Wednesday, January 14, 2015

Economics Explained

(so that even a moron can understand it)

When an inventor comes to me for help with a totally new idea for an internal combustion engine that he promises will save the planet while producing emissions no more harmful than ice cream sundaes, I immediately know for a fact that this individual knows less about internal combustion engines than my belly-button lint does.

The same is true when some naive intellectual comes up with a new economic system that he claims is more "fair," meaning that people like him with absolutely no useful skills will not have to work for a living.  The arrogance of ignorance knows no bounds.

Taking economics lessons from someone who has no money and no clue about what it is, where it comes from or what it's for is like asking my grandma to fix the internet.  It can only lead to one place:  the emergency room.

So, if you're one of those smug hippies who think they know better how to organize everybody's lives for them, then put down your goddamned bongos for half a goddamned minute and learn how economics really works.

Economics is all based on Human Rights.  Yes, you read that right.  It is all about the most basic, fundamental and universal human right there is:  the right of the individual to self-determination.  In other words, it is the individuals' right to chose his own actions rather than being compelled in his actions by force.  In the most basic terms, this means that people have the right not to be the slaves or the property of other people, even of the State.

This further means that the most fundamental human right is the right to ownership over one's own labor, and by extension, the results of one's labor.  If you go out and gather, kill, make or grow some food, then you and you alone have the right to eat that food or to decide who besides you eats that food.

Whether to feed yourself, your spouse, your offspring, your parents, your neighbor's kids or the guy who in exchange gives you some of his nice dry firewood is entirely 100% your own personal individual right to determine.   Your labor and the products of your labor (which I call stored labor) belong to you and to no one else - not your parents, not the community, not the State, not even the almighty Flying Spaghetti Monster or any other mythological being.  

Does this mean that all taxation is theft and slavery?  No, silly.  Only that all excessive taxation without democratic consent and without a return to the taxpayer of goods or services of commensurate value is theft and slavery.  There is a legitimate role for the state, but politicians seem never content to limit their power to the small handful of legitimate areas of government involvement.

Equality does not mean that people have equal assets.  There is no requirement for or benefit from that kind of fairy tale.  Equality means every person has the equal right to ownership over his or her own labor and stored labor (property).  Besides, everybody has assets whether they understand them or not.

Your time is your most basic asset and property, and it is your human right to decide what to do with that asset.  Many people will choose to apply that asset to their best interests by utilizing it for the urgent matter of survival - food, shelter, clothing and security.  But if people chose to do otherwise, you can't suddenly revoke their human rights just because it's not exactly what you would have done.

Other assets that people own for themselves include innate talents, learned skills, tools, and property that meets a person's basic needs (apparel, housing, personal care implements, weapons for self-defense,  implements for communication, tokens of identity or status.)  To in any way deprive a person of his personal property is a violation of his human rights.

But what if someone appears to own far more than they actually need?

Oh?  Who gets to decide that?  You just worry about yourself and let other people worry about what they need.  To do otherwise is the height of arrogance - thinking that you know better what someone else's needs are.

Whether it is a hovel on half an acre or an estate on a thousand square miles, a person's property is a person's stored labor and therefore his life, and no one besides her has any right or claim over it.  That is even true if it was her great-great-grandfather's stored labor and not hers personally.  If you grow food (store labor) and bestow it upon your children, then it becomes their life and their right to do with as they determine.  If they exchange it for something else, then that article takes the place of stored labor and remains their right.  Because your time, tools or acreage makes it possible for you produce food, then that property is as much your human right as the sustenance you produce therewith, and bestows on you the right and duty to determine how that sustenance is disposed of.

Why is that in any way "fair" to people who don't have the same assets?  A) because "fair" is a subjective and imaginary concept that is pointless to bring up, since it involves making invalid comparisons between nonequivalent entities, and B) the basic human right to control one's labor and stored labor, if denied to anybody, is very soon denied to everybody.  If it is the poor (people suffering deprivation) you are so concerned about, then know that it is the poor who are always the first to suffer and suffer the hardest whenever this has been tried.  Equality does not mean that everyone has the same assets.  It means that everyone, without exception, has the same basic human rights - the right to ownership over one's own labor and stored labor.

