Subject:

Comments:
: : : : Economic Wargames : : : : The following essay is about the economic system of the : : world today. One of my readers who approves of the : : contents refers to "economic wargame" as a metaphor. : : Much as I appreciate his approval, I disagree that it : : is a metaphor. This is the real deal. Let me give you : : a metaphorical overview of my presentation. : : The global economy is a giant multilevel, multiplayer : : chess game. It is however, being played in the dark. : : The powers that be, have the overhead lights switched : : off. To have any chance you need a flashlight, and that : : would still leave the problems of learning the rules and : : developing your skills. It seems most people only have : : a vague idea that some game is going on. I hope this : : essay can be a candle, for ye who curse the darkness. : : : : NNP = GNP - Dcap : : This equation defines the Net National Product (NNP). : : It is equated to Gross National Product (GNP) minus : : Depreciation of CAPital goods (Dcap). The trouble with : : this equation is that depreciation of durable consumer : : goods is missing. Random House defines depreciation : : thusly: : : 1. a decrease in value due to wear and tear, decay, : : decline in price, etc. : : 2. U.S. such a decrease as allowed in computing the : : value of property for tax purposes. : : The fourth edition of Macroeconomics by Robert J. Barro : : of Harvard University defines depreciation as: : : The wearing out of CAPITAL goods over time, often : : expressed as a fraction of the stock of capital. : : When a car rental company buys automobiles, it contri- : : butes to the GNP and therefore NNP. The same applies : : to cars purchased by consumers. However, as consumer : : autos deteriorate over the years the depreciation is : : ignored, while that of capital goods is registered on : : the income tax forms of businesses. Although : : economists have no direct method of obtaining : : Depreciation of Consumer goods (Dcon), to pretend it : : doesn't exist when it must be a rather large amount is : : absurd. How many billions of dollars worth of cars, : : refrigerators, stoves, air-conditioners, etc., etc. : : have American consumers trashed since the end of World : : War II? So the equation should be: : : NNP = GNP - (Dcap + Dcon) : : Our economists are pulling a "Bill Clinton" on us. : : Limiting the definition of depreciation in a way that : : makes economic losses to the average man disappear : : into space. : : We live in a culture that has used complex machines : : for 300 years. The first patent on a steam machine, : : number 356, was issued in 1698. Engineers can test, : : measure and specify the failure rate of mechanical and : : electronic devices. A graph of the failure rate over : : time of a machine follows a pattern known as a bathtub : : curve. : : \ Infant Mortality _-~ : : \ _-~ wear : : \ Useful Life _____-~ out : : \__----------------~~~~~~~~~~~~~~ period : : MTBF : : time -------> : : The curve gets its name from the obvious similarity to : : the cross-section of a bathtub cut lengthwise up the : : middle. It starts with a high failure rate dropping : : rapidly to a minimum. This is when the machine is new : : and has a high probability of manufacturing defects. : : The failures during this time are similar to birth : : defects and are also known as infant mortality. The : : low point on the curve is where the device is least : : unreliable and the Mean Time Between Failure (MTBF) is : : computed. The failure rate remains low for an extended : : period then rises quickly when the device begins to : : wear out. : : So what does the failure rate of machines have to do : : with depreciation of durable consumer goods? In : : classical economics it is common to assume that : : consumers are rational, possibly for simplicity's : : sake. But how can rational decisions be made with : : incomplete information? The only consumer products : : for which I have ever seen MTBF data are disk drives : : for computers. Since computers have been primarily : : used in businesses and losing data from hard disks : : causes serious problems, supplying reliability data on : : hard drives is traditional. Where is the reliability : : data on other consumer products? What about cars, : : televisions, VCR's? How are we supposed to make these : : rational decisions? The best information I've seen is : : in Consumer Reports. They show graphs of failure : : rates by brand name based on surveys of subscribers. : : They do not give break-downs by model within brand and : : usually only cover about eight brands of a product : : type. Are manufacturers trying to maximize the useful : : life of their products? If not, are they engaged in : : planned depreciation, usually called planned obsoles- : : ence? : : In 1937 engineers at Lockheed began designing a new : : fighter plane. In January 1939 the first P-38 took to : : the air for testing to begin eliminating design : : flaws. The P-38 Lightning began service in WWII in : : April '42, it had two supercharged 1400 horsepower, : : counter rotating engines, a cruising speed of 350 mph, : : a maximum of 414 mph and a ceiling of 44,000 feet. : : The German's nicknamed it "The Fork-tailed