Economics 101

 

The most nervous thing on the planet is money.  Investments are made upon the basis of fear (losing what you’ve got) and greed (getting more of what you’ve got).  Those two emotions guide the path of all money on the planet with the occasional exception of the altruistic person.  When thinking of the economy, consider it as an engine, and money as the lubricant, and the forward (or backward) motion as the purpose and function of the engine.

Economics is much more than money though.  It’s a combination of money, psychology, desire, needs, and government working within an “economic system”.  All economic decisions are made by individuals, and an economic system will work under any form of government.  Governments make laws that force individuals to act in a way that may be unnatural, or unwise in order to favor either the government, or those whom the government favors.  A tax deduction for paying property tax helps favor the real estate industry for example.  A tax deduction for interest expense on a mortgage favors the banking industry.  In one case, paying taxes becomes a theoretical advantage.  In the other example, being in debt becomes a theoretical advantage.  Those are a couple of examples of government’s involvement in the economy.

In reality, nobody wants to pay tax, and tax avoidance or evasion is the object of most, if not all people.  The former of course is legal and the latter is illegal.  The bottom line is that self-interest is the primary motivating factor for all economic decisions.  Each decision is weighed by the individual in comparison to a multitude of considerations.

I want to go on a vacation, and the one I want to go on costs $5,000.  If I go on vacation, that will take all of my savings, and then I won’t be able to get new tires for my car which desperately needs them.  Therefore, I may have to go on a less expensive vacation for $4,000.  But, wait; my son is going to college this fall, and I need to contribute $2,000 for his tuition, so I better reevaluate the vacation, and only spend $2,000.  Now that I think of it, this toothache the dentist told me was an abscess, is going to cost me $1,000 to take care of the problem.  So, now we’re down to a $1,000 vacation, and that’s not much of a vacation, so I think I’ll just save the balance for a rainy day, and save up some more money for a nice vacation.  That’s an example of needs and desires influencing economic decisions.  Had I acted on my first impulse and gone on the nice vacation I wanted to, I would now be grappling with financial problems, and might have to borrow money and go into debt to take care of all of the necessities.

Another government involvement in the economy is money.  Money is not well understood by the general public, and the self-interested factions in government and banking have a tendency to characterize it in ways that serve their purposes.  For the benefit of this article, let’s give money some distinct properties and characteristics in order to better understand it.  Money first and foremost must be a medium of exchange that is commonly recognized and accepted by a community or nation.  A medium of exchange simply means I give you this, and you give me that.

Next, money must be durable.  Historically, money has been salt which deteriorates fairly quickly.  It’s also been sea shells, but they break easily.  For over 6,000 years, gold and silver have been recognized as money.  There are available gold coins that are several thousand years old, and they are still the same in gold content and form.  Gold and silver are declared to be the only money in the Constitution of the United States.

Another very important aspect to money is that it must be hard to come by and limited in availability.  Obviously, things like salt are pretty much unlimited and easy to come by. Gold and silver are hard to come by.  They come with a lot of sweat, are hard to find and limited in supply.  If sand were money, everyone could be rich, but because it’s so plentiful, it would have little value.  The U.S. dollar has become much like sand as it is printed without restraint or limit.  Only 3% or all of the money in America has actually been printed – the rest is a digital entry just like crypto currencies.  What happens if too many people want to close their savings accounts?  It’s called a bank run, and that’s what happened in the great depression of the 1930’s and then again on a smaller and more local basis with the Indy Mac mortgage bank in California in 2008.  Bankers are trying to push for a cashless society in order to overcome that dilemma.  Without cash, people will also be without privacy and freedom.

Divisibility is a critical factor.  Sea shells can be divisible, although not easily or with any uniformity.  On the other hand, you can obtain gold in denominations of 1 gram, 1/10 of an ounce, 1/4, 1/2 and 1 oz. coins plus bars in different sizes from 1 oz. to 100 lbs.  In the times of Solomon in the Bible, there were gold and silver talents, and they weighed 110 lbs.  So, gold and silver are very divisible.

One of the most critical factors of money is a “store of value”.  This is where paper money runs into a lot of trouble.  Under our Constitution, money was clearly defined and there was a specific weight of gold and silver attached to the value of a dollar.  There’s no problem with paper money as long as it is consistently valued and may be exchanged at any time for the actual gold and silver.  For a long time, you could do that in America, but then President Franklin D. Roosevelt outlawed gold ownership.  In 1964 we had our last year of silver backed money, and in the early 1970’s, President Nixon closed the gold window to nations around the world who thought the dollar was “as good as gold”.  They found out the hard way that America was a fraud, and that they’d have to accept dollars with no gold backing.  That’s some of the fear and greed that goes with money.

Lastly, money must be something you can control by holding it in your hand.  This is the weak point for crypto-currencies such as Bitcoin and Etherium for two.  You cannot hold a bitcoin in your hand because it is floating on little electric impulses in cyber space.  Not only that, but Bitcoin, although promised to be limited in availability cannot be documented as such.  Additionally, Bitcoin relies upon electricity and computers working.  It is easily divisible, but so far has not demonstrated a track record for being a “store of value”.

Economics is a system.  A system is an organized function.  How is an economy organized?  If you’re a central banker or a government bureaucrat, or a dictator, then it’s organized according to your idea of what is best.  If, on the other hand, an economy is not formally organized in that way, people act freely to decide what they will do in the way of production, labor, saving and spending.  This is called free enterprise, or just plain freedom.

