Years ago when I decided to seriously pursue the profession of economics and enter the Ph.D. program at Kansas State University, I did so to prepare myself to educate young people about the “dismal science.”  I have no regrets.  Economics is an exciting subject and it has been a pleasure to explain it to college students.  Teaching economics is a great pleasure, but being an economist can be mental torture!

The problem with “being” an economist is that we think differently than most others in our world.  We think in terms of efficiency, costs vs. benefits, the importance of properly placed incentives, and “opportunity costs”.  This type of thinking sometimes puts us in conflict with politicians and the laws they pass.  This conflict has a long history.  For example, Britain’s Corn Laws (a tariff on imported grain established in 1815) were eventually repealed in 1846, largely due to the writings of Member of Parliament and economist David Ricardo.

Another thing that sets economists apart from other thinkers is that economics is an “amoral” science.  Amoral doesn’t mean immoral; an economist can be as moral as the next guy.  The term “amoral” means that economics is “outside the sphere to which moral judgments apply.”   For example, economists might look at the effects of government policy on drugs, prostitution, child slavery, abortion, or violent crime.  Our purpose isn’t to cast moral judgments, but to predict how various laws might impact these activities.

I’ll spend the rest of this blog highlighting just one of many examples of why I am frustrated most of the time.  You’ll undoubtedly hear others as the weeks pass.  This week’s topic; ending the prohibition on illegal drugs.

Mexico is a mess.  Last year over 6,000 people died in drug-related violence, as six cartels fight over the lucrative drug business.  Competing drug cartels are warring with each other, often with more firepower than the Mexican Police.  Marijuana represents about 65 percent of the illegal drugs imported to the US through Mexico.  In Afghanistan opium poppies, from which heroin is produced, is by far the most profitable crop grown by local farmers.  The Taliban, whom we fight in Afghanistan and Pakistan, thrives on opium profits, fueled by the demand for heroin in the United States and other countries.

In the United States 50% of all crime is drug-related.  Over 50% of prisoners (most of them black) are not in prison for committing violent crimes, but are incarcerated for selling marijuana, cocaine, heroin or other illegal drugs.

In the roaring 20’s, when alcohol was illegal, the cost of a bottle of booze skyrocketed.  Legitimate breweries closed their doors and only those willing to risk imprisonment produced alcoholic beverages.  Alcohol crime syndicates fought gang wars in America’s cities.  Police departments and the FBI were powerless to stop the crime associated with alcohol prohibition, yet it took a simple slamming of the gavel on December 5, 1933 to put all of the alcohol gangs (and their gang violence) out of business.  Once the prohibition of alcohol was repealed, private enterprise entered to fill the production void.  Predictably, supply rose and prices and profits fell.  Capone and others were out of the alcohol business for good. Maybe it’s time to put Mexican cartels and the Taliban out of business by the same means.

The cover of the March 7th-13th 2009 edition of The Economist reads:  “How to Stop the Drug Wars”.  There is a lengthy and thoughtful examination of why drug prohibition has failed.  I suggest that you read it. You can do so by clicking HERE. The Economist concludes that the end of drug prohibition is the “least bad” solution for this problem.  There will be new problems associated with the legalization of drugs, but they are far less daunting than the problems that will simply vanish if the gavel is pounded.  If that gavel is ever pounded, drugs will cease to be a crime problem and will become what they have always been; a health problem.

For many people even the idea of ending drug prohibition is repugnant.  For me, an economist, the issue isn’t whether drugs are bad or good; they are undoubtedly bad for people.  For nearly 40 years I’ve known the most benign and rational solution to this problem, namely, the end of drug prohibition.  The frustrating part is that during those same 40 years I’ve had to witness ever increasing drug use and violent crime associated with the drug business.

Einstein said that insanity is “doing the same thing over and over again and expecting different results.”  How long are we going to do the same thing over and over again with respect to the drug problem?

I was talking to a fellow the other day that owns a small hotel. It is located in an historic building and has tons of charm. It is a nice, neat, clean establishment. He and his wife have served thousands of people from all over the world. His only “discriminator” in determining who stays in his hotel is price, which is just slightly above the rates charged in nice hotels. His kindness and service have been rewarded and his guests have treated his property with respect and consideration. It has been a joy for he and his wife to serve their guests for nearly a quarter of a century.

