Prices And Controls

When or anyone unilaterally decides how something should be priced, you are dictating to everyone what they can and can't do, what they can and can't buy, what they do or do not want.

Labor and material cost are far from the only inputs into the price of something at any given place and time. What people are willing to pay tells manufacturers where and where not to invest and how much or how little of it to produce. Prices dictate profits and the potential for profits is the incentive for why a person or business makes something in the first place or looks for ways to make it better or cheaper.

Capitalism, in purely economic terms, is really just an acknowledgment that there is often an investment (capital) needed in order to make something or to offer a service for sake and that those who come with the investment (capital) should reap a reward for their investment.

Investment is simply savings, delaying current buying (consumption) in the expectation of having those savings work to give you more money in the future.

Free markets require the ability to invest, i.e. capitalism, but the reverse isn't necessarily true. Simply because you are allowed to invest, doesn't mean you are participating in a free market.

Free markets are what empower people to create opportunities for themselves, not some super-governmental body dictating prices and products. Countries do not trade. People trade. Businesses trade. Stop trying to interfere with their ability to do so in the way that each one of them decides is best for *them*.

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Trade And Tariffs

For most of the first 100 years of the US, the only two major financing methods the federal government used were tariffs and, to a lesser extent, taxes on liquor. Tariff rates were generally from 5 to 10%. Imports and exports stayed fairly equal since there wasn't much in the way of foreign investment in the US (which doesn't get accounted for in the way we figure trade "deficits" today). Far harder to invest and run a business on the other side of a huge ocean that still took quite a while and involved a significant level of actual danger to cross than it is today.

Tariffs were also explicitly used as a weapon against the South, to force them to buy goods from the North instead of imports. In fact, that was one of the major arguments that led to the succession of the South and the resultant Civil War. Sorry, but no, it wasn't *all* about slavery.

No single policy acts in a vacuum. We grew despite the tariffs that were in place, not because of them. We grew because of the low level of government interference in free markets. We grew because we didn't see business as some evil or dangerous mount that needed to be ridden with jack boots and spurs.

Free trade benefits the population as a whole. Yes, some individuals get hurt, but that happens all the time for many reasons other than trade as well, whether it's new technology or processes, businesses moving from one place in the country to another, or just the changing tastes of the general public.

Yet even though all of these non-international trade changes create far more total losses for the individual businesses and employees in the nation affected by whatever changes happen, we still recognize that the nation as a whole benefits and so don't demand government stop the changes from happening (although many states have become quite predatory or cronyist in offering government goodies to attract new or keep old companies in their state).

International trade is exactly the same thing. There is no economic difference to the nation as a whole what caused the change that creates the temporary business dislocation. When a less expensive way of making a good is found, more people benefit than are harmed, albeit that the losses are more localized and easy to see, while the benefits are more diffuse and harder to pinpoint.

The ideal situation is that our government not get involved at all. It doesn't matter to the workers or final consumers what another country's policies are. They are really unimportant to a truly free trade. If another country doesn't mind harming their own citizens for the benefit of their politically well connected, that's their problem, not ours. It is not our business, as a country, to decide how other countries are run.

Any artificial change in the price or supply of any good or service, such as tariffs, forced on the economy harms it as a whole. The current free market price of any given good or service is the always moving target of finding the most efficient way to produce the most supply of what is of the most value to the most consumers at the lowest possible price. That's really the bottom line of what drives everything that happens in a free market.

Prices people are willing to pay are used to inform producers of what consumers want at any given point in time. Desire for profits drives producers to find the most efficient way to meet those desires at the lowest cost. That process is what has created the incredible world we live in today, the explosion of possibilities never even dreamed of before, raising masses of people the Earth could never even have sustained before yet to an increasing standard of living, in an amount of time that's the merest fraction of the history of the human race.

This is what freedom creates and this is what is blocked when the force of government inserts itself between what free and peaceful people want to do and what they are allowed to do. It can do nothing *but* net harm to its citizens.

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Why You Can’t Have It All

Not every desire of every person can ever be fulfilled, no matter how big an economy grows. The basic fact of essential scarcity is the bedrock of all economic thought.

That means you always have to decide what you want the most with the necessarily limited means available at any given point in time. You can't have it all.

"Solution" is the word usually used when someone asks things like "But how do we solve the problem of poverty?" or "What do we do about all these people who can't find jobs?"

As long as poverty is defined as a percentage of a certain level of income, it can never be "solved." As long as jobs are defined as doing only the work you want to do and only at the pay you think it's worth, it can never be solved.

