Study finds that the Liberal Policies Like that Favored by President Obama make People Unhappy

Posted by PITHOCRATES - April 8th, 2012

Week in Review

Money can’t buy happiness.  A new study proves it.  For it’s not buying the richest country in the world happiness.  So there is something else apparently that leads to a people’s happiness (see Canada among the happiest countries in the world by Tavia Grant posted 4/2/2012 on The Globe and Mail).

It finds the world has, broadly speaking, become a “little happier” in the past three decades, as living standards have risen. (One exception is the United States, where life satisfaction has not improved).

Interesting.  Life satisfaction in America hasn’t improved.  I wonder why.  And what are the things that make people more satisfied in life.  Here are some of those things according to this study.

•Happier countries tend to be richer ones. But more important for happiness than income are social factors like the strength of social support, the absence of corruption and the degree of personal freedom.

•Unemployment causes as much unhappiness as bereavement or separation. At work, job security and good relationships do more for job satisfaction than high pay and convenient hours.

•Behaving well makes people happier.

•Mental health is the biggest single factor affecting happiness in any country. Yet only a quarter of mentally ill people get treatment for their condition in advanced countries and fewer still in poorer countries.

•Stable family life and enduring marriages are important for the happiness of parents and children.

•In advanced countries, women are happier than men, while the position in poorer countries is mixed.

•Happiness is lowest in middle age.

Liberal Democrats are all for bigger government.  Continuously raising taxes to pay for it.  The federal budget has exploded as a result.  As has the debt.  For despite the vast wealth they’re taxing out of the private sector it isn’t enough.  And as it is anywhere where people manage large piles of money there is corruption.  The bigger the pile the bigger the corruption.  And so it is with government.  Just look at the billions thrown away on pork barrel spending on worthless projects like the Murtha Airport.  This kind of out of control corrupt pork barrel spending makes people unhappy.  Apparently they would be happier with a government that lives responsibly within their means like they have to.  At least, according to this study.

High taxes and onerous regulatory compliance costs are squeezing small business.  Millionaire entrepreneurs of yesteryear say they couldn’t do what they did today.  The explosion in new regulatory law just squashes innovation.  It’s simply too costly and too complicated to go into business.  There are so many laws that it impossible to know them all.  Unless you’re a lawyer.  And lawyers are about the only ones who understand these laws.  Or, at least, understand them enough.  So they can sue any business for violating some obscure law the business owner is unaware of.  And they do this all the time.  It’s legal extortion.  For business owners find it cheaper to settle out of court just to make the lawyers go away.  As a result this active interventionist government pushed by liberal Democrats is a drag on job creation.  Whose answer is more benefits for the unemployed rather than helping the job creators.  This tenuous job environment makes workers feel less secure in their own jobs.  And less happy.  According to this study.

Liberals attack religion and their moralizing.  They attack conservatives and their moralizing.  Liberals instead prefer fewer restraints placed on life.  For who is to say what is right and wrong?  So they favor relaxed drug laws.  Free contraceptives.  Abortion on demand.  And as much consequence-free fun as they can have.  In public places.  And in quiet neighborhoods.  Where property damage is just kids blowing off a little steam.  I mean, who hasn’t done a donut on a neighbor’s lawn because they told them to be quiet at 2 in the morning?  Well it turns out people prefer having quiet church-going people for neighbors.  Who treat people with respect and behave well when in public.  These are the people that make other people happy.  According to this study, at least.

LBJ was a big liberal Democrat.  His Great Society was a bonanza of welfare benefits for the poor.  Especially for single mothers.  The government said to these single moms, “Look, you don’t need a husband in your life.  We will provide for you and your children.  We’ll even provide public housing for you to live in.  So you don’t need a husband.  And your children don’t need a father.  We can be all of that for you.”  Well, the worse place to live was in public housing during the Seventies.  Where crime and drugs use was rampant.  With no stable family structure kids of single parents turned to the street.  And crime.  Taking that behavior into their schools.  Spreading the trouble.  Having the government take over the role of family was like introducing a cancer into a healthy being.  And it spreads still to this day.  The idea that family isn’t important.  And that government can provide.  But more government has only made people less happy.  At least, according to this study.

