Who protects the consumer?

on Sunday, July 31, 2011

There is also a free-rider problem in the negative sense on government provision of information, because people who have no use for that information are required to pay for it. -Milton Friedman 1980

Banking: A picture book

on Saturday, July 30, 2011

The worker pans for gold, and the banker's building is empty. The banker holds no gold and no assets other than his building:
The worker wants money, so he gives the raw gold to the banker:

Who takes the raw gold:

Turns it into gold coins:

And returns the coins to the worker:

This is the process of making "commodity money." Now the banker has an empty vault again:

What happens if the worker wants paper money? He gives the gold coins back to the banker:

Who accepts them:

And holds them in his vault:
He prints up some new paper money:
And gives the notes to the worker:
He agrees to exchange the gold for the paper at any time, and the worker uses the money instead of carrying all of those heavy coins around:

What happens if the worker owns a car, free and clear, and wants to turn it into paper money, just like raw gold? The basic process is the same, except that the car is not first converted into small pieces. The worker gives the banker his car and its title:

The banker accepts ownership of the car, just like he previously accepted raw gold. Instead of weighing gold, he judges the car's value, and prints more paper money:

Now the worker has converted his car into paper money that the bank created from "thin air." The money can always be converted to gold at the bank at a fixed rate, but the banker no longer holds enough gold to redeem all the paper money; some of his assets are no longer gold. By accepting a car in exchange for paper money, the banker is engaging in "fractional reserve banking," because only a portion (fraction) of his reserves (his assets) are gold. To redeem all of the paper money, he would have to sell the car for gold. 

What happens if the worker wants to continue driving the car?

The banker loans the car to the worker. The bank now owns the car, and charges interest on the loan:

The banker also requires that the worker pay down the loan to zero over the next few years, using the paper money:

After a few years of payments, the worker has paid off the loan, and all of the notes he received in exchange for the car have been returned to the bank (plus interest):

The banker destroys the notes as they are repaid:

And returns the title to the worker:

And everything is back where it started:

Today, the process is the same, except that the paper money can no longer be exchanged for gold. It can only be exchanged for the car, by paying off the loan, but the basic process is the same as before. Today bankers convert cars and homes into paper money, instead of converting gold or silver to paper currency.

Previously, the banker agreed to redeem any note in gold or silver. Today, he'll only redeem the notes according to the bank-loan contract. Previously, anyone could redeem the notes, but today, only people with loan contracts can redeem them. If the Fed goes completely crazy tomorrow, and rampant inflation makes the notes worthless, anyone who has a car loan or a home loan can still use the worthless notes to take ownership of their home or car.

Anyone holding more outstanding bank-loan debt than they hold in cash is somewhat protected from inflation. If you have a $1 million home-loan and dollars are suddenly worthless tomorrow, you can exchange a wheelbarrow filled with worthless dollars for a $1 million home. Inflation works in your favor if you hold loan agreements denominated in dollars.

NOTE: A bank doesn't loan out notes it holds in checking accounts. Each bank loan generates new money from thin air. The bank may invest the gold or car (its assets) in very safe investments, but new loans always create new money. New dollars are exchanged for real assets. Checking accounts are not bank equity; they are not owned by the bank. The bank is providing a holding service, like a bank that accepts gold coins and agrees to guard them for a fee.

NOTE 2: Astute readers (or those who have seen the Zeitgeist movie too many times) may wonder how, absent the gold standard, workers can pay back more dollars than they originally accept. How can there be enough dollars in the world to pay the interest on the loan? The answer is that the banker prints up some "fake" notes and spends them. His goal is to print up just enough notes so that the the man can repay his loan. Today this process is known as "Quantitative Easing." The Fed literally prints money from thin air and spends it, usually purchasing government bonds with the "fake" new money. Banks are  compensated for their work in this way. The interest on bank loans is an investment activity not unique to banking -- anyone can loan their assets at interest. Bankers are specifically compensated for the service of turning assets into paper money when they print and spend "fake" dollars -- dollars that are not exchanged for real assets, but are simply printed and spent.

