Money is a promise of value given in exchange for value received. Like it says on the dollar bill: \u201cThis note is legal tender for all debts, public and private.\u201d The owners of my corner gas station take my $10 because they believe the government\u2019s promise that they can use the $10 for to acquire goods and services they want. And, of course, because they are required to accept my $10 by law.<\/p>\n
Magic is not a basis for public policy. Value does not appear merely because we wish it to. Faith in a promise does not occur merely because we wish it to. Money does not have value simply because we wish it to. Reality doesn\u2019t change just because we invest leaders with magical powers.<\/p>\n
So money can be deprived of value by two events \u2014 regime instability and inflation, both of which call the issuing authority\u2019s ability to guarantee promises about money\u2019s future into question. \u201cThis note is legal tender for all debts, public and private.\u201d Regime instability thwarts that promise by unpredictably altering the issuing authority\u2019s guarantee: By the time the gas station owners spend my $10, they\u2019re deprived of $3.00 that they now have to spend on employee dental hygiene training requried by the Department of Bullshit\u2019s Safe Teeth for Kids Program. Inflation thwarts that promise by threatening the value being guaranteed: The regime is still the same, but the $10 I paid the gas station owners this morning is worth $1.00 by noon.<\/p>\n
Governments who promise to spend more money than they have, have three options. First, they can renege on their promises. Second, they can raise taxes and suck up more money from the larger economy and use it to pay the promised amounts. Either solution is regime instability. I may have planned on retiring, but I can\u2019t because my government-promised retirement fund has been abolished. I may have planned on sending my young son to college, but I can\u2019t because the government is now taking another third of my income during the next ten years. What the government gives, it can take away \u2014 my retirement program may be restored, in whole or in part, and my taxes may raise or lower, in whole or in part, at any time. (This is why government bailouts haven\u2019t done anything to revive the economy \u2014 businessmen can\u2019t plan, because the bailouts hid the real effect of the financial crisis and they don\u2019t know what Grand New Scheme to Screw With Your Investments may be just around the corner).<\/p>\n
The third option is to inflate the money supply. More money = more ability to pay debts or even contract new debt. This is the most politically-attractive solution and will always be used before the state\u2019s other options. Of course it also means that prices go up and wages go down, but that doesn\u2019t bother anyone in power. Inflation benefits the early recipients of money, the elites who fund the Party, who get to use the new money before everyone else realizes that a dollar isn\u2019t a dollar anymore. I may know my $10 is actually worth $8.85, but as long as the gas station owners don\u2019t know it, I\u2019m okey-dokey. Eventually, after the We-Brake-for-Politicians fat cats have bailed themselves out of their bad investments, even America\u2019s peons will get the idea as prices rise but purchasing-power doesn\u2019t. Inflating the money supply is like treating a severed artery with blood infusions, pretty soon you run out of blood, and pretty soon people run out of faith in the government\u2019s promise to guarantee the value of a dollar. (This is why government bailouts haven\u2019t done anything to lower unemployment \u2014 businessmen can\u2019t plan, because the government\u2019s willingness to inflate the money supply has effectively roundfiled projections of costs, profits, and the economic condition of consumers).<\/p>\n
America\u2019s peons are stupid, but we\u2019re not that stupid. If there\u2019s enough inflation and regime instability, we\u2019ll stop behaving as though everything is fine. We\u2019ll stop spending and borrowing. We\u2019ll start hoarding. (Really dumb peons will actually save their money). The entire network of consumer debt holding the economy together will be threatened and, with it, the employment of large segments of the population. GM will lay off thousands because nobody will borrow $50,000 for a new car if they think their grocery or electric bill will go from $200 a month to $350 a month due to inflation. It\u2019s a perfect storm \u2014 those thousands laid off demand more government payouts, increasing the need to inflate the money supply, and the tens of thousands of jobs depending on those thousands also start melting away, and so on.<\/p>\n
The state has only one answer to this problem, because it\u2019s the answer that everyone in politics longs for \u2014 total power. The government will institute economic planning and regulation to guarantee incomes, production, purchasing and costs, effectively ordering people sitting in a burning house to keep watching television and not mind the smoke. (If you don\u2019t believe it, look up the National Recovery Act and ignore the accompanying propaganda about how big business was against it).<\/p>\n
