Me? an Economic Expert?: Are You Kidding?!

By Glenn L. Johnson

If you could change the world-would you do it?
It boggles the mind just to imagine the possibilities, doesnt it? The idea is laced with questions about your goals, ambitions, beliefs and moral values.
Economics is like that too. Everything you do or dont do has an economic consequence that impacts you personally. And everything the Government does impacts you as well. In fact, our economic system is structured so the government benefits at your expense without doing anything at all.
I know economics sounds boring. The way it was taught to me was boring. I have discovered that it isnt about what we are taught and it isnt very difficult to understand.
Understanding some basic truths about economics will empower you to live a more enjoyable life. These truths dont care how old or young you are. They dont care whether you believe in God or not. And they dont care who you voted for the last time or who you might vote for the next time.
Even if you cant change the world today, you do have the power to change your life and you can start right now.

• Language: English
• Publisher: Xlibris US
• Release date: Feb 13, 2012
• ISBN: 9781469156538

Glenn L. Johnson

The author graduated from the U.S. Naval Academy with a degree in Aerospace Engineering. He served as an officer aboard a Navy nuclear powered submarine. He has traveled extensively and observed a variety of cultures and governments. His experience in large corporations, as a successful small business owner, and as a teacher gives him this unique perspective on economics.

Book preview

PART I

NATURAL ECONOMICS AND THE NATURAL LAW

The Most Important Book You Will Ever Read

CHAPTER I

The Most Important Book

You Will Ever Read

I know. It sounds like a very arrogant and presumptuous claim, doesn’t it? I don’t make the claim because of any elevated opinion of myself or my ability to write. Quite the contrary, I have, through my study, discovered what I believe to be fundamental concepts and truths that I think will be just as obvious to you when you consider them. Understanding these ideas has increased my understanding of the world around me. I want you to have the same experience.

The problem is that we sometimes ignore the obvious because we are so distracted by our daily lives. We have a tendency to accept things as they are, to avoid things that seem complex, and we are even encouraged or taught to believe incorrect ideas. We seldom have the time to step back, study, and reflect upon the world around us.

While economics may sound like a horribly boring subject, I have found it to be incredibly enlightening. No, I am not some kind of supergeek who delights in the obscure. I have simply found that economics is at the core of everything that is important to us. Understanding economics, the real truth about economics, creates an understanding of everything happening around you.

You might guess that I do not approach economics in that traditional way. I do not. The subject of economics has commonly been thought of as one of the dullest things you can study. As it is traditionally taught, it is an overwhelming cacophony of charts, graphs, statistics, and obscure theories, many of which seem contradictory.

I have come to believe that such an approach does a horrible disservice to the student. Perhaps more importantly, it sends the message to the population at large that economics is an obscure and distant science reserved to the halls of academia, obscure think tanks, and the back rooms of Congress. When the Clinton presidential campaign coined the phrase It’s the economy, stupid! they told us the truth that economics is vital, but also sent the unfortunate message that we are all just too stupid to truly understand the intricacies of such a complex subject.

Economics is neither obscure nor distant. It affects every aspect of our lives every day, often in ways that we are not even aware of but which can have devastating effects on our personal economic health, our freedom, and even our health.

For those of us who pay any attention to the current political discourse, it seems that the subject is immensely popular among politicians, especially during the election cycles. More and more, it appears that government is increasingly about economics.

There is no question that economics is important. It is so important that it cannot be left to the politicians.

The problem in the current public discourse is that there is simply no discussion that has any hope of solving anything. If we listen to the public discourse, it often sounds like the people debating are talking about very different things. As a nation, we are deeply divided on most economic issues. Many times we simply tune out because, quite frankly, it’s boring.

The goal of this book is to teach you economics in a way that has meaning to your life. This is not a political book, but because of the subject material, it must deal with issues that are paramount to our current political state. It is a book that is intended for anyone to read. You don’t have to be a liberal, conservative, independent, or libertarian to benefit. You may find in reading the book that you feel your political views are being challenged or otherwise threatened. This is not my intent. I only want to present ideas to you in a way that you can choose to accept or to ignore. I have no other goal than to present you with observations and information that I believe is true and let you make your own decisions.

I can’t promise that you will agree with everything that I present to you. I can and do promise you that if you consider the things I present with an open mind that you will find something in this book that will improve your understanding of the world in which you live. If we can find any agreement at all, we can use that common understanding of our world to work together and find a solution to our problem.

