Monday, September 29, 2008

Our Way of Life

We have inherited quite a life here in the U.S. It isn’t a perfect society. It never was and probably never will be. It seems that people are never satisfied with the society they have inherited. They keep trying to make it even more perfect than what it is. There are those who would seek to make government a very visible part of our every day lives while others would like to make it as invisible as possible.

It can be said that our society is made up of two factors, "the for profit" side of society and the "not for profit side" of society. It can also be said that it is "the for profit" segments of society that supports "the not for profit" segments. This can be broken down even further, family and business being the profit segments and charities and governments being the not for profit segments. Economics is not only the engine that drives a society but it is also the fuel that keeps it running.

All four segments of society use the same basic formulation of economics, input – output =. The bottomline. The differences being is that charities and government, in theory, are to do business so that input is equal to output. This contrasts with business and families where, in theory, input is greater than output. We would see this by the following;

Government- tax revenue minus expenses equals zero.
Charities- donations minus charity equal zero.
Business – sales minus expenses equals a profit.
Families – income minus expenses equals savings.

This is a very basic formula for each and is the one people usually think of when talking of each. It also is a very poor way to view them also. A far better formulation would look like this;

Government- tax revenue minus (expenses plus welfare, both domestic and foreign) equals zero.
Charities – donations minus (expenses plus charity) equals zero.
Business – sales minus (expenses plus taxes) equals profit.
Families – income minus (expenses plus taxes) equals savings.

That, while better, is still a socialistic ideal. It doesn’t take into consideration the poor decisions that men make, either collectively or as individuals. Charities are the only segment that can abide by the above formulation realistically. Profit is not a motive of existence therefore; the charity that they can offer is dependent upon the donations minus expenses.

Power, greed, and self-interest, on the other hand, motivate governmental decisions. The agenda of the politician is the determinant of governmental expenditures not fiscal responsibility. This is shown by the fact that the politician will seek to raise revenues to balance the budget rather than cutting expenditures.

Business is probably the best example of fiscal responsibility. Now, don’t start laughing yet just because of the bad news today in regards to the failures of a segment of the business world. Failure is always in the back of the mind of a good businessman. This can be seen in the following formulation:

(Sales plus targeted assets) minus (expenses, taxes, charity) equals profit/loss.

This same formulation can be applied to the family. It would read like this:

(Income plus targeted assets) minus (expenses, taxes, charity) equals savings/debt.

This formulation is especially important in this day of two income families. The reason being is that family budgets are usually determined in light of both incomes rather than just one income as it was in days past. There is no one to replace or help the bread winner anymore in cases of financial emergencies. We have also become too dependent upon others to put bread on the table.
We have also become a society where spending is encouraged and saving is discouraged. If it was savings that was encouraged we would not have the disparity of income distribution that some are always complaining about.


tweetey30 said...

This is so true Griper. I mean come on Jeff and I lived on one income for eight years now. Now I am working its like what do we do with the extra paycheck but now we can pay this bill here and pay that bill there and get it done with out feeling bad if we missed it for a week.

The Griper said...

he smiles and nods. and i'm glad for the both of you. and as you pay those bills off that means more can be added to savings to help the next financial crisis you may have.

BB-Idaho said...

The financial crisis is a bit disconcerting. Seems even if one does everything right, circumstances could undo our plans: house, cars paid off, income from pension, ss and 401k..
lose a couple of those and it is
back to the old soup lines. I'm rather fond of chicken noodle...

The Griper said...

don't let it be disconcerting, BB. just be prepared. take a good inventory of your assets now, including that income and then see how you could replace it or make it work for you. that is the key to recovery. might try to buy a few chickens and flour for the noodles for that soup. home made is always better than canned. lol

might ask the better half if she knows how to make the noodles. lol

Gayle said...

I can make noodles, and bread too, the old-fashioned way. :)

The first thing I thought of while reading this: "Families – income minus (expenses plus taxes) equals savings" was that it only works if people actually save, and that's the problem because so many people don't, but you went on to explain that. I know far to many people who are living from paycheck to paycheck and drive brand new cars every year. They are so far in debt I feel sorry for them because they are the ones who are going to get hit by this. But they have to learn the importance of not buying things they can't afford and going into debt up to their eyeballs.

BB-Idaho said...

That Gayle is a show-off.."I can make noodles, and bread too, the old-fashioned way. :)" My culinary skills amount to steeping

The Griper said...

mmmm, i'll be right down, gayle. i'll be sittin at the kitchen table with a butter knife awaiting for that for that first thick slice of bread when it comes out of the oven.

The Griper said...

i agree, BB. but it sure is a nice and delicious way to show off, isn't it? besides, it lets a woman know we need them.

Average American said...

....(Income plus targeted assets) minus (expenses, taxes, charity) equals savings/debt....

I assume that in the formula above, the interest on previous debt is grouped in with expenses. Unfortunately in many many families these days, that interest is so large that the "savings/debt line is always more debt. Griper, when you and I grew up, people borrowed for homes and cars and that's about all. Now-a-days people eat in restaurants, buy clothes, gas, toys, pay other bills, and go out on-the-town on their credit cards. Those damn little pieces of plastic are a menace to society and get full blame for a LOT of peoples problems. The inventor should have been shot.

The Griper said...

the savings/debt aspect reflects the profit/loss sheet that a business fills out. the whole formula reflects the balance sheet of the business.

and as far as i'm cocerned, those little plastic cards are the most innovative aspect of the business world. and don't blame the banks for the debt. blame the people using them. they are adults, it is their responsibility to use them wisely not the banks to play big brother in that regard.

plus, when used wisely they can be another small source of income. and to those on a fixed income, anything added to that income is a blessing.

BB-Idaho said...

"Business is probably the best example of fiscal responsibility. Now, don’t start laughing yet.."
Sorry, been snickering just a bit. :)

The Griper said...

hey, don't be sorry, my good friend, i was snickering a bit as i wrote it also, given, the situation of the day.


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