NOTE 3: Printing "fake" dollars does not create inflation, per se, because the new money that bankers create through the loan process is worth more than the original asset. Ask yourself, would you rather be paid $10,000 in cash, or paid with a car that recently sold for $10,000? The reason you would choose the currency is because of its liquidity. It is easy to spend the money, and easy to buy bread and milk with it, and everyone will accept it. A car is much harder to exchange, even though it is "worth" the same amount. The money's liquidity makes it worth more than the car, and the banker's fake notes offset this by increasing the supply of currency.

Middle-Class Stagnation Case-Study: Housing Prices


As you can see from the charts above, the price of an average home in 1978 was about the same as today, but the size of the average home has gone from 1,700  to 2,500 square feet. That means that the average middle-class home is today about 41% bigger, will last longer and require less money to maintain, and is exactly the same price as it was 30 years ago. The middle class is doing 41% better if we only consider the size.  If the quality of materials (roofing rated to last 50 years, plastic siding that requires no paint, high efficiency central air) and much lower maintenance are considered, the middle class is doing very well indeed compared to 1978.

A little girl on a plane


A congressman was seated in first class next to a little girl on an airplane.   He turned to her and said, "Do you want to talk?   Flights go quicker if you strike up a conversation with your fellow passenger."

The little girl, who had just started to read her book, replied to the total stranger, "What would you want to talk about?"
"Oh, I don't know," said the congressman. "How about global warming, universal health care or stimulus packages?" as he smiled smugly.

"OK," she said. "Those could be interesting topics but let me ask you a question first.   A horse, a cow and a deer all eat the same stuff - grass.  Yet a deer excretes little pellets, while a cow turns out a flat patty but a horse produces clumps.  Why do you suppose that is?"

The legislator, visibly surprised by the little girl's intelligence, thinks about it and says, "Hmmm, I have no idea."

To which the little girl replies, "Do you really feel qualified to discuss global warming, universal health care or the economy when you don't know crap?"

Then she went back to reading her book.


What is wealth and where does it come from?

on Tuesday, July 26, 2011

Wealth is not dependent upon natural resources, is not limited, and is created from thin air. Wealth is the reorganization of our world to suit our liking, and is not the destruction or use of natural resources, it is only temporary change.

For example, in a simple island-economy, imagine a man creates wealth by harvesting salt from seawater. He pulls large amounts of water from the ocean each day, and allows it to evaporate, leaving sea salt behind. The salt is new wealth that he has created and stored. If he eats all of the salt with his food, and urinates into the ocean, eventually the salt will be in back in its original form, dispersed in the water.

In this way we see that by creating wealth (the dry salt), the man has not destroyed anything in nature. He has only changed it to suit his needs. The dry salt is more valuable to him (and other humans) than raw seawater. The salt can be used to flavor and preserve food, and will eventually return to the sea. When it sits in his hut in dry form, it is wealth -- something he values a lot more than seawater. As he uses the salt, he "spends" the wealth he has created. Nothing is destroyed.

If the man plants a tomato seed, and it grows to bear fruit, the tomatoes are new wealth. The material for the plants is generated by sunlight and air; less than 1% of the plant material came from the ground. And when the man eats the tomatoes, the waste products from his body will find their way back into the soil once again. This is the entire nature of wealth. It does not depend on the destruction of anything -- only change. Was the seawater destroyed when it was pulled from the sea, and the salt harvested from it? Was the air destroyed when the tomato plant grew? A plant grows by using the sun's energy to break the air into its component pieces. The plant breaks the bonds in the carbon dioxide molecule,  harvests the carbon atom from the CO2 (leaving pure oxygen as a waste product), and uses it as the raw material for 99% of its body, shaping the carbon into leaves and fruit and flowers. A tiny fraction of the plant material comes from the ground, and it is returned to the earth after the tomato is eaten.

Wealth creation is a circle of creation and destruction. Creating wealth is organizing our surroundings to suit human needs, and destroying wealth is the destruction of that organization. Air, dirt, and a seed are worth far less than a tomato plant to human beings. We cannot eat dirt or air. A tomato sustains our bodies, and keeps us alive and healthy. Transforming air and dirt into valuable tomatoes is a process of wealth creation. Even if all minerals were removed from the topsoil, we have the ability to grow tomatoes indoors using no soil at all. We know exactly what they need, and it is mostly light and carbon dioxide.

