Friday, May 13, 2011

The Abstractification of the American Mind

We have names thrown at us every day. Big Oil, The Bankers, Wall Street Barons, The Rich, Democrats, Republicans, Liberals, Conservatives and the list goes on.

We are looking at abstract names for groups of things, not individual items. This analogy will make more sense, if we picture ourselves making cookies in the kitchen. These cookies are going to be very different. We might use a hubcap as a cookie mold for making Democrat cookies. Follow me here. For Republicans, we might use a Jello mold. What we are doing is taking a container and stuffing it full of cookie dough and the shape represents our visualization of the group we are talking about.

There is where the problem lies. If the two of us were both discussing Democrats, the only part of the concept we share is the word. I’m using a hubcap as a mold for Democrats while you may be using a mop bucket.

Let’s make up a group. Combine Banker and Gangster and you get Bankster. For this cookie mold, I will use a cigar box and lace the cookie dough with bullets and a couple hundred copper pennies. Someone else may choose to use a chamber pot for a cookie mold mixing in expensive cigar butts and a 100 or so Mercedes car keys. We both end up with a cookie, with the same name, but mine won’t have that hint of ammonia fragrance. The thing to realize here is that we are talking about imaginary groups or abstract concepts. We created a container in our mind, given it a name and stuffed it full of cookie dough and whatever else suits us. The guy next to you is doing the same thing.

So when we all get together to discuss a concept like government health care, you wonder what rock some of these people crawled out from under.

We need to be very careful of using words that are abstract. They give us a false sense of understanding that isn’t shared. For example, many Americans probably believe that the rest of the world should encompass Democracy with open arms. We lost the Viet Nam war because of that abstract concept called Democracy. The villager could point to his wife, kids and his land, he couldn’t point to Democracy. In undeveloped countries, you have a very hard time selling life insurance; it’s an abstract concept that sounds more like a con game to the average person.

The other day I was reading about a Congressional investigation of the oil industry. They wanted to know why the consumer was being gouged 4 dollars a gallon for gasoline. The answer is plain enough, inflation. But what is inflation? To most people, that’s where prices rise every year. But if you are worth your weight in salt, you know Congress is spending more than they are taking in. Inflation is a very abstract word. It’s kind of like the lost Viet Nam war, all over again. You can point to the price of gas, it’s real, but you can’t point to inflation.


Anonymous said...

Anyone who buys groceries understand inflation. Price of beer has jumped, due to jump in price of hops, barley,etc.
Combined with smaller packages
(for the same price) on cookies, cereal, ice cream, etc. REAL inflation is here, even if the government indexes do not reflect that.

rob in ns said...

Life insurance is a great example. I call it Death insurance, which makes my wife cringe.

Jim in San Marcos said...

Hi Anon 6:00

Inflation is a government tax. They printed dollars. If you produce 100 gallons of beer, you get 100 dollars. The government prints 50 dollars and who ever they give it to buys 50 gallons of beer. Now if you take your hundred dollars and try to buy beer, you only get 50 gallons. The beer doubled in price. Why? because the government gave printed dollars to people who produced nothing but got to consume product just the same. The cost of hops and barley didn't increase at all. You just bought a round for the bar without out knowing it.

rob in ns said...

Great analogy Jim. When people are complaining about price of gas and food I'll be using it to get my point across.


Jim in San Marcos said...

Hi Rob

Your comment about life insurance made me think of something else. No one is complaining about the Life Insurance companies ripping us off. Its a pretty simple contract. Pay your premiums and when you die, they pay the estate. I wonder why health insurance can't be that simple??

AIM said...

Hi Jim,

It appears we have inflation hitting us in food and energy and certain commodities. But inflation isn't across the boards. Deflation is hitting us in other areas. We are not as product oriented as we were decades ago. Now the average household spends a larger part of its income on services, which are going down (deflation). Due to the increase in energy and food, households will be cutting back their spending on other areas which will continue deflation in those areas. The rise in energy and food may be more due to speculators who are getting capital thanks to the printing that The Fed is doing. Which is also why the stock market and bank profits are "up" as well.

I don't think it is pure inflation. And it isn't stagflation. I think it is some inflation over here and some deflation over there.

All the government and Fed intervention and artificial stimulus and attempts to control the economy has created a very complicated and unpredictable economic environment with many hidden dynamics.

Boy, what fun.

NM Patriot said...

You can point to inflation! Thy name is Federal Reserve. End The Fed!

Jim in San Marcos said...

