Dysfunctional parts of our economy

Yesterday we talked about two things that must be present to have a dynamic marketplace that puts out great products and services for us; we consumers.  In doing so we get to live an ever greater standard of living for less work on our part, as enterprises get better and better.  Those two elements are COMPETITION among providers such as companies and workers, and DISCRETION among consumers.  

Let’s clarify.

Competition – Company – “We have to do as well or better than the other company’s at serving people or providing our product, or we’re goners”.  Workers – “I have to work hard and educate my self so I can be a person of value to a company who will pay me well for doing so. I must find a company that will recognize the value I bring and where I can be happy working. I am also free to start my own business if I think I can do it better.” 

Discretion on the part of the consumer – “Do I need this (product or service)?”  “Do I want it?”  “Am I willing to pay the price they are asking?”  “Do I have a choice?”

Now, let me ask YOU.  Is there competition and discretion in these parts of the economy that many of us consider less than optimal in some places?

The Motor Vehicle Department.  Is there competition?  Discretion?  

Public Schools? Is there discretion for all, or only those who can afford it?  Is there true competition, or a monopoly?  

A provider who’s workers are protected by a union, such a government agency.  Remember John?  He had to do well or he may get fired.  Remember Mary?  She could let John go if he misbehaved OR she could pay John more than other workers if he was a star.

Health care.  If I have insurance and using health care is “FREE”, do I exercise much discretion?  Does the price go up or down depending on how much I use it, or is it the same price so I don’t care?

I don’t want to get everyone excited here.  I simply want to make a simple point – Competition and Discretion are vital to getting it right.  If we have them, and people pursue their own self-interest knowing they are there, good things will happen.  If we have a system that protects providers (company’s, agencies, workers) from competition, they lose their incentive to do well.  If we have a system where consumers lose their discretion, such as no-cost, no choice, then they lose their ability to make things better with their choices.

Please comment (intelligently).

Is working harder the secret? (Answer)

Last week I asked this question and asked for your comments on the subject.  Many of you did comment.  I said I’d give my thoughts the next day, but I never did!  So here goes.

The best system for raising people up is one where people are free to pursue their own self-interest within a system of laws. Consumers are in charge.  That means you.  You are in charge of you.  You make decisions based on what you think is best for you, both as a consumer, and as a supplier.

So if Mary has a company, and John works his tail off for Mary, should John get paid more than Mary because he works harder than she does, even though she is the owner of the company?

There are three stories at work in this question.  Mary’s, John’s and the company’s customers.

Mary is trying to win over and please customers.  She knows that if her company serves their interest well, they will come back and refer others.  Mary wants to be successful herself, so she knows that to do so, she has to make her customers (successful) happy.  Mary hired John to do work that customers value.  If John is doing work customers love, Mary will value John and pay him more.  If Mary does not pay John fairly, she knows she may lose him to another company because she has COMPETITION.  It’s a free market and Mary has to compete for both customers and employees.  If she cannot mix labor, materials and outside services together to produce a result customers want at a price they like, then the enterprise will perish.  Competition for customers and employees keeps Mary honest.

Now for John’s story.  John is a hard worker.  He has decided to work for Mary’s company.  He may feel if Mary notices his work he will get a raise or promoted – so it is in John’s interest to work hard.  John knows if he does not work hard or messes up, that Mary can let him go.  The labor market is a COMPETITION.  If John doesn’t value his job, he knows that Mary can get someone else.  This keeps John honest.  

What the job pays is based on whether there are others who can do the job for a given pay.  It doesn’t make sense for Mary to pay John far more to do a job that someone else will do for less.  Afterall, she has to keep cost down so she can keep prices down.  If she doesn’t, then one of her competitors will and she will lose customers.  If she loses enough customers, she loses her business.  Mary is willing to pay the most money to people who get the most results that her customers are looking for, and for people who can take responsibility and solve problems.

If John feels mistreated by Mary due to low pay, bad working conditions or any reason, he can go find another job.  It’s an open market – there is COMPETITION.

Now for the consumer.  The Consumer doesn’t care about John or Mary.  The consumer only cares about what is in it for them and at what price.  If the consumer loves what (the company) John does for them, then they may be willing to pay more, come back, etc.