I am going to teach you a number of things that can change your life. Knowing them will help you live a more productive and enjoyable life. Can I change your life? No, only you can do that. But I can give you something that can be the most powerful tool you have to live the kind of life you want to live. I am going to teach you the truth about economics.

The intriguing thing is the question of where the truth might be found.

Ironically, you cannot understand the truth about economics if you limit yourself to a discussion about economics. As you read this book, you will find that we are talking about all kinds of things that you would not initially think would relate to economics.

We are going to talk about human nature, government, law, values, social issues, philosophy, education, and language.

While I like to talk about economics from a unique perspective, I have to teach you what everyone else has been taught to believe in order for you to understand the difference.

From time to time you may wonder why we are talking about something. If you pay attention, you will eventually be rewarded with a much fuller understanding.

Some of the secrets are well hidden. Others are hidden in full view. We have simply been taught to ignore them. We have been taught to believe other things are true simply because they are such a common part of our own experience.

This is one of the great ironies of our human condition. We rely upon our experience to evaluate what we believe. Sometimes we think things are natural just because they have always been that way. The way to avoid this problem is to ask how the circumstances are created and to always ask why.

True understanding is not the result of being taught something. True understanding comes from taking the things you are taught, evaluating them in the context of your own experience and insight, and connecting them all together in a way that makes sense.

I will share my experience and insight with you. You must arrive at your own true understanding.

Good luck—I wish you the best.

CHAPTER II

Who, Me?

An Economic Expert?

It’s not as hard as you think.

Understanding the economy seems like an extremely difficult task but is actually easier than you might think if you rely on a few basic concepts, simple logic, and your own experience.

The easiest way to approach the problem is to start with nothing. Forget about all the things that seem to make everything so complex. Forget about federal budgets and deficits, derivatives, insider trading, money supply, trade deficits, balance of payments, currency values, treasury auctions, and the Federal Reserve. All these things sound to us normal folks as things that are just way over our heads. When we listen to all the pundits in the media, we are left with an overwhelming sense that it is all just so complex, out of control, and so foreign to our own experience that we are simply wasting our time trying to understand it, much less think that we have any role to play in fixing or controlling it. And should we be so bold and brazen to think that we might have an idea about it, there is instantly a multitude of economists to assure us that we don’t understand. We should just leave it to the government and their economists because they will do a better job than we could ever hope to do.

But the dirty little secret is that it is made to seem complex so that you and I will concede our role to our government and let them control it for us. This concession represents a tremendous loss of freedom and control over our own lives. Just think about how much we pay in taxes, though most of us have no idea how much we really pay, and you know that someone else has the majority control position in our financial lives.

Even if you are one of the people who do not pay income taxes, you pay taxes through an amazing array of other schemes designed to free you from your money. We pay sales taxes on things we buy. We pay federal state and sometimes local taxes on every gallon of gasoline we use. We pay taxes on the electricity we use, on the water we drink, and on the trash we send to the dump. We pay taxes for the privilege of owning and driving a car. We pay taxes for the privilege of owning a home. If you have a job, you pay a payroll tax and a Medicare tax. You may also pay a tax for workers’ compensation. We pay taxes every time we use public transportation. We pay taxes every time we make a cell phone call, send a text message, or use the Internet. Yes, the Internet is taxed because your Internet service provider is taxed, and you pay for that through your contract with the service provider. Your Internet service would cost less if your service provider was not being taxed. The list is endless. But the truth is even worse. The government has become much more efficient at other ways of taking our property from us.

We have been convinced over the years that we are getting our money’s worth because the government is providing essential services for us. But the truth is quite different. I know many of you want to argue that the government is providing very necessary things that we just can’t do without and that we cannot do for ourselves. I am not disputing the fact that there are some very legitimate things that the government can and should be doing. I simply want you to be able to understand the economic truths about these things so that you can evaluate for yourself, using your own value system, whether or not any economic decision makes sense.

There is an old saying that goes like this: Where you stand depends on where you sit. This tells us something about our own nature to evaluate things from our own experience and circumstances. I bring this to your attention now so that you can evaluate your own tendency to do this and try to overcome this tendency as you learn about the economy. You can imagine that a person who works for the federal government believes that they are providing a significant service and does not want to give up their job and thus their income. A student who is receiving an education grant to help to pay for their education will not want to give up that resource. A dairy farmer who gets a higher price for his milk does not want to give up the government price controls that keep the price of the milk elevated so that he can make more money. And the retiree who has paid into Social Security for their entire life does not want to believe that they have been taken advantage of, and there was, and still is, a better way.

