Categories
Adam Smith

Adam Smith’s view on Government

Government leaders have never read Adam Smith. I am sure of it. At least not in full.  In fact, if bureaucrats and politicians had read Smith they would understand that small government means small problems and big government means big problems. Or in the ideals of our founding fathers, ‘the government that governs least governs best’. But why is this true, what is the basis of this idea?

The Wealth of Nations was published in 1776 at the time of the start of the American revolution. It was the time of the enlightenment for philosophy and political economy.

The idea of the enlightenment was: trust the individual as innately good, support the individual in terms of freedom and education, and the individual will act in positive creative ways that the government could never engineer.

In essence, you personally, the reader are wiser than a politician with regards to your life.  In other words, you personally have the ability to run your life and bring society as a whole, to a greater good, better than a bureaucratic socially engineered solution.

It amazes me there are still people who believe the government can fix problems rather than create them.

When government gets big happiness decreases:  Kings to Socialists

In 1776 it was the Kings and royalty who were impeding the happiness of the common person. They followed mercantilist economic politics and laws that were partial towards and supported the upper class. In today’s world, it is the expansion of government under the guise of a greater common good. However, based on the experience of communism or societies that take the socialist route in contrast to a free market route we know the government’s expansion brings society to a lower social optimum.

Government analysts look at the cost/benefit analysis – Smith looked at overall happiness

Politicians including the local governments and county governments have a modus operandi moving forward with projects that seem to have a benefit to a society based on a cost-benefit analysis or at least sounds good. However, that does not take into account such things as opportunity cost or that private initiative would do it more efficient. They crowd out private opportunities. Therefore, governments universally view the incremental expansion of government as fair and just, however, in reality, it is determinate to society because they are not operating at the optimal. Yes, society might work, but the greatest happiness of the people is not reached. It amazes me people are not aware of this.

  • In other words: Individual people, rather than government acting on their own enlightened self interest is what pushes the frontier of the general good of society as a whole.

Adam Smith pointed out not only in his Wealth of Nations but also the Theory of Moral Sentiments that governments role should be limited to the scope of large projects that at the time of his writing private enterprises did not have the critical level of capital to move forward. Yes, the government has a role, in the world of Adam Smith but was not a solution to human suffering or the fundamental problem of economics, scarcity.

Smith was a Classical political economist (Mill, Locke).  These ideas were subsequently developed by Neo-classical economists during the marginal revolution (Marshall, Jevons) and transformed into a political prescription by Libertarians and Austrian economists (Menger, Walras).  Keynesians challenge this premise, however, they are incorrect and an example is concisely described in the Grand Failure (Zbigniew Brzezinski).

  • People acting on their own enlightened self interest are contrary to the general good of society as a whole.
Homesteaders growing their own food instead of relying on the government.

Adam Smith pointed out just the contrary. Smith said when you give people freedom, economic freedom which means no or low taxes, because people are good in nature, people will do things unconsciously for the greater good.  The government’s idea is people are bad by nature or at least do not trust that people can find their own solutions to problems, and the government must take action and make the choice how to spend your money or the greater good will suffer.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.  Adam Smith  – Wealth of Nations

Smith’s message is people know how to spend their own money better than the government does. The government’s message is big government is needed to create a Utopian social state.

Adam Smith was not a laissez-faire anarchist. Rather he prescribed limited government and trust in the actions of the enlightened self-interest of individuals rather over the government to guide the market to equilibrium.

The government should limit its activities to administer justice, enforcing private property rights, and defending the nation against aggression.

Adam Smith approve of limited public works that elevated and educated the population.

Three main roles of government in Adam Smith:

  • Protect the country from foreign invasion

The first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force. But the expense both of preparing this military force in time of peace, and of employing it in time of war, is very different in the different states of society, in the different periods of improvement. The Wealth of Nations, Book V, Chapter 1, Part 1).

  • Protect people from injustice from within the country

The second duty of the sovereign, that of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice, requires two very different degrees of expense in the different periods of society. (Wealth of Nations, Book V, Chapter 1, Part 2).

  • Provide culturally positive efforts from public works to schools

The third and last duty of the sovereign or commonwealth, is that of erecting and maintaining those public institutions and those public works, which though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual, or small number of individuals; and which it, therefore, cannot be expected that any individual, or small number of individuals, should erect or maintain. The performance of this duty requires, too, very different degrees of expense in the different periods of society. (Wealth of Nations, Book V, Chapter 1, Part 3).

Throughout Adam Smith’s writings, we see reference to:

  • Provide for the common defense
  • Education of the Youth
  • Copyrights and patents of fixed duration
  • Police for the preservation of freedoms and against corruption
  • Regulation of paper money
  • Enforcement of contracts
  • Usury laws on banking and interest
  • Post office
  • Coinage and mint
  • Maintain low to no debt of the government
Correlation between the sizes of the government and societal happiness.

Advice from an Economics professor

My recommendation if you want to consider Adam Smith and the government, view it in the context of the time. Also see Smith’s work, not as the Bible of Capitalism but rather, the beginnings of an understanding of how markets come to equilibrium, this includes government action, like the Keynesian. It is easy to beat the drum of the free market by just gazing at the sky and invoking the name of Adam Smith in an argument, and say Aha, you won the debate you are engaged in. However, my advice is to see his work as a primary source document that others expanded on. There is a certain purity in his writing because of the time, and simplicity of the economy compared to today. See if you can find a new prescriptive on his writing that others have not seen and related it to modern economic theory on government intervention vs individual initiative.

Categories
Money

Credit Union or Bank

Which is better a credit union or a bank?

The credit unions vs. banks’ controversy are easy to solve if you take a step back and look at the economic incentives. First, as yourself what is the purpose of a credit union and what is the purpose of a bank?

Profit motive

I have worked for banks for most of my life in different capacities.  This is what I saw.  I saw a profit motive that was not tied to customer experience.  At the retail level, there are many nice local banks. However, at the top, the profit motive is too strong not to find ways to nickel and dime and depositor and borrower.

The people who work there are usually do not care about in you anyway. Banks nickel and dime you with fees for their sales bonus. They try to sell you everything from insurance to stocks and mutual funds and put themselves out there as the one-stop solution to all your financial problems. However, this all comes at a price, that is fees.

Some banks have financial planners on hand, financial planners are nothing more than salesmen, who want to sell you products again with fees.

I have worked for banks, brokerage houses, insurance companies and they are all about making money off of you and do not have your best interest in mind.

In contrast,  Credit unions are not for profit. They are for the benefit of the members. Why would you choose an institution that is about making money off of you? You could argue economic incentives make banks better able to sever you, but that is not true anymore. Credit unions are tech-savvy and it comes down to the bottom-line not the marketing department.

