Dirt and Goo

     We humans endlessly seek to increase our satisfaction. 
In the beginning humans didn't seem to have much to work with. 
All that existed was natural resources and people.  Some of
those natural resources, such as berries and nuts, were nearly
ready for use to increase the satisfaction of humans.  Other than
air and water, most of the earth started out as little more than
dirt and goo.

     Plants and animals grew from that dirt and goo, with
some help from air and water.  They got a big boost from an
extraterrestrial natural resource -- sunlight.  Powered by sunlight,
plants turned dirt, goo, air and water into organic matter. 
Animals ate the plants.  The animals further transformed the dirt
and goo into meat and skins.

     Early humans lived mainly on the dirt and goo that plants
and animals transformed into things, such as food, which humans
found useful for increasing their satisfaction.  To use the
products of plants and animals required human action.  A berry
on a bush didn't satisfy hunger.  Neither did a rabbit running
wild.  Human effort made the products of nature useful for
producing human satisfaction.

     Ideas must precede action.  Except for reflex actions,
humans act only because they have ideas about acting and what
those actions might produce.  Of course, the ultimate goal is to
produce satisfaction.  Some of the first ideas were about using
plants and animals to increase satisfaction.  Pick berries.  Catch
rabbits.  Use sticks to help catch rabbits.

     Humans also had ideas about using those lumps of dirt
called stones.  Stones were useful for cracking nuts and throwing
at rabbits.

     Things that natural processes and human effort made
ready to use for increasing human satisfaction came to be called
consumer goods.  All consumer goods are the products of dirt,
goo, air, water and sunlight.  The only human contributions are
ideas and effort.  Ideas are the product of mental effort.

     Look about you.  Consider the consumer goods
surrounding you -- food, clothing, houses, microwaves,
televisions, vehicles, furniture, and endless other things.  All of
those things were made from dirt and goo.

     The dirt and goo are as old as the earth.  Human effort is
as old as the human race.  Why did it take so long to transform
the dirt and goo into all of the useful things we have today? 
The missing ingredient was ideas.  Humans had to discover how
to turn dirt and goo into a microwave.  First they had to discover
how to turn the dirt and goo into steel and plastic.  They also
had to discover how to use dirt and goo to make electric
generators.

     Increasing our standard of living depends on increasing
our ability to transform dirt and goo into consumer goods useful
for increasing our satisfaction.   We see no indication that the
human capacity to think and work is on the increase.  Our only
hope for advancement is increasing the fruits of the efforts of
which we are capable.

     To increase the fruits of our efforts we must have more
and better equipment, and use it more efficiently.  The industrial
revolution is about the efficient use of technology and equipment
to amplify the productivity of our efforts.  Among other things,
the increased productivity frees time to do other things. 
Increasing our productivity is the same as adding more hours to
our days.

     If we are to continue adding more hours to our days, we
must continue expanding our investment in technology and
equipment to amplify our ability to produce consumer goods.

     Unfortunately, tax and spend government is consuming
the wealth that we must invest in research and production if we
are to increase, or even sustain, our level of prosperity. 
Government is literally stealing hours from our days by limiting
our ability to turn dirt and goo into useful things.  If we continue
down this road we are on our way back to where we started, the
world of dirt and goo.

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

"You Didn't Build It"

     Politicians regularly spew outlandish ideas and absurd
lies.   Such are so commonplace that we grow immune to them. 
Still, occasionally a statement stands feet, ankles and waste deep
below others in the swamp of absurdity.  Obama's admonition to
businessmen that "You didn't build it" stands out as an absurdity
for the ages.

     If the entrepreneur didn't build the business, Who did? 
Would Ford Motor Company and automobiles have "just
happened" without Henry of Dearborn?  Who did build Ford
Motor and all of the other businesses that provide most of the
things we have and use?  Why aren't we all still independent
hunter-gathers picking berries and chasing rabbits for our next
meal?

     We don't need a pompous politician to tell us no one
does anything by himself.  If somebody hadn't provided you
with food and clothing, you wouldn't have survived to do
anything.

     I built a front porch on my house.  Of course, I didn't
build without assistance.  I bought materials and had some help
from family members.  Many of the ideas I  used I picked up
over the years from other people.  I don't even know the origin
of those ideas and many of the materials.  By myself I would
have trouble making a decent hammer.

