Notable Quotes: Kel Kelly

notable-quotes

Consider this remarkable irony: we citizens put our faith in government—the entity that steals from us, causes wars, imprisons and starves innocent citizens, and is an absolute monopoly—to provide for us and keep us safe. At the same time, we see businesses—which have eradicated diseases and starvation, engaged in peaceful exchanges instead of war, are fully restrained by hungry competitors (in free markets), produce virtually everything we currently own and enjoy, and pay us our wages and provide capital for us to improve our productivity—as our enemies from whom we need protection. These commonly held but irrational prejudices form the very foundation of the political arguments espoused by professional anti-capitalist “thinkers.”

This is an excerpt from Kel Kelly’s “The Case for Legalizing Capitalism
Read this book here

Article Highlight: Physician Shortages

physician_shortage

In a recent article by Michel Accad, MD, he makes the suggestion that we should be taking a capitalist, free market view of the situation of physician shortages. There is an notion out there that by 2025, there will be a “doctor shortage”. He points out in the following excerpt that the shortage (a function of supply and demand) is in direct relation to the expected salary (income) or price for delivering the medical service. As we all know, a wage or a salary is merely another name for price, so you would expect shortages to be governed by the same laws of supply and demand.

If indeed there will be an massive shortage of doctors in the near future, the important practical question is: at what level of physician income will the expected shortage take place? How many residents will be able to make a living at the income level they will eventually achieve in 2025?

An interesting article to get you thinking about how “economics is life“. And how we run into the principles of economics everywhere.

Please read this article at: On the Looming Shortage of Doctors

Notable Quotes: Kel Kelly

notable-quotes

If the government truly wanted to create economic progress, the best way would be to create capital. This is done by lowering tax rates, abstaining from printing money and inflating prices, undoing burdensome regulation, taking off price controls, etc.

This is an excerpt from Kel Kelly’s “The Case for Legalizing Capitalism
Read this book here

A Future of Debt Slavery

debt-slavery

On July 6, Mises.org published another article on the Greek crisis, this time suggesting how the taxpayers of the country are heading towards what they termed “Debt Slavery”. The idea stems from the actions that the Greek government and the IMF have taken by “kicking the can down the road”.

The IMF referred to the Greek default as “in arrears”, instead of calling it what it really is when they missed their payment on their debt. This is just another political ploy that does not address the problem for what it is. Additionally, the Greek government continues to dangerously ignore the plain facts of their crisis, as banks continue to close and depositors are unable to gain access to all of their money. These are just some of the consequences to their reckless actions.

But, after all of these decisions are made and more debt is incurred, the future taxpayers are left “on the hook” for their irrational actions. And as it now stands, Greece owes the ECB more money than the entire deposits of the Greek banking system. You can see how this is going to turn out and how this is becoming a generational problem. A problem that will enslave future generations into a debt trap that they had no part in. The Greek citizens today are claiming theirs now, and leaving it to the future generations figure out the solutions.

Read the Mises Daily article: Greek Taxpayers Facing a Future of Debt Slavery

The Anti-Capitalist Culture

anti-capitalist-protest

On July 8th, Mises.org published an article regarding the Greek financial crisis and made the suggestion that the biggest problem that Greece suffers from is an “anti-capitalist culture”. The suggestion was made that the culture in that country is one that embraces fiscal and economic policies and practices that are contrary to sound economics. Culturally, the people of Greece live in a way (with the effects of socialized government) that stand in the face of the classic capitalism.

We can see that attitude beginning to permeate further into our own American culture, where capitalism has to be defended over and over again, despite being responsible for the increased standard of living that Americans enjoy today. I have noticed over my life time this idea becoming more and more of a mainstream idea. But, the fact remains that capitalism is the only system known to man that has rescued from poverty and improved the lives of common people. Socialism, which is the favorite alternative of opponents of capitalism does not accomplish that feat. However, we hear from our gracious leaders how capitalism destroys society and that it only benefits certain small segments of the population. Nothing can be further from the truth. In fact, socialism is the system that produces that very outcome. But, never mind the proven history of societies and nations when you want to advance a false narrative.

While the United States is not yet close to becoming a Greece, the same narrative that has plighted the Greek culture today, that of capitalism being an enemy of the common man, could work to destroy that system that allows man to pursue his own separate interests to the full ability that he chooses. And I invite you to read the article at Mises.org.

Read the Mises Daily article: Greece’s Biggest Problem Is Its Anti-Capitalist Culture

“The Law”: Revisting One of Bastiat’s Greatest Works

Frederic Bastiat

In one of the many essays written by the 19th Century Economist Frédéric Bastiat, he writes the following under the header “The Results of Legal Plunder” in his essay “The Law“:

“It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder.

