moneyFYI
Financial Freedom Is Merely Organized Common Sense
Things We Take For Granted
In North America and Western Europe, we take many things for granted that would be counted as luxury goods elsewhere. We have no real idea of what happens elsewhere, and we have come to accept our condition, the unusual, as the standard.
We should investigate and learn.
- Investors are among the first to discover differences. Many people have found that stock exchanges in many countries are rudimentary in supervision and standards. The SEC may not do everything we would like, but the markets are more transparent than most.
- Canadians are especially vulnerable to foreign banks. Almost all are tiny by comparison to the ones we deal with daily. I had a client preparing to ship what would, in today’s money, be about $5 million of product against a letter of credit from an Ecuadorian bank. I asked him to have his bank check the foreign bank out before shipping. He seemed amazed at the idea; after all letter of credit was like a draft or certified cheque. Well, not always. The purchaser owned the bank, and its total assets wouldn’t cover 10% of the invoice. Be skeptical until you know.
- Western developed countries have currencies that are more stable too. A bank term deposit with a 30% interest rate looks attractive, but if the money depreciates 50% a year, it will end badly.
Many of our institutions and supervisory agencies are luxury goods. We should notice their value and pay attention when outside their umbrella. Mistrust intuition that relies on local conditions.
Our social luxury goods
Economist Joseph Schumpeter postulated that capitalism could fail because it was so successful at creating wealth. That ability allowed people to live well without working ten-hour days seven days a week. He feared people who did not understand the system or its benefits would use the slack to work against it. You don’t have to look far to see that now.
Activism is a luxury good. It is easy to find a local activist for programs or ideas with negative consequences. In most of the world, people cannot afford the time or the resources to participate. Do you think activism is a big thing in Sub-Saharan Africa? Probably not so much.
We tend to think our ideas about the right way are universal. Green energy is one of those. The majority of the world’s population has not graduated to coal or has only just begun to use coal for energy. Efficient energy is one of the factors that produce the slack that permits activism.
Our vision assumes capital because capital is efficient. A coal-fired generating plant is more efficient than is a wood-burning heater. We can afford capital. Lesser developed countries cannot afford capital but have cheap labour. Their labour is not fully used until infrastructure permits efficiency. Energy is a luxury good. It is the principal element in economic growth.
Most of the activists we see here are dilettantes. They have a vision and poorly formed strategies. They have untried tactics and unassessed resource needs and costs. If you listen, the whole thing is a war. The change they want is crucial and inevitable. But in war, strategy and tactics are not as important as logistics. Getting bandages, breakfast, bullets, and boots to soldiers in the right place at the right time is far more demanding than people realize. Every professional warrior thinks logistics. Only amateurs talk about strategy and tactics as if they are all that is necessary. The green energy movement wants to replace the existing structure with theoretical structures. As Thomas Sowell has pointed out, “Much of the social history of the Western world, over the past three decades, has been a history of replacing what worked with what sounded good.” The thought will be forty years old soon. If anything the practice has accelerated.
People who do not feel their errors personally learn too little. They cannot be the decision-makers.
Even religion is affected. Atheism is a luxury good. Do you see it commonly in poor countries? You do not. Only when you think you are safe can you afford atheism.
Clean air, clean water, medical care, and education are luxury goods. As countries develop wealth, they will acquire these. They cannot be imposed without supporting infrastructure and institutions.
To assume otherwise is hubris.
The bits to take away
In the real world, assuming and hoping are not strategically sound techniques.
Be very skeptical of people who have not “been there and done that.”
Trust no one who does not have to be accountable for the results of their decisions.
In theory, theory and practice are the same. In practice, they are not.
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I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.
Be in touch at 705-927-4770 or by email at don@moneyfyi.com.
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