The policies of liberal Democrats encourage irresponsible behavior.  Consequence-free fun.  They’ve attacked religion and tried to remove it from everyday life.  To the point that people today have very little if any moral compass.  Young women have babies out of wedlock.  Some of these mothers sacrifice everything in a herculean struggle to raise their children.  Working and sacrificing everything for their children.  Even a happy family life with a husband and father that would have made children rearing easier.  Some single mothers are superheroes.  Some are not.  And neither as are happy as a family with two parents providing for and nurturing their children.  And having time to spend with them in their childhood because they’re not working a second or third job.

So this is why America has not improved in the area of life satisfaction.  Because of the extraordinary growth of liberal Democrat policies.  The very things that lead people to be less happy.  At least, according to this new study.


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The Murtha Airport is another Monument to the Folly of Keynesian Stimulus Spending

Posted by PITHOCRATES - April 7th, 2012

Week in Review

Keynesian economists, and the current administration, strongly believe in the power of government stimulus spending.  Keynesian theory is all about the importance of consumer spending.  And everything about Keynesian stimulus should put more money into consumers’ pockets so they can spend money in the private sector economy.   For even the Keynesian will acknowledge that consumer spending in the private sector economy is the only thing that matters for real economic growth.  And anything that helps in this endeavor can and should be done.  Even if it means having the government pay people to dig a ditch.  Then fill it back in.  And then dig it out again.  And so on.  Because those people the government pays to do something completely worthless will take their paychecks and spend them in the private sector.  Thus stimulating the private sector economy.

Of course you can only pay so many people to dig a ditch.  But an airport, now that’s some real government spending (see Murtha Airport, brought to you by American taxpayers by Jonathan Karl, Richard Coolidge & Sherisse Pham posted 4/3/2012 on Yahoo! News).

Three years ago, we first visited the tiny airport, and found a monument to pork barrel spending: An airport with a $7 million air traffic control tower, $14 million hanger, and $18 million runway big enough to land any airplane in North America. For most of the day, the only thing this airport doesn’t have is airplanes.

We flew there on one of three flights that arrive there daily, all of them from Washington D.C. About half the cost of every ticket, $100, is paid by American taxpayers, a subsidy Congress voted to renew just this past February.

The place had a shiny new luggage carousel, a state of the art tower, and some very bored air traffic controllers — but very few passengers. The place is a tribute to the power of its namesake; everything from the reinforced runway to the radar facility to the new terminal, are all thanks to Democratic Congressman John Murtha, who died more than a year.

You see, that’s the problem of paying people to do something worthless.  Building this airport cost a lot of taxpayer money.  Those who built the airport did well.  While they were building the airport.  But now that the work is done that airport is one expensive filled in ditch.  For it’s as useful as a filled in ditch.  But even more costly.  For a filled in ditch at least doesn’t need employees to stand around waiting for something to do.  It doesn’t consume electricity and natural gas utilities.  And it doesn’t have to be maintained.  Unlike a runway.  Even if it’s not being used.

The government went into debt paying for this.  It’s part of the reason the debt ceiling has to be increased so often.  Because of all the John Murtha pork barrel spending out there.  Worse, the airport cannot generate enough revenue to support itself.  And requires government subsidies to keep it open so people can stand around waiting for something to do.  This and all other pork barrel spending adds up to be a terrible drag on the economy as it sucks money out of the private sector (where they don’t build airports where there are no airplanes to use them).  Where the only spending that counts for real economic growth is reduced by the amount of the stimulus taxed out of it.  And servicing the debt created by this stimulus spending further reduces economic activity in the private sector.  As the interest on the debt grows to a larger and larger line item in the U.S. budget.  Forcing the government to borrow money to pay the interest on the money they borrowed previously.