The other day he mentioned that his business was way down, due to the slow economy. The guy is a real Obama fanatic and he seemed surprised that the entire economy didn’t turn around about half-way through inauguration day. His room bookings have fallen substantially since Obama and “Timmy G” started running the country. In fact, he told me that if this continues he’ll have to refer to the Bush years as “the good old days.”

I told him that he needs to get with the Obama plan. In this new era of “change” he needs to re-align his hotel’s business plan with Obama’s philosophy of rewarding losers at the expense of winners. You know; like when taxpayers bail out people who should never have qualified for a mortgage, or Citibank gets TARP money at taxpayer expense. With “Obama Thought” guiding his new business philosophy, he could be sold out every night of the week. The Obama plan would have special nights for “ordinary folks”, who in prior years couldn’t afford his hotel. High income customers would be charged double the normal rate to subsidize the disadvantaged. The nightly hotel specials would go something like this:

Meth Mondays: If you’ve been arrested for the use of Methamphetamine in the last year and can bring court documents proving this, you get a $150 suite for only $20 per night, but you have to pay in advance. You’re allowed to do meth in your room, but not in the hallways. In the morning you can come down to the hotel café and have the special “Meth-n-Muffin” breakfast for only five bucks

Terrorism Tuesdays: Anyone claiming to be a terrorist can rent a room for 50% off on Tuesday night. Special rates are available for groups of 19 or more. On Terrorism Tuesdays, members of the American Civil Liberties Union and US Justice Department lawyers will staff the hotel to make sure that the constitutional rights of guests are preserved. On Terrorism Tuesdays the hotel phone system is disabled and guests are allowed free use of special cell phones with untraceable off-shore numbers. Vendors specializing in fake ID’s, Passports, VISA’s and Social Security Numbers have booths in the exhibit area. Pro-bono civil rights lawyers will be available in the lobby.

Global Warming Wednesdays: This is the one day of the week that my friend makes a profit. On GW Wednesdays, customers can swing by and park their Prius cars in his convenient parking lot. Parking fees are doubled, as well as the room rates, but these model global citizens know that their carbon footprint will be zero when they check in on Global Warming Wednesdays. On GW Wednesdays, all heat and electricity is produced without carbon emissions. The roof has plenty of solar panels and there is a wind turbine up there that vibrates all night, keeping the guests awake. On cold, cloudy winter days, when snow covers up the solar panels and there is no wind, the customers can rent snowmobile clothing from the front desk. Also, there will be no hot water; in fact there will be no water at all, due to the fact that the pipes have frozen. As his Carbon-Free guests sit looking out of the windows of their rooms, watching their breath, they should try to ignore the smoke from that ugly coal-fired power plant at the edge of town. As they look at the warm lights emanating from the heated hotel across the street, they will feel comfort knowing that Al Gore admires them, while the neighboring customers sitting in their heated Jacuzzi’s are irresponsible pigs.

Tobacco Thursdays: Inspired by their chain-smoking president, who claims to be able to revamp the nation’s health care system, yet can’t conquer his nicotine addiction, cigarette smokers get a room on Thursdays for $60 per night. With this special, the Hotel Obama provides four packs of non-filtered camels per room, right on the desk next to the ashtray. Marijuana is available on the street at an extra cost. You can smoke in the rooms all night, but if the smoke alarms go off, please crack a window.

Beer Binge Fridays: If you come on Friday evening the rate is not discounted, but each person in the room receives a coupon allowing you to drink all the beer you want in one of the city’s neighborhood bars. Hard liquor, premium or imported beers are not included in this special; you must drink the lowest priced beer in the house. College bars, nightclubs, and gentleman’s clubs are not eligible for this special; you must go to one of the “townie” bars listed on the coupon where the hard working, middle class Americans hang out. The hotel room also includes four of the hotel’s exclusive, designer plastic “Bama-Barf-Bags”, just in case you’re a bit uncomfortable when you return to the room after the bars close.

Socialism Saturdays: On this day, booking preference is given to card-carrying members of the Socialist Party of America, the voice of “democratic socialism.” Rooms that aren’t reserved by Socialist Party card-holders by 5pm Thursday may be rented to members of the Democratic Party. The Pelosi Suite and the Harry Reid Room are much in demand. At 6 pm on Socialism Saturdays, guests meet in the hotel lobby, drink designer coffees and wax eloquent on the virtues of Socialism. Sitting by the fire, they joyfully reminisce about successful socialist experiments in the Stalin’s USSR, Hitler’s Germany, Mussolini’s Italy, Pol Pot’s Cambodia, IL’s North Korea, and Castro’s Cuba. Best of all they can look forward to the fresh new socialist nations of Venezuela, Zimbabwe, and of course, the United States of America.

