Tag Archives: productive surplus

Biden, Economics, Elections, Family, Foreign Policy, Health Care, Politics 2022, Representation, Taxation

THE INFLATION CHRONICLES

Leave a comment

The Biden “administration” has done everything it could in 19 months to destroy the trajectory of the U. S. economy, and, possibly, U. S. permanence.  Above all, everyone is either helped or hurt by the big “bugaboo,” inflation.  Economists, pundits, commenters and news-readers galore, all have wise-sounding opinions, yet no one seems to know what inflation IS!

It seems Prudent to assume that some of them do, but the average person listening to any such is not going to find it out.  To a mouth, all say in so many, many words, that “inflation” is prices increasing.  Well, no it isn’t.  Inflation is inflation of the money “supply.”  And that isn’t even accurate; it’s inflation of available cash OR CAPITAL that is “liquid,” or lendable.  Capitalism and “inflation” go hand-in-hand to create prosperity for most people.

“Wait just a minute,” you’re thinking, “Inflation makes prices go up, and that’s bad, so it’s not helping MY prosperity.”  Actually, it has helped it – look at the riches and bounty we enjoy.  It’s a two-edged sword… like fire.  It can cook our food, keep us warm, run our engines or… burn the house down.  The key is keeping inflation where it runs the engine without burning down the house.  So, where does this wonderful inflation come from?

The simple answer is debt.  Our economy – even your personal economy – operates on a “futures” basis.  If you own your home you probably have a mortgage on it, which is a long-term debt, well into the future.  One of the quirks in our economy is that banks can legally loan out more “money” than they actually have on deposit.  It’s called “fractional reserve,” and it is about 14%.  In other words, among all the stored “savings” deposits and “performing loans” and temporary deposits, the “Bank” has an average number of dollars “in reserve,” at any given time.  If it amounts to a million dollars, our laws allow the bank to lend out up to $7 Million, round numbers, of which 6/7ths is, fundamentally, air.  So long as the honesty and ability to repay of most borrowers are intact, this is a safe system and the recipient of the check for the house you bought, accepts the dollars that were created to write it, as well as if he saw them peeled from a big fat roll of $100-dollar bills.

If the seller of the house also dealt with the same bank, his or her new deposit of, say, $400 thousand will, for a while, increase the average “reserve” the bank can lend seven times as much of.

Anyway, you commit to paying your mortgage for 20 or 30 years because the pain of losing your home is worse than the pain of making the payments.  Besides, you have a job, you’re productive, you’re helping to create profits somewhere – productive surplus, if you will.  It is reasonable that you will keep your promise to pay.  You have made your work valuable enough to produce some “productive surplus” for your own family.

Try to imagine where the construction industry and millions of jobs would be if there were no such thing as mortgages or construction loans.  But, if you’re worried about inflation, look at what you just did: you caused the inflation of the money supply by about $340,000!  Depending on the “velocity” of that money (through the economy), possibly even more than that.  But!  It’s OK.  You’re going to pay it down – or “back” – to the bank.  Owning that house will cause you to buy a bunch of other stuff that increases production (let’s hope, inside the U. S.), as well as future repairs and upgrades, and it will enable you to raise your children to become productive, too.

Transactions like these happen thousands of times a day, whether for homes, or cars, or work vehicles, trailer trucks and on and on.  Every loan creates some inflation, but not more than the “economy” will absorb, or, we might say, not more than the economy needs.

In the process of economic activity, wages, sales and so forth, governments collect taxes.  That is, BECAUSE THERE IS PRODUCTIVE SURPLUS in our economic activity, “we” can afford to pay taxes for those services and public works that individuals cannot provide for themselves.  Among these are public school facilities, police departments, fire departments, all the bureaucrats who are there to help US, the military, highway and roadway constructions, sewage treatment, water works and sewers, themselves.  All that stuff is paid for from productive surplus.  If kept in a rough balance, it all works together amazingly well as more people become productive and relatively financially independent, and benefiting in safety and economy from our shared public works.

