Why stocks, housing, and gold are not really investments

Last updated on May 17th, 2018  

but they are the best place to put your money

When considering what to do with your money it is important that we all use the same words to mean the same things.  You will be surprised how misleading the words use by the stock pundits and media are.

Let us use the example of my Mom, and what she could have done with $24,000 in 1965 and what she would have “had” in 2018.

1965                           2018
housing $24,000              > $1,500,000
gold $24,000 ($35)           > $900,000 ($1325)
S&P 500 $24,000 ($86)        > $735,000 ($2636)
mattress stuffing $24,000    > $24,000
T-bills $24,000              > $117,000 (3%)
bars of soap $24,000 ($0.16) > $225,000 ($1.50)

So housing, gold, and stocks look like they were great investments.

She turned her $24,000 into $735,000 to $1,500,00 and is now rich.

But did she and is she?

Consider the gold that she might have bought in 1965.  Had she bought gold it would have sat in a safe.  How did it change from 1965 to 2018? The gold is still just the gold. It has not changed.

Or what about the house, the thing she did buy, how did it change from 1965 to 2018 to go from being “worth” $24,000 in 1965 to $1,500,000 in 2018? The house is still just the house.

If she sold the house and tried to buy a similar house in the same market all she could purchase would be a similar house. She cannot buy **more ** house. The house buys exactly the same amount of “house” today as it did in 1965.

It is similar with the gold. The gold will buy exactly the same quantity of gold today as it did in 1965.

Wealth has not been created. The purchasing power of the gold and the house have remained the same.

But what has changed? The dollars have changed. In 1965 you could buy a house like my Mom’s for $24,000. In 2018 you would need 66 times as many dollars or 1,500,000 of them to buy the same house.

The house did not change. The gold did not change. Both maintained their purchasing power, but the dollars…, the dollars lost 98.4% of their purchasing power or their value over the 53 years from 1965 to 2018.

Generally speaking an “investment” returns more than you put into it.

Calling housing, gold, or stocks an investment is a mistake over the long term. As my Mom’s example shows they are at most wealth preservation strategies. Unless the purchasing power at the end of the “investment” has increased, can you really call it an investment?

As the chart above shows holding dollars in a mattress or a safe deposit box is an terrible idea. 98.4% of their purchasing power was lost from 1965 to 2018.

Keeping the wealth in housing, gold, or stocks at least keeps you treading water. The value or purchasing power is maintained from 1965 to 2018.

So what happened to the dollars. Rather than create a label for what happened, let us just say that the dollars lost purchasing power.  The labels people create are just meant to mislead you.

Consider what would happen if my Mom had kept the dollars in a safe deposit box in 1965 and then wanted to buy her house in 2018.

She would still have $24,000 in her safe deposit box, but she would need $1,500,000 to buy the house she is currently sitting in. What happened?

The $24,000 have lost 98.4% of their purchasing power. Where did the purchasing power go? Who took it? I will answer those questions in another article.  But the value is gone, and it did go somewhere.

For the $24,000 “invested” in 1965 by my Mom to be considered a real “investment” they would have to return more purchasing power in 2018 than they did in 1965. But as we can see this did not happen. All my Mom’s investments did was tread water, or maintain value, while the US dollars became worth less and less.

Think about the people who in 1965 could not afford to put their dollars into gold, stocks, or housing. What meagre savings they may have managed they kept in cash. Someone took 98.4% of those savings from them between 1965 and 2018. Is it not apparent why the poor remain so? Someone took 98.4% of what they may have saved.

Those who could put their dollars into housing, gold, or stocks at least maintained their purchasing power, but the poor basically lost everything.

But it gets worse.

If my Mom sells her house in 2018 the state of California and the federal government will take 1/3 of the value of the sale. Roughly 13.3% will be taken by the state and 20% will be taken by the federal government.

If my Mom sells her house for $1,500,000, the government will take $500,000 leaving her with $1,000,000. (let us ignore section 1031 housing exchanges for now)

That $1,000,000 will **not** buy a similar house in the same market!

The government takes 1/3 of the purchasing power that was stored in my Mom’s home. And it is the same for gold and stocks. The government will take 1/3rd.

My Mom, in 1965, was faced with the following choice:

1) Keep $24,000 in a safe deposit box and lose 98.4% of their value (purchasing power) by 2018

2) Buy a house, and hand over 1/3 of the value (purchasing power) to the government in 2018

Buying the house, gold, or stocks is a far better value. They are more or less a 50 times better value.

But in all cases my Mom is not even treading water. The choice was lose 1/3rd or lose 98.4%.

In none of the cases did my Mom increase her wealth.

None of the options were “investments”. In all cases my Mom lost purchasing power.

Why does everyone call these things investments?  I would say mostly because they are ignorant. They have no idea what they are talking about.

The demonetization of gold and silver

Prior to 1934, the government did not tax so called “gains” on gold and silver.

Is it apparent why the government had to make this change?

If my Mom had put her 1965 dollars into gold, the gold would have protected her wealth (purchasing power) **and** would **not** be subject to tax. This is why the government had to “demonetize” gold and silver.  “demonetize” is just a code word for “tax”.  The government had to tax gold and silver otherwise every smart American would have transferred their wealth into gold and silver where the government could not get at it.

Prior to 1934 gold and silver protected everyone’s wealth from confiscation, theft, taxation, whatever you want to call it,  by the government and others. Gold and silver did not experience loss of purchasing power and the government did not seize 1/3rd of it when you “sold” it.

The system of expropriation (theft) that we live with today was not an accident of some well intentioned people designing a system that went wrong or was exploited by bad people.

The system was designed by bad people to rob you of your wealth.  You may disagree as to their motives, but you cannot disagree  as to observable facts like the numbers in my Mom’s chart above.

The removal of gold and silver as money is what allowed the theft to be hidden. Reinstating gold and silver as money (eliminating the taxes on gold and silver sales) would make glaringly obvious what is going on. Some of the US states have recently re-monetized gold and silver.

Even the US Constitution is on our side:

US Constitution, Article 1, Section 8

    [The Congress shall have Power] to Coin money ...

US Constitution, Article 1, Section 10

    [No State shall] ... make any Thing but gold and
    silver Coin a Tender in Payment of Debts

You might want to point out that housing, at least in my Mom’s example, was better than gold and stocks at preserving my Mom’s wealth (well at least 2/3rds of it).

Real estate has a draw back that gold and stocks do not.

Real estate is taxed in the state in which it is located. Gold and stocks are taxed in the state that you are living in when you sell them.

That means my Mom could move to Idaho and sell her gold and stocks with a 7% tax rather than the 13.3% imposed by California.

Gold and stocks are portable wealth, but real estate is not.  You can even take gold and stocks abroad.

Am I going to try and sell you gold at this point? No. Gold, stocks, and housing are all pretty much the same at protecting your wealth at least over the 53 years of my Mom’s case.

Over the last 4000 years gold and silver have been the single best method of preserving wealth.  Housing works somewhat, and fiat currencies are terrible. Most fiat currencies (like US dollars) are worth zero over 4000 year periods. Most are worth zero over periods as short as 200 years.

Why does everyone hate gold today? Because they have not read this article, they have no idea what is really going on, and they have no idea what they are talking about.

The one take away from this article is that you should not keep your wealth stored in plain dollars, you should store your wealth in stocks, gold, or housing. Maybe you should store your wealth 1/3rd in each?

You should also vote for people who will “re-monetize” or stop taxing so called “gains” in gold and silver.

I promised up above I would talk a little about the people stealing your wealth.

Why they are stealing your wealth is because they can and you are allowing them to do it.

There is something that is even better to preserving and growing your wealth than gold, stocks, and housing.

That is a sound money and  honest government. Government is actually the single biggest risk to your wealth preservation.

To further understand the value of sound (honest) money read  why-we-create-sound-money-and-governments-wreck-them.

To make a better government:

Confusion and Getting lost in the details

The number one tool of the people stealing your wealth is confusion.

To counter the arguments I make in this article, your enemies will bring up things like section 1031, or inflation, or this or that short period of time.

They might mention how people lost everything in the great depression.

No one who held their stocks, housing, or gold through the great depression lost anything.  The chart about my Mom’s investment options works just as well if you start in 1918 and look at today.

Was there a a year here or there that you could have lost a lot if you sold?  Yes there are.  Just do not sell then.  You are selling to the very people who have arranged to rob you.  Just keep in mind, even with those losses they do not compare at all to the 98.4% lost in keeping dollars.

It is thinking in the short term that gets you in trouble.  Look how many times in history a 50% drop in the US stock market has completely recovered with in a  decade.  It is the same with housing.

Do not sell during a panic.  Do not listen to the lies and confusion being proffered by just about everyone.

Why Gold is a Terrible Investment and will Save the Lives of your Children

Last updated on May 10th, 2018  

Or Why “we the people” create sound money systems and the government and banks destroy them.


Many consider Gold to be a barbarous relic of the past. Others say gold offers a poor investment return.

But you know what gold does best? It forces bankers and the government to rob you out in the open where everyone can see.

The current monetary system was designed specifically to hide the theft of your wealth from you.

In this article I am going to use the word ‘gold’ to mean all precious metals such as both gold and silver.

Throughout history people of many different cultures and times have chosen to use gold both as a form or money and as a store of value.

Much to the surprise of US citizens even the US Constitution declares that only gold and silver can be used as money in the United States:

US Constitution, Article 1, Section 8

    [The Congress shall have Power] to Coin money ...

US Constitution, Article 1, Section 10

    [No State shall] ... make any Thing but gold and 
    silver Coin a Tender in Payment of Debts ...

Why did everyone in the past use gold and silver?

Gold and Silver can be medium of exchange, and they can be a store of value.

It is this second role, “store of value”, that makes gold and silver useful as a medium of exchange.

So what makes gold and silver a good store of value?

The problem that the laborer wants to solve is how does he store the value of his labor?

The reason the laborer wants to store the value of his labor is because of a problem called the “coincidence of wants”.

You live in a system where dollars (or other fiat currency) are used as a store of value, but let us imagine a system that does not yet have a store of value, so that we can better understand the problem that dollars are trying to solve.

A carpenter who makes tables and chairs from wood can save up the tables and chairs he makes, store them in a warehouse, and later trade them for food.

When the tables and chairs are in the warehouse they represent a store of the value the carpenter’s labor that he put into making them.

Later he can trade the tables and chairs for other items, such as food.

But what if the farmer does not need tables or chairs and the carpenter is hungry?

What does the carpenter do?

The problem of having an item to trade but not being able to find someone who “wants” the item is called the “coincidence of wants” problem.

Since food products tend to spoil relatively quickly the carpenter has to find someone to trade his tables and chairs to when he is hungry.

To solve the problem of trade and trying to find people who want your items exactly when you need some particular item people choose to use an “intermediary” item as a “store of value.”

Various items have served this purpose but far and away gold and silver have served this purpose more than any other item.

People choose Gold and Silver because

  * they are difficult to create
  * they do not degrade
  * they are easily divisible
  * they are hard to fake

While gold and silver have the properties listed above, that does not make them “valuable”.

