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
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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.

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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

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

Can You Count to Two?

     You have probably heard that the mayor of New York
plans to prohibit the sale of sugar containing soft drinks larger
than 16 ounces.  This probably won't have much direct impact
on me.  I rarely drink soft drinks, maybe a half dozen a year.  I
don't recall ever drinking one larger than 16 ounces.

     Also, I have no intention of ever going to New York
again.  I can spot a dumb idea even as far off as New York.

     I read that as a follow up to the great idea The New York
City Board of Health is considering limiting the size of popcorn
containers and drinks containing milk.  This all reminds me of a
few years back when the British House of Lords debated
whether to require thinner bread slices to reduce obesity.  This is
just one more example of how the US lets Europe perfect dumb
ideas before imitating them.

     When I was in college it was illegal in Michigan to sell
milk in containers larger than one quart.  This had nothing to do
with fat.  It was to protect those who sold milk in quart bottles
from competition from those who might put milk in gallon jugs.

     A young man across the hall from me in the dorm had a
slight passion for chocolate milk.  Being limited to quart bottles
didn't stop him.  Being a clever college student he could count
to two.  He figured out that he could buy two quart bottles of
chocolate milk.   Not only that, he figured out how to do it
every evening.

     After the school year ended I didn't see this person again
for a few years.  When next I encountered him he was at least
twice the man he was before.  For people who can count to two,
or perhaps even three or four, limiting container sizes doesn't
prevent obesity.

     Something buried in the unconscious mind determines
how much a person eats and weighs.  This is why 98 percent or
so of people who lose weight gain it back.

     If a mere shrinking of containers or servings would
reduce food intake everyone could quickly and easily lose weight
and keep it off.  People spend huge amounts of money trying to
find ways to trick their unconscious minds into letting them lose
weight and keep it lost.  In the long run it almost never works.

     How much ignorance and arrogance must a politician
have to believe some simple minded  prohibition will magically
change the operation of the unconscious mind?  Part of the
reason government is such a counter productive failure is that
simple minded ignoramuses, such as the mayor of New York
City, dominate government.

     I can confidently promise that if the mayor's plan is
implemented it will have no lasting impact on obesity in New
York, or any place else.  People will weigh less when and only
when they either run out of food, or convince their unconscious
minds to let them eat less.

     There is hope that government will solve the fat problem. 
If government continues to tax, borrow and spend as if there
were no tomorrow, eventually there will be no tomorrow for
most   people.  As the country runs out of food, obesity will
cease to be a problem.

     Some may see a down side to this solution.  This does
nothing to distinguish it from other government problem solving. 
Invariably government "solutions" create worse problems down
the road a piece.  If you doubt that, stay tuned for the major
recession government has already made inevitable with its ham
handed attempts to force a recovery from the last recession.

aldmccallum@gmail.com

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

Ignorance Is Dangerous

     An article from the Mackinac Center began as follows:
"Two Democrats, Sens. Rebekah Warren, D-Ann Arbor, and
Hoon-Yung Hopgood, D-Taylor, announced this week that they
would introduce a constitutional amendment to ban schools
operated by for-profit entities in Michigan.

     "'Our education institutions should not be guided by a
mission statement focused on making a profit,' Sen. Warren said. 
'Michigan's children deserve to receive an education focused on
their success and empowerment -- a mission with no room for
profits and corporate management.'"

     The ignorance condensed into that short quote raised my
blood pressure so high I had to relax a while before writing
about it.  My first response was to try to imagine adjectives
stronger than ignorant, foolish and stupid to describe the content
of the quote.

     What is so evil about a school or anyone else earning a
profit?  I prefer that the businesses I buy from or work for earn
profits.  If they don't earn profits they are doing a poor job. 
They aren't creating any value.  They are a waste.  Amtrak and
the US Postal Service don't earn profits.  Are these the models
we should follow for schools?  Oh, wait, we already are
following those models.

     How can competing, free market schools earn a profit? 
What does that profit mean?  If a school has the only game in
town it may gain (not earn) a huge profit from its monopoly. 
The customers' only choice is that school or no school.