How does it get out of balance?  Put most simply, if the money supply grows with no commensurate increase in production or productivity.  Take the example we’ve experienced recently where governments, based on perceived, raw, political advantage, decree that the “minimum wage” shall be $15.00 per hour.  A kid stuck at the fry station in a McDonald’s, making French fries for as many customers as desire some, gets a sudden, say, 20% pay increase.  He or she cannot fry more potatoes than before the raise, there are only so many orders for fries in a given day.  The added pay does not enable the fry-kid to encourage more people to buy fries than they used to buy before the change in pay.  Do you think the individual cost of an order of fries is going up?  Of course.  Or, is it possible that customers might wait a little longer to get their fries – and their whole orders, when it’s busier?  Perhaps the restaurant owner can’t afford to put two kids at the fry station in busy periods, now that the pay has increased arbitrarily.  The customer pays – or suffers – for this arbitrary work rule.

So, French fries go up in price, but is that “inflation?”  Well, no, obviously.  It’s an imposed change to the “CGS,” or Cost of Goods Sold.  How would inflation cause the price of French fries to go up?

Suppose that in a certain marketplace: your town, for example, there are both a lot of disposable income – free cash, as it were – and a limited supply of frozen French fries.  Potatoes are neither grown nor processed locally; they are transported some distance to the restaurants that want them in your town.  People in your town are in the habit of ordering fries with their burgers and sub sandwiches and business in fries is brisk.

Because the supply of spendable cash has been inflated (increased), people who might have held off adding fries to their sandwich orders, have started to order them more frequently, yet the total volume of fries coming from the processors can’t increase for quite a while, as the extra cash in everyone’s pocket makes it possible to afford the fries in other towns, as well, and the price of fries appears to be a bargain where they used to be a bit of a luxury.

Restaurants are finding that they’re “selling out” of fries and seeing customers go to another restaurant that still has some.  The owners get on the phone to order more fries but there aren’t any extra to be had.  Very quickly busier restaurants will offer a premium price to the distributor to get an extra case of frozen fries every day.  Realizing the nature of the increased demand, the distributor makes a deal with a potato processor who guarantees additional frozen fries, but at a higher wholesale price, too.

Pretty soon, the French fry supply problem is solved and people in your town can obtain all the fries they want, although each order costs a little more.  Lo, and Behold!  Inflation of the money supply changed demand patterns in the French fry marketplace.  This example is too simple, but also real.  During the engineered Covid crisis, the federal government wrote checks to millions of people that it/they, the federal, state and municipal governments had thrown out of work… billions and billions of dollars’ worth, but they were from accounts that had no actual – although highly hoped-for-future – money in them!  The checks were written from AIR.  Worse, they were doled out without regard to increasing productivity or other economic growth.  No new crops were planted, tended or harvested; no new mines were opened and their valuable minerals retrieved; no new inventions were spurred causing new manufacturing to commence.  But people accepted the ‘air-checks’ and spent them like money.  The money supply increased by over a Trillion Dollars while the supply of goods to be purchased actually went DOWN!

Prices started to go up until states started to re-open their businesses and let people go back to work.  The economy was roaring back when Biden was shoveled into office.  He promptly signed another Trillion-dollar “Covid Relief” bill that was no longer needed, indeed it extended payments to not work, and inflation really started shooting up.  The money supply – more air, but who’s counting – was now completely untethered from productivity, production or quantities of goods for sale.  In addition, there was an even larger incentive to not work.  The Consumer Price Index (CPI) started to take off in a serious way.

Because of “petro-dollars,” a sweetheart deal we made with Saudi Arabia (and, therefore, OPEC) when Nixon closed the gold window in the early ‘70’s, our federal spenders have developed a habit of calling everything a “crisis.”  It doesn’t have to be a war, a disaster, a plague… just a problem – like getting re-elected.  And, since there is (almost always) a terrible crisis, they can justify borrowing to resolve it.  So, they spend about one-third or more, MORE than the real money tax receipts that the federal government collects each year.  That missing third or 40% or so must be borrowed, largely adding to the “national debt.”