The worst thing about this is that those on the Left, the Keynesians, don’t see a problem in this.  For they have no fundamental understanding of economics and believe their Keynesian follies actually help the economy.  Despite having a failing track record for close to a century.  They believe.  They have faith.  And don’t need to see results.  For their faith is enough.  Yet they won’t stand for the irresponsible ‘spending’ of a tax cut that actually stimulates economic activity in the private sector.  That place where the only spending that counts for real economic growth takes place.  And has a very successful track record of success.  As Harding/Coolidge proved.  As JFK proved.  As Reagan proved.  And as George W. Bush proved.


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FUNDAMENTAL TRUTH #78: “It’s a dishonest politician that sneaks sneaky legislation into a bill.” -Old Pithy

Posted by PITHOCRATES - August 9th, 2011

The Devil is in the Details and the Sneakiness is in the Fine Print

You know what they say.  Buyer beware.  Because they’re out to get you with their sneaky advertising.  Which you need to read closely.  Because the devil is in the details.  And the sneakiness is in the fine print.  That print that no one reads.  Like credit cards that send you those checks. 

They may offer 0% interest for six months when you write yourself a check for $5,000.  Wow.  Sounds great.  But if you don’t pay that off in that 6 month period look out.  Through the miracle of compound interest, that $5,000 debt will grow.  And that growing starts the moment you cash that check.  Because in the fine print the credit card company notes that after the 6-month period they will begin charging interest at 27.24% APR.  Starting on day one of the 6-month period.

People may wonder how credit cards can make any money if they don’t charge interest.  Well that’s the secret of the zero-interest offers.  They don’t expect you to pay it off within in that 6-month period.  And the second that 6-month period ends they book $720.84 of interest income on that $5,000 they loaned you.  That’s a short-term loan that yields 14.42%.  And there ain’t any 6-month investment out there that can match this yield.  But it doesn’t end there.  The yields on the credit card loan will continue to grow.  If you owe that $5,000 for 1 year, that yield rises to 30.91%.  And instead of owing $5,000 you now owe $6,545.59.

A zero-interest offer seems to be good to be true.  That’s because they are too good to be true.  Which you’ll see when you read the fine print.  If you read the fine print.

You have to be Sneaky to get People to Agree to Things that will Hurt Them in the Long Run

Now it’s obvious why they do this.  Be sneaky.  Because they can make a lot of money by doing this.  And the more people that take them up on these zero-interest offers the more money they can make.  So they put the things that would sour most people on using these checks in the fine print.   In hopes few will read it.  And few do.

You see, you have to be sneaky to get people to agree to things that will hurt them in the long run.  You just can’t be honest.  They can’t tell you that this loan will cost you nothing at 11:59 PM on the last day of the 6-month period.  And that it will cost you $720.84 one minute later.  Worse, your minimum monthly payment will jump about $125 as they calculate this loan into your payment.  And compound interest will make that credit card balance swell like a beached whale to the point that you’ll never be able to pay it off. 

You’ll lose sleep as your minimum monthly payments grow.  You’ll struggle to get that balance to go down.  Of course it never will.  And the more those minimum payments grow the less money you have for groceries and gas.  So then you’ll start paying less than the minimum due so you can put food on the table and drive to work.  Then the collection calls start.  It’ll get to the point that your stomach turns every time you hear the phone ring.

So you can see why they put this kind of stuff into the fine print.  I mean, if they advertise that they are going to ruin your life, are you going to use one of those checks?  Probably not.

The Founding Fathers hated Democracy with a Passion

So you really have to be sneaky and devious to get people to voluntarily destroy their lives.  And speaking of politics, politicians are the worst.  For a credit card company may try to get as much money from you as possible.  But that’s just business.  And they don’t swear oaths to protect you.

Thomas Jefferson hated bankers and merchants.  Partly because he was forever in debt.  But mostly because they can buy themselves favors.  And the seller of favors is, of course, government.  Jefferson was a well read man.  He knew history.  And he saw how combining money and government led to bad things.  Corruption.  Patronage.  Privilege.  War.  Money gave government power to do its worse.  And allowed a ruling minority to oppress the people for personal gain.  Now even though America was founded on the principle that all men are created equal, Jefferson knew that money could, and would, change that.  This is one of the reasons why the nation’s capital was located on a swamp a long, long way from the nation’s financial center.  New York.