Free enterprise has never fully existed in America’s history, although prior to the establishment of the Federal Reserve in 1913, free enterprise outweighed regulations and bureaucracies.  If the government can tax you to pay for a standing army, then you will have war which is destructive of all that is produced; not to mention human lives lost that would have led to more production.  If the government’s taxation becomes too great, and they try to do everything for people instead of letting people do for themselves that for which they themselves are capable, then that produces nothing but sloth and laziness.  Additionally, when the government takes by force from one person, and gives to another who did not produce that wealth, then that discourages the person from whom something they produced was taken.  If they become too discouraged, then they will either reduce or stop their production.

What is production?  It is the fruit of a man’s labor.  Man cuts down a tree and builds a house.  Now he has shelter from the elements, and a degree of safety and comfort that allows him to refresh himself and generate more energy to employ for the purpose of growing a crop.  The crop feeds the man, and what he has left over he can sell to, or barter with, others so that he has an income of goods, services or money.  This will allow the man to prosper and build wealth for himself and others.  It will allow the man to be at ease in his old age when he has neither the strength nor the desire to go out into the elements and work hard.  He has built wealth to sustain himself in his old age, and if he has built up enough wealth, then he can pass on to his family and/or friends an inheritance of that wealth.

Now, let’s come back to taxes.  In their feeble wisdom and greed, certain men in government have decided, that it’s not “fair” for someone to have so much wealth, and not “fair” for a child of that someone to receive all of that wealth without having earned it themselves.  So they came up with the idea of inheritance taxes.  When the man who worked hard dies, then the government takes 50% of the wealth the man worked hard for, and leaves the remainder for the children of the man.  In essence, the government has now become a partner of the man who worked hard and built his wealth, but the government did nothing to build that wealth or deserve to take it.

Now, comes to the fore some of the psychology of the economy.  If you are the man who works hard, and you know that 50% of all you build up is going to be taken from you when you die, what do you start to think, and/or worry about?  Obviously, you try to preserve that wealth, or you spend it before you die.  If you spend it, then there’s nothing left for your children, so then you’re confronted with either giving it to your children before you die, of you make legal arrangements to preserve your wealth after you die.  The result is “trusts”.  Trusts are a legal entity that protects inherited wealth.  It requires attorneys to set them up, and politicians to regulate them with laws.  These two add great expense to the cost of living which reduces the amount of money the hardworking man has to invest, save, loan, give to charity, church or to leave as an inheritance etc.

The point in all of this is that every action brings another action or reaction which affects the way people think and act.  No dictator; no government, no wise man will ever be able to anticipate all of the individual decisions with which hard working people are confronted let alone how they will decide and what actions they will take.  Therefore, the dictators and governments make more and more draconian laws limiting the freedom to choose and act with the hard-won wealth people have earned or obtained.  In other words, the push people through an economic funnel to achieve their desired ends.

At some point in time, the tyranny (from the Greek word tyranos – Godless rule) becomes so bad that the people either give up or fight back.  America’s history from 1776 and the War For Independence showed that people were willing and able to fight back and did so successfully.  And, for a short while until the the mid-1800’s when the bankers started to get their clutches into America, there was a true freedom of economy.  Since then, it’s been more and more restrictions upon freedom and property rights, until now, there is nothing of significance over which people can control their lives and property.

As an example; today, if you buy a house and pay cash for it, you don’t own it, but you have to pay rent to the government in the form of property taxes.  If you fail to pay those taxes, then the government can legally seize your house and sell it to the highest bidder and give you the proceeds less the taxes and penalties you owed.  If you own an automobile, then you may not drive it on the roads unless you pay for a license plate which runs on average 2% of the purchase price of the vehicle.  If you want to start a business, you also have to get permission in the form of a permit or license to operate your business.  This can keep, or discourage, hardworking people from entering into business.

Additionally, when running a business, there are the requirements of how to treat the environment, employees (withholding taxes, workman’s comp, health insurance etc.) business taxes and all of this adds to the cost of running the business and therefore increases the cost of goods produced or services rendered.  You, the consumer pay for all of that, and that leaves you with less money save or to buy other goods and services.  In a debt based economy which is what America has, there is no incentive to save – only to spend, and that weakens an economy.  When you can pay cash to do your business, you have freedom.  When you have to borrow, then you have sold your freedom  People in America today are actually taking three years to pay for a mattress to sleep on, and seven years for a car to drive.

This is only a synopsis of economic thought, and should provide a limited understanding of how things are working, or not working as the case may be, in America today.  Consider in your own life how you proceed to make decisions of an economic nature.  Consider when you vote how that will affect others.

One example of how voting has a potentially very negative effect is when a bond issue is to be voted up or down.  Bond = debt.  When the voters pass a bond issue, they are indebting everyone in their community including those who don’t want to be indebted.  The saying holds true that the borrower is slave to the lender.   When debt is passed, then the debt holder has a lien on your home, your infrastructure, your government buildings, and obviously, the politicians that run things – or do they run things?  Yes, sadly, the bankers have taken over and are running everything, and the bankers and Wall Street want to bankrupt everyone so they can get all of the property for themselves.  Debts that don’t get paid are foreclosed upon.  Therefore, a failure to pay the debt on a bond issue will likely end up causing a tax increase which again will affect people’s economic decisions.  In this writer’s opinion, Americans would do well to throw off the yoke of tyranny in the form of debt and unnecessary and unfair taxation.

Denver just passed 7 bond issues for nearly a billion dollars  See previous post:

DENVER MAYOR HANCOCK PIMPS FOR WALL STREET. HOW DOES THAT AFFECT YOU IN NEW JERSEY, OR ARIZONA, OR TENNESSEE ETC.?

Pen

Pensamiento Peligroso writes the truth as he sees it, and if it upsets you, then it makes you think!

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