I find articles like this to be uplifting and encouraging.
http://www.newscientist.com/article/mg18524911.600-13-things-that-do-not-make-sense.html?full=true
Sir Arthur Eddington once said, “We used to think that if we knew one, we knew two, because one and one are two. We are finding that we must learn a great deal more about 'and'”.
-- Lache
The financial illiteracy of the everyday consumer in
Jim Bell of Strategic Investments has a phrase EVERYONE should know. It goes like this: “If your outgo exceeds your income, your upkeep becomes your downfall.” In other words, control debt or debt will destroy you.
Most do not fully understand that Credit = Debt, and Debt = Credit. Because of this poorly understood and grossly overlooked relationship, I keep having the same conversation with friends and family.
I find myself explaining the effect of seeing a little more cash in peoples’ paychecks is due to the newest tax credit from the Gov’t. I quickly learned that I had to break them out of the “taxes are mysterious so why try to understand them” way of thinking and introduce a new way of understanding THEIR OWN PAYCHECKS.
First, I lay a foundation with a simple question: Would you rather have $100 cash in hand or a $100 credit limit. (if they answer “credit limit” – I just walk away).
Second, I establish the meaning of credit and validate why the cash is the wiser of the two.
Third, I help them to make the leap from a normal credit limit and a tax credit. This is my favorite part. It is here that a relatively sharp individual comes to the full understanding that the extra cash now in hand will be paid back to Uncle Sam in their 2009 tax return. Normally, they begin to ponder why the credit is given if in the end it must be paid back.
The newly ignited ember of reasoning is so tiny, but that does not diminish the gloriousness of the feat.
-- Lache
If you don’t believe me, ask the laws of physics. For this argument, the laws of quantum mechanics and weirdness are ignored.
According to the 1st Law of Thermodynamics, when work is done, there is a balance to the energy applied and the output of the energy. Essentially, you cannot get more that you put into a system.
For example, if you have a candle and you calculate the energy contained in the mass of the candle it will be exactly the energy released by the candle plus the mass of the by products once lit.
(All the electromagnetic energy [Photons] + the chemical by products of the flame) + energy of catalyst action = the energy contained in the unburned candle. It will be equal, after all, that is what E=MC^2 means.
So at the fundamental level, nothing is free. There must be a an equal exchange TO EVERYTHING. No exceptions.
I have thought long and hard about this universal constant and decided to apply it to different economic systems. Stay with me on this...
Built into economics is the law of supply and demand. The supplier pays more opportunity cost if he over produces and the consumer pays more opportunity cost if the demand increases. That is why prices fluctuate. All things being equal, every player in an economic system wants an efficient exchange.
It has come to my attention that Socialism, as an economic system, is abhorred by the Universe. It attempts to gain without balancing the equation. Along a short timeline it is successful, but the gains are overshadowed by the cost on a long enough timeline. Consider for example, the current bailout by the US Treasury and FED.
The work of the banking sector and the automotive companies did not balance their output. It was overvalued and so the system attempted to balance it self. This is evidenced by the collapse of certain institutions and investment vehicles. But the system was halted during this reset. The Gov’t determined that the pain of business failures and the risk of a deep economic downturn was too big to endure.
The Gov’t decided to borrow from future tax revenue to stop failures and the downturn. They are increasing aggregate demand by increasing expenditures. That is all fine and good, until someone asks the question, “who is going to pay for all this?”
The answer comes from Keynes himself, “In the long run, we are all dead.” The Gov’t doesn’t care because by the time these social programs need to be paid for, they and their constituents will be gone. Either having left the Earth, or just left office and allowed the next guy to figure it out.
If this line of thinking sounds and feels familiar, that’s because it is. This is the exact sentiment of the American people. No longer obsessed with personal long term self interest, everybody puts off till tomorrow the payments of both public / private goods & services they receive today.
I will end Part 1 with these questions: What happens when G borrows / spends at a faster rate, over several generations, than GDP growth?
What happens when the expected future GDP begins to fall due to the impact of the social programs and benefits on labor productivity and the impact of continued goosing of aggregate demand?
Follow the logic.
-- Lache
This is the other side of the equation. Failure is the inherent risk of life.
This is the side that socialists, liberals, and the dregs of society attempt to whisk out of reality via denial. Simply ignoring the pain or the results of bad choices/decisions does not remove it from the reality of the universe.
Capitalism is the answer. However, all those who ignore their own individual responsibility label it as cruel and evil. To them it is evil, for true capitalism reserves the right to payout failure when it is earned.
Everyone has the right to be wrong and Washington wants this right to be nullified by socialistic programs such as unemployment, universal health care and corporate bailouts.
Follow the logic: if failure is not handed out as payment when earned, how does one make better choices in the future? How does a person grow and learn if the pain of failure is never an option?
This is what Adam Smith called a “moral hazard.” Inevitably, the “invisible hand” bitch-slaps those who steal, cheat, and make the wrong choices in life. Take it from someone who learned this first hand, no pun intended.
-- Lache