Freedom & Responsibility

Viktor E. Frankl, an Austrian holocaust survivor, once said: "I recommend that the Statue of Liberty be supplemented by a Statue of Responsibility on the west coast." I've come to realize that with much freedom comes much responsibility. An environment in which one exists without equal parts of the other is not a wholesome environment, and is destined for failure.

Consider the stereotypical teenage rich girl whose parents lavish upon her every luxury. She has it all, wants for nothing, yet works for none of it. You know one of them, I'm sure (and maybe one of them was your sister growing up; not mine--because my sister reads this blog). They are generally wasteful, ungrateful and disrespectful. Responsibility doesn't enter into their vocabulary (remember Paris Hilton's DUI convinction--while driving her 3/4 million dollar Mercedes SLR McLaren--and subsequent citation for driving without a license?).

We see an excellent example of this in post-Katrina New Orleans. Thousands of homeowners who'd been unable to secure flood insurance on their property (with good reason; what insurance company would choose to insure a property situated on the coast, but below sea level?), were suddenly faces with demolished homes, and no means to rebuild. They chose to exercise their freedom--their right to own property--and purchased a home with no protection from what almost certain to be impending disaster. Yet, in steps the government, and absolves them of all responsibility. They've provided funding atop funding in the form of program after ineffective program to rebuild the homes of poor New Orleans homeowners. And what do we end up with? A bunch of rebuilt, un-insurable homes, in an area destined for disaster.

Innefficient by all accounts. Why? Because weve allowed freedom, but we've not required those with the freedom to take responsibility for how they exercise that freedom. We've allowed--in some cases even asked--the government to step in and be our insurance, often to protect us from our own stupidity. And in doing so, we have enabled further future stupid, and overwhelmingly irrational decisions--all of which detract from the overall value created in our economy.

Freedom without responsibility simply will not work.

Neither, though, will resposibility without freedom. Consider an environment in which you and are I forced to pay taxes, yet have no meaningful (and I mean meaningful) input into how those taxes are used. We bear the responsibility in that we pay, but we have no freedom (in that we have no say into the use of the funds).

Consider, then, the political climate today. It's widely acknowledged that we are in the midst of a severe economic decline. For all intents and purposes, we're in a recession. Some would indicate it has all the makings of a depression. We look around and see examples of individuals and businesses taking their personal freedoms to the extremes. Foreclosures due to borrowers buying beyond their means are rampant. Big businesses who lost sight of efficiency are in dire straights, and begging for help. Banks across the nation are broke--some literally going out of business.

Look across every front of this crisis, and a familiar face keeps popping up: personal freedoms used foolishly. In every case we can see someone who took advantage of their freedom without adequately weighing the cost in terms of their responsibilities. And when circumstances align, and the bottom drops out of so many different things at once, and responsibility rears it's ugly head calling for its due, what is our collective response?

In part, it's been an $800 billion bailout of big business and another nearly $800 billion in "economic stimulus" spending--including a great deal of money to help people who are losing their homes keep them.

And I read today that something like 60 percent of Americans favor this stimulus plan. It's proof positive that we Americans want all the freedom that comes with being American, but don't want to bear the responsibility that great freedom brings.

This, dear readers, is a dangerous place. The moment we ask to relinquish any measure of our great responsibility is the moment we are forced to hand over some of that precious freedom. It's appalling to me how short-sighted we Americans can be. Is our freedom really that valueless?

I, for one, am not content to relinquish any of my freedom. If that means that I'll have to bear the responsibility for each and every one of my decisions, so be it. Freedom is that precious, that important, and I'm ashamed that America is choosing time and again, the meager insurance that our pathetic government offers over the freedom that our forefathers envisioned as our birthright.

Yet we remain, as always, apathetic, sitting like the proverbial frog in the water as they ever so slowly turn up the heat.

It's time, I say, to leap. I leave you with this:

"...whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness."

-The United States Declaration of Independence

Economic Woes

The Federal Reserve Bank today cut it's target interest rate to near zero, a record low for this key indicator. Strategists indicate that it's likely that within the month the Fed will further lower the rates--likely all the way to zero--in order to spur lending in the various frozen credit markets, and might even start buying up long-term treasury securities (a bizarre method of pushing money into a frozen market when the interest rate can't be forced any lower; it's like saying, "we'll loan you money for free; no, wait! We'll PAY you to borrow our money").

