Tuesday, June 30, 2009

Technological growth

From Practical Economics:

While technology is often made out to be the enemy of the worker, technological growth is a vital part of creating economic growth. Developing new and/or advanced technologies is a process akin to using building blocks. With each development or advancement, the stage is set for the next level that, in turn, fosters further advancements in technology. This system allows for continual acceleration in growth as knowledge builds upon itself in geometrically increasing proportions.

All societies develop new or improved technologies and advance as a rule of thumb, but a society that fosters a free and open market economic system adds an additional accelerant for creating technological advances. Because of the incentives and motivating forces that a free enterprise system offers, individuals are given the drive to find the advancements that people desire. The faster the advancement occurs, the greater the benefits; so anything that speeds up the process of technological advancement, within ethical boundaries, should be seen as efficient.

For example, advancements in the telecommunications industry from the time of the earliest car phone to today‘s voice activated digital communications network is extraordinary. Technological growth has produced countless increases in productivity that created efficiencies allowing the economy to grow. These advances were made possible not out of chance or governmental fiat (decree). They happened with amazing speed because the free market creates incentives for individuals to make breakthroughs in technology for their own benefit and with ruthless disregard for the life saving consequences they pass on to the society as a whole.

Saturday, June 27, 2009

Minimum wage myths

From Practical Economics

Minimum wage laws are pushed on the political agenda by calling minimum wages a "living wage" and conjuring up images of people dying if they earn any less. Sadly, obesity, heart disease, and diabetes are a bigger problem than starvation among the poorest in America.

The problem with the living wage euphemism for socialist government is the fact that even at the current minimum wage rate of $6.40 hour, a worker who works 40 hours a week and 52 weeks a year will gross $13,312. This is well above the official 2006 poverty line, set by the government, which is just under $10,000 for an individual.

These numbers do not apply to places like Oregon, Vermont and Washington where the minimum wage is $7.50, $7.25 and $7.63 respectively, according to the U.S. Bureau of Labor Statistics. In San Francisco, the minimum wage is $8.50 hour, or $17,680 a year, guaranteed if you are willing to work at any job.

Even if minimum wage workers were barely scratching out an existence as many would have you believe, Walter Williams has detailed that only 18% of minimum wage workers have dependents and only 5.3% live below the poverty line. Thomas Sowell has shown that those who are at the minimum wage do not stay there for very long. In fact, Sowell shows that an absolute majority of workers in the bottom 20% of wage earners (many making the minimum wage) move to the top 20% within a time span of approximately 17 years. Even if a minimum wage was as some suggest too low, it is obvious that people do not stay at the minimum for very long.

Lastly, if you add marriage to the equation, the minimum wage debate is moot. Married couples who both have minimum wage jobs earn a gross income of $26,624 which is above the government poverty level of $20,000 for a family of four. Minimum wage couples live with luxuries that their parents could not have even dreamed of. In fact, marriage is the best indicator of economic self-sufficiency.

Monday, June 22, 2009

Winners and losers

From Practical Economics

Capitalism allows for winners and losers in order to create incentives for productivity, innovation and excellence. Winning feels good and reinforces efficient behaviors while losing feels bad and reinforces behaviors that should not be repeated. This is a highly motivating phenomenon that moves people to change their behavior in directions that benefit everyone. The system of competition creates short term pain for some at the cost of long term happiness for many.

Remember, self-interest is not just negative in nature, it can also be seen as a positive because people working within markets will do for themselves things that benefit others. Competition in the free market is a struggle to see who can benefit others the most. As a result, the winners and losers of a competitive market create efficiencies. A system that includes pain creates a more pleasurable existence for everyone while a system that looks to create pleasure creates a more painful existence for everyone.

Economist J. A. Schumpeter used to refer to progress under capitalism as “creative destruction” or the replacement of businesses that have outlived their usefulness with businesses that carry technological and organizational creativity forward, raising standards of living in the process.

