Economic Overload

Economists often muddy the waters and like other social scientists have a tendency to overcomplicate their field with excessive use of terminology and imprecise definitions. For the lay person this can be overwhelming. What follows is a list of realities that will do wonders in removing the veil of confusion and allow you to sail past the various obfuscations.

 Increasing money supply will cause an inflationary spike if it is not met by subsequent supply of goods.

b.      Rent Control leads to housing shortages[1].

c.       Inflation is essentially equivalent to a tax on one’s life savings.

d.      Minimum wage increases are invariably passed on to the consumer which will have negative demand repercussions for non-elastic goods in particular. They can also lead to worker dismissals and a surge in unemployment numbers.

e.       Government payouts incentivize people to not work.

f.       High tax rates are the best driver for the underground economy and don’t necessarily translate into high tax revenues.

g.      Wage increases mean nothing if you ignore the rate of inflation. Only real Wages matter.

h.      Growth rates coming off bottomed out economies will initially be high. However the number is misleading as the base is so low.

i.        There is no such device as a government spending program that will reduce inflation no matter how much we wish to believe that such a program is possible.

j.        Popularly reported unemployment numbers are usually much lower than the real numbers as they often do not include the percentage of the population that has completely dropped out of the work force.

k.      High Inflation is best countered by sharp increases in interest rates but this radical therapy is very rarely carried out as the political consequence of such action are severe in the short run. The end result is that inflation persists for longer than it should.

l.        Governments will never truly control debt so long as the Federal Reserve is free to print money with limited constrains.

m.    Over time the interest on outstanding debt will take up a large proportion of the Federal budget.

n.      There are very few deficit hawks on either side of the political aisle as the inclination for either side to spend is so high. Short term thinking is a trade off of our political system.

o.      The tax code could be very much simplified however there are enough vested interests out there to ensure that it never really is.

p.      Excessive government meddling in the hope of shortening a recession invariably lengthens it.

q.      Student debt forgiveness merely passes on the debt to the entire economy as a whole so that non-students without a choice subsidise the education of others.

r.        Pumping money into an economy that is overregulated will result in stagflation (high inflation and a low growth case).

s.       Economic statistics are out of date as soon as they are published. Using them to plan is a poor substitute for the dynamics of the instant feedback market.

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[1] https://www.washingtonpost.com/opinions/2019/06/15/comeback-rent-control-just-time-make-housing-shortages-worse/