What is ignorance?

Column 2019-3 (1/21/19)

The American Heritage Dictionary defines ignorance as; “The condition of being uneducated, unaware, or uninformed.” If this brief definition said it all about ignorance, this would be a very short column.

I don’t find the AHD definition satisfactory. It is too vague. So I tried Merriam-Webster. I was rewarded with; “the state or fact of being ignorant: lack of knowledge, education, or awareness .” It is a bit wordy, but it found the key.

Ignorance, like cold, isn’t any thing. Cold is absence of heat. Ignorance is simply lack of knowledge. It doesn’t need to be embellished with judgmental type words.

If mere ignorance is a fault, everyone is at fault. Everyone begins life totally ignorant. A life time later, even the most knowledgeable are still mostly ignorant. Imagine a test covering all the knowledge accumulated by humanity. How well do you believe you would score? For anyone to pass this test it would have to be graded on a curve, or else accept something well under 1 percent as a passing score.

Ignorance as an absolute is meaningless. It becomes meaningful only if tied to a body of knowledge. It is meaningful to refer to ignorance about nuclear physics, or college basket ball. Neither ignorance is a fault, except for those who need to know. For a college basketball coach to be totally ignorant about college basketball would, to say the least, be a problem.

To identify ignorance we must identify the type of ignorance. Ignorance about one’s own ignorance can be dangerous. Even more dangerous is being ignorant of the fact that some things one believes are not true. Another way to put it, ignorantly believing falsehoods is dangerous. This is especially true when the ignorant one tries to impose his beliefs on others.

Unfortunately many people don’t bother to verify their beliefs before being sure they are right. Such people can be dangerous when wrong about something important.

Of course, being allowed to vote doesn’t magically eliminate the voters ignorance. Even if a person tried to learn all about government and the consequences of what it does, he would be unable to come close to his goal.

In the real world the shrill voice of ignorant zealots drown out the quiet voice of reason. We need a baloney detector to identify the voices of the advocates of ignorance. There are a few badges of ignorance we can use to identify the advocates of ignorance.

Their response to “Why?” is often telling. If they can’t explain why they are right, they probably aren’t. Those who attack and vilify their opponent probably do so because they can’t defend their own ideas. Those who try to silence, or even imprison, opponents to their ideas should never be taken seriously. They are driven by emotions, not facts and reason.

There are few topics where ignorance and wrong ideas dominate more than in economics. In most elections economic concerns are the strongest force. If voters learn the truth about economics and vote accordingly, ignorance about the other issues may not be terribly important.

The poster boy and girl for economic ignorance are Bernie Sanders and Alexandria Ocasio-Cortez. If their version of ignorance prevails,the future won’t be bright. Donald Trump and Elizabeth Warren would make good replacements if Sanders and Ocasio-Cortez decline the honor. It would take a book to analyze the economic ignorance of any of the four.

If you are looking for sound economics, check out FEE.org or mises.org.

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Copyright 2019

Albert D. McCallum

Who Should We Trust?

Column 2019-2 (2/14/19)

Trust is indispensable to a prosperous civilization. Try to imagine your life if you didn’t trust anyone. You would have to test all the food you bought to make sure it wasn’t spoiled or poisoned. But, wait, you wouldn’t be able to trust the tester.

What about trusting the mechanic who fixes the breaks on your car? The clothing you buy might be saturated with dangerous chemicals. The bank might never return your money.

Civilization is built on trust. We generally trust the people who produce and deliver things we consume or use. If we doubt the trustworthiness of a supplier we turn to another.

Some individuals aren’t trustworthy. How can we weed them out? We should start with the understanding of some basics of human nature. First we should reject the false idea that some people are selfish and others are not.

People often judge selfishness by how much an individual wants material things. Obtaining material items isn’t anyone’s ultimate goal. People want things because they believe those things will bring them satisfaction. Everyone’s ultimate goal is to maximize their satisfaction. The goods and services we pursue are only means for achieving our ultimate goal. When a person makes a choice, he choose the option he believes will yield the most satisfaction. When it comes to satisfaction, everyone is totally selfish.

When the manufacturer, merchant, or mechanic serves you he expects to increase his own satisfaction. He may gain some satisfaction from a job well done. That satisfaction doesn’t put bread on his table. He serves you mainly because he hopes to use the money you pay to buy something he will find satisfying.

Most of your suppliers in the marketplace are motivated to earn your trust, even though most of them don’t know you exist. Only the fly by night con artist can disregard pleasing you.

If you can’t withhold payment from a supplier, he has far less reason to please you. If your supplier is accountable to someone other than you, his self interest demands that he seek to please that person rather than please you. You trust such suppliers at your peril.

The idea that you can’t trust business people because they seek profits doesn’t hold water. Free market businesses must first please their customers and earn the customer’s trust.

If a business gains its profits from government subsidies and other favors, it will be more concerned with pleasing politicians and government bureaucrats than with pleasing customers.

Most government enterprises don’t sell their products. Thus, they don’t have customers to serve. A few, such as municipal water works, sell their product, but usually have a monopoly in their service area. Either way, user satisfaction doesn’t have to be high on their list of concerns. Every employee’s future hangs on the pleasing of the bureaucrats and politicians above them. The employees future doesn’t much depend on earning the trust of the users of the product. Thus, there is reason to be concerned about trusting providers of government services.

Some people fantasize that government employees being free of the profit motive faithfully serve the public. Being free of the profit motive, only frees government personnel from the need to please the consumers. Like everyone else government personnel seek first to please themselves.