Sacrificial Sundays: On Sunday nights only members of Evangelical Christian Churches are allowed to reserve rooms. Room rates are only $5 per night, but these anti-abortion, rattle-snake kissing, anti-stem cell research folks have one virtue; they can’t stand filth. When they check in, they straighten up their rooms and throw away the accumulated week’s trash. In fact, normally the rooms are cleaner when the Christians check out than when they arrive. This cuts down on housekeeping fees; after all, tomorrow is Meth Monday all over again!

Because of his adoption of Obama’s redistribution principles, my friend’s “hotel for the people” will be booked seven nights a week, 52 weeks a year. The disenfranchised masses will love the place. Because the rooms are so greatly discounted, my friend’s profits will fall, but this will keep him out of the “rich” income category, saving him lots of taxes. As the years pass by, due to the increasing number of unsavory guests, my friend’s hotel will rapidly fall into disrepair, but that’s OK too. After all, if the place sells for less than he paid for it, he won’t have to pay any of those higher capital gains taxes.

Let’s travel in our time machine thirty years into the future.

It is the year 2039.  In this sad future, the economy of the United States of America has become the world’s largest manufacturer of consumer goods.  Our country, which once had good wages, now has some of the lowest wages on earth.  The standard of living of the average American has fallen to a third of what it was, even during the recession of 2009.

Our low American wages have given us a distinct advantage in manufacturing.  The sweat shops and textile factories have returned, after an absence of fifty years.  Millions of Americans sew garments, manufacture cheap consumer goods, hand-assembling parts to make electronic devices sold all over the world.  Our wages are so low that we can assemble an entire cell phone ear implant for $4.00 a unit.  Once exported, the implants sell for $120 in the rich countries that buy them from us.

The US government calls itself a democracy, but the two major political parties have merged.  The American People’s Party (APP) is the nation’s only political party.   The APP rules with an iron hand.  The President is a virtual dictator.  There are few individual freedoms and the US government now owns over 50 percent of the land, factories, and investment capital in the country.  Taxes are stifling, eating up nearly 65% of the wages of the average American worker.  Freedom of assembly, press and religion are virtually non-existent.  The US government is obsessed with the increased possibility of an armed citizen’s revolt so it prices our products cheaply for international customers so that Americans remain employed.

Occupational safety is a joke.  Over 2,000 men die each year in our coal mines.  Global warming be damned; to manufacture the world’s products we are constructing a new coal-fired power plant every week.  Once prosperous Americans now engage in back-breaking manual labor, just to put bread on the table.  Poor farmers pour into the cities in hopes of finding a job, but employment prospects are as bleak as the wages.

Worse yet, we’ve become so dependent on consumers of rich countries that our government actually buys the bonds of the “consuming” countries, in effect, lending these countries the money to buy the cheap products we produce.  Imagine; we’re so desperate for exports that our government actually finances foreign governments so their citizens will buy our inexpensive products.  No wonder our tax burden is high.

Middle class citizens in the rich countries live “high on the hog” consuming our low-priced products, while the US government holds their bonds.  Even though The United States owns billions of dollars of the bonds of the rich countries, our government would never redeem those bonds.  If the US redeemed the bonds, making the rich countries pay back the principle, this would drive the rich countries into a deep recession, reducing their purchases of our cheap products, causing massive unemployment and the starvation of millions of Americans.

Is this the future of the United States of America?  Unlikely.  If not, what year am I talking about and what country am I describing?

The year is 2009.  The country I’m describing is not the United States of America; it is present-day China.  The rich, consumer country is the United States.  Count your blessings.  It could be a lot worse.

I remember a summer evening in 1994 when I awakened in a cold sweat. The nightmare that brought me from a sound sleep was a single thought: “Oh my! In five years I’ll be 50 years old!” Fifty; half a century! How did this happen? I’m getting old! Despite the dream, the occurrence of my fiftieth birthday five years later didn’t bother me much. Family and business duties kept me far too busy to worry about my age. After all, life was good. At the age of fifty, impending thoughts of my mortality were buried far back in my mind.

Today (Sunday March 8, 2009) I turn 60 years old and I’d be less than honest if I didn’t admit that this birthday has bothered me. It has been a time of reflection and thanks to my wife, a time when family and a few friends will gather in Winona to help me “celebrate” my birthday. I’m thinking that it will to be a lot more fun for them than for me.

