Natural Resources And Economics

 I have blogged in this area before, but it still needs to be repeated.  In this blog, I will include some current political impact.

My first question is why have we not heard more form our many university educated Economists?  Where are they when we need them?  I think that I know the reason and what is that?  The university trained Economist focus almost exclusively on "value added labor" and "capital".  Back when I was in graduate school, I had a professor who was retired from Stanford who had been on the Council of Economic Advisors under President Roosevelt.  That was back in the 1930's and his economics books were written by people who got their ideas about economics at least 30 or 40 years earlier.  Can you imagine that I was being taught with materials that were almost 75 years old?  The factors that were totally left out were"  (1) The roll of intellect and technology and (2) The roll of a countries natural resources.

Look at today with an open mind and you will see that it is not "capital" or "manual labor added" that creates economic wealth and feeds our quality of life.  It is "intellect" and "natural resources".  Look at two countries, Israel and Saudi Arabia and you will see two of the types of countries that I am talking about.  Israel has very few natural resources but has plenty of intellect.  They have a higher per capita income than the USA.  Didn't know that did you?  Saudi Arabia also has a higher per capita income than the USA and their wealth clearly comes from their natural resource, "oil".  Look at Hatti.  They have neither natural resources nor intellect and they are at the bottom of the list when it comes to quality of life.

Now to the USA.  When it comes to intellect as measured by any means, we do not rank that high.  We are far down the list on literacy and STEMS compared to the rest of the world, but we still do reasonable well. Why is that?  We have an abundance of natural resources including energy in the form of coal, oil and natural gas. I could include good farm land, weather and access to sea transportation also, but it is the energy component that I want to focus on.  99% of the countries of the world are envious of our cheap energy resources that we got for "free", but we have a group of people who want to cancel out our most important economic advantage over most of the world.  If we had to operate primarily on our "value added" labor as the source of our wealth. where do you think we would rate?  How about South Korea?  They are not doing as well as the USA now even though they score higher than the USA on almost every factor that optimized value added labor.  Their literacy rate is one of the highest in the world and they also have one of the lowest out of wedlock birth rates.  We score far below South Korea on both of these important factors.

Think about the USA without our "free" energy natural resources?  Think about what your quality of life would be without coal, oil and natural gas?  Think of this energy having to be replaced with wind mills, solar panels and fire wood?  Look at countries in Africa who still have to cook and heat their homes with fire wood?

What you hear on the news is about all the people who work as coal miners and oil field workers losing their jobs.  That is only a very small part of the problem if we eliminate fossil fuels. It is the impact on the rest of the economy that will be the big impact.  Any advantage that we now have over 99% of the world when it comes to energy will be eliminated.  We will have to compete with the rest of the world on the basis of our "intellect" and hard responsible work.  I don't think that we will match up very well on that basis.  Do you?  The Green Movement will kill the USA as you and your grandparents have known it and it will not take that long either.  We will not have the wealth to import over 50% of the medical doctors that we need to care for our health.  Didn't think of that did you.  Well, it will get much worse.  

Again, why are the Economist so silent on this important subject?  

 

Apples And Oranges

This might sound like a simple title, and is, but it is one lesson that we all need to learn and I hope this bog will explain why.

About 100 years ago Russia had a situation similar to what the USA has now.  Many of the people were very dissatisfied with the Czar and were to the point that anyone was better than the Czar.  They did not exactly have an election but it resulted in the same thing.  Rather than focus their vote on the person or type of government that they wanted the Russians voted against the Czar.  The communists did not have near a majority, but they ended up winning and Russians ended up losing. 

I think that you can see that voting "against" some one is not the same thing as voting for another person.  This is the situation that the USA is now in.  Look at it this way.  Say that 40% of the people want Trump and 30% of the people hate Trump and will vote for anyone if it is not Trump.  There are also 30% of the people who like Biden and will vote for him.  Now, with this setup Biden wins.  Let's look at what actually happened.  Which candidate did the voters actually prefer?  Trump with 40% was clearly who most of the voters wanted, but Biden ended up the winner.  This is similar to what happened in Russia 100 years ago and once the communist party was in control, the rules changed and there was no way for the Russians to get them out.  Interesting isn't?

Our system of voting may appear to be a great system and it is, but it also has a very risky down side and we all have to recognize that.  When we get hot under the collar and vote against someone, we need to think about what might happen if a lot of people get the same idea and we end up with someone that most of the people did not actually prefer.  This is your warning and it might actually be too late.

