What Can We Learn from Sports?

     Professional sports teams are businesses.  They live in a
different world than most businesses. Thus, they behave
differently.  Still, the sports world isn't as different as some
might imagine.

     Teams pay hundreds of millions of dollars to hire one
player.  Teams furiously compete to hire the best players.  Why
don't teams hire more cheaper players, rather than a few
expensive ones?  The answer is simple.  The teams are limited
by the rules as to the number of players they can hire and use at
anyone time.  Hiring two cheaper players usually isn't the
equivalent of hiring one of the best.

     A weak team may benefit more by hiring the two weaker
players.  This may make the team stronger, but it will still be
weaker than the best teams.   For good teams to improve they
must hire the best, no matter what it costs.  There is little
demand in the Major Leagues for less productive players.  They
must seek other ways to earn their living.

     In the world of business the market for CEOs is much
like the market for star athletes.  A company has only one CEO. 
It can't get the same result by hiring two or three CEOs with
lesser ability.    To be successful the company must hire the
best, even if it costs a bundle.

     Thus, the market for CEOs is much like the market for
star athletes.  And, not surprisingly, the compensation for
CEOs rivals the compensation paid star athletes.

     Fortunately, in most areas businesses aren't limited to
hiring one or a few employees.  The business can hire as many
employees as it needs to do the job.  The productivity of a
second or third employee is in addition to, not in place of, the
productivity of the first employee.

     When making hiring plans businesses compare total cost
of the employees to the total value of what the employees will
produce.  The costs of an employee include all of the costs for
equipment, material and supplies the employee will use to be
productive.  Hiring 10 employees may achieve the same
production as the hiring of seven more productive employees.

     Will the business hire the 10 or the seven?  That depends
on which will cost the most.  If the cost of the 10 is less than
the cost of the seven, the business will benefit by hiring the ten. 
In free markets less productive workers can compete with more
productive workers by accepting lower pay.  Everyone wants
higher pay.  Please note that lower pay is more than the no pay
alternative of unemployment.

     We will now consider a few of the ways we have tilted
the playing field against the less productive workers.  Prevailing
wage laws are one of the most obvious.  These laws include the
1930 Davis-Bacon Act that requires government contractors to
paying the so called prevailing wage to employees.  The
"prevailing wage" is usually interpreted to mean the union wage.

     Such laws push wages higher for the more productive
workers while keeping the less productive workers unemployed
or in lower paying jobs.  Employers hire the seven, not the 10. 
This wasn't an unintended consequence.  Supporters of the law
claimed it would protect high paid, "deserving" white workers
from competition from low skilled black workers.  The law
worked.  The mere fact a law works doesn't make it desirable or
good.

     All minimum wage laws, whether called minimum wage
laws, living wage laws or something else, have the same effect. 
Some early advocates of these laws openly stated the purpose of
the laws was to keep women and "undesirables" from competing
with "deserving" men for jobs.  Union wages also discriminate
against the 10 and favor the seven.

     This great morass of wage laws pushes up the wages paid
to the most productive while dooming the less productive to
unemployment.  Average wages may go up.  Average income
goes down.  The beneficiaries of the higher wages pay more
taxes to support the unemployed.  Who wins this game?

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

How to Prevent a Flood

     Flooding is a serious problem, at least for people living
in flood planes of major rivers.  Many people live in those flood
plains.  Some observations about rivers and water suggest a
solution.

     Too much water at the flooded location causes the flood. 
If the river flowed faster, the excess water would drain away. 
Alas, no flood.  The answer to flooding is to make the river flow
faster.

     We can also observe that more water makes the river
flow faster.  Obviously the cause of floods is lack of water.

     To implement this solution during the next flood, the dam
operators opened all the gates releasing the stored water.  To
their absolute amazement the flood waters rose to the highest
level ever seen.

     Skeptics always claimed that the "solution" was flawed
and wouldn't work.  These doubters were vilified by the
politicians and the press.  The true believers claimed the evil
doubters wanted people to die in floods.  The doubters now
claimed vindication.  Vindication for heretics isn't that easy.

     The true believers said, not so fast.  We must study the
problem  The most expensive and most reputable consultants
diligently studied the problem to find what went wrong and how
to get it right next time.  Three years and a couple of floods
later the consultants issued their report.

