Stimulus Packages vs. Wealth Creation, Part II
Posted on March 10, 2010
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In Part I of this article, I discussed how the creation of surplus wealth leads to an increase in manufacturing plants and equipment, which in turn leads to the creation of both new jobs and new products. This stimulates economic growth and, in general, improves the well being of people who work for a living.
But what if businesses don
Stimulus Packages vs. Wealth Creation, Part I
Posted on March 8, 2010
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Compared to the cast of characters being appointed to high-level posts in Washington, Rod Blagojevich is starting to look appealing. The guy reeks with vintage Chicago chutzpah, he’s got style (What can you say about a spandex jogging outfit?), and he’s entertaining.
In fact, had B.O. appointed him Secretary of the Treasury, I think he would have added some much needed panache to the otherwise drab Obamastration. I challenge you to name anyone who has a better nose for money than Blago. He’s forgotten more about it than Ben Bernanke will ever know.
But, alas, it was not to be. Blago is far too busy talking to Geraldo and the Obama Bitches on The View. So, I guess it’s up to us common folks – the ones who are, in effect, coming up with the money to bail out Wall Street and the big banks – to figure out what Obama’s up to with his “stimulus package.”
And a good place to begin is with economics. Economics is defined by one dictionary as “the science that deals with the production, distribution, and consumption of wealth (goods and services).” Simple translation: Economics is the study of how people get the things they want.
By “the things they want,” I am referring to material things. Economics does not deal with love, religion, ethics, philosophy, or emotional issues. These and many other “things” may be important to most people, but they simply have no place in the science of economics.
What economists call “wealth” is food, clothing, TV sets, automobiles, and other products that people desire. Money itself is not wealth. Money is just a medium of exchange. To a businessman, wealth also may consist of factories and equipment, things that can be used to produce products and services that consumers want.
What stimulates real economic growth – i.e., the production of wealth – is action on the part of individuals trying to improve their own well being by obtaining what they desire on a voluntary-exchange basis. It is unfortunate that this bothers some people so much that they attempt to interfere with this natural process. What is even more unfortunate is that many of them are economists who are advocates of the strong arm of government as the most effective way to do it.
When such interference occurs, one of the basic laws of economics – the law of supply and demand – is violated. It is this law that establishes a logical and honest relationship among prices, wages, and costs. If, for example, prices go up, that causes demand to drop … which, in turn, causes employees to be laid off … which, in turn, causes wages to go down … which, in turn, causes fewer goods to be produced.
On the other hand, if natural conditions create an excess supply of goods in the marketplace, those goods will then be offered at a lower price. That, in turn, increases demand … which, in turn, pushes prices back up … which, in turn, attracts more entrepreneurs to that particular industry … which, in turn, leads to higher wages and more employees … and on and on the cycle goes. Unless, of course, government intervenes to stop the natural flow of the market – which is what it is doing as I write this, and what it is promising to do even more in the future.
What is good about the creation of an excess supply of goods in the marketplace is that it leads to an increase in plants and equipment, which, in turn, leads to the creation of both new jobs and new products. The sale of these products to consumers leads, hopefully, to profits – and a large percentage of those profits are then reinvested in still more plants and equipment or in research and development. Thus, economic growth continues and the well being of those who are willing to work is improved.
But what if profits are not reinvested? Good question, and one that I will address in Part II of this article.
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Copyright C 2009 Robert J. Ringer
Robert Ringer is the author of three #1 bestselling books, two of which have been named by The New York Times among the 15 biggest-selling motivational books of all time. You can sign up for a free subscription to his e-letter – A Voice of Sanity in an Insane World – by visiting www.robertringer.com.
Also check out the Liberty Education Interview Series at A Voice of Sanity podcast.
Bailout Economy explained on South Park…
Posted on November 7, 2009
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The current economic recession hits South Park hard. Under some financial stress Stan tries to return his margarita maker. This incredibly convoluted episode was as bizarre as the current financial mess.
Stan makes it all the way to the Treasury only to find that the rules for getting a bailout from America is less than orthodox – or even close to logical…
Go With What’s Working – More Bailout Fun!
Posted on November 21, 2008
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Well, it’s been an interesting week. Since the big bailout of our banking industry has proven to be so successful congress is now considering supplying an influx of taxpayer cash to the ‘poor US automakers’.
Speaking of success, let’s recap a bit. Here’s an interview with Senator Ron Paul from August – before the monster bailout passed.
A good analysis if whether someone seems to be a person of wisdom is to look at some of their former predictions and see if what they were talking about actually came to pass. All the gurus (and even our president) were warning that if we did not pass the bailout package, our investments and 401K plans would be in jeapardy. Ron Paul and other voices of reason were trying to explain that propping up a failed system would not only not fix the problem but would actually make it worse and prolong the pain.
