FUNDAMENTAL TRUTH #7: “High on the endangered species list is the objective journalist.” -Old Pithy

Posted by PITHOCRATES - March 30th, 2010

JOURNALISM USED TO be about gathering information.  Journalists answered the six questions: who, what, when, where, why and how.  For instance, if someone was murdered, they would ask witnesses who, what, when, where, why and how.  They’d then write their story.  In the process, though, they’d never say anything like the dead son of a bitch had it coming.  Even if he was a bad, bad man.  Because that was opinion.  And journalists dealt in facts, not opinion.  At least, they used to.

Before journalists report today they check their talking points.  On the Left, if a radical pro-life activist kills an abortionist it gets huge coverage.  If a leftist anti-American radical kills a group of soldiers on an American military base, though, it doesn’t.  Radicalism on the Right is all right and encouraged.  Radicalism on the Left is swept under the rug as best as it can.

We’re talking about journalists in the mainstream media (MSM) here.  FOX News ran both stories without editorializing.

FOX NEWS IS the most attacked media outlet perhaps in the world.  It’s them against everyone else.  That fact alone should tell you something.  It tells me something.

Lots of things come in twos.  The struggle between good and evil.  Great sport rivalries.  Binary numbers.  And, apparently, news.  There’s the news put out by the MSM.  And the news put out by FOX News.  They both accuse the other of bias.  FOX says the MSM leans left.  The MSM says FOX leans right. 

But sometimes the MSM is being disingenuous when they include opinion pundits like Glenn Beck.  He’s not a news reporter.  He provides opinion.  The Left doesn’t like his opinion.  That’s okay, but you can’t call FOX biased because of Beck.

THERE ARE MANY examples of bias on the Left.  And it’s coming from their news departments, not their pundits.  We’ve noted two already.  Here’s another.  One of the biggest was and continues to be about the Reagan tax rate cuts.  The political Left repeats ad nauseam that the tax rate cuts exploded the deficit.  And the MSM repeats the lie.  The tax rate cuts didn’t explode the deficit, though.  The facts are there for anyone to check.  The lower tax rates brought in more tax money into the treasury.  No, it was explosive spending that exploded the deficit.  Somehow the MSM always omits this very important and salient fact when discussing the effects of tax rate cuts.

The MSM broke Watergate and Iran-Gate (both with Republican targets) but not Trooper-Gate (the one with Paula Jones and the Democratic governor).  When another trooper-gate broke out (this one with a Republican governor) the MSM was all over that like ugly on a pig.  Ideology, apparently, matters in determining what is news.

The MSM did not follow or investigate President Clinton’s adolescent daughter.  That’s good.  When the MSM learned that Sarah Palin’s unmarried adolescent daughter was pregnant, though, lookout.  They pounced on her like a pack of hyenas.   Not good.  The political left, though, was okay with it.  Even the feminists didn’t object.  Or, if they did, they were not very loud.  Political expediency apparently dictates whether an adolescent daughter is off limits.

When it comes to the MSM, it would appear bias counts.  News is news when it agrees with your bias.  News is not news when it doesn’t.

THEN BIAS BECOMES political activism.  Ronald Reagan won two presidential elections with huge majorities.  In his reelection he carried all but one state.  He didn’t pretend to be a Democrat.  He campaigned as a conservative.  A lot of Democrats liked his message.  They became Reagan Democrats.

The 8 years of Reagan was an embarrassment to the Left.  When it was conservative versus liberal, conservatism won.  At least that’s what history has shown.  The Left took the biggest drubbings ever during the Reagan elections.  And they weren’t happy about that.  They wanted an opponent in the 2008 general election who wasn’t a bona fide conservative.  Enter John McCain.

The MSM fawned over John McCain during the 2008 Republican primaries.  They said he was the future of the Republican Party.  Or should be.  They said the era of Reagan was over.  And the MSM hammered home that message.  McCain good.  Reagan bad.  Moderate independent good.  Conservative bad.  The MSM lauded McCain’s ability to reach across the aisle.  They warned people about Mitt Romney’s Mormonism.   

DURING PRIMARY ELECTIONS, politicians compete against each other for their party’s base.  In 2008, though, some Independents and Democrats crossed over and voted in the Republican primaries.  Republicans, Independents and Democrats, then, nominated the Republican candidate.  Kinda defeats the purpose of having a Republican primary election.

When it got time for the general election, then, well, you can see what happened.  The independents and Democrats who voted for McCain during the primaries then voted for the bona fide Democrat in the general election, not McCain.  Surprise, surprise.

The MSM got what they wanted.  The general election was not conservative versus liberal.  It was moderate/independent versus moderate/independent.  And the Democrat version won.

IT WOULD APPEAR that not only is the MSM biased, but they are working with the Democrat Party.  The Democrats issue talking points and the MSM dutifully recites them on their media outlets.  The only one not toeing the party line is FOX News.  And if you believe in a free press, then that’s a good thing.  It’s good to have at least one objective voice left for the people.

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LESSONS LEARNED #6: “No one bitched about global warming when it ended the ice ages.” -Old Pithy

Posted by PITHOCRATES - March 25th, 2010

JUST AS FOOD surpluses gave life famine took it away.  Famine.  Few today can know the horror of the word.  In the U.S. obesity is epidemic.  Even among the poor.  Especially among the poor.  Quite a change from the days of feudalism.  In those days, the poor were never fat.  Only the wealthy had that luxury.

Famine exists today.  However, it is now the exception, not the rule.  Developed, capitalist countries don’t suffer famine.  (They have high farm yields.  And they are wealthy enough to import food when they need to.)  Under developed countries do.  And when they do, the developed countries send their food surpluses to them.  There were times, though, when suffering famine was far more commonplace and universal than a full stomach. 

There are many causes of famine.  War.  Pestilence.  And, of course, weather.  Cold weather.

THE GREAT FAMINE of 1315–1317 cut a swath of destruction through northern Europe from Great Britain to Poland.  The summer growing season was wet and cold.  Too wet.  Too cold.  Crops failed.  The once fertile but now soggy farmland simply could not bring grain to harvest.  And the rains kept coming.

