The difference between the two is that ShinKen breaks it down to a level that even a middle school student can understand. I would have loved to have had a Gov/Econ teacher like this when I was in High School. Maybe I would not have slept through class and would have actually learned a lot more about our government and economics. He would be an excellent teacher IMO.

The difference between the two is that ShinKen breaks it down to a level that even a middle school student can understand.

Exactly. I started reading the Buffett article and lost interest (okay, got lost) after the first few paragraphs.

-nab

Well, I'm blushing and very gratified by the comments.

When I was a teenager, I read Einstein's book on Relativity that he wrote for the layman. I was amazed that he could explain such abstract concepts in such a way that anyone of average intelligence could grasp it. I've forgotten most of the physics I ever learned, but I can tell you about relativity to this day.

Any complex subject can be broken down into smaller, easy-to-grasp parts, and I don't think we should take for granted anything a so-called "expert" says unless he can break it down and you can see for yourself if it fits with common sense.

A few things about Warren Buffett: He is probably the most successful investor of all time (only because Jesse Livermore died a pauper, so few people have heard of him today.) However, Buffet is not very smart on economics in general. The difference between understanding investing and economics is like the difference between a stock car driver and a mechanic. It's possible to be good at one job without knowing much about the other.

Buffet's parable about Thriftville and Squanderville is dead on, but IMHO his tariff remedy is less than worthless. A simple sound money policy would be much more effective, but it would force the government to curtail spending, which no one seems to want to do (except Ron Paul).

I watched a news story on CBS the other day on W's economic stimulus plan, which includes a proposed tax rebate. The reporter commented that if people didn't take their rebate and go spend it, there wouldn't likely be a stimulus effect. If you go back and read my Gilligan story, you know that this is crap. However, this is what passes for conventional economic wisdom, and it is one of the reasons we are living in Squanderville. Government policies and the media ENCOURAGE squander.

NB, to answer your question about Ron Paul: I'm behind him more than ever. He is doing much better than anyone expected, and as the field of candidates narrows, I think he will begin to pick up more support when it begins to look like he is the only anti-war candidate left standing, especially if Hillary pulls ahead of Obama. But even if he doesn't win, he has done more to bring essential issues into the fore of national debate and is beginning to inspire others to run as "Ron Paul Republicans."

http://sabrinforsenate.com/

http://en.wikipedia.org/wiki/Jesse_Lauriston_Livermore

I didn't care for his trade credit idea either, but I opted to link to the entire article, as opposed to croping it to the squanderville part.

I was hoping you would give your opinion of the credit idea. Thanks

And thanks for the links. Too cold to play outside. Might as well broaden my mind.

I am seeing more and more Ron Paul sign and stickers every day. I think people are so tired of the same of crap from the front runners and are starting to look for that person they can believe in. I for one am getting more and more excited about the things I am seeing on the street concerning Ron Paul.

ShinKen - 19 January 2008 11:41 PM

Great story but there are other angles.

What if she uses the $20 saved on an imported scarf to go with the skirt? Then all of the money is lost.

You must consider that when the foriegn skirt is purchased, some of the proceeds are taxed as profits but with the purchase of the American product all of the proceeds are taxed at all levels back through the supply chain until you get to a foriegn source, typically at a third of the value of the item. So that $60 dollar skirt could generate $20 in increased tax revenue.

And what if that purchaser is herself a manufacturer of skirts? An ecconomy can not sustain it self if we expect to purchase goods at prices based on wages of $1 per hour while we expect an equivalent American worker to get paid $10 per hour. However we we try to compensate for this disparity by borrowing or, in the case of the federal government, printing more money.

We have other ways of shooting ourselves in the foot such as forcing American companies to have stringent safety, environmental, employee rights, and Afirmative Action programs while we then turn around and buy products from companies that are not so hindered.

Another factor is the disparate taxes for countries who are under the protection of the United States. Those govenrments have lower defense budgets because they are being protected in part by the United States. The United States can afford to protect these countries because Americans and American companies pay high taxes. Buying the $60 skirt may be helping to fund the defense of the country that produced the $40 skirt.

