Capital

Capital is considered evil by those wishing to control an economy by laws and regulations. Investment is not something the government can effectively execute, but is most effectively executed by investors seeking to use their financial resources to create wealth through growth. Economic growth is the result of increasing efficiency or by making a more sophisticated product from raw materials. If the government makes an investment, there is no discipline to make sure it is the right investment. There are also winners and losers from each investment because it simply cannot be performed equally across all parties that have an interest or stake in the matter. We have learned from eastern European countries that government cannot build a good car or a good anything. It all sucks. Unless there is the clear chance of both failing and succeeding in an investment, the right decisions to line up capital and innovation, are rarely made. The potential to make zillions must not be called "greedy" by the losers  who are driven by pure jealousy.  Remember, the basic premise of a free economy is that people make decisions to buy based on their freedom.  Nobody is being forced to purchase the goods, and all parties in the deal are acting voluntarily. The investor can either win or lose and are driven to perform  rigorous analysis to provide guidance on where investment dollars shout be funneled. The government has neither the insights as to how money should be invested nor the ability to make an investment fairly. Let this market move freely to determine where capital should be invested and we will see economic growth move us forward.  The billions in cash on balance sheets show the level of uncertainty of corporations because of policies such as Health Care and Dodd-Frank.  Turn this "capital driven economy" loose, and we will go beyond our wildest dreams in terms of economic growth and job creation.

Economic Growth and Value

There is a blurry mix of information swirling around regarding how to stimulate the economy.  I believe the Economic Value is central concept to understand when it comes to Economic Growth.  If we established that it would be valuable to employ 300 people with shovels to dig a large ditch, it would be laughable.  We have machines and energy sources that get it done much faster and at a lower cost.  In other areas of the world, this idea is central to how to get work completed.  We saw plenty of this in Africa.  Although this is an obvious example of labor inefficiency, President Obama gave us an example when he said that our economy was faltering because of ATM machines.  In this example, a live banker was considered of higher value to have the employee count, rather than the machine, which provides a more limited skill set.  Remember the example of the buggy whip?  In the days of horses and buggies, it was necessary to have whips to direct the horse, and manufacturers to make the whips.  When the automobile replaced horse travel, the need for buggy whips diminished significantly.  Should we have had a government program to support this industry?  This sounds very silly, but we need to watch out for this idea to creep into our policy.

The economy grows when we either become more efficient at doing the same work, or adding more production capability of what we are currently doing.  Economic growth is also defined by taking raw material products and ideas, and producing a more sophisticated or developed product.  Wheat into cereal and flour.  Wood into furniture.  Silica, glass, plastics, etc and design into electronic devices etc etc.  These concepts of growth must be front and center to any discussions about economic growth.

Let's take the issue of green energy.  The product is more expensive and it takes more labor to implement.  You don't really end up with the same product (more on this in future postings), but let's assume that it is similar enough to call it a "wash".  If you end up with a similar product, and it takes more labor to produce, there isn't any economic growth.  We would simply be using more labor to produce a product that is more expensive, and end up shifting resources from the users of electricity to those producing the product.  Remember the ditch example?  Buggy whips?  ATMs?   Those proposing the need for green energy are concerned about the CO2 emissions from conventional generation such as coal and natural gas, and they would state that any additional costs are justified(another source of future postings is the validity of these claims).

Let's get it straight in our heads that simply adding more labor forces will not bring about economic growth.  We can't be pushing for ideas that simply add more ditch diggers to the economy.  America is the land where raw materials, education, and innovation produce economic growth from new services and products.   This is driven by individuals who are operating in compliance to laws and regulations of the land.   Government doesn't bring this growth to the table.  No need to push this idea of "partnerships" with government (more on this later also).   Let the government  get out the way by lowering taxes and regulations to the innovators who provide real Economic Growth and Value.

Wanna See Results of Hard Work?

I have been going to a Larson's nursery for over 10 years. They are located off the beaten trail west of Norway Michigan. Richard Larson had a desire to start his own business while he was employed at a local paper mill. The business took off and the paper mill has since closed, thereby making the decision to start the business even more brilliant. Dick has dialed in the soil and fertilizer to a perfect balance. The colors on the flowers are impossible to describe. The story on how he learned more about getting the fertilizer balanced. Dick was seeking to get ahold of the Scott's fertilizer head chemist and wasn't getting through. Dick decided to pull out all the stops and call every 15 min until he would hear back. Scott's caved and Mr Larson was granted the head chemist's cell number. Once these two were on the phone, the circuits were melting with a vibrant information exchange. The results of the flowers are clearly seen. For a perfectionist like Mr. Larson to say that he is satisfied is quite a state of excellence. Hats off to small businesses. Hats off to hard work and perseverance. The proof is in the plants.

Energy That Works

Energy is the fluid that allows an economy to be efficient.  When people have energy available for heating, cooling, automation, and transportation, it allows a greater amount of time to be spent on higher value activities.  Imagine if your commute to work had to be on a bike, or walking.  You would have much less time for being able to work, or be at home.  We saw so many people walking when we were in Africa, and I kept thinking about all the time that was being wasted.  Certainly there isn't an obesity issue in Africa, and this is a positive of all the walking.  

Our entire way of life in terms transportation, food storage, housing, and industry completely relies on readily available energy.  Economic growth is driven by efficiency in getting tasks accomplished, and energy allows this to happen.  Machines that are automated make more product.  There are growing pains when systems are changed, plants are closed, and workforce numbers are reduced, but the bigger picture of overall growth must be kept in mind.  

Our education and political arenas are incredibly devoid of useful economic understanding.  It is high time to start a dialog on these issues and start to understand that our ability to produce efficiently is directly related to reliable low cost energy.

What Works in Washington to get our economy going May 11 2012

This economy is stagnant because business leaders have no idea what future financial regulations and health care are going to cost them.  Planning requires some level of where we are going, and at this time, all we hear about are how we need more green jobs, and healthcare.  These are the fundamental needs of our country.  There is an enormous economic engine waiting for some sign of Washington being able to buckle down and cut spending in meaningful ways, so we don't crash our economy.  Blowing the debt limits, printing money, and seeking to borrow more are all signs of not facing reality.  When leaders like Paul Ryan step up and show a plan that would make the difficult decisions on cutting back, and putting more areas of the economy into the realm of free markets, they are chided by our president as leaving old people out in the street.  Promises made to continue as usual are a nice sounding poison pill that will hurt more later.  No politician can be as honest as they need to be or it will cause panic in the streets.  Incremental change will be needed, but it must be deliberate and moving in the right direction.  Healthcare moves in the wrong direction - we need more decisions to made in the realm of markets - increasing health savings accounts is an example of this.  We need to stop making idiot promises about taking the risk out of markets.  Markets need to adjust at times, with winners or losers, or we end up trying to fund more losing ideas.  Increasing tax rates on the wealthy to pass more to the less wealthy doesn't help anyone.  It knocks down those who are most capable at creating jobs, and doesn't help those less wealth.  When those with less decide they want to work harder and take advantage of opportunities that millions have sought and found, real wealth is found.  No government program gets credit for this type of initiative, so it doesn't get much airplay.    We have a fundamental issue of making it clear what works, and what doesn't.   Liberalism is basically a construct of attractive sounding outcomes, without taking into account the reality of what motivates people, and what is truly fair.

This is a quick braindump on some key economic ideas that I believe are in need of being communicated.  More to come, and also postings on the silly, and the God stuff.