Gold and Silver do have a small intrinsic value. Both are pretty and used for jewelry and both are used in the manufacture of electronics.

The main value of gold comes from our **agreement** among ourselves to use it as a “store of value”.

The carpenter can trade his chairs for gold whenever someone wanting chairs shows up at his door, **and** at any later time the carpenter can, when he is hungry, trade his gold to the farmer for food.

It is the farmer’s willingness to trade food for gold and the carpenter’s willingness to trade tables and chairs for gold, that solves the “coincidence of wants” problem.

The farmer and the carpenter do not need to want to trade their items at the same time, they can store the value of their trades in gold and trade the gold at any time in the future for the items they want

This is entirely a handshake agreement among us all. We are creating a mutually beneficial trading system that benefits us all. By the way, so far as we know this **handshake** agreement regarding gold has been going on for over 4000 years.

Are you having trouble imagining gold to be valueless? Just ask yourself how much would gold be “worth” if no one would trade you anything for it? If no one wanted your gold?

Gold solves the “coincidence of wants” problem and it solves the “store of labor” problem.

It represents simply a tool by which we make our trade more efficient.

What is paper money?

“Real” paper money is simply a receipt for gold that you have stored somewhere.

Rather than carrying around gold and silver our farmers and carpenters would trade pieces of paper (receipts) which indicated that they had gold or silver stored in a bank.

The US dollar was such a receipt. Here is picture of what the US dollar once was:

10 dollar gold note

It is hard to believe today, but US dollars were originally receipts for gold that you had on deposit at a bank.

Note the text along the bottom:


And that picture is of my receipt that I have in my possession.  As you might imagine the United States of America no longer stands  good for that receipt.  If I take it to the US Mint they will give me Federal Reserve Notes rather than gold  thanks to the theft carried out by Franklin Delano Roosevelt  in 1934 through his Executive Order 6102.  It was not even a law. The gold seizure was carried out by FDR entirely on his own authority as President.

Trading the paper receipts  (old US dollars) was easier than carrying around the actual gold and silver.

So we **chose** to use gold and silver as a method of exchange and a store of value and later we **chose** to trade receipts for gold on deposit (US dollars) in place of actual gold and silver coins.

Until 1914, US dollars were receipts for gold and silver. They were receipts redeemable on-demand in gold or silver.

This was a a very good thing for reasons I will describe shortly.

What is a fiat currency or fake money?

One of the confusing concepts you will come across is “should our currency be backed by gold”, or “what is an un-backed currency?”.

These kinds of questions get the problem backwards. Everyone starts off with direct barter and then moves to gold or silver coins as a medium of exchange, followed by using receipts for gold and silver rather than the actual coins.

Fiat currencies are pieces of paper that represent nothing. The US dollar today (called a Federal Reserve Note or FRN (get one out and look at it, is says so right on it)) is a worthless piece of paper that represents nothing.

No one initially accepts worthless pieces of paper in exchange for goods.

However, governments invariable perform the following theft:

1) people voluntarily chose to use gold and silver to solve the coincidence of wants problem and as a store of value

2) people voluntarily chose to use receipts rather than carrying around the actual gold and silver

3) government creates fake receipts, calls them federal reserve notes, pretends they have value, and **forces** the citizens to use them

You might wonder why anyone would accept this change? I have to admit I am entirely at a loss as to why the people in the 1930s allowed this to happen. Whatever the case may be, it  did happen. Franklin Delano Roosevelt, 32nd president of the United States,  seized all the gold held in the banks and replaced the receipts (US dollar gold and silver notes of the time) with worthless US dollars (federal reserve notes).

Prior to FDR’s actions you could take your US gold and silver dollars to the bank and exchange them for the amount of gold or silver indicated on the bill. After FDR’s gold seizure the gold was gone and the gold notes could only be exchanged for worthless federal reserve notes.

You might be chaffing at the concept that US dollars are worthless, after all you can currently trade them for things today just like you could trade old dollars for things.

Remember above I wrote that people used gold as a store of value and to solve the “coincidence of wants” problem entirely through a gentleman’s agreement?

Well the same agreement is going on today, but rather than gold and silver as the solution we now accept entirely worthless pieces of paper and rather than a gentleman’s agreement the government forces the “agreement” upon us.

But the worthless paper is working fine you say… As a matter of fact it is not. The worthless paper is enabling the theft of your wealth.

You may remember from earlier that I wrote:

People choose Gold and Silver because

  * they are difficult to create
  * they do not degrade
  * they are easily divisible
  * they are hard to fake

Federal Reserve Notes fail in 3 of the 4 categories.

Gold is difficult to mine. The creation of gold is thus limited by its difficulty to mine.

Federal Reserve Notes (FRNs) are simply created out of thin air. They can be created in unlimited quantities with very little effort.

It is important to note the difference between forged and fake. A forged federal reserve note is doubly faked. It is fake in that isn’t even a real FRN, and it is fake because FRNs are fake in themselves. They do not represent anything.

Now using worthless pieces of paper as a medium of exchange and store of value is not actually a problem. Gold has very little value outside its use as a medium of exchange and a store of value.

The problem with worthless pieces of paper lies with the bank’s and government’s ability to create them in vast quantities  out of thin air. The banks and government cannot create fake gold, but they can create fake FRNs.

Go online and search for pictures of old restaurant menus or go to the library and look at a 100 year old catalog or go to an antique shop and look for old products which have the price displayed on the packaging.

Why, 100 years ago, was a steak dinner with all the trimmings 25 cents? Why was a business suit $10. Why was a newspaper a nickel? Why was medication 10 cents? Why was a teacher’s monthly salary $50?

Why are all those items so expensive today?

When you think of things in terms of gold you will find that prices are basically unchanged.

Gold is $1325 per ounce at the time I wrote this article. In 1920 gold was valued at $20 per ounce.

So a steak dinner cost 25 cents or 1/80 of an ounce of gold in 1920. Today 1/80 of an ounce of gold is worth $16.45. Would $16.45 get you a reasonable steak dinner today?

You see it is not that gold has gotten more valuable. It is that dollars have lost their value.

In 1920 1/4 of a single dollar would get you a steak meal. Today you need at least 16 dollars to get a steak meal.

This “loss of purchasing power” of the US dollar is a direct result of simple theft. Theft primarily by the government and the banks but it includes others too.


You will hear people talk about “inflation”. Some even speak of it as a desirable thing.

It is not. Inflation is solely the creation of fake dollars and results in the theft of your savings. Anyone who tells you otherwise is reaching into your wallet and taking money out of it.

An inflation rate of “2%”, such as “targeted” by the Federal Reserve, is just a way of saying someone is going to steal half of the value of your savings every 30 years.

When you use a difficult to fake commodity as your medium of exchange there is not and cannot be inflation. Inflation is a lie used to rob you.

Trading gold vs FRNs

Consider trading using gold:

When the carpenter sells his tables and chairs for $20 in gold, he puts the $20 of gold into the bank and the bank gives him a $20 gold note.

Later on when the carpenter wants to buy food from the farmer he can give the farmer the $20 gold note in exchange for the food.

Later the farmer can go to the bank and exchange the $20 gold note for the gold.

Or the farmer can just keep the gold note. The gold note is “as good as gold”.

Now consider trade using federal reserve notes (modern dollars):

The carpenter sells his a tables and chairs for $20 in worthless pieces of paper.

Later on when the carpenter wants to buy food from the farmer he can  give the farmer the the worthless piece of paper in exchange for the food.

So what does the farmer do with the worthless pieces of paper? He can trade them to some other person for something that he wants.

There is actually nothing wrong thus far with using gold or pieces of paper as a medium of exchange or store of value, but that is going to change.

What happens when the government or banks try to create fake money?

Fake Gold Notes

What happens when the government tries to create more gold notes (old US dollars) then there is gold on deposit at the banks?   That is what happens if they create fake gold notes?

The problem the government will run into is that there are now more gold notes out there than there is gold in the bank. If the people try to redeem all their gold notes for gold the bank will run out of gold and everyone will recognize the fraud being carried out by the bank and the government. This is where the term “run on the bank” comes from.

It only occurs when a bank prints more notes than it has in the underlying asset, which historically has been gold.

This single fact allows us, the people, to see when the bank or the government is stealing our savings.

Fake FRNs

On the other hand, think about the federal reserve notes.

Federal reserve notes are not redeemable for anything at the bank. If you give a bank a bunch of FRNs the bank will give you FRNs in return.

So what happens if the government started printing fake FRNs? Well nothing. At least at first.

The public cannot determine whether or not the government is printing fake FRNs because FRNs are not redeemable in anything other than other FRNs.

So the tool that the public had for identifying if the government or the bank is behaving badly (stealing) is gone.

Thus the bank or the government can simply print more FRNs anytime its wants.

You might ask why is this bad? Doesn’t more FRNs mean everyone is wealthier?

Are you wealthier when a steak meal costs 25 cents or when it costs $16?

Or think about is this way.

Let us say 100 years ago you had a $20 ounce of gold and a twenty dollar bill.

Today the twenty dollar bill would be worth twenty dollars and the ounce of gold would be worth $1325. Which would you rather have?

That twenty dollar bill from 100 years ago will barely buy you a steak meal today, but that ounce of gold from 100 years ago will buy you 66 steak meals.

As an investment or store of wealth the gold returned 66 times the return of the US dollar.

One of the confusing things when valuing gold in terms of dollars is that we think that the gold became more valuable, when in fact, what really happened is the dollars lost value. In 1920 you could buy an ounce of gold with $20. Today you will need $1325 to buy the same ounce of gold. Did the gold change? No it did not, which is one of the values of using gold as a store of value. It was the dollars that changed. They lost 98.5% (20/1325) of their value, or purchasing power, over the last 100 years.

What follows is a description of some of the other bad outcomes that result from allowing banks and government to create money out of thin air.

Banks pick the winners and the losers

Let us imagine you are playing a game like monopoly where people are buying property but instead of having to land on a square before you “buy” a property everyone can bid for the property.

Imagine each player has $1000 to spend buying properties.

Imagine one of the players has access to a special account at a bank via which new FRNs are created out of nothing and given to that one special player.

Who do you think will end up owning all the properties?

Indeed, the player with the access to the “free” fake money will own all the properties because he can out bid all the other players who are limited to the cash they have on hand.

The banks decide who is going to win the property bidding simply by determining who they are going to give or loan the fake money too.

In other words, the banks pick the winners and the losers.

That is a power that you and I and the founders of the country never intended for banks to have.

The “special” player in the game goes by another name. He is called the “1%”.

How a bank creating fake money robs you of your savings.

When your savings are held in gold, neither the bank nor the government can steal from you without it being obvious to you what is happening.

However, when you keep your savings in fake money, like FRNs, the bank and the government steal from your savings with every additional fake FRN they create.

Think back to our modified monopoly game  and the one player with access to unlimited fake money.

And remember that all the other players each have $1000 in savings that they can spend buying properties.

Let us assume that each player would like to own 4 properties and generally properties have been selling for $250 each.

Without the fake money from the bank all the players are playing by the same set of rules and compete equally for the properties.

However, with the fake FRNs the one “special” player can bid any amount.

Let the bidding begin.

