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Crime, Culture, Economics, Education, Family, Taxation

BUSINESS, PROFITS, CHARITY & FREEDOM

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Taking care of business…

Fewer and fewer people understand capitalism, despite every, single, one of us being a capitalist.  This is an odd distortion of knowledge and understanding, and it has taken a lot of work.  There are two kinds of capital: earned and unearned.  Figuring out which is which will make clear where each of us is on the spectrum.

Consider a newborn baby.  He or she will cry and fuss until he or she receives food and/or comfort – often the very same things.  There is no sense of sacrificing for greater rewards an hour or two later, or of “saving up” cries in order to obtain a larger portion at a later time.  Babies exhibit raw capitalism: pure barter.  I won’t make your motherly instincts feel the discomfort of a crying baby if you will provide what it takes to comfort me and put enough food into me so that I will sleep… like a baby.  We all start out as capitalists.

We might also note that a baby doesn’t save any food or comfort for later, nor does he or she offer more quiet alleviation of motherly guilt in exchange for food than it takes.  Everything is on the expense accounts as “current” – no accrual.

It takes a while for infants and toddlers to figure out that kindness and caring can be “banked,” as it were, for increased pleasure and happiness any time later.  It’s a big concept.  If lovingly raised, however, children do learn to avoid punishment for “bad” or costly actions, and to express love and kindness toward parents and others when they are not hungry or uncomfortable… and even to share possessions.  At some point they learn to trade possessions for perceived “profits.”  Something Tommy has seems more desirable than what Jeffy has – and vice-versa – and both parties “profit” from an exchange of goods.  Also a big concept.

Like all human “isms,” even incipient capitalism requires regulation and “institutionalized” bounds.  Almost every child learns that simply taking something of Tommy’s is extremely profitable: nothing is given up in exchange.  Parents or other adults are, at that point, obligated to punish – or dis-incentivize – that practice.  Jeffy’s taking, or stealing the possession of Tommy’s, must be made costly enough that Jeffy learns as immediately as possible, that there is no advantage or profit in that act or acquisition.  And, it must be a cost that exceeds the simple return of the stolen property.  Whether it’s a period of disfavor from a parent, or deprivation of a desired activity, a slap on the hand or something else proportional to the “crime,” there must be a cost that the perpetrator, Jeffy, will do his best to avoid going forward.  Otherwise, stealing becomes a habit and will be perceived as profitable and worthwhile.  Several big concepts.

It’s easy to imagine the fairly short-term consequences of the lack of institutionalized sanctioning of “bad” actions.  In this case, the “institution” is the “law,” or, at least, the automatic and swift punishment (let’s hope, by parents) of theft in addition to retribution.  This is the fundament of civilization; capitalism is woven amongst all the threads of civilized society.

Now let’s assume that our properly guided and sanctioned child grows up, essentially according to the Ten Commandments.  People of faith attempt to obey all ten, there being nothing negative about any of them, which is to say: nothing that hurts social cooperation and quality of life, or the raising of new adults with civilizing self-control.  Strictures against creating and worshipping graven images instead of God; taking the name of God in vain (cursing involving God’s name or power); keeping the sabbath day holy is also a good idea, albeit one that we in America have cleverly set aside; honoring our fathers and mothers is both logical and essential to the health of society; not killing one another; not committing adultery; not stealing; not lying about our neighbors; and, not coveting the property of our neighbors.  These are essentially society-protecting strictures that we attempt to talk ourselves away from only at our peril.  The hate-based riots of 2020 are the clear and clarion proof of the fragility of civilization in the absence of “the Commandments,” whatever their source.

Our new adult decides to start a business.  Having been raised “with a conscience,” Jeffy plans to sell his skills as a carpenter, and he recognizes that he’ll need a partner with similar skills in order to keep his contracting promises and to help avoid mistakes.  He makes arrangements with a local lumberyard to establish an account with sufficient credit to do significant renovation or add-on projects.  The account is based on Jeffy’s reputation as an honest person and, in part, on his father’s equivalent reputation.  The lumberyard considers the potential of a growing business customer as a worthy risk of a certain level of credit, or debt.

By virtue of hiring Aaron, a friend he knows from High school, who also loves building things, Jeffy takes on a remarkable burden of employer obligations, including various benefits that must be paid, including health care and liability insurances, and, of course, meeting “payroll.”  As owner of the business, Jeffy also is responsible for legal contracting with customers, and for other tax consequences of success.  He and Aaron still believe in their abilities and respective roles. and business commences.

