Don’t Ignore the Economy or Politics

             I just loaded one of my playlists to my computer’s music player. I have the following songs among many I am listening to as I write tonight including Roll with the Changes by REO Speedwagon, Jukebox Hero by Foreigner, Bang a Drum by Bon Jovi, Heartbeat City by The Cars, Bad is Bad by Huey Lewis & the News, What it Takes to Win by Journey, Speed Turtle by Brian Wilson, Baby Come Back to Me by Manhattan Transfer, Brand New Day by Sting, and Africana by Kurt Bestor. The selections are a bit eclectic but a good mix for me. I realize it is loaded with what many would consider some older period works (1970’s – 80’s). I have very vivid memories of listening to groups like Three Dog Night  and Journey in the Utah State University Spectrum (basketball stadium) with more than 7,000 screaming fans (all considered close friends by the end of the evening). The stage was raised about 6 feet off the floor with four 20 foot high sound columns on the sides of the stage, a wall of speakers behind the band that stood 8 feet high and ran the entire width of the stage. I am convinced that when they powered up the sound and light systems in the Spectrum the lights dimmed in the rest of Logan. The band would start with something like Line of Fire (by Journey) and it would just get better and better. This is not the same experience you get by plugging in your ear buds and cranking up the volume on your IPod. Ear buds may be able to deliver a similar decibel level as music measured in a concert hall but that is where the similarities end. I remember the feel of the sound waves slamming into me. It was very much a physical thing. One could feel the bass notes through the floor, your shoes and into your bones. There is something very real about the feel of that kind of music in that setting.

             The best writers, like the best musicians help us experience stories through our senses. Somehow the reader has to be able to feel, to see, to hear, to touch,  to smell the story. All designed to create emotion and a sense of connection. We need an investment in the story. I read one of David Weber’s Honor Harrington series of books about a naval officer and her exploits. Weber is particularly good at describing naval battles. The stories are very much science fiction but  the terms, the tactics and the weapons are all well detailed and dovetail together. I remember reading an engagement in which the good guys did what is called a rearguard holding action. The action is designed to allow a group to escape but depending on the strengths of the opposing force, it may bode ill for the defending group. Here it allowed a group of under armed transports to escape a devastating ambush. I felt heartache for the dying rearguard force as the transports watched the destruction of this cover fleet but which destruction allowed the transports to escape. In real life those purchasing the time usually do not survive and know they are not likely to. One doesn’t have to have actual experience in death and destruction to feel the loss however, as Weber evokes emotions through descriptions and feelings by the characters who survive and those who know they are going to die. A good writer creates a mental image that one can immerse themselves in to generate and drive complex emotions, some very intense ones.

             L.E. Modesitt Jr. in his writing has the ability to lay out very complex economic, political and ecological concepts in such a manner as to make good story telling. Granted, one does not usually experience death from economic conflicts but it can be the catalyst that leads to death and destruction. However, with the proper use of such conflicts a much richer story is delivered. These principles and concepts add spice, flavors, colors, sounds, sights, if you will. It is important not to neglect the use of the soft sciences in story telling. These can be part of the back story or of the world building. They can also add dimensions and layers to main and secondary characters and create well rounded  plots and story arcs. Consider just a few of Modesitt’s books for particular situations. Parafaith Wars and The Ethos Effect show religious expansionism  vs. eco-technology and what can happen. The books are stand alone volumes but written in the same universe, centuries apart yet linked. A portion of the Recluse series involves the main character named Lerris who is an order mage but has to earn his living as a woodworker (a craftsman). He has to practice his trade to get enough money to travel. Yet because of his trade there are many great story arcs. The first 3 books of the Imager series involves the main character as a portraiturist and then as a magic user. The painting stays in the character’s background and colors the story. The entire economic and political setting is consistent with this aspect. In the Ghost series (a three book series) the main characters are university professors. The setting is such that it reminds me of class and all the situations one gets in that setting. Again Modesitt weaves the occupations into the story which adds story arcs and gives interesting flavors to the setting and characters. One of my favorite science fiction books by Modesitt is The One-Eyed Man. Here a society and social order is build around a planet that is influenced by a unique lifeform hidden yet in plain sight. The hero is commissioned to do an ecological survey to see if the settlements are interfering with the planetary systems. No one wants to upset the balance but things look poised to do just that.