Last night as I walked up the stairway to the bedroom I looked at the family photos on the wall. I normally take those photos for granted, but last night I took a long look. My contemplations are as follows:

My Children: There are the photos of my two children, as little kids. I’m proud of both of them. They were so cute. In spite of the fact that by almost anyone’s standards I spent a lot of time with them, I now wish that I had spent even more time. I think every parent feels this way.

My Mother: On the side table is a photo of my mother when she was about 20 years old. She’s been gone for many years now, but she motivated me to become a risk-taker. Her father was an entrepreneur who once owned over 300 grocery stores in Pennsylvania. He went broke during the depression and my mom went from being a rich kid to a poor kid in an instant. After that, she never put much stock in money or material things, knowing that it could all vanish in an instant.

My Father: God bless his soul, at 87 years old he lives down in North Carolina with his wonderful wife, Mary Lou. He still gets out and walks at least a mile a day. His dad lived to age 98. His dad’s dad lived to be 99. I think my Father will be around for quite a few more years. He’s got the one attribute shared by all men who live well into their 90’s; he’s skinny!

My Wife: What can I possibly say? I won the lottery when it came to marriage. My wife is beautiful, but she is also honest, decent, fair-minded, and a great role model. Back in 1970 she fell for a broke, bushy-haired college student. He mounted his grandmother’s diamond in a new setting for her engagement ring. In December of 1971 she married him, spending $600 for her entire wedding, including her wedding dress. For their honeymoon the couple drove from Rockford, IL to Raymond, Colorado in a beaten-down 1961 Chevrolet. Because he couldn’t afford a mechanic, the groom caught a cold in the blowing snow while replacing the front wheel bearings in the parking lot of a car dealership in North Platte, Nebraska. She spent the next three days nursing him back to health in an isolated cabin on South Saint Vrain River in the mountains of Colorado.

My Grandson: On December 1, 2007 my grandson, Marek, was born to my Son, Tad and his wife, Lisa. When Marek was born I remembered the words of a friend and mentor, Chet Adkins as he related his own feelings about being a Grandpa. Chet said, “Don, when you raise your children it is a challenge. When you have a grandchild, you learn the meaning of life.” As I live the remainder of my life, I pray that I’ll have a lot of time with Marek. I want to walk with him beneath the EL tracks in Chicago and along the sidewalks in his south Minneapolis neighborhood. I want to take him fishing at Lake Winona and swim with him at North Beach, beneath the shadows of great skyscrapers. I want to take him to watch the Twins play at Target Field in the glorious summer sun. He must enjoy with me the cool summer breeze that caresses the outfield ivy, wafts across the pitcher’s mound and sweeps majestically up through the ancient steel superstructure of Wrigley field.

On this, the day of my sixtieth birthday, I have nothing to complain about….absolutely nothing. I’m blessed with good health and a great family. I have received blessings far in excess of my righteousness. My melancholy this day lies simply in the realization that this can’t last forever. So, suck it up, Salyards. It’s time to put on the smile and go to the party!

These are tough times. Many people have lost their jobs or fear becoming unemployed. Credit card debt is high and mortgage payments may be hard to make. Recessions lead to difficult financial situations for many families, making them extremely vulnerable. This has made scamming people out of their hard-earned money a growth industry. I’m going to highlight two types of scams in this article; (1) pay in advance scams and (2) pfishing scams.

PAY IN ADVANCE SCAMS

I remember the good old days when you would get an email from some prince in Nigeria who supposedly had 100 million dollars that he needed to transfer from his country to a bank account in the United States. This guy was so gullible that he would trust you, a complete stranger, to put his $100 million in your account, after which he would give you $20 million for your assistance. Of course, as you corresponded with the prince, he would ask you to wire him $10,000 to his account in Nigeria so he could free up the $100 million. Predictably, those who wired the money would never hear from the guy again and their funds would end up in some foreign bank account.

This “Nigerian prince” scam was so unbelievable that it was difficult to feel sympathy for anyone who fell for it. Unfortunately, the quantity and quality of scams has exploded over the years. Television, radio and newspapers are rife with scam commercials and ads. Don’t ever make the mistake of believing that just because a commercial is running on radio or television that the advertiser has any credence. Remember, the networks and newspapers need ad revenue and they’ll take it from almost anybody. New scams crop up almost daily so it is hard to keep track. Examples of some of current “Pay in Advance” scams are listed below.

