tag:blogger.com,1999:blog-60412404513703943492024-03-12T17:19:04.843-07:00Unintentionally ConsequentialAnonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-6041240451370394349.post-83181005417839124142013-10-02T12:28:00.000-07:002013-10-02T12:28:25.055-07:00The Purpose and Results of InsuranceWhy does insurance exist? Insurance exists because risk is inherent in
living life. Think about the various forms insurance takes: automobile
insurance, property insurance, life insurance, health insurance,
disability income insurance, flood insurance, etc. You cannot predict
when another driver will hit your car, when your home will catch fire,
when you’ll get a serious illness or injury or when you’ll die, but
insurance companies can look at the statistics of those who possess
similar characteristics as yours and figure out when you’re likely to
die, which diseases you’re likely to get and when, the likelihood of
getting into an accident in your community or city, or the likelihood of
flooding in your neighborhood. Being able to shift the burden of risk
to a big company is the reason insurance is attractive to consumers –
shifting the burden from those with less knowledge to those with more.
This is the purpose of insurance: to efficiently manage and distribute
risk, from those least able to handle the costs to those most able to do
so.<br /><br />The competitive pressures of a free marketplace will cause
premiums to be just high enough to earn profits and attract investment
for efficiently managed companies and just low enough to be attractive
to consumers.<br /><br />In effective markets, the beneficial results of
insurance are two-fold. First, insurance premiums create an incentive to
minimize risky behavior. Second, insurance premiums create an incentive
to maximize ‘good’ (as in, economically efficient) decision-making.
This is why your health insurance premiums will be higher if you smoke,
your life insurance premiums will be higher if you skydive or disarm
bombs for a living, your property insurance will be higher if you live
in a floodplain, and your automobile insurance will be higher if you
live in a big city versus a rural community.<br /><br /> What happens when
economic principles controlling insurance conflict with political
principles controlling government? Inefficiency happens, and sometimes
it is disastrous. For example, let’s take a look at FEMA, the Federal
Emergency Management Agency. Federal disaster relief is sometimes called
insurance, but it is not. The reason is simple to see and simple to
understand. Insurance, as noted above, creates incentives to minimize
risky behavior and maximize efficient behavior. Federal disaster relief
subsidizes inefficient decision-making and risky behavior. The results
are drastic and highly regrettable.<br /><br />Would Hurricane Katrina have
been as dramatically destructive without FEMA? No. Why not? Because if
you wanted your property protected and you chose to own that property
where hurricanes were able to destroy it, regularly, you would have to
pay for taking that risk in the form of high insurance premiums, if,
indeed, any insurance companies were willing to insure the property at
all. The only ones who could have afforded those premiums, or taken the
risk entirely upon their own shoulders, are wealthy people. If property
losses will be covered by government-directed funds, this mitigates the
costs of locating in risky areas. Suddenly, it is not as unattractive
for poorer people to live in flood plains and coastal areas hit
regularly by hurricanes. Property developers build because the demand is
there and the demand is there because the risk has been shifted from
the property owners to the taxpayers in general. Without federal
disaster relief, it is likely that New Orleans would not have suffered
so much structural damage because the development of the city would have
taken an entirely different form. Note, for instance, the condition of
the old city after the hurricane hit versus the most recently
constructed portions.<br /><br />The same is true up and down the
Mississippi River. The river floods regularly. Every time the river does
flood, we see images of people stranded on their roofs, many stubbornly
maintaining they’ll never move. Of course they’ll never move. The
government funds the reconstruction, only to have to reconstruct yet
again the next time the river floods, as it will inevitably do.<br /><br />It
is all needlessly destructive, needlessly wasteful, perfectly
ridiculous economically and perfectly understandable politically. No
politician is going to sit idly by and watch suffering constituents
without ‘taking action.’<br /><br />If more truly understood basic economic
principles, perhaps the situation would be such that ‘taking action’
wasn’t politically necessary, because the constituents interacted within
a functioning insurance market, understanding the risks and the costs
associated with those risks.Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-77000226964676228192013-10-02T12:27:00.000-07:002013-10-02T12:27:29.220-07:00Why Government-Provided Medical Care is Always Doomed to FailThere is a fundamental confusion, it seems, of cost with price. The two
are not synonyms. Price must cover cost. If a service is provided or a
good manufactured and the price charged does not cover the cost of the
good's manufacture or of the service's provision, that good or service
will not be provided long. Losses will, sooner or later, drive the
provider out of business. This is assuming, of course, that the provider
needs to profit in order to remain. In the world of consumers and
producers, i.e. the marketplace, this is the rule. It is not, however,
the rule in the world of government. Government has no competitor and
government doesn't go out of business.<br /><br />In the marketplace, a
doctor enters his field of chosen practice possessing costs previously
acquired that must now be paid. These include the costs of undergraduate
and medical school as well as the required residency and certification
requirements (differing in specifics, of course, from state to state),
and the cost of malpractice insurance (differing from state to state and
depending upon the specific area of practice). These costs must be
covered sufficiently enough by the wage earned to encourage the doctor
to continue practicing medicine where he is and, also, to encourage
future young adults to enter the field.<br /><br />The wealth created by the
doctor is the service provided and the wage paid the doctor derives
from the monies earned as wages by the patients in their individual
wealth-creating endeavors. In the marketplace, if a consumer is
displeased with a producer, that consumer can take his money to a
different producer that does not displease him. This provides an
incentive for the producer to do his best to please his customers, so as
not to lose any future business that may be provided by said customer
as well as any future business that may be provided by those who learn
how satisfied or dissatisfied that customer is.<br /><br />The patient also
has an incentive to make certain he is 'getting his money's worth.' It's
a remarkable fact that when a person spends his own money, he is much
more careful about the expenditures than when he is spending other
people's money. It tends to entice the individual to prioritize. This
is, of course, why we all pay our rent/mortgage payment, bills, debts,
etc. before splurging on that new fancy piece of electronic equipment or
some other novel trinket we've been wanting. Irresponsibility has a
pretty severe price and no one wants to explain to his friends that he
got evicted because he kept buying PS3 games with what should have been
his rent money.<br /><br />When patients procure a doctor's services they
may choose to render payment in a number of ways: immediate cash
payment, a series of payments stretched out over a predetermined number
of months, on credit, with borrowed funds, with gifted funds, or the
payment may be made in part or in whole by a health insurance company.<br /><br />All
insurance companies were originally created with one goal: to manage
risk more effectively than individuals can by pooling as many
individuals as possible so as to make use of sophisticated statistics.
