How Does An Economy Work?

Reading Time: 12 minutes

The concept of an economy could – and should be – applied to your household in as much as an economy should be applied to a region. i.e. Country, State, County, City or Barangay. The five burros of New York City could be considered “Barangay’s.”

The word economy is Greek and means “household management.” Economics as an area of study was touched on by philosophers in ancient Greece, notably Aristotle, but the modern study of economics began in 18th century Europe, particularly in Scotland and France.

The Scottish philosopher and economist Adam Smith, who in 1776 wrote the famous economic book called “The Wealth of Nations,” was thought of in his own time as a moral philosopher. He and his contemporaries believed that economies evolved from historic bartering systems to money driven and eventually credit based economies.

To form an economy, groups of people leverage their unique skills, interests, and desires to trade with each other voluntarily. People trade because they believe it makes them better off. Historically, a form of monetary value was introduced to make trade easier.

People are financially rewarded based on the value others place on their productive outputs. They tend to specialize in those things in which they are most valuable. Then they trade the portable representation of their productive value for other goods and services. The total sum of these productive efforts is referred to as an economy. For example. Detroit, Michigan produced good steel, where the state of Hawaii produced good pineapples.

To further understand an economy without getting into extreme specifics, an economy encompasses all activity related to production, consumption, and trade of goods and services in an area. These decisions are made through some combination of market transactions and collective or hierarchical decision making. Everyone from individuals to entities such as families, corporations, and governments participate in this process. The economy of a particular region or country is governed by its culture, laws, history, and geography, among other factors, and it evolves due to the choices and actions of the participants. For this reason, no two economies are identical.

There are two basic types of economies: Market based and Pure market. Market based economies allow individuals and businesses to freely exchange goods through the market, according to supply and demand. The United State is mostly a market economy where consumers and producers determine what’s sold and produced. Producers own what they make and decide their own prices, while consumers own what they buy and decide how much they’re willing to pay.

Through these decisions, the laws of supply and demand determine prices and total production. If consumer demand for a specific good increases, prices tend to rise as consumers are willing to pay more for that good. In turn, production tends to increase to satisfy the demand since producers are driven by profit. As a result, a market economy has a tendency to naturally balance itself. As the prices in one sector for an industry rise due to demand, the money, and labor necessary to fill that demand shift to those places where they’re needed.

Pure market economies rarely exist since there’s usually some government intervention or central planning. Even the United States could be considered a mixed economy. Regulations, public education, social security benefits are provided by the government to fill in the gaps from a market economy and help to create balance. As a result, the term market economy refers to an economy that is more market oriented in general.

Command based economies are dependent on a central political agent, which controls the price and distribution of goods. Supply and demand cannot play out naturally in this system because it is centrally planned, so imbalances are common.

Growing an economy is primarily done with individual labor and is more productive – and worth more – when he or she can more efficiently turn resources into valuable goods and services. This could be everything from a farmer improving crop yields to a hockey player selling more tickets and jerseys. When a whole group of economic actors can produce goods and services more efficiently, it’s known as economic growth.

Growing economies turn less into more, faster. This surplus of goods and services makes it easier to achieve a certain standard of living. This is why economists are so concerned about productivity and efficiency. It’s also why markets reward those who produce the most value in the eyes of consumers.

There are only a handful of ways to increase real productivity. The most obvious is to have better tools and equipment, which economists call capital goods. The farmer with a tractor is more productive than the farmer with just a small shovel.

It takes time to develop and build capital goods, which requires savings and investments. Savings and investment increase when present consumption is delayed for future consumption. The financial sector – banking – provides this function in modern economies.

The other way to improve productivity is through specialization. Laborers improve the productivity of their skills and capital goods through education, training, practice, and new techniques. When the human mind better understands how to use human tools, more goods and services are produced and the economy grows. This raises the standard of living.

Economies have become extremely complex. Of course, anything that involves a government is bound to become complex in way that most of the population would not be happy with. As noted above, in the days of old, a farmer might trade a pig for a bag of seed or even a broken tractor that is repairable. Both of the farmers know that it will take work to make the materials they now have on hand to produce something that they can sell at the local market.