All wealth creation happens in this way. Nothing is destroyed. If I write a book on my computer, I have not destroyed anything at all. I have only rearranged the atoms in the computer's memory. Nothing left the computer and nothing entered it except human effort. No raw materials were consumed, only changed, and millions of books are created and sold each year -- all of those new books are just arrangements of materials that we like more than the previous arrangement. A computer with a book stored in its memory is more valuable to us than one without.

If I go into a forest and build a home from the trees, I have created wealth. The organization of the trees and rocks is more valuable to a human without a home. Nothing is destroyed. When the man leaves the house it will eventually rot and crumble back into the earth, and trees will grow again where they once stood. Wealth is temporary, and none of it lasts forever. A house built from bricks and rocks will last a long time, but without constant upkeep, it will eventually return to the earth, just as any other wealth on earth. Each year, when a man paints his house, he is creating wealth.

When oil is pulled from the ground and burned, eventually the carbon dioxide entering the atmosphere is consumed by plants, which are in turn consumed by animals, and when they die they will eventually turn back into oil. It is all temporary, and it is all a circle.

It is fundamentally important to understand that wealth is based not on the consumption of resources, but upon the changing of the world around us. Wealth creation does not destroy. It changes. As we create more and more wealth, and become richer and richer, it is because we are becoming better and better at changing the world around us to maker our lives better. To make things that we enjoy more than what was there before we changed it.

Middle-Class Stagnation Case-Study: The Honda Civic


Behold, the 1978 Honda Civic four-door:

This car had 60 horsepower and could go from 0-60 mph in 14.3 seconds flat! It had no air conditioning, no power anything, no CD player (or tape deck), a manual four-speed transmission, and was rated to get 23mpg in the city and 30mpg on the highway. It had no catalytic converter. It weighed 1,500 lbs and it didn't have airbags. The NHTSA gave it a one star crash test rating, and they tended to rust dangerously within the first three years. No anti-lock brakes. The average worker in 1978 earned $5.40 per hour, and the base price for this car was $4,189. It would take the average person about 776 hours, about five months of full-time work, to earn one of these bad boys. And they were selling like hotcakes because they burned the least fuel of any car on the market.

Let's fast-forward to the modern version of the Honda Civic, and see just how stagnant the American middle class has become:

Power windows, remote entry with power locks, anti-lock brakes (ABS), six airbags and a five star crash test rating. Accelerates to 60 mph in 7.3 seconds with its 140 horsepower engine. Five speed transmission. CD player. Tire pressure monitors. Weighs 2600 lbs and gets 26/34mpg. This car is much safer, burns less fuel, pollutes much less, is about twice as fast, won't rust and its major parts are guaranteed for 60,000 miles. Today the average worker can purchase this car with 670 hours of labor, and its life expectancy is probably about double that of the first generation version with less maintenance and less repairs. A car that is much better all-around take less over 100 hours less labor to earn for the average modern American worker. In terms of automobiles, it seems that the middle class is doing much better than it was in 1978.

Freedom is an Irrational Fantasy

on Sunday, July 24, 2011

Thomas Sowell, Milton Friedman and most other libertarians argue that the cost of Military defense must be socialized; it must be paid by tax revenue and provided by government because everyone benefits equally from its protection, and some cannot be charged for service without accidentally protecting everyone else. This line of reasoning is illogical for two reasons. One is that the same argument can be made for nationalizing many currently private businesses, and the other is that government is synonymous with military. Primitive governments begin as a group of rulers and an army, and many exist in their primitive state even today. Most African nations are armies that have taken land by conquest and declared themselves to be the government, and most developed nations began in the same way. Government is to a nation what a king is to a kingdom. Each rules with lethal force, and what we now call taxes were once called "tribute."

I don't think that military defense must be socialized any more than fire insurance on your house must be socialized. It could be argued that by insuring my house and paying the fire department to stop a fire in my own house, they would also put out a fire in yours, in order to stop your fire from hurting my house. I don't see any problem with that, and I don't think that accidental benefits of any action makes it necessary to socialize that action.

The same argument could be made regarding myriad businesses. Must healthcare be socialized because when I pay for antibiotics to cure an infection, I'm accidentally protecting my neighbors from the same infection? Shouldn't vaccinations be socialized for the same reason? If enough people are immune, the rest of the society doesn't have to pay to be vaccinated, because the disease no longer poses a threat.