We cannot eliminate risk. We can, through insurance, shift the burden
off the shoulders of those who are less able to handle the costs of
these risks onto the shoulders of those who are more able to handle
these costs. I can't predict when I'll die, when or if I'll get into a
car accident, when or if I'll get cancer or some other catastrophic
disease, or when or if my home will catch fire. Insurance companies can
predict the odds of all these things by looking at my lifestyle and
choices (smoker? drinker? skydiver?), where I live (high crime or low
crime neighborhood?), what I drive (bigger, safer car?), and all the
previous experiences of those most like me that they have insured in the
past. Insurance companies use this information to determine the
likelihood of any of these things happening to me. This information is
then used to determine the premium I will pay. The premiums charged to
all policy holders and the returns earned on investments made with said
premiums must cover all of the present and future claims or the company
will not be selling policies very long.<br /><br />We live in a culture that
expects medical insurance to pay for even the most rudimentary
procedures. This isn’t what insurance is for. If you know you will
receive a physical examination every year, you are able to plan for and
budget the expense of that exam. If you know you will have children in
the future, you are able to plan for and budget the expense of those
births. Of course, everyone would rather someone else pay. And, why are
premiums so high? If I’m paying such a large sum per month shouldn’t the
insurance company pay for my doctor’s visit? Allow me to introduce you
to the government.<br /><br />The government erects the framework of rules
and standards within which all market activity occurs. The government
also enforces these rules and standards. If the government requires by
law that insurance companies pay for services they otherwise would not
pay for, premiums must rise to cover this new cost. Why wouldn’t the
insurance companies cover these costs anyway, without government
intervention? Because we aren’t willing to pay the higher premiums and
would buy lower-priced policies (albeit, policies with fewer benefits)
from competing firms. But, if government requires all insurance
companies to cover these costs, then competition is taken out of the
picture and we have no choice but to pay higher premiums, if we want to
have health insurance.<br /><br />And so, costs rise.<br /><br />Combine this
fact with the rising malpractice insurance premiums due to numerous
judgments awarding large punitive damages based upon junk science (for
example, John Edward’s claim to fame: birth defects resulting from
doctors not choosing to perform a C-Section soon enough – leading to
preventive C-Sections being performed when they otherwise wouldn’t have
been as a just-in-case measure, which raises the costs of birthing those
children), the fact that insurance companies are forbidden to compete
across state lines, and the fact that state medical boards control the
number of students permitted into medical schools each year and we have
an inherently rising cost of medical provision. To cover these higher
costs, we, the patients, must pay higher medical prices.<br /><br />So, why
can’t government step into the picture and pay for it all? Government
certainly can. And, now, government will. But, you say, government isn’t
paying for everything! Private insurers still exist! We still have
choices! Yes, for now – but, not for long. First, I will explain why
private insurance will be crowded out of existence by government
payments and then I will explain why we aren’t better off for it.<br /><br />Insurance
companies, like every other company in the market, exist to make money.
When a company cannot make enough money it folds, in a normally
functioning market. Government may certainly ‘bail out’ the failing
company so it does not die a normal death. This choice is highly
problematic, however. The money used by government to bail out failing
firms is money that, by necessity, is taxed from the wealth creators.
Government cannot, on net, create wealth. Every penny spent by
government is a penny gained by taxes. Every penny earned by a business
is a penny earned by creating a good or service desired by consumers and
every penny paid by consumers is a penny they earned in their various
jobs by providing productive value to the firms employing them.<br /><br />If
government builds a library in a small town, we can see the
construction crews working with stone and wood to build the building. We
can see the books placed on the shelves and we can see the librarians
who now have jobs at the new library. What we cannot see are all the
myriad things that would have been purchased by the taxpayers with those
tax dollars of theirs that funded the library’s construction and
maintenance. Perhaps one would have purchased new shoes earning a
commission for a salesman at the local mall department store, as well as
a sum for the company that manufactured the shoes and the employees
that actually pieced them together. Not to mention the sum earned by the
providers of the leather, thread, and rubber used in the shoes’
construction and the employees that harvested that rubber, cured that
leather and spun that thread. Or the sum earned by the rancher whose
cattle provided the leather, the farmer whose cotton provided the
thread, or the landowner whose trees provided the sap that helped create
the rubber. We can’t see all of these effects because they didn’t
happen. Multiply these ‘might haves’ by the number of tax payers and we
get into some pretty serious numbers.<br /><br />The problem isn’t whether
or not government can create or save a job. Government certainly can.
The problem lies in whether that is a net gain, whether government will
spend tax dollars as carefully as we spend our own, and whether
individuals are better off buying what they want with their own money or
having their money taxed away to purchase things thought better for
them by those with political power.<br /><br />Since government will never
go out of business, the government-provided medical plans do not have to
charge cost-covering premiums. Private firms do. How may a firm that
must remain profitable to continue in existence compete with a
government that does not have to earn a profit to do likewise? The
private-sector insurance companies will be undercut. The only way they
will survive is if they eventually become wards of the state. We may
have choices now, but as the number of those who purchase the government
plan grow, inevitably, the private insurance companies will be pushed
aside or absorbed, one by one.<br /><br />Another side effect of the growth
in the number of those being added to the government medical plan, is a
necessary rise in the costs of that government medical plan. To pay for
these costs the government must cut spending in other areas, raise tax
rates in hopes of earning higher tax revenues or establish a system of
price controls mandating what doctors and hospitals may charge for each
service and even what a doctor may legally earn as wages. As
compensation for doctors and hospitals declines simultaneously with the
inevitable increase in demand for medical services due to the free or
artificially low price, the only way costs may be lowered is by cutting
corners so the quality of care received will worsen.<br /><br />The easiest
corner to cut is time. If price is not permitted to ration medical care,
then time will. You’ll wait. We’ll all wait. Maybe you’ll be one of the
lucky ones that gets necessary surgery in a timely fashion provided by a
well-trained doctor for a low, low price. Maybe you won’t. Maybe you’ll
die on a waiting list.<br /><br />When the wage earned by doctors drops due
to government cost-saving initiatives, what will happen to the number
of people who decide to enter medical school? The number will drop.