Regime instability is met with more regime instability. The government can destroy your business by changing a few sentences in the Code of Federal Regulations, requiring you to compete on price but pay mandated costs. And economic controls break down the minute they come into contact with economic activity that isn\u2019t controlled \u2014 I may have to pay my employees $10 an hour and charge $20 for a widget, but that won\u2019t help if my supplier can pay his employees $5 an hour and charge $40 for the materials. So the realm of state control widens, eventually embracing everything and everyone.<\/p>\n
Informers, secret police, and gulags are absolutely necessary at this point, because the whited sepulcher of wage and price controls is threatened by any uncontrolled economic activity. I may have to pay my employees $10 an hour and charge $30 for repairing a car, but that won\u2019t help if Joe can give Ted a case of beer to fix Joe\u2019s car on the side. Somebody has to do something about Joe and Ted \u2014 and that will be an undercover operation mounted by an ICE team, so that neither Joe or Ted can really be sure if this is a business deal or a one-way ticket to a bad place. And a Bad Place it must be \u2014 punishments for black-marketeering have to be incredibly severe, otherwise they\u2019ll just get factored into the cost of black-market business.<\/p>\n
We won\u2019t call it black-marketeering, of course. That\u2019s too noir and trendy. We\u2019ll call it economic terrorism. We\u2019ll even have corporate-controlled news hacks inventing stories linking Joe\u2019s and Ted\u2019s car repair to the shadowy world of Al Qaeda. Or Eurasia. Or Eastasia. It really doesn\u2019t matter at this point. The point will be that economic terrorism threatens the well-being of every American and the security of our children. If you want your car repaired on the side, you\u2019d better be ready to be treated the way we now treat drug-dealers and child pornographers. (Tip to shoppers: If you\u2019re looking for fresh produce, don\u2019t use the telephone).<\/p>\n
Totally-controlled economies lack a certain, shall we say, vitality. When shoe companies have their wages and prices set by law, and their market shares carefully-adjusted and guaranteed by ICE agents with submachine guns, shoes tend to become less shoe-like. Corrupt and defeatist shoe-plant managers doing perp-walks on the evening news will help, of course, just like it did in Bulgaria. But isn\u2019t the sacrifice worth it? I mean, so you\u2019re neighbor\u2019s keeping an eye on your back yard as part of the Department of Agriculture\u2019s \u201cSee Something, Call SWAT\u201d program. So you have to stand in line for a few hours to buy more purple socks. So what. Don\u2019t you want to show the terrorists that they haven\u2019t won? These colors don\u2019t run! (The socks are another matter).<\/p>\n
When the government gets the entire country on board, there\u2019ll be one little problem. Truth is not one thing in a small matter and another thing in a large matter. Controlled economies break down when they interact with uncontrolled economies. Our controlled economy will break down when it interacts with other countries\u2019 uncontrolled (or differently-controlled) economies. We could climb down from the totalitarian impoverished mess we\u2019ve created. But war is the easier answer. War not only acquires resources and destroys economic competitors, but it also reinforces state control.<\/p>\n
In this election, only one party wants to bring about this future history by generating more unfunded debt to finance more regime instability. That party sells its program to some voters by promising to tax the rich, as though the rich had anywhere near the amount of assets needed to fund the federal government. The party also promises to slash taxes on the rich, as though the rich could generate anywhere near the amount of income needed to fund the federal government. Meanwhile, to paraphrase The Yardbirds, \u201cThe train keeps a-rollin all night long.\u201d<\/p>\n
I\u2019m voting for the other guy.<\/p><\/blockquote>\n
I\u2019m too much of an econ imbecile to comment.\u00a0 But I thought some of you guys might enjoy arguing about this.<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"
Money is a promise of value given in exchange for value received. Like it says on the dollar bill: \u201cThis note is legal tender for all debts, public and private.\u201d The owners of my corner gas station take my $10 because they believe the government\u2019s promise that they can use the $10 for to acquire […]<\/p>\n","protected":false},"author":92,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[8],"class_list":["post-37655","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-mailbag"],"yoast_head":"\n
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