The best way to illustrate anti-capitalism is to tell you a story. I am an American living in Poland, I met another American ex-pat who just moved here, her name is Agatha. We actually are friends now. One of the first things she did was pull me aside and say ‘look Mark we have to organize the people’. I said what? She said Lenin wrote if we organize 10% of the workers the rest will follow. I said Agatha keep your voice down this is Poland, people fought hard against socialism and many paid for it with their lives. She told me they do not understand.

She replied look around you Mark, all the wrongs in this country were caused by the capitalist greed of the last 20 years. I told her maybe she should hop into a time machine and go back 25 years.

More facts about Agatha’s anti-capitalism

  • She has an illness that requires medical attention, but will not use socialized medicine here but flies to Vienna to get treatment in a private clinic. She believes in social medicine for others but if she needs treatment no way.
  • She always talks about going to Russia and seeing Lenin’s monument in Moscow to honor the communist revolution but is afraid of the East because it is so poor, so instead flies to Paris and Milan and comes back with new clothes and handbags.
  • She talks about how poor she is, but I see her living off her parents and boyfriend. I told her I can show her ways to make money to pay for herself. She looked at me like I was a dirty greedy capitalist.
  • She taught English in South Korea. I asked her what she thought of North Korea.
  • She is a highly ethical person and very caring. Just wants to stop capitalism in theory, however, ironically enjoys all the freedoms and things that capitalism has done for her.

Capitalism affects

In the years I have lived in Poland I have seen Poland transform from a poor post socialistic country to a wealthy capitalistic society. People here are religious and I would not say greedy, rather they are just trying to provide for their families. Is there anything wrong with that? Only in foofy ridiculous spoiled America do we have people like Agatha who is buying into this no capitalism mentality.

Eastern Europe was sold that anti-capitalist nonsense before

People who are against the free market will tell you fairy-tales how everything will be so beautiful with an alternative economic system.

Wall Street greed, anti-capitalism, and zero-sum thinking

Economics is not a zero-sum game, it is positive-sum. When someone is rich that does not mean they took it from someone who is poor. It means wealth was created. When there is wealth creation society as a whole benefit. However, people think because that bastard made money (for example on Wall Street), we have to suffer. It is not true and that thinking is motivated by jealousy. People should focus on their own lives not bringing their neighbors down. People who are against capitalism are jealous of petty people.

Only in a non-capitalistic society can we say that the wealthy took money from the poor, feudalism, kings, communist, socialism, etc.

Eco movement and Anti-capitalism

I am very green and pro-capitalism. Why? I live and have traveled to post-socialist countries and see they are much more polluted and wasted than anything I have seen in “greedy capitalism America”.  When people do not have private ownership of capital and property there is a diffusion of responsibility and no one cares. Everything gets polluted.

Since there was not really any private property people would just dump and throw things everywhere. Please travel to any ex-communist country and lose your anti-capitalism.

Capitalism and religion

There is no connection between a system of economics and religion. Economics is just about trading good and services in the market, hopefully without a G-man interfering too much.  However, economics systems should not be mixed with religious ideas. I have seen capitalist, socialist, anti-globalist, etc try to do this. I think it is wrong. One is about what you have in your heart and the other is about exchanging material goods. Two different things. If you want to read about the morality of anti-capitalism and Adam Smith please do.

Capitalism is nothing more than the freedom to choose your own life and not have the government manage it for you. It is about taking responsibility for your own life and stopping the blame game. It is saying that people are to be respected not treated like cattle by some socialistic government that manages and manipulates people. If you have any doubts that the anti-capitalist movement is a joke please state them here.


zero sum economy

Examples of positive-sum, negative-sum and zero-sum economic activity

  • In a capitalistic economy, in aggregate, there will always be more winners than losers. This is because the economy is growing in the long run and both parties benefit from an exchange.   Similarly, in the stock market, there will always be more winners than losers, even with transactions costs. This is because the stock market, in the long run, goes up.
  • In contrast, in Vegas the economic activity in the hotel game rooms are negative-sum games, in other words,  the house wins more than the players. More people lose than win.
  • In chess there is one winner and one loser, this is a zero-sum game. For every winner, there is a loser.  It is a one-to-one relationship.

