Monday, December 18, 2017

Ten Pillars of Economic Wisdom: Now More than Ever

During the Great Depression the size of government grew exponentially and many believed that the United States had lost those essential principles that made this country the most prosperous on the face of the earth. It was during this time that an organization was formed, called the American Economic Foundation (AEF), and they put together the following “Ten Pillars”* to remind Americans what works in an economy. If people wondered if a policy was good and beneficial to everyone concerned, then it would stand the test of these Pillars.

A Blueprint for understanding the roots of our prosperity

1. Nothing in the material world can come from nowhere or go nowhere nor can it be free; everything in our economic life has a source a destination and a cost that must be paid.
Simply put, “There is no such thing as a free lunch.”
Everything has a cost regardless of promises from politicians.
Whenever a politician promises to do ANYTHING for us; we must ask, Where will they get the money from?

2. Government is never a source of goods. Everything produced is produced by the people, and everything that government gives to the people, it must first take from the people.
All government punishes good behavior, and rewards bad behavior.
Many Americans need to be familiar with this Pillar in particular.
Government “help” breeds dependency.
3. The only valuable money the government has to spend is that money taxed or borrowed out of people's earnings. When government decides to spend more than it has thus received, that extra money is created out of nothing, through banks, and when spent, takes on value only by reducing the value of all money, savings and insurance.
Much of the new spending we have seen by Obama (and Bush) is being financed by fiat money (essentially counterfeit) and will result in rampant inflation.
Ø Other parts of the spending will be paid for by future generations.
Ø Finally, some will be paid by foreign governments who invest in such debt (making us dependent on regimes, like China).

4. In our modern exchange economy, all payroll and employment come from customers, and the only worthwhile job security is customer security. If they are no customers, there can be no payroll and no jobs.
Labor unions have long tried to create an economic world that is detached from reality.
If labor wants job security, they must accommodate customers.
There is no other way to assure long term job stability.
Government is a not for profit organization!

5. Customer security can be achieved by the employee only by cooperating with management in doing things that win and hold customers. Job security, therefore, is a partnership problem that can be solved only in a spirit of understanding and cooperation.
Unions often want an adversarial relationship with business, but job security can only come if the two are partners pursuing customers together.
Government does not pursue customers hence, unions should not be involved with government employees.

6. Because wages are the principle cost of everything, widespread wage increases without a corresponding increase in productivity, simply increases the cost of everybody's living.
An example of this is the minimum wage.
When it goes up, so do prices, and if the job isn't worth the wage, it will be lost.
This solves the mystery as to why minimum wage increases are both rare and devastating.

7. The greatest good for the greatest number means, in its material sense, the greatest goods for the greatest number which, in turn, means the greatest productivity per worker.
Production is the best way to keep an economy strong, and those who participate in it growing financially are also rewarded.
The best way to encourage productivity is for a government to keep the costs of production as low as possible.
This is done through a stable money supply, low taxes, and few regulations.

8.  All productivity is based on three factors: 1) natural resources, whose form, place and condition of exchange are changed by the expenditure of 2) human energy (both muscular and mental), with the aid of 3) tools.
This is straight forward enough. These three factors make up the totality of the economy. As a formula, this is seen as
     NR + HE x T = Man's Material Welfare.

9) Tools are the only one of these factors that humans can increase without limit, and tools come into being in a free society only when there is a reward for the temporary self denial that people must practice, in order to channel part of their earnings away from purchases that produce immediate comfort in pleasure, and into new tools of production. Proper payment for the use of tools is essential to their creation.
Tools are the only one of these that can increase without limit. An example of this is agriculture, which was the dominant industry in the late 1700s and early 1800s, with the majority of our population working in that area. Today, the number who work in it are in the single digits and the abundance of food could not be greater. Tools are what have changed everything.

10) The productivity of the tools-- that is, the efficiency of the human energy applied in connection with their use-- has always been the highest in a competitive society in which the economic decisions are made by millions of progress seeking individuals, rather than any state planned society in which those decisions are made by a handful of all powerful people, regardless of how well meaning, unselfish, sincere and intelligent those people may be!
The genius of the many individuals when it comes to economic prosperity is always greater than the few or even the majority that would impose its view of "fairness" on the economy. This is the "invisible hand" that Adam Smith spoke of so eloquently in his The Wealth of Nations. 

          The previous words have made so much sense to me now however; there was a time when I did not understand the wisdom of this passage.  This particular writing allowed me to view the world from a different vantage point.  That being that the difference between countries is government. America appears to be waking up. Our government is riddled with corruption and our population is being mis-educated by choice.