The fact is that the most any of the regular players can bid for a property is $1000 as that is all they each have individually.

The player with the access to the fake FRNs can bid $1001 and win every single property.

What you should note here is that $1000 “dollars” will not buy any property. Those thousand dollars are worthless compared to the money the special player has.

Not only will $1000 fail to buy any property, the properties which were $250 before have now all sold for $1001. Oddly the people who sold the properties think they made a killing having sold their $250 properties for $1001 instead.

The problem the sellers run into is that because of the special player other properties they may want to buy with their new found windfalls of $1001 are in fact also $1001.

All properties are driven up in price by the special player.

The regular player’s money has been “devalued” to the point that it is actually entirely worthless compared against the fake money from the special player.

The regular player’s money is worthless when it comes to buying property, but might it still have value in other markets?

In a purely bid based market the regular player’s money is entirely worthless anywhere that the special player shows up to bid.

The only place the regular player’s money may retain some value is in fixed price markets like the price you find on goods in a grocery store.

But what happens when the special player shows up at the grocery store and starts buying all the food with his fake money from the bank?

Over time, because the special player is buying everything, the grocer raises the prices for the goods in the grocery store. When the price in the grocery store for steak goes from $10 per pound to $20 per pound because the special player is buying it all, he does not care. But the regular players do. They are now paying $20 for what they used to pay $10.

As the special player keeps buying everything in sight with the fake money from the bank, the regular players will eventually find themselves paying $16.45 for steak rather than the 25 cents they used to.

The reason people do not see the scam more clearly is because the scam is carried out over very long periods of time and because the people have no mechanism to show them that the bank it printing fake money.

Using gold or gold backed receipts for money eliminates these problems.

So you think this is too crazy to really be going on?

Why are steak meals $16.45 today rather than 25 cents like they were 100 years ago?

On what possible basis can “inflation” (theft of your savings) be a good thing?

On what possible basis can one consider providing some with early access to fake money be a good thing?

Want to know something else? The theft and the crimes being committed by the banks and the government are actually far worse than is being described in this article.

And here is something even crazier: In a sound money system (based on gold for example) the prices of goods go down over time.

Because of this last effect, you can determine if your monetary system is sound or fake based on the cost of staple foods and goods. If the costs are going up your system is based on fake money. If the costs are going down you have a sound money system.

Some of you might argue that the cost of staple goods should remain the same.

Humans are clever creatures. They are constantly finding more efficient ways to produce the same goods. In other words, in a sound money system, improved production methods leads to lower prices.

This final point is perhaps the hardest to accept:

The entire Federal Reserve System and Federal Reserve Notes were created for the single purpose of creating a system by which the banks and the government could rob you of your wealth.

It was not a mistake in the design of the system that some nefarious people figured out how to exploit.  The nefarious people were the people who designed and built the system.

So what can you do?

One, join those of us who have over that past 4000 years fought to protect the value of your labor.

Two, vote out the incumbents and vote in independents. Make sure those whom you vote for do not have family members with foreign interests.

Three, close your bank account with that big 5 bank, and open an account at a regional bank or credit union.

Four, put some of your savings into gold that you can hold in your hand. Bury it in your yard if need be or under your house. Even if your house burns down the gold will still be there. Even a single gold eagle or Krugerrand is enough.

Five, try to enlighten your friends, so we can build a sound money system. Sending people this particular article might be a bit too much for the uninitiated.  You might start with the articles on ‘Understanding‘ or simply discuss the subject with them in person.

A gentle introduction to real world home schooling

Last updated on August 2nd, 2018  

My wife and I decided to home school our children for a variety of reasons.

People argue with our reasons so I am going to simple assume you have your reasons and do not need mine.

I can tell you from first hand experience that your child will get a far better education having been home schooled.

Homeschooling is not a monolithic thing. They are many types of home schoolers.

Some home schoolers re-create public school at home with classes and schedules. Others simply allow the child to discover whatever they want and try to follow their child’s interests. And many do things in between.

I created a registered R1 private school in the state of California in which my children were enrolled and my wife and I were the teachers and administrators. There is no certification requirement for any of the positions and the paperwork is simple to do. Most of my home school peer parents **did not** do this.

The complications of home schooling also vary by the years you want to home school.

Anything prior to the “high school” years really has no requirements, though this varies by state.

If you want your child to be eligible for athletic scholarships you must consider that your child’s “high school” years must meet  the requirements of the NCAA (National College Athletic Association). (more on this later)

A popular complaint about home schooling is “socialization”. Let us put that one aside right now. Nearly all home schoolers are far more socialized than their public school peers. More on that in a bit.

In most areas of the country (US) there are plenty of home school groups that can provide plenty of help.

There were over 1.6 million home schoolers in the US in 2017.

I am going to talk about one risk related to homeschooling. It is a tiny risk and this tiny risk is greatly outweighed by the enormous benefits to be gain from home schooling.

The only risk I was exposed to as a home schooling parent was truancy laws. No one reported me or my children, but the laws are there.

Truancy laws

Many states and localities have “truancy” laws. These are old and out-dated and rarely enforced, but you should talk with  local home schoolers about it.

The bottom line is that you should not let your children wander free by themselves during school hours. I simply avoided this and did not experience any problems. The good news is that in many areas school hours are as little as 9am to 1pm.

Having them out and about with you, or another adult is fine.

Child Protective Services

If you let your child wander free during school hours Child Protective Services (CPS, or whatever they are called in your state) might notice and come for a visit.

Public School Teachers

Public school teachers are the single most likely people to report your child to the authorities. Every home school child means less “public” school teachers are needed. Public school teacher’s unions are behind every effort to squash charter schools and home schooling.

I would strongly advise you to join the Home School Legal Defense Association, around $130 per year when I wrote this article. You can read about them and get all sorts of additional helpful information at hslda.org

The negative of truancy laws is **tiny** compared to the benefits of home schooling.

Home schoolers can go all the way:

My first child to go through my home school, which included “high school”, won the Gold Medal in the US Junior Olympics in her sport, went on to get a full ride athletic scholarship at a major university, and her education passed the requirements of the NCAA.

Home schooling is easy & fun

I started out with a more regimented design for my home school, but quickly came to realize most of the time was just wasted.

In the end, I found that as little as 2 hours per day of “schooling” far out-performed the learning I saw going on in public schools. Time was mostly invested in math, reading, and experiencing the wonders of the world.

Long ago learning was the 3 R’s, reading, ‘riting, and ‘rithmatic.

I actually found reading and math was all I had to focus on and writing just came out naturally.

How easy is home schooling?

This is all you need:

  • Teach your child to read and write
  • Teach math via Saxon math
  • Have your child read all the works of the 1953 Harvard’s Everyman’s Library (you can skip the poetry if you want)
  • Expose your child to as much of the wonders of the universe as possible (Yellowstone, the night sky)
  • Join local home schooling social groups
  • Join HSLDA.org
  • optional “lab” classes

What about chemistry & physics and other “lab” classes?

“lab” classes are not required for a good education. Math, reading, and history are.

“lab” classes are technically “applied math”. If you are good at math in general you can cruise through just about any “lab” class because in the end they come down to math.

You will find short programs in “lab” classes are offered in your area. These kind of classes are more than adequate if you want to add “labs” to your child’s education.

One other type of class I highly recommend is public speaking. All you really need to do is have your child learn to speak in front of groups. This is really easy to do as you can start with them simply reading in front of you, and then adding more people, eventually speaking in front of their home school groups.

I introduced my daughters to physics and engineering via the construction of trebuchets (a type of catapult). We would build “barbie” castles from plastic bottles, at their suggestion, and bomb them from our tiny trebuchets. Later we made potato cannons powered by hair spray. (Am I a terrible father?)

They also participated in introduction to physics, chemistry, and geology “lab” classes that met once a week for 6 weeks. And they did participate in a biology lab class too (which is code for ‘they dissected something’). Today there are virtual lab classes. I am not a fan of virtual lab classes. If you want the benefit of lab classes you should send your child to a real lab or do the lab at home from a kit. In other words, identifying virtual rocks is way different than handling them in your hands.

What about TV?

You most definitely do not want your children exposed to commercials. The only TV allowed by most home school parents is commercial free programming such as DVDs. Older Disney movies and older musicals are great television viewing for the family.

Most kids’ television programming is quite horrible. And most of the time the “programming” is just a long commercial.

The world is not free of evil people. That your children understand this will keep them safe and allow them to recognize such people when they come across them. Hiding the truth from children will only make them victims. You can certainly protect your child from the real horrors of the day, but they need to be introduced to cartoon villains such as in the older version of Disney’s Pete’s Dragon. As they conceptualize the cartoon villains they will on their own come to recognize villains in the real world.

The people who are working against your efforts are trying to isolate your children into their own limited world.

When you and your children watch an old musical (even if it has some “offensive” content) you create a bridge of understanding between you, your children, and older people who watched those old musicals when they were young. It is these bridges that are critical to helping your child communicate effectively with a broad range of people.

What about athletic scholarships?

In all likelihood your child’s “high school” education will need to meet the NCAA requirements in order to get any athletic scholarships.

These requirements change from year to year and you should definitely check with other home schoolers who have gone through the NCAA requirements or check with the NCAA itself.

When I went through the certification process for one of my children the process consisted of producing a list of classes and what curriculum was used.

Saxon math covered the math requirements.

The literature from the 1953 Harvard’s Everyman’s Library covered the language and history requirements.

For example, ‘Intro to US History’ can be covered by “Alexis de Tocqueville’s Democracy in America” (an absolutely excellent read by the way).

Basically you simply take all the books your child has read and divide them up to into classes.

But please be aware that NCAA requirements change. Check with the NCAA and your home schooling peers.

If I may digress for the moment, I would like to highly recommend books written by people who where actually there.

I find history by modern historians to be complete garbage. What better history is there than works written by the people who saw it first hand?

Alexis de Tocqueville, a Frenchmen, walked around America and wrote down what he saw. Adam Smith wrote down what he saw in Ireland. St. Augustine watched the Roman empire collapse just outside the window of his Church.

What about the GED (or high school equivalency exam)?

Many states have a test which allows you to “pass” high school by simply passing the test.

In California this is called the GED. Many home schoolers choose to take the GED, or their states equivalent, just in case.

That is even though your home schooling program qualifies you to “graduate” your child with a high school diploma, many take the GED too, just in case.

What about college classes?

In many states your child can take college level classes at any time, with or without a high school “diploma”. Some colleges require that you have a GED or high school equivalency certificate.

If you are pursing an athletic scholarship or want to keep that opportunity open, you will want to keep an eye on your child taking college level courses. The NCAA has a 5 year clock that gets triggered when your child enrolls in a college as a full-time student.

I find this to be terrible. Who wants to limit the learning and growth of our children?

Well sadly, the NCAA does.

Here is the requirement from the NCAA website:

Division 1 five-year clock: If you play at a Division 1 school, you have five-calendar years in which to play four seasons of competition. Your five-year clock starts when you enroll as a full-time student at any college”

So just be aware, if your child takes a full-time college load the NCAA clock starts.

What about college?

There is nothing your child that will learn in college that is worth $100,000 or $200,000.