Now, if the extra federal spending were creating real wealth, which is what real investment does, the loans would steadily be repaid by the productive surplus the investments made possible.  Another way of saying it is that the DEBT would be DESTROYED.  That’s a good cycle: ideas vetted, loans obtained, practices, processes or new resources are implemented or obtained,* and the new productive surplus can be applied, in part, to “retire” the loan while net societal – or National – wealth increases.  Living standards improve and the repaid capital (the loan) becomes available for other real investments.

This neat system collapses when non-productive or ANTI-productive effects of the loan (deficit spending, it’s called) are mandated by law.  Most commonly, it collapses because the government borrows money to PAY FOR CURRENT EXPENSES, like welfare, interest on older loans, increasing the numbers of people employed in non-productive pursuits, and so forth.  A good example of hiring more people to be non-productive is part of the recently passed “Prosperity Reduction Act,” or, as it is officially mis-labeled, “The Inflation Reduction Act.”  Inside of this dishonest legislation is a provision to hire 87,000 more IRS agents, who will harass and impoverish productive people (tax-payers they are called) with absolutely no increase in productive surplus for anyone.  Oh, there’ll be some fat paychecks, but the net wealth of our economy will decline. 

The extra payroll dollars (among others in the bill) will inflate the money supply, however, and prices will move upward again as more cash chases fewer goods.

There are $600+Billion other dollars in the “bill” that also don’t represent any new production, productivity or wealth… they just lower the value of all the dollars floating around or in your wallet and retirement accounts.  Thanks, Brandon.

*Where are new resources “obtained?”  Well, there are only so many sources of new wealth that can add to an economy and total wealth of a nation.  The first is agriculture.  The elements of a crop of wheat or corn or soybeans or potatoes, are relatively inexpensive.  We count on God to provide the soil, the rain and sunlight… even the seeds, although humans have figured out how to augment everything but sunlight, and how to till the soil and harvest the crops with automated machinery, which has reduced the cost of labor in food production, as well.  Barring weather disasters and political interference, agriculture creates new wealth with every crop-cycle.  Many inventions and new mechanizations have been developed in response to the need for better food production as population has grown.

Coincident with expanding agriculture are various forms of mining, whether for coal, metals, oil, gypsum, quartz and dozens of other riches the earth provides.  From them have come thousands… no, Millions of products and inventions and improvements to standards of living, not least of which are pharmaceuticals and computer chips.  Virtually every one of these bits of progress and improvement has required some “financing,” or, as better known, debt.  Little by little every step has also “inflated” the money supply, but in rough equivalence to the new economic activity each has spurred.  A lot of that activity has been in the form of “fixed” assets, like buildings, roads, bridges and so forth.  At their creation, “fixed” expenditures DEFLATE the money supply, while enabling long-term economic benefit for lots of other activities, comforts or safety.

Somebody is going to paint those buildings.  We’re still driving across bridges that were built by the Works Progress Administration in the 1930’s.

Some companies, banks, agencies, treasuries and individuals are benefitted very nicely by inflation, primarily the federal government.  They get to spend the money first.  Debts and other invoices the federal government owes are paid off with “cheaper” dollars.  Increased payrolls result in increased tax receipts.  Favored industries obtain contracts and payments to carry out policies incorporated in the inflationary legislation.  Millions of votes are purchased as loans are forgiven and exorbitant expenses incurred and paid off.  So, some benefit immediately and don’t begrudge deficit spending.  Others, tax-payers, not so much.

The actual net result is a reduction in both national and individual wealth for MOST people.  The few favored in the legislation get an artificial boost of income.  It’s all very unfair and sold to the American people as a universal “good.”  But, what does it have to do with “petro-dollars?”

Petro-dollars refers to our agreement with OPEC that oil would be traded only for dollars.  Every nation, basically, would need to always have some dollars on deposit – some even made the U. S. dollar a “reserve” currency – so that when they needed to buy oil they could.  If they sold oil, they accepted having billions of U. S. dollars on deposit.  Dollars could be exchanged for any other currency an “oil” nation needed to buy products from anyone.  Still, a global acceptance of dollars gave a golden “carte blanche” to ignorant congresspeople to borrow without any practical limit.  All they need is a “crisis.”