If I keep my house in good order and make it prettier, and accidentally raise property values in the area, shouldn't home-restoration be socialized? After all, I can't make my house more attractive without helping my neighbors raise their property values too. In the same way, one cannot provide military protection for himself without accidentally providing protection for those around him, so I don't think that the "accidental benefit" argument for the socialization of military is any more valid than arguing that government must paint our houses.

Almost everything that we do to help ourselves ends up accidentally helping other people near us. It's the entire basis of individualism, objectivism, libertarianism, and free-market thought; that one cannot become wealthy without helping other people live a better life (without stealing or using force).

Ideally, if we are to imagine the most ideal situation for mankind and its organization, we would have no military at all, and the world would live in peace. But that isn't how human beings work. A certain percentage of human beings love to build armies and try to take over the world by force, and because of that we must have weapons to defend against those men and their armies.

If we were suddenly thrown into a world without government, we would quickly return to a world with powerful governments and powerful armies. In the ideal anarchist’s world with privatized everything, religious leaders would peacefully accumulate followers and weaponry until they became strong enough, and had a large enough army to steal from and enslave their neighbors. And this is what has happened over and over again, even in the recent past, and is ongoing in most of the world. 

The United States itself has within the last 200 years gone to war with multiple nations, including Mexico and Canada, and in each case was raiding a neighbor in an attempt to take over more land. The state of Texas was previously owned by Mexico. When it became a US territory in the mid-nineteenth century it was filled with native Mexicans. The United States itself is conquered land. The United States was at war with all Native American Nations and their primitive armies for hundreds of years, and the reservations we have today, scattered all across the country resemble prison camps more than anything else. The government controls every aspect of residents‘ lives, and they live in abject poverty. The Native American Nations simply lost the war, and their people were literally exterminated, with huge bounties paid by the US government for Native scalps ($5,000 per scalp or more). Millions of natives were killed in the war, and that war was no different than most other wars in the history of mankind. In each case a group of men with weapons attacks others and takes their land and anything of value they may have, and kills or enslaves them when they win.

The primitive tribes still in the world today are still doing this with spears and rocks, and even chimpanzees do it. Male raiding parties attack other groups of chimps in order to control their land. Victory means killing the men, taking the women as mates, and killing (and sometimes eating) the babies.

 Christianity was used to control huge armies that took over South America, killing millions of people and taking everything of value from them. I have little doubt that in a world without government, religion would easily be used to build armies and governments all over again, and anyone who wished to avoid having his wealth confiscated by the newly formed marauding armies would need a powerful army of his own, and any army powerful enough to defend you is powerful enough to enslave you.

I don’t see any way in which human beings can live in large groups without being enslaved to one army or another. Anyone trying to live outside the protection and enslavement of an army/government, even today, will eventually be forcefully enslaved or have his assets stolen by one of the existing powers. Libertarians have more than one occasion attempted to set up an ideal society on an island or boat, and as soon as they become rich enough are invariably invaded, taxed (enslaved), and controlled by the nearest government. 

In my view, the correct reason, and the only reason that we must have a socialized military is simply because none of us are free and it’s impossible to live without armies. The world we live in today is just a bunch of very powerful nations who have reached a cease-fire with each other. We are all slaves to one government or another, and that will be the way of the world until human beings stop trying to enslave one another and steal from each other. I think that day may not ever come, and the best we can do today is realize that if we must be a slave to an army and its leaders, we can at least convince our overlords that staying out of the private business affairs of their subjects is the best way to make everyone better off.

Imagining a society in which all men are free is an irrational fantasy. In order to avoid conquest by a neighboring army, we must have an army of our own, and again; if that army is so strong that it can defend us, it is also so strong that it owns us. We should strive not for absolute freedom, but to be enslaved by a benevolent and wise king who understands that meddling in the market is harmful to both him and his people.

Intellectual Property

on Monday, July 11, 2011

A friend sent me an article on intellectual property rights written by Ayn Rand. I have a few questions for her:

1. If copyrights and patents protect real property, why do those protections expire? If I buy a house, why does my ownership last forever, but my ownership of an idea does not?

2. If a machine were invented tomorrow that could replicate anything on earth, would it be best to use government force to stop people from replicating things in their homes, forcing them to pay royalties each time a golf ball or dining-room chair is replicated?