Starve-crazed people did anything they could to eat.  They ate bark and roots and other things that did grow.  They stole food.  They murdered.  Seeing children as competition for the limited food supply, parents abandoned children.  Some quit eating and died so the children could eat.  There may have been cannibalism.  Many got sick.  And many died.  There were population reductions that would take centuries to recover.

The church couldn’t help.  Neither could government.  So people turned on both.  And on each other.  Civilization broke down.  Starved people resorted to animal behavior.   If you ever tried to take food away from a hungry dog, you get the picture.  These were very dangerous times.  And bleak.  There were many ways to die (hunger, disease, murder).  Nothing to look forward to.  Except for the return of warm, dry weather.

And that was just in the summer months.  The winters were colder.  There was hypothermia.  And death by cold weather.  Again, cold kills.

The weather did warm again.  Eventually.  And when the famine finally ended a weakened and stressed people could look forward to the future.  Unfortunately for them that future included the plague.  The Black Death.  It truly sucked to be them.  Thankfully, though, they persevered.  And, generations later, here we are.  No one today knows what suffering really is.  Not like they knew. 

THE LITTLE ICE AGE wasn’t an ice age.  It was a period of unusually cold weather.  Like a ‘little’ ice age.  Hence the name.  Some say the Great Famine of 1315-1317 was included in the Little Ice Age.  Some don’t.  Some say it ran from sometime in the 1500s to sometime in the 1800s.  Semantics.  You say tomato; I say tomato.  (That sounds better spoken than read.)  Maybe the Little Ice Age included the Great Famine.  Maybe it didn’t.  They were both cold, though.  And that’s the point.

There were three really, really cold periods during the Little Ice Age.  About midway through each of the centuries (1550ish, 1650ish and 1750ish).  It was like the Great Famine of 1315-1317 Lite.  Not as widespread or as devastating but there was famine.  And population decreases.  Mostly confined to colder climes (northern and mountain countries).

How cold was it?  To give you an idea, here are some well known bodies of water that aren’t known for freezing over that froze over in winter:  the Thames River, the Baltic Sea and New York Harbor.  You could walk from Sweden to Denmark (and Gustav’s armies did).  With the Dutch fleet frozen in ice, the French marched across ice to take the Netherlands.  Lake Superior still had ice in summer.  In a word the winters were cold.

FOR YOU BACKYARD gardeners, you have seen the affects of cooling.  A mild summer is enjoyable.  You can sleep without air conditioning.  You can open the windows for fresh air.  You can sit outside without sweating profusely in the heat and humidity.  Some enjoy that.  But maybe not the gardeners.  Why?  Well, speaking from personal experience, my garden just doesn’t grow in those mild summers.

I can fertilize.  I can water.  I can weed.  I can mulch.  But I can’t make it warmer.  And if the growing season isn’t long enough, if it isn’t warm enough, you’re just not going to get a whole lot of green peppers.

HISTORY IS FULL of famine and loss of life.  There are lots of reasons.  But this we know.  A warm and long growing season grows food.  The longer the growing season the greater the food surpluses.  Those areas hit by famine can be aided by the countries with the surpluses. 

If it’s cold, though, you have shorter growing seasons.  Shorter growing seasons produce smaller food surpluses.   If any.  There is less food to go around.  The less food there is the greater the chance that people will go hungry.  The shorter the growing season is, then, the greater the chance for famine.

So which is a greater risk to civilization as we know it?  Well, history has shown global cooling to kill more than global warming.  So I have to put my money on global cooling.  If I were a betting man.  Betting on the end of civilization as we know it.

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FUNDAMENTAL TRUTH #6: “No one bitched about global warming when it ended the ice ages.” -Old Pithy

Posted by PITHOCRATES - March 23rd, 2010

ICE AGES AND glacial movement are complicated.  We know that glaciers exist.  And that they move.  They do so today. 

Scientific study has determined that we have had at least 5 major ice ages.  During these periods the glaciers moved out from the north and south poles.  During the last ice age, they covered many of today’s populated areas.  Most of Canada, Seattle, Chicago, New York, most of Great Britain, northern Europe and Moscow were all under ice at one time.  The ice moved closer to the equator during previous ice ages.  Ice may have covered the entire earth at one time.  Or come close to it.

During the cooling and warming of the earth, glaciers traveled great distances.  Close to 2,000 miles in North America during the last ice age.  And this great movement is cyclical.  It’s happened 5 times already.  And it will most probably happen again.

In front of the glaciers is permafrost (permanently frozen soil).   As the glaciers and permafrost moved forward, life moved away from the cold.  Species died out (the woolly mammoth, the saber-toothed tiger and Neanderthal man, for example).  The advancing ice pushed life towards each other and into conflict as they fought for the increasingly limited food supply.  When the cold receded, life followed, the newly warmed lands able to support life again.

There are various theories about what caused the ice ages and glacial movement.  One thing for certain, though, cold kills.  Warmth, on the other hand, allows life.  Warmth is good.

THE KEY TO civilization is the food supply.  Only when there was a surplus of food did civilization begin.  The surplus of food allowed the division of labor.  Farmers farmed.  Tool makers made tools.  Leaders led.  And soldiers protected the civilization.  None of this happens without a surplus of food.  If you didn’t have to grow food, you could do something else.  And people did.  And they created modern civilization as we know it.

Farming was the quantum leap forward in producing a food surplus.  The first civilizations grew grain and cereal crops in the fertile soil of river valleys.  An arc from the Nile valley up through the eastern Mediterranean, through Lebanon, Syria, and down the fertile river valleys of the Euphrates and Tigris valleys forms the ‘fertile crescent’.   Anchoring the crescent at each end are history’s first civilizations.  Sumer (#1) and Egypt (#2).

Fertile soil and a warm growing season allowed this.  Again, warmth is good.

THE EARTH HAS cooled and warmed.  There are many theories why.  No one can be certain.  But what we can be certain of is that warmth is good.  Cold is bad.  Ice ages are cyclical.  And the glaciers receded further in periods when there was not a single man-made greenhouse gas in the atmosphere.

We’re probably 50,000 years or so before the glaciers come back and cover civilizations everywhere.  If man-made greenhouse gases warm the world greater than the natural cooling mechanisms advance the ice, perhaps life will continue.  None of us alive today, though, will have to worry about that.  When the ice comes again, future generations will face that horror.  Until then, let there be warmth.  And life.

