Tuesday, October 21, 2014

FARM POLICY

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist


If you eat, you are a part of America’s agribusiness. I have chosen to use the agribusiness system to demonstrate our often discussed maxim that transformation takes place at the intersection of culture and economics. It is also my intention to share here, just as an example, how our government’s political habit of intervention into our systems invades and destructively interferes with our basic economic principle of free enterprise.

Along the way, we may even discover that the further we wander from the simplicity of the market forces, the further we move away from effective and responsible allocation of our economic resources. Marx never got it right, and FDR couldn’t get it right. A centralized governmental economic system of redistribution, quite simply, has never been successful.

Our government has subsidized agriculture since the 1930s with farm policies that include: (1) propped up farm prices, and subsidized incomes, (2) agriculture-related research, (3) farm credit, (4) water and soil programs, (5) crop insurance, and (6) giant subsidies on the sales of farm products into world markets.

Roosevelt’s Agricultural Adjustment Act of 1933 was predicated on the assumption of the parity concept: if a farmer could take a bushel of corn to town in 1912 and sell it for enough money to buy a shirt, he should be able to sell a bushel of corn on any day and buy the shirt. The security of that logic really appealed to the farm families. They would vote for FDR forever. The relationship between the prices received by farmers for their output and the prices they must pay for goods and services would always remain the same. If the price of shirts tripled over time, then their price of corn would be guaranteed to triple also.

That bought Roosevelt the votes, but it didn’t buy him a Nobel Prize in economics or logic. Economists through the years have uniformly rejected the parity notion. There is no sound reasoning in the proposition that if a bushel of corn could buy a shirt in 1912, it should still be able to buy a shirt several decades later. The relative value of goods and services is established by supply and demand. When technology changes, or new resources or products come to the market, or styles or tastes change, those relative values also change over time.

In the 1980s you could buy a modestly-equipped, new automobile for the same amount of money that it would take you to purchase a well- equipped computer. But a decade later everything had changed. Certainly, neither the computer company nor the car company would vote for the parity concept.

It did, however, require the government to arbitrarily set price floors on farm products. Those minimum prices were called price supports. Just like Russia’s Gosplan, that approach failed miserably. So, our government simply established above-equilibrium price supports for farm products. That means that the government just ignored what the real world would pay for the products and went ahead with paying the farmers the hyper price. Oops. That really didn’t work.

The farmers dug in and began producing in excess because the government guaranteed that they would get paid for all they could produce at the ballooned prices. They now had money the government had paid them to place more of their land into production, excavate their land so that it would produce larger yields, buy fertilizer and better seed. Meat growers, milk producers, and poultry farmers could improve their operations so they could all produce more.

Huge surpluses were created. In the real world of economics when there are surpluses of a product the prices fall, consumers purchase the excess production at a reduced price, and the market quickly levels out. But, the government was obligated to pay the farmers not only the above-equilibrium price, but had to pay for transportation to move the crops around. They also had to pay for storage of the surplus . . . and there were more and more excessive harvests coming on!

The government was then forced to go to the public and raise taxes to cover their own ignorance. The government’s administrative costs exploded as they endeavored to manipulate the programs. The farmers formed lobby groups to protect the good thing they had going. The marginal costs of the extra production far exceeded the marginal benefit to anyone in the society because the product price to the consumer could not be lowered even though there was surplus going to waste.

Since the product price could not be lowered, the U.S. consumers were paying a premium. That made our agricultural markets very attractive to foreign producers, who enjoyed getting in on the premium amounts being paid. The U.S. then had to quickly impose import barriers, tariffs, and trade quotas.

So the Roosevelt Gosplan came up with a brilliant idea. They could save millions of dollars of administration, transportation, storage, and other program-support costs if the farmers would simply stop growing so many crops. But it was impossible to simply stop the whole craziness and let the free enterprise system straighten out the mess. They could not run the risk of making the farmers angry and lose a full twenty-five percent of the national vote. So, they decided to pay the farmers to not grow the crops, and the payments would be based on what they had been growing the past year. Oops.

In return for guaranteed prices for their crops, the farmers had to agree to limit the number of acres they planted in that certain crop. That was referred to as acreage allotments.