The distinction here that should be noted is that both farmers know that work is involved to produce goods for sell.

But what if the work stops, say to a really bad weather year where the fields are flooded. At this point, a farmer would go to the local bank to ask for a loan and the first question the bank is going to ask is “do you have collateral?”

In as much as one country might ask another country “what collateral do you have that is worth the amount you are asking for?” Land? Gold? or finished products that could be held as collateral.

An economy can only be sustainable if all of it’s population is in the workforce. So what happens if the workforce of 300 million people is suddenly reduced to say 100 million or even 50 million. The simple answer is that you now have a deficit. A deficit does not have to mean a negative number in the amount of dollars you have.

In the case of a workforce deficit, the burden of the economy now lies on the shoulders of the remaining workforce. To compound a workforce deficit, if the governing body of the country in question was to say issue $2,000 payments to everyone aged 16 and above as has been proposed by Minnesota congresswoman Ilhan Omar, would effectively bankrupt a country.

First. A 16 year old is not a driving force of labor to help maintain an economy and second, that same 16 year old almost certainly does not have any money management skills, but is more likely to spend it on nothing that could help a small business – or an economy – survive, never mind that the deficit from such an action would be larger than the budget of the government itself and would equal 60% of the total gross domestic product produced.

But what about during normal, thriving times? Again, if you only have half of the eligible workforce population working and the rest of the population living on welfare, the same deficit in production is going to apply. Goods are not made and taxes are not paid, leaving a deficit.

Now what about one country that was mad at another country. What would be the easiest way to decimate an economy. Release a virus might be one way. It would be more effective – and quieter – than dropping a nuclear bomb.

It is for many reasons that if the world economies are to not only recover, but to thrive in the future, there has to be a complete gathering if you will from all that are able to work, to do just that. Go to work.

Following The Money

Reading Time: 7 minutes

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Recently discovered anonymous donors pumped an eye-popping $715 million into a massive dark money network used to bankroll liberal efforts across the country, new tax forms reveal.

The cash went to funds managed by Arabella Advisors, a D.C.-based consulting firm, in 2019. Once donors send the cash to the funds, it is then transferred to dozens of left-wing initiatives that fall under their auspices, as well as to outside groups.

The Arabella network consists of four funds: the Sixteen Thirty Fund, New Venture Fund, Windward Fund, and Hopewell Fund. Each Arabella-managed fund provides its tax and legal status to the groups that sit beneath them. Under this setup, known as fiscal sponsorship, the sponsored groups are not standalone nonprofits and do not have to file tax forms to the IRS, effectively obscuring information such as financials, board members, and other important details.

The four funds combined to raise an astounding $714.7 million for left-wing initiatives in 2019, the tax forms show. The New Venture Fund is the group’s largest entity and raked in $450 million in anonymous cash—including a single donation of $83 million—to pass off to groups. The Sixteen Thirty Fund received $137.2 million, including one donation of $33 million. The Hopewell Fund pulled in $84.2 million, with a single $36 million donation. The Windward Fund took in $43.3 million. Its largest donation was $8.5 million.

The funds disbursed a total of $648 million last year. Nearly $400 million went to outside groups that include America Votes, Center for American Progress, Center for Popular Democracy, Latino Victory Project, and Color of Change.

The dark money network houses some of the nation’s most prominent liberal groups. The Sixteen Thirty Fund, for example, houses Demand Justice, a group led by former Hillary Clinton press secretary Brian Fallon to push back against Republican judicial nominations. While Demand Justice does not have to file tax documents to the IRS due to its affiliation with the Sixteen Thirty Fund, the Washington Free Beacon found it received $2.6 million from billionaire George Soros around the time of its inception in 2018.

“In 2019 and 2020 many donors felt compelled to give as never before to support our democracy and advance progressive goals, including some who previously supported Republicans or were not engaged in politics,” Amy Kurtz, the fund’s executive director, told the Free Beacon. “Through advocacy, fiscal sponsorship, and the types of electoral action typical of 501(c)4 organizations, the Sixteen Thirty Fund was able to invest in the health and strength of our democracy. We have lobbied in favor of reform to the current campaign finance system (through H.R. 1), but we remain equally committed to following the current laws to level the playing field for progressives in this election and the future.”