They’ll find other fields that permit a higher return on the investment
of their time, energy and skill. Who will take their place? Cheaper
doctors will take their place – most likely from Third World countries
and other nations whose medical schools have lower entry requirements
and lower overall performance standards. We can already see this playing
out in Britain’s National Health Service and in Canada’s system as
well.<br /><br />None of this will matter to rich people. Money always
provides the possessor with options. The middle-class and poorer people
will be the ones to suffer. We can also see this play out in Europe and
Canada. Witness the recent trip made by the premier of Nova Scotia, a
province in Canada, to Florida to get surgery.<br /><br />Our quality of life will not improve. Our bills will not decline.<br /><br />At the end of the day, my friend, you will always have to pay the Piper.Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-7110577382627849212013-02-10T21:51:00.002-08:002013-02-10T21:51:20.995-08:00The Flat Tax<!--[if gte mso 9]><xml>
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<br />
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><u>Question</u></b> -
What are the disadvantages to having a 'flat tax' where the government took a
fixed percentage of money any time it changed hands (no tax write offs for
charitable contributions, no progressive tax brackets, no luxury/sin taxes,
etc.). Congress would have a fixed budget and have a direct incentive to better
their respective economies. People would know exactly how much they would owe
and no one company could get the upper hand by hidden tax breaks tucked away in
obscure bills. - At least this is what the Utopian point of view is. Are there
any good examples of economies that have tried this? How have they dealt with
national emergencies, paid for a military, unplanned expenses, etc.?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><u>Response</u></b> -
Your questions possess many subjective qualifications. Obviously, there is no
objective concept of 'disadvantage' or 'advantage.' What appears to be an
advantage to one person may also appear to be a disadvantage to another. For
example, the progressive income tax currently in place is viewed by some as 'good'
and others as 'bad' for precisely the same reason: that those who earn more pay
higher rates than those who earn less. Progressivity is 'advantageous' or
'disadvantageous' depending entirely upon whom one questions - and their views
of what the 'best' outcome is.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
One cannot even really ask which tax system is most
efficient, because it depends upon the goal of that tax system and the
structure of the bureaucracy implementing that tax system.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In other words, the starting point matters. So does the
ultimate result desired. Each helps define the road taken from the former to
the latter.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I could write an essay about the different goals of
taxation. Should we care most about overall per capita standard of living?
Maximizing overall tax revenues? Only generating as much tax revenue as is
'needed' (requiring the determination of some formal definition of
'necessary')? Who should possess the power to determine how these monies are
spent - the bureaucrats, or the people? If the people should possess the power,
how should this power be demonstrated and acted upon?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I don't think any of that, however interesting it may be, is
necessary to tackle the various characteristics of a 'flat tax.'</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, let us assume we have a flat tax. All income, regardless
of label (profit, capital gain, dividend, wage, rent, interest, etc.) is taxed
at a fixed rate. There are no loopholes, no tricks, no gimmicks.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Now, this system can exist independent of a balanced budget.
So, I'm not going to address budgetary issues.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The first wrinkle that must be addressed is: how do we
determine income? Which costs are permitted to be counted against revenues to
determine taxable income? We have the same issues, it seems, with a flat tax as
we do with progressive taxation. Someone is going to have to determine what is
permissible and what isn't when we subtract costs from revenues.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, what would have to happen is the authors of the
legislation to implement a flat tax would have to specify deductions that would
apply to married versus single and parents versus childless.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It is possible that, over time, a tendency will arise for a
gradual increase in complexity within the tax system. Remember, our current
labyrinthine income tax system didn't come about overnight.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The authors would also have to deal with the problem of
'double taxation.' If corporate profits are taxed, and the money left over
generates capital gains - and those are also taxed, then spending will be
incentivized over investment. There would still have to be a lot of caveats
within the legislation to cover as many of these issues as possible in order to
avoid as many unintended consequences as possible.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Of course, it's perfectly reasonable to simultaneously have
both a progressive and a flat tax. The taxpayer could then select how he wished
to calculate his tax liabilities and pay his taxes.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Remember in class, how we talked about the fact that
everyone's income is someone else's spending? The reason I'm bringing this up
to you is because the main antagonists among those seeking to replace
progressive taxation are those advocates for the flat income tax and those
advocates for a national consumption (or sales tax). In either scenario transactions
are still being taxed, it's just the tax is being funded from the buyer's hand
in one situation and the seller's hand in the other. Same money. Different
angle.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It's interesting to think about.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As far as nations using a flat tax are concerned, there are
actually quite a few. Russia, Estonia, Latvia, Lithuania, Ukraine, Serbia,
Romania, Slovakia, Georgia, The Channel Islands (Jersey and Guernsey), and Hong
Kong (Hong Kong actually has a dual tax system - where you can choose either
progressive or flat).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="mso-spacerun: yes;"> </span>Economic growth in
many of these nations is pretty significant.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Personally, I think simpler is always going to be less
costly than complicated. But, there's an entire industry built around the
complications of the current tax system that will be extremely resistant to any
change (tax accountants and tax attorneys, for example).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Also, remember, income taxation is only one way a government
can raise revenues. Import tariffs and bond sales are others. Unplanned for
(emergency) expenditures shouldn't prove to be a problem.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is a subject that can get incredibly complicated and we
could probably have an ongoing conversation that could last an entire semester,
but I hope this short 'mini-essay' at the very least points you in the right
direction cognitively and helps you better understand the topic.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Of course, let me know if you need anything else.</div>
Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com10tag:blogger.com,1999:blog-6041240451370394349.post-85025281732840145632013-01-21T22:35:00.001-08:002013-01-21T22:35:57.145-08:00Money, Debt and Default<!--[if gte mso 9]><xml>
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<div class="MsoNormal" style="text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u>Question</u></b> - How can the U.S. have trillions of dollars in
debt when the debt (at least to me) appears to be in a currency we control?