What are the consequences of such a perversion? It would require volumes to describe them all. Thus we must content ourselves with pointing out the most striking.

In the first place, it erases from everyone’s conscience the distinction between justice and injustice.

No society can exist unless the laws are respected to a certain degree. The safest way to make laws respected is to make them respectable. When law and morality contradict each other, the citizen has the cruel alternative of either losing his moral sense or losing his respect for the law. These two evils are of equal consequence, and it would be difficult for a person to choose between them.

The nature of law is to maintain justice. This is so much the case that, in the minds of the people, law and justice are one and the same thing. There is in all of us a strong disposition to believe that anything lawful is also legitimate. This belief is so widespread that many persons have erroneously held that things are “just” because law makes them so. Thus, in order to make plunder appear just and sacred to many consciences, it is only necessary for the law to decree and sanction it. Slavery, restrictions, and monopoly find defenders not only among those who profit from them but also among those who suffer from them.”

Can we not see this playing out in the 21st Century United States? As we observe the political state that we live in today, there are examples upon examples of how government (under both Democratic and Republican regimes) have used the forced hand of the law to “plunder” the people that they “serve”. As Bastiat discusses in the excerpt above, when unjust laws are put into practice, they are perceived to be just, either immediately or over time, from the mere fact that they are part of the law.

Economically speaking, laws that seek to redistribute wealth from one citizen to another would be a form of what Bastiat would consider “laws as instruments of plunder”. We see this practice in the over taxation of individuals in general. This practice seems justified by most citizens because the taxation of individual’s income above what is necessary to run the basic functions of government has been going on for a long time. By the passing of laws, these tax practices are generally accepted as moral (or just) simply because they are part of the law. The morality of something can often times be determined by whether or not it is legal to do.

Socially speaking, there are laws that by their mere existence have changed what is generally accepted as moral (just) or not. In the past 100 years, the prohibition and subsequent legalization of alcohol has proven to be a major reason for the change the view of the morality of consuming alcoholic beverages. At one time in our country’s history, alcohol consumption was viewed as an immoral act. Fast forward 100 years, alcohol consumption is generally accepted as moral by even those whose own religion would otherwise not accept.

In both cases, we see how powerful laws can be in determining the acceptance of practices (economically and socially) that are generally harmful to individuals in certain ways. Laws of over-taxation are harmful to individuals in the sense that they take what is rightly a citizen’s property to support activities that the citizen is not morally responsible to support. Alcohol is widely accepted to be harmful (even while generally accepted as moral) to a person’s health over time.

But, the fact that these things are legal in our society makes them appear to be either just or moral. That is what Bastiat argued over 200 years ago, and we see the same thing happening in our society today. There are not many new things under the sun.

Invisible Unemployment

unemployment
When governments get involved in any activity to create jobs or to create employment, they are also getting involved in the business of creating unemployment. However, the unemployment they are creating is the factor that most people do not consider. Hence, the idea of invisible unemployment.

Many people believe that money spent by the government to fund projects that ultimately require workers to be hired to fulfill the completion of those projects is good business for the government to be involved in. A superficial review of the situation may cause one to think that this use of funds can only help the economy, because the wages provided to each worker will ultimately be spent in the economy, and therefore provide a healthy boost to the economy. After all, the best thing a consumer can do for the economy is to spend money in the economy. In terms of it being “good business”, it goes without saying that most people believe that providing jobs by any means is a worthy endeavor for the government.





Furthermore, if people who are otherwise unemployed can become employed using funds that are already on hand with the government, then that seems like a winning proposition. Using this logic, this can not only be a positive endeavor for the government in terms of individuals being able to earn a wage but also for the other previously employed individuals and businesses, as they can only benefit from a stronger economy.

There are at least two problems with this idea. First, one of the most foundational ideas to understand about government revenue and spending is that whatever funds the government acquires to spend (in this case, to employ people) must first come out of the economy, in the form of taxes. Generally speaking, the government does not manufacture products nor provide services that in turn produce revenue (profits) from the natural working of the economy. There are some exceptions, but by in large, their revenue is acquired in the form of taxes (taking funds from consumers that would otherwise be used in the economy).

In a scenario where a business operates in the free market, the business obtains its funds from the business owner’s own capital, other investor’s capital or other funds that have been “saved” from previous market activities in order to start the business. The business, using its own funds, begins making products and using its own resources, employs people to assist them in carrying out the function of the business. If all goes well, the business will spend less money to make the product than it earns for selling the product and will make a profit, thus allowing them to continue the business and to continuing employing people. Notice, that in this rather simple illustration, the business obtained its capital privately, without having to take money out of the economy to ultimately employ people (provide employment).

