The Magic Money Bag

     Fairy tails and other stories about magic money bags are
intriguing.  How many have dreamed of having their own magic
money bag?  Would it be paradise on Earth to be able to reach
into your magic bag and pull out all the money you wanted,
whenever you wanted it?

     How might a magic money bag change its owner's life? 
First, we must remember that money isn't what we really want. 
How many people would seek money if all they could do is keep
it?  What would they do with that money?  Paper their walls? 
Burn it for fuel.  Unless it was printed on edible paper, it
wouldn't make very good food?

     To get money we give others things they want.  We then
give the money to others in exchange for the things we want. 
This works for so long as individuals are willing to produce
valuable things and exchange them for money.

     The individual with the magic money bag wouldn't have
to produce anything and give it up to get money.  For him it
would be all take and no give.  All he would ever give would be
the money that flowed from his bag.

     How might this affect the bag owner's life?  Suppose he
wanted to move to another city?  He would simply buy another
house with money from his bag.  He has no need to sell his old
house.  He could keep it.  Instead of staying at a motel when he
returned for a visit, he could spend the night in his old house.

     With his magic money he could hire servants to take care
of  the house and serve him on his visits.  Why stop at one extra
house?  Buy vacation homes wherever he wanted them.  Why
stop at homes?  Buy entire resorts with golf courses,  swimming 
pools, tennis courts and whatever.  Cost isn't a limitation.

     He could skip airport security by building his own
airports and buying his own airline.  He could also pick up a
railroad or two if he wanted them.  So what if he never used
them.  They would be there just in case.

     If he felt the need for security, he could hire his own
army.  For the person with the magic money bag, even the sky
isn't the limit.  He is limited by only two things, the extent of
his imagination, and the willingness of other individuals to
accept the money as payment for real wealth.

     Why wouldn't others accept the money from the magic
bag?  It would be just as real and just as valuable as any other
money.  The man with the money bag would likely pay more
than anyone else to buy what he wanted.  If by doubling the
price anyone else offered he could easily make his purchases,
Why not do it?   It would be just as easy for him to pull two
million dollars out of the bag as to pull out one million.

     Magic money would have consequences.  The owner of
the magic bag would have no reason to work for money.  He
would produce nothing.  When it comes to real wealth he only
takes.  With his magic money he takes what others have
produced.  Everything he takes reduces what the producers have
left for their own use.

     Meanwhile, he is increasing the supply of money
available to buy those leftover things.  With more money and
less available to buy, it is inevitable that each dollar will buy
less.  If the owner of the magic bag pushes its use to the limit he
will create so much money that all money will be worthless.  No
one will accept it in exchange for real wealth.

     The magic bag will still produce unlimited amounts of
money, all worthless.  Its owner's life as a parasite is over.  He
could still trade his accumulated wealth for things produced by
others, unless they got mad and lynched him first.  The magic
money bag only provided its owner a stealthy way to steal from
others.  More next time.

aldmccallum@gmail.com
                                 * * * * *
                                  * * * *
                                   * * *
                                    * *
                                     *
Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284

How Should We Build Safety Nets?

     We hear much about safety nets.  Mostly we hear about
the government safety net.  Some people don't seem to believe
there are other safety nets.  I have heard people excited about
how many millions have been caught by the government safety
net.

     Safety nets are as old as history.  The simplest safety net
is savings.  Store up reserves for use after a fall, whatever the
fall may be.  The next stage of safety nets is family members
catching each other when someone falls.

     Beyond this neighbors catch falling neighbors.  There
may be no formal agreements about how these safety nets work. 
Individuals recognize that they may someday need help.  This
encourages them to help others to keep the safety net working in
case they fall someday.

     Lodges and fraternal organizations provided more
structured safety nets.  Such associations are partly financed by
dues.  Benefit may be limited to members.  At least, members
are likely to get first preference.

     Insurance is another safety net.  Individuals face the risk
of a loss that will not hit most of them.  They all pay in small
amounts.  These premiums provide a pool of funds from which
to reimburse the few who suffer losses.