“Jeff’s Construction” finds itself busy and able to pay both the owner and his employee reasonable wages while gaining assets in the form of two trucks and several power tools, and while accumulating some money in a local bank.  In other words, “Jeff’s” is profitable.  Knowing that his little company was facing taxes on his profits at both the state and federal levels, Jeff decides to make a donation to his church’s Christmas Food Drive.  With profits on the books of about $12,000, Jeff donates $2,000 to the food drive.  He and Aaron get their picture in the paper handing over a big cardboard check to the chairman of the Drive committee.  The minister and several other key people are also in the picture.  Jeff makes a handful of new connections, as a result, a couple of whom later contract with “Jeff’s Construction” for renovations of their homes.

As the years go by, “Jeff’s Construction” becomes “J & A Builders, Inc.” incorporated and no longer a proprietorship.  They grow to 6 full-time employees.  Each summer J & A work with the regional technical high school to provide summer jobs to budding carpenters.  Aside from income taxes to state and federal government, J & A’s building and garages plus the property taxes on the two partners’ and their 6 employees’ homes total over $100,000 per year, while excise taxes on their vehicles kick in another $26,000.  Donations to the Food Drive, the Boys and Girls Club and to the local “Y” for Summer Camp sponsorships plus support of a local Little League team, amount to nearly $25,000.  J & A also matches 401-K contributions up to 5% of income for all 8 personnel.

Those who misunderstand the immense values of honest profit are always looking for “businesses” and “business owners” to right non-business wrongs in society, perhaps because they are “fortunate.”  But that is not a business obligation.  The business is obliged to operate legally and honestly, delivering what it promises and not cheating customers, and to do so at a profit so that all legal obligations to employees and suppliers are met.  By providing multiple streams of tax revenue, businesses provide for all that civil society is relied upon to provide for residents.  Charity is in addition, and a blessing, not an obligation.

Of course, everything is different for those small businesses that have a room in the back that’s full of cash… cash they’re just too greedy to share with their oppressed workers and every poor person in town.  But, there are damned few of those. 

There are  many ways to add new wealth to an economy and to a nation.  The first of these was personal manufacture, in a sense, where the best tools or weapons compared to other groups or tribes created an advantage in terms of safety, hunting and survival.  Next came agriculture, permanent villages and cities and the need to defend them, which latter need spurred invention, metallurgy, and more.  Along with agriculture, fishing also introduces wealth and spurred marine technology.  In the presence of defensive pressures came a third major source of new wealth: mining.  Everything, of course, required managed labor and the necessary efficiencies that make ever-larger projects, whether construction or war-fighting, possible.  Indeed, it all made the Roman Empire possible – a success of management and leadership that taught some lessons to all of today’s successful – and failed – governments.  Religion, particularly in terms of Judaism and Christianity and the economic and familial ethics they spread across Europe, led, eventually and often unpleasantly, to the enlightenment and the explosion of technology, which made intellectual invention a new source of wealth and source of medical advantage, which is another form of civic wealth.

Today, virtually pure intellect is like a global form of mining.  New products are “manufactured” from a raw material of electrons, bringing new wealth into existence.  Construction, of homes or factories or office towers or highways and bridges, adds new wealth, too: fixed assets, from which use is derived for years and decades, enabling other wealth and our gigantic “service economy.”  Still, no matter the type of business in which one engages, the obligations of businesses and business owners – including stockholders – are the same.

What are they?

  • Operate legally (but don’t hesitate to challenge regulations and laws that are irrational and which amount to unequal application of the law)
  • Earn a profit legally, without cheating customers
  • At best, manufacture a product (best way to create new wealth benefitting the most people)
  • Next best, grow a product and/or improve the growing process
  • Treat employees equally and provide appropriate training and safe conditions for work
  • Provide real services that add value to products and their use or availability
  • Deliver what is promised, never less than promised, and more if you can
  • Do not employ false advertising or sales tactics
  • Maintain honest accounting, pay applicable taxes
  • Do not dirty your property, the air or the waters

Individuals, business owners or not, are always free to be charitable and to take part in politics or social issues they believe in.  But these should be personal decisions and personal resources.  A business owner fails his or her basic obligations to a community , to customers and to employees, by diverting business resources that should be enhancing working conditions, or providing insurance against future threats to the business.  Otherwise, if this sense of purpose and obligation to the health of the business is being weakened for any number of reasons, the business should be sold to those who will work to meet the listed obligations, or folded, having fulfilled, or no longer fulfilling, its mission.