At the same time that President Biden has ruined relations with Saudi Arabia and the rest of OPEC, and attacked fossil-fuels in the United States, multiple countries like Russia, China, Brazil and Iran, are making moves to eliminate the dollar as the currency of trade in oil.  When they succeed – WHEN they succeed – countries will start dumping dollars.  They won’t have the impetus to buy stuff from the U. S. in order to use up the dollars they have had to hold.  Currency markets will turn upside down.

We will experience price increases that are unimaginable.  All the goods and goodies that we import now, will have to be paid for with more valuable currencies than U. S. dollars.  Exchange rates are going to punish the dollar when that day comes.  All the dollars that have been created in other countries and banks have been inflating the same “money supply” we talked about earlier.  Every dollar BILL is, in fact, a bill that must be paid with something valuable, not merely with more “Federal Reserve Notes.”  The mendacious debt that Congresses and administrations have racked up to the tune of almost $31 TRILLION, will complete its cycle of inflation, as well, while much of the trading world rejects payments in dollars, preferring gold, rubles, rials, or, most likely, yuan.  We have no concept of and no political ability to balance our books and bring the number of dollars floating around into alignment with some form of productive output from our economy.  Prices, for everything, will shoot up.

We can see the World Economic Forum, a group of self-selected control freaks by which real governments – including our own – are being influenced, is spreading the organic fertilizer of “nitrogen pollution,” since carbon-dioxide hasn’t scared enough people.  To limit “nitrogen” requires, in their view, reducing crop yields (by refraining from using chemical fertilizers) and going “organic.”  There is an agenda that is far removed from “climate” at work here.  What will we do when hyper-inflation is chasing reduced supplies of food around the world?  Or, when Chinese- and Bill Gates-owned land is held out from cultivation in our own country?  We need miss only ONE growing season to be faced with famine, which is very unpleasant, even here.

Looking at the effects of the “green” movement and the recent pandemic-inspired tyranny, and the so-called vaccines that resulted, the main effects, cumulatively, have been death and sterilization.  Sounds like population reduction, if one were being Prudent.  Lo, and behold!  Bill Gates and the people he hob-nobs with agree that there are too many people on Earth, by a factor of two-thirds or more!  Let’s “vaccinate” every person on the planet.  Inflation won’t be a problem, then.

Biden, Economics, Elections, Governance, Politics 2021, Responsibility, Taxation

Biden’s Billingsgate

Leave a comment
Who was that masked man? Why, he’s grown stranger…

President Biden is proposing to exceed the THIRTY TRILLION dollar debt level.  What he suggests is not only partisan and disingenuous, but includes multiple effects that restrict and undercut capitalism.  If he ever understood the relationship between debt, productive surplus and growth, he has forgotten it… along with Constitutional provisions and any semblance of American exceptionalism: down the memory hole.

Under his and other socialists’ direction, American will be exceptional again:  among all industrialized nations we will lead the world in our concerted, legislated efforts to destroy our hard-won success and relinquish our sovereignty.  Biden wants to “go big” – biggest fool, perhaps.

The only system that can both destroy debt and increase freedom, is free-enterprise capitalism.  That is, NOT monopoly capitalism OR globalism, both of which concentrate money and power OUT of the hands of free citizens and OUT of the hands of their elected representatives – although not out of their pockets in many cases.  Those must be stopped before it’s too late.  Some serious trust-busting is essential to restoring America.

Practically, a clear course-correction would be to limit the level of corporate net-worths or levels of gross revenues that may donate ANY money to candidates or PAC’s – ANY money.  Perhaps companies with $50 millions in assets or $25 millions in revenue or LESS, may donate, not larger.  Also, companies that have government or military contracts may not donate.  Then trust-busting could proceed.