The Sixteen Thirty Fund’s Douglas Hattaway runs a strategic communications firm that has advised Soros’s Open Society Foundations, according to a cached version of his company’s website. Scott Nielsen, the managing director of advocacy at Arabella, has worked with the Open Society Foundations and the Democracy Alliance, a wealthy donor club co-founded by Soros that helped launch well-known groups such as Media Matters.

The Democracy Alliance named Arabella-managed funds in confidential documents as avenues to bankroll initiatives. The Sixteen Thirty Fund has paid the alliance hundreds of thousands of dollars in consulting fees in the past.

Sixteen Thirty also funneled $55 million in secret cash into the 2020 elections to support Joe Biden and other Democrats.

The New Venture Fund fiscally sponsors groups such as Abortion on Our Own Terms and Lady Parts Justice League. The Windward Fund focuses on environmental initiatives. The Hopewell Fund contains groups such as Equity Forward, a watchdog that seeks “to ensure transparency and accountability among anti-reproductive health groups and individuals.”

“Hopewell Fund is proud of the work we did in 2019 to help make the world a more equitable place through fiscal sponsorship, charitable initiatives, and grant making,” the group said in an email statement. “Our work last year helped nonprofit projects address issues related to income inequality, civic engagement, health care access, and more in the United States.”

Eric Kessler, a former Bill Clinton appointee and member of the Clinton Global Initiative, is the founder and head of Arabella Advisors. The tax forms show that Arabella was paid nearly $34 million for administrative, operations, and management services for the four funds.

Minimum Wage. Being Able To Eat

Reading Time: 10 minutes

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Minimum has always been a contentious debate about what is right, what is wrong and can be traced to its origin in 1349 with the the Ordinance of Laborers, which was a decree by King Edward III that set a maximum wage for laborers in medieval England. King Edward III, who was a wealthy landowner, was dependent, like his lords, on serfs to work the land. In the autumn of 1348, the Black Plague reached England and decimated the population. The severe shortage of labor caused wages to soar and encouraged King Edward III to set a wage ceiling. Subsequent amendments to the ordinance, such as the Statute of Laborers in 1351, increased the penalties for paying a wage above the set rates.

While the laws governing wages initially set a ceiling on compensation, they were eventually used to set a living wage. An amendment to the Statute of Laborers in 1389 effectively fixed wages to the price of food. As time passed, the Justice of the Peace, who was charged with setting the maximum wage, also began to set formal minimum wages. The practice was eventually formalized with the passage of the Act Fixing a Minimum Wage in 1604 by King James I for workers in the textile industry.

By the early 19th century, the Statutes of Laborers was repealed as increasingly capitalistic England embraced laissez-faire policies which disfavored regulations of wages. The subsequent 19th century saw significant labor unrest affect many industrial nations. As trade unions were decriminalized during the century, attempts to control wages through collective agreement were made. However, this meant that a uniform minimum wage was not possible. In Principles of Political Economy in 1848, John Stuart Mill argued that because of the collective action problems that workers faced in organization, it was a justified departure from laissez-faire policies – freedom of contract – to regulate people’s wages and hours by the law.

It was not until the 1890s that the first modern legislative attempts to regulate minimum wages were seen in New Zealand and Australia. The movement for a minimum wage was initially focused on stopping sweatshop labor and controlling the proliferation of sweatshops in manufacturing industries. The sweatshops employed large numbers of women and young workers, paying them what were considered to be substandard wages. The sweatshop owners were thought to have unfair bargaining power over their employees, and a minimum wage was proposed as a means to make them pay fairly. Over time, the focus changed to helping people, especially families, become more self-sufficient.

Among the indicators that might be used to establish an initial minimum wage rate are ones that minimize the loss of jobs while preserving international competitiveness. Among these are general economic conditions as measured by real and nominal gross domestic product, inflation, labor supply and demand, wage levels, distribution and differentials, employment terms, productivity growth, labor costs, business operating costs, the number and trend of bankruptcies, economic freedom rankings, standards of living and the prevailing average wage rate.

