Thursday, February 26, 2009

Other Places on the Globe

The degree to which Marxism is practiced correlates very well to the economic depths to which a country sinks: the greater the Marxism, the greater the poverty. Russia and China lost tens of millions of lives to starvation while agriculture was administered by the State. Cuba is now a shell of what it once was. India’s recent advances can be traced to a relaxation of the economic controls. Taiwan and Hong Kong were leagues ahead of mainland China until the mainland started experimenting with free market economics. Any relaxation in China was bound to be beneficial after the brutal repression of the Mao years. Unfortunately, most of China’s industry is under control of the military (As was the case in Germany in the 1930s and 1940s.) Stay tuned.

A marvelous experiment was inadvertently carried out in Europe after WW II. Germany was split into four parts. One part was developed under socialism. The other parts were developed under various degrees of Adam Smith economics. After 40 years, the differences were remarkable, and easily seen to favor Adam Smith’s freedom. In spite of this, the Marxists and other breeds of anti Smith fanatics continue to vilify free market economics. What is frightening is that they continue to win more and more adherents. Mexico is in a downward spiral, but rather than loosen up the controls abhorred by Adam Smith, they continue tightening, becoming more and more rigid. Although they broke away from one party rule in 1998, they continue to wear the same anti Smith (organic structure [see previous footnote]) blinders. The “new” president, Vicente Fox, employs the same worn out economic model that was used by the previous political party. All these politicos are leopards unable to change their spots. They all dislike Adam Smith’s economics. They all try to revive some form of an “organic” economy. This is the cause of poverty in their lands. This is the cause of all friction between men.

Argentina in 1900 was ranked 5th in prosperity in the world: i.e., they were 5th in GNP (gross national product) per capita. Today, Argentina ranks close to 105th. Again, the economic model being used is anything contrary to Adam Smith, something having the state involved in crucial places, sometimes just plain Marxist. During the 90s, Argentina underwent a hesitant experiment with free market economics. Some state-owned industries were sold, but the government controls were not meaningfully changed. A few things, notably telephone service, improved, but the old culture of heavy-handed government did not fade away. Argentina remained non competitive in world markets. Then, true to form, they began fiddling with the peso, behind the scenes, in world markets. When the crash inevitably came, of course, they vilified free market economics. The same thing is currently happening here in the USA with the Democrats announcing, daily, that capitalism does not work, and “markets have failed.”

Prospects for Argentina continue to be gloomy. Nestor Kirchner, elected in 2003, ran a campaign loaded with Marxist promises. One of his first official acts was a meeting with the well-known, sagacious economic genius, Fidel Castro. Next Kirchner undertook a hunt for aging military personnel who had participated in the “dirty war” (1970-1980). How this will raise the standard of living of the average Argentine man or woman is not clear. Plainly, Kirchner’s mind is capable only of handling politics, not economics. He will mention economics in every third sentence, but not in the sense of seeking an economic outcome, but instead, using a buzzword, with the intent of inserting a political component into something economic in nature. Something that should not be contaminated with politics.

To gain an appreciation of the huge and tragic distortions that exist in the mind of the deluded, clueless, and all too numerous Latin American, one must read Manual del Perfecto Idiota Latinoamericano (translation: Manual of the Perfect Latin American Idiot). (See Plate 1 for an image of the title page.)The title is tough and harsh, meant to be so by the authors. They describe a fellow who believes every bit of anti-Smith tripe, without question. This fellow might have a good job in a bank, might be a fairly moral person, but goes through life with the dogma of Marxism implanted between his/her ears. The main characteristic of this individual is the failure to discern the truth when the lies are so blatantly obvious. He is a blind follower of the leader that can best delude. The book mentions that pure, unrestrained capitalism was experimented with in the 19th century, but was abandoned because it took over all other forms of economic expression. Duhh! No wonder. It is so much better than a politically guided system.

How did the anti Adam Smith culture ever take root in Latin America?

The answer is: via studies at national universities. I have a copy of a book that was used at the university of Buenos Aires in the 1930’s that heaps scorn on Adam Smith [“He was just a theorist.”], and goes page after page building a case for creating an “organic” economy. The title of the book is Economía Política (translated as Economic Policy, or Economics via Politics).

To see images of the Front matter on these books, go back to the web page and click”Plate1."

