do it, our way is the only way, but sadly this prevents us from improving our lot. Three of the worst are: tax cuts create jobs, we can grow our economy, and the GDP is an accurate measure of an economy.
The following equation explains our situation
People = economy = consumption = pollution
If our population increases or decreases so do the other variables. Therefore; this arithmetic applies to water, food, energy, etc. as well. Since we live in a finite world, the variables in the equation cannot grow indefinitely. Therefore; contrary to what the politicians and the pundits keep telling us, we cannot grow our economy, because a growing economy is not sustainable.
Consider an economy of one person. The GDP of one person can never be any greater than what that person creates. The value of the GDP will be arbitrary as determined by that single person. No single person would waste time creating an excess of anything, a single person would only create what was needed. A single person would not want to keep up with the Jones. A single person would not want to impress any one. A single person would not consider their time worth more than anyone else, they would not want an increase in salary. They would not be concerned with fashion.
A single person would strive to be efficient so as to have more time to rest, play, and to enjoy the beauty of our world. The GDP of a single person would not change no matter if the efficiency was gained by using new methods, tools, animals, or a different source of energy because the amount of goods and services created would not change. But efficiency would definitely increase the quality of life.
If a person discovered a new way of production, he became more efficient, and reduced his required work time from 12 hours a day to 8, how would you evaluated his GDP. If you arbitrarily assigned a value of ten dollars an hour to his time, his GDP before the reduction in required work time would be $120. So what is his GDP after the reduction, $120 or $80? In either case his GDP did not increase, but I am sure that you will agree that his standard of living did increase because of the reduction in required working hours. Efficiency increases the standard of living and reduces the GDP and the amount of work required thereby reducing the number of jobs.
One possible solution to the loss of jobs is to pay people with reduced work time instead of money, this would require more workers to produce the same amount of product as before the efficiency was put into practice.
Now consider an economy of two. If the efficiency of both was the same, the GDP would double, but the quality of life would not change. Only if they took advantage of the ability of each other would the quality of life improve, but this action would leave the GDP unchanged. The value of the GDP would be determined by those two people. Again the value of the GDP would be arbitrary, but also relative as determined by the two people.
Again, if the efficiency of the people remained the same, increasing the number of people would increase the GDP proportionally and only if they took advantage of the ability of each other would the quality of life improve, but again, this action would leave the GDP unchanged. Again the value of the GDP would be arbitrary and relative to the people involved.
This is an idealized economy because it assumes that everyone is healthy, productive, and self sustaining, all of which adds more variables that influence an economy. But this idealized economy points out that the number of people is the largest single variable in determining the GDP and that the GDP is a arbitrary and a relative number. An economy can't grow except relative to the number of people.
My last encounter with economics came about two years before I left Total Petroleum. I do not remember how I came across a small booklet, ten to twelve pages, about the GDP, the gross domestic product of our economy. The GDP is nothing more than the total value of goods and services traded in our economy. In the center of the booklet was a table of numbers. The columns on the first page were headed by the years 1960 to 1969 and on the second page the years 1970 to 1979. Beneath each year was the change in GDP from the previous year, followed by the GDP, followed by a deflator index, and the contribution of each of the various segments of the economy.
As I scanned the table something didn't seem right, the increases going from year to year were to large and the entries for the segments did not always follow the change in the GDP. Some were going up while the GDP was going down and the opposite and the changes appeared to be random among the segments. Because of the large increases in the numbers from year to year in the table, it appeared to me that the deflator index was not correcting the numbers for inflation accurately.
It was obvious to me that the economists who had prepared the booklet were making simplifying assumptions. I understood why they did. Our refinery model required more than 1,200 equations and more than 1,500 variables, can you imagine how many equations and variables would be required to model the economy of our country. No one could solve the equations in the life time of the universe using the largest computers available, so they had to make simplifying assumptions.
Since the economists were forced to make simplifying assumptions, why couldn't I do the same. I made a very simple thought experiment. I imagined a pioneer going through a rugged mountain pass and discovering an uninhabited valley. He returned the next spring with his wife and two mules loaded with supplies with which to establish a farm in the valley. Because the valley was isolated from the rest of the country it would be foolish to plant more than they would need because they could not sell the excess to anyone. So the GDP of the valley was the value of the crops they produced. Since there was not a market for their crops, I arbitrarily assigned a value of $1000. (In my previous comment 'The GDP illusion' I used $10,000, but I later realized that that was not a convenient number, as you will see.
The next year another farmer joined them and produced the same amount, so the GDP of the valley doubled. The next year another farmer joined them and the GDP increased from $2,000 to $3,000. It was obvious to me that the GDP increased in the same proportion as the population. In case it is not obvious to you, consider the valley's population to be 100, then the GDP would be $100,000. Now increase the population by 3% to 103 and the GDP would then increase to $103,000 or a three per cent increase.
That grossly over simplified thought experiment convinced me that an increase in population was a very significant factor in any increase in the GDP and because the economists used a deflator index in their calculations to compare the GDP of one year to another, inflation must be another significant factor in any increase in the GDP.
In addition, Keynes made a very convincing case that the amount that people are willing to spend is another significant factor in any increase in the GDP and reduced spending is a major factor in any reduction in the GDP. So is an increase in efficiency because efficiency reduces the cost of economic output and should reduce the prices which would decrease the GDP. These three factors contributed to my realization of why I had such a poor opinion of economics and economists along with the politicians and pundits who quote them. 'We must grow our economy' is an often repeated phrase and it is false. An economy can not be grown. The population can grow and inflation can increase the GDP and increased spending can increase the GDP, but the economy can not grow. Since people cause inflation and increase the population and control spending, people are the economy.
Now look at what happens when 'I want', 'I'm worth more than he is', and fashion enters the picture; inflation and excesses occur, superfluous jobs, superfluous goods, and superfluous services; efficiency declines and pollution increases, both decrease the quality of life; and changes in fashion cause the value of goods and services to fluctuate unpredictably which causes unpredictable changes in the GDP.
The increase in population and/or the increase in inflation and/or the increase in superfluous jobs, superfluous goods, and superfluous services causes the illusion of growth. When any of these factors declines the economy declines. This is why our economy expands and contracts. It also indicates that our economy is not sustainable.
Thus the GDP is not an accurate measure of an economy. A GDP per capita would be more accurate. The GDP certainly does not measure the quality of life.
Our history also contributed to the illusion of a growing economy. Following World War II our economy was the only significant economy, we produced almost all of the goods and services for the rest of the world, at the same time our population was growing rapidly, the baby boom. These two factors created excess demand which caused inflation and caused wealth to flow into our economy causing the GDP of our economy to grow rapidly. As the other countries recovered and our population growth declined, demand for our production declined and our GDP declined. This is why manufacturing job disappeared, as other countries developed their own manufacturing, ours was not needed.
To make our economy grow, the politicians, pundits, and producers promoted consumption via fashion, advertisement, and credit, but this caused inflation to increase at a more rapid rate as well as increasing the GDP. As debt increased it contributed to the rise in inflation.
Inflation reduces the buying power of the consumer which reduces consumption and when coupled with a reduced rate of population growth the GDP declined which was followed by more government intervention, increased emphasis on consumption, and an increase in debt and the cycle has been repeated ever since.
The GDP never paid a debt, only taxes pay debts. Government is not the problem, lying politicians, pundits, and producers are the problem.
The GDP is not corrected for the increase in debt, for depletion of resources, or for pollution and it completely ignores the fact than market prices are arbitrary, how else can you explain the variation from moment to moment. Oh yes, it is because supply and demand changed, but both of these are arbitrary, most of the time based upon wants rather than needs.
Inflation in the cost of construction is generally high and not well accounted for in the GDP. This hidden inflation along with debt inflation is sapping strength from our economy and manipulations of the Fed Funds rate will not change it. The Federal Reserve Board uses many different indicators of the economy when formulating monetary policy because of the deficiencies of the GDP.
The pundits, politicians, and producers like to comment on how well the economy is doing by saying something like, 'The GDP increased by 4% over last year.' But they failed to mention the the population went up by 1% so the GDP went up, surprise, surprise, as if the GDP was independent of the number of people. Or they will say, 'Retail sales went up by 1%,' but fail to mention that inflation went up by 2%, so the increase in retail sales didn't even cover inflation. In reality retail sales went down.
Geography determines the resources available to an economy . An economy can never be greater than the productivity of the workers and limited by the resources available to that economy. An economy can only trade excess production with another economy otherwise such action would impoverish the economy. Zero resources to exploit equal zero GDP. It should not be a surprise to learn that counties with no resources also have a poor economy as measured by the GDP. This fact should alert us to the danger of depleting resources, when the resources are gone our GDP will also.
Consider an island nation who's people live by gathering fruits and vegetables and by surf fishing, completely self sufficient, they don't sell anything. Obviously their GDP is zero and why would they care. Their quality of life would be quite high, but to compare it with other economies would involve bias. From our perspective we would think they were rather primitive, but are they?
From our bias, to improve their economy we would have to convince them to deplete their resources by gathering more fruits and vegetables and to increase their catch of fish so they could sell them to us, but they would have no use for our money unless we convinced them to buy goods and/ or services from us. Their economy would grow according to our standards, but not theirs, their resources would be depleted.
If you think the above story is fiction, read our history and learn how our country has 'helped' other countries and to whose benefit.
From my own bias, I would think that the only things they lack of importance to me is relief from pain and mental stimulation. I would think them to be rather brain dead. They could develop a mathematical system, but without other resources their knowledge attainment would be rather limited. Again, the lack of resources plays a dominate role and indicates why necessity is the mother of invention. A challenging environment is a stimulating environment. Again, resources play a role in intellectual development.
They could have a GDP by creating a monetary system, they could use shells or something similar as their medium of exchange, their money would be worthless to us, but ours would be worthless to them. Then they could assign some of their people to surf fish and some to gather fruits and vegetables and then exchange products for shells. They could develop their own market prices and they could make their GDP as large as they like. The size of the number is an illusion, an ego gratifier, the number means nothing until it is compared to another number, in other words the size of the GDP is relative.
Any and every medium of exchange is arbitrary, the value is determined by the people involved. We place the value on the medium of exchange, it has no value until we give it one. It doesn't matter if the value is determined by what we call a ' free market' or by political entity, the value is still arbitrary and relative.
By assuming our value is real, we delude ourselves into thinking we are better, we are worth more, our way is better, more is better, bigger is better because like all living things we are a taking creatures and we think if we have more we are wealthy.
Many years ago while I was watching the TV show 'Bonanza', Hoss returns from a journey to an isolated valley where another cattleman had hundreds of head of cattle and says he had met the wealthiest man in the world. But the other cattleman could not sell his cattle because of his isolation, so the question becomes was he wealthy or was Hoss using an arbitrary definition?
Aren't we deluding ourselves? Aren't we judging another economy using our own arbitrary standards? I think we need to keep our ego's in check. Just because our pay check gets larger each year, that does not mean we are getting 'ahead'. The increase in pay must be compared to the cost of goods and services that we buy, the increase was relative and for most people it was a decline not an increase when compared to rise in the cost of goods and services we did buy.
We are in trouble, but most people don't know it because they don't keep records and they don't do the simple arithmetic that dispels what they want to believe.
This is why economists use many indicators which may or may not tell them how our economy is doing, but I would still use their predictions before I would use what most people think they know.
Our businesses and industries have been increasing their energy efficiency since ‘76. I have never heard an economist or a pundit say efficiency decreases the GDP, but it does. The money that was spent prior to the improvement in efficiency is now being saved and so it is not included in the GDP calculation. This means that inflation is much greater than what the economists and the pundits keep telling us. Which in turn means that our money buys even less. Inflation is eating our lunch and most people are completely unaware of what is happening.
Efficiency improves our standard of living. The people who bring the efficiency about should be paid with more vacation time instead of money, increasing their pay increases inflation. They increased efficiency which increased our standard of living so increase their standard of living with more leisure time.

