(I’m still in San Francisco and the weather is very nice here!)
Watching the crop report some time back on CNBC brought my mind to wondering how the average person gets their financial/economic education. The crop report was NOT something that CNBC highlighted a couple of years ago. However, the recent run-up in commodity prices had even average people interested in investing in the commodities market either through futures, ETF’s, mutual funds, or stocks of agriculture based companies.
Obviously, CNBC is responding to the desire of investors to learn more about this market – they wouldn’t put something on TV that wasn’t “hot.” But it also made me think again of an age old problem – we don’t teach students thoroughly enough on markets and finance through 12 years of school and 4 years of university (unless the student chooses it of course).
Understand Equilibrium
In fact, most students barely know how to balance a checkbook never mind understand the concept of equilibrium. In fact, I know they don’t know equilibrium because I see perfectly intelligent adults on TV (and in person) sounding downright stupid about basic economics. Why are house prices falling? Equilibrium can answer that. Why did oil hit $150/barrel? Again, equilibrium can provide your answer.
However, since most Americans don’t understand these concepts, they respond wildly to the idea of government control of prices for such things as oil and of all things, stock prices (government leaders have quoted “market stability” as reasoning for their bailout policies – stability, to translate, means no more price declines). Just like our poor Venezuelan friends are learning now, when you give government control of markets and economic decision-making, you get what they have now – rapidly decreasing personal liberties and loss of economic self-determination.
Argentina has recently felt the pain of socialism. In an attempt to provide for the poor, President Cristina Fernandez de Kirchner came up with the idea of slapping 40%+ taxes on farm exports. Her goal (probably formulated by some academic theorist) was that farmers would keep produce in the country because it would be too expensive to compete with foreign food suppliers and, the tax would alleviate the poor.
Both have not come to fruition. The farmers went on strike as food comes to Argentina’s people more cheaply from foreign sources. The farmers are outraged (in Argentina, they are the upper class). Let’s think about this – instead of finding some positive way to take advantage of their natural resources and the natural attractiveness of what many people tell me is a beautiful country, she taxes the *** out of her best producers.
This is the common socialist solution of punishing the winners to try to “help” the not so successful. Put yourself in their shoes for a second – let’s pretend you own a pizza store, and you have one competitor across town. In time, you are doing 5 times as much business because your quality and service are much better. And just before your competitor goes out of business, the government comes down, and taxes all of your profits above what your competitor earned – let me ask you one question – would you stay in business?
A system where winners are punished will cause those same winners to DECIDE not to produce. Then the whole economy suffers. In China, they have government awards for companies that accomplish great things – they celebrate entrepreneurs the way we celebrate professional athletes. Compared to Argentina, and their structured-to-lose economic system, you can see why China is pulling ahead of other countries. Not only CAN you succeed in China, in fact they encourage it. Remember, creating successful entrepreneurs creates many jobs – something even the ‘smart’ people in our country have difficulty in understanding.
Socialism Up, Dignity Down
In conclusion, if you allow the government an increasing role in economic direction, you open the door to socialism, which contrary to some people’s opinion, decreases the dignity of people by not allowing them the freedom of economic self determination (picking your career). It also can decrease personal freedoms – it is not a far jump from economic control to personal liberty control. A lethargic electorate is like a patient slowly losing blood – eventually it will be lifeless. Be careful out there…watch your rights…
Chris Grande
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