Economics

A Degree of Economics

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Everything so new and fresh

Prudence has successfully resisted the temptation to counter the many ignorant statements uttered by the impressively ignorant Alexandria Ocasio-Cortez, of late an elected representative in the U. S. House of Representatives.  She has a college degree… in economics.

One recent evening she purported to explain – obviously only to those more ignorant than herself – what “capitalism” is.  In the process she confused it with “free-market economy,” and then jumped to explaining how one might have a “mixed” economy where the “state” doesn’t own the means of production but “workers’ cooperatives” do.  Neither the origins of the means of production that workers’ cooperatives will “own,” nor the means of managing their cooperative labor, were revealed during her explanation.

To the likes of Ms. Cortez the Marxist concept of capitalism is not a solution to the human condition, but the cause of suffering and injustice.  Unfortunately, modern capitalists are proving many of Marx’s theories.  Thanks to the vapid connivance of ostensibly democratically elected governments (crony-capitalism), international banks virtually direct public policy and national economic decision-making.  Most “workers” – wage-earners, are relatively comfortable and not about to revolt against anonymous masters, but not all.  The obscene concentrations of economic and productive power run the risk of collapsing the edifices of international capitalism.  There’s plenty for social justice warriors to despise.

On the other hand… socialism cannot destroy debt – only productive surplus does and can do that.  It is not possible, at least human nature will not allow, a financially complex society to grow without practical amounts of debt.  Not to be pejorative, “debt” is merely paying for a product or “good” over time.  No, that sounds too simple.  “Debt” is only true and practical when a financing agent has judged a borrower likely to pay back the loaned cash with interest, oftentimes with the financier holding a chattel interest in the good for which it has loaned the purchase price, because of two factors: 1) The financed “good,” or product or house or car or medical procedure has sufficient desirability, utility or comfort value for the borrower as to make its value or worth obvious (and its potential loss undesirable enough) and valued by the borrower; and 2) The borrower or beneficiary of the good’s utility or comfort is, by test of available income over time, able to make periodic payments on a timely, contracted (promised) basis.

In the ideal case, then, debt is simply a tool that is “rented,” as it were, the value of which is clear enough to cause timely, interest-bearing, repayment.  The manufacturer of the good (debt properly employed should always, as in every single time, be employed to facilitate the transfer of a “hard, or manufactured, good” and not a temporary expense) obtains immediate payment, enabling additional future manufacture, while the customer of the good obtains the use and facility of the good immediately upon need when it may be too costly to afford a single cash exchange for it.

Much is misunderstood about “productive surplus.”  It’s “margin,” which is to say, revenue that exceeds the cost of manufacture.  “Oh, well, that’s profit for a capitalist,” some will say, “and you shouldn’t “overcharge” poorer customers or else you should share it with your exploited workers.”  But margin isn’t simply “profit,” and the “exploited” workers are paid according to their productive capacity and value to the production of the goods the manufacturer makes and sells.  Margin provides “working capital;” what does it actually do?

Working capital means cash in the bank, and it serves to improve efficiency within the manufacturer’s operations by enabling investment in better manufacturing equipment, often by being committed to pay off equipment acquisition debt, which shifts that portion of margin to cost-of-goods but which can reduce the costs elsewhere with more productive equipment (which is also a good result for the people who make that new equipment).  Working capital enables the company to train its workers to higher skill levels and greater productivity, yielding higher pay.  It also enables the company to hire more employees as production increases and, let’s hope, quality and sales also increase.

Productive surplus destroys debt; it’s the only engine that can.  In the presence of productive surplus, debt is a useful and valuable tool for growth and for improving overall living standards.  But what happens to “profits?”

Profits belong to shareholders, who are, in fact, the owners of the company.  Socialists feel as though no one person or small group should “own” a means of production, but that it should automatically “belong to” or be controlled by, the workers, to whom all the profits should be distributed.  History, the bane of socialists’ existence, teaches that humans are good at some things, bad at others, and one of those “others” is collective decision-making or, the corollary, collective self-leadership, an oxymoron that socialists insist on believing in.  Let’s start at the beginning.

