The remedy and the reality

Am I saying that’s all there is to economics? Not at all. What you have learned are some of the basics which have a direct effect on the welfare of each person in the world; basics that apply everywhere and at all times, basics that do not change. Basics that apply to any economic entity. Is our country being destroyed from within? Economic advisers might say, “Yes.”

But a couple of things should become very clear to you. Politicians keep passing laws and spending money resulting in lowering production, and they keep passing laws and spending money increasing the size of government, and this results in the constant weakening of our country. Also, the way they’re able to get away with all this by paigning. But what you might not understand is how we got into this mess in the first place. You may never ask a more important question in your life. The answer goes back over two centuries.

When our forefathers wrote the Constitution they produced one of the most ingenious instruments in the history of the world. What developed from that document was a land of freedom and prosperity, the likes of which had never been seen on earth. But remember it was developed by people . . . not magicians . . . it was developed by men who could see only the world around them, certainly not the world of the future. They could envision the future, but they couldn’t see it. In no way were they perfect! Evidence this by the many amendments to the Constitution. And think, if you would, of one graphic example of their imperfection . . . the leaders of our country in their day condoned slavery and today we despise it.

When the Constitution was drafted it was supposed the government would be made up of Page-111-Kvolunteer politicians who would do their politicking on a temporary basis and then return to their original businesses. In other words, the farmer who became the Representative would serve for a few years and then go back to the farm. The lawyer who was elected to the Senate would serve his term and then go back home to be a lawyer. Never in their wildest dreams could our forefathers have imagined the career politician, much less the career bureaucrat, who today control our country.

The unfortunate truth of the matter is that most of our politicians, their first day in office and all the following days of their term, are preoccupied with being elected for another term, and another term, and another term. And the longer they are in office, the better they get at paigning.

Think the people can’t see through this? Let me draw an example. Let’s say a drug addict is talking with Doctor A. The drug addict says ‘doctor, I’m hurting bad,’ and the doctor says, “My advice is to go to a drug rehabilitation clinic . . . this program will take many months. The first thing you do is go through withdrawal and you will be completely miserable, but in the end there will be a decent chance of kicking your dependency on drugs so you may straighten out your life.” Now let’s suppose this same addict is talking to Doctor B who says, “You’re hurting bad . . . oh you poor thing . . . would you like me to give you a fix?” Which doctor do you think he would choose? No contest, right?

Now let’s look at the ECONOMIC ADDICT who is addicted to government checks. He talks with politician A who says ‘you vote for me and I will show you how, if you are willing to bite the bullet, to wrestle with initial hard times so we may strengthen the country by increasing production and seriously roll back the involvement of government in order to reduce spending . . . part of which is your paycheck . . . and thereby raise the Gross Domestic Product in order to make the country more prosperous so you will be able to get away from your dependency and be your own person. Then he talks with politician B who says, “Vote for me. I know you’re hurting and I will see to it that the government gives you bigger checks.” Politician B wins in a landslide.

Politician B wins, the checks get bigger, the inflation gets worse, the economic addict is back where he was before because his bigger check won’t buy as much as his smaller check bought before. And all the while he’s waiting to get back where he was, his check buys less and less, and poor people can’t afford anything less! To the economic addict, politician A is evil because he won’t get a fix from him and he will no doubt vote for politician B again, and again, and again.

Couldn’t we do something so the addict would understand? I’ve learned from this stay on earth that people listen to what they want to hear. I’m not saying people are bad or dumb. I’m only saying people are what they are.

Do all politicians paign? No just the overwhelming majority; and it’s amazing how many sincere, non-paigning campaigners learn the hard art of paigning their first day in office because that’s when they start running for their second term.

What makes politicians that way? I’ve got them down to three categories: Category 1 is the politician who is not only a confirmed liar but may even be crooked. His purpose for being in politics is self-serving. He will do or say anything to serve himself first, regardless of the cost to others. We’ve seen many of them. Some of them come to office poor and leave rich, some get indicted and go to jail, some even resign under fire. They say, “I will help you because it will help me . . . I don’t care who I hurt . . . but what I want is your vote.” I would guess this represents a small minority of politicians.

The second category will say,  “I will help you,” but what they really mean is, “I will help you . . . I am oblivious to any harm it might do,” and should something arise whereby ‘helping you’ looks like it may lose votes for him, he will then change accordingly. In other words he is basically a good guy with good intentions until the situation looks like it may take some votes away from him, and then he will act like the fellow in category 1. I would guess that the majority of our politicians are in this category.

The third bunch are the ones that say, “I will help you,” and they do. They will even help you if it kills you or someone else. Helping is akin to breathing. Stop helping and you might as well stop breathing. Don’t ever evaluate what harm all this helping may do to others as long as you help, help, help . . . because it’s right, right, right. These, Tom, are also in the minority but by far are the most dangerous. Why? Well, they believe so fervently and act out of such strong conviction and they are so dedicated that sometimes the sheer force of their beliefs of what is right and what is fair carries through to government programs, and more government programs, and more government programs. Understand? Taken alone each of these things seems to have merit, but put them all together and the camel’s back breaks. And, in order to give someone something, it first has to be taken away from somebody. In order to help someone, they have to hurt someone else.

NOW YOU UNDERSTAND. So now how do you feel about economics? It’s easy to understand.

 And how would you feel about the politician, students, who says, “economics is far too complicated to understand . . . don’t try to be simplistic . . . trust me, I know what’s best for you . . . vote for me.” He’s paigning. He probably doesn’t understand economics himself so he says to everyone who does that they are being too simplistic. Or, all he wants is the vote.

All right, we have come to a crossroads. We understand that:

– When production goes up, people are better off; when production goes down, a few persons may or may not be better off but people in general are worse off.

– As Government grows, the economy weakens and people are worse off even though a certain few people, due to the programs, could be better off.

– Government programs are like straws on the camel’s back.

– Each government program is like taking blood from one’s body and there comes a point when the body cannot survive.

So tell me, what do we do about it? Good grief, I don’t mean a revolution! This is just what happens in many countries. We’re not at that point. Why don’t we just figure out what our options could be? There is a serious movement going on to amend the Constitution so Congress must maintain a balanced budget all the time. Would that work? In reality this is something of an effort made out of futility by people who are sick and tired of government irresponsibility. But, in reality, I don’t think it will help. Why? Well, first of all, the attempt now is only to convene an assembly where such an amendment would be considered. No way does that mean an amendment would be adopted, only considered. And let’s suppose it is adopted. Chances are the economy would collapse before this rather long and tedious process was consummated. And even if it were consummated before a collapse, you can be pretty well assured there would be enough loopholes to allow the politicians to get their pet vote-getting programs enacted.