             So, don’t neglect the full body effect of economic and political settings, ecologic and environmental aspects and certainly give characters jobs and lives. All will help generate deeper and more intense situations and many more story arcs, plots and subplot opportunities. Remember, politics can kill us. Just look at the French revolution.

LTUE 2016 & persentation

We have just finished up with LTUE 2016. It was a busy 2 days for me. EA (Emily) Younker and I were able to give our presentation; Faith, Followers and Fanatics: The Devine in Fantasy and Science Fiction. I would like to thank those who participated in the presentation. Some asked if they could get a copy of the paper. I will gladly send a copy, just drop me a short line at my email address; bhallredgen@gmail.com . Thanks again for coming to our presentation and watch here over the coming weeks for new posts on economic and financial concepts and thoughts.

The Colonial System and Its Impact – Part 3

The discovery of America and that of a passage to the East Indies ... are the two greatest and most important events recorded in the history of Mankind. (Wealth of Nations, Bk IV, chapter 7, paragraph 166)

 

             I have been discussing the impact of colonization on the home country and on the colonies themselves. In Part 1 of this series we looked at why nations establish colonies. Colonial expansion traditionally had three benefits to offer. First, raw land and its vegetable production. Second, animal production which is different yet linked to the first benefit. And third, mineral production which in the time of Smith and the colonization of South America by the Spanish and Portuguese was specifically for silver and other precious metals. Mother nations kept a tight rein on colonies to protect their markets and so tended to develop monopolies in trade and goods.

             In Part 2 we looked further at trade and monopolies particularly as they related to Great Britain and saw the other costs and expenses associated with colonies. The British people were bearing a tremendous cost to keep the colonies (America) in line and producing for the home markets as well as selling finished goods to them from the English side of the pond. It was costing England a very pretty penny to have a captive source of raw materials and a captive market for finished goods.

             So, if all this colonization was such a good thing why were so many, especially those ungrateful American colonies so unhappy? The idea of a fair deal and the ability to make a pound sterling at a reasonable expenditure of labor and materials was making many colonists very unhappy as they felt they were not getting what they wanted or deserved. This is where taxation comes to the forefront. As we saw in Part 2, Britain needed to be compensated for its costs of providing government including a stable courts system and for its protection against other nations (standing army and navy). Additionally, the colonies were expected t0 pay something towards the total cost of being a great nation since the colonies received the benefits of this umbrella coverage. However, as Smith points out, “colony assemblies... [will not] levy upon their constituents a public revenue sufficient not only to maintain... their own civil and military establishments, but to pay their proper portion of the expense of the general government of the British Empire seems not very probable.” (Wealth of Nations, Bk IV, ch. 7, para 155) Britain felt it had every right to establish the taxes necessary to cover the costs. How were the colonies who did not see or know the big picture going to have any idea what were necessary expenses for the defense and support of the whole empire. Smith assumes that Britain would be fair and reasonable because it is in the best interest of the Empire. Something that may or may not have been believed by the colonists. And the colonies had a firsthand example of Britain’s assumed  altruistic nature in the monopoly powers granted to various British trades and industries. Such monopoly powers were not fair and definitely not reasonable in the colonists eyes.