1. “Hire our firm and we will negotiate with the IRS to write off most of the back taxes you owe. Our experienced, former IRS agents will get tough with the IRS and we will save you thousands of dollars in back taxes.” These companies want money up front before they take your case. Then, despite their “best efforts” you’ll end up paying your back taxes anyway.

2. “Hire us and we will negotiate with your credit card companies to write off most of what you own them. We know the secrets that only the credit card companies know. When we’re done dealing with them, you’ll owe only a fraction of your current credit card debt.” Of course, there is an up front fee to retain their services. When they’re done with you, you will wish only one thing; that you had used their fee to pay down your credit card bill.

3. “Hire us and we will get you your US government stimulus check within two weeks! You will receive your US Treasury check for $8,000 and you’ll only have to pay a $500 fee in advance to handle the paperwork.” In this case you’ll be lucky to get even a phony treasury check after you’ve given them your $500.

4. If you have an apartment for rent and list it on the internet, within minutes you’ll receive an email something like this: “I’m coming in from England and I want to rent your apartment for a whole year. Even though the monthly rent is only $1,000 a month ($12,000 a year), I’ll send you a $20,000 cashiers check in advance. There is one small detail; after you get my check for $20,000 could you wire back $2,000 to my uncle’s account in Manchester so he can buy my airline ticket?”

5. “Save money by refinancing your real estate mortgage”. Be careful. Internet lenders have much higher default rates than your typical “walk in” bank or savings and loan. I recommend that you talk to a real person, at a real desk, in a real building, in a real financial institution that has been in your community for at least ten years.

REMEMBER: All “Pay in Advance” scams have one thing in common; they want your money up front before they deliver any tangible benefits. If they send you a cashier’s check, your banker won’t be able to tell if it is legitimate or not. You can put it in your checking account, but the funds aren’t good until it clears. Of course, after a week or so, your bank will inform you that the phony “cashier’s check” wasn’t good. By this time you’ve wired them real money, the deal is over and you will never hear from them again. If any vendor wants one cent in advance, or promises to send you a check on the condition that you will later wire them money, immediately hang up the phone or send that email to your “spam” folder.

PFISHING SCAMS

“Pfishing” Scams (pronounced “fishing”) are conducted 90% via email, although some scammers have tried to conduct them by phone. Scammer computers send out millions of email messages, pretending to be your bank, your credit card company, the US treasury, the Social Security Administration, PayPal, EBay, or any other legitimate company, bank, or organization. The email usually contains the “logo” of the bank or credit card company, and it looks REAL and extremely legitimate! (Remember, email scammers can cut and paste a legitimate-looking logo in a nano-second.)

Pfishing websites are sneaky…very sneaky, but they have one thing in common; they want you to reveal your credit card number, your social security number, your checking account number, or some other sensitive financial information. Once you’ve fallen for the scam they will charge items to your credit card, take money out of your checking account, or compromise your identity.

Pfishing emails always contain a link, supposedly to the website of the bank, credit card company, or government agency. Never click on that link because, while the new page that pops up will look exactly like the “sign in” page for your bank or credit card company, it is a bogus page. If you enter your username and password on the phony page that this link has created, you will have given this sensitive information directly to the scammer. The scammer will immediately log in to the legitimate company website (using the username and password information you’ve provided) and take a shopping spree with your credit card or checking account.

To avoid Pfishing scams remember two things:

1. Banks, businesses and government agencies NEVER send you emails with a link asking you to verify information or to log in. Instead, they will send you a letter via US mail, explaining the situation. They will then ask you to type in their website in your browser so that you reach the legitimate website.

2. Never, ever, click on a link inside an email that supposedly comes from a financial institution or a business where you have credit. Instead, type the website address of the business or institution directly into your browser. For example, if the email is supposedly from Wells Fargo bank, don’t click on the email link. Instead, if you want to contact Wells Fargo go to your browser and type in www.wellsfargo.com. Then you will know for sure you’re inside the REAL Wells Fargo website. While Pfishing is less obvious than “Pay in Advance” scams, it can be much more hurtful. One oversight, divulging your financial information on a phony link, could cost you thousands of dollars along with the real risk that your identity might be stolen.

While seniors and young people are particularly susceptible to scams, anyone can become a victim if they are not careful. In my opinion, scammers are some of the worst human beings on earth because they knowingly defraud those who are financially vulnerable, leaving them in even greater despair.