Capitalism/financial crisis with history excerpt

Today I want to explain a kind of catch bag of economic concepts. While I am fully aware of professional terminology such as “the fundamentals” and “money velocity,” I’m not going to use them for the reasons I’ve explained previously, which is they are definitions used to describe warped and skewed capitalism, not genuine capitalism as it first emerged in its true form. I had the misfortune of working with highly paid and arrogant bank economists and I observed first hand that their education, and subsequent “Unreal Greed Street” job experience, hardened their misunderstanding of the origins of their own profession. Also, I obviously am not trying to train the people who read my blog to do more of the same of what has not only not worked, but was incorrectly crafted in the first place. However, I mention my background so that I can reach out to economists who genuinely do wish to do well and help the country-and all of the people and also, by implication, those in the world who depend upon the health of the USA to ensure their own. There are so many well formed ideas that I have, and so much background information that I would need to convey, that this is why I decided to lightly touch on a number of topics rather than go in depth in any one of them today. I know both the financial experts will get what I am saying nonetheless, as will those who have been following what I’m teaching as concerned citizens. I especially want at this time to reach out to local governments (states, cities, towns, counties, parishes and so forth) in order to help them cope and be heartened that there is a reasonable approach to solving our problems, one that is still firmly grounded in the Constitution.

So here I will introduce and explain a number of topics, in no particular order, just as they occur to me today, having been on my mind for many years.

The first is to understand money (in the form of currency, not theoretical measures of wealth) and how to properly assess the best uses of it. The trouble with money, and let’s use the American example of the dollar bill, is that like I’ve explained previously, people jump too quickly to thinking about some end goal without considering how the dollar bill has made its way there. Think of a dollar bill in an analogy (you knew one was coming, didn’t you?) Let’s think of a given dollar bill as an old fashioned antibiotic, such as penicillin. I’m not selecting penicillin as a hidden symbol of the dollar bill being less effective or out of favor, but because penicillin was the world changing discovery that first allowed humans to treat themselves successfully against infection. Likewise the use of standardization of currency was a wonderful development that allowed humans to do many things they could not otherwise do. Also I’m not implying that only the sick need a dollar bill, LOL, (though it seems like only the sick are the money managers, but that is a whole other problem!) I want to use the analogy so everyone can understand how a dose of money works its benefit throughout the economy and just as importantly, how it does not work as a magic cure all for every situation.

When doing some important financial planning task, such as trying to stimulate a local economy, there is a concept of looking at how quickly a dollar bill moves within that area, and whether it stays in that area, and how many hands touch and presumably benefit from it. This is a wise concept but one that has been totally misapplied and has become misunderstood. Would be economic planners sometimes think that if a dollar touches, let’s say ten local merchants, that it has done more “good” for the “local economy” than a dollar that touches two or three local merchants. But that is not always true. Using the penicillin analogy, if the penicillin touches ten local merchants, but only one of them was sick, what was the benefit of that? It’s almost as though the genuinely sick merchant was lucky to get a touch of the penicillin dollar bill. Suppose the dollar bill that touched “only” two or three merchants, however, was targeted to touch those that who were genuinely sick. Therefore the analogous penicillin dollar bill proved the wiser investment where it touched “only” two or three genuinely “sick” merchants than the dollar bill who touched ten merchants, only one of whom was “sick.” Economists, local planners and the hidden money plutocrats and mandarins who pull the strings behind the scenes both innocently and deliberately misunderstand this concept and abuse it accordingly. So my first lesson is that money that does not touch the right hands and settle in the right places does not perform its function.

Now, before I hear the howls of those who accuse me of wanting to “redistribute wealth,” you are totally wrong and I am not saying that. I am telling you how to invest your money properly, not trying to take it away from you. I have seen over the decades people make what they think are both wise and compassionate investment and charitable donations, and who might as well have burned the money in the parking lot, because they did not understand what I have just explained. I’m not trying to “redistribute your wealth,” I’m trying to be the wise investment planner that you never had as your partner. So whenever one assesses a dose of penicillin dollar bill, do not be tempted by visions of that dollar bill going from let’s say gas station to grocery store to bank account to paycheck to buying some home furnishing and compare it to some other use of the dollar bill and immediately conclude that since the first use, to use a baseball analogy, “touched five bases” that it is automatically more “stimulating” to the community that let’s say a dollar bill that went into a much need school repair. In the latter case, that dollar bill might only have moved “once,” from the payer hands to the contractor payee (and to keep the comparison pure, let’s assume the contractor sent the earned dollar out of state and had brought supplies in from out of state), nonetheless that dollar bill might have had a cascading economic benefit that was as if one hundred dollar bills “magically” appeared. The wise penicillin dollar bill might have kept a few more kids in school who might have dropped out and turned to crime, it might have stimulated more after school scholarly or sports activities for a dozen other kids, it might have avoided some insurance payout due to decaying school conditions, and thus avoided a future loss, etc. I know for a fact that hardly anyone understands and uses that concept of measuring a penicillin dollar impact on a local community or in fact in any given fiscal problem. Instead they retreat to the standard talking points, which over time they have come to believe, which are, to list just a few, “trickle down,” “keep the money local,” “stimulate local business,” “give back to the community” and so forth. Thus both the left and the right totally misunderstand how to properly gauge and manage the best impact of any penicillin dollar in either their personal planning or their community, or national, fiscal spending.