This is also a reason why the nation is a republic.  And not a democracy.  We have representative government.  Not direct participation.  For the Founding Fathers hated democracy with a passion.  Why?  Because all democracies fail.  Once the people learn they can vote themselves whatever they want.  That’s why the Founding Fathers put enlightened/educated representatives between the treasury and the people.  Who will be rational and logical.  And not give in to base desires.

But the Founding Fathers were a special breed.  Who came along at just the right time and place.  And they created something perfect as far as governments go.  But as they passed from memory, the ways of the Old World became hard to resist. 

You have to let Others Steal from the Treasury if You want to Steal from the Treasury

As the nation grew so did its tax base.  More people meant more tax revenue.  First through import tariffs.  Then the income tax.  And other various taxes.  A little bit of tax from a huge population meant a lot of money for politicians to play with.  And play they did.  With the power to control these vast sums of money, they played God.  Just as Jefferson warned.  Money and government created a ruling minority.  Or a Ruling Class.  Much like the Founding Fathers fought so long and hard to end in the New World.

Of course, people won’t willingly support a Ruling Class that oppresses them.  So they have to be sneaky.  And hide much of what they do from the general public.  By burying it deep in pages of legislation.  Pork barrel spending we call it.  To get a part of the population to support you by promising them free stuff.  Then you honor that pledge by attaching a rider to a bill to house and feed orphans, for example.  When the final bill gets passed into law not only do we house and feed orphans (which everyone supports), but we also shower select constituencies with federal dollars for their help in getting out the vote during the last election (which only those select constituencies support).

Of course you know how this plays out.  If you oppose the excess spending in this bill you hate orphans.  And who wants to be labeled an orphan hater?  Probably not many.  But chances are few will oppose it.  Because to get pork you have to give pork.  You have to let others steal from the treasury if you want to steal from the treasury.  And this is why representatives and senators vote to pass thousand page bills without reading them.  They know they’re full of shameless pork barrel spending.   But as long as they include their pork they don’t care.

Short-Term Gratification with Long-Term Consequences

Politicians are a lot like those credit card companies.  Promising great short-term gratification.  With long-term consequences that will be a bitch.  They both want our money.  The credit card companies want us to go on a spending orgy so they can book fat profits on the interest they charge us.  Politicians just want to go on a spending orgy with our money.

So who’s worse?  The politicians, of course.  They’re supposed to be looking out for us.  Besides, when the credit card companies are screwing us, at least we get to enjoy the ride before the crash.  Taxpayers don’t.  Because their money typically goes to people who don’t pay income taxes.  So they don’t get to enjoy the ride.  They just suffer the crash.


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LESSONS LEARNED #27: “Yes, it’s the economy, but the economy is not JUST monetary policy, stupid.” -Old Pithy

Posted by PITHOCRATES - August 19th, 2010

WHAT GAVE BIRTH to the Federal Reserve System and our current monetary policy?  The Panic of 1907.  Without going into the details, there was a liquidity crisis.  The Knickerbocker Trust tried to corner the market in copper.  But someone else dumped copper on the market which dropped the price.  The trust failed.  Because of the money involved, a lot of banks, too, failed.  Depositors, scared, created bank runs.  As banks failed, the money supply contracted.  Businesses failed.  The stock market crashed (losing 50% of its value).  And all of this happened during an economic recession.

So, in 1913, Congress passed the Federal Reserve Act, creating the Federal Reserve System (the Fed).  This was, basically, a central bank.  It was to be a bank to the banks.  A lender of last resort.  It would inject liquidity into the economy during a liquidity crisis.  Thus ending forever panics like that in 1907.  And making the business cycle (the boom – bust economic cycles) a thing of the past.

The Fed has three basic monetary tools.  How they use these either increases or decreases the money supply.  And increases or decreases interest rates.

They can change reserve requirements for banks.  The more reserves banks must hold the less they can lend.  The less they need to hold the more they can lend.  When they lend more, they increase the money supply.  When they lend less, they decrease the money supply.  The more they lend the easier it is to get a loan.  This decreases interest rates (i.e., lowers the ‘price’ of money).  The less they lend the harder it is to get a loan.  This increases interest rates (i.e., raises the ‘price’ of money). 