So, let’s look at what actually has happened to date. On 9/19/08 – the Friday close before the date of this video the DJI average ended at 11,388.44. At the close of day today, 11/20/08 – a mere 2 months later the Dow closed at 7552.29. I’m certainly glad that they took immediate and drastic action to protect our 401k, investment and retirement accounts.
Which brings us to going with what’s working. Since the bank bailout worked so well, congress is now considering a bailout request from the big three US automakers. So, this week the CEO’s of all three companies traveled to DC to plead their case. The only problem is that they are so incredibly out of touch with the real world and have such a sense of entitlement that they thought nothing of coming to the soup kitchen for a handout in their ‘Rolls Royce’. That’s in a figurative sense of course – what they actually did was fly in on 3 separate private jets.
They really need to let these companies die in their own stupidity. It’s the price you pay for years of mismanagement and inefficiency. They’ve been pushing overpriced vehicles on us for years, using cash incentives to make us consider purchasing new vehicles before we actually need them. Don’t ask us to now reward your corporate greed and entitlement mentality.
The $700 Giveaway Begins – Companies Lining Up For Handouts
Posted on November 16, 2008
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Let the party begin! Companies line up for bailout money.
Now that the federal government is eager to pass out $700 billion of Americans’ hard-earned money, a long line of companies are in fierce competition for their share… unfortunately it’s not just the banking industry that wants a handout.
The congress approved bailout fiasco gave Treasury Secretary Hank Paulson a broad range of lattitude in where the money goes and the terms by which companies can request it leaving lobbyists and special interest groups scurrying into action. According to a New York Times article entitled “Insurers are getting in line for piece of Federal bailout,” the Financial Services Roundtable has already jumped in. This lobbying group in the financial service industry on October 24 asked the treasury to broaden the $700 billion windfall to insurance companies, auto companies, broker-dealers and even foreign-owned financial institutions.
Even Democratic presidential candidate Barack Obama has weighed in on the action with his support of the auto industry requests. Despite a recent Congress approved $25 billion loan to automakers downward trend in the economy has caused a drastic reduction in new car sales. Despite blaming this on economic factors, the US auto makers have been losing out to foreign companies due to a failed business model. Faced with exhorbitant labor, benefits and ‘legacy’ costs these companies need to be left go into bankruptcy and reorganized in an efficient manner. But that’s a subject for another article.
Back to the bailout – bankers are claiming that bailout money is being used to pressure them into mergers and takeovers that will re-shape the entire financial sector. National City realized that it was not on the receiving end of any bailout money and so accepted an offer from PNC Financial who used most of it’s 7.7 billion dollars of your and my money for the purchase. Similar to that was the Wells Fargo takeover of Wachovia.
Thus begins our governmental encroachment into the private sector and a dangerous step toward socialism.
What are your thoughts? Any chance that common sense will prevail?
Can Your Business Survive An Economic Downturn?
Posted on October 23, 2008
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Our economy could be on the verge of several months (or years) of economic trouble. Is your business ready? Most people realize that in any recession there are many businesses that fail along with resulting job losses. Did you also know that during those same periods (and even during the great depression) smart businesses thrive, even flourish and strengthen their customer base?
What makes the difference? Marketing – not advertising, but marketing – the ability to understand what our customers are looking for or need and to provide that product or service in a unique way that makes our competitors non-relevant and to maintain and nurture those customer relationships.
What does that mean in real life? Everything that you and I do as employees or owners is ‘marketing’. We either add positive points to our customer’s (or potential customer’s) opinion of us or we add a negative point to that perception of us. Even things we normally wouldn’t consider.
Negative things like:
- Following someone too close and then zipping into the company parking lot because we’re running a few minutes late for work.
- Leaving someone on hold for a little longer because we’re finishing up another project or don’t really feel like taking a difficult call right now.
- Talking negatively about your work environment or worse yet, about a client when we’re out in the evening with friends or family. Not only do your friends and family start to formulate negative impressions about our company but possibly anyone else that happens to hear the conversation.
- Not returning a difficult phone call and diffusing a situation before the client has time to allow the anger and or misconception to spread.
Or positive things like:
- Staying later or coming early to meet a client at their convenience.
- Returning a smile and politeness when a client is rude and inconsiderate – they may have just finished up with the divorce lawyer before they came here and are taking their frustration out on you. Don’t take it personally.
- Using language that diffuses bad news. Instead of using You and Your directly, e.g. “YOU don’t qualify for our preferred rate” which in a sense attacks them personally we find a way to remove the personal attack, “Unfortunately, your claims history doesn’t allow us to provide the preferred rate”. It’s the same message, it just doesn’t hurt quite as badly.