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A13U13 Inflation

Economists assume an economy can grow forever which is impossible in a finite world. But again the population can not continue to grow indefinitely. The only other way to increase the economy is to inflate it. Most people do not understand inflation because they do not understand compound interest.
They think because their income increases they are gaining, but in reality they are losing. Even at 1% inflation, costs will double every 70 years, if inflation is 2%, every 35 years, at 3%, every 24 years, this is why very few people will be able to save enough to retire.
When the economists say inflation is under control they are talking about the consumer price index and are completely ignoring capital inflation. They claim they are accounting for capital inflation by using constant dollars. But there are to many variables in any economy so their constant dollars solution is worthless.
Economists also assume tomorrow will be the same as today. It is no wonder we have ups and downs in our economy because tomorrow is never the same as today. Every economy is continually changing because people are continually changing their economic transactions, the result: economists are trying to solve today's problems with yesterday's solutions. Our economy is one giant Ponzi scheme, we must move our economy to a sustainable economy and we must do it soon or we will have a market crash that will make '29 and '08 look like a Sunday school picnics.
Most people think they gain by a tax cut when they have been losing ever since the Reagan tax cuts because inflation has been increasing every year. It is small so most people are not aware of the increase in living expenses each month until they run out of money and even then they will not know what has happened or why, they will be frustrated and angry and will blame the wrong thing.
Most people have heard about the CPI, the consumer price index, which is an attempt to measure inflation. The annual CPI is the compound of each monthly CPI and is reset to zero at the end of each year, but the inflation of the cost of living continues to compound, it can only be reset by a major economic crash and even then it never goes back to zero, it reduces by some amount, but then continues to inflate again. This has happened in '29, '87, and '08. Major economic crashes impact the stock market, but stock market crashes rarely impact the inflation of the cost of living, this happened in the minor market crashes of '91, '93, and the Dot Comm bubble burst of 2000.
For example assume a CPI inflation rate of 0.2% each month and a monthly living expense of $10,000. At the end of the first year the cost of living expense would be increased to $10,243. The second year it would be $10,491 the third year it would be $10, 746. At ten years it would be $12,408. This is very important for people on a fixed income which includes all minimum wage workers, people employed on a fixed contract, and retirees.
Many people think they are staying even with inflation because they receive a cost of living adjustment(COLA) increase in pay. They lost because the inflation pay raise is a year behind. Plus the rate of inflation is compounded each month and they receive the same amount of pay each month. So they are losing a small amount more each month.
Using the example from above to explain how you lose even with a COLA. Assume a CPI inflation rate of 0.2% each month and a monthly living expense of $10,000. Inflation increased the cost of living expenses during the first month by $20 so by the end of the first month you would need to pay $10,020 to maintain the same standard of living. The next month again inflation increased by 0.2% but it increased on $10,020 the base from the last month so the next month the cost of living increased by $20.04 to $10,040.04. It continues in the same way for the rest of year so by the last month of the year the cost of living would be $10,243 and the annual inflation rate for the year would be 2.43% The second year the base would be $10,243 and would continue in the same way so by the end of the second year the cost of living would be $10,491 but the annual inflation rate would still be 2.43% for the year and by the end of the third year the cost of living would be $10,746, but the annual inflation rate for the year would still be 2.43%, 0.2% compounded for 12 months.
Now add a COLA. The first year would be the same as above because the COLA is a year behind. Now apply a COLA, the second year you would receive a pay raise of 0.243% on $10,000 for a pay raise of $24.30 a month, but inflation for the first month would be $40 and would continue to inflate for the rest of the year. The third year, again you would receive an inflation raise of 2.43% on $10,024.30 or $24.36 but the inflation for the first month would be $60 and would inflate for the rest of the year.
Now do you understand another reason why the middle class is shrinking.
What disturbs me is the Fed is concerned that inflation is not high enough. Are they kidding me, are they telling me they do not understand inflation and its impact on low income people. $2 plus a month may not sound like very much, but if you don't have the $2 what do you do?
I cringe every time I hear the pundits say, 'Inflation is under control or inflation is low'. But if you look at how much money was held by funds when I first became active, under a few million and compare it to the amount of money currently held by of all the funds, hundreds of trillions, you would understand that inflation is not under control nor low because the pundits never include capital inflation.
If you keep records or have a good memory you should be able to see inflation taking place. Choose a commodity that has a fixed value such as sugar or eggs, they have a fixed amount of calories, or diesel fuel which has a fixed amount of BTU's and compare the price many years ago to the current price. The prices have increased, but the fixed amount has not, so no value was added for the price increase, that is inflation. It is also a sign of greed.
Every time we use a credit card or borrow money from a bank, we create more money, but not more value which reduces the value of our money, that is inflation. How does a credit card or borrowing create more money?
Thousands of years ago when people began to collect precious metals they gave the metals to what we now call a banker for an IOU and the bankers learned that the people who held the bank's IOU's only one out of ten would ask for their assets to be returned at any given time. This meant that the bankers could loan ten times the amount of assets in the bank. The IOU's became paper money and inflation has been going on ever since and prudent bankers became very wealthy.
Only two things have changed. Now central banks dictate how much the banks can lend above the assets in the bank and how much interest the banks must pay to borrow money from the central bank or from each other, the federal funds rate.
When people use credit cards or get a loan from a bank, the people withdraw money from the bank with a promise to pay the amount back. The banks borrow money from the central bank or from another bank to replace the amount withdrawn, so the assets of the bank does not change. The central banks do not consider these transaction to be a withdrawal because of the promise to repay, they consider these transactions as an asset recorded on the bank's repay accounts. When the repay accounts and the assets of the bank are added together there is an increase in the assets of the bank by the amount of the transaction which allows the banks to lend more money.
For example if you borrow $10,000 from the bank, the money is withdrawn from the bank and recorded in the bank's repay account. The bank then borrows the $10,000 from the central bank to replace the $10,000, so when the assets of the bank and the repay account are added together the net assets of the bank is increased by $10,000. The bank can now loan $100,000 more. If the bank can collect interest on all of the repay accounts plus the amount loaned, banking becomes a very profitable business.
Most people do not understand inflation, they think because they have more money they are worth more, but they do not realize not only is the money they receive worth less, everything they own is worth less because everything is evaluated on the basis of money that is worth less. Now do you understand why the 99% are not better off than they were even year ago, but if you compare their condition to '69 they are paupers.
In 1941 my dad bought his first house for $.20 a square foot, he bought our second house in 1963 for $10 a square foot, he bought our third house in 1968 for $12 a square foot, he bought our fourth house in 1988 for $33 a square foot, in 2010 the market value of our house was $66 a square foot.
In 1941 a new car cost $80, in 1950 $800, in 1964 $2,400, in 1981 $8,000, in 2010 $18,000. In 1941 crude oil cost $.25 a barrel, in 1964 $3.25, in 1974 $10, in 1988 $30, in 2008 $140, in 2010 more than $80. In 1941 gasoline cost $.05 a gallon, in 1964 $1.25, in 2008 $4, 2010 $3.
If your home and car purchases do not match the above data your inflation experience will be more or less than the above.
Two things should be obvious from the above data. First, inflation is not under control and never has been. Second, while people complain loudly about the rising cost of gasoline it did not rise as fast as the cost of crude oil, cars, or homes.
Now two things not so obvious. While the rising cost of gasoline was the needle that burst the housing bubble, the major cause of the '08 recession was our willingness to pay to much for housing, our willingness to pay to much for cars was the next major cause. We paid to much because it is what we want instead of what we need.
The other thing is that there is nothing the politicians can do to prevent another recession. Raising or cutting taxes, increasing or decreasing government spending, etc will not prevent another recession.
Paying to much for something causes inflation, but as long as the budgets of the people paying to much has some slack, paying to much will not cause a recession.
A recession occurs when some other cost rises rapidly and consumes all of the slack in those budgets and if the people involved do not change their life style the continued rising costs will put them into bankruptcy which then slows spending which then causes the snowball effect. As spending slows jobs are lost and spending slows more, etc.
The only way out of this mess is for people to take responsibility for their actions and to change their life style to match the changing economic conditions. Everyone must have enough slack in their budgets to compensate for the changes that are coming and we must help those who can’t.
Inflation has an insidious side effect, it amplifies one of our biases. Most people understand that as inflation increases, the price of their property increases and they feel satisfied with their increase in wealth, bigger is better, the numbers are larger and it salves our egos, but these same people do not understand that their money is worth less. So the net effect is that their net worth did not change, but their buying power decreased with the decrease in the value of their money.
This is the trap that many retirees fall into when they try to down size upon retiring. When they sold their high priced homes and moved into a small home they soon learned that after Realtor fees, closing costs, moving expenses, etc., they had little or no increase in wealth. Their new small home cost almost as much as their big home did when they bought it thirty years before. If they did have an increase in wealth it was not enough to generate a significant source of retirement income.
The underlying assumption ever since Adam Smith's 'invisible hand' was the market was efficient, which meant that all trades were done in their own best interest which meant the value of the trades would be random.
A group selected a stock and calculated the statistics on one day's trading. Instead of 68% at one standard deviation it was 67%, at two it was 95 instead of 98, and at three it was 6 instead of 2. This meant that the risk of having a large loss was three times greater than assumed. This may not sound important, but the large number of trades the big banks made it meant the number and size of their losses increased dramatically.
The big banks had painted themselves into a corner, they had to keep trading in an attempt to be profitable or their depositors would with draw their money which would create a snow ball effect of decreasing profits.
When the oil price shock hit they could not recover because they were using stocks instead of bonds and money market funds to maintain their asset requirements.
When the market crashed they needed huge sums of money and no one had that amount except for the fed and the treasury.
The fed and the treasury knew they had to do something to prevent a complete economic melt down, they decided to bail out the big banks. Many people blame Obama for bailing out the banks, but it W and Paulson who bailed out the banks and Obama could not change it without causing chaos.
The media repeated that the fed and treasury had everything under control. If the public had panicked it would have been the end. Most people do not realize how close we came.
I was in no position to know what the big banks were doing, but there was something fundamentally wrong. The banks were using a formula developed by two economists that calculated the price of what the derivatives should be. So the banks bought and sold derivatives when ever the price was different than the calculated price. Economists preached 'the market is efficient', well if it was why did the price vary from the calculated value? Couldn't they see the contradiction?
Also I could not tell if the banks had changed their trading program to account for 'gaps'. Frequently when I tried to make a trade, the price would not move smoothly, instead of moving a small amount at a time, the price would jump by more than a quarter creating a 'gap'. Even with high speed computer trading 'gaps' often occur. If the banks did not take 'gaps' into consideration their losses would be much larger than their expectations.
This giant Ponzi scheme continued until the price of oil went from $40 a barrel in March of '06 to $140 in Aug '08 and sent gasoline to $4 a gallon. The price of oil went back down to $40 by Dec'08. This price swing was monstrous, oil had never moved more than $30 in any prior year. The peak oil price was the needle that burst the housing bubble. Because many people were not willing to change their life style and cut back on consumption they reached the credit limit on their credit cards and the variable interest rate on their debt eventually pushed them into bankruptcy. Their debt was rising faster than their income. Because the number of people in bankruptcy was so large it caused a major recession instead of mild one.
Guess what home buyers are doing today.
When the market recovered from '08' the banks returned to trading derivatives and what bothers me is, as far as I can tell, no one is holding them accountable.
The economists claimed that everyone traded in their own best interest, but the experimental psychologists conducted tests for more than 40 years indicating people do not make decisions in their own best interest, people are not rational. Economics is based on a false premise.
Milton Freedman said, 'Economics was an exact science like math and physics'.
How could economics be an exact science when people are the economy. For me, economics and economists were stupid and the more I read the more convinced I became, they were ignoring what others had learned.
'Wealth cannot be created by dividing it'. Most people would intuitively know that the statement is true and come to the conclusion that we should let rich people keep their wealth.
If you examine the statement from a logical semantic point of view, the statement can be reworded into the following form, wealth or not wealth. Logically this type of statement is always true because of the Law of the Excluded Middle. What most people don't know is that all conclusions drawn from such statements are false because of the Law of the Excluded Middle.
If you think about the statement for a while you may notice that it is incomplete, it says nothing about any aspect of an economic system.
Wealth can be created in three basic ways: exploit, efficiency, and pruning. Exploiting a resource is the quickest and produces the most gain. Making an organization more efficient is slower and less gain. Pruning is eliminating less profitable activities, it is usually very slow and little gain.