On the other hand you can ask questions like "How can we best reduce the number of people who live in poverty through on fault of their own?" or "How can we do the best job of getting the price of homes or apartments down to where more people can afford them?"

Notice that neither of those questions imply that poverty will be completely eliminated or that everyone will be able to live anywhere they want. But those are not "solutions," those are tradeoffs.

Unintended consequences are simply secondary or tertiary effects that weren't seen or thought of at the time you take an action. There are almost always unintended consequences with any action taken. Sometimes very minor and sometimes not. But at least when actions are taken by private individuals the people who can be hurt are relatively localized and few in number. When the government does it *everyone* gets hurt.

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A Brief History Of Money

Money is a commodity that has value in and of itself. It doesn't matter if it's precious metal, shells, or even grain (although that doesn't stand the test of time - it only keeps so long). The essential characteristic of money lies in that convertibility. That it is of value to everyone, everywhere that you may want to trade with.

Currency began as simply a more convenient way to exchange goods. Instead of having to cart around all kinds of sizes and weights of money, the commodity itself was stored at a trusted warehouse (or, in most cases, a vault) and the paper was a claim payable to anyone that showed up with it at that place. As the owner of that money you paid them for this service. That's how the original banks made their profit - simply a charge for services rendered.

The more widely trusted the holder, the wider the geographic region that would accept those claims in payment. If you needed to go wider afield, you had to take care of the shipment of the actual money and banks also arranged that with trusted couriers.

Internationally gold and, to a lesser amount silver, became the standard. Gold is valued everywhere in and of itself and has a high value per weight. It is scarce, it is durable and easily divisible. All countries that had a paper currency measured it's value in terms of the amount of gold a denomination was exchangeable for. Country's currency exchange was still actually gold exchange as you could go to the central bank and actually get the gold any time you wanted.

A few hundred years ago, bankers realized that it never happened (almost never - as long as the bank remained trusted) that everyone wanted the actual gold at any point in time. That meant they could loan out notes - more notes than they had actual, physical gold to back. That was where fractional reserve banking started. It started out small. Just a little more than they actually had. After all, you needed to make sure people believed that anyone and everyone could actually get their gold whenever they wanted or the whole scheme would fall apart. In this way, the banks created money out of thin air. They have 100 tons of gold in their vaults, but 200 tons worth of notes in circulation.

The danger was that if people thought their savings were at risk, they would all go to pull it out ... a "run" on the bank. Generally bigger banks would bail out smaller ones if it they thought is was financially sound, but, for example, someone started a rumor that got out of hand. Otherwise the whole scheme could go kaput. As long as it remained private, banking crises were usually localized and/or of short duration.

Then governments started sticking their fingers in the pie. Previously they only minted metal coins. When they devalued their coinage, they alloyed it. The more alloy they mixed in, the less it was actually worth. Essentially the same process as inflation but far easier for the average person to understand.

But governments quickly learned to love central banks. Why let private business get all the rewards? It lets them play with the money supply and rake some of it off the top without it being very noticeable, whether that's just a little alloy mixed in or a small increase in the number of currency notes on their reserves. Then, under the guise of "protecting" their citizens, they took complete control.

Central banks now set the amount of reserves banks were required to keep, unconstrained by any business considerations. They would act as the lender of last resort, not other banks who actually risked their own depositors' money when they bailed another bank out. They thought they could create perpetual prosperity by continually expanding the "money" supply, loaning it out left and right. That conceit, along with the trade wars of the late 20's after the war triggered the worldwide Great Depression. In the US they then made it worse by over-correcting in the other direction and drastically reducing the money supply instead of their proclaimed role of being the lender of last resort to shore troubled banks up. The other banks had been told they shouldn't do that any more, the government would take care of it and they should leave it all up to them.

Then things went from bad to worse.

In 1933, FDR stopped allowing currency to be convertible into gold inside the US as a measure to fight the depression, but it was still convertible internationally at a fixed $35/oz. That was a significant increase over the prevailing rate of about $20.67/oz on the open market, instantly making the US dollar "worth" more as far as current accounts went. The idea was that this boost would stop the deflation that was occurring because of all the currency the FED was pulling out of the market and it did do that, at least for a time. Over a few years the prices adjusted and levelled back out at the same amount of work got you the same goods as before.

Then towards the end of WWII, with most of the industrialized world in ruins, one of the first issues the nascent UN dealt with was the value of currencies. As the only major untouched industrial base, and with the US preparing to bankroll a lot of the rebuilding, a meeting was held in Bretton Woods, NH in 1944. At that meeting the allied powers decided to peg everything to the dollar instead of gold itself. Remember that gold was still 100% convertible into gold, which is where the saying "a dollar is as good as gold" came from. So at that point we still were dealing with worldwide currency that could be redeemed for gold at any time. That meant that for most of the world you no longer had to worry about transferring the physical gold, just the currency.

