Readers of my blog have often heard me proclaim my faith in basic economics. I still have that faith. At it’s most basic level, here’s what I believe:
- every person on earth wants to improve his or her family’s standard of living
- the more scarce something is (goods, talent, labor), the higher its value
- we obtain things that we want by providing somebody else something they want
- rather than exchanging chickens for gasoline, and labor for nails, we use a “medium of exchange”
Macroeconomics makes sense as long as we have a medium of exchange that we can trade back and forth with each other, and we all agree on its relative value. Here in the United States we use dollars.
Sam’s employer will give him twenty dollars for loading a truck for an hour. Sam will give twenty dollars to the pet store for a bag of dog food. The store will give twenty dollars to the utility company for an hour’s worth of electricity. It works great as long as we all agree on the relative worth of twenty dollars.
Here’s where it gets tricky. Twenty dollars is a piece of paper in your pocket. You can’t eat it. It won’t keep you warm. It has no intrinsic worth at all. There was a time when that piece of paper could be exchanged for gold (a scarce commodity) at our national treasury, but those days are gone. Now a twenty-dollar bill is nothing more than an IOU – a promise to pay.
Unlike you, the government does not create any wealth. It can take IOUs from one person and give them to another person. And if that’s all it did, the economy would still work. But the government now gives out more IOUs than it takes in. It can do that, because it can print IOUs.
Stick with me now.
It should follow that the more IOUs that are out there, the less each one is worth. Supply and demand, right?
If this were not true, NONE OF US WOULD EVER HAVE TO WORK AGAIN. We could just print as many IOUs as it takes to buy whatever we want, just like our government is doing now!
But our government continues to tell us that there is no inflation, they don’t expect inflation, and everything is under control.
You’d have to believe in magic . . .
Tom Balek – Rockin’ On the Right Side
You have to believe we are magic
Nothin’ can stand in our way
You have to believe we are magic
Don’t let your aim ever stray
And if all your hopes survive, destiny will arrive
I’ll bring all your dreams alive, for you
Rockin' On The Right Side 
I agree with the basic philosophic underpinning of this article, that spending too much more than you receive in revenue is a bad idea, but you aren’t really talking about economics. Your topic is how governments should ethically redistribute resources, in other words “how to govern”. The economy itself is affected by governmental actions, but it’s also affected by many factors entirely outside governmental control such as world market demand, and the relative stability of political or economic situations in other nations.
I agree with your point #4 in the summary at the top, but I have some disagreement with each of the others. Not every person on Earth is as focused on raising their standard of living as Americans are, not by a long shot. I’ve been to several other countries where they are quite satisfied with “enough”, having their basic needs met. They have little interest in getting ahead, or buying more “stuff” the way we do.
Scarcity is only one of the determinants of value. Utility and choice trends are others. An item can be “one of a kind”, and it will still have little value unless people actually want it because it’s useful, or the owning of it is in fashion. That’s why the guys on “Pawn Stars” often pass on “completely unique” items like a set of hand-blown glass swords. Nobody wants one. You did address this in your next point, though.
Unfortunately, in addition to trading for what we want by providing what others want, a significant segment of wealth is also gotten by various kinds of unfair competition, deceit and crime (illegal products, tax evasion, regulatory malfeasance etc.) How well a government acts to address these sorts of misbehavior affects the economy.
Finally, about that statement that the government doesn’t create wealth. Of course it does. Through the tax code, government determines what kinds of industrial activities will be the most profitable. Through subsidies, it makes many kinds of occupations and services viable that would not be without them. And regulations directly influence the cost of doing any kind of business, either encouraging or restricting their growth.
I do like that Olivia Newton John song 🙂
Wow! You have obviously given this a LOT of thought!
Mikey, I was trying to simplify a perplexing economic world – break it down to a very tiny chewable chunk, digestible by those who might not have depth in economics, or maybe hadn’t really thought about this at all. I’m trying to say, in “picture words”, that the consequence of printing fiat money is INFLATION. It’s coming. It may be hidden and manipulated now, but that chicken WILL come home to roost!
Thanks for your comment.
You’re welcome, thanks for your reply, I do have an excess of opinion to share (LOL), and I agree with you about inflation.
Bring back the gold standard – the debased Monopoly money we carry will soon be ghost money – in other words we all go electronic. and that means at any point in time a government can take it away with a stroke of a button
You are absolutely right Tom. The day of reckoning will come and it will be a fearsome thing. One thing sorely missing in public schools is education in economics. Maybe we wouldn’t have so many low information voters if the kids actually learned economics in school. Education Lady