In other related news, the stock market, today, showed signs of life again (after eons of bad news--and a net loss of about 1/3 its total value), and actually gained a few percent. Don't hold your breath though.

Home construction starts dropped even lower last quarter--to record lows--and showed no sign of stopping. Unemployment continues to rise; over 2 million jobs have been cut since the beginning of 2008, and there's no sign of a slowdown.

The government continues to pour money into the economy, hoping to inspire lenders to get back into the game (so to speak) after losing their shorts over the past few years.

The federal deficit is at an all time high.

30 year mortgage rates are back into reasonable levels--which is great for all 37 of us Americans who still have a home mortgage; does nothing for the vast numbers of folks who had hopes of buying a home or lost a home in the recent crisis.

In the city I live in, approximately 1 out of 30 homes is in foreclosure.

The State of California is within weeks of insolvency, and borrowing is out of the question; their credit rating has junk status.

And Mervyn's is going out of business.

Which begs the question: how is the government going to survive? Based on the facts above, tax revenues should be down by approximately 387% this year (those are my rough calculations, and are based solely on the quantity of bad economic news being spouted in the media).

Blogojevich has the right idea: boot all the politicians out, and sell their seats to the highest bidder. Pour that cash into the government coffers, and we could probably get rid of the budget deficit and eliminate the national debt in about 2.7 years.

And the folks who buy the seats can't be any less principled than the folks that are there now.

It's a win-win situation, if you ask me.

But nobody ever does.

Invisible Hands & Free Markets

How is value created? The answer is rooted deep in human nature. Austrian economist Ludwig von Mises wrote in his “Human Action: A Treatise on Economics” that there is, inherent, in mankind a drive toward happiness (loosely defined as “having succeeded in attaining his ends”). Given that drive toward the highest degree of happiness, mankind is constantly looking for an attainable alternative to their current condition. That is, they’re looking to trade their current reality for some reasonably attainable BETTER reality—one which will, ultimately, make them happier.

This principle really begins to uncover the answer to the question “how is value created”. At the most fundamental level, value is created through trade.

Some time back, I decided to sell my car. I don’t recall what I had it listed for, but I had a number of offers. One guy offered me $12,000; I turned him down. Why? Because the car was more valuable than $12,000 to me; conversely, the car was LESS valuable than my asking price to him. I ultimately did sell it though-for $14,000 I think. Why? What caused the transaction to take place?

One would assume that he felt the car was worth $14,000, and that I did also, but that would be inaccurate. The truth is, he felt the car was worth MORE than the $14,000 he gave for it; on the other hand, I felt it was worth LESS than $14,000. If this weren’t the case, the trade wouldn’t have happened. Because rational beings only make an exchange when what they are getting is, to them, MORE VALUABLE than what they are giving. He received MORE value from the car than he was receiving from the $14,000 he had in his pocket; I received more value from the $14,000 than I was receiving from the car (you’d agree, by the way, if you’d owned that car).

So then, by virtue of an exchange between rational human beings, additional value was created. Further, the assets in play within that economy (namely the $14,000 and the car) were, through the trade, put to their highest and best use. So value was created not only for the individuals involved in the transaction, but also for the overall economy.

This is the “invisible hand” that Adam Smith, the eighteenth century Scottish philosopher and economist, wrote of. He said, in an oft-quoted passage from his noted work, “The Wealth of Nations”:

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

He postulates that by pursuing our own individual best interests, in a free-market, we will naturally, through trade, arrive at an exchange that will maximize the value attained by all participants. By maximizing our own personal happiness, we, without trying, maximize the overall good to society. That's the invisible hand that brings us to the overall maximum value within an economy, WITHOUT excessive regulatory intervention by a government.

Imagine, then, that in my example, there’d been some regulation that said that used cars of that make and model, for that year, could only be sold for $12,000. Suddenly, the situation changes. Assuming I wish to sell the car, I’m forced to sell it for LESS than I think it’s worth, and the guy that buys it walks away singing. I’m ROBBED of value, and the buyer gets an “obscene” deal on the car.

The idea of a regulation limiting the transfer price a used car is, of course, absurd (or maybe it’s not)—needless to say, it’s not reality. But governments do regularly intervene, and regulate trade (through various means, including tariffs, taxes, monopoly laws, minimum wage and price caps). What is the net affect of an “independent” authority involving itself in trade within an economy?