(I’m terribly sorry, but I must share with you the picture I am seeing in my mind. I am chortling to myself as I write this piece. We are so critical of Marx, Lenin, and Joseph Stalin and their Gosplan, but in this scene all the same people are sitting around all the same tables, with their heads all pointed into the group. They don’t have computers or calculators so there are reams of paper on the floors and on the tables as they try to figure out the Gosplan formula by using long division and multiplication with short, stubby pencils. The difference is that some are dressed in green Russian military uniforms and some are in ties, nice dresses and suits. Some are in Moscow, and some are in Washington, DC. All have a disdain for cultural and economic free choice, all are obsessed with the craze to totally control the economy, and all are running madly away from the concept of free enterprise.)

The policy designers of the U.S. Department of Agriculture had to estimate the amount of product the consumers would buy at the supported price. They then had to translate that amount into the total number of acres the farmers would have to plant to provide that farm product. The total acreage then had to be apportioned among states, counties, and down to the individual farmers. Oops! They could never make it come out right, because all their planning did not reduce the surpluses. The acreage reduction did not result in proportionate decline in production. Some farmers would include their worst land in the allotment and save out their best land to continue to grow their crops. Now they had even more money to purchase better seed, take advantage of pesticides and enriched fertilizers, and buy the newest farm equipment. All of that increased and enhanced their output per acre. It did not shrink the surpluses. Additionally, farmers who did not go along with the subsidies stayed out of the program and bought up more acreage and planted more in anticipation of the artificially increased overall prices that would be paid. The surpluses continued to grow.

Oh, what’s to be done? What’s to be done? The surpluses continued to build and the payments used to not grow crops kept increasing. Octave Broussard and his friend Bordeau continued to make money for not raising hogs and money for not growing corn that was not fed to the hogs that they were not raising!

Governments that ignore basic economic principles like supply and demand; scarcity, choice and cost; and the efficiency of the free market, in order to manipulate a nation’s culture for their own greed, have a difficult time making the intended results all come out right. Eventually, those governments step on the neck of the goose that has been laying the golden eggs of the economy.

Next Week: Well, Try Messing with the Demand 

        (Research ideas from Dr. Jackson's new writing project on Cultural Economics)
    
© Dr. James W. Jackson   
Permissions granted by Winston-Crown Publishing House
  
www.drjameswjackson.com

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

Tuesday, October 14, 2014

NOT RAISING HOGS

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist


Occasionally my exuberance is misunderstood regarding the straight line that runs between Runny Meade, England, and King John’s signing of the Magna Carta, and the signing of the Declaration of Independence in Philadelphia. Sometimes the sense of pride with which I write concerning free enterprise and the greatest cultural and economic experiment in history is misinterpreted.

When I speak about free enterprise and freedom of cultural and economic choice, my friends sometimes think that I am inferring that the United States of America actually has that kind of economic system today. The truth is this: we did, but we don’t. And, to the same degree that we have been losing our freedom of choice and free enterprise, we have been losing our position of wealth: try seventeen or twenty-five trillion dollars in debt for size!

I have determined not to allow these articles to become add- upon reiterations of examples how the Marxist progressives have eroded the historically unique example of the free enterprise economic system. Readers can find at least a thousand of those web sites speaking to that. But I do want to give a clear, historic setting in order to follow how our economic and cultural thinking has moved through the ensuing years. The end of these writings is intended to be enlightenment and hope for tomorrow.

Our system started getting jumbled around the time of the Great Depression, beginning about 1929. Eventually, the cozy relationship between President Franklin D. Roosevelt of the U.S. and English economist John Maynard Keynes moved our country toward Marxist socialism and a centralized economic system by leaps and bounds.

We began falling for the same voluptuous temptation that snared Marx, Engles, Lenin, and Trotsky. It is possible to buy the souls and the support of the citizens for a mess of pottage. It can be accomplished by promising to redistribute the wealth of the czars or the assets of the nation to the common citizens for their vote and political support. It becomes the great mirage, where everybody believes that they can live at the expense of everybody else.