     The problem wasn't that the solution was flawed.  The
problem was that those implementing the solution failed.  They
were too conservative.  They only did half a job.  They didn't
release anywhere near enough water.  The answer lay in bolder
measures that would release more water.  The consultants also
reported that their calculations showed the solution did work. 
Without the additional water the worst flood ever would have
been even worse.

     The skeptics still voiced their complaint that the theory
could never work, no matter  how much water was dumped into
the river to stop the flood.  This irritated the true believers. 
They shouted down the skeptics.  The skeptics were branded as
anti science.  Some claimed the skeptics and their silly ideas
were a threat to the welfare of everyone.  True believers
demanded that the skeptics be imprisoned to prevent their
undermining of true science.

     Certainly this could never happen in the real world, or,
Could it?  The economy is in the tank.  Government tried to
borrow and spend the nation out of a recession in the 1930s. 
The result was an even deeper depression.  Borrowing and
spending failed to solve the problem.

     Bush and Obama have tried to borrow and spend our way
out of the current economic collapse.  It hasn't worked.  The
skeptics tell us the plan is flawed and will never work.  It will
only make the recession deeper.

     The true believers still claim the problem is that we
haven't borrowed and spent enough.  We have been too
conservative and cautious.  We need more courage and more
money to borrow and spend our way out of debt and into
prosperity.  The politicians and the main stream media shout
Amen!

     Is it possible that we should give the skeptics their day in
court?  Should we hear them out?  Should we demand that those
who advocate borrow and spend defend their theory with facts,
figures and real world examples?

     Or, should we yield to those who merely shout and tell
us how smart and learned they are?  If the true believers in
borrow and spend have a sound theory, Why shouldn't those
brilliant people be able to prove the soundness of their theory?

     Of course those "brilliant" people will respond that most
of us are simply too dumb to understand.  How brilliant is the
person who can't break the complex down into simple
components that a person with an IQ a bit under 170 can
understand?  Ranting and shouting are the "arguments" of those
who don't understand the ideas they advocate.

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

Four Kinds of People

     Everyone falls into one of four categories.  Some people
are beneficial to you.  Others are detrimental to you.  Some
don't affect you in any way.  The fourth category includes those
who are both beneficial and detrimental.

     Consider a neighbor who gives you vegetables from his
garden.  He is beneficial.  When he annoys you with the noise
from his garden tractor, he is detrimental.  Many people,
including most relatives, neighbors and other people we directly
interact with, are in this fourth category.  Who do you know
who hasn't irritated or annoyed you at least once?

     People who are only detrimental find little sympathy with
those they damage.  Most of us generally see detrimental people
as enemies.  They are competitors who provide no benefits to
offset the detriment.  It is easy for people to decide it is in their
best interest to destroy detrimental enemies.

     Ignorance further complicates the matter.  Individuals are
often ignorant about the impact others have.  An individual may
fail to recognize either the detriment or the benefit flowing from
the acts of others.  People always choose and act on what they
believe, not on the unknown reality.  I could give a host of 
examples.  That must await another day.

     Self sufficient, isolated people benefit very little from
those outside their isolated tribe or nation.  For most of  history
distant people were irrelevant, usually unknown.  The world of 
that day didn't extend beyond the neighboring tribes.

     Mainly those tribes were seen as detrimental competitors. 
They competed for scarce resources -- wild animals, grazing
land, wood and water.  Those neighboring tribes were only
detriments.  In times of severe shortages they could be a life
threatening detriment.

     The natural state of relationships among tribes was
hostility and war.  Destroying the competitor was good.  The
existence of the competitor was an endless threat.  About the
only thing that restrained neighboring tribes from battling to the
death was concern about the costs of war.

     Tribe members generally had a different attitude toward
members of the tribe.  These members cooperated with each
other and benefited each other.  The tribe members usually were
at least sometimes beneficial.  Even within the tribe some were
seen by others as detrimental.  Those detrimental members were
well advised to watch their backs.

     Competing tribes might cooperate to defend against
stronger tribes.  This expanded the boundaries of beneficial
relationships.  Wars and unstable peace based on a balance of
terror was the state of existence for most of history.   Major
change began with the Industrial Revolution.  Specialization and
trade expanded the group of people we find beneficial.  We now
benefit from people all over the world.  Ignorance of those
benefits still leads to hostilities.

