The Spending, Stupid

In 1992, the Bill Clinton campaign team famously directed his ascension to the White House with the slogan “The Economy, Stupid.” Since it is the economy that most often drives middle class electoral tendencies, and the country was mired in one of its many recessions, this dictum cut to the heart of that year’s election. With the exception of the 2000 campaign, economic downturns have resulted in party switches in the White House since that year.

Weakness in the economy has come to be accepted as a component of the free market, a fallacy long persisted by central planners and central bankers alike. Arguments for The Federal Reserve system were made specifically on this point: a need to manage the economy to minimize downturns. What the Fed actually enabled, by design, was a means for the U.S. government to spend an unlimited amount of money on wars, social programs, and pet projects.

The Trump administration recently celebrated changes to the tax code. While any diminution of taxes is welcome by people seeking freedom, the real problem remains government spending. Without cuts to spending, which are rarely championed by conservatives or progressives alike, the U.S. federal government will continue to spend other people’s money, be it through borrowing or inflation by the Fed.

More of that which is Seen and that which is Unseen
We respect your privacy. Et Invisibilium will never sell or share your email address.

Where’s The Mystery?

One of the consistent cries of politicians and progressives alike is the ever increasing wealth gap. The beginning of the current trend is most often attributed to the early 1970’s, yet few of these pundits seem to have a clue why this might be the case. At best, dreaded greed is given credit for the widening gap between rich and poor.

It seems convenient that few of these articles notice anything significant during the early 70’s. Much like Keynes’s “animal spirits,” it would appear that the eighth decade of the twentieth century witnessed mysterious and elusive changes to economic activity which have persisted to the present. Either this, or someone did something of significance in the early 1970’s to which few statists are inclined to refer.

Proponents of state power tend also be opposed to hard money. When the gold standard is raised as a necessary component of a sound economy, proponents of hard money are dismissed as “gold bugs” overcome with a fever for the yellowish metal. As a result, the fact that Richard Nixon closed the gold window in August of 1971 is an inconvenient truth most progressive pundits are unwilling to note when discussing the increasing wealth gap.

When Nixon declared the U.S. would no longer redeem dollars for gold, he released the U.S. government from what little commitment it had toward sound money. Since that time, the Federal Reserve has dramatically increased the money supply, particularly since 2007.

Money created by the Fed flows to the wealthy and connected, increasing their ability to borrow, build their businesses, and build their wealth. The absence of a standard restricting money printing leads to the wealthy getting wealthier. Those not having their wealth supplemented by Fed money printing are losing wealth through inflation. With that being said, no mystery remains regarding the primary causes of the increasing wealth gap.

The Elusiveness Of Value

There are many misconceptions which persist regarding simple economic concepts. Some of the most glaring misconceptions involve understanding value. Many confuse this term with price and most lack any understanding of how value is measured.

The earliest economists struggled with what was termed the paradox of value. In short, this refers to the exchange value of precious items, like diamonds, contrasted with more common things, like water. A diamond will generally exchange for much more than water though it’s usefulness is far less. This paradox remained unanswered until theories were developed concerning marginal utility.

People value things in order relative to other things. When they possess more than one of a given commodity, they value those on the margin less: these things are said to have a lower marginal utility. A person who possesses three apples, for example, might part with one of the three for a dollar. The remaining apples are more valuable to their owner because fewer are then possessed. The owner of the apples might require five dollars to part with the second one. The third apple is consequently the most valuable to them. It is impossible to assign a value to any one of the apples without knowing how many there are, how easy it will be to get additional apples, how the apples might be used, or any number of other factors subjectively evaluated by the owner.

If we look at one of the apples, we still cannot know its value even in exchange. In our example, the first of the three was exchanged for a dollar. However, that dollar was more valuable to the seller than the apple: if the dollar and apple were of equal value, there would be no incentive to exchange. Therefore, the apple’s value is less than one dollar to the seller. It might also have been less than 95 cents to the seller; there is no way to tell unless a negotiation is involved. Regardless, the same question of value exists for the buyer: if the apple were of equal value to the dollar, the buyer would have no incentive to make the exchange. Therefore, the apple is worth less than a dollar to the seller and more than a dollar to the buyer, making its actual value both subjective and elusive.