Tuesday, June 16, 2009

Practical Economics

What is politically palatable is often different than what is economically accurate and as you well know understanding economics takes time and thoughtful contemplation. Policy makers, however, deal in sound bites and feel good demagoguery. This is to create a persona that wins votes in the hearts of voters because winning the minds of the voters is much more difficult and next to impossible for those who know what you need better than you. Short-term time horizons and the purposeful ignoring of unforeseen consequences might make for good political rhetoric and policy making, but the tragic results are nonetheless painful. Thomas Sowell explained this type of stage one, short-term, thinking when he said, ―killing the goose that lays the golden egg is a viable political strategy, so long as the goose does not die before the next election and no one traces the politicians fingerprints on the murder weapon.

Wednesday, June 10, 2009


"Men who don't benefit from their hard work tend not to work very hard." -Thomas Dale

From Practical Economics: Freedom-Choice-Cost

Economist Arnold Kling says that there are three types of economists that believe in capitalism. Those that favor the free market with reservations and thus believe that because markets fail the government should be used in an attempt to fix the failures. Let‘s call these people pessimistic economists.

The second group favors the free market without reservations and thus believes that because markets work well, use the market. We can call these people optimistic economists.

The last group favors the market with reservations and thus believes that because markets fail we need more markets. They see market failures as natural and thinking in terms of perfect markets would be a bad approximation to reality. Because of this they do not look to government as a solution to imperfect markets because the market is more perfect than fallible government institutions that have the power of oppression and tyranny. Remember, governments do not have to face competition and the fear of loss. We can call this third group, practical economists.

Monday, June 8, 2009

Economics quote of the day

"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." -Frederic Bastiat

Todays lesson from Practical Economics

The idea that consumers are at the mercy of abusive producers is an absurd notion in a market economy. Just as producers have the final say in supply based on consumer demand, consumers have the final say in demand based on what producers have supplied. This cyclical interrelationship between consumers and producers creates a division and separation of power that supports consumer and producer sovereignty (independence).

Consumers, as a whole, determine demand and guide the market. But it is the independence of each individual to freely make economic decisions that creates micro-efficiencies based on specific and specialized knowledge. This is vital because even the greatest minds using the most powerful of computers can only track general trends to forecast future demands.

The strength of a market economy is the exercise of free choice based on personal needs, incentives and wisdom. This creates real-time efficiencies far greater than any collective exercise by even the best of elites with the latest technology. The scale of data necessary to create an efficient economy is incomprehensible to man or machine. Only through a consumer guided market can billions of pieces of information be deciphered and acted upon economically.

Saturday, June 6, 2009

Quote of the day

"Fundamentally, there are two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion—the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals—the technique of the market place." -Milton Friedman

Practical Economics lesson of the day

At face value, the self-interest and greed to acquire capital in the form of profits looks like a system that can only create the worst of consequences. Fortunately, when you add the ingredients of freedom and competition into the equation, the outcomes for the consumer become nothing short of miraculous. Businesses will always operate in their own best interest and one must never think that it is any other way. The key is allowing market principles to channel that self-interest into behaviors that benefit everyone. In short, the free market is the check to the tyranny of business just like a free republic is a check to the tyranny of government.

Want more? Read Practical Economics- DK

Friday, June 5, 2009

Conservatives Aren't the extremists

Excepts from David Limbaugh:

Editors note: conservative does not mean Republican, it means classical liberal thinking, a-la the enlightened philosophers.

Conservatives are not the ones who sermonize about tolerance yet demonstrate intolerance toward conservative and Christian thought; support exterminating babies in the womb; apologize the world over for America; or gut the military and missile defense because of some dangerously egotistical notion that they have the magic to turn evil into goodness with their charisma and eloquence or, even worse, because they refuse to recognize evil in the world, except as emanating from the United States.