But if we are to understand the truth about the economy, we cannot start by excluding the truth because of our own circumstances. We should try to believe that by understanding the truth, we will be able to make better decisions in our own lives and in our communities.

So here is your challenge. Put aside everything you have learned, everything you have been told, and try to start this exercise with a clean slate and an open mind. Most importantly, don’t let anyone tell you that you don’t understand because it is just more complicated than you can imagine. I promise you that if you finish this book, the next time someone says to you It’s the economy, stupid, you will be able to tell them Yes, it is the economy, and I am not as stupid as you think I am.

Thought Exercise

What circumstances in your personal life have the potential to affect what you think?

CHAPTER III

Basic Concepts of

Natural Economics

Work and play are words used to describe the same things under different circumstances.

—Mark Twain

The easiest way to understand the economy is to start at the very beginning.

Imagine that you are the only human being on the earth. There is no government, no other person to work for or buy from or sell to—just you. You live by a stream so you have a source of water and forage for things to eat.

Basically, you would be busily concerned with providing for yourself. You might discover naturally growing fruits or plants that you could eat to sustain yourself. This is the most basic element of any economy. It is the concept that gives rise to the expression The fruits of your labor. You work to harvest the fruits that you need to sustain yourself, and the payment you receive for your labor is the fruit that you can consume.

In fact, you are an example of a self-employed individual with his own business. You are in the business of harvesting fruit to eat. Your resources are the naturally occurring fruit and your own labor. The thing you produce, your product, is harvested fruit. Your only customer is yourself. Your profit would be the difference between the cost of the fruit and the value of the harvested fruit. The cost of the harvested fruit is the cost of the fruit on the tree (free in this case) plus the value you assign to your own labor. It might seem like you are not making any profit at all, but this is only true if you have to spend all your time harvesting fruit just to survive. If you have a sufficiently abundant source of fruit, you can provide for your own nourishment and still have some resource left over to pursue other things. You now have time to watch the pretty butterflies. Granted, this is not a profit in the sense we are accustomed to, but it illustrates a very important concept about what we own and how we create wealth. The things we own we call our property. The total value of all our property is called our wealth.

Contrast this example with the following. Suppose again that you are the only human being on earth, but you choose to spend all your time watching the pretty butterflies instead of harvesting the fruit. Thus you have all your time to do whatever you choose. Then you starve to death.

The point is this. The thing that we own for ourselves is our own time and energy, our labor. It is the basic resource we bring to the economy. But, importantly, it is not an unlimited resource because we only have so much time to live, and it is not a free resource because we have to put some time and energy into our own maintenance to continue to live and have our own resource available to us. From an external perspective, it is a renewable resource because we produce children who will continue to contribute to an overall economy, but it is not a renewable resource from our own perspective.

Learning to look at things from different perspectives is an important part of your education in economics.

From our own perspective, each day that goes by takes a day’s worth of our labor resource from us. We cannot replace it. When we die, we are no longer part of the economy. From this perspective, we can recognize that our total wealth has a natural trend to decrease with the passage of time. If we are to accumulate any wealth at all, we are going to have to find a way to accumulate more than we are losing.

There is one other resource we have. That is our own personal talents, creativity, and intellect. For the moment, let’s just group these three things together and call them intellect. It is important to understand the difference between this resource and our labor. In the most basic analysis, our intellect does not produce anything tangible. We can sit under a tree and imagine all kinds of things while we watch the butterflies, and nothing is produced. This does not mean that this is a trivial resource. It is not trivial at all. It is the most powerful resource we have because it allows us to discover and create, and thus we can use the ideas we come up with to make the use of our labor more productive. Our intellect is a force multiplier for our labor.

There is an interesting interaction between our labor resource and our intellect when we use them. Just as with our labor resource, we can use our intellect for work or play. If we are thinking about ways to make our harvesting of fruit more efficient, we can say that we are being productive and contributing to our own economy. If we are just watching butterflies, we are expending our resource for enjoyment and not for productivity. If we are using our intellect, that is thinking, we are at the same time expending part of our time resource. We can use our labor without using our intellect, but we cannot use our labor or our intellect without using our time.