The book was written by a German (Austrian?) professor named (in the Spanish edition): Dr. Federico von Kleinwachter. He is listed as a professor at the “Universidad de Czernowitz,” and member of the “Academia Rumana.” My copy of this book goes on to say that this is the translation from the 4th German edition, translated by “Gabriel Franco, Profesor auxiliar de la Facultad de Derecho de la Universidad de Madrid.” The editor was Gustavo Gili. Printers: Guinart y Pujolar of Barcelona. Date: 1929. See Plate 1(B)

This book was written before Mussolini and Hitler, and while the seeds were being sown for WWII. At the time this book was being swallowed by future lawyers, judges, businessmen, and politicians, the future dictator, Juan Peron, was in Italy as military attaché from Argentina.

The Kleinwachter book was apparently a guide used throughout Latin America and, even though it has probably been lost from conscious thought, serves as the guide to this very day (29 Jan. 2006).

In this way the economies in Latin America wallow in failure. And, instead of embracing Adam Smith, and climbing out of poverty, all the
powerful political movements cry for greater extremes of state control, more and more Marxism.

It is as though the wreck that was WWII had never happened as far as the political operatives in Latin America are concerned. As a matter of fact, Kleinwachter cites many examples of failure of market economics that occurred during the First World War (WWI) to show how markets cannot function on their own. At the time he wrote his book the dismal failures in Russia, Eastern Europe, Maoist China, and Cuba were either just beginning, or had not even begun being played out.

Is it any wonder Latin America is so poor? Not knowing their own history is condemning them to repeat it. Here are some events that took place around the time the book was written (in German), translated into Spanish, and subsequently put to use in Argentina, and presumably other counties in Latin America.

WWI: 1914-1918 USSR beginnings
1917, a period of great
expectations for Utopian ideas
4th edition in Spanish 1929
Spanish civil war 1936
Juan Peron in Italy 1936-1939

Marxism (and fascism) are all political. Economics is just a concept Marxists use to obtain political power. In reality, a Marxist does not give a hoot about standard of living. If they did, they would seek to duplicate the economic successes of the United States, West Germany, Japan, South Korea and Chile. Milton Friedman would be consulted instead of el maximo lider. Marxism is easily sold to the masses, but it only brings a higher standard of living to those in the ruling clique. It’s support by the masses shows how easily the common man can be gulled. Please note the statement in the Subtitle of Bye-Bye Sweet Liberty:(We were gullible)

So what works? The magic word is husbandry. Husbandry brings a better standard of living to all, from rulers down to commoners, every time it is tried it succeeds. Husbandry requires knowledge ,(see Chapter 11.) Husbandry does not favor a big ego.

Husbandry is a word rarely heard these days. Originally the word was applied to breeding domestic animals, and building the sizes of herds of cattle, horses and sheep. Today its meaning is more general.

Husbandry practiced by previous generations has gotten us to the world in which we live today. It was the nurturing of our capital goods that has given us lifesaving drugs, inexpensive travel, computers, televisions, telephones, abundant food, and . . . via automation, work that generally is no longer mind-numbing drudgery.

The political left (opponents of Adam Smith) take a disdainful view of capital, and of its husbandry. The record is clear. For example, when the leftists’ darling, Emiliano Zapata, took over and burned perfectly good, economic sugar refineries in central Mexico, the political left cheered loud approval. (Never mind that this put many people out of work, caused deprivation and shortages.) When Salvador Allende became president of Chile, the government assumed ownership of the copper companies. Then, the suppliers to the (government) copper companies were driven into bankruptcy when the copper companies refused to pay for materials provided by the suppliers. It was classic liberal hubris. Whether it is burning of capital or forcing bankruptcies, the leftists’ record with husbandry is dismal.

California’s phony energy deregulation is a kissing cousin of what went on in Chile under Allende. PGE and Edison, under the PUC (California Public Utilities Commission) are in the same situation as the Chilean suppliers: The utilities have to provide something, but by government dictate, will not be fully compensated for it. Just as surely as with the suppliers in Chile, our utilities must go broke. We won’t reach dire straights as quickly as the Chileans did, but we’ll get there soon enough.

The lack of husbandry will have the same effect that Zapata had on the sugar refineries, but will take longer. Witness the existing crumble of infrastructure: decaying schools, classrooms in prefab buildings, rolling blackouts, highway congestion, poor roads, and even Angels Flight. The PUC could not even make sure that the Angels Flight operated safely. Bureaucrats are lousy at husbandry.