Inflation notwithstanding, couldn't we just print extra money periodically to
pay this debt back? It seems an odd concept to me that a country can be in debt
within the currency that it controls.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
I know I'm dismissing the
complexity of international currency here, but perhaps you could expand upon
what it really means when a country is in debt to other nations.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><u>Response</u></b> - Your question touches on two issues that require
clarification and explanation. First, what is debt? Second, what is money? Once
debt and money are understood, your question becomes relatively simple to
answer.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
What is debt? Debt is one of the
two perspectives in the relationship between a borrower and a lender (the other
being credit). Whenever I deposit money into my bank, my bank becomes a debtor
to me in the amount deposited. Whenever a business or a municipal, state or
federal government sells a bond to me, that entity becomes a debtor to me in
the amount contracted. A bond, after all, is simply a contract to pay a fixed
amount of money at some predetermined date in the future. The difference
between the amount I pay, and the amount I receive is the 'rate.' So, if I'm
indifferent between $100 today and $105 one year from today, my effective rate
is 5%. I will not be willing to loan you $100 today unless you promise to pay
me at least $105 in one year. Likewise, I will not be willing to spend $100 to
purchase a bond that pays any less than $105 in one year.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
This is, of course, assuming I
believe the borrower will have no problem paying me back. The higher I believe
the risk of default, the higher the rate I'll require. For example, even though
my effective rate is 5%, I may view the borrower as risky and demand 15%. The
10% premium serves as compensation for the risk I am taking that I may never
see my money again. The initial 5% serves as compensation for the inconvenience
of not having the money I'm lending at my immediate disposal. If a potential
lender is not presented adequate compensation for the inconvenience and risk
associated with lending his money to the borrower, then he will have no
incentive to lend. The inconvenience and risk simply must be compensated by the
rate offered by the borrower.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Ah, but how can the federal
government default? Before I can answer this question, I need to explain what
money is and how it functions.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Money often gets confused with
wealth. Money is not wealth. Wealth is, in a nutshell, stuff. Stuff, and the
knowledge and means of making it, inventing it, and innovating with it. As you
can see, wealth is versatile. With wealth, one can create more wealth, or sell
it for cash, or exchange it for other forms of wealth. Money, however, is only
good for one thing: the purchase of wealth.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Money exists because barter is
awkward. Money helps economies run smoothly, particularly as they grow in scope
and complexity. For example, if I owned an apple orchard and decided I wanted
to acquire a new chair for my home office, I might go to a person who makes
chairs and offer an exchange of apples for a chair. But, how many apples is a
chair worth? How many apples does the chair maker even desire? The chair maker
may propose a counteroffer whereby I give him a receipt for 115 pounds of
apples. So, whomever presents this receipt to me may expect me to deliver unto
him 115 pounds of apples. This way, the chair maker receives something he can
use to purchase other things he desires, and I get my office chair without
having to cart around 115 pounds of apples. Nor does the chair maker have to
worry about getting rid of 115 pounds of apples. He only has to worry about
making chairs.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The chair maker may then decide
he wants to purchase some bacon, so he goes to the butcher and offers him my
apple receipt. Now, the butcher is not going to need all 115 pounds of apples
as compensation for 1 pound of bacon. Not only that, but the chair maker won't
want to give up rights to all 115 pounds of apples for 1 pound of bacon. Let us
suppose, that the chair maker writes a receipt to the butcher signing over his
rights to 11 pounds of apples in exchange for 1 pound of bacon.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The receipts for apples have
become money in this economy.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
What if I decide to start
exchanging receipts for my apples above and beyond what my orchard can reliably
produce? Well, what are the odds everyone will show up at once and demand their
apples? Here's where the art of finance and banking come in. How much wriggle
room do I have? If I take too many liberties with my receipts, my neighbors may
lose faith in my ability to redeem their claims on my apples. If this happens,
there might be a 'run' on my orchard and I'll be ruined. This threat will also
create an incentive for receipts for other producers' goods and services to be
used as cash as well. There might even arise a sophisticated multi-layered
banking system whereby large banks issue widely accepted notes to serve as
currency while holding deposits of a wide variety of producers' receipts as
claims on actual wealth.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Money will only continue to
operate as it is meant to when the production of wealth (upon which the
currency is founded) keeps pace with the creation of money. When wealth creation
outstrips the creation of money, or when available credit evaporates faster
than any decline in the creation of wealth, the result is deflation - where the
money circulating in the market may purchase more wealth per unit of currency
than before the deflation. When wealth creation is surpassed by the creation of
money, or when any decline in the creation of wealth occurs at a faster rate
than any decline in available credit, the result is inflation - where the money
circulating in the market may purchase less wealth per unit of currency than
before the inflation. Naturally, deflation is most harmful to the debtor
because the cash he is paying back to his creditor is worth more than the cash
he initially borrowed. And, inflation is most harmful to the creditor because
the cash he is receiving from his debtor is worth less than the cash he
initially lent out. This is a main reason why governments that possess monopoly
power over the production of currency would much rather err on the side of
inflation than deflation. Inflation would make it easier to pay off debts while
deflation would make that much more difficult. The reason governments want to
possess a monopoly on coining and printing money is not because the bureaucrats
are worried about producers and consumers seeking to con one another. Con men
and fraud will exist regardless. Governments want to possess a monopoly on the
coining and printing of money because the bureaucrats want power.
Diversification and a credible threat of competition are the opposite of power.
Legitimate power only exists when there are no other present legal alternatives
and no threat of any future legal alternatives.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
So, can the federal government
default? Technically, no. You are correct in assuming the printing presses can
simply be kept running until there is enough cash to pay off all of the bills.
However, hyperinflating a currency is catastrophically destructive to a
nation's economy. For a potent example, one may simply look at Germany in between
the two World Wars. The monetary actions of the German government fleeced the
German population of all of their savings and created a massive burden to
present innovation and future growth by creating incentives for investors and
potential investors to seek foreign opportunities in more stable markets. Money
can serve as oil in the gears of the economic machinery. It isn't necessary for
an economic machine to run, but it helps it run smoother. Hyperinflation is
like pouring sand into those same gears while simultaneously removing the oil.
