Basic Economics – Part 1 – Different Economic Systems

This  will be the first in a series of posts about basic  economics.  By no coincidence, “Basic Economics” by Thomas Sowell is the inspiration for much of these postings, though I will be doing quite a bit of paraphrasing.

The British economist Lionel Robbins gave the classic definition of economics:

Economics is the study of the use of scarce resources which have alternative uses.

For any desirable resource, there will frequently be more people who want the resource than there is resource available.  For example, let’s consider beachfront property.  Beachfront property is a scarce resource.   There are far more people who would like to own beachfront property than there is property available.  Some people will get this property and others won’t.  There are many different ways this property could be allocated.  For example:

  • In a pure capitalist economy, whoever pays the most, gets it.
  • In a command economy, a government official would decide who gets it.
  • In an anarchistic economy, whoever is strong enough to seize it and hold it gets it.
  • It could be allocated randomly through a lottery.
  • It could be allocated on a first come, first serve basis.
  • It could be allocated based on some type of contest.

Beachfront property also has alternative uses:

  • It can be used as a public beach.
  • It can be used as a private estate.
  • It can be used as an inexpensive hotel.
  • It can be used as a luxury hotel.
  • It can be used as a timeshare.
  • It can be used as a marina for small boats.
  • It an be used as an industrial port.
  • It can be used as a port for large passenger ships.
  • It can not be used at all and kept as a nature reserve.

I’m sure that more time brainstorming could determine other allocation mechanisms and other uses.

The key point here is that no matter how we allocate beachfront property, there will be some people who get it and others who don’t.  That is true whether we have a capitalist economy, a communist economy, or any other economy.  We can’t expect any economic system to make everybody happy.  How then should we determine which is the best economic system?

Stay tuned.

Problems, Concerns, and Annoyances – Keeping Your Perspective

As human beings, we tend to spend a fair amount of time feeling upset about one thing or another.  As being upset is typically not the most pleasant way to spend the afternoon, I try to keep perspective by dividing anything that might upset me into one of three categories:  problems, concerns, and annoyances.

  • A problem is an imminent threat that if it goes poorly it could significantly effect your life or the life of someone you care about one year from now.
  • A concern is a threat that if it goes poorly it could significantly effect your life or the life of someone you care about one year from now, but it is not imminent.  It could occur but it probably won’t occur.
  • An annoyance is anything that if it goes poorly will not affect your life a year from now.

Here are some distinctions:

Problems

  • My spouse has been diagnosed with Stage 3 Cancer.
  • My company just had layoffs.  I wasn’t in this round of layoffs but we expect more layoffs later this month.

Concerns

  • My spouse has unhealthy eating habits.
  • My company may do poorly if the economy takes a downturn.

Annoyances

  • My spouse didn’t do the dishes last night.
  • My co-worker messed up at work so now I have to work all weekend.

Most of us spend much of our time getting ourselves all worked up over annoyances.  Yes, annoyances are annoying but they won’t kill us.  Annoyances aren’t worth the mental anguish of upsetting ourselves.  We just need to tell ourselves that in the long run, it doesn’t make any difference then just get past it without wasting our mental energy.

For concerns we should spend some mental energy to try to make sure our concerns don’t become problems or to mitigate the problems if they do occur.  For example, we might prepare healthier meals or learn a new job skill that could be useful if your current job goes away.  We should not waste our mental energy getting upset over things that are unlikely to occur.

Save your mental energy for the true problems in life, the ones that count.  And if by some chance you are at a time in your life that you don’t have problems, just concerns and annoyances, take a moment to savor it.  We tend to get so caught up in our annoyances and concerns that we forget to appreciate the times our lives are truly blessed.

 

Books That Have Changed Me

I love to read.  There are many, many books I have loved.  There are only a handful that have changed who I am as a person, the way I live my life or the way I think.  I’d like to share these books in the order I read them:

