||[Jun. 1st, 2010|06:54 pm]
For those interested, Ilion has written a very nice followup to my entry on the proven failure of government stimulus, further distinguishing between wealth and money.|
An especially important point he makes there is about overconsumption - when a society consumes wealth faster than it produces it.
One of the rotten things about the modern economic "wisdom" of the social planners is that in addition to conflating money with actual wealth, it also confuses the spending of money with the production of wealth. You can see this in the way that every time there is an economic downturn in recent years, the government responds by a combination of lowered interest rates and stimulus dollars to "get consumers spending again". Media reports consistently look to retail sales as signs of economic health. According to the Keynesian economics that socialist central planners love, economic downturns are supposedly caused by a "savings glut" - people suddenly saving too much money for no reason instead of spending - and the "cure" is to print lots of government money for "stimulus", thus devaluing their savings through inflation and pressuring them to spend their money before it loses more value.
There's a term for consuming wealth faster than you produce it. It's called "going into debt". When you take out a loan for something, what you are essentially saying is, "I have not yet procured or produced enough wealth to trade for this item that I want. Therefore, I will trade it for a promise to produce or procure more wealth in the future." But as Ilion points out, when the overall society consumes faster than it produces - ie, goes into debt - the end result is poverty - regardless of how much "stimulus" money is printed.
This is what happened with the housing bubble that preceeded the economic collapse. When somebody buys a house for $200,000, and then sells it two years later for $400,000, no net wealth is created. In fact, wealth is *lost*, because the house undergoes wear and tear during those two years. The economic boom of the housing bubble was an illusion. In reality, what was going on during that time was wholesale destruction of wealth. Through government pressure and ridiculously low interest rates, loans were made to people who never should have been given them - people who couldn't produce enough wealth in their entire lifetimes to pay for the houses they were buying - sending them deep into debt. And meanwhile, those who did the responsible thing and saved up money for a house were punished, as the rapidly inflating house prices made their savings more and more paltry by comparison, pressuring them to take out unaffordable loans as well before their savings were devalued even further.
And the end result was poverty. In the end, we couldn't keep consuming more wealth than we produced, with only promises of future wealth in return, indefinitely. We eventually ran out. And yet, even after all that has happened, what is the government doing? Sending itself into further debt in an attempt to "stimulate" the economy. Fannie Mae and Freddy Mac are still in businesses for instance, still creating loans that can't be paid back, and they receive monthly bailouts from the government to keep themselves going. The Fed is keeping interest rates at zero, basically paying banks to make loans to send people further into debt. The government continues to try plan after plan, from Cash for Clunkers to the Home Buyer's Tax Credit, to encourage more consumption. And the way it pays for it all? By sending itself into further debt on the back of the taxpayer. In other words, it is consuming even more wealth now in exchange for the promise that the American people will produce enough to pay it back in the future. Most of the population finally stopped consuming more than they could produce once they were tapped out and the economy crashed, but the government is determined to squeeze out every last drop of blood from us.
The problem of overconsumption is important make, because both left-wingers and many right-wingers fall into the trap of mistaking crazed spending with economic well-being and wealth. But in the end, the government cannot create wealth but only destroy it, no matter what the central planners come up with. The various government attempts to "help" with the economic downturn should best be seen as a jackboot to the head of every American citizen, and the mindless consumerism that their plans are designed to promote only empty you financially and spiritually in the end.