The bottom line is that we are in a global economy and we need to start playing by their rules and expect their wages for work equivalent to theirs. And as much as it sounds great to be a service oriented ecconomy. Please think about how usefull it would be for the lonely Gilligan, referenced earlier, to be providing consulting services to himself. A service industry is only sustainable if it supports a base of producers. As the factory jobs go overseas, they are taking the manager, accounting, human resources, and supporting cafeteria worker jobs with them.

I apologize for the length of this reply, but there are a lot of
issues you bring up to be addressed. And because of limits on the size of posts, I've divided it into two parts.

Great story but there are other angles.

What if she uses the $20 saved on an imported scarf to go with the skirt? Then all of the money is lost.

I'm not sure if you mean "lost" in the sense of tax revenue, as most of your other argument seems to be concerned with maximizing taxes. I'll deal with each part separately.

Firstly, the $20 is the retail cost of the item, which is undoubtedly marked up by the retailer, and which might also include markups by a wholesaler, a domestic importer, and possibly several types of taxes
like import tariffs or local sales tax.

For the sake of argument, let us suppose the scarf is imported from Brazil and is marked up 100% by the time it reaches a domestic retailer. This means a domestic importer would pay $10 for the scarf
originally to the Brazilian manufacturer. Does this mean $10 is lost? The answer is yes for American scarf manufacturers, or in fact any other alternative way the $10 might be spent. But it is not "lost" to
the American economy. Brazil's currency is the Real, and a dollar is worthless to a Brazilian unless he can spend it on something produced in a dollar based country. Likely, the scarf manufacturer will take
it to a bank and exchange it, and the bank in turn will trade it to a Brazilian importer of American goods or invest it in the American capital market. Either way, the dollar must be exchanged for something or it has no value.

This issue is confusing for many people because we tend to confuse money with wealth. Money is simply an intermediary exchange device that has little or no value unless there are goods and services it can
be exchanged for.

It might be easier to think of the exchange as a direct barter: Let us suppose that our consumer Jane is a hair dresser, and she takes a boat ride to the middle of the Atlantic to meet a boat carrying a Brazilian
woman who makes scarves. Jane does the Brazilian's hair in exchange for a scarf. No one has "lost" anything. Instead, two people have gained.

You must consider that when the foriegn skirt is purchased, some of the proceeds are taxed as profits but with the purchase of the American product all of the proceeds are taxed at all levels back
through the supply chain until you get to a foriegn source, typically at a third of the value of the item. So that $60 dollar skirt could generate $20 in increased tax revenue.

For a consumer, this isn't a consideration at all. When Jane goes to the store to buy a scarf, she's looking for the best quality at the lowest price in a color or style that suits her tastes. She doesn't
buy things to maximize tax revenues. Typically, the only people concerned with tax revenues are people who live off of them.

In fact, the pressure to maximize tax revenues is a bad thing.

Since the beginning of the Industrial Revolution, goods and services have tended to become cheaper (adjusted for inflation) and more plentiful. The exceptions to this are services directly provided by
the government or are heavily regulated and controlled by the government (like healthcare). This is because most government services are effective monopolies which are financed by forcible tax
redistribution and insulated from the fickle nature of consumer choice and competition. So while we see the cost of things like computers and plasma screen TV's tends to fall, the cost of public education and
healthcare tends to increase.

The constant pressure to increase tax revenues means that tax financed services are getting less efficient, the inverse of the rest of the economy.

And what if that purchaser is herself a manufacturer of skirts? An ecconomy can not sustain it self if we expect to purchase goods at prices based on wages of $1 per hour while we expect an equivalent
American worker to get paid $10 per hour. However we we try to compensate for this disparity by borrowing or, in the case of the federal government, printing more money.

Discounting the effect of unions and minimum wage laws, American workers tend to make more because America has a greater capital accumulation, a greater economic infrastructure, and American workers
tend to be more skilled. The real wealth of a worker isn't reflected so much by his wage in dollar terms as it is by the quality and quantity of goods available to him.

