Stimulus = ?
So it goes… The stimulus stimulates the economy. Really. How? Oh jobs you say. How do new jobs stimulate the economy? Hmmm. Starting to get a little fuzzy? Oh, even though you don’t understand it, you hope it will work. I totally agree….except. Well there’s this one thing. There’s not a possibility for a stimulus package to actually work. Bummer.
Ok, here’s the deal. You have to take away this cloud of confusion that is perpetuated. Most of the time, your common sense is telling you which way is up. Your gut instinct, when hearing of the Bush administration bailing out banks, was that it was not a good thing. The same thing happened when Obama presented his “stimulus” package. You feel inside that there is something non-sensical about it. However, we read the news, or watch tv hoping to find some reason to change our own minds. To “educate” ourselves. Then we can believe in something other than ourselves, “Hey, the government spending money is actually a good thing for the economy.” <— Really? You can’t be serious.
Let’s try a very basic example. Let’s take a table with $10 worth of change on it. Let’s say that $10 is the “economy” of America. Now I can go in and move some money to the left side (private money), and move some to the right side (government). Spending is like taking money from the right, and giving it to the left. (Well, actually in the case of Obama, the money just says it’s going to go to the other side) Taxes are moving money from the left to the right. What about jobs? Well, those jobs don’t do anything for the money on either side. The economy is still only $10. The only way that $10 is going to increase is if we get more money from an oustide source, i.e. if we sold something for profit. (As an aside, if we moved all of the money to the left, then those jobs that were created on the left were used for things that we could sell, then that could actually help the economy.)
Why the stimulus then? Well, 2/3’s of the economy is based on consumption. That means that our “wealth” is created by our “spending”. Wait, what?!! If they can get us to spend our money, then they can sit back while the money is swirling around. That’s pretty much not working anymore. We are broke! The people of America are starting to wake up and save their money. This hurts the amount of money moving around, and businesses will start to go out of business. This = Big Recession. Ouch, that would really hurt our standard of living. When we are in a big recession, the government becomes poorer, and would actually have to shrink. American people in pain + money not going into government = time for a new bubble, or stimulus, or something else stupid. To perpetuate this illusion of wealth through spending. meh.
Why the stimulus part II. Here’s a big secret. Where does the money come from? It can only come from 2 places. Outside, or inside. If outside, then we are bringing in more foreign money (borrowing). This makes our debt obligation bigger, and our actual economy becomes smaller. If inside, then we are just printing and adding money to the supply (inflation). Obviously a dollar created out of nothing just reduces the value of the rest of the dollars. Wait, why would anyone want to reduce the value of dollars? <— Big secret —> If the government can reduce the value of a dollar, then they are basically reducing their commitment to pay us back for our investments. One example, Social Security. Say I should get $50. If the value is lowered, they can still pay me my $50, but it’s actually only worth $40. This is a nice way to reduce benefits for the american people without getting any public backlash.
Alright, I know this is a long post. Let me wrap it up. You. Yes you reading this. You are not dumb. You are hopeful, and you want to believe in something. Here are a couple of humans you can put your trust in… Ron Paul and Peter Schiff. Read. Listen. If something is presented to you as being really complicated…. question it. Peace.
