[WARNING: This is not a children’s chicken soup story]
EARLY one recent morning, very early, I realized that the “circular river” story perfectly pictures the circulation of money in a free economy. Cast your bread upon the waters and they come back to you! Earlier in American history almost all the water (money) in the river was private sector money (Thomas Jefferson abolished internal federal taxes). The water can be deep (quantity of money) and fast-flowing (velocity of money), but a healthy economy depends on the willingness of consumers and investors to keep putting more money into flow, and that depends on intangible factors such as confidence. Uncertainty is the enemy of a prospering economy. Stability is its friend.
Full employment, like we have (had before the shutdown), and efficient productivity produces lower prices and enables people to buy more things they need, speeding up the velocity of flow. But under a state-controlled economy, the government diverts “water” from the river for use by the state, lowering the water level and the rate of flow. The state may or may not have good intentions, but either way it assumes there is a never-ending supply of water, so it pumps out more and more and keeps a large chunk of it (the money) for ‘shipping and handling” by the bureaucrats.
By 1980, the river was running so shallow and slowly that “the Guy Upstairs” had to step in. We had double-digit unemployment and double-digit inflation, so a B-movie actor was “selected” to save our sorry hides.
During the 1980s, the good Lord provided rain water to increase the flow and quantity of money (the “pie” is not a finite or static amount of money). The question is, in the 1960s and 70s, “What were the ‘socialists’ thinking?”
Perhaps they thought, erroneously, that the economy is like the flywheel on a 1929 John Deere tractor (the more government checks, the more chance of keeping the engine steady through bumps in the road, like slugs of fodder going through the machinery)?
During the Great Depression of the 1930s, the Socialists and Communists touted the USSR’s economy as “steady and equal.” But it was only the misery that was equally spread, and Gorbachev had to pull the plug on the state’s life support system in the 1980s (when WE were doing just great). Surprise, surprise – life began to improve when Russia went back to the old OLD ways (both in economics and religion).
The John Deere flywheel theory of economics was now gone in both the U.S. and the Evil Empire (just as John Deere had tossed out the old flywheel two-cylinder engine years ago and replaced it with something new and improved). In the “Dahlgren School” of economics, the Flywheel school has been replaced by the Circular River school, and we ought to forward this column to every financial adviser and every Econ department in every university in the country.
Seriously, an economics professor at the U. of Wisconsin in 1961 tried to persuade me to stay in school, but I didn’t. Sometimes I feel guilty about that, but the conclusion is:
DON’T PANIC. MORE TO COME!! Hang in there for the long haul. The Donald has replaced the Ronald.
P.S. Karl Marx thought that the industrial revolution had failed, so he wanted to replace freedom with communism. The problem in his thinking was that economics was a relative late-comer as a discipline in Academe. We’ve learned a lot since the 1850s!
PPS: Too many Americans have flunked math and economics or were never taught either one. This is the age of the calculator, and clerks can’t make change in their heads. Some guy on MSNBC said that if Michael Bloomberg had given his $500 million campaign money to “us” we could have gotten 1.5 million apiece.
It occurs to me that under the Communist Party system of economics, all the money of “the rich” would be taken from them and the 1.5 million dollars would be given to the Party bigwigs, not the People. Enough said?