I'll use the example of Gilligan to illustrate this. Suppose Mr. Howell comes to Gilligan and offers to pay him a thousand dollars for each fish he catches. Meanwhile, back on the mainland, a fisherman
makes an average of a dollar a pound for the fish he catches. Does Gilligan or the mainland fisherman have the higher wage? The answer is the fisherman. Gilligan cannot take his thousands of dollars and
buy a car, a refrigerator, or go see a movie. Those items do not exist in the island economy, unless they wash up on shore by happenstance. The best Gilligan might do for himself is trade with
Maryanne for a cocoanut cream pie.

We have other ways of shooting ourselves in the foot such as forcing
American companies to have stringent safety, environmental, employee
rights, and Afirmative Action programs while we then turn around and
buy products from companies that are not so hindered.

No disagreement here, but I should point out that most things like
safety and environmental regulations came after, not before, American
industry became efficient enough to afford them. For example, child
labor laws could have been passed at any time, but were only done so
when the infrastructure and efficiency of the American economy became
such that it could afford to not have child laborers.

Another factor is the disparate taxes for countries who are under the
protection of the United States. Those govenrments have lower defense
budgets because they are being protected in part by the United States.
The United States can afford to protect these countries because
Americans and American companies pay high taxes. Buying the $60 skirt
may be helping to fund the defense of the country that produced the
$40 skirt.

Americans pay high taxes because Americans can afford high taxes, and
Americans can afford high taxes because the US economy is extremely
productive, and the US economy is extremely productive because it is
the largest free trade zone that has ever existed.

Unfortunately, the wealth that comes with a productive economy has
allowed the US to adopt a belligerent foreign policy. The US
government protects other countries in the belief that it can
influence and manipulate global forces. Just as the British Empire
collected colonies in the name of dispensing its enlightened rule on
the backward locals, the US collects client states in the name of
spreading democracy.

The British Empire was initially financed by the huge growth of the
English economy because the Industrial Revolution started there. The
Industrial Revolution started in England because the English got rid
of their "Corn Laws" restrictive tariffs, and burdensome trade
regulations.

The British Empire eventually collapsed as the English economy became
more socialized, and the cost of maintaining the Empire became too
oppressive. The American "Empire" is going to go through a similar
cycle. As the US government gets more restrictive and tax hungry in
its quest to rule the world, the American economy is going to get
weaker and the less we'll be able to afford it.

The bottom line is that we are in a global economy and we need to
start playing by their rules and expect their wages for work
equivalent to theirs. And as much as it sounds great to be a service
oriented ecconomy. Please think about how usefull it would be for the
lonely Gilligan, referenced earlier, to be providing consulting
services to himself. A service industry is only sustainable if it
supports a base of producers. As the factory jobs go overseas, they
are taking the manager, accounting, human resources, and supporting
cafeteria worker jobs with them.

First of all, there is no call for consulting jobs on Gilligan’s Island because the division of labor is not very developed. It is restricted to a 7 person group. A service economy would not be sustainable because there is no one to go out and catch fish or collect nuts and berries.

In a TV movie that was produced after the original run of the show, the castaways of Gilligan’s Island were rescued and then returned to the island to run a tourist resort. Since they now had trade relations with the mainland, they could devote themselves to service economy jobs, rather than sustaining a primitive existence. The island became part of the larger, “global” economy.

Countries tend to specialize just as individuals tend to specialize in certain jobs or services. Japan, for example, produces many things like cars and TV’s, but it doesn’t produce enough food to feed its population. But we don’t say it is an unsustainable economy. It is simply well niched in the international division of labor.

The globalization is a reflection of the fact that the division of labor knows no borders. National boundaries, in fact, are becoming increasingly irrelevant, except to politicians and people who want to control trade.

I appreciate your response.

I didn't say I liked the idea of the impact on taxes or wanted to generate tax revenue. This simply needs to be recognized as a burden on US industries. And like the other burdens it tends to make American products more expensive than they would otherwise be. It is unfair that John Doe consumer/voter elects politicians that regulate American industry and forces up prices and then turns around and purchases the cheeper import.

I contend that Americans can no longer afford to pay high taxes because out national and personal debt keeps rising.