The contrast between light and dark in a pine forest, determining which trees and ecosystems survive or flourish, is similar to how governments use or misuse taxpayer resources to determine what programs, often with life-altering consequences, live or die.
About four years ago in March 2022, I wrote a blog called GOVEROSITY! , ie. Government Generosity, with the following excerpt:
“With the passage of the $1.9 trillion American Rescue Plan, the Democrats are helping the hardest hit, most impoverished Americans, recover from the health and economic impacts after one year of the Covid-19 pandemic. Recall the Trump Administration gave about $1.9 trillion mostly to the wealthy people and companies in tax cuts. After Covid hit the United States, Congress and the Trump Administration provided about $2 trillion to help families, airlines, hotels, and other businesses through the Paycheck Protection Plan as reported by CNBC. In December 2020, the government gave out $900 Billion for Covid relief.”
I wrote this blog before passage of the roughly trillion-dollar Inflation Reduction Act in August 2022, designed to accelerate the clean-energy economy, lower prescription drug prices, and reduce the national deficit. Did all these efforts compounded by both Administrations have the unintended consequences of contributing to inflation?
Currently, I’m reading the book Common Sense Economics: What Everyone Should Know About Wealth and Prosperity, updated last year by several professors and published by St. Martin’s Press.
The publication website cites Vernon L. Smith, the 2002 Nobel Prize winner, as stating, "This book provides the ABCs of how the world creates wealth without anyone having to be in charge because of market incentives—people are free to specialize, and by focusing on what they can do best for themselves, do unintended good for the rest of us. There is no other route to human betterment and poverty reduction."
The book authors share data on how consistent money supply keeps prices stable but large increases in the money supply diminishes the value of the currency (e.g. dollar) which results in prices increasing, know as inflation. Between the years 2000-2019, the U.S. money supply grew an average of 6% but in 2020 the money supply spiked by 25%. It takes about a year after large increases in money supply to see inflation so both parties contributed to rising prices but the Democrats took most of the blame as I shared in another blog on the 2024 election.
Common Sense Economics contains four parts describing key elements of economics, economic progress, economics of government, and personal finance. The entire book offered me to challenge my confirmation biases and conventional thinking to look at economic issues from different perspectives. The section on government economics illustrates how a democracy without fiscal restraints to control spending, raise taxes, and balance the budget is unsustainable and cannot survive due to special interest groups and voters acting in their self interests. Can we imagine if the U.S. continues in the same direction the fallout will be needing a bailout from the International Monetary Fund as happened to the Greek economy in 2010 associated with severe austerity programs reducing people’s standard of living?
Common Sense Economics offers many interesting insights and case studies including:
The Industrial Revolution followed by the Transportation-Communication Revolution created and expanded prosperity lead to economic development worldwide.
The World Bank in 2015 stated global trade and lowering trade barriers helped eradicate extreme poverty. Hostility towards trade can have catastrophic results as witnessed in the 1930’s.
Regulatory policies can impose roadblocks against trade and entry into markets that could be counterproductive.
Countries that impose obstacles to exchange, either domestic or international, reduce the ability of their citizens to achieve gains from trade and to enjoy more prosperous lives.
Broken windows fallacy - a boy breaking a window may give a job to the glass company but takes resources away from the owner. Destructive acts, such as tariffs, claiming to create jobs that are considered good for the economy are a fallacy.
We must consider secondary effects and long term consequences in all our actions. To reduce gasoline consumption, fuel efficient mandates might reduce size and weight of vehicles but are less safe and people might drive more than before increasing congestion.
The Agricultural Adjustment Act of 1933 reduced supply of agricultural products to prevent prices falling resulted in destruction of crops and livestock.
Taxpayers and consumers spend about $20 billion annually to support grain, cotton, tobacco, peanut, wool, dairy, sugar and more agriculture programs due to strong lobby groups.
Cash for Clunkers program in 2009 paid dealers about $4,000 to destroy an older vehicle as trade in for new one, resulting in prices increasing, costing taxpayers $3 billion in subsidies and 700,000 used cars were destroyed costing $2 billion.
Competition gives business strong incentives to create better, cheaper, faster products but often businesses resist and lobby against competition and desire monopolies.
Economic freedom results in the demand for a cleaner environmental quality (Goodman Institute).
Wisely invest your time and personal finances through education, skills, budgeting, spending, investing and using insurance to manage risk.