Re: Questions from a novice

"Ethan" <[EMAIL PROTECTED]> wrote:
> What roles did Pres. Bush's tax cut and the Fed's
> decision to keep interest rates at 1% play in that
> rebound?

How you get economic growth is active productive capital.  And by
"productive" I mean capital that produces capital.  Government is a very
VERY poor developer of capital.  Almost all the tax money it gets is
converted into non-productive capital and most isn't even active capital.
Business is really the only means of making active productive capital
because it operates on the principle of capitalism.  This doesn't mean all
businesses though.  The more a business is regulated by government, the less
active and productive its capital becomes.  Thus any tax cut is good for the
economy.

As for the Fed, remember that the US dollar isn't tied to anything.  Not
gold or silver.  It has no real value but what people around the world
thinks it does.  If people started to realize the true value of paper
currencies, that would be a problem that would be far FAR worse than what
happened when the bubble burst with dot.com stocks.  Fortunately, major
corporations are aware of this and I know of discussions currently taken
place to get currency back out of the government's hands and into those of the
banks.  How and when this happens is the topic of current debates.  Key to it
all is the credit/debit card.  One of the major problems is the lack of privacy
with these cards.

> Being that the these large corporations are the largest
> contributers to the GPD in the US, this makes sense,
> but I'm not sure if that's correct or the entire picture.

The numbers I've read say it is small business that is producing the current
economic growth and not the major corporations.

> What are the short and long term negative effects of these
> tax cuts and low interest rates?  Is what a lot of the
> democratic candidates saying about these tax cuts correct?
> That we run the risk of high inflation?  If so, how?  I
> don't understand that.

Democrats are overt pro-Big Government advocates.  See my first paragraph
above for why this is bad.  However, don't think that Republicans are
pro-small government.  History shows they are not.  They want government
growth ... just not in the same areas as Democrats.  Republicans also just
want to legislate without having to pay for it.  While the Republicans
USUALLY are better for the economy, they are not the best for the economy.

Fortunately, governments are becoming more and more meaningless as the world
becomes more connected and the global economy comes into force.  Before the
global economy, businesses were at the misery of politicians.  With the
global economy, businesses can move around the world at their discretion.
This puts all governments on notice that either they become pro-capitalism
or they lose business and thus jobs and thus hurt their economies and lower
their standard of living.  See my first paragraph above why this is a good
thing.  Governments now realize their days of monopolizing their country's
businesses is over and they have to compete to keep them.  This WILL hurt
any government that tries to legislate its economy more than other countries
.... as it is currently happening in Europe.  However, that's for the good.
These heavily-regulated countries are bad not only for their own economy and
the economy of the world.

Oh, as for inflation, that's caused not by business but government.
Inflation is when governments flood their economy with paper money.  They
devalue their currency in the eyes of the People.

> Also, there was mention of a "devastating Japanese deflation"
> in an article in the NYT talking about the rebound and some
> of the possible negatives we might face in the future.  What is
> this terrible Japanese deflation?  What factors would cause
> that to happen?

Deflation is caused by usually one of two things:

1) A tightening of the currency.  This means the government is printing
less.

2) Good business.

When governments tighten their currency, it is bad as it is open to political
manipulation and isn't market-based.  When good business causes it, it is
wonderful because the natural aim of the marketplace is to always reduce costs
to give one's business an edge over one's competitors.  What this means is the
consumer can buy more with what they earn thus experience a rise in their
standard of living.

> On a more speculative note, what role do you think the US
> will play in the world economy in the future?

That depends on how pro-capitalism our government remains in COMPARISON to
other countries.  One of the keys to capitalism is property rights.  The
more a government respects property rights of its citizens, the more
capitalism can flourish in their country.  The more a government taxes its
citizens, the more it shows how little it respects property rights.
Taxation is involuntary and is the taking of property from its citizens.
The less a citizenry is taxed, the better that country's economy will
become.  See my first paragraph in this reply for why.  However, there are
other important keys to capitalism:

Freedom of speech and press.  The marketplace thrives on trusted communication.
 The more informed the consumer is and the more trusted that information is
preceived to be true and factual, the better the marketplace becomes.  The
"invisible hand" of capitalism is TOTALLY dependent on free and open
communication.

Freedom of assembly.  This is related to freedom of speech and press.  If
people cannot freely get together, it hurts the invisible hand.  This
includes freedom of movement.  If a government requires its citizens to get
government permission to move about (either within or outside its country),
the invisible hand is hurt.

Stability of rights.  Capitalism operates best in a stable economy.  This
helps insure the market value of property.  If a country is politically
unstable, market values are unstable and thus are degraded accordingly.  Now
governments can change but they must do so peacefully and smoothly.  It
isn't by accident that both the winners and losers out of an election talk
about the peaceful transition from the voted-out administration to the new one.
If the outgoing politician was viewed as being disruptive, it would hurt
their economy tremendously.

Thus the reason why the US is the most powerful economic force on Earth is
solely because of its Bill of Rights.  Democracy didn't make this country
great.  Protecting the individual against the majority and government is
what made this country great.  It is what has allowed capitalism to flourish
in this country.  If another country were to have a more pro-individual
constitution, their country would begin outpacing the US.  And by
"pro-individual" I do not mean giving each individual free health care, free
education, etc.  What I do mean is respecting the individual's property
rights and thus taxing them as little as possible ... if at all.  That and
insuring freedom of speech, press, assembly, and movement.

And the above is why China will always be a third world nation ... as long
as its totalitarian government remains in power.  Now if China were to adopt
the US's Bill of Rights, it would become an economic giant that would quickly
outshine the US due to the simple fact that they have a larger population
than the US.  However, until communism collapses in China, it will simply
hobble along.

> To me (again a naive point of view) it seems that we will
> be the future business leaders of the world.

The US could almost instantly become a pauper nation if it were to remove
any of the rights I've listed above.

> With all the middle class tech jobs being shipped over
> seas we are taking out the large middle section of our
> work force, putting them in various countries, and
> managing them from home.

The globalization of economies is a good thing for the human race as a
whole.  This globalization is forcing governments to become more
pro-capitalism and thus more pro the rights I've listed above.  The world is
becoming a more stable and better place because of this.  Look at the
countries where these jobs are going to.  Are their citizens better off now
than before?  Yes, they are.  That's a great thing.  It is even forcing our
country to become even more pro-capitalism and that will help us even more.
This is a great time for the human race.

> If this is true, and my reasoning isn't faulty, what would
> you view as the best business degree to go for?  If my
> reasoning is faulty what am I missing?

Only get a business degree if you want to be an employee.  Colleges are for
future employees, not future employers.  If you want to be an employer, start a
business and go for it.  It's just that simple.  They're two separate "career"
paths.

Good luck!

Scott Jensen
-- 
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