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A13U14 Capitalist

Capitalists focus on exploiting
I do not understand why the capitalists do not understand the following: when they exploit labor with low wages and consumers with high prices they reduce the buying power of these people which reduces their profits. So what do they do, they lower wages more and increase price more. Duh!
When capitalists exploit the environment the results is long term and disastrous.
Capitalists will even poison themselves to make a profit. Example, cigarettes.
I call the people who use any illogical statement that is obviously true, but the conclusion are false liars because the only use for such statements is to deceive.
There is no such thing as capitalism, the word is the results of a poor choice of words by the early economists. So to use capitalism to describe any economy is superfluous and inaccurate and adds nothing to the description of the economy and leads to misunderstanding and confusion which the capitalists use to convince ignorant people to elect politicians who will change the rules of the economy to the capitalists advantage and most people are not aware the rules have been changed.
Tribe is the name of a set that contains all of the people under current consideration. People are the economy because every person creates demand from before they are born to sometime after their death. Demand is the driving force of every economy, it is the 'Invisible Hand' of Adam Smith. So having an economy is an attribute of Tribe.
Within Tribe is a small subset named Greed, (for the lack of better word), which contains all the capitalists in Tribe. Capitalists are people, but not every person is a capitalist, most are not.
The goal of a capitalist is to create more capital by using capital. A fund manager is the ultimate capitalist. If he does not create more money he is out of a job. Capital is the only measure by which a capitalist measures success or to use different words, money is the only measure of success and is prime consideration behind all decisions, seldom is the environment a consideration.
It is the capitalists measure of success which separates them from the other people in Tribe. Most people would like to get rich quick, but most do not have acquiring capital as their goal and certainly do not use capital as their only measure of success. Since, Greed is a sub set of Tribe, the attributes of Greed should never be used to describe the attributes of Tribe.
If capitalists are not regulated they will destroy the economy because the capitalists want a return on investment which means the capitalists will remove more capital from the economy than they invested which means there is less capital for the rest of us. It also means inflation will increase because the people who used the capital that the capitalists invested will have to charge more for their goods and services to cover the cost of repaying the capitalists. At some point the capitalists will have most of the capital and inflation will be out of control and the economy will crash.
What puzzles me is why can't the capitalists see what is coming and change what they are doing, they have the most to lose and they will lose all of it, no one will escape.
Some people have an idealized view of capitalists. Obviously they have not read the biographies of Edison, Ford, Firestone, Rockefeller, Mellon, Carnegie, Goodyear, Westinghouse, Vanderbilt, etc. And if they had what makes them think that the captains of industry today are any different. If a capitalist can make more money by eliminating your job, you will be unemployed.
How quickly people forget the environmental disasters of Bp, Union Carbide, etc., and the out right greed of Enron, Worldcomm, etc. These corporations are examples of capitalists out of control.
Corporations are not inherently greedy, ruthless, or insensitive to the environment, but when capitalists take control, money is the only goal and the corporation provides cover and protection for them.
I laugh at the following response, ‘We have to pay these exorbitant salaries to attract good people,’ because from my observation:
‘Money, like honey, attracts flies.’
Since some people do not have integrity and some people will not or cannot do the job they are supposed to do there must be an outside agency that forces capitalists to serve the general population. That is why governments must regulate capitalists. It is also why our politicians should pass a law removing person hood from corporations to remove another barrier of protection for this type of people.
As long as resources were limited, only the warriors would receive more than the others in primitive groups, the rest would receive almost equal amounts of the remaining resource. But if the group obtained or received an excess of any resource greed developed which often led to capitalists in a different form than today. Land, power, or the resource itself would be hoarded.
The effect of capitalists cannot be understood unless compound interest is understood. Every economic enterprise must have a profit or at least break even to remain in business. When a capitalist receives a profit they must receive a profit on the profit in addition to the other money they invested so they can continue to borrow money. This compounding effect is not sustainable in a finite world.
In order to continue, one capitalist will buy out another, who didn't make a profit, at a loss, reducing the number of capitalists. This means the remaining capitalists will have more money and the rest of the us will have less.
I have heard the economists, pundits, and politicians say many times bigger is better, more is better and I agree there are many economies of scale. A big enterprise usually can generate more ideas, can borrow more money, and can allocate the work more efficiently than small enterprises.
But I have never heard the economists, pundits, and politicians say the disadvantages of being big.
The cost of communication, logistics, and infrastructure rises very rapidly as an enterprise increases in size and if management looses control of any of these the enterprise can go bankrupt with the same rapidity.
In order to keep the capitalistic Ponzi scheme going, the capitalists have used a divide and defeat strategy. They have created many think tank groups to spread propaganda to the public in such away as to keep people arguing about topics they do not understand and for which there is no definitive answer, such as, freedom, free markets, free enterprise, economic growth, taxes are bad, big government is bad, etc.
In '15 I read 'Against the Grain' by James C. Scott, a deep history of the earliest states, the author gave me a descriptive title, 'The Protection Racket'. He came to the same conclusion by studying ancient civilizations as I did studying ancient religion. He points out that the capitalists could not easily gain control of a civilization until a civilization had a currency, grain became the first currency and the capitalists went into high gear and have been doing so ever since. A currency made it easy for the capitalists to collect taxes to finance their armies in return the capitalists told the people 'we will protect you'. If there was no real threat, the capitalists created one. Today the capitalists do the same thing, this is why our country has been at war almost from the beginning. Many of our wars were to keep the price of oil low or to control the flow of oil, sad.
As someone said if you tell an ignorant person they are better than someone else they will believe anything you say. Lying is the primary way the capitalists keep the protection racket going and ignorant people believe the lies.
Also, the capitalists, whether priest or war lord, must keep the people ignorant so the people would continue to believe their lies. This is easily accomplished by encouraging people to have many children which would make food scarce. A poor diet prevents growing brains from reaching their full potential and then to control their learning, they must be brainwashed. Did you notice how the capitalists use religion to brainwash people and to justify their lies.
A large population also limits the number of jobs available keeping wages low which again keeps diets poor. The capitalists need a large ignorant population so they can have canon fodder for their wars. Also, when the capitalists could no longer capture people to make slaves they could convert a large ignorant population into wage slaves. The people would be tied by the golden chain and could be easily led to do what the capitalists wanted done.
Has anything changed?
Karl Marx followed the early economists and said capitalism is the most powerful economic force known to people, he should have said greed is the most powerful economic force known to people.
When people accumulate a surplus of any resource, greed can be come very strong. Each person has a different threshold where greed can occur. Capitalists have a very low threshold and they are ruthless, loosing money is a fate worse than death. When the capitalists have almost all of the money, game over, just like Monopoly.
Because our economy creates many large excesses, many people have become greedy. This greed was very evident during the housing market bubble burst. The home buyers were greedy, they did not tell the truth about their income and bought homes much bigger than needed, the real estate agents were greedy, they tried to sell the home buyers bigger homes because their fees were based upon a per cent of the sale, the banks were greedy because they could collect their fees and sell the mortgages to the investment banks who were greedy because they could bundled them and sell them to greedy investors who wanted a higher return on their money. If people do not wake up and change, we will have a market crash that will make '29 and '08 look like a Sunday school picnic.
We need capitalists to fund risky economic activities and they should be rewarded for doing so, but there should be a limit on the reward. They need to recover more than their original investment to make up for their loses on projects that failed other wise they will stop investing in risky projects. Capitalists should be allowed recover twice their investment and from then on half of all profit should go to our government, but the compensation and expenses of the board of directors and top management must be paid from their half of the profits.
Our government should not undertake risky economic activities, it should offer subsidies for the economic activities that our population desires and tax what is not desired. There is no need for some of the complicated solutions being used or proposed. Example: cap and trade, why create a market where a tax would do the same thing. Cap and trade would have failed if someone had not found away to make a salable product out of calcium sulfate.
Another was the solar company, our government should not invest our tax money in any business, it should offer an incentive for some other economic activity to under take it, in this case our government should have subsidized the production of electricity by alternative means, not the installation of the equipment, no matter which economic activity does it.
For example, Obama funded an alternate energy company that later went bankrupt. He should have provided a subsidy for alternate energy that would encourage the capitalists to provide funds to companies that would create the alternate energy, let the capitalist take the risk when the capability of the managers of the company is unknown. The politicians should not be picking winners or loser in the economy.
I don't know what level of subsidy, but a one cent per Kwatt-hr of electricity might be enough, if it isn't increase it. The subsidy would be paid back by an increase in jobs and a reduction in fossil fuel consumption. Plus if the politicians ever have a back bone they would put a tax on all fossil fuels and use the money to pay for the alternate energy subsidies.
