Wonder Bread, Twinkies, & The Economy
October 11, 2008 by Stephen Palmer · 2 Comments
Revealing Lessons On Booms & Busts From A Bread Salesman
It may surprise you that I haven’t always been a world-renowned writer. Okay, so I’ve never been a world-renowned anything, but I have been a lot of other things throughout my illustrious career.
One of my early jobs was as a Wonder Bread and Hostess snack salesman servicing Mesquite, Nevada, a small casino town a half hour south of St. George, Utah. Interestingly, pushing bread and Twinkies taught me much about the economy, and it specifically gave me the ability to see through economic fallacies.
One of the lies perpetuated by the Great Depression, and which is being mirrored in our current economic crisis, is that the free market, by virtue of the profit motive run amuck, causes recessions. And, of course, the logic is that since busts are caused by the free market, government intervention and increased regulation is the solution.
Read on while an old bread salesman tackles this lie head on and demonstrates how ridiculous it is.
A bread salesman has three days to sell his product off the shelf before he has to remove it as stale. Any stales came off my bottom line, which meant that I had to track my numbers religiously. If I put too much bread on the shelf it would stale out; too little would result in lost sales.
In other words, I had every incentive to match my production with existing market demand. If I tried to inflate my production by ordering too much bread, it would do nothing but harm me. While I could, to a certain degree, increase market demand by offering discounts and bettering my marketing efforts, my influence was limited, checked and balanced by my consumers and competitors.
Lesson #1: Entrepreneurs have every incentive to ensure that their predictions match market demand.
A critical role of entrepreneurs is to predict the types and quantities of goods and services that people will actually buy. They use natural market indicators, such as past consumption, to make their predictions. Producing more than the market will bear harms entrepreneurs, whether they sell bread, steel, clothes, or mortgages.
As an entrepreneurial bread salesman, I had a route book that tracked every sale of every product on every day, which was my ordering Bible. Without that I was shooting in the dark and my profits would diminish substantially. With it, efficiency was optimized, waste was reduced, and profits were maximized.
However, occasionally I would experience sharp deviations from my normal sales, which threw off my entire process. For example, one day, shortly before a Superbowl Sunday, all of my hot dog buns in the grocery store mysteriously disappeared. My numbers were perfectly in line, yet some external force that I didn’t understand was at work.
I bumped up my orders. The next day, the shelf was wiped clean of hot dog buns yet again. I bumped up my orders even further. The next day, same thing. This time I really cranked up my orders. Super Bowl weekend came and passed, and on Monday I walked into mountains of hot dog buns, most of which eventually staled out.
In other words, there was a hot dog bun-boom, followed by a bust. Traditional economic theory says that I caused the bust with my profit-motivated greed. I wanted to make money so badly that I ramped up my orders. The truth is the exact opposite; I had no incentive to do so, and the bust was caused by forces beyond my knowledge and control.
In that case, what had happened was one of my casinos held a last-minute Super Bowl party for which they needed hot dog buns. Rather than ordering them directly from me, which is what they should have done, they had gone to the store for several days in a row and bought every package of buns on the shelf.
The boom was a fluke; the bust was simply a market correction of the fluke.
Lesson #2: Abnormal, artificially-induced market factors cause entrepreneurs to make faulty judgments regarding production.
Entrepreneurs who inaccurately predict demand fail; those who predict accurately thrive. But when external factors distort the indicators that they base their predictions on, the result is chaos and lost production.
Just as politicians leveraged the panic of the Great Depression to blame the failure on the free market to amass more power, so are we being told today that our financial crisis was initiated by greedy and speculative entrepreneurs.
What we’re not being told is how the Federal Reserve and other government agencies distorted free market indicators prior to the crisis. For example, in September of 1999 the New York Times reported that, “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action…will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.”
This report details how Federal Reserve policy heavily influenced the crash, including controlling the interests rates and margin requirements.