Then came the 60's. The Great Society and the Vietnam War. The US was deficit spending at levels never seen before in what was still, essentially, peacetime. Other countries started to wonder if we truly had enough gold to cover all the dollars that were being spent. Some of them started grabbing the gold - the actual physical gold, which, under Bretton Woods they always had the right to do.

August 15, 1971. Nixon signed a "temporary" executive order ending the ability for *anyone* to redeem dollars for the actual gold. That's when we really went off the gold standard. That's when the dollar became a fiat currency, a piece of paper backed by nothing. The subsequent wage and price freezes, the OPEC refusal to sell oil just for dollars causing the energy crisis, as well as the high inflation and interest rates of the 70's were all results of that as well as the regular, and much bigger than previously, economic roller coaster the world has been on ever since.

While most currencies are still "priced" in terms of dollars, nothing is fixed any more. Everything floats. There has been talk, and not just talk, but serious proposals to end the centrality of the dollar and replace it with a "basket" of several countries' currencies. That way the world isn't tied so closely to the US economy and what happens here doesn't affect everyone else as quickly and completely as it has since '44.

When that happens, and I expect it to within the next few years, the dollar won't be the almighty paper any more. It won't be "as good as" anything. Treasury bonds will drop in value like a rock. We won't be able to get all the foreign financing for our government debts (and remember, those debts are for *government* spending, not for trade purposes, no matter how many times protectionists try to pass it off as such). *That* is when we start learning the lesson the hard way that the dollar is actually *only* worth the goods it can be exchanged for.

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Guess What? Men And Women Are Different!

I've always been the girl and then woman who did and wanted to do things that we weren't supposed to do. I've loved science and mechanics my whole life. Never had a Barbie doll and my favorite present ever was the optics kit I got one year for a Christmas present. The girl who wanted to take shop (but wasn't allowed), who wanted to join the rocketry club (wasn't allowed to do that either) and learn to run the big carbon arc 35mm projector (that I got - I had to do all the secretarial work to get them to agree, but I still got to do it). I had to get to the mailbox first so I could get the pamphlets I sent for from the AEC (the forerunner to today's NRC) because Mom would throw them out if she found them.

Later I had no problem doing roofing (although I couldn't get on some jobs because the men thought it was bad luck and wouldn't go up if I was on the crew) or other casual labor. I could unload up to 200 pounds of dog food bags at a time. I learned to drive an 18 wheeler. I was in the second group of women ever hired by Western Electric as installers. Then when I went back to school I made my own energy engineering degree (since they weren't available then) by doing a concurrent double major in electrical and mechanical engineering. It wasn't unusual for me to be the only woman in the class.

But even with all that background doing what was then rare for women, I've always been PO'ed when I'd hear the later feminists say that there's no difference between men and women. There are differences. Innate differences. We can go beyond them, but that doesn't mean they don't exist.

When a woman is pregnant, our balance is all off. When a woman has a child at suckle it's hard to keep a baby quiet in order to hunt. Women are more dependant on others at various times for pure survival. Some of those traits have been genetically selected for in terms of species survival.

None of that has anything to do with the abilities of any particular woman at any given time outside of dealing with babies, but the fact is, we do have different strengths and weaknesses.

A strong woman can be stronger than most men, but the strongest man is always going to be stronger than the strongest woman. Our center of balance is in a different region of our bodies. That's why women playing basketball always seem a bit awkward. We don't move the same and basketball happens to be a sport where those differences become noticeable. Men are better runners, especially sprints. But for long slow travel, pick a woman. We can keep going longer. Our brains are even wired differently. The brain centers associated with words, emotions, and actions get activated in different orders. We have a higher pain tolerance ... maybe to help us get through delivery. I was in labor for 38 hours. And I can tell you that it HURTS!

Acknowledging those facts isn't misogynistic, in and of itself. Nor is it sexist. We are not blank slates at birth.

No matter how hard the SJWs try to change it, most girls still prefer dolls and most boys still prefer trucks.

The fact that women are assumed to be the ones who should, by default, keep and raise the children is rooted in biology, but biology hasn't caught up with today's technology that makes anything outside of those last few months of pregnancy almost irrelevant to actual child rearing. They learn fast enough that it doesn't matter who's holding the bottle (unless you're breast feeding), they get fed.

Social changes that broad and basic, especially when there are inherent genetic tendencies involved, take a long time to work their way through. It's not just a matter of writing a piece of legislation and expecting everything to change overnight or even in just a couple of years.