Several decades ago, deregulation was the vogue or I would say the stupidity. I have always been amazed at how ignorant economists are of how systems operate. When an economic activity must use a common conduit, it can not be deregulated, the so called free market can not do the same activity efficiently as is obvious from the result of the break up AT&T, the deregulation of the air lines and the gas supply to the utilities. Did we save any money, no. Did it improve service, no.
Besides, there are many economic activities where an increase in competition will increase the cost of goods and services, i.e., police, fire, water, sewer, etc. Any economic activity that requires complete control or must use very expensive equipment or expensive infrastructure must be a monopoly to keep the cost of goods and services low.
Monopolies must be regulated to keep inflation in check, for all other economic activities competition should be fostered to keep inflation in check. We need both kinds of economic activities, but when the economists, the politicians, and the pundits talk about competition they should say we need competition in non monopolistic economic activities so that under educated people do not generalize the use of competition to everything.
Monopolies do not have to be government operated, they can be quasi government operated, such as the utilities, the post office, oil and gas pipelines, air ports, etc. But they require constant oversight which is currently lacking. Why create many more bureaucracies when one would do?
Our government should let the market work. Market forces do work, but not always the way we would like so care must be used to ensure what is taxed and subsidized does what is wanted. Our government should subsidized production and tax output, never subsidize installation.
For example, to encourage alternative energy put a tax on each barrel of oil, CCF of natural gas, and ton of coal. Subsidize alternative energy by the Kwatthr or the BTU produced.
We should use market forces as much as possible, but keep in mind that people are not rational and they do not make all decisions in their own best interest so any change we make in our economy may result in something we did not intend. This is why subsidies and taxes often do not do what was expected. It is also one of the reasons economist's predictions are not accurate.
We should also keep in mind that market forces will not solve all problems only those where a profit can be made, so our government must fund the solution to the problems that will never create a profit, that may entail risk.
When the capitalists gamble and win they get almost all of the money. The people in the middle get some because of a slight increase in the number of jobs which may increase wages, but not enough to move them out of the middle, and those at the bottom get zero, there is no trickle down because those at the bottom do not have the education or the skills for most of the jobs created and the low paying jobs created will not improve their income.
What most people do not understand is that this unfair distribution of wealth creates inflation which adds insult to injury. The people at the top do not care how much something costs they have enough money, if they want something they buy it, this allows the sellers to increase their prices. Unfortunately, the people in the middle also contribute to inflation because if they want something and the monthly payment fits their budget they also will pay a higher price. The top two groups do not put any pressure on sellers to keep their prices low. The bottom people do not have enough money to make ends meet so they lose the most to inflation.
Everyone loses to inflation, but the top does not care, they have more than enough, the middle loses, but most do not understand how much they lose. The bottom is caught forever in the inflation pit, there is no way for them to escape unless they are very very lucky.
It should be obvious that trickle down economics is very unfair. We should regulate capitalists and eliminate trickle down economics from our thinking. We should change our economic system to mitigate the unfairness in our economic system and in our irrational thinking, people are not rational.
Trickle down economics can not work and it never has because of the unfair distribution of wealth and the effect of inflation. Politicians like to use trickle down economics to justify tax cuts which is a lie. Again the top gets the most money, the middle get a little, and the bottom gets nothing because they do not pay taxes.
This means we must change our economic thinking from growth to sustainable.
When any business needs more money than a bank will lend the capitalists move in and take control of the business. A business is focused on providing goods and services that others will buy. Capitalists are focused on making money, so a capitalist doesn’t contribute to the economy as much as a business does.
All living organisms, businesses, and governments must be the right size to survive. For example, GM is large enough to be a major car manufacturer where as American Motors and many others were to small and they are no longer in existence. The corner grocery store can survive at a location where a Wal-Mart cannot.
By the same token Rhode Island is to small and our country to large. If a government is to small it cannot supply all of the services its population needs. If to big, communication breaks down.

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  A13U15 Warren Buffet

 Warren Buffet has a lot of cash to buy more companies. At year end the amount of cash was $110 billion, at the end of the first quarter of '19 it was $114 billion. Earnings were $1.3 billion during the last six months of '18 and $1.7 billion at the end of the first quarter of '19. He has so much money he does not know what to do with it. Over the last ten years he has been lending money to companies in trouble, but he lends the money and receives preferred stock at a high dividend rate in exchange.
The funds managers have the same problem, they a lot of money and no where to invest it. To me this is a danger sign, it means as these people spend their money in order to get a return on investment it will cause large increases in capital inflation which means our money could devalue by a large amount over night. Inflation always hits the people on fixed incomes and those working at minimum wage the hardest.
Warren claims that he is a card carrying capitalists and he likes capitalism. He is wrong on both accounts. Warren is and always has been a value investor. He buys companies with good management and solid balance sheets. He lends money when he can get a good return on his money. That is not the way a capitalist works. A capitalist wants more than a good return, they are greedy. He also advocates raising taxes on high income people, that is some thing no capitalist would do. He like so many people do not understand that there is no such thing as capitalism.
I have followed six capitalists plus the exploits of Worldcomm and Enron are well documented. The last four capitalists I followed in the WSJ, Barrons, Valueline, and annual reports, two I can not remember, the other two were Trump, Carl Icahn. The first two were not capitalists when I first followed them. The first was the father of my first best friend, from second grade. He owned a small grocery store one block from our home. My parents bought groceries from him and his wife and the four became good friends. In fourth grade, a larger store was for sale about 4 blocks away and he asked my dad if he thought it would be a good move. After looking at the store and its location my dad said yes. The store was very successful. At the beginning of seventh grade my dad bought a house on the other side of town to far to be convenient for us to buy groceries at his larger store. Two years later an even larger store was for sale much closer to where we lived and he again asked my dad if he thought it would be a good move. It was in an excellent location and my dad said yes. This store was even more successful. About another year later another large store was for sale and again he asked for my dad's advice and again my dad said yes. He did not sell his other store, he had enough money in the bank to pay cash. This same thing happened two more times and he had his own small chain of four stores. But something happened between the third and fourth store, he became greedy, he had become a capitalist. He bought a very large house in a new subdivision and he and his wife seldom associated with my parents. My dad was surprised when he asked for his advice on vacant lot out side of town on a highway. My dad said no, the traffic speed was to fast and people would not stop. He bought the lot and built a very large store, so large he had to borrow money. It failed and he would not speak to my dad after that. Then the large chain stores began to locate in shopping malls and it reduced the volume at all of his stores and he went bankrupt.
The second was a farmer who's farm I could see out the window of my seventh grade class room. His 240 acre farm was beautiful, the crops always look healthy, the buildings and his home were always in good repair, and his equipment was the latest available. He was very prosperous. His friend owned a small car hauling business about block behind our house. At that time almost all cars were shipped by rail or driven individually in what was called car trains. Each of five people would drive a new car to a dealer and a sixth would drive a return car. On reaching their destination the five would join the sixth to return. Rail shipment had two disadvantages, the delivery was dependent on train schedules and the cars still had to be driven from the train to the dealers.
The owner only had two trucks and wanted to buy two more, but the bank would not lend him any money because he was barely breaking even. He was positive that if he had two more trucks his income would increase because he could haul to more dealers. The farmer agreed to become his partner and paid for the trucks. The owner was correct and the business flourished, soon they had sixteen trucks. Both bought big houses and homes in the south and traveled a lot. The farmer hired a tenet farmer and the owner hired a business manager. The farmer was making more money in the stock market than from his farm and his part of the business, he had become a capitalist. After I was able to buy a car and drove past his farm I was sad. The fields were not the same, the buildings and house were in need of paint and repair. The farmer sold his farm to a subdivision developer and put his money in the stock market.
Several years later the business manager asked the owner to increase the wages of the drivers and mechanics and he refused. A little later the business manager told the owner that they were losing business on the eastern and southern side of their area. The owner did not try to find out what was happening he just said it was the ups and down of business not to worry. Something happened at this point and there were so many rumors I could not believe any of them. The only thing I could believe was both had become greedy. The farmer did not know the car hauling business and could not answer the business managers questions and the owner would not answer his calls, he did not know what to do, they were loosing customers very rapidly.
I learned part of what had happened, the large car hauling companies in Flint and Detroit had bought new trucks that could haul six cars and they were able to haul more cars at a lower cost and then one of them opened an office in Lansing. Shortly there after the business manager told the farmer he had found another job, there was only one mechanic and two drivers and a book keeper and not enough money it the bank to pay them. The farmer paid them and sold the business.

