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A mountain lake in British Columbia

economics102

That evil man destroying people and resources

The day after the American election the skies around our place were overcast but all indications were that the sun rose and set as normal.  The question now is what sort of economic policies Donald Trump will implement.  Expect to see more resource exploitation, legislation and policies to restrict competition and more subsidies to business.  His economic policies will probably differ from Hillary’s mostly by degree.  Some people and the environment will probably suffer.

The most important thing to keep in mind is that he is unlikely to be able to do all the things he wants. About half of Americans did not want him to be president and most of these will be against at least some of his policies.  Many of those who voted for him will have conflicting vested interests and he will have to make some tough decisions.

Being president of the United States requires two skill sets – campaigning and governing. Trump has proven himself a master of the first set and now has to prove himself as a governor.  A lot of his campaign was based on emotions and he demonstrated an excellent understanding of people and their emotions.   His win must have been a blow for people who are politically correct. One of the buttons he pushed was sexuality.  He demonstrated that at least half of those who voted have not been suckered by the sophistry of feminism.  I wonder how many women had fantasies in which they were the object of his attentions and how many went on to vote for him.

His emotional campaign could become a big problem for him as many people will feel disappointed if he can not or will not keep promises.

As this is written Trump’s economic policies are mostly unstated but he prides himself on being a businessman so we can expect America to be open for business and we can expect policies which will allow a few people to make lots of money by exploiting other people and resources.  But then this is the history of North America and most of the world.

This writer believes our current economic problems are with the available energy and mineral resources.  Yes, there are lots of these still in the crust of the earth.  But we have “cherry picked” the most accessible and those that are left require so much energy their value is limited.  As not many people believe this, or care, we can expect the new president to encourage the exploitation of what is left, even those that are in parks or other reserves.  The consequences of this policy will be to bring forward the timing of a major economic collapse.

We boast we live in a market economy based on competition but a lot of economic legislation restricts competition so business people can make profits.  If we had perfect competition there would be no profits.  There may be little room for more legislation to restrict competition but if business people can think up some we can expect President Trump to be sympathetic.  He has already indicated he will restrict trade.

Us Canadians sometimes talk about corporate welfare bums who thrive on government subsidies.  Americans are probably already familiar with the concept and the new government will probably continue and increase the trend  No doubt some business people will be claiming a need for subsidies to extract the more difficult energy and mineral deposits.

I was disappointed rather than surprised with the election results because I fear a major economic collapse.  Also I suspect Mrs. Clinton would have followed similar economic policies even if not as blatantly.  We are in the same ship with the same storms and neither is likely to even try to get into a different sea.

Regulating those evil payday lenders

Here is a link to an article from the Mises Institute opposing regulations for the American payday lending industry.

This simple proposal to regulate short-term lending raises important questions about how we treat poor people, about the role of money in our economy and how we regulate business activity.

This writer believes we should have a collective responsibility to ensure every one has the opportunity for the same standard of living as most other people.  Probably the best way to meet this responsibility would be a universal basic income scheme.  Such a program would not stop everyone from mismanaging their finances but it should eliminate the need for a lot of short-term credit.

Money can be an instrument of exploitation and is based on the debt created when banks make loans.  Debt is a path to slavery, especially for poor people.

We need a radical revision of the way in which we create money.  We treat money as a commodity which has its own intrinsic  value.  We would be better to treat money as a tool to facilitate the exchange of goods and services.  As a tool rather than a commodity there would be no need for interest.  Also the total amount of money available needs to be flexible up and down as the quantity of goods and services we need to exchange expands or retracts.  This guy has written extensively on this topic on his weblog and in his book.

As much as possibly economic forces, competition, should be used to regulate business activity. The more competition the fewer profits and the less need for regulation.  Regulations tend to restrict competition, allow greater profits and increase the demand for more regulations.

This writer is not enthusiastic about supporting the payday loan industry but does recognize that in our society there is a need for short-term credit.  I also believe there is a need to reform our financial system and the reforms could reduce the need for credit from all of us including the poor.