With the sanctity of property explained, let's talk about wealth and where it comes from.  But let's not be confused by the concept of money, because money is not wealth.  Cash currency is at best a temporary storage container for wealth that facilitates exchange of value; nothing more.  Wealth is the ability to create things that meet one's own ongoing needs and the needs of one's dependents.  Thus, money is not wealth, and giving money to the poor does not make them un-poor.  By "needs" I refer to both the physiological needs of any human (food, water, shelter, energy, security) as well as the often paradoxical psychological needs (uniqueness and conformity, novelty and sameness).

Wealth consists of the assets I mentioned previously and occurs in the following four categories in the following order:

0.  Time and labor, which may be exchanged by agreement for basic needs;
1.  Talents and acquired marketable skills, which may be exchanged by agreement for basic needs and/or other assets;
2.  Tools which may be used to produce valuable articles for exchange;
3.  Productive property that enables the creation of desirable goods and sustenance.  Farmland,  factories, dwellings, businesses, or shares thereof.

Everybody has the zeroth asset category from birth, but not all in equal measure. Some people are stronger, some people live longer.  Get used to it.

Most people acquire some assets of the first and second categories by the time they reach adulthood. Anybody can eventually acquire the third asset category these days, since previous illegal restrictions on ownership (affecting women and minorities mainly) have been mostly abolished as a gross violation of human rights.

Wealth is created in two steps.  First, when an individual gets busy and uses any of the above assets to produce something of value, wealth appears as if out of thin air.  Assets are valueless unless they are used to provide for ones needs; but when they are used, that's called wealth.  Second, every time a willing informed exchange takes place, wealth increases.  How does that work?

If two people have dissimilar articles and willingly agree to an exchange, it is because each of them would rather have the other article.  In other words each person values the other article more than they value their own item.  Therefore the exchange of articles makes sense and actually increases the total value of the two articles.

If a seller has an article and a buyer agrees to purchase the article in exchange for an agreed amount of currency, then it is because the buyer values the article more than that amount of currency, and the seller values that amount of currency more than they do the article.  Again, value increases and wealth grows.

But, for this to work the exchange must be without compulsion, and the exchange must be informed, i.e. each party knows exactly what they are giving and getting.  Those are two pretty big if's, admittedly, and both account for a large measure of how the poor often act against their own best interests.  They buy stuff that is of no value for too much money, and sell their time (usually their only asset) for too little.  They also fail to acquire assets, frequently out of ignorance or due to cultural conditioning.

The other problem often encountered by the poor is being in a skewed market, which also happens out of ignorance or irrational human behavior.  Remaining in a labor market that is too far skewed in favor of the employer is not rational and not informed.  Move somewhere else, for Frodo's sake.  Or get out of the labor market and get into something more suitable by acquiring some category 1 or 2 assets.

We are now prepared to speak intelligently about price.  It takes two people to set a price:  the seller and the buyer.  Together they set the price of things by simply agreeing to the exchange, and it is nobody's business but theirs.

It may seem stupidly obvious that the number of items bought is always equal to the number of items sold, but this is a very important fact to keep in mind.  In an open and informed market, a large number of transactions for the same item can establish an average price point that may fluctuate from time to time.  But at any given time, the price being offered and accepted for an item is the price at which an exactly equal number of buyers and sellers agree is the exactly correct price for the number of items transacted.  Think about it:  at higher prices, more sellers would agree, but fewer buyers.  At a lower price, more buyers but fewer sellers would be willing to transact.  Therefore any murmuring about the price of an item not being "fair" is nonsense.

