Layoffs are Okay

Our wealth is created by private companies that create a product that is distributed by sale to the rest of the nation/world. So what happens when we develop technologies and methodologies that improve the production of these products? A few things can happen, depending on the demand.

If the demand is greater than the current supply, the supply gets a quick boost and prices drop and total national wealth is increased (total national production is increased). If the supply and demand are matched, or if supply is greater than demand, the increase in productive ability will either cause a glut in the supply, driving costs to ridiculously low prices, or the suppliers will reduce their workforce, both to cut their costs and to keep the supply even with the demand.

What? People would lose their jobs? We can't let that happen!

Ok, this is part of what Adam Smith called creative destruction. Is there a loss of national wealth with the loss of jobs? Absolutely not. The production is the same, but with fewer workers. So is this bad? The workers no longer have employment, thus they no longer have income to buy with. They personally will struggle while unemployed.

Let's follow the process. Production workers get laid off because of new equipment that will streamline a company's production. The company produces the same amount of product with as good or better quality. Costs for the product drop as a result of the new process. But now workers are out of work. What do they do? They find new jobs. Where? In growing industries, or in other words, industries in which there is still more demand than supply. Thus the workforce is redistributed naturally in order to produce a supply to match demand.

http://mjperry.blogspot.com/2009/02/made-in-usa-alive-and-well.html

So, what happens when demand is already matched by supply, and there is a surplus? Actually this is where we in the U.S. are right now. We easily produce much more than we need. So what happens? How is the surplus wealth used?

It can be invested in research for further production improvements. This is one of the best ways to use this money. The faster, better, cheaper the nation can make a product, the greater the surplus wealth it can create. The U.S. has been wise enough to invest a lot of surplus wealth in research, which has created an exponential increase in the production of the nation relative to the production workforce.

The surplus can be used to fund quality of life products and services. This is where most of our surplus goes. We pay for medicine, entertainment, fashion, fine foods, toys, comfort, and much more. What wealth do these produce? Strictly speaking, they don't. We fund them with our real production surpluses. However, we typically include these unnecessary products in our wealth summary. And rightly so, for their value is what anyone will pay for it, and when a surplus is great, these toys are valuable. However, when surplusses run dry and supply is tight, all of a sudden these benefits become worthless, for nobody can afford them. Whether they have a dollar value or not, demand, and thus value, is dissolved.

Now, unless there is some kind of natural disaster that destroys our nation's crops, or we run low on/out of our resources, our national production of necessary goods should not significantly decrease. So what causes a recession then? A recession is a decrease in the demand for quality of life products and services, which has been traditionally a result of an articifial inflation of that demand. We have a limitted surplus, we overspend that surplus into debt, and when we can't keep up the spending, so we can no longer demand the inflated supply, and the supply has to recess.

Here is the root of the problem of the 'stimulus' bill. We want to create wealth with quality of life products, when these products do nothing to increase the surplus, but instead lose value in a recession because they become unaffordable comodities. Instead, we should be focusing on real product technologies. We need to increase the surplus in order to afford a higher quality of life demand. So if we want to stimulate the economy, the things we need to invest in are the things that will create a greater supply. And as I said before, these things are created by private companies.

Improving The Republic

I had this idea a couple of weeks back.

Our politicians are respresentatives of the people. As such, they should be listening to them.

The founding fathers set up the nation as a republic, not a democracy. They did this because the details of government are too many for the general public to be sufficiently knowledgeable about to cast a reasonable vote. So instead we elect representatives with similar standards to represent our vote in federal issues.

The concept is good, but the system has a huge and fatal flaw. This system only works if the representatives have the integrity to represent his/her electors, not his/her personal interests. Our congressmen and senators should vote for the people, not for themselves. But how, when there are so many people, can we possibly know enough about our electees to judge their true character to make a wise choice.

I don't think an elected representative should compromise his or her moral beliefs to vote for lower standards for his/her people. But they should take into strong consideration the informed opinion of his/her electors.

So here's my idea. I would like to choose a representative that would set up a website, maybe a blog, on which you would explain the significant issues (don't waste your/our time giving the details of little things), explain your personal decision on that particular issue and why, add a poll for users to vote on the issue, allow comments to your explanations and read them. You can't base your decision on the results of the poll because the results can be manipulated, even with strong internet security. But it should be able to give a general idea of the public's perception on the issue. The comments should give a more accurate sense of the public's opinions. After consulting with interested citizens via the web, the representative will be able to make a choice. That's a representative of the people. Granted, some of the public is not well enough informed to make a good decision, even with the information presented, so the representative shouldn't just vote with the majority every time. But it certainly should be most of the time.