This is the answer.  People pursuing their own self-interest in an open market where there is COMPETITION on the part of company’s and workers and DISCRETION on the part of the consumer.

COMPETITION AND DISCRETION – the magic formula.

This had lead me to tomorrow’s post where I will ask you about dysfunctional parts of the economy and ask what is wrong.

Where are you going? What's the next step?

What is your big goal?

What is the next step – the one you should prioritize and take today?

Buying American – Patriotic?

I didn’t realize there would be so much to say on this subject when I began writing.  But sound bites that you can fit on a bumper sticker fuel ignorance.  “Buy American – save our jobs”.  “Support the union and support jobs”.  Sounds ok.  But it’s not in our interest to support America or a union IF it doesn’t work well or produce what we would choose if we had a choice.  Consumers must rule in free markets.

There’s an idea that if we lose manufacturing jobs we lose it all.  But is that true?  Yes, manufacturing jobs have been declining for decades.  But consider this – we make more than ever -the production of goods in America is up, it’s just that we need fewer people to do it because we have become better at it.  Machines and automation have replaced more jobs than China.  Are they the enemy?

If either were an enemy, why then was unemployment the lowest in decades (just before the government forced so many out of work this spring)?  The answer is that things are changing.  There are far more service jobs, distribution jobs, high tech jobs, and other kinds of jobs.  We have plenty of jobs.  Manufacturing does not equal jobs as a whole.  If you were a manufacturer and did not change, you are toast.  But when you were born they did not stamp your forehead “thou shalt be a manufacturer the rest of your life”.  Change.  People can change.

And these days, who wants the manufacturing jobs of yesteryear?  Doing repetitive work all day standing by a workbench or loud machine, day in and day out?  Do you?

Yes, we should make sure other countries are fair to us.  We don’t want them ripping off our patents or cheating, but selling something cheaper is not cheating – it’s what consumers want.

I live in a house that is made in America.  My HVAC guy gives me service made in America.  My grocery store sells me food largely made in America.  My bank has tellers that give me service made in America.  My mechanic, my lawn guy, my gas station attendant, my dry cleaners, and all the restaurants I go to give me services made in America.  The goods my businesses make and sell are mostly made in America.  The truckers and accountants and lawyers and roofers and the gas company and hundreds if not thousands of Americans give me products and services, made in America.  Some distribute and service goods made in other countries. And in my Chevy pickup truck, there are foreign parts.  Heck, it may have been assembled in Mexico.

We have come a long way, and we have all benefitted.  America has adapted. Americans live far better today and have far more choices than they did in 1964 when I was born or in 1982 when I graduated high school.

To say we must buy American because it’s American, or not buy something made elsewhere because it is made elsewhere, is ignorant, and goes against what works.  People that say this have houses filled with foreign goods when they may not know it or want to admit it.

Buy what you think is best.  Let’s have an open marketplace so we have a choice.  Let’s protect competition with anyone.

The most patriotic thing you can do is to contribute to a highly competitive organization.  Be a high-value provider to others, likely through a company with others you collaborate with to produce an excellent product or service that others love and want. Don’t ask to be protected – compete.

That’s very American and very patriotic.

Buying American – Patriotic? Part 4

I drive a Chevy pickup truck.  I think they make the best pick up trucks in the US.  I am a bit ignorant because I have never driven many of the foreign brands, but I like my brand and it WORKS for me, so I stick with it.

I drive a Chevy Corvette.  This car is the best sports car in the world for the money.  It performs like a Ferrari or Lamborghini which costs 3 or 4 times the price.  It’s cheap to fix and parts are readily available – though I never need any.  Made in America.  My choice.

I ride a Harley Davidson.  I first owned a 1976 Sportster.  It was junk.   I got stuck on the side of the road so often, it leaked, wouldn’t start, handled like crap. I went around saying Harleys suck for many years, while I drove a Yamaha street bike.  Then the company was sold and the new guys got their act together.  Years later I drove my friends Harley on one of our annual riding trips.  I was hooked.  I bought that bike from him and still own it.  It rides like a Cadillac and I don’t have any problems with it.  America earned me back.