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Climate Change – The Actual Science

The climate change debate really isn't about the basic science of greenhouse gases. Just like physical actions can cause a mechanical system to vibrate, the frequencies that the molecular bonds of CO₂ can absorb and vibrate to are in the infrared spectrum, what we measure as heat. No scientist argues that.

All else being held equal, under laboratory conditions, each doubling of the CO₂ concentration in a gaseous mix under infrared light spectrum (the part of the spectrum that is felt as heat) will increase the temperature of that gaseous mix by about 1.1°C (which is about 2°F). That would mean that in order to go up by that 1.1°C the concentration would have to go from the approximately 280 ppm (parts per million) of the 1800s to 560 ppm. To go up another 1.1°C we would have to double that, to 1120 ppm. For a third 1.1°C increase it would take going up to 2240 ppm. We're currently at 400 ppm, less than halfway to even a first doubling.

The disagreement is actually about the multipliers that fuel the "catastrophic" story line. Because all else in the chaotic system that is a worldwide climate system is not held equal. Any initial change creates secondary changes. The question is what those secondary changes are and do they, on balance, tend to increase the temperature further or to reduce the overall temperature changes and by how much.

The catastrophe predictors use a multiplier as much as 6 or more, meaning that each doubling would make the temperature go up by 6.6°C. Even the IPCC (The UN's Intergovernmental Panel on Climate Change) has reduced the low end of their expected targets to a multiplier of only 1.5. However, actual readings of temperature suggest an even lower multiplier because what's being measured is lower than 95%+ of the all various computer models' projections.

While there is consensus (and even if there weren't it wouldn't matter - science is what it is and scientists make mistakes regularly) on the basic science of greenhouse gases, there is *no* consensus on the magnitude of the feedback mechanisms or even what all the feedbacks are. We're continually finding new ones. We're also continually finding new cycles and other things that affect the climate in general, everything from the sun to cosmic rays, ocean currents and many others that also come into play in the net climate at any given time.

We can't even explain much of the known climatic changes in the past. It's the height of hubris to say we know what it will be 100 years from now. We can't even predict the totally human created stock market using computers. How on Earth (pun intended) can we predict the far more chaotic changes in a global climate?

But by the same token, to deny basic physics isn't good either. Yes, CO₂ does affect atmospheric temperature. But the net human and natural consequences of those changes aren't known. We know it improves some things, particularly plant growth and the fact that more people die from cold related illnesses and injuries than heat related. Others it may make worse such as the rate of sea level rise (the sea level has been rising since the last ice age ended - it's just somewhat faster now).

In the even longer range, we may actually *want* to do everything we can to increase the average temperature as we approach the end of this interglacial period. We're already past the time period that some of them have lasted before cooling to a new ice age again. 

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In Defense Of Globalization

Different countries have different comparative economic advantages in making or creating different goods. Everyone benefits from getting the goods and services you need or want at the lowest cost and that’s what globalization is all about.

A country doesn’t benefit from blocking trade and making everything within its borders any more than a single household would benefit from making everything they have off their own land. In both cases, trying to make for yourself what others can make cheaper results in lower standards of living, whereas if you trade some of what you do best for some of what someone else does best, then you both win.

It’s basic economics.

That doesn’t mean no one ever loses for a period in time, but that happens all the time anyway. Manufacturing of a given item in a different location has the same effect on jobs as does a new technology for making it easier, cheaper or making a less expensive substitute that fills the same need. It frees up manpower (and mindpower) to use in more productive activities.

I don’t think much of anyone wants to go back to a culture where it took 90+% of the population living on farms and hunting to feed everyone. I don’t think anyone wants to go back to when horsepower was literally that … actual horses. I don’t think anyone wants to go back to a time when thread or yarn was made by hand and then woven by hand into cloth which was then sewn by hand to make clothes.

Yet each of those changes, and millions more like them, resulted in loss of jobs and sometimes entire industries. Yet the overall net benefit is exactly the same as when jobs simply move to a new place where it’s cheaper to make them.

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A Living Wage – Why Those Evil, Greedy Corporations Just Won’t Pay It

I get so tired of hearing this complaint.

A Living Wage?

My first question is, just what defines a living wage? Considering there are hundreds of millions of people living (barely surviving, but living) on less than $1 a day, I’d say just about any wage you earn in any developed country is a living wage.

Then the question becomes then what standard of living constitutes a “living wage” here? Let’s boost it to enough food to not be malnourished, a roof over your head and clothes to wear to fit the climate. If you’re willing to do what you need to do, even a minimal part time job covers that with money left over.