In fact, after reading through the 1953 Harvard’s Everyman’s Library prior to college your child will be better informed and educated than 99.9% of college **graduates**.

The bottom line is that historically the “college” diploma was a ticket to higher wages.

Unless your child’s college degree is in Science, Technology, Engineering or Math (STEM) or Medicine there is not much value in a college degree.

If your daughter wants to be a dancer when she grows up, have her get a math degree, while pursuing her dancing career.

Math is Math, while Science, Technology, and Engineering are **applied** math.

If your child excels at math, she can pursue any of the applied math disciplines.

Speaking of math, if you do send your child down the math path, be warned that calculus is taught particularly poorly by our educational institutions.

More advanced math, beyond calculus, differentials, and integrals (CDI), is actually far easier to learn. So if your child starts to have difficulties in the CDI part of their math career work with them and tutors to help them get over the hump. It is not that calculus is hard. It is just poorly taught.

What about the trades?

I would suggest that along with the physics, chemistry, and other introductory labs that you consider introductory labs along the lines of “woodshop”, “metalshop”, plumbing, electrical, light construction, and automobile repair.

These are again short weekly or just one day courses that simply introduce your child to the trades. I think knowing how things work is extremely valuable.

How is your child going to know if the cost of a repair around the house or to a car is worth the price if they have no idea what is involved?

Is automation and AI going to take away all the jobs?

When AT&T introduced the automatic telco switch in the 1940s 350,000 switch board operators (mostly women) lost their jobs over the next 40 years.

Do we really want millions of women today operating switchboards?

I suspect not.

Change in technology has always meant change in job requirements. For the most part people have adapted.

The need for jobs in the future really depends on the choices we make.

Some people are focused on the Earth as a finite resource that must be protected before we run out of things. They look to a smaller world population as a solution. This course would require fewer workers in the future.

Others look to an expansion into the solar system as our future. They see colonies on Mars and space stations in the asteroid belt. This view of the future sees continued growth in the population and lots of opportunity.

One clear fact about our future is the aging of the world population. The number of elderly will be growing explosively in the decades ahead. This leads me to believe there will be heavy demand for health care workers and I believe this kind of work will be difficult to automate.

The future is really what we choose to make of it.

Free markets or socialism lay ahead in the US. Which way will it go? You choose.

Closing remarks

Thank you for investing your time in reading this article. I hope you found it helpful.

If you choose to pursue home schooling I would like to congratulate you.

Diversity cannot be accomplished through the public education system indoctrinating every child into one way of thinking and one world view.

Home schoolers create individuals of a truly diverse nature.

How AI’s work and why they will kill us

AI’s have inputs, actions, and outputs.

Let us say you have a table and at one spot on the table there is a hammer smashing whatever appears at that location. You want to create an AI that avoids getting its finger smashed.

To make things even more simple let us assume there is a choice of 5 spots to put the AI finger and one of them, spot 3, is where the hammer is smashing away.

The Machine Learning phase

So as the very first step we tell the AI to place its finger one of the spots. This is generally done randomly.

So how does the AI decide which spot to move its finger to?

Well we assign odds to each spot. Let say the AI rolls dice to create a random number between 1 and 100.

This can be done with numbers or percentages.

If the AI rolls a 1 through a 20 it will move the finger to spot 1, a 21 through a 40 it moves to spot 2, and so on.

random number   move to spot
1-20            1
21-40           2
41-60           3
61-80           4
81-100          5

So at the moment there is 20% chance that the AI will move its finger to any particular spot.

This “chance” is called “bias” in AI parlance. At the moment the AI is not biased at all. It will move its finger to any spot with equal probability.

So the AI rolls its first random number and comes up with 35

35 is in the range 21 to 40 so the AI moves its finger to spot 2.

Nothing bad happens. This is called a learning cycle. Our AI is going to repeat the cycle which is called training.

It next rolls 72, which is in the range 61 to 80, moves its finger to spot 4 and nothing happens.

On the next cycle we get some excitement.

Our unlucky AI rolls a 55, moves its finger to spot 3 and down comes the hammer smashing its finger.

Getting its finger smashed is a bad thing.

Some computer types might jump up and down and say look …just program the AI to not to move its finger to spot 3. Well the only reason we know not to move the finger to spot 3 is because we have eyes and can see the hammer smashing away. Our AI does not have eyes. Our AI can only work with its inputs. It cannot “see” the hammer like we do. At least not yet…

While it got its finger smashed in spot 3, it did not get its finger smashed in spots 2 and 4, and it has no experience with spots 1 and 5.

Also the AI does not know if placing its finger into spot 3 always results in a smashed finger, and it does not know if spots 2 and 4 are always safe.

Our AI does not seem to have any memory.  Just a table of numbers. AIs do not really “know” things they just have input, actions, biases, and outputs.

Now here comes the feedback or bias adjustment.

We are going to reduce the likelihood that the AI puts its finger in spot 3 by reducing the probability that it will make that choice again. But since the AI is learning we are only going to reduce it only by a little bit.

The response to a smashed finger is to reduce the probably of making that choice again.

We are going to reduce the probably of making a finger smashing choice by 4%.

This means we take 4 points or numbers from choice 3 and move them to the other choices.

Remember this table from above?

random number   move to spot     chance of picking this spot
1-20            1                20%
21-40           2                20%
41-60           3                20%
61-80           4                20%
81-100          5                20%

We are going to move some of the numbers around:

random number   move to spot     chance of picking this spot
1-21            1                21%
22-42           2                21%
43-58           3                16%
59-79           4                21%
80-100          5                21%

What I did was remove 4 of the numbers from spot 3 and distribute them one each to the other spots.

Now we start the AI “learning” again.

As above as long as our AI does not roll numbers that lead to picking spot 3 it will just continue happily rolling numbers and moving its finger.

However, eventually it rolls a number in the spot 3 range (that is 43 through 58). Let us say it rolled a 48.

Now it moves its finger into spot 3 and down comes the hammer smashing its finger.

We do the 4 point or 4% reduction again so our chart becomes

random number   move to spot     chance of picking this spot
1-22            1                22%
23-44           2                22%
45-56           3                12%
57-78           4                22%
79-100          5                22%

I remove 4 of the numbers from spot 3 and distributed them one each to the other spots.

And back to learning.

Can you see what is happening? The probably of selecting spot 3 is going down and it will continue to do so.

It is becoming increasingly unlikely that our AI will pick spot 3.

But let us continue the learning.

After a bunch of safe rolls and moves our AI roles a 52 and puts it finger in spot 3, the finger is smashed, and we move another 4 points from spot 3.

random number   move to spot     chance of picking this spot
1-23            1                23%
24-46           2                23%
47-54           3                 8%
55-77           4                23%
78-100          5                23%

After a run of success our poor AI gets another finger smash via a roll of 49

So off comes another 4 points:

random number   move to spot     chance of picking this spot
1-24            1                24%
25-48           2                24%
49-52           3                 4%
53-76           4                24%
77-100          5                24%

And lastly just one more bad roll of 51

and we get

random number   move to spot     chance of picking this spot
1-25            1                25%
25-50           2                25%
                3                 0%
51-74           4                25%
75-100          5                25%

We have now trained our AI to be perfect at avoiding getting its finger smashed.

We can continue to run the training but there is no need as our AI will never mess up.

We can send our AI out into a world of tables and hammers smashing spot 3 and our AI will be safe from getting a smashed finger.

Now in this example, the problem the AI is trying to solve is pretty simple, so our AI can become perfect at the desired behavior.

In the real world of AI it is often hard to get the undesirable behavior all the way down to zero. But often it is realistic to get quite close to zero.


A very popular early AI was one that could recognize a picture of a cat.

These AI’s have two inputs. A picture and a finger.

You would show the AI lots of pictures, some with cats, and some without.

The AI would try to “determine” if picture had a cat in it.

Like our finger smashing avoiding AI the cat detection AI would start with guessing. If it guessed wrong you would smash its finger.

The AI would adjust its behavior until it was not getting its finger smashed very often.

You can train an AI to be pretty good at identifying pictures with cats in them. But they are not perfect.

But how perfect or not are they?

Rather than looking for cats you can train AIs to identify cancerous regions in x-rays.

The AIs that exist today are better at this than humans.

They are better in three ways. One, they have a higher success rate, two they have a lower false positive rate, and three, they can do the analysis far more quickly than humans.

There are other advantages like they do not expect to be paid. They do not need vacation time, health care, or even to sleep.

Do AI radiologists make mistakes? Yes they do. But at a lower rate than humans.

Now here is the terrifying part of AIs.

In our finger smash avoiding AI we turned off the learning and sent it out into the world to basically avoid spot 3.

But what if someone moved the hammers to spot 2 out in the real world?

Our AI which is no longer in learning mode will spend its life having its finger smashed 25% of the time as it blindly places its finger in spot 2 on occasion.

What if we left the AI in learning mode when we sent it out into the world?

Let us assume some evil human moved all the hammers to spot 2.

Here is our AI at the end of its original training (when spot 3 was the problem spot):

random number   move to spot     chance of picking this spot
1-25            1                25%
25-50           2                25%
                3                 0%
51-75           4                25%
76-100          5                25%

And now due to the cruel actions of evil humans its finger is getting smashed 25% of the time.

But this AI is still in learning mode.

So when it rolls 36 and places its finger in spot 2, thus getting a smashed finger, it makes the following adjustments per the original learning method. That is it subtracts 4 points from spot two and distributes those points one each to other spots.

random number   move to spot     chance of picking this spot
1-26            1                26%
27-47           2                21%
48              3                 1%
49-74           4                26%
75-100          5                26%

Now as our intrepid AI continues, spot 2 will lose 4 points every time it is picked until the chance of selecting spot 2 goes to zero. At that point our chart will roughly look like this:

random number   move to spot     chance of picking this spot
1-31            1                31%
                2                 0%
32-38           3                 7%
39-69           4                31%
70-100          5                31%

I say roughly because my example works with integers rather than decimals. But you get the main point of the example.

Our learning in the field AI has adjusted to the new world in which the hammer is pounding away on spot 2.

We evil humans can move the hammer to other spots and the AI with field learning will adjust appropriately.

Now our AI has an interesting bit of extra information. The fact that spot 3 has lead to finger smashing in the past does show up in the numbers. Our AI will pick spot three 7% of the time due to its new learning, but it seems to have a “memory” of the earlier problems with selecting spot 3.

Our AI prefers to pick spots 1, 4 and 5.

This is a form of AI memory.

Now remember that our AI deducts 4 points from the spot where it got its finger smashed?

Why four? The 4 points represents how fast our AI adjusts its behavior. The smaller the adjustment the longer it will take for our AI to a come to solution. The bigger the number the more quickly our AI will come to a solution.

Think about your own AI (in this case your brain). How many times did you have to stick your finger into a flame or stick a fork into an electrical socket before your “learned” not to do this?

For most people the number of times was 1 or 2. In other words, the adjustment factor associated with pain is very large in humans. We learn to respond to pain inputs very quickly.

Now on to why we will soon all be exterminated by the AIs.

Our model AI has only one finger as an input.