Consider this: imagine that, in my car sale example, the gentleman who wished to have my vehicle had cash at his disposal, as well as, say, a 9mm Glock pistol (loaded). Further, assume that there was no government authority that imposed a threat of punishment on those who used force, or the threat of force, to take other’s property against their free will. Assuming, again, that individuals are always looking to achieve the highest level of personal happiness (or, to have as much “stuff” in this example), what is the buyer likely to do? He’s as likely to use the gun and take the car for free as he is to pay me the $14,000 that I really require in order to willingly let it go. So in the absence of ANY regulation, we run the risk of allowing “weaker” parties in a transaction to be robbed of any and all value, potentially resulting in a net loss of value to the economy as a whole.

So there exists a need for, at the minimum, a set of societal norms—rules of engagement that provide general boundaries for our actions. Governmental regulation is generally effective at establishing and enforcing these boundaries.

Imagine though that you own a small business. You have a need for a single laborer to perform menial tasks, all manual labor. You place a "Help Wanted" ad in the front window, and in walks a 16 year-old young man.

"I'm looking for work," he says, "and I saw your sign. I'd like the job."

"Certainly," you say. "It's yours if we can make a deal happen. How much would you like to make?"

"Umm...I don't know; how about $5.00 per hour?"

"Perfect! That's exactly what I can afford," you say. "When can you start?"

"Tomorrow," the teen says, as he reaches out to shake your hand.

You shake his hand. As you turn to walk back to your desk, your gaze travels past the State Minimum Wage poster posted on the office bulletin board. Minimum Wage, it says, is now $8.00.

You stop short, and gaze at the poster. The teen is clueless.

"I'm sorry," you say, as you turn back to him, pained expression on his face. "I can't hire you; I can only afford $5.00/hour, and you'll work for that, but the state won't allow you to work for less than $8.00"

He walks away downcast; you scale back business. Neither of you win. You were both WILLING to make the trade, but due to regulatory restrictions, you weren't allowed, and so the net value created was LESS than it would have been were the trade allowed to happen, and not regulated away.

The greater the level of freedom in the marketplace (the lack of regulation), the greater the potential net value created across the marketplace. But there's one additional factor that contributes to overall net value. Choices. A vital element that exists in a true free market is the presence of choices, or options. A seller has multiple potential buyers; a buyer has multiple potential sellers to choose from, and even multiple potential alternative products.

Happiness is truly maximized when one feels as though they've made an equitable trade after evaluating all the options in the market. This is an earmark of a free market, and enable the "invisible hand" to operate most effectively.

The most prosperous economies are those that operate pursuant to the principles of a free-market, and encourage the pursuit of personal prosperity. This environment is most conducive to allowing the "invisible hand" to unwittingly build that individual and collective value across the economy. This is the environment that we must strive to cultivate, both in our national economy, and in our individual business economies. In doing so, we create value.

It is our purpose, to create value. The alternative is to diminish value. The application of human effort and energy enables the creation of value. Diminishing value, then, is tantamount to wasting--or taking--human life.

A prosperous Free Market: it is our purpose; it's our obligation.

Learn & Earn

The AP reported today what may turn out to be very good news for high school students looking for work. Locally, jobs are hard to come by if you happen to be a teenager; Katrina, a close friend of our family has been looking diligently for work for the past few months, to no avail. But if the new "Learn & Earn" program being promoted by former House Speaker, Newt Gingrich (a Republican, I'm embarrassed to say), in Georgia works, perhaps she'll secure an ongoing income.

As long as she's not doing too well in school.

There's only one qualification for participating in the program: you must be underperforming in math and science.

You heard right: underperforming. As in, a C or D, or perhaps even an F. If you can demonstrate that you're doing poorly in those subjects, you qualify for participation in a program where you're paid $8 per hour to study, and assuming you increase your grade in those subjects to a B, you'll get another $115 as a bonus.

This in a state where the minimum wage is a repressed $5.85 per hour, and the average hourly income is approximately $11 per hour.

The program is aimed at boosting students' motivation to learn and attend classes. Jackie Cushman, Gingrich's daughter, and his partner in the pilot project, said, "We want to try something new. We're trying to figure out what works. Is it the answer? No. Is it a possible idea that might work? Yes."

It won't be long before a new Student's Labor Union is formed, and annual collective bargaining agreements are reached, contracting for new, higher pay rates for underperforming students.