     If customers have a choice, Which school will they
choose?  Don't be surprised if they choose the one that serves
them the best.  If the customer isn't personally paying the
school, don't expect the customer to give much weight to how
efficient the school is.  This is one of  the weaknesses of charter
schools.  If the customer gets what he wants and someone else
pays, Why should the customer worry about the costs?

     With a choice of schools the customer will seek out the
one that serves him best.  Each customer will have his own
views about what good service is.  Some may focus on location. 
Others may be concerned about curriculum, discipline, sports,
music, etc.

     All of the above are legitimate concerns.  The school that
best fits each customer's demands will get his business, and the
money that goes with it.  The for-profit school is likely to do its
best to keep costs down, whether the customer cares or not.   By
increasing efficiency and cutting costs the school, like any
business, can earn more profits.

     The need to serve its customers and cut costs work
together to hold businesses accountable.  The free market school
that earns the most profit will be the one that serves best.

     On the other hand, monopoly government schools that
face little or no competition don't have to serve or please the
customers.  We have legions of examples across the nation, such
as Detroit, where government schools have failed miserably for
years.  They still are failing and still destroying the educational
opportunities of the children trapped in them.

     If those schools faced competition, they would be long
gone, driven into bankruptcy by more competent competition. 
The successful schools would ever face more competition from
other schools attempting to out serve them and drive them from
the market.

     For-profit schools aren't a curse that dooms children to
lives of illiteracy and ignorance.  They are the only kind of
school that will always have to find better ways to serve the
students.

     The senators sponsoring the ban on for-profit schools
might be self serving liars catering to a special interest, such as
the Michigan Education Association.  Or, they may be so
ignorant that they believe what they are saying.  Either way they
are dangerous.  Their foolish idea should be exposed and
dumped, not implemented.  It can only make poor schools worse
by prohibiting accountability through competition.  Of course,
failing schools and those paid by them aren't eager for
competition.

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

Who Should Control Your Temperature?

     Who should control the temperature in your home?  What
will happen if someone a thousand miles away controls it?  That
person doesn't even know the temperature in your house.  He
doesn't know what you want the temperature to be.   He also
controls the heat for all the rest of the homes in the country.

     The heat controller collects such information as he can.
He calculates the average temperature in all houses.  Next, he
determines how much energy is needed to change the
temperature in the average house.

     The controller decides that the average temperature in all
homes in 83 degrees.  His target temperature is 68 degrees.
Based on the average capacity of air conditioners, the controller
decides that everyone's air conditioner should run for three hours
to achieve the desired average temperature.  Then he sends out
the commands.  Will you soon be comfortable?

     What if you want 74 or 64 degrees?  Don't worry.  You
have as much chance of getting one of those temperatures as of
getting 68 degrees.  I left out a few details.

     It takes time to collect and analyze data.  By time the
controller reached his decision it was November 17.  He then
knew the average temperature of  homes on July 23.  By the
time the commands are executed it will be January.

     What are the chances that cranking up everyone's air
conditioners in January will make you comfortable?  It may be
the right choice for a few people in California, Texas and
Florida.  Doing nothing would most likely be better for the rest.
At least doing noting wouldn't add to their discomfort.

     Any time we rely on distant controllers to provide one
size fits all solutions we face the same insurmountable obstacles.
The controller will always be operating on historical data, not
current conditions.  Also, there will always be time lags in
implementing whatever "solutions" the controller devises.

     Besides, the controller will of necessity use average data
that fails to recognize the real conditions facing most people.
Even blind luck can't bring success.  If the temperature
controller some how guessed the right average amount of heating
or cooling, the amount would still be wrong for most homes.
Unless all homes are identical and experience identical weather
conditions, the "solution" wouldn't be a solution.  Even then the
people who didn't want 68 degrees would still be out of luck.

     Central control of schools, the economy, medical
services, etc. are all doomed to get results that almost no one
wants.  The basic problem isn't the lack of ability or dishonesty
of the controllers.  The problem is that they will always be using
a flawed approach that can't work.  If we want success we must
abandon the concept of central control.

