Thursday, September 30, 2010

Why is Gold at $1300? ... Money in One Lesson

Bob Murphy, a brilliant Austrian economist, has a great article highlighting the fundamentals of what money is and has been throughout history without government intervention.  This is relevant to today's price of gold which recently topped $1300 earlier this week. 

Why is this important?  Because the value of the dollar continues to erode as people around the world are waking up to reality of the fiat-money empire. 

Please read and share with others.

Wednesday, September 22, 2010

Illustrating laws of marginal productivity via the Daily Show

Here's a funny bit from the Daily Show featuring Aasif Mandvi.

The story/bit/skit is very instructive and illustrates the laws of economics behind how/why marginal workers are hired and/or why they are fired. It also illustrates that compensation of labor depends largely on the scarcity and skill level of each piece of "additional" (or marginal) capital added to production. If a business wants to add another factory to its operations, it must calculate the "marginal" productivity that piece of capital (the physical plant) will provide to expanding its capacity. That is, if company X wants to add one more worker, it must determine the effect that worker has on production.

This applies also to the marginal productivity of labor as well. Why are engineers, doctors, architects paid more than cashiers, janitors, or retail sales people? Why are their wages disparate if the "minimum wage" allows them all to be paid the same? Marginal productivity differentiates labor since everyone accepts a wage rate voluntarily rather than through coercible force to work dictated by State mandate.

In a nutshell, raising the wage requirements/work rules/mandated benefits for what employers MUST provide to their labor (especially marginally skilled workers) simply creates more unemployment than what would otherwise exist. Artificially raising the marginal COSTS of each element of capital (which is labor in this scenario) simply stifles and discourages where labor can move.

All natural unemployment should be voluntary since "involuntary unemployment" is a figment of government's intervention and erection of barriers to entry (i.e. minimum wage laws). If a stay at home mom wants to make some extra money and be paid $4/hour to watch other parent's children, should the state mandate that the parents MUST pay the woman $8.50 (or whatever the minimum wage is)? No! It should be up to the employer and the employee to negotiate the compensation and work agreement.

Bravo Daily Show!

Monday, September 20, 2010

The End Goal is NOT Jobs

Many folks are up in arms about the miserable failure of Keynesian stimulus.  The latest uproar comes from California with its report card on the empirical proof of the failure.

While I agree with the analysis, I have a different take about the focus being placed on JOBS.

The premise that the GOAL should be to create jobs as a cure to our economic ills is the real fallacy and myth.

The goal of an economy is not to necessarily create jobs. The goal is to create and accumulate capital and wealth to raise the standard of living.  The embedded goal for all individuals is to maximize consumption while minimizing the effort required to achieve this end.  In essence, we "work" (produce) so we can play  (consume).

Wouldn't it be a grand goal to take a vacation 11 months out of the year with only having to work for a mere 31 days?  Wouldn't we all like to have a 3 hour work day and enjoy the other 21 hours to do as we please?  Naturally, this is true.

Thus, jobs are simply a means to a purposeful end ..... but not the goal. We all do not consume so we can produce. We produce so that we can consume. Several hundred years ago, societies had to work around the clock just to put enough food on their table, cloth themselves, and provide for themselves. Unemployment didn't exist because everyone HAD to work in order to live and no busy bodies existed to lecture people.

The Soviet Bloc had full employment, yet no one would argue it to be a prosperous, productive, or wealthy society. Hence, the government could (and should) abolish the minimum wage laws tomorrow along with any and all (tax funded) unemployment insurance and millions of jobs would be available and necessary that are not today (since both minimum wage laws and tax payer unemployment benefits are disincentives for marginal workers).

Every rational and sound economic policy to allow for a necessary (yet extremely harsh) liquidation of malinvestment has been ignored in favor of pleasing people in the short run.  Politicians always calculate based on the short run to enact policies where they like to kick the can on down the road.

To believe ggovernment knows best and it is wise to mortgage future production (through taxes and/or inflating the money supply) in order to INVEST it into the most productive uses is to also believe central planning worked in Statist/Communist/Fascist countries.

Investment comes from accrued savings manifested through productive work and the purposeful employment of capital (both human capital and physical capital). Economic growth and entrepreneurship comes from business calculating short run and long run investments based on the laws of scarcity and consumer wants/needs.

Government operates as a giant transfer mechanism by taking resources from certain groups to give to others. For Republicans it is typically big business, military, and other interest groups who beg for subsidies. For Democrats it is typically labor unions, lawyers, and those on the welfare dole.  This is the modern day "Welfare-Warefare State" that is eating our economy to death.

If you want to read a good article about how to end the unemployment problem, here is what can be done - authored by Lew Rockwell.

Wealth creation, capital accumulation, and a rising standard of living should be the goal and not full employment for everyone.