Parallel lesson: The only way to sell a product the public doesn’t want is via a legally enforced monopoly. Governments like monopolies as long as they are in charge of them such as the monopoly on education. The educational establishment only has a market because the money to fund it is taken by force (taxes), and the clients are forced to accept the product (by law), from an organization that fosters monopolies (teachers unions, monopolistic establishment of curricula, monopolistic control of school books). If they had to sell their product the same way as Corbin Motors, the school system would have gone out of business a long time ago.

Husbandry requires that adequate budgets be provided for maintenance and growth. Husbandry requires technical competence in matters such as accounting, engineering, design, and construction. Husbandry is derailed by political correctness. Husbandry abhors what the left likes to call “social consciousness.”

In the L.A. Times, under the headline Feathers Fly in Hollister After Sparrow’s Nose Dive, we find a story that illuminates the subject of Economics quite appropriately. It tells about a family in the small town of Hollister in northern California who set about producing a small electrically powered vehicle (called the Sparrow) in the late 1990’s. They were successful in raising capital during the dot-com boom, eventually producing about 300 vehicles, each having a price tag of 14,000 dollars. Since these vehicles were 2-seaters and still were in the development stage, there were few buyers. The company that developed and produced these cars, Corbin Motors, Inc., went bankrupt.

They need not have. As an engineer familiar with energy generation and transmission, I can assure you that these people and their investors would have avoided their losses had they simply consulted a trained engineer, not for engineering advice, but for economic advice. I’m reasonably sure they consulted lawyers and bankers for political advice. Why did they not consult an engineer for economic advice? Who knows? maybe they did, but they didn’t employ one, because they thought the engineer would use some agenda-driven jive. They believed that those awful oil companies have all the engineers all bought and paid for. Note to Corbin investors and future investors in similar ventures: Engineers are economic animals, not political animals.

I’m constantly reading letters to the editor and listening to people on radio talk shows who insist that the big automobile companies and the big petroleum companies conspire to keep electric powered vehicles off the market. Could this have been a factor in the wild behavior of the investors and the directors of Corbin Motors?

Such negative statements probably were effective. Probably even statements by the teacher/educator establishment, years earlier, had its effect too. In my own mind, I don’t doubt that the investors and directors had been poisoned against rational thought by being set on a course to hate big business.

As a final illustration of Economics vs. Politics, consider a furniture factory. Part of their operation consists of staining and applying varnishes to their finished wares. Some of the coatings they use emit volatile solvents into the air; floor washes sent to drains enter the sewer and go to the sewage plant. Several of their raw materials and by-products (such as sawdust) are fire hazards. The political solution here is to pass laws forbidding emissions beyond a certain amount, mandating sprinklering in the fire hazard areas, mandating disposal of waste materials in special landfills for hazardous materials. In most cases, these mandates are not needed. Does the owner really want to risk his investment by not installing fire fighting equipment? Does he want to lose valuable solvents and create fire hazards by not minding his varnishes? Does he want to risk law suits? Does he want to be regarded as a bad neighbor? Of course not.

If government were to help by providing free advice on methods to cut solvent losses, if government were to give tax credits to encourage varnish collection and shipment back to varnish producers, the forces of economics would work to reduce waste varnish, without the need of inspectors, paperwork and government intrusion. If government would encourage industrial research and development via tax breaks. If … well, if government would allow economics to come into play, we’d all be more prosperous.

The economic solution is to make, knowledge, loans, or tax incentives available to associations of furniture manufacturers and paint manufacturers so that they have a reason to explore process improvements. This is never done. Instead an official is sent to the site to write up infraction notices, and the business is driven to China. Nowadays, it seems, the political route, not the economic route is taken.

In the USA we have seen over the last forty years, the political approach does not work. Sure pollution has been reduced, but it has been at the expense of our manufacturing industries. Our manufacturing has gone to Latin America and the Orient. The environmental destruction has been relocated, and is worse than ever. I am an eyewitness to manufacturing in Latin America. I can certify that the relocated operations are far less safe and far more noxious to the global environment than before they were relocated. This is one more example of the pointy headed “planners” getting it all wrong.

The way money is spent is dictated solely by the person who possesses it. If your money has been taken “legally” by a politician, he gets to determine how it is spent. You don’t. He (or she) might even choose to spend it to crush you and put you out of business. In an Adam Smith economy, and an economy where the power of government is exceedingly limited, you get to keep almost all of your money, and you keep the knuckle-dragging politician on a leash. Yes, there is too much money in politics, and it should not be; it should be in your bank account.

Who makes decisions about money being spent? Whose money is used?

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