Thursday, February 28, 2013

The Education of a Wondering Man: Chapter 3 -- Wealth Creation

I'm not sure why I want to post this, but it was what I was going to write about last time before I got mooshed...  I should just write about becoming a sourdough man, but according to Tiff's little diagram, the next step for me has to be Stage 4 where I write about current events/controversies...

It's gonna be a long one, so we'll just blame Tiff for this..

If you want to read up on my previous educational posts (both of them) you can catch up here and here.

Ok...  now that you're all caught up we'll continue...

I was listening to a nationally syndicated radio show here a while back and the host (I won't tell you that it was Rush Limbaugh because he may read this a get a big head knowing the one and only Lord Loser happens to listen on occasion, what with my myriad of worshipful followers and all) mentioned something that piqued my curiosity once again. He happened to say something along the lines of the current administration punishing the creators of wealth in the country and how that wasn't a recipe for success.

Then the next week, he repeated a similar statement once again.

Now as all of you, my unfaithful readers, know I tend to spend most of my time in the nether regions of the world and the little Verizon guy doesn't come out here to say his infamous "can you hear me now" line because the answer would be...  "Uh...  can you say that again?  You're breaking up..." followed by the BEEP of a lost call so despite my curiosity, I couldn't call him up and ask a simple question...

Who exactly are the creators of wealth in the country?

I've given this little concept a lot of thought in the last 15 years or so, and have come up with the following conclusion...  ask most anyone and they'll tell you that they create wealth.  It really doesn't matter what they do, but everyone I've met and asked that question to feels that they are responsible for the creation of wealth in their daily jobs...

I argue that very few people in the United States actually are in an occupation where wealth is created.  The vast majority of people are actually engaged in adding value to a product in the hopes of the accumulation of money (which really isn't wealth) into their pile.  So what's the difference?  Well...  the difference is vast and to understand it we'll have to get really technical, so try to keep up.  ;P

The first thing we really have to do in order to have this discussion is to actually define what wealth is. says:

3. Economics:
     a. All things that have a monetary or exchange value
     b. anything that has utility and is capable of being appropriated or exchanged.

Not very good definitions are they...  the second one is fairly close but not exactly accurate.  Wealth at it's essence is something of substance that is the basic building block of an economy.  In chemistry they refer to them as elements because they can't be broken down into any simpler substance.

In our society, what is that?  What are the things we need daily that can't be broken down into any simpler substance...  and where do they come from.  A simple phrase that I've heard is that all new wealth comes from the earth.  But does that mean that the earth creates new wealth?  Once again, I'd argue it doesn't for the simple reason that the earth is just another input in the process and not the creator.  To me, all wealth is created by God, but for those of you that don't want to admit that, tough.

When you really get down to it, new wealth comes from agriculture, timber, fisheries, and mining to a certain extent.  Any renewable resource, which is why I don't really include mining because the recharge time is rather long for the purposes of this discussion.

Now I do have to make an exception for some types of intellectual property because that is created by the mind and therefore comes from nowhere into existence.  However, in order to capitalize on such property, it must be transferred to something of substance, such as paper, so even it requires timber to become something of value.  For the purpose of this discussion, I won't include that either just for that reason.

So that leaves us with agriculture, timber, and fisheries.  Why are these the sources of new wealth in an economy?  Because they can be created from nothing...  and when you create something of substance from nothing, that by it's very definition is creation of wealth.

Take, for example, a kernel of wheat.  One single kernel...  if planted at the right time in fertile soil and taken care of with appropriate amounts of water and sunlight will turn into 20 or more kernels of wheat depending on what variety of wheat it is.  So...  that means that one kernel can be converted into 30 or more and that is a creation of wealth on an astounding level.  If I told you you could invest in something that would give you a 3000 % return in one summer, would you think that a good thing?

If we take a kernel of corn... oh man...  it turns into 900 or more kernels.  That's one helluva return on your investment.

Nobody can tell you how it does it, all they can tell you is that it does.  Life creates life without any real explanation from scientists.

The benefit of such a thing is that you can take 899 of those kernels and do something else with them and still save one so that next year you can get another 899 return.

This particular creation of wealth is a remarkable thing for an economy, however, with great increases such as with corn or wheat, they become fairly cheap at the kernel level. 

It's no secret that I'm in the livestock business, and in my business we put a bull with a cow and they in turn create a new life which the cow carries for 9 months, and then takes care of for the next six or so.  It's the goal of every livestock man in America to double the size of the livestock herd in the U.S. every year.  Unfortunately for us, each cow only has one calf and not all of them survive to adulthood, so we don't get that doubling accomplished.  We do not get the same production as wheat or corn, but our product is worth a whole lot more because of it's relative scarcity.

It becomes clumsy though to trade trees for milk, or cows for cars, so we go through a middle man called money, but that's another discussion entirely.

I could give you the same story with timber or fisheries, but...  not for much else.  Wealth...  can be created, but at last count, only 2% of the U.S. population is actually engaged in agriculture so only around 2% are in the wealth creation business.

What most people actually do is to add value to a product.  Take for example a home builder.  He doesn't actually create any wealth, but he does take lumber which was refined from new wealth, and converts that into something that is desirable for us, such as a place to live.  Did he create wealth?  No...  but he did provide a valuable service and as such accumulates that money we talked about earlier so that he can in turn trade that money for more new wealth so that he can accumulate more money.

Some people are very good at accumulating money, but very few of those people actually create wealth as they are currently two separate things entirely.

The problem in an economy arises when the actual creation of wealth is not only discouraged by government, but in some cases actually prevented entirely.  The less new wealth in an economy, the less prosperous that economy will be, and the fewer "jobs" for people not in the wealth creation business.

As an aside, a favorite line of politicians is always we need to create new jobs as if they can miraculously appear out of nowhere.  Such a line demonstrates a complete ignorance of what drives an economy and actually creates jobs.  New wealth drives an economy and leads to prosperity and the creation of jobs, not the other way around.

So when Rush said the current administration is punishing the creators of wealth, he wasn't wrong, but I have to admit this...  every administration since Teddy Roosevelt has punished the creators of wealth too, it's just that it's getting bad enough for everyone to notice it now...

Today's mystery lyric: (Remember the rules folks, no online searching of the lyrics, if you don't know it, you don't have the answer!)

And I'll be good
Like I should
Waiting and such
I need
Your touch
Your touch
Your touch
Your touch

Answer to last lyric: Through the Fire and the Flames by Dragonforce... if there's any notes on the scale they didn't play, I don't know what they were...