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A13U16 The self made man myth

We glorify the old stories about a man going into the wilderness and returning with amazing stories and or a fortune. But we do not hear about the thousands who went into the wilderness and never returned.
The same goes for the stories about someone who pulled themselves up by their boot straps and made a fortune, but we never hear about the people who fail. We like these stories because we like winners not losers. But the stories ignore all the help we receive.
There is no such thing as a self made person or anyone pulling themselves up by their boot straps. First, everyone receives genes from their parents that must be good enough so we can win the genetic lottery or we would not even be born. Then our parents and or community must provide us with enough care so we can grow and hopefully learn which usually means we have to have adequate teachers. Then before we do anything notable we must use the resources of our family and community to go out on our own. For some reason most people ignore the infrastructure provided by many people over a long period of time.
We are a herd animal and the herd can only survive if the individual survives and the individual can only survive if the herd survives.
If the herd (government) has complete control, the individual does not have any freedom, the individual is not motivated, everyone will be reduced to doing only what is necessary. Productivity, innovation, and efficiency will disappear. Workmanship will be shoddy, schedules will be missed, shortages will occur and the economic system will collapse.
If the individual has complete freedom, cooperation will be eliminated which will eliminate agreement which will eliminate the meaning of words which will eliminate communication and chaos will result, again collapsing the economy.
The individual must give up some freedom so the herd can maintain a high level of cooperation, but the individual must keep enough freedom so as to maintain a high level of productivity, innovation, and efficiency. We must stop repeating the lies surrounding Communism, libertarianism, and socialism and stress cooperation instead of competition. We use cooperation all the time and we compete very little. Only by cooperating can we have peace.
To many people believe communism and libertarianism are solutions to our economic problem, but they are not solutions, they will fail because they ignore human nature. As a result many people are wasting time arguing about something that can not work. But the argument does work for the capitalists, they can encourage each side to keep arguing which will keep many people from paying attention to what the capitalists have been doing, they have changed the rules of our economy to their advantage.
God did not give us dominion over anything. We gained dominion by coordinated group action. 'By cooperation the ants can eat the elephant'. So let's promote cooperation and give it the credit it deserves. While the rugged individualistic frontier lifestyle, where everyone takes care of themselves, gives us the most freedom it makes the same ivory tower mistake that our economists have made since Adam Smith.
In an ivory tower world every person is completely rational. When a decision is necessary, a person will gather all the data needed, analyze the data, and make a completely rational decision in their own best interest.
We are not ivory tower people, we are humans and our brains are not built like ivory tower people. Our brains have at least two modes of operation, a fast mode and a slow mode. In the slow mode we try to operate like ivory tower people, but it takes time, energy, and effort something most people are unwilling to do.
In the fast mode we do not think about what we are doing, we rely on training and rules of thumb. Most of the time the fast mode makes the right decision, but when we have many choices and or the choices are complicated the fast mode will get us into trouble.
Why do you think we are in this current mess. It is because we are not rational, most people want instant gratification, but that is a part of being human. We live for now not the future. This is why people have large credit card debt, expensive cars on borrowed money, large homes mortgaged to the hilt, and no savings. This is why our government has a large debt, people want, but don't want to pay for it. This is not rational.
The individual must give up some freedom so that we can design a political and economic system that mitigates our irrationality and we had better do it soon.
Reagan asked, 'Are you better off than you were four years ago?' Many low income people said, 'yes' because that is what they wanted to believe and like most people they do not keep records and refuse to do arithmetic.
In April after the Reagan tax cuts went into effect as I was walking through the refinery the men at a smoke house signaled me to join them. When I did one said, I got $50, another said $100, another said $150 and so on. The highest was $250. I didn't say anything and as I turned to walked away one of them had the courage to ask me how much I got and I responded $5000 and you should have seen their months drop open. I keep wondering when the middle class will learn that tax cuts benefit the wealthy not them. People hate to pay taxes, but don't let that stop you from doing the arithmetic.
Multiply your annual take home pay by the annual inflation rate, if the result is greater than your tax cut you lost money because you lost more to inflation than the tax cut returned to you. This was the case of the low tax cuts received by the men in the refinery, their tax cut was actually a reduction in income because inflation reduced their buying power.
Since many low income families have two adults working at minimum wage and they do not receive a cost of living raise each year. With inflation at 0.3% a month they lost about $90 of their tax cut the first year and were losing money to inflation by the fourth year so they were not better off than they were four years before.
Because the Reagan tax cuts greatly favored high income people many lower income people earning more than minimum wage and receiving a cost of living raise each year lost a large share of their tax cut to inflation. People nurture delusions, one such delusion is when their pay checks are larger than last year they think they have more wealth. When in reality many times inflation has cost them more than the increase in their pay.
I have been pessimistic for a long time, but now I am even more pessimistic because the EU central bank and the FED both said they are concerned because inflation is not high enough.
They have to be kidding, inflation is one of the factors that are destroying our economy.
When will the economists recognize their paradigm is incorrect, it only works on one side of the economic equation, the inflation side. They panic when the economy goes into a deflationary phase because their paradigm does not tell them what to do. I keep wondering when they will correct this deficiency.
Plus the economists are still trying to solve computer age problems with industrial age solutions. They are ignoring the decline in the number of jobs caused by automation. Do they even have a clue as to what global warming is going to do to the number jobs available?
Why do we operate in crisis mode? Because ignorant people can not recognize a threat until it hits them and even then, they will not understand what has happened nor why, so any solution they support will not eliminate the threat. This should be obvious from the large number of protests that accomplish nothing.

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A13U17 Our Daughter

When our first born became interested in how her pension money should be allocated in several different funds, she asked me to review her TIAA year end report. It was about one half inch thick and very comprehensive. It listed all the different funds offered with all of the equities in each fund and quantity of each equity. Plus the value of each equity at year end and the total market value of each equity in the fund. Followed by the total value of the fund and compared it to the prior year end market value. Which was followed by two very interesting numbers.
The numbers were the % unrealized gain or loss and the % realized gain or loss and the total % of both compared to last year end %. The total % is commonly referred to as the 'Total Return'. The realized gain or loss was money in the bank from the sales of equities plus dividends and interest received. The unrealized gain or loss was the change in market value from the prior year. Using these numbers made it very easy for me to make a recommendation on how much of her pension money to put in each fund.
The numbers also made something very clear. The pundits, politicians, and fund managers say put your money in the market because you can make 12% a year, the total return. This is not true, they should have said it is possible to make 12% a year. I read the year end report for many years and I don't remember that TIAA ever made more than a 9% total return. But even this number is misleading because I don't remember that the realized % was ever more than 3%.
The unrealized gain or loss is what I call paper money. Who ever holds an equity only has a piece of paper saying they bought a certain equity and how much they paid for the equity. The unrealized gain or loss is the current value of the equity compared to the purchase price. The current market value is meaningless and it only becomes meaningful when the equity is sold. The value of that piece of paper can disappear over night. So to say you can make 12% the market is a lie. Yes, it is possible, but not very probable and most people do not understand the difference.
During the market crash of '08 many pensions lost a lot of money, but it was paper money. Again until an equity is sold there is no gain or loss. The fund did not lose any realized gain, it was still in the bank.
When the market goes down the unrealized % will go down much more than it will rise when the market goes up because it is a comparison to the last year end. The market usually goes up in smaller amounts than when it goes down. So if the market went up by 6% six years in row that 36% plus could be wiped out in less than one year and the prior unrealized of 36% plus will not be there when you need it.
Fund managers can make their numbers look better than they really are. To increase their % of realized gains they will buy stocks for the dividend prior to the ex dividend date and sell the stock after the ex dividend date. Those who own the stock on the ex dividend date will receive the dividend. Those who buy it after the ex dividend date will not. The fund will almost always lose money when this strategy is used because buying enough shares to make a difference in % realize gain will cause the price of the stock to increase plus most stock holders want the dividend and will not sell the stock unless the price increases more than the dividend. The price of a dividend stock almost always increases before the ex date and decreases after the ex date usually by more than the dividend.
The fund manager will then sell the stock after quarter end or year end so the loss on this strategy will appear in the next quarter or year and they hope they can recover the loss before the next quarter end or year end. They sell the dividend stock because the price of most dividend stock change very little, the fund managers need the cash to buy stock that will increase in price quickly so the unrealized % will increase very quickly so people will think the fund is doing very well.
Another strategy for a fund manager is when they own a stock that has increased in price, they will buy more before the end of a quarter or year end which will usually increase the price of the stock making the unrealized gain increase more than if they had not bought additional stock.
Over the years the most of other funds did not do any better than TIAA and last year the funds did very poorly, so I hope you will understand that you cannot retire on unrealized gains, you will need a million dollars in your retirement fund at 3% to have a retirement income of $30,000 a year.