People who are anti-capitalist do not understand that in a free economy during a transaction, both parties get something, and derive more utility from the exchange than before they entered it. In other words, the exchange increases happiness if both parties conducting business at an ‘arms-length’. If not why would they engage in the economic exchange? In economic language, it is a Pareto optimal. With the exceptions of imperfect information and government as a middle man, both sides will win in an economic exchange when acting on their own enlightened self-interest.

I do not know why people do not understand this.  Economics is not a game of chance or chess, it is a non-zero sum game, rather it is a positive-sum.

Note this checkmate involved a white queen sacrificed. There is one winner in this game. It is an example of zero-sum.

What is a zero-sum game? A zero-sum game is a game where for every winner there is a loser. Therefore, in order for somebody to win, they must take something from somebody else. One person leaves the table happy and one person leaves the table unhappy. It is a mathematical model where the total gain of each player in the game is added up, then you net out the losses of the losers, you will result in zero. It is simple mathematics if people receive 10 units of utility from playing and another group of people loses 10 units then at the end of the game, 10-10 = 0.

Modern zero game theory was supported by the Von Neumann’s minimax theorem and the Nash equilibrium explanation. However, the idea was commonly understood even in the times of the ancient Greeks and before. You can further research  John von Neumann and Oskar Morgenstern and the global profit or loss in non-zero-sum, however, these are a more academic argument.

How people perceive economics versus reality

The funny thing is most people believe life and economics is a zero-sum game. That is the reason I when you see your neighbor with ostentatious wealth, you feel there is some sort of injustice which allows him to get this wealth. This is because you look at your neighbor and can not believe that he possibly accumulated this well on his own accord with his own brainpower. He does not look too smart and therefore your only conclusion is although he did not steal to accumulate this capital,  someone must have lost for him to have won.

However, the economy does not work this way. Economics and trade, when done at an arm’s length transaction basis always result in two winners. Each party gives something up to receive more units of economic happiness, let us call them ‘utils’ before they entered the transaction.

Think of the simple transaction that occurs at your local farmers market on Saturday morning. Some retired person buys some organic tomatoes from a hipster urban farmer. The Hipster is happy because he earns money. The retired person has something to do, enjoys the conversation and gets some nice tomatoes of local quality he could not get at the large supermarket. Both parties are happy in this zero-sum exchange.

Where does wealth come from?

Wealth comes from intellectual capital, that is someone creativity (such as an intellectual good, a book for example)  or the primary sector which people subsequently transform into something useful (iron ore transformed to a tool).  The primary sector creates wealth so all can benefit. The wealth is dormant in the ground.  That is agriculture mining minerals oil etc. Food is grown, oil is refined and this gives people the energy to transform the world based on their creative powers. The rest of economics is just a matter of exchange based on optimizing their indifference curves.   My point is in a free economy there is no exploitation, rather wealth creation, and exchange. This means economics is a positive-sum game. Not a game where of musical chairs, where people are losing and no new chairs are brought into the game. It is a positive some, economic agents create more and more chairs.

Of course this is a great simplification, however, on a theoretical level, this is how the world works. Every time you do an economic transaction both parties engaged in economic exchange because there is some perceived benefit.

  • If economics was zero-sum then a Malthusian catastrophe would have occurred years ago.

Where does Zero-sum economics exist – Government can create a zero-sum or negative-sum economic environment.  When governments interfere in the free exchange of goods, the positive model breaks down.  The win-win model works in a free capitalist economy. This model does not work in a controlled economy. Examples of a controlled economy are state-run economies, the socialist economies, oligarch economies. The reason this does not work in control economy is someone has been an unfair advantage. When a market is not free people use their intelligence and creativity to get around the system instead of creating value.

I lived in a post-communist country during the transformation and market distortions create unhappiness.