     Without my making plans, collecting materials, and
directing the efforts I wouldn't have a porch.  My efforts were
indispensable for managing the building of my porch.  Quibble
about whether I built the porch, if you want to.  Without my
efforts as planner and director the porch wouldn't have
happened.

     Likewise Ford Motor Company, Target, Burger King,
John Deere, etc., etc. didn't just happen.  Someone had ideas and
resources which they put to work.  Such entrepreneurs are
behind the production of almost everything we consume in a
civilized trading society.  Even those who grow their own food
depend on others to provide tools, seed, fertilizer, etc.

     Without the entrepreneurs who make plans and bring
resources together to produce consumer goods, the world would
be populated (sparsely populated) by independent
hunter-gatherers.  We owe everything to those entrepreneurs to
whom Obama said "You didn't build it."

     The government of which Obama is so proud wouldn't
preside over anything more than a few rabbit chasers if it wasn't
for what entrepreneurs built.  Government lives as a parasite off
the production of the businesses that Obama demeans.  The
entrepreneurs could fairly say to Obama "You didn't build that
government."

     Government pays for some of the resources businesses
use.  Government pays with wealth taken from the private sector,
wealth created through the planning and direction of businesses. 
Government then uses that wealth to hire private businesses to
build highways, dams, etc.  Private businesses also build
highways, etc. on their own.  I drove on an expressway build by
Disney.

     Is Obama so ignorant and arrogant that he believes that
without government no one would build roads, etc.?  What does
Obama believe?  Does he do anything more that parrot whatever
someone sticks in his teleprompter?  As someone pointed out,
Obama didn't build that speech.

     The idea that businesses don't make indispensable
contributions to production is straight out of  Karl Marx's
Communism.  If Obama doesn't want to be called a Communist,
he shouldn't talk like one.

     One can learn far more about the importance of
entrepreneurs from Ayn Rand than from Obama.  I don't agree
with Rand on some points.  She was spot on in the defense of
entrepreneurship.

     In Rand's "Atlas Shrugged" the entrepreneurs quit.  As a
result the economy collapsed into strife and starvation.  The
parasitic government that Obama praises so much collapsed
under its own weight.  Mr. Obama, you have got it totally
backward on who is carrying whom.

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

What Will the Federal Reserve Do With Its Magic Money Bag?

     Previously we considered what would happen to our
money if someone with a magic money bag endlessly shook
money out of the bag and spent it.  The ending wasn't a happy
one.  The owner of the bag used his magic money to steal
wealth from those who produced it.  In the end all the money
was worthless.

     Next we saw that magic money bags aren't confined to
fairy tales.  Magic money bags exist in the real world.  The US
Federal Reserve (Fed) has one of those bags.  It can create and
spend unlimited amounts of money.  If it does, it will steal
wealth from everyone who has money.  In the end all dollars
will be worthless.

     So far the Fed has shown some restraint in reaching into
its magic bag.  Still, in less than one hundred years it has pulled
enough new money out of the magic bag to reduce the value of
our dollar to around 5 percent of its 1914 value.

     What does the future hold?  Will the Fed continue to
limit its use of magic money, or will it turn the bag upside down
and shake it?  If the Fed maxes out the magic bag, all US
dollars will be as worthless as the German mark was in 1923. 
How secure do you feel having the future value of your money
depend on political appointees in Washington, D.C. exercising
restraint in making and spending money?

     We can safely assume two things that are in our favor. 
The individuals who control the Fed and have custody of the
magic bag know that shaking too much money out of the bag
will destroy the dollar.  They have no desire to destroy the
dollar.

     They deliberately and endlessly weaken the dollar
decreasing its value.  They try to weaken the dollar without
killing it.  One great danger is that they will miscalculate and
inadvertently kill the dollar.  This isn't the greatest danger.

     Often events control people.  Sometimes our only option
it to choose among really bad alternatives.  The Fed might
decide that under such circumstances risking destruction of the
dollar is the best option among the bad alternatives.

     How might this happen?  Government doesn't have
unlimited ability to tax and borrow.  A government's credit
rating may become so bad that it can't borrow money.  Or,
perhaps it can borrow money only at interest rates it can't pay
through more borrowing and taxation.  Also, at some point
increased tax rates shrink the economy resulting in less tax
revenue.