CHICKEN LITTLE SAID the sky was falling and there was panic.  And so it is with global warming.  Well, the sky wasn’t falling on Chicken Little.  And it is unlikely that man is causing global warming.  Global warming existed before man created greenhouse gases.  The ‘scientists’ who say the world as we know it will end unless action is taken are more politician than scientist.  Ever wonder why the solution to global warming is the growth of government?  To me, that sounds something like what a politician would say, not a scientist.

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LESSONS LEARNED #5: “When it comes to regretting past choices, liberals lead conservatives when it comes to their vote.” -Old Pithy

Posted by PITHOCRATES - March 18th, 2010

BEFORE THE SS death camps, before the Einsatzgruppen (action groups tasked to mass murder civilians in Poland and the Soviet Union), before the policy of conquest for Lebensraum (living space) for the ‘master race’, before eugenics and selective breeding policies were enacted to produce a ‘master race’, before the Munich Agreement (the Nazi annexation of Czechoslovakia’s Sudetenland), before Kristallnacht (a coordinated Nazi assault on Jewish people and their property in Germany and Austria), before the Nuremberg Laws (anti-Semitic laws), before the Anschluss (the Nazi annexation of Austria), before the Enabling Act gave Hitler full dictatorial powers, before The Reichstag Fire Decree suspended habeas corpus and most of the Weimar Republic’s constitutional civil liberties, before these despotic actions there were free elections.  And the National Socialist German Workers’ (Nazi) Party rose to power by the ballot, not by arms. 

The Treaty of Versailles treated Germany poorly.  It blamed her solely for World War I.  And to the victors went the spoils.  From Germany.  Economically destroyed by the war, the peace was little better.  Runaway inflation and rampant unemployment of the Great Depression.  Humiliation.  People were looking for something.  They didn’t know what.  But Hitler did.

The National Socialist German Workers’ Party was the party for German workers, not the capitalists.   In fact, the Nazis were anti-capitalists.  This was good because the people blamed capitalists for the Great Depression.  Socialism put people before profits.  Nationalism would restore Germany’s pride.  There was a lot about the Nazi party to like in 1930s Germany.

The Nazis put people back to work.  Building public works and building for war.  They printed money to pay for what the confiscated wealth of the ‘undesirables’ didn’t.  They ‘enslaved’ workers by prohibiting strikes, labor unions and the voicing of workers’ complaints.  Hitler paid them less than they were in the Weimar (i.e., capitalist) days.  Then they turned on the business owners.  They once supported Hitler because they thought he would remove the grip of labor on business and allow unfettered capitalism.  But the state’s grip just replaced labor’s grip.

War followed the war economy.  And conscription.  And another generation of German dead.  The devastation of World War II dwarfed that of World War I.  World War I didn’t have carpet bombing.  And the Soviets never reached Berlin in World War I.  But it had all sounded so good back in the 30s.  A nation so eager for government to do something.  And government did.  But few Germans liked the result.  If they could all do it over again they would probably have supported the Weimar Republic, not the National Socialist German Workers’ Party.

THE CONSERVATIVE government of Winston Churchill won the war but the Labour Party won the peace that followed.  They, too, blamed capitalism for the Great Depression.  It wasn’t going to be business as usual now that the war was over.  So they nationalized Big Industry (coal, steel, rail, etc.).  There would be no more abject poverty or squalor.  They created a nanny state.  From the cradle to the grave.  And they created the National Health Service.  Health care for everyone.  Courtesy of the taxpayer.

Of course, to pay for such huge government spending you need taxes.  A lot of them.  And when you can’t tax anymore, you depreciate your currency (i.e., print money).  Like every other nation in the world has ever done when their government spent more than it could afford to spend. 

With monopolies came inefficiencies.  Shortages.  A shortage of coal required scheduled electrical blackouts.  Also with monopolies came power.  Union power.  Whenever they wanted more pay they just had a strike until the bosses caved.  It became the way of doing things.  The strikes were epidemic and crippling.  People outside of Great Britain called them the ‘British Disease’.

Excessive government spending to pay for the national industries, the unions, the nanny state and the National Health Service was turning Great Britain back to the discontent of a Dickens novel.  Only instead of the business owners, the oppressors were Big Labor and their unions.  The common people were tired of going without and sitting in the dark.  Especially when they were paying enormous taxes (the Beatles left Great Britain to escape the confiscatory taxes).   Economically, life was becoming more similar to that like in the Soviet Union.  The difference was that the Soviet people didn’t know what life under capitalism could be like.  The British, of course, did.  And they could vote.

And they did.  Labour was out.  The conservatives were in.  Margaret Thatcher took on the unions and privatized industry.  These moves were not popular at the time because poorly ran businesses lost government subsidies and failed.  Unemployment grew.  In the short term.  Things did get better in time, though.  You see, propping up bad businesses with government subsidies forced consumers to pay more for inferior goods.  This was in addition to already paying high taxes to subsidize the businesses in the first place.  It just couldn’t go on.  And didn’t.  They controlled costs.  The people kept more of their earnings.   They spent and stimulated.  The economy grew.  As did the living standards of the common Briton.

THE MORAL OF this lesson is to be careful what you wish for.  Whenever anyone talks about putting the people first, warning flags should go up.  History is full of people who have said this.  And just about every one of them was a liar.  They want something.   Anyone who read Mein Kampf would have known Hitler’s plans.  Some did but chose not to believe.  They just wanted to believe the lie.  They wanted what Hitler was offering.  It was just too good to be true.  And, as it turned out, it was. 

When they nationalized British industry the goal was not to repeat what had happened during the Great Depression.  For anyone who had lived through the Great Depression didn’t want to live through another.  So there was popular support.  But nationalization didn’t improve life for the common Briton.    Instead, the life of organized labor got VERY good at the expense of the common Briton.  Until it couldn’t be sustained anymore by the common Briton.

So be careful what you wish for.  You might just get it.  And all the unintended consequences that come along with it.

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FUNDAMENTAL TRUTH #5: “When it comes to regretting past choices, liberals lead conservatives when it comes to their vote.” -Old Pithy

Posted by PITHOCRATES - March 16th, 2010

A LOT OF conservatives regretted voting for Richard Nixon.  But not for the reason you think.  If the election was today with everything we know now, conservatives probably wouldn’t elect him.  Even if you take Watergate out of the picture.  You see, something changed during his presidency.  And it wasn’t the voters. 