Already we’ve experienced reduction in job and business growth – returning to pre-Covid levels – because excessive, socialist, “rescue” or “stimulous” payments are keeping people from returning to work!  Work… where guided labor produces things, including taxes.  We know where idiots… umm, ignore that… “progressives” think economic growth comes from: unemployment checks.  Nancy Pelosi said so.  Only as employment increases will freedom, independence and tax revenues increase.

People earning their own livings strengthen both responsibility and financial freedom.  Having more taxpayers increases political freedom.  2020 has shown that weakening election laws weakens political freedom, and it disenfranchises citizens from our most fundamental and hard-won civil rights.  Adding greater responsibility to the exercise of the franchise will clarify honesty in elections – a fundament of the American promise.

Back to what Biden has forgotten… if he ever knew it.  Debt is a superb tool for growth, but not for maintenance – period.

Imagine a factory producing, say, refrigerators.  Its lines are operating, workers are working and every unit that comes off the line is sold within days.  In fact, there is a shortage of refrigerators; people are forced to devise meals for their families without foods that need refrigeration.  People are denied good nutrition for lack of a high-enough rate of refrigerator production.  Even if the government passed a law requiring more refrigerators to be made, only so many can be.

To upgrade the factory and machinery to produce a third more – a 33% increase – will cost $100 Million.  Because the refrigerator company has made a profit over the past 15 years, of $30 Million after all expenses, cost of goods sold and payroll… and taxes, it is able to borrow, or gain a debt of $70 Million.  They’ll be able to make a productive surplus of not $3 million, but $4 million per year at 133% of current production, since all costs won’t increase proportionately.  Each refrigerator will cost a little less to produce with the new machinery and facility improvements.  The $70 Million loan, combined with investment out of increased operating profits, will be paid back with interest to the lender, in less than 20 years.

The earning of profits – creation of productive surplus – enables “Refrigerators, Inc.” to become more productive and efficient, able to modernize, hire trainees who can become highly paid refrigerator builders, and pay taxes to support our civic institutions and even donate money to charitable causes.  Productive surplus also enables the company to destroy debt – make it disappear – while increasing production, the only purpose of investment.  That’s it.  It’s NOT an investment to provide living expenses for people who do not work enough to support themselves or their families; it’s an emergency… it’s charity, not a way of life.

Meanwhile, everyone who wants a refrigerator can buy one – or, contrary to socialist dogma – go to work to earn enough to buy one.

Capitalism is the only process that can destroy debt or, in fact, make investments at all.  All other bills incurred by a society that is complex, are paid, or financed, by the productive surplus of profitable, capitalist enterprises.  All of government: schools, police fire departments, hospitals, military, public works… everything, is paid for from tax revenues that derive only from productive surplus in a profit-making economy.

The growing tragedy – growing weakness – is our habit of borrowing for current expenses from generations into the future, now to the tune of $28 Trillion.  About one-third of our annual federal “budget” is borrowed, not paid from current revenues.  This part of economics Joe Biden has not forgotten, even embraced: the lie of modern politics.

For a long time the U. S. borrowed real money… from banks, individuals and even other countries.  The Treasury sold bonds: saving bonds, Treasury notes (“Treasuries”) of different maturities and yields.  Investors used real money to “invest” in U. S. debt – one step removed from investing in future productive surplus, itself.  This was bad enough; we lived beyond our means but we could afford the interest on those debts, not so much affording repayment of the loan principals.

Unfortunately we have worn out our welcome among real investors.  Now we “borrow” from the Federal Reserve. 

(See: http://www.prudenceleadbetter.com/2020/09/27/knife-edge-election/)

The “FED” is a private bank consortium that can legally “lend” us money they do not have – $Trillions of it.  So, they lend us “air” and we pretend it’s money and pay interest on it.  Oddly, the Federal Reserve is also granted power to set interest rates, which for a long time have been near 1%, God bless their charitable hearts.  What will we do when they decide the rate should be 3%?  On $10 Trillion?  That’s $300 Billion in real money.  That’s a lot of Meals on Wheels.