The machine will break down and require extensive repair, if not outright
replacement.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
In short, you should hope your
government does not seek to print its way out of debt. If it tries to do so,
very unfortunate things are going to happen.</div>
Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-55763974544244617592013-01-05T20:57:00.004-08:002013-01-05T20:57:52.970-08:00Adam Smith on Wine Consumption and Relative Drunkenness<!--[if gte mso 9]><xml>
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<u><b>Question</b></u> - "In the Wealth of Nations on pages 525-526,
Adam Smith states '... the cheapness of wine seems to be a cause, not of
drunkenness, but of sobriety.'<span style="mso-spacerun: yes;"> </span>Why is
this a common vice in countries/societal classes where liquor is expensive and
not a problem with countries that produce or classes that can easily afford it?</div>
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I've read this a few times. Smith seems to give good
examples but not so much as to why it is so."</div>
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<br /></div>
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<u><b>Response</b></u> - Adam Smith identifies the justification for his
observation of relative drunkenness when he states on page 525 (1994 Modern
Library Edition), "People are seldom guilty of excess in what is their
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He wasn't so much making a statistically supported statement as he was voicing a general observation of human nature.</div>
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<br /></div>
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A similar example could be the way many Americans treat food during the holidays of Thanksgiving and Christmas. Many I personally know (and, I'd wager, many you personally know as well) have even stated vocally that, since it is Thanksgiving (or Christmas) after all, they can be excused for eating more than usual. The fact that many foods are more available during these times than others (egg nog, pumpkin pie, etc.) may also contribute.</div>
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<br /></div>
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Not many (if any) 'overconsume' peanut butter and jelly sandwiches, for example, or other comparably pedestrian meal options that are relatively cheap to create, easy to obtain and possess no significant ties to any kind of holiday emotions. </div>
Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com2tag:blogger.com,1999:blog-6041240451370394349.post-5762373807938243122012-11-28T10:13:00.000-08:002012-11-28T10:13:15.174-08:00Copyrights<!--[if gte mso 9]><xml>
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<b style="mso-bidi-font-weight: normal;"><u>Question</u></b> -
Should a free market have copyright laws and if so to what extent? What
incentive does this give to produce new products?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><u>Response</u></b> -
I think copyright laws may be written to serve an efficient purpose. They may,
as you hint at, create strong incentives to be creative by protecting the creator of the work from having his ingenuity 'stolen' from him by copycats. Piracy may certainly lessen the desire to place one's creations into the open market if they are going to be permitted to be copied and distributed without compensation by the pirates. The problem with
copyrights comes when/if they are permitted to transform into perpetuities. If the
author/artist/musician/etc.'s heirs and the heirs of those heirs <i>ad infinitum</i>
are permitted to limit the use of the copyrighted material, then the copyright
becomes an obstacle to creativity.</div>
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<br /></div>
<div class="MsoNormal">
I do not think it would be unreasonable to limit the
copyright to the life (however long or short it may be) of the original
creator. After that, the work should be permitted to enter the public domain so
it can be used by future creators without penalty.</div>
Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-71061229687969746652012-11-16T16:25:00.003-08:002012-11-16T16:25:43.253-08:00The Federal Reserve and Interest Rates<!--[if gte mso 9]><xml>
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<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><u>Question</u></b> -
During the current recession, interest rates have been held at historically low
rates by the Fed. They use the Keynesian argument that low interest rates
"keep credit flowing freely." But it seems to me that the lower
interest rates are, the less incentive banks have to give out loans. If this is
correct, why is raising the interest rate (or at least leaving it alone) not
the answer to getting credit flowing again?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><u>Response</u></b> -
First, it is important to understand precisely what interest rates are.
Interest rates are the price for borrowed money. However, this particular price
works a little differently from the prices we encounter most frequently (for
example, the price on a can of green beans at Wal-Mart, or the price of a
gallon of petroleum at the gas station). Prices help allocate resources more efficiently
by providing incentives for resources to flow from where they are plentiful to
where they are scarce (from where prices are lowest to where prices are
highest). As more goods flow in this manner, the price level begins to even out
between the two locations.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Interest rates, however, help allocate resources more
efficiently by providing incentives for resources to flow from one time period
to another. The higher the interest rate, the more it pays to forego spending
now in order to spend more in the future - so resources flow from the present
into the future. The lower the interest rate, the more it pays to forego saving
now in order to spend more now - so resources flow from the future into the
present.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Let us assume that I am currently indifferent between $100
right now and $105 one year from now. My effective interest rate is 5%. In
order to convince me to part with my $100 right now, you must offer me (at the
very least) $105 a year from now. If, however, the majority of potential lenders
is indifferent between $100 right now and $107 one year from now, the effective
interest rate will be 7%. This is great from my point of view, because I was
willing to lend at 5%. If I can get 7%, why should I settle for 5%, right?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is how interest rates work. The Federal Reserve System
does not set interest rates. The Federal Reserve System sets only the rate at
which it charges banks for borrowing money from the Federal Reserve. Banks have
the ability to borrow this money and then loan it out at interest. If the
target rate set by the Federal Reserve is 2%, then the banks have to charge
more than 2% interest when loaning out this money to borrowers in order to earn
money. In this way, the Federal Reserve indirectly influences the overall
interest rate offered by the banks.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, it takes two to make an interest rate work. If I do
not receive an offer of at least 5% (since I am indifferent between $100 now
and $105 a year from now), then I will not be willing to part with my cash. I
must receive a payment that satisfies the inconvenience of no longer having the
cash in my possession as well as the risk I am taking that the loan will never
be repaid. If I am not paid for this risk and inconvenience, then I will have
no incentive to loan you my money.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Now, to your specific question. Why is raising the interest
rate (or at least leaving it alone) not the answer to getting credit flowing
again?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The higher the rate is that the Federal Reserve charges the
banks for borrowed money, the higher the rate they will need to charge
borrowers in order to make money. The higher the interest rate the banks charge
potential borrowers, the fewer people will be willing to borrow. In this way,
interest rates work just like every other price in the market. The higher the price
(interest rate), the lower the quantity (of loans) demanded and the higher the
quantity (of loans) supplied - at that price. The lower the price (interest
rate), the higher the quantity (of loans) demanded and the lower the quantity (of
loans) supplied - at that price. All other things being equal, of course.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Does this answer your question? Please feel free to ask any
follow-up or clarifying questions you feel are necessary.</div>
Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-54228283514880132012-11-14T21:21:00.001-08:002012-11-15T15:55:20.489-08:00The FDIC<!--[if gte mso 9]><xml>
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<br />
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><u>Question</u></b> -
Is the FDIC a good thing? Does its existence cause banks to take unnecessary risks
since they know there is a parachute that can be used when they overextend?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><u>Response</u></b> -
In all honesty, whether or not a particular policy passed into law or a
particular bureaucratic entity created by the legislature is 'good' depends
entirely upon one's personal preferences, agenda and ideology. However, permit
me to take a leap of faith and assume that by 'good' you really mean
'efficient.'</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Is the FDIC an efficient thing?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It depends.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Is it more efficient than having nothing of the sort in