The Fed ‘manages’ the money supply and the interest rates in two other ways.  They buy and sell U.S. Treasury securities.  And they adjust the discount rate they charge member banks to borrow from them.  Each of these actions either increases or decreases the money supply and/or raises or lowers interest rates.  The idea is to make money easier to borrow when the economy is slow.  This is supposed to make it easier for businesses to expand production and hire people.  If the economy is overheating and there is a risk of inflation, they take the opposite action.  They make it more difficult to borrow money.  Which increases the cost of doing business.  Which slows the economy.  Lays people off.  Which avoids inflation.

The problem with this is the invisible hand that Adam Smith talked about.  In a laissez-faire economy, no one person or one group controls anything.  Instead, millions upon millions of people interact with each other.  They make millions upon millions of decisions.  These are informed decisions in a free market.  At the heart of each decision is a buyer and a seller.  And they mutually agree in this decision making process.  The buyer pays at least as much as the seller wants.  The seller sells for at least as little as the buyer wants.  If they didn’t, they would not conclude their sales transaction.  When we multiply this basic transaction by the millions upon millions of people in the market place, we arrive at that invisible hand.  Everyone looking out for their own self-interest guides the economy as a whole.  The bad decisions of a few have no affect on the economy as a whole.

Now replace the invisible hand with government and what do you get?  A managed economy.  And that’s what the Fed does.  It manages the economy.  It takes the power of those millions upon millions of decisions and places them into the hands of a very few.  And, there, a few bad decisions can have a devastating impact upon the economy.

TO PAY FOR World War I, Woodrow Wilson and his Progressives heavily taxed the American people.  The war left America with a huge debt.  And in a recession.  During the 1920 election, the Democrats ran on a platform of continued high taxation to pay down the debt.  Andrew Mellon, though, had done a study of the rich in relation to those high taxes.  He found the higher the tax, the more the rich invested outside the country.  Instead of building factories and employing people, they took their money to places less punishing to capital.

Warren G. Harding won the 1920 election.  And he appointed Andrew Mellon his Treasury secretary.  Never since Alexander Hamilton had a Treasury secretary understood capitalism as well.  The Harding administration cut tax rates and the amount of tax money paid by the ‘rich’ more than doubled.  Economic activity flourished.  Businesses expanded and added jobs.  The nation modernized with the latest technologies (electric power and appliances, radio, cars, aviation, etc.).  One of the best economies ever.  Until the Fed got involved.

The Fed looked at this economic activity and saw speculation.  So they contracted the money supply.  This made it hard for business to expand to meet the growing demand.  When money is less readily available, you begin to stockpile what you have.  You add to that pile by selling liquid securities to build a bigger cash cushion to get you through tight monetary times.

Of course, the economy is NOT just monetary policy.  Those businesses were looking at other things the government was doing.  The Smoot-Hartley tariff was in committee.  Across the board tariff increases and import restrictions create uncertainty.  Business does not like uncertainty.  So they increase their liquidity.  To prepare for the worse.  Then the stock market crashed.  Then it got worse. 

It is at this time that the liquidity crisis became critical.  Depositors lost faith.  Bank runs followed.  But there just was not enough money available.  Banks began to fail.  Time for the Fed to step in and take action.  Per the Federal Reserve Act of 1913.  But they did nothing.  For a long while.  Then they took action.  And made matters worse.  They raised interest rates.  In response to England going off the gold standard (to prop up the dollar).  Exactly the wrong thing to do in a deflationary spiral.  This took a bad recession to the Great Depression.  The 1930s would become a lost decade.

When FDR took office, he tried to fix things with some Keynesian spending.  But nothing worked.  High taxes along with high government spending sucked life out of the private sector.  This unprecedented growth in government filled business with uncertainty.  They had no idea what was coming next.  So they hunkered down.  And prepared to weather more bad times.  It took a world war to end the Great Depression.  And only because the government abandoned much of its controls and let business do what they do best.  Pure, unfettered capitalism.  American industry came to life.  It built the war material to first win World War II.  Then it rebuilt the war torn countries after the war.