Wait a minute… wait a minute.  Did I say, “$10 Trillion?”  I meant $30 Trillion, if we fulfill Biden’s plans.  Why, that would be $900 Billion… a YEAR… close to a $Trillion, itself – just interest!  That’s a lot of everything, including our own defense.  We literally cannot afford more multi-$Trillion spending plans; they are actually taxing plans. 

Many in government believe these “air-debts” never have to be paid back!  “We owe them to ourselves,” they think.  Ooookaaaay… aren’t the UFO people going to usher in a new era of no worries?  Oh, absolutely.  And, Joe Biden is going to unite the country, end racism and borrow us into prosperity.  And equity.

Economics

A Degree of Economics

Leave a comment
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?

Economics, Governance, Representation, Responsibility

A Few Words on Capitalism – Part 1

Leave a comment


Every one of us is a “capitalist.” This, in the sense that we all strive to obtain as much safety, comfort, material goods and security for old age, as we possibly can for the least amount of effort necessary. It doesn’t matter for whom we vote. Many of us simply want to be free TO acquire what we need; others wish to be free OF the need to acquire. In both philosophies we are attempting to gain with minimum effort.
But that’s not the whole story, is it?

Every person is motivated to act differently. We all have our own “profits” that cause us to expend MORE than minimal effort necessary to take care of ourselves and our family. Some are motivated to gain as much as possible in terms of material goods and “wealth.” Some want to be charitable and will work more than necessary so as to give to others. Some are motivated by artistic expression, drama, music or writing. Some by the gaining of power over others, one way or the other. Many profits.

The invention of money both simplified and complicated capitalism. For some, in twisted ways, the accumulation of money, itself, became their “profit.” Such people are able to “buy” the necessities for which others strive, but they are also consumed by numbers and the quantities of money they represent. They have different fears and joys than “regular” people. Unfortunately, they come to realize that they can also “buy” power – influencing government-types to protect their accumulated wealth.

Government types come from those for whom “profit” means power over others, over “public policy” and over taxation and, unfortunately, over “public” budgeting. Tapping into the “profits” of others, familial, financial and charitable, provides the most ways to acquire at minimal effort for those so motivated. They concentrate in governments. Almost inevitably and partly because much of their effort is arcane, they come to believe in their own mental superiority over “regular” people whose concerns are familial, local and unobtrusive.

Meanwhile, capitalism, which in the U. S., OUGHT TO MEAN the right to own private property, and by extension, the right to own the fruits of one’s labors, carries on, inherent in every person. It is human nature.
Some aspects of human nature can, if unchecked by society and hence by government, cause damage and destruction to that society. Many control-worthy human aspects are checked by “agreement.” That is, members of society “agree” that murder, rape, theft, fraud and other forms of false witness, greed, sloth and envy, are to be controlled through various codified sanctions. Lately the list has grown to include littering of various degrees, like pollution, and, in an extraordinary reversal, discrimination against sexual oddities, a change that has led to “intolerance” becoming a worse social transgression than some actual crimes. Western societies must now “tolerate,” if not celebrate, anti-capitalist “lifestyles” that include essentially welfare careers. These things actually threaten the social order and every other right protected by the Constitution, our fundamental social agreement.

A tremendous strength in American capitalism has been the high integrity of our contracts, both with one another and with our governments. This phenomenon makes modern trade possible as well as the millions of debt contracts that describe modern economics. But today, we ignorantly embrace a new form of socialism based on twisted concepts of “social justice,” which intends, fundamentally, to cause guilt-ridden government types to alter the underlying concepts of private property, and to discard natural human capitalism. This need not be an inevitable slide toward the only economic future possible.

It is a slide the basis of which is ignorance, willful and otherwise. It is a slide that attempts, as all socialist plans inevitably do, to replace human nature with a government-directed one. While there may exist the technical possibility of directing every person’s life and economic decisions, governance based thereon cannot prevail. It devolves into tyranny or revolution, perhaps to a new tyranny or, once in a great, great while, into a new form of governance based on self-discipline and personal sovereignty, one in which the governed grant their governors limited powers, and where the tyranny of the majority is carefully sanctioned and where tyranny of the minority is unheard of.