             What then could be done. The colonies were up in arms over taxes which were a symptom of the bigger problem that they felt they couldn’t get a fair deal (think monopolies). There needed to be another way of allocating costs of government. Smith suggests that there could be an assembly comprised of representatives from every part of the Empire. Such representation could be based on some measure of involvement in the Empire. He suggests the allocation of representatives could be based on the proportion of the produce of taxation. Where more taxes are generated, more representation is given. Produce or finished goods would be taxed consistently throughout the Empire so the area that is more efficient or larger for that matter, all other things being equal, has better representation. Let me let Smith summarize the possible outcome. Remember this is in the 1770’s. “Such has hitherto been the rapid progress of that county [America] in wealth, population and improvement, that in the course of little more than a century, perhaps, the produce of America might exceed that of British taxation.” “ The seat of government would naturally remove itself to that part of the empire which contributed most to the general defense and support of the whole.” (Wealth of Nations, Bk. IV, ch.. 7, para. 165)

             If the revolutionary war hadn’t happened, would we be speaking British English and governing the British Empire from somewhere along the East Coast of America? Who knows.

Reference:

An Inquiry into the Nature and Causes of the Wealth of Nations

Adam Smith (1723-1790)

http://www.econlib.org/library/Smith/smWN.html

Over Scheduled, Some Quick Wisdom and A Story

I have spent the last several months trying to survive my own mire. It was one of those situations that I just kept saying yes to projects and people. I have most of the brightly burning fires put out and actually have just a couple of major on-going projects.

 I need to write the final part (part 3) on the Colonial System and Its Impact and I have some new, what I think are exciting, ideas to discuss. I believe they will be helpful and interesting.

 For today’s economic thought I want to quote from Paul Volcker, former Chairman of the Federal Reserve, which he gave in a speech in 1999. “About every ten years, we have the biggest crisis in 50 years.” That statement needs to be plastered on every wall around your desk. Just a gentle reminder that every crisis is not new or earth shattering in spite of what the financial news or talking heads may insist.

 To get into the proper spirit of things I want to tell a story which happened to me at one of the activities I was involved in this past month. Wood Badge. For those unfamiliar with it, this is adult leadership training for the Boy Scouts of America. Very good training not only for scouting but also for corporate, non-profit or other organization assignments. Among other things it teaches principles of working with small and medium sized groups. All around good stuff.

 My story relates to something that happened during the second half of the course. For this story I will tell you that there are actually a couple of true facts, one  of which is that I damaged my little toe. It was black and blue and I think I probably broke it, the toe, and definitely broke a blood vessel in my foot. I had a bruise that spread across all my toes and a little bit up the inside of my foot. It hurt like all get out and is still a bit sore and swollen some 2½ weeks later. My wife asks me every so often if I am going to get it looked at by competent professionals (i.e. a doctor) or not. I am still deciding.

 So, I heard a commotion outside my tent one evening a couple of weeks ago. I was attending Wood Badge with several others and was in my tent in the staff area of camp. Now I know you will tell me that what I did was really dumb but I stepped out of my tent in my bare feet. I know, I know, really dumb but there you have it. Well, I stepped out and looked left across a small creek into a stand of quaking aspen, beautiful trees, just in full leaf. Our camp was up pretty high in the Uintah Mountains just south of the Utah border on the Wyoming side. We had received 5 inches of snow earlier in the week. Anyway, as I looked into the trees I was a bit surprised but not alarmed to see my friend KC coming toward our camp pretty fast and being tailed by a bear. Now you may find it a bit hard to swallow that KC was being chased by a bear but the bear wasn’t some ol’ grizzly, only a black bear, I would guess about 2 or 3 years old and if worse came to worse I figured the bear wasn't that much heavier than KC and KC knows how to fight dirty. I wasn’t too concerned for KC at first but became more concerned as I watched. The problem, the bear seemed to be gaining on KC. Now it wasn’t gaining real fast but appeared to definitely be gaining and KC was looking a bit worn. As KC was headed my direction I figured I should try to help a bit. So as KC and the bear came by I decided to reach out with my foot... Ah now, I see that you caught the implication of my act immediately. Bare foot, bear. Anyway, I reached out without fully thinking things through and with my foot roundhouse kicked the bear in the backside. Wouldn’t you know it, my little toe got caught in the bear's hide and it separated itself from its fellow toes like one of Spock’s Vulcan greetings. It really hurt and I went limping off as fast as I could in the opposite direction from KC. The bear was so startled that it stopped dead in its tracks and turned toward me. This gave KC enough time to get around a large tree and I hobbled to another one. The bear was so disgusted with the two of us he huffed and shambled off in another direction. I am afraid you won’t be able to collaborate this story with KC, however. If you ask KC about it he will tell you that the story isn’t true. He will tell you that the bear was not gaining on him but that he was running so as to keep the bear just behind him. Yes, he admits he was looking worn but it was a ruse to fool the bear into thinking he, KC, was getting tired. He says he was wearing it down and would have had it, the bear, all tired out in another 20 or 30 minutes and so didn’t need my help. In fact he accused me of cruelty to animals and thought about reporting me to the proper authorities. He decided in the end not to report me because he said he thought it would be hard to convince the bear to be a material witness. Well, that’s the story and I am sticking by it.