I ride a Japanese motocross bike and desert racing bike.  They make the best and they are not made in America.  I am going to switch to motocross bikes made in Austria this year and I will pay 20% more.  Why?  I think they are even better.  My choice.  America does not make dirt bikes.  Just as they don’t make compressors or fans or coils for the dehumidifiers my company makes.  ALL manufacturers of dehumidifiers get them and other parts from overseas.  They could not be successful otherwise.

When an American citizen goes to WalMart and fills their cart of $150, they are making their lives better.  And that would not be possible without foreign trade.

When there are free markets and free trade, we get to chose, and in so doing, we win; our lives get better.

More tomorrow…

Buying American – Patriotic? Part 3

If we say that we should buy American solely because we are American and we feel it is immoral or unjust to buy goods made elsewhere, then we are ignoring free-market capitalism – what works.  When people trade with each other, they are looking for the best deal, the right product at the right price.  As consumers, if we ignore these criteria, we will wind up with something that is either not as good or more expensive.  Is that what we want?  Of course not.  

Now if you are the producer of said goods that are overpriced or not as good, you may come up with all sorts of justifications and cry “it’s unfair” and “can’t you see what they are doing to our company and our industry?”  But in a free market, the consumer is king – they have to be for progress to be made.  We can not limit their choices and drive up their cost with tariffs.  (Tariffs on goods from a particular country are a TAX ON THE AMERICAN PEOPLE – because they are the ones who pay it.)  

In a free market, we go shopping for what we want at the best price.  Let’s say we wanted titanium.  We can’t find any in the U.S., good thing Khazahstan has it, and we buy it from them because they have a resource we want.

Let’s say the resource we want is cheaper labor.  Some countries have this.  And make no mistake – they even have cheap skilled labor.

Let’s say we want (insert name of product or service here____) and it’s available at a better price from (insert name of country here_____).  As a consumer, we have a choice.  Buy it cheaper from a foreign supplier, or buy it from an American supplier at a higher price.  It’s our choice.  We can consider quality, availability, and many other factors, but it’s our choice.  When we make that choice we are making it because we feel it is in our best interest.  And that, ladies and gentlemen, is the key of the most powerful force in economics – free-market capitalism.  

We need free competition, sound money to trade with (that is worth the same tomorrow as it is today), and yes – rule of law.  We can’t have people ripping us off or cheating us and getting away with it.  We can’t have the government saying we have to buy this or that, from here or there.  It distorts the market by the limited choice and encourages suppliers who DO NOT offer the best thing to get lazy and not get better, more efficient, or innovating their way to the top again.

America has lots of resources.  But there are some things it does not have.  Other countries have resources, and they lack certain things they need.  The solution?  Trade with each other.  Like people North Carolina and California trade furniture and wine and iPhones, because it is in their interest to do so, we can trade with Vietnam, China, and Pakistan for the same reason – it makes our lives better AND makes the lives of the people in those countries better too.

It would be crazy to give countries aid, while at the same time limiting trade with them by any means – right?

Free voluntary trade makes our lives better.

More tomorrow…

Buying American – Patriotic? Part 2

Free trade and free-market capitalism, which was embraced by the United States before it was most other places (some places still don’t have it and they suffer), has caused the standard of living to skyrocket and lifted billions of people out of poverty.  This works.  It always works.  It never not works.  And places that have “controlled” or “closed” economies do not work, and the people have a far lower standard of living.

Remember our talk yesterday of observing “what works and what does not work” and holding it above our ill-conceived beliefs.  As the United States grew and we made lots of stuff.  We were first to make much of the stuff because we were the first to embrace capitalism.  

Free market capitalism is where we all have the opportunity to serve others by making better mousetraps or giving better service.  When we solve problems for other people, these customers are free to buy what we have, adding their money for it in a voluntary exchange, because they feel their life will be better.  If they don’t like what we have or the price we ask, they won’t buy.

This forces the producers to get better to win more customers and beat our competition.  If we don’t have competition and force others to buy our stuff through regulation, coercion, or by shutting down competition, then our consumers have poor choices in the marketplace.  

