Sunday, June 13, 2010

Not Knitting - Just an Economic Screech

There are two ways to get rich. You can either acquire a lot of money or not spend a lot of money. The first method is the most difficult, either through the degree of effort it takes to work hard enough to get a lot of compensation; or by the risk via either luck (I won the lottery) or via less ethical means (I robbed a bank) to acquire a large amount of wealth.

That takes us to the second method, ordinary or extraordinary frugality. My Uncle Paul is a living example of this. He is the millionaire-next-door. Any superficial examination of his condition would lead you to believe he is all but a pauper. He does own some farm land, but most of what he farms is rented land. The small-holding of land he owns is his only visible asset.

He drives a 20 year old car. It is no longer possible to determine the original color of the car. The surface is worn and rusted away. He probably has dropped a different engine in it somewhere along the line. From the sound of it, that engine may have come from a derelict lawnmower. Paul's house has the look of an unfinished hovel. The floors are unfinished plywood. In many places the wall treatment is not finished drywall; it's insulation that has been stapled to the wall. Paul spends money only when either his life or the risk of spending more money depends on it.

He has no modern farm equipment. He uses old combines that don't even have a cab over the driver's seat. I don't think that style has been made for the last 40 years; farmers don't want to sit out in the elements anymore. Long ago Paul bought up a lot of old junk farm equipment, for cheap, to use for spare parts. And he is real crafty about machining his own spare parts when he can't find what he needs on one of the old wrecks.

Many years ago, a coal mining company came through our neck of the woods and bought mineral right for coal from most of the farmers. Actually, all the farmers excepts Paul. He did not want any sinks on his land because it would affect the value of his land. The man from the coal company fairly pleaded with him to sell the rights. The coal company representative even came to talk with my mother about her brother. It was pretty funny because the coal-guy assumed Paul was poor as Joe's turkey and was in desperate need of money. He could not comprehend why Paul would not jump at the opportunity. When my mother told him that Paul did not need any money because he already had more money in the bank than most of the other farmers in the area, the coal-guy was incredulous. Then Mom let him in on the two ways to get rich and how Paul was so into the not-spending habit that he fooled everyone. From the look on the guy's face, I don't think he quite understood.

Right now, we could use a more of Uncle Paul's type of thinking in our government spending. The over-spending that is currently going on will result in true poverty for many. The two methods of getting rich can also be applied as two methods of getting out of debt. The government has only a few ways to make money:
(1) taxes that reduce the wealth of the taxed that in turns reduces their ability to produce anything that can be taxed in the future, (2) borrowing that increases the debt that you were trying to reduce, and (3) inflation that is actually a tax on everyone, especially a tax on the poor. Just like in getting rich, the ways available for government to acquire money to pay off debt have a lot of problems.

That leads us to the alternative, to not spend the tax money in the first place. Government is ripe with opportunity for cutting spending. Cutting the government work force is the most obvious. Government employees do not add to the net wealth of a nation. Most of them could be in the private sector producing something that someone actually wants. Instead they are in the government sector churning regulations that rarely are efficient at yielding any benefit. They even have to have unions to convince themselves that they are indispensable. There was a time when unions were needed. Unions probably still make sense in some parts of the world where the government has not co-opted the purposes of the union. But in the United States, unions have little valid purpose unless we close down OSHA, EEOC and a few other dubious government functions. In this country today, if you need a union to protect your job, there is a strong possibility that you are overpaid, under worked or your job is just unnecessary.