Today many people have lost belief, and rightly so. I am a hopeful person and i believe you can reasonably become what you want to. In a free market system if there is a demand for the career you yearn for, then by all means meet that demand with the supply of your labor.
In a free market that is how it works. I have however seen it fail for this reason.
Lets imagine a woman named Christy, she loves to collect CD's and share music with her friends. Christy out of her passion for music and CD's decides to open a music shop. She names it "Christy's CD Crib." Christy has no previous knowledge of how to run a business, but she has passion. Christy with the help of friends ans family opens her shop and after a year fails to break even. This is somewhat normal for a new business, it takes time to develop a customer base. Christy's after a year and a half decides she is loosing too much money and cant foot the bill anymore. So she has to fire the employees that are all her friends, and sell this place she has become so fond of.
Her critical mistake was this: the reason to go into business is to meet a demand with a supply. She did not do this, Christy in her passion open a business for herself. She was serving herself not a demand. This can only last while she foots the bill. She also needed to do some market research because sales of music albums from iTunes is off the charts. The convenience of downloading the music you want right now precedes driving to a brick and morter store to buy a CD, no matter how cool Christy is.
All this to get to a much greater issue, in a free market this scenario is possible. In a socialist, or communist market it is not. A few important things happened in this example. First Christy, no matter how ill researched had the choice left to her if she would like to open a business. The second is that she was allowed to fail, which is ridiculously important.
The basic law of economics is this "The allocation of scarce resources, that have alternative uses." The law implies that resources are limited, and they are. A resource can be land, labor, capital, and entrepreneurship. Three of those are self explanatory, capital is sometimes confusing to people. Yet it is just this: goods, or means to produce goods.
Now when Christy opened her "Christy's CD Crib" she was miss allocating scarce resources. (Resources include: her own entrepreneurship, the labor of her workers, the product itself, and the land/building her business was on/in.)
The free market operates best when all resources are being allocated correctly, to make a profit. If Christy was to decide her business was so important and it is a service that her town could not live without she could ask for a bailout. Here is why bailouts are completly the opposit to a free market. For one reason or another her CD business is failing, these resources should be allocated to something productive, not squandered. Yet her local government grants her bailout and she can continue to run her CD Crib. Now two problems immeadiatly immerge, first Christy is no longer the owner of Christy's CD Crib, her township is. Second she is no longer footing the bill for her failure, her neighbors are. So her business that she no longer owns is costing all her neighbors $10 a month. All the while tyeing up resources that could be put to better use elsewhere.
Without the ability to fail, the freedom to chose, and the freedom to privatly own, are lost.
When this happens on a large scale, say AIG the reprecussions on the economy are gigantic. Wonder how much of AIG's bill you are paying? The bailout of 150 Billion dollars can't be that much divided amoung all of America you say.
- Sept. 16: The government extends AIG a two-year loan of up to $85 billion, and gets a 79.9% stake in return.
- Oct. 8: Bailout loans increase to nearly $123 billion due to problems in AIG's securities-lending program.
- Nov. 9: The rescue package increases to $150 billion, including a new $40 billion federal investment.
I don't know about you but im pretty fond of $500. Let them fail (nothing personal), i don't want to waste my resources on their failed company. I also don't want to be forced to pay this $500, but that is the power of government, socialist government. A Government of a free market economy trusts the people with their own resources, it's called private ownership. Socialism is known as public ownership(or government ownership.) Note that for the $85 billion in september the government gained a 79.9% stake in return, also know as purchasing a controling share in the company (only a 51% stake is needed for control.)
When the government owns something that means we all own it, all pay for it. So as AIG continues to fail we continue to pay for it, more and more.
That $500 i now have to give to AIG can no longer go toward my education, there are many other productive things i can do with $500. I could invest it at 5% in a money market account and in a year have $525 instead of $-500. A difference of $1,025.
We have to chose between a business failing or a people recessing to a dyeing economy i always pick a business failing. Lift your head up high make the tough decisions, be a free market man or woman. Don't pay for the loss of your freedoms, don't voulentarly(faliure to act is voulentairy) let the government control you. They have a name for not being free it's called slavery, socialism leads to slavery.