What’s next? A car? A private apartment? A cell phone? Air conditioning? Cable? Video games? Name brand sneakers? Who decides? Heck, I’ve only got three of those.

Oh, those Greedy Corporations

The next part is if a particular business is even able to pay what someone considers to be a living wage. While a business can pay people significantly less than they’re worth for a short while, especially in a tight job market, but what they can’t do, ever, is to keep paying people more than they are worth. An employee has to contribute more to the bottom line of a business than the total costs of hiring them.

If an employee makes the company $10 for every hour he works and you raise the minimum wage to $15 an hour, guess what … he’s out of a job, no matter how much he needs it. A business can’t afford it to be any other way and still stay in business. That’s not being a greedy corporation, it a business necessity.
If you increase the costs of having an employee by adding in mandates of any kind, same thing. An employee HAS to be worth more than they cost, whether that cost shows up directly on a paycheck or not.

And It Keeps Getting Worse

That’s what ALL externally imposed costs on employers do. They price people out of jobs by making it more expensive to hire them. They don’t allow a person to work cut rate while learning how to do a job, so they never get to learn what they need to get a better job, if they can get one at all. It drives people out of business or they never start one to begin with. That means even fewer jobs.

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The Confederate Constitution Actually Had A Lot Going For It

Everyone knows that the Confederacy was that evil part of the country that saw no problem with owning people. But it wasn't all bad, especially when it came to their Constitution.

If you read the Confederate Constitution, although most of it is copied verbatim, there are several areas that differ significantly from ours. Slavery, of course, was made legal subject to the same limitations on importation of any new slaves. But a separation of State and Economy got the most new changes and limitations on the government.

It explicitly banned their federal government from favoring any branch of industry in any way via duties or taxes on imports.

It required a 2/3 vote for approval of federal appropriations outside of a limited list of purposes as well as for taxes or duties on exports.

It required appropriations to have specific line item amounts for specific purposes and banned any additional payments to anyone after the initial contract had been made or services rendered.

It gave the President a line item veto on expenditures.

It most forcefully banned Congress from appropriating any money for the facilitation of commerce aside from a very few specific cases involving water transportations such as buoys, lighthouses and dredging, and, even in those, duties were to be laid on the navigation that got those improvements until they were paid for.

It made the Post Office pay for itself after the first two years.

It also made a Constitutional Convention easier to call for, requiring only three states instead of our 3/4. It limited the number of people any one Representative in the House could represent to 50,000. It gave the President the power to remove any department head or anyone in the diplomatic service. It also incorporated the Bill of Rights almost verbatim into the Constitution itself.

One of my favorites was getting rid of general omnibus bills: "Every law, or resolution having the force of law, shall relate to but one subject, and that shall be expressed in the title."

Except, of course, for the issue of slavery, I approve of almost all of them. They were almost all additional and explicit limitations on the power of the government in areas that our Constitution over the previous 70 years was found to be lacking in actual practice. Of all of the changes, only the slavery one was changed in ours.

Lincoln's issue, the succession itself, has never been addressed. There never was any ban on it. In fact Texas, which used to be an independent nation on its own, explicitly wrote into the agreement when it joined the US that it reserved the right to secede.

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Market Insanity

Speculative bubbles have been around for a long time. Whether it's a single item or a broad generality like real estate, they have the seeming power to make your wildest dreams come true or to destroy entire economies.

The Dutch Tulip Mania was the first recorded speculative bubble back in the late 1600's. Tulips were highly prized flowers and the bulbs weren't exactly cheap. But a group of investors saw them as a way to make money - big money. They started bidding prices up and up and tempting more people into the bubble, until a single bulb could be "worth" several years of actual wages.
 
Then one day a few people finally said "This is crazy. They're only flowers. Beautiful flowers, but just flowers." Over a matter of a few weeks the prices plummeted and lost 95+% of their "value" and wiped out the entire life savings of a lot of very foolish people.

Bubbles have been blowing up on a regular basis for quite a while now. The dot coms and real estate are only the two most recent to pop.

But they're back. All those trillions of dollars the FED has been pumping into the economy since 2008 haven't been invested in actual productive pursuits, but into speculative investments. Propping up companies that should have gone under (bail outs anyone?). Starting of companies that should never have been started (think Solyndra). Projects that never got off the ground. Real estate again. Dot com again. Multi billion dollar buyouts. Lusting after the Next Big Thing.

I don't expect a pop in the next few months, but I'd be surprised if it was more than a couple of years away and this one could be a lot bigger than the last. A whole lot of paper wealth is going to disappear and there's even more dominos lined up to fall over this time. Time to be thinking about battening down your financial hatches.

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