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A13U18 What is our economic problem? Limits

For thousands of years we have been improving the quantity and the reliability of our food supply. We changed from hunting and gathering to growing our food with people power, to using animal power, to using machine power. We have been living one gigantic Ponzi scheme.
With each change our economy would reach a limit and move to a different dynamic equilibrium. Also, with each change the amount of energy input into the system would increase compared to the energy of the output, the food.
As long as energy was cheap and the yield of food kept increasing faster than the cost of energy used, the cost of food kept decreasing until the 1960's when the cost of energy began to increase because of the depletion of energy resources. We are now approaching another limit, but our economics is not accurate enough to predict when we will reach the next limit nor what the next dynamic equilibrium will be nor what we lose to get there.
Many times economists say we save to little and our debt is to large, but they continue to preach, 'we need to grow our economy'. I have never heard an economist say we need to conserve, we need to reduce our consumption, or we need to reduce our spending, they are not telling us what we should do. We should stop spending and consuming and increase our savings and reduce our debt and prepare for the next change in the dynamic equilibrium of our economy. In other words, we must change our life style.
From the beginning our economy was based on growth and that it can continue forever. Our economy has had several set backs and our pundits and politicians have failed to recognize the cause and even today they blame the wrong things.
The first major market crash came in the late 1800's, the second in '29. Both were caused by the closing of the frontier, it was our first limit on growth, but no one identified it as being the cause. I don't know what caused the market crash of '87 nor of the minor crashes of '91 and '93. The dot com bubble burst of 2000 was caused by people thinking the growth could go on for ever.
I am concerned about our doubling of many aspects, such as population and oil consumption, but I'm much more worried about the limits to our actions. The price spike of '08 means to me that we hit the limit of oil production at that time and burst the housing market which lead to the crash of '08. There are many other such limits and we don't know how close we are to any of them. If we don't conserve and hit any limit at the wrong time the result could be disastrous.
All economic activities must obey the first law of economics which states that income minus expenses equals profit. This law has three out comes, first, if the profit is negative the economic activity will go extinct. Second, if the profit is positive, the activity can continue to grow and this is what the capitalists want because at the end of each period of time they will have more capital to invest and they want the same return or greater on their investment which means that an increase in dividends is required.
Almost all economists work for capitalists that is why they preach consume, consume, spend, spend, grow, grow and because they use money as the measure of the economy they commit another basic error. Money is nothing more than a medium of exchange, money allows us to barter virtually instead of physically. As I have said before, I sympathize with the economists because without using money to simplify their model of our economy they would never be able to learn what to do to improve our economy because the number of variables and equations are to large to solve, they must make simplifying assumptions.
However, the capitalists are ignoring the laws of mathematics, physics, and biology which say growth in a finite system can continue until it reaches a limit and when it does it will collapse. Limits are one of the reasons our economy goes through boom and bust cycles. I do not understand why economists do not recognize the effect of limits on our economy.
The third out come of the first law of economics is when profit equals zero which means the economic activity can continue to survive until it reaches another limit besides money. The zero result is the goal of conservationists because the true currency of all living things is energy and energy is what we must conserve, not money, if we are to survive. We must change our life style, we must eliminate consume, consume, spend, spend, grow, grow from our thinking about our economy and our environment. This leads to my second most important dissatisfaction with economics and economists and the politicians and pundits who quote them.
The oil companies should have been the first to warn us that the demand for oil was approaching a tipping point, but they didn't and the result was the crash of '08. Economists should have been the second to warn us, but they didn't because they, like the oil companies, work for capitalists and they only focus on money, profit, and growth.
The biosphere does not give a damn about what people believe or think, if we disobey the laws of the biosphere it will kill us, we will go extinct.
Politicians like inflation because they can pay debt with cheaper money and so do economists because they don't have a clue as to how to handle stagflation or market decline. Both assume that declining measures of the economy, the GDP is the main one, means a declining standard of living, this is not true if the decline is brought about by efficiency. Efficiency lowers costs thereby lowering the GDP, but at the same time it raises the standard of living. A rise in the standard of living brought about by efficiency is offset by a decline in the number of jobs. There is no free lunch.
Very simple arithmetic shows that you cannot grow an economy, also the measures the politicians and economists use to gauge an economy are at best guides, they are not accurate. Some very important aspects of an economy are not even included in the measures, some are ignored. One very important one is capital inflation although it is included in lesser know measures that are not publicized.
Starting in '76 the idiotologues have perverted our economy beyond belief. They have continually beat the consume, consume, consume drum in order to keep the belief of an ever growing economy is the solution to every problem. Unneeded tax cuts, funny money financing, unneeded immigration, cheap energy, cheap over seas labor, etc. They did everything they could to keep the false economy going.
Worst of all they followed Milton Friedman's Chicago School of economics. In so doing there have been a massive transfers of public funds into private hands. The Chicago School of economics has two major flaws, both fatal; first, it assumes that markets are rational, how can markets be rational when the operators of the market are people; second, profit is the only goal. My own work indicates that profit is the sleaziest of goals and if a system does not have a higher priority goal, a reason for existence, it is doomed to fail.
Also, Milton said that economics is an exact science like math, physics, and chemistry, again how can any field of study be an exact science if its primary operators are people. Because economics is not an exact science all economic measures are not exact; therefore the GDP is not an exact measure of an economy.
Now when the above economic views are carried to the extreme as they are now, resources are consumed as if they will last for ever, the environment is ignored and used as if it can withstand any insult we apply to it, money is no longer a medium of exchange it is the goal, people are trivialized, etc.
When our public finally wakes up and realizes that we live in a finite world, our resources are finite, that the changes to our environment could kill us, we can't eat money, and starvation is a very likely, an unbelievable panic will occur.
Most people don't understand how perilous our situation really is and as long as our creditors don't panic we can continue, but any perturbation and it is all over. To forestall such an event we must raise taxes and begin to pay down our debt. To the tax haters I say this, 'If you are not willing to lose some now, you will lose it all in the near future'.
I do know what we must do, we must change our life style drastically and soon, but no one wants to hear that. I'm very pessimistic, if we don't change and soon we won't hear anything, we will have anarchy followed by mass starvation.
We must change from a growth economy to a sustainable economy. I don't know how we can do it without major unemployment, so if we must transfer public funds to private hands to make the transition, let's transfer the money to the poorest people first and work back up the line until the transition is complete.
We must eliminate the trickle down strategy, we must stop giving all the tax breaks and subsidies to the richest companies and people in our economy. We should purge all Chicago school economists and pundits from positions of influence. Money must not be our goal, survival must be our goal.
We must bring our population under control, i.e., zero growth. Close our borders to immigration, we don't need more people. Because we consume the most energy of any nation, closing immigration would reduce our increase in energy consumption, for me this is the only valid reason to stop immigration.
We must eliminate the consume, consume, consume attitude. To aid this change, limit advertising by not allowing it as a tax deduction and return TV commercials to one minute.
Bring home all of our overseas troops and withdraw from NATO and all other such alliances. Train all of our troops in a dual role of defense and emergency response. Return all over seas bases to the countries where the bases are located. If we don't bring our troops home soon we may not be able to bring them home at all if our debt based economy goes into a free fall.
Eliminate all nuclear weapons and stop development of all nuclear weapons.
Put a $.20 per gallon revenue tax on all refinery and chemical plant petroleum input except for recycled oil and the same tax on all imported finished petroleum products.
Put a $.005 tax on all Kwatts above an average of 20 Kwatts per day and $.13 tax on all CCF of natural gas above an average of 20 CCF per day.
Put a $25 per ton tax on coal.
It might be wise to put a tax on water consumption, also.
Mandate all electric utilities use net metering and pay wholesale price for any excess electricity, but not less than half the retail price.
Devise a subsidy plan to encourage alternative energy that is not based on tax rebates, more than a third of our population do not pay income taxes and are left out of such subsidy plans. We need everyone to participate if they can.
If the cost of oil, gas, and coal are not above the cost of alternative energy, alternative energy will never be used.
Remove the cap on FICA taxable income and include the net gain from all forms of compensation such as stock, stock options, health insurance, pensions, etc. Once these changes are in effect, change the self employment FICA tax to the same as the individual FICA tax to encourage self employment and compliance with the law. If these changes result in a net income to social security, eliminate the employer contribution for small employers to encourage small businesses. Base the definition of a small employer on the number of employees such that the number of small employers results in no net loss of income to social security. If possible eliminate the employer contribution all together. Social Security is for the benefit of the individual so the individual should pay the tax not the employer.
Limit the income tax deduction to two children, allow a tax deduction for each adopted child, up to four. Limit all welfare to two children plus four adopted children. Do not subsidize population growth with tax deductions.
Eliminate the double taxation on dividends by allowing business to pay dividends from taxable income and exclude such dividends from the business income tax. In other words the dividend income tax exclusion can not create an income tax credit. This change would encourage businesses to change from debt financing to capital financing and would encourage more people to invest in the stock market and increase our savings rate.
I put this one last because it will take the most time and we don't have much time. Devise a health care system for all citizens. Three items that I think should be mandatory is that birth control pills should be available to any female who wants them, vasectomy for any male that wants it, and sex education in all schools. We must bring our population under control before the population bomb hits us. Population equals consumption equals pollution equals global heating. If we don't limit our population to a sustainable number there is no hope.