A bank’s purpose is to serve the shareholders, make a profit and when it makes a profit from you give these proceeds to other people who may or may not have their personal money with the bank.

A credit union’s purpose is to serve the customer. It is a non-profit organization. Any profits it makes goes back to you. Their philosophy is to serve the members.

Summary: My personal experience has been banking and has screwed me over every step of the way.

People at a bank vs People at a credit union

People go to a bank to work because they are not in medicine helping people or teaching or creating something or farming. They are not entrepreneurs. To them, it is a job to collect a paycheck. I have had many negative experiences with bank customer service and management. Its mostly the people who work for these organizations lack the brains to do something with their lives and they wind up in banking. Really, people in banking are usually the bottom of the barrel in terms of creativity and brains.

In contrast, people in Credit Unions are often there for the benefit of the members. I have been a member for over 25 years and never had a bad experience.

Credit Unions are better for the economy

Richard Werner has done research into the banking system and its current flaws. He prefers small banks and credit unions for a stable monetary economy.

What do I use for my banking?

I only use a credit union. I lived in Europe for almost ten years and traveled the world, worked in high finance and yet, I powered my financial life with a humble credit union.

Credit Unions have Internet banking, e-commerce assistance, financial services, home, student and car loans and real financial coaching and they have FDIC insurance

I use an American Eagle Federal Credit Union. Every experience with them has been positive because the people that work there I think like their job and helping the members.  They are not greedy bankers who lack imagination so go into banking to get something from people, but rather at American Eagle Federal Credit Union people are there because they want to help their members.

You can make your credit union (and yes ) your one-stop solution without too much fear they are trying to milk you with fees.

No stress, no shopping around just clear solutions for your banking and life. With a credit union, you can just work at your day job and put your money in a credit union for your goals. When you have a lot of cash buy maybe some mutual funds they offer.  They have IRAs, insurance, trust planning.  Often these are third party companies, but I  credit unions screen companies with their member’s best interest in mind.

Maybe you can save a little if you really shop around, but I believe in keeping it simple.  If you keep your financial world simple and organized it frees you to do other things in life.

Credit unions are friendly.

The next step for you is to, look into finding a credit union, though your associations. I am Polish so I could find an American Polish credit union. I am a teacher so I could join one connected with teachers. Some people are veterans others have religions credit unions, but find one.  Here is a general link if you want to find more information: the Benefits of credit unions.

If you have questions you can ask me a person who has a lot of professional and personal experience with both.

Categories
Adam Smith

Adam Smith – How to Make Money

Adam Smith: virtue + self-interest = success

Adam Smith wrote about economics, but also self-actualization.  If you are going to study about making money, why not meditate on the wisdom of the ‘father of economics’, he spends his whole life thinking about the subject. He was not exactly a self-help guru,  and he wrote in verbose 18th century English. Smith’s writings were about individual action guided by moral philosophy and its effect on the whole of society in aggregate. However, if you read works he has insights about how to achieve success, in a way that is contrary to modern wisdom on the subject. I prefer him over most  21st century writers on how to make money.

If you want to know how to make money, consider the works of Adam Smith.

This place of Adam Smith’s birth – Kirkcaldy, The place of his education – Glasgow, the place of his teaching – Edinburgh from left to right.

When speaking about the economy as a whole Smith was concerned with how our individual decision come together and create the world we see around us. Therefore, your individual decisions are important in shaping the world. This hippie talk of the 1960s and its echoes of it today really is true.

If you want to change the world start with your actions, change it on a small scale, on a local scale and it will reverberate through the collective unconsciousness of society. Your choices are the lifeblood of the world. His advice was to make your choices based on self-interest guided by something higher, an enlightened understanding of virtue and understand why you make choices and what motivates you and others.

My premise is if you increase this awareness, about how people interact and exchange in society, it can help you make money. You will be thinking not just about the generation of income, but more about satiating a demand that people will love you for, and this often equates to rewards in the market. It is basically a shift in focus away from monetary reward towards self-actualization that has the unintended consequence of wealth.

I know it is hard to do. You have to pay the bills and you need money fast. However, if gain a greater awareness of what motivates people, you can develop ideas that align with your talents to offer something profitable.

Therefore, Adam Smith’s books The Theory of Moral Sentiments (1759), and An Inquiry into The Nature and Causes of the Wealth of Nations (1776), were books not only about economics but also guide to how to live a good happy life.  In summary, The Theory of Moral Sentiments was about virtue and The Nature and Causes of the Wealth of Nations was about money. Virtue plus money is a winning combination in life.

The Theory of Moral Sentiments was about reminding the reader why we act as we do

Many people who have not read The Theory of Moral Sentiments believe Smith was about capitalism, self-interest, and pursuit of happiness through economics means. Words like greed and selfishness have negatively been attributed to his works. This is a misinterpretation that puzzles me.

If you want your money making life to go well, take Adam Smith’s advice, to strive to be loved and lovely.

Adam Smith was a moral philosopher. He addressed questions about life, and how the Great Architect designed the universe, using terms of the enlightenment. He observed and deducted.

Man naturally desires, not only to be loved but to be lovely; or to be that thing which is the natural and proper object of love. – TMS Chapter II

This is in contrast to what we think about utility maximization, utility function, preference curves, demand curves. It was this innate desire to be loved and respected in a human way, rather than a monetary way, which the Great Architect encoded in our DNA. This desire to be love is a driving force in human action. It is not the same as being famous in a Hollywood way, rather, to be admired in a virtuous, altruistic way, even if the expression of your labor is through the market place.

Therefore to achieve success, in  The Wealth of Nations Smith believes each person should pursue their self-interest, but this was enlightened self-interest.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

What this means was something else than what is attributed to Adam Smith. It is not about pure greed, but if you read the totality of his writings, you realize it is about self-actualization.  The butcher, the brewer, and the baker are doing this works because they enjoy it, it makes them happy, they have a talent for it, and it contributes to society. They enrich their lives and the world around them.

Recreate the world around you, through enlightened self-interest and virtue and the world will be a better place.

Adam Smith did not recommend the relentless pursuit of wealth, but rather the relentless pursuit of virtue and service to others in ways that you are free and fit to do and the economic rewards of the market will enrich you.  It is not just a do what you love and the money will follow, it is doing what you love, yet in a benevolent way and use your clever mind to find ways to profit. Become intimate with the market, prices and the way it operates and you will have an edge. Think about economic ideas like opportunity cost and margins and you will have an advantage over your competitor.

The unintended consequence of freedom is the Wealth of Nations and your personal wealth.

  • Take away is: pick a way to make money which you are passionate about but also helps others so you will be loved. Do not think about just selling something on eBay or getting a job in government because of the benefits, or a job in banking because it pays, rather be creative and compassionate. Think of something that really helps people.  For example, better would be creating homes with new building material that is inexpensive and non-toxic so struggling families can have inexpensive quality housing.