He changed.  The conservative candidate governed as a liberal.  He embraced Keynesian economic policy (Big Government and big spending to solve all problems).  Deficit spending and inflation led to the end of responsible government (the decoupling of the dollar from gold so they could keep printing money).  If this was the conservative platform going into the election, few conservatives would have voted for the ticket.

This is one type of regret.  Regret at being tricked or duped.  This is when a person’s core beliefs don’t change.  It’s when their candidate changed.  But there is another type of regret.

THE POPULAR CONCEPTION liberals have of conservatives is that they are a bunch of old, stodgy white men.  Out of touch with reality and mired in the past.  Whereas liberals think of themselves as young.  Cool.  Progressive.  Their eyes are open to what the future can be, not to what has been.

Young.  That’s key.  Many liberals are young.  Or, better said, a lot of the young are liberals.  What else can you say about the young?  Many are in school.  Many don’t have a job.  Many aren’t married yet.  Many aren’t raising a family yet.  See the pattern?  They’re young and idealistic, i.e., liberal, because they can be.  When they start working, get married, buy a house, raise children, etc., they find they can’t be so idealistic anymore.

Binge drinking, getting high and bedding coeds was okay in college for you, but you’re not so keen on your daughters following your example.  In fact, you kinda gloss over that part of your life when talking to your kids about your past.  When the weight of being a parent really hits, you begin to regret all the hell you put your parents through.

In college you were all for lowering the drinking age, legalizing drugs, keeping abortion legal, taxing the rich to provide free benefits for the poor (and college students), etc.  As a parent, though, you’d like to see the drinking age raised to 35 and probably voted against allowing medical marijuana.  When you’re working 40, 50 or even 60 hours a week to provide for your family, you start looking at all that withholding tax.  And you’re not thinking about how you’re helping those who need help.  You’re probably thinking things like ‘what the f***’ and ‘get a job you leech’.  And, if you have daughters, you’d probably like to see chastity belts brought back into vogue (even though YOUR daughters will keep their chastity until their wedding night – when they’re 35).

GROWING UP IS a learning process.  Children think they can eat third helpings of cake and ice cream, washed down with glasses of super sweet fruit punch and then run out and play in the hot summer sun.  Those of you who have had to clean up the resulting mess know that eating and drinking like that does not end well.  Children learn, too.  In time.  Until they do, parents watch out for them.

Getting a driver’s license is special.  It severs the chains of childhood.  You can go places and do things.  Without your parents.  You can speed, drive around railroad crossing barricades and hang out on a Friday night drinking beer while driving.  And other dumb things.  There’s a reason car insurance is expensive for young drivers.  Because they do stupid things behind the wheel.  But they learn.  In time.  Until they do, the police are there to help them along.

Then these kids turn 18, graduate from high school, leave home and go to college.  And the party is only starting.  Some things never change.  Students are still binge drinking, getting high and bedding coeds.  And, of course, voting.

WE CHANGE AS we grow.  Children think about ice cream and cake.  Teenagers think about getting their driver’s license.  College students think about partying and trying to change the world (sometimes to enhance their partying).  Parents think about doing what’s best for their kids.  The middle-aged start to think about retirement and holding on to what they have (because most think that Social Security will not be there for them).  The elderly think about their mounting medical concerns and medical costs.

Where we are in the growth process influences our vote.  More kids (teenagers and early 20s) want to lower the drinking age, legalize drugs and tax the ‘rich’ than grownups.  More grownups want to lower taxes and cut government spending than kids.  But grownups were once kids.  They thought and prioritized like kids, too.  So it is likely that many voting conservative today voted liberal when they were a kid.  And they’ve grown to regret some of their votes.

This is the other kind of regret.  It’s when we change.  And realize the consequences of our previous votes.  Votes made for the moment, not the future.  And now that we have reached that future our youth helped to create, it is often not what we want anymore.  But the damage is done.  And it can’t be easily undone.  But you can’t tell this to kids today.  They won’t listen.  Just as you didn’t when you were their age.

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LESSONS LEARNED #4 “Wealth ain’t money; money ain’t wealth.” –Old Pithy

Posted by PITHOCRATES - March 11th, 2010

WEALTH COMES FROM human capital.  People making things or doing something.  And it’s what they make or do that has value.  They trade these valuable things and services for other valuable things and services.  The more complex and diverse these good and services got, though, the more difficult it got to trade them.  Money came into use.  Instead of trading directly, you could trade for money.  Later, you could take that money and trade (i.e., shop) for what you wanted.  Money was not the end; it was the means to an end.  Trade.

This is important.  It’s the goods and services that are valuable.  Not the money.  We don’t want money; we want the goods and services that money will buy. 

The producers of these things and services are wealth creators.  Those who don’t produce things or services are wealth consumers.  Farmers, craftsmen, truck drivers, entrepreneurs, etc., are wealth producers.  Thieves, the lazy, government, etc., are wealth consumers.

THE DECLINE OF the Roman Empire began in the third century.  With a military flung across the known world and a bloated government bureaucracy, she was engaged in some serious deficit spending.  The government was trying to expand the purchasing power of her money.  They just weren’t collecting enough in taxes.  And the tax rates were pretty close to confiscatory.  I mean, they taxed so much that there just wasn’t anything left to tax.

The silver denarius was the main money used by the Romans.  When first introduced, it was approximately 95% silver.  They kept debasing it until it contained less than 1% silver.  With less precious metal (silver) in each coin, they were able to make more coins.  But this did not create more wealth.  The wealth producers weren’t producing more wealth.  With more money chasing the same amount of goods, prices soared.  And the value of the silver denarius plummeted.

The silver denarius became worthless.  No one wanted to exchange their goods and serviced for it.  The Romans wouldn’t even accept it for tax payments.  And it was their own coin!  If you had gold, you paid with gold, for gold was still gold.  Precious and scarce.  Unlike the silver denarius.  If you didn’t have gold, then you paid ‘in kind’.  You gave the government some of the valuable things you created with your human capital. 