Absurd, I know, but no more absurd that paying students--no, BRIBING students--to pay attention and to get good grades. Isn't it enough that we provide a free education for all children, through high school? Most kids even receive a free lunch, at least through elementary school. Now we're bribing them into taking advantage of the opportunities that we've extended, but they're too narrow-minded (or perhaps foolish) to take full advantage of.

Meanwhile, poor Katrina sits here in Kerman, hoping for a call back from the new Carl's Jr that'll be opening in a few weeks. Because she's out of luck; she doesn't qualify for the "Learn & Earn" program because she's actually doing well in school. She attends class, works hard, and is passing her courses.

It's not too late, though. Perhaps she can fail a few courses. $8 an hour isn't bad money!

(Here's a plug for Katrina: she's a brilliant, hard-working young lady. Email me if you have local work for her; I'll pass it along. I guarantee you, you'll be far happier than you'll be with any single graduate of the "Learn & Earn" program!)

To Think: We Used to Want to Fill Our Gas Tanks With Water!

PepsiCo recently released a statement that, due to increasing pressure from the environmental and political communities, they will begin including the words "Public Water Source" on their bottled water labels. For those of you who don't grasp the significance (don't feel bad: without the explanation, It's sufficiently obscure that, if I didn't know the entire story, I likely wouldn't catch the point either), it means that the water in the bottle is plain old tap water.

That's right-tap water.

Now they do something to it I guess. I don't entirely understand the process, but it's tantamount to putting a charcoal filter on the hose bibb in the front yard, then filling up plastic bottles with the water, and selling it-for $1.29 per bottle!

I did some rough calculating, and, at $1.29/20 oz. bottle, the retail price for that bottled water is $8.25/gallon. I filled up my car this afternoon with premium (high-octane) gasoline, and paid exactly $3.05/gallon-and it pained me.

I find it fascinating that the American public is so fixated on rising fuel prices as a socio-political issue. I'd guess that in the last week, I've heard or read about escalating fuel prices at least six times. And, I challenge you: bring up "big oil" in a conversation with a large group of people, and see if there isn't at least one or two people who don't start ranting about corporate thievery, and government being in the pocket of the oil companies. And you know what? I don't relish the thought of paying $3.05/gallon for gas. I drive quite a bit, and I have to admit: it hits the old pocketbook. But I do think that we, as a society, have lost perspective. Because, think about it: how much must it cost to deliver that single gallon of premuim gasoline to me? I'm definitely no expert, but consider for a moment: the fixed costs associated with drilling wells, installing pumping equipment, and storage tanks. Then the costs of filling barrels with crude oil, loading it on tankers bound for the United States (from some middle-eastern country, I presume), and then shipping it here. Then finally off-loading it, refining it, putting it into a tanker truck, trucking it here to Kerman, and filling the tank here at my local gas station. And, let's not forget the cost of running the equipment to pump the fuel from the tank to my car, the fixed costs associated with running the gas station, and the variable costs (like the ignorant guy with the ring in his nose who acts like I'm bothering him if I run in to ask for a receipt, because the little screen on the pump says "Paper out. See cashier"). Oh, and don't forget the .36 cents per gallon the goes to our county, state and federal government.

And that doesn't even include profit!

Not knowing the exact costs of each of these, I can't say for sure, but my guess is that there's very little left for Mr. Exxon, or Mr. Valero. The long and short of it is, while it's painful, and seems excessive, the price tag doesn't seem so exorbitant that the only conclusion that we can draw is that the oil companies are robbing us blind. My guess is that they're making a reasonable margin, all things considered.

Let's contrast this with Aquafina. Put charcoal filter on hose bibb, buy a bunch of plastic bottles with Aquafina labels, fill up bottles, put cap on, load them up into a truck, and haul to Fastrip in Kerman. Ok, I'm oversimplifying the process, I know. It's more complex than that, I admit. But it's still just water! Which costs virtually nothing!