Following the Great Depression, Keynes continued to press Roosevelt to take direct control of America’s economic system and assets. He chided him for lagging in taking over the housing industry. He then turned to the subject of utilities. He told Roosevelt, “Personally, I think there is a great deal to be said for the ownership of all the utilities by publicly owned boards.” Regarding the railroads, Keynes told Roosevelt to “nationalize them if the time is ripe.” By the government owning and controlling everything, it could dole out a bit at a time to the citizens and thus guarantee their support and democratic vote.

During the 1930s, the farm population was about twenty-five percent of the general population in America. A twenty-five percent voting block of the nation was far too ripe to ignore. Roosevelt intended to be President for the rest of his life . . . and he was. He was never defeated in a presidential election.

The case was then built that the “farm family” was a fundamental U.S. institution and should be nurtured as a way of life. Additionally, it was portrayed that farm families were subject to extraordinary hazards like floods, insects, farm accidents, and droughts. Surely, there was no way the “farm family” could exist without government help. To make certain farmers never had to risk the plight of low income levels, they would receive higher prices for their products and income subsidies through public assistance. “And thank you for your continued vote so that these amenities will not have to be taken away from you.”

Over the years some almost unbelievable programs have been introduced under this subsidy umbrella. It would have made the Marxist Gosplan downright proud. During my graduate program, I ran across this letter from Octave Broussard of Louisiana to Ezra Taft Benson, who was the Secretary of Agriculture for two terms during the 1950s. I include it here just to demonstrate how recipients of subsidy move to the position of entitlement with ease and expectation. Once a recipient begins to receive subsidy, it is almost impossible to break that addiction.




If buying the votes had not been the real issue, the free enterprise system would have informed the farmers in mere seconds what crops to plant, how much to plant, where to buy the seed, and where to sell at the exact and right price. Next week we will briefly check in on where we are in the agriculture industry today.

Next Week: Farm policy

        (Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 

© Dr. James W. Jackson   
Permissions granted by Winston-Crown Publishing House 

www.drjameswjackson.com 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

Tuesday, October 7, 2014

SYSTEMS MATTER Part 12: Wages

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist


Thank you for all your kind responses to our taking the time to simply review the heritage we have in our free enterprise system. Systems do matter. I am amazed at how many people in the United States have no foggy idea how our system works, why it has allowed us to experience more wealth than any other country in history, or how it compares with less efficient systems used in other nations of the world. We just presume that the benefits have always been here and will always actively remain in place to keep us wealthy. That is not true.

In the more than 150 countries where I have traveled and worked, I have listened to the heart cry of the people who would give almost anything to enjoy the cultural and economic advantages we enjoy. But almost as sad is the realization, when I return home again, that our own citizens know so little about our country, cannot explain how our systems came to be, or are unable to relate to how easily we could, and are, losing those economic and cultural advantages.

Our people have no basis for comprehending that each time government entities impose another layer of regulations limiting our historic freedoms of economic and cultural choices, and each time there is imposed another impediment of higher taxation, fees, duties, and permits, we lose to the same degree the magic and efficiency of free enterprise, and eventually we lose the wealth and strength of our nation.

The key to wealth of a nation is new production and growth and the ability to increase income. Everybody has to end up better off. Our economic system has always been based on freedom of economic and cultural choice. Our national success has existed largely because of our system of free enterprise.

In the last few sessions, we have discussed the highly efficient way that the free enterprise system freely collects, measures, and distributes signals and information of all kinds to the necessary decision makers within the economic system. No centralized system of committees or Marxist Gosplan could ever come close to matching such efficiency or accuracy. The basic signaling components of the system include prices, profits, losses, and wages.

We will now focus our discussion on the concept of
  • Wages: The compensation resulting from the labor of a person is usually referred to as wages. In the beginning, the whole result of labor belonged to the laborer. But eventually the laborer had to deal with a landlord because he didn’t own the land. The amount of rent payable to the landlord for the use of the land then had to be subtracted from the laborer’s gross compensation. The laborer eventually had to subtract out additional amounts for capital improvements, like tools, transportation equipment, and, perhaps, livestock.
The person who tills the land doesn’t usually have the means to cover his living expenses until he harvests and sells a crop, so he hires out to a landowner who agrees to advance him enough to cover his necessities during the year. Now, the landowner or farmer who employs him has no interest in doing so unless the capital he has put out is returned to him, plus a profit. That profit becomes another deduction that the laborer has to recognize from the production of his labor on the land. That scene and sequence is played out in nearly every other example of manufacturing or industry. The workman needs someone to cover his necessities until the product is manufactured and sold.