The general issues could be better solved if we lowered the level of decision making to a more local level. Most of the decisions being made by the federal government should be made by the state governments instead. The federal government was originally intended to deal with foreign issues alone. We should revert to that structure and restore the power of establishing policies back to the states. Thus citizens can choose their preferred policies without the high tension levels that are a result of forcing controversial legislations on all people. We would have to resolve inter-state policies, probably along the idea that residents of one state cannot travel to another state to participate in that state's programs.

This type of structure would prevent political dissention, and would also allow new policies to be tried without significant social or economic impact on the entire nation. Bad policies, such as California's, would cause citizens and businesses to migrate to states with succesful policies. Thus we bring free market competition to politics as well, pushing innovation and efficiency into legislation, discouraging earmarks and wasteful spending from getting pushed. I like that idea.

Combating Socialism

I was thinking to myself last night about what it would mean to me if we do, in fact become a socialist nation. We know socialism doesn't work. It doesn't produce the output needed to maintain a nation.

But it looks like we're headed that way anyway, it seems. It's amazing how socialist we already are. 33% of our output comes from the government. That number is decieving, since government output has very little to do with national wealth, even though it's counted toward the GDP. But that number will grow even more with this "stimulus" bill, and new policies are enabling even more government involvement.

So, what if this "stimulus" bill's effects are possitive enough in the short term to garner enough public support to nationalize the economy? We know, even if half the nation doesn't seem to, that the long term effects will be dire. But the economy is already projected to recover in the latter half of this year. If and when it does, who will get the credit? The "stimulus" bill, paving the way for greater nationalization of the economy.

Our public may be smarter than I'm giving them credit for, but I'm not counting on it.

So last night my mind wanders to what it will be like in a socialist nation, and I didn't like it. So my mind further wandered to how I would fight the system, try to change it, and I came up with an idea that I knew wouldn't be very plausible, but I liked the concept anyway, so I wanted to write it down.

I want to fight socialism with deflated capitalism. The idea requires that all participants be out of debt and have a small savings to start. A small community of participants would relocate to a remote locale, trying to minimalize non-local vistors. This community will live in a free market society, much like the small town days of old, doing anything and everything possible to avoid any government intervention.

At least 1 local bank would be instituted with gold or some other stable commodity as its assets. The bank will be required to have enough assests in gold to back any loans given, and will function independent of the Federal Reserve. I toyed with the idea of printing our own currency, but it would make any extra-local business, which already will be difficult, even more difficult.

Ok, now here's the key idea to this plan. At the formation of the community, it will be agreed to cut all prices of all products, services, everything in half for locals. All at the same time. What this does is immediately deflate the dollar by half. All of a sudden everyone's savings have instantly doubled (this is why no debt is allowed). From this point a small community of local businesses will continue as normal, all profits, expenses, etc halved. But everyone will be realtively wealthy, which will allow for high demand, driving good production. And the kicker is that all of a sudden your income is half as big, even though you're just as wealthy. So you will pay less than half your taxes, considering the non-linear tax scale, and government's impact will be reduced.

The trick, which I couldn't nail down last night, would be extra-local business transactions. I think we not only would have to allow some external transactions, we would want to. I would expect local production to exceed that of the rest of the nation, and at the inflated value of the dollar, it would be very profitable to our community. We would also have to import new technologies, products we don't produce ourselves, and materials. It would be treated much like foreign trade. The exports will bring in great profits, considering the price is doubled. So as long as we export more than we import, the benefits would be great.

Of course, this is simply fantasy, since it would be impossible to keep such a society hidden from a socialist government. And once it is discovered it would be crushed. However, I wonder if a capitalist society hidden inside a socialist nation could be successful enough for long enough to spark vision in the nation, so they could recognize the failure of socialism and remember the successes of capitalism.

Hey, it was late.

The Seventh Seal

I read D&C section 77 about a week ago and noticed a couple of things that I'd never noticed before.

First in verse 12:
Q: What are we to understanf by the sounding of the trumpets, mentioned in the 8th chapter of Revelation?
A: We are to understand that as God made the world in six days, and of the seventh he finished his work, and sanctified it, and also formed man out of the dust of the earth, even so, in the beginning of the seventh thousand years will the Lord God sanctify the earth, and complete the salvation of man, and judge all things, and shall redeem all things, except that wich he hath not put into his power, when he shall have sealed all things, unto the end of all things; and the sounding of the trumpets of the seven angels are the preparing and finishing of his work, in the beginning of the seventh thousand years -- the preparing of the way before the time of his coming.