But, that's not really the point of this post. There's an economic theory that is foundational at the company I work for. It's based on the idea that we are entrusted with certain economic resources, to do with as we see fit. Those economic resources are the product of human effort (that is, the mental and physical energies that we exert as human beings generate those economic resources). Thus, the imprudent (or innefficient) use of economic resources is tantamount to the wasting-or taking-of human life. Which leads me to my point: when I realize that I pay $8.25/gallon for bottled water, which does absolutely nothing (but slate my thirst), yet I pay only $3.05/gallon for fuel-which in turn allows me to travel (thereby, conceptually at least, enabling me to work, and generate further economic resources), it becomes apparent to me that, in purchasing bottled water, I am being exceptionally wasteful, which is tantamount to murder (that is, I'm simply throwing away the "energy" that was used to generate those funds that I've used to purchase the water). Think about it for a moment: water provides no energy, no nutrients, and really, very little enjoyment. There is really no substantive benefit, economic or otherwise associated with drinking water (filtered or non-filtered). And, in fact, I recall a story recently where a woman, participating in some radio station contest (trying to win a gaming console), died after drinking three gallons of water. So, not only does water not provide any benefit, it can kill you!

That's an extreme example, to be sure, but you get my point! Gasoline, comparitively (despite our protestations regarding the price of the stuff), is a bargain! Think about it: for just over a third the price of bottled water (which does nothing), you get the ability to travel (along with as many folks as you can fit in your vehicle), somewhere between 17-34 miles!

Which brings me around to my real point: I'm not going to boycott or rant against the bottled water industry. They're just filling a desire or need in the market. That's the market economy at work. But I WILL chastise you, intelligent readers, for wasting economic resources (and, in turn, human life) by purchasing bottled water!

You're better off buying Diet Pepsi.

Hugo Chavez-Unlikely Champion

Erick Erickson, city-councilman elect for the city of Macon Georgia (where some of my favorite people live), posted today, on his blog, Confessions of a Political Junkie, a YouTube clip of him being interviewed on the Brit Hume show. I urge each of you to go watch the clip.

It seems that the mayor of his fair city has taken a public stance in support for Hugo Chavez, president of Venezuela. You'll note that Hugo Chavez is a self-proclaimed "hater" of America, the American President, and all things American. The mayor, C. Jack Ellis, has apparently sent a letter to Mr. Chavez-a letter of solidarity, pledging his backing a support of the dictator. Mr. Ellis praised Chavez for "reaching out" and subsidizing the cost of heating fuel for some low-income American residents, calling Chavez a, "champion for the common man."

This Chavez, who has vocally pledged support to Iran and Cuba (communist regimes, and in some cases, posing a serious threat to America and it's citizens), and who has publicly called President Bush "the devil,"-this Chavez, according to Ellis, is a "champion for the common man."

Where's the public outcry here? I'm appalled, frankly. Politics aside, regardless your political affiliation, if you have any love for America, and what it stands for, this simply has to floor you! It's unspeakable!

Because this "champion for the common man" has not only publicly trashed America, and all we, as Americans stand for, he has maintained a dictatorial regime of corruption that has broken the proverbial backs of the Venezuelan people. Chavez has taken all powers of state into his own hands, eliminated virtually all oversight, and what remains amounts to no more than a farce. Transparency International, an independent group based in Berlin, in their annual Corruption Perceptions Index, ranked Chavez led Venezuela 130th out of 150 countries surveyed, in terms of political corruption. Chavez, in the last few years, has appointed two brothers, a cousin, his father and two other close relatives to lucrative political posts, tightening his grip of power in key political and economic arenas.

And the effects of his blatant disregard for humanity, and corrupt leadership, are evident. Since Chavez took office, murder rates in Venezuela have tripled. Police have been implicated in many of the more gruesome and violent crimes. The United Nations (who have little use, but occasionally publish interesting and accurate statistics) reported that, in 2005, Venezuela had the highest number of deaths by gunfire, per capita, of any nation in the World. The Heritage Foundation ranked Venezuela 152 out of 157 nations ranked on their annual ranking of economic freedom. They are, for all intents and purposes, economically repressed. The Venezuelan National Statistics Institute released data in 2005 showing that, as of that year, poverty had actually increased by 10% since Chavez had taken power-to a whopping 53% of the population!

In short, this man is no champion of the common man. He's a calculating, conniving political vulture, who cares for nothing other than fulfilling his personal ambitions. The most distressing thing, I think, is that the citizens of Macon were so blinded by Ellis' personlity or charisma, that they failed to see whatever skewed political bent existed there that has allowed him to speak out in this way! It's a travesty, and I urge you to visit Erickson's site, comment on his blog expressing your support for him, and for his stance, asking him to express to his mayor-and to the people of Macon, that Mr. Ellis DOES NOT speak for America!