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.

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.

A grumpy old man in favour of a basic income scheme

The “free money” giveaway or basic income or universal income scheme being proposed by a few people is a great idea but one that is probably impossible to implement.  However it is nice to dream and fun to think out how to solve economic problems; so here goes.

The basic questions are where does the money come from and how to give the money to people?

The simple answer to the first question is that with a universal income scheme there will no longer be a need for subsidies to producers.  A more difficult answer is that the introduction of an income scheme would be the ideal time to reinvent money.

Generally subsidies (sometimes as tax exemptions)  are given to firms to encourage them to establish plants and provide employment or to save the business and save jobs.  This is great for those who get the jobs or whose employment is saved but it leaves a lot people with nothing.  Subsidies also distort prices so that when we make purchasing decisions based on price we are not necessarily getting the item that was cheapest or most efficient to produce.

Money is something most of us use daily and is probably the least well understood of all the things that are a part of our economy.  When central banks were doing quantitative easing there was some disbelief that they could create money out of nothing.  This is because we have for so long associated money with gold that we think of it as a commodity with value in itself.  It might be better to think of it as a tool with which to facilitate the exchange of goods and services.  It represents purchasing power.

Most of what we use as money is created by bankers making loans.  How this works is explained at numerous locations throughout the world-wide web.  My own version along with some of the problems with fractional reserve money is included in the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

One way to reinvent money and implement a universal income scheme would be to take the concept of “local exchange trading system”  and expand it to the national level.  A good part of the essay talks about how this could work and again  I refer you to the essay.  There are many details to be worked out and many problems to be overcome.  The mechanics of the money supply would be easy.  Getting people to accept new ways of thinking about money would be extremely difficult.   Getting people to accept that others should be allowed to do as they wish, whether that be creating art works or drinking beer, would also be difficult.  Getting people to change their vested interests would probably be impossible.

One of my concerns is that our economic order is going to return to something similar to what existed before the industrial revolution in which there was a small group living in relative luxury and the balance of the population lived at a subsistence level. (The ultimate inequality)  I am concerned because I think our economy is possibly going into an extended period of decline.  While there are lots of energy and mineral resources left on this planet the energy required to extract them is becoming more and more excessive to the point it will be less viable.  Without resources it will difficult to maintain everyone at what has been the North American standard of living.

An income scheme would make it a lot easier to cope with an economy on a downward slope.

More and more I am getting to be a grumpy old man.  My generation has been very lucky in the time and place we have lived out our lives.  More and more I am recognizing the next generations, including my grand children, are going to have to deal with a lot of economic pain.  I hope I am wrong and if not I hope I won’t have to see it.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Environmental eating

The 100-mile diet or eating locally is one way people can try to be more environmentally sensitive in their eating habits.  Removing agricultural subsidies would be a more difficult and probably more effective way of doing the same thing.

We live on the edge of a major fruit and vegetable growing area yet when we walk through the major chain supermarkets most of the produce appears to be imported.  It is easy to understand those people who want to eat locally or eat a 100-mile diet (all food produced within 100 miles of ones residence) or “live in place”.

Unfortunately there is no guarantee that locally produced food is any healthier or more environmentally friendly than food grown elsewhere.  One does not  have to go far off the major highways to see what appear to be factory farms.  The Conference Board of Canada has said something similar in a recent report according to an article in The Western Producer.

Improved transportation and food supply chain logistics have made long distance transport of fresh and frozen food viable, economical and environmentally sustainable, says the report published in late July.

Local food production can actually consume more energy and leave a larger “environmental footprint” than food produced more efficiently and transported, says the report, Fast and Fresh: A Recipe for Canada’s Food Supply Chains.

(I think of the Conference Board of Canada as representing corporate rather than consumer interests.)

Another way to deal health and environmental issues in food production would be to remove all agricultural subsidies so that consumers would, as much as possible, know the full costs of the foods they eat and could make purchasing decisions according to their values.  Then we could eat locally  or imported depending upon which is cheaper and according to our values.  If the true cost of food is high enough some of us might decide to grow our own.

The problem with this approach is that subsidies, especially for farming,  are entrenched in our economy and removing this would be extremely difficult.  Also for political reasons governments generally practice a cheap food policy.

johnny_automatic_cornThis guy does most of the family grocery shopping at two stores.  One is plant nursery and produce store which carries lots of local items when they are in season as well as imported fruits and vegetables.  Their prices are usually less than the supermarkets and the farmers markets.  The other is a locally owned supermarket which carries some local products.

After writing the draft for this post I drove 10 km (return) to a  neighboring farm  to buy some fresh corn for lunch.  This was well within the 100-mile diet, but how environmental was it?  The corn was very nice.

Governments, competition and subsidies

Is it legitimate for city governments to get involved in the economy as The Economist reports a number of mayors are doing?  Governments have been involved in their economies for millenia.  For us this involvement helps a some people make profits and when the economy is tough it helps a few people get jobs.