And a balanced budget is NOT the central problem. A budget can be balanced by simply raising taxes, but we’ve learned that raising taxes . . . that is taking money from workers for any reason . . . lowers their Standard of Living. And history shows every time taxes are raised, the politicians just spend more. However, balanced budgets would indeed halt inflation because, as we saw before, inflation comes when the government spends more than it taxes and borrows, and then has to print money. Nice try though, but there are no solutions unless Congress rolls back spending.

Maybe we should only vote for politicians who promise to balance the budget and never to paign us. Well the thought is fine. However, in real life most politicians promise just that and then revert to doing whatever it is they wanted to once they get in office. Seems to be quite a difference between what’s promised and what’s delivered. It seems like the problem with our economy is politics. I wonder if there isn’t some way we could change the system so as to prevent what’s been going on.

Could it be possible to make it so politicians could only serve one term? That way they wouldn’t need to go through the paigning process to get re-elected once they get in office, and could put their energies into doing something good for the country, instead of for themselves. Not a bad idea. That’s a step in the right direction. Our country used to be something like that. But it seems our country is so much more complicated these days. A man who has been in office several terms has gained so much knowledge and experience, and you would lose that knowledge and experience if politicians could serve only one term. True, but on the other hand, would you rather have economic ruin with lots of political expertise, or economic health sacrificing some expertise? Case dismissed.

Now let’s develop this. Suppose we had politicians who could serve only one term. It’s obvious much good could be derived from this. What else do you suppose we could do to avoid a collapse? Could be we should never elect anybody who wants to spend more than the country takes in, in order to stop inflation, so we can get poor people out of the trap they’re in. That’s fine, however, just by saying a budget must be balanced certainly isn’t the whole answer. You do understand that politicians can keep increasing the budget and yet balance it with more taxes. Instead of just balancing the budget it also needs to be limited or else the national debt will keep going up.

Did you ever think about those words? NATIONAL DEBT. What’s a debt? A debt is something . . . it’s an obligation to repay something. Do we have a national debt? The money the government borrowed . . . is it going to pay it back? Have you ever heard in all your lives a single politician say he is going to see to it the government repays its debt? It borrowed money, the money is to be repaid. If the government said it wouldn’t repay its debts, the economy would immediately collapse because its health depends in part on people’s confidence in its integrity. Money is a notion backed by confidence; no confidence, no money, so defaulting is not an option. But, have you ever heard even a mention of how it’s going to be repaid?

The only talk seems to be on paying the interest. And remember how the amount of interest we pay today could have run the entire nation just a generation ago? And how the interest is the fastest growing part of the budget . . . entirely out of control. It’s a scandal.

You might way, “But don’t we just owe that money to ourselves? What’s the harm?”

No, we don’t owe it to ‘ourselves.’ The debt is owed to specific people, specific banks, specific foreigners or foreign nations. Should the government say it won’t repay, the economies of those people, those banks, those nations would collapse. And anyway, if we just owed it to ourselves, we certainly wouldn’t charge ourselves interest and be in this mess. So if it’s not really a debt, what is it?

It’s your children’s and grandchildren’s legacy. The government borrows money for one of its pet projects, spends the money and passes the debt on to future generations. Sounds like politicians don’t give a hoot about kids. Okay, that’s a little strong. Apparently it’s just that your votes are more important than your children.

How about branding politicians’ foreheads with a scarlet ‘P’when then paign us? Wouldn’t it be great if politicians were accountable like the rest of us! Would that really put a damper on what’s going on? I’m an economist, not a lawyer, and especially not a Constitutional lawyer, so I don’t know if such a thing is possible, but it sure does sound intriguing, doesn’t it. Maybe they should have to look at every law or program and ask, “if it causes production to increase, it’s good; if it causes production to decrease, it’s bad and what can we do about it?

Page 119NewUnfortunately just knowledge of economics is pointless unless politicians are limited to a single term, are held accountable for their promises, and that they be forced to evaluate, improve or remove laws and programs of the past.

There would be problems for a country doing these things, but AT LEAST THERE WOULD BE A COUNTRY.

Professor Frankum
How to Understand Economics in 1 Hour

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The tool and debunking the myth

We need to stop for awhile in our learning in order to develop something new…but very necessary. When fire was discovered, people’s comfort increased. When the wheel was invented, transportation got better. When the telescope was invented, scientists were able to learn so much more…and so on. Through the ages each of the sciences has discovered or invented tools for the sake of enhancing the science itself in order to better the welfare of mankind. The science of economics has and does use many tools, but in my mind it has always been missing one vital tool. So why don’t we just create that tool today and thereby increase your ability to understand economics?

Years ago the Russians shot down Flight 007. I know what you’re thinking, what does this have to with economics? Please bear with me…The Russians’ immediate response what they didn’t shoot down that plane. What were they doing? Were they lying? Right. Because a few days later they said, “Yes we did shoot it down but the Americans made us do it.” Now what were they doing? Lying? Probably, but not totally necessarily. Deceiving? Could it be that the person making the statement really believed he was telling the truth? Possibly. Let’s take a look at it this way: Take that statement: “Yes we shot down that plane, but the Americans made us do it.” Suppose this is told to ten average Americans, how many do you think would believe it? Probably none. What if the same statement were told to ten average Russians? Perhaps all or some of them would believe it.

Now this is the problem…what do you call it when a person makes a statement that maybe sounds like a lie but there is no way at the time you can prove it’s a lie, but he makes it because he wants you to believe him and do as he wants you to do? Sounds familiar but you can’t quite find the right descriptive term for it? It is my opinion that the science of economics has suffered for centuries because it does possess that word, a tool which adequately describes that situation, since understanding that situation and recognizing it is of PARAMOUNT IMPORTANCE to the science of economics. So why don’t we just create one? Our Native Americans had a good way of saying it when the white man made promises or treaties: White man speak with forked tongue.

Now is there any typical occasion or circumstance where we hear that kind of talk? And especially from politicians? Of course, when they’re campaigning. We could use the word campaigning but that one’s already in use. How about just “paigning”? Paign kind of has a double meaning, and it’s sure a new word. And it rhymes with chain, disdain, drain, feign, pain, stain, vain, profane, and insane. It’s a winner!

So let’s see how it works. When they said, “We didn’t shoot down 007,” what were they doing? They were lying. Now, when later they said, “We shot down 007 but the Americans made us do it,” what were they doing? They were paigning us.