The laborer ends up with his share of the endeavors, and that becomes his profit. The owner subtracts all the costs of the endeavors from the amount he receives from the sale of the goods. That amount becomes his profit. Adam Smith wisely perceived that 
“A man must always live by his work, and his wages must at least be sufficient to maintain him.”(1) 
“What are the common wages of labor, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labor.”(2)
Ultimately, wages are dependent upon productivity. There is a positive correlation between the value of what is produced and the wage paid to produce it. The information from those signals moves silently and quickly. A firm that pays a wage that exceeds the value that the laborer produces is quickly out of business.

But what signal tells the firm that it is paying too little or less than the value that the laborer has produced? It is the beautiful and efficient concept called competition. This concept is also foreign to the Marxist socialist system. But the free enterprise system operates here in fairness so that in the system everybody ends up better off.

If a business is paying a worker ten dollars per hour, but the worker is producing goods in excess of twenty-five dollars per hour, another like-kind business is going to snatch up that worker and offer to pay him nearly twice as much as he is presently earning. Guess what the worker is going to do? Wages in a competitive market reflect the productivity of the labor.

Two of the factors that triggered the ranting and raving of Karl Marx and Friedrick Engles were profit and capital. They believed that there should be no such thing as profit. If the workers owned everything, produced everything, and distributed everything, then there would be no need for profit, and all the workers would have more. They also totally misunderstood the concept of capital, and wished to eliminate every capitalist and everything having to do with capitalism.

Communism tries hard to fan the hatred between the classes. The workers were pitted against owners. Capital has to do with more than just money; it simply has to do with “stuff.” Economists refer to human capital, for example, as the additional sets of skills and experiences that a worker brings to the marketplace. Human capital can be increased by a person through years of experience in a certain field, through additional formal education, or advanced training.

As related to wages, any kind of capital, including human capital, that supports the worker increases his ability to produce at a higher level, thus increases his likelihood of a higher wage. The higher level of productivity that comes with a construction worker who has appropriate tools for the job increases his wage earning value in the marketplace. Marx simply didn’t get the concept that the stock of capital that supports the worker increases his productivity and his possibility for increased wages. Terms like, capital, capitalist, and capitalism really should have had nothing to do with the argument of class struggle or revolutionary war cries. That mantra was a political spin needed to fan the flames of the Bolshevik Revolution

Business owners find that by investing capital into their ventures they can greatly boost the efficiency and profitability of their enterprise. The capital infusion increases the productivity and the higher productivity leads to higher wages. The higher productivity can also result in higher distribution possibilities that can increase profits and allow for additional infusions of capital. Everybody ends up better off.

When impediments are placed on the businesses through additional regulations, restrictions, or higher taxes, there is less growth, fewer profits, less money for capital infusion, less productivity, fewer increases in wages, fewer distribution possibilities, and fewer wealth possibilities for both the individuals and the nation.

Wages and the economic subsets of competition, capital, and production, along with the other components of prices, profits, and losses, are incredible sources of information and signals that guide the efficiency of the free enterprise system.

Contrary to the economic philosophy of the Marxist socialists’ model, reason seems to bear out that what is good for the capitalist is also good for the worker.

Next Week: Not Raising Hogs

             (Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 


© Dr. James W. Jackson   
Permissions granted by Winston-Crown Publishing House
  
www.drjameswjackson.com  



Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

Tuesday, September 30, 2014

SYSTEMS MATTER Part 11: Profits and Losses

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist


Repeatedly we have asked why some countries are poor and other countries are rich. Our discussions keep bringing us to the conclusion that the countries that are wealthy, or becoming wealthy, are those that are capable of producing higher levels of income. Those higher levels of income are generated from successful production of goods and services based on the effective use of the country’s natural resources.

In order to make the best and most productive use of the natural resources in a country, the individuals within that country must experience cultural and economic freedom. They must be free to pursue their own interests and be allowed to make choices that they personally determine will result in their ending up better off. When those freedoms exist, the individuals are allowed to generate higher incomes by creating new wealth to be enjoyed by themselves and their country. To the degree that those freedoms are denied or restricted, the country will be less wealthy.