Devil". A : : squadron of Lightnings shot down Admiral Yamamoto over : : the Pacific in 1943. : : Another child of Lockheed was conceived in 1958. It : : became the SR-71 Blackbird, a spy plane instead of a : : war plane. Its maximum speed is still clified but : : is acknowledged as being capable of 2350 mph at 80,000 : : feet. : : If engineers were capable of these feats 60 and 40 years : : ago, how can yearly variations in machines that roll : : along the ground at less than 100 mph possibly be : : exciting. Going into debt to buy useless variations : : in automobiles is economic insanity. Retooling : : factories to make parts that are shaped differently : : but not technologically different increases the cost : : and therefore the price of consumer products. From : : 1908 to the mid 1920's the Ford Motor Company made : : the same machine, the Model T. When introduced the : : Model T sold for $850. By the time it was : : discontinued in the mid '20's the price was less : : than $300 and 15,000,000 had been manufactured. If : : the engineering capability that designed the Lightning : : had been combined with manufacturing philosophy that : : produced the Model T to manufacture cars in the '50's, : : how good a car, at how low a price could have been : : sold by 1960? : : In an economic wargame society it is necessary to know : : how to keep score and the tactics of the enemy. An : : individual's wealth is indicated by his or her net : : worth. Net worth is ets minus liabilities. ets : : are anything which can be igned a monetary value : : that can be realized by selling the item. Liabilities : : are debts which have to be paid eventually. So : : maximizing ets and minimizing liabilities are basic : : objectives. However, all ets are not created : : equal. Some ets maintain or even increase their : : value over time while others leak like a sieve. If an : : et is so expensive one has to go into debt to : : purchase it, then it is important to know how long the : : et lasts; how rapidly it depreciates. Financial : : advisors tell us that a home is the most expensive : : purchase that most Americans ever make, followed by : : automobiles. Hopefully the value of ones home will : : increase but the value of a car can only decrease. By : : not supplying reliability and durability data on their : : products auto makers are leaving consumers in the dark : : and engaging in information hiding. : : If auto manufacturers produced lower cost, longer : : lasting cars by eliminating useless design and brand : : variations (Chevys and Pontiacs are both by General : : Motors), then the savings on cars could be applied to : : home mortgages. A $100,000 mortgage over 30 years at : : 8% will ultimately cost $264,153.60, that's $164,153 : : in interest alone. By paying an additional amount : : each month a mortgagee can reduce the total interest : : paid and eliminate years of payments. : : Regular Payment: $733.76 Total Interest: $164,153.60 : : Extra Amount.... #....Approx....Total Amount of : : .. Added Each Pmt.. Pmt.. Yr..Mo....Interest..Saved : : $.... 0.00.... 360.. 30.. 0.... $........0.00 : : 50.00.... 287.. 23..11........ 39,907.13 : : 100.00.... 242.. 20.. 2........ 62,458.66 : : 150.00 ....212.. 17.. 8........ 77,433.46 : : 200.00 ....189.. 15.. 9........ 88,262.94 : : Paying an extra $200/mo. nearly cuts the time in debt : : in half while saving $88,000 in interest. But the : : money for that extra payment has to come from : : somewhere. Cars and credit cards are two possibilities. : : In 1983 I read a letter that a bank sent to its : : stockholders. The bank informed its owners that it : : encouraged the customers to take as long as possible : : to pay back their loans. This will of course maximize : : the time over which interest is charged, thereby : : maximizing the dividends to the stockholders. My bank : : recently sent me a credit card bill of $0.00 even : : though it should have been over $100. Their : : explanation was: : : "There is no minimum payment due because last : : month's payment exceeded the minimum payment due. : : Your normal payment schedule will resume next : : month. Finance charges will continue to accrue if : : the new balance is not paid in full by the due : : date." : : They're content to charge me interest while "graciously" : : allowing me to "save" money by not paying them one : : month. Apparently I'm paying them faster than they : : would prefer. Making minimum payments on credit cards : : means being in debt for years and paying 2 to 3 times : : the purchase price for everything bought with the cards. : : There is no limit to how dumb consumers are expected : : to be, some company named Providian keeps sending me : : an application for a Visa "Classic". It has a $500 : : limit, 23.99% interest, a $49 application fee, a $59 : : annual fee and they have the NERVE to say it's a : : limited time offer. It's the third time I've gotten : : the offer, I don't see how it could get worse in the : : future. If some fool were to take this offer and make : : minimum payments of 3% per month with this interest : : rate of 2% per month that would amount to : : approximately $180 + $49 + $59 = $288 paid in the : : first year and still leave a bill of $440. How many : : dummies do they find every month? : : Buying "ets" that depreciate rapidly with credit : : cards is screwing oneself coming and going, and the : : stockholders get to laugh all the way to the bank. : : In the mid-1940's John von Neumann, a Hungarian-American : : mathematician, began inventing and applying game : : theory to economics. This "game theory" seems to be : : stuck in academic never-never land and is rarely : : mentioned in the real world. Lester Thurow, an MIT : : economist, made implications about it in his book, "The : : Zero-Sum Society". A zero-sum game is one in which : : every gain by a "winner" is matched by an equivalent : : loss by a "loser". A bank's stockholders may be : : winners while the credit card customers could be : : losers. One man's liability is another man's et. : : The global economic wargame is virtually inescapable. If : : most worker/consumers don't know how to keep score it : : is a good bet there are going to be a lot of losers. : : According to one web site 50% of Americans have a net : : worth of less than $10,000. Two independent sources : : claim that more than 60% of the people that get bill : : consolidation loans to eliminate high interest debt, : : proceed to charge up their credit cards again. : : The Bible says: : : The rich rule over the poor, : : and the borrower is the slave : : of the lender. : : Proverbs 22:7 : : This bluntly states the power that wealth gives to : : those who possess it. To increase this power banks : : send out millions of "slave" cards anually. The : : famous statement, "Freedom requires constant : : vigilance" is usually umed to apply to political : : freedom but it is even more applicable to economics. : : Having to make rent or mortgage payments every month : : and possibly credit card payments means maintaining a : : source of income, usually a . Wargames are : : inherently unstable. Companies get bought, companies : : go out of business, s can be lost. : : Our educators constantly talk about preparing students : : for the workforce though businessmen regularly : : complain about potential employees not being : : sufficiently skilled. Our colleges eagerly promote : : statistics which indicate that higher education leads : : to higher salaries. That's fine for the income side : : of the equation but how much attention is devoted to : : the expense side? How many high-school graduates know : : what net worth is, or understand amortization : : schedules? What good does it do if our educators only : : create competent employees who then get fleeced of : : their hard earned cash? Or could it be that our : : educators are another set of fleecers? I once saw a : : TV program which interviewed people who told employers : : they had college degrees but had actually lied. Many : : of them worked for years, got raises and promotions. : : What do you need to know to pretend you have a degree : : in psychology, or history, or english literature? : : Spend a few months reading some decent books and who'll : : know the difference? Was it 60 Minutes? I can't : : recall. Of course this was years ago and cheap : : computers and telecommunication have probably made : : verification of education much easier. This may not : : work today. Could it be I'm getting too cynical?... : : ...Nahh! : : I'm getting tired of typing so before signing off I'll : : just suggest doing a little web browsing to check : : stuff for yourself, like von Neumann and game theory : : and P-38 Lightnings. You might check out a few books : : too: : : The Screwing of the Average Man by David Hapgood : : out of print but still locatable : : Your Money or Your Life : : by Joe Dominguez and Vicki Robin : : too pollyannaish but has its priorities straight : : Mastering the Art of War : : translated & edited Thomas Cleary : : more detailed than the following, get this first : : The Art of War by Sun Tzu translated Thomas Cleary : : wargamers training manual, time tested : : So, to misquote that Vulcan that never explained what : : it meant to prosper, "Live long and good luck in the : : economic wargame". No, that's no good, Vulcans don't : : believe in luck. Make that, "Live long and use killer : : tactics (in the economic wargame)". : : Dal Timgar : : : : If you approve of the contents of this essay, feel : : free to copy, email or otherwise distribute. : : The truth is a virus, spread the contagion. : : dal_timgar@zensearch.net : : 

Optional Link URL:
Link Title:
Optional Image URL:

[Nantuckets.com][BusinessPhilosophy.com][Classicals.com] [Nantucket Poetry Postcards]
[Nantucket Navy Live Chat][The Jolly Roger][Kill Devil Hill][Western Canon University][Federalistnavy.com Spirit of America]
[Starbuck.com Classical Poetry Port] [Kill Devil Hill] [Shakespearean Greetings]
[nantucketnavy.com][hatteraslight.com]
[Classicals.com][Western Canon University Commons]
[Western Canon University Lecture Halls] [Nantucket Poetry Postcards]
[The Crow's Nest]
[Conservative Books Lighthouses] Thomas Sowell Re: Economic Wargames: Nantucket Campfire

Thomas Sowell Nantucket Campfire
Thomas Sowell & Other Nantucket Live Chats
If ye would like to moderate the Thomas Sowell Nantucket Campfire, please drop nantucket@nantuckets.com a line.