Inherent in a government based on individual freedom and personal responsibility are the concepts of private property and ownership of the fruits of one’s labor: essential free-enterprise.

Capitalism gets fully mucked up when it is politicized, which is to say when limited governments attempt to create economic “fairness.” It seems that no “free” economic and democratic system can refrain from favoring certain industries in return for maintaining power for those who are already “in” government. Much of the favoring is done to “make things fair” or to “level the playing field,” but almost without exception, the net effects are to limit competition for those industries and to limit competition for those in power. These are tendencies that a wise and educated citizenry would create institutions in society and government to carefully limit, if not make impossible. In our growing ignorance we are failing at this essential part of citizenship.

A great strength of capitalism is that it doesn’t reward failure… it replaces it with something that can succeed, success measured in profitability and ability to destroy debt. In this is a lesson for all with eyes to see and ears to hear. Among our people, however, those who get the message are now considered hateful while those who refuse to see or hear are empowered, or re-elected. Ours is fast becoming a system hobbled by the removal of the pillars of individual freedom and personal responsibility. We are rewarding failure.

Immediately this statement will be attacked with charges of cruelty, but this stems from ignorance, which is to say, it’s a charge leveled by those who, for whatever personal profit, IGNORE the distinction between those who are capable and willfully refusing to take responsibility for themselves, and those who are incapable and needful of charity and public support.

The greatest value of capitalist profitability is the creation of surplus – productive surplus – of which a portion may be used to care for those who cannot care for themselves. The greatest flaw in capitalism’s opponents is their creation of and acceptance of a thousand reasons why individuals may be grouped among those who cannot care for themselves. They unfortunately become codified and form a malevolent inhibitor of success. And here we are.

Economics

When Work Is a Spectator Sport

10 Comments

06062011_McD_Robot_2_cropped_articleThe lack of knowledge, especially skilled knowledge, is forcing production managers, from McDonald’s to General Motors, to automate. This isn’t new. Until quite recently there was value added to both products and services by the presence of a competent human. Such beings are becoming rarer. Whether one wishes to blame education – and not just public – or welfare and dissolution of the “family,” America is turning out relatively fewer highly competent, decision-capable graduates than in the first 175 years of our constitutional history. Such a societal change has severe consequences. We can see it reflected in our latest choice of president and other elected leaders. It is an outgrowth of essential socialism: the dissipation of responsibility, specifically, personal responsibility.

So far we have limited our concentrations of incompetent adults to inner cities, and built a sloppy welfare industry to keep them from causing too much trouble. No one running for president in 2016 is talking about how the next 50 years of public policy will significantly change that pattern. The current president, Obama, has been struggling against laws at every level to… well, make it worse. Our nation’s future will be that much more painful.

One approach has been to inject “federal” dollars into college tuitions through ridiculous loan obligations that some pandering politician will forgive someday. The problems, of course, come from wrong attitudes, and those come from wrong governing. We have taught our least responsible residents to hate their masters (who hand out the sustenance). Education is to blame for a lot of this, too, which is to say, government, again.

Now this is translating into demands for higher wages for very low-skilled, entry-level jobs. Those jobs are relatively low-paying because they are tied to selling relatively inexpensive products and services in a marketplace that demands those low costs. As the cost of, say, frying prepared french-fries and filling paper containers with them, increases by 40% or 50% with artificially high wages, the owners of the french-fries, Frialators, electric bills, buildings, uniforms, liability insurances, payroll benefit obligations, training costs, supervisory costs, advertising expenses, franchise fee obligations, parking lots, snow-removal charges and sundry materials, rags, grease trap cleanouts and so much more, will have to find a way to CUT that arbitrary cost increase. Believe it or not, the preparation and dispensing of french-fries was automated – or robotized, if you will – over 44 years ago.

But the integration of all the steps for the early machines to do that relatively simple, repetitive task, was not smooth and didn’t justify the added capital cost for the complex machinery. In part, this was because the designers were trying to mimic humans in the performance of those steps, and modern computerization wasn’t available. New designs, already in test, are not based on human workspace; they are smaller and designed from freezer to fryer to deliver bags of hot, salted fries when needed. The advantages – aside from almost no payroll costs, health insurance or withheld taxes – include better portion control, increased employee safety, reduced waste, fresher net product at point of sale, and reduced noise in the workplace.