Hi NM Patriot

We are close to being in agreement. I would bet, 95 percent of the population has no idea what the Treasury and the Federal Reserve do.

On close examination neither are a real physical thing. They are vague institutions that deal with government finances. But they are responsible, along with Congress for the current financial mess.

We can't print our way out of debt and at the same time increase our bar tab by buying another round (government health care).

Getting rid of the Fed would get rid of the fictitious revenue that the Congress is so accustomed to spending. It is rather hard to imagine that every happening.

I do believe that the Fed and Treasury have dug a hole that is too deep to climb out of, and it is only a matter of time before this house of cards collapses.

We can point to the Fed as the problem. Andrew Jackson got rid of the Second bank of the US. Maybe it will be done again. Of course, the damage has already been done. You won't realize it until you go to spend that hard earned cash you saved a lifetime for.

Jim in San Marcos said...


I don't see any deflation. Housing prices are often cited, but hell, they haven't even gotten back to pre bubble prices yet. Computer equipment is dropping in price as well as TV's and that is always the case. The first people to buy pay more and then it gets cheaper.

As for services, dental costs have probably doubled in this last year. Food and Gas have doubled. The peculiar thing is that vegetable prices haven't increased much. Whereas meat prices have tripled.

Run this through you mind, If government has taken energy and food out of the cost of living index, what is left to reflect the damage inflation is wreaking?

As you suggest, there are hidden consequences. This is going to be a lot of "fun." As for who? I haven't got a clue.

Anonymous said...

Regarding housing prices and deflation. Here in Phoenix, we have median home prices that are at pre-2000 levels.

Jim in San Marcos said...

Hi Anon 9:24 in Phoenix

I might just drop down there to buy a rental. Putting 20 K in an IRA just isn't cutting it for me any more.

Anonymous said...


If I had the money, I'd be buying up foreclosures in the Phoenix metro. In some areas, houses are selling for far less than it costs to build them.

On my street there are houses that were bought new in 2001 at 120k and then sold in 2005 for 250k and now are selling at 85k. I am not kidding.

I bet Vegas has the same kind of deals. It is crazy out here in bubble land.

Jim in San Marcos said...

Hi Anon 10:26

You need to put down 20% on investment property. So on an 80K house that would be 16K plus 4K for closing and you should be able to rent it for $850 per month. You'd have a positive cash flow of $200 a month and a tax credit of $3,000 per year. After 20 years it would be paid off and you would have a retirement income stream of $850 a month. Not a bad return on 20K.

I did just that back in 1985. Its not for everyone. I've been lucky, I've had the same tenant for 18 years.

Jim in San Marcos said...

Take my last remarks with a grain of salt. I seems like everyone and his brother have decended on Arizona and Nevada with the same idea.

AIM said...

I'm waiting for the REAL bottom before even thinking of buying income properties. Another 10-20% drop is almost a sure bet (there are 4-5M more foreclosures on the way and lenders are already choking on the amount of defaults they have now). They are just releasing a small amount of foreclosures/REOs/short sales and allowing non-paying home owners to stay in their homes for a few years before they even issue a Notice of Default. They know that if they don't control the flow that home prices will plummet too quickly. They are engineering a slow, soft landing. Home prices declined over a 33 year period from 1912 to 1945. A cumulative drop of 14% (about .466% a year). We could have the same thing happen now... just a slow decrease in prices over the next decade or two. Home prices have to go back to lower than the normal trend before the credit explosion happened. That is what always happens after a bubble.

Hold onto your money and you'll be able to buy "two for one" when you go shopping for rental properties.

Jim in San Marcos said...


I share your views, but if we enter hyper inflation, our money turns worthless.

At some point down the trail, we are going to face a decision. Do we want to hold dollars or product? A house with a million dollar loan on it might be very easy to pay off if the hourly wage went to $1,000. Of course at that point no one will be stupid enough to sell their real estate holdings.

If we can avoid hyper inflation, then as you suggest prices have a way to fall. An awful lot of "investors" are flocking to Arizona and Nevada. Landlords don't set rental prices, if there are too many offered, rents drop. Some of these investors have no idea what they are getting into.

The thing that scares me is looking at a 20 dollar gold piece and a 100 dollar bill. One of them will fill my gas tank twice, the other will fill it for 30 weeks.

I don't expect to be able to call a bottom, but if I see a good deal, I'm ready.

Anonymous said...

check out the loss of purchasing power for seniors since 2000

I wonder what the next 10 years will bring??