A person has an idea for a widget/product/thingy that other people will want to have because it makes, ummm… it makes baking cakes, breads and muffins easier and more efficient with fewer bad results.  The person has no factory but he (let’s say it’s a he) learned in trade school (paid for from taxes that derive from profits) how to work with metal as well as how to apply himself to a problem and how to concentrate and to research the things he doesn’t know.  First he figures that being able to have a baking oven that has even, steady heat would lead to uniformly baked goods, so he tries various kinds of pipes and shapes and pressures to provide even gas flames that won’t make hot spots within the oven.  Aha!  He gets it and finds a way to generate even heat, cobbles together a metal stove and burns his first cake to a crisp, as the whole oven became a hot-spot.  Hmmmnn.

Our inventor/entrepreneur realizes he must regulate the heat to achieve one temperature and hold it there within very narrow limits…   The process goes on for weeks and months, absorbing every spare hour and weekend until he has a metal box of a specific shape with special gas burners, elaborate temperature sensors and controls, insulation and directions for installation, use and cleaning.  But he has just the one.  If he sells it for more than it costs to make he’ll have a brief profit but it takes so long for him to make just one that he’ll go hungry before he can get the next pulse of “profits” from selling the second one, assuming that he quits his 9 to 5 job and works on the oven business full time.

He has some savings that he has been slowly accumulating to provide for his family if something happened to him, and he’s been careful to leave them intact.  His idea is good and he’s proven that it’s the best oven design potentially on the market.  How to get it there?  He needs capital, of which he has only a little.  He and his wife decide to take the risk, pledging their savings and their house(!) to secure a loan that will allow for several key things needed for producing 10 ovens per week, and selling them, at a margin that will allow for repaying the loan with interest (which employs people at the bank), insuring against the risks and liabilities manufacturers face, making payroll (and benefits!) for the 5 people they must hire to make and market the ovens (including payroll for himself, the owner/inventor, and to invest in an inventory of parts and gizmos needed to assemble ovens such that orders for ovens can be filled promptly.  And, oh, yes, they have to lease some suitable – or nearly suitable – space for manufacturing and testing, on which there is a large deposit.  Everything is at stake.

With much struggle and worried nights things get done.  The first 10 ovens are produced, tested and packaged for shipping.  The sales “department” of one former kitchenware sales rep, has secured an order for 4 of them, one of which is to a small mom-and-pop bakery not far away.  The owner/inventor goes to their small shop, attached to their house, to oversee installation by the plumber/gas-fitter, and personally teaches the operation to the new owners, who took a risk of buying an expensive new oven based on its description and manufacturer’s test results.  They agree to let the inventor/capitalist advertise their success with it – for a fee.  It performs as advertised and they start to do more business thanks to the creative new pastries their new oven bakes to perfection (damn those wood-fired stone ovens).

Well, the advertising kicks in and the sales department manages to sell the rest of the first ten and the next ten and things start humming at the “Great Perfection Oven Company.”  Soon, a major catalog sales company makes an offer to carry the oven at a discount to them which, if they can prepay for a certain number and sell at least 10 a month, the harried owner/inventor agrees to provide, even though he’ll make less margin per oven.  The advantage is that with that new revenue he can afford two more production employees and more leased space and increased advertising.  And on it goes…

Within a couple of years he and his wife celebrate the pay-off of the first loan that had put their house and savings at risk.  The business has grown to employ 40 employees and a large commercial bakery has approached them with a request for a production-size version of the “Perfection Oven” with its now-patented gas burners (patenting cost over $30,000) and the inventor/owner commences to design just such an oven which will require more manufacturing equipment and changes to one of their production lines… and so on.

Ms. Ocasio-Socialist, do you think he doesn’t “own” this business?  He and his wife are the only share-holders.  Do you know what else “margin” dollars must do?  They have to provide long-term benefits like pension contributions to trusted, valued employees: the ones who help the company succeed and be profitable.  They have to create a reserve fund in case other threats to the company materialize, cutting into profits, challenging its patents, creating knock-offs and look-alike ovens that sap Perfection Oven sales and margins, as well as changes in tax laws or state-mandated benefits, paid leave laws and new health-care coverages… not to mention changes in OSHA and EPA regulations that could hamper production or require costly new changes to production facilities, unionization, higher fuel costs for delivery of both raw materials and finished goods (ovens).  Lots of future risks that must be insured against, sometimes with simple cash reserves.  THEN there are profits.