Let’s try a few more. Let’s go back to Noz and look at some of the things that happened, but look at them now with the knowledge you’ve gained, and with your new tool. When The Wiz said to the people of Noz, “That poor farmer, he’s worked all these years, harder than anybody else, it’s only fair and right he now be supported by the government of Noz,” what was he doing? He was paigning the people. How do you know that? Because first of all Noz was deprived of the farmer’s production, and we know if production goes up, Noz gets better and if production goes down, Noz gets worse; not only does Noz lose the farmer’s production, it loses the added Buks to support the farmer. So the Standard of Living for the country went down, but The Wiz didn’t explain that up front to the producers. What he probably wanted is the farmer’s vote. So the people got what? The got paigned. But what do you suppose The Wiz got? He probably got the farmer’s vote for life.

How about when Wiz told the good folks of Noz the streets need wider stripes on them but don’t worry he’s not going to tax them anymore, he’s going to print some money and they will be okay? That sounds like classical paigning because we know printing that money leads to inflation and inflation is just another tax, except it’s probably the worst tax of all because it hurts poor people the most. And when Wiz tells the voters how interesting it would be to finally find out if hoot owls hoot more on hot nights or cold nights, what did he do? Well, he paigned them. Why? He paigned them because, yeah, when he told them it would be interesting . . . that much is probably so . . . but he didn’t say it was going to cost them. He didn’t tell them their Standard of Living would go down a bunch of Buks to find out those things. Had the voters thought about it that way, they might of said, “Let us continue in ignorance a little more with respect to the hootability of our night creatures in order that we may have adequate necessary things for our everyday lives.”

Now we are ready to debunk economics.

I remember one man who ran for President during very trying times for this nation. When he ran for office, he did so under the banner of ultra-fiscal conservatism whereby he would cut back the size of the government and its programs. But instead, after being elected, he created massive government programs.Some criticize him for changing this country form a nation of enterprising, self-sufficient people into a welfare state where hardworking producers have to support all kinds of non-producers. Then you have other people who view him as something of a savior who rescued this country form economic disaster.

Let’s not get taken up with either side of this argument. The point I’m making is the man said he would do one thing . . . he gets elected on that and then turns around and does something else. Sounds like a little paigning went on there.

Then along came another President who was determined to wage war on poverty, to do away with poverty. As a result, hundreds and hundreds of billions of dollars were bled from the economy to wage the war on poverty, with the bottom line being that today we have all the debts of this ‘war’, but we still have the same portion of our country in poverty. You might say, “What a rip-off. Why don’t they stop doing that? What’s it going to take for them to see it hasn’t worked? Seems like we’d be way better off now had we not spent all that money. Everybody . . . especially poor people . . . would have been better off because of the inflation it caused.”

Then along comes another President who says what this country needs is to restore its fiscal integrity, to cut taxes, to cut deficits, to reverse the growth of government. And guess what happened then? Then he outspent all the others put together! Our own President! That’s terrible. That’s insane! Paigned again! Now, don’t misunderstand me. These Presidents are thought of as very honorable people . . . all fiercely patriotic, wanting nothing but the best for the United States and its people. You might say, “But it doesn’t sound like they were above paigning the people, too.” The history books say you’re right. Why do you suppose that is? Maybe they think they know what’s right for us and can therefore justify any kind of method at all. That’s possible. Maybe they do it out of some kind of greed. I’ve noticed some politicians seem to come into office poor and leave very rich. Possibly. Maybe they think we’re too dumb to understand economics. Or maybe they didn’t understand economics themselves. Well, that’s probable. This point is . . . they do it. But remember don’t spend your time pointing fingers at Presidents. Presidents can’t authorize one dime . . . it’s the members of Congress who do the spending. Sure, the President has influence, but only Congress has the legal right.

You might be getting the feeling that I feel this country is in a world of hurt and that it’s Congressmen who put it there. Ask yourself this: “WHO ELSE COULD HAVE PUT IT THERE?” So it sounds that for the price of a vote a Congressman will do something to hurt the country . . . either deliberately or out of ignorance . . . paigning away like crazy, making believe it’s for the ultimate benefit. And that there’s nothing at all difficult to understand about economics, but it’s the politicians who screw up things.

You have just debunked economics.

Read on before you vote
Professor Frankum
How to Understand Economics in 1 Hour

Posted in Economic Model, Politics, Poverty, Standard of LIving | Tagged , | Leave a comment

Inflation and the poverty trap

What causes inflation? Some people think it has to do with unions asking for more money which makes prices go higher. Other people think it is because businesses crave so much profit that it takes more money out of the working man’s pockets, which makes the prices higher and that gives us inflation. Other people say they just don’t know. That last group is the only correct one.

Let’s suppose that one year Noz has a total of 160 thousand Buks in circulation. And in Noz there are a total of 10,000 things in which we’ll call goods and services. So we have 160 thousand Buks divided by 10,000 things, or each “thing” averages 16 Buks.

Now let’s suppose in order to pay for another program, the Wiz decides that he’d better not push the people too far. They’ve been taxes enough and he’s edgy…he thinks maybe if they’re taxed much more there might be a revolution, as in 1776. So the Wiz goes to the constituency and says, “Folks, I’m not at all happy with the lines down the middle of the street. We’re still having some accidents and what Noz really needs and must have are wider lines down the street so everybody is safe and happy.”

Now he’s afraid to tax any more so he says, “Fine…don’t worry anybody…I’ll get the money.” Then he goes to the printing press and runs off, let’s say, 40 thousand Buks needed to pay for the project. Now what do we have? We have the land of Noz with wider stripes.

But let’s take a look at the economy. Now there are 200 thousand Buks, and remember, still 10,000 “things”; we now have: 200 thousand Buks divided by 10,000 things equals 20 Buks per “thing”. So what used to cost 16 Buks per thing now costs 20 Buks per thing because the government printed a bunch of extra Buks. And that, students, is inflation. That’s all it is.

INFLATION IS THE LESSENING OF THE BUYING POWER OF THE BUK CAUSED BY THE GOVERNMENT PUMPING MONEY INTO THE ECONOMY IN ORDER TO FEED ITS EVER-INCREASING APPETITE FOR PROGRAMS, WHICH REQUIRE MORE BUKS.

If anyone else prints money, he goes to jail, but the government gets away with it because the people don’t understand. The government is the only winner since, as incomes go up because of inflation, the government taxes a bigger share of your income because you’re in a higher tax bracket even though your Buk buys you less.

The devaluation of the country’s currency causes prices to rise and then, the unions don’t have any choice but to demand higher wages…they have to just to be able to live the way they did before inflation, because things cost more. And businessmen then have no choice but to raise prices of their goods and services because things and salaries cost more. If they don’t, they’re out of business. Unions and businesses to not cause inflation, rather, they are victims of inflation. Think of someone adding water to milk with the intention of fooling people into thinking that there is more milk. Yes, there’s more to drink, but one has to drink more than before to get the same nourishment. This is another important fundamental of economics.