This is why it is important to keep the market as free as possible. To give people the chance to express their creativity and life. This is the way the world works. When we are all doing our thing, the world has benefits which are unseen on a micro level but on a macroeconomic level we society as a whole wins. This is Adam Smith. Positive sum economics is capitalism and democracy and the ideals of the enlightenment.


Does value investing work

Value investing was described in Ben Graham and David Dodd’s book Security Analysis in 1934. It was popularized by Warren Buffet. The purpose of this post is to address the question does value investing work.

What is value investing

Value investing is the belief that assets have an intrinsic value.  This intrinsic or natural value of an asset can be approximated by its book value. Book value is the accounting value, that is the price of the asset at purchase depreciated for time. If you buy a computer for 1,000 dollars and it has a life of five years and uses straight-line depreciation in year two the asset is worth 800 dollars. The Book value is 800 dollars. This is clear. The theory is the market value should hold pretty close to book value. This is particularly true if you aggregate the assets for a company as a whole. It is also known as cost investing.

Value investing also considers the present value of all future cash flows of an asset. This is called the discounted cash flow model or DCF. If you have a machine that will produce revenue over the next five years, what is the value of that income stream in today’s dollars considering the time value of money? This is factored into the equation.

Book value investing vs. value investing

Price to Book Value is the classic ratio to look at if you are a book value investor. However, the term value investor has a broader meaning and these people are looking at other things like P/E or price to earnings. Price to cash flow is also used. See the term value investing is loosely applied to many different strategies of investing. Some people even call contrarian investing a form of value investing.

In a general sense value investing is identifying stocks which have a price lower than the instinct value as described above or with some other measure. Book value investors have a greater emphasis on the accounting value of the company.

Where book value investing works best

  • Insurance companies that hold large portions of their investment assets in US treasuries. These assets policyholders premium payments kept for future potential payout. These assets held to maturity by definition gravitate back to book value or face value at maturity.
  • Companies that are simple and have large amounts of tangible assets.

Where book value investing does not work

  • Companies that have large intangible assets, software, goodwill, trademarks, brand names, Internet-based, assets that are hard to value. Accountants will tell you they can value them but they often have no relation to market value, which the stock market is all about.
  • What about Warren Buffet? He used good returns in a highly leveraged way in a specific time in the history of the stock market. He leveraged the investment assets of insurance companies. Can you do that?

How has value investing performed?

I have seen studies that show it works and others that show it does not. See each person has their own determinant criterion on the weights they should attribute to different value ratios and indicators. Therefore, there is no consensus. Further on a simple indicator like P/E, some studies say low P/E’s do better and some say high, some say look at P/E momentum and future P/Es. I am sorry I am not giving you a black or white answer but if it was really that easy someone would have modeled it and be a trillionaire by now.

There are even quantitative shops that make their living like ‘value engine or  The graphs look good but if you have to buy the stock with zero transaction cost and buy it before or exactly when they announce a change in their portfolio, and they change it every day as it is a computer model. This makes it hard for the average investor.  It also costs about 400 dollars a year. I tried it and never got the same returns they did. In fact, I did better on my own. Therefore, I do not think it is worth it, but try it for yourself.  It’s a computer model. It is very hard to come close to getting the returns they have back-tested for. MSN Money has a free valuation engine called stock scouter that has performed better. These valuation tools give you investing information. Read my lips, they just tools, you need a living human brain to use the investment information.

Why I am a value investor and why I am not

Value investing largely ignores market timing. I wrote this article that brings out the importance of market timing and how to do it. Also, value or at least book value investing does do well for the type of investments I like to invest in.  However, I use a combination of market timing and some value considerations when making my choices. But really I am not a true value investor. I think all boats go up and down with the tide and the direction of the market is what will determine if you will make a profit in a diversified portfolio. To beat the market you will need a lot more than book value measures.

Use value and cost investment information as a check, with something like stock scouter, but not as a decision-making process, this needs to be based on the market as a whole, management of the company and its direction.

My largest criticism of value investing is because I studied economics and so I am perhaps more of an economist than an accountant (did I mention accountants love this type of valuation of stocks, they need to latch onto something concrete and certain).  Economists see price determined subjectively as manifest by supply and demand, not by some intrinsic value. This is the basis of the market and capitalism.

