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Saturday, August 14, 2010

The Current Economic Situation

50 or 60 years ago it was relatively easy to get a job. I had an uncle who told us that it was no big deal to get a job back then. He would quit a job on any old whim and walk across the street and get another one the very same day.

40 years ago Richard Nixon changed our policy towards Red China, and we have been importing ever more ever since.

30 years ago or so I read a story about productivity and it claimed that industrial companies had invested on the average $2500 in equipment per worker, whereas the investment per office worker was more on the order of $100. The author was of the opinion that office workers could be made more productive if management would invest more money in equipment. And then along came the PC.

One way to make more money is to invest in equipment that will make your workers more productive. You may also have to spend a little money to hire people with better qualifications. Once you do this, you should be able to produce a better product for less cost, which will bring you higher profits. America has been doing this ever since we got started. I think this is one thing that separates us from the rest of world. Of course, it didn't hurt that we had a whole continent of natural resources available to exploit.

But now we are the most productive nation on Earth, we have exported a great deal of our knowledge, techniques and technology overseas. We have basically worked ourselves out of a job. It's been a long time since I heard of someone quitting a job because they were fed up, or just on a whim. Seems like most people are desperate to hold on to the job they have. For most Americans I suspect that fear of losing your job is bigger than the fear of a terrorist attack.

So that's the job market. Now let's talk about money. People have varying degrees of money sense. Most people are fairly rational and are able to hold down a regular job and save a little bit every week. By the time they are old enough to retire they will have paid off their house and have some savings and maybe even a pension.

Some people have no money sense. They couldn't save a dime if their life depended on it. They spend it as soon as they get it, they may even beg, borrow or steal in order to spend more. Others have too much sense. They are unable to spend a dime. The live miserly lives and die rich, leaving all their money to some spendthrift.

Here's our first question. What do you do with a spendthrift? Hard nosed logic says that when he (or she) runs out of funds, we should let them freeze in the dark. Christian charity says we are all brothers and we should take pity on the poor. Despite all the talk about diversity and inclusion, we are basically a Christian nation, which means we are not going to let the imbeciles freeze in the dark if we can help it. Seattle has gone so far as to acquire an apartment building for alcoholics. Seems they got tired of paying the ambulance guys to go scrape them up off the sidewalk. The saving on ambulance calls is paying for the building.

I saw a note the other day where one rich guy was exhorting his fellow rich guys to donate half of their money to charity. I am pretty sure that is a bad idea. How much money is tied up in charitable trusts now? Probably more than is tied up in pension funds. That's the problem with money. Once you have it, you start looking for places to invest it to make even more money. The problem here is nobody wants to take a chance. Well a few people do: Venture Capitalists and Movie Producers. All the safe investments are doing the same thing they have always done, except better, faster, cheaper. Meaning ever more people are being put out of work, your client base is shrinking, but that's okay because you are making more money off of your cheaper product.

Has inflation ever run a company into the ground? What I mean is a company that every year increases sales and increases profit, but the increased profit is less than the rate of inflation. You could have steady growth of 3 or 4% a year, but if inflation is running at 5 or 6%, you are not really growing, you are shrinking by 1 or 2% a year. In 50 years your real value will have dropped 50%. There may be companies out there right now like this.
In a post a while back I was saying we needed a jobs program, and it didn't matter what people were working on, only that they were working on something. Well, that's not exactly true. The Soviet Union went broke building ever more glorious weapons systems. Titanium nuclear submarines are not cheap, and they produce nothing. Well, they produce a feeling of importance in the people in charge, and a feeling of satisfaction in a job well done by the workers who built them. They might even produce a feeling of security in the population at large knowing that they are defended by a handful of people hiding in the ocean depths. Nah, I suspect if anything, it produced more of a feeling of unease that there were such dangerous machines out cruising around loose. But mostly they just suck money out of the country and pour it in a hole in the water (yes, I know, that is some wag's definition of a boat, but the analogy still holds).

However, we could use a jobs program that produced something useful, like an improved transportation system, or some nuclear power plants, or some solar power plants, or better airports, or better cities. Of course, once you get the government involved, it all becomes a friggin nightmare, half the money gets burned up in meetings arguing about who is having sex with who, and who charged their lunch on their government expense account.

But we've got all these rich guys who have more money than they know what to do with. They could start a massive jobs program all by themselves. It might make them even richer, or it might not. But it would be better than dumping billions in the charity rathole.

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