 Anyway, don’t believe everything you hear, either from me and not from the Federal Reserve or from economists. The sky may be falling or not but the news isn’t likely to know one way or the other regardless of what they say. Plus, always remember, bankers (investment or commercial) are always friendly but seldom are they your friends (in a professional capacity).

 

And that’s the rest of the story.

The Colonial System and Its Impact – Part 2 (Giving It All Up)

            In part 1 we began the discussion of colonies and the destructive nature of monopoly powers as discussed in Adam Smith’s Wealth of Nations. Smith is adamant that trade monopoly especially  relating to colonies is destructive. “All the original sources of revenue, the wages of labour, the rent of land, and the profits of stock, the monopoly renders much less abundant than they otherwise would be. To promote the little interest of one little order of men in one country, it hurts the interest of all other orders of men in that county, and of all men in all other countries.” (Wealth of Nations, book IV, chapter 7, paragraph 146) His sentiments are fairly plain even if the sentence structure is a bit mixed. Remember he was writing in the 1770’s.

             Smith finds great potential in colonies and colonial wealth generation possibilities. He suggests there are three things that greatly help a colony to properly prosper by their commerce. One, there needs to be a “general liberty of trade” as Smith describes it. The producers of goods need to have access to markets and the knowledge that those markets will treat them fairly and promptly. They need to be paid for their produce or goods in a consistent, reasonable and as timely a manner as possible. Two, the less interference, constraint or cost of moving goods and produce the better. Profits can quickly be lost with high or frequent duties or tariffs on transportation. Further, limits on exporting will greatly affect the ability to move goods and receive the best price. In France during and just prior to the time of Smith, farmers were barred or greatly hindered from moving grains from one district to another thereby forcing artificial prices and production based on district, not on best production practices. Smith was very aware of the need to move produce and goods easily without hindrance by laws or officials and with a minimum of costs (other than transportation expenses).

Third, and this is the most important, Smith suggests that there must be equal and impartial administration of justice. There needs to be an equality under the law regarding land, land use, selling and producing goods. He suggests that these are the most important things for allowing improvement and prosperity.  The laws must be administered in a fair, reasonable and consistent manner.

             So we return to the initial statement by Smith in Part 1 – “Great Britain derives nothing but loss from the dominion which she assumes over her colonies”. He has a novel solution. He suggests that Great Britain voluntarily give up authority over her colonies. Let them elect their own legislatures and establish their own laws. They can make war or peace as they see fit and trade with whomever they desire on whatever terms they can establish. Let them charge whatever prices for their goods and produce markets will bear. He suggests four advantages to Great Britain. First, she immediately is freed from the cost of providing a standing army and naval support. If the colonies want protection they can contract to provide such at some agreed on payment thus providing a revenue source for Great Britain’s military operations. Second, as a recognized government the colonies could enter into commerce treaties that would be of greater benefit to the majority of Great Britain at the expense of the current monopoly powers. The merchants with monopolies would lose their lucrative contracts but the general populous would benefit from cheaper goods and produce. Third, Great Britain would generate a great deal of good will with the colonists and her own citizens. The prospect of self-government is a potent medicine for the colonists and better and cheaper goods and produce a strong inducement for the citizens of Great Britain. Fourth, the colonies may in fact favor and even support Great Britain in war. Smith suggests that instead of the colonists being “turbulent and factious subjects” they would become “our most faithful, affectionate, and generous allies”. Here then is Smith’s answer to the problem of the colonies, however he suggests that most if not all great powers will not establish colonies just to let them become independent because it goes against the very nature and pride of a nation. He also suggests that the act of freeing a colony is “contrary to the private interest of the governing part of it”. He suggests that those who govern want to control, if only for the chance to build wealth or distinction for themselves or other personal interests. He suggests that keen self-interest is stronger than altruistic nation motives. So, regardless of the potential upside benefit the current status quo no matter how costly will likely prevail.