Therefore, does value investing work?  No. It is nothing special. Use value investing plus your own personal evaluation of the direction of the company and management and you have a good strategy to put money and capital into the equity markets and make a profit.


Women are the Best Economic Indicator

What is the best economic indicator?

Economic predictions are notorious bad. So this post I will talk about one economic indicator that is less known but not too shabby. Do not take stock market advice or make commodity trades based on this indicator, but it does work.

Many people look at the ‘dry Baltic index’ or an index of raw materials moved by sea ( personally think this is a very respectable index).  Other people look at an aggregate index of economic indicators.  Some people look at the trend and say if the index for three months is up or down we have a trend. I will tell you in this post which economic indicator I think is the best.

Economic indicators that do not work

Economic indicators that do not work include, astrology, and psychics, but also Fibonacci’s numbers and Elliott waves and maybe worst of all is the news, CNN, etc.  In fact, there was one study that showed news to be wrong about the economy, pretty predictable almost as a counter indicator.

More things that do not work, Warren Buffet and George Soros. Really, I think they made money but can not predict the economy. Experts are people who were good at making money at a point in time, but they are not predictors. Economists do O.K. if you aggregate them. The Big Mac index is certainly no worse.

Girls dress length as an Economic predictor

One of my personal favorites is to look at the way women dress.  The more conservative girls look, this indicates hard economic time ahead, the more liberal this means good economic times ahead. You can tell your girlfriend if she catches you looking at another girl that you are looking at her for purely economic reasons.

Girls make consumer purchases and really run the day to day finances of the household. Women are more practical than a man in many ways. This might be connected to their need to make a home safe for offspring. This is a deep instinctual knowing, programmed into them for millions of years.  Therefore, I have reasonable trust in their ability to predict the economy on a subconscious level.

Best economic indicator

So what is the best economic indicator, especially leading economic indicator

This might be cliche and disappoint you, but here it is in my observation, turning off the news and tuning out the experts. The best economic indicator is you. Take a look around you, and ask yourself, how does it look? Are people buying foofy items or basic stuff?  And related to the above, are girls wearing nice items or cheap cosmetics.  Look more at what people are buying than just some raw number of sales etc. What is their dress length?

Look at what type of purchases people are making, including yourself.  However, also, are the shopping mall parking lots full?  I heard many Americans say ‘its so bad here’, while I asked them what they did this weekend, they said ‘shopping, it was exhausting because the parking lots were full.’

Real hardship was WWII or the great depression, not media-generated hype. I am an American living in Poland so lucky for me I am not exposed to toxic media hype about the economy. I can observe rather than listen to other people’s opinions.  Use your own brain and observations to determine where the economy is headed.

Experts and news are statistically wrong. Your own observation is the best economic indicator. And please look at women’s dress lengths and tell me what you think, one economist to another.


Americans are spoiled

Americans have economic lost perspective

I am American. However, I became aware of how spoiled Americans are when I lived for many years in Eastern Europe. I am writing this not to cut on Americans, people who I respect, but to put economic life in perspective. Forgive my title, as I am a patriot, but let us look at reality.

My purpose is to increase people’s awareness. I want to give people a sense of how good life is in America. And perhaps the next time we have a financial crisis or something goes wrong in your personal life, you will keep it in perspective.  Even if you are losing your house, have no job and no car, life is good and to say otherwise just tells me you are one of the spoiled.