  • “How to Win Friends and Influence People” by Dale Carnegie – This is the best self help book ever written.  Dale Carnegie himself said that his book was not filled with original ideas.  It is filled with the every day common sense methods for dealing with people that are very uncommon in actual use.  It is not a book in manipulation.  It is a book that helps you appreciate people and bring out the best in them.  It also contains wonderful stories and is a delight to read.
  • “Let’s Get Results, Not Excuses:  A no-nonsense Approach to Increasing Productivity, Performance and Profit” by James M. Bleech and Dr. David G. Mutchler – This is a book that some people get immediately and some people will just laugh at.  It starts with the premise that you have success or excuses but you don’t have both.  If you are successful, you don’t need excuses.  One path to success is to figure out in advance that if you fail, what excuses might you have for your failure.  Then you proactively work to prevent the need for excuses.  A key aspect of this is that you stop making excuses.  When you are not successful, you take responsibility.  For example, I don’t say “I was late because of traffic.”  Instead, I say “I was late because I did not allow enough time to account for traffic problems.”
  • “Atlas Shrugged” by Ayn Rand –  I have for a long time believed that capitalism was the most effective economic system, but I felt that socialism was morally superior.  Rand convincingly (to me) argues that capitalism is not only the most effective system, it is also morally superior.  She uses her fiction, most notably “Atlas Shrugged” and “The Fountainhead” to argue her philosophy which she calls Objectivism.  She also wrote many non-fiction philosophical books.   Atlas Shrugged is a long, long book and can be intimidating.  If you are new to Ayn Rand, I would actually start with her short novella “Anthem” which can be read in just a few bathroom sittings.  If you like “Anthem”, you can proceed to “Atlas Shrugged”.
  • “Basic Economics” by Dr. Thomas Sowell – Dr. Sowell does an amazing job in defining economics for the layman.  Most political issues have an economic component.  Dr. Sowell teaches you how to analyze issues so you can understand and anticipate the actual effects of different policies, which are very often the exact opposite of what their proponents intended.

The last three books are from the world of investing and stock trading.  I took no interest in managing my own investments for the first 45 or so years of my life.  I therefore was oblivious to many amazing opportunities.  Now learning how to invest/trade has become a major focus in my life.  These are the best three books I have found on investing.

  • “Reminiscences of a Stock Operator” by Edwin Lefevre – This book is the autobiography of Jesse Livermore, generally considered to be the greatest trader of all time.  This is the book that first got me truly interested in the stock market. First, it is a wonderful read with amazing stories.  Second, it is a guidebook on how a great trader thinks.  Every time I re-read this book, I learn lessons that strike home that I was not able to appreciate in prior readings.
  • “How to Make Money in Stocks” by William O’Neil – O’Neill is one of the greatest traders of the modern era.  This book is basically the bible for growth investing.   Most new investors crash and burn early then give up on investing. The most important thing this  book will do for you is that if you follow its key principles, it will prevent you from wiping out.  It will keep you in the game, limiting losses as you make your initial mistakes until you have enough experience to be a profitable investor.
  • “Trade like a Stock Market Wizard” by Mark Minervini – Minervini is an O’Neil disciple and a former United States investing champion.  He spent his first eight years or so being unsuccessful.  Once he refined his techniques, he put together an amazing number of large win years without ever experiencing a large losing year.  My investing improved substantially once I began following Minervini’s principles.  

A Litmus Test for Your Principles

When the government implements a policy, there are two morality aspects involved:  the morality of the policy itself and the morality of the implementation process.  This process includes how the debate is conducted, how the politicians are elected, and how officials use or misuse their power?  

  • Are the issues presented truthfully and responsibly?
  • Are elections held honestly?
  • Are the rules followed in the legislative process?
  • Does the executive branch faithfully implement the legislation?
  • Do officials use their power to reward friends or punish enemies?

For many years the United States Senate had the rule that it required 60 votes to cutoff debate.  Effectively, that meant that 60 votes were required to pass any legislation.  As in most years neither party had 60 senators, this meant that some bipartisan support was required for any legislation.  When George W. Bush was president, some people suggested that the senate eliminate the 60 vote requirement and only require a majority of 51.  This was called the “Nuclear Option”.  The Democrats, most notably Harry Reid and Barack Obama denounced the nuclear option then when Bush was president but invoked it when Obama became president.

A litmus test of political principle is that you should be totally consistent in your views regardless of which side of the issue you are on.  I have a lot of respect for the noted attorney and political commentator Alan Derschowitz.  While Derschowitz is very liberal on most issues, he is totally even-handed on issues involving the morality of politics.  Unfortunately Derschowitz is in the minority these days.  The vast majority of liberals either support current administration policies such as using the IRS against political opponents or using executive orders instead of legislation or they just ignore the issue altogether.  

I remember a number of years ago some employees were fired for using office email to announce meetings of a “family values” group that, among other things, opposed gay marriage.  I wondered if they would have been fired if they announced meetings for a group that supported gay marriage.

I know the conservatives are certainly not blameless in this regard, but with the liberals currently in power the hypocrisy here is just particularly glaring.

Whenever there is an issue on the poltical morality, you should ask yourself if your position be any different if the opposing side used the same tactics.  Would it make a difference if George W. Bush or Barack Obama used the tactics in question?  If your opinion changes depending on the side, then you should re-examine your principles.

 (http://www.politifact.com/truth-o-meter/statements/2013/nov/22/harry-reid/harry-reid-among-flip-floppers-senates-nuclear-opt/, http://newsbusters.org/blogs/noel-sheppard/2012/11/28/obama-fought-against-eliminating-filibuster-2005)

The “Right” to Healthcare

President Obama stated that everybody has a right to healthcare and this moral statement was a primary justification for the establishment of Obama-care.  Here the right to healthcare should more precisely be stated as the right to free healthcare, the right to have healthcare whether or not one can pay for it. 