An unintended consequence of virtue might also be personal wealth if you are honest with yourself and do not deceive yourself.

This self-deceit, this fatal weakness of mankind, is the source of half the disorders of human life. – Theory of Moral Sentiments III.4.6 158

You need to be honest about your passions and ways in which you can market this to others.

His writings are a combination of Dale Carnegie’s How to Win Friends and Influence People and someone modern Zen businessman guru that says ‘do what you love and the money will follow’.

Virtues of Wealth

The man who acts according to the rules of perfect prudence, of strict justice, and of proper benevolence, may be said to be perfectly virtuous. – TMS III

If you act according to so some basic virtues, you will be loved by others, you will lubricate the wheels of business, maybe negotiate better terms of trade, have repeat customers, get better reviews on the web and feel good about yourself. It can not be a false virtue of smiling to the customer, but rather, and true transformation of self.

  • Take away: If you are virtuous in an authentic way, the business would open the door for you, you could never get from a self-help book.

These are the virtues Adam Smith recommends:

  • Propriety – Meeting the expectations of the people you interact with. Not shocking them or surprising them in a negative way. This seems like an outdated virtue. This virtue includes modesty in financial success. You would share this with a close family member but not someone that it would create jealousy with. People today do not understand propriety as it is more the 18th-century expression. It is proper behavior. I think Adam Smith’s virtue of Propriety is to be equated with authentic humility.
  • Prudence – Spending your time wisely and taking care of yourself well. Do not be on snap chat and Tinder, gadgets, rather think about how you spend your time.  Smith said to be on guard against “frivolous trinkets of utility”. Adam Smith used the watch for example. He noted that people had more expensive watches were not more punctual. Be prudent in your expenditures and in your use of time and things. A specific example in my life is I have a large organic garden. Instead of spending money on soil and mulch, I ask tree companies for free wood chips, that I subsequently use for much and compost. If you are prudent you can find ways to do things for less.
  • Justice – There is social justice and personal. Basically, this does not harm others when you look at this on a personal level. Do not steal or hurt others physically.
  • Benevolence – This means I am going to help others.  Smith calls this virtue ‘lose, vague and indeterminate’, it is harder to do, but generally be helpful to those around you. I think Google initially said ‘do no harm’ and now has said they want to ‘do good’. This is a specific example in the business of Justice and Benevolence in operation in the business. It is debatable if they do that, but generally yes.
Be prudent in your use of things and time – Adam Smith’s recommendation. With foresight, he used the newest watch as an example.

Adam Smith the Deist

Adam Smith believed the Creator put worry about what other people think of us, to guide and shape civilization in a positive way. If this was not in there we would simply pursue selfish activities. Remember Smith was a Deist (debatable), rather than a Christian. So he was writing about enlightenment God of the philosophers, rather than a religious call for transformation. He did not set out to create another Bible, but rather on his observations of what worked in the realm of business. Since he grew up in the Church of Scotland, Smith’s writings basically align with Christian virtues in his Theory of Moral Sentiments, just the ones with an economic effect.

Therefore, want to actualize ourselves not just in purely self-driven ways, but ways that are within the parameters of society’s recognition, will make others feel good and you feel good as that is the way the Great Architect designed it.

The Paradox of virtue – If you step back for a moment this will more often than not align with monetary reward, however, this can not be your goal or your virtuous goal of self-actualization would be a false pretense. Rather your mantra in once sense should be: ‘virtue is its own reward’.

It is a hard message to swallow in a time when self help gurus in their homilies are tell you to go for the gold. Further, many people claim you have to cheat or be ruthless to get ahead. I would say I know a lot more software engineers who have a nice life, than bank robbers, or corrupt bankers.

To make money with inspiration from Adam Smith – look at how nations generate wealth

Plato wrote about a city-state, a country that was ruled by a philosopher-king.  This was a metaphor for a man, a man ruled by his sense rather than his appetite drives.  Adam Smith wrote about nations and countries and an optimal way for countries to get wealthy.  From this, you can also extrapolate to your own personal situation based on the system in which countries get rich.

Adam Smith’s countries make money by creating something of value.  Actually creating something, not just services.  The Austrian economists did not agree with Smith on this point.  Austrian economists believed services were an integral part of the whole production process.

However, lets start with Adam Smith.  Smith’s basic idea was a county should create something and sell it internally or externally, something of value.  So what does that mean for you? It means that you should not focus on ‘how to get rich quick’, how to make money on the Internet’ by selling someone else’s product, you yourself need to produce, to create to make something of value.

So how do Adam Smith’s writings translate into personal wealth?

Choose a passion that you think will benefit yourself and others.  For example, you might want to skip traditional career methods.  Entrepreneurs statically make the most money. Then choose something you are passionate about.

Jean-Martin Fortier –  With his wife he has developed a bio-intensive form of organic agriculture that is profitable on just over an acre. He has enriched those around himself and his family.

Linus Torvalds  – who championed Linux, with his passion for the kernel he developed an operating system that is used as the basis of much of computing today. He also personally has enriched his life.

Cressida Cowell – transformed her childhood fantasies and imagination when living on an island in the North Atlantic into captivating stories about Vikings and Dragons.

Lauren Daigle  – who has a deep sultry voice, yet she sings music about the message of God.

Mark Biernat – That is me, your humble author, I am writing a language program for the Amish language. It is a fusion of my passion for languages, technology, the Amish and American culture. I am not counting the money, rather, focused on creating something of quality for others to enjoy.

God gives each of us a gift. With the freedom that exists in the world today, and a basic educational structure, anyone can transform their lives into the service of others by pursuing their enlightened self-interest, which is self-interest that is aware and conscious of the world around you.

If you want rags to riches story, I believe you can build off Adam Smith’s insights and economic theory, to make your own personal life wealthy in an honest way.

Categories
Work

Working long hours

Working long hours is stupid

If you are working 12 hour days, quit your job. Why? The only way you will ever do anything more than tread water in a capitalist economy, is by being capitalist yourself.  Not working for another man, not working for another man’s bonus and in essence for another man’s wife.

Many people take pride in working long hours. I did. Saying “I work 16 hour days” or “I work nights and weekends” is like a “red badge of courage”. It is a sign that you are a corporate warrior and willing to make sacrifices for the company in corporate America.  While the truth is corporate America sucks. People do not care or remember you, except usually in a bad way.  Your job can potentially make you a bad person.

Working 16 hours or 12 hours  a day and night and weekends will destroy you

First and foremost you hurt your family.  Your children need you.  They do not need money for college, they need you.  IQ is determined from 0 to 8 and emotional stability from 8 to 18.  After that, to teach an old dog new tricks is an uphill battle.  So forget about sending your kid to an Ivy league school, spend time when they are young.

