Value, Time and Money
In the innocent times of childhood we once believed that money was the reward for hard work. Based on the idea that the more hours that you worked then the more money you earned.
But, those were innocent and naïve times. Many have come to believe that fortunes were made by other means. Making a quick buck by buying a lottery ticket and having your numbers selected is one of these ways, but the same principle applies to day traders, real estate speculators and even opportunists hoping create the next marking fad. None of these characters remotely care about the social good of their actions and many destroy our society bit by bit with their actions.
In America today we still have many people who dream about working hard and creating wealth through the sweat of their brow. However, the reality of this picture is people like Bill Gates who happened to be in the “right place” at the “right time.” Microsoft products were there first and captured a huge market share, but they have never been the best products on the market. Similarly clever slight of hand was able to create a good deal of wealth in the real estate market by providing cheap high risk loans to people and lying about the actual risk of the loans. The cheap supply of cash created a demand for real estate and drove property prices to unrealistic values. The property wasn’t actually earning value. The value was created by the demand of people who didn’t make enough money to actually pay for the house that they wanted. Everyone saw their house value increase and they advised to borrow money against the equity in their house. The initial lie about the risk of these loans propagated through the economy. Risk could no longer be trusted, but everyone was happy because they saw the value of their houses increasing over time.
No one asked themselves where this extra money was coming from. Everyone assumed that money in the form of value in their houses was a “good” thing. People believed that they were richer than they actually were. This is because the value of their house was based on what people were willing to pay for their house if they were to try to sell it. And, people were willing to pay lots of money that they didn’t actually have because banks were willing to loan tons of cash to people who could never really keep up their end of the bargain.
In America we have a belief that those who scam the system will pay the price and demonstrate to the rest of us the folly of their ways. People will see the risk and will no longer be tempted to repeat these activities. Unfortunately time is involved in this process. There is always a window of opportunity in which people are able to game the system, make their money and get out before the activity becomes illegal. Some people are able to amass great wealth and pass it down to their heirs for many generations. Once one has this wealth one is able to live off the money “earned” from the principle itself and hard work is no longer required. Money earned in this way and propagated through the generations is actually contrary to the American ideal of working hard to become successful. But, the protection of this capital in this system allows people to take very low risk and earn a high return if enough capital is put into play. Special laws have been written to protect these special fortunes. We can look at the Disney empire as an example of how copyright laws have been changed to protect the Disney interest in Mickey Mouse because Mickey is still such a cash cow. Special laws continue to be written to protect other industries as well – mainly to assure that these wealthy families like the heirs to McDonald fortune will never really need to work at a McDonald’s restaurant.
The whole system works in such a way that creating a perceived value for a commodity which is much higher than the actually work involved in creating the commodity. So, creating a demand for a virtual item by advertising and marking an imagined device without actually creating the device is one way to create an artificially high value. Even if the object does not really exist one could create demand for it based on hype. A quick fortune could easily be made by selling an envelope filled with sand if the hype is great enough. Maybe many people won’t buy their second envelope of “magic sand,” but then again some people will continue to believe the hype well into envelope number ten. Imagine how much money could be made if one percent of all Americans are convinced to buy one envelope of “magic sand” for $29.95. Should the “hard work” and “innovation” of the “magic sand” dealer be praised or punished?
The free market system tells us that the people will learn that magic sand is just ordinary sand and they won’t buy it any more. But the magic sand dealer knows that he can make some money and move on to magic tonic and magic rocks and continue to make money by exploiting the gullibility of the people. Regulation is one way to put a stop to this. And, arguments between free market advocates and regulation advocates continue while the magic sand dealer figures out new ways to sell his wares cloaked in new ways until he amasses enough money to never need to sell any more. Then he passes his wealth to his children and he can loan his money and demand extremely high rates of interest until there are regulations. Those who have no morals or sense of guilt will find ways to take advantage of the free markets and live perfectly comfortably while those of us who espouse to be caring members of society will continue to be taken advantage of while the regulation free market debates continue to waste time.