3. In practice, copyrights and patents are very expensive to obtain and very expensive to defend; too expensive for a normal person to enjoy their protections. Why should all taxpayers bear the cost of maintaining the courts of law, and pay the salaries of the judges in these courts, for a service they will never use, and which makes many of the things they purchase more expensive?

4. Why aren't we patenting recipes? If I throw tomatoes, onions, and basil together and call it "marinara," should I not receive royalty payments from all those people who wish to do so in the future? Should not all the taxpayers in the United States be forced to pay for police to inspect supermarket shelves, making sure that Newman or Kraft foods has not offered for sale a red sauce that infringes on my intellectual property?

In my opinion, intellectual property laws make things more expensive and slow innovation (patented designs can't be improved upon without permission) for the majority of people, and benefit companies that can afford to defend their patents.

If something can be copied for free, without harming anyone, I think it is silly to call that theft. If I invent a bow and arrow in my cave, should it be illegal for you to copy me? What if you have an idea for a system of pulleys that will vastly improve the design of the bow, making it ten times stronger, but I won't give you permission to improve upon my original design?

Real wealth is not primarily contained in ideas. It is primarily in making and transporting to market useful things that people want; things that improve our lives.

The cost of patents and their enforcement should not be paid by innocent citizens. The costs should be paid by the inventors themselves. If Edison invented the lightbulb without IP laws, he could simply take his design to various manufacturers, and make an agreement to manufacture 100 million of them before releasing them to the public. They would be released suddenly, and the inventor's advantage would be in moving millions of the new bulbs to market before anyone else has a chance to copy them. Inventors would still be able to make a lot of money without IP laws.

Authors, instead of releasing a book all at one time, could provide one chapter at a time by subscription, and charge people a monthly fee to receive future chapters of the book. Today, people are willing to pay a lot to have first access to HBO and Showtime programming, even though it would be free to have a friend record the show and watch it the next day. The same would be true of books.

IP laws are a great example of something that looks good on paper, but in reality benefits the wealthy at the expense of the poor. The existing laws keep music distribution companies and publishers rolling in money and we have to pay for the courts that hear their cases. The people actually writing the books or making the music get a small portion of the income generated. In a world without IP laws, most of the money would go directly to the artist, and in the internet age, there is no longer a need for stamping records or printing books. Jonathan Coulton makes music at home and sells it on the internet. You can listen for free, and it costs 99 cents to download a song. He makes $500,000 per year. If he can do that, who are we to imagine that there is any need for intellectual property laws?

Developing a Strategic Vision for Your Career Plan

on Wednesday, July 6, 2011

Start by thinking about all the career-related decisions you’ve made till now.Most applicants lack clarity abouttheir career goals.Career goals cannot be learned from books.Your need to dream up goals that capture your  imagination and burn in your heart.

How many times will you change careers in your lifetime? If you’re like most people, you’ll change careers at least several times over the course of your life. How successful you’ll be in making transitions among careers can at least be partially attributed to the amount of career planning and preparation you’ve done.

Career Planning Steps:
  1. Identify your next career move. If you have been examining multiple career paths, now is the time to narrow down the choices and focus on one or two careers. 

  2. Conduct detailed career research and gather information on the careers that most interest you.

  3. Pinpoint the qualifications you need to move to the next step in your career or to make the move to a new career path. If you’re not sure, search job postings and job ads, conduct informational interviews, research job descriptions.

  4. Compare your current profile with the qualifications developed in step 3. How far apart are the two profiles? If fairly well-matched, it may be time to switch to a job-search. If fairly far apart, can you realistically achieve the qualifications in the short-term? If yes, move to the next step; if no, consider returning to the first step.

  5. Develop a plan to get qualified. Make a list of the types of qualifications you need to enhance your standing for your next career move, such as receiving additional training, certification, or experience. Develop a timeline and action plans for achieving each type, being sure to set specific goals and priorities.

Career Planning Tips and Techniques:

About Success In Our Life

on Tuesday, July 5, 2011

"If you talk or say something
after you think about it
this is not a success.
If you think and talk or say something
this is you success of your life."
The question about what success comes from has been so much debated in our society. Some may think that careful planning contributes to success. Traditionally, young people turn to the successful people for guidance because young people believe that they can make excellent achievements through careful planning. Today, this view might be reversed. More and more people are taking a fresh look at it. Based on hardworking, they prefer taking risks rather than simply careful planning.