The relativity of wealthy – Americans Vs the other 6 Billion people

  • Poor Americans are living like the rich in areas where I live or have been. Americans have flat-screen TVs, cell phones, multiple video streaming subscriptions, cars, and homes, in contrast, there are almost a billion people who do not have enough food: World hunger statistics.
  • 40% of Americans eat in excess as evidenced by the statistics on obesity. Americans are very fat, I am sorry. I love America and am a patriot. But I am embarrassed when I see these fat Americans waddling around town. This comment is a little obnoxious on my part, but I pay taxes and my taxes support people who do not care about their health. Yes, Americans are very spoiled when you contrast a basic human need like food.
  • Poor Americans have shoes and water to drink – In Lviv, Ukraine a city in Europe of over a million there is water only a couple hours a day. Try getting up in the winter and fetching water from the well for washing. My relatives who live in the village, young and old still go to the well.  Many children in Africa daily routines revolve around water scavenging.  In contrast, go to Youtube and type in ‘my morning routine’ and you will see 1000s of 20 something Americans talking about their morning routines, contrast the difference.
  • I have seen Americans that have houses with more than one bathroom and certainly not an outhouse as I see in villages in Europe. In fact, as a Realtor,  Americans preference curves are more like 3 baths.
  • Americans are spoiled, where I live people can make less than 1000 dollars a year and live. On the other hand, I have heard in America people make 15,000 dollars a year and complain.  That is a lot of money. Trying living on even 500 dollars a month. I am getting a Ph.D. and many years I am below 15k and doing fine. I grow my own food and spend my time with my family doing nature vacations.
  • Americans eat in restaurants more than once every few years. Wow, that is more than most people I know in Eastern Europe. are to a spoon-fed life. In contrast, we prepare all our meals at home and bake our own bread. It is decadent to have excess conveniences. It is a symptom of a secular hyper-consumptive society, not the rugged pioneer spirit this country was founded on.  Americans are spoiled.
  • Medium real US  household income is almost $80,000 a year, $77,713 in 2017. Hard to believe? US census statistics on US income. Contrast that with the poor suffering souls of this world in Africa, South America, and Asia.
  • American families fight over and divorce over money. How twisted is that? Marriage and family are sacred and yet money is one of the most common topics that divide families. If more people had a sense of humility with regards to worldly affluence marital conflict would be reduced.
  • Americans spend almost 1 Trillion dollars on defense. What poor country can afford to do that?

A life of virtue or a life of money

Plato argued against the Sophists who believed that money allowed people to practice a life of virtue. Plato argued the practice of virtue, which this life is about anyway, is independent of money. The Bible uses the example of the widow’s mite.

Therefore, take my rant and put life into perspective and stop complaining about the economy and worrying about what you want and do not have. , focus on your virtue and intellectual life.

If you want to pursue wealth why not take some entrepreneurial risks with your life and do not be afraid of losing it all, after all, it is only money. Your life is not ruined by the economy, poverty or anything else.

I have lived under the poverty life for years, and other years near the top 1% and the difference in life quality and happiness is not connected to wealth but based on if you have an inordinate affection towards money.

  • It is really a matter if you live a virtuous life or a material based life.

Life is very easy in the States even if you are in poverty. Change your mind and be a rugged instead of hunkering down and worrying about your job in corporate America.

Historical comparison of American wealth and why we are spoiled today

Consider your life from a historical perspective. How did people live before the American Civil war for example? How did they live like settlers in the New England colonies with the cold of winter and only a fire to warm them? What about the pioneers who crossed this fruited plain. See for yourself how rich America and Americans are by looking back at history. If you went back 50 years we would still be OK economically, you would still be richer than most countries in the world.  If the economy collapsed and went back to the dark ages say 50 years ago, Americans would still be filthy rich in comparison to the rest of the world.

I recommend you look into the economic history of the world. Put life in American in perspective.

The economy has boomed and now its a pullback, a natural business cycle that will last for a of time, if the government is not too socialistic we will recover and boom again.   I  see America as a very rich country like you can not compare to anywhere in the world and to say this is a crisis is not doing honor to all the poor suffering souls of this world who have nothing.

Every time I travel from and to the USA

When I travel back to the United States and the incredible homes and cars and people in restaurants it amazes me, I hope that it does not ruin States and its value system. In comparison to home in other countries, Americans live in mansions, and I am talking about Americans.

People are driving cars that look, in all objectively, beautiful and everyone wants the latest model.

I was in the USA a while back and I saw this very large lady in pulling into a restaurant at a mall we were going to, she was talking loudly on her cell phone saying ‘it is so bad here’.