There are two ways governments get involved in economics – by passing legislation that restricts competition and by giving subsidies either in cash or tax exemptions.

Most economic legislation at the national level works to restrict competition. Patents, copyright, licensing and tariffs all limit competition and allow the firms protected to charge higher prices and make profits they would not otherwise have had.  It may be the most  valuable business skill is government relations and lobbying.  During the recent golden age of prosperity with constant economic growth the higher prices have hardly been noticeable and for most people not relevant.  As we go into a period of economic decline already lot of people are hurting.

The other way governments influence the economy is with subsidies or tax exemptions.  

There are three concerns about government involvement in the economy.  

The first is that protection from competition and subsidies distort prices and encourage inefficiencies in the economy.  It might be cheaper and more efficient to make wing nuts in one place but subsidies alter that.  It may be that competition is now to determine  which, city or state/province has the deepest pockets for providing subsidies.  When firms can go where they get the largest subsidy, there is an element of blackmail and it is not clear this is a good way to start a relationship.

The second concern is that most of us most of the time make decisions for our own short-term interests rather than the long-term interests of the community.  For most of us a job today is more important than the future health of the planet or even survival of the human race.  Also one has to suspect that in this respect politicians are at the head of the line especially when they want to get reelected.

A third concern is that subsidies are good at providing jobs for a lucky few people but provide no benefit for the rest of the unemployed.  I believe subsides should be given to consumers rather than producers so that they don’t distort prices and can provide assistance to all who need it.

DI_404_SUCKZ_Stephen_HarperOne can make lots of arguments against government involvement in the economy, but one is fighting a lot of short-term interests.  The Canadian prime minister is the chief executive officer of corporate Canada.  This applies to the incumbent and probably to most past and holders of that post.

A universal income scheme

I believe we should have a collective responsibility to ensure everyone has the opportunity for a standard of living similar to most others.  I also believe our technology is such that everyone should not have to work throughout their lives, that subsidies should be given to consumers rather than producers, and that there is a need to change the way in which we create money.

I have been asked by a member of LinkedIn to elaborate on the collective responsibility.  The other things are important to the answer.

In some small-scale societies the collective responsibility takes the form of a sharing economy where people share their food and other production with relatives, clan members or anyone who needs it.  We probably need something a little more formal and impersonal.  One way would be a universal income scheme.  Milton Friedman proposed a negative income tax which is a good place to start a discussion.

The key to our high-tech society is the number of people for whom each agricultural worker can produce enough food.   That is clearly somewhat high which means the rest of us can be doing other things.  Sometimes it seems what most of us do is to work  to keep the military-industrial complex going.

Subsidies to producers distort prices and interfere with the efficiency of the economy.  Therefore subsidies should be given to consumers.  A universal income scheme would be a fair way to do this.  I see this as being good for the environment and as a transfer of decision-making from government and bankers  to individuals.

I believe the most funny of all money creation schemes is the fractional reserve banking system.  Interest is charged on the money created, bankers are very powerful and too important to let fail, and it is all a Ponzi scheme.  One alternative could be to take  the concept of the Local Exchange Trading System (LETS) and expand it into a National Exchange Trading System (NETS)  It would probably be feasible to include a national income scheme into this type of money creation.

With the world economy in trouble and with so many indications the slide will continue for some time more and more people, through no fault of their own, are going to find themselves unemployed and without an income.  Thus it gets more and more important for us to live up to our collective responsibility to ensure everyone has the opportunity for the same standard of living as everyone else.

Some of the ideas in this post are included in the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

Dairy farming: Canadian supply management and American subsidies.

Last night our community held the annual Robbie Burns dinner (a roast beef dinner with entertainment for ten dollars) and I sat next to a dairy farmer (from outside our community).

Canadian dairy farmers are protected  by marketing boards which enforce supply management.  All dairy farmers are required to sell their milk to a marketing board which says how much they can produce.  This supply management works to limit the amount of dairy products on the market and keeps prices up.  Dairy farmers generally appear to do well financially.

Gerald_G_Fast_Food_Drinks_FF_Menu_2Some Canadians object to supply management and claim our consumer dairy prices are the third highest in the world.  Prices in the United States tend to be about 50 per cent lower than  Canadian.  Some Canadians living close to the border have been known to purchase milk and cheese in the States.

When I asked this guy about subsidies for dairy farmers I was told Canadian farmers get none but Americans are subsidized by about 50 per cent.

I was aware American farming is heavily subsidized but have never really thought about the dairy industry.  This morning I googled “dairy subsidies” and it appears the guy was right.

So Canadians restrict competition with quotas and supply management and Americans keep prices down with subsidies.  I don’t eat much dairy so I have to prefer the Canadian way because my taxes are not going to dairy subsidies.

If Canadians were to get rid of supply management and Americans were to drop subsidies then dairy farmers would have to be competitive and work as efficiently as possible.  We would all be better off.  Subsidies should be given to consumes rather than producers.

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