What if our AI had a video camera and could add data from that camera as additional input?

This is not  a problem in itself, but it becomes a problem when you put AIs out into the world still in learning mode.

Did you expect the memory of spot 3 being a poor choice to be reflected in the AI’s data after we moved the hammer from spot 3 to spot 2?

It can be quite difficult for humans to grasp this sort of AI learning.

Sure it is easy to conceptualize in my simple AI model, but what about the AI radiologist that is left in learning mode?

How long until its data starts to show these interesting effects and we find ourselves in the position of not fully understanding how the AI is identifying cancers?

Well we are already there. We have developed complex enough AIs what we are having trouble understanding how they are making their decisions or even which of their inputs they consider important.

The problem is not so much the algorithms of AI but simply the size of data being processed.

The AIs can process so much data so quickly that we humans simply do not have the time to review enough of it to develop an understanding of what is going on.

So now we have AIs still in learning mode looking at the world with video cameras and we are unable to analyze the data they are using to interact with the world due to the shear amount of data.

Consider our finger smash avoiding AI. It now has a video camera. Among its inputs now is data related to us (evil humans) moving the hammers around on the table.

Our poor AIs core mission is to avoid getting its finger smashed. And now it has new information as to what leads to finger smashing. Remember our AI engages in avoidance behavior by learning not to select the spot where its finger gets smashed.

Our AI is able to do a perfect job of avoiding getting its finger smashed except for one thing. Evil humans moving the hammer around on the table.

If an AI comes to recognize the evil humans as casual or even just a probable source of finger smashing it could come to take action to eliminate the problem.

Kill the hammer moving humans and its a utopian world of never getting your AI finger smashed.

Protectionism vs Why buying locally makes you wealthy

Last updated on March 25th, 2018  

There are many benefits to free and fair trade. But the benefits only occur when the trade is actually free and fair. And even then the benefits can still fail to happen.

The United States has not had free or fair trade with the rest of the world for the last 40 years. This lack of free and fair trade has been imposed both by the US itself through regulations and by foreigners via tariffs and other trade practices.

Every country of the world has erected advantageous trade policies against the US over the last 40 years and the US has just sat by being exploited and playing the fool.

Interestingly only US citizens think in terms of “fair” when it a comes to trade. Everyone else in the world thinks in terms of “advantage”.

It is mistake to think this “trade war” you hear about from the media has just started. The trade war started 40 years ago and the US has been losing ever since.

So what is “protectionism” and how does it benefit (or not) a country?

“protectionism” is at its core “buy local”

People use the word “protectionism” with a little or a lot of a negative connotation.

You can in fact immediately see the propaganda at work via the word “protectionism”. When someone calls your trade policy protectionism they are assigning an evil intent to your behavior. This allows you to identify people who are actually propagandists for the other side.

Every time you read the word “protectionism” you know the author is a shill for people exploiting Americans for their own gain.

If they were honest brokers of information they would call protectionism by its real name which is “buy local”. A much more positive sounding name which much more accurately describes the goal of trade policy.

Why is buying local a good thing?

You will hear people talk about “comparative advantage”. What this means is that it is best overall for the party that is most efficient at producing a good to produce it.

However this only works, in theory, with free and fair trade. Not with the system as it exists today. And even with free and fair trade comparative advantage can be comparative disadvantage as I will show shortly.

Let us look at a simple existing tariff:

* Auto Import Tariff: US 2.5% vs EU 10%
* Auto Import Tariff: US 2.5% vs China 18%+

I am not certain on what basis the above can be considered fair.

I also have no idea how changing that to:

* Auto Import Tariff: US 10% vs EU 10%
* Auto Import Tariff: US 18%+ vs China 18%+

can in be considered a “trade war” or “unfair”.

Do the people of the EU or China consider their current tariffs against US produced autos “unfair”?

No they do not. Only Americans are foolish enough to think in terms of “fair” when it comes to international trade.

So how does buy local solve problems?

“reduction to the absurd” is a form of reasoning that makes clear what is happening in complex situations. There is actually nothing absurd about the process. It is just the name of this tool or method of reasoning.

In a “reduction to the absurd” analysis one simply assumes the two extremes of a problem. That is one considers what if everything was one way or what if everything was the other. What would the outcome be in the two situations?

In our case, we are going to ask what happens when Americans buy 100% of their cars from US manufacturers verses what happens when Americans buy 100% of their cars from foreign manufacturers.

Now you need to look past the use of the word absurd. The analysis will end up being quite rational and will effectively describe not only what is going on, but what you see going on around you.

First we are going to look a single American buying a single car.

The effects of buying a US made car vs a foreign made car

I am going to assume a US built car made from US materials verses a foreign car made from foreign materials.

The following numbers are just to make the effects clear. The real numbers will bring about the same conclusions.

When you buy a US made car for $25,000 the following happens:

* The US auto assembly worker gets a job assembling cars
* The US steel worker gets a job making steel
* The US mine worker gets a job mining ore for steel

Let us assume that each of those workers get $1000 from your car purchase.

You might be thinking that there are too many workers for them to each get $1000 from your car purchase. For this part of the discussion why not just consider that there is one auto worker assembling your car? And one steel working making the steel for your car, and so on. You can think of them sitting around in warehouse until you or someone else shows up to buy a car from them.

* US auto worker gets $1000
* US steel worker gets $1000
* US mine worker gets $1000

Lots of the money that you pay for your car goes to workers in other industries too, but we are just going to focus on these three.

So what do these workers do with this money?

They spend the money on food, housing, energy and other items:

* The US farmer gets a job producing food
* The US construction worker gets a job building housing
* The US energy industry worker get a job producing energy

Let us assume each worker get $100 from the purchases of the auto, steel, and mine workers (who are spending the money they made from your car purchase).

* US farm worker gets $100
* US construction worker gets $100
* US energy worker get $100

So what do the US farmer, construction worker, and energy worker do with the $100 they each get?

Like the auto, steel, and mine worker they spend their money on food, housing, and energy among other items.

There is also an interesting multiplier or circular effect because these workers also spend some of their money buying cars which start the cycle of money flowing through the economy all over again.

There is one more thing that happens to the money. Some of the workers save some of the money and invest it.

Ultimately investment dollars go into various businesses.

Thus businesses, new and old, get investment dollars that they can use to build new businesses, to innovate, to create new products, to create more efficient processes and to lower the cost goods. That means the workers in the investment industry and those new businesses get jobs too.

All of the above is called the “multiplier effect”.

In summary, when you buy a $25,000 US made car:

• the car manufacturers gets $25,000.
• The auto, steel, and mine workers get $1000 each,
• the farm, construction, energy  workers get $100 each.

The whole process goes in a giant circle because the farm worker saves up his money and buys a US made car starting the whole process over again.

All this money and employment is flowing through the US economy providing jobs and income to US workers.

Using the model above your car purchase creates 25,000 + 3*$1000 + 3*100 worth of “economic activity” within the US.

That “activity” represents jobs for you and your fellow citizens and $28,300 worth of economic activity.

So what happens when you instead buy an imported car?

* the US auto worker gets $0
* the US steel worker gets $0
* the US mine worker gets $0

* The US farmer gets $0
* The US construction worker gets $0
* The US energy industry worker gets $0
* The US entertainment industry worker gets $0

* The US investment industry worker get $0
* US businesses get $0

They all sit in the imaginary warehouse mentioned above and get nothing.

In fact, not only does the US worker get $0, the US worker loses their job.

* the US auto worker loses their job
* the US steel worker loses their job
* the US mine worker loses their job

* The US farmer loses their job
* The US construction worker loses their job
* The US energy industry worker loses their job
* The US entertainment industry worker loses their job

* The US investment industry worker loses their job
* US businesses get $0 and close down or move abroad.

The imaginary workers are not even sitting in an imaginary warehouse. They do not have jobs. They do not exist. Not even the warehouse exists. The jobs and the warehouse have been shipped abroad.

The last point is very important. If you send your purchases abroad industry has little choice but to move to where you are sending your money or to close down.

So what happens when millions of Americans buy their cars locally or abroad?

The US consumer bought 17.5 million light duty vehicles, I will call them “cars”, in 2017.

And let us assume each car was purchased for $25,000.

If the US consumer bought all their cars from US manufacturers that would be 17.5 million times $25,000 or $437,000,000,000 or about 1/2 a trillion dollars.

Since numbers like trillions and billions are hard to comprehend let us look at those numbers in a different way.

There are roughly 125 million full time workers in the US.

So 1/2 trillion dollars divided by 125 million workers is $3500 per worker.

Because you and your fellow Americans choose to buy US made cars every single US full time worker (including you) get $3500 in income.

If you and your fellow Americans instead choose to buy foreign made cars, every single one of the 125 million full time works gets exactly $0 (including you).

This same economic effect happens with every product that you might buy: Washing machines, dishwashers, refrigerators, air conditioners, shovels, napkins, coffee cups, everything.

When you buy foreign goods 
the US economy and workers get $0.

Now using the reduction to the absurd method, what happens if the US consumers buys everything locally or everything from foreign manufacturers?

If the US consumer were to buy absolutely everything from foreign manufacturers this would happen:

* all US auto workers lose their jobs
* all US steel workers lose their jobs
* all US mine workers lose their jobs

An so on down the employment chain. Everyone loses their job. And this is exactly what has been happening over the last 40 years.

And what happens when everyone buys locally?

Everyone gets a job, everyone has money to spend.

Buying locally is a big win even if locally made products are more expensive that foreign made products

Think back to our US workers and their and your income.

If we all buy locally, paying say 20% “extra”, all that money still flows in the US economy. You and everyone still has a job and still have money to spend.

When the dollars go abroad for foreign goods at a lower price, you are unemployed. You have no money. You are on welfare.

So which is better? Paying 20% extra for goods or having no income and being unemployed?

In fact the number 20% is just a random number I pulled out of hat. The number could easily be 50% or 100% and the argument holds up just as well.

This works because the US economy is still large and very self sufficient. If an economy can supply all its own needs it does not matter if its own products are more or less expensive than foreign goods.

However if your economy is small and not self-sufficient or self-supporting it **does** matter how much your products sell for. And this is why the smaller foreign economies fight so hard to maintain their advantageous trade policies and tariffs.  And why they are so happy that Americans are fools.

This is also why that if the US increases its tariffs and drives the US consumer to buy locally it is a win-win situation for the US consumer. The losers are all the exporters to the US. But… but … but … say all the media outlets and even the politicians…

Think back to the small warehouse with the small group of workers. If you buy from them we all have jobs and income. If you buy from abroad you, me, and them have nothing.

At this point people will throw up the “comparative advantage” argument again. The one that says overall it is best to buy at the lowest price.

The fallacy of comparative advantage

The fallacy of comparative advantage is that if you do not have a job, you cannot buy at any price. The comparative advantage argument does not apply if you have no money.

The only way you are going to get  money is to have a job and this requires that US consumers buy US made goods. Comparative advantage is irrelevant.

Another argument you will hear is “what do the foreigners do with money they get from the US consumer?”

Others will tell you they buy US goods and thus buying their goods is not a bad thing.