It is good to remember that profits are absolutely necessary to the existence of enterprises. Not very many people would run the risks of ever establishing a business without the possibility of making a profit. Without businesses, we wouldn’t have the goods and services we enjoy and to which we have become so accustomed. But let’s take a deeper look at the function of profit.
  • Profit: The phenomenon of profit is the indicator of growth. It is the mechanism that sends the message that growth is being experienced in the economic system. Profits inform us of the positive value that has been added to the country’s economy, sometimes referred to as the gross domestic product (GDP).
A technology company in the Silicon Valley of California might take a measure of sand and transform it from the recognizable sand granules into a highly desirable and useful computer chip. They may sell the computer chip to another manufacturing company or to an individual. The expense required to transform the sand into a marketable product would be considered their cost. The money received from the purchaser of the computer chip would be their sales price. The difference between the chip manufacturer’s costs and the sales price would be the company’s profit. When the company registers its newly generated profit, it simultaneously records that the wealth of the nation has just increased by the same measure. That wealth represents brand new just- created riches that up until that time had neither existed nor been recorded.
Effectively built into the free enterprise economic model are inherent signals and guidelines that work for increased success and growth. No one specifically designed the model to offer such signals . . . it just functions that way. But those signals and responses all happen so quickly and so silently, even without any individuals or committees in control of the signals. As a result of the simple market forces, individuals are guided to use the nation’s natural resources in the best and most efficient way. That is all possible because the consumers, as well as the business folks, act with the same cultural and economic freedom of choice in the specific areas of  their self-interest. They also believe that their choices will make them better off in the end.
When the consumers buy goods and services, their collective purchases direct resources to businesses that are meeting consumer wants. Their actions also direct resources away from businesses that are not meeting consumer wants. If the consumers purchase enough of a certain product to create a profit for the business, then the business can receive and rely on the signal that it should continue to offer that product for sale.
Adam Smith saw all of those seemingly instant and automatic signals coming out of the existence of the free enterprise economic model, and referred to the anomaly as the invisible hand. That invisible hand utilized all the unintended consequences of all the individuals who were simply acting with cultural and economic freedom of choice while pursuing their own operations of self-interest.

Even high profits send an important signal and serve a necessary function. High profits attract other players into the industry. As new businesses come in, the competition increases. It is the competition of the new firms that forces prices and profits down, thus increasing the efficiency of the total economy. It is interesting that profits encourage the very competition that keeps profits in check.

The inherent signals coming from the components of prices, profits, losses, and wages, determine not only which industries continue to exist but also which products survive. Only profitable industries, firms, and products survive. That also makes for a more efficient economy.
  • Losses: The concept of losses plays an equally important role in sending signals to the economic marketplace. Businesses must match their production choices with the consumer choices or face losses and eventual bankruptcy. In the system, profits seem to be the rewards and losses seem to be the pain. But in the long haul, even the pain of the losses serves to bring about rewards. Losses send the signal that something must change because the natural resources are not being used for the highest and most efficient means.
Just as high profits in a certain industry will send signals for new businesses to get involved in the same activity, so also do losses send a strong signal for others to pack up and get out. Those negative signals are strong and equally important.

When a business incurs costs that exceed profits, it is in trouble. It is time for it to change its approach and use its resources some other way. That is a hard lesson to learn. But failure in a business simply means that the business is not making other people better off. When that failure occurs, the resources that the business was using can now be used for other purposes. Other managers can now have a go at managing those resources. It is hoped that they will be successful in making people better off, and, as a result, make a profit from redirecting those resources.
 It is important that we ask why some countries are wealthy and others are not. It is likewise important to ask why some countries were wealthy and are presently becoming less wealthy. It is important to investigate at what level the individuals of a country are presently experiencing cultural and economic freedom as they access a country’s natural resources. It is still important to observe if the individuals are allowed to generate higher incomes by creating new wealth to be enjoyed by themselves and their countries.

Let’s keep observing and asking questions. Let’s keep discovering!

Next Week: Wages

          (Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   
Permissions granted by Winston-Crown Publishing House
www.drjameswjackson.com   


Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com