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A13U19 Japan

Have you ever wondered how the Japanese have done it, financially that is? For many years following the second world war, the Japanese, by their own laws, could not buy our bonds, but their government would allow their banks and industries who were in financial trouble to buy our bonds.
The Japanese save money, a bachelor was not considered eligible unless he had 300,000 yen in the bank. But the Japanese banks only paid 1% or less on deposits. The Japanese banks then bought US bonds at 3% or more (during '79-'80 our thirty year bond had a 14.7% interest rate). As long as the exchange rate didn't change to much, the Japanese banks were gaining Yen hand over fist. Our government was unofficially financing the Japanese.
This happened because the Japanese were buying US dollar denominated bonds, in other words they were buying our bonds with our dollars. They exchanged yen for dollars and then bought our bonds. At maturity they received dollars which they exchanged for yen at the current rate.
Because exchange rates changed rapidly following the Korean war, a foreign investor had to be very careful when buying US dollar denominate bonds because if the dollar fell against their currency they could lose a lot. They could, also gain a lot, if the dollar rose against their currency.
For example, if their dollar was equal to our dollar and they bought our bonds at 4% and the dollar fell by more than 4%, the foreign investor would not make any money.
This happened to the Euro recently. Not long ago the Euro was one for one with the US dollar. Today the Euro is worth $1.2 or more. If a foreign investor bought our bonds at $1 and received 4% interest, at maturity they would receive 1.04/1.2 or .87 Euro for every dollar they invested, not a good investment.
To combat the changing value of the dollar our government began selling bonds denominated in other currencies. Now, using the same example as above, the foreign investor would not lose any money, they would buy our bonds in Euros and receive interest and principle in Euros regardless of exchange rates.
So who loses the difference? We do.
At maturity our government must buy Euros at the given exchange rate and pay the foreign investor back. In other words, we borrowed $1 and paid back 1.04 * 1.2 or 1.25. Our deficit increased by 25% not 4% because we have to borrow more money to pay them back.
And it had Greenspan worried, very worried because our deficit could balloon out of sight. And if our deficit becomes large enough, the foreign investor may perceive that we might not be able to pay them back. If that happens the market psychology would change. Markets are driven by psychology and a vicious circle would be formed. The foreign investor would sell our bonds and the dollar would drop more, so the foreign investor would sell more and the dollar would drop more, and so on.
I know this sounds draconian and depressing, but I urge everyone to get a history book, one that gives the details, not just a summary, of the hyper inflation event that took place in Germany following the first world war. Believe me, hyper inflation is draconian. People will starve and freeze in the midst of plenty because no one will have enough money to buy the gasoline to transport our food or to buy the fuel to heat our homes.
Such events happen without warning, none. And when they start no knows when and where they will stop. The best we can do is to prevent one before it starts and as best I can tell we are to close.
There is very little most people can do.

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A13U20 Profit is a dirty word

Profit is a dirty word if it is illegal, unethical, immoral, or exploitative. Many decades ago Peter Drucker listed in order the most effective ways to make a profit: 1. exploit a resource, 2. eliminate an unused or ineffective resource or procedure, 3. efficiency. The order of the ways is also the path of increasing effort. It is much easier to exploit a resource than to identify an unused or ineffective resource or procedure or to use resources efficiently.
Sadly, those in power have exploited slaves from the very beginning. First, people, then animals, then machines and energy. In each case something is degraded, people, animals, the environment or a combination of them. Exploiters seldom pay the full cost for their actions, after all their goal is to gain profit for themselves at the expense of the exploited. Many times they gain by exploiting everyone, even themselves. For example, when they degrade the environment, but money is more important to them than their own environment. They don't have to worry about that because they will be dead before the environment will kill them. What they don't understand is that day is gone, if we don't change, the polluted environment will kill them and us before something else does.
For centuries exploiters have polluted our environment because our population was small and the amount of pollution could be easily diluted to the point of undetectable with many notable exceptions, such as, lead poisoning by drinking water from lead pipes or eating food from lead soldered food containers; by irrigating land until it was to salty to grow food; by depleting ground water; etc.
Most of the time a society collaborates with the exploiters because society gains something too. Usually cheaper goods or time savings or fashion and as long as the pollution is far from the consumer or if the consumer is ignorant, the pollution is ignored.
Our population has reached a point where exploitation cannot be ignored as the latest spike in oil prices indicates. The so called experts and pundits are not paying attention, that spike to over $140 per barrel told me that we hit the limit of oil production for that point in time. From my experience, anytime consumption is within 1.5% of production, prices will rise quickly because there is not enough slack in the system at that point to even out small disruptions in the distribution of the product.
The so called experts and pundits have said many times that we will not run out of oil or some other resource, but the sad truth is we really don't know how close we are to reaching the limits of any resource. I agree, we will not run out of oil, but we have run out of cheap oil, and the same is true of all of our resources. We do not know enough to be able to predict when it will become financially impossible to continue consuming our resources, to many variables are involved. And when we run into any limit consuming at full speed the result will be an economic crisis, such as our current one.
As our population increases and our consumption increases we will deplete our resources. We live in a finite world. We cannot continue to grow our population or our consumption which means we cannot grow our economy. We have been lulled to sleep by our success. We have been the most innovative society known to history and we think that our innovative will allow us to continue to consume at an ever increasing rate. We are ignoring the lag time needed to make the next big changes we have to make. Improvements to an existing system are relatively easy to do and require little time to make, but when a major system change is required no one can predict how long it will take or even if it can be done.
Economists remind me of the five blind men describing the elephant. They cannot agree among themselves on what makes an economy work or how to control it. They continue to make the false assumption that the market is efficient. How can a market be efficient when its primary operators are people. People are seldom rational. Some large hedge funds failed because they were highly leveraged and when one or more people did not follow the rationale that the hedge funds were using to make money, their house of cards collapsed.
Oh, how much we take for granted. We tend to think the way we do things always was and always will be. We ignore the long historical path we have traveled. As we gained knowledge, changes were made at an ever faster pace and we think the pace can continue to increase. This is simply not true, the pace of change can continue until we reach some unknown limit. The limits may not be known, but they are not unknowable, mostly we tend to ignore them.
One such limit is excess production. An individual can only sell or give away excess production. People surviving at the subsistence level have nothing to sell, they need everything they can produce. In order to have an excess we must be lucky, efficient, or have slaves. The most common form of luck involves where we happen to live, geography matters. Some locations have more resources available than others. Why do we continually think everyone has what we have, myopia. Efficiency requires knowledge and foresight. Having slaves requires having power, knowledge, and / or foresight depending upon the type of slave.
Now consider the case where the individual decided to use the extra time to produce more. What is the value of his new GDP? Most people would answer, 'The market value', but that assumes there is a market for the excess production. If the excess is greater than demand the market value will approach zero. So in order to have a profit from excess production the amount of excess has to be limited to no greater than demand. In this case the consumer must be exploited and therefore the market is not free and the profit is exploitative.
The consumer can also exploit the producer. If the number of consumers for a given product is small compared to the amount of production, the consumer can dictate the price he is willing to pay and the producer is exploited. Here again the so called experts, pundits, and our public have ignored history. Following WWII our economy was the only economy left standing, we set the prices for many products especially oil, corn, and wheat to our advantage. We exploited the other countries and did so until 1964. Again, the so called experts, pundits, and public did not pay attention and we continued to operate as if we were in control. That is why we are in the situation we are in, we think we are in control and we are not. We are a debtor nation and are at the mercy of our creditors.
These two simple examples of exploitation demonstrate the arbitrariness of economic indicators and it should also alert you to how our thinking has been manipulated by the so called experts, politicians, and pundits. The examples should also enable you to understand how ignorant our public is and that no one is trying to educate them. After all one of the first rules of slavery is never educate the slaves, an educated slave is a dangerous slave, we are becoming a nation of wage slaves.
The exploiters are idiotologues and they want us to believe that the GDP equals the economy equals the standard of living equals the quality of life. This is simply not true because the economy can only be described by using many variables. The GDP sums all of these variables into dollars only and then applies a deflator factor in order to compare one time period to another such as month to month or year to year. If the GDP accurately describes any economy at any moment it is purely accidental.
Because the GDP does not accurately describe the economy, the GDP does not equal the standard of living and does not even come close to measuring the quality of life.
It is common practice during the training of sales people, I'm not talking about retail sales clerks, to encourage them to borrow large amounts of money to buy big houses, big cars, and to entertain extensively, way beyond their income and expense accounts, because then the sales people are more than motivated to sell, they have to sell to pay their debt, they become wage slaves to their sales job because if they don't sell, they will lose everything.
Way to many people are following 'the creating of a salesman' pattern and living way beyond their means. Don't become a 'salesman wage slave'. Don't 'buy' the Madison Ave lie of how we are to live, the so called 'American Dream'. Don't make a wage slave of yourself by buying 'things' on credit. Borrow money only for your home and then for only 15 years and only one and a half times you annual take home pay.
If you follow this advice you will not be living the 'American Dream', but surprisingly your quality of life will increase because you will be living a much more relaxed life. Money and things are not the measure of the standard of living and the quality of life is not determined by the standard of living.
The standard of living is determined by: do we have enough food, clothing, and shelter, free from disease, how long we live, how much leisure time we have, etc.
The quality of life is determined by: Concern, Caring, contemplating, creativity, learning, loving, leisure, and above all sharing (my definition).
Now consider the value of the excess if someone worked 12 hours a day and there was a market for the excess. Obviously, if you could produce the same product, why would you pay more than what it would cost you to produce the product yourself? So if he sold his excess production below your cost then his profit would not be exploitative, but if you were forced by illness or some other circumstance to pay more than your production cost, then his profit would be exploitative.
It should be apparent that when many people are involved the determination of whether profit is exploitative or not is relative to each person involved and it would be impossible for the person producing the product to make the determination. It should also be apparent that one way to grow the GDP is for producers to sell their products or services at high prices (exploitative prices) because the GDP is based on the price of goods and services. Higher prices mean a higher GDP. It also means that when growth in the GDP is achieved by exploitation it does not mean a growth in the economy it means inflation.
Because economics is not an exact science, the GDP is not corrected accurately for the increase caused by inflation. The exploiters use this to their advantage by leading us to believe that the economy is growing. Our egos are easily deluded by the inflation increase in wealth into believing that the increase was real and we increase our spending. The increased spending leads to more inflation which leads to more spending and a vicious inflation circle is formed. While our egos allowed us to believe we were better off than before because the numbers indicating our wealth were increasing, in reality we were losing because of declining purchasing power, very few people bother to check.
The inflation circle continues until people start to reduce their spending because the real buying power of their incomes is below the cost of goods they would like to buy and a deflationary vicious circle is formed. As spending declines, jobs are lost which leads to less spending which leads to more jobs lost, etc.
The deflationary circle almost always starts with the poor and works back up the income ladder. The poor suffer the longest because the rest of the population does not pay attention until it happens to them. Therefore; help comes to late to help the poor and then when the help does come the politicians use the trickle down strategy so the rich get the bulk of the help and then they wonder why the economy didn't respond. To stop a deflationary circle the money has to go to the people who will spend it, that is, the poor.
The reality of the situation is the economy did not grow in the first place, superfluous economic activity was created by superfluous spending which created superfluous jobs which created more superfluous spending, etc. When the tipping point is reached all the superfluous economic activity begins to dissipate and usually does not stop until the superfluous spending and the related superfluous jobs are eliminated.
Another fact that most people ignore or don't understand is that every transaction in a economy is a zero sum or less transaction. This means that if someone gains (exploits) from any transaction someone else loses (exploited) and many transactions are less than zero sum because of fees and commissions. In other words both the producer and the consumer are subject to exploitation if the fees and or commissions are exploitative. Such is the case in my opinion for bank fees, credit card fees to retailers, real estate commissions, refinancing fees, credit card interest rates, etc.
It also should be apparent that to produce an excess the standard of living must be reduced because of the time used to produce the excess. In other words to grow the GDP the standard of living must decline. Hence the saying, 'A rich man spends money to buy time and a poor man spends time to buy money'. Why do people place such a low value on their time? Everyone needs time for rest and recreation and above all time to learn.
In order to maintain high prices, production must be limited and the consumer must be made to think the product is worth the price. In either case the market was not fair, it was exploited and the profits from such actions are exploitative.
Who would do such a thing? Who would pay such prices? Wake up America, we have been suckers long enough. Stop paying high prices for ego junk, such as, brand name bottled water, gas guzzling vehicles, gold plated plumbing, two thousand square feet per person homes, etc.
When innovations become more sophisticated than subsistence level, in other words more complicated, it is very difficult for the individual to determine the fair price of the products and services offered. If you can't make the product or do the service yourself how do you know the true value of the product or service to you? You can't know unless you are very knowledgeable about each product or service you consume. Very few people are that knowledgeable and therefore very vulnerable to exploitation.