Does printing money always cause inflation? There is only one way that it doesn’t and that doesn’t happen often or for long. Let’s go back to Noz with the 200 thousand Buks and the 10,000 things. Suppose that The Wiz runs off ten percent more money, 20 thousand Buks for a project, so now there’s 220 thousand Buks in Noz. But let’s also suppose that in that same year the people of Noz get more industrious and produce an additional ten percent more goods and services, or “things”: 10,000 plus 10% equals 11,000 things. One the first hand, 200 thousand Buks is divided by 10,000 things equals 20 Buks per thing as the average price of things. Afterward they had 220 thousand Buks divided by 11,000 things equals 20 Buks per thing. No inflation because production went up as fast as the money increased.

However, in real life, while such an event occurs for short periods of time, our economy historically has ups and downs called cycles. When the cycle is up with production increasing, inflation is slight; when it’s on the downside, there’s more inflation since production doesn’t keep up with the additional money. Is printing money the only source of inflation? No, it also comes from credit, from the fractional reserve method of banking. When someone is given credit, all of a sudden money appears from nowhere. But that’s another subject, and it’s more difficult to understand. Another lesson for another day.

So what’s so bad about inflation? If prices and then wages go up, doesn’t that kind of offset things? This is one of the sorest points and one of the least understood of all the fundamentals of economics. Let’s go back to Noz and see what happens.

Let’s look at our latest situation in Noz and try to compare the effects of inflation in Noz to the effects of inflation in our country. In Noz, things that used to cost 4 Buks now cost 5 Buks. Remember, the Gross Domestic Product went from 160 thousand Buks up to 200 thousand Buks in money, but the actual goods and services stayed the same.

                200 – 160 = 40
               40 ÷ 160 = 1/4 = 25% inflation

Now what happens? The first thing that happens is that people like the Doctor say, “I used to charge 8 Buks for a house call, now I’ll just charge 10; because my costs are up.” Then the Movie Producer says, “We used to sell tickets for 4 Buks for one of my shows and now we are going to have to charge 5 because my costs are up.” So he has the signs changed to show the price increase from 4 to 5. Inflation really isn’t that much of a problem to people in the higher income levels.

And, of course, the Baker has to erase the chalkboard which says 80 cents for a loaf of bread and make it 1 Buk. The Tailor instead of charging 40 Buks for a jacket, now has to charge 50. But as we come down the line, let’s take a look at The Wiz…he’s making 25 thousand Buks a year and says, “It costs me more now to live than it did before so I am just going to vote myself a raise,” (which he has never hesitated to do in the past). You see he has that authority; the people of Noz gave it to him.

Let’s take a look at the people at the bottom of the economic ladder. Let’s look at our artist, now unemployed and receiving 15 thousand Buks a year from The Wiz. Prices started creeping up because of the new stripes and the new money The Wiz had printed, and the artist is finding it more and more difficult to get by on the 15 thousand Buks a year. His rent has gone up, food has gone up, services have gone up…first thing you know he can’t afford to go to any more movies because the Buks that used to go to an occasional movie now must go to higher food costs. And things get tough so the artist goes back to The Wiz and says, “I can’t make it on this. I’ve got to have more.” So, to make a long story short, he is finally given more. But, let’s say a year has passed in this process. What’s happened to his Standard of Living in that year? It’s gone down, since during the year his 15 thousand Buks couldn’t buy what they did last year. So inflation causes the people on government assistance to suffer through the process until or if there is a financial adjustment upward, and all that adjustment does is get them back to where they were before…that is, barely getting by…only to find out another round of inflation is going to make them poorer even though they have more Buks than they did before. And the process doesn’t stop as long as there is inflation.

INFLATION GUARANTEES POVERTY BECAUSE IT CAUSES POVERTY. AND THE GOVERNMENT CAUSES INFLATION, BECAUSE IT, AND ONLY IT, PRINTS MONEY.

Now let’s take a look at our janitor who makes 10 thousand Buks a year…we called that poverty level. His contribution to the land of Noz is not considered as significant as the others and he is paid accordingly, but what happens now when inflation hits him? What happens with that 25 percent increase because of the new stripes down the road, because the government “helped” someone?

Well, let’s see. Prices start to creep up on him. Now the janitor doesn’t buy new clothes; he never goes to a movie because he can’t afford it. When he buys bread from the baker, he buys left-over bread from the day before because the baker gives him a cut-rate price. When his back is hurting him, he doesn’t go to the doctor. He can’t afford it. It isn’t a matter like it was with the artist, who gave up going to movies. This man has nothing to give up. He is living on bare essentials as it is. Can he raise his wages? His superiors say, “All you do is sweep up, man. We can’t pay more than we are paying now…our prices are up 25 percent…either you keep your 10 thousand Buks a year or we’ll get one of those people from the land of Roz who would be grateful to have the job you are griping about.”

So the janitor says to himself, “I’m trapped…what am I going to do?” Then he sees the artist who was already making 5 thousand Buks more than him and not even working, and also got a big raise from The Wiz. What does the janitor do? He says, “This is dumb, I’m going to The Wiz,” which he does, and convinces Wiz that he should be unemployed too, because he simply cannot make it. He is facing inadequate shelter, insufficient food, no medical help…he could literally die. Wiz, feeling bad about this, goes back to the people of Noz and they say, “Sure, let’s help out this poor guy.”

So what do we have now? We have another producer turned non-producer, living on the workers’ Buks, lowering their Standard of Living. All of this not because he doesn’t want to work, but because he can make more money by not working…and all this because of inflation.

INFLATION SAPS THE WILL OF AN ECONOMY. IT CAUSES AND MAINTAINS POVERTY AND IS RIGHTLY KNOWN AS THE MOST EVIL OF ALL TAXES TO MANKIND BECAUSE IT DISPROPORTUNATELY HURTS POOR PEOPLE.

 Let’s take a look at history:

 

Inflation is not much bother to high income people; it is a definite bother to middle income people; it is a blood-sucker and poverty-perpetuator to poor people. And, only the government benefits because it gets more money to spend on more things. And history shows that whenever the government gets more money, it just spends more money.

Click here if you don’t want to wait to see how this plays out in America
Professor Frankum
How to Understand Economics in 1 Hour

Posted in Inflation, Poverty | Tagged , , | Leave a comment

People

The model that we have been using has just ten people. Is it realistic to keep the same number…don’t countries with large populations have special economic problems? Isn’t the number of people in a country an important consideration? It can be, and often is. Let’s step away from our fictitious country of Noz with ten people and take a look Roz…that country with a Standard of Living of only 10 thousand Buks. Let’s say that Roz has some natural disasters and some political upheaval, and it does have plenty of people. Remember, we determined that 10 thousand Buks is a minimum living condition…enough to barely get by. What would happen if the leader of Roz decided either to paint more stripes down the roads or do some other “worthy” project with government funds? What happens if he takes a substantial amount of taxes…call it Buks, call it goods and services, call it part of the Gross Domestic Product…out of the economy to paint more lines down the streets? What happens to that average 10 thousand Buks a year income for his people? It has to go down. But remember the people in Roz were already at the barely-get-by level. What kind of shape are the people of Roz in now? What happens to people who don’t have adequate shelter, enough to eat, clothes on their backs? What do these people do? History tells us that they starve, they steal, they plunder other countries or they have a revolution.

