Guidebolt

Economics

2018.03.19

Introduction

Life, Liberty, and the Pursuit of Happiness

The individual freedom to do what one desires is a central idea for expressive economic prosperity. In practice, it scatters into the spectrum of voluntary and involuntary decisions that touch real people living under the natural laws and civil rules of the world.

Real Economic Value

Real economic value comes from the final consumption of actual goods and services. Production and distribution mean little without consumption; products only truly create value when they are used.

Productive Power

Productive power comprises the people, skills, tools, information, and resources required to produce and distribute real products and services. Productive power is strongest when competent, fair, honest, hard-working people have access to productive tools, protection from disruptive criminals, and freedom within reasonable regulations.

Voluntary Transactions

Independence

Independence is about producing things for yourself. It includes wearing clothes, writing emails, walking from place to place, growing carrots (to eat by yourself), and owning a house (to live inside personally). Independence is powerful because it reduces desperate reliance on others, thereby improving your negotiating power.

Charity

Trade

Involuntary Transactions

Coercion

Violence

Limitations

Large-scale Rules

Private Ownership

Associated with capitalism. Promotes voluntary decision-making for individual freedom. Risks creating a desperate environment for the powerless.

The great structure of capitalism is that people are able to freely make something useful then reap the rewards from selling it to others.

The real volatility of capitalism is that private owners of large enterprises are able to make unilateral decisions that jeopardize the economy.

Public Ownership

Associated with communism. Promotes involuntary programs for the common good. Risks creating a corrupt/incompetent dictatorship against the people. Risks capital flight and brain drain.

The great essence of communism is that its intentions are founded in generosity to the poor and deprived.

The real tragedy of communism is that its proponents destroy productive power through wicked methods such as legal theft from the wealthy in unreasonable amounts and unexpected context. When producers are punished unfairly, they move to other places with more civil behavior (capital flight, brain drain).

Taxes

Government taxes are involuntary transactions that reduce economic freedom yet maintain the order of civilization. Most people understand the need for mandatory population-wide taxation. It is simply not fair for the economic burden of a society's foundation to be laid upon only those who care or know about it. Critics are rightly overruled in the face of public safety, basic utilities, infrastructure, and essential services. Massacre by enemy invasion, mass starvation, and the breakdown of basic industries are far too serious to risk on the winds of imperfect communication, responsibility deflection, and the drop-in-the-bucket mentality. However, when taxes are raised above the essential threshold and abused for marginal purposes, that is the moment when taxation conglomerates into unreasonable theft. Rational planning around government taxes and spending mainly revolves around the scope and magnitude of essential services as well as the consequential ethics of pursuing public projects with legally stolen money.

Large-scale Sustainability

Productive Power vs Trade Negotiations

Circular Flow

Sustainable Economics | Diagram

Income Circulation |Diagram - Saving cash (or withholding cash, such as with taxes) can continuously reduce the flow of income. Balancing mechanisms (ex. fractional reserve banking, expansionary fiscal policy, accelerated tax collection) can only counter a moderate cash savings rate. The economy is doomed when the cash savings rate and and re-spending delay are both excessive (ex. United States Great Depression). Consider a business that produces enormous profits and saves that cash for a long time; the rest of the economy is doomed to get increasingly desperate as its cash wealth drains out and into that single business. While the poor cannot be blamed for building their cash reserves and emergency fund, it could be argued that the rich have a responsibility to spend their money where it will shoot out effectively across the economy.

Income Equilibrium - The depressive spiral of the cash savings rate can be countered in 3 main ways: net zero cash savings, non-cash savings, and money supply expansion.

A great economy simply requires the intelligent, voluntary collaboration of good people controlling businesses, managing governments, and shopping correctly.

Pay close attention to who your money goes to, because a sustainable and prosperous economy fundamentally relies on the correct circulation of wealth across the right people.

There are businesses that fund terrorists and other serious criminals. There are businesses that hoard lots of money without any intention to reinvest it into the economy. There are businesses that shuffle their money with only a few other entities (ex. high stakes gambling club) and thereby choke monetary circulation which a healthy economy absolutely requires. There are businesses who spend all/most of their profits on hedonistic pursuits (ex. buy 1 million prostitution sessions per year) with minimal investment in R&D or other methods to actually better the business (which is necessary for civilizational progress). Sometimes businesses are deviantly corrupt (ex. deceptive advertising, cost externalization to let public resources or employees suffer risk/damage, planned obsolescence) or woefully incompetent (ex. extremely wasteful activities despite acceptable intentions). Boycott such businesses and choose a good alternative. If none are available, start a business yourself that offers an even better product/service while fulfilling the responsibilities of a smart and good company- a business that knows how to strengthen its bottom line while scattering money to the right people and the right purposes.

Sustainable viability in a fair business environment, and the resources to start entrepreneurial ventures. Charity cannot occur without wealth; wealth cannot grow without coordinated production; coordinated production production cannot exist on a large scale without the mutually beneficial negotiations of trade and complex reciprocal agreements in all their forms.

Velocity of Transactions

Transactional velocity covers the speed and direction of money and real goods/services. It is strongest when demand flows through all working and job-seeking households; spending decisions are fast and informed; payments are immediate and certain; transactions are fulfilled well and reversed infrequently.

Money Supply

Fractional reserve banking allows banks to create money proportional to their deposits and issue loans with that money, thereby expanding the money supply. It is a mechanism to counterbalance the cash savings rate by allowing a fraction of inactive money to be recirculated with the boomerang pressure of debt and interest. The growth of the debt-sourced money supply is sustainable as long as the banks spend their interest income on non-debt goods and services. If banks only spend their interest income on creating new debt, the total debt in the economy will become a bubble with an unsustainable interest income curve. A growing debt bubble will eventually reach velocity of money limitations that inevitably starts bankrupting debtors.

The trade value of a currency without intrinsic value is overwhelmingly determined by the sellers of goods and services. Furthermore, direct prices (ex. 10 credits for a meal) have a much stronger stabilizing currency trade value than indirect prices (ex. 10 USD worth of credits for a meal). Because modern fiat currencies have negligible intrinsic value, the trade value of fiat currency is derived from the value anchors set by governments and independent businesses, such as for taxes, license fees, and direct product prices. Purchasing power is directly derived from these pricing decisions. Currency exchange rates are generally stabilized through international commodity arbitrage and skewed by the balance of trade between national imports and exports.

Light inflation is desirable because it encourages the crucial circulation of money into real goods and services while cushioning against deflation.

Deflation: Making Sure "It" Doesn't Happen Here | Ben Bernanke - 2002 Speech at the National Economists Club

Assorted

Subscription payments stabilize the economy with predictable, long-term circulation patterns.

Subscription payments (ex. internet service, electricity) are quite compelling because they involve a continuous bond of trust between the payer and the provider. Especially when subscription payments are charged and paid automatically, they generally require minimal attention from both parties, so it's quite convenient as well.