DURING THE 1980s, in Japan, government was partnering with business.  It was mercantilism at its best.  Japan Inc.  The economy boomed.  And blew great big bubbles.  The Keynesians in America held up the Japanese model as the new direction for America.  An American presidential candidate said we must partner government with business, too.  For only a fool could not see the success of the Japanese example.  Japan was growing rich.  And buying up American landmarks (including Rockefeller Center in New York).  National Lampoon magazine welcomed us to the 90s with a picture of a Japanese CEO at his desk.  He was the CEO of the United States of America, a wholly owned subsidiary of the Honda Motor Company.  The Japanese were taking over the world.  And we were stupid not to follow their lead.

But there was no invisible hand in Japan.  It was the hand of Japan Inc.  It was Japan Inc. that pursued economic policies that it thought best.  Not the millions upon millions of ordinary Japanese citizens.  Well, Japan Inc. thought wrong. 

There was collusion between Japanese businesses.  And collusion between Japanese businesses and government.  And corruption.  This greatly inflated the Japanese stock market.  And those great big bubbles finally burst.  The powerful Japan Inc. of the 1980s that caused fear and trembling was gone.  Replaced by a Japan in a deflationary spiral in the 1990s.  Or, as the Japanese call it, their lost decade.  This once great Asian Tiger was now an older tiger with a bit of a limp.   And the economy limped along for a decade or two.  It was still number 3 in the world, but it wasn’t what it used to be.  You don’t see magazine covers talking about it owning other nations any more.  (In 2010, China took over that #3 spot.  But China is a managed economy.   Will it suffer Japan’s fate?  Time will tell.)

The Japanese monetary authorities tried to fix the economy.  Interest rates were zero for about a decade.  In other words, if you wanted to borrow, it was easy.  And free.  But it didn’t help.  That huge economic expansion wasn’t real.  Business and government, in collusion, inflated and propped it up.  It gave them inflated capacity.  And prices.  And you don’t solve that problem by making it easier for businesses to borrow money to expand capacity and create jobs.  That’s the last thing they need.  What they need to do is to get out of the business of managing business.  Create a business-friendly climate.  Based on free-market principles.  Not mercantilism.  And let that invisible hand work its wonders.

MONETARY POLICY CAN do a lot of things.  Most of them bad.  Because it concentrates far too much power in too few hands.  The consequences of the mistakes of those making policy can be devastating.  And too tempting to those who want to use those powers for political reasons.  As we can see by Keynesian ‘stimulus’ spending that ends up as pork barrel spending.  The empirical data for that spending has shown that it stimulates only those who are in good standing with the powers that be.  Never the economy.

Sound money is important.  The money supply needs to keep pace with economic expansion.  If it doesn’t, a tight money supply will slow or halt economic activity.  But we have to use monetary policy for that purpose only.  We cannot use it to offset bad fiscal policy that is anti-business.  For if the government creates an anti-business environment, no amount of cheap money will encourage risk takers to take risks in a highly risky and uncertain environment.  Decades were lost trying.

No, you don’t stimulate with monetary policy.  You stimulate with fiscal policy.  There is empirical evidence that this works.  The Mellon tax cuts of the Harding administration created nearly a decade of strong economic growth.  The tax cuts of JFK were on pace to create similar growth until his assassination.  LBJ’s policies were in the opposite direction, thus ending the economic recovery of the JFK administration.  Ronald Reagan’s tax cuts produced economic growth through two decades. 

THE EVIDENCE IS there.  If you look at it.  Of course, a good Keynesian won’t.  Because it’s about political power for them.  Always has been.  Always will be.  And we should never forget this.


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FUNDAMENTAL TRUTH #3 “Inflation is just another name for irresponsible government.” -Old Pithy

Posted by PITHOCRATES - March 2nd, 2010

INFLATION CAN BE a complicated thing.  When there’s inflation, prices rise.  But it’s not because evil business owners raise their prices.   It’s because the government made money worth less.  Let’s illustrate this with a simple example.