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A13U21 Government waste

Let's get one thing straight, people always create waste, how else do you explain toilets and waste baskets. Since we are the government, our government will always create waste, so a much better goal would be 'How to keep government waste to a minimum'.
Many times I have heard a politician say, 'If we eliminate government waste we could balance the budget'. Herein lies the secret to keeping government waste to a minimum: Don't listen to the lying politicians and don't elect them.
Our politicians have always lied, mostly about each other, but since Senator Joe McCarthy and his communist witch hunt, the politicians began to lie more to us than about each other and Karl Rove, et al, raised lying to a new level of sophistication. The lie became the truth and the truth became the lie. It has reached a point where most people don't know the truth, leaving us very vulnerable to panic and anarchy because ignorant people rarely act appropriately when a crisis occurs.
Since politicians want to be re-elected, they want us to think they are doing something, the bigger the better and soon because the next election is approaching. It doesn't matter if what they do is good for our country, only if enough voters think what they are doing is good for our country and vote them into office and here is where the sophisticated lying comes into play. Only if enough voters BELIEVE they are doing what is good for our country, will they be re-elected.
Home Land Security will keep us safe and prevent terrorism, but so much is waste. We have thousands of miles of open borders patrolled only by coyotes and hawks that anyone can walk across and many roads cross our borders that anyone can drive across with out being inspected. Every day thousands of containers are not inspected after being off loaded from ships.
Walls have never had a successful history.
The best way to stop terrorists is to eliminate their source of money, so stop buying the products that despots sell to fund terrorists, drugs, oil, gold, diamonds, etc.
We have become very lazy, very few people will check to see if what the politicians are saying is true and even fewer will do the simple arithmetic necessary to check the feasibility of what the politicians are saying to see if it will save our tax dollars or have a cost benefit.
So if we want to keep government waste to a minimum we must prevent the politicians from passing laws that provided for: pork barrel projects, special tax breaks for special interests, subsidies for special interests, wasteful government projects, such as bridges to nowhere, ethanol from corn, sending drugs that require refrigeration to a country that does not have electricity, etc.
Government is not the problem, lying politicians are the problem.
How many people know the requirements and limitations of a fair market. In reality very few markets are even close to being fair and many markets can never be fair, such as health care, police, fire, defense, etc. We force our health care system to behave as a fair market and by doing so we are paying about four times what it would if we allowed some cost saving combinations that would severely restrict market activities. We could restrict expensive equipment to one hospital and require those in a given area to use that one instead of many hospitals each having one and being under utilized. We could use statistical techniques to stop doctors from doing many unnecessary procedures to prevent law suits. Their defense would be, 'I did everything I could' and that would be true, but much of it was not necessary. Death is necessary, so why do we prolong life when death is near. Was it really that important for Uncle Joe to live two more weeks in pain?
Another simple thought experiment reinforced my point of view, after reading an economist's comments on the statistics on the back of a 1040 tax booklet. He said that more than 50% of our population spend every penny of income they receive and another 40% spend almost every penny of income they receive. Now if people spend all of their income how is possible to grow an economy? If people are spending all of their income the only possible outcome is a decrease in the economy when people stop spending and an increase can only come when they resume spending and that is not growing an economy.
Obviously, an economy can never be larger than the amount of money people have available to spend and any increase in spending by borrowing money or by inflation is a false increase in an economy. We have had a false economy ever since the 1960's.
Because the economists, politicians, and pundits often say or imply: spend more, buy more, consume more: two more of my pet peeves are disclosed. More is better and bigger is better.
Obviously, more is not always better. I am sure you can think of many ways that more is not better.
For me, more war, more violence, more vitamin A, more salt, more sugar, etc., are not better.
Most of the time the economists, politicians, and pundits say bigger is better without qualifying their statement because they are referring to economies of scale without knowing the other variables that negate the economies of scale or are lying if they do know.
The economies of scale are well known and became very obvious to me during Total's many acquisitions. When Total acquired another company Total did not need two presidents or two of any other member of management. Total didn't need two computer systems, nor any of the accounting staff or programs. Total did have to add a few more people to handle the increase in the number of transactions, but not many others. Reducing the number of employees per unit of economic output is one of the largest gains of economies of scale.
If only the economies of scale are considered we should create one gigantic monopoly because then we would have the lowest cost per unit of economic output. So what is wrong with this sort of thinking.
Most people do not stop to consider that there is more than one variable in determining the cost of economic output. The most common counter variable to the economies of scale is communication. I am not talking about equipment, I am talking about one person talking to another, people writing memos and reports and people reading memos and reports and people preparing to present at a meeting and people attending meetings to listen to the presentations. In addition, to many meetings are a sign of poor management. In some organizations people spend so much time in meetings that they have to work over time without pay to get their work done.
Obviously, in a single person economic activity that person does not have to communicate with anyone so their communication costs are zero, but their cost of economic output is high because they cannot take advantage of the economies of scale. But as the size of an economic activity increases so does the communication costs. What most people do not understand is that if the number of people are doubled the cost of communication does not double it increases much more than double. So as an economic activity becomes very large the cost of communication becomes very large very rapidly and soon negates the advantage of the economies of scale.
When people only consider the economies of scale they are only considering one variable, this is a very simplified model of the economic activity and each time a simplification is made the model moves further from reality and when the model is simplified to only one variable it does not even come close to reality. Herein lies my most important dissatisfaction with economics and economists and the politicians and pundits who quote them. I don't recall a time when any economist told our public about the limits of what they say or try to educate our public.
That realization came to me when I was reading a book on math. The author was an applied mathematician and he was commenting on the dichotomy between theory and applied mathematics. I am well aware of this dichotomy in math and physics, but did not consider it in economics. When I was analyzing and evaluating the economics of Total's refinery and acquisitions I was an applied economist, my analysis and evaluation had to be accurate or it was a waste of time, but when economists talk they talk as if they were talking about theory and theory is acceptable if it is within 5 to 10% of reality, but when they work they work as applied, but even then they cannot be very accurate because economists rarely have accurate numbers to begin with, most of their numbers are statistical estimates and their conclusions about the economy are nothing more than an intuitive feel for the numbers they are working with, but they never tell our public about their own dichotomy and the limits of their accuracy which irritates me. Did you ever wonder why economists contradict one another.
Also, I, just, have to shake my head because it took me more than thirty years to become aware of the dichotomy in economics.
The above example of comparing more than one variable also plays a very important role in politics. Many idiotologues argue using only one variable and either don't know about the other variables or are lying. Such is the case of the communists and the libertarians.
Where does this leave us? It should leave us with the knowledge that the value of anything is subjective, it only has the value that we place on it, that there are no simple solutions or quick fixes for some problems, and not to be to quick to accept the solutions provided to us by the so called experts, politicians, and pundits. Make these people provide workable solutions instead of idiotological solutions, don't let these people exploit us, else 99% of us will become wage slaves. More than a third of our population are wage slaves now, they are bound by the golden chain, they must work, or worse turn to crime, to pay their bills and debt.
If we are to survive with any of what we would call a decent standard of living, we must reevaluate our life style, do we really need all the things we have. So much of what we have are nothing more than ego boosters. We must conserve until we can find a way to create non polluting energy to keep our mechanical slaves operating. We must design our political and economic systems to mitigate the weaknesses of our nature. We must keep in mind that money is not the goal of life.

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