The most persuasive argument is that people taking risks or chances are more likely to succeed than the others. Risks or chances are not questions that people who disagree the point can shrug off lightly. With the advent of advanced international communication, a great number of opportunities you will face to by which the traditional careful planning is threatened. The difference between the two opinions is courage to challenge yourself. Actually, the only one step in the gap is not boundly conquered at all, in most cases, which prevent too many cowards from succeeding at last. People being short of bravery---if they are prepared to admit it---could learn one or two from the brave ones who actually not only have courage but also are wise and confident. One of the biggest lessons they should learn is that how to plunk up your courage.

The resource from which courage comes is nothing more than experience. It is hardly possible to decide whether to take a risk in front of some important affairs without any experience. To gain experience, one of the most necessary approaches for you is to learn how to analyze and sum up what you have done no matter you won or lost. As an old saying goes “Failures teach success.” Confidence is the basis to your goal. Never give up solid aims in life and encourage yourself from time to time as Abraham Lincoln once said, “ I will prepare and some day my chance will come.”Finally, taking risks or chances can be regarded as a break with the tradition. The emphasis on the challenge has been exactly expected because that it is surely help people succeed avoiding wasting time. No other reasonable solution in intensive completion provides many opportunities to accomplish your object in life .

From the above what I have discussed, we can draw a conclusion that superficially, the careful planning is a sound solution, but when we weighting in mind attentively, we find that taking risks or chances is more necessary to success.


1. Optimism. Think positive.
2. Faith. Believe in yourself, God and your country.
3. Planning. Know what’s important each day; set your priorities accordingly.
4. Determination. Have the courage to stand alone when taking the big risks in life.
5. Vision. Think big, dream big, keep success in your mind.
6. Attitude. If you think you can’t, you’re right. Winners have positive attitudes.
7. Goals. Set goals. Plan how to achieve them.
8. Perseverance. Try and try again until the goal is achieved. Never give up.
9. Knowledge. Learn to accept your mistakes, but make them only once.
10. Enthusiasm. Choose work you like. Enjoy the challenges.

Make Aim In Life Most Importent In Our Life


    “The aim of life is self-development.
      To realize one’s nature perfectly-
      that is wht each of us is here for.”
      - Oscar Wilde  

  Aim or setting goal is important for every person because without aim man is directionless. Aim in life gives meaning to life.Person is incomplete without a aim in life. It is very important that a aim is formulated and efforts are put in to achieve that aim. The following question should stimulate your thinking: Where will you be and what will you be doing ten years from today if you keep doing what you are doing now? You have to be bold enough to ask of life more than you may, right now, feel you are worth because it is an observable fact that people tend to rise to meet demands that are put upon them.  

1. Set your goals short term and long term and then time required for its achievement.

2. Determine how you spend your time for this you have to follow schedule. The schedule can be weekly, forthnightly, monthly or yearly.

For Setting your Goals

There are four important things to keep in mind.

(a) Write down your goal. You will then begin to crystallize your thinking. The very act of thinking as you write will have a tendency to create an indelible impression in your memory.

(b) Give yourself a deadline. Specify a time for achieving your objective. This is important in motivating you: set out in the direction of your goal and keep moving towards it.

(c) Set your standards high. Now there seems to be a direct relationship between ease in achieving a goal and the strength of your motives. And the higher you set your major goal, generally speaking, the more concentrated will be the effort you make to achieve it. The reason: logic will make it mandatory that you at least aim at an intermediate objective as well as an immediate one. So aim higher. And then have immediate and intermediate steps leading towards its achievement. The following question should stimulate your thinking: where will you be and what will you be doing ten years from today if you keep doing what you are doing now?

(d) Aim high. It is a peculiar thing that no more effort is required to aim high in life, to demand prosperity and abundance, than is required to accept misery and poverty.

Evaluate Your Time Management:

  • How much time have you set aside to meet your goals (above)?

  • Does your time allocation reflect the priority of your goals?

  • Can your uncommitted hours be reallocated to meet your priorities

  • List four activities that you will like to do in your uncommitted time