I was tought the American Dream was to chose your life, decide a career, go from rags to riches.
I did'nt realise the tough truth of the day is slavery.
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The ramifications of GM and Chrysler going under are far different from the ramifications of a single outlet store such as Christy's. The bankruptcy of these firms WILL eventually affect you regardless of whom you work for. It is that deep. For example I work for a public school district (a socialist idea?). Due to the loss of tax income at the state level here in Michigan it is projected that my district will lose funding to the tune of $1,400.00 PER STUDENT in the school year starting 2010. There are about 2400 students. You can do that math. Custodians, cooks, teachers, aides and on and on will necessarily be let go. Those people in turn will be unable to purchase other goods in our area. Additional people will be unemployed. The spiral will continue on a ever deepening trend for a long time. All that to say nothing about the quality of education in the public sector as class sizes approach lecture hall numbers. Teacher merit raise increases will be non-existent and many bright teachers will begin seeking other more lucrative employment.
ReplyDeleteThat is not to say that I believe we the people should prop up the auto industry at status quo. I'm only saying that it is relatively easy to apply basic free market principles from a distance. When you are down to eating popcorn and peanut butter with a box of mac and cheese for variety, you may wonder if free market theory was worth the argument.
On the bright side, there will always be a need to move people from point a to point b. (The basic need fulfilled by the automobile manufacturers). So indeed there is opportunity for enterprise due to our current situation. But the time between now and whenever that/those business(es) become profitable and able to employ the incredible numbers of people that will soon be unemployed will demonstrate the mettle of our society. We Christians will be given tremendous opportunity to put our hands to work. (Those of us that have any income that is.)
If the auto industry et al. is willing to restructure it's business and the government bailout money is considered no more or less a business loan there may be relevance in lending enough money to support a solid plan. That would put people back to work, from factory workers to grocery store clerks, much more quickly that new startup businesses. (Yes. The failure of the auto industry will go that deep. Persons in small main street businesses, like our fictitious Christy's, will lose their jobs as unemployed factory workers stop purchasing goods. The domino factor will be stunning.) Although this approaches socialism on the face, federal bailouts don't necessarily need to be so. Indeed the term bailout is a misnomer, if a repayment schedule is demanded and met. This is the procedure Chrysler already enjoyed in the late 1970s. Those loans were repaid and Chrysler became a profitable company for many years as a result under the leadership of Lee Iococca.
I also make note that your math assumption is incorrect. Although there are appx 308 million U.S. citizens, only about 100 million actually pay taxes. I calculated my tax burden on the financial industry bailouts to be closer to 8,000 when all said and done!!! Your tax bracket burden my vary.
ReplyDeleteThat said, there is much about the federal plan that I disagree with. I believe a better opportunity existed by using a bottom up model. If I am to "prop up" the auto industry to the tune of 8K, why not give me a voucher to purchase a new vehicle worth that same 8K? Allow me to borrow some money at a very low interest rate from one of the "bailed-out" financial firms to finance the purchase. Combining those ideas with a more reasonable purchase price would move inventory, which is the real problem the auto industry is battling. No one is buying cars.
We, as a society, need to address a very real problem. The current bailout programs may not be the best way to address the problem. I don't believe that we're losing many freedoms as of yet. But it bears watching. You still vote with your dollars. You can vote for whichever auto manufacturer, insurance agency and finance company you like.
Most importantly, you can still live the American dream and go from rags to riches. The trick is maybe finding a new way to move people from point a to point b. There are a myriad of other unseen or undeveloped ideas, innovations, breakthroughs or novelties waiting to transform our society into the next phase of economic success.
I hear ya Martin. I though about the tax burdon like you explained, but i kept it simple because i did'nt know the numbers. I agree the auto bailouts are very complicated. Michigan is feeling them big time. I am familiar with Lee Iococca, he was very successful with chrysler. There are so many factors in the case of the auto industy, all the foreign entrants into the market for example. When companies get that large they tend to get sloppy around he edges, because they can afford it, but they cant anymore.
ReplyDeleteA main intention of the example is that we need to have the attitude of free market, and act accordingly, and not sacrifice freedoms.