Okay there's a couple of things there that I found interesting. First, the lifeline of the earth is a typeset of the creation. The Millenium is the sabbath of the world's existence. Not incredibly significant, but interesting. And take note that the world will be sanctified, which, as I noted in a previous post, means that it will become terrestrial in glory.

The most interesting thing to me, though, is how he explains that He puts us into His power. How? By our obedience. Those who are not righteous, those who will not be resurrected in this period, are not in His power. Why? Because they don't obey Him. I think it's interesting that it's worded "he hath not put into his power", since it's really our choice to be in his power. But of course, it is He who commands, and if he does not put us into His trust to do what He asks, we are not in His power. So the wording is correct. But we cannot be put in His power unless we have proven worthy.

The other thing I found interesting was in verse 13.
Q. When are the things to be accomplished, which are written in the 9th chapter of Revelation?
A. They are to be accomplished after the opening of the seventh seal, before the coming of Christ.

Ok, I thought this was interesting because I was under the impression that the coming of Christ marked the opening of the 7th seal. But this indicates the the seventh seal will open, the signs will then occur, and then Christ will come. So we may have already opened the 7th seal. This then begs the question whether the Millenial reign of Christ is a full thousand years or just most of the thousand years.

Why faith?

Have you ever asked yourself why God requires us to learn to live by faith? Well if not, ask yourself now. Why the veil? We have to learn to how to govern ourselves regardless. Whether we know God exists or must simply believe it, we still have to learn to control ourselves. Knowledge or faith, it doesn't change the purpose of mortality nor the fact that we are not perfect and must repent and overcome the challenges we may have.

So why? Why must we pass through the veil? Why is it important to not know for sure? Why must we have faith?

When we are resurrected and glorified, will we still have faith? Won't we know?

Does God have faith? What do you think?

Once you understand the answers to these questions, we can come to understand more of God's nature. We can understand God's plan better. We can understand that faith is eternal.

So does God have faith? Yes. Of course He does. Joseph Smith explained that it was by faith that the worlds were made. Faith is a principle of power, and it is the source of His power. This is the same power we must learn to obtain.

Faith is an eternal principle. We must possess it as divinities. But how? And why? Won't we know everything?

What does God have faith in? He has faith in us. We have agency, we can choose our path. All of God's creations have been given agency. So how can God govern his plan with perfection? He puts His faith in us. When He commands, the elements obey. He has faith in the elements, and trusts them to choose to do as He commands. If He doesn't have that faith, He can do nothing, for the power of trust enables all action.

I actually believe that we are His creations in which God has the least faith, for we are much more arrogant and less trustworthy. But as we learn to become dependable, God's faith in us grows, and He can therefore do much more through us.

Faith is power, for having those in whom you can trust to do as you ask creates the ability to make things happen. When you can command with the confidence that the elements will obey, you have power over those elements.

So is learning to live by faith important? Ask yourself now, what is it about those leaders that we love that make us want to do whatever they ask? How do you get your right-hand men? This is God's faith, and this is the leader we must learn to become.

Keynesian Stimulus

Sorry, I have some religious topics to write about too, but right now I'm on this economy binge.

Let me try to explain in a comprehensible way my own conclusions on the problem with the Keynesian idea of paying a man to dig a hole and an other to fill it back up just to get the money circulating.

A couple of posts ago, I explained how wealth is created in a transaction. The producer of a product creates the product for less money than the market value. Thus in a fair exchange, the buyer receives a product of v value, and the producer receives p=v in payment, which is greater than the cost of production c. Therefore the buyer's wealth remains constant, while the producer gained p - c = g (or v - c = g, since p = v). That amount, g, is new wealth produced.

So let's look at what happens in the Keynsian idea of government spending.

Consider the idea of paying a man to dig a hole and fill it back in. What happens in that transaction? The government spends v payment to the worker. But what does it get back? Nothing. The product is worth zero, and therefore we substitute 0 for p. 0 - c = g. So our net wealth gain in this transaction is a loss of the total cost.