-----------------------------------------------------
Cross Posted @ Bring It On, tblog, Blogger and BlogSpirit
Reflection
But, those were innocent and naïve times. Many have come to believe that fortunes were made by other means. Making a quick buck by buying a lottery ticket and having your numbers selected is one of these ways, but the same principle applies to day traders, real estate speculators and even opportunists hoping create the next marking fad. None of these characters remotely care about the social good of their actions and many destroy our society bit by bit with their actions.
In America today we still have many people who dream about working hard and creating wealth through the sweat of their brow. However, the reality of this picture is people like Bill Gates who happened to be in the “right place” at the “right time.” Microsoft products were there first and captured a huge market share, but they have never been the best products on the market. Similarly clever slight of hand was able to create a good deal of wealth in the real estate market by providing cheap high risk loans to people and lying about the actual risk of the loans. The cheap supply of cash created a demand for real estate and drove property prices to unrealistic values. The property wasn’t actually earning value. The value was created by the demand of people who didn’t make enough money to actually pay for the house that they wanted. Everyone saw their house value increase and they advised to borrow money against the equity in their house. The initial lie about the risk of these loans propagated through the economy. Risk could no longer be trusted, but everyone was happy because they saw the value of their houses increasing over time.
No one asked themselves where this extra money was coming from. Everyone assumed that money in the form of value in their houses was a “good” thing. People believed that they were richer than they actually were. This is because the value of their house was based on what people were willing to pay for their house if they were to try to sell it. And, people were willing to pay lots of money that they didn’t actually have because banks were willing to loan tons of cash to people who could never really keep up their end of the bargain.
In America we have a belief that those who scam the system will pay the price and demonstrate to the rest of us the folly of their ways. People will see the risk and will no longer be tempted to repeat these activities. Unfortunately time is involved in this process. There is always a window of opportunity in which people are able to game the system, make their money and get out before the activity becomes illegal. Some people are able to amass great wealth and pass it down to their heirs for many generations. Once one has this wealth one is able to live off the money “earned” from the principle itself and hard work is no longer required. Money earned in this way and propagated through the generations is actually contrary to the American ideal of working hard to become successful. But, the protection of this capital in this system allows people to take very low risk and earn a high return if enough capital is put into play. Special laws have been written to protect these special fortunes. We can look at the Disney empire as an example of how copyright laws have been changed to protect the Disney interest in Mickey Mouse because Mickey is still such a cash cow. Special laws continue to be written to protect other industries as well – mainly to assure that these wealthy families like the heirs to McDonald fortune will never really need to work at a McDonald’s restaurant.
The whole system works in such a way that creating a perceived value for a commodity which is much higher than the actually work involved in creating the commodity. So, creating a demand for a virtual item by advertising and marking an imagined device without actually creating the device is one way to create an artificially high value. Even if the object does not really exist one could create demand for it based on hype. A quick fortune could easily be made by selling an envelope filled with sand if the hype is great enough. Maybe many people won’t buy their second envelope of “magic sand,” but then again some people will continue to believe the hype well into envelope number ten. Imagine how much money could be made if one percent of all Americans are convinced to buy one envelope of “magic sand” for $29.95. Should the “hard work” and “innovation” of the “magic sand” dealer be praised or punished?
The free market system tells us that the people will learn that magic sand is just ordinary sand and they won’t buy it any more. But the magic sand dealer knows that he can make some money and move on to magic tonic and magic rocks and continue to make money by exploiting the gullibility of the people. Regulation is one way to put a stop to this. And, arguments between free market advocates and regulation advocates continue while the magic sand dealer figures out new ways to sell his wares cloaked in new ways until he amasses enough money to never need to sell any more. Then he passes his wealth to his children and he can loan his money and demand extremely high rates of interest until there are regulations. Those who have no morals or sense of guilt will find ways to take advantage of the free markets and live perfectly comfortably while those of us who espouse to be caring members of society will continue to be taken advantage of while the regulation free market debates continue to waste time.
-----------------------------------------------------
Cross Posted @ Bring It On, tblog, Blogger and BlogSpirit
Reflection
posted by Dr. Forbush | 6/15/2009 01:57:00 PM
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