Chingo De Dinero

One important aspect which I left out of “Push vs Pull” was the dynamic aspect of the economy.  The rules of the game determine how people play.  A result of the push method is the inability to improve the amount of resources you control.  In plan terms, you are taxed so hard that even if you work harder you will not have more money.  People are not dumb, if they are in this situation, they work less, be it right or wrong, we are here for us, and are all concerned about ourselves.

So, not to get too deep in social theory and what is best, economically there is an impact.  People will work harder in a pull system because the harder they work the more resources they can control.  These resources could be directed towards a new car, bigger house, cure AIDS, help the poor, or any other activity.  Over time, the effect of this additional work can become very large.  If you look to the basics, “The Wealth of Nations” one of the main aspects that makes a nation wealthy is private property.  When you have private property, you can accumulate resources, and control them, which makes you work harder, which in turn generates wealth for the nation.  Additionally, we are more likely to invent or innovate.  If I know I can become very wealthy if I work hard and think of the next great invention, I will work harder to do so.  Maybe I will stay up later than normal, sacrifice sleep, sacrifice parting, etc.  If it would not see the benefit of my work, I would be more inclined to relax, enjoy life, and live for today.  Resulting in the invention never materializing.

In my opinion this result of choosing an economy is just as large as the “fairness” in allocating resources.  It is an investment in the future, which will pay large dividends and benefit society as a whole.

I was talking to a friend the other and somehow this came up. If you know anything about markets and how they work, you always have to have forces from different sides to make sure everything works smoothly (eg buyers and sellers). If one side gets very weak, things can get out of balance. Extending it, does this work to keep the poor and rich in check?

So, what I am wondering, is do we need a government, that is run on a basis where each person gets a vote, to counter act the free-market economy, which is run by the wealthy. Do we need a democratic government to keep us from having something like the French Revolution? Do we need a strong Free-Market Economy to keep us from turning into Cuba?

I think so, just based on how it seems to be working. The US is not too dominated by the government, resulting in free hand-outs and economic stagnation, but again, it is not too dominated by wealthy businessmen, and full of monopolistic trusts. At the extreme for both, the country is run by a very few people. So, to keep either from happening, you create these two forces that disburses the power, or at least keeps enough conflict to maintain competition. For the record, when I say monopolistic trusts, I am not talking about the Standard Oil, JP Morgans, etc. I don’t think they ever reached the serious stage.

Let me conclude with a little analogy. If you think of people as states, and people as money (a little weird). So you have 50 people, and 300 million for everyone’s wealth. Everyone gets 2 votes (Senate). But, they also get a certain number of votes based on the amount of money they have (house). So, everything takes two votes, one based on just being a person, and the other based on wealth. Mr. California gets the same power as Mr. Rhode Island for the first vote, but in the second vote Mr. California gets a ton more power. So, in the end, nether party can be hurt too bad. The rich cannot do things that hurt the poor, and the poor can not do things that hurt the rich. There you go, the balance in action. Man, the people who wrote the constitution were on their game.

If you have read anything else I have written, it doesn’t take long to realize I like capitalism, and think it is soooooooooo much better than any other economic structure.

The one thing that always gets me, and is capitalisms one weakness is commons. When I say commons, I mean the air, water, roads, basically everything that isn’t really owned, but is used by everyone. How do we all maximize ourselves, while still thinking about other people, very hard to do. But, it can be done, you just have to be creative, and create some kind of competitive environment to self-regulate it.

The best place to look at examples is telephones and power. Companies are given monopolies over the telephone system, or power, which are kind of quasi-commons. I wish I had some success stories, but even the good news I hear isn’t so good. It always goes back to government control…which in a Democracy I add is somewhat market driven (at least compared to other forms of government).

Another good example of trying to solve the problem of the commons is carbon trading. Make it a market, where it will result in the best actions taken, without the government telling what the best actions are.

If you can solve this problem, I am sure you will win a Nobel Peace Prize, and everyone can start using a Laissez-Faire system. On that note, I do think the only downfall to Laissez-Faire is the commons, the other issues, which are somewhat related to commons, bank regulation and all of that, and not a real weakness, and do not need government intervention. Also, it is a French word, automatic minus 10 points.

Although it is a big issue to solve, it can be done, maybe not directly, but in workarounds. The best example that I have is the telephone. So, we have these monopolies, which are highly regulated, and not a typical capitalistic thing. BAM, here comes the cell phone, everything has changed. It is a very competitive market, and no more issue with the quasi-commons telephone issue. Check, Check-mate!!!

I recently read an article entitled “The Pawnshop Economy”, which highlighted the “credit crisis” and explained how people are being forced to pawn their gold, just to make ends meet (cry me a river).

Pawn shops are great!!!!!!!!!!!!! I did a little history search on them, and apparently they started in Italy, during the Roman’s rule. They ran into some regulation issues, with the Church, but the market ended up winning, like always, when the need is high enough. Apparently, kings and queens would use the pawnshop to get loans against their jewelry, to fund wars. How crazy, kings and queens used to use it, and not it is associated with only the lowest social class.

So are we a pawnshop economy??? Somewhat yes…people will always need short-term loans in a hurry. Bank like to think they are the only lender for all situations, but this is not true. Pawnshops are amazingly efficient providing these short-term loans. The only industry that might be more efficient are the payday lenders, which we know how much regulators hate them, and how much people love to use them.

In the US, we have a very strong banking system, and sophisticated economy in general. I would argue that the level of pawnshop activity is more suited for a less sophisticated economy. In a less sophisticated economy, it is harder to prove your income, and allow the bank to perform adequate risk analysis, thus making them less efficient to serve the market. In these situations, pawn shops are very good at giving people what they want now, in a method that allows long-term existence.

This is no different than what they guy won the Nobel Prize for a few years ago, micro-lending. Maybe payday loans are more like micro-lending, but still this is close. This I would say is better, because it has a higher incentive for the borrower to perform and pay off the loan.

Before I start getting too far from the topic, let me conclude. Pawnshops do serve a purpose in the US economy, although much less than it can in less sophisticated economies. They offer a product that people like, and choose to purchase, what a great idea!!!!

By the way, I own some stock in FCFS, a great pawnshop owner.