     We also see organizations, such as The Salvation Army
and Goodwill, that raise funds mainly from donations.  They
provide help to those who didn't land in some other safety net.

     There are spontaneous safety nets.  When disaster strikes
a community or family, donations roll in.  After the Chicago fire
donations flowed to Chicago from around the nation.

     When government moves into an activity it becomes the
600-pound gorilla.  Government drives others from the field. 
Many forms of safety nets live on.  Shaded by the government
tree, many of them withered to slivers of what they would be in
the sunlight of voluntary association and freedom.

     To a large extent dependence on the government safety
net springs from the existence of the government safety net.  It
sucked the life out of the competition.  This is akin to killing
someone's helper and then taking his place.  Should we take the
killer seriously when he brags about providing a service he
claims that only he can provide?

     Are people better off with one all purpose, gargantuan
safety net than with many specialized smaller ones?  If there is
only one safety net and someone misses it, he lands on the
concrete floor.  When there are many safety nets he may be
caught by another.

     What happens if the giant net collapses?  Then everyone
slams down on the floor.  Imagine only one grocery store in the
city, and it burns down.  If there are many stores the loss of one
isn't the end of the world.

     There is also the matter of efficiency.  Up to a point
bigger is usually more efficient.  Beyond that point diminishing
efficiency sets in.  If all we have is one government safety net, it
is guaranteed that it will be big.  Well over 90 percent of
donations to The Salvation Army go to a person in need.  Less
than one third of tax dollars spent on government welfare
programs goes to a needy person.  The rest is consumed by the
bureaucracy.  This seems to suggest something.

     The trapeze artist performing over a net is likely to take
more chances than he would without the net.  People who
believe they live over a big, strong safety net will also take more
chances.  If Social Security didn't exist, How much more would
people have saved for retirement?  If unemployment insurance
didn't exist, How much quicker would the unemployed find jobs
at which they could earn something?  The list goes on.

     If government hadn't ventured into the safety net
business, we would now have a vast, and to us unimaginable,
array of private nets.  One of the most important would be
increased private savings.  No one would miss the government
safety net, when they had a far better system.

aldmccallum@gmail.com
                                 * * * * *
                                  * * * *
                                   * * *
                                    * *
                                     *
Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284

Other People's Money

     A news letter I received stated that there are only four
ways to spend money.  The letter attributed this wisdom to
Milton Friedman.

     "You can spend your own money on yourself.  When you
do that why then you really watch out what you are doing, and
try to get the most for your money.  Then you can spend your
own money on somebody else.  For example, I buy a birthday
present for someone else. Well, then I'm not so careful about the
content of the present, but I'm very careful about the cost.

     "Then I can spend somebody else's money on myself. 
And if I spend somebody else's money on myself, then I'm sure
going to have a good lunch!  Finally, I can spend somebody
else's money on somebody else.  And if I spend somebody else's
money on somebody else, I'm not concerned about how much it
is, and I'm not concerned about what I get.  And that is
government."

     The quote contains some serious truths.  It also overlooks
other truths.  It may have hit the nail on the head, but it was
only a glancing blow.

     Everyone is always concerned about what they get when
they spend.  When anyone spends he expects to gain satisfaction
by doing it, even if he is spending other people's money.  Even
spending money takes effort.  While spending we can't do
something else.  By spending we lose some other opportunity.  If
the spender didn't expect to benefit, he would leave the money
unspent, no matter whose money it was.

     We buy presents because we expect to get more
satisfaction from buying and giving the present than from any
other use of the time and money.  When buying a present with
someone else's money we still expect to gain satisfaction in
some way.

     The politician may use other people's money to buy food
for the hungry because he hates to think of hungry people.  Or,
he may "give" the food to buy votes.  There are, no doubt,
thousands of ways politicians and bureaucrats expect to increase
their satisfaction by spending other people's money.  Pursuit of
that satisfaction is the reason they spend, no mater whose money
they spend.