What about your wife or husband.  You promised this person to spend your life with them. Spending your life with them does not mean nights and weekend.

What about your health.  You will be in for a short one if you work too much. And remember:

Life is short and your dead a long time.

Who am I to preach about corporate America and work

I stay at home with my family and work from home. I found a way. I used to work for the best companies in America, and of course earning more than $100,000 a year.

What more important job can there be in the world than having a happy family.  I am not rich. I am poor.  I make a few thousand dollars a year, under 10k.  But have the courage of your convictions. With time, I hope,  I will make more than I ever did working for a living. I will do it honestly and by working smart, with my family by my side.  But even if I do not, so what.  No corporate stock option could reward me as I am being rewarded now.

What are the options to working long hours

Well, the first thing people say is ‘sell something’ or ‘start your own business’.  How does it make you feel? Fired up, but that advice also leaves you empty. And forget typing in ‘make money online’ etc. Learn a lesson from Adam Smith. Modern advise experts often can not compare to classical books.

Adam Smith’s lesson on how not to work 12 hour days

Adam Smith was not Ann Rand.  Ann Rand touted the virtue of being selfish. Adam Smith said you work to serve others. Smith believed in value and virtue. Start with thinking, how can I help other people, by creating something of value. Start with thinking about what you loved when you were a child before corporate America forced you to work long hours.  Then say to yourself, how can I develop the skills and make the connections that will lead me to use my God-given intellectual capital for the best service to others.  If you think about value and service to others, rather than profit, you might have a rich life.  If you work for corporate America, please do not work long hours

Categories
Adam Smith

Adam Smith’s Philosophy

Adam Smith was a Scottish moral philosopher with noteworthy contributions to political economy relating to how individuals make the market economy and free trade. However, at the core of his thinking, he was driven by a moral conviction to find how to improve society in a just way.

He is considered the father of modern economics, but remember he was a Professor of Moral philosophy. His economics ideas and prescriptions had a moral philosophical basis.

Adam Smith was part of the Scottish enlightenment. The enlightenment was based on the idea that individual action with a high degree of political and social liberty creates a just society. People acting on their own enlightened self-interest bring society to an equilibrium level which social engineering or government action could never achieve, in fact, to try to do so would be counterproductive.

Adam Smith’s two works were: The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776).

There is a clear evolution of the philosophy of Adam smith from this early writing’s to his latter

In his Theory of Moral sentiments – human action is weighed heavily on the human emotion of sympathy, compassion, and empathy. Sin Qua non (Sympathy) – was the center of Smith’s initial moral thinking. It was a desire to see our feelings “echoed in other people” (Adam Smith). We do things in order to be liked.

We should strive to be loved and to be lovely – Smith TMS

We as social creatures want to follow a moral path so we as a species would continue and survive. Geneticists today, believe this altruism is programmed into our DNA, so the human race can survive.  Smith concluded through observation the same. This desire to be liked keeps us in check, and in one sense is our moral compass. We though self-awareness check to see how we are in relation to others.

It is this desire to be like Adam Smith thought, helps guide morality.

In the Theory of Moral Sentiments (I.i.1.1) Adam Smith writes:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it.

A wealth of Nations contrasts the above and see human motivation based on enlighten self interest. That is an interest that is tempted by prudence or awareness of others in a sympathetic way. Smith believed that this principle comes from us from the wombs” ( Wealth of Nations II.iii28). It is innate. Therefore, you need to understand the philosophy of Adam Smith in the context of both his works or you will make inaccurate assumptions about this theory. It is not selfish greed, but an innate interest that drives us towards doing works unconsciously for the greater good under the veil of satiating our need for happiness and greater utility.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

Like Plato Smith tried to answer the question: “is there a true altruist”. I believe yes, (like Smith) because it is the way we act out our self-interest that determines who we are.

I believe Smith was driven by a true belief in the goodness of individuals coupled with an altruistic desire to discover a way government and individuals could interact in a political and economic way that would be society as a whole to equilibrium that maximizes the happiness of the individual. Although the Theory of Moral Sentiments was his first book, he revised it later in his life.  It was the book he started with and continued to come back to. He does say she should pursue wealth and fame, in fact, be believed these things would corrupt us. His two works see like a dichotomous paradox. However, they are not if you understand his philosophy as a whole.

Self-interest is an enlightenment sense is what drives the human race to better itself.

An eccentric Professor of Moral Philosophy

Smith was thinking about the individual and they are well being. As a professor and head of moral philosophy at the University of Glasgow, there is no way Smith was anything but conscious thinking, good human being.  Russ Roberts calls him the Jane Austen of economics. His simple life, endearing eccentricities and all (talking to himself, his imaginary friends as well as his absentmindedness), was dedicated to thinking about how humans could maximize happiness and live and moral life.

Often people decree free markets and all they stand for as the root of all evil, with greed being basis. Similarly, on the other side, people use Adam Smith’s works as a Bible to take self-interest to a level that Smith would have opposed.

The middle ground is correct. Adam Smith was looking for a positive enlighten solution to help nations develop and lessen suffering among people. His philosophy was rigors and although lacking in certain aspects was essentially correct.

He develops Hume’s philosophy of utility and applied it to economics.

Adam Smith Religious views

Smith was raised as a moderate Christian and in the Church of Scotland. In his scholarly writing, he made reference to Great Architect of the Universe. It is argued and I agree that his writings were to find the natural order and harmony of the Great Architect of the Universe in moral philosophy and political economy. His writings were an inherent theology.

The four interpretations of his philosophy.

Four academic understandings of Smith’s  Wealth of Nations developing from Theory of Moral Sentiments

  1. The political approach – The key social virtue of justice was stressed with the government’s role limited to balance morals and economics in an optimal way for society. (J.W. Danford 1980, Knud Haakonssen 2006)
  2. The economic approach – Represents economic thinking and the issues with government intervention. Morals are not a central theme. (James E. Alvey 1998, WD Grampp in 2000). References I recommend for the economics of Smith are: Markets and morals  and Ethics in the market
  3. The moral approach -It was his moral philosophy that guided his economic and political views. (Charles L. Griswold 1999, Ryan Patrick Hanley 2011) I recommend Adam Smith and the Virtues of Enlightenment
  4. The principle approach – Moral, economic and political philosophy of Adam Smith could be distilled down to one idea, the invisible hand (Mehta 2006) Principles in Smith’s Economics
  • Good and evil fascinated Smith. He overturned the idea that morality was something that was objective, rather he said it was something that was inside ourselves. Smith lectures early in this career, “How do human beings develop a sense of morality” This is why I believe the moral approach is the most accurate interpretation of Smith if you examine his works in totality.