Often, when people criticize capitalism, they are criticizing crony capitalism.  That’s when the big established business or industries lobby the government for protection or favors or subsidies.  If Detroit goes to Washington and says “slap tariffs on imports so we can charge higher prices” (instead of becoming better and more efficient), that is crony capitalism.  If unions lobby and negotiate for higher wages and pensions, it ties the hands of the company or government, preventing them from firing poor performers, reducing incentives of workers to get better, and raises costs for the company or government.  In this scenario, the parasite often kills the host – unless the parasite moves to a host that can just raise taxes, borrow huge sums, or print money – which may work for a while, but not forever.  I digress.

When an industry lobbies for protection, such as requiring all participants to be licensed (i.e. hairdressers, nail salons, plumbers,) or requiring them to get permission from some board or commission or meet over stringent requirements, it’s often a blend of trying to make things better, with a healthy dose of protectionism – making it harder for new people or companies to come in and compete with them by creating a barrier to entry.  It also creates the boards, inspectors, and agencies that exert power over the regulated, which is a recipe for favors and bad behavior and getting in the way of an entrepreneur that has a better idea.

Let’s be clear.  Crony capitalism is not free-market capitalism.  Instead, it’s the evil child.

More on the next post…

Is "Buy American" Patriotic?

Ok, I try not to raise too many feathers on Think Daily, but once in a while I take a chance.  I do not want anyone to unsubscribe.  Last week I threw it out there with great success with the Income Inequality ideas.  Here we go again.

I am an American.  I was an Eagle Scout.  I recited the Pledge of Allegiance growing up nearly every day.  My parents were in fraternal organizations such as the Moose Club and the Elks Club, who revered America and the flag.  I love my country (what the government has become – not so much).  I love the land, the people, the diversity and the spirit.  I mostly love freedom.  It is my number one value.

When I was a young man, I knew nothing about economics, other countries, or the benefits of free trade.  I only knew I was a GM guy; Chevy guy.  It was easy for me to call out the “Buy American” rally cry.  Wasn’t it supporting our own communities and saving American jobs?  Seemed like it to me.  

I was ignorant.  We all say stupid things when we don’t know enough about a thing.  I am sure I still do it, but I am far more careful now, and often reserve judgment, knowing I probably don’t know enough about a situation, and I don’t want to say something dumb that I will have to retract later.  But, alas, we can never know everything about all we speak of, and we still say dumb things and support issues we are on the wrong side of.

We get conditioned.  Our parents told us something, and talked about it in the house and at the dinner table.  Our professors told us something too.  These are older wiser people and they must be right?  Aren’t they?

Our friends, especially if we hang out with people like ourselves, are ignorant too.  And we pick up their positions and beliefs.  This is how the human mind works.  

Recall our earlier conversations.  The brain is your hardware.  It floats around in the darkness, waiting for input.  The inputs, or software, come mostly from our cameras (eyes) and microphones (ears).  The brain doesn’t care what comes in.  It will process the conditioning of a low performing person or a high performing person with no preference.  The information coming in becomes accepted and it cements into beliefs and expectations of how the world is based on repetition, and experiences real or imagined.  Once a belief is set, the brain looks for validation in the world that it is right – and it always finds them because the ego does not want to be wrong.

The news is a place for validation and fear (their agenda, attempting to control us), which makes our positions even more rigid.  This is how it works.  This is how YOU work.

But if we are to progress and get smarter, we must stop seeking validation for positions our ignorant self established based on input from many others who are ignorant (ignorant means we don’t know something or don’t know much about it), and start looking for what works.

You can look for right or wrong based on your definition. But it’s far better to look for what works, and what doesn’t work.

So what does this have to do with the title of this post?  More tomorrow…

Is working harder the secret?

If I labor all day shoveling dirt, burning thousands of calories and sweating, with my muscles aching, should I get paid more than others who don’t work as hard?

Comment with the orange button, and I will answer this tomorrow.

Atoms and Electrons

There are two worlds we live in – the physical world and the digital one.

When we are in the digital world looking at a screen, it’s a world of unlimited information and intrigue.  But when we finally look away and stand up, we are reintroduced to the physical world, where the movements of our body can make a difference, and our senses of touch and smell are awakened.

The digital world complements the physical one and makes things more efficient.  But to get lost in it for too long is to ignore the world we were made for, and to let our bodies wither.

To ignore the digital world is to be left behind from the tools others are using to get better.

Strike a healthy balance – and beware when it gets out of whack for your health and well being.