place while simultaneously keeping all the other characteristics of the
national banking system intact? Yes.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Is it more efficient than having nothing of the sort in
place while simultaneously culling the waste out of the current mess of banking
regulations resulting in a free market for banking? No.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The FDIC (Federal Deposit Insurance Corporation) serves as a
firewall for the national banking system. Since it guarantees a depositor's
account up to $250,000, the incentive for account-holders to initiate a 'run'
on the bank in times of economic contraction is severely muted (if not
eliminated altogether).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The FDIC was created by legislation signed into law by Franklin
Roosevelt in 1933 in response to the massive number of bank collapses during
the initial years of the Great Depression. These bank closings created enormous
deflationary pressures on the national economy due to the resulting evaporation
of available credit. Since banks hold only a fraction of their deposits on hand
as reserves to cover withdrawals, the remainder is available to loan out at
interest. This, in effect, adds to the available money supply since the
depositors are writing checks upon their accounts at the same time their cash
is being loaned out. As a result of this fact (called fractional reserve
banking), whenever a bank failed, not only did its account-holders lose their
funds, but the credit that the bank had extended (effectively adding to the
nation's money supply) disappeared. From 1929 to 1933, the money supply in the
United States declined by 1/3. The FDIC was an effort by the Federal Government
to limit any future threat of similar deflationary pressures in the banking
sector.</div>
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<br /></div>
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You may be surprised to discover that not a single bank
failed in Canada throughout the Great Depression (and Canada offered absolutely
no government deposit insurance). Canada certainly suffered (as the entire
world suffered) from the Great Depression, but not the way the United States
did. The explanation is rather interesting as well as simple to understand.</div>
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<br /></div>
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Canada's banks had thousands of branches spread throughout
the country. So, if the agricultural sector was hit hard, liquid assets from
industrial and commercial sector-concentrated branches could be shifted to
agricultural sector-concentrated branches and any threat was thus mitigated.</div>
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<br /></div>
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The United States possessed many local and state regulations
controlling the number of branches big out-of-town or out-of-state banks could
open within certain regions. The goal was to protect smaller community banks
from the 'big boys.' The result was the unfortunate (and unintended)
consequence of having more banks (than would have otherwise) having all of
their eggs in just one basket. So, when a community suffered, the banks felt
the pinch and had few opportunities for relief.</div>
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<br /></div>
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If these kinds of regulations were eliminated and the United
States banking system were to grow in a similar fashion to the Canadian banking
system, then the FDIC would be unnecessary because the banks would be able to
take care of themselves in similar times of overall economic distress.</div>
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<br /></div>
<div class="MsoNormal">
Now, on to the second portion of your question. Does the
existence of the FDIC permit banks to take risks they otherwise wouldn't take
because they don't have to worry about their depositors losing their money?</div>
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<br /></div>
<div class="MsoNormal">
No, because whether or not a bank stays in business has to
do entirely with its profitability. The bank (as any business) cares about its
bottom-line first. If a bank is profitable, then naturally its account-holders
will not have anything to worry about anyway.</div>
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<br /></div>
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The only way a bank can be consistently profitable (in a
free market, absent government largesse) is if its decisions regarding loan
extensions and investments are productive, efficient decisions. Risks must be
effectively hedged and managed. Losses will be suffered for inefficient
investments and profits will be gained when investments turn out to have been
sound. As a result, the 'best' banks will earn the most money, be the most
solvent, and attract the most account-holders.</div>
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<br /></div>
<div class="MsoNormal">
Does this adequately answer your questions? If not, feel
free to ask as many follow-up questions as you feel you need to.</div>
Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com3tag:blogger.com,1999:blog-6041240451370394349.post-71424100735715321732012-11-13T21:02:00.000-08:002012-11-13T21:02:08.385-08:00The Problem of Increasing Entitlements<!--[if gte mso 9]><xml>
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<div class="MsoNormal">
<u><b>Question </b></u>- Which would more effectively address the problem
of increasing entitlement rolls? Should we address making welfare less
attractive, ceteris paribus (all other things being equal), or making gains greater?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u><b>Response </b></u>- Government bureaus may do both. Welfare may be
made less attractive by decreasing benefits (like limits on what the money may
be spent on) and adding costs (like job-hunting requirements). Gains may be
made greater by some combination of industry deregulation and subsidized
education/vocational training.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Making welfare less attractive is most likely the easiest
goal to accomplish.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Deregulation will help improve gains by lowering the cost of
entry into a wide variety of fields. However, these fields are currently vested interests for many and, as a result, any attempt to liberate these careers will most likely meet very strong and very vocal opposition. As far as subsidized education/vocational
training go, I would much rather see this sort of activity on as local a basis
as possible.</div>
Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-49449931150308170912012-11-13T12:02:00.001-08:002012-11-13T19:33:44.167-08:00Welfare Recipients and The Law of Diminishing Marginal Utility<!--[if gte mso 9]><xml>
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<br />
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<u><b>Question </b></u>- Are welfare recipients more sensitive to the Law
of Diminishing Marginal Utility than the general populace?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u><b>Response </b></u>- I don't believe any one person is necessarily
more or less sensitive to the Law of Diminishing Marginal Utility than any
other person. The application of the law towards the observation of human
behavior (in order to determine what one is doing and why) is not so much an
issue of degree of influence as it is one of simple cause-and-effect.</div>
<div class="MsoNormal">
<br /></div>
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First, I will provide a brief explanation for those
unfamiliar with the Law of Diminishing Marginal Utility, or the Law of
Diminishing Marginal Returns.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This law states that a person will only consume a good, seek
a service or engage in an activity until his utility (satisfaction) is
maximized. Once he is sated, he will seek out other avenues to gain more utility.
Also, with each unit of the good consumed, he gains less utility than he did
from the unit consumed before. For example, if you've been outside on a hot
summer day performing yard work, when you come inside and have a cold glass of
water, it is refreshing and provides you with a lot of satisfaction. You may
desire a second glass, but the second glass does not provide you the same
satisfaction as the first. You will stop drinking glasses of water once your
thirst is sated. Your utility will have been maximized at that moment with
regard to thirst.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Before I directly address the application of the Law of
Diminishing Marginal Returns on welfare recipients, I feel I must explain some
assumptions economists make about human nature and why people work.</div>
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<br /></div>
<div class="MsoNormal">
From Adam Smith (Division of Labor) to Ludwig von Mises
(Disutility of Labor), the history of economic theory has been founded upon a
handful of generally accepted assumptions regarding people. The most important
in this case is the assumption that a person will generally seek the most
benefit for the least possible effort. Economists believe this is an important
motivator for innovation. Every time an easier (more efficient) way of doing
things is discovered, wealth is created. Time and energy are liberated from the
prior task and now made available for other tasks. One of these available tasks
is leisure.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Why do we work? Work must be done for life to be maintained.