And… lower cost-per-portion, enabling the restaurant owner to keep his or her prices lower than those available in traditional eateries. That is the business model, after all.

At one point in the late 1980’s, nearly 10% of all employed workers had once worked at a McDonald’s. There they had learned to keep schedules, serve real customers, show up on time, dress presentably, follow directions and respect managers. Those opportunities are now perceived as oppression. The claimed needs of low-skilled potato fryers threaten to drive costs for such employees sharply upwards with no possible way to increase production of fried potatoes more than a percent or two. Higher-paid workers will not increase demand for fried potatoes; higher resulting prices for fried potatoes will significantly reduce demand for them. This will reduce demand for potato-frying employees and all of their training and re-training and other costs, and hasten the installation of robotic frying systems. Those will be “trained” by the manufacturer through software and never complain about their low-paid jobs.

There will be employees in another place – or country – who will manufacture the robotized fryers. However many of those there are, will make possible the frying production of ten to twenty times as many on-site employees. The low, nearly UN-skilled people, who thought they could make $600 a week resentfully frying potatoes, will remain on welfare. It is not, and has never been the duty of a McDonald’s operator to correct the failings of families, schools and individuals. It is his or her job to earn a profit in the business. “Displaced” potato fryers will have to find a job that can’t be automated.

The example, above, will play out in literally hundreds of occupations in the next 20 to 30 years. This process may be more rapid, but not differ materially from the industrial changes that Luddites fought in the 18th and 19th centuries. Resisting it still draws the opprobrium of “Luddite.” However, in a mostly settled world, carrying 7+ Billion people who depend upon remote sources of critical materials and finished products, there are not the options to “check out” of the labor market and simply provide for oneself. The accelerating robotic upheaval in the means of production will displace a very large fraction of the least-skilled “workers” that we seem to be creating at an equal rate. This cannot go on for long.

Increasingly, a shrinking number of “producers” will own the production upon which we all depend.

Monopolization, always preferred by owners of production, will multiply by default. What will be the political response – indeed, international, GEO-political response?

Will governments appropriate profits to finance growing dependency? Will producers keep being productive if there are no rewards? History teaches ‘no.’ Will governments attempt to nationalize all production? History teaches us that such a reaction is almost instinctual among government-types. The past also shows that general living standards will decline under communism.

How can “we” maintain technological progress and living improvements, high efficiencies that make living costs decline, overall? Will governments force producers to break up their processes to maximize net jobs? Will work weeks decline to 32 hours? Twenty-four?

What will happen to quality if three people must be trained and maintained to accomplish what we consider one “job,” today?

If “products” like clothing, tools, appliances and even houses become much cheaper because of robot production, and fewer and fewer people have high-paying jobs, such that there are fewer people who can afford even those cheaper things, how will “we” make sure that everyone receives the essentials of life?

This looming, virtually unavoidable consequence of robotics, contains the seeds of the greatest political stresses and conflicts a republic might face. Unlike the generational traditions of public assistance for our official underclass, the need to “share” productive surplus with large populations of historically productive families will require better application of political / police force than we have experienced – and rewarded – to date.

Political power has been granted to people of varying honesty, indeed, for a lifetime, who can trick a majority of voters into paying and borrowing enough to pacify the underclass while guiding federal advantage to favored industries and institutions. It has been shamelessly dishonest and the reason we face many, many trillions of dollars in debt. That is, much of our economic “success” and relative luxury has been a hoax – a lie – and about to be stressed beyond reason. One path, likely to be recommended by controlling types, is for “government” to appropriate larger fractions of productive surplus. They always have the answers. The redistribution of those resources – assuming they continue to be produced – will generate fierce, possibly insurgent conflict. The stability of social function and public utilities, could devolve into police power: a police state, in other words. Culture and heritage be damned.

Yours in liberty, Prudence.