The 6 Pack Economist

If you are expecting something about throwing our money down the blackhole of failed investment banks and such I am sure there are plenty of other posts like that.  This one is different as I am going into the “too big to fail” theory and how it is similiar to the physics of blackholes.  The short version of this is that when companies or organizations get too big the sheer mass of them failing pulls so many other companies with them that the standard rule of markets breakdown.

In physics blackholes start breaking traditional rules of physics.  Rational explantions of what goes on in the world simply do not apply (yes I know about how they work but try explaining it to a regular non-phd holding person and all they here “weird stuff happens).  This happens because they become some ackin to there own self-fulling prophecy.  Each piece of mass they pull in allows them to pull in more mass.  Something similiar has happened in our economy except instead of physics breaking down, the free market breaks down.

 Under normal cercumstances a company that has failed as miserably as those in todays market would just be allowed go into bankruptcy and either recover or close it’s doors.  In smaller companies this might cause a few other companies to fail that normally would not but nothing too severe (unless you are the one who lost their job).  What made this different is that many of these investment banks have swallowed each other up over the years that these massive institutions would essentially cause an economic blackhole by their collapse.  They would suck all those nearby into their collapsing mass.  The resulting devastation would end much of the economic progress people have made through their life. 

Do I like it. No.  I freaking hate that these miserable failures have to be saved.  I just wished that these damn mergers that the FCC authorized over the past 30 odd years may have been better scrutinized.  That way a bunch of little failures could occur.  We could take our medicine and recognize that that way of doing business does not work.  Those CEO’s and upper excutives can face financial ruin for dumb decisions and other savier business leaders could prosper.  Instead we reward failure.

Living in the northeast super city corridor (Washington DC to Boston Mass) I am used to reading about all the different taxes that get thrown around.  From Philadelphia city wage tax to 12 dollar cigarettes in New York City the region in very tax happy in general.  I am not against taxes.  I think we need them for many community based projects that the private sector simply won’t do or can’t do for a price people are willing to pay.  That being said I hate taxes that are counter productive, like Philadelphia wage tax, or just wasteful like cigarette taxes that go to programs that will be around after everyone finally quits smoking.

My personal and what has been historically accurate view is that government is the most wasteful organization to dump money into.  To list the sheer amount of waste that goes on is too much for a blog read by about 4 people.  Similar things happen in the private sector also but their (used to be at least) consequences to this, like losing your money.  Current bail-out excluded, government usually gets more money for failure then success.  In the government if you run your department more efficiently, thereby reducing your budget, you do not receive a bonus; instead you lose power as some other department takes your budget surplus. 

I have tried to sell the idea of taxes as the purchase price of government services for an area.  So instead of looking at taxes as something that is just taken from you, think of it as the purchase price for government services.  Perhaps if we looked at government more like we look at say Walmart, Target, or Best Buy perhaps we can reward those governments that give us the best bang for the buck. 

Let’s take Philadelphia wage taxes.  Back in the fifties or sixties (I can’t be bothered to look it up) they put this temporary tax on income to build something or other. Back then our economy was based around manufacturing and large labor forces.  So if you wanted access to large labor pools you had to be in the city.  The seventies and eighties changed the standard manufacturing economy (for better or worse).  What replaced it was a service oriented economy and smaller work forces.  Without the need for access to large labor forces companies moved out to the suburbs to avoid the wage taxes (not to mention the oppressive business taxes).

This brings me to the conclusion that when you offer less for the money you have to lower your prices.  This is what happened to Philadelphia, except that instead of lowering their prices to service more customers (residents and businesses) they kept them at the same high rate or only marginally lowered them. The large labor force offered by Philadelphia did not matter, nor did Philadelphia have name recognition like New York City (which is why New York City can run the tax system they do).  The mass exodus of highly paid people and service based businesses soon moved to the suburbs. This began to take its toll on the city. 

I have worked in Philadelphia many times both in the out skirts and center city region.  What I can honestly say is that I have no idea where the wage tax went.  Simple things were not done.  Trash is piled in corners on the streets, abandoned cars on major streets are ignored and just general disrepair is rampant.  Certain portions of the city were great like center city or old city, while other portions just needed general “take care of this crap” to be great.  Of course other areas would require a Marine escort, but we can pretend they are not there like the rest of city hall currently does.   This leads me to the fact that what I get by working in the city or god-forbid starting a business (even more frustrating) in the city is not worth the price paid to do it. 

I see that the dollar is in a downward spiral again.  Which if you understand what money actually is seems completely rational.  We knock the interest rate to near nothing which will essentially put more dollars in the pool and with more dollars chasing the same amount of goods and services you have inflation.  This is what is happening with foreign currencies and the dollar now. 

I am not sure why the Euro is worth anything either as when was the last time you purchased an good or service (Amsterdam red light district excluded) from Europe that was not a super luxury item?  Volkswagen maybe but they are made in México usually. 

This brings me back to my point.  Money is merely a medium to allow an easily exchangeable representation of your good or service.  And when taken on a national level the goods or services you can purchase with the money of that nation.  If that was confusing let me give you a little story.

Tom works for a week at Widget Inc. USA for a week.  He earns 500 US dollars.  Tom then wins a free trip to some country in the EU.  Tom then takes his 500 US dollars and exchanges it for 370 Euros.  When Tom uses those Euros he should be able to buy things made by the Europeans in what he feels is equivalent to his week of work.  This does not mean that some European worked for a week to give Tom something specifically, it means that Tom agreed to an exchange of his week of work via the currency medium for some amount of some Europeans time. 

I will continue the discussion of worthless money in other posts.  And just remember that time is money.

So the billionaires got screwed too with their own little pryamid scheme. 

I don’t know what to say but I thought this was funny when I heard it.  Then again I find it funny when people have stuff fall on them so maybe my sense of humor is not for everyone.  Personally I figured all of these socialites were toasting their champagne and caviar to this guy, while he robbed them.

Life is a pryamid scheme.  We all pay or work for someone who in turns takes a piece of our money or work and pays the guy above.  Hopefully in the process you get a product you need or want. 

Heres to being at the top of pryamid when it collapses.

p.s.  Amway is advertising on TV.  NO F****** way.