On the other hand, in the scenario where the government starts a project (business), the funds used to start that venture or project that will ultimately require people to be hired must first be taken out of the economy. When I say these funds are “taken out of the economy”, I mean that the only way for the government to obtain funds to start these projects is to take the funds from its citizens in the form of taxation. The same $100 dollars that the government takes from an auto mechanic in taxes to fund the project, is the same $100 that will not be spent in the economy by that individual.

To get at the heart of my argument that government creates unemployment by using their projects to create employment, consider this. That $100 that was taken from the auto mechanic in taxes can no longer be used to buy a new toaster that his wife wanted. It cannot be used to buy the shirt and tie that he needed for a interview at another auto shop. These funds taken out of the control and use of the auto mechanic create “unemployment” on the backside of the equation.

And that gets us to the second problem. Whenever these arguments are made, only one side of the equation is really ever considered. Everyone loves to hear the stories of the government creating jobs for those people who otherwise would be out of work. The stories of people regaining their self-esteem, being given a chance to provide for their family and the other countless instances of goodwill are very nice to hear about. If we could consider the number of toaster manufacturing workers and garment manufacturing workers that are not employed because the government had to take the funds away from the consumer that would have employed those workers who would have benefited from the consumer’s funds, then we would have a fuller picture of the offset of job creation in this scenario. We all can see the actual outcome of actual jobs created by government because we can read the stories and see the news reports and perhaps even see our friends and neighbors benefit from them. But, we don’t see the jobs that will never be created because the government took away the opportunity for those jobs to even exist. And this is what I mean by “invisible unemployment”.

So, what we are really dealing with here is a net zero proposition. For all of the jobs that are “created” by government, there are an equal amount of jobs never created, or “lost”, because of the missed opportunity to employ people in the first place.

Note: This idea of “invisible unemployment” is further explained in a similar fashion with the timeless analogy of the “The Broken Window” in Henry Hazlitt’s book “Economics in One Lesson”. Economics in One Lesson

Tell me what you think.

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Industries not Econmically Viable

solar

No matter what products that are invented that better our human experience, they can never be fully enjoyed by the general public unless they are economically viable in the free market. While it seems that whatever we can imagine in our minds we can create, in order for us to benefit from it on a large scale basis, it must be able to be delivered to consumers at a price that makes them want to buy it. That’s obvious, right? Well, you would think so but the government sometimes fails to realize this and subsidizes companies involved in manufacturing products that would not survive in the free market, by cheating taxpayers with wasted funding. Even though our minds and imaginations can run wild with ideas, there are certain factors that must exist in order for them to be economically viable.

One of the factors that must exist for an industry to survive is a demand for the product. That seems simple enough, but without demand there is no reason to produce the product. An idea that seems great and useful for a small segment of the population (market) may not seem that way to rest, and therefore the necessary demand to make it economically viable in the market may not exist. Without sufficient demand, there is no reason to produce the product.

The ability to deliver the product to consumers at a price that will cause consumers to buy it is also of primary importance. This, of course is the supply side of the equation. The manufacturer must be able to produce a product at an expense that is less than the price that they can charge consumers to buy it. This is very easy to understand, right? The amount a manufacturer obtains by selling the product must be more than what the consumer pays for the product, so the result is a profit. Without profit, the product is not viable in the market and the business cannot continue to produce and sell the product.

Another factor in the survival of the new product is competition, which is closely related to supply because competition is a product of having many suppliers. While competition is a benefit to the consumer, it may present itself as a detriment to producers because if there is a cheaper alternative to their product, it may affect its survival.

There are and have been many products in the market that cannot, without government intervention (in the form of subsidies) make it in the market because it is just too expensive to produce. Either the product requires raw materials that are expensive or the process itself is long and labor intensive, causing the price that is necessary to offset the expenses to be higher than what a consumer is willing to pay to obtain the product.




Solar panels are an example of a product/ invention that is not quite economically viable. The idea of capturing solar energy for consumer use instead of paying for electricity from an electric company is very attractive. However, it is just not economically viable because the production expenses required to produce them require an offsetting price that most consumers are not willing to pay. Additionally, the price to buy electricity from an electric company is a lot more economically reasonable (cheaper) for consumers, than to pay thousands of dollars up front to buy solar panels and have them installed, only to have to wait several years to see a return on the investment. Obviously, there are some people that can and will be able to pay, but many more cannot and will not. But, it won’t be until solar panels can be produced a lot more cheaply, that they will become economically viable in the market.