I’m reminded of one of President Grant’s stories from his memoirs and will repeat it here because you will see how that mindset crept into society as it happened. Here Grant sees himself as the average educated white man who understands money (this was in the beginning of his Army career), so please do not read this with the usual prickliness about racism, but consider that he thought he was actually observing an ignorant practice by the local Native Americans. That is one of the problems with today (I first observed it in my Ivy League university in 1971-5), which is that people refuse to read any further and learn from historical literature if they think the author was, despite the context of the times, “racist” or “sexist.” So if you want to own your own mind you need to learn to read without wincing and prejudging the observations that people made during certain times in history, period.

OK, so think about the penicillin dollar when you read this.

When I was stationed on the Pacific coast we were free from Indian wars. There were quite a number of remnants of tribes in the vicinity of Portland in Oregon, and of Fort Vancouver in Washington Territory. They had generally acquired some of the vices of civilization, but none of the virtues, except in individual cases. The Hudson’s Bay Company had held the Northwest with their trading posts for many years before the United States was represented on the Pacific coast. They still retained posts along the Columbia River and one at Fort Vancouver, when I was there. Their treatment of the Indians had brought out the better qualities of the savages. Farming had been undertaken by the company to supply the Indians with bread and vegetables; they raised some cattle and horses; and they had now taught the Indians to do the labor of the farm and herd. They always compensated them for their labor, and always gave them goods of uniform quality and at uniform price.

Before the advent of the American, the medium of exchange between the Indian and the white man was pelts. Afterward it was silver coin. If an Indian received in the sale of a horse a fifty dollar gold piece, not an infrequent occurrence, the first thing he did was to exchange it for American half dollars. These he could count. He would then commence his purchase, paying for each article separately, as he got it. He would not trust any one to add up the bill and pay it all at once. At that day fifty dollar gold pieces, not the issue of the government, were common on the Pacific coast. They were called slugs.

Now, here is what Grant meant by saying the Indians would pay for each item. Suppose you went to the grocery store to buy milk, bread, meat, a carrot and an apple. You let the check out clerk total your purchases and you pay once the total, receiving change. However, the Indians would have the clerk ring up the bread, and then pay for the bread, ring up the milk, and then pay for the milk, ring up the meat, and then pay for the meat and so forth for the five full separate transactions. Grant said it was because they did not trust the clerk to add up the total correctly, but you know, do you not see now, that it was more than that. The Indians maintained control and value judgment over each item piece by piece. The value of each individual item was not hidden in the total. It’s not that they just didn’t trust the adding up of the total (and I bet they had good reason to not trust in many situations!) Even if someone could prove that the clerk was always honest and that the total was the same as each price individually, they still would have stuck to the individual payment of individual items. This is because despite being “ignorant” they instinctively understood both a benefit and danger of capitalism. The benefit of capitalism was money they could trust (even though the slugs were not minted by the government, they were based on the gold standard) and so they readily accepted as wise that development of capitalism, which was a trustworthy standard means of exchange of a precious metal. However, they instinctively recognized that a danger of capitalism was the tyranny of the “sum total” mentality. When one manages money using sum totals, the meaning and wisdom of individual purchases is hidden and indeed lost. We all experience this feeling ourselves when we “throw a few things in the grocery cart” and then find a higher price than we expected at checkout, just because we no longer pay attention to either the individual item’s merits of purchase or the running sum total. Now, imagine an entire people, and entire world, that only looks at sum totals of millions of individual decisions, never analyzing the impact or the wisdom of any one of them. That is what I call the tyranny of the sum total.

So I’ve introduced to you here two concepts that it is important that everyone genuinely understand. One is the need to examine alternatives when deciding how each “dollar bill” is used in order to truly discern the best usage, and not to implicitly assume that frequent rotation through a lot of hands is “good” when in fact it is often what I call a “shallow” use of money. Money that is used shallowly is flash money, usually paid for transitory goods and services that is usually justified as “adding salaries to the community” yet does not “stick” to any place in the community where it can genuinely generate on its own “new dollars,” almost out of thin air. The second concept is the tyranny of the sum total, which we see everywhere from the problem of the bloated and still ineffective Federal budget, all the way down to a business man or woman accepting a plan from one of their staff that is “bottom line” and has not been examined not just for accuracy but more importantly for more substantial individual choices of expenditure and alternatives that could be more meaningful.