References:
Enlighten self-interest and the idea of sympathy
Four ideas on Adam Smith’s ethical thinking
How morals shape economics

If you read Adam Smith and the Virtues of Enlightenment by Charles L. Griswold you will see a convincing argument that Smith was a moral and ethical philosopher first. The time of the enlightenment with Hume, Burke, Kant, and Hegel, was a time of passionate interest in morality, religion and truth, this went well beyond the thinking of such earthy temporal thoughts as government and economics.

The assertion that the central guiding idea of the invisible hand and all his other writings are a footnote of this idea is an oversimplification. This hand is out of content. Study his philosophy and you will understand the father of economics.

Many people have dragged the idea of the free market, and even the good name of Adam Smith through the mud recently.  It is trendy to say that capitalism does not work fully.

In a nutshell, Adam Smith’s lived a life of virtue and intellectual pursuit.  Perhaps a Deist and at least a man of ethics and a man of the enlightenment, Smith tried to explain why some people are rich and others are poor.  He wanted to explain the reason for poverty, and suffering caused by a material lack.

His books contained nothing about greed or materialism.  Adam Smith’s works do not praise the virtue of selfish like Ann Rand’s books. Smith is very different than Rand but the two get lumped together.

Rather the works of Smith are about the role of work are in our society. Work is about adding value to others.  Our work is our service to other people. Smith’s work was not about greed, but rather it was simply a discourse on the causes of wealth and poverty, and a prescription to alleviate the suffering caused by the lack,  written between the lines.

Recommendations on how to help the world, starting with yours

Adam Smith believed when everyone acts on their own enlightened self-interest, society as a whole benefit.  Everyone gets more pie.  When the government has more control people will suffer more and get poor. People should work to contribute to others and they will reap rewards themselves as will society.

This means poverty can be alleviated for society in aggregate when people realize that each person has the ability to contribute to society. He believed men are good in nature. Read more about this on Adam Smith and work

I live in Eastern Europe and I see what the government does to people.  My recommendation is if you are feeling sorry for others and want to help them,  read the books of Adam Smith.   If you feel bad about your personal economic situation in life, read Adam Smith.  Contained in his books was nothing about greed or malice, only goodness towards humanity.

Categories
Stock market

Does Stan Weinstein System Work

Yes, his system does work. How does Stan Weinstein’s system work compared to the index? I do not know as I have never measured it.

What is Weinstein’s system in a nutshell?

The trend is your friend

  1. Look at the market as a whole compared to the 200-day moving average. – All boats go up in a rising tide.
  2. Look at the sectors which are doing the best using the 200-day moving average.
  3. Find the stocks with the nicest charts and an upward moving average, as well as the price above the trend line.
  4. When it breaks the trend, sell the stock. The pattern or direction is defined as the 200-day simple moving average.

In the old days Stan used charts, not you can go to any financial website like money.msn.com or Yahoo Finance and find a trend line.

You never ever want to buy or own a stock trading above the moving average, no matter how tempting or juicy the story it. The reason is the “tape tells all.” In other words, expectations and rumors on the street are already factored into the price trend line.

Is Stan Weinstein rich?

Yes is retired living happily in Hollywood, Florida.

Is his system of stock trading full proof? No way. However, he has some excellent runs.

How do I use his system to make money in stocks?

I am not a Stan Weinstein purist. I look only at the market as a whole using his system. But if you had done this, you would have been out of the market like I was in the fall of 2007. For me, I would say Stan Weinstein’s system works well.

I use the 12 months moving average on the S&P 500 index. If market conditions are right, then I am in the market and invest.

I screen stocks that are 8, 9, or 10 on the StockScouter rating system on MSN. It’s free and based on a quantitative method. They rate stocks from 1 to 10. I do not know why people do not use these as a guide to reduce potential buys and sells. There are other quantitative shops out there like valuengine.com, but why pay when you do not have to? Use a free quantitative system and Stan Weinstein’s system. Everything you need to make money is on MSN. Remember the economist John Maynard Keynes made a fortune in currency trading simply reading the financial paper. Something having less information is better as eventually, financial news becomes white noise.

From there, I look at the stocks I like, which is with a high-profit margin and low debt, also looking at the forward P/E ratio. Once I buy the stock, I hold until it crosses the moving average.

I also sometimes invest in companies I like, I shop at and believe in. But even with these, I check the moving average. Stan would say this is OK, you can do this, but eventually, you will yield to the logic of his system and see that it is all built into the moving average.

What if the market going down?

You can make money in a bull or bear market; you make money with shorts or puts. I do not do this. I use asset allocation and dollar-cost averaging to hedge my investments. That is, I always have something in cash and shift the distribution based on how optimistic I feel.

I never put all my money in at once. I allocate it piece by piece in case I am wrong about the market. Even with a small sum of money, I do this. Below the chart is historic and outdated but look at the trend and how it fits perfectly into the model.

I recommend Stan Weinstein’s book and ask me if you have any questions.

Categories
Work

Corporate America Sucks

This post is about why corporate American sucks. I love my life and my work and my family, so I am not some bitter guy, on the contrary. I am an unrepentant capitalist.  However, there is no way you are going to tell me that corporate America does not suck.

Corporate America sucks – Tested

Why does corporate American suck? This is what you will most likely find:

You will be surrounded by jerks. People in corporate America are seeking a lifestyle (bonuses) rather than creating something of real value.  If they could create something of real value they would.  But the reality is they can not for lack of courage or brains.  Hence, you find greed and arrogance ruling the kingdom of corporate America, and the honest hard working guys get knocked around like a corporate pawn. You are a corporate serf who can fly beneath the radar if you are lucky. However, more likely you are a corporate foot soldier who will get medals or sacrificed when needed.

If you look at the people who succeeded in the corporate world – they are losers themselves in life. The reality is they do not have the brains to function in the real world.  They get paid entrepreneurial wages, yet lack creativity and vision.  Usually, they are lifers in the company and have moved up after fifteen years of service. Being a Director or higher means they have essentially abandoned their families for their work and want you to also. Sorry if this sounds harsh, but it is true. Everyone needs to work, but most high fliers pay the price with their families.

Why would any wife want to send her husband to corporate America? I personally know scores of office romances. Is it worth the price?

Your corporate service and Maslow’s hierarchy of needs

At the start of working for one of these great companies, you will be working 13 hours a day, doing really boring tasks, mostly in excel.  You will be proud that you have become an excel power user and the local office guru will even know some Microsoft Access or database query tool.   Needless to say, what you will be doing will be incredibly boring.

Am I impressed with Excel and Query tools, your ability to reconcile and use formulas in excel in a clever way or your in-depth knowledge of vendor software? This is the pinnacle of your life and intellectual thought? This is what you were created for? Are at the self-actualization point on Maslow’s hierarchy of needs with this life in corporate America? I am writing this to inspire you to think about your life.