Often, people who don't understand economics propose the artificial setting of prices by non-involved third parties whose business it is none of.  The government, for example.  Also trade unions, produce cartels, monopolies, criminal gangs and the like.  Good company, apparently.  Things that have been or are being artificially price controlled in various markets include rent, gasoline, medicine, wages, electricity, and potatoes. (I am NOT making this up!  Western Australia has an all-powerful potato cartel that fixes the price of spuds.  Or tries to.)

The effect of setting a maximum price for things like gasoline, rent or potatoes is that there are fewer sellers willing to exchange items at that artificially low price and too many buyers eager to buy at that price.  In other words, shortages.  Long lines.  Black markets.  Poverty, crime and deprivation ensue.

The effect of setting a minimum price for things like wages is the opposite:  too many sellers entering the market with too few buyers interested in paying an artificially high price for something that is in plentiful supply.  The result is unemployment, slow economic growth, and fewer goods and services being made available to the population. In either case, meddling with private transactions between two informed parties wrecks everything and infringes on people's basic human rights to deal with their own property, labor and lives as they see fit.

There is nothing to be gained by lamenting the prices of things, as though the power to set prices was some magic belonging only to the rich and powerful.  Or something that politicians do.  Such woolly-headed paucity of reason distracts from the real issues of availability and desirability.  Supply and demand.   It is not a man-made system or an arbitrary rule someone made up: it is just the natural way that things work.  When you try to meddle with it, things always go wrong.

-    -    -

Worrying about other people's problems is a popular pastime these days, and so there are many theories about what to do about those people who can't seem to provide for themselves - the poor.  why is that my problem?  Because the poor in desperation turn to crime, and crime ain't good for nobody.

Here too price becomes a pointless distraction and leads to more harm than good.  Some people propose to "solve" poverty by forcing prices to be low enough for poor people to buy what they need.  This results in supply shortages and nobody getting anything.  Except the resourceful rich, who always know how to get what they need.  This benefits only extra-resourceful people who know how to supply the rich with what they want, and the poor continue to be poorer still.

The other solution is to just give currency to poor people.  This has a number of interesting effects, none of which helps the poor in any way.  A) It devalues the currency.  B) It increases the demand on goods.  C) A + B = prices go up, so that the poor are no better off.  D) It creates dependency while punishing resourcefulness, leading to an entire culture of people who are incapable of providing for themselves. Most programs to help the poor accomplish only two things:  They assuage middle-class guilt while assuring the continuing existence of poverty and suffering.

If it's the relief of suffering you're actually interested in, there's nothing stopping you but lack of generosity.  If someone is hungry or sick, give them food or medicine, no questions asked.  No paperwork to make sure they qualify under federal regulations, no cash payments.  Just relief of suffering.  Doing it that way is much cheaper than paying an army of bureaucrats to work out who gets it and who doesn't.  "But someone might take advantage of our generosity!"  So?  A truly generous person doesn't give a shit about quibbles like that.

In the battle against poverty, wealth is the only thing that has ever prevaled.  By affirming individuals' right to their own labor and stored-labor, by providing education and opportunity as well as non-cash relief of immediate suffering, the poor (and everyone else) get to choose whether to be poor or resourceful.  On a practical level, we do this by ceasing to bog small businesses down in regulation and double-taxation.  This allows previously poor people (newly educated about how economics actually works) to create their own jobs and jobs for each other rather than waiting around for a corporation to move in and flood the labor market with low-wage jobs.

The Big Secret to money is this:

Always have plenty of it.  

If for any reason you don't have plenty of it, then do these three things:

1.  Realize what money is: just a temporary storage media of value that facilitates exchange of stored-labor for productive assets.  Money is never the problem, so stop blaming it for your situation.  (And if you wish to accumulate wealth, do not accumulate currency.  Accumulate assets instead.)
2.  Start creating more value every day.  If you live somewhere where this is not possible, THEN MOVE!
3.  Manage your resources better.  Stop buying worthless crap and start acquiring value-producing assets, starting with category 1 assets such as education and skills.

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