In the business sector, concerns include the expected increased cost of doing business, threats to profitability, rising levels of unemployment (and subsequent higher government expenditure on welfare benefits raising tax rates), and the possible knock-on effects to the wages of more experienced workers who might already be earning the new statutory minimum wage, or slightly more. Among workers and their representatives, political considerations weigh in as labor leaders seek to win support by demanding the highest possible rate. Other concerns include purchasing power, inflation indexing and standardized working hours.

In the US, the minimum wage has been set under the Fair Labor Standards Act of 1938. According to the Economic Policy Institute, the minimum wage in the United States would have been $18.28 in 2013 if the minimum wage had kept pace with labor productivity. To adjust for increased rates of worker productivity in the US, raising the minimum wage to $22 or more an hour has been presented.

Although minimum wage is not nearly as low as it used to be, the US still has a long way to go when it comes to compensating its workers. The federal minimum wage is currently at $7.25, a number that has stayed the same since 2009.

But even with no recent changes from the federal government, things appear to be moving in the right direction. In July 2019, the U.S. House passed a bill that would raise the minimum wage to $15 per hour by 2025, which could increase the incomes of 17 million to 27 million minimum wage workers, according to Bloomberg.

In the meantime, several states and localities have taken it upon themselves to raise their own minimum wages. On June 24, Illinois, Nevada and Oregon all raised their minimum wages, USA Today reported. Illinois’ minimum wage rose from $9.25 to $10; Nevada’s minimum wage rose from $7.25 to $8 for workers with health insurance, and from $8.25 to $9 for those without health coverage; and Oregon’s minimum wage rose from $11.25 to $12. In addition, 18 municipalities and three counties announced minimum wage increases.

The rise in the minimum wage seems hopeful. However, due to inflation and the rising cost of living, that amount might not be enough in the future. Take a look at how minimum wage has dramatically changed throughout the years.

The most troubling aspect of trying to determine what the minimum wage should be set at is the ascetic math involved in determining what is a proper minimum wage by determining how many people are employed, unemployed and how many people do not want to be employed. I can say to you that those mathematical formulas are dizzying to say the least.

With all of this in mind, here is a list of the minimum hourly wages from 1938 to 2020, where they still stand to this day.

1938 – $0.25

1939 – $0.30

1940 – $0.30

1941 – $0.30

1942 – $0.30

1943 – $0.30

1944 – $0.30

1945 – $0.40

1946 – $0.40

1947 – $0.40

1948 – $0.40

1949 – $0.40

1950 – $0.75

1951 – $0.75

1952 – $0.75

1953 – $0.75

1954 – $0.75

1955 – $0.75

1956 – $1.00

1957 – $1.00

1958 – $1.00

1959 – $1.00

1960 – $1.00

1961 – $1.15

1962 – $1.15

1963 – $1.25

1964 – $1.25

1965 – $1.25

1966 – $1.25

1967 – $1.40

1968 – $1.60

1969 – $1.60

1970 – $1.60

1971 – $1.60

1972 – $1.60

1973 – $1.60

1974 – $2.00

1975 – $2.10

1976 – $2.30

1977 – $2.30

1978 – $2.65

1979 – $2.90

1980 – $3.10

1981 – $3.35

1982 – $3.35

1983 – $3.35

1984 – $3.35

1985 – $3.35

1986 – $3.35

1987 – $3.35

1988 – $3.35

1989 – $3.35

1990 – $3.80

1991 – $4.25

1992 – $4.25

1993 – $4.25

1994 – $4.25

1995 – $4.25

1996 – $4.75

1997 – $5.15

1998 – $5.15

1999 – $5.15

2000 – $5.15

2001 – $5.15

2002 – $5.15

2003 – $5.15

2004 – $5.15

2005 – $5.15

2006 – $5.15

2007 – $5.85

2008 – $6.55

2009 – $7.25

2010 – $7.25

2011 – $7.25

2012 – $7.25

2013 – $7.25

2014 – $7.25

2015 – $7.25

2016 – $7.25

2017 – $7.25

2018 – $7.25

2019 – $7.25

2020 – $7.25