Do things like this really make a difference? I think they do. Studies show that 68% of customers leave a company because of a perceived attitude of indifference. The company or it’s employees may not have been trying to be indifferent but was perceived to be indifferent. Not to mention that they tell all of their friends what a terrible experience they had. It’s never OK to lose a customer, but when the economy is good and business is easy we may be able to get away with it and still survive. In a bad economy it can be the difference between whether or not we put food on our tables tomorrow.
On the other hand, a WOW experience – finding ways to provide our clients with service beyond their wildest expectations so that they are just blown away by dealing with us will make them customers for life. WOW experiences are so much different than people are used to it will cause them to tell their friends, bringing referrals that can be converted to more customers for life.
I’m in an industry that has already suffered a couple years of downturn only to now be faced with the possibility of more difficulty. WOW experiences for our customers can mean the difference between not surviving or downsizing during difficult times vs. not only surviving but thriving and gaining market share during the next months or years.
What are ways you can increase the WOW experiences for your clients?
Recession is NOT a Bad Word!
Posted on October 14, 2008
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Heresy you say? How could a recession ever be a good thing? Especially given that our government seems to want to bankrupt itself just to prevent one. I will show several specific reasons but in a general sense it helps to focus us on what’s truly important, forces us to become mentally tough in order to survive, encourages us to be innovative and helps us to look beyond our current world view for answers that will prove helpful later in life.
Our modern society has become so accustomed to having a cure for everything and a drug to kill any pain that we don’t realize the value in actually toughing it out through a difficult situation in order to become stronger for the next one. Just as our body uses fever to kill infection and pain sensors to keep us from holding our hand on a hot stove, we need difficult financial, relational and spiritual situations to bring us back into a proper focus. Let me illustrate.
How Can a Forest Fire be Good?
I wasn’t around back then – but history shows that the pre-settler American Indians would use controlled fires to thin the forests of dead and diseased wood – leaving only the largest and heartiest of trees to stand. As Americans began to settle the west they of course needed wood for building and stopped this practice but their sometimes radical clear-cutting infuriated environmentalists who in the 1960’s and 70’s managed to limit both logging practices and influence the forest service to fight the smallest forest fires to protect the trees at all costs.
This proved to be disastrous when in 1988 over a million acres of forest was destroyed in Yellowstone by a combination of many years of protecting the forests from fires (building up dead and diseased wood) and then realizing that was a bad idea so changing the policy to “let it burn” which caused a huge conflagration on the accumulated tinder box.
I contend that the analogy can be made to our current situation – only we have even better hindsight than the forest service had. We can see the excesses that caused the current credit crunch. Instead of allowing that crunch to root out the “dead wood” in this scenario (bad loan decisions, greedy wall-street execs, completely incompetent home buyers) we want to prop up the system so that we can reduce the pain.
Unfortunately, the “pain” cannot be reduced – it can only be postponed and in so doing intensified on the next generation. Unfortunately, in our fast-paced society, we can’t push the pain an entire generation away. Just as in the great depression – as the government tried to prop up wages and pricing to prevent a recession it only served to push the entire country into an economic abyss.
Unfortunately, nobody of consequence and power will read this article – so nothing of import will change.
Idiot Mortgage Lenders
Posted on September 30, 2008
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Here’s a great video from January of 2008 with a comical (yet sad in retrospect) rendition of the kinds of activities that caused this current ‘crisis’
The 700 Billion Dollar Wake-Up Call
Posted on September 25, 2008
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I am so frustrated with individuals who don’t want to be held accountable for their actions, businesses that don’t want to be held accountable for their actions and now a government that refuses to be held accountable for it’s actions and now wants to bail out the businesses and individuals who gave in to greed.
Those of us who have lived responsibly through a runaway inflated housing market bubble, didn’t borrow more than we could afford and didn’t speculate on future real estate value increases are now being asked to ’save the world from certain financial ruin’.
Bah Humbug.
Let the financial gurus who dug this hole work their way out of it.
Let the homeowners who gave into the ‘buy more than you can afford the value is always going up’ lose their home, learn a valuable lesson and go on through their life a better person.
Let the businesses who profited from the greed of those individuals die in ruins as a lesson to the next generation of profit-at-all-costs entrepreneurs.
Let the CEOs and upper management of those businesses be brought to trial and all assets seized from that ill-gotten gain. The charge? Stealing the future of my children and grandchildren as they will pay the consequence of the last 10 years of housing / mortgage / derivative fiscal irresponsibility.
When the Gurus say that they have the answer to our problems – start running the other way.
theNonGuru