Here’s the big picture: The Fed controls the money supply and interest rates, which are huge determinants of market demand. When money flows freely, people spend freely. A “booming” economy in America today is largely false and artificially created by the Federal Reserve manipulating the money supply. Then, when the true demand catches up to the Fed-created market lies, it all comes crashing down.
In other words, our booms are false and our busts are but corrections.
Lesson #3: When created by the manipulation of the money supply, economic booms and busts do not represent the free market, and the culprit is illegitimate government intervention, not the free market.
In actuality, an economic bust — when preceded by a government-interventionist boom — shows the true power of the free market to realign itself even when influenced by massive external forces.
In the case of my hot dog buns, the culprit was a casino that failed to order enough product at the last minute then distorted my grocery store numbers without my knowledge.
Similarly, our current financial crisis was not caused by the free market; it was caused by government intervention. The Federal Reserve distorted natural market indicators which in turn prevented entrepreneurs from predicting accurately.
Lesson #4: The solution is less regulation, not more.
The way to prevent economic booms and busts is to prevent the government from illegitimately manipulating the money supply. The money supply must be backed by hard, precious assets, which largely prevents top-down exploitation.
Keep the money supply stable, protect unalienable rights, then get out of the way as entrepreneurs pursue the profit motive, understanding that they are naturally incentivized to match their production with legitimate market demand.
Stay tuned for more articles further explaining our current economic crisis and its solution.
While you’re waiting, consider these questions and provide your answers as comments to this post:
- Which societal institution has incentive to manipulate market demand and why?
- If material things have no intrinsic value, then why does a gold-backed currency largely prevent manipulation of the money supply?
- What caused the Great Depression?
- How does our current crisis mirror the Great Depression and why does that matter?
Move the Cause of Liberty by (1) subscribing to the Sentinel, a free weekly newsletter boldly illuminating the principles of freedom in a darkening nation, and (2) pledging your Life, Liberty, and Sacred Honor to the Cause by signing the Declaration of Dependence.
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Copyright © 2008 by The Cause of Liberty. All rights reserved.
The Truth About the Road Less Traveled
August 3, 2008 by Stephen Palmer · 1 Comment
I recently took the road less traveled…
…and ended up getting lost and hundreds of pesky stickers in my clothes and socks.
I was on my regular run the other day, exploring a few streets I hadn’t been on. I passed a heavily wooded area and noticed a faint trail disappearing into the underbrush. In the mood for adventure, I headed down the path, not sure where it would lead to. A half hour later, I finally emerged onto a street that I recognized, my lower half adorned in a thick layer of tenacious stickers, and thinking of how my experience was a fitting analogy for other life pursuits.
As romantic as Robert Frost makes it sound, taking the road less traveled is never easy. It’s far easier to go along with the crowd and never make waves than it is to take a stand, go against the grain of popular culture, and make a lasting difference.
Martin Luther King, Jr. took the road less traveled and was murdered for it, as was Gandhi. George Washington, wanting nothing more than to be a quiet farmer, suffered through years of toil and hardship as a General, then stayed in the trenches during two terms as President. Joan of Arc was burned at the stake for attempting to free France from the rule of England and claiming that she saw visions. Corrie ten Boom endured the horrors of Nazi concentration camps for hiding Jews. Jesus Christ was crucified for speaking truth.
The people who rock the status quo boat are usually kicked off the boat and are often drowned. But because of their courage and sacrifice, the rest of us enjoy smooth sailing.
We can complain today about slow traffic lights, while sitting in our air-conditioned cars listening to the radio and talking on our cell phones, because of the thousands of soldiers who suffered and died of frostbite, starvation, and disease at Valley Forge.
Is the road less traveled romantic and easy? No. Inspiring and worth it? Yes. Will it make a difference? Absolutely.
“That which we obtain too cheaply we esteem too lightly.” -Thomas Paine
The Road Less Traveled in an Age of Comfort
Ironically, in America today most are far less likely to take the road less traveled, not because it is more difficult than it was in the past, but precisely because it’s easier. Accustomed to comfort, material abundance, and political freedom we often fail to see how simple it is, yet also how critically important.
