Escaping Oz: An Observer's Reflections: Escaping Oz, #3

Mosquera, Jaime (Jim) Jr.

Escaping Oz: An Observer’s Reflections

ISBN: 0-9832966-6-9

ISBN-13: 978-0-9832966-6-9

Due to the Internet’s dynamic nature, links contained within may have changed since publication and may be invalid.

Book composed in Palatino Linotype for main text, Trajan Pro for main headings, and Castellar for sub-headings.

DEDICATION

To the men and women of the United States of America

 CONTENTS ❖

 Introduction ❖

The easiest thing to do on earth is not write.

 William Goldman, novelist

This book is a collection of musings on topics you've heard discussed in the media or maybe over coffee or perhaps something stronger.  The style floats from slightly academic (though hopefully not much), to irreverent, to humorous and occasionally sarcastic.  I want readers to look at the money world and social issues affecting that world differently.  My goal is to make you think.  Thinking  is more than just criticizing, it takes work.  Don’t assume your criticisms are correct.  Do the research and check the facts, sometimes the facts challenge deep-seated beliefs.

For many reasons our critical thinking skills have weakened.  We need these skills at an important juncture in our nation's history.  Information dumps from print (what's left of it), TV and the Internet can overwhelm anyone.  What's emerged is a cottage industry of people deciding fact and fiction.  In other cases, people try to convince us that stop means go and that red is somehow green.  While some statements may be true, we’ve lost our ability to judge.

Man or woman is an economic animal.  Without external interference, people will take action to maximize, or at least provide a minimum level, for their economic welfare.  In the first two Escaping Oz books, I postulated four economic laws, the last of which suggests that people will act on their behalf in a manner that satisfies others acting on their own behalf.  Strip away the noise and it's that simple.  People acting in this manner represent a market.  The market is a collection of people acting on their own behalf for the benefit of others.

Imagine being in a bazaar where you can buy anything (goods or services) you want.  Also, you're selling something others want.  If there's no money in this bazaar, everyone decides the proper exchange value.  If you're selling oranges, the vendor selling flour tells you how many oranges you must offer to get a pound of flour.  The two of you negotiate an exchange.  Imagine doing this with every other vendor.  While bartering is cumbersome, you know that it's possible to get everything you need.

If we introduce money, bartering goes away.  Is the money valid?  Is it counterfeit?  Can someone make money without a matching effort?  For money to work, everyone must agree to use it for the exchange goods or services.  It must be measurable, and it must represent something of intrinsic value.  You could argue that money is the single most important invention in economic history.

What about the market's security?  Do vendors feel secure selling their wares without fear of theft or other crime?  What happens if the flour I bought or exchanged contained worms?  What if we thought we bought one pound, but instead we received three-fourths of a pound?  We should hold vendors to a product standard — they need to deliver what they're supposed to.  In this bazaar, while vendor reputation is important, we'd like criminal and civil laws protecting the market. 

If you agree that people are economic animals, you'd only need goods, services, money, civil laws, and criminal laws.  Society would desire more, though to have a functioning economy, this would be it.

If we calibrate an economy's basic needs, it will help towards understanding the book. Occasionally, I'll refer to the bazaar example to help clarify economic themes.  Along the way, we'll look at human action, cycles, people behind curtains, generations, and government.  We'll also take a look at societal reaction during economic contractions.  The severity of the next contraction will test the nation's fabric.

The nation is unprepared for the next financial and economic crisis.  We never flushed the excesses of the previous financial bubble, we simply reflated it.  There's rot in our foundation, many can't see it.  Once everyone does, our floor will give way and we'll need a new foundation.  Hopefully, this book can give you a sense of what's needed to rebuild it.

This book is also about introspection.  I'd like the reader to look within and evaluate their own sense of objectivity.  American society has no political center.  The political distribution approximates a camel's humps.  Graphically, it looks like a hump on the left, a hump on the right, and a little baby bump in the middle.  The hollowing out of that middle ground makes compromise oh so difficult. 

