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Bovine Economics 101

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One of the biggest collections of worthless, timewasting, slanderous, untrue, irrelevant, scandalous, obscene, and unnecessary information can be found on Facebook. Yet this popular social media channel can every now and again produce a nugget of pure inspiration. One such gem was posted on my page this past week. Like most things on Facebook, I had seen it before, several times in fact. Yet, this time it really made an impression — probably because it showed up just as I was trying to come up with something to write this column about.  It is a series of photos that describe the world’s various economic systems in terms of two cows.

For example: Communism – you have two cows, the state takes both of them and sells you milk.  Socialism – you have two cows, the government takes one and gives it to your neighbor. Capitalism – you have two cows, you sell one and buy a bull, grow your livestock operation, and retire and live off the profits. There are several slides that describe the economic systems of several major nations. For Example: France – you have two cows, you go on strike and organize a riot because you want 3 cows. China – you have two cows with 300 people to milk them, you brag you have full employment and high bovine productivity, and you arrest the reporter who reports the truth. Italy – you have two cows, you don’t know where they are so you go have lunch.

There are more slides, many with very humorous and accurate descriptions of the various economic systems in the world. The one point that the analysis misses, however, is who created those cows in the first place.  This is called by economists “real wealth.”  If you simply buy something and then turn around and sell it to someone else, you are creating economic activity, but not real wealth.  If you are selling your time or yourself, be it as a prostitute or Hollywood celebrity, you are not creating real wealth. The service industry that makes up a large part of the US economy, generates profits and economic activity, but not real wealth.

If you are a farmer, however, that milks cows, breeds livestock, or grows crops, you are creating real wealth. You are taking your resources (land, money, animals) and creating a new product that did not exist before. This product then moves through the economy generating economic activity. Real wealth is the foundation on which all economies rest. Without real wealth, all economic systems will collapse of their own weight.

This basic fact of economics continues to elude many of those who run the world’s economies and, for the most part, has eluded all of those who are currently seeking to be the next President of the United Sates. Despite colossal examples of what happens when you don’t create real wealth — the Russian economy, the Greek economy, and most of Africa — government leaders and government leader wannabes ignore the sectors of their economy that create real wealth.   Agriculture, mining, manufacturing, research, and technology are all sectors that create a lot of real wealth.  Yet, most governments try to regulate, manipulate, or even nationalize these sectors, thus limiting their growth and productivity.

To put it in terms of our two cow example: President Obama’s policy takes two cows, shoots one, milks the other, and throws the milk away.  Tea party conservatives, on the other hand, want to take two cows, sell one, force the other to produce the milk of 4 cows, then hire a consultant to determine why the cow died.

How about this for an economic policy? You obtain a low interest loan to buy two cows.  State government reduces the taxes on your farmland and milking equipment so you can afford to breed and feed two more cows.   Then the dairy down the road has their health insurance costs reduced so they can hire more workers to process your increased milk production into a new line of milk, cheese, and yogurt that it sells to Wal-Mart who hires more staff to stock the newly expanded dairy section.  More sales of the dairy products increases sales tax revenues for the state, and increased employment results in higher income tax revenues for the federal government. And to think it all started with your ability to buy 2 cows!

By Gary Truitt