Having destroyed their medium of exchange, they cut out the ‘middleman’.  Instead of collecting tax coins to buy those things of value the empire needed, they collected those things of value directly.  The efficiencies gained by the use of money were lost.  And, well, we see why this Roman period has the word ‘decline’ in its title.

IN THE VERY beginning of the United States, everything was brand new.  The federal government.  The federal budget.  And the federal debt.  Well, the debt itself wasn’t brand new.  It was the states’ Revolutionary War debts assumed by the federal government.  And to help pay off this now federal debt the new nation introduced its first ‘sin’ tax.  On whiskey.  Well, sort of.  It was placed on the producers, not the consumers of whiskey.

This reminded many Americans of Parliament’s taxes on the colonists.  Taxation without representation they had cried then and rebelled.  Americans don’t like taxes.  Who does?  So they would rebel once again.  The only problem was that it was different now.  It was taxation WITH representation.  It was a tax levied by the new American government, not by British Parliament.

But they rebelled despite this difference.  We call it the Whiskey Rebellion.  Because it was, well, I guess that goes without saying.  With memories of Shays’ Rebellion (poor farmers in Massachusetts rebelling against debt they couldn’t pay off and high taxes) still fresh in their memory, government moved swiftly to put this rebellion down.  And they did.

Farmers in Western Pennsylvania said that the tax wasn’t ‘fair’.  But why?  Didn’t it only tax whiskey?  And wasn’t limiting whiskey consumption a good thing?  Well, the problem was the lack of money to facilitate trade.  And the lack of roads.  The farmers in western Pennsylvania (grain farmers) had good farmland.  And good crops.  What they didn’t have was a good way to sell those crops.  Not as grain, at least.

What can you make from grain that is ‘valuable’ and easier to transport than grain?  You guessed it.  Whiskey.   And this is why it was not ‘fair’.  Farmers converted excess grain (something of value) into whiskey (something of greater value).  Whiskey was more portable than grain.  Smaller amounts of it equaled the value of larger amounts of the raw grain.  Whiskey was more durable than grain (it aged, grain rotted).  It took farming PLUS distillation to make whiskey so whiskey was scarcer than grain.  So they used whiskey to trade for things of value they wanted.  It was a medium of exchange.  Because there was little money available, those farmers used whiskey as money. 

It wasn’t a ‘sin’ tax to the famers.  It was a tax on their money.  It was, therefore, a tax on everything they purchased with that money.  It was a national sales tax.  Or a national value-added tax (VAT).  That only they were paying.

ANYTHING THAT HAS the attributes (scarce, divisible, stores value, etc.) of money can be money.  It’s that thing that helps facilitate trade between the wealth producers.  It’s a medium of exchange.  It allows people with human capital to produce more goods and services.   And that’s what it’s all about.  The goods and services.  It’s what we want.  Not the money.  We want the house, car, TVs, cell phones, etc.  We’d rather have those things than the money.  It’s why we trade the money for them.  We trade our human capital for money.  Then trade the money for the stuff we want.  Goods and services created by other wealth-creators using their human capital.

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FUNDAMENTAL TRUTH #4: “Wealth ain’t money; money ain’t wealth.” –Old Pithy

Posted by PITHOCRATES - March 9th, 2010

CONSIDER THREE PEOPLE.  One is a drug addict that breaks into homes to support his habit.  He just scored last night.  Big.  Found about $2,000 in cash.  The second one is a liar.  He lies during job interviews to get jobs he isn’t qualified for.  The boss then fires him when he learns he lied himself into the job.  But he bought a lucky lotto ticket last night.  He won a million dollars.  The third person is a single mom slinging hash at a greasy diner during lunch.  When she works they need 3 waitresses to cover lunch.  When she’s off they need 4.

Right now they have the following money on them or in the bank:  the drug addict has $1,200; the lotto winner has $250,000.  The waitress has $800.  Based on these numbers, who has more money?  Not a trick question.  The lotto winner has the most money.  But who is wealthier?

A year from now the drug addict may be dead.  The lotto winner may be bankrupt.  But the waitress will probably still have $800.  Or more.  So, I ask again, who is wealthier?

WEALTH IS NOT money.  It’s ability.  It’s human capital.  It’s the talent people have that other people will pay them for.  It accrues with time.  And experience.  It doesn’t depend on luck.  You earn it.  You don’t steal it.

Our waitress is a good waitress.  If her diner closed for good tomorrow she could be working at another diner the next day.  In fact, some of her regular customers will probably follow her wherever she goes.  When it comes down to it, soup and a sandwich is just soup and a sandwich.  One diner’s may be just as good as another’s.  For those who want food fast without going to fast-food, service is everything.  Customers want good service.  And diners want good waitresses.  She delivers both.

BEFORE THERE WAS money we traded things.  We bartered.  Those with human capital, the ability to make or do things other people found valuable, made stuff or did things.  They then traded these for things they wanted.  Finding people to trade with AND who had the things you wanted took time, though.  Too much time. 

Time is…wealth.  Taking weeks to search the country for trading partners was time taken away from using that human capital.  The weeks spent searching cost wealth.  You couldn’t build things while you were searching.   People needed something better.  Something that made this exchange of goods and services easier.  Something that could temporarily store wealth.  Something portable.  Divisible.  Scarce.  Durable.

We call this temporary storage of wealth money.  We used lots of things.  Even pigs.  But you can see the limitation in using pigs (not very portable or divisible).  Dirt was more portable and divisible but it wasn’t scarce; it was everywhere.  We soon turned to silver and gold.  Then to silver and gold coins.  You could buy big things as well as small things (coins were divisible).  You could carry them in a pouch (portable).  We’re still finding Roman coins to this day (durable).  And it wasn’t easy to find gold and silver, process it and then mint it into coins (scarce). 

If you spent a week building something, you would take gold and silver in exchange for that thing you built.  Because you knew someone would exchange that gold and silver for the things you wanted.  This was a lot easier than trying to barter.  Can you imagine our waitress trying to barter her waitressing skills for a car?  I’m sure there may be a diner owner somewhere that has a car he is willing to trade for a period of good waitressing skills.  But good luck trying to find him.