By definition, a right is only a right if everybody can exercise the right.  We say that freedom of speech and freedom of religion are basic rights.  These are rights that everybody can exercise.  My exercising my right to say what I want or to join any religion does not take away the rights of anybody else to do the same.  

In contrast, not everybody can have free healthcare.  I might be able to claim free healthcare and you might be able to claim free healthcare but unless we make slaves of the entire medical industry, at some point, somebody has to pay for the healthcare. Therefore by definition, free healthcare cannot be a right.

A right can only be a right if it does not impose an involuntary obligation on others.  If I have the right to have someone provide me with anything, whether it be healthcare or food or shelter or shoes, at some point it confers upon somebody else the obligation to provide it.  When that person is forced to provide the service for others, the obligated person is unable to exercise the right for themselves.

It may or may not be a good policy for the federal government to provide free healthcare to those who can’t afford it, but we cannot say that anybody has the right to free healthcare.

Hello World! (Part II)

I called my first post Hello World!

I am a computer programmer and the first program a programmer creates in learning a new computer language is to display the words “Hello World!”.  In my original post, although I said hello, I assumed nobody actually read it because nobody else knew about this blog.  I wanted to get a few posts out first before I told anybody about it.

Today I am announcing my blog on Facebook.  There is still a distinct chance that nobody will read,  it but after today, maybe somebody will.

If you are first reading my blog, I suggest that you start at the oldest posts and work your way on up, at least through the February 2014 posts.   You can do this by going to the column on the right and clicking February 2014 under archives.

I state in these posts what I am trying to accomplish with this blog.  I think this background will be very helpful in reading the more current posts.  If by some unlikely event you find these posts interesting, you may want to scroll your way up.  I am trying to slowly build a perspective and the later posts build on what I said in the earlier posts.

In short, I am sharing my thoughts on philosophy and politics.  I am a big believer that most people of all political persuasions are good people and we primarily have the same goals.  We differ in our assumptions, however, and because of these assumptions, it is hard for us to hold a dialogue.  I like to examine the underlying assumptions behind the issues.  Only when we can get down to the core assumptions, down to the first path where we differ, can we hold any kind of meaningful dialogue.

In any case, I thank you for taking the time to read this today.

A Starting Point for Discussing Morality

I previously blogged that the best way to analyze the effectiveness of a policy is if it rewards good choices or bad choices.  Effectiveness is only part of judging if a policy is good, however.  The other side is morality.   For a policy to be good, it must be both effective and it must be moral.

While effectiveness can be objectively measured, morality is much more subjective.  To take morality to its most basic level, I propose that for anything to be immoral, an offense must be committed.  An offense is anything that offends, displeases, or causes harm.   Offenses can be categorized as one or more of the following:

  • An offense against oneself
  • An offense against others
  • An offense against God

The definition of an offense against God is entirely subject to a person’s individual religious beliefs.  I spoke before of common assumptions.  If one is a Christian, one can assume that the New Testament is an authoritative source for what is an offense against God so two Christians can use this as a reference for a debate.  Even if the logic based upon the New Testament is flawless, it will have no impact on a Jew, Muslim, Atheist, or anyone who is not a Christian.  The same can be said for any religion.  My own personal belief is that I don’t believe there is any offense against God that is not also an offense against oneself or others.  This of course is 100% subjective.

In any case, my ongoing discussions of the morality of any issue will not involve any references to God.  I know there are those who believe that morality cannot even be discussed without the concept of God.  As I blogged previously, without shared assumptions, a starting point, there can be no meaningful discussion.   I will understand if this is your view and you totally reject everything I say on this subject.

I will further go on to state my belief that an offense only against oneself is not immoral.  It may be incredibly stupid, but it is not immoral.  If you make a poor choice and you are the only one injured by your choice, you have not made an immoral choice, just an ineffective choice.

Frequently, however, people who think their bad choices affect only themselves are quite mistaken.  They just don’t think things through fully.  For example, a person might say that riding a motorcycle without a helmet is not immoral, because the rider only injures him/herself.  If, however,  the rider suffers a brain injury and doesn’t have the resources to pay all the medical bills and provide care for him/herself, then the cost of this bad decision is born not just by the rider but by everyone else in society who must contribute to this person’s care.  Also, anyone who is dependent upon the rider, such as the rider’s children, are hurt as well.  Finally, the people who care about the rider may be emotionally devastated, in itself a severe injury.

With the caveat therefore that when we say we are only hurting ourselves, we may be mistaken, my analysis going forward will define as being possibly immoral only actions that hurt others.  This does not mean that any action that hurts others is immoral.  When you buy from Target and not Walmart, one can argue that you are hurting the people at Walmart.  This does not make your purchase immoral.  I am just saying that only an offense against others makes an act possibly immoral.  We can then debate if it actually is moral or immoral.