Another interesting characteristic of our intellect is this. Using our intellect does not reduce its value. In fact, sometimes when we use our intellect, we come up with a new idea or, through study, learn new skills. We hold the value of these new ideas and skills in our intellectual storehouse—our mind. Thus, the value of our intellect has the characteristic of increasing in value over time. Because our intellectual knowledge has value and it is ours to own, we call it intellectual property. Our intellectual property can be used to make us more efficient and productive.

Here is the practical example of the force multiplier that results from using our intellect. Let’s say that as time goes by, you have picked the fruit from all the nearby trees and now have to venture away from your stream-side residence to search for more fruit. From a business sense, your costs have increased because you now have to spend more time to find the fruit, and you have correspondingly less time to watch the butterflies. Pretty soon, you are spending so much time looking for fruit that it is dark by the time you get back to the stream and you never get to watch butterflies anymore. One day you decide that you need balance in your life, so you sit under one of the remote fruit trees to watch the butterflies anyway. While sitting there, you notice that some fruit has fallen to the ground and that there are little fruit trees growing out of the rotting fruit. Here comes the productive use of the intellect. You decide that the fruit trees are small enough that you can carry them back and replant them with your other fruit trees on the hill above the stream. This increases your local supply of fruit and means that you do not have to spend as much time searching for fruit.

As we go forward, you will see that it is the use of our intellect that allows us to increase our individual productivity and overcome the natural tendency of our personal wealth to decrease over time.

Was this exercise free? Was it profitable? It certainly cost you something because you had to expend your labor to remove the fruit trees, carry them back to the stream, and replant them. But you did benefit from that work because you now have more local fruit to harvest and don’t have to walk as far, so you once again have more time to watch butterflies. You expended your labor and were rewarded with more free time. You have also learned through the use of your intellect and now have knowledge that you did not have before.

This example allows us the opportunity to develop a couple of basic measures we can use to analyze our one-man economy. Let’s say we want to measure the total output of our economy. We can measure it by the total number of goods produced. So if you harvest one piece of fruit for each meal and you do that three times a day, we can say that your total economic output is three pieces of fruit per day. If we want to know how much you produce in a year, we would multiply your one-day production, 3 pieces, times 365 days for a total of 1,095 pieces of fruit per year. Let’s call this our gross economic product or GEP. We could also say that our GEP is three pieces of fruit per day, or one man-day of food per day. All three expressions are equal and tell us the rate at which our economy is producing.

The really important thing is this: when we talk about what our economy is producing, we did not create a new thing that is producing stuff. You are the one doing the work. You are the one that is responsible for the fact that you have products to eat. Without your work, the GEP would be zero. GEP is just a statistic. You are the economy.

There is another measure about the quality of our economy that we can use to describe how much of our resource we have to expend in order to produce our GEP. This measure is called productivity. The basic idea is to measure how much resource is expended to produce a single unit of our GEP.

In our one-man economy, the basic resource expended is our labor, which can be measured by how much time we expend to produce our GEP.

Let’s say that when we first started and had immediate access to the fruit trees that it took twenty minutes to harvest a single piece of fruit. Thus, we would spend that time three times a day, which adds up to one hour per day or 365 hours per year. Thus, we are producing three pieces of fruit for each hour expended. This is our productivity.

As we depleted the local supply of fruit, we had to walk around looking for a new supply. When we got to the point of spending forty minutes in a combination of walking and harvesting each piece of fruit, our time resource invested has doubled to two hours per day or 730 hour per year. Our productivity has decreased to three pieces of fruit for each two hours expended or 1.5 pieces of fruit per hour.

In our example, we did not address this decrease in productivity until it had an overwhelming impact on our quality of life, thus compelling us to do something different.

When our quality of life was so impacted that we felt like we had to do something, our productivity had decreased to the point that we were spending all day (all our time resource) to harvest the same three pieces of fruit to satisfy our daily need.

In the absence of a good idea, we would be faced with continuing decreases in productivity. Our intellectual observation allowed us to evaluate the wisdom of investing more of our already depleted time resource to move some additional fruit trees back to our place of residence, which restored our initial productivity, which also restored our quality of life.

Of course, our example could have had a very different result under different circumstances. Suppose that you were unsuccessful in getting the fruit trees to grow and produce fruit on the hill above the stream. For whatever reason, every time