Economic problems: Labour, capital – and resources

How can we understand what is happening to the economy if some of the basic principles are incomplete.  I am thinking of the idea that there are two factors of production – labour and capital.  I believe we also have to take into consideration the resource base.

This note was prompted by an article on Bloomberb  by Satyajit Das titled Productivity Won’t Save the World in which the focus of the analysis is labour and capital.  I do not know the origin of this idea but I understand Karl Marx promoted it. Neither a shortage of labour or a shortage of capital are satisfactory explanations for current economic problems.  There are a lot unemployed or underemployed people  and there is no shortage of bank credit which makes up most of the capital we need.

It seems current economists sometimes give lip service to the concept of scarce resources and then assume we have available unlimited energy and mineral resources.  This writer believes current economic problems are because we have used up the most easily accessible resources.  Yes, there are lots of energy and minerals on this planet but the cost of extracting them reduces their value.  It is little wonder the economy is going down.

The focus on labour and capital is convenient for those who want government to control the economy.

Mr. Das starts his article with the old line that Thomas Malthus was wrong because we have survived more than 200 years since he made his dire prediction and then proceeds to point out it may now be coming true as increases in productivity are declining.  Some years ago this writer took an industrial first aid course which was focused on a written and practical exam.  “If the examiner asks if your patient requires rapid transport to hospital,” said the instructor, “an appropriate answer would be ‘not yet’ to show that you are monitoring the situation.”

Since  Malthus made his forecast other people have warned of problems with the resource base and so for they have not happened.  The lesson from the first aid instructor is valid here too.  Not yet.

Why we should be sceptical of economic data

The following was posted as a comment on Paul Krugman’s blog on distrust of data.

I am one of those who distrust economic data because I see two problems with it.  One is that I do not always agree with the economic theory upon which data collection is based and the other is the difficulty in accurately and totally counting economic activity.

There are a great variety of economic theories and date collection represents the theory of the collectors which may or not be correct.  For example, money is usually defined as currency in ciruclation and bank deposits with several definitions depending upon what deposits are included.  I prefer to think of money as a tool to facilitate the exchange of goods and services.  How does one count or measure a tool?

Counting economic activity is another problem because it can only be recorded if there is a monetary exchange.  How do you measure housework or the many small things we do for each other.

When I worked as a journalist I realized there are two types of figures.  One we photograph and use to sell newspapers and the other put things into perspective.

Health care – a complex issue

The provision of health care in contemporary society is almost as complex as the human body.  As the economy continues its decline health care will probably become an even more emotional and difficult issue.

There are three things that make health care complicated.  The consequences of poor health are generally pain and discomfort, a lot of us expect the government to take responsibility for our well-being and there are lots of other claims on scarce resources..

We all know that eventually we are going to die, but that does not stop most of us from trying to prolong life as much as possible, even if it means living in pain or as vegetables.   Some years ago The Economist stated in an article that 80 per cent of health care spending is in the last six months of life.  If this was true, if it is still true, then there is a lot of potential to reduce health care spending without sacrificing much human enjoyment of life.  But how is one to make the decisions to terminate health care. One has to note doctor assisted suicide is becoming more prevalent.

Medical  care is ideal for insurance although who should run it is open for debate.  We never know when we may face a medical crisis which could bankrupt us.  Sharing the risk makes a lot of sense.  A problem with most insurance schemes is some people have higher risks than others.  We all have to cope with the stresses of living and sometime the coping mechanisms are detrimental to our health and increase the risk we will need medical attention.  To what extent should we be responsible for other people’s lifestyle issues?  There may be no satisfactory answer to that question.  Maybe insurance should be for people with equal risks.  For example people who smoke could be in one insurance pool.  That sounds like a can of worms.

Some people believe governments are better at providing service than private businesses as they do not have the profit motive.  I disagree because there are no profits when one has a truly competitive market and because people in government have lots of other interests which override the interests of their customers – like staying in power.  I believe the best way for health care would be private coverage with lots of competition.  Governments can ensure everyone is covered by making it mandatory.