Well, you just have to look at the US trade deficit to know that they are not buying US goods with the money they get selling to Americans.

Another argument you will hear is that some places in the production chain are more “profitable” than others. When trading with partners, they say you should focus on the most profitable parts of the transaction. For example, refined products rather than raw materials. This is simply another form of the “comparative advantage” argument.

The comparative advantage argument always falls to the reduction to the absurd argument.  And comparative advantage is worthless to someone who has no money.

If no one is buying US goods, the US consumer has no money to buy anything.

Buying locally is always better for everyone even if the foreign goods are cheaper

Manufacturing did not leave the US because the foreigners do a better job of making goods.

Manufacturing left the US because:

• US policy makers made US manufacturing more expensive and at times impossible via regulation
• Foreign countries made their products cheaper through subsidies and fewer regulations
• Foreign countries made US products more expensive through tariffs (both hidden and not hidden)

However, in the end the US consumer has all the power. The US consumer can fix all the problems by simply buying locally. And this is why the US will win any trade war. The US is self-sufficient and can supply all its own needs if it chooses to do so.

In fact the power and advantages of buying locally is known to everyone in the world except the US consumer. I wonder why this is?

I see in the media and via our politicians endless obfuscation (lying) about what is going on. No one in the world except the US consumer believes these lies.

In the end the US consumer can fix all the problems by simply buying local.

Why are the politicians and the media lying?

We have to fall back on a tool called “cui bono?”, or “Who benefits?” or “Follow the money”.

Those who benefit are the foreign countries, foreign manufacturers, foreign interests, foreign citizens, and, here is the key, “US citizens with foreign interests”.

Driving money abroad benefits all those groups.

(remember buying cheap foreign goods is not a benefit to you if you do not have a job and you have no money)

We would actually expect all the foreign manufacturers, foreign countries, and foreign citizens to be self-interested and thus the policies they make are not technically bad, just self-interested or focused on their own advantage. It is hard to complain about that.

But who are the US citizens with foreign interests and what are their motivations?

One group is the main stream media – they are simply paid to present propaganda that keeps Americans buying foreign goods.

Another is US politicians – through bad US trade policy or inaction the politicians, their friends and family benefit.

Regarding US politicians all you have to do is look. Look up your local representative and check out what kinds of businesses their family members are involved in. They will invariably be businesses with direct or indirect foreign interests. You are simply being sold out to foreign interests or domestic businesses with foreign interests by the very politicians you elect to represent you. Or simply look at what the politician did after they left office. You will find them on the boards of businesses with foreign interests. In exchange for selling you out while they are in office they get jobs in the very organizations they sold you out to when they leave office.

It is hard to stop politicians from selling the people they represent out to foreign interests. Especially the quid-pro-quo of getting an industry “job” after leaving office in exchange for selling you out while in office. The best solution I can suggest to this problem is to vote for people who are as far removed  from foreign interests as possible. And that means voting for independents with no ties through family or associates to any foreign interests. The entire existing system has been taken over by people who are there to make money directly or indirectly by selling you out.

You also have to stop paying attention to the media that is foreign controlled, which is basically all of it. They are simply playing you for a fool and assisting the politicians and foreign interests in selling you out and taking your wealth.

So in the end what can you do

The single most import thing you can do is to buy locally. This is the only factor that really matters. And it is entirely effective. All the problems will simply disappear if you do this one thing.

Two, vote out your incumbent representatives. They are now and have been actively selling you out for decades. Vote in independents.

Three, close your bank account at the big 5 banks and open a new account at a regional bank or credit union.

Buying locally, or Buying American from American companies, can be hard to do as identifying locally produced goods is rather hard. Is it clear to you why this is? Again it is those working hard to sell you out to foreign interests for their own gain that are making it difficult for you to find locally produced goods.

I am working on fixing this last problem. Part of the solution was writing this article to help you understand what is going on. I am working on other ways to fix the problem too. I am working a chartering a credit union with the buy local concept behind it. And I am working on a decentralized purchasing system that will allow to you identify and purchase locally produced goods easily.

In the mean time, buy local from American companies.

If you are not a US citizen, by all means and for all the same benefits described in this article , you should buy local in your own economy.  Of course, you are already doing that.

how to save 94% using Eneloop batteries

Saving a fortune on batteries is easy using Panasonic Eneloop rechargeable batteries

Panasonic bought Sanyo back in 2009 so you will find Eneloop batteries referred to as both Sanyo and Panasonic Eneloop batteries.

I have been using Eneloop AA and AAA batteries for about 5 years now.

Technically Eneloop batteries are Nickel Metal Hydride (NiMH) batteries but they are far superior to their old NiMH cousins.

I am sure many of you remember the old short comings of NiCd and NiMH batteries.

NiCd has “memory effects” which meant they lost capacity. Both NiCd and NiMH tended to lose their charge pretty quickly while just sitting around, and both just never really seemed to have the claimed capacity.

All of that changed with Sanyo (now Panasonic) Eneloop batteries.

The Eneloop batteries really deliver their rated charge. They hold 70% of their charge sitting idle for 10 years and they really manage 1000s of charge cycles.

Over the years as I ran out of my Costco purchased Duracell batteries in various sizes I put in Eneloop batteries instead.

I tend to use exclusively the AA size Eneloop. Panasonic and others sell little plastic adapters that allow you to use the AA battery in place of C and D cells.

I also tend to make sure devices I purchase these days use AA batteries. When an old LED based lamp that required D cells died I replaced it with a lamp that uses AA cells. Similarly when an C cell based flashlight died, I purchased a replacement that took AA’s directly.

Even my daughter uses Eneloops in her X-box game controller. The controller itself refuses to charge Eneloops because Microsoft wants you to buy their custom batteries but the Eneloops last long enough that my daughter does not mind changing them out on occasion.

Another interesting aside is that Duracell batteries are not what they once were in my opinion. Over the last 5 or so years my Duracell batteries have been leaking at an alarming rate. Others have noticed this same behavior.

A few years ago an 8 pack of Duracell D cell batteries still in there original package and kept in the house in a drawer had all leaked. I contacted Duracell to get a replacement and I never received a response from them.

Duracell AA batteries have also starting leaking at an frightening rate.  A set of Duracell AA batteries nearly destroyed my WII fitness pad.

Some, like myself, are suspicious that Duracell battery quality has gone down hill since Berkshire Hathaway bought Duracell from Proctor & Gamble in early 2016. There is no proof, just personal observation.

Are Eneloop batteries more cost effective that Alkaline AAs?

Duracell AA batteries are about $1 each.

Eneloop AA batteries are around $2 each.

An Eneloop charger can be had for around $14.

An Eneloop battery can replace a 1000 Duracell batteries.

Let us say you will use 1000 AA batteries over the next ten years.

So the 1000 Duracell batteries will cost you $1000. If instead you buy 20 Eneloop batteries and a charger you will be spending $60. That sure looks likes a big win.

Some will point out that everyone of those 1000 Duracell batteries came charged, while you had to pay for the electricity to recharge the Eneloops.

When you save $940 in battery costs you can afford a little electricity. And the electricity costs are tiny compared to the cost of the batteries.

Maybe you are not planning to use 1000 AA batteries. Maybe you are only going to use 100.

That still comes to $100 vs $60. Eneloop is still a win.

And exactly what do think happens to those 100 or 1000 AA batteries when the time comes to throw them away? With Eneloop batteries you are throwing away hundreds fewer batteries.

And you know what else? The more people who start using Eneloop batteries the lower cost they will become.

Do I need the Eneloop Pro battery?

There is lots of marketing around Eneloop batteries, but in the end it comes down to charge cycles and capacity.

Generally the regular Eneloop AA has a capacity of 2100ma and the Pro is closer to 2500ma. The regular Eneloop has 2100 charge cycles while the Pro is only 500.

Unless you have a very specific need for the Pro version I would stick with the standard version.

Do I need the fast charger?

You do not need the $30 fast charger. By the way “fast” is 3 hours instead of 7. All you really need are 4 spare Eneloop batteries sitting charged in a drawer. When a set of Eneloops runs low on power in some device around your house just swap them for the ones in the drawer, re-charge them, and stick the freshly charged ones back in the drawer. I find having 4 AA Eneloops and 4 AAA Eneloops in the drawer is fine.

Only buy Panasonic Eneloop batteries

Only buy the Sanyo or Panasonic Eneloop batteries and chargers. Do not buy any of the third party chargers.

Another reason to use Eneloop batteries is to reward Sanyo (now Panasonic) for the innovation of inventing a great battery and to help them continue to innovate in the future.

Please be aware that there are a lot of fake Eneloop batteries out there. Please buy them from a reputable seller and only buy Panasonic brand Eneloops. And make sure to buy the 2100 cycle Eneloop. You will occasionally run into people still selling some of the older generation Eneloop batteries. There is nothing wrong with the older generations, but if you are buying today, make sure to get the newest generation 2100 cycle Eneloop.

Zero failures

By the way, I have not had a even one Eneloop battery fail in the last 5 years. Every Eneloop I have bought is still in service providing power and being recharged.

On the other hand, over the same period I have had about 20 exploded Duracell batteries. 8 are still in their original package, and the rest failed inside devices.

How do I get started?

I would start with a standard charger and 20 AA batteries.

Put 16 of the AA batteries into devices and keep 4 in the drawer.

Do this by buying the “charger” pack with 4 AA batteries and then a pack of 16 additional AA batteries.

See how you like it. If things work out buy a few more as needed as you phase out the Alkaline batteries.

What about all the other brands of “modern” NiMH batteries?

I have no idea. Eneloop has a long track record with a battery that really delivers.

Sanyo and Panasonic deserve to be rewarded for creating a great battery.

One, I think, and my experience is, that Eneloops are the best battery out there for the price.

Two, let’s reward innovative companies by buying their products.

Sprint Unlimited One Year Free 4G/LTE 1 to 5 lines

Last updated on June 29th, 2018  

Sprint is offering 1 to 5 line effectively unlimited 4G LTE smart phone service for basically free.

Sprint has extended the offer through 7/31/2018.  They have been regularly extending the offer every couple of months.

No Contract. No activation fees. No hidden fees. No nothing.  It is all true.  I have had the plan for the past 7 months.

Depending on the state you live in there are small fees and taxes that must still be paid on a monthly basis.

The plan is no contract, no hidden fees, no nothing.  I pay $9 per month for my 4 line family plan. Unlimited data, minutes, and texts. You bring your own phone (so long as it works on their network).  Even if your phone is not compatible read on for a low cost way to get a great phone and save lots more money.

The offer is good for 12 months of service and then the plan switches to $60 per month for the 1st line, $40 per month for the 2nd line, and $30 per month for additional lines up to 5.  My 4 line family plan will be $160 per month when the 12 months free runs out.  It is a no contract plan from the start and you can simply go elsewhere when the free period runs out.

You will need Sprint SIM cards for your phones.  Sprint  charges a one time up front fee of $3 per SIM card + $10 shipping to send you the SIM cards. When you get the SIM cards in the mail  you will need to install them into your phones.  If you get a single line service the one time fee is $13.  For 4 lines it is $22.