They are much more free to do so than are those who work in the private sector. Thus, there is far less reason to trust the so called public servants. The real public servants work for free market enterprises where their only options are serve or fail.

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Copyright 2019

Albert D. McCallum

What Are Real Savings?

Column 2019-1 (1/7/19)

Most people in our culture are taught from an early age that saving is a virtue. Some oriental cultures seem to put an even greater emphasis on saving. Does anyone even ask, What is saving? What can we save? How can we save?

Many think of saving in terms of money. Put money in a bank or stuff it in your mattress and you have saved. Do either, and all you have saved is money.

Few, if any, people really want money. You can’t eat money, wear it, or live in it. Money isn’t real wealth. Money is all but worthless by itself.

It is what money represents that has value. One value of money is that it makes trading easier. If there is nothing to trade money is all but useless. If you were stranded in the desert thirsty, hungry and sunburned, How much would you appreciate someone dropping you a plane load of money?

Saving money serves little purpose, unless someone makes something for you to buy with the money. We need to distinguish between saving money and saving real wealth. All wealth can be divided into two categories, consumer goods, and resources that can be used to make consumer goods. Natural resources, factories, railroads, labor, etc. have value because they can be used to make consumer goods. The term goods, in its broadest sense includes services. We can save only those things that can be preserved for future use.

Depositing money in a bank doesn’t save any real wealth. If that money is loaned to someone to pay for a vacation, no real wealth is saved. The real wealth is as consumed and gone as if the depositor had used his money to pay for his own vacation. All that still exists is a promise by the borrower to replace the real wealth he has consumed.

If the money is borrowed by a farmer to pay for a tractor, or by a plummer to buy tools, real wealth has been saved. The saved wealth will be useful for production of consumer goods.

Money savings may be valuable and important to an individual. When it comes to preserving and increasing our standard of living, only real savings count. We are more prosperous than our ancestors because, generation after generation our ancestors invested real savings in technology and equipment that increased the productivity of workers.

If we don’t at least maintain the accumulation of real savings, productivity will decline. Our standard of living will slide back toward where it used to be. If we are to increase our standard of living we must add to the accumulation of real savings.

Calling US government bonds savings bonds is fraudulent. Most spending by government is for consumption. Only a small fraction of government spending is for things to be used in future production. Savings bonds mostly pay for things that are consumed and gone.

The greatest threat to prosperity is run away government spending. How government finances that spending is of minor importance. Government can tax, borrow, or create new money. What ever way government gets the money, spending it on consumption will reduce the amount of real wealth available for investment in the means of production.

In the short term the people who get to spend may benefit. In the long run everyone will

suffer from the decreased productivity springing from the consumption of real savings.

It took a half century or so of irresponsible government to get Venezuela where it is now. Do we really want the USA 50 years from now to be the disaster Venezuela is today? I fear that most people don’t care, as long as they get their “free” lunch today.

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Copyright 2019

Albert D. McCallum

Who Benefits From Trade?

Column 2018-10 (12/17/18)

There is more insanity about trade in the air today than there is snow in the air during a Michigan winter. Much of that insanity flows from a person named Trump. I’ll let you guess which Trump. It seems, to me at least, that it is time to again visit the matter of trade. Why do we trade? How important is trade? Who benefits from trade? Who is hurt by tariffs? Who benefits from tariffs? Is it, as that Trump claims, easy to win a trade war?

Who benefits is easy. Everyone who doesn’t want to struggle to survive on subsistence agriculture benefits substantially from trade. The specialization that makes our high level of productivity and standard of living possible couldn't exist if everyone had to make all of his own stuff. Without trade most people now alive couldn’t survive.

Both parties to a trade expect to benefit. Neither would make the trade if he didn’t expect to benefit. Sometimes the benefits don’t materialize. This risk isn’t limited to trade. Due to uncertainty about the future, any choice we make may turn out to be wrong. In most trades the benefits flow and we keep on trading.

There is a common myth that where our trading partners live is a big deal. It isn’t. Long distance trades are more difficult. Still, we wouldn't make the trades if we didn’t expect to benefit. This is as true in trades with people in Asia as in a trade with your neighbor.

All trades affect other people. If you switch grocery stores, one loses business, the other gains business. Trading can eliminate some jobs, but it creates others. The new jobs better serve consumers. That is why consumers switch suppliers.

The creative destruction eliminated 700 thousand or so jobs in Michigan last year. It also created more than enough new jobs to replace the old ones.

Some are concerned that when we buy shirts from China, the new jobs are in China. That is only half of the picture. To pay for the shirts, we send aircraft, soy beans, etc. to the Chinese. That creates jobs in the US.

Government borrowing isn’t a good thing; however, when the government borrows from China and spends in the US, it creates jobs in the US. If the US government gives the money to foreign countries, don’t blame China. We are still as well off as we would be if the US government had borrowed the money in the US.

US tariffs are paid by the buyers in the US. If the tariff stops imports, buyers then pay higher prices resulting from the elimination of the preferred supply. The only beneficiaries are the suppliers that can charge higher prices because of the tariffs.

As for winning trade wars, at the moment I can’t think of even one case where gains exceeded losses. The same as in shooting wars, trade wars are about how much you can hurt the other side.

The initial tariff reduces trade which means both sides are losers. The retaliatory tariff further reduces trade, again harming both sides. If someone breaks your left leg, Does it make sense to retaliate by breaking your own right leg? The closest thing to winning a trade war is ending it.

It might be worth noticing that various economists have from time to time warned that if goods don’t cross borders, solders will. Nations that don’t trade with each other are much more likely to go to war than are those that trade.

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Copyright 2018

Albert D. McCallum