Economic theory is not that complicated. I am a half smart, semi-self educated Georgia redneck, but I have a pretty good grasp of how the economy is supposed to work.
The economy has only one purpose: to help us exchange the goods and services we produce for the goods and services we need. Money is the tool we use to make the exchange. It is as simple as that. Where we get into trouble is when people start trying to collect money for which they have not created exchangeable goods and services.
Let us say that you are a farmer who grew a good crop of corn. You have a daughter who needs new shoes. You take some of your corn to the market and sell it for cash. Then you take the cash to the shoe store and buy shoes for your daughter. That is how it is supposed to work.
But then the government demands a portion of your corn for taxes. Big oil takes a pile of corn for the gasoline to haul it to the market. And big banks take another pile for providing the money for the transaction. Soon, a major part of your corn is gone and you receive nothing of value for it. As a result, you were not able to buy that $100 pair of shoes you daughter wanted. She had to take a pair from the discount store.
Now, let’s talk about the money. One of the laws of economics is that the value of all goods and services will always be equal to the amount of money available to spend on them. Thus, if either side changes, it will change the other side. If suddenly, the supply of money is greatly increased, the price of available goods and services will increase until the two come back into balance.
For example, Congressman Ron Paul said in a TV interview the other day that the massive stimulus package before Congress will increase the money supply by 70 percent. But as it is currently structured, the supply of goods and services will increase very little if any at all. If that happens, the price of the things you buy will skyrocket.
Rather than solving our economic problems, the stimulus will create new problems in the form of massive inflation. That will be a severe problem for those of us trying to live on a fixed income, like retirement plans or Social Security.
Government tax and spend programs, and the greed of massive corporations are the problem. And the solution is to reduce taxes, cut out unnecessary government spending, and break up the massive corporations, especially the big financial institutions. That is exactly opposite of what is being done.
I think we are in for very hard times. I hope I am wrong, but hope will not solve the problem.
Frank Gillispie is founder of The Madison County Journal. His e-mail address is email@example.com. His website can be accessed at http://frankgillispie.tripod.com/
01/31/09 at 03:05 PM
You are so right Mr. Gillispie!!! With the constant reduction in manufacturing capacity to survive the current downturn, when demand does return (which it will because eventually everthing wears out), demand will greatly outsrtip supply. Them I am affraid there will be a very painful period of inflation, perhaps hyper-inflation. And most of that can be blamed on the current flooding of the system with cash. More money than anyone will be able to dry up quickly enough. Good aticle Frank!!!
02/03/09 at 11:17 PM
Let's all hope that this massive spending bill that is being marketed as an "economic stimulus package" dies a much deserved death.
Lenton Tony Ganey
02/13/09 at 06:38 PM
Herbert Hoover decided that the best solution was not to
have any goverment intervention and to depend on the
conservative private sector to make the right decisions.
duh, didn't work then and want work now, the stimulus
package may not be the answer, however some direct
goverment intervention needs to be done and quick. The
not tax and spend program of W and spending $275 million
dollars a day on a war and gasoline for $4.25 a gallon
plus the subprime mortgages, throw credit cards and the
unbridled greed of corporate America and you have a recipe