People from other countries can help them, but so often that help means not just feeding the people of Roz. Unfortunately so much of the help goes to their Great Leader, who insists on painting more stripes down the roads. Or, the people of Roz go on so long with help from Noz that after a while they expect it, even demand it. Sooner or later the people of Noz say, “We’re not going to help you people of Roz, it lowers our Standard of Living, you help yourself.

Now let’s get to the question. For the sake of this discussion, let’s suppose that Roz has 100 people in it including its leader, the Great Leader of Roz, and he has decided…knowing it’s a fairly poor country…that everybody is going to make the same amount of money. They all work at their different jobs, but they are all going to make the same amount of money, 10 thousand Buks a year. As a matter of fact, even the Leader only makes 10 thousand Buks a year, because he is noble.

Then a couple of things happen. Spilling into Roz comes 50 refugees from the neighboring warring country and also 50 little citizens of Roz are born, so now the population of Roz is 200, not 100. And let’s suppose the 100 new additions produce nothing. What is the Standard of Living in Roz now? Since none of the new additions produces, the Gross Domestic Product is the same, but spread over twice as many people, so it has to be half as much…5 thousand Buks.

Now remember, Roz was already at the poverty level. Any lessening of the income, because of new economic factors, drives down the Standard of Living…so we’ve got…what? We’ve got BIG trouble.

You might say that the fifty little babies really don’t demand that much and why couldn’t the 50 refugees work and add to the Gross Domestic Product. They can, but babies do have a tendency to grow up. And are enough jobs to go around? The significant point is: should those refugees work and each one earn and produce ten thousand Buks a year, then they would have no effect at all on the economy or the Standard of Living. And when those babies become adults, if each one were to produce an additional 10 thousand Buks a year, the Standard of Living for everybody would remain exactly the same. The problem is, that this doesn’t happen. What happens is jobs are already scarce and instead of producing, these newcomers are usually supported at least in part by the people already there, thereby lowering everybody’s Standard of Living. And then, in those countries with “population problems”, additional people create problems over and above the ones that were there before these additional people came on the scene.

Increasing population doesn’t really mean people are going to be worse off only if those that increase the population can contribute to the economy proportionate to their increase. It may be helpful to look at the other side of the coin. If a country does have a population problem, i.e., too many mouths to feed and not enough food, it would serve the country well if the number of mouths to be fed were limited so the country could get to the business of increasing the amount of food needed.

That sounds so elementary that there shouldn’t be a problem in anybody understanding it. The ECONOMIC solution IS elementary…the POLITICAL solution is not elementary. People are driven or affected by tradition, by faith, by politics…especially by politics. To sum up the effect of population versus economics:

AS THE NUMBER OF PEOPLE ARE ADDED TO AN ECONOMY, IF THE GROSS DOMESTIC PRODUCT OF THE ECONOMY DOES NOT INCREASE PROPORTIONATELY, THE STANDARD OF LIVING FOR THE COUNTRY HAS TO GO DOWN.

Too bad some countries don’t understand such a fundamental concept. Think of all the starvation that could be eliminated. But let us go on…next time we’ll discuss inflation and the poverty trap.

Want to read on?
Professor Frankum
How to Understand Economics in 1 Hour

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Where are we now?

We’ve learned about production. We’ve learned about how government growth affects us. But where are we now? Where is the country today…where do we stand? Let me make a few observations and then you tell me how you feel.

When social security started, several hundred workers were taxed a very small percent to support one person on social security. These days that number is three workers to support one person on social security, but the percentage out of each person’s paycheck is way up. In other words, the percentage that each worker is taxed keeps going up. Many expect, in a fairly short time, the number will go from the hundreds it was, to the three it is, to only one. So out of your paycheck you can be expected to support…entirely…someone on social security.

The national debt is so staggering that just the interest payments are now the third largest part of the budget. They are the fastest growing part of the budget, entirely out of control. A generation ago the entire country…everything…was run on far less money than just what the interest on the national debt is now. The interest on the national debt is more than four times what the government spends on education.

Before the Depression, the average person worked only a few days a year representing the tax money taken from them. Today the average person works two days out of every five to pay taxes. That’s Monday and Tuesday for the government, and Wednesday, Thursday, and Friday for himself. At the rate we have been going that number will shortly be three days out of five. Before the Depression, the government would borrow a few pennies out of each dollar saved by the public. Today it borrows the majority of each dollar saved.

Just a very few years ago, any country showing some of the economic numbers that our country does today would have been called a “banana republic”. No offense to our neighbors to the south, but the term was used as disrespect to any country allowing such numbers. This would certainly make us the largest “banana republic” in the world.

So what can we do about it? Let’s take a look at history. Perhaps we’ll find some answers there.

History shows us, time after time, that when a country’s economy weakens, especially through inflation, the economy eventually collapses. It has always meant the loss of freedom…the loss of rights. It usually means dictatorial powers come into play supported by some kind of police or army. People have no choice, they have no rights; they are told what to do, they are told what not to do…penalties are supreme. Those who do not learn from history are condemned to repeat the mistakes of history.

Can you see examples of this happening in recent history, even today?

Professor Frankum
How to Understand Economics in 1 Hour

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Government

Now we are ready to introduce another concept into the land of Noz: Government. One year the people of Noz got together and decided they needed somebody to paint lines down the middle of the streets so they wouldn’t crash into each other. They also decided it would be good if there was somebody to conduct studies; it would be helpful if somebody found out whether owls hoot louder on hot nights than they do on cold nights. And, remember the land of Roz, where the Standard of Living is only 10 thousand Buks a year? Those people have been making noises like they might want to come over to Noz and take things. Well, the good folks of Noz decided they needed an army. So they got together and established a government, and elected the repairman to be the head of their government. Titles such as President, King, Mayor, Chairman are already in use by real governments, so let’s call our leader The Wizard.

Now the land of Noz . . . which formerly had ten producers . . . now has nine producers and one non-producer, the government. And the people of Noz realized The Wizard, while not doing repair work anymore, certainly has to live so he should be paid 25 thousand Buks a year for serving as the head of the government.

So now we have a government to paint lines, make studies, and protect Noz. Isn’t Noz better off than it was before? Well, from one vantage point it is, but let’s take a look at the economy.