Now, in the case of the shoveler, there isn't any cost for the product, right? Of course there is. For any service provided, you not only pay for the materials but also for the time and labor. c = m (materials) + l (labor). m is 0 in this case, but l is positive. What the value of l is is hard to understand, for the answer is dependant on the shoveler, and what he could be doing instead. If the man is unemployed l is relatively small. But it is almost never 0. For even if he's not working, he could be working on his quality of life, looking for a job, or learning. These activities have value. Only if a man is completely unmotivated and makes absolutely no effort to make any progress is his time completely worthless (which sadly is not unheard of).

Alright, now, for the sake of the argument, let's assume the shoveler has a minimal l, thus the immediate transaction has a minimum immediate loss. No big deal. So what happens now?

First we have to consider where the money came from. Did we borrow it? At what rate? What will pulling that money from the lender do to their economy? How will that effect the global economy? Or did we print the money? What does that mean for the value of the dollar?

Ok, let's first assume we borrowed the money. The primary immediate concern is the interest rate of the loan. How much more is that going to cost and how fast? How fast can that shoveler take that money and resubmit it into the total economic system. Here's where I think the Keynesians steer wrong. If all the money flowed into the system immediately, then yes, the system of achieving possitive g causes the money to multiply. But how much money does the shoveler really invest back into the system? Some for food, some for clothes, some for toilet paper. The rest he saves. He's poor and unemployed. He has to save. There's the paradox of saving that Keynsians often discuss.

If, for example, the shoveler was paid enough to fund the starting of a business that produced a product that made a possitive g, than the governments investment will pay off if g is greater than the interest paid i on the loan. This is the only way the investment will work. But what if the money is not invested, or invested cautiously or poorly? Then g is 0, or small, or perhaps even negative. If g is less than i, the economic situation is even worse off than it was to start. And even if g is greater than i, unless it's a large margin the recovery will be slow.

Now, suppose instead that we print the money. What happens then? There is no interest rate, but everyone's money now becomes worth less. So the overall g must be greater than the decrease in the value of all money. We're still in the same situation.

But the biggest issue with Keynesian economics is the requirement of the ethics and discipline to repay the debt. Not only is it unwise to pay intrest on a debt for an extended period of time, but leaving a debt to be paid by the next generation is flat out irresponsible, unethical, selfish and wrong. We simply don't have the moral discipline to pay this debt back in good times. We are a culture of gimme gimme and mine mine. We don't care what burden we put on others as long as we don't have to bear that burden.

Now let's consider the this stimulus package. What is the transaction gain g? For example, we're planning on spending on STD prevention. What is the return? The immediate return is very small if it's anything at all. There's no wealth increase there. Longterm, the money may or may not end up getting invested in new or expanding business. If it does, the return on investment will be delayed and therefore small (an investment with a very good 10% ROI that's delayed just 1 year returns 0% the first year, 5% after 2 years, 6.67% after 3 years, etc). And at what cost c? It's large, isn't it? That transaction has an immediate value loss of -c. The eventual return must supercede that, and the longer it takes the greater that number becomes due to interest costs.

What about infrastructure? Roads, buildings, utilities, etc? These have an ROI, but it is small and is also slow and delayed and therefore even smaller. What return does improving a road give? It improves efficiency. But how much? How many businesses will have increased gains because this road is improved? The idea of infrastructure spending being a stimulus is bogus. It can possibly be termed a long-term investment, but it would more accurately be called simply a standard of living investment, which has no return (just makes people happier). In no way could it be called a short-term stimulus.

Or what about the research? Research is slow to have a market effect, but has potential for great returns. Technology development finds new ways to drive down costs, increase production, increase quality, and improve the standard of living. Standard of living technology, again does not have a real return. But we're not investing in new technology. We're going to invest in climate change research. We'll invest in green energy. I agree with green power! It's a good thing. But its current high costs and inefficiencies will do nothing but hurt current economic development in the short term. Only once it becomes less expensive than the current power sources will it help the economy. If the environment is a bigger concern than the economy, fine. State it that way. Do not tout it as an economic stimulus, for it is the antithesis of such.

This stimulus could work if it was invested in businesses, wealth producing, real investments that return a possitive wealth. Could. Will it? I think it will have a temporary stimulus effect. But because it is not going to produce wealth, the recession is merely postponed. It's like taking out a loan to buy more liquor. It gets you through the next month, but when it's over you're in an even larger hole than you started in. That's what will happen. If the loan was used wisely, if the man was able to kick his habit and become responsible, then he could make it. Government hasn't kicked the habit, and doesn't want to. They just want a new excuse to buy more liquor.