As you move up, if you make 100k they want blood from you. If you want to fly beneath the radar for 50k you still be in a cube for 9 hours a day, with your boss growling down your neck. 50k is not getting ahead in life by the way. If you have a particular personality you can be a salesman, if that is what you want to do.

Office cubicle life

Most of your life you will be in a cube. Bathroom and water breaks are your primary exercise. Maybe you have flare for interior design in your cube and it looks more interesting than the one next to you, but objectively think about if this. Was this your dream? When you were a child did you dream of becoming a corporate excel power user foot soldiers?

You will become as grey and boring as your sterile workplace

You move up corporate America – Your morals will be compromised

You personal morals will start to be tested. You will be asked to get more out of your ‘team’ than is reasonable.  People will sacrifice their God-given time on this earth to work for the ‘team’ on a project that will include nights and weekends.  If you are in a billable position you will have more pressure to bill clients more and more for less and less work, otherwise, the partners or directors will not move you to their level. The main thing is people will spend more time with their ‘corporate family’ (it’s ridiculous when companies refer to themselves as ‘family’, its pure manipulation) than their real family.

Directors and Managing Directors will interject swears and strong language at times to motivate people and carry on dramatically to get people to do more. The language and the rude way they carry on is unprofessional but overlooked because everyone needs to get paid.

There is a lot of dishonesty in corporate America. If you are in any position of management you know what I mean, or just read the headlines.

Corporate America sucks

A Corporate warrior’s life  just stinks, is unhealthy and your kids suffer

Office work and your health – People who work for corporate America have a higher rate of depression, divorce, affairs, drinking, gambling, betrayal of friends and trust, etc.  Office workers are fat always waiting for the next sugar rush to relieve their boredom. They look forward to that office birthday party or Friday morning doughnut club or coffee run. You will gain weight and not lose it unless you quit your desk job. Sitting is the worst thing you can do for your health. Your friends who work in the service sector will live longer and be healthier than you.  I have read, that sitting is bad smoking. Why destroy your health, for a few more material things like an upgraded cell plan?

Kids of business men and women are often messed up – Corporate warriors do not see their kids. They are all saying they are saving for their children’s education. However, I would rather spend time with my kids from 0 to 15 when their IQ and social skills are developed, rather than send them off to some famous university. In a word life in corporate America sucks. Is it not better to teach them chess or a language when they are young than work extra at the office?  My theory is, despite the drawings and photos, careerist does not care about their kids.  If they did they would not spend so much time at the office. Maybe if you work for a few years intense, but if you work ten or more years intensely ‘for your family’ it is a lie. Be honest, if you cared you would spend time with them. I read and know personally too many children of families that are spending their time in Corporate America, and they are not raised optimally, to say the least. Many are messed up. In contrast, I do not know too many countryside or Amish children with issues.

Corporate America sucks because it will make you a worse kind of person

I could go on here, but below I started a list of  ABCs. I wanted to do the whole alphabet, but I invite you to add your own comments for additional letters of the alphabet.

  • Arrogance –  People making you feel like they know more than and that you are screwed up. This tactic is especially common with people who are insecure about their own IQ.
  • Belligerence – aggressiveness psychological warfare between people which management sometimes even encourages as a way to see who is better for the job. The most primitive people win.
  • Control – this includes impatience, pettiness, micromanaging your life, with the goal of personal glory from the fruit of your hard work.
  • Dumb – working around people who think they know, will make you start feeling the same and therefore close your mind to new ideas.
  • Envy, ego, and exaggeration in corporate America.

What are the alternatives to corporate America?

There are many, the US was founded on rugged individualism. There is an infinitive number of ways to live outside or limit yourself to the toxic exposure of corporate America.  From homesteading to being an entrepreneur, to working with your family in a productive endeavor at home.  Develop a skill people really need that will give you the flexibility you need to spend more time with your family.  You do not have to believe in a Jeffersonian America to think out of the box, to make a living. I recommend you start exploring the alternatives, as this will not only make for a better society, but also make you a better person.   Even if you do, choose to stay in corporate America, try not to sacrifice your family time, health and morals for your stupid boss.

Categories
Stock market

Chess and the Stock Market

Learning chess can make you excel in the stock market, maybe.

What chess can teach you about the stock market

I love the game, play competitively, but can it make you rich in the stock market?

Chess and me

I am not a chess professional; however, I play and coach chess at a high level. I can beat most players, but not all. I live in Eastern Europe (now Florida), the land of chess masters. To overcome the best, I would have to study books on chess, and this time, I now use to study economics as I am getting a Ph.D. However, chess has taught me a lot over the years, including some lessons about the stock market and investing.

  • The essential thing chess has taught me is to ‘think before I move’. Just because something looks good, consider all the other options and possibilities in the short and long run. It seems so simple, but most people buy stocks on emotion or on a trading system they have studied. Both can be wrong.

The stock market and me

I have been a professional and personal investor for most of my life, buying my first stock at about 16 with the money I made working the night shift at Howard Johnson’s restaurant. I made and lost 100k in today’s dollars. I also worked with brand name Wall Street firms starting at age 21. Therefore, I had an early start trading stocks, and I came from an investment family.

Later I changed to more boring investment accounting positions. My lifelong performance was good, but in recent years my performance has been excellent. I was out of the market in the fall of 2007, for example. How can many investment experts say this? I have learned a lot and to some extent, mastered investing like chess to a degree. Even in a down market, it is a good source of income for me.

Chess and the stock market

I have seen a proportional increase in my chess rating and my stock performance. Is this a coincidence? At this juncture, I teach economics as a day job as I invest and write my language learning programs, which is considered more play than work. I think few people think they have this option to unplug from corporate America as I did, so read on. I believe chess teaches you to think and think objectively.

If you ever want to increase your cognitive powers, play chess. After even a couple of years of play, see how your thinking has changed, and you can then take that brainpower to the bank. The irony is a few chess players I know are active investors. Instead, they are more about the game.

How chess and investing are different

Chess is a zero-sum game. When someone wins, someone loses while investing is a positive-sum game. That is the main difference. Besides that, the same rules apply. Psychology strategy, defense, risk, analysis.

Chess, stock market and ego

The best chess players put their egos aside and are humble. They do not compare their rankings or walk around with a sense of entitlement. The best players do not dress for success nor care about titles or what school they went to or initials behind their name. They merely are playing a game, and there will always be someone better than you and someone worse. Investing, uh, I mean chess is not about comparing yourself to anyone or anything. It is about the play.

Chess, stock market and objectivity

I have seen many chess players marry a particular idea or line of defense. Investors similarly become too emotional (again ego) to admit they have made a mistake and ride stocks all the way down or keep talking about ‘value investing’ when, at that moment, value investing is not where it is at (opportunity cost).