     Those politicians and bureaucrats may not care about the
impact on the people they take the money from, or about the
benefits to those upon whom they lavish the spending.  Then,
maybe they do care.

     Many people, even politicians, gain satisfaction from the
satisfaction of others.  Such people will care about how they
spend and what the money buys for others.

     The problem with government spending is that politicians
give little consideration to the satisfaction lost by those other
people who have their money seized.  When those who spend
other people's money can gain one unit of satisfaction they will
do it, even if it cost those who lost the money 1,000 units of
satisfaction.

     If the politician has the option of buying two units of
satisfaction, rather than one, he will do it.  He is concerned
about what he gets for other people's money.  His lack of
concern is for what others lose.

     The evil of government is that politicians and bureaucrats
get to spend other people's money for the benefit of the
politicians and bureaucrats.  The people in government gain
satisfaction, the taxpayers lose.  Sure, politicians try to dole out
some satisfaction to buy votes.  The politicians find those votes
very satisfying.

     Government is like a lottery.  It doesn't pay out more
than half of the satisfaction it takes.  Government gets away with
it because, as with the lottery, many people are convinced that
they will be among the winners.  Government is a shell game
where most voters wrongly believe they can guess which shell
holds the pea.

aldmccallum@gmail.com
                                 * * * * *
                                  * * * *
                                   * * *
                                    * *
                                     *
Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284

Why Don't Businesses Create More Jobs?

     Before considering why businesses don't create more
jobs, we should consider, Why do businesses create any jobs? 
The mission of a business is to earn profits for its owners.  A
business must make products that are more valuable than the
resources used to produce the products.

     Businesses don't hire to create jobs.   Businesses hire
workers to produce value.   Suppose that the payroll cost of a
worker is $60,000.  The worker uses up $100,000 worth of other
resources.  If the worker's product is worth $170,000 the worker
has added value.  The business earns $10,000.

     If the product is worth only $150,000 the worker has
decreased value.  His employer loses $10,000.   The business
would have been better off if it hadn't hired the employee.  A
business that keeps on making that mistake soon goes bankrupt
and ceases hiring any workers.

     This built in accountability keeps free market businesses
on the road to producing more value than they consume. 
Businesses that fail to add value soon fade and fold leaving
production to their more successful competitors.

     There is no need for a bureaucracy to ride heard on free
market businesses to make them efficient and productive.  The
automatic penalties for decreasing value, and rewards for adding
value, keep businesses on track to productivity.  Those that fall
off the track are soon history.

     King consumer marks the score cards for businesses.  For
free market businesses the consumer's decision is final.  There is
no appeal.  It doesn't matter why consumers value a business's
products so little that they won't buy them for more than the cost
of production.  The business must please the consumers, or else.

     When a business believes it can produce value by hiring
employees, it will hire if qualified people are available. 
Businesses commonly pay to train employees so they will be
better qualified.

     There are only three reasons businesses don't hire more
employees.  The businesses may not be able to find qualified or
trainable employees.  It may not have enough investment capital
to hire and equip the employees.  Or, the businesses may doubt
that the employees will produce increased value.

     When large numbers of businesses all across the economy
quit hiring it is usually for one reason.  They are afraid new
employees won't be productive enough to add value.

     Producing anything involves risk of losses.  Production of
finished consumer goods takes time.  Sometimes it takes many
years.  Businesses always face the risk that consumers won't
want the product when it is completed.  There is also the
possibility other producers will find a less expensive way to
make the product and take away the customers.

     Government creates much of  the uncertainty about future
productivity and profits.  When government threatens to make
hiring employees more costly, or to make the employees less
productive, businesses fear to invest in new production. 
Government actions that threaten to dry up the supply of
investment capital have the same effect.  Uncertainty about
government monetary policy and future interest rates add to
businesses' uncertainty.