In Eastern Europe, people will go out to eat maybe once a year or every few years. Entire families live in 300 square feet apartments, sometimes many generations and this is normal. Things are changing and the new EU zones are becoming rich but Americans are ruined by wealth.

Not too long ago where I live people would wait in line for hours for bread. My wife remembers when she saw her first Mars bar. She did not know what it was. She studied it and could not figure out what it could be. She walked away puzzled. There was nothing, it was like a desert. People were living on potatoes they grew themselves.

I had some Ukrainian friends stay with me unexpectedly a few years back and they slept on the floor, hardwood and no blankets.  They said it was a very good night’s sleep.  This is Europe, can you imagine how poor the rest of the world is?

I do some consulting and a lady I was working with asked for a discount. She said she has 8,000 dollars in expenses a month and it’s really hard. I told her I was living on 800 dollars a month and I thought life was great. I wanted to tell her to get a life.

I was working for a Doctor who was about to lose his house with an income of 10k a month and he was asking for help with his business. He was complaining he had no money but just bought a custom, Range Rover.

Do you people see what I am talking about? Wealth and happiness is relative.

Crisis mentality will ruin America

Bird flu, rice crisis, mad cow, global warming, etc all crises that comes and go but Americans are so rich.  So do not worry about the economy. At worst America will go backward and become like France. But the French are rich too!  My point is there is no crisis in America.  Ah you say, what if someone loses their job and home?  Well, then they live like the rest of the world in a small rented flat and use their brains to find a better way of life. This constant crisis mentality will make people believe they things are worst then they are.  What is this 1944 in Russia when people were taking wooden beams from their homes and glue and making bread from it to survive? That is a crisis, not America.

Short term pain for Americans – Americans are spoiled

Look how bad it was in history for the world and most people in the world today. Study history, travel around the world.  No way. Europe and America is so rich and spoiled most people do not understand this.  Americans put more money into their lawn care than many people live on in many parts of the world.

Pessimism and crisis headlines, but this is not the 1930s.   the world is more complex and the economies will not go back to bread lines.
America will have 1 year of bad growth but 18 months max.  But maybe less.  The US is so rich people have no idea. What poor is.   1 year of negative growth for such a rich country is nothing that an insult to the real poor of the world when you put labels like crisis on it.  This is why Americans are so spoiled.
Look, I studied history. I know how poor the world was.  It is not going back.  I studied business cycles.  they happen every 7 years like it or not.  I live in Poland people tell me how to back communism was, how poor corrupt police state with the threat of invasion from Russia.  No way will it be anything like that.
Companies in the USA are innovating and creating new things.  Google and Microsoft will become old companies and new ones will appear. I love America (I was born there) for the innovation and hard work not the crying about the crisis when there is none. Do not let the media ruin your mind by letting you think things have gone bad. Become unspoiled by having some appreciation.

Americans are spoiled and there is no crisis even if we are in a in the US. Stop being afraid of losing what you have and start counting your blessings. Instead of hunkering down during these economic times, go on the offensive and take an entrepreneurial mindset.


Cause of US Economic Problems

What are the biggest problems the USA has economically?

  • US debt to GDP
  • Federal Reserve mismanagement of money
  • Trade deficit

The root caused could be argued is fiat currency. It causes all three of the above. Fixed exchange rates under the gold standard balanced trade automatically under the price–specie flow mechanism. The Debt was controlled as governments needed gold reserves to spend, and the Fed exacerbates the business cycle.

The trade deficit caused by China is a monetary phenomenon. Two things are happening here an economic downturn which was created by poor monetary management (central bank) and the trade deficit. Of the two problems, the government involvement in credit and money is terrible and is responsible for the business cycle. However, the long-term problem is that the USA cannot compete with other emerging countries in the long-run. Why not? The solution is simple.

The real cause of the economic downturn

What is the root cause of the financial crisis? The trade deficit is the root cause of the economic problems in the USA. In the USA, we import oil and Chinese consumer good and spend our excess capital on consumption rather than reinvestment, and this has resulted in a trade deficit and weakened industrial base.