Chess, stock market and strategy

The best players do not make dashing moves; this was done in the gallant 19th century, but not today. Players have learned that setting up the right system before they make any moves are best. Intuition and brave moves are only good once your base is solid.

Chess, stock market and noise

Players do not listen to the advice around them during play. Also, do not listen to the news or experts while playing the market. Really.

  • Take away #1; let go of your ego and see it all logically from a cost-benefit decision, including opportunity cost.

Chess, stock market and position and value

The position is more important than value. Yes, a piece only has a relative value, not an absolute. The value of a piece is based on position. A pawn at the end of the board is better than a Rook that is cornered. So do not believe companies and insurance companies that talk about their book value in relation to their stock price, for example, and say they are undervalued. Why? Many stocks trade undervalued for a long time, and there is a huge opportunity cost for holding this. So remember the value of a stock or a chess piece is not absolute but depends on many factors. Keynes said, ‘in the long run we are all dead’, so if you while you are waiting for a company to return to book value, why not invest in a winning position as the long run maybe years.

Read a book from the masters of old to be a good stock market investor or chess player

Do not tell people you read these books and do not talk general things like ‘I look for value in the market’; there are such ridiculous statements. Read books from the masters of old and practice on your own before you play or invest (chessboard or paper trades). Be again be quiet and silent about it, or your ego will grow and hurt your chances of winning.

  • Take away #2 Strategy more critical than tactics

The stock market is computers Vs. computers in an open game

What about AI and computers, is this not like chess, a force that can not be beaten?

AI is effective against human players in chess because it is a closed system, and deep lines can be calculated faster than humans. These computers are not programmed but most significantly learn while playing. To start, they were given only the rules and taught themselves.

 When AIs play each other, it becomes a different game. The stock market is not a closed system and infinitely more complex than chess, and in essence, computer systems are playing each other and cannot predict variables that arise outside their system such geopolitical events or natural disasters. We can not even predict the weather three days in advance.

Therefore, the best econometric models or computerized trading systems are imprecise. These models try to correlate variables. Computer models and action that is taken based on these models become part of the equation; hence, the accuracy becomes flawed. This is why the problem is systemic, and the logic is circular.

Better than worry about AI and the market, remember, the stock market is not a closed system like chess. It is open with more variables, including exogenous shocks. Better than worry about AI and the market, remember, the stock market is not a closed system like chess. It is open with more variables, including exogenous shocks.

Humans rely on their models and data, but still at this time make individual decisions which can beat the market. Therefore, metaphorically, we can learn from the game of chess as we observe AI behavior and strategies.

Chess is not just what white does but what black does. It is dynamic.

Investing in the market with chess concepts

My lesson from investing and playing chess is this. Although tactics in chess to checkmate someone fast get notoriety at lower levels, real masters take their time and build positional strategies.

Metaphorically in the stock market, you need to consider strategies like dollar-cost averaging and which sectors are trending over individual tactical plays. Your time should be invested in more global thinking. Place your research on macro trends over individual stock picks. Then from there, you can choose individual stocks.

Are you surprised? No great insights? If you look closely, there are. The best take away here is to be a good chess player or stock market investor you need to be very humble and say, ‘I do not know anything.’ Only then can you can learn not only how not to lose money while investing even in bear markets but make money in a bear market. With some lessons from the game of chess, you can be a great stock market investor.

Categories
Economics

Business cycle and Fiscal Stimulus

Fiscal stimulus exacerbates the business cycle

Anything the government does free market does more efficiently.  Think of UPS vs the Post office.  Think of Google vs. umm the government could never create such an efficient tool as Google.

Some people believe that micromanaging the economy and business cycles from the top with a large fiscal stimulus is better than allowing natural market forces to adjust.  Think of the Union of Soviet Socialist Republics and you know this is not true. The government does not create or innovate as people do.

People say if we do not stimulate the economy with government money, there will be a recession, my reply is so what.  This is the natural sleep-wake cycle of an economy. To try to prevent it will only make matters much worse.  To use a Keynesian quote out of context, ‘in the long-run we are all dead’. We will really be in trouble in the long run when the government tries to manage the economy, it is game over.

With this huge fiscal stimulus, we have avoided some short term pain, but now we could have long term economic problems. In the long run, we will have debt, taxes, inflation and non-competitive businesses, and crowding out effect. Also, the support of inefficient companies stifles innovation. Normally when people are faced with a challenge, they innovate, but the government has eased this challenge and people will be less innovative. This last point is the biggest point.

  • There are always first and last receivers of the stimulus money. This equates to greater inequality. The people, who get it first get the benefit, while others who it trickles down to get crumbles. This is manifest in the Gini coefficient.

Fiscal lag

Fiscal stimulus has about a two year lag effect on the aggregate economy. By that time natural market forces would have put the economy back on track anyway.  Think about it.

The business cycle

  1. The government gets the idea that we are in a recession (often using lagging indicators like unemployment to measure the health of the economy, therefore, the recession is, in reality, more than 1/2 year old).
  2. Media creates news about the economy.
  3. Politicians react
  4. Laws and stimulus are created over the next half year.
  5. The money starts flowing over the next half-year but just starts.
  6. People’s expectations and spending patterns begin to change the following year. They refocus create energies away from innovation towards how can I get some of that feel-good government money.
  7. Business starts really flowing from the new stimulus in year three.

However, the problem is, it is like a high that pushes you to go farther than you should and will only exacerbate the boom and bust of any business cycle, guaranteed.

Natural forces, that is, entrepreneurs and people like you, in the aggregate are more capable of managing their own money than a centralized government.

  • Stimulus rewards the inefficient at the price of the productive.
  • Why should someone take $1,000 dollars from me and in the form of taxes and give it to someone else in the form of a stimulus or grant? Does not my life and economic situation matter too? I could use that money for my own capitalistic ventures that create value, for example, my backyard organic farm. Instead, it goes into the Trillion dollar black hole of the military for example, or some venture the government deems important.

Democracy and business cycles

I am an American living in a post-communist country, I can see first hand how government involvement in the market destroys a country: however, people,  individual people like you, fix it, just by acting on their own ‘enlightened self-interest’. Finding innovative solutions on their own.   People, rather than planned government action make life interesting and the economy healthy.

The whole idea of democracy is give power to the people, rather than an a central authority.

If you mess with this model or the sleep-wake rhythm of the economy, there will be a distortion of the natural business cycle course and you will have long term problems an economic pain.  Like a bear that is awoken prematurely from its hibernation.

There is no question in my mind that fiscal stimulus exacerbates the business cycle.

Categories
Economics

The US Needs to Tax Companies Offshoring

  • Companies that go offshore will have to pay more taxes. Trump will incentivize the return of business domestically with a tariff.