It is critical that today’s money managers, no matter how great or small your budget or investment pool, look at each item, rather than the sum total, and act as though you had never heard of such a thing, and need to be persuaded anew that this is a necessary or wise usage of funds. That’s the third concept that I want to introduce which I call “what if” financial analysis. It’s different from the concept of “valuation,” the “value chain” or “value analysis” because it constantly questions the chain of production and assumptions itself, rather than valuing the pieces of production that one takes for granted and never questions. People are incredible creatures of habit and easily slip into both information overload and what we call in the vernacular “being on auto pilot” in our decision making. A lot of this is not malicious, but those who have ruined the economy are guilty of this kind of thinking themselves and at the same time exploiting it in others. Here are some examples so you know what I mean.

The entire problem of providing social services and welfare is an example of sides that hardened into two alternatives (“provide welfare” or “make them work”) and the result is a horrible and at times dastardly mess. This is the tyranny of sum total thinking that totally lacks “line by line” “what if” thinking. Welfare is an example of “one miserable disaster fits all” sum total planning. I don’t need to list how many ways welfare as it is constructed today has failed individuals and society as a whole, especially the children. Yet whenever someone mentions that welfare is the nightmare that it seems as though we will never wake up from, the “other side” can’t wait to jump in and have a hardness of heart that is shocking. Both sides are “wrong” because both are enslaved to sum total mentality combined with a lack of visionary and genuinely well intentioned “what if” analysis of real alternatives within the system. It would take me about one hour to list ten different scenarios for providing necessary services for the needy, tailored to the actual context of the needy that we are discussing (their community setting, for example) rather than assuming that throwing penicillin dollars, to go back to our analogy, hits the right hands. Yes, in one hour I could give people a list of at least ten alternatives that they could select from that would address a particular welfare based problem or case study. Yet no one even tries to come up with a third alternative these days, they just fall into arguing their two sides, each atop an ignorant sum total tyranny. Welfare as it is structured today is a disaster, and so is the touted “put them to work” “alternative.” I cannot believe how willfully ignorant humans seem to have become and what miserable failures everyone has become at analysis and problem solving based on both wisdom and compassion.

I have just paused for a minute in order to resist slipping into one of my rants about the freak show society. What triggered it was what a woeful spectacle “job creation” has turned into, and I dearly hope and pray that with the new administration they recognize that meaningful jobs are not just the means of getting a paycheck for producing more garbage to throw into society as the “product.” In other words, I totally support the vision that the new administration seems to have of real jobs related to infrastructure and schools, for example, rather than enabling shake your money maker entertainment “jobs.” Entertainment is a vital sector of the economy and you might be surprised to hear that I do not oppose entertainment such as casinos, on principle. But the incredibly shallow output of much of American “entertainment industry” rather than infrastructure entertainment, such as Boys and Girls clubs or local sports and music programs is shocking. So when one argues that people need to “get a job,” its more than just a job because in this economic crisis, those who can make these decisions at the federal, local, corporate, agency and individual levels must make some wise decisions based on alternatives, for once. Here is an example.

Suppose that I have one hundred penicillin dollar bills, and I want to create a business so I can earn a good living, create some jobs and help the community. I decide to manufacture violent video games because it will “provide the poor with good jobs.” Huh?

That’s not free market, despite the fact that both the left and the right will argue that, saying “Well, if the public didn’t want violent videos they would not buy them.” Yeah, but you could have thought about creating a business that is genuinely “free market.” How about if I had used the one hundred penicillin dollar bills to open a Boys and Girls after school club where they could apprentice making video games under ethical teachers? I could have generated salaries (the teachers), made money (by selling the supplies), and gotten dozens if not hundreds of local kids to learn skills (video making and also business and creative skills) and best of all, THAT is free market. After all, suppose you had a thousand students in your business lifetime. Many would not go into that career but it was character building. Some might have become young entrepreneurs themselves in civic areas since you did not bind them to just learning the lowest common denominator of product. For example, one of your students might have developed an idea for a video game that teaches local kids how to discover areas of pollution in their community and how to be a genuine activist! A few might go on to make violent video games, LOL, but that is free market in truth, not brainwashing. Maybe you would not be a video game millionaire. But see, that’s the problem with the mindset today. I referred to that in earlier blog postings as being the “make a killing” mentality instead of the “make a good living” mentality that capitalism is genuinely founded upon, and needs as its basis, not greed, or it is doomed to dismal, crushing moral and fiscal failure.

I’m just painting a vivid example but one that is not too far off of the mark.

I’ll say “it’s a wrap” on this particularly posting, having introduced three economic concepts, and there’s of course much more, but these are essential to reorienting the thinking that is killing this country. I hope that you have found this helpful. To summarize:

1. Always analyze the flow of dollars and do not assume anything about the benefit of any particular dollar volume, location or frequency without examining purported benefits and alternatives thoroughly, especially looking for dollar usage that beneficially “sticks” and generates new dollars.
2. Beware of the tyranny of the sum total and wherever possible examine each item, questioning if a better usage or placement of dollars is possible on that “line by line” basis. Use "what if" analysis to generate alternatives for even what one thinks are obvious inherent portions of investment.
3. Genuine free market means the open ended creation of both jobs and skill sets that are wisely discerned and targeted for maximum benefit and both economic and civic worthiness.