Saturday, December 10, 2011

The Recipe for Government Soup

The way to make America prosperous again is to produce more than we consume. It's that simple. There is no Secret Recipe DF8GVEXEW35G that awaits discovery by some government economist; no production function that will right our economy by adjusting the inflection points and certainly no gimmick from the Federal Reserve Chairman that will fool the market.

We simply have to produce more than we consume. It's what we capitalists call "creating wealth". It's something the current administration has forgotten: Before one can redistribute wealth, wealth must be created. Progressives often forget that simple fact.

Vegetable beef barley soup
Image via Wikipedia

The problem for the Obama Administration is that government cannot create wealth. Individuals create wealth. Government can confiscate the wealth of individuals through taxes and fees, but it cannot make wealth.

Some of you may object and point out that with the assistance of the Federal Reserve System, the federal government prints money. You would be correct; it does print money, but money is not wealth.

Money can do many things such as act as a medium of exchange, and it can even be a tool for storing value, but printing money only reduces the value of each individual piece of money in existence. It does not create wealth. In fact, if you use money as a store of value and the government prints more money, then your money lost value.

Here is an example. If you were to make a bowl of delicious homemade soup from potatoes, tomatoes, carrots, okra, peas, butterbeans, corn, water, salt, pepper and some chicken for flavor (if this doesn't sound good use your own recipe) and wer
e just about to eat it when a starving friend arrived, what could you do? If one bowl of soup was just enough to fill you up, how would you make two? Most people would simply add a bowl of water and reheat the soup, right?

Then you and your friend could each have a bowl of soup, but you would still be hungry because you would receive only half of the nutrition you had planned. Water has no calories, so when you added water you did not add anything to the value to the soup such as more carrots or potatoes, you only increased the volume of soup. This is what happens when government prints more money without individuals creating wealth.

The extra water might fool you into thinking you were full for just a little while, but soon you would be hungry again because you and your friend each received just half of the necessary calories. There would have been no difference if you had simply poured half of your soup into another bowl.

That's how it is with printing money. There is more volume, but no more value is added. The government does nothing to increase the value of money by running a printing press. In fact, one could argue that the actual cost of producing the dollar bills was an expense, so the total value of the money decreased.

Government does have a special name for adding water to the soup, it's called quantitative easing. 
So when you hear quantitative easing, you know it's just watery soup, except for one thing. When the government borrows a bowl of your delicious homemade soup, because of quantitative easing, it will pay you back with watery soup instead. 

What government can do is to create an environment where individuals can create wealth efficiently. Government can do this by providing a stable regulatory system that offers minimal interference with private enterprise.

So, maybe I wasn't totally forthcoming in the beginning when I said there was no Secret Recipe
 DF8GVEXEW35G. The secret recipe is for government to cease its attempts to manipulate and regulate the economy. Then we could get down to the business of making soup - and creating wealth. 

by Ken Carroll

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