             Next paper, Part 3. If Great Britain won’t give the colonies their independence how do they get paid for their expenses and costs and just what that might lead to.

The Colonial System & Its Impact – Part 1

Under the present system of management, therefore, Great Britain derives nothing but loss from the dominion which she assumes over her colonies. (Wealth of Nations, Book IV, Chapter 7, paragraph 151)

 

             Adam Smith in his seminal work on economic theory, The Wealth of Nations, wrote the above in the 1770’s. He was referring to the cost of nations supporting colonies in general and the American Colonies costs to Great Britain specifically. So why was the British government willing to support the American colonies in such a situation? Colonial expansion traditionally has three things to offer the state (as Smith calls the home country) first, raw land and what it could produce. Second, animal production which he distinguishes from vegetable production but could still in some sense be considered supported from the land. And third, mineral production.

             Smith discusses this three legged stool for supporting colonization in his review of Columbus’s discovery of the new world. He suggests that Columbus entertained the notion that he had discovered the lands of Marco Polo’s travels and all the rich trade long after it became evident that was not the case. Columbus needed to show that his discovery of the America’s, if not the vast hoped for lands did have some considerable value. Columbus could not show vegetable or animal produce that was exceptional at the time so he flattered himself that he had found exception mineral wealth, namely gold and silver. Smith suggests that in consequence of this representation “the Castile determined to take possession of countries of which the inhabitant were plainly incapable of defending themselves. The pious purpose of converting them to Christianity sanctified the injustice of the project. But the hope of finding treasures of gold [or silver] there, was the sole motive which prompted to undertake it.” (Wealth of Nations, chapter VII, prt 1, page 72)

Spain and Portugal scoured most the lands of the Western Hemisphere looking for the mineral wealth and in most cases initially ignored possible land wealth. There were some that were interested in non-mineral opportunities and these people saw early the potential of land. This allowed an opportunity to get something that was not available in populated Europe or Great Britain where serfdom and lifelong servitude with little chance for improvement was much more normal. But land with its possibilities was available in the new colonies of America, especially for British subjects. Smith suggests that agriculture is the proper business of all new colonies because the cheapness of the land gives strong advantages. Cheap land allows the production and sale of cheap produce which, because of the cheapness makes it possible to export. The colonies need manufactured goods which can be imported. So why Smith’s opening statement? He suggests that granted monopolies were a significant problem and one that lead to problems of cost and eventually revolution.
             The shopkeepers and other traders of England wanted to control the power of providing all manufactured and other goods to the colonies so as to capture what they saw as the wealth being generated. If the colonists could only spend their money on England’s goods then all the benefit would flow to England. Further, they enacted that the colonies could only sell their produce to England except in certain rare cases where they had to sell it to faraway lands that British merchants didn’t care about. Thus began early price control. Smith states that the maintenance of this monopoly was perhaps the sole purpose of the control by Great Britain over the colonies. He further suggests that any cost paid to maintain this control has been to maintain the monopoly for British shopkeepers and manufacturing.  To support the monopoly, Smith states that the state was willing to cover the costs of 20 regiments of soldiers and the expense of food, pay and military provisions, the cost of maintaining a naval force sufficient to discourage smuggling along the entire American and West Indies coasts.