The Rich Get Richer...

I think the frequently noted "the rich get richer while the poor get poorer" is one of the biggest fallacies in modern day thinking. Let's consider the matter from an economic perspective.

When someone makes money, how did that person make it? Assuming it was a legal transaction, the money was made either in the exchange of goods (or services), or it came from a return on investment.

Let's start with an exchange of goods. Businessmen are not ripping people off. They provide a good at or near what we call "market price", which is basically the the price enough people to match the supply would be willing to pay for it, or in other words it is theoretical true value of the product. This means that the product that the businessman provides is worth the money that is paid for it. It is a fair exchange.

Why is this important? Because the buyer does not lose anything by purchasing a product. He now owns a product that is worth that value. The gain is in the fact that the producer created the product for less money than the actual market value. Thus the producer has actually created wealth. As soon as the product is finished, it becomes worth whatever market value it holds. That market value minus the cost to produce it is the amount of created wealth.

Where is the loss in that transaction? The producer makes a gain, the buyer receives a product and keeps it. His wealth remains the same in the transaction.

So you're asking yourself, well what about a car? It loses value the minute it's driven off the lot. But that's not really true. It loses its resale value, but the actual worth of the vehicle to the owner is the same as it was the minute it was bought. The only point in which it loses value to the owner is when it stops working as well as it did originally. And yet the benefit that it has produced by that time, while impossible to quantify, is worth at least the value that was paid originally. Otherwise the buyer would not have purchased it. The buyer is well aware of the guaranteed lifespan of the car. If the product was not worth the price, it wouldn't sell.

So instead you ask, what about consumed goods, like food? That's a good question. Does it lose its value when it's consumed? Tell me, what is the value of your life? What is the value of your comfort? These comsumed goods and services are as valuable to you as you are willing to pay for them. We don't typically think of life, comfort, entertainment, etc as riches. But we pay for these things all the time. You're not paying for food, you're paying for life. We typically pay extra for the enjoyment of good food. And we consider it a fair exchange. Life and comfort of living is very valuable.

So who loses when the rich get richer? The answer is nobody. It is a fallacy to think so.

In fact, let me show you how the poor get richer when the rich get richer. When the rich get richer, what do they do with the money? How many rich people do you know with all their money in a mattress? They grow their businesss, invest their money, or buy comodities. When business is prospering, new people are hired, salaries are increased, workers receive bonuses, etc. When the wealthy invest their money in other businesses, those businesses are given better opportunity to succeed, thus allowing them to grow, again creating the same results as previously noted. And when the rich build their mansions, buy their luxury cars, and all the other comodities they buy, they are buying the products of other companies, helping them to prosper.

Bottom line, the rich create employment for the unemployed, give business to the employed, and give businesses aid in their growth. They make the poor richer!

On the flip side, if you make the poor richer while making the rich poorer through redistibution, what is the effect? The poor will spend some of their new found wealth, but there is no social class that hoardes their money in a non-productive bank account or less productive assets than the low class. So, some of the new wealth will be exchanged in business, but a lot of it will be saved (note: saving is a good thing, a topic for another day). But you hurt businesses, stunting their growth and possibly even causing layoffs. Money becomes tight among those that do the most investing, disallowing further investing. How many poor people invest in research and development? How many of you have ever been employed by someone in the lower class? The poor are employed, not employers.

I am tired of hearing the jealous complaint of the lower class, crying for equality. You're not guaranteed equal property any bit as much as you're guaranteed equal happiness. It's your right to be prosperous, just like it's your right to be happy. But it's your own responsibility. Equality means that the rich has a right to earn their wealth and keep their property every bit as much as the poor. It's an unalieanable right.

Stop being jealous and let them grow the nation's wealth. A couple of weeks ago I read an interesting study that economists have been doing (http://business.theatlantic.com/2009/01/fairs_fair.php). They would give 10 $1 bills to one student, and explain to her/him and a second student that the first student should give the second student whatever the first student chose. The caveat is that if the second student doesn't accept the offer, neither gets anything. When the experiment was run on computers, the first computer would offer $1, and the second computer would accept, for $1 is more than $0. Not so with the humans. Those who would make such an offer would find the offer rejected, for the second student would rather have nothing than be treated so unfairly.

$1 is progress, it's advancement, it's wealth. Don't spit in the face of progress just because you're not progressing as quickly as another. Stop cutting off your nose to spite your face.