 

It looks like the total GDP has gone from 250 Buks down to 225 Buks. And over on the side we have The Wizard making 25 thousand Buks, but where do those Buks come from? They have to come from the 225 thousand Buks. There is no other place to get that money. We’ll call that 25 thousand Buks, which each of the remaining citizens will pitch in to provide TAXES. Now the 225 has to drop to 200 for the nine workers. That leaves 200 thousand Buks for the nine to live on.

Year 2 now has The Wiz, the government, and nine workers with a Gross Domestic Product of 200 thousand Buks for nine people.

Year 2: 200,000 ÷ 9 = 22,222 Buks average Standard of Living

So the Standard of Living of Noz is a little less than the 25 thousand it used to be, but now people have lines down the middle of the street so they are less likely to kill each other; they are going to finally find out if owls hoot more on hot nights or cold nights; and, by golly, those people from Roz better stay out of Noz or The Wiz will shoot them.

Well, let’s go on with it. Let’s go to Year 3. When something happens to the artist . . . let’s say either he’s getting to an age where The Wiz says he should retire, or let’s suppose he gets injured, or let’s suppose . . . anything. And let’s say the people of Noz, together with The Wiz, pass a law and say not only should the artist not work anymore, but he should be supported by the government. So the government pays him, let’s say 15 thousand Buks a year.

Year 3
 

Good grief, that adds up to 160 thousand Buks for the Gross Domestic Product, and with eight producers and two non-producers the producers are only averaging an even 20 thousand Buks a year.

Year 3: 160,000 ÷ 8 = 20,000 Buks average Standard of Living

All right, let’s go one step further. Everybody knows governments have lots and lots of laws and some of the laws are pretty weird. So The Wiz decides one day that instead of the farmer working so hard and so efficiently and making 15 thousand Buks a year, now the government is going to pay the farmer 15 thousand Buks a year not to produce any crops. (Sound familiar? It should.)

So now we have Year 4 with an artist not working, a farmer who is paid not to grow and a repairman who is The Wiz. We have seven people producing the Gross Domestic Product, and three people being paid from what the producers produce. Now let’s remember that whenever the government gives money to someone it must first take money away from someone else; so let’s see how the workers of Noz fare when the government helps someone else.

Year 4

 Now the Gross Domestic Product for the seven people is 130 thousand Buks a year, and that has each of the seven averaging a little over 18 thousand Buks a year.

Year 4: 130,000 ÷ 7 = 18,571 Buks average Standard of Living

What do you think? It is beginning to look like a cancer. If it keeps up, it will ruin Noz.

Let’s continue. Back in the days when The Wiz only had to paint the stripes, make the studies, and ward off Roz, he could handle all that. But now come all these additional burdens, such as tending to the unemployed and showing the farmers how to live better. He can’t handle this workload; he’s got to have an assistant.

We’ll just call this assistant what he is . . . let’s call him a bureaucrat. And, let’s say . . . the movie producer is the logical one to serve this role. But he’s used to big Buks, and he’s obviously got to make more than the idle farmer and the unemployed artist . . . so let’s say we pay him 20 thousand Buks. After all, he’s serving his country and can certainly do with less of the frivolous things in life, but he can’t make the Buks The Wiz does.

So now we have Year 5 where we have six of the people producing and four living on taxes. We have the farmer enjoying his spare time at 15 thousand Buks, we have the unemployed artist being paid 15 thousand Buks, we have a 20-thousand-Buk bureaucrat and we have a 25-thousand-Buk Wizard. These are not excessive salaries, and each seems a worthy expenditure. But let’s see what has happened to the economy.

Year 5

That amounts to a Gross Domestic Product of 60 thousand Buks a year. For six working people it turns out their Standard of Living is now 10 thousand Buks each.

Year 4: 60,000 ÷ 6 = 10,000 Buks average Standard of Living

Now what kind of shape is Noz in? What happens as the government gets bigger and bigger?

It seems as the government gets bigger certain people seem to be better off. The farmer used to work really hard and now he’s paid a living wage just to do nothing, and the unemployed artist doesn’t have to paint pictures anymore . . . all he has to do is get his government check each month. Being a movie producer is tough work; being a bureaucrat doesn’t pay that well but on the other hand it’s security for life. And, of course, Wiz doesn’t make any more than he did before, but the power satisfies him.

Let’s not go to the trouble to make non-producers out of any of the remaining producers, but can you see what would happen if we did it with maybe two more producers? Pretty soon the non-producers outnumber the producers and the number of non-producer votes . . . assuming Noz is a place where there is voting . . . are going to outnumber the votes of the producers. Then wouldn’t you say it’s reasonable to expect the non-producers, the recipients of tax money, are certainly not going to vote themselves less money . . . that just isn’t the way people tick.

You may have a lot of trouble with one concept. What we are saying for our model Noz is absolutely clear. But in real life, if for instance the artist is out of work, isn’t it reasonable that somebody else should come along and be an artist and replace the lost production? And isn’t somebody going to replace that farmer who is paid not to produce . . . and won’t somebody come along and make movies, the position vacated by our new bureaucrat? And won’t there be somebody trained in repairing things who can take up the slack left by The Wiz?

You are essentially right, and we are probably able to handle that concept at this point. Let’s stop a minute and take a look at Noz’s working force. In Year 1 we had ten people producing 250 thousand Buks a year and a healthy Standard of Living of 25 thousand Buks each. Then in Year 5 we had six people working and four people not working. Let’s suppose the four people that weren’t working are replaced by new additions to Noz, so let’s put that Gross Domestic Product for Year 5 back to 250 thousand Buks a year out of the economy. Now, where must these Buks come from? Well, they must come from the producers, out of the 250 thousand Buks, since there’s nowhere else they can come from.

 

So now let’s take 75 thousand away from the ten producers in order to subsidize the four non-producers, and that leaves 175 thousand (250 – 75 = 175) Buks per year for the ten producers or an average of 17,500 Buks for the ten workers as an average Standard of Living for Noz . . . down from 25 thousand in order to support the government and its programs. Same results, just a little slower process.

AS GOVERNMENT GROWS FOR WHATEVER REASON, IT WEAKENS THE ECONOMY. IT LOWERS THE STANDARD OF LIVING OF THE PEOPLE.

Remember the old saying about putting straws on a camel’s back?

You may say that needy people are still needy, and a nation can’t exist without a government. And it certainly needs an army, and I mean a strong army. But where do you draw the line? That, my friend, is the BIG ONE! And that is not decided by economists, it is decided by politicians.