Let’s use a lotto.  Everyone understands how the lotto works.  Those who have winning tickets win the prize.  If there is only one winning ticket, the winner claims the whole prize.  If there is more than one ticket, the winners split the prize evenly.  The more winners there are the smaller each individual’s prize is.

Let’s say the winning prize is 10 gold bars.  And let’s say there is only one winning ticket.  That one winning ticket is ‘worth’ 10 gold bars.  If there are 2 winning tickets then each ticket is ‘worth’ 5 gold bars.  If there are 5 winning tickets then each ticket is ‘worth’ 2 gold bars.  If there are 10 winning tickets then each ticket is ‘worth’ 1 gold bar.  Etc.

If you have one of the winning tickets, you see the value of that ticket decline as the number of winners increase.  In the example above, your ticket ‘worth’ in gold bars went from 10 to 5 to 2 to 1.  The more winning tickets there are, the less ‘purchasing power’ your winning ticket has.  Substitute ‘money’ for ‘winning tickets’ and you have inflation.

NOW LET’S LOOK at prices.  The ‘price’ for all 10 gold bars is the total number of winning tickets.  In the above example, the ‘price’ in winning tickets increased from 1 to 2 to 5 to 10.  The ‘price’ of those 10 gold bars, then, increased as the number of winning tickets was inflated.

This is why business owners raise their prices during periods of inflation.  Are these business owners greedy?  No more than you.  Let me ask you something.  If you paid $50,000 for a starter home and put it on the market after it appreciated to $75,000, are you going to sell it for $50,000?  Or are you going to be greedy?

All right, let’s say you’re an altruist.  You care about people, not profit.  You sell your home for $50,000.  Now let me ask you something.  Do you know what kind of house you can buy for $50,000?  Probably not like the kind you just sold.  Houses like that now cost around $75,000.

Inflation makes things more costly.  And if costs go up, prices go up.  They have to.  If a business doesn’t cover its costs it will go bankrupt.  As would you.

SO IF INFLATION is bad, why do ‘they’ increase the money supply?  Here’s the short, short answer.  Because ‘they’ like to spend more money than ‘they’ have.  I say ‘they’ because it’s complicated who ‘they’ are.  The Federal Reserve is responsible for monetary policy.  The federal government spends the money.  But don’t sweat the details.  Suffice it to say that ‘they’ are responsible for inflation.  And ‘they’ aren’t business owners.

High taxes have consequences.  Usually at the polls.  So government looks for other ways to raise money.  They can sell debt.  Or simply print money.  Neither says ‘I’ve increased your taxes’.  But they both have the same affect.  The inflation they cause increases your cost of living just as a tax increase would have.  But it’s hard to blame your misery on the government when they weren’t taking (taxing) but giving (pork barrel spending).  Quite the devious bastards, aren’t they?

Not only does the cost of living go up, but the value of your savings decline.  If you saved $10,000 in the bank, inflation will make the purchasing power of that $10,000 worth less.  $10,000 today won’t buy as much as $10,000 did a decade ago. 

This is how inflation destroys wealth.  The flip side is that it also reduces government debt.  At your expense.  If you own government bonds, inflation makes those bonds worth less.  You lose wealth.  Because they’re worth less, it is now cheaper for the government to buy them back from you.  The debt sold a decade ago is ‘cheaper’ to pay off today.

SHORT TERM DEFICIT spending can be beneficial.  If it’s used to cut taxes to stimulate the economy (like JFK and Reagan did).  An increase in economic activity can generate more tax dollars even at a lower tax rate.  This can close the gap in the budget between spending and revenue.  However, if government continues deficit spending only to buy political favor (like FDR and LBJ), there will probably not be a corresponding increase in economic activity.  The gap between spending and revenue will probably not decrease.  In fact, it will probably increase.  And unchecked deficit spending will most probably result in runaway inflation.  Sooner or later.  And you know what the consequences of that can be.  If you don’t, you can ask Jimmy Carter.


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