Just Pretend it Works.
A lumberjack chops down a tree, delivers it to a sawmill that cuts it into 2x4’s, which are later sold to Home Depot. A home-remodeler buys the 2x4’s at a price greater than what Home Depot paid the sawmill, who has paid the lumberjack even less. Competitive (not excessive) profit is made at each step, and productive work is rewarded.
All according to the relatively easy-to-understand economics of free markets combined supply and demand.
Now consider my new theory of “opposite economics,” where the lumberjack is paid not to chop down trees, where the sawmill is paid not to cut wood, and Home Depot receives income for not selling anything. I readily acknowledge that this theory makes little sense, and quickly becomes an exercise in complexity combined with the futility of accurately measuring the results. How much should each entity get paid? Where does this wealth come from? Why would anyone work?
(For some related fun, read about the economics of forest preservation carbon credits here).
If my theory is so bad, why has it recently seen so much use? Which somehow of course leads us directly to federal Covid aid.
Click here for the details of how much Congress has spent on Covid aid, and be ready to invest a week of your life understanding it, or instead, just read my super short summary:
There was, of course, a reason for this spending, but that does not change the economic reality, that there has been a whole lot of “opposite economics” at play, and that it led to a massive amount of wealth being reallocated from the whole population to unproductive businesses and workers.
Which created our present day high rate of inflation, which according to the Denver Post, is the top concern of Colorado residents. (Of which I am one).
The Post also noted that: “But not all is doom and gloom on the municipal front. Billions of dollars have flooded into the state from various federal COVID-19 pandemic relief bills — nearly $66 billion to be exact.”
This was, of course, not $66 billion of wealth used to purchase needed products made in Colorado, or to pay for needed labor of skilled Colorado workers. No, for the most part, as in the rest of the country, it was “opposite economics” again, resulting in all sorts of interesting market distortions such as labor shortages, high food prices and a surge in home prices.
While there is some debate as to what classifies as “Covid Relief Spending”, that is what the line items in the above table look like to me. The sum of the middle column is $5.45 trillion, which is about $16,000 per person in the U.S.
Here is my very short description of how Federal Covid Aid worked:
The U.S. government gathered up about $16,000 (a rough estimate) from every person in the U.S. (largely by devaluing the dollar), and then redistributed it via various programs per the yet to be accepted theory of opposite economics.
How do we know they devalued the dollar to gather this wealth? Because the Federal Reserve’s Balance sheet popped from $4 Trillion to $9 Trillion about the same time as the issued treasury debt was monetized into dollars, dramatically increasing the money supply.
Not a coincidence.
Note that the $66 billion that “flooded” into Colorado comes to about $11,300 per person, not that far off from $16,000 per person previously estimated. I think that we all realize that draining a tub and then refilling it does not in itself accomplish much and is certainly not something to celebrate or be overly thankful for. Have the States become too beholden to the Federal Government?
If the wealth were somehow magically returned to those that it was taken from (for example, by strengthening the dollar), we would be back where we started. That did not happen. The wealth was reallocated, in a most opposite, centralized manner.
We will never know how much wealth was lost due to this massive reallocation of wealth per the theory of “opposite economics”. What I do know is that if we are to return to a healthy wealth-producing economy, one that will adequately fund science, one that will provide us with superior healthcare and infrastructure, then we need to stop hoping for Federal Government handouts and return to a free-market driven economy that is a lot easier to understand.