At the very least, we need food and water, along with clothing and shelter to
protect us from the elements. Where does all of this come from? It does not get
presented to us from a benevolent Spirit or kind Mother Nature. All of this
must be created, built, and/or harvested by the labor of man. Work is
necessary. However, if we could be provided for without having to labor, would
that be preferable? Generally, yes. Each individual possesses physical needs
(food, shelter, clothing, water, air) and physical, emotional and psychological
desires. The degree to which that individual wishes his needs and desires met
influences how hard he is willing to work and how much time he is willing to devote
(school, on-the-job training, apprenticeship, etc.) to learn how to best obtain
what he needs and desires. So, we've reached a subjective fork in our road. What does the individual want? And, how hard is he willing to work for
what he wants? How much does he value leisure versus the potential fruits of
his labor? If he feels the price of obtaining what he desires is too high, he
may only be willing to work as hard as he needs to in order to obtain what he
needs to survive and then devote the rest of his time and energy towards
leisure.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, what does this have to do with welfare? Allow me to
present a simple example.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Let us suppose that the most efficient labor I am able to
provide to any employer is $8 of wealth-productive capacity per hour. There is
no incentive for any employer to pay me more than $8 per hour for this task -
if he did, he would be losing money. Let us suppose I am being paid $7.75 per
hour for my labor. I am receiving $7.75 for my time (8 hours per day, 5 days per
week), my physical energy and my mental effort.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Now, let us suppose I lose my job during a recession. I
apply for welfare and receive what amounts to $6 per hour, with no requirement
to find new work. I am now being paid for leisure nearly 78% what I was
previously being paid to work. I may decide my time, my physical energy, and my
effort are worth more applied towards leisure than towards the extra $1.75 I might
command in the market. If the value of the work I used to provide has declined
due to a decrease in demand for the good or service I used to provide, I might
even find that I am receiving more in leisure than I could command in the
market.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I will only have an incentive to leave welfare and reenter
the market if I deem the return on my investment of time, energy and effort is
worth their expenditure. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Even if the market improves and I can command a higher wage
now than I did before, I will only have an incentive to leave welfare and
reenter the market if I value some combination of desired goods and services I
can obtain through higher wages earned more than I do my current state of
leisure.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This does not make me greedy, stupid or lazy. It makes me
human.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If ever a politician truly desires to slim the rolls of
entitlement projects, he must seek to make welfare less attractive than
working. He must seek to make the return gained from leisure less attractive
than the potential return gained from earning wages.</div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Does this adequately answer your question?
Please feel free to ask any follow-up questions or clarifying questions you
desire.</span>Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-37929435832744802382012-11-09T21:58:00.001-08:002012-11-09T21:58:13.812-08:00Concerning the Proper Role of Government Regarding Fossil Fuel Use, Pollution, and the Threat of Climate Change<u><b>Question</b></u>: As a free market capitalist, where do you draw the line with regards to
the exploitation of resources specifically when exploitation of said
resources affects the rights of others? One might argue that since the
combustion of fossil fuels drives global warming, it affects us all
negatively and is therefore something that should be regulated heavily
and alternatives should be incentivized. What are your thoughts?<br />
<br />
<u><b>Response</b></u>: This is a very complicated question, so I'm going to break up my response into different sections.<br />
<br />
First, the scarcest of all resources is knowledge. This foundational fact of reality helps justify free markets since free markets are the only mechanisms where those with the most knowledge about their desires, circumstances and abilities can act on that knowledge when engaging with producers who necessarily lack that knowledge. I know what I want. Corporations do not. I tell them what I want through my purchasing behavior. If enough consumers share my tastes, preferences and desires, then the products and services I purchase will continue to be provided. If I'm relatively alone in my desire, then the product or service will be discontinued because the market will have demonstrated that there are not enough consumers with similar tastes both able and willing to pay the necessary prices in order to cover the costs of that good's production or that service's provision.<br />
<br />
A corollary of this exists with regard to how property should be used. In a free market, the property owner has free reign to do as he wishes with his property. However, free markets do not often exist in anarchy. One of the chief roles of any government is the protection of life, liberty and property from any activities of neighbors that might cause harm. This is why governments establish judiciaries to handle breaches of contract, bankruptcies, and a variety of other common-law issues. This is also why an economic case can be made for the government handling of the problem of pollution. If my neighbor pollutes the air because he has built an industrial factory next to my land, he is not the sole bearer of the cost of that pollution. I also suffer. It is not unreasonable for bureaucrats to establish rules with regard to the pollution being created, in order to shift as much of the cost as possible back to the polluter and away from the bystander.<br />
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This argument works very well with pollution that can be easily identified, quantified, and possesses consequences which can be readily explained, understood and justified. The specter of global warming or climate change, however, poses numerous problems that must be solved before anyone's liberties can be justifiably limited.<br />
<br />
This brings us to the second section of the answer: the problems with anthropogenic climate change.<br />
<br />
The first problem – how do we prove it is taking place? How do
we effectively observe and measure 'global climate?' How do we take an
almost infinitely complex, organic, planetary system and determine
within an acceptable margin of statistical error that human beings are
altering the way the planet handles greenhouse gasses in the atmosphere?
How do we identify and adequately account for every variable that may
skew the numbers we're searching for? How do we know what we're looking
for and how do we know that there aren't things we don't know that would
destroy the whole model and render useless the conclusion we reach?<br />
<br />
This is a pretty big problem.<br />
<br />
Let us assume we've solved it.<br />
<br />
The
second problem – once we've determined anthropogenic climate change is
taking place, how do we determine what the solution is? How do we
effectively measure the reaction to the policy or policies we seek to
implement? How do we adequately predict the results to make sure we
don't unintentionally make the problem worse? Are we prepared to choose
inaction if inaction is determined to be the solution that results in
the least overall harm to the climate versus every other option
currently on the table? How do we prove that we understand the nature of
the problem well enough to develop a solution to that problem? How do
we implement the solution well enough to avoid any side effects that
might make most of us worse off than before? How do we adequately
predict all of the side effects to the solution we wish to implement?