     Vague laws about the employer's cost for medical care,
the threat of "cap and trade," and all the other recent and
pending regulations, make future productivity and profitability
unpredictable.  Businesses that fear these threats sit tight and
don't invest more than they must to hang on.   This means little
hiring for new construction, new research, etc.

     If government really wants businesses to hire more
workers, government must back off the regulatory uncertainty. 
It must scrap the recent regulations and end the threat of new
ones.  This is the only plan that will put workers back into
productive jobs.

     Government can spend to create or subsidize jobs that
cost more than they produce.  Those non productive jobs are a
drag on the economy, not a stimulant.  Such jobs will never
provide the base for economic recovery.  These jobs only drag
us deeper into the swamp of economic stagnation.

                                 * * * * *
                                  * * * *
                                   * * *
                                    * *
                                     *
Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284

It's a Comic Strip World

     I recall a plot from years ago.  I don't remember if it was
part of a radio drama, book or something else.  The creator of a
comic strip was kidnapped.  Only he had the creative genius to
get the hero through the perils he faced.

     The creator's staff tried desperately to keep the comic
strip going.  The staff couldn't rescue the hero.  The only
"solution" the staff knew was to buy time by putting the hero in
deeper.  Each day's strip added a new peril.

     Obviously this wasn't going to rescue the hero.  The staff
knew this.  The only hope was to keep the strip alive until the
creator returned to rescue the hero.  What if the staff dug the
hero in so deep that even the genius of the creator wasn't enough
to rescue the hero?

     In such case I suppose there was still the Dallas option. 
Some may recall that the television evening soap opera, Dallas,
declared an entire season to be someone's dream and started
over.

     I have no ending for the old drama.  I don't  remember if
the creator returned and rescued the hero.  You can create your
own ending if you so choose.

     Governments the world over are plagiarizing the script
from that old drama.  Instead of trying to keep a comic strip
running for another day, they are trying to keep economies
struggling along for another election.

     As the governments stagger from crisis into deeper crisis
it becomes increasingly obvious that the patches of the day aren't
working.  Even the Congressional Budget Office admits the
Obama stimulus spending is lowering rather than increasing long
term economic growth.  When even the government's own
"experts" admit failure, you can be sure we are in really big
trouble.  How much deeper can government dig the hole before
the next election?

     The problems of Europe and the Euro make even The
Perils of Pauline seem tame.   A short time ago the Euro
managers claimed to have again solved the problem that had
failed to respond to all of the previous solutions.   Now analysts
are worrying that without drastic action the Euro could collapse
into a pile of dust.

     One analyst recommended that the US Federal Reserve
create more money and buy a trillion or  two dollars worth of
European bad debt to save the Euro.  He didn't offer any advise
on who might then save the US dollar.  Perhaps the Europeans
could create a few trillion more Euros and buy US bad debt.

     How many more perils can clueless governments pile
onto the private enterprise hero before he is beyond rescue, even
by the most creative of minds?  In the real world you don't have
the option of declaring the nightmare to simply be a bad dream
and start over with a clean slate.

     When the recession started, government preached the
Keynesian "wisdom" that all that we need do to rescue the
economy was to increase consumer spending.  "Helicopter Ben"
Bernanke suggested that we had to get people to spend more,
even if we had to drop money from helicopters.

     As far as I know few people dropped money from
helicopters.  Consumer spending is now above pre recession
levels.  The economy is still stagnant.  Official unemployment is
still stuck above 8 percent.  This does not include the millions
who have given up looking for work.  All we have to show for
the stimulus spending is more debt.  It's the 1930s all over
again.

     Will the voters ever come to their senses and throw out
the clueless politicians whose only solutions to our problems are
to pile on more problems in desperate attempts to survive
another election?   Such solutions might be fun reading in a
comic strip.  They are far less fun when we live them in the real
world.

     Oh, yes.  If you don't like the ending, you won't have the
option of writing your own.

aldmccallum@gmail.com

                                 * * * * *
                                  * * * *
                                   * * *
                                    * *
                                     *
Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284