I still believe that the free market forces shouldbe let alone to run their courses. Yes the effects of GM going under would be collosal, but that is only short run. We need to think long run. The market will rise and fall, that is healthy. Trying to manipulate it to stay somewhere in the middle is costly. The money being thrown around in DC lately is a bill Waren Buffet would not want to pay.
We need to think about what helps our economy in he long term and not just put bandaids on our current dips in the market.
Part of this problem is politicians effecting the market act for their own popularity and short term gains in the economy. But it needs to be viewed always looking ahead to the future. These bailouts help those companies now, but what if they keep failing and cant pay, then what we let them keep draining us. The debt that will be acquired today my generation will not even make a dent in, then our kids will be left with a burdon.
All this leaving out the insuing inflation of the bailouts.
It's hard to say where auto is going, and i hear you. At this point the companies are low, and we are talking about their employees as the main concern. My mom works for GM, so i know ailments. The loss of that income in the community and the state can hurt yes. But i don't want to be the one paying my mom's salary. I can hardly afford my life as it is.
The less things the governtment owns and runs the better our economy. Excluding natural monopolies of course.
Hey Archie, I saw your link on Facebook and read your posts with interest. I will definitely be stopping back again and again to read whatever is new. Your posts make great food for thought!
ReplyDeleteIn reading both this post and "Wealth is for the Wealthy," I'm not so sure that the American government is not looking to buy into failing industries like AIG (banks) and Chrysler (auto) as much as they are working to prop up the entire economy of the United States.
I feel that the failure of either of these industries could have completely devastated America's economy... well past what we are currently seeing and possibly far past what we could even imagine.
I don't think it's good that the American government is lending money to companies that made some very poor decisions. The auto industry clearly lost it's innovative edge years ago and AIG sounds like a bunch of scoundrels! But I do think it is required of the government to protect the American way of life by stabilizing the economy... especially from declines that could permanently impact our country's ability to rise again.
More food for though Arch,
ReplyDelete>Trying to manipulate it to stay somewhere in the middle is costly.
Q. Costly to whom? You seem to think that if the free market is allowed to run it's course you won't be affected. Is that really true? Are you really all that insulated?
A. We're all going to pay for this either way.
>we let them keep draining us.
Q. Who is the us? Apparently the 1/2 to 1.0 million people who may eventually be out of work isn't part of "us." Remember, when they no longer have an income, neither does the government. At this point, no one is living outside of the card house.
A. We're all going to pay for this either way.
>But i don't want to be the one paying my mom's salary. I can hardly afford my life as it is.
Hmmmm...
Q. So, if she loses her job, you won't have to directly chip in to help? Poor mom. Guess I'm glad I'm not her. Maybe that's a bit strong. But really, you may have to personally help bail her out if GM goes totally under. Assuming you still have your job.
A. I'm saying that you'll have no choice. The reality is that the problem *does* affect you either way.
Jesus told the rich man to sell all he had and give it to the poor. So... I guess when the neighbors on either side of you start stopping in to share your evening meal, you'll be doing the Master's work. Not *that* bad you say? I'm not so sure anymore.
The poorest people in America are still far richer than most of the world... I have guitars worth more than most of the people in the world earn in a lifetime! The saddest part in that statement is that the divide between the rich and poor continues to expand. Now to the point that we don't even notice the poor. If our government asks me to contribute an extra $8k over the next however many years, *and* it works, I guess I'd willingly give up that many riches! I have more than I need already.
As reply to Martin,
ReplyDeleteI know we will all be effected, losing those jobs will hurt. But we will move on, new things will rise up(call me an optimist.) In the long term the market will recover.
Let me clarify something, even when a government acts with the best intentions in a socialist manner, they are committing socialist acts. Very rarely are governments willing to recede power they have gained. -This is from F.A. Hayek's "Road to Serfdom."
Another reply to Martin,
ReplyDeleteAmericas poor are richer than most people in the world, check out this map.
http://en.wikipedia.org/wiki/File:GDP_nominal_per_capita_world_map_IMF_2008.png
The reason for the wealthy American poor, is the American wealthy. For the record i am huge on generosity, but it is a personal decision not a forced one (forced is stealing.)
The American economy has survived larger companies than GM failing before, check out A & P grocery chain. It had 15,000 stores.