I didn’t use to understand how stimulus packages worked but I was recently told that stimulus like government expenditure programs work because the money put into the economy magnifies itself. The ratio i was told is 1 to 7. So for every dollar we spend, seven dollars worth of GDP is created for all the economic activity it creates. This explains why billions of dollars easily translates to a sizable portion of USA’s GDP.
but here’s the catch. this ratio is dropping because of technology. A classic example is the iPhone. it used to be we needed a separate device for all of these functions: phone, camera, mp3 player, psp. but now, everything can be done on the iphone. Simply put, technology is now reducing our need for some products/services. And since the iphone itself doesn’t create as many jobs as it destroys, the ratio decreases. And this is a very big problem. It used to be we payed guide books for restaurant recommendations. Now we have yelp.
a) stimulus packages dont’ work anymore
b) if we are destroying more jobs than we are creating, unemployment goes up.
the other thing that bothers me is the large amount of the budget that is used for national defense. the economic value of defense is
inherently a bit problematic. sure, it brought us out of the great depression. government spending on weapons and soldiers brought back the economy. but dropping bombs that can only be used once, having weaponry destroyed by the opposing side does not create any economic value. sure it creates some manufacturing jobs.
but let’s say we put all this money into education. wouldn’t there be a lot more productive economic activity?
and this debt thing. i don’t think our world has seen a longer period of prosperity and i guess there are problems that we now face that we didn’t before. it is too my knowledge that dynasties/governments heavy in debt were overturned by their people. and i supposed that the debt they owed was written off or forgotten. i can name the Qing dynasty, the French Louis’. Since we can’t overturn governments anymore, or well, the IMF and CWB will never let us do stuff like that anymore. so we actually have countries with debts they can’t re-pay.
economics is sort of a zero-sum game for me. jobs gained here means jobs lost somewhere else. the only economic growth i think is
population. More population, produce more. i think all reasons for growth boil back down to this one. Let’s say everyone in the world is entitled to a specific amount of money and economics is basically the game we play to move this money and distribute it. Hence, my belief that economics is a zero-sum game. And the way you win this game is
through economic policies.
last thing, the importance of inflation. every economy needs inflation, low inflation is desirable. the reason for this is
psychological. inflation means that the price of everything goes up. you don’t want inflation to be too high because old people don’t make any more money. if inflation is too high, then what they saved up will be less than what they expected which then causes strain on the government anyway. but we also can’t have the opposite of inflation: deflation which is even more horrifying. when deflation happens, the scary psychological effect kicks in. it’s because when people realize that there’s no point working since things are going to get cheaper and cheaper anyway. so the whole economy just collapses, which is how the Great
part of economics is just confidence. somehow WWII gave Americans confidence that the economy was going to do better, then everything
just went up form there.
i really like this kind of stuff, thought economics i call it. it’s not real economics, as in no math, just sort of bullshit talk that you think of when you take long poops.