How do we adequately account for the fact the planet is an extremely
dynamic – not a static – system? How do we attune the solution to handle
this dynamism?<br />
<br />
This is also a pretty big problem.<br />
<br />
Let us assume we've solved it, too.<br />
<br />
The
third problem – how do we convince everyone to go along? How do we
convince every nation, every people, and every society to go along with
the solution? Can we come up with a solution that will work if only the
West goes along with it? If China, India et al decide to go their own
way and put the economic interests of their people ahead of the survival
interests of the rest of the globe, what then? How do we convince our
fellow citizens to go along? How do we convince the wealth creators,
industrialists and multi-national corporations not to move to the
countries that aren't going along with us? How do we guarantee that we
aren't unilaterally destroying our standard of living for no reason?<br />
<br />
The fourth problem – what's the time limit for solving the previous three problems?<br />
<br />
Since knowledge is the scarcest of all resources, as an economist I am extremely hesitant to support the taking of any action to solve a 'problem' that does not possess a solid foundation in demonstrable fact.<br />
<br />
Lastly, I'll address what appears to be the third portion of your question regarding the exploitation of resources.<br />
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From an economic perspective, resources should be exploited as much as the owners of those resources wish to exploit them. Once third parties are permitted the privilege of dictating what others may or may not do with their personal property, we no longer live in a society conceived in liberty - and liberty is vital for economic growth. Personal liberty is absolutely vital for economic growth.<br />
<br />
I hope you find this response adequate. If not, or if you have any follow-up questions, please feel free to ask them. Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-34625879745889704902012-11-09T21:27:00.001-08:002012-11-09T21:27:42.056-08:00Rules of the GameWhen I address economic issues here, I am going to try my very best to leave moral arguments to the side. My goal is to focus only on economics. I define the subject of economics as the study of the efficient allocation of scarce resources which have alternative uses. Efficiency is vital for the creation of wealth and the creation of wealth is vital for the improvement of the standards of life for everyone.<br />
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Whether or not something is 'ethical,' 'good,' 'right,' or 'moral' has everything to do with an individual's perspective of what, precisely, those things are. I love discussing philosophy, morality and theology, but I want to keep the discussions here focused with laser-like intensity on economics and only economics. Maybe I'll expand the discussions into other fields later. Probably not, though.Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-27243739313799425772012-11-09T19:40:00.003-08:002012-11-09T19:40:19.845-08:00<u><b>Question</b></u>: <span data-ft="{"tn":"K"}" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]"><span class="UFICommentBody" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]."><span id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]..[0]">What is a good intro book for the layperson on economics?</span></span></span><br />
<br />
<span data-ft="{"tn":"K"}" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]"><span class="UFICommentBody" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]."><span id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]..[0]"><u><b>Response</b></u>: I highly recommend <i>Economics in One Lesson</i>, by Henry Hazlitt. It is affordable, not very long, and very easy to read. Once you have read Hazlitt, I recommend reading anything you can find by Frederic Bastiat. He's also very easy to read.</span></span></span><br />
<br />
<span data-ft="{"tn":"K"}" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]"><span class="UFICommentBody" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]."><span id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]..[0]">If you're interested in digging into bigger books (but still focused perfect for the layman), I suggest <i>Basic Economics</i>, by Thomas Sowell. Sowell has also written <i>Applied Economics</i>, and <i>The Housing Boom and Bust</i>. They're both excellent.</span></span></span><br />
<span data-ft="{"tn":"K"}" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]"><span class="UFICommentBody" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]."><span id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]..[0]"><br /></span></span></span>
<span data-ft="{"tn":"K"}" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]"><span class="UFICommentBody" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]."><span id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]..[0]">All of these books will provide you with a very solid foundation.</span></span></span><br />
<span data-ft="{"tn":"K"}" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]"><span class="UFICommentBody" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]."><span id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]..[0]"><br /></span></span></span>
<span data-ft="{"tn":"K"}" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]"><span class="UFICommentBody" id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]."><span id=".reactRoot[27].[1][2][1]{comment10151114908751048_24130706}..[1]..[1]..[0].[0][2]..[0]">There's tons more good stuff out there, of course, but these will be enough to start with. ;)</span></span></span>Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com1tag:blogger.com,1999:blog-6041240451370394349.post-89906387771418228572012-06-19T15:25:00.001-07:002012-06-19T15:25:23.414-07:00My goalsI have already written three children's books besides The Night-Night Machine. I still need to illustrate them and format them for online publishing.<br />
<br />
Aside from those, I've written two short stories. I'm going to collaborate with an artist and turn each into a sort of visual symphony. My goal is for each story to form the basis of a book where the written word and mural-style, lush, vivid art blend together to provide a very peaceful, enjoyable and entertaining reading experience.<br />
<br />
There's no real deadline in my mind for these two books. I want to make certain they are just what I want before publishing.<br />
<br />
I also have a collection of poetry I plan on publishing before the end of the summer and three novels I'm slowly working on.<br />
<br />
Lastly, I've begun work on an economics book for the average citizen that is light on the math, easy on the theory and big on practical, real-world application and perspective.<br />
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Hopefully, before I know it, the Amazon widget at the top of my blog will feature a wide selection of work that I can be satisfied with.<br />
<br />
I truly appreciate the fact that computer and digital technology has reached a point where it makes good business sense for Amazon.com to provide opportunities for authors who do not wish to have to go through all of the stages of traditional publishing.Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-43748856306888991642012-06-18T18:28:00.003-07:002012-06-18T18:28:21.016-07:00Formatting a Children's BookThis was actually quite an adventure.<br />
<br />
Since I wanted to have full color, full page pictures with the text inserted in the blank space available on each page, I had to figure out a way to (a) get everything to fit and (b) get everything into a format that Kindle could read. It was a lot of trial and error.<br />
<br />
I used Open Office Draw and inserted scanned images of the construction paper drawings and cutouts I had made for the illustrations. Once the images were inserted and sized, I placed a 'text box' in the open space where I wanted to write that page's lines.<br />
<br />
Once I had finished the book, I needed to figure out how to transform it into one of Kindle's accepted formats.<br />
<br />
First, I tried exporting the Draw file into HTML format within a compressed folder, so I wouldn't lose the images. I could not get this to upload correctly and I could not get Open Office to export the Draw file into MS Word's format.<br />
<br />
I solved this problem by exporting the Draw file into a series of JPEG photos. I then inserted these photos in order within MS Word and uploaded the .docx file to Kindle. It worked perfectly.<br />
<br />
Now, the next book will be uploaded much faster than this one was. I probably spent four hours trying to figure out how to get everything looking right and uploaded correctly.<br />
<br />
The first time is always the most difficult, though, isn't it?Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0tag:blogger.com,1999:blog-6041240451370394349.post-74052715245117886372012-06-17T22:19:00.006-07:002012-06-17T22:19:59.436-07:00IntroHello, world. I've just begun publishing children's books and have grander plans for the future - including my first economics book. I've been told that it is a good idea to have a little nook on the Internet where potential readers may find and interact with me. So, here I am.<br />
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I look forward to whatever happens. I'm a pretty low-key individual, so my expectations are pretty pedestrian at the moment. :)Anonymoushttp://www.blogger.com/profile/12608307712583932924noreply@blogger.com0