Health care is further complicated as it involves the allocation of resources.  Most of us make a variety of demands upon the resources available to us.  As well as health care we want education,  housing, defense, environmental protection, vacations, libraries, entertainment and cultural activities.  All of these compete for resources with help of powerful lobby/marketing groups.  As a lot of us expect government to help with some of these, governments have difficult decisions to make.  This writer would prefer most of these to be provided via competitive markets so that most of the decisions could be made by individuals.  A guaranteed income scheme would ensure everyone has the opportunity for the same standard of living as most other people.

Health care is a highly emotional issue which touches on human existence.  This writer tries to live a balanced life – some things which are good for my health and some things which are less good.  When my turn comes I hope I will be able to accept it gratefully.

Exporting back to economic growth

Some people give lip service to the idea that economies can export their way back to growth. It is lip service because it is not practical.

The idea is that if the local economy is sluggish, we can increase output by selling more to others.  There are two problems with this. The downturn is world-wide and it is going to be very difficult to find foreigners with spare cash.  The second problem is that trade has to be a two-way street.  Increased sales will have to be matched with increased purchases.

Free trade is based on the law of comparative advantage which states that two countries will produce more if they specialize in items at which they are most efficient and trade even if the other country is more efficient at the items they are not producing.  This is usually interpreted to mean total output will increase but I think it could also mean more efficient production leaving more time for other activities such as leisure.

The big problem in implementing free trade is making the adjustments as some people will lose their employment and have to make changes.  Most of us most of the time, think and act in our own short-term interests.  Most economists are in favour of free trade but I have never heard it suggested that economic advice should be included and outsourced to another country.  If we really wanted to try free trade the best way would be for a country to do it unilaterally.  We should remove all subsidies and other barriers to imports and not worry about what other countries do.  If they want to support our consumption, we should not object.

This guy figures the major economic issue facing the world today is that we have used up the most easily accessible energy and mineral resources  Yes, there are lots left but they are so difficult and expensive to extract that they are probably not useful to us.  The result is that we are heading into a prolonged period of economic decline.

If this is true then trying to increase production will consume the remaining resources even faster and will bring forward a major economic collapse.  The way to deal with the crisis is an orderly reduction of production and standards of living.  Not likely to happen.

More likely people will blame Brexit and the results of the U.S. election for continued economic problems.

What ever happens and whatever the reason it appears we are in for an extended time of economic decline.  What we most need is clear and realistic thinking about economic issues.  What we least need is desperate attempts to return to growth and scapegoats.

Emotions and denial in the U.S. election

Some of us were raised to believe elections should involve a rational discussion of issues and voting for the candidate which best represents our point of view.  The current U.S. election appears to ignore this tradition and be based mostly on emotion and denial.

I believe the major economic issue facing the world today is that we have used up the most easily accessible energy and mineral resources  Yes, there are lots left but they are so difficult and expensive to extract that they are probably not useful to us.  The result is that we are heading into a prolonged period of economic decline.

Lots of people recognize we are experiencing some serious economic problems although very few understand the problem or agree with the above explanation.  Too many people, especially economists and politicians believe  with the right policies we will soon return to economic growth.

From where this blogger lives, about 200 miles north of the Canada-United States border, it appears one of the candidates is basing his campaign mostly on a strong appeal to emotions, especially fear.  This is a problem as generally emotions overrule rationality.  All the rules of managing an election and predicting its results are out the window. Rational responses to outrageous statements are meaningless to those swayed be emotion.

The outcome of this election is very uncertain.  Most if not all writers have biases even if they think they are being objective.  Therefore we need to be careful in evaluating analysis of this election.  A lot of what is being written many be wishful thinking.

The other side of this election is based on denial that there is an economic problem.  They want us to have faith that she will be able to solve impossible economic problems.

This guy has written a book about how to adapt to a down economy.  (See the top of this weblog.) It will be difficult and a lot of people will have to accept a lower standard of living.  The fear is justified.

Whoever wins this election the economic problems will still be there along with all the emotions and denial.  Not a promising outlook.

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