Ms. Cortez, do you, with your costly economics degree, understand any of this?

Politics 2016

TRUMP – and other problems

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TR.CL“If only Trump would listen to advisors,” we all complained. Suddenly he is listening and we’re jumping down his throat because, needless to say, he’s clearly listening to the WRONG advisors. Even his trademark railing against illegal entrants (They shouldn’t be called immigrants. “Immigrant” implies that one has a place to go and reside when he gets to the end of his journey. Those who have stolen across the border have literally committed a form of theft by taking some of the nation’s space and protections to which they have no legal right. These are more properly called illegal entrants and those who demand to shape the discussion of the problems these entrants create, should be immediately corrected: they are not immigrants; they are illegal entrants.) is getting watered down. Yet it is the first thing that will preserve our republic: stopping illegal entry and “loose” immigration of every type.

So, they have entered and squatted where they have no right to be. Liberals wish to be thought of as empathetic to the less than ideal conditions in which these criminals live; sympathetic to the economic straits in which illegal entrants find themselves; and, willing to sacrifice the rights of others in order to make their lives more comfortable. How beautifully sacrificial and charitable they must be. Ask one and he or she will assure you of the accuracy of their high opinions of themselves.

To most Trump supporters the “fifth column” of pro-illegal entrant sympathizers and executors (politicians), are the worst enemy we face.

DONALD! THERE IS NO COMPROMISE ON YOUR ORIGINAL POINT!

In addition, it’s the economy, stupid. The U. S. economy is fragile, barely keeping up with its burdens, while the dopes in Washington and 50 state capitals keep devising and sharing ways to add to its burdens:
You must hire less-productive people
You must pay them $15 an hour regardless of productivity, trustworthiness, work habits, trainability
You will be responsible for a variety of ‘benefits’ as soon as you say ‘come to work’
You will respect every form of deviancy in personal habits, and you will make accommodations to enable said deviant to ‘work’
You may be fined for hiring an ‘illegal’ despite his or her presentation of a state driver’s license and various forms of false documentation, including stolen IDs and Social Security numbers
You will compete with foreign products that Washington has permitted into our markets, from countries without the non-discrimination, benefit responsibility, and environmental expenses that you must bear by law
You will disturb every employee by allowing sexually confused employees and customers to use restrooms without limitation by gender
You will pay taxes and payroll taxes, employee benefits, local property and real estate taxes, water and sewage fees on time or government(s) will shut you down

The U. S. economy, since the “Great Society,” has been unable to keep up with the spending addiction of the federal government’s politicians and bureaucrats. Slowly, inexorably, simple domestic problems suffered two political forces: federalization and elevation to “war” or “crisis” status. Programs with these statuses also have two inevitable qualities: constantly increasing cost and… permanence.

DONALD! WAKE UP! Normal, tax-paying, bill-paying citizens HATE these habits of Washington! Tell the nation that the way government does its (the peoples’) business is going to change in a Trump administration. Tell us that the effort to transform Washington will start with you and your new team. We don’t need to transform America by outnumbering its citizens and upsetting their culture, we need to UPSET WASHINGTON and its culture of theft and irresponsibility! How’s that?

The premiere engine for the defense and enrichment of our unique American culture is education. Our culture is unique. Americans should NOT consider it no better than all others, but that it is superior for many reasons – just read the Declaration, Constitution, Northwest Ordinance and other founding documents. People come here legally and illegally because of our culture. We are obliged to defend and strengthen it. Public education, increasingly tinged with anti-Americanism and far-left statism, has failed and is failing to do this vital job that we pay it so much to do.

DONALD! PEOPLE WANT A BETTER EDUCATIONAL RESULT! Federal money has not helped, except to raise education budgets and salaries. Let schools compete and require that tax-exempt status for ALL schools be based on including 4 or 5 basic courses (including the first two years of degree-issuing college programs) of which one MUST be study of America’s founding documents, the Federalist Papers and more. We have an OBLIGATION to know our own history and founding philosophy. Our country is based on IDEAS, not ethnicity or history. People want the ideas of personal responsibility, limited government, the Bill of Rights, personal sovereignty and private property rights to be known, understood and FOLLOWED. Commit to these things, Donald, and we’ll all vote for you!