Now, let’s go back and review, just briefly, what we all agreed to . . . and that is: Production up — things get better; production down — things get worse. It looks like we are ready for our second vital economic principle:

THE LARGER THE GOVERNMENT GETS, THE MORE IT WEAKENS THE ECONOMY.

We probably disagree on where that line should be drawn, but there is no question, once you work through the math, the line has to be drawn.

I would say you now know more about economics than ninety-nine percent of the people in the world, and at least more than ninety percent of the politicians and probably more than a great number of economists . . . only because you understand that: production is the key to economic health and that government, unless restrained, will sap a nation.

PRODUCTION IS THE KEY TO ECONOMIC HEALTH AND THAT GOVERNMENT, UNLESS RESTRAINED, WILL SAP A NATION.

Suppose you had a brother who would die unless he had a kidney transplant. Would you give him one of yours? Without hesitation. Suppose now you had two brothers and both of them were going to die unless they had a kidney transplant. Would you give them each one of your kidneys? You may think that’s an unfair question. You would definitely give one . . . and might not know about the other. Each is of equal need. Is it fair to say if you resolved both their needs it would kill you? What right do you have to live and let your brother die? Now suppose you had three brothers . . .You don’t have three kidneys. Which brother will you give it to? Each has a real need.

Well, let’s look at it a little different way. Let’s say you are a passerby and there’s an accident. The medics come and discover that unless one of the victims has a pint of blood now, that victim will die. Would you volunteer your blood? Of course. Suppose there are two victims and they are both about to die unless they each have a pint. Would you give two pints? Sure. How about three, four, five . . . how about twenty? You don’t have that many pints. Is it right that you survive, or should the medics take all your blood in order to . . . let’s say. . . let you die in order to save perhaps ten?

Is that an unfair question? Let’s go back to the land of Noz. Where do we draw that line? At what point does the government cease doing things for people? At what point does the government stop helping people? What is the difference between what people ‘need’ and what they ‘want’? Should the taxpayers see to it that every unemployed person gets a new car each year? You might say that’s ridiculous. Well, what’s not ridiculous? What is right? When government spends, the economy drinks its own blood, which in turn enhances its thirst. Because it keeps drinking, it must die. So, what’s right?

But, let’s touch on one additional point. Let’s deal a little with what some might feel is fair. Let’s go back to Year 1 with everybody producing and everybody consuming, which represents the highest Standard of Living we’ve discussed. As soon as we take someone out of the working force and have the workers taxed in order to support that non-producer . . . instead of taxing everybody a little, let’s just tax the rich, okay?

When we made the repairman The Wizard, and, as in our amended model, somebody came in and also became a repairman, the government needed 25 thousand Buks in tax money. Let’s take it from, for instance, the doctor. Everybody knows doctors make a lot of money. So now the doctor, instead of making 40 thousand Buks a year, makes 15 thousand Buks a year. Now, how many people are going to put in the 10 or 15 years in school, start at the bottom of the heap and work those long hours for 15 thousand Buks, knowing the government is going to take the rest of their income away from them?

Or, better yet, let’s get away from Noz and be realistic. In real life, if the government took all the money that all the rich people in our country earned and simply gave it to poor people, contrary to popular opinion, it would barely make a dent in what we call poverty.

That’s how the numbers come out. And how much can the government take away from the doctor so that pretty soon there won’t be any doctors?

Professor Frankum
How to Understand Economics in 1 Hour

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What makes the world go round, go up and down?

Down through the ages money has taken many forms. It has varied from cows and beads to wives and shells to precious metals . . . and of late, to pieces of paper. In the world today we have dollars and yen, we have marks and rubles and shekels and pesos and so forth.

But basically, money is supposed to have three characteristics:

  1. It needs to be portable, of such character that it can be easily carried.
  2. It needs to be readily divisible. If you want three things instead of ten things, money must have the ability to satisfy both quantities and prices.
  3. The most important characteristic of money is it should represent a storage of value. If you have enough money in your pocket on Monday to buy ten loaves of bread, money should be such that on Friday, or next year, the same amount will still be enough to buy those ten loaves of bread.

 Now there are other characteristics, such as the degree of difficulty one would have in counterfeiting, and durability, but these are minor considerations. Let’s return to the fictitious country in our economic model, Noz. And so as not to confuse the doings in Noz with any other country, let’s call the money unit in Noz a ‘Buk’, and let’s assign somewhat arbitrary to our ten citizens the amount of Buks they earn in the course of a year:

  • Carpenter  — 20 Thousand Buks
  • Doctor — 40 Thousand Buks
  • Automaker — 30 Thousand Buks
  • Janitor — 10 Thousand Buks
  • Farmer — 15 Thousand Buks
  • Artist — 25 Thousand Buks
  • Tailor  — 20 Thousand Buks
  • Movie Producer  — 50 Thousand Buks
  • Repairman — 25 Thousand Buks
  • Baker — 15 Thousand Buks

Remember from a previous blog that the Gross Domestic Product (GDP) of any economic entity is the total of all goods and services produced, and the Standard of Living is the sum of all they consume. We’ll add up the earnings of our ten citizens for a GDP and a Standard of Living for the country of Noz of 250,000 Buks and the Standard of Living on average for each citizen is 25,000 Buks (250,000 / 10 people)

Now, let’s say the movie producer made only four movies instead of five, so his production totaled 40 thousand Buks instead of 50. Now the Movie Producer’s GDP is going to drop by 10 thousand Buks, but somehow the GPD of the whole country of Noz is also going to drop by 10 thousand Buks. The Standard of Living for the Movie Producer will drop and the average Standard of Living for each citizen of Noz will also drop by 1 thousand Buks to 24 thousand Buks.

Now the automaker, instead of making three cars a year at an income of 30 thousand Buks, produces four cars a year. The automaker’s GDP and Standard of Living both rise, and the average Standard of Living for each citizen of Noz is back to 25 thousand Buks.

By adding the concept of money to Noz what we are doing is no different than we did before, we are simply adding monetary values to help us more clearly understand what’s happening.

For whatever reason if somebody or some people or all people somehow produce more one year than they did the previous year, the Standard of Living goes up. Likewise, if for some reason people don’t produce what they did the previous year, the Standard of Living goes down. Not necessarily equally for everyone, but on average.

This is how you compare one family to another family, one nation to another nation, one tribe to another tribe. It’s the average Standard of Living, which is the GDP divided by the number of people, and measured in money.

Now you might be asking yourself, “Is it right to talk about the average Standard of Livingwhen some people are so poor and other people are so rich?” These things may be very important to you, as well they should be. But what you’re talking about is politics, not economics. It is the politician who says how the wealth is divided.

Economics makes no moral or political judgments . . . economics measures, economics forecasts . . . but economics does not decide how wealth is divided. Others do that.