As a parent, many of us have been confronted with young children having fits about eating this food or that and stating that they want some thing else, but you can't find that some thing else food.  Even adults can have these kinds of fits and can end up making the same mistake that the Russians did! 

Business Executives Vs Politicians

I am going to try to show the very significant difference between business executives and politicians.

Back when I was in graduate school, I took an Industrial Psychology class where we studied the works of Fred Herzberg.  His work stressed that worker motivation could be divided into two parts. Those that were positive and those that were negative.  He felt that business did not put enough focus on the elimination of negative factors.  His reasoning was that people tend to remember negative factors much longer and put much more weight on them compared to positive factors. Here  is an example.  People remember touching a hot stove for life, but forget about eating a great steak in a few days.  This is just how people tend to work.  Now, the point of this blog.

Compare President Trump and Obama or Biden.  As a business executive, President Trump wants to get things done.  That is how successful businesses work.  In the process of getting things done, it is inevitable that you will step on a few toes, but on balance, the positives out weigh the negatives so the score is a net positive and the business executive wins!  Do you agree with that?

Now the politician.  The objective of the politician is to not step on any toes.  He is not concerned about getting things done that are positive, because he know that people remember and vote more based on negatives than on the positive things that a politician does for them.  Look at President Obama.  He spent a lot of time playing golf.  During that time he was clearly not doing anything good for the voters, but he was also not doing anything bad.  You have a hard time coming up with anything that the Obama administration ever did for the voters. but you will also see that he did not step on many toes.

The problem is not with the business executive being elected as President, the problem is with us voters who can not see what Fred Herzberg was trying to teach us.  As long as we put more weight on things like style that we see as negative than we put on the positive things, we will get just what we voted for and what is that?  We will get life long politicians who are good at avoiding the negative things in the process of doing exactly nothing for the country in the long term.  It is not the business executive or the politicians who need to wake up, it is us the voters.  I hope this short blog has opened a few of your eye and you will accept that. "we have found the enemy and the enemy is us".  What news paper cartoon was that?  Does anyone remember?

Don't Bet The Farm

 Have you heard this one before?  It is true and it carries a very important lesson. How about this other one?  The devil that you know is better than the devil that you don't know.  Both of these are critical to the times we live in and I will explain why.

Right now we are having riots and marches by people who do not really understand what they are doing.  For some strange reason, they are dissatisfied with the current situation and feel that anything is better than what we now have.  As a parent this was the kind of thing that I used to hear from my 5 year old, but not people who were old enough to vote.  It is not that they propose some adjustment to the current situation, they want to radically change things.  This can only be because they feel that the current situation was something that just happened by accident.  They do not understand that it took generations and many lives to build the country that we now have.  The proof that our forefathers did the right thing is that 99% of the rest of the world would like to be free and more like us.

This is where the farm comes in.  These mostly young people have had it very easy.  Many refer to them as "snow flakes" because the lack structural content and that is true.  Most never built anything, only enjoyed the work and sweat of others.  This farm was built on the backs of those who came before us and as their work has accumulated the farm has become very large, valuable and powerful, but not by the efforts of these young people.  These young people appear to want to bet the farm on the idea that just around the corner is a much better place.  They, however, can not point to a place in the world or in human history that is better than the USA.  

These young people have no idea that they could lose the farm that has allowed them to have the freedom and opportunities that they now have if their unproven idea does not perform as they think. I have seen this kind of situation business and personal finances where a young person took risky chances early and scored with success.  Many feel that they can keep on betting the farm until one day when they are near retirement their bet does not pay off and they find themselves broke and on the bottom with no opportunity to build their fortunes back.  It is one thing to bet "your" your farm when you are young, but you can't bet the farm of someone else as it appears these young people want to do. There are a lot of older people like me who have worked all of our lives to build this place and now to have someone who has not contributed to its construction wanting to bet it on some unproven idea is crazy.

Given that some want change, considering the risk, changes should be made slowly and cautiously. We would not want to destroy the farm if we make some kind of error with the changes.  We could also look around the world for examples where things were better and copy some of those, but no one can find better examples around the world.  Interesting isn't it?

Bottom line-----DON'T BET THE FARM------

history historr

Sunk Cost and Covid-19

 One of the most important concepts in decision making is "Sunk Cost".  If you don't know what "Sunk Cost" is, this blog will try to explain it.