From Free Trade economics to common sense economics

If we do not put some incentives for companies to stay, the middle-class wages will continue to decline.

Multinational companies will offshore operations, relocate business processes and find cheap sources of labor. That means you have less money and the top executives have more money. I do not mean a little more money, I mean earnings and total compensation that has no meaning in relation to their value.

Yes, I have worked in corporations in management, and the big bosses are not worth their weight in salt, for what they are paid.  Small efficient companies are more profitable. yet most of the off-shoring and outsourcing are concentrated in top tier fortune 500 companies, not small entrepreneurial firms.

When the corporate elite crushes the American dream under the banner of free economics it is tragic, as it is a misrepresentation of capitalism.

Taxing off-shoring equates do dampening corporate ambitions to restore the American dream

What happens when companies offshore:

  • Poor end user experience – You get customer service representatives that you can not understand on the phone. They are somewhat rude and do not fully understand your issues. This has been my personal experience. Has this been yours?
  • You get products that are toxic – For example, children’s toys, cosmetics, most of the garlic I see in the supermarkets is from China. I do not know what they sprayed it with. The fish is contaminated and this has been proven. You get toys for children made with lead and other substances. You cosmetics for Mom make with products that I would want to give my enemies. Do not be so naive, that it is all closely watched and regulated. Do you want American children to sticking Chinese plastic toys in their mouths?
  • Clothes fall apart in six months – You buy clothes that are of poor quality but fall apart but are not any cheaper. You have clothes selling for 30 dollars that were made for pennies. It is not the cost the determines the price but where marginal cost equals marginal revenue, or supply and demand.
    You get products that break and clearly of low quality, it is so annoying. You wash your clothes a couple of times and they are done.
  • American families split up – American workers have to take jobs in cities that are distant from their families. Husbands working with small one-room apartments, man cave or man cave or apartment complexes with single women, meanwhile with wives and children in other cities holding down the fort. This does have a social cost of broken families. I have seen many families break up from the corporate lifestyle. Look around your office and be honest.
When products are manufactured abroad, quality goes down as a general rule.

What does the worker get from off-shoring?

  1. Wages and earning that are lower. There are plenty of ten dollars an hour jobs, but that is not enough today.
  2. Both parents have to work now and the child goes to daycare and you have less economic stability.  That was not true years ago.

That means US capital goes abroad to enrich other people instead of your own family.

Free trade and fair trade are two different ideas – Even Adam Smith would agree that an arm’s length transaction is needed for free trade, but policies of governments do not keep the playing field level. I am a free market, free trade advocate, but what we are talking about is fair trade when we want to tax companies and individuals that offshore. Foreign countries are not trading on a level playing field and we know this. Is there any debate?

Will prices go up if you tax multinationals?

No. Prices will go down as corporate domestic taxes go down.  If a company makes something in China, for pennies and sells it in the US for a substantial markup. If they bring it back domestically, what will happen is, the quality will improve, the cost of transportation will decrease, US wages will go up. Further as a side effect, with less massive shipments to the US, the number of illegal shipments will proportionally decrease as there is less to patrol.

Since the cost of manufacturing is going up the price to the consumer might go up, or it might not.  Price in the market is determined by supply and demand, not cost. People have to understand where prices come from. They do not come from a cost. In fact, they almost never are based on cost but rather supply and demand. The economics during the marginal revolution determined this and this economic theory, of supply and demand, is something that has little debate. Prices are determined by an intersection of supply and demand, this is equilibrium, not the cost of production.

Entrepreneurs will adjust and find ways to make production at home competitive through invitation or smaller local companies will displace multinationals that have an unfair advantage because of their capital advantages.

A decline in US standard is both relative and absolute.

What will happen when we onshore production through tax incentives:

  • Wages will increase
  • Innovation will increase
  • Cost of transportation will decrease
  • The Trade deficit will increase – This has multiple effects

In the US we can make anything we want:

  • Farmland and potential for food production
  • Natural resources for energy independence
  • Intellectual capital unmatched plus creative innovation
  • Mineral Wealth
  • Infrastructure in place for interstate transportation and export
    stable political structure and process compared to the rest of the world

Why do we really need to offshore our production and services unless it is for a bonus to the big bosses?  This is not enlightened capitalism.

Adam Smith’s world of free trade and the comparative advantage was different because of technology

Adam Smith’s world did not have the Internet, mobile phones, movement of people and labor that is almost instantaneous. The economic boundaries are almost instant. Therefore there is no time for adjustment for the domestic market to flow into different areas of skill. You can not change professions in a year if your career has been outsourced.

People are not widgets or inputs that can be plugged and played because they have long term obligations and connections to locations that can not be uprooted. This is not an emotional argument but a reality. Children are in schools, people have family remember they have to take care of.

Further, Adam Smith overemphasized the division of labor. In a modern world transfer of jobs happen in a flash.  You can take a person from India and train him relatively quickly at a job an American has. However, that American with an American mortgage and fixed payments, cannot change to a higher paid profession as fast. In the world of Adam Smith, people were not as dependent on the world economy. Most people grew their own food, did a lot of their trade work and owned their house without a mortgage. In every decade in this century, the burden of housing payments has increased, currently, it is the largest competent of anyone’s budget. https://www.bls.gov/news.release/cesan.nr0.htm  This is a fixed payment but a variable cost out of disposable income.  It was a different world.

Taxing outsources and offshored operations will bring revenue

This will bring revenue for the US that can go into direct investment in our infrastructure. This will help the US lower the US tax corporate tax rate from 35% to 15%. It will be a windfall for the US. I have not seen any legitimate counter-arguments to this. Some people will claim it will spread inequality and it is a  cliché ‘tax break for the rich’. However, my rebuttal is how? It is just the opposite. The opposition has more to do with a political agenda against Trump. The only legitimate argument is a completely free market argument. The theoretical perfect world of textbooks in macroeconomics, absolute advantage, comparative advantage (producing at a lower opportunity cost than competitors) and production possibility frontiers in an economic theory classroom, is not real life world of people’s lives.

The comparative advantage might with maple syrup but not intellectual capital

Maybe in some commonly like maple syrup Canada might have a comparative advantage over the US, but when you are talking accounting services or IT, which does not have a specialized climate need, it is not the case. In most business operations, the factors of production have changed, as the tools of Excel and a PC are universal. Physical capital and natural resources are not the main drivers of innovation, for example, Coal mines and railroads a century and a half ago.  Today economics is more about inexpensive laptops and brainpower, which every country in the world possesses. Therefore, the old arguments of free trade need to be replaced with fair free trade, cognizant of the displacement and effect on the whole.

  • I teach economic theory, but I also work in the business. I see both sides of the equation.