Additionally, there was the cost of various conflicts with other nations including the Spanish war of 1739 which should also be included in the tab charged to colonial protection. So, Smith argues that all these costs are not offset by the benefits of monopolized trade gathered from the colonies and including any taxes collected. That is why Smith suggests that the colonies are a loss to Great Britain.
             In following papers I will explore Smith’s comments on alternatives to keeping colonies (and the benefits possible) and the motives of politicians. I think you will find them interesting and provocative.

Government Statistics and Raising A Child – How Not to Read the Data

             We got the call we have been hoping for from our daughter the other day. She said, dad, we have a foster child. Our daughter and son-in-law have passed all the tests and done all the preparation to be foster parents. They have been looking forward to the opportunity with excitement and some concern. Our daughter could have said, dad we have a foster child, now what do we do? But they didn’t. It is a little interesting because they were expecting an older child and instead have an 18 month old. A little different than they were expecting but we are all pleased and so are they. I have been thinking about raising five children (really Margie raised five children and I tried to be helpful and not cause too many problems) and the attendant questions and thoughts I had when first starting out. We are now looking at being empty nesters in just a couple of years.

             So, how did we afford to raise five children? Well, it wasn’t by reading the USDA reports on the cost of raising a child, even back when we started the process. A CNNMoney article titled “Average Cost to Raise a Kid: $241,080” as quoted by Melanie Hicken, August 14, 2013 on money.cnn.com states “From day care to the monthly grocery bill, the cost of raising a child is climbing at a rate that many families can’t keep you with.” The article says that a U.S. Department of Agriculture report released Wednesday (August 14, 2013) says the cost of raising a child from birth to 18 is up 3% from 2011, not including college to as much as $441,100 ($24,505.56/yr). The average cost is $241,080 ($13,393/yr). If we assume each child cost that much (the article doesn’t differentiate between one and several children) then Margie and I would not have been able to afford 5 children during the early years we had all of them at home on my salary.

             The problem with this kind of data and other related and interesting ideas is discussed in a new book I recently picked up by Charles Wheelan titled Naked Statistics Stripping the Dread From the Data. I find his writing informative, entertaining and thought provoking. It sort of reminds me of a book from several years ago titled How to Lie with Statistics by Darrell Huff. The premise of Wheelan’s book is that we need to use statistics correctly and if we do we can gain some important insights into our daily lives and what is happening to us. On the other hand he suggests that there are some statistics that if used incorrectly lead us to very erroneous conclusions or can even kill us. The above article is one of those cases that can lead to some very poor choices. One of Wheelan’s chapters is titled The Importance of Data: “Garbage in, garbage out”, another chapter is titled, Deceptive Description: “He’s got a great personality!” and other true but grossly misleading statements. I think you can see where I am going with these chapters from Wheelan. We need to be particularly careful in just reading the news headlines or even the actual article because the information may very well not give us what we need.

             So, for example, in the above article the discussion didn’t include anything about economies of scale, meaning the 2^nd child doesn’t need all new cloths or need a new bedroom for himself. Both “facts” the government study didn’t seem to take into account. In our case Margie was good at making the money fit the needs. For the record, you don’t need to spend $13,000 / year / child (the average). One article I found more helpful (“Cost to raise a child can be much less than USDA estimate” by Sarah Gilbert, June 14, 2010) suggests costs may be as low as $2,500 / year / child (for 3 children in this article). I think the actual total for each of us may be somewhere in-between. Which also makes sense as all of us do things differently. Again, the above statistics can give us an average but that may not be very helpful. If you are familiar with the Phantom Tollbooth by Norman Juster, in one of his encounters the hero meets the fractional child from the average family. This is kind of like that, the average cost of raising a child is not likely to really give you much helpful or useful information.   

Mark Twain famously remarked that there are three kinds of lies: lies, damned lies, and statistics. I think we could also say something like that about data. There are three types of data: data, damned data, and statistics. That is important to remember whenever you are presented with the “facts”.