What used to be a marketplace of competing ideas has devolved into a self-censorship pool with some drowned out by others objecting to their speech.  Supreme Court Justice John Marshall Harlan famously wrote, One man’s vulgarity is another’s lyric.  I speak not of vulgarities, but simple expression of ideas.  Science evolves through the debate of evidence.  We’re not evolving societally if we can’t debate ideas.  The greatest threat to free speech may no longer come from governments.

The hollowed out middle, or what could be the marketplace for competing ideas, evolved due to a cognitive map that doesn't encourage questioning accepted norms.  Social apathy's part of the hollowing.  Is this apathy engineered?  I've often wondered if technology, or more specifically, hand-held smart devices, you know what I'm talking about, has contributed to pervasive social apathy.  A smartphone's become a dopamine delivery system.  Ask someone you know how much you'd have to pay them to take away their smartphone for a day.  Application designers understand this dependence and keep you coming back for more.  It's harder to question accepted norms when we're buried in apps.

Social apathy is very evident when considering active voters.  You might have anticipated higher voter turnout in 2016 since there was great loathing for the opposition candidate.  In fact, there were more voters at the polls, though only 55.3% eligible to vote did so, a mere 0.4% more than in 2012.  In one state, Hawaii, only 38% of the voting age public showed up.  In California, 700,000 more people voted (yes or no) on Prop 64 (Marijuana Legalization) than the combined votes of Trump and Clinton.  There were more votes on Prop 60 (Adult Film Condom Requirements) than the combined Trump and Clinton tallies.  The city nearest to me had a big turnout in a recent, local issues only, election — 30% showed up.

Economic and political tensions raise questions about the nation's fragility.  Lieutenant-General Sir John Glubb, the author of The Fate of Empires suggested that empires last on average, 250 years.  An empire progresses from early pioneers to people engaged in conspicuous consumption who become burdens on the state.  The empire evolves to an age of bread and circuses.  We'll explore the U.S. empire in the final chapter and assess where we fall within that life cycle.

You don't have to read the book in any particular order, though I hope you save the conclusion for last.  There's no bombshell ending, though it will mean more if you read the rest.  Prepare to meet the future.  It always arrives sooner than expected.

If you don't understand the fundamentals, you will never understand.

  Jim Mosquera

 1: Economics ❖

For full disclosure, I'm not an economist, nor did I receive formal training in the discipline.  My educational path, formal and informal, allows me to observe, hypothesize and sometimes draw conclusions.  As the book's title implies, these are an observer's reflections.  Economics is a study of scarcity, how people use resources, and their decisions.  Decisions are based on human nature.  Until our mental wiring undergoes massive change, we'll continue responding economically just as we always have.  Short of our species becoming Vulcan or Borg (first Star Trek reference), we won't change.  I'll focus more on macroeconomics, which draws attention to governments, industries, central banking and the business cycle. 

Some place little importance on the economic social science.  It's considered soft.  The public blames economics for being unable to lessen human suffering that includes misery, starvation, financial crises, unemployment, war, or tyranny.  The natural sciences receive praise for their great technological achievement and advancement of human conditions.  As you'll learn, technological progress results from following liberal economic policies.  I don't use liberal in the contemporary sense.  Liberal arises from the word liberty.  The classical economists offered the platform for societies to release the genius of innovators allowing technological progress, and high standards of living to emerge.  I hope to raise awareness of these principles.

► LAWS ◄

To retain respect for sausages and laws, one must not watch them in the making.

 Otto von Bismarck

When I say laws in this section, I don't mean something you've read in an econ textbook or maybe even heard on TV.  Oh, and these aren't any laws you'll hear about in a courtroom. These laws are my interpretation of economic fundamentals.  If you remember the four laws, it'll propel you towards a better understanding of our economic world.

 Economic Law #1 

Credit = Confidence

Without confidence, there's no credit.  The word credit comes from the Latin credere, which means to believe.  Think of the word credible when referring to witnesses. I won't reveal any crimes.  Credit means someone is willing to borrow and someone is willing to lend.  Credit transactions require lenders to understand repayment risk and the time value of money.  The lender expects something in exchange for credit extended.

