Ten Pillars of Economic Wisdom: Now More than Ever

During the Great Depression the size of government grew exponentially and many believed that the United States had lost those essential principles that made this country the most prosperous on the face of the earth. It was during this time that an organization was formed, called the American Economic Foundation (AEF), and they put together the following “Ten Pillars”* to remind Americans what works in an economy. If people wondered if a policy was good and beneficial to everyone concerned, than it would stand the test of these Pillars.

In the 1990s, I was a Senior Fellow at AEF and I conducted seminars in the former Soviet Union about these principles and how they could be a guiding light to that region that suffered from decades of Communist totalitarianism. Today, we are about to slip into a command economy of our own where the government will seek to be in charge of all things. Today, with the Obama Administration, this country needs to be reminded of these principles now more than ever. You are going to see these principles frequently in my blog, in the Price of Business pages, and on the radio. These principles are a guiding light towards a free economy.

1. Nothing in our material world can come from nowhere or go nowhere, nor can it be free: everything in our economic life has a source, a destination, and a cost that must be paid.

Simply put, there is no such thing as a free lunch. Everything has a cost regardless of promises from politicians.

2. Government is never a source of goods. Everything produced is produced by the people, and everything that government gives to the people, it must first take from the people.

Recently, 25 percent of Americans who were asked in a survey how the government pays for its programs said it was because the US "has its own money." Those people need to be familiar with this Pillar. The bailouts we have seen cost plenty and will have a profound impact on our economy.

3. The only valuable money that government has to spend is that money taxed or borrowed out of the people’s earnings. When government decides to spend more than it has thus received, that extra unearned money is created out of thin air, through the banks, and, when spent, takes on value only by reducing the value of all money, savings, and insurance.

Much of the new spending we have seen by Obama (and Bush) is being financed by fiat money (essentially counterfeit) and will result in rampant inflation. Other parts of the spending will be paid for by future generations. Finally, some will be paid by foreign governments who invest in such debt (making us dependent on regimes, like China).

4. In our modern exchange economy, all payroll and employment come from customers, and the only worthwhile job security is customer security; if there are no customers, there can be no payroll and no jobs.

Labor unions have long tried to create an economic world that is detached from reality. If labor wants job security, they must accommodate customers. There is no other way to assure long term job stability.

5. Customer security can be achieved by the worker only when he cooperates with management in doing the things that win and hold customers. Job security, therefore, is a partnership problem that can be solved only in a spirit of understanding and cooperation.

Unions often want an adversarial relationship with business, but job security can only come if the two are partners pursuing customers together.

6. Because wages are the principal cost of everything, widespread wage increases, without corresponding increase in production, simply increase the cost of everybody’s living.

An example of this is minimum wage. When it goes up, so do prices, and if the job isn't worth the wage, it will be lost. This solves the mystery as to why minimum wage increases are both rare and devastating.

7. The greatest good for the greatest number means, in its material sense, the greatest goods for the greatest number which, in turn, means the greatest productivity per worker.

Production is the best way to keep an economy strong, and those who participate in it growing financially. The best way to encourage productivity is for a government to keep the costs of production as low as possible. This is done through a stable money supply, low taxes, and few regulations.

8. All productivity is based on three factors: 1) natural resources (NR), whose form, place and condition are changed by the expenditure of 2) human energy (HE) (both muscular and mental), with the aid of 3) tools (T).

This is straight forward enough. These three factors make up the totality of the economy. As a formula, this is seen at NR + HE x T = Man's Material Welfare.

9. Tools are the only one of these three factors that man can increase without limit, and tools come into being in a free society only when there is a reward for the temporary self-denial that people must practice in order to channel part of their earnings away from purchases that produce immediate comfort and pleasure, and into new tools of production. Proper payment for the use of tools is essential to their creation.

Tools are the only one of these that can increase without limit. An example of this is agriculture, which was the dominant industry in the late 1700s and early 1800s, with the majority of our population working in that area. Today, the number who work in it are in the single digits and the abundance of food could not be greater. Tools are what have changed everything.


10. The productivity of the tools--that is, the efficiency of the human energy applied in connection with their use--has always been highest in a competitive society in which the economic decisions are made by millions of progress-seeking individuals, rather than in a state-planned society in which those decisions are made by a handful of all-powerful people, regardless of how well-meaning, unselfish, sincere and intelligent those people may be.

The genius of the many individuals when it comes to economic prosperity is always greater than the few or even the majority that would impose its view of "fairness" on the economy. This is the "invisible hand" that Adam Smith spoke of so eloquently in his The Wealth of Nations.

