muses of the moment

February 1, 2013

Value Creation

Charles Hugh Smith of Of Two Minds brilliantly explains an Austrian Economics concept: there is only one way for real existing wealth to produce more real wealth. You will notice right away that this is NOT what is happening in the US and other “first world” or debt-laden countries.

Click here.

Government spending doesn’t create value. Debt created to pay interest on past debt doesn’t create value. Bailouts do not create value. Higher costs (whatever form they may take: inflation, tariffs, new taxes, health care costs/law, higher energy costs) do not help to create value and new wealth. It consumes existing wealth.

The national security cartel absorbs hundreds of billions of dollars annually, yet the value of trillion-dollar weapons systems like the F-35 are rapidly diminishing in an era of networked drones.

The sickcare cartel now absorbs almost 20% of the nation’s entire economy (GDP) yet the health of the populace measurably declines by most international metrics.

The higher-education cartel manages to expand its share of the national income even as the cartel’s output–the relevancy and value of its product, a college degree– is increasingly marginalized. (Students: You Are Exploited Debt-Serfs April 12, 2011)

….

Since the value created by these cartels is far less than their costs, they are all part of the parasitic aristocracy skimming wealth rather than creating it.

This can not continue.

Looking ahead, we can discern a time when the class creating most of the value and paying most of the taxes declines to the point that the value created is no longer large enough to support both a parasitic aristocracy and a vast class of dependents (children, retirees, disabled, unemployed, etc.) while the majority of wage earners are barely getting by on their declining household incomes. Recall that there are about 307 million Americans and roughly a third have living-wage jobs, i.e. full-time jobs.

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