So, it seems to me that the basic money cycle is this: A Consumer ("C") give money to a Manufacturer/Service Provider (M/SP). M/SP gives money to Employees ("E'EE"). E'EE becomes a C and cycle repeats. Our economic strength is a measure of how many cycles per unit time there are.
True?
Step two, "stimulating" the economy is any action that causes more cycles per unit time. Our wealth is based on money cycles and not the number of dollar bills. Dollar bills are just the means of tracking effort or worth. Each transaction represents some work being done by society. (A thing made or a service provided.)
True?
So, during the Great Depression, the Government became a service provider, and therefore started paying E'EEs, who because consumers, who sent money to factors. Stimulation. During WWII the Government because a manufacturer and service provider, same deal. During the 1980's we reduced taxes, and stimulated the economy, presumably because the private sector pump money through faster than the government acting as a service provider.
I'd like to analyze the bailouts starting with this 1 million foot level, but I wanted to solicit comments to find any flaws in my understanding.
5 comments:
Sounds reasonable for an 001 level understanding, which is about my grade. I guess I might ask if all transactions are of equal value (given an equivalent number of dollars). Is a stock purchase equal to a home purchase equal to an import equal to an export equal to a medical procedure equal to a lawyer's fee equal to an infrastructure improvement equal to a tax equal to a loan... etc. etc.
I would venture, totally off the top of my head, that which kind of transactions you see as most important to the health of an economy might be a quick guide to your left/right place on the econ/political spectrum.
There was an article in Harpers last month or so that addressed this very issue. It was critizing our use of the GDP as a measure of economic health noting that a dollar spent on paying a malpractice attorney is rating as equal to one paid to treat an illenss is teh same as one paid to keep someone healthy.
His point: GDP is a crappy measure of economic health.
Shouldn't that be "Econ 101," or more aptly given our history, "Econ A01"?
I am so not an economist -- in fact I never once took an econ class, though I have self-educated a fair amount. So my answer needs to be understood in the context of my ignorance.
While your view is a valid one, my understanding is that cycles are an inadequate sole criterion for economic strength, and some index of production -- creative production as opposed to services -- is also required for a vital economy.
For example, Health Care could not be the sole industry in a hypothetical economy, because it is not creative (generally). You and I can pass dollars back and forth for medical services all day long, but since neither of us is creating any wealth, simply cycling it, that is insufficient to sustain the economy. For this reason, manufacturing (broadly understood to include intellectual products like Google etc) is an obligate part of an economy which is growing.
I admit that I don't fully understand the method by which GDP is measured and how well GDP reflects real economic activity.
Shouldn't that be "Econ 101," or more aptly given our history, "Econ A01"? Well, I meant less than 101. But if I have to explain it . . .
_I_ understood what you meant, Jim!
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