An example of an invention that was very desirous but too expensive for most consumers to purchase was the automobile, in the initial stages of its existence. Upon the invention of the automobile and subsequent manufacturing effort, it was very expensive to produce. The process took a lot of time and was very complicated, causing the offsetting price to be high. That was until the invention of the assembly line (in which Henry Ford is accredited with applying it to automobile manufacturing). Once the assembly line was applied to the process of manufacturing automobiles, it vastly reduced the labor effort, time and cost to produce automobiles. This new manufacturing process allowed manufactures to charge a price that was more attractive to consumers, allowing more consumers to afford to buy them. And the rest is history. The automobile industry has survived because it became economically viable in the market.

Economics if life.

The Danger of Price Control

price_control

Price control is something that may sound like great idea on the surface. Why not set prices on essential products and services (gas, food, electricity, etc.) at a level that is “affordable” to the average consumer? As with many naive ideas, there come some fundamental problems. And this idea is no different.

In a free market, prices are determined by the market activities (the functioning components of the market activities are price, supply and demand). In the basic idea of supply and demand, companies try to set the price of a particular product that they are selling at an amount that will cause consumers to buy the product at the same rate of production. If the price of the product is set too high (a price higher than the consumer is willing to part way with their money acquire the product), then fewer consumers will buy the product, leaving a surplus of products not sold. If the price is set too low, then more consumers will be willing to buy the product than is able to be supplied, and thus causing a shortage.

Companies selling products are always trying to set the price on their product at an amount where supply and demand are equal. In other words, companies want to produce the exact amount of products that consumers will buy, no more, no less. That makes sense, doesn’t it? But we know, in reality that hardly ever happens. In theory, if a company could know at exactly what price to sell their product in order to attract consumers to buy the exact amount of their product that they produced (supplied), then there would be no need for companies to have any overstock or any other surplus goods held in inventory. This is the concept of supply and demand equilibrium. Embedded into the price that is being considered is the amount of profit that the producer of the product will make for each item sold.





Now, when one of the functioning components of the market, by law and legislation, are not able to operate freely (meaning, freely able to be affected by market activities), the other components will be affected. Again, the three fundamental components or factors are price, supply and demand. And when you affect one third of the equation, things will change drastically…and change quickly. When supply is artificially constrained (i.e. government legislation demands that only a certain amount of a particular good can be available to the market), then price is affected (artificially made to increase). For example, when the countries that we import oil from (to produce gasoline) put caps on the amount of oil they will supply to the world, the price of that oil will increase, assuming no change in demand for that oil. That makes sense, right? Because there are a lot of companies in the world that want and need that oil to produce the gasoline to satisfy their particular set of consumers that desire to fill their vehicles up with gasoline (and in this example, the supply of that oil is limited). These companies are willing to pay more for that oil because there are other companies trying to buy the same, limited amount that is being supplied. But, they can only pay an increased amount up at a certain point. They cannot pay just any amount. They can only pay an amount up to the point that it ceases to become cost-effective.

That brings us to another side of the coin. When governments artificially constrain prices, we get a similar affect. When prices, by law and legislation, are fixed at a certain amount, the product being sold does not magically become cheaper to produce. No, in fact, it will at the very least be more expensive to produce. And maybe the product will become even impossible to produce in the long run, because the amount of money that is required to produce the good (labor, materials, etc.) may exceed the amount that the company is allowed, by law and legislation, to charge a consumer to buy (price). At that point in time, there is no reason or incentive for the company to continue to produce a product that they will only lose money on. And eventually, if nothing changes in terms of the control on the price, the product will become unavailable because companies will have no reason (or incentive), by means of a profit, to produce it.

We see this phenomenon in many facets of life, when governments have tried to control the price of a good or service in the private sector of business, only to see either the quality dwindle or the quantity disappear. We see it in rent controlled housing, where the quality of the housing deteriorates. Again, if the landlord can only charge a certain amount of rent, by law or legislation, it limits the amount of resources he can spend to maintain the property, given all of the other operating expenses involved in leasing the apartments (wages to property manager, property taxes, etc). We have also seen the effects of price control in the medical industry, where governments have capped the price on certain medicines, only to make the medicine eventually unavailable because the manufacturers cannot afford to produce the medicine at the controlled price, and still make a profit.

As we look at the idea of price control, we see that there are many unintended consequences. More specifically, we eventually see the complete opposite effect of the intended outcome. While the outcome of price control is to provide goods and services to consumers that would otherwise not be able to afford them, if the price is allowed to be controlled for too long, those very goods will eventually be unavailable altogether because they would cease being produced.

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