     The major cause of wars is isolation that renders people
on the other side of the line useless.  World trade collapsed as a
result of the US enacting the Smoot-Hawley trade bill in 1930. 
Fearing the inability to import the resources they needed,
Germany and Japan embarked on ventures to create isolated self
sufficiency.  And, they became useless to the rest of the world. 
Germany and Japan set out to conquer the resources they
believed they needed.  Vast regions of the world became only
competitors and enemies.  They weren't beneficial to each other.

     During the Communist era the world divided into
competing blocks that were largely isolated from each other. 
The biggest threats to peace today are nations such as North
Korea and Iran that either choose isolation, or others chose to
isolate them.

     Isolation is the road to war.  Interaction and free trade is
the road to peace.  Those who oppose free trade are marching us
to war, whether they know it or not.  Perhaps this is why anti
free traders are usually among those demanding an ever stronger
military.

     "When goods do not cross borders, soldiers will." 
Frederic Bastiat, nineteenth century French economist.

aldmccallum@gmail.com

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

Mr. Worker and Mr. Nasty

     Mr. Worker is capable and ambitious.  He goes to work
every day.  Because Mr. Worker produces so much for his
employer, his employer pays him substantial wages.

     Mr. Nasty, Mr. Worker's neighbor, doesn't have a job. 
He produces nothing.  On payday Mr. Nasty follows Mr. Worker
to the bank.  Nasty demands 40 percent of Worker's pay.  Nasty
threatens to hurt Worker if he doesn't pay up.

     Mr. Nasty has another bad habit.  Every morning he
locks Worker in the basement for three hours.  Worker is always
late for work.  Worker would produce and earn more if he didn't
spend those hours locked in the basement.

     Why doesn't Nasty let Worker go to work?  Nasty could
take more pay from Worker if Nasty let Worker produce more. 
Is Nasty just plain dumb?

     Nasty is trying to increase his own satisfaction.  He does
it at the expense of Worker.  What does Nasty find satisfying? 
Nasty gains great satisfaction from dominating and controlling
Worker.  Mr. Nasty gains more satisfaction from dominating
Worker than he would from taking more money from him. 
Also, Nasty mistakenly believes that those hours spent locked in
the basement will make Worker more productive.

     Why does Worker put up with the abuse by Nasty? 
Worker actually believes Nasty's claim that the time locked in
the basement makes Worker more productive.  Worker doesn't
like being locked in the basement.  He puts up with it because
he believes the clever Mr. Nasty is doing it for Worker's good.

     Also, Worker never had the things he didn't produce
while locked in the basement.  A starving individual will greatly
miss a sandwich snatched from his mouth.  If the sandwich
never existed, he won't miss it as much.  He will still be just as
hungry.  He won't blame the person who denied him the
sandwich when he doesn't even realize that person was
responsible.

     It never occurred to Worker that there was anything
wrong about Nasty taking part of Worker's pay.  After all, Nasty
had always taken it.  Besides that, Nasty takes 40 percent from
everyone else in the neighborhood.  Mr. Worker grew up
watching Mr. Nasty's father take earnings from Worker's father. 
Thus, it always has been.  Thus, it must ever be.

     Mr. Worker never found the magic word --Why?  "Why"
is the beginning of all change.  For people who never ask
"Why?" nothing changes other than by accident.  Why must we
get by with light from candles?  Why must we travel by
horseback?  Why aren't there better ways?  Why must we do
seemingly pointless things that we have always done?

     Of course, Mr. Worker represents the hard working,
productive taxpayers of our nation.  Mr. Nasty is government. 
Some people may not recall being locked in their basement for
three hours a day.   Others do recall being locked up some place
for much longer.

     Government laws, and regulations interfere with
productivity just as much as would locking workers in the
basement for a few hours every day.  Those who don't see what
is happening don't mind.  They even buy the government claims
that they are better off because they are locked in the basement.

     Those hours in the basement grow longer with every
session of Congress and the state legislatures.  How much longer
will the Mr. Workers of our nation be able to sustain us with
their productivity during the shrinking hours they are allowed
out of the basement?

     Of course, those hours in the basement that reduce
production also reduce tax revenue.  Like Mr. Nasty, some in
government actually believe they are making people better off. 
Others in government, also like Mr. Nasty, simply enjoy
dominating and ruling others.

     When will more people start asking, "Why should
workers have to tolerate long hours locked in the government
basement?"

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

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