     When this happens the government has two choices.  It
can cut spending or turn the magic bag upside down and shake
it.  Telling people that the gravy train has crashed and there will
be no more manna from Washington would have disastrous
political consequences.  It is the kind of event that sweeps away
politicians and governments.

     In the eyes of the political class the dangers of hyper
inflation and destroying the dollar in the future seem small
compared to the danger of losing power right now.  So, they
shake every dollar they can out of the magic bag.  As the money
loses its value, they try to compensate by shaking the magic bag
even harder.  They won't quit shaking the bag until the money is
worthless.

     Zimbabwe shook out so much new money that the value
of its money diminished to where Zimbabwe couldn't use its
money to buy paper and ink to print more money.

     The government of the USA is fast approaching the point
where it will be unable to borrow or raise more revenue through
taxation.  Unless government at all levels in the US drastically
cut spending, and take the harsh political consequences, soon the
only option left will be to shake the magic money bag.

     No one knows when we will reach that point.  I can't
imagine that it will take anywhere near another hundred years. 
Sooner or later the US dollar will be worthless.  Have a nice
day.

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

Is There a Real Magic Money bag?

     Last time we saw what would happen if someone with a
magic money bag pushed its use to the limit.  For a time he
could live very well as a parasite on productive people.  In the
end his magic money and everyone else's money would become
worthless.

     Is the story of the magic money bag merely a fairy tale? 
Santa Clause and the tooth fairy are myths.  Magic money bags
are real.  Even as you read this, special individuals all over the
world are pulling money from their magic bags and spending it.

     Zimbabwe had a magic money bag.  It pushed the bag to
its limit.  It pulled so much money out of its bag that it took
billions of Zimbabwe dollars to buy a loaf of bread.  Next, no
amount of those dollars was enough to buy a slice of bread.

     In 1923 Germany maxed out its magic money bag. 
German marks became so plentiful that they were worthless.  
These are only two of the many instances where governments
have maxed out their magic bags.  Once the magic is gone, all
that remains is bankruptcy.

     Many fairy tales begin "Long ago, far away, in another
land."   Unfortunately, this beginning doesn't apply to the tale of
the magic money bag.  The Continental Congress during the
Revolutionary War maxed out its money bag before the war was
over.  This gave rise to the expression "Not worth a
Continental."

     Did we learn from the experience of the Continental
Congress?  Apparently we didn't learn enough.  The US
government still has a magic money bag.   Since 1914 the
Federal Reserve (Fed) has custody of the magic bag.

     Has the Fed used the magic bag?  It certainly has.  Is the
Fed still using the magic bag today?  It is using the bag like
never before.  Has pulling money out of the magic bag had
consequences?  It surely has.

     A recent article estimated that today's dollar is worth
about eight 1914 cents. Others calculate that today's dollar is
worth less than a 1914 nickel.  These estimates appear to be
reasonable.  All of the decrease in the value of our dollars was
caused by the Fed using the magic money bag to create more
dollars.  The good news is that those who have magic money
bags will never run out of money.  The bad news is that the
money eventually becomes worthless.

     So what if our dollars are now worth only eight cents? 
We can still buy stuff.  We have survived almost 100 years with
the Fed and its magic money bag.  Why not try for another
hundred?  Whatever happens after that won't matter to any of us.

     During the first 59 years the Fed had compelling reason
to limit its use of the magic bag.  From the beginning (1914) the
Fed could print all of the dollars it wanted to.  It had a bigger
brake on its want to than it does now.

     Those printed dollars were backed by gold.  The
government promised to redeem then for gold.  When the Fed
printed more dollars than it had gold, it risked bankruptcy.  It
was gambling that the holders of  those dollars wouldn't all
demand gold.

     In 1933 Franklin Roosevelt reneged on that promise to
everyone in the US.  Foreign governments could sill demand
gold.  In 1971 the gold was flowing out so fast that the US
government faced running out of gold if it kept printing more
dollars.

     Did government quit pulling money out of the magic
bag?  Of course not.  Nixon slammed shut the gold window at
the Fed.  Even foreigners could no longer demand gold.  It isn't
coincidence that after Nixon slammed the gold window shut,
inflation roared.  It wasn't until the Reagan administration that
the Fed closed the magic bag far enough to bring down inflation.

     Our money will retain value in the future only if the Fed
exercises restraint in reaching into the magic bag.  Next time:
What should we expect from the Fed and its magic bag?

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