Some people asked me about inflation vs. deflation and spending vs. taxes vs. regulations.
This is a deep and important topic.
I'll share a few things I have learned. If you are an economist or you know better, feel free to correct or challenge my ideas.
- In deflation, the price of goods FALL over time. The net effect is that rich people hoard cash, spending as little as possible. Poor people don't have that option so they end up losing all their money. Poor people end up bartering rather than using money, which is a tremendous drain on economic resources.
- In inflation, the price of goods RISE over time. The net effect is that rich and poor alike spend their money right away, as if they wait to purchase something, the price will go up. Jobs are easy to come by, pay well (although not necessarily in accord with inflation). But no one saves, and it is the act of SAVING that creates future/real economic growth.
- Ideally, we'd like the money supply to be constant such that prices neither rise nor fall. Because inflation isn't as bad as deflation, we have always erred on the side of inflation.
- However, thanks to innovation and technology, the actual COST of goods FALLS every year, sometimes dramatically. IE, the iPhone you bought for $500 would've cost billions of dollars to make just a few years ago. Innovation in every sector means it is impossible to really track what the price of goods is or should be, and whether the price is changing due to too much money, too little money, or just plain old innovation.
- The Federal Reserve ostensibly exists to make sure the money supply is managed well. It has failed at this, particularly during the Great Depression, when it intentionally caused DEFLATION by refusing to print money for certain banks that needed it. President Trump has been encouraging banks to lower interest rates because we are in a rapid period of economic growth, and if we're not careful, we may hit a period of deflation, which would be really, really bad.
- This spending bill is a massive waste and a fraud. (Hint: THEY ALL ARE.) The vast majority of the money goes to cronies, which will donate a significant chunk of that money to re-election campaigns. The amount of money you end up getting is virtually worthless, as inflation or whatever will hit and you'll realize that you really can't buy as much with that money as you thought you could. So why is Trump doing it?
- BECAUSE MOST OF ECONOMICS IS BASED ON PERCEPTION, NOT REALITY. If people THINK that prices will fall, they won't buy today. If people THINK that prices will rise, they will hoard. President Trump is trying to restore confidence that the economy will stabilize and you can carry on with your business.
Regarding how to "control" the economy: You can't, and you're better off not trying to. That said, there are three controls you can use, and there may be a very good reason to do so.
- SPENDING. The "Don't Feed the Bears" signs exist in National Parks for a reason. Feeding bears created dependencies and next thing you know, your parks are overrun by bears. The same applies to government. If there's slop in the feeding troughs, the pigs will all show up and eat until it is gone.
- REGULATION. That is, making it illegal to do stuff. "You can't manufacture drugs in China" would be a regulation. This is how we control bad behavior in our markets. "You can't lie about your products." "You cant break your contracts". Etc...
- TAXES/FINES/TARIFFS: This is kind of like a regulation, except it doesn't forbid the activity, it just makes it more expensive. Some people see these mechanisms as a way to raise funds, but the truth is you're only getting like $1 by costing the economy $100, so it's not a very good way to collect revenue. (You could just print money and "tax" everyone with inflation, as an alternative.) But taxes do discourage things, and Trump has been using Tariffs to bring jobs back to the US.
Anyways, most of what you learned about economics on TV and from your communist high school teachers is absolutely false. They've said many, many things that on closer examination don't even hold water.
Thanks for reading this far, and MAGA!
Slight addition. Many if not all of the controls in place today were not in place for the great depression. Margin requirements, proactive interest adjustments, trading circuit breakers, SEC rules, all work to make an orderly market place.
If goods and services are declining in price, (deflation), then all people delay purchasing so they can pay less tomorrow. Supply increases, prices fall and it becomes a economic death spiral.
If goods and services are increasing in price, (inflation), then all people buy now to avoid a higher price tomorrow. As you said, a very gradual inflation keeps things humming along.
I don’t doubt Trump will sign this bill, but it’s relief will be short lived and we will be back at the table asking for more and giving up a little piece to the uniparty every time we do.
I’d like Trump to sign the bill if he must and then go nuclear by “invoking the P” to avoid the cycle from being repeated multiple times as we shutter into out homes like a mentally unstable recluse.
If anyone's wondering, here's how to make our economy work like nothing before:
I estimate that without any sort of taxes, except the punitive kind, our growth would far surpass 10%. We have something like a $20 trillion economy, so 10% of that is $2 trillion, which is plenty of money. That's like a $6,000 check for each person in the US. You can hand it out, or you can buy military supplies, or schools, or fancy artwork, or build a palace for our GEOTUS. Or you can build a mile-high wall from coast to coast on the border.
The thing is, if the economy keeps growing at 10%, then the amount we have to spend also grows by 10% each year. It won't be long -- 7 years or so -- when our budget will have doubled, and 7 more years until it quadruples. If I live 70 more years on planet earth, the budget will have increase by 1000x -- we will be spending QUADRILLIONS to keep inflation from harming our economy, which will be measured in TENS OF QUADRILLIONS.
Of course, if we fully unleash the American drive for greatness, and let people truly do whatever they think is best with their resources, 10% is just the low end of the possible growth we could see. With technology, we can get a LOT higher than that in terms of growth.