Home > Uncategorized > Dollars Are No Panacea or Million Dollar(s) Baby

Dollars Are No Panacea or Million Dollar(s) Baby

The pervasive belief amongst mainstream economists today is that pumping in dollars is the only way to save the economy from heading off the proverbial cliff. This logic is illogical. First, dollars are not wealth. If pumping more dollars into the economy generated wealth, then why not give every single individual a million dollar check? Then we would all be millionaires right? In nominal terms yes. In real terms however, no. The amount of dollars in one’s pocket would increase, but the purchasing power (the real measure of one’s wealth) would remain the same. Price levels would increase in proportion to the amount of money given out to each individual. Being worth a million dollars would not mean anything more than before the government handed out its stimulus checks.

If economists are referring to the effect of pumping money into the economy in spurring growth in lending activity, the logic again proves to be quite flawed. Easy money policies look as if they generate positive economic activity. However, as is the result of every government policy, there is what is seen and what is unseen. We see stock prices rise, particularly in given sectors. It looks like every investor is striking it rich. The frenzy in the market reaches euphoric levels and soon everyone rushes in to speculate. Does this scene look familiar?

Yet while this would look comparatively bright relative to the doldrums it appears we are in today, this would all be a mirage. As with all inflationary booms, they are just that, inflationary — nominal but not real. Real growth and real wealth as argued by the Austrian school are generated by savings and capital accumulation. These factors are put to productive use by those with an appetite for risk-taking, an entrepreneurial drive and a spirit of individualism. If the government wants to pave the way for renewed prosperity, it should look for ways to stimulate these three factors, the ones most sorely lacking in our society today.

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Categories: Uncategorized
  1. MrCooperWandling
    December 31, 2008 at 11:26 pm

    seriously andrew. what happened to the spirit of the individual. your observations are always crucially right on the nose. please keep on, and whether or not people finally open up their eyes to the fact that they are born alone, which means they each have his/her own viewpoints, and they each die alone, which means he/she cannot take his/her socialist group with them, i will at least know that there are other individuals out there like myself who understand how a capitalistic democracy is supposed to operate.thank you.

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