Over 50 years ago I had a graduate class in Macro Economics taught by Ted Kreps who was a famous economist of the day. The way that he taught economics was the "same" as what he had leaned earlier from economists just like himself. People with his kind of thinking have dominated the college and universities for the past 75 years. They throw around terms like "stimulation" as though the concept was handed down by God Almighty. I never heard one of these economists explain in any kind of detail how "stimulation" actually helped the economy of any country. They all just accepted the concept on "faith". Then and now, I do not accept anything on "faith" alone. To accept something on the basis of "faith" requires one to turn off the brain that Darwin gave us and I can not do that. Now, "real economics".
First, we need some simple ground rules like "What is the objective of economics?". Economics is the study or a model of the "real economic" system that allows us simple minded humans to understand what is going on. It is like speech and the written language. Speech is the real thing and the written language is just a small abstraction of the real thing. Speech came first and a written language is an add on option. Real economics also came first and economists came later and are also just an option. With me on this? It is an important concept to understand. The real economy does not need economists.
The second item is the "objective" of any economic system. For this blog, it is to produce the best quality of life for the individual. Look at the economic system as a pie where each person gets a piece. If the pie grows bigger, but if the number of people grows faster, the average person gets a smaller slice of pie. For that reason, we need to look at any economic system on the basis of how it affects the average person.
Finally, "What is an economic system?" It is a system that provides the elements of the "quality of life" for the average person. Some of the basics are food and shelter, but there is a lot more.
Early man was a hunter gatherer who searched for food and lived in caves like other animals. Most people think that hunter gatherers are just a part of ancient history, but the concept is still alive and well today. Farming, fishing and mining are modern examples of hunting and gathering. The USA started out 100% with hunter gatherers, both Native Americans and Europeans. In this blog, I am going to call hunting and gathering--"Value Extraction". The making of arrow heads by Native Americans marked the shift to "Value Added" economic activities. Finally, Capital was introduced and it could be loaned out or rented to produce "Capital Value". These are the three elements of all economic systems as you will see.
Historically, "Extraction" was the largest economic element and here in the USA, it was 100% when Columbus discovered America. The day Columbus stepped ashore, he was the richest person in the world. As more and more Europeans came here to "Extract", the wealth per person started going down because the limited extractable resource was divided by a larger and larger number of people. That is why I mentioned above that we need to look at economics on how they affect individual people. I don't know how much of current economy is "extraction", but I would guess that it is still only down to about 50% with "Value Added" about 30% and "Capital" the other 20%.
There is a limit on the absolute amount of extractable wealth and it is having to be divided up between more and more people. That is a fact. If you notice, some of the riches countries in the world are those who have a large amount of extractable wealth compared to the size of their populations. Some examples are, USA, Canada, Russia, Brazil, Australia and the oil producing countries of northern Africa. Some of those who depend on "Value Added" are not doing too well. Some of these are Japan, England, France, Spain, India and Italy. Germany is about the only one who is holding their own using "Value Added". The USA is not doing too well on "Value Added" either. Over 50% of our population can not compete with the rest of the world on the basis of "Value Added", thus high drop out rate of much of our work force.
Another point. Technology or special skills have always been the main driver of "Value Added". The Native American who could make arrow heads was much richer than those of his tribe who could not make their own arrow heads. Originally, let's say, that the arrow head maker was twice as wealthy as his average tribe members. This trend would continue to grow as a few members of the tribe gained more and more skills. Today, a person who is 7 feet tall and can professional basketball is over a 100 times wealthier than the average person. This same principle also applies to all kinds of advanced technology. In the example of the basketball player, he may add millions to the general economy, but it has very little affect on the "average person's" wealth
I mentioned above that Germany is doing better than most other European countries with their "Value Added" strategy as is South Korea. The other things that both of these two countries are doing is social pressure to minimize the number of "free loaders" in their society. Out of wedlock births in South Korea is "zero" as are school drop outs. If either South Korea or Germany had the level of social irresponsibility that we have here in the USA, both would be economic failures. It is only due to the abundance of "extractable" resources that allow the USA to function in the competitive world. Given these clear facts, I can not understand how the Obama administration could glut our ability to utilize our "extractable" resources thru excess regulation. Either the Obama administration has zero understanding of economics or that he is a Judas who wants to destroy the USA from the inside.
This blog has gotten a little longer than I had planned so I will add another chapter later.