Consumption and service economy in the US

We are all pressing each other pants and living with a sense of entitlement. I can say this. I am an American, I live in Poland, and I see how spoiled Americans are. There is no way we can solve the long-run problems of the US economy unless we are an export-driven country, instead of a consumption-based service economy. I know this sounds like a mercantilist argument. However, I am no mercantilist. In theory, services should be an extension of the production process, and therefore it does not matter we are a service economy. But look around and use your common sense. We can not be a nation of shop keepers and expect to maintain the standard of living in the past. The US has to create something, whether it be high-tech or old school industries like cars. If it does not, it will be like a house that spends all its money at the mall, but the breadwinner works at Wal-Mart for 8 dollars an hour.

Credit, China, and crisis

An extension of credit in the USA is applied to consumption rather than investment, and this deepens the hole. We can not compete with China because China has low labor cost, and devalues its currency. No one can compete with China with these policies. However, if we invested instead of consumed and did not sell the US to China, and China traded more reasonably, then the US industry would have been able to compete better. Not with labor cost but technologically, the US would have still retained the competitive advantage.

Solutions to the US economic problems

  • Gold Standard will solve most issues today.
  • Get government out of monetary and fiscal management of the economy. Allow weak businesses and industries to fall, including banks and auto manufacturers. Let the markets in the US become more efficient over time. Government involvement makes the US lose its competitive advantage as we become inefficient.
  • Get government out of trying to plan an industrial or technology policy with subsidies. Let the markets determine which is a better sector to invest in. If the private industry did not have to compete with government debt, spending, and get crowded out, the world could not compete with the USA, including China. All roads would lead to the USA for innovation and manufacturing again.
  • The US needs to improve its products through entrepreneurship and creativity, not the government.

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.


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.  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.

Business in China is a Scam

Doing business in China is less than optimal

My main objections to doing business with Chinese is:

  • Takes the from the US manufacturing base and jobs
  • Poor environmental and human rights record
  • Toxic materials in consumer goods
  • Much of the products are low quality
  • My experience with trust has not been positive when I order directly

My rants about business in China

There are many reasons not to do business in China, such as morals and their human rights record, cost of transportation, very hard to find someone who will not try to take advantage of you, poor quality, and risk to your reputation, currency risk, etc.

However, I think the main reason is if you are a producer, in order to make something of quality you want to be different. Margins are very small is you produce a commodity type good. Besides do you want to create a commodity or something different. To be successful in anything want to create just another commodity, mass-produced in China.

I just bought a hand made wooden chair for my daughter for 7 dollars. It has a stenciled image of a duck on it. This was made in the Polish mountains. It looks great. This is in contrast to the 20 dollar plastic chair made in China I saw in Ikea. So why is China so great?

If you buy junk you will own junk – China

China is only great if you a large company well organized with many people on the ground in China with quality control in place. If you are an entrepreneur my advice is look for markets and unique places others are not looking for. I often buy products made not in China consciously. I think others do also. Why? Because no made in China products are something original. If you fill your house with junk you will not be happy. I would rather have a house of a few things of quality than filled with China. I have very unusual wooden toys and books

Doing business in Poland in contrast to China

People here are honest hard working and fair.  There is no child labor and the laws are clear.  If I ask for a quote people work with me in a fair and just way. It is located in the geographical center of Europe.  If I even want cheaper labor Ukraine is next door.

China is not cheap or good quality

Every time I have ever tried to do business with China or done business with China on every level,  it is a rip-off or people have tried to screw me.  The price quotes may seem good at first, but the workmanship and quality and materials are zero.

I have lived in poor countries and people are generally good and less materialistic. However, there are always some that trying to scam foreigners. If you think just because you are street smart of know how to do business, people will give you a break, think again. You will never get the insiders deal unless you have a relative in China who will set it up for you. China generally is a scam unless you are Nike for example. Are you Nike?

The fact is the prices were not that good either.  They will try to nickel and dime you until the net price is a rip-off.  I would rather have a shop in Alabama than in China. Chinese businessmen have tried to cheat me every step of the way, from transportation to products, to service. Do you like doing business like that? I do not.