 Economic Law #2 

Deflation is a lack of confidence

Deflation is the opposite of credit.  In our bazaar, if lenders are no longer willing to extend credit, it lessens trade and exchange.  The lack of confidence might originate with lenders unwilling to lend and borrowers unwilling to borrow.  If the bazaar mostly relied on credit, there would be a major impact.  Reduction in credit's outstanding volume is deflation.  You can find discussion about deflation in other Escaping Oz books.

 Economic Law #3 

Inflation precedes deflation

I like to use a blimp as an example of inflation.  It takes a bunch of gas to fill those airships.  That's inflation.  A blimp equals credit on steroids.  Much confidence among lenders and borrowers existed to create that much credit.  When gas escapes from the blimp, it deflates, though hopefully not too fast.  If it did deflate too fast, it would crash.  The blimp's inflation precedes the gas escaping later.  Economies behave similarly.  Big inflation comes before big deflation.  The Roaring Twenties created a beach ball's worth of inflation.  The credit boom since the early 1980s created an airship floating over sporting events.

 Economic Law #4 

Markets allow people to satisfy themselves by satisfying others

This is the most important law.  Everyone's trying to make a living in the bazaar.  All vendors act on their behalf in a manner satisfying others acting on their own behalf.  That's it!

A state is better governed which has few laws, and those laws strictly observed.

 Rene Descartes

► MONEY & CREDIT ◄

Time takes everybody out. It's undefeated.

 Rocky Balboa

Let's return to our bazaar.  We have three types of economic goods: consumed goods (stuff sold), goods used to produce the stuff sold, and money.  These are the bazaar's only needed economic goods. The more of the first two, the better off we'll be.  Making these two types of goods, however, requires effort.

Add time to the list.  We’re all consuming time.  I don't know anyone on a time diet.  No one’s figured out how to make time. Time is the most precious good — we can't replace it.  And please, no comments about time machines!

We maximize time to spend it on what we want and less on what we have to — the nirvana of retirement or leisure time.  The way we do this is by producing economic goods or services and exchanging them for money.  Money allows us to buy time, figuratively speaking. 

As long as those in the bazaar earn money in return for economic goods and services, exchange works well.  If we earn money otherwise, problems arise.

You might ask how people could acquire money otherwise.  If you need flour but had no oranges to trade or enough money to grow the oranges, what could you do?  You could approach someone in the bazaar to lend you seed and equipment to grow oranges.  The agricultural dealer would provide for your needs.  The same could happen with the flour dealer.  At the end of the growing season, you provide oranges or money to the agricultural or flour dealer.  You extinguish debt and the bazaar has more goods than it did before.

What if a vendor produced money with little or no effort?  Perhaps this vendor had a magic printing press.  Money’s unique because no one consumes it.  Money simply changes hands in an exchange of goods.  The vendor creating money could buy anything they want, thus placing demands on the supply of goods offered.  This action results in more scarcity of goods and higher exchange rates for the rest of the market.  If a vendor creates money at will, saving money becomes harder since people need to spend it, otherwise they risk a higher exchange value by waiting. 

Money improves everyone's well-being.  The problem arises when someone or some entity creates money, legally, to consume what they didn’t produce.  That's happened with frequency the last 100 years.

The debasement of coinage . . . is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.

 Copernicus

► GOLD ◄

I can understand why holding gold would seem to be a sensible part of a national portfolio. Because there is clearly a need to take some precautions against an unknowable future.

 Mervyn King, former head of the Bank of England

Bazaar vendors need other vendors.  The vendor exchanges ideally occur with money.  Even in our modern economy, nothing prevents barter or a goods-for-goods exchange.  Yet, you wouldn't try to exchange a pair of shoes in the local supermarket for groceries.  The money we use today is not wealth.  It's just something used to exchange goods or services. 

Money control is of utmost importance.  Money controlled by a