WE NEED TO remember that wealth isn’t money.  Giving people money doesn’t make them wealthy.  People get wealthy from their human capital.  The greater their human capital the greater the amount of things they can trade for.  This is what stimulates consumer spending.  It’s recurring.  People can plan based on their recurring earnings.  The greater their earnings they can keep, the more they can spend.  And probably will spend.  Because they know they’re getting a ‘steady’ paycheck.  It’s not a one-time stimulus.  It will most likely be there tomorrow.  If not, they will most likely be able to find another employer who values their human capital.

To truly stimulate consumer spending you need to make it easier to build things.  Or to provide services.  Because that’s what we’re really doing.  Trading things.  Or services.  Money just makes it easier to do.  Without the underlying human capital, money would have no value.  For there would be no goods.  No services.  I mean, what good is having piles of gold and silver if you can’t trade it for something?

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LESSONS LEARNED #3 “Inflation is just another name for irresponsible government.” -Old Pithy

Posted by PITHOCRATES - March 4th, 2010

PEOPLE LIKE TO hate banks.  And bankers.  Because they get rich with other people’s money.  And they don’t do anything.  People give them money.  They then loan it and charge interest.  What a scam.

Banking is a little more complex than that.  And it’s not a scam.  Countries without good banking systems are often impoverished, Third World nations.  If you have a brilliant entrepreneurial idea, a lot of good that will do if you can’t get any money to bring it to market.  That’s what banks do.  They collect small deposits from a lot of depositors and make big loans to people like brilliant entrepreneurs.

Fractional reserve banking multiplies this lending ability.  Because only a fraction of a bank’s total depositors will ask for their deposits back at any one time, only a fraction of all deposits are kept at the bank.  Banks loan the rest.  Money comes in.  They keep a running total of how much you deposited.  They then loan out your money and charge interest to the borrower.  And pay you interest on what they borrowed from you so they could make those loans to others.  Banks, then, can loan out more money than they actually have in their vaults.  This ‘creates’ money.  The more they lend the more money they create.  This increases the money supply.  The less they lend the less money they create.  If they don’t lend any money they don’t add to the money supply.  When banks fail they contract the money supply.

Bankers are capital middlemen.  They funnel money from those who have it to those who need it.  And they do it efficiently.  We take car loans and mortgages for granted.  For we have such confidence in our banking system.  But banking is a delicate job.  The economy depends on it.  If they don’t lend enough money, businesses and entrepreneurs may not be able to borrow money when they need it.  If they lend too much, they may not be able to meet the demands of their depositors.  And if they do something wrong or act in any way that makes their depositors nervous, the depositors may run to the bank and withdraw their money.  We call this a ‘run on the bank’ when it happens.  It’s not pretty.  It’s usually associated with panic.  And when depositors withdraw more money than is in the bank, the bank fails.

DURING GOOD ECONOMIC times, businesses expand.  Often they have to borrow money to pay for the costs of meeting growing demand.  They borrow and expand.  They hire more people.  People make more money.  They deposit some of this additional money in the bank.  This creates more money to lend.  Businesses borrow more.  And so it goes.  This saving and lending increases the money supply.  We call it inflation.  A little inflation is good.  It means the economy is growing.  When it grows too fast and creates too much money, though, prices go up. 

Sustained inflation can also create a ‘bubble’ in the economy.  This is due to higher profits than normal because of artificially high prices due to inflation.  Higher selling prices are not the result of the normal laws of supply and demand.  Inflation increases prices.  Higher prices increase a company’s profit.  They grow.  Add more jobs.  Hire more people.  Who make more money.  Who buy more stuff and save more money.  Banks loan more, further increasing the money supply.  Everyone is making more money and buying more stuff.  They are ‘bidding up’ the prices (house prices or dot-com stock prices, for example) with an inflated currency.  This can lead to overvalued markets (i.e., a bubble).  Alan Greenspan called it ‘irrational exuberance’ when testifying to Congress in the 1990s.  Now, a bubble can be pretty, but it takes very little to pop and destroy it.

Hyperinflation is inflation at its worse.  Bankers don’t create it by lending too much.  People don’t create it by bidding up prices.  Governments create it by printing money.  Literally.  Sometimes following a devastating, catastrophic event like war (like Weimar Germany after World War II).  But sometimes it doesn’t need a devastating, catastrophic event.  Just unrestrained government spending.  Like in Argentina throughout much of the 20th century.

During bad economic times, businesses often have more goods and services than people are purchasing.  Their sales will fall.  They may cut their prices to try and boost their sales.  They’ll stop expanding.  Because they don’t need as much supply for the current demand, they will cut back on their output.  Lay people off.  Some may have financial problems.  Their current revenue may not cover their costs.  Some may default on their loans.  This makes bankers nervous.  They become more hesitant in lending money.  A business in trouble, then, may find they cannot borrow money.  This may force some into bankruptcy.  They may default on more loans.  As these defaults add up, it threatens a bank’s ability to repay their depositors.  They further reduce their lending.  And so it goes.  These loan defaults and lack of lending decreases the money supply.  We call it deflation.  We call deflationary periods recessions.  It means the economy isn’t growing.  The money supply decreases.  Prices go down.

We call this the business cycle.  People like the inflation part.  They have jobs.  They’re not too keen on the deflation part.  Many don’t have jobs.  But too much inflation is not good.  Prices go up making everything more expensive.  We then lose purchasing power.  So a recession can be a good thing.  It stops high inflation.  It corrects it.  That’s why we often call a small recession a correction.  Inflation and deflation are normal parts of the business cycle.  But some thought they could fix the business cycle.  Get rid of the deflation part.  So they created the Federal Reserve System (the Fed) in 1913.

The Fed is a central bank.  It loans money to Federal Reserve regional banks who in turn lend it to banks you and I go to.  They control the money supply.  They raise and lower the rate they charge banks to borrow from them.  During inflationary times, they raise their rate to decrease lending which decreases the money supply.  This is to keep good inflation from becoming bad inflation.  During deflationary times, they lower their rate to increase lending which increases the money supply.  This keeps a correction from turning into a recession.  Or so goes the theory.

The first big test of the Fed came during the 1920s.  And it failed. 

THE TWO WORLD wars were good for the American economy.  With Europe consumed by war, their agricultural and industrial output decline.  But they still needed stuff.  And with the wars fought overseas, we fulfilled that need.  For our workers and farmers weren’t in uniform. 