If you do business in China The only way is to work with a Chinese person who you know personally.  Then maybe you can get a deal on price, but the quality is poor.  Big companies can do business in China because they work with Chinese on the ground. But I still think things that come from China are the worst.  For example, my parents bought a refrigerator made in America 40 years ago and it works fine.  I think Chinese products last 5 years or less.  I do not want to do business this way.   Maybe you do, but good luck.

Alternatives to China

There are many, try Poland or Slovakia or Czech republic or Bulgaria, I think Poland is the best.  They are all EU countries with EU laws and old-world business values. Old world values mean people give their word and they do it.  They work hard and are highly skilled and educated.  It is very low stress and the products are of good quality. I think there also can be value in the USA in certain regions.

Business is about creating something of real value and quality.  If not for your client or customer for your own values.

I tried to do business in China but can not consider this as an option as they will just take your money.  They are taking the world’s money anyway, just look around.

Remember there are many businessmen in the world that are sincerely honest.

There are a billion honest Chinese so this is not about the people, but rather the current business culture.

My question do you is if you are a buyer does it matter where a product is made?

If you want to import or export goods and services, where would you do business other than China?


Economic Value Defined

What determines Economic value?

The Definition of Economic value is the subjective utility one derives from a thing or idea. Many people think the amount of labor and hard work you put into something will determine value.  Because you put effort into something than you have created something of economic value.  Something that others will hail as great.

Economic value is subjectively determined by whatever you think it is worth. This is an actual economic concept. The early classical economists tried to tie value with labor or cost. Something is worth, whatever you want to pay for it.

Marxist economists believed that is the amount of labor that goes into creating something determines its value.  This is the labor theory of value.  With the collapse of Communism we can all see this understanding of value is, unfortunately, is wrong. If you tried to ascribe value objectively, the system falls apart.

Price is the ultimate measure of economic value and this is determined by supply and demand based on millions upon millions of people making a subjective personal preference of what something is worth.

When someone else determines the value for you, then life is boring and inefficient. The Soviet Union had of tractors but no toilet paper.

However, take it to the next level, think how really boring it was to live under communism, and how fun the world is now with web 2.0, Sony play stations, miniature golf courses, Adam Sandler movies  and countless things people might think of as worthless, if value might be determined objectively rather than subjectively.

Economic value is something that is determined subjectively.  This is basic economics. It is where the aggregate supply and aggregate demand curve intersect.

In other words, many people believe value is determined by the factor of production or their own personal evaluation of what is quality or what is junk, not from the customers point of view.

People think that if they work hard at creating something it should be of value.  In fact, at some level I believe this. But we can not be the judge of value, rather the economic idea of marginal utility, and the cruel idea of aggregate demand is what determines economic value.

How economic value is determined

Economic value is determined by supply and demand. That means the value is subjective. What might be valuable to one person is not to another. This is illustrated in the Diamond water paradox.  Diamonds are of great economic value but not as important as water for survival, which is cheap.

Another example is if some person takes ten years to make something that only he and his mother thinks is good than people will find it of little value.

However, if someone writes, lets say a blog which has to to say 1/4 million page views a month (like one of my other blogs) than this is an indication of value.

YouTube as an illustration of subjective value

What about YouTube? I have a nice channel about economics, yet someone who make funny cat videos gets more subs than I do. Why? This is what people like.

Value is determined by the aggregate demand for such a thing that is created. Many elites intellectuals create some weird theory, true nonsense and people do not like, something avant guard and artistic but in reality, what they create is ridiculous. They snub you  the world and say ‘you fools’ can you not see its value, I am great, what you create is spam, my mother and I think I create something great.  Ha ha.  Again economic value is subjectively determined by the aggregate.

On the other hand, many plain humble people create things that are useful to many people, and they are rewarded economically, like my neighbor when I was a kid, long before my time, he created the pop-up toaster.

Economic value is connected to likes and dislikes in plain English. 

The take away from this post is, think about this when you want to make money through an entrepreneurial effort. Give the people what they want.