Okay, now we see where the average Standard of Living of Noz is 25 thousand Buks a year. How do you think Noz fares compared to the land of Roz . . . let’s say their average Standard of Living is 10 thousand Buks a year? Folks in Noz have got to be way better off than folks in Roz. Why? Because they possess more things, more products, more services and they consume more things, their Standard of Living is higher. They have more to live with. Anybody disagree?

And how about people in Noz compared to people in Koz where the average Standard of Living is 50 thousand Buks a year? Sounds like Koz is the place to live. They have twice as much as the people in Noz. How well off people are depends on the quantity and, of course, the quality of the goods and services they are able to have. These are whatever goods and services are produced. Sounds like production is the key to economic health.

Now stop and think about this. The head of every country, the head of every political party, the head of every tribe, the head of every nation, the head of every union, the head of each faith say to their people or say to their subjects or say to their constituencies . . . ‘Do it my way, my way is the best for you.’ The king says it, the communists say it, the capitalists say it, the Democrats say it, the Republicans say it, conservatives say it, liberals say it, the leader of the clan says it . . . the say, ‘I know what’s best for you; do it my way and you will be better off.’ Some even say do it my way or I will eliminate you.

But despite what they say, remember we know: whenever as a result of people’s efforts production increases, the net result is the average Standard of Living must increase. And if the average Standard of Living increases that means the net result for the country is either all people or maybe just certain people will enjoy a better life. And we know the opposite is true in that any time production goes down, the net result is people will be worse off.

So now you can look at any event in ANY economy to see if the result of the event causes production to go up or down and know how people must fare because of it.

The great thing about economics is that people from different parts of the country, with different educational backgrounds, having diverse political views . . . so far do any of these differences, in any way, affect the economic principles we’ve derived to this point?

Professor Frankum

How to Understand Economics in 1 Hour

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Did you say Economics Model or Super Model?

One of the best ways to understand something is to make a model of it. Physicists make models of the universe and the solar system. Architects make models of buildings before they are built. Biologists make models of the most complicated cells in order to better understand them. Sociologists make models of societies and groups they are trying to understand. And yes, clothing designers hot new items are displayed first by super models.

Today we are going to make a model of an economic entity, perhaps a country. We’ll name it Noz and it has a population of 10 people. These 10 people produce various goods and services. If you recall from a previous lesson, the Gross Domestic Product of any entity is the sum of all goods and services produced for a year. To keep it simple, let’s say half the people make $10,000 a year, and the other half make $20,000 a year.

What’s the Gross Domestic Product for Noz? Well, 5 times $10,000 and 5 times $20,000 should get us there. The Gross Domestic Product of Noz is $150,000 for this year.

Is $150,000 a good number or a not so good number? The Standard of Living, which we also discussed before, will help us answer that question. The Standard of Living for an economic entity is the sum of all the products and services that are consumed. How well off people are is measured by what they buy, they use, they consume. For the purpose of example, we will say that all of the products and services that are made in Noz are consumed. The Standard of Living for Noz as a whole is $150,000. Does that mean that the people who earned and spent $10,000 have the same Standard of Living as the ones who earned and spent $20,000? Is a repairman’s Standard of Living going to be the same as a doctor’s? Not at all, it simply means that the Standard of Living for Noz as a whole is $150,000. There are differences within the individual unit, but for this lesson we are viewing the country of Noz as a whole.

We’re now on the verge of discovering the first and most basic economic principle: production. Let’s say our repairman decides to work 12 hours a day instead of the 8 he has worked in the past. He used to just repair washers and dryers, but he is now also going to repair refrigerators and stoves. And the doctor is going to expand from just pediatrics to patients of all ages. Let’s suppose that we also have a farmer who bought some new farm equipment and can now produce twice as many crops without working any extra hours. This year because some people work longer hours, some people work smarter, and some people work with better tools, there are more things produced in Noz.

Now my question to you is this: If the Standard of Living of Noz is equal to consumption (the consuming of all products and goods made); and if this year we have everything we had last year plus more farm goods, medical services, and repair services, is there any possibility the Gross Domestic Product and the Standard of Living can go any way but up?

 Professor Frankum

How to Understand Economics in 1 Hour

Posted in Economic Entity, Economic Model, GDP, Production, Standard of LIving | Leave a comment

The difference between economics and politics

Good day ladies and gentlemen. Today we will discuss economics and politics and how they are different. There has been a great deal of discussion lately about the role of our government. Some people feel that there are so many people in this country that need help, that the government never seems to do enough to help them. Other people feel that they work hard and they wish that the government would be more fiscally responsible. Still other people are just barely scraping by and they never seem to be able to make headway. For them, anything that will help their immediate situation seems like a good thing to do. Have you heard these types of comments from people you know or even on the news?

Let’s try an exercise: Find the one of those three statements that you agree with the most. Then try looking through the viewpoint of the other two. The people who want the government to help those in need might think those who value fiscal responsibility are hard or uncaring. The people who value fiscal responsibility might think those that want to help others are lofty do gooders with their heads in the clouds, not understanding reality. Both of them might think that those that whose viewpoints vary based on the times are wishy-washy for not sticking with a certain cause or political party.

Our views can be very different and yet very sincere. Just because there is a difference doesn’t mean that someone is right and someone is wrong. What is important to understand is that your views don’t make any difference in economics.

Economics is independent of your education, of your political belief, of your religious belief, of your color, your gender, and your age. The basic principles of the science of economics . . . which is the science of the material welfare of mankind . . . apply to any economic entity equally.

What is an economic entity? Well, you are an economic entity. A family could be considered an economic entity, or a company, or a city, or a state, or a country, or the whole world.

Stop back again next time when we’ll continue the story by creating a model of an economic entity.

Professor Frankum

How to Understand Economics in 1 Hour

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The basics of economics

Good day ladies and gentlemen. I am so pleased to be here. My name is Professor Benjamin Frankum and I would like to share some information with you. Did you know that in the time that you can wash your car or get your hair cut that you can learn economics? The basics are just that simple. I am here to teach everybody. Did you know that economics is independent of your education, of your political belief, of your religious belief, of your color, your gender, and your age? The basic principles in the science of economics . . . which is the science of the material welfare of mankind . . . apply to any economic entity. An economic entity could be a corporation or company, a town, a county, a state, or even a country.

We will work together to understand some of the basics. Do you know what the terms Gross Domestic Product and Standard of Living mean? The Gross Domestic Product of any economic entity is the total of all products that are made and services that are rendered within an economic entity. The Standard of Living is equal to all the products and services that are consumed by that economic entity.

I hope to see you again soon. Please stop back soon to learn some more. Do you have any questions so far?

Professor Frankum

How to Understand Economics in 1 Hour

Posted in GDP, Standard of LIving | Leave a comment