We won’t be burned at the stake for speaking our mind, so few of us put anything into our minds worth speaking. We’re not engaged in a bloody war with the political establishment, so we become soft and fail to fight the good, peaceful fight of striving for virtue and obtaining a world-class education. We’re not faced with concentration camps, yet we often build ourselves personal prisons of complacence and selfishness.
“The difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems.” -Gandhi
Our enemies and hardships are not murderous tyrants, starvation, disease, filth and poverty, and violent discrimination. Instead, they are ease and comfort leading to apathy, ignorance because we’ve delegated our political responsibilities, greed from valuing our privileges above our principles, and societal decay from failing to care for the institution of family.
How To Find the Path and Make a Difference
We can and we must take the road less traveled for the benefit of our nation and our posterity. Yet how we do that today, in an age of comfort and relative freedom, takes on a different, less grueling form than one might think.
Our Valley Forge consists of, among others, reading and discussing classics; being politically active; choosing to not to consume inappropriate media, no matter how popular or even if no one else will know; studying the Constitution, no matter how difficult it may be to understand; choosing to follow our dreams by becoming entrepreneurs, rather than selling out to false security and corporate benefits; and maintaining strong marriages and raising productive, self-reliant children.
Relative to being tortured, burned at the stake, dying of starvation, and being martyred, these seem easy, yet that is exactly why so few will actually do them. But those who do will leave a legacy. They are those who will save the Constitution and preserve freedom for future generations. They are those who will discover more efficient and powerful methods of alleviating suffering in the world.
Be among them. Choose to take the road less traveled.
This road, while excruciating for heroes and heroines in the past and simple for us today, is never easy. The easy, well-worn path is watching TV instead of reading Democracy in America. Easy is abdicating to the government your responsibility to make sure your children are educated. The popular path is to constantly eat unhealthy food and rarely exercise, then expect doctors and pills to take care of your health problems. Easy is staying in a job with benefits that you dislike, rather than risking change in order to find a career path more conducive to living your passions. Easy is seeing problems in society and waiting for the government to solve them, rather than rolling up your sleeves and going to work.
The hard and unpopular path isn’t easy, but it’s worth it. Take the road less traveled — you might get lost for a time and you might attract stickers and experience other trials, but enduring hardship is the price of greatness. As Helen Keller said, “Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, vision cleared, ambition inspired, and success achieved.”
Recommended Reading:
The Hiding Place by Corrie ten Boom
Man’s Search For Meaning by Viktor Frankl
Becoming One Who Goes Before by Stephen Palmer
Move the Cause of Liberty by (1) subscribing to the Sentinel, a free weekly newsletter boldly illuminating the principles of freedom in a darkening nation, and (2) pledging your Life, Liberty, and Sacred Honor to the Cause by signing the Declaration of Dependence.
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Copyright © 2008 by The Cause of Liberty. All rights reserved.
The Power of Entrepreneurship
January 25, 2008 by Stephen Palmer · Leave a Comment
Why is entrepreneurship so powerful and necessary for you to achieve your highest potential?
Entrepreneurship is nothing less than the process of becoming like your Creator. It’s learning how to organize disorganized matter, energy, and Human Life Value in ways that create maximum and sustainable value for others. It’s learning how to create business forms and systems that run smoothly whether you’re physically present in the business or not.
When you engage in entrepreneurship you may think that you are building a business. While this is true, the value of entrepreneurship goes even deeper than this. In the process of building a business, God is building you. For example, when God asked Noah to build the ark, it seems self-evidently true that God could have chosen a different way to accomplish the same thing. But He chose Noah for a reason — Noah was building an ark, but God was building Noah. Such is the process of creating businesses. While we’re creating a business, God is helping us to become who we were born to become.
Move the Cause of Liberty by (1) subscribing to the Sentinel, a free weekly newsletter boldly illuminating the principles of freedom in a darkening nation, and (2) pledging your Life, Liberty, and Sacred Honor to the Cause by signing the Declaration of Dependence.
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Copyright © 2008 by The Cause of Liberty. All rights reserved.
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