These Pillars are factual, logical, and without a political agenda. They provide excellent benchmarks on what works in the economic system. Pass this tool on to others who are trying to figure out the headlines and let freedom ring!

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

*An internationally accepted working paper developed by The American Economic Foundation

Government Needs a Primer on Money

When you ask the average person what inflation is, they will tell you "high prices." This is like saying that a person with pneumonia merely has a fever. Both are partial descriptions, but very incomplete.

Inflation is more accurately described as "too much money chasing too few goods." Simply put, as we increase the supply of money but not the productivity you have higher prices and so much more. The hundreds of billions (and now trillion plus) that is being spent by the government for bailouts will come from printing money, as well as other sources. Currently, twenty percent of every tax dollar goes to paying the interest on the debt. That makes printing money more attractive, in spite of the potentially negative consequence, and those consequences are significant.

• Such pumping of money into the economy will lead to a massive devaluation of the currency over time and a significant increase in prices.



• Wages will grow artificially high, which will lead to many moving into higher tax brackets even as the value of their income declines.



• There will be an obvious need to increase interest rates, regardless of where the government sets them, because businesses have to make sure that what they receive back is more than what they loaned or provided in credit. This is one of the reasons why interest rates have not gone down for consumers and others, although they have gone down for lenders. It is not mere selfish greed, but self interest in protecting their share holders.



• New businesses will find it more difficult to start up because of the perceived decrease in its future value, because of the instability of the money supply. These business will find it difficult to find investors, markets, or any future at all.
  

The bottom line is that calling inflation "high prices" simply does not give this major problem justice. Unfortunately, I am fairly confident that many, if not most Americans are unaware of how far reaching inflation can be. I have heard people say, "why doesn't government just print money to solve deficit and other problems?" If a large quantity of money made people rich, Zimbabwe, Guinea, and Yemen should be among the richest countries in the world. They are not, in fact they are among the weakest, and they also have the highest inflation.

Pouring more money on this economy is the equivalent of pouring gasoline on a fire. The projected long term consequences could be devastating.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Is the Dollar Too Weak or Strong?

Whenever the dollar becomes particularly strong and we can travel around the world for a song, buy foreign goods for a fraction of what we would pay here, and we become the currency standard for the rest of the world, we begin hearing concerns of the dollar being "too strong." Then when the dollar declines and we can't afford globe trekking, and certain countries start seeing our goods as "cheap", and the Euro begins to look like the future financial standard, we cry the dollar is "too weak."

This is indicative of the way it is with the media. They are never satisfied. More importantly, they don't have a clue of what they are talking about any way. Most journalists are in the bad news business, so when they find the economist that is advocating pro-weak dollar or pro-strong dollar, they simply focus on the one who provides the most negative spin on the economy.

For the record, a strong US dollar is always a good thing. It is better to be able to get foreign goods at a lower cost than here because it shows how valuable our currency is and is bolstered
by a highly productive economy (productivity, in relation to money supply is the primary factor for a dollar's value). A strong dollar is a good thing and knowing that is part of all our responsibility, since the media has abdicated reporting such.

For a copy of the free audio program and free report, "Why Your Marketing Isn't Working," email Info@HoustonBusinessShow.com and put "marketing" in the subject line.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Are We Now In A Recession?

You probably didnt ask for it, but it has been shoveled down our throats, we are being told that we are in a recession. I have said quite often in this blog, that I'm not buying it, and the economic statistics supports my optimism.

According to the Bureau of Labor Statistics (BLS), we maintain a ridiculously low 4.9 percent unemployment. Economists call 4 percent zero unemployment (factoring in seasonal employees, those creating their own business but still cited as unemployed, illegal business activity, etc.). There has never been a recession with this low of unemployment.

On the same BLS page we find that productivity was up 6.3 in the last quarter we have such recorded. Again, not indicative of a recession. In fact it is a sign of a booming economy.

As I watch CNBC (which is all I have available in my TV studio) I am seeing these people celebrate a recession as the Dow hoovers around -300. One of the analysts is arguing that they need to declare the recession now so the market can determine what are the best stocks to invest in. It is dishonest (it takes six months of economic decline to have an actual recession), it probably lead to poor financial planning, but it leads to great TV ratings.

I admit, today may not be a good day to invest in the market if you are faint of heart -- although there are plenty of barging out there that are worth pursuing. But there are numerous places that you can successfully put money -- in Real Estate (especially in the investment side as people move to renting rather than owning), creating your own business, and other more tangible economic activities. But it is simply too early to call this an economy in decline.

In the above video from Movers and Shakers, you will see a different spin on the economy.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.