The Industrial Revolution mechanized the farm.  Our farmers grew more than they ever did before.  They did well.  After the war, though, the Europeans returned to the farm.  The American farmer was still growing more than ever (due to the mechanization of the farm).  There were just a whole lot less people to sell their crops to.  Crop prices fell. 

The 1920s was a time America changed.  The Wilson administration had raised taxes due to the ‘demands of war’.  This resulted in a recession following the war.  The Harding administration cut taxes based on the recommendation of Andrew Mellon, his Secretary of the Treasury.  The economy recovered.  There was a housing boom.  Electric utilities were bringing electrical power to these houses.  Which had electrical appliances (refrigerators, washing machines, vacuum cleaners, irons, toasters, etc.) and the new radio.  People began talking on the new telephone.  Millions were driving the new automobile.  People were traveling in the new airplane.  Hollywood launched the motion picture industry and Walt Disney created Mickey Mouse.  The economy had some of the most solid growth it had ever had.  People had good jobs and were buying things.  There was ‘good’ inflation. 

This ‘good’ inflation increased prices everywhere.  Including in agriculture.  The farmers’ costs went up, then, as their incomes fell.  This stressed the farming regions.  Farmers struggled.  Some failed.  Some banks failed with them.  The money supply in these areas decreased.

Near the end of the 1920s, business tried to expand to meet rising demand.  They had trouble borrowing money, though.  The economy was booming but the money supply wasn’t growing with it.  This is where the Fed failed.  They were supposed to expand the money supply to keep pace with economic growth.  But they didn’t.  In fact, the Fed contracted the money supply during this period.  They thought investors were borrowing money to invest in the stock market.  (They were wrong).  So they raised the cost of borrowing money.  To ‘stop’ the speculators.  So the Fed took the nation from a period of ‘good’ inflation into recession.  Then came the Smoot-Hawley Tariff.

Congress passed the Smoot-Hawley Tariff in 1930.  But they were discussing it in committee in 1929.  Businesses knew about it in 1929.  And like any good business, they were looking at how it would impact them.  The bill took high tariffs higher.  That meant expensive imported things would become more expensive.  The idea is to protect your domestic industry by raising the prices of less expensive imports.  Normally, business likes surgical tariffs that raise the cost of their competitor’s imports.  But this was more of an across the board price increase that would raise the cost of every import, which was certain to increase the cost of doing business.  This made business nervous.  Add uncertainty to a tight credit market and business no doubt forecasted higher costs and lower revenues (i.e., a recession).  And to weather a recession, you need a lot of cash on hand to help pay the bills until the economy recovered.  So these businesses increased their liquidity.  They cut costs, laid off people and sold their investments (i.e., stocks) to build a huge cash cushion to weather these bad times to come.  This may have been a significant factor in the selloff in October of 1929 resulting in the stock market crash. 

HERBERT HOOVER WANTED to help the farmers.  By raising crop prices (which only made food more expensive for the unemployed).  But the Smoot-Hawley Tariff met retaliatory tariffs overseas.  Overseas agricultural and industrial markets started to close.  Sales fell.  The recession had come.  Business cut back.  Unemployment soared.  Farmers couldn’t sell their bumper crops at a profit and defaulted on their loans.  When some non-farming banks failed, panic ensued.  People rushed to get their money out of the banks before their bank, too, failed.  This caused a run on the banks.  They started to fail.  This further contracted the money supply.  Recession turned into the Great Depression. 

The Fed started the recession by not meeting its core expectation.  Maintain the money supply to meet the needs of the economy.  Then a whole series of bad government action (initiated by the Hoover administration and continued by the Roosevelt administration) drove business into the ground.  The ONLY lesson they learned from this whole period is ‘inflation good, deflation bad’.  Which was the wrong lesson to learn. 

The proper lesson to learn was that when people interfere with market forces or try to replace the market decision-making mechanisms, they often decide wrong.  It was wrong for the Fed to contract the money supply (to stop speculators that weren’t there) when there was good economic growth.  And it was wrong to increase the cost of doing business (raising interest rates, increasing regulations, raising taxes, raising tariffs, restricting imports, etc.) during a recession.  The natural market forces wouldn’t have made those wrong decisions.  The government created the recession.  Then, when they tried to ‘fix’ the recession they created, they created the Great Depression.

World War I created an economic boom that we couldn’t sustain long after the war.  The farmers because their mechanization just grew too much stuff.  Our industrial sector because of bad government policy.  World War II fixed our broken economy.  We threw away most of that bad government policy and business roared to meet the demands of war-torn Europe.  But, once again, we could not sustain our post-war economy because of bad government policy.

THE ECONOMY ROARED in the 1950s.  World War II devastated the world’s economies.  We stood all but alone to fill the void.  This changed in the 1960s.  Unions became more powerful, demanding more of the pie.  This increased the cost of doing business.  This corresponded with the reemergence of those once war-torn economies.  Export markets not only shrunk, but domestic markets had new competition.  Government spending exploded.  Kennedy poured money into NASA to beat the Soviets to the moon.  The costs of the nuclear arms race grew.  Vietnam became more and more costly with no end in sight.  And LBJ created the biggest government entitlement programs since FDR created Social Security.  The size of government swelled, adding more workers to the government payroll.  They raised taxes.  But even high taxes could not prevent huge deficits.

JFK cut taxes and the economy grew.  It was able to sustain his spending.  LBJ increased taxes and the economy contracted.  There wasn’t a chance in hell the economy would support his spending.  Unwilling to cut spending and with taxes already high, the government started to print more money to pay its bills.  Much like Weimar Germany did in the 1920s (which ultimately resulted in hyperinflation).  Inflation heated up. 

Nixon would continue the process saying “we are all Keynesians now.”  Keynesian economics believed in Big Government managing the business cycle.  It puts all faith on the demand side of the equation.  Do everything to increase the disposable money people have so they can buy stuff, thus stimulating the economy.  But most of those things (wage and price controls, government subsidies, tariffs, import restrictions, regulation, etc.) typically had the opposite effect on the supply side of the equation.  The job producing side.  Those policies increased the cost of doing business.  So businesses didn’t grow.  Higher costs and lower sales pushed them into recession.  This increased unemployment.  Which, of course, reduces tax receipts.  Falling ever shorter from meeting its costs via taxes, it printed more money.  This further stoked the fires of inflation.