Conservatives aren't the ones who have so little faith in their fellow human beings that they diminish their dignity by expanding the welfare state and increasing man's learned dependency on government; judge people by the color of their skin instead of the content of their character; pit economic groups against one another, stoking the flames of envy and greed; punish success, reward failure and promote mediocrity; side with the world's tyrants and dictators; slavishly attach themselves to leftist propaganda about impending environmental catastrophes; promote a secular humanist worldview that considers government a quasi-deity that can perfect the human condition; or morally equate the practice of enhanced interrogation techniques to save innocent lives with that of beheading innocent people. . .

glamorize the world's tyrants and the conditions in their thugocracies; ignore the verdict of history that socialism destroys the human spirit and cannot work in the real world -- assuming it would be desirable if it could, which it most certainly would not


Snobs who have it all tell us to downsize

Excerpts from Todd Bucholz in the Wall Street Journal:

Maybe amid the financial wreckage we feel a natural yearning to go back to simpler times. But some of our commentators have taken this urge a little far. our rise from poverty.

In fact, small is not necessarily better, and there is a difference between a simpler life and the life of a simpleton. At what point in time should we declare: "Stop. Enough progress. Let's keep things simple"? Would 1 B.C. have been a good time to hit "pause"? Or July 3, 1776? Or on the eve of the 1964 Civil Rights vote? It's a good thing Teddy Roosevelt did not lock us into the standard of living of 1904 or we would never fly on airplanes, get a polio vaccination or expect to live past the age of 50.

The point is that we cannot know what we could be missing by halting our climb to toward affluence, any more than Emperor Joseph II could help Mozart by declaring that his opera had "too many notes."

And there is something unfair about decrying consumption at this stage in the game. Even if we simplify our lives and forswear "extra income," we will still benefit from centuries of innovation and wealth-creation that others have yet to enjoy. Make no mistake: To embrace the small-is-beautiful ethos is to crank up the drawbridge and leave a crocodile-infested moat between elites who already own Viking ranges and the masses yearning to gain access to indoor plumbing.

Never mind that in the past 20 years, thanks in part to the explosion of American consumption, hundreds of millions of people around the world, now with jobs to meet U.S. import demands, have eaten three meals in one day -- for the very first time in their lives. This is a War on Poverty that we are winning! Snobs would rather downsize and turn victory into defeat.

I would argue that it is the excitement of competition -- sloppy, risky and tense -- that brings us happiness.

Humans have competed ever since Cain picked up a rock and knocked Abel on the head. And, from a historical point of view, the idea of competition has not imprisoned us but liberated us, psychologically and materially.


Today's lesson from Practical Economics

Market vs. command price systems

The merits of a price system functioning within the free market are overwhelming in moving scarce resources to their most efficient use in a fair and equitable manner. Market economic systems embrace the components of a price system to effortlessly move resources. Command economic systems ignore the components of a price system causing resource inefficiency. This is not to say that a command economy does not have prices, but that price is determined by decree and not supply and demand. Because of this, a command economy has the problem of allocating the time, money, labor and capital necessary to meet the millions of diverse wants and needs of a population. In trying to do so, the command approach is faced with the staggering proposition of trying to digest literally millions if not billions of pieces of information that changes every second to determine prices.

History has shown the disastrous results of fallible men trying to indeed figure out the dynamic needs of the people through a command approach to prices. The miracle of the market framework is that the same complex situation is quickly and easily solved by a free exchange price system without fanfare or warfare.

Tuesday, June 2, 2009

Presidential line of succession.

Put your seat belts on so you don't fall out of your chair.

Tim Geithner is 5th in presidential succession. He is not even in the same league with Sec of Treasury Alexander Hamilton.

It is bad enough having Nancy Pelosi and Robert Byrd #2 and #3. Not to mention Joe Biden.

1 Vice President Joe Biden
2 Speaker of the House Nancy Pelosi
3 Senate President pro tempore Robert Byrd
4 Secretary of State Hillary Clinton
5 Secretary of Treasury Tim Geithner