Wednesday, January 28, 2009

Another Sisyphean Gesture

Whoa! That was extremely fast! In less than a few days Obama managed to get his $819 economic stimulus passed.

To predict the obvious future, this bill is not going to do a thing to the economy except make it worse. This is because of the way they will be getting the money to spend: By printing it. To be more economically clear, this is bad because the United States uses fiat money, i.e. money that isn't backed up by any valuable commodity (previously we used the standard of gold). Every single dollar bill's value is *entirely* relative to every other dollar bill. Print more money and monetary value goes down; destroy it and it goes up. Even more concrete: If the money supply were to double, everyone's sum of money would be halved in value, prices would double, which would leave the American people with the exact same amount of value as they started with before, and thus accomplishes nothing.

The worst part is that this is all something that can be deducted using only *common sense*.
More likely than not, as Thomas Sowell pointed out, this rushed economic stimulus is a power grab for politicians during a time people are too scared to object.

How this is going to damage the economy is via distortion; businesses will have a harder time making long range plans due to monetary instability and because the value of a service/product is not properly represented by its monetary price.

For example, in Zimbabwe there is hyperinflation which has caused so much as a loaf of bread to cost millions of dollars (not exaggerating!). If we were to deduce a loaf of bread's value using the gold standard, it would certainly only amount to a few dollars, maybe less. Given that in Zimbabwe the monetary prices are a far cry from their true value, how are businesses to decide what would be a valuable range of action?

At this point there is no way to stop this money from being spent.
The best we can do is prepare for the consequences that shall follow and reap the lesson that *the government caused this problem to begin with*. Those who do not remember history are doomed to repeat it.
Here's another absurdity:

Obama has been president for eight days. The economic stimulus bill is over 1500 pages long. Does anyone really think that the politicians have read carefully the entirety of this document and have comprehended it? Aside from the politicians aiming for a power grab, we have some running around trying to makes things better while at the same time not taking the time to actually sit and think as to what would be the right course of action. Not a terribly productive methodology.
On the bright side, republicans have opposed the bill entirely. They said that it entails too much wasteful spending (anything outside a government's proper function is necessarily wasteful spending) and that more tax cuts are needed (they provided a substitute bill that composed almost entirely of tax cuts, but was voted against). It will benefit them politically in the future, but hopefully they can ground their objections in principles and morality next time. Hopefully.

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