Economic Destruction Package

Usually, we reserve wealth redistribution for emergency measures, in providing health care, education, and unemployment insurance for those who can't afford such. Never have we generally taxed one class of people and redistributed their money in the form of checks to another class of people. This is exactly what the "economic stimulus" is.

Clearly, many people have issues with this. It represents a slippery slope. If the economy gets worse, does that mean the checks will be larger next year? Are we on our way to the reverse income tax, where producers must provide non-producers with a standard of living? How far can that go? What is the lowest acceptable standard of living? Isn't this a clear path to outright socialism, where all industry is nationalized, and all income is equal...except for those in power? Doesn't this diminish the incentives to work, harming the economy rather than aiding it? Hasn't socialism failed miserably? There should be a lot of pissed off people, who don't enjoy being forced to pay for someone else's gain.

But there are two other ways the government can raise money besides taxes. It can borrow from American individuals, or it can borrow from other sources. By borrowing from Americans, this would mean that money that could otherwise be spent is instead invested in bonds. The gov't says this is no good, because it doesn't stimulate the economy. Thus, it will rather borrow from foreign sources or from the Federal Reserve Bank. Both of these options increase the money supply domestically.

By keeping the money supply steady and experiencing economic growth, we see a general rise in quality of life for everyone, as prices decrease in relation to general wages. This is what happened during most of American history, before WWI.

Now, simply expanding the money supply does NOTHING to help the economy. Many people believe this is a good way to wipe out the middle class. Why is this? Because money, in and of itself, (at least our fiat paper money) is worthless. It is only valuable in relation to the goods it can be exchanged for. Thus, if you increase the amount of money without increasing the efficiency of producing or overall production levels of real goods and services, what have you really accomplished? Nothing, except serving to confuse businessmen, who rely on supply and demand to price their goods at equilibrium, so that they can prevent surpluses AND empty shelves. Increasing the money supply means people will have more money to spend, which appears to mean greater demand for products. Thus, to maximize profit (and prevent shortages/surpluses) businessmen either raise prices or invest in larger supply.

In the case that prices are raised, this hurts those whose income is not raised, such as people on social security, pensions, and fixed income...and minimum wage laborers and others whose wage rate increases do not equal price inflation rates. Because the new money does not distribute itself simultaneously and equally to all people, cost of living will increase faster than income for many. These are the people who are paying to give that new money value (value cannot be created out of thin air). Their quality of life is sacrificed so that the federal government has more money to spend. This is another form of taxation, and it turns out to be the most regressive, harming both the middle and lower classes much more than the upper class. In cases of mass inflation, this process wipes out the middle class. In fact, such cases most clearly resemble outright Fascism, with the middle class joining the lower class as laborers, the upper class becoming the business class (through gov't privilege), and the government becoming the new upper class.

But if businesses decide to instead invest in greater productivity, by increasing shelf space, or opening a new mine, or building a new factory, they also lose. Some businesses can expand with few problems, but others face obviously limited resources that make expansion impossible.

For example, if the money supply doubles, everyone can eat twice as many steaks. This causes huge lines and shortages of meat. So, we buy more trucks to ship meat in. We build new restaurants to buy from. But how do we increase the amounts of meat we can produce? We cannot simply offer cows more money to breed and grow faster. Here, prices will increase. The same with store labor. How do we increase the amount of workers available? We can't. To compete for labor, businesses will have to raise wage prices. The additional costs for the supply-limited factors means that prices will have to increase for the cost of steaks. And those new trucks and buildings are now worthless, as they will not turn out to be profitable. Once prices re-establish themselves to balance goods to goods efficiently, we find that people have stopped eating twice as much steak and gone back to hamburgers, although both hamburger and steak are now twice as expensive, but only in price.

The real cost is what you produce for such. If wages double as prices double, everything is exactly as expensive as it was before, in your own terms. This is why money is valuable - it allows us to communicate exactly how valuable our services are in relation to each other. Allowing one entity to create money distorts these relations, hurting the ability of money to do its job. If

For a business that invests due to expansion of money supply, a significant amount of resources are wasted, and the businesses must sell off assets (trucks, buildings) to liquidate their debt they assumed to buy them. But now that society has revealed the poor worth of these assets, they won't find a favorable selling price, with few willing to buy. These asset write-downs cause businesses' net worth to fall. Investors become upset as stock prices fall. Some businesses can't pay their debt off and go under, as the banks lose money. There is a general decrease in the economy.

This is the business cycle. Increased demand for goods from new money appears to signal a boom. As businesses invest, this stretches the boom into other areas of the economy. Eventually, however, reality sets in. Certain resources cannot simply be expanded and productivity cannot increase. Thus, prices increase instead, harming some people's quality of life. Investments reveal themselves to be unprofitable and debt attempts to be liquidated. Certain assets drop in value. Banks see losses. This is the bust.

The federal government encourages this. Why? Because power begets power. Have you ever heard of the federal government getting rid of a department or program? Have you ever heard of it decreasing its overall spending from the prior year? Politicians, in having the ability to make or break players in the economy, receive a fair amount of attention from businessmen. Thus, they receive perks. No matter how bad the politicians are at improving the overall economy, even if it gets worse as they gain more and more control over it, they will be more largely rewarded for privileges that they hand out. Do you think we really needed a Korean, Vietnam, Persian Gulf, or Iraq War? Do you think we really need to send hundreds of billions of dollars to foreign governments as "aid"? Do we need a federal highway program, a department of Energy, or federal education? Do we need federally managed health care? All of these areas have special interests that can make billions of dollars with government privileges.

Before the crash of 1929, government policy for recessions and depressions was to get out the way. Very few lasted more than one year. However, since 1929, government has done the opposite, trying to figure out ridiculous means of "stimulating the economy". In its first attempt, we got a depression that lasted over 10 years. Since we have employed such methods, we have become less and less competitive in world markets.

So what is this "economic stimulus" going to do? It's going to cause a business cycle. Either people will spend it, causing a short-lived boom, or they will put it in the bank. Banks loan out your deposits, while owing you your money, thus further increasing the money supply through bank credit. This will also cause increased spending relative to production, causing a short-lived boom.

Why are we in an economic slump to begin with? TRYING TO INCREASE THE MONEY SUPPLY TO BOOM OUT OF BUSINESS CYCLE BUSTS. We did it in the 90's and created the dot com bubble. When that busted, we created a housing bubble. And now it's busted and to cope we're creating a ____ bubble. This process can repeat only so many times. We could eventually end up with hyperinflation, where so much new money is being created that it is no longer used as money by society, reduced to bartering and using alternative currency. Or we could end up with a crash. In the meantime, we will be paying more taxes than we should, as the government inflates the money supply.

What is a better way to stimulate the economy? Get the government out of it! No more privileges, no more new money, no new regulations (and get rid of half the old ones), no price fixing, no more welfare programs, no wealth redistribution, less spending (esp foreign aid and war), and less taxes. Easy, simple, but unfavorable because it means less fancy lunches, dinners, vacations, fame, pride, and influence for politicians.