When I was teaching Decision Theory at a major university, one of the hardest concept to get across to students was "sunk cost".  Sunk cost is something that has happened in the past and no future decision can change that fact.  Here is a simple example.  Let's say that you purchased a car for $10,000 and you have been making payments on it so that now you only owe $7,000.  Your wife finds exactly the same car as the one you have for only $5,000.  She suggests that you let the loan company take your old car back and that you buy this other car for $5,000 for a savings of $2,000.  You disagree with her stating that if you do that you will lose the $3,000 that you have already paid. The fact is, the amount you have already paid is "sunk cost" and should be ignored and you should buy the other can and save $2,000.  I don't know if you follow this or not.

When people say that 201,000 people have died from the Covid-19 virus and that we need to close down the economy even though the death rate is far below what it was in the past, this is an example of Sunk Cost.  The decision for the future needs to be based on the future not on what has happened in the past.  We know that, in the case of New York they made some very bad decisions that will not be repeated in the future.  Claims like we have to "respect" those who have died and need to do this or that in the future is also an example of sunk cost.

In the beginning the focus was on "cases" and "tracing".  Once the infection rate has gotten above some level, the whole business of "tracing" becomes less efficient to the point that at some level, it is totally worthless and a waste of time and effort.  Cases are the same as we develop better and better treatments.  Now deaths are the focus and that focus needs to be on those who are most vulnerable.  As we get more and more knowledge, it is clear that the risk group for death is very small and well identifiable. Like all decision making we need to be forward focused and on actions that will affect the future.  Looking backwards has value to the extent that it helps us predict the future, but that is all.

Are We Really Serious (Medical)?

 Are we really serious about medical cost and availability?  That is the question I will try to answer for all of you.

I think it was about 1975 when I was waiting in a barber shop for a hair cut.  I picked up a copy "Scientific American" and started thumbing thru.  I stopped on an article about how the USA has just passed the 50% mark for new medical doctors who were just admitted to practice here who were not born here.  I did not think too much about it at the time because all of the doctors who I knew appeared to have been born here.  Later on as I watched more and more foreign born doctors start showing up that I realized how significant this was.  Back in 1975, I would guess that 90% of doctors in practice were born here, but the mix was clearly changing and changing fast.  When you look around your area, I ask you, "How many of your doctors were not born in the USA?"  If you are honest, the number is way up there and that is the problem.

Why if medical service is so important, why have we not been able to train our own kids to be doctors?  I am not kidding here.  This is important.  I did a little research to see what the doctor situation was in other countries and was surprised at what I found. Here are a few numbers. Austria--5.1 per 10,000 population.  In Norway the number was 4.6 and in little Uruguay in South America it was also 4.6.  Denmark was 4.5.  You have to be asking, "What is it here in the USA?"  It is 2.77.  Realize also that well over 50% of our new doctors are not from the USA, but are imported.  What is wrong with us?  We brag about how rich or well off we are, but for some reason we and our kids can not do the job!  You can do the math. With 325 million people in the USA and having 2.77 doctors per 10,000 population, how many doctors do we have?  If you are serious, you will do the math and find out.  Now, with the answer, how many doctors would we need to get up to the level of Uruguay?  If you did the math, you found that it is a big number.  What is the solution?

Who you vote for for President will not get the job done!  That is because doctors graduate and are certified by the states.  It is the state's job and they have not done very well.  You could continue with your math and find out how many doctors your state has based on the 2.77 number and you could also find out how many more doctors your state would have to graduate to bring your state up to equal to Uruguay.  Again, it is a big number and it is your kids who have to go to college and medical school, no one else.  Are your kids smart enough?  Have you been or are you a good enough parent to get the job done?  This is not a federal government problem, nor are they the solution.  You really don't have an excuse. I is up to you!

There have been some government programs that most of you thought were good, but when you look deeper, were they?  Look at the current "Student Loan" program where the tax payers assume the risk for the loans that your bank gives to students.  Is that money being used for graduating doctors here?  Some is, but most is wasted on your kids taking worthless fluff coursed in college.  Because so much new money has been thrust into our colleges, it has cause them to raise their tuition and salaries for the teachers.  This has made going to college much more expensive for everyone including the doctors.  In the past when students and their families were coming up with the money themselves, they were better shoppers and tried to get thru college as fast as they could so they could start paying back their families. This has all changed. Now kids take 6 years or more to get thru college when it used to only take 4.  I even knew some who got thru faster.  It is just a case of simple economics.

I spent some time in Hungary a few years ago and stayed with a couple who were professors in their medical school.  They had a young daughter who was just graduating from high school and was going "directly" into medical school.  That means she would graduate several years sooner than a typical kid here in the USA and would incur much lower cost for her degree.  Further, she would have many more working years to pay back the investment.  Are you starting to get the picture?  Are we really serious?

I could keep going on with this, but I am going to cut this short and ask, "Are We Really Serious?"