     We can't fix central control.  It isn't merely broken.  It
has unfixable inherent defects.  Republicans have no more
chance of fixing it than do Democrats.

     The solution is the spontaneous order that is achieved by
free people.  Let everyone set his own thermostat.  When
individuals set their own thermostats they consider the real
circumstances, including costs.  They don't decide based on
averages, or someone else's preferences.  They also reap the
benefits and pay the costs of their choices.

     The sum of the results of all the choices determines
prices.  Prices in turn determine production.  The prices for heat
interact with the prices for corn flakes and everything else.
Those prices then determine wages and the price of natural
resources for all the branches of production.

     As a result production is constantly shifted toward what
consumers want the most.  And, each person is rewarded for the
value he contributes for others.  For those who want to control
what others consume, this isn't a happy solution.   For those
willing to live and let live and who want to prosper, it is the best
that is humanly possible.

aldmccallum@gmail.com
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Other People

     The world is crawling with other people, billions of them.
There is only one you.  Not surprisingly those other people have
a major impact on your life.  Anyone who doubts that should
spend a few minutes considering what life would be like without
other people.

     There would be some benefits.  You wouldn't have to
worry about being robbed or murdered.  No one would take your
favorite parking space.  Of course, no one would make anything
for you to park.

     You wouldn't have to worry about anyone interrupting
while you were talking.  No one would be listening or criticizing
either.  You would have to produce, of harvest from nature,
everything you used.  Yes, life without other people would be a
bit different.

     Those other people can be a benefit or a detriment.
Some are likely to be both.  The only other option is that some
of them will have no impact on you whatsoever.  If those no
impact others suddenly disappeared, it wouldn't matter.  You
wouldn't realize they were gone.  If others who were only a
detriment vanished, you would be better off.

     Humans long ago figured out that life could be better
without the detrimental others.  The world split into two groups,
us and them.  The people who found each other beneficial allied
against those who were detrimental to them.  War was born.
Ignorance and misinformation often lead to exaggeration of the
threat from others.

     When people live in separate groups competing for scarce
resources, such as food, water, fuel and hunting grounds, each
group will likely see the other as a detriment and a threat.
Naturally, each group will want to eradicate the other, or at least
drive the others away and seize their resources.  If there were
plenty for everyone, there would be far less reason to attack the
others.

     If each group provided benefits to the other, war would
be detrimental to both.  Destroying the others would end the
benefits they provided.  Mutual dependence reduces hostilities
and war.

     Interaction with others reduces the potential for strife in
another way.  The interaction is likely to reduce ignorance and
misunderstandings that lead to strife.

     People will always choose to do what they believe will
bring them the most satisfaction.  If driving others away or
destroying them appears to be the most satisfying thing to do,
that is what people will do.  Plans commonly go wrong.  Those
who set out to destroy a feared enemy often destroy themselves.

     People commonly pursue conflicting goals without seeing
the conflict.  Employees seek higher pay and job security.
Higher pay inevitably decreases job security by making the
employee less valuable to the employer.

     Likewise seeking peace and security while opposing free
trade are inconsistent.  When we trade with each other, we
benefit from each other.  The best formula for peace is to move
all of those others from the "don't matter" and "detrimental"
categories to the "beneficial" category.

     Trading with each other is a natural, simple way to
achieve this end.  Opposing free trade is opposing bringing those
in the "them" group into the "us" group.  Opposing free trade is
opposing peace and security.

     Frederic Bastiat observed more than 150 years ago
"When goods do not cross borders, soldiers will."  Nothing has
changed.  A substantial  part of the cause of World War II was
the break down in world trade triggered by US adoption of the
Smoot-Hawley tariff act in 1930.

     Both Germany and Japan were short on natural resources,
including petroleum.  Fear that they would be unable to trade for
what they needed motivated them to seek resources by conquest.

     Japan didn't want war with the US.  Germany didn't want
war with England.  Both attacked nations standing in the way of
conquering resources.  Would we be safer if we didn't trade with
the Chinese?

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