When Nixon took office, the dollar was the world’s reserve currency and convertible into gold.  But our monetary policy was making the dollar weak.  As they depreciated the dollar, the cost of gold in dollars soared.  Nations were buying ‘cheap’ dollars and converting them into gold at much higher market exchange rate.  Gold was flying out of the country.  To stop the gold flight, Nixon suspended the convertibility of the dollar. 

Inflation soared.  As did interest rates.  Ford did nothing to address the core problem.  During the next presidential campaign, Carter asked the nation if they were better off than they were 4 years ago.  They weren’t.  Carter won.  By that time we had double digit inflation and interest rates.  The Carter presidency was identified by malaise and stagflation (inflation AND recession at the same time).  We measured our economic woes by the misery index (the unemployment rate plus the inflation rate).  Big Government spending was smothering the nation.  And Jimmy Carter did not address that problem.  He, too, was a Keynesian. 

During the 1980 presidential election, Reagan asked the American people if they were better off now than they were 4 years ago.  The answer was, again, ‘no’.  Reagan won the election.  He was not a Keynesian.  He cut taxes like Harding and JFK did.  He learned the proper lesson from the Great Depression.  And he didn’t repeat any of their (Hoover and FDR) mistakes.  The recession did not turn into depression.  The economy recovered.  And soared once again.

MONETARY POLICY IS crucial to a healthy and growing economy.  Businesses need to borrow to grow and create jobs.  However, monetary policy is not the be-all and end-all of economic growth.  Anti-business government policies will NOT make a business expand and add jobs no matter how cheap money is to borrow.  Three bursts of economic activity in the 20th century followed tax-cuts/deregulation (the Harding, JFK and Reagan administrations).  Tax increases/new regulation killed economic growth (the Hoover/FDR and LBJ/Nixon/Ford/Carter administrations).  Good monetary policies complimented the former.  Some of the worst monetary policies accompanied the latter.  This is historical record.  Some would do well to learn it.

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FUNDAMENTAL TRUTH #3 “Inflation is just another name for irresponsible government.” -Old Pithy

Posted by PITHOCRATES - March 2nd, 2010

INFLATION CAN BE a complicated thing.  When there’s inflation, prices rise.  But it’s not because evil business owners raise their prices.   It’s because the government made money worth less.  Let’s illustrate this with a simple example.

Let’s use a lotto.  Everyone understands how the lotto works.  Those who have winning tickets win the prize.  If there is only one winning ticket, the winner claims the whole prize.  If there is more than one ticket, the winners split the prize evenly.  The more winners there are the smaller each individual’s prize is.

Let’s say the winning prize is 10 gold bars.  And let’s say there is only one winning ticket.  That one winning ticket is ‘worth’ 10 gold bars.  If there are 2 winning tickets then each ticket is ‘worth’ 5 gold bars.  If there are 5 winning tickets then each ticket is ‘worth’ 2 gold bars.  If there are 10 winning tickets then each ticket is ‘worth’ 1 gold bar.  Etc.

If you have one of the winning tickets, you see the value of that ticket decline as the number of winners increase.  In the example above, your ticket ‘worth’ in gold bars went from 10 to 5 to 2 to 1.  The more winning tickets there are, the less ‘purchasing power’ your winning ticket has.  Substitute ‘money’ for ‘winning tickets’ and you have inflation.

NOW LET’S LOOK at prices.  The ‘price’ for all 10 gold bars is the total number of winning tickets.  In the above example, the ‘price’ in winning tickets increased from 1 to 2 to 5 to 10.  The ‘price’ of those 10 gold bars, then, increased as the number of winning tickets was inflated.

This is why business owners raise their prices during periods of inflation.  Are these business owners greedy?  No more than you.  Let me ask you something.  If you paid $50,000 for a starter home and put it on the market after it appreciated to $75,000, are you going to sell it for $50,000?  Or are you going to be greedy?

All right, let’s say you’re an altruist.  You care about people, not profit.  You sell your home for $50,000.  Now let me ask you something.  Do you know what kind of house you can buy for $50,000?  Probably not like the kind you just sold.  Houses like that now cost around $75,000.

Inflation makes things more costly.  And if costs go up, prices go up.  They have to.  If a business doesn’t cover its costs it will go bankrupt.  As would you.

SO IF INFLATION is bad, why do ‘they’ increase the money supply?  Here’s the short, short answer.  Because ‘they’ like to spend more money than ‘they’ have.  I say ‘they’ because it’s complicated who ‘they’ are.  The Federal Reserve is responsible for monetary policy.  The federal government spends the money.  But don’t sweat the details.  Suffice it to say that ‘they’ are responsible for inflation.  And ‘they’ aren’t business owners.

High taxes have consequences.  Usually at the polls.  So government looks for other ways to raise money.  They can sell debt.  Or simply print money.  Neither says ‘I’ve increased your taxes’.  But they both have the same affect.  The inflation they cause increases your cost of living just as a tax increase would have.  But it’s hard to blame your misery on the government when they weren’t taking (taxing) but giving (pork barrel spending).  Quite the devious bastards, aren’t they?

Not only does the cost of living go up, but the value of your savings decline.  If you saved $10,000 in the bank, inflation will make the purchasing power of that $10,000 worth less.  $10,000 today won’t buy as much as $10,000 did a decade ago. 

This is how inflation destroys wealth.  The flip side is that it also reduces government debt.  At your expense.  If you own government bonds, inflation makes those bonds worth less.  You lose wealth.  Because they’re worth less, it is now cheaper for the government to buy them back from you.  The debt sold a decade ago is ‘cheaper’ to pay off today.

SHORT TERM DEFICIT spending can be beneficial.  If it’s used to cut taxes to stimulate the economy (like JFK and Reagan did).  An increase in economic activity can generate more tax dollars even at a lower tax rate.  This can close the gap in the budget between spending and revenue.  However, if government continues deficit spending only to buy political favor (like FDR and LBJ), there will probably not be a corresponding increase in economic activity.  The gap between spending and revenue will probably not decrease.  In fact, it will probably increase.  And unchecked deficit spending will most probably result in runaway inflation.  Sooner or later.  And you know what the consequences of that can be.  If you don’t, you can ask Jimmy Carter. 

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