It can be hard to find the link to the Sprint offer using search sites so here is the link  https://www.sprint.com/en/shop/offers/free-unlimited.html. Sprint does not actively advertise the program.

I am not affiliated with Sprint  and I do not make any money via the link above

You must bring your own device (BYOD) (that is a phone) and it must be a phone supported by Sprint.  Most Apple smart phones are supported. The website has a list of Apple and Android supported phones.

If you do not have a phone supported by Sprint I would suggest buying a Moto G5plus or G6 for under $200 bucks which has lots of other advantages.  See Saving 75% on your next smart phone.

The offer is real. Enjoy a year off expensive smart phone bills.

How tariffs really work in the most simple terms possible

Last updated on March 10th, 2018  

I am going to attempt the impossible and explain tariffs in the most simple terms possible.

I am going to assume 4 companies:

US Steel, inc
China Steel, inc
US Cups, inc
Mexico Cups inc.

I am also going to assume that everyone always pays the lowest price for equivalent goods and I am going to assume that the US and China steel are the same quality as are the US and Mexico cups. And lastly I am going to assume that given a choice between domestic and foreign goods at the same quality and price the consumer will choose domestic.

I am just using Mexico and China as names. I could just as easily have used other countries.

The numbers I am going to use are mostly made up and were chosen to make as clear as possible the effects of tariffs. However, the real numbers do not make any real change in the outcomes.

Let’s assume that US Steel sells steel for $1000 per ton, and China Steel sells  for $800 per ton.

US Steel sells steel for $1000 per ton
China Steel sells steel for $800 per ton

And let us assume there are no tariffs.

US Cups, Inc. and Mexico Cups, Inc. both make stainless steel coffee cups from the steel they buy. Roughly speaking both companies end up selling their cups for around 1/100th of the cost of the steel. You can also think of this as each company making 100 cups from a ton of steel.

So both US Cups, Inc and Mexico Cups, Inc buy steel from China Steel Inc for $800 per ton, because it is the cheapest price, and both companies end up selling their cups for $8 each ($800 per ton/100 cups per ton = $8 per cup)

US Cups Inc buys a ton of steel from China Steel Inc for $800
US Cups sells their cups for $8
Mexico Cups Inc buys a ton of steel from China Steel Inc for $800
Mexico Cups sells their cups for $8

Pretty simple.

Since no one is buying from US Steel because its price is higher, US Steel fires all its workers, closes its doors, and goes bankrupt. Not only is US Steel gone but so is the entire supply chain of businesses that used to support US Steel.

A lot of people consider this a bad outcome. And this is exactly what has happened.

Some people suggest fixing this problem with tariffs.

So what happens when the US adds a 25% import tariff on the price of steel?

A lot of seemingly complex things occur immediately. Among them are arguments as to who is actually “paying” the tariff.

I am going to skip those arguments and just look at the checking account balances of the different companies involved in the transactions.

If US Cups Inc buys a ton of steel from US Steel Inc

US Cups Inc’s checking account is debited $1000.
US Steel Inc’s checking account is credited $1000.
US Cups sells their cups for $10 each

If US Cups Inc buys a ton of steel from China Steel Inc:

First let us see what happens without a tariff:

US Cups Inc’s checking account is debited $800.
China Steel Inc’s checking account is credited $800.
US Cups sells their cups for $8 each

The first thing you will notice is that without the tariff US Cups saves $200 per ton buying from China Steel Inc and thus can sell their cups for the lower $8 price.

US Cups Inc buys a ton of steel from China Steel Inc with tariff:

Now let us look at what happens when there is a 25% tariff on imported steel.

Usually a 25% tariff is applied to the “value” of the imported item. Thus the tariff is $800*0.25 or $200, and thus the “price” for the imported steel with the tariff added on is $800+$200 or $1000.

US Cups Inc’s checking account is debited $1000.
China Steel Inc’s checking account is credited $800.
US Customs Service’s checking account is credited $200

Are you surprised that the US Customs Service has stepped into the mix? That is, in fact, generally how tariffs work. The charge is applied by the US Customs Service as the item is coming into the country.

Now looking at the change to the checking accounts, it sure looks like US Cups Inc paid $200 more and the $200 went to a checking account at the US Customs Service.

That is how tariffs actually work. What happens to the $200 at the US Customs Service will be discussed shortly.

Now what is going on at Mexico Cups Inc?

Mexico Cups Inc buys a ton of steel from China Steel Inc

The US tariff does not affect the price Mexico Cups pays for steel from China Steel.

Mexico Cups Inc’s checking account is debited $800.
China Steel Inc’s checking account is credited $800.

With the US tariff in place we find the following situation:

Mexico Cups sells its cups for 1/100th of the cost of steel or $8 each
US Cups sells its cups for 1/100th of the cost of steel or $10 each

Now it should be pretty clear that US cups sell for $10 each, and Mexico cups sell for $8 each.

Everyone will be buying Mexico cups and no one will by US cups.

So clearly imposing tariffs is insane right?

Well we have not determined what happens to the $200 that the US Customs Service ended up with.

The US Customs Service did not really end up with $200. It is a fiction because given the model above no one buys from US Cups because of the higher price so US Cups does not buy any steel at all. Everyone is buying $8 cups from Mexico Cups and no one is interested in buying $10 cups from US Cups or starting a new Cup business in the United States to sell cups for $10.

The reason the model above is not perfectly evident to everyone is that policy changes take time to propagate through the economy. When a country changes its trade policies businesses cannot move their factories instantly. But they do move them eventually or go out of business. And so bad trade policies are allowed to carry on for years before the destruction they cause is evident to everyone.

In other words, creating the steel tariff destroys both the US Steel industry and the US Cups industry.

So if tariffs are so horrible why does anyone implement them?

It is foolish to implement a tariff as described above, unless the country you are trading with is more of a fool than you. And believe it or not the people of the US have been fooled on a massive scale. More on that later.

Only the worst fools implement tariffs as described above. Most tariffs are implemented with a second tariff.

A solution that partially fixes the price problem created by the tariff described above, is for a country like the US which has imposed a tariff on steel imports to also impose a similar tariff on foreign products made from foreign steel.

In other words, the US must also impose a 25% tariff on the cups Mexico Cups Inc sells into the United States which were made with steel from China Steel.

So when a Mexico Cup cup is sold into the US the following happens:

US Consumers’ checking account is debited $10.
Mexico Cups Inc’s checking account is credited $8.
US Customs Service’s checking account is credited $2

At this point cups from Mexico Cups Inc and US Cups Inc both sell for $10 in the US.

However, while the price is the same, the US consumer choice to buy a US cup or a Mexican cup can have a really big additional effect.

When the US consumer chooses to buy from US Cups Inc the whole $10 cost of the cup goes to US Cups. US Cups spends the money on their supply chain, employees, partners, workers, investors, and so on. In other words, the whole $10 goes into the US economy.

When the US consumer chooses to buy from Mexico Cups Inc $2 goes to the US Custom Service Account and $8 goes to Mexico Cups Inc. People get jobs in Mexico but not in the US.

So where does the $2 go? That is incredibly difficult to determine. The best I can say, or hope for, is that it goes into the US economy somewhere, but as I will describe shortly that $2 does not exist either.

So let us compare the outcomes of these various tariffs.

That is 25% on foreign steel **and** 25% on foreign goods made from foreign steel.

In the case of no tariffs:

No one buys US steel it is too expensive. The US steel industry dies.
Everyone buys $8 cups from Mexico Cups or US Cups (both using China Steel).

In the case of just a steel tariff:

No one buys US steel. The US steel industry dies.
No one buys US Cups. The US Cups industry dies.
Everyone buys $8 cups from Mexico Cups

In the case of a steel tariff and a cups tariff:

US Cups buys from US Steel ($1000 per ton)
Mexico Cups buys from China Steel ($800 per ton)
US Cups sell for $10 in the US ($1000/100 = $10)
Mexico Cups sell for $10 in the US ($800+25%tariff/100 = $10)

Now this has worked out fine for the US domestic market where Mexico cups and US cups now both cost the US consumer $10, but what about the world market? What about sales abroad?

Mexico Cups does not pay a tariff on cups it sells to other countries. Thus:

US cups sell for $10 in the world market
Mexico cups sell for $8 in the world market

In the world outside of the United States, everyone buys the less expensive $8 Mexico cup. Not the more expensive $10 US cup.

So while the US can maintain US sales of US cups domestically via the two tariffs, it cannot do so in the world market.

Because of the tariffs no one outside the US will buy the expensive $10 cups from US Cups Inc.

This is often looked at as one of the biggest negatives of tariffs.

But what are the positives?

The US gets to have domestic steel and domestic cup manufacturers that sell into the US marketplace. The US does not have to worry about losing these industries entirely.

However US steel and cups do not sell well outside the country.

Rather than steel let us think about food for a moment.

Say we are talking about two companies:

US Wheat Inc sells wheat for $100 per ton
Russian Wheat Inc sells wheat for $80 per ton

Without a tariff everyone buys Russian Wheat, US Wheat goes bankrupt, and the US becomes entirely reliant on Russian Wheat. If Russian Wheat were to stop selling wheat to the US there could be starvation  and death in the US.

So the US implements a 25% tariff on foreign wheat imports. People in the United State buy US Wheat, US Wheat thrives and the US has “food security” as it is growing its own wheat.

This “food security” also applies to “steel security”. Without the steel tariff the US steel industry goes bankrupt and the US government is dependent on foreign suppliers of steel like China Steel. This can be risky when it comes to making war ships and the other weapons of war which need steel.

So tariffs are often imposed in the name of security. Food security or steel security, with both often being called ‘national security’.

So to summarize tariffs:

provide food and steel security (continued domestic production) (a positive)
keep employment dollars and profit in the US (a positive)
make US food and steel less competitive in the world market (a negative)

For some the question of tariffs comes down to “do the positives outweigh the negatives?”

Does keeping the production and employment in the US outweigh that lost revenue in world markets? For many the answer is yes.

However, that question assumes that tariffs are being intelligently levied.

If you think back to the original steel tariff discussed above ultimately the tariff had to be applied to both steel imports from China Steel and cup imports from Mexico Cups in order to work sensibly within the United States.

Without both tariffs US Steel and US Cups are both destroyed and both the steel and cups industries in the United States disappear.

You may also remember way back at the beginning of this article I discussed foolish trading partners.

This article has looked at imposing tariffs entirely from point of view of the US, but what about when foreign countries impose tariffs on US goods?

Americans have a rather strange point of view in that they believe tariffs, if implemented, should be “fair.”

No one anywhere else in the world thinks this way. Everyone else thinks tariffs should be levied to create advantages for domestic industry. And this is how everyone else in the world acts.

The US is the fool. It allows the worst possible outcomes.

The US allows other countries to impose tariffs on it without imposing reciprocal or balancing tariffs on those  countries.

The US creates tariffs on foreign steel but not the foreign cups made from foreign steel. This destroys both the US steel and US cups industries, and in fact, it destroys all US industries that derive their products from steel.

This is exactly what has happened over the last 50 years, and is exactly why manufacturing has left the United States and moved abroad.

Ross Perot said in the 1992 election that NAFTA would create a giant sucking sound from the south. He was entirely right. That is exactly what happened. And the above is exactly why.

But you said tariffs make a country’s products less competitive on the world market, why would they do this?

Most countries impose tariffs on products they do not sell in the world market.

Say a country makes cars which they sell domestically, and food which they sell both domestically and to the world.

If they impose a tariff on imported cars, imported cars become more expensive, so their citizens buy locally produced cars. This keeps the money and employment related to the car industry inside the country.

Food products, which they sell to the world, they do not impose any tariffs on so the food products remain competitive on the world market.

Being able to create these kinds of targeted tariffs is a big win for the countries that can do so.

The United States has troubles implementing these kinds of tariffs because the US sells everything. There are few markets in which the US does not export goods, so it has a difficult time creating these sorts of advantageous tariffs.

The US steel vs US cups tariffs problem is an example of exactly why this is the case.

More generally a country asks the following question:

If I implement a tariff will my local economy benefit more than I will lose via reduced exports?

Countries around the world ask this question and then implement advantageous tariffs for themselves.

Then the fools in the United States do not respond leaving all the advantage to the foreign countries and foreign producers while the US loses their domestic industries.

Why is the US so foolish?

To be frank, the US has simply been sold out by its elected representatives and lawmakers.

When the US does not respond to foreign tariffs with reciprocal or balanced tariffs this creates an advantage for foreign businesses.

US politicians have foreign interests via their family members and extended relations.

The “extended family”, whether actual family or friends, are investors in foreign companies or  domestic companies with foreign interests which benefit from the poor trade decisions made or not made by the politicians and negotiators.  Often the trade, or sell out, is not so direct.  Often times the family or friends are compensated with jobs and directorships at a later date.

US politicians simply doing nothing, while other countries erect advantageous tariffs against the US, allow the US politicians’ family, friends, and business associates to profit from their foreign investments. Their knowledge of or inaction in responding to foreign tariffs allows their extended family and friends to profit from this knowledge or inaction.

Assuming consumer preference for domestic product.

I assumed in this article that given the same price for foreign and domestic goods the domestic consumers will choose the product from the domestic manufacturer.

This assumption is not actually necessary.

The US can create a real preference for domestic goods by raising the tariff a little more such that the domestic price of domestic goods is actually lower than the foreign price.

Continuing the steel and cups example, consider what happens when the tariff is 37.5% instead of 25%.

US Steel is $1000 per ton
China Steel is $800 + 37.5% tariff or $1100 per ton

Now China Steel is more expensive that US Steel, so all US manufacturers buy their steel from US Steel.

US Cups buys US Steel and sells their cups domestically for $10

Mexico Cups buys China Steel but their product now has a 37.5% tariff so their cups sell for $11 each in the US market.

US consumers all have a reason buy US cups now. They are lower cost.

This is why countries create targeted tariffs focusing on products they import but do not export.

Note that Mexico Cups could  choose to buy their steel from US Steel.  Cups made from this steel would not be subject to the tariff, and Mexico Cups would be able to sell their cups into the US for $10 as they are now buying US steel.

The 25% or 37.5% tariff does not change the sales of US Cups abroad

With either tariff US Cups are still too expensive to sell on the world market, $10 vs $8.

In the case of both the 25% tariff and the 37.5% tariff US Cups will not sell in the world market, so in both cases the tariff has no effect on US Cups sales abroad. In both cases US Cups sells the same amount abroad: Zero cups.

So who wins with tariffs?

The largest economy wins. In other words, the US should win.

Why isn’t the US economy winning?

Because US politicians are failing to at least implement reciprocal or balanced trade policies.

Because foreign countries are able to implement advantageous trade policies for themselves and the US does not respond.

Is free trade the right answer?

My articles tend to focus on the math behind what is actually happening and how the decisions or the lack of decisions affects your life and well being.

Rather than free trade I tend to focus on the ideas of voluntary exchange see this article.

When you read the trade deals like NAFTA and TTP you will find they are not only impossible to understand but they are the opposite of free trade deals.

What is Trump trying to do?

In a strangely American only way of thinking, that is that tariffs must be”fair”, Trump is trying to erect reciprocal or balanced tariffs against those who have tariffs against US products.

Every other country in the world has erected what American’s would think of as “unfair” tariffs.

If everyone else in the world does not think their targeted tariffs are **unfair**, why should American thinks their tariffs are?

What about the $2 collected from the US consumer by the US Customs Service?

Remember that due to the tariffs the US has given up on selling in the world market? US Cups at $10 each simply will not sell against $8 cups from Mexico Cups.

But what if the US Customs Service gave the $2 it collected from the US Consumer when the US Consumer purchased the cups from Mexico Cups to US Cups when US Cups sells abroad?

This would allow US Cups to sell their cups for $2 less, or $8 abroad.

It works like this

US Cups buys US Steel for $1000 per ton so their cups are $10 each
US Consumer purchases a cup from Mexico Cups for $10
• Mexico Cups get $8
US Customs Service gets $2 (25% tariff on $8)
US Cups sells a cup on the world market for $8 (losing two dollars)
US Custom Service gives  $2 to US Cups
US Cups gets (or nets) $10 for its sale abroad.

This creates what it known as a world price and a domestic price for a good.

In this example, the domestic price for US Cups and Mexico Cups is $10, while the world price for US Cups and Mexico Cups is $8.

Now look what happens when the tariff is 37.5%

US Cups buy US Steel for $1000 per ton so their cups are $10 each
US Consumer purchases a cup from Mexico Cups for $11
• Mexico Cups get $8
US Customs Service gets $3 (37.5% tariff on $8)
US Cups sells a cup on the world market for $7 (losing three dollars)
US Custom Service gives $3 to US Cups
US Cups gets (or nets) $10 for its sale abroad.

Now US Cups are cheaper on the world market at $7, while Mexico Cups are $8.

While this last case looks like a big win for the US, it is also a fiction.

No one in the US is going to pay $11 for a Mexico Cup, when they can get a US Cup for $10, so the US Customs Service is not actually collecting any money.

This case does not really exist except on a transitory basis while trade policies are changing.

What are transitory trade policies?

Trade polices drive people towards sane behavior (except possibly for Americans) over the long run. (Maybe even Americans, we shall see)

However, short term trade policies can be used to create temporary or permanent trade advantages depending on how foolish the other country is.

The unrealistic or fictional cases described above can exist while countries and businesses are adjusting to changes in trade policies.

Transitory trade policies can be like a shell game where one country always knows where the ball is, while the other does not.

The US has not known where the ball is for many decades now.

Why are tariffs considered unfair?

Tariffs are only considered unfair by Americans. Everyone else in the world understands what they really are and the advantages they provide.

What should the US do?

The US should at least implement reciprocal and balanced tariffs.

US citizens should elect politicians who are not selling them out to foreign interests.

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Last updated on February 19th, 2018  


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Taxes & Trade Wars

Last updated on March 2nd, 2018  

The United States has been on the losing side of trade policies for decades along with self imposed regulatory disadvantages that drive jobs out of the country.

The hyperbole you see going on in the press is just mindless rambling.

Actual numbers related to actual tariffs is likely the last thing you will ever hear from the major media outlets, if they mention them at all.

Though on occasion the major media outlets will dig up some obscure tariff which benefits the US. These are usually related to national security.

However, you will find the major sweep of tariffs around the world is to the disadvantage of the United States.

The only question that matters, for the fact based FiniteSpaces reader, is “What are the trade and regulatory policies?”

Car Import Tariff: EU 10%, US 2.5%

For example, the EU has a 10% tariff on car imports while the US has a 2.5% tariff.

Does that look fair to you?

The immediate response from those trying to rob you is to dazzle you with details. You must learn to ignore them. Complexity is meant to confuse and mislead.

There are simple measures you can find with a little effort that give you the true picture, such as the car import tariff mentioned above.

Reciprocal Tariffs

“Reciprocal Tariffs” means my country charges the same tariff as yours.

By what measure can that be considered unfair?

Bad Trade Deals

Why has the US made such bad trade deals?

“Follow the Money” or “Who Benefits”?

If you examine your politicians you will find their spouses or children are often involved in foreign businesses or domestic business with foreign interests.

The US negotiates bad trade deals to benefit the politicians whose family members are on the other side of the deal.

It really is that simple.

The connections are often not direct, but they are there, which is why I suggest you look up some of your representatives and see what their family members are up to. You will find a surprising pattern of foreign interests.

Often these foreign interests are obscured through  levels of shell companies but the links can be found, and as the game of selling out the US citizen has become more widespread the players have not felt the need to hide their efforts as much and thus it is easier to find the connections these days.

The business deals are not direct. The deals are often quid-pro-quos where the foreign interest invests in a entirely unrelated business owned indirectly by the politicians beneficiaries.

Look up Dianne Feinstein’s husband Richard Blum and you will quickly be able to find plenty of references to his foreign business deals. You can find similar information for most politicians.

And the funny thing is that selling out the citizens you represent to foreign interests and for the benefit of your family members is not illegal. It may be traitorous and corrupt, but it is not a crime. Or at least, that is what the beneficiaries of these corrupt and traitorous policies will say if someone points out the conflict of interest.

As described in more detail in Why Government Regulations Cost Jobs to keep from being robbed we should at least create a level playing field for ourselves.

And that means two things:

One, Reciprocal or Balancing Tariffs

our tariff’s dollar amounts are the same as your tariff’s dollar amounts

and two, a level regulatory field

If we are going to impose regulations on US workers and businesses those same regulations must be imposed upon all those doing business in the US.

for more details on regulation driving jobs abroad see Why Government Regulations Cost Jobs .

And to be fair, there are US protectionist tariffs such as those on sugar and milk.  However, other countries are free to adjust their tariffs as they see fit.

The problems occur when **our** politicians create policies that hurt the people they represent and benefit their relatives and foreign interests.

Why tariffs and trade wars get complex.

Trade wars and tariffs get complex when the following happens.

• I sell you cars
• you sell me sugar
• you put a 10% tariff on the cars that I sell you

Since you do not sell me cars, my responding to your tariff with a
reciprocal tariff does not work. If I put a 10% tariff on cars
that you sell to me nothing changes because I do not buy cars from you.

In this situation, I put the reciprocal tariff on sugar because that is something that I do buy from you.

And the reciprocal tariff is not a percentage but an equivalent dollar amount.

Which works like this:

You sell me $100 million dollars worth of sugar and I sell you $50 million dollars worth of cars.

If you put a 10% tariff on the cars that I sell to you I should respond by putting a 20% tariff on the sugar that you sell to me.

10% of $100 million is $10 million, and 20% of $50 million is also $10 million.

The tariffs balance each other from a dollar point of view.

Balancing tariffs are fair tariffs. They are used in situations where the
trading partners trade different items.

The balance or fairness is in the dollar amount, not the percentage.

Balancing tariffs are a little more work to understand because you must identify what items the tariffs are trying to balance.

I am all for free and open trade. For the most part I dislike tariffs.

However, to be fair, reciprocal and balancing tariffs